Jeff Tillery – Tudor Pickering Holt & Co. Ole Slorer – Morgan Stanley Robin Shoemaker – Citigroup Michael Urban – Deutsche Bank North America

Welcome to Halliburton’s third quarter earnings call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host today, Christian Garcia Vice President Investor Relations.

Welcome to the Halliburton third quarter 2009 conference call. Today’s call is being webcast and a replay will be available at Halliburton’s website for seven days. The press release announcing the third quarter results is available on the Halliburton website. Joining me today are Dave Lesar, CEO; Mark McCollum, CFO; and Tim Probert, President Drilling and Evaluation Division and Corporate Development. I’d like to remind our audience that some of today’s comments may include forward-looking statements reflecting Halliburton’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 10K for the year ended December 31, 2008, our Form 10Q for the quarter ended June 30, 2009 and current reports on Form 8K. Note that we will be using the term international to refer to our operations outside the US and Canada and we will refer to the combination of US and Canada as North America. Our comments include non-GAAP financial measures. Reconciliation to the most directly comparable GAAP financial measures are included in the press release announcing the third quarter results.

Here’s a summary of our overall results for the third quarter. Total revenue for the third quarter grew 3% from the second quarter and represents the first sequential revenue increase we’ve experienced since the fourth quarter of 2008. Most of our product service lines registered sequential growth from the prior quarter with software and asset solutions and production enhancement showing mid to high single digit growth from second quarter levels. Our international business registered an overall revenue increase of 3% despite a 1% decline in the rig count from the prior quarter. While there is a risk of further decline in international activity in the coming quarters I am more optimistic than I was previously that this downturn will not match previous cycles in terms of duration and depth. However, we believe operators will not materially increase their spending levels despite stable commodity prices without compelling evidence of recovery in hydrocarbon demand. As a result, they continue to reduce capital expenditures by deferring projects and exerting pressures on the oil service companies to improve their project economics. In North America the market continues to be challenging. Natural gas fundamentals remain fragile despite the first signs of a supply response resulting from the severe curtailment in drilling activity. Weak domestic gas demand coupled with the productivity of the new shale resources has led to gas storage reaching record levels. We believe that a significant improvement in the natural gas market in the next few quarters is unlikely without the resurgence of a broad market economic demand in support of winter withdrawal and supply patterns. While we suspect that the industry will see accelerating production declines in the coming months in response to reduced drilling activities, we don’t believe these declines will be adequate to provide a meaningful near term correction of…

Let me provide you with our third quarter operational highlights and I’ll be comparing our third quarter results sequentially to the second quarter of 2009. Our revenue in the third quarter was $3.6 billion, up 3% from the second quarter. As Dave mentioned, this is the first time since the fourth quarter of 2008 that we have shown a sequential quarterly increase. On a geographic basis, most regions grew sequentially led by our eastern hemisphere regions, each with a 4% increase. International revenue grew 3% versus an average international rig count decline of 1%. North America revenue grew 2% despite the challenging pricing environment. Total operating income for the third quarter of $474 million was essentially flat from the previous quarter as increased operating income in international markets offset continued weakness in North America. In addition, we’ve recognized $28 million in employee separation costs during the third quarter as we continue to execute our cost control program. Our second quarter 2009 results included $17 million in employee separation costs. International margins in the third quarter were 22% excluding employee separation costs up from the second quarter due to strong completion tool sales in the Middle East Asia and pipeline service and vessel activity in Europe Africa CIS. These types of activities tend to be lumpy from a timing standpoint. In fact, our other international region, Latin America registered a margin decline from the second quarter due to lower activity in select markets and the impact of pricing pressures. As Dave indicated, despite the overall strong margin results for Q3 we believe that our international margins are at risk to fall in to the upper teens over the next five quarters driven by lower pricing. The timing and the depth of the margin decline will be dependent on various project start…

Earlier this year we discussed the parallels of this cycle compared to previous cycles. This quarter provides the industry with additional reference points and with that in mind it’s a good time to revisit analogies from past downturns. Based on the familiar mix that we’ve discussed earlier in the call of supply, storage and demand, it’s our view that the North America cycle could be consistent with that of the 2002 recovery. In 2002 gas directed recants rebounded from trough levels and were then range bound for around 33 weeks versus being range bound for around 17 weeks at this point in the 2009 cycle. If we follow this pattern, then drilling activity may remain at restrained levels in to the first half of 2010 before demonstrating a meaningful increase. Complicating factors in the recovery include shut in wells and the impact of the 1,300 to 1,500 wells which have been drilled and not completed as referenced by Dave earlier. The largest concentration of these appears to be in the Barnett. For reference, there are approximately 4,200 gas well completions in the second quarter, down sharply from last year. Accordingly, the inventory of wells is now becoming statistically significant and could represent 7,000 or more frac stages. Internationally the ’97 cycle took about 84 weeks to reach trough and then rebounded sharply. Currently, we’re in the 48th week of decline but expect that this international downturn will be shallower in aptitude and shorter in duration than the previous cycle. In our view, the industry supply issues impacted primarily by accelerating decline curves are more pervasive today than they’ve been in the past. While operators are continuing to constrain incremental upstream spending, they’re taking advantage of lower service costs while keeping activity levels relatively steady. However, as prolonged under investment exacerbates supply concerns, this may lead to a robust rebound in international activity as the global economy recovers. We’ve been working hard to execute our strategy and as Dave pointed out the current Spears oil field market report provides additional data points to support our progress. Halliburton participates in roughly 25% to 30% of all the oil field segments monitored by Spears. According to the latest report, Halliburton is growing share by 5% to 9% across all of our product lines except in directional drilling and testing where they report an approximate 15% in these businesses. We’re especially pleased that our directional drilling business has overtaken our closest competitor and garnered the number two spot. The same holds true for our drill bits product line where we’re now the number three player in that segment.

To summarize we’re seeing signs that pricing has bottomed in North America, though as we said margins may decline slightly in the fourth quarter due to the items that we enumerated. Our international market and outlook remains unchanged. Operators are currently not increasing their spending until they see evidence of broad based demand recovery. We believe margin degradation is possible over 2010 based on the competitive tendering we’ve seen although we may be able to mitigate some of this will cost controls and increased volumes from the recently awarded work we’ve gotten. We are successfully expanding our market position in key markets during this down cycle and we believe that by deploying our resources where we think activity will be robust, we will retain the share gains that we’ve experienced and accelerate our growth once the industry rebounds. I think it’d be good to open it up for questions at this point. Christian do you want to lay down the rules?

We will entertain questions. Please be remind that we will just have one question and one follow up for each caller.

(Operator Instructions) Your first question comes from Bill Herbert – Simmons & Company International. Bill Herbert – Simmons & Company International: Dave, you mentioned that you were more confident with respect to the international markets and you provided some commentary along those lines but you also mentioned that you were seeing continued reticence on part of the IOCs with regard to prosecuting spending increases due to a lack of confidence, demand, so forth and so on. How is your increased confidence internationally manifesting itself with respect to your international business?

I think Bill in a couple of ways, one if you look at commodity prices have bounced around a little bit in Q3 but it now seems to be settling sort of in the $70 to $80 range. Part of it is just due to a lot of the discussions that I’ve had with our customers in the international market place about their spending plans and the fact that some major projects like the Gorgon project and several of those have now been sanctioned and are going forward. I think as one IOCs sees other IOCs stake big projects forward, then I think that just tends to build on itself. So, I think it’s really been more based on discussions and my confidence level is therefore increased that this is not going to be maybe as hard a downturn as we thought or I thought a quarter or so ago. Bill Herbert – Simmons & Company International: Secondly, with respect to the follow up, if you could provide just some brief commentary and outlook and insight with regard to two markets, Mexico especially Chicontepec as well as Iraq.

Let me handle Iraq first, actually I was recently in Bagdad and there’s clearly a lot of activity, a lot of people are going in and out of there. It certainly is a market that has a lot of reserve base that will support I think a large and diversified oil services industry going forward. I think it’s also going to be a market that really sort of calls for every type of philosophy of service work from an integrated packaging drilling market to traditional services to maybe even some risk taking. I think there’s really going to be some room for all of that in there. That being said, there’s really not a lot going on in there other than people looking at building some infrastructure. We are in the process of staffing up in Iraq, we are moving equipment in but I really don’t see that we will have a significant revenue stream out of there certainly for several years. We will have revenue, we’ll have revenue this year, we’ll have more revenue next year but it’s not really going to be meaningful I don’t think for a couple of years but clearly it is a big prize out there for oil services. I think you see everybody trying to establish a base there and we’re no exception. Clearly, a great future there and one we will participate in, in a big way. In Mexico, I think everybody has sort of been reading the news around Chicontepec, we obviously have some exposure in Chicontepec with some of the projects that we have won. We don’t have the exposure that maybe some of our competitors do. I think that there clearly is a rethink going on within Pemex on the contracting philosophy around Chicontepec. Right now the contract philosophy has been sort of drill the cheapest hole and really don’t worry about maximizing production. I think that concept is being rethought within the upper reaches of Pemex and we think that perhaps they would envision changing that contracting philosophy going forward to make it more of one that increases production versus just drilling the cheapest whole. We are just getting started on our Chicontepec project and it really isn’t providing any meaningful revenue or operating income at this point in time so we continue to watch that market and see whether that philosophy is going to result in a change.

Your next question comes from Geoff Kieburtz – Weeden & Co. Geoff Kieburtz – Weeden & Co.: First question on international margins, if I understand your comments correct it sounds like you’re still looking at a 300 to 500 point basis compression but it’s from the third quarter level of around 22% as opposed to let’s say the second quarter level. Is that correct?

I think Geoff that if you look at what we said last quarter, we thought it would be 300 to 500 basis points and our margins were lower. Our margins are a bit higher this quarter which is why I think we’ve adjusted our thinking in to the high teens from the mid to high teens so I think generally you would conclude that – let me just reiterate now that you sort of opened the door there. The issue is if you look at the pricing that we’re having to tender to work it would suggest and will result in lower margins going forward. However, because of the length of time we have to prepare for these contracts we also can more easily adjust our cost structure to anticipate that revenue stream and therefore perhaps some of that pricing decline can get mitigated especially the more time you have to get ready. So, I’m not trying to be cute here it’s just that the more time you have to get ready for a project the better you can do to get your cost in line. One of the silver linings I think of this slowdown has been even though a lot of this work has been tendered and we’ve been successful in winning it the delay in implementing these projects has in fact given us more time to work on our supply chain and to work on our infrastructure costs to try and offset some of the margin decline that you had to give up in pricing. That’s really why we believe the pressure is going to be there but the longer we have the less that impact is going to be.

Just to add some color on that Geoff, I calculate that probably about 50 basis points of the margin improvement in Q3 is due to cost savings. Geoff Kieburtz – Weeden & Co.: As a follow up to kind of the comments you’ve made Dave are pretty broad and would apply across your international business in terms of supply chain and so on but as you look are there markets where you would expect to see perhaps no margin compression or markets where you would expect to see outsized margin compression? And, if you do see differentials would that be more because of mix, differential pricing pressure or really just the timing of projects?

I think Geoff I’m not going to be as foolish to say that there’s a market where we won’t have any compression or I guarantee our customers in that area will come straight at the service industry and want some compression of margins. But, there are markets like that but I’m certainly not going to enumerate them. There are markets that have gotten very, very competitive just because of the prizes that are out there, two that would come to mind. The first would be Brazil, we’ve been very successful in winning projects down there but that’s also a very big prize that our competition also sees and I think therefore the pressure on the tendering process has been pretty good. West Africa and Angola would be another where you see big projects, long term projects, lots of dollars involved and those also have tended to get very, very competitive. Then, I would say the markets where activity is less robust but us and our competitors sort of have large embedded infrastructures like the North Sea where there is very little activity going on but a large fixed cost base so anything that comes up for tender in an area like that, and I’m talking about the UK sector of the North Sea, also tends to get very, very competitive in terms of pricing.

Your next question comes from Brad Handler – Credit Suisse. Brad Handler – Credit Suisse: I guess the first question is the recontracting cycle often as you head towards the end of the year you end up recontracting with your clients, has the current market changed that? Did you do so much recontracting in the first half of the year and fixing your pricing basin out for a while that we’re not going to see or hear a lot about the recontracting now as we turn towards the end of the year?

I think yes, you will not hear much about it as we get to the end of the year mainly because that philosophy has essentially been tossed out the door by our customer base because of the over capacity, especially in the pressure pumping side of the business I wouldn’t quite say it is a job by job but certainly it’s maybe a 30 well program of 50 well program at a time and then the customer tends to go out and retender it or rebid it or in many cases with us renegotiate it. It doesn’t go out for tender but they try to renegotiate sort of based on the current market. So the process that was in place over the last several years when things were a lot busier for the service industry was to try and tie up a service company for a year, negotiate a price and then sort of sit back and say, “Great now I have the resources.” With the excess capacity that’s available today customers fee no compunction about tearing up an agreement and basically taking it back out for tender. I don’t really see that that is going to change until some of this overhang of equipment goes out of the market. Brad Handler – Credit Suisse: I guess another Q4 type of question, as it relates to what I’ll call the normal seasonal uptick in things like export sales and your wireline business and the tools business, often I assume you have some visibility about that. Where do you see that as it relates to this Q4 and what does that say about what the customers are willing to commit to regarding programs for the following year?

I would say that’s a thing that has changed also a bit. We have pretty good visibility in terms of backlog for traditional sales and we’re not seeing the buildup in backlog that we typically would this time of year. I think part of it is just our customers are also paying a great deal more attention to their inventory supplies, their supply chain. As our supply chain has gotten more efficient at being able to produce and ship stuff on a real time basis, our customers have started to draw down their own inventory stocking expectations. Then of course, I think you’ve got the whole element of the projects that have slowed down and now knowing when they’re going to start up. So, I don’t think you’re going to see, and that’s part of what we’re trying to broadcast here, I don’t think you’re going to see the spike up of sales that we typically see in Q4, at least our order books wouldn’t support that at this point in time. That doesn’t really concern me greatly because as I said I think part of it is just more a sufficient supply chain all the way through the industry but certainly some of it is a reluctance on the part of our customers to spend what capital they have here the balance of the year. I would hope that we would see that backlog pop up as we get in to next year but we’ll just have to wait and see.

Your next question comes from Alan Laws – BMO Capital Markets. Alan Laws – BMO Capital Markets: I have a couple of questions, the first one being on you seem to have gotten a lot of fluid contracts recently. Can you tell us what’s kind of changed or changing at Baroid? Is this just like a cluster or is your competitive position changed at all?

Alan, we’ve had as significant focus on Baroid over the last couple of years. Jeff Miller who leads that product line has been really very focused on developing a strategy to essentially rebuild and strengthen the franchise. It’s one which has been particular successful so I wouldn’t characterize this as sort of a flurry of activity around a sort of concentration of particular bids, it’s really more sort of a fundamental structural change in the way in which we do business and as a result of that we’re obviously looking for sustainability in terms of performance of Baroid. Alan Laws – BMO Capital Markets: Is there a mix improvement as well and more deep water?

Very much so. I think that we’ve clearly been significantly more successful in deep water and that’s all about gaining confidence of our customers since deep water is something which they take very, very seriously in terms of service selection. So, Baroid’s success rate in deep water is clearly is a function of the confidence that they’ve built with major customers around the world. Alan Laws – BMO Capital Markets: I have another question, more of a high level issues question, can you talk a little bit about the controversy this sector faces in respective to frac fluids and sort of the breadth wing that we have on the environmental side?

I think that clearly there has been a great deal of discussion around sort of the whole legislative process and not to sort of belabor the point I think that clearly studies that have taken place through the years have really detected no evidence that fracturing has any impact to drinking water sources which has been the primary focus of this discussion since its inception 60 years or so ago. So, we’re continuing to work and investigate opportunities within our technology to minimize exposure and as an example of that, at the SPE just last week in fact, we introduced something we call a chemical scoring index which provides a benchmark metric on sort of the relative environmental performance of our suite of fluids and enables our customers to really make a selection of treatments based on the balance between reservoir performance and environmental performance. We certainly anticipate this becoming an industry benchmark which we hope will drive sort of an increased awareness in environmental issues and stewardship and at the same time provide us with an opportunity to continue to advance the science around improving our customer’s performance of their wells. Alan Laws – BMO Capital Markets: Just sort of more of an educational issue for customers and politicians?

Yes, I think it will give our customers an opportunity to select the appropriate fluid that gives them the balance between environmental sensitivity and also reservoir performance.

Your next question comes from Jeff Tillery – Tudor Pickering Holt & Co. Jeff Tillery – Tudor Pickering Holt & Co.: With regards to Russia, and you guys showed a really big sequential increase in that market. One of the industry kind of recount services showed a fairly significant drop off in September of activity. Is that something that you guys saw in the field or is Russia just kind of pushing forward ahead?

We’ve been very pleased with our performance in Russia. I think when we take a look at Russia overall I mean clearly 80% to 85% of the production today is coming out of Western Siberia which is a very, very mature province. As Russia looks to sort of try and maintain its leadership position if you’d like in terms of global production it’s going to force a great deal of incremental activity in to Eastern Siberia and other locations all of which are significantly more service intensive locations for companies like Halliburton. All-in-all we’re very positive on the outlook though of course as Dave pointed out in his commentary there are sort of some financial overtones which still have to be resolved in order to perhaps allow Russia to achieve its full potential. But, we don’t think that the month-to-month data collection is probably a little bit iffy. We certainly didn’t see any significant change which would alter the picture which we outlined on the call here. Jeff Tillery – Tudor Pickering Holt & Co.: Then an unrelated follow up question, just regarding some of the contracts that were negotiated earlier this year internationally I believe had some oil price escalation clauses in them. Presumably those oil prices are at a point where those clauses could potentially kick in. Could you just comment on how Halliburton is treating those and if you’re trying to push for higher pricing or increased scope on those contracts?

Yes, those escalators basically include in a number of cases oil price triggers for a period of time so it is necessary for those oil prices to be sustained above a certain level for a period of time. Clearly that gives us the right to have a discussion with our customers and we’re certainly having discussion with a number of our customers but we’re also in a very competitive environment Jeff so we’re reserving that right but the timing of improvement in pricing relative to those triggers is yet to be seen.

Your next question comes from Ole Slorer – Morgan Stanley. Ole Slorer – Morgan Stanley: First of all back on the fluids situation again, would you say that you are clearly gaining market share given the announcements in your press release but are you gaining market share by replacing incumbent operators or are you gaining market share by winning new rigs that are coming in to the market?

I think the answer to that is really both and the deep water experience has been a function of both and that’s obviously one which everyone pays a great deal of attention to. I guess the short answer is both the combination of new rigs and also replacing incumbents. Ole Slorer – Morgan Stanley: A little bit more specific, is it predominately – I mean Brazil is clearly replacement but on the other rigs are they new rigs, is it evenly balanced or is it predominately one of them?

I can’t really sort of give you a detailed breakdown of that Ole but it’s a combination of both of those elements. I think to sort of elaborate a little bit further, certainly the data would suggest that we have indeed been gaining market share and we’re obviously very proud of that. Ole Slorer – Morgan Stanley: On the market outlook Tim, you gave a pretty robust outlook while the reference of previous cycles I don’t think we’ve ever had a cycle where $77 dollar oil is a trough. But, you seem pretty optimistic when you said a vigorous international recovery yet Mark you continue talking about your 300 to 500 basis point negative margins so there seems to be a little bit of a dichotomy between the way the two of you are describing the outlook. Could you clarify if you defer at all?

I think it’s important to understand that we have a pretty robust view of the international markets. We’ve seen the contracts that have been tendered so we know that there is a good revenue stream that is going to come off of those contracts but they are not going to be at the margins we saw at the peak in the last cycle because of the longer term nature of the international contracting market. Therefore, you could see the revenues kick up but they’re not going to bring with it initially the incremental margins that we would have seen two, three, four quarters ago because it will take us time as I said, to make sure our costs are in line, our supply chain is in line and then we can bring appropriate new technology in to those contracts and upsell from that opportunity. So, I really would think of it as sort of a dichotomy in the view. Clearly, we see a kick up on the revenue side but the margin side I think is going to lag and that’s what we’re trying to sensitize our investor base to is that we’re not going to have the kinds of incrementals you saw 12 or 18 months ago. It’s going to take some time to work our way back to those incrementals but as activity does increase then the margins will start to come up. Ole Slorer – Morgan Stanley: So we’re led by a strong revenue growth and then margins follow later?

Exactly. That’s what we’re trying to say.

Your next question comes from Robin Shoemaker – Citigroup. Robin Shoemaker – Citigroup: I wanted to ask you about the market share gains in North America that you referenced. I know you’ve had an initiative to try and bundle or package your products. A typical package might be bits, motors and mud. I wonder if that is having some success or if you can give us an update on that strategy?

I think it is having a success. What we’d like to do is package bits, motors, muds, frac and completions but as Tim has said and I have said we’ve been very successful at doing the bits, muds and motor piece but because of the really pretty amazing number of wells that are being drilled but not completed right now you aren’t able to sort of bring the full suite of services to bear. But, there clearly has been a push on our part to do that and in my view we’ve been very successful at it. When we get back to a more normal routine of basically being able to do what is essentially a turnkey well from the drilling all the way through completions, I think that strategy will pay even more but it certainly is paying even in this marketplace. Robin Shoemaker – Citigroup: Just following up on your comments about the pressure pumping equipment supply relative to demand and I think you’ve cited that the wear and tear on pumping units have increased and I think we’ve seen examples in the Haynesville wells which are notorious pump eaters and I think you’ve experienced that as well as others. Predominately, where is the excess use and wear and tear coming from that is leading to perhaps a greater rate of decline in the pressure pumping unit supply?

Generally Robin I would say that the combination of sort of high pressures, high temperatures and long, long stages are really driving the sort of wear and tear equation. As we outlined before, and I think as many others have outlined in the industry, we’re certainly not alone in that factor that this is a source of potential using up of equipment if you like and restricting the amount of capacity that is ultimately going to be available. It really benefits those and certainly rewards those that have strong maintenance program and those that continue to invest in making sure that their technology is up to date to service these wells. In some respects it’s not a lot different with drilling equipment either. So, I think it’s just a general source of tougher more complex wells which require more service intensity than we have historically seen.

We’re seeing this particularly in the Haynesville. That’s an area where this situation is most acute and as we see our customers they might go and use equipment that is under power for it and they’ll walk away from it because of poor service quality and the inability to meet their requirements on getting those jobs done.

Your last question comes from Michael Urban – Deutsche Bank North America. Michael Urban – Deutsche Bank North America: I wanted to talk about the margin dynamic you talked about a little bit in the US and some of the higher end shale plays were potentially coming under some pressure there. Presumably that is because you’re coming from a higher level there, the rest of the US has been pretty depressed for a while and I believe margins have held up a little better in that space and now you’re seeing competition come in. Is that reasonable?

I think it is two things, one is that as we’ve successfully our market share strategy a lot of our competitors, especially the smaller competitors have really concentrated their efforts in the two big shale plays that are robust today, the Haynesville and the Marcellus. I think if you look at where there is the most over capacity in the industry and pressure pumping today, it clearly is in those two basins. Then, you couple that with the very difficult frac conditions that Tim just talked about so you are having to bid fairly cheap to get work but then the work you are doing is very tough and consumes a lot of profit, it consumes a lot of pumping time, you have to take a lot of equipment to location so therefore you don’t get the efficiency that we typically would have in some of the other more established basins around the US. It’s pretty clear that as time went on in the other basins in the US we had figured out a way to sort of most efficiently frac wells. The level of activity to date in the Haynesville hasn’t allowed us to be able to get that model precisely where we want it. We certainly are making progress in that area but I think if you couple a relatively inefficient way of fracing right now with a way over capacity of competitors that are in those markets it really makes for a very, very fierce competitive situation. We’re well suited to fight in a market place like that and we very much are. Michael Urban – Deutsche Bank North America: I think you basically just answered this but, going forward as you are able to drive those efficiencies as you have in the past, as the competitors presumably aren’t able to perform as well as you think you are or will be, that’s still going to be a very good market for you rather than a market for your customers?

I think that it will be a good market for both of us.

Before we close out our call we would like to announce that our fourth quarter 2009 earnings call will be held on January 25, 2010 at 9 am Eastern. Please mark your calendars and thank you for participating in today’s call.

Ladies and gentlemen thank you for your participation in today’s conference. This does conclude the conference. You may now disconnect.