Halliburton Co. (HAL), embroiled in controversy over its work for the U.S. government in Iraq, on Friday posted a quarterly loss due to charges from a troubled Brazilian oil project and asbestos litigation.

The world's No. 2 oil field services company, formerly headed by Vice President Dick Cheney (search ), said the charges offset gains from robust oil exploration and production activity around the globe.

The Houston-based company posted a second-quarter net loss of $663 million, or $1.51 per share, compared with net income of $26 million, or 6 cents a share, a year earlier.

The loss included a charge of $609 million, or $1.39 a share, related to lower-than-expected insurance recoveries to help fund a proposed settlement of asbestos and silica class-action litigation.

Problems related to the troubled Barracuda-Caratinga deep-water oil project in Brazil subtracted another $200 million in charges, or 46 cents per share.

Excluding the asbestos-related and Brazil charges, the company posted a profit of 34 cents a share, a penny better than the average forecast of analysts polled by Reuters Estimates.

Halliburton shares were off 28 cents at $30.76 in afternoon trade on the New York Stock Exchange.

Shares of rival Schlumberger Ltd. (SLB) were off 74 cents at $63.52. Schlumberger, the industry leader, on Friday reported quarterly profit tripled to $365 million.

Halliburton's shares have risen 17 percent since the beginning of the year but remain undervalued compared to Schlumberger and Baker Hughes (BHI ), analysts said.

That disparity is due largely to criticism of the work in Iraq by Halliburton's KBR (search ) unit, as well as that unit's asbestos liabilities.

Company watchers say Halliburton would benefit from splitting off KBR. Along with another Halliburton unit, DII Industries, KBR is in bankruptcy proceedings in a bid to speed the asbestos settlement process.

"We think there's some hidden value, (especially) if they can separate these two businesses," said Kevin Wood, an analyst with Susquehanna Financial Group.

A bankruptcy judge last week approved reorganization plans for KBR and DII, which could pave the way for them to emerge from bankruptcy near the end of the year.

Halliburton's second-quarter revenue rose 38 percent from a year earlier to $5.0 billion. Iraq-related work contributed $1.7 billion in revenue but added just $23 million to operating income.

The U.S. Justice Department is investigating a possible $61 million in fuel-delivery overcharges by KBR, and the military has withheld hundreds of millions of dollars in payments for meal services while it reviews the company's bills.

Halliburton's primary business, oil field services, reported higher operating income in all segments in the second quarter. Revenue rose 7 percent to $1.9 billion and operating income rose 15 percent to $271 million.

KBR revenue rose 68 percent to $3.1 billion, driven by Middle East contract work. The division posted a $277 million loss, reflecting a $310 million loss on the Brazil project.

Halliburton said KBR's backlog of work was $8.8 billion at the end of June, up $400 million during the quarter, mostly due to its logistical support contract work.

Halliburton on Friday named Andrew Lane, 45, as president and chief executive officer of KBR. He succeeds Randy Harl, 53, who will become KBR chairman. Lane was senior vice president of Halliburton Energy Services Group's regional organization and previously was president and CEO of Landmark Graphics.