Good day everyone and welcome to today’s Halliburton company Fourth Quarter 2005 Results Conference Call. Today’s call is being recorded, at this time for opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations Ms. Evelyn Angelle.

Thanks Dustin. Good morning and welcome to Halliburton’s fourth quarter 2005 earnings release conference call. Today’s call is being webcast and a replay will be available on our website for seven days. We are also pleased to announce that we are the first among our peers to offer a podcast download, which will also be available on our website within 24 hours after the call. Joining me today are David Lesar, our CEO; Christopher Gaut, our CFO; and Andrew Lane, our COO. The press release announcing our fourth quarter results is available on our website at www.halliburton.com. We have tentatively scheduled our 2006 first quarter earnings conference call for Friday, April 21st 2006 at 10:00 a.m. Central Standard Time. In today’s call, Dave will provide openings remarks, Chris will discuss overall operating performance and financial results followed by Andy covering strategy and our business outlook into 2006. We will welcome questions after we complete our prepared remarks. Before turning the call over to Dave, I would like to remind our audience that some of today’s comments may include forward-looking statements reflecting the company’s view about future events and their potential impact on our performance. These matters involve risks and uncertainties that could impact the company’s operations and financial results and cause our actual results to differ from our forward-looking statements. These risks are discussed in Halliburton’s Form 10-K for the year ended December 31st 2004, Form 10-Q for the period ended September 30th 2005 and recent current reports on Form 10-K. Now, I would like to turn the call over to our CEO, David Lesar.

Thank you Evelyn and good morning everyone. Chris and Andy will discuss our fourth quarter results in some detail; however, I wanted to begin by sharing with you some of the highlights. First, we posted fourth quarter diluted earnings per share of 208. We will talk in a minute about $540 million deferred tax asset evaluation allowance reversal excluding that benefit our earnings per share were $1.06. Our energy services group growth continued with a 10% growth from the third to the fourth quarter of which 2/3rd came from outside North America. Outside of North America revenue was up 13% and operating income increased 33%. And for the first-time ever all four ESG divisions had operating margins in excess of 20%. Also, clearly our pressure pumping businesses remained exceptionally strong for us. Our ESG operating margins increased from 21.8% in the third quarter to 23.8% in the fourth quarter. At KBR we had another profitable quarter and put to rest all remaining issues under the RIO contract in Iraq. From a consolidated standpoint, we generated $874 million in cash from operations during the fourth quarter. Our strong outlook on 2006 and beyond allowed us to reverse a substantial portion of the deferred tax evaluation allowance we originally setup as part of the asbestos and silica settlement. This means we will be able to utilize those tax losses to offset US tax payments in the future. Our strong cash flow and positive market outlook on future growth has also caused us to increase our plan capital spending substantially for 2006. I would like to spend a few minutes reflecting on the performance for the full year 2005. ESG posted 26% growth in revenue from 2004 to 2005. This reflected strength in each of our four divisions driven by our industry leading…

Thanks Dave. I will briefly review the drivers of our fourth quarter results compared sequentially to the third quarter. Halliburton company revenue in the fourth quarter was $5.8 billion and that is up 14%. ESG revenue was up $251 million or 10% sequentially. KBR revenue, which benefited from our work recently awarded LNG and GTL projects was up $452 million or 18% sequentially. International revenue was 58% of the total for ESG and 71% for Halliburton as a whole. Halliburton achieved record operating income of $779 million in the fourth quarter. Overall, ESG operating income increased by $112 million reflecting at 200 basis point operating margin increase, while approximately 1/3rd of the improvement came from the strong demand for natural gas drilling in North America, all four regions and all four business segments showed double-digit percentage growth in operating income. Operating income outside of North America was up 33% compared to the prior quarter. ESG as a whole had a 23.8% operating margin in the fourth quarter of 2005. KBR operating income decreased $29 million in the fourth quarter to $129 million. Recall that the third quarter results included the $85 million of income from the sale of our interest in the toll road and $70 million of losses due to our Algerian operations. Now, I will highlight the ESG segment results. Production optimization revenue increased $124 million or 11% compared to the third quarter of 2005. Our industry leading technology in the area of Pinpoint well stimulation continued to deliver excellent performance especially in North America. Production optimization operating income increased 17% or $44 million with 110 basis point improvement in margins, in addition to strong US land results, production enhancement, and increased utilization of resources in Canada and the West Africa and increased activity in Algeria. Completion tools…

Thanks Chris. Good morning everyone. As you can see we finished the year with very strong results. I want to start by briefly recapping some of our major achievements in executing again some improvement plan. At ESG we have taken a leadership role in pricing, controlled our cost in the growth market and optimized our manufacturing base to achieve better throughput. Manufacturing delivered a record $1.25 billion in shipments during 2005. We posted over $1 billion in improved ESG operating income results in 2005 over 2004 and $2 billion in topline growth. On a relative basis the improvements we made at KBR was even more dramatic. We completely changed the cost structure of the business and instituted a highly disciplined approach to project selection and execution. We improved KBR’s operating income by $840 million in 2005. As a result, KBR is now in great position to capitalize on robust gas monetization trends. Now let me discuss ESG’s fourth quarter performance. We significantly improved the margins from the eastern hemisphere. Margins increased from 17.8% to 20% driven by improved results in Saudi Arabia, Angola, The UK, and China. Western hemisphere operating margins also improved increasing from 24.3% to 26.3% largely from improved pricing, higher equipment utilizations, and increased activity in the US and improved performance in both Mexico and Venezuela. In North America, incremental margins were 48% again illustrating the operational leverage of our core pressure pumping businesses. In North America in 2005, we increased revenue by 34%. Our rate in pricing improvement increased over the second half of 2005. Currently, we estimate we had 70% of our customer base on a 2005 price book and we have 40% of our October 2005 price book already in place. We anticipate additional price increases as demand for all of our services remains…

Thanks Andy. I began this call by describing our Stellar 2005 results. What we have achieved in 2005, I believe showed the value of the strategy we have followed for several years. Halliburton’s fundamentals are in place and we are clearly and eagerly looking forward to excellent growth in 2006 and beyond. For the Energy Services Group this means continuing to be the leader in pricing, needs more improvements in the productive use of our equipment and adding capacity in growth areas. For KBR, this means capitalizing on our strengths in LNG and GTL diversifying the applications of our government and infrastructure skill set. Before closing, I would like to preempt one possible question. We too have heard some merger rumors recently involving our company. We just don’t comment on rumors. Having said that, I just want to say that today we are totally focused on the separation of KBR from Halliburton. I want to thank our customers, who saw the value of our work and stuck with us through the difficult year. I want to thank our employees who continued to work with us and innovate to all of our businesses. We are looking forward to what we believe will be a great several years. Now, we will take your questions. We ask you to limit to one question and one follow-up per caller. So, lets go to the first question.

Thank you sir. Today’s question and answer session will be conducted electronically. If you do have a question at this time you may signal by pressing *1 on your touchtone phone. If you are using a speakerphone today, we ask that you make sure your mute function is turned off to allow your signal to reach our equipment and so once again *1 for questions. We will go first to James Stone with UBS.

Dave, and thanks for giving a lot of varying information, thanks for the rest of lot of stories. I just want to touch on some of the operational things in the quarter, and Chris you talked a little bit about the decline that you saw in operating income at DFE in the quarter. I am wondering if it was a little bit more to that than just a sort of mix shift in the North Sea or Africa, you know, what is the prognosis or the outlook for that business as we head into 2006, particularly on the directional drilling side?

We think the outlook for Sperry directional drilling and DFE as a whole is positive. We as you said were impacted by several rigs moving to more production and completion activity in the North Sea and some lower sales in Africa. And actually you saw the other side of that in our completions business were they had higher activity in the fourth quarter, but we had very good growth in the directional drilling business in the Middle East and Asia and we expect that to continue and we expect the mix shift and the rig activity is other areas to balance that and shift that going forward. Q – James Stone: Okay, as you look at the IPO KBR, have you settled on a management structure for that business at this point, what’s left to be done there?

James, this is Dave, let me answer that one. As you know, we have brought Cedric Burgher back into the company and announced that last quarter to be the Chief Financial Officer for KBR and Cedric will obviously be in the CFO position that leads KBR through that. We have had an ongoing search for a new CEO for KBR and it will be someone who comes in from the outside and we got that search going on. We are down to a shortlist and we would hope to have a finalist for that shortly and I think the rest of the KBR management team inside the business today is a great management team. They certainly have showed that and we believe that collectively there will be a fantastic team going forward in the IPO. Q – James Stone: That is great, thank you.

We will go next to Geoff Kieburtz at Citigroup. Q – Geoff Kieburtz: Thanks very much, Andy I would like to come back to your comment on the equipment sales to Asia in particular. I think you gave us an $11 million EBIT contribution in the quarter. Could you give us a little bit more information on that, like what was the contribution for the full year? Can you give us some sense of how that fluctuates? A – Andrew Lane: Yeah, Jeff, let me just say the few points on direct sales in general. Primarily this is in our DFE division, although some of the other divisions have occasional direct sales. This is the way we classify direct sales as selling service equipment. The local service providers in markets that we do not directly compete in for their own services. It is generally older generation technology and so for DFE for all of 2005 it totaled $95 million, $34 million in the first half. There was $24 million in the third quarter, $37 million in the fourth quarter. Now, we usually ramp-up in the end of the year with our direct sales shipments, so seasonally it falls off in the first quarter and we expect to see that again in the first quarter. Other direct sales were $10 million in fluids and $14 million in PO, so that’s the scale of our direct sale business.

Okay, just unclear there, the total revenue from direct sales in the fourth quarter was around $50 million? A – Andrew Lane: Yes, total revenue from direct sales in the third quarter was $31 million and in the fourth quarter was $58 million.

And that $58 million revenue’s what drove the $11 million EBIT contributions? A – Andrew Lane: Exactly.

Okay. Separate question on KBR if I could. Can you give us some idea what the bonus accruals were on the Iraq work and maybe elaborate a little bit on what looks like unexpectedly strong margins in energy and chemicals? A – Andrew Lane: Yes, first on the bonus accruals, we do not have an award fee in the fourth quarter for award board review. So, they were just our standard accruals, which I think we previously mentioned we grew at 72% of our total award. We expect an Iraq award and a Kuwait award here in February for the second half of 2005 business, but we will have new award scores here in the next month, but we expect them to be very strong. In E&C what you are seeing is the consistent base business, you are seeing that the ramp down of the previous legacy project, many in the upstream business and the ramping up of the LNG and GTL projects that we brought in the last 12 to 18 months. So, it was a very solid quarter for E&C and we have a good outlook for that segment.

Do you think that these, I think previously you sort of suggested that those margins were sustainable more in the 5% range and they seem to be staying well above that? A – Andrew Lane: Geoff, we have been saying that we want them to be at least five. And yeah I would say the fourth quarter is behind that range. We are not saying that it is going to be there every quarter, but we would be very disappointed if it is not 5% on an annual basis.

Great, thanks very much.

We will take our next question from James Wicklund, Banc of America Securities.

Good morning everybody, great quarter and thank you. Guys, I hate to ask this question please forgive me but I am up in New York and there has been a rumor rampant in every meeting that I have gone to that you were scheduled to announce a major acquisition as early as today. Realizing the limitations on conversations, we are asking you to talk about the potentials of Halliburton in making major acquisitions in all of your service business going forward? A – Andrew Lane: Jim, I think as I said in the remarks, you know, one we do not comment on rumors, but today we are totally focused on the separation of KBR from Halliburton and I think that answers your question. Q – Jim Wicklund: It does and again sorry guys, but I needed to do that thanks. That’s all I’ve got. Go ahead.

We will go next to James Crandell of Lehman Brothers. Q – James Crandell: I just want to ask another question on rumors per se that acquisition strategy and as you look at your company now that KBR is being put into an IPO here and you got all these problems of the company in the past behind you. Do you feel the need or desire for more scale in your oil service business and would you describe your acquisition strategy in oil field service as niche focus or willing to consider something large?

Jim, we are very pleased with the prospects that we have for our portfolio of businesses. We have been more active in the acquisitions arena during 2005 and we pronounced a handful of deals here in the past several months. We will continue to look for acquisitions that have technology, that compliment our existing product line, or possibly that provides greater geographic balance in certain areas. Those are the kinds of things that we have been most focused on. Q – James Crandell: Okay, and as a follow-up question. Andy, could I ask you to comment on the rate of price improvement in the US simulation market in the recent quarter of percentage gain with the rate of improvement relevant to the past two to three quarters in pricing and then get your reaction below the capacity coming on the market and what that portents for the business you are going forward? A – Andrew Lane: Yes Jim, in 2005 we had some success in early 2005 in getting the late 2004 price working increases through, increasingly better success in the second half of 2005 with the most in the fourth quarter.

Yeah. The market still is very tight and we see a lot of room for our still upward pricing. There is a lot of shortages of people, shortages of cementing, shortages of crack popping, sand and overall shortages of personnel have created, is still a very tight margin. So, we still see a very good fundamental market on supply capacity of shortages to increase pricing in 2006. Q – James Crandell: My sense Andy is, you been a reasonably aggressive in increasing your domestic simulation capacity perhaps it is less than 25% last year and not going forward. Is that a reasonable estimate? A – Andrew Lane: We have not given Jim the details on how much for competitive reasons, how much we have passed foot into North America specifically, but it is a very strong performance for us and it will be a large part of our capital investment in 2006. Q – James Crandell: Okay. Thank you.

We will take our next question from Scott Gill from Simmons and Company. Q – Scott Gill: Yes, good morning gentlemen and kind of along those lines Andy or Chris or Dave, you are looking at increasing your capital spends of 2006 fairly significantly, can you give us some color in detail on the increase in which product service line is going to get the majority or the components of that capital spend?

Scott, we not breaking us down again for competitive reasons but some of the divisions that we feel can really benefit from an increased allocation of resources would include our directional drilling business. We talked about the extending capacity in drill bits. Certainly in our pressure pumping businesses, Andy spoke to the North American side and then outside North America. We are looking at growth in such areas, that Dave mentioned, I with the Middle East, North Africa, and Russia. We previously talked about a significant increase in our role there and I think those are some of the focused areas for us, Andy, anything you want to add? Q – Andrew Lane: The big ones pumping services and Sperry downhole tools are main emphasis. Q – Scott Gill: Okay, and as my follow-up as you look at your capital spending budget for 2006 and you start assessing your various suppliers, are you seeing any tightness in the market that put that budget at risk, in other words you may not be able to spend your $800 million? A – David Lesar: This is Dave, let me answer that. I think that in especially in our critical pressure pumping markets we are the only big pressure pumping company that historically integrated and that we still manufacture our own pressure pumping equipment and I think that actually gives us a real advantage today in being able to react to the marketplace because most of our competitors are really going to a single vendor and have to set a figure on how and when to get into the queue for equipment going forward where we can ramp up and down our manufacturing facilities very quickly to meet the demands that we see out there, so from that standpoint I think that we actually have a big competitive advantage in this marketplace. I think if you look at certain components for drilling tools and some of the others, certainly there are issues in backlogging of certain items there but generally I think we feel we can bring them into the market at the pace that we want them. Q – Scott Gill: Thank you.

We will go next to Dan Pickering at Pickering Energy Partners. Q – Dan Pickering: Good morning guys. I was wondering if you could address the North American side, revenues up roughly 2%, I am just curious how that fits with your expectations, I guess, thinking about pricing improvements, return improvements. I thought that number might be a bit higher. Where there any lumps in the third quarter or the fourth quarter? A – David Lesar: Yes Dan, it was a very strong quarter for us in October, November. We had some tail-off in December primarily in the Rockies related to the logistics of moving equipment around and the weather and where we were working in the Rockies on the certain projects. So, that impact us a little bit and there was a slight slowdown at the end of December in Canada, just slowdown in overall activity, but again we were very strong in October, November and we feel very good about going into the first quarter. You have your normal seasonal weather impact that you have to live with in Canada and the Rockies, but overall we feel very good about the quarter.

Keep in mind Dan, when we think about the comps, the sequential comps of the third quarter, we also had a very strong third quarter in North America, we topped that in the fourth quarter, some seasonality there and weather factors in December. Q – Dan Pickering: Okay, great. And then I guess as we look into 2006, particularly in the first quarter, as you look at whether you want to talk about it geographically or by business segment, we all understand seasonal fourth to first quarter issues in the Landmark business, but is there any reason to think that any of your other segments as we move into Q1 should show any revenue or margin slowdown relative to Q4? A – Andrew Lane: Well Dan, I think the only other thing that I would say Landmark of course is a big impact as it always is and the first quarter is a drop-off from its great fourth quarter of the more significant this year because of the very strong performance Landmark delivered. You will see a drop-off in direct sales and DFE that we have talked about in the $30 million range. We have weather impacts in the Rockies that we talked about. North Sea and Russia is experiencing an extremely cold winter. So, we expect to see all that hit us in the first quarter. Q – Dan Pickering: Does that aggregate in your mind to improvement in overall revenue or decline?

We are not providing guidance Dan, but there are some puts and takes there and obviously this is January. The overall trends remain in place as we have been saying throughout this call. There are some places where there is some seasonality. Q – Dan Pickering: Thanks very much.

We will take our next question from Robin Schumacher with Bear Stearns.

Yes. Thank you. I wanted to ask your views on cost structure and cost of operations, oilfield inflation etc., particularly just with respect to your 48% incremental margins in oil services in 2005, with the cost pressures you are experiencing is that an achievable kind of incremental margin in 2006 or should we think of something perhaps lower than that as an achievable target? A – David Lesar: Robin, I will just talk in general terms about what we see in pricing. We as you know, the labor market is very tight. We see our historical annual increasing labor cost. In the second quarter we normally do that adjustment. We still see tightness in cements, we see tightness in some specialty chemicals that we use in operations, definitely in materials and steels, and tools, the main drivers for pressure on cost increases, but we will push pricing, we will push pricing very hard through 2006 and that is our plan.

14%, that’s a big number. Right, understood. So, just as related, in the things that may have held back your margins a bit in 2005 from what even the very good margins achieved would have been as I think of the Mexico turnkey project and the hurricane impact primarily, which presumably wouldn’t impact you in 2006?

Good point. Good point. Q – Robin Schumacher: Okay. Thank you.

Mexico has been depressing our results the whole year, not only taking some losses, but then in another quarters, like this quarter having zero margin contributions from that work. Q – Robin Schumacher: Right. Thank you.

We will go next to Michael Urban at Deutsche Bank.

Thanks, good morning. I wanted to go little more into the pricing trends. I’m wondering if you could quantify or at least differentiate where you are seeing better or worse price increases? And then also if you have an idea what the interest is going to be, actually getting to we are getting to where if any, is there going to be laggers or disappointments that are now showing better price increases?

Certainly North America as we were saying quite strong, and then of course the Middle East, the Gulf and Asia. I think the offshore markets have come along quite well. If we would think about where we might have some laggers in terms of price they are probably parts of Latin America, outside of Brazil, and working with national companies too, those are going to be longer contracts and so there is some lag there as well and then in probably parts of Southeast Asia, we also have longer-term contracts there and depending on the competitive dynamics in a particular country, and whether rigs are going or coming, we have a probably particular markets there, particular countries where we have some flatter areas there.

And how about on a product line basis, anything that’s continuing to not get as much price gain you might like or were you suddenly seen a pick-up off late?

Probably, the only CSO now that it does not have pricing that is higher than the 2001 peak is logging. It is just going to lag it from a pricing standpoint, I think for the industry as a whole.

Any particular driver that you think is causing that or anything that might change? A – Andrew Lane: Well, Mike, I think logging as a whole we have had some very good job in the last year in improving the possibility. We remain in a less than advantageous market share position. So we are not the pricing leader in logging by far so, but they have done very well in logging. We also would like to see very well to accelerate and at even faster pace that’d be the other area I’d mentioned.

Great. Thank you.

We are going next to Ken Sill at Credit Suisse. Q – Ken Sill: Yeah. Good morning guys. I know you do not want to provide guidance, but if you going to IPO KBR, may be you could help us a little bit here. You know, obviously great source of positive surprise, but just looking at the numbers you are seeing, the revenue for Iraq declined in 2006 is going to be more dramatic than 2005 and yet the revenues were up in the fourth quarter, so should we see that tail-off kind of ratably as we move through 2006 from Iraq? A – David Lesar: Yes Ken, I think we will. We have the uptick in revenue in Q4 because we were charged with purchasing some long lead-time items with the military. We expected it to be a consistent decline over 2006 and you have read as we have increasing talk from Washington about reducing troop counts ahead of the congressional election and the term elections later this year that may have an impact on the timing of the true production. So that’s probably a biggest driver overall is the troop count, as well as they move more towards sustainment in building a new facility. Q – Ken Sill: And the margin should remain pretty strong in government or in Iraq in the first place there is going to be some more award fees get booked, so continuing in the 3% plus? A – David Lesar: Well don’t know about that Ken. We had some settlements here in 2005 and as we said this morning, we’ve made very good progress on settling the big issues here and the LOGCAP contract is probably in a more than 2% to 3% margin contract overall. Q – Ken Sill: And then energy…

Dustin, we are through running short on time, so lets take one more question.

Okay. We will take our last question from Kurt Hallead, RBC Capital Markets.

Hi, good morning. A question to relate to whether or not you guys are seeing any differential pushback from your customers with respect to the price increases, whether or not your North American customer base, whether or not you see any nervousness or skittishness as it relates this seasonal downtick in the natural gas price? A – David Lesar: This is Dave, let me answer that because I spend a lot of time with our customers and it is really the pushback we get is not on pricing, its getting the equipment and get it for me now that I have got drilling commitments, I have got rigs leased and I need you guys there especially in the stimulation market where they will pay in premium for the type of work we do. So, the pushback really is we need more investments. We are asking for a longer term commitments, but with more flexibility on pricing and in the number of cases we are getting that. So I think that we see that the supply-demand balance is still in the favor of the service companies and that’s how we believe we can continue to bring equipment into the marketplace and at the same time increase our prices.

And, you are not getting any sense of any nervousness at all about this seasonal shift in natural gas price? A – David Lesar: No, not at this point.

Right. That’s it. I will follow-up offline. Thanks.

I’d like to thank everyone for joining us today. If others have additional questions, please feel free to call me today and that concludes our call this afternoon. Thank you.

And that concludes today’s conference call. Thank you for your participation. You may disconnect at this time.