DALLAS — Oilfield services conglomerate Halliburton Co. said yesterday it will pursue a tax-free spinoff of its engineering and construction unit Kellogg, Brown & Root, the largest U.S. contractor in Iraq, rather than the previously announced initial public offering.

The Houston company plans to complete the separation within the next six to nine months, saying the environment isn't as favorable as it was when the IPO plans were announced in January. "We remain committed to a full and complete separation of KBR from Halliburton," President and CEO Dave Lesar said in a conference call reviewing the company's second-quarter results, which disappointed Wall Street and sent the company's shares lower yesterday.

Kurt Hallead, analyst with RBC Capital Markets, said learning the time frame helps investors as they look ahead, especially as the IPO had been expected to be complete by the third quarter. "At least this gives us some certainty and clarity, something that didn't exist before," Hallead said.

The company said an IPO still might be the first option, but Halliburton doesn't want to delay the KBR separation longer than necessary.

"If we see market conditions as favorable, we would proceed with a spinoff, but perhaps do an IPO first," Lesar said. "But the IPO is not a necessary first step any longer."

Either way, analysts favor a separation. "The market will value them more appropriately as two separate entities," said Jeff Tillery, analyst with Pickering Energy Partners. "It's not like they need an IPO because they are flush with cash."

KBR has generated controversy over how it has become the largest U.S. contractor in Iraq. Since the U.S.-led war in Iraq began, KBR has been awarded more than $10 billion in contracts, including some that were no-bid. Allegations of fraud, poor work, overpricing and other abuse emerged, all of which the company has denied and deemed politically motivated.

Earlier this month, the Army announced it will re-bid the multibillion-dollar contract under which KBR has been providing services to troops worldwide after years of complaints over how the deal has worked in Iraq. KBR now provides food, water, shelter, laundry service and other logistical support for troops under a 2001 contract that has been extended several times.

On Thursday, Halliburton reported that KBR's second-quarter operating income was $68 million, a drop of $4 million, or 6 percent, from the same period a year ago. KBR revenue was $2.4 billion, a decline of $73 million, or 3 percent, from the second quarter of 2005.