Good day, ladies and gentlemen, and welcome to the Halliburton and KBR 2006 fourth quarter conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time (Operator Instructions). As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Ms. Evelyn Angelle, Vice President, Investor Relations. Ma'am, you may begin.

Thank you, Matt. Good morning, and welcome to the joint Halliburton-KBR, fourth quarter 2006 Earnings Call. Since we are doing a combined call today, our prepared remarks will be a little longer than usual, but we have allowed plenty of time for questions. Today's call is being webcast, and a replay will be available on both Halliburton and KBR's website for seven days. A podcast download will also be available. The press releases announcing the fourth quarter results are available on the Halliburton KBR website. Joining me today are Dave Lesar, Halliburton's CEO; Chris Gaut, Halliburton's CFO; Andy Lane, Halliburton's COO; Bill Utt, KBR's President and CEO and Cedric Burgher, KBR's CFO. In today's call, Dave will provide opening remarks. Chris, will discuss our overall operating performance and financial position, followed by Andy, who will review the ESG regions and our business outlook. Bill and Cedric will address KBR operations and financial matters. We will welcome questions on both companies, 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 Halliburton and KBR's views about future events and their potential impact on performance. These matters involve risks and uncertainties that could impact 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 31, 2005, Halliburton's Form 10-Q for the quarter ended September 30 2006, and recent Halliburton and current reports on Form 8-K. Risks specific to KBR are discussed in the final prospectus for its initial public offering dated November 15, 2006.In addition, please refer to the table in the Halliburton press release that reconciles as reported results to adjusted results for…

Thanks Dave and good morning. I will discuss our fourth quarter results compared sequentially to the third quarter. Halliburton Company revenue in the fourth quarter was $6 billion that's up 3% from last quarter. ESG revenue was up $117 million or 3% sequentially. I would highlight that ESG's non-North America operations showed an 11% revenue increase, with each division contributing to that increase. KBR revenue increased $69 million, reflecting an increase in gas monetization work and a slight decrease in Iraq related operations. ESG operating income increased $53 million to $959 million, which included a $48 million gain on the sale of our non-core self elevating boat operations. Excluding the gain on the lift boat transactions ESG operating margin was 26% in the fourth quarter. Also included in ESG operating income in the fourth quarter was approximately $38 million in business interruption insurance proceeds related to the 2005 hurricanes in the Gulf of Mexico. KBR reported operating income of $121 million with an operating margin of 4.8%. Income from continuing operations in the fourth quarter includes $5 million in minority interest, related to the 19% of KBR held by outside investors since the IPO in late November. The first quarter of 2007 will include the full impact of KBR's minority interest on Halliburton's income statement by the way. Now let me highlight ESG's segment results. Production Optimization operating income increased $37 million or 9%. Included in fourth quarter results are the gains from the sales of the lift boats. Production enhancement operating income was negatively impacted by the US weather, stipulations on land usage, as well as the holidays. And there was the significant slowdown in Canada. However, the Eastern Hemisphere was strong for production enhancement, led by high activity in Asia, the North Sea, and the Southern Persian Gulf…

Thanks Chris. Good morning, everyone. I will address regional results and our outlook. First, I would like to highlight the success of the execution of our Eastern Hemisphere growth strategy. Having achieved revenue growth of 27% year-over-year, our [approach] targets for traditional markets such as the North Sea, and emerging markets for us, such as Southeast Asia and Northern Africa. We are beginning to see the benefits of our recent investment in capital, most notably in Sperry rotary steerable tools and wireline units. Our continued commitment to investments in infrastructure, capital, and technology are the cornerstones of our Eastern Hemisphere growth strategy. As you know, many new rigs are being constructed for offshore applications. Our Cementing Group has been working closely with rig manufacturers and contractors, so that Halliburton's Cementing units are installed in the hulls of these rigs. We've had good success recently, which positions Halliburton favorably to perform Cementing services throughout the life of these new rigs. In 2006, Halliburton Cementing units were installed on over 40% of the new offshore rig. And so far, we have already been awarded Cementing installations on 47% of the rigs planned to be delivered in 2007. Our Europe/Africa/CIS region is the market that shows good growth potential. Despite some constraints in the North Sea, due to rig availability. Our focus on Northern Africa, and particularly Libya, should result in a strong growth in 2007, both in revenue and profitability. In Russia, our focus now is shifting to diversify our product and service offering. Up until recently, we have been primarily deploying pressure pumping equipment into that market. In addition to the recent significant Rosneft pressure pumping award, yesterday we announced a large multi-year new contract with TNK-BP, in Russia, which will utilize our Cementing, Baroid, Sperry and Drill Bit products and…

Thanks Andy, and good morning everyone. Well, it has certainly been an exciting year for KBR. I am pleased to lead this organization with such a proud heritage, as we continue our preparation to begin a new chapter in our history as a standalone corporation. I am certainly very pleased with the past of public reception in the market for KBR thus far. Everyday, I am more impressed with the dedication of KBR employees and the culture we sustain. A commitment and work ethic that drives our ability to deliver our services anytime, anywhere, often under the most extreme circumstances. This work ethic sometimes means that our employees must work in dangerous locations, on behalf of our global customer base. So, let me take this opportunity to reiterate that the safety and security of our KBR employees' is our number one priority. Now I will review KBR's financial results. Consolidated KBR revenues for the full year 2006 totaled $9.6 billion compared to $10.1 billion during 2005. Most of the decrease relates to lower activity in Iraq. During the same period operating income decreased by $214 million, resulting in a 2.6% operating margin in 2006. Our 2006 results included a significant charge on Escravos project and impairment charges on our Australian railroad interest. I will provide an update on both of these matters in a moment. Our 2005 results included an $85 million gain on the sale of our interest in the toll road. Now let me turn to our two segments. Energy and Chemicals posted $686 million in fourth quarter revenue, a 14% increase over the third quarter. Operating income increased 31% to $59 million during the fourth quarter. Revenues and operating income improved as a result of the higher gas monetization activity. Our focus on technology continues to differentiate…

Thanks Bill. I would like to begin with the discussion of backlog. Our recent contracts have been more heavily weighted toward reimbursable work, instead of pure lump sum turnkey. This has been official in terms of reducing risk in our backlog, but it also has the effect of driving overall backlog numbers lower. For example, some cost reimbursable contracts, particularly in our Energy and Chemical segment, call for KBR to provide procurement management services on behalf of the customer rather than the actual procurement of materials. In the case of procurement management, KBR does not include the cost of the material in either backlog or revenue. The Energy and Chemical division's backlog as of December 31 was $5.7 billion, as compared to $6 billion at the end of September. The Government and Infrastructures division's backlog as of December 31 was $7.8 billion, compared to $9 billion at the end of the third quarter. Backlog for the fourth quarter was reduced primarily due to the significant work-off on our LOGCAP-3 contract. The size of projects that we add -- that we expect to add to our backlog should continue to decline, as we expect to see our customers agreeing to absorb certain cost items within these projects as opposed to paying KBR to take these risks including our expected cost-for-market volatilities and contingencies. Now, let's review other financial items. General and administrative expenses included in operating income, increased by $23 million to $108 million in 2006. The majority of which is attributable to the implementation of a new ERP system, and costs associated with being a standalone company. We expect our general and administrative costs to average around $30 million per quarter during 2007. Our net interest income in the fourth quarter was $14 million, as compared to $1 million a…

Thank you, Cedric. It has been a lot of information we've drawn out today, but let me just summarize, where I see we are. First of all, after over two years of very concentrated efforts, we're now only a couple of months away from the complete separation of Halliburton and KBR. We still believe that the complete separation will unlock additional shareholder value. At Halliburton, we look forward to focusing all of our energy on implementing our growth strategy as a peer oilfield services company. We continue to grow our already strong position in the Eastern Hemisphere, and we will maximize our position in the US, through up and down markets. But overall, we still see a very strong global demand for our products and services through the end of the decade. We will now open it up for questions. Please limit your comments to one question and one follow-up.

Thank you. (Operator Instructions). Our first question is from Geoff Kieburtz of Citigroup. Your question please.

Good morning. I wondered, if you could talk a little bit about the capital spending plans for 2007 and for [PSG] and where you see that being concentrated?

Sure, Geoff. This is Chris. Well, the $1.2 billion of capital spending that we see in 2007, which is a significant increase over 2006. That increase is going to almost -- will very largely go to our Eastern Hemisphere operations, and the biggest recipient of the increase will be in our Drilling Information Evaluation sector. That will be complemented by a good increase in our fluid space, where we have a good number wins on cementing units or new offshore rigs and refurbished offshore rigs and as we build out our bulk plans for our [Bahrain] operations. Andy, you want to add anything to that.

Yes, Geoff. Chris said it, both were very Eastern focused for growth, while some infrastructure for the project wins, but also just pure service equipment and expansions in Eastern Hemisphere and a lot more balance than we have had in the past weighted towards the Drilling, Sperry's business, the Bits business and also the wireline business and specially Sperry Downhole Tool systems and wireline trucks we mentioned, have a big investment going there and we are going to continue that.

As my follow-up, if we take out the benefit of the business interruption? Fluids had a pretty steep margin erosion in the fourth quarter. Is that any cause for concern?

Well, Geoff, some of it is mix of jobs that we had in the Eastern Hemisphere. Cementing of course, was impacted a very heavily by what we talked about, the weather and the holiday impact both in the US and impacted significantly in Canada. So we know where the issues are both in Cementing and in the Baroid mix of businesses and we still think it's doing very well and the outlook is still very strong for both of those business. Most of our Eastern Hemisphere wins have a component of Cementing and Baroid in those and we are investing a lot in the mobilization costs, to get ready for those contracts, but we feel very good about those contracts going forward.

So you are expecting just a rebound in the immediate future?

Yes, we are still mobilized, Geoff. As you know, with the Eastern Hemisphere project wins that go over multiple years and take us one or two quarters to get fully mobilized on the costs. So we definitely expect them to rebound in 2007.

Thank you.

Our next question is from James Stone of UBS, your question please.

Good morning, Dave I appreciate your comments on spilt off or spin-off. Can I just ask you a clarification? If you do a split-off and it is not fully subscribed, do you still have the ability to distribute the remaining shares on a tax-free basis?

Yes, the mechanics of the split-off is that it is, if it is less than fully subscribed but more than the minimum then the remainder number of KBR shares would be distributed through a pro-rata dividend and the whole thing would be tax-free. Those are the mechanics.

Okay. And Andy just as a follow-up, you said pricing in the US will remain under pressure, but Dave said pricing -- price gains would exceed inflation growth. Can you guys just reconcile those two statements?

Yeah Jamie this is Dave. You know, obviously the last couple of years we have had double-digit price increases, Jim. So, those double-digit ability is what has come under pressure, but I think for those that are concerned that pricing has fallen off the cliff in North America, we just don't see that happening. And so yes we are getting price increases, they are not as good as they have been in the last couple of years, but they are price increases. And what is under pressure of course, is we are asking for more than we are getting, and we are getting more pushback than what 0we would have got in the last couple of years, but that doesn't mean that we are not being successful in getting increases.

That's very helpful thanks.

Your next question is from Jim Wicklund of Banc of America. Your question please.

Hey guys. As a follow-up, we have talked in the past about how your payback on adding new frac spreads in the US is 12 months in all. Have you guys looked to see what normalized returns on that business will or should be?

Sure Jim. When we look at investment in pressure pumping spread, we certainly assume its going to last a very long time and so we do look at that over a full cycle and do try to normalize the returns. And we certainly see that the returns that we would be getting would exceed our hurdles of a 15% after-tax return un-leveraged. It certainly -- the results -- the economics we run on new investments currently are helped by the fact that we have such a strong market right in this environment, but on a full cycle basis even if one normalize the numbers. Its, we think it's quite attractive.

Okay. And my follow up if I could, my E&P analyst this morning lowered his -- he has definitely lowered his gas price forecast in the US. Nobody knows what gas prices are going to be, because nobody knows the weather. But just generally, I assume you guys are looking for the US rig count to increase this year. I guess is that true and are you all looking at a gas price to drive that level of activity.

Well, I think there are two things that are going on. One of the important things is a change in the mix of rigs in the US land market, where we have a large number of new, more efficient rigs coming on, which will be drilling more wells. I think we are agnostic on the rig count itself, clearly with these new rigs coming on, we could be drilling more wells. What we are seeing from our customer base is significant activity. Dave referenced the number of new contracts that -- new commitments that we are winning. So, we see a very active frac market in front of us, fully utilizing, as we see that the market today, fully utilizing our available equipments and --

So they should matter?

Yeah.

Okay, very helpful. Thanks guys.

Your next question is from Scott Gill of Simmons & Company. Your question please. Scott Gill - Simmons & Company: Yes, good morning gentlemen. Andy, did I hear you say that you would consider moving equipment out of Canada into the US, and if that's true, what type of equipments are you considering moving here?

Yes Scott, it is what we are considering. We know we are going to have a good first quarter compared to the fourth quarter we feel. As historically, the first quarter is a strong quarter in Canada. So we aren't considering anything to move in the short-term. But, of course, the second quarter with the spring breakup we have every year, and then the outlook after the winter and gas prices outlook for the second half for Canada. We are certainly going to take all that in account. And it would be primarily pumping equipment, first -- to look at moving it either to better utilization, higher price markets here in the US or Eastern Hemisphere. Scott Gill - Simmons & Company: Any thought to -- I guess the question could come up, if you did move the equipment from Canada into the US, would that exacerbate the pricing pressure, so kind of what's the process with respect to pricing in the US, and how that might impact where you ultimately move that equipment?

Yes Scott, we don't see the type and amount of equipment we are talking about. We don't see it having a negative impact on the pricing in the US. It's not that type of scaled movement. And we wouldn't that, we would -- we feel very good about our pricing, as they went through in the US and the demand for our service in the US. If we were to be over utilized there, we would move to Eastern Hemisphere. So, first, we are going to maximize the market and activity level in the US, but we're positioned along with our new capital builds that Chris talked about. We're always looking at growth opportunities for the Eastern Hemisphere. Scott Gill - Simmons & Company: Okay. Thanks and one last one, if I can squeeze it in here, Chris. What was the percent of revenue from Canada during the fourth quarter?

Sorry Scott. We don't breakout our North America segments by practice. So unfortunately I can't do that in this case. Scott Gill - Simmons & Company: Okay, thank you.

Next question is from Dan Pickering of Pickering Energy Partners, your question.

Hey guys. I was hoping that you could -- as we look at the revenue decline in North America, just want to make sure I understand kind of our math would say that it looks like about half of the sequential decline came from Canada, the rest came from US, and I was just wondering if there was any -- one, is that close to accurate, and two, do we isolate the US piece of the business, primarily the pressure pumping?

Yeah, I mean the first one is similar to the question that Scott just asked and so I can't give you more granularity on the breakdown between US and Canada just because that's not our practice or the precedent that we want to set. Now, yes, certainly our biggest business in North America is our production enhancement business. So, it is definitely fair to say that just because of the size and scale of that business, it has felt -- it had the biggest impact of the activity reduction in Canada and in our very large market position we have in the Rockies in the US.

Thank you. Unrelated question for Bill and Cedric, please. Bill, you mentioned that there may be some delays in some of these larger projects that you are looking at for KBR. I think around the road show timing, you had mentioned something like a bidding environment out there, it was about $20 billion or so projects that you were looking at that might come to fruition. Has that number changed much in the last few months?

Not materially. We still see generally the same list of prospects out there and the delays we are seeing are really driven by our customers' desire to absorb the information and that is communicated to us in our pricing related to the supply chain pricing pressures that we see, but the overall outlook in terms of the number of project is still where we thought it was back at the road show.

Okay. So, they are not going away. They are just slipping a bit.

I would characterize that as being correct, yes.

Thank you.

Your next question is from Brad Handler of Wachovia. Your question please.

Thanks. Good morning everybody. Could I ask you first on the Halliburton side please, just another sort of financial detail question. If we look at the Middle East/Asia margin, it is down by a couple hundred basis points. You guys have spoken to the drivers there, but can you perhaps split up how much of that do you think was due to infrastructure kind of ramping, versus how much was due to product mix?

Yeah, I think that the ramping up for new contracts was certainly a part of that. In the Middle East, we have a number of things underway. It was also some mix effect that we had in our fluids business that had an impact as well.

Yeah, Brad the main ramp up is of course is Al Khurais project, our UAE project that we talked about with Cementing, and we've had several wins in Total -- for [Total] in Indonesia, that are ramping up in the Asia area.

I don't know, if it's just too -- if I am getting too granular. Just given that three quarters of that mix is a quarter or something?

That would be hard to --

Hard to break?

Yeah.

Fair enough, okay. If I could ask unrelated follow-up on the KBR side, please, you have historical information by segments within both divisions. Can you give us that information on the call here now?

We don't have the material ready for the call; we will have it in our filing and so we will provide it at that time.

Okay, fair enough.

In the 10-K.

Correct.

Good enough. Thank you very much.

Our next question is from Geoff Kieburtz of Citigroup. Your question please.

Oh gosh, I got cycled around rather quickly, didn't I? What I wanted to ask was in terms of your technology spend, could you talk a little bit about what the mix concentration is there?

Yes, Geoff, well, it's up roughly 50% on development and 20% on research, you see from a broad standpoint, the rest balance being more operational engineering. So, that's the mix and then it's equally split between our divisions and that has been very consistent for several years, so we have ramped up both -- in Sperry, in Landmark and in both cementing and fracturing.

Okay. And on the CapEx, is there any segment of your CapEx that you think would be reduced in 2007 versus 2006?

Yeah, our US production enhancement spending is down in 2007 compared to 2006 as we've said before. Both -- and that's not news, we’ve said that before and that remains our plans, yeah.

Any other segment?

No.

I don't think so Geoff.

Okay, thank you.

Next question is from John Rogers of D. A. Davidson. Your question please.

Hi, good morning. Bill, I am curious on the margins for the energy and chemicals business. They were substantially higher than they have been for some time, you noted one close out charge there, were there any other unusual gains in the quarter or was it just timing of projects?

The one we point out would be the -- would be in GNI where we had a contract closed at DML, which gave us a base in the completion of a submarine project that gave us a bump in the fourth quarter, and also the partial settlement on containers, which was also contributing to the strong margins we had in the fourth quarter, beyond --

And some of the containers Bill, you mean related to Iraq one of the --?

Right

One of the issues that has been raised by the auditors that is now in the process are being resolved?

That's correct, this was part of the DCA audits that we periodically go through and we are successfully working through the container issue as I mentioned we will have the full issue we believe resolved during the first half of '07, and we continue to make good progress on all fronts with the DCA and those discussions. We had a couple of FEED projects that finished up at the end of the year, which you had a little bit impact but not to the degree we saw with the DML results and the partial settlement on containers.

Okay, then the FEED projects -- but on the energy and chemical side I was referring to just because.

Well, on the energy and chemical side we had some restructurings within the Bonny Island project Trains 4 and 5 and then the 26 project. While they did have a positive impact on operating impact did get backed out in minority interest, so that the net effect here on the bottom line at KBR was zero.

Okay. And then on the charges that you mentioned potentially restructuring in 2007 on the management side? Can you give us a sense of magnitude there?

Not right now, we take a fairly thorough and thoughtful view with discreet aspects of our business and as we talked about on the road show. One of the activities we undertook from the -- in the third quarter and then in the fourth quarter was review the human resource service and delivery side for KBR. And yeah, we took a couple of months and we thoughtfully looked at what we were doing and we were able to reduce our annual spend on HR cost from $30 million a year to 20. We certainly didn’t have any targets going into that exercise with respect to the savings we could achieve. But we are able to, you know very positively realign the cost and support activities of HR within KBR. We expect, as we move to other discrete sectors in '07 that we could see continued reductions in our overheads within the company.

Thank you.

The next question is from Daniel Henriques of Goldman Sachs. Your question please.

Hi good morning. My question is to go back on the Eastern Hemisphere margins, how should we think about it in terms of timing you mentioned some startup costs and mobilization cost. Is that like a gradual improvement over the course of the years that at some point there is a step up, how should we think about that?

Yeah Daniel, I wouldn't think of a big step up, because it's a very large business Northern Hemisphere and we are talking about isolated projects that we want. But they are the big projects, the Statoil win for Cementing and Baroid, the Middle East wins and the Asia wins, we talked about previously. So, there won't be a big step over gradual improvement as those projects get mobilized and ramped up to full profitability.

And the mix effect which is also important, just had some volatility from period-to-period.

And on the Khurais project, how much of Khurais is already in your numbers?

Well, all of the projects that's occurred, but it's a as we said to let than half the full activity. So as you know when we announce that we expected, in excess of 20 rigs working at full -- at full activity levels and so we are less than half of that right now at the end of the year. And its just part of the process that Saudi Aramco is going through to ramp up that project. But they are going fully forward with it. And so we are active on in an 8 to 10 rig range.

Okay and Chris this is for you in terms of capital structure you obviously still have a very un-levered balance sheet. What do you think is an ideal capital structure and how do you think you get there?

Well, an ideal capital structure would not be net -- zero net debt that is true. Now, we do have a fair amount of debt on the balance sheet excluding the cash were 27%, 28% debt to total capital, which we would think be approaching of an optimal capital structure. So, really the issue is we have a lot of cash that we have been generating in the business. So, what do we do with that and we have identified that we want to grow internally through expanding our capital expenditures and we've been adding capital to our operations about as quickly as we think our operations can absorb it. We will spend the cash on acquisitions and we expect that to be at least $1 billion a year and we're off on that program and then most of the remainder we see going towards returning to the shareholders principally through a share repurchase program that started at a billion and then was augmented with another 2 billion. So, that’s how we see we can move towards more of an optimal capital structure but when we think about our priorities, our priorities are first making sure we invest the cash wisely and getting the best return rather than just doing something in order to get to that optimal capital structure as quickly as possible.

It just looks that even if spend $1 billion budget I think you establish for annually for acquisitions plus your CapEx it's still has -- you still have a lot left over. Should we think about buyback as gradual thing overtime or do you think that there's a space for doing something like faster to move to from more efficient capital structure?

That's part of our value evaluation relative to acquisition opportunities. That would be a factor but I think having the cash balance we have gives the company the flexibility to look at a number of different things and also be well positioned whatever the future course of oil and gas prices is.

Thank you.

The next question is from Robin Schumacher of Bear Stearns, your question please.

Yes, thank you. I wondered if have a sense as you do for your US customers about their plans for '07, if you have any similar feedback from your Canadian customers especially what may transpire their after this spring breakup if you expect that market to rebound or if it will remain weak, or do you know?

Robin, we know what they, the once that are released publicly and we know through our contacts with them. They are pretty much in the same position -- many and we are. Looking at the market they are going to have an active first quarter plan not as big a rig count as it was in the first quarter of 2006 but very more active than in the fourth quarter of last year and then of course the breakup and they are going to evaluate the pricing at that point. We see a good market in Canada. We just don’t know how strong it will be. And we’re going to follow their announcements very closely.

Okay. Just one clarification on this split-off potential. You've indicated here in your press release, you spent 1.3 billion so far on share repurchases out of the 3 billion authorization, now was the split-off, if you reduce shares that way, does anyway that count against this repurchase authorization, or is that totally separate?

No, Robin, it would be -- the additional authorization would be additive to the shares that we would bring in if we proceeded with the split-off. So I think what you do is take the estimate of what we would bring in by the split-off plus the billion seven and then we would look at on going back to the board for more, if we continue to see ourselves undervalued and the cash flow is strong as we anticipate.

Robin, we would reiterate that decision on the form of the separation has not been made.

Right. Okay, thank you.

Your next question is from Kurt Hallead of RBC. Your question please.

Hi, good morning. The question related to the -- can you give us the revenue number that was associated with the asset sale that were made in the quarter, so if you had impact of $48 million on operating income, can you just give us some idea that revenue and operating income for that business that was sold?

Yes, Kurt, as we -- I think we've covered it in a minute ago, there was 40 million to 50 million annually.

That's a revenue number, right?

That's a revenue number for the two best close, one of the two best in process, two transactions, one of that was in UK and the rest was in Nigeria.

What was the operating income associated with them?

Well, we do not want to get too granular here relative to people who bought those businesses and so forth and so we don't allocate out all the cost to those businesses. So no one give you a gross margin business, gross margin estimate in new business. But I think with that range of revenue, Kurt, you can make some best estimates, I wouldn't say that that business is materially different in its margin potential and others.

Okay. Alright, thank you.

Your next question is from Pierre Conner of Capital One. Your question please.

I would say you have covered all my questions. Thanks guys.

Thank you. Our next question comes from Barry Bannister of Stifel Nicolaus. Your question please.

Good morning. This is actually Robert Connors of Stifel Nicolaus. Barry had to run and jump on the Caterpillar Call. But my question was for Bill Utt and regarding KBR. And can you provide more color on how a shift away from fixed price contracting may have affected the E&C segment only bookings growth in the quarter, and also going forward?

The comments that Cedric and I made regarding the E&C bookings, go back on a backlog basis to what risks that we are taking and how that, you know, what goes through our books and what doesn't. We have seen an evolution from a model that existed at KBR regarding full lump-sum turnkey contracts, to an increased level of granularity regarding the various risks of performing home office services, construction, and procurement materials. And we see with our customers were developing a much richer and more robust discussion about how we are pricing our products and services, particularly given the escalations that we've seen in the last several months towards our supply chain. And so we are finding that with these volatilities that are now exist in our supply chain that our customers are increasingly looking to take those on their side of the ledger and not have KBR provided contingency or a volatility risk premium in our service offering. Now that would have the effect of moving us down to where we are in some cases looking only at home office services that we would underwrite on a fixed price basis for the same project that two years ago we might have taken under a full lump sum turnkey. And as we look at that, you will see as we move forward that the contributions to backlog from these projects may only be 25% or 30% of what they were because of the greater degree of pass through of these procured items et cetera colluded to in his call.

Okay. Thank you. And on in another note, is there any sort of change in your backlog burn rate going forward at a year ago from various Halliburton and KBR filings, which say the burn rate going forward like G&I was about 76% and in E&C was about 51%, are you guys still within range?

I don’t have it by percent, but I can tell you I don’t think it works that neatly in terms of year-over-year rate that really is project driven. The biggest issue for the quarter end for the year was the decrease in or the work-off in our LOGCAP-3 contract and that was $1.1 billion net reduction for the quarter. Also in the unfunded category, that also was a $1.1 billion decrease, all in the GNI area from $3.1 billion to $2 billion.

But that has a shorter time horizon?

It does. You have to remember on the road show, we've talked about the transition task order that we received from the government, as they were competing LOGCAP, for they took our performance of task order 139 out through at the end of August of 2007. And we clearly have been working that backlog off and the funding of that project continues, but we haven't seen subsequent awards related to task order 139, because we have gotten it at the time as we discussed an extraordinarily longer commitment of work under task order 139, it's during the third quarter.

The history there has been that with the government on the LOGCAP contract as we get shorter term backlog.

Somewhat just in time.

Yeah, so that's goes to support the numbers you have there, right.

On the E&C side, the reduction on a quarter basis was just under 10% and that represents work off in really of our major gas monetization projects. There is seven or eight to talk about. Only significant increase we put out in the press release was related to the [Sakhalin] project, which we booked in the fourth quarter, as offset to that reduction.

Now, let's take one more question.

Thank you. Our final question comes from Mike Urban of Deutsche Bank. Your question please.

Thanks, good morning. One or two follow-up on the acquisition side, it just a little bit earlier. But you've made one here recently and looks like there is some others teed up. Any particular product line, region, technology that you're looking to fill out? In other words, any themes out there? Or is it more opportunistic?

Obviously, we're not going to give you the list, the target.

Sure.

But, mainly the things that we are looking at are associated with our drilling information evaluation business or other downhole tools, technology and equipment. We're focused on expanding our products and technology, and we're also as we’ve said, from a much broader perspective looking to grow our non-North America business. So, those would be some of the priorities that are built into the deals that we're working on.

Yeah Mike. And Ultraline fits well, as you may or may not know we do not have a presence today in our wireline business in Canada. So, we offered a broadening of that portfolio in Canada, business where we know very well, and it’s a good addition everything else we have in Canada. So, also as we said and Chris covered, we're looking for geographic addition where there is a market share position we like, we are in a presence that we don’t have at the level we want. And those are good acquisitions [that end to us] and we know the business, they integrate well. And so, we're definitely looking at those in several markets.

And it seems like that the deal flow has picked up here a little bit as that function of being further down the road on KBR or have valuations become more attractive, there's a little bit of a turmoil in the market?

I think evaluations are an important point in discussions between buyers and sellers getting together.

Okay. That's all from me. Thanks.

Alright, great. I want to thank everyone for participating and their insightful comments and questions. Both KBR and ESG management will be available the rest of the day for those of you who didn't get all your questions answered. So, feel free to call us. That concludes our call. Thank you, all.

Ladies and gentlemen, Thank you for participating in today's conference. This concludes the program. You may now disconnect. Good day.