Halliburton collected $100,000 a day for a pipeline it never built

Halliburton collected $100,000 a day for a pipeline it never built
original
April 25, 2006
Rebuilding of Iraqi Pipeline as Disaster Waiting to Happen
By JAMES GLANZ

When Robert Sanders was sent by the Army to inspect the construction work an American company was doing on the banks of the Tigris River, 130 miles north of Baghdad, he expected to see workers drilling holes beneath the riverbed to restore a crucial set of large oil pipelines, which had been bombed during the invasion of Iraq.What he found instead that day in July 2004 looked like some gargantuan heart-bypass operation gone nightmarishly bad. A crew had bulldozed a 300-foot-long trench along a giant drill bit in their desperate attempt to yank it loose from the riverbed. A supervisor later told him that the project's crews knew that drilling the holes was not possible, but that they had been instructed by the company in charge of the project to continue anyway.

A few weeks later, after the project had burned up all of the $75.7 million allocated to it, the work came to a halt.

The project, called the Fatah pipeline crossing, had been a critical element of a $2.4 billion no-bid reconstruction contract that a Halliburton subsidiary had won from the Army in 2003. The spot where about 15 pipelines crossed the Tigris had been the main link between Iraq's rich northern oil fields and the export terminals and refineries that could generate much-needed gasoline, heating fuel and revenue for Iraqis.

For all those reasons, the project's demise would seriously damage the American-led effort to restore Iraq's oil system and enable the country to pay for its own reconstruction. Exactly what portion of Iraq's lost oil revenue can be attributed to one failed project, no matter how critical, is impossible to calculate. But the pipeline at Al Fatah has a wider significance as a metaphor for the entire $45 billion rebuilding effort in Iraq. Although the failures of that effort are routinely attributed to insurgent attacks, an examination of this project shows that troubled decision-making and execution have played equally important roles.

The Fatah project went ahead despite warnings from experts that it could not succeed because the underground terrain was shattered and unstable.

It continued chewing up astonishing amounts of cash when the predicted problems bogged the work down, with a contract that allowed crews to charge as much as $100,000 a day as they waited on standby.

The company in charge engaged in what some American officials saw as a self-serving attempt to limit communications with the government until all the money was gone.

And until Mr. Sanders went to Al Fatah, the Army Corps of Engineers, which administered the project, allowed the show to go on for months, even as individual Corps officials said they repeatedly voiced doubts about its chances of success.

The Halliburton subsidiary, KBR, formerly Kellogg Brown & Root, had commissioned a geotechnical report that warned in August 2003 that it would be courting disaster to drill without extensive underground tests.

"No driller in his right mind would have gone ahead," said Mr. Sanders, a geologist who came across the report when he arrived at the site.

KBR defended its performance on the project, and said that the information in the geotechnical report was too general to serve as a warning.

Still, interviews by The New York Times reveal that at least two other technical experts, including the northern project manager for the Army Corps, warned that the effort would fail if carried out as designed. None of the dozen or so American government and military officials contacted by The Times remembered being told of the geotechnical report, and the company pressed ahead.

Once the project started going bad, senior American officials said, an array of management failures by both KBR and the Corps allowed it to continue. First, some of those officials said, they seldom received status reports from the company, even when they suspected problems and made direct requests.

"Typically when you manage a project, you have people who can tell you that you've got so much of your project finished and this much money that has been spent," said Gary Vogler, a senior American official in the Iraqi Oil Ministry. "We couldn't get anything like that."

Some warnings did in fact make their way to senior officials who could have stopped the project, said Donna Street, a Corps engineer who examined correspondence on the project after it failed. But neither the Corps nor the company seemed to act on them, Ms. Street said.

"It seems to me that there was pretty much an absence of anything," she said. "The reports went out. The questions were asked. But there was just no response."

An independent United States office, The Special Inspector General for Iraq Reconstruction, began an investigation of the project and issued a report earlier this year. It sharply criticized KBR for not relaying the problems, and concluded that "the geological complexities that caused the project to fail were not only foreseeable but predicted."

The company received a slap on the wrist when it got only about 4 percent of its potential bonus fees on the job order that contained the contract; there was no other financial penalty.

In interviews, two of the top Army Corps commanders who have had involvement at Al Fatah were reluctant to criticize the work done by KBR in Iraq. That was also the case in February when the Army Corps agreed to pay Halliburton most of its fees on a large fuel supply contract in Iraq, even though Pentagon auditors had found more than $200 million of the charges were questionable.

Congressional Democrats have accused Halliburton of enjoying special privileges because Vice President Dick Cheney was its chief executive before he became vice president.

Although independent experts have noted that it is one of a handful of companies with the experience and size to handle enormous jobs like the reconstruction effort, KBR is often sheltered by a military that is heavily dependent on it.

Through a spokeswoman, Melissa Norcross, KBR rejected the criticisms leveled at it in the Fatah pipeline case by the inspector general and other officials, saying that the company had responded properly to an urgent request by the United States government to build the crossing quickly in a dangerous area.

Ms. Norcross asserted in a written response to questions that the geotechnical report was too general to suggest any measures but extensive ground testing, which would have required sophisticated equipment. "Such equipment was not available in the region, and certainly not in Iraq," she said.

She said statements that the company did not report regularly about the project are "completely without merit" and that daily and monthly reports were duly filed. Ms. Norcross said that when serious problems arose, "the Corps directed KBR to continue" with the drilling.

With the failed effort at Al Fatah, the inspector general estimated lost money from crude oil exports at as much as $5 million a day. The United States was forced to issue a new $66 million job order that includes another attempt to run pipelines across the Tigris — this time using a different technique.

Stunned by a Change in Plans

On April 3, 2003, invading American troops had reached the outskirts of Baghdad and were eyeing its smoking skyline. A naval aircraft dropped a single bomb on the Fatah crossing.

Gen. T. Michael Moseley, the Air Force chief of staff who was the allied air commander, said that bridges were not generally targets in the war, but that he approved the Fatah strike to stop the enemy from crossing the bridge on which the original pipelines had run through openings beneath the road.

The pipelines had carried crude oil from the fields around Kirkuk, 60 miles to the northeast, crossed the Tigris at Al Fatah and transported the crude to refineries or to export terminals in Turkey.

Still, there was reason for optimism. The Fatah bridge was one of three bridges chosen as high priorities in an initial $680 million rebuilding program mandated by Congress. Army Corps engineers estimated that it would cost some $5 million and take less than five months to string the pipelines across the bridge once it was repaired.

"There is an urgent and compelling need to accomplish this feat as soon as possible," Douglas Lee Cox, the northern Iraq project manager for the Army Corps, wrote in a memo on June 9, 2003.

Then, as quickly as the bridge project had been approved, it was dropped with little explanation, in favor of a bridge in Tikrit. Older buried pipelines were able to carry limited amounts of oil, American officials said, but breakdowns were a constant worry.

Army Corps officials were stunned. Without the Fatah bridge, they were forced to consider new ways of putting pipelines across the river. They debated options like digging a huge trench in the riverbed and laying the pipelines in it — the option that would later be chosen after the KBR project failed.

KBR ultimately settled on trying to put the pipelines under the Tigris using a technique called directional drilling, in which nearly horizontal holes are bored out in an arc through the riverbed. In a written response to questions, the company said it chose the technique because it was the only one that could be used to complete the project as quickly as the Army Corps had demanded.

Mr. Cox said he had not even been consulted. Gary Loew, another senior Corps official in Iraq at the time, remembers that the idea for drilling came from KBR and said that the Corps approved it verbally in the summer of 2003.

Mr. Cox, who was familiar with the technique from his own work in Texas, knew that with the heavy equipment and supplies needed for the job, his colleagues' claims that Fatah could be finished in 60 to 90 days were nonsense, particularly with the deteriorating security on the road from Kirkuk, where the supply planes would land.

"I said, 'Now how in the heck do you think you're going to do directional drilling with the situation we have here?' " Mr. Cox recalled, adding that he had told KBR officials, "It takes us forever to get enough security to drive down this road, and that's at 70 miles an hour."

That same month, a KBR pipeline expert saw a preliminary design and advised the company "that the project would probably fail," according to the inspector general report.

The most blatant warning came from the study that KBR had commissioned from Fugro South, a geotechnical firm. The study stated repeatedly that the project should not begin without extensive field exploration and laboratory testing of the area.

KBR went ahead with the work without sharing the report with senior oil officials in Iraq. Nor did it carry out the testing that the report strongly recommended.

The report had cited "past tectonic activities near the site." The words, suggesting slippage of the earth's crust in eons past, would prove prophetic.

Troubles From the Start

The Fugro report did have one important consequence.

KBR included it in a "request for proposals" to drilling subcontractors — along with contradictory information from KBR suggesting that the ground was made of ordinary clays, silts and sandstones, the inspector general report found.

Faced with that contradictory information, the subcontractor that won the bid negotiated a contract that required it only to try drilling holes on a daily basis — not necessarily succeed.

"There was no requirement that the subcontractor complete any holes," the inspector general wrote.

Ms. Norcross, the KBR spokeswoman, said that no subcontractor would have been "willing to mobilize equipment and personnel to an unstable war zone" if the contract had been written more stringently.

An official in the inspector general's office saw it differently. "It was a horrible contract," the official said. "It's basically, 'Give it your best shot, spend six months doing it.' "

In late January, 2004, drilling began. The plan called for boreholes to accommodate 15 pipelines, which would arc beneath the Tigris at shallow angles. Troubles turned up instantly. Every time workers plied the riverbed with their drills, they found it was like sticking their fingers into a jar of marbles: each time they pulled the drills out, the boulders would either shift and erase the larger holes or snap off the bits.

The area had turned out to be a fault zone, where two great pieces of the earth's crust had shifted and torn the underground terrain into jagged boulders, voids, cobblestones and gravel. It was just the kind of "tectonic" shift that the Fugro report had warned of — hardly the smooth clays and sandstones that KBR had suggested the drillers would find.

The crew abandoned the first borehole and started a second, the inspector general reported. Twenty-six days later, the borehole went through. But the crews found it impossible to enlarge the hole enough for a 30-inch pipe to pass through. By the end of March, five months after arriving in Iraq, they managed to jam a 26-inch pipe through.

The crews would never again get anything larger than that across the riverbed. To make matters worse, the project suffered from constant equipment shortages, just as Mr. Cox, the Army Corps project manager, had predicted.

If KBR had declined to write performance clauses into the drill subcontract, the company had also included language that prevented the crews from speaking directly with the Army Corps, let alone passing along word that some of them knew that the effort was futile.

The company "restricted subcontractor communications by requiring all communications be addressed to them," the inspector general found.

Mr. Vogler, the senior Oil Ministry official, said he began hearing rumors from Iraqis in the ministry in Baghdad that something had gone terribly wrong, but the company itself seemed determined not to clarify what had happened. "We couldn't get a good status report," Mr. Vogler said.

"We kept asking for it," he said. "We couldn't get one."

Still, a trickle of information found its way through the command structure of the Army Corps. Ms. Norcross of KBR said that in April 2004, the company notified a contracting officer in Baghdad that 75 percent of the $220 million allocated for the job order had been exhausted.

By then the insurgency had worsened, and the camp suffered regular attacks. The threat became so severe that drilling was temporarily suspended "while KBR and the Army Corps of Engineers worked to address the lack of adequate force protection," Ms. Norcross said.

After security concerns were addressed, the work at Al Fatah resumed and so did problems with the drilling. Troubling reports from KBR officials at the site eventually reached higher in the Army Corps, but there was little reaction.

J. Michael Stinson, an American who took over as senior oil adviser to the Oil Ministry in March, said not all of the blame for the project lies with the company.

"I don't know that the Corps covered itself with glory either," Mr. Stinson said. "The engineers, the managers, probably should have said: 'Time out. Let's send a bunch of people home. Let's find out if this is going to work.' "

'Culpable Negligence'

Finally, in early July 2004, some eight months after the project began, the Army Corps sent Mr. Sanders to Al Fatah.

A geologist with a Ph.D. from the University of Oklahoma and a former oilman, the blunt-spoken Mr. Sanders, now 68, said he joined the Army Corps when he grew bored with retirement. One of the first documents he found at the site was the Fugro report, and it set off alarm bells.

"You just don't see a consultant's report like that that is totally dismissed," he said.

"That put them on notice," Mr. Sanders said. "When they didn't take that notice, they accepted what I would call culpable negligence."

KBR maintains that the report did not contain enough detailed information to raise questions about the project.

But Mr. Sanders said drill supervisors at the site, the kind of workers he liked to call "tool pushers," had indicated otherwise.

Hoping to start a conversation with them during his visit, Mr. Sanders said the geology around the area looked as if it could be tough on a drilling operation. The men did not hesitate. "They agreed that it was just the wrong place for horizontal drilling," Mr. Sanders said. "They didn't see any probability of getting one of the big holes done."

But he said they had been told to keep drilling — pushing their tools, anyway. Of course, by giving Mr. Sanders any information, they had probably violated their contract with KBR.

Mr. Sanders, outraged by the poor quality of the work and what he described as the indifference of the Army Corps to it, contacted the inspector general. "Everything I could see out of it was being swept under the rug," he said.

But it was already too late. One morning at about the time of his visits, American officials in the Oil Ministry in Baghdad finally obtained a status report from KBR.

All the money had been spent.

Col. Emmett H. Du Bose Jr., who in December 2003 assumed command of the task force of the Corps in charge of the project, said other items in the $220 million job order, like putting emergency power generators at oil installations, did get done.

KBR provided him with optimistic assessments nearly to the end of the line, Colonel Du Bose said in a telephone interview, and he was convinced that the project would be a success. But he said that he was not sure who, if anyone, might have seen the contradictory information in the Fugro report.

"In hindsight, knowing what I know today, I would have probably said we need more geology information before we start drilling those holes," Colonel Du Bose said.

The new Al Fatah project is being carried out by a joint venture involving Parsons Corporation and the Australian company Worley, said Col. Richard B. Jenkins, commander of the Gulf Region Division-North for the Army Corps, in a telephone interview from Iraq.

The work relies on a less risky method in which the pipelines are laid down in a trench dug into the river bottom and encased in concrete. Colonel Jenkins said that Al Fatah was now "essentially a completed project."

But as of last week, an official at Iraq's State-owned North Oil Company said, oil was still not flowing at Al Fatah.

Eric Schmitt contributed reporting from Washington for this article, and an Iraqi employee of The New York Times from Kirkuk, Iraq.