Nov. 16 (Bloomberg) -- Shares of KBR Inc., the largest U.S. military contractor in Iraq, surged 22 percent in their first day of trading.

The stock jumped $3.75, or 22 percent, to $20.75. Oilfield- services provider Halliburton Co., parent of KBR, yesterday began the process of shedding the unit by selling shares of the contractor at $17 each in an initial public offering that raised $473.3 million.

KBR, a builder of refineries, chemicals plants and liquefied-natural-gas terminals, may benefit as soaring energy prices spur construction of new energy infrastructure to meet rising demand.

``The big growth is going to be in the energy and chemicals business,'' said Kurt Hallead, an analyst at RBC Capital Markets in Austin, Texas, who rates Halliburton shares at ``outperform'' and doesn't own any. ``They are one of the top two players in that business, and I think that's going to be a key driver.''

KBR also provides military support services, including meals, housing, fuel transport and mail delivery. That business has prompted investigations, with some Democrats in Congress alleging the company gets special treatment because U.S. Vice President Dick Cheney is a former chief executive officer of Halliburton.

Shedding KBR

The initial public offering marks a step toward Halliburton extricating itself from KBR. David Lesar, who succeeded Cheney as CEO, has said KBR is a drag on Halliburton's share price and profits. Lesar plans to spin off his company's remaining 83 percent stake in KBR to shareholders by late April.

Shares of Halliburton, the world's second-biggest oilfield- services company, fell $1.04, or 3.1 percent, to $32.51. Before today, the stock had climbed 5.5 percent this week.

Energy projects such as gas-import terminals and oil refineries will attract significant investment in the coming years, providing opportunities for KBR, said David Rewcastle, an analyst at Argus Research Corp. in New York who rates Halliburton shares at ``buy'' and doesn't own any.

``KBR isn't making the stellar margins that Halliburton is, but they're going to be making refineries,'' he said. ``That's going to be going gangbusters for the next decade or so.''

Marathon Oil Corp. this month said it will go through with a $3.2 billion expansion of its Garyville, Louisiana, refinery. Valero Energy Corp. is reportedly considering an expansion at its Port Arthur, Texas, plant before even completing a current project there.

`Sickeningly Cheap'

KBR shares sold at the top of the $15-to-$17 range predicted in the company's prospectus. The company sold 27.8 million shares, or 17 percent of its stock, valuing the unit at $2.3 billion. Funds raised from the offering will go toward repaying debt owed to Halliburton, according to the prospectus.

CNBC host Jim Cramer recommended Halliburton on his ``Mad Money'' program yesterday as a way to get shares of KBR. He said the IPO price was ``sickeningly cheap,'' given the potential for KBR's engineering and construction business.

William Utt, formerly chief executive officer at Suez Energy North America, is CEO of KBR. He may face stepped-up investigations by Congress into KBR's government contracts after Democrats last week won a majority in both houses for the first time in a dozen years.

U.S. Representative Henry Waxman, a California Democrat and persistent critic of Halliburton and its ties to the Bush administration, will become chairman of the Government Reform Committee after his party takes control of the House of Representatives in January.

Scrutiny in Washington

At a meeting with analysts in Boston last week, Utt ``pretty much said, `You're going to see guys like me before Congress,''' said Robert Goodof, who helps manage $20 billion in equities at Loomis Sayles, including more than 9 million Halliburton shares. ``They expect it, and they just figure it comes with the business.''

Halliburton's Lesar, 53, has said he doesn't expect his company to be immune to criticism, even after the split. ``There will be an element of Halliburton pulled into the political discourse whether KBR is part of Halliburton or not.''

KBR was formed after Halliburton's $6.02 billion acquisition of Dresser Industries Inc. in 1998. The purchase included Dresser's Kellogg unit, which Halliburton combined with its Brown & Root subsidiary.

The Dresser deal, engineered by Cheney, brought liabilities for asbestos, a carcinogenic insulation and fireproofing material used through the 1970s. Those liabilities contributed to three straight years of losses at Halliburton. Lesar negotiated a $4.8 billion asbestos settlement in 2004.

Target of Investigations

KBR also is embroiled in investigations for work stretching from Iraq to Bosnia to Nigeria.

In Nigeria, KBR's TSKJ joint venture faces questions from the Securities and Exchange Commission, the U.S. Justice Department and the U.K.'s Serious Frauds Office about possible bribes to government officials related to a construction project. Fines could have a material effect on KBR, and a finding against the company could render it unable to work with the U.S. and other governments, the contractor said in its prospectus.

KBR is being investigated by the Justice Department for possibly overcharging the U.S. government for work in the Balkans and Iraq.

Moody's Investors Service today said it changed its outlook for Halliburton's debt rating to ``positive'' from ``stable'' to reflect the company's step toward separating from the unit and ``its expected future insulation from most of KBR's ongoing legal contingencies.''

To contact the reporter on this story: Jim Kennett in Houston at jkennett@bloomberg.net.

Last Updated: November 16, 2006 16:05 EST