Welcome to the Halliburton third quarter 2007 earningsconference call. (Operator Instructions) I would now like to introduce yourhost for today's conference, Ms. Evelyn Angelle, Vice President of InvestorRelations. Ma'am, you may begin.

Good morning and welcome to the Halliburton third quarter2007 earnings conference call. Today's call is being webcast and a replay willbe available on Halliburton's website for seven days. A podcast download willalso be available. The press release announcing the third quarter results isavailable on the Halliburton website. You will note the press release reflectsa change to our segment reporting. We have recently undergone a corporaterestructuring as part of the separation of KBR. We have reorganized the Energy Services operations into twodivisions: Completion and Production, and Drilling and Evaluation. Completionand Production includes our production enhancement, completion tools andcementing lines. Drilling and Evaluation includes all other product and servicelines including Sperry, Wireline and Perforating, Security DBS Drill Bits,Baroid, Landmark, and Project Management. Beginning in the third quarter, our segment reporting hasbeen adjusted to reflect this organizational change. All prior periods havebeen restated. Our geographic structure reporting remains unchanged andincludes four regions: North America; Latin America; Europe/Africa/CIS; and Middle East/Asia. Joining me today are Dave Lesar, our CEO; Chris Gaut, ourCFO; and Andy Lane, ourCOO. In today's call, Dave will provide opening remarks, Chris will discuss ouroverall operating performance and financial position; followed by Andy who willhighlight some of our recent contract wins and technology successes. We willwelcome questions after we complete our prepared remarks. Before turning the call over to Dave, I would like to remindour audience that some of today's comments may include forward-lookingstatements reflecting Halliburton's views about future events and theirpotential impact on performance. These matters involve risks and uncertaintiesthat could impact operations and financial results and cause our actual resultsto differ from our forward-looking statements. These risks are discussed in Halliburton's Form 10-K for theyear ended December 31, 2006;our Form 10-Q for the quarter ended June 30, 2007; and recent current reports on Form 8-K. Now I'll turn the call over to Dave Lesar.

Thank you, Evelyn and good morning, everyone. We continue tolook for operational efficiencies and cost management opportunities in how werun our business. Also, subsequent to the KBR separation, we evaluated ourmanagement structure to ensure our organization was properly aligned with ournew, singular focus on oil field services and to get our costs aligned with thepricing pressures we were beginning to see in North America. We have recently undergone an exercise to eliminateredundancies and streamline our operations by reorganizing our Energy Servicesoperations into the two divisions that Evelyn referenced. This structure willallow us to have greater cost efficiency and also allow our product lines towork together more effectively to market services and develop new technologies. Now let me talk a bit about the quarter. At Halliburton, ourtotal revenue increased 5% as compared to the second quarter and operatingincome increased 2%, but that includes the $32 million in environmentalcharges. Our Eastern Hemisphere businesscontinues to do very well, as our recent capital investments in the Eastern Hemisphere are paying off. Sequentially, Eastern Hemisphere revenue grew 5% and our operating income improved 16%, resultingin 24% operating margin, a 220 basis point improvement from the second quarter.We expect the product lines driving future growth in the Eastern Hemisphere to be Sperry, our Wireline and Perforating andCompletion Tools business. For example, both Sperry and Completion Tools showed revenuegrowth of around 30% during the first nine months of this year compared to thesame period last year, and the recent PSL Energy Services acquisition isproviding further Eastern Hemisphere expansion. We are also increasing our manufacturing investment aroundthe world to bring new tools online to serve the high demand we are seeing forour services, opening new plants in Malaysiaand Singapore.Our outlook for the Eastern Hemisphere continues toremain very positive. Now let me provide you an update on the North…

Thanks, Dave. Goodmorning. I will discuss our third quarter results compared sequentially to thesecond quarter. Halliburton's revenue in the third quarter was $3.9 billion,that's up $193 million or 5% from last quarter. All regions and both divisionsposted revenue increases, led by strength in Asia,improved activity in U.S.land, and a seasonal recovery in Canada. Operating performance improved significantly in the thirdquarter despite the second quarter $49 million gain on the sale of ourinvestment in Dresser Limited, and the $32 million third quarter charges forold environmental matters; our reported operating income still improved by $17million in the third quarter. Three of four regions in both divisions contributed to theoverall increase in operating income. We had very strong growth and performancefrom the Eastern Hemisphere, where operating incomeincreased by 16% from the second quarter. Operating margin in the third quarterwas 24%, as incremental margins over the second quarter in the Eastern Hemisphere were very high. Our diluted earnings per share for the third quarter were$0.79. These results include a $133 million or $0.15 per diluted sharefavorable income tax impact from our ability to recognize U.S.foreign tax credits we previously assumed would not be fully benefited. We nowbelieve we can fully utilize these credits because of a taxable income growthfrom our international operations. The fourth quarter tax rate will also be favorably impactedby our growing international operations. We expect the fourth quarter and 2008effective tax rate to be in the range of 31% to 33% due to the favorable mixshift of more international earnings. Now I will highlight the segment results, and as we now havetwo segments, I'll try to bring you more regional color on the individualsegment operations. Completion and Production revenue increased $121 million or6% from last quarter and operating income grew $41 million, or 7% over thesecond quarter. Completion and Production’s growth…

Thanks, Chris. Good morning, everyone. As Dave said, weremain optimistic about the outlook for the Eastern Hemisphere,led by improved project execution and new technology introductions. Our work inthe large Khurais project in Saudi Arabiacontinues to progress well and exceeds our customer’s expectations. We arecurrently significantly ahead of the original drilling schedule. A large contributor to our success is the use of our newreal-time center in Saudi Arabiato continuously monitor the drilling of the wells and ensure optimal drillingefficiency with our Geo-Pilot tools. We believe we are now operating at thepeak of the contract. As Dave mentioned, consistent with the PEMEX strategy ofawarding larger integrated projects, we've recently been awarded two largecontracts totaling approximately $1 billion in Mexico.All product lines will be positively impacted by these awards but we are nottaking on rig time risk. In addition to the large contract awards for CompletionTools we discussed in our last call, primarily sand control tools for offshore China,completion tools for Malaysia,and deepwater sand control completion for India,we've just been awarded another significant contract, this one in Indonesia.These recent contract wins will continue to drive growth for Completion Toolsin 2008 and beyond. As we discussed in previous quarters, growth in Russia isexpanding across multiple product lines. Revenue is up over 20% in the thirdquarter of 2007 as compared to the third quarter of 2006, with a 35% increasein operating margins when comparing these periods. Growth is coming primarilyfrom cementing, Sperry Drilling Services, Baroid, and stimulation. Our Russiarevenue will be in excess of $350 million in 2007. This represents a compoundannual growth rate of more than 25% since 2004. We expect our growth rate inRussia to remain above 20% over the next several years. Libya is another market where we are experiencingsubstantial growth. Year-to-date, we have seen our revenues almost double ascompared to 2006…

Thank you, Andy. If you look back during the third quarter,each of our product lines, except for Completion Tools and Landmark, postedrecord revenue. Completion Tools and Landmark posted their second-highestrevenue quarters and traditionally, the fourth quarter is Landmark's strongest. We also saw a record operating income performance fromSperry, Wireline and Perforating, and Cementing product lines in the thirdquarter. My thanks to all our employees around the world for these significantachievements. Now let's go to take your questions.

(Operator Instructions) Your first question comes from KenSill - Credit Suisse.

Congratulations on what seems to me to be a pretty solidquarter.

Thanks, Ken.

Watching the stock as you were talking, you started talkingabout pricing pressure in North America expanding toother segments. I'd like to get a little bit more detail on your outlook for North America. A couple of your competitors have talked about the growthin demand for pressure pumping and directional drilling services being asecular, ex-rig count growth as we go after tighter reservoirs and moredirectional drilling. How do you think that impacts your ability to grow ormaintain revenues and profits in North America, assumingthe rig count flattens out here?

Well clearly, there is some offset to pricing from thevolume activity and we've demonstrated the ability to do that. Away frompressure pumping, some of the product lines we mentioned, drill bits and drillingfluids, but I don't think that's really news there, Ken.

But you would expect, even in a flat rig count, to be able toshow some upward revenue in North America in the otherproduct lines, outside of bits and fluids?

Yes, Ken, because we continue to see an increase inhorizontal drilling which will fuel our growth in Sperry. Also, it is the highend fracturing market is differentiated from the rig count and we are seeing alot of our pinpoint stimulation fracturing revenues. As we said previously,August was our highest fracturing month in the history of the company so we'reseeing strong demand for our frac services.

Our completions business is also doing well in North America, as we get reemphasis on that.

I noticed on the share buyback, it was down significantlyfrom what you had done last quarter. Is that something we should expect? Just alittle bit more modest share repurchases, or is there something that drivesthat one way or the other?

Well, we're not looking to make this on auto pilot; in otherwords, that we're buying a certain number of shares or spending a certainamount of money per quarter. Rather, we're trying to take advantage of theunder-valuation for the benefit of shareholders. So when the stock price islow, we buy more stock. As you see our average purchase price during the thirdquarter was under $34, so we buy more when the stock is low. As the stock beganto move up beginning in late August and continued to move up strongly, our bidwas not hit. So it will depend upon the opportunity, Ken, but I think youwill also see that our repurchases were among the largest in the space here in thethird quarter.

Your next question comes from Mike Irvine - Deutsche Bank.

You've given us some sense of your expectations on growth ina couple regions, namely Latin America and Russia.I was wondering, based on what you see today and the visibility you have, ifyou could give us a sense of where the relative growth rates might be or whereyou're going to be growing faster or slower in other parts of the world? Thisis outside of North America, just to be clear.

We do see a lot of areas of good growth for us. If you lookat our Middle East/Asia Pac segment, it's really Chinaand Saudi Arabiathat we're very optimistic about future growth. In Europeand Africa segment, it's really Egypt,Libya, Russiathat we mentioned in the Caspian. In Latin America, Dave’s comments meant Mexico,Brazil, Columbia, and Argentina also drove strong growth, all in excess of 20%,so that's our highlight areas.

From a product line standpoint, obviously our fastest-growingdivisions there as we've been saying are Sperry, completions and wireline.

Specific to Latin America, I wantedto dig in there a little bit. You did say that the new project awards are goingto be essentially on an integrated project basis in Mexico.Is that right?

Yes, that's right.

The track rate of the industry -- certainly not just youguys, but the industry as a whole -- has been having a lot of difficulty with someof those projects in the past. Can you talk a little bit about some of thethings that either you're doing operationally or the way the contracts arestructured to hopefully mitigate some of the risks that the industry has seenin the past on those projects?

Mike, a couple comments. We've had our own experiences thereon those projects and we've learned a lot. The problems we had in the past wereturnkey drilling project bids. We are not bidding turnkey drilling anymore.These are alliance-type projects and we largely influence the customer, that theseare the only projects we would take on in Mexicoin the future. They relate to bundling of our services, providing projectmanagement, drilling engineering. They go with PEMEX-supplied rigs, PEMEX-suppliedtubulars. So it's really a good combination of their rigs and rig personnelwith our discrete services and technologies and then we manage the projects. We'revery pleased with that model of going forward with Mexico.

The pricing there and the incentives, are those performanceincentives or time or cost plus? Could you give us a sense on that?

They're fixed prices for our services, for Halliburton-providedservices. But we are not taking on rig time risk. We are not fixing the priceon the rig time.

Your next question comes from Jim Crandell - LehmanBrothers.

Good morning. I want to go back to U.S.pricing. Are prices weak in a number of these other product lines, both becausethey're weakening on their own and because you're packaging them withstimulation or other services?

Jim, it is largely an aspect of our bundling and the abilityfor us to package the co-offering of Halliburton together in North America. The most competition is in the fracturing segment of thebusiness and we certainly don't want to just compete in the space of thecapacity there. So yes, as we said on the last call, it is bundling and in somecases, we'll do trade -offs on different product lines for the total award. We'vehad some very large awards in the U.S.that we think will serve us well.

Andy, I think on your last call you said there was a lot ofcontractual activity coming in the third quarter. Can you specifically commenton what's already happened? Given how you see rollovers in the fourth quarter,is it a foregone conclusion that U.S.fracturing prices will slip in the first half of the year from current levels?

Jim, I think the best way to characterize it is still themix and we have a large customer base that is on contract and I thinkpreviously, we have characterized that across the U.S.land as 70% on contract and 30% on short-term pricing or call out. So a largenumber of our contracts have been rebid, but we also have a large number outfor bids right now. As we said from the baseline of the first half of 2007 thatwe see less than 5% impact on pricing alone in the second half of 2007, but wesee that largely offset by increased volumes. At this market pricing,Halliburton is very attractive business to get locked up and so we see a verystrong demand for our fracturing services and that offsets the pricing decline.So we don't see a significant impact in the fourth quarter.

Andy, I agree with all of that. My only question was aboutthe first and second quarters of '08.

Jim, I don't think, for competitive reasons, we’re wantingto signal to our competitors what our pricing strategy is here. So we're beinga little cautious.

Just one follow-up question on well stimulation. If you lookat the Speer Study which has recently been done, it shows that the big threecompanies are 52% of horsepower in U.S.land well stimulation, yet the returns of the business are still quite good.There's been a lot of buzz recently about one of your competitors making asignificant offer for one of the large independents out there. Is this a strategy that you would consider going forward ifthe market stabilized? To be a buyer of certain of these independents who haveexpanded capacity recently?

Jim, we wouldn't rule out anything, but I would like to saywe see our growth from our internal, organic growth in fracturing. We're themarket leaders. We're going to stay the market leaders. We have seen that wecan do that with our own growth in the business. Also, with the growth in ourbusiness, taking the technology in the U.S. that is relatively immature outsidethe U.S. -- I'm talking about the pinpoint stimulation, the stage fracturing --that's largely how over 80% of the jobs today are run in North America and westill see a lot of growth for our stimulation business outside the United States,as those technologies get transferred. That's another area that we're focusedon growth, but that will be organic growth also.

Your next question comes from Dan Pickering – PickeringEnergy Partners. Dan Pickering – Pickering Energy Partners: Chris, CapEx looks up fairly substantially year over year. Ithink historically you've talked about '08 as a year of lower spending. Is theincremental spending associated with specific contracts, or is this as theycome type spending?

It's associated withbig new contract opportunities that we see internationally, Dan. Now if we wereto win everything, that capital spending wouldn't cover it; so we're assumingwe win a certain portion of that and that would give us the good utilization ofthat new capital in the range of 1.5 to 1.7. It is planned to be associatedwith new contracts that we take on. Dan Pickering – Pickering Energy Partners: So those are contracts that are out there for bid but havenot yet been awarded, so anticipatory at this point, but it sounds like thenumber or amount of contracts out there has gone up in the last six months?

Some of them are ones we have already been awarded. Otherswill be ones that are to be bid.

We have between $11 billion and $12 billion of contracts outthere that we have visibility on now. What Chris is talking about is the factoringof that $11 billion value to what we feel real confident we're going to win andsome very large projects in the Eastern Hemisphere.

We're also looking at entering a number of new countries in wirelineand perforating. As you know we have taken -- which I think has been a reallygreat strategy over the last number of years in really picking our spots andgrowing our wireline and perforating business. We see a number of markets inthe Eastern Hemisphere that are begging for a wirelineand perforating business to go in and provide some competition. We are going toenter one, if not more, countries next year. We have to build up our equipmentto do that. Dan Pickering – Pickering Energy Partners: Andy, the $11 billion to $12 billion of projects, thatnumber would have been lower six months ago?

Yes. We were tracking in the $7 billion range, Dan. Dan Pickering – Pickering Energy Partners: I want to make sure I understood the discussion around the U.S.market and pumping. Dave, I think you said price pressure less than 5% July 1through December 31. I wanted to understand, is that Halliburton-specific orthe spot market? Can you help us with what percent of your revenue in thepumping business are this high end, pinpoint, multistage versus the standardgeneric fracturing?

Dan, the 5% basically is specific to Halliburton since wedon't have insight into anyone else's results. I think given the fact that wehave captured the high end of the fraccing market, I don't think we are quite assusceptible, if you will, to some of the real huge discounting people arehearing about in pressure pumping, and fraccing in particular, in North America. As I said in the discussion, there is a fair amount of workbeing bid out there right now. It is, in many cases, some very good, high endstuff. We don't want to give away our bidding strategy on it, but I think we'llcome out fine on it.

Your next question comes from Geoff Kieburtz - Citigroup. Geoff Kieburtz - Citigroup: A couple things on North America. Youseem to tie the restructuring of the business to cost pressures and all of thepricing pressures in North America. Can you tell us alittle bit about where you are in terms of realizing the benefits you expectfrom that?

I think that it is really a combination of things. I thinkwe owed it to ourselves and to our shareholders as we completed the separationof KBR to make sure that we had the appropriate management structure andmanagement team in place to handle a very focused oil field services company. Butwe also weren't immune to what we saw going on over the summer in the NorthAmerican market. Clearly something was going wrong in Canadaat the time, and so I just thought it was prudent for us to take a look at ourstructure, at the management team we had, and make sure that it was the rightone to get focused on the operations that we had. So we made the changes. We did have some costs in there related to the severance andrestructuring but really, I wouldconsider it more of a continuing, ongoing tweaking of our organization and anaggressive management of our U.S. cost structure. I think that we're trying tomake it scalable for the business we see out there. I don't think we are prepared nor would we want to say whatsort of cost reductions or benefits we might see out of it, because I think atthis point in time, that's a competitive advantage we have and we want to keepthat in-house and use it where we see fit. Geoff Kieburtz - Citigroup: Would you say you're ahead of the current market or in-synchwith the current market in terms of your cost management efforts?

Geoff, I think we try to always stay in synch with where wesee the current market, because I think that we did a pretty good job calling thelast upturn in North America and added capacity andpeople ahead of time. We were able to capture that market when it came around. Ialso think we were maybe a little bit on the front end of some of the scalingback when the last bumps in the road happened over the summer. We have a really good management team running our NorthAmerican business, and I would say they've got a good feel for things andthey're really in-synch with where the market is today. Geoff Kieburtz - Citigroup: With that in mind,and with the comments you've made already about the overall market environment,how confident are you you're going to deliver an increase in North Americanprofit contribution next year over this year?

You're talking about absolute operating income dollars? Geoff Kieburtz - Citigroup: Yes.

Then I think we're very confident we're going to producemore next year. But as I indicated, I think with some of the pricing pressureswe see out there, it could have some downward pressure on our operatingmargins. But overall operating margin dollars, we believe, will be up. Geoff Kieburtz - Citigroup: I think Andy mentioned in talking about the Eastern Hemisphere, that the Khurais project was reaching its peak. Iwondered if you could elaborate a little bit on that on a couple dimensions. Doesthat mean it is about to start rolling over and decline? How do you see thetiming of the other opportunities you've spoken about, related to whatever thetrajectory is on Khurais?

Geoff, the good news is that the original drilling targetsthat Saudi Aramco had on the project, we far exceeded that to the scale ofbeing over 30% ahead. We're very efficient. Our Sperry operation is doing anexcellent job, and we talked about our real-time capability that also reallyenhanced the operation of those remote rigs. The project scope from thecustomers’ perspective has not changed. We're just delivering it moreefficiently. So we have another year, a good year of that project, because itwas a megaproject. We see it tailing off in the later part of 2008, justbecause we're completing the project early.

It's ramped up to its sustainable full speed for anotheryear, and then it begins to tail off from there. Geoff Kieburtz - Citigroup: How do you see the timing of those other opportunities youtalked about? Do you expect to be able to capture enough in those otheropportunities in a timely fashion that the increase from the other projectsoffsets the rolling over on Khurais? Are there going to be timing issues there?

Geoff, we have bid Manifa, as have our main competitors, andwe have not heard any response back yet on that big project. We still see greatopportunity in Saudi Arabia overall from the other projects they have going andso we still expect more than 20% growth from Saudi Arabia, irregardless of theoutcome on Manifa for next year.

Your next question comes from Roger Read - NatexisBleichroeder.

As you looked at the international regions, you've runthrough various countries where the audits show pretty good growth 2008 versus2007, and even in 2009. You gave some specifics on Latin America.Could you give us some indication of top line growth you would expect out ofthe Europe/Africa or the Middle East/Asia segments?

Overall, our Eastern Hemispheregrowth, we continue to expect very good growth there. We don't have a specificnumber we're going to give you here on that, Roger. Continue to look for the20% growth level for our international operations.

The Gulf of Mexico impact, how you actually would quantifythat and given that we've seen the rig count tail off there, do you actuallyexpect to get a recovery in the fourth quarter? The Dresser issue, is that pretty much, do you think, now aclosed item or is there some potential or residual risk that may have to bedealt with at a later date?

The Dresser/Baroidmatter was a specific case that is now settled and it has to do with NL andBaroid before they were even a part of Dresser. Of course, a company this sizedoes have ongoing environmental matters in litigation to deal with, but thatmatter is settled.

Roger, we did lose two weeks of activity, especially in thedeepwater area, and we had 17 deepwater rigs and 13 shelf rigs shutdown during HurricaneDean. It also impacted us for almost one week of offshore work in Mexicowhen the storms hit Mexico,so it had a significant impact on us in the third quarter.

Both in the Gulf andin Mexico. Probably$25 million or so in total.

Your next question comes from Scott Gill - Simmons.

On the Eastern Hemisphere revenuegrowth numbers of around 28%, 29%, when you back out the acquisitions -- forexample, PSL -- what was the organic revenue growth numbers for Eastern Hemisphere?

PSL was very small this quarter. They are just ramping up atthis point. We have some good bids outstanding for them, but it's not major or significantat this point, Scott.

Fair enough. Last year in North America,we saw the Rockies have a pretty substantial impact toyour business, particularly in the first quarter, but we see regional gas priceweakness in the Rockies again this year and of course wehave the environmental restrictions that get applied here in the winter months.Should we be expecting a similar type of seasonal impact to your numbers in thelate part of Q4 or early part of Q1, or not?

Scott, we do see the same seasonal impacts and the holidayimpacts that we saw last year could impact us again this year like they hadlast year. But we have a very strong Rockies positionwith the express pipeline coming online we see some stabilizing of Rockiesgas prices and local prices in the first quarter, and that may help us. We predictabout the same as last year.

Your next question comes from Ole Slorer - Morgan Stanley.

You did a lot better than most of us thought in NorthAmerica sequential margins, from 27.1% to 28.2%, even allowing for the reboundin Canada. You mentioned something about bundling pumping services with othersegments of your business and therefore, being able to drive a higher netmargin. How much of what seemed to be a very good performance wasdue to this item and how much was due to maybe you have a very strong positionin, for example, the Rockies? To what extent were you able to go in and maybeearly on negotiate pricing at better levels in some of those segments?

Ole, I think you're right on both counts and both had apositive impact. The bundling certainly is part of our strategy, as we takeadvantage of the breadth of Halliburton in our offerings. Being the marketleaders and having a very strong position and having the personnel; I mean,trained personnel is a huge issue right now in the industry and we have a verystrong group in North America, especially in the Rocky Mountains that you mentioned. That does help us negotiate ahead ofcompetitive bidding, where people want to stick with Halliburton and not havethe interruptions in their operation. Both of those helped us. We also had very strong demand for our services, bothfracturing and cementing. The activity driver and the efficiency model thatDave talked about really drove a lot of our results in the third quarter.

So when we look into the second half and you highlighted 5%pricing deterioration is achievable because of your quality, if you looktowards some of the segments of the market that you might be abandoning such asthe more commoditized part of the stimulation market, what are you seeing otherpeople’s pricing doing in those segments of the market on successful bids?

We are seeing some aggressive discounting in the market.Again, I don't think it's helpful for us to engage in speculating about what wewould do or what others are doing specifically. Ole, suffice it to say that weare seeing some aggressive discounting in the commodity end of the market fromthose who don't have the utilization that we do.

Your next question comes from Michael LaMotte - JP Morgan.

Chris, a couple of quick clarifications if I could. First,the positive change in working capital this quarter, what was behind that? Apretty big positive jump.

We did have an increase in receivables. That's in partlinked to the shift to more international business where receivables do tend tobe a bit longer. I think we'll see that stabilize. With the increased attentionit's getting, I don't think that rate of growth will continue. Also as we are bringing on these new manufacturingfacilities that were mentioned in Southeast Asia and Mexico and so forth, weare bringing more inventory, raw material and work in process up, so that'sgoing to be part of it. That goes with the territory, there.

Was there any revenue pick-up from the acquisition in thequarter?

Minor this quarter, less than $30 million. That will begreater in future periods as we integrate that with our operations and as welearn about the bids that we're now making for that equipment.

On Saudi, the growth comment that you're talking about '08,is that simply just operating at a higher plateau level on Al-Khurais so thatyou get year-on-year pickup? Do you actually see that 20% number being up fromcurrent levels at Al-Khurais? I'm trying to get a gross versus net sense as towhat your activities in that market look like.

What we're saying iswe ramped up through 2007. We're now at the peak level at Khurais and we see asustained year of maintaining this level of drilling activity. That drives alot of the growth. Also, we still see good opportunities. We have new screenofferings that we are introduced into Saudi Arabia. We have growth in our Smart Wellbusiness through Well Dynamics, we see growth there. So a lot of our high-endoffering we still see penetration because Saudi Aramco continues to be a goodtechnology buyer and so there will be growth in both the sand screens and SmartWells, along with our drilling on Khurais.

So we should reallythink about it not so much in terms of counting rigs, but product penetrationand the cyclical evolution of that market?

Exactly.

On the efficiency question, I'm trying to get back to thispoint of how much of it is process and ongoing and something that we can expectto be there in potentially volatile quarters in the future? How much of it isyou guys moved aggressively on Canadain particular and parts of the lower 48 in the March/April timeframe of this year and so you sawsome real benefit from that in the third quarter? Can you give us a sense as to lumpiness versus smooth impacton the efficiency side?

Mike, Ithink it's largely we did exactly what we said we were going to do. We movedequipment out of Canada and people early. We took advantage of them through thethird quarter. Some of that equipment and personnel, because of the softness inCanada, is going to stay in the U.S. We took some to Latin America also and we did see very goodopportunities to capitalize on that. If the Canadian market strengthens in the end of the fourthquarter and first quarter, we'll opportunistically move some resources backthere. But we see that as a very fluid movement across the border. We had someadditional fracturing and cementing equipment come out in the second half ofthe year. We're taking full advantage of that extra capacity we have.

Some of therestructuring that we've done in the third quarter, those costs were incurredin the third quarter. We'll have the benefits going forward. There are moreefficiencies to be gained.

Your final question comes from Kurt Hallead - RBC CapitalMarkets.

You talk a lot about the gains that you're making in a numberof different markets internationally. I think a lot of people may look at thatand question whether or not that is coming at some element of a discountingfrom a pricing standpoint. Obviously, that's not always the answer. I wonder ifyou could provide some color as to these gains that are coming. Is it coming onpricing? Is it coming on reliability, technology? Anything along those lineswould be helpful.

If you look at the fact that our margins are consistentlygoing up in the Eastern Hemisphere, I think that wouldindicate that we are not chasing that work by essentially buying it. I thinkthat we have indicated in the calls over the last year or so that we haveheavily invested in our Eastern Hemisphere infrastructure, both in terms ofhiring and training new, young engineers; expanding our facilities; and,investing in capital equipment. We continue to do that and our margins continueto expand and our revenues continue to grow. So to me, I think it's a very good combination and it seemsto be working. It's certainly something that we are going to continue to do. Iwould say, no. I don't think we are pursuing a growth strategy via discounting.I think we're doing it the old-fashioned way and it's paying off for us.

A lot of focus, obviously, on North American pricing trends.Can you give us some color, some sense on the international front? Are therestill elements of pricing power or would you consider it more flat?

It's very hard, Kurt, to generalize about the internationalmarket. Each market, each bid is its own microcosm. I think in general, there is modest priceimprovement, but price is not going to be the biggest driver of internationalgrowth; it is going to be volume. Just as we were saying, if we can get the additionalequipment out there as we now are able to with our greater manufacturingcapacity, we'll be less constrained in our resources. There is demand, thereare contracts we're taking on and we see that good growth and margins building.

Thank you all for joining us. We appreciate your attentionand we'll talk to you next quarter.