Evelyn Angelle, Vice President of Investor Relations David Lesar, Chief Executive Officer Christopher Gaut, Chief Financial Officer Andrew Lane, Chief Operating Officer

James Stone, UBS Geoff Kieburtz, Citigroup James Wicklund, Banc of America Securities James Crandell, Lehman Brothers Scott Gill, Simmons and Company Dan Pickering, Pickering Energy Partners Robin Schumacher, Bear Stearns Michael Urban, Deutsche Bank Ken Sill, Credit Suisse Kurt Hallead, RBC Capital Markets

Good day everyone and welcome to today’s Halliburton company Fourth Quarter 2005 Results Conference Call. Today’s call is being recorded, at this time for opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations Ms. Evelyn Angelle. Evelyn Angelle, Vice President of Investor Relations: Thanks Dustin. Good morning and welcome to Halliburton’s fourth quarter 2005 earnings release conference call. Today’s call is being webcast and a replay will be available on our website for seven days. We are also pleased to announce that we are the first among our peers to offer a podcast download, which will also be available on our website within 24 hours after the call. Joining me today are David Lesar, our CEO; Christopher Gaut, our CFO; and Andrew Lane, our COO. The press release announcing our fourth quarter results is available on our website at www.halliburton.com. We have tentatively scheduled our 2006 first quarter earnings conference call for Friday, April 21st 2006 at 10:00 a.m. Central Standard Time. In today’s call, Dave will provide openings remarks, Chris will discuss overall operating performance and financial results followed by Andy covering strategy and our business outlook into 2006. We will welcome questions after we complete our prepared remarks. Before turning the call over to Dave, I would like to remind our audience that some of today’s comments may include forward-looking statements reflecting the company’s view about future events and their potential impact on our performance. These matters involve risks and uncertainties that could impact the company’s operations and financial results and cause our actual results to differ from our forward-looking statements. These risks are discussed in Halliburton’s Form 10-K for the year ended December 31st 2004, Form 10-Q for the period ended September 30th 2005 and recent current reports on Form 10-K. Now, I would like to turn the call over to our CEO, David Lesar. David Lesar, CEO: Thank you Evelyn and good morning everyone. Chris and Andy will discuss our fourth quarter results in some detail; however, I wanted to begin by sharing with you some of the highlights. First, we posted fourth quarter diluted earnings per share of 208. We will talk in a minute about $540 million deferred tax asset evaluation allowance reversal excluding that benefit our earnings per share were $1.06. Our energy services group growth continued with a 10% growth from the third to the fourth quarter of which 2/3rd came from outside North America. Outside of North America revenue was up 13% and operating income increased 33%. And for the first-time ever all four ESG divisions had operating margins in excess of 20%. Also, clearly our pressure pumping businesses remained exceptionally strong for us. Our ESG operating margins increased from 21.8% in the third quarter to 23.8% in the fourth quarter. At KBR we had another profitable quarter and put to rest all remaining issues under the RIO contract in Iraq. From a consolidated standpoint, we generated $874 million in cash from operations during the fourth quarter. Our strong outlook on 2006 and beyond allowed us to reverse a substantial portion of the deferred tax evaluation allowance we originally setup as part of the asbestos and silica settlement. This means we will be able to utilize those tax losses to offset US tax payments in the future. Our strong cash flow and positive market outlook on future growth has also caused us to increase our plan capital spending substantially for 2006. I would like to spend a few minutes reflecting on the performance for the full year 2005. ESG posted 26% growth in revenue from 2004 to 2005. This reflected strength in each of our four divisions driven by our industry leading position in pressure pumping. The more compelling story though is the dramatic increase in our profitability, while ESG revenues increased by 26%, operating income grew by 80%, reflecting a 48% incremental margin for the year. Our operating margins were nearly 23% for the year compared to just 16% in 2004. We benefited from the strong demand for natural gas drilling, the production related services in North America and leveraged our substantial market positions throughout the world. Our customers very much recognize our unique ability to deliver quality products and services and are willing to pay a premium to those technologies that will allow them to drill wells more efficiently and to dramatically accelerate and increase their production on those wells. KBR’s performance was also a highlight for 2005. After years of working through difficult projects that generated significant losses, our efforts to restructure KBR in 2004 showed up in 2005. On the energy and chemical side our backlog moved away from the final stages of executing difficult legacy projects to newly awarded LNG and gas-to-liquids projects. KBR’s management focused on project execution, allowed the EMC division to deliver operating margins in excess of 6% for 2005, a margin that is unprecedented for KBR. The government and infrastructure division also had a great year posting margins in excess of 4%. KBR’s management focused on working with our customers to resolve disputes related to our work in Iraq. Including those disputes that have received a great deal of media attention such as dining facilities and fuel. Both of these matters were fully resolved during 2005, resulting in our government and infrastructure division recognizing additional income for award fees. But hasn’t had much media coverage because I suspect it was positive news for us. But their recent resolution of all outstanding issues in the RIO contract including the Iraq fuel importation matter, as well as additional issues under the LOGCAP contract. As you know, Halliburton has and continues to receive a lot of media attention regarding our purchasing of fuel. We have now been paid a total of $1.1 billion relating to our Iraq fuel purchasing work. This represents 100% of the costs we incurred related to this task. So, after all the government audit processes were completed we received compensation for every penny we spent to buy fuel for Iraq. This final resolution shows that our procedures were in compliance with the direction we received from our customer. Now with respect to our commitment to separate KBR from Halliburton, we will of course be guided by the objective of maximizing shareholder value, and current plan is to file for an initial public offering for KBR soon after we file our 10-K. We believe the IPO market in general and the public market for engineering and construction companies in particular is very interactive and a public evaluation of KBR would benefit Halliburton’s stock price. Evaluation multiples of publicly traded engineering and construction firms are currently very favorable. Chris will give you more details in his section of this presentation. Before I turn the call over to Chris, let me say a few words about the future. You heard others talk about their expectations of revenue growth in the energy services business for 2006 and beyond. As you know, our practice is not to provide revenue guidance. However, I will say that we operate in the same markets as our competitors and we are also very optimistic that the market will continue to grow at an accelerated pace. And we believe additional price increases will be warranted, as equipment and labor remain tight. We will also have volume growth due to increase capital spending. We believe that North American market will continue to grow strongly in 2006 and beyond and therefore we will deploy additional capital and labor resources into this important market. Similarly, we expect the regions outside North America will continue to strengthen as we execute our aggressive growth in investment strategy. We believe our fastest growing international markets in 2006 will be the Middle East, North Africa, Russia, and the deep-water offshore markets. We are very pleased with KBR’s recent success in being awarded government contracts outside of Iraq and in the gas monetization area that capitalize on our strength in LNG and gas-to-liquids. As we said last quarter, we expect a slowdown in Iraq with related work going forward. So, we are focusing on diversifying our portfolio into G&I division. All of this success has resulted in significant cash balances and expected free cash flows. We planned to use cash to make additional investments in growing our business worldwide, both organically through capital investments and through complimentary technology focused in geographic acquisitions. For example, we expect our capital standing in ESG to be up almost 40% in 2006. We will also be looking at how we can directly enhance shareholder value by increasing our dividend and resuming our stock buyback program. We will discuss these matters with our board of directors at our February meeting. Now, I will turn the call over to Chris and he will give you more details on the quarter. Christopher Gaut, CFO: Thanks Dave. I will briefly review the drivers of our fourth quarter results compared sequentially to the third quarter. Halliburton company revenue in the fourth quarter was $5.8 billion and that is up 14%. ESG revenue was up $251 million or 10% sequentially. KBR revenue, which benefited from our work recently awarded LNG and GTL projects was up $452 million or 18% sequentially. International revenue was 58% of the total for ESG and 71% for Halliburton as a whole. Halliburton achieved record operating income of $779 million in the fourth quarter. Overall, ESG operating income increased by $112 million reflecting at 200 basis point operating margin increase, while approximately 1/3rd of the improvement came from the strong demand for natural gas drilling in North America, all four regions and all four business segments showed double-digit percentage growth in operating income. Operating income outside of North America was up 33% compared to the prior quarter. ESG as a whole had a 23.8% operating margin in the fourth quarter of 2005. KBR operating income decreased $29 million in the fourth quarter to $129 million. Recall that the third quarter results included the $85 million of income from the sale of our interest in the toll road and $70 million of losses due to our Algerian operations. Now, I will highlight the ESG segment results. Production optimization revenue increased $124 million or 11% compared to the third quarter of 2005. Our industry leading technology in the area of Pinpoint well stimulation continued to deliver excellent performance especially in North America. Production optimization operating income increased 17% or $44 million with 110 basis point improvement in margins, in addition to strong US land results, production enhancement, and increased utilization of resources in Canada and the West Africa and increased activity in Algeria. Completion tools had excellent performance in the fourth quarter. Revenue in completions grew 20% and operating income grew 51% reflecting increased activity in the eastern hemisphere, which we define as all of our regions outside of North and Latin America, as well as recovery in the Gulf of Mexico. In the fluid system segment, revenue increased $46 million or 6% over the third quarter of 2005 and operating income was up $18 million or 13%. Cementing services operating income increased 17% on strength in North America and Latin America, partially offset by decreased activity in Africa. Baroid operating income increased 5% with improved margins of Latin America, partially offset by the continued impact of the hurricanes. Our drilling information evaluation segment had a revenue increase to $27 million or 5% sequentially of which more than half came from operations in the eastern hemisphere. While Sperry drilling services reported double-digit percentage growth over the third quarter of 2005 in the Middle East, Asia region, and in the US. Sperry’s Africa revenue declined and Sperry also experienced weakness in the North Sea as customers shifted their activity on some rigs from drilling to production related activities during the quarter. Security DBS Drill Bits continued its positive growth trend hosting an 8% sequential revenue increase driven primarily by activity in Asia and North America. We are experiencing growing demand for our fixed cutter bits. So we are currently expanding our fixed cutter manufacturing capacity. The logging services revenue grew 14% primarily as a result of improvements in the Middle East, Latin America, and Asia. Drilling information evaluation operating income increased $19 million over the third quarter, included in this increase is $24 million gain on an intellectual property settlement regarding our drill bit business. This division also recorded $4 million inventory charge during the fourth quarter. Andy will discuss direct sales in a moment. In the digital and consulting solution segment, revenue increased in the fourth quarter compared to the third quarter by $54 million or 32%. Operating income increased from $35 million to $66 million, some 89% increase. The improved results related almost entirely to the Landmark Graphics business. The fourth quarter is always Landmark’s strongest, but this year was exceptionally impressive. Landmark’s consulting, software, and data management businesses all did very well and looking ahead, Landmark should clearly benefit from the expected increase in exploration activity in 2006. Now, I will discuss our two KBR segments. The government and infrastructure revenue for the fourth quarter of 2005 was $2.1 billion compared to 1.9 billion for the third quarter. The increase resulted from higher Iraq revenue related to the timing of procurement of certain long lead time equipment and greater government services activity for US naval facilities repair work along the gulf coast. Government and infrastructure’s operating income for the fourth quarter was $55 million, that’s down $94 million or 63% from the third quarter. The decrease is primarily the result of $85 million in third quarter income on the scale of our interest in the toll road, and the difference in third and fourth quarter settlements related to the Iraq work. In the fourth quarter, the gulf coast naval facilities work and higher activity at the DML shipyard in the UK were larger contributors to operating income. In the energy and chemical segment, revenue for the fourth quarter of 2005 was $816 million, that’s 33% increase from the third quarter. The increase is due to operations and maintenance projects in North America and the UK, as well as work on the recently awarded LNG and GTL projects. Operating income for the fourth quarter of 2005 was $66 million versus only $1 million in the third quarter. We recognized $70 million in loss related to our Algerian projects during the third quarter. Operating income also increased in the fourth quarter as a result of the GTL project and performance bonuses on an upstream engineering contract in the Caspian. As David mentioned, we are moving forward with our plans to separate KBR. We have previously set out three preconditions for the separation and we believe KBR has sufficiently progressed each of these. KBR has shown good profitability in 2005 and has significantly increased its backlog. We have also seen good progress in resolving the major Iraq issues and disputes. The FCPA investigation has expanded to look at Halliburton’s use of other agents in Nigeria and in other countries. We are cooperating with the government. Our board has appointed a committee of the board to oversee the investigation and we are supplying additional information, but the investigation is likely to be ongoing for sometime. We will continue to update our disclosure in our Form 10-K and in our planned H1 for KBR, which we expect to file as soon as our Form 10-K end of 2005 audited financial statements of KBR are complete. Our plan at this point is a 20% IPO of KBR. However, in response to interest we have received, we may consider selling some pieces of KBR but we would not expect such sales to change our IPO plans. In preparation for the KBR separation, in December 2005, KBR entered into an $850 million unsecured five-year revolving credit facility. Now, looking at some other financial items, our general corporate expenses were $20 million in the fourth quarter as compared to $26 million in the third quarter of 2005. The decrease was largely due to lower professional fees and a gain on in insurance item. We expect a run rate in 2006 of $28 million to $30 million dollar per quarter for our corporate expenses. Let me explain our tax accounting. During the fourth quarter, we completed our three-year plan, which caused us to revise upward our estimate of domestic taxable income in the year 2006 and beyond. As a result we have recorded a $540 million favorable adjustment to evaluation allowance during the fourth quarter of 2005. Excluding this $540 million adjustment for future utilization of our NOL, the fourth quarter effective tax rate would have been about 22%. In 2006 and thereafter, we believe our effective tax rate will be back in the range of 35% to 37%. However, keep in mind that about half of that accounting tax expense will be non-cash due the utilization of our NOL for the next several years and should be added back to cash flow contributing roughly a dollar per share to cash flow. Beginning of 2006 we will expense the cost of our employee stock option awards and our employee stock purchase plan. We expect incremental impact of this change and accounting principle to be approximately $0.01 to $0.02 per diluted share for the quarter. Lets discuss our liquidity, our working capital position on our government services work in the Middle East improved to about $500 million at December 31st as we collected large payments in connection with the full settlement of the RIO contract. In response to our customers planned increase is in the E&P spending. We estimate that ESG’s capital spending will increase by almost 40% from $575 million in ESG capital spending of 2005 to about $800 million in 2006. KBR’s 2006 capital spend will be approximately the same as 2005. We expect BDNA for 2006 to be about $550 million. I am pleased to announce that we have achieved our debt to total capitalization goal a ratio of less than 35%, which will and that’s well ahead of our original timeline. Cash and marketable securities increased almost $300 million at December 31st compared to the prior quarter. This cash increase is after we repaid $300 million in senior notes in October and we retired at $256 million ESG accounts receivable securitization facility. Andy. Andrew Lane, COO: Thanks Chris. Good morning everyone. As you can see we finished the year with very strong results. I want to start by briefly recapping some of our major achievements in executing again some improvement plan. At ESG we have taken a leadership role in pricing, controlled our cost in the growth market and optimized our manufacturing base to achieve better throughput. Manufacturing delivered a record $1.25 billion in shipments during 2005. We posted over $1 billion in improved ESG operating income results in 2005 over 2004 and $2 billion in topline growth. On a relative basis the improvements we made at KBR was even more dramatic. We completely changed the cost structure of the business and instituted a highly disciplined approach to project selection and execution. We improved KBR’s operating income by $840 million in 2005. As a result, KBR is now in great position to capitalize on robust gas monetization trends. Now let me discuss ESG’s fourth quarter performance. We significantly improved the margins from the eastern hemisphere. Margins increased from 17.8% to 20% driven by improved results in Saudi Arabia, Angola, The UK, and China. Western hemisphere operating margins also improved increasing from 24.3% to 26.3% largely from improved pricing, higher equipment utilizations, and increased activity in the US and improved performance in both Mexico and Venezuela. In North America, incremental margins were 48% again illustrating the operational leverage of our core pressure pumping businesses. In North America in 2005, we increased revenue by 34%. Our rate in pricing improvement increased over the second half of 2005. Currently, we estimate we had 70% of our customer base on a 2005 price book and we have 40% of our October 2005 price book already in place. We anticipate additional price increases as demand for all of our services remains very strong. We estimate the hurricane impact was approximately $17 million in operating income in the fourth quarter. The most effective operations were Baroid production enhancement and cementing. Our Cameron and Venice facilities required additional repairs before becoming fully operational. However, we are now able to fully serve all of our customer needs from our other Gulf Coast facilities. We are taking this opportunity to rebuild, modernize, and consolidate some of our facilities in this area, which will yield longer-term operational benefits. While the situation has improved we estimate approximately $12 million impact in operating income in the first half of 2006. We expect insurance proceeds to offset some of these losses. In Mexico we will complete turnkey drilling project this spring, and have already relieved one of the seven rigs. We expect our margins in Mexico to improve further upon completion of this project. Activity in the Middle East and particularly Saudi Arabia continues to improve driven by production enhancement and demand for our rotary steerable systems. In the fourth quarter we saw an increase in direct sales in China and India, which contributed approximately $11 million in additional operating income. We prioritized our manufacturing capacity to build service equipment for own use first with direct sales as a secondary priority. The service equipment that we sell is typically subjected to 9 to 12 month lead time for manufacturing. Now let me turn to KBR, as we mentioned for several quarters we expect our Iraq work on the LOGCAP III to see an even more rapid decline during 2006 than we saw in 2005 as compared to 2004. We have been focused on diversifying our GNI portfolio in preparation for this decline. For example, we continue to expand our work for the US Navy under our CONCAP, construction and contingency contract and we are positioned for future contingency work for the US Air force under AFCAP and we further strengthen our position through the UK Ministry of Defense. For E&C we are pleased with the growth in LNG and gas-to-liquids projects. If you look back at the year, we won some significant new LNG contracts. We are now starting to see some of these large contracts in our results and there is continuous momentum in 2006 with several new projects planned. Worldwide for the industry, we expect contract for 14 new liquefaction trains representing 68 million tonnes of additional capacity to be awarded in 2006 and 2007. KBR is the industry leader in this business having participated in over 50% of the recent capacity construction and we are confident we can win our share of this new work. Last quarter I mentioned that a new detention was being placed for the need for increased petroleum refining capacities. In the fourth quarter KBR was selected to provide conceptualizations, planning, and early design services for a major refinery expansion in the US. We believe refineries and refinery upgrades will be a growth area for us. It is clear that our strength in the fourth quarter included every division and every region with a strong finish to a great year. There are many reasons to look at 2006 and beyond with confidence. We turn it back to Dave for closing comments. David Lesar, CEO: Thanks Andy. I began this call by describing our Stellar 2005 results. What we have achieved in 2005, I believe showed the value of the strategy we have followed for several years. Halliburton’s fundamentals are in place and we are clearly and eagerly looking forward to excellent growth in 2006 and beyond. For the Energy Services Group this means continuing to be the leader in pricing, needs more improvements in the productive use of our equipment and adding capacity in growth areas. For KBR, this means capitalizing on our strengths in LNG and GTL diversifying the applications of our government and infrastructure skill set. Before closing, I would like to preempt one possible question. We too have heard some merger rumors recently involving our company. We just don’t comment on rumors. Having said that, I just want to say that today we are totally focused on the separation of KBR from Halliburton. I want to thank our customers, who saw the value of our work and stuck with us through the difficult year. I want to thank our employees who continued to work with us and innovate to all of our businesses. We are looking forward to what we believe will be a great several years. Now, we will take your questions. We ask you to limit to one question and one follow-up per caller. So, lets go to the first question.

Thank you sir. Today’s question and answer session will be conducted electronically. If you do have a question at this time you may signal by pressing *1 on your touchtone phone. If you are using a speakerphone today, we ask that you make sure your mute function is turned off to allow your signal to reach our equipment and so once again *1 for questions. We will go first to James Stone with UBS. Q - James Stone: Dave, and thanks for giving a lot of varying information, thanks for the rest of lot of stories. I just want to touch on some of the operational things in the quarter, and Chris you talked a little bit about the decline that you saw in operating income at DFE in the quarter. I am wondering if it was a little bit more to that than just a sort of mix shift in the North Sea or Africa, you know, what is the prognosis or the outlook for that business as we head into 2006, particularly on the directional drilling side? A - Chris Scott: We think the outlook for Sperry directional drilling and DFE as a whole is positive. We as you said were impacted by several rigs moving to more production and completion activity in the North Sea and some lower sales in Africa. And actually you saw the other side of that in our completions business were they had higher activity in the fourth quarter, but we had very good growth in the directional drilling business in the Middle East and Asia and we expect that to continue and we expect the mix shift and the rig activity is other areas to balance that and shift that going forward. Q – James Stone: Okay, as you look at the IPO KBR, have you settled on a management structure for that business at this point, what’s left to be done there? A - David Lesar: James, this is Dave, let me answer that one. As you know, we have brought Cedric Burgher back into the company and announced that last quarter to be the Chief Financial Officer for KBR and Cedric will obviously be in the CFO position that leads KBR through that. We have had an ongoing search for a new CEO for KBR and it will be someone who comes in from the outside and we got that search going on. We are down to a shortlist and we would hope to have a finalist for that shortly and I think the rest of the KBR management team inside the business today is a great management team. They certainly have showed that and we believe that collectively there will be a fantastic team going forward in the IPO. Q – James Stone: That is great, thank you.

We will go next to Geoff Kieburtz at Citigroup. Q – Geoff Kieburtz: Thanks very much, Andy I would like to come back to your comment on the equipment sales to Asia in particular. I think you gave us an $11 million EBIT contribution in the quarter. Could you give us a little bit more information on that, like what was the contribution for the full year? Can you give us some sense of how that fluctuates? A – Andrew Lane: Yeah, Jeff, let me just say the few points on direct sales in general. Primarily this is in our DFE division, although some of the other divisions have occasional direct sales. This is the way we classify direct sales as selling service equipment. The local service providers in markets that we do not directly compete in for their own services. It is generally older generation technology and so for DFE for all of 2005 it totaled $95 million, $34 million in the first half. There was $24 million in the third quarter, $37 million in the fourth quarter. Now, we usually ramp-up in the end of the year with our direct sales shipments, so seasonally it falls off in the first quarter and we expect to see that again in the first quarter. Other direct sales were $10 million in fluids and $14 million in PO, so that’s the scale of our direct sale business. Q - Geoff Kieburtz: Okay, just unclear there, the total revenue from direct sales in the fourth quarter was around $50 million? A – Andrew Lane: Yes, total revenue from direct sales in the third quarter was $31 million and in the fourth quarter was $58 million. Q - Geoff Kieburtz: And that $58 million revenue’s what drove the $11 million EBIT contributions? A – Andrew Lane: Exactly. Q - Geoff Kieburtz: Okay. Separate question on KBR if I could. Can you give us some idea what the bonus accruals were on the Iraq work and maybe elaborate a little bit on what looks like unexpectedly strong margins in energy and chemicals? A – Andrew Lane: Yes, first on the bonus accruals, we do not have an award fee in the fourth quarter for award board review. So, they were just our standard accruals, which I think we previously mentioned we grew at 72% of our total award. We expect an Iraq award and a Kuwait award here in February for the second half of 2005 business, but we will have new award scores here in the next month, but we expect them to be very strong. In E&C what you are seeing is the consistent base business, you are seeing that the ramp down of the previous legacy project, many in the upstream business and the ramping up of the LNG and GTL projects that we brought in the last 12 to 18 months. So, it was a very solid quarter for E&C and we have a good outlook for that segment. Q - Geoff Kieburtz: Do you think that these, I think previously you sort of suggested that those margins were sustainable more in the 5% range and they seem to be staying well above that? A – Andrew Lane: Geoff, we have been saying that we want them to be at least five. And yeah I would say the fourth quarter is behind that range. We are not saying that it is going to be there every quarter, but we would be very disappointed if it is not 5% on an annual basis. Q - Geoff Kieburtz: Great, thanks very much.

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

We will go next to James Crandell of Lehman Brothers. Q – James Crandell: I just want to ask another question on rumors per se that acquisition strategy and as you look at your company now that KBR is being put into an IPO here and you got all these problems of the company in the past behind you. Do you feel the need or desire for more scale in your oil service business and would you describe your acquisition strategy in oil field service as niche focus or willing to consider something large? A - Christopher Gaut: Jim, we are very pleased with the prospects that we have for our portfolio of businesses. We have been more active in the acquisitions arena during 2005 and we pronounced a handful of deals here in the past several months. We will continue to look for acquisitions that have technology, that compliment our existing product line, or possibly that provides greater geographic balance in certain areas. Those are the kinds of things that we have been most focused on. Q – James Crandell: Okay, and as a follow-up question. Andy, could I ask you to comment on the rate of price improvement in the US simulation market in the recent quarter of percentage gain with the rate of improvement relevant to the past two to three quarters in pricing and then get your reaction below the capacity coming on the market and what that portents for the business you are going forward? A – Andrew Lane: Yes Jim, in 2005 we had some success in early 2005 in getting the late 2004 price working increases through, increasingly better success in the second half of 2005 with the most in the fourth quarter. A - Christopher Gaut: Yeah. The market still is very tight and we see a lot of room for our still upward pricing. There is a lot of shortages of people, shortages of cementing, shortages of crack popping, sand and overall shortages of personnel have created, is still a very tight margin. So, we still see a very good fundamental market on supply capacity of shortages to increase pricing in 2006. Q – James Crandell: My sense Andy is, you been a reasonably aggressive in increasing your domestic simulation capacity perhaps it is less than 25% last year and not going forward. Is that a reasonable estimate? A – Andrew Lane: We have not given Jim the details on how much for competitive reasons, how much we have passed foot into North America specifically, but it is a very strong performance for us and it will be a large part of our capital investment in 2006. Q – James Crandell: Okay. Thank you.

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

We will go next to Dan Pickering at Pickering Energy Partners. Q – Dan Pickering: Good morning guys. I was wondering if you could address the North American side, revenues up roughly 2%, I am just curious how that fits with your expectations, I guess, thinking about pricing improvements, return improvements. I thought that number might be a bit higher. Where there any lumps in the third quarter or the fourth quarter? A – David Lesar: Yes Dan, it was a very strong quarter for us in October, November. We had some tail-off in December primarily in the Rockies related to the logistics of moving equipment around and the weather and where we were working in the Rockies on the certain projects. So, that impact us a little bit and there was a slight slowdown at the end of December in Canada, just slowdown in overall activity, but again we were very strong in October, November and we feel very good about going into the first quarter. You have your normal seasonal weather impact that you have to live with in Canada and the Rockies, but overall we feel very good about the quarter. A - Christopher Gaut: Keep in mind Dan, when we think about the comps, the sequential comps of the third quarter, we also had a very strong third quarter in North America, we topped that in the fourth quarter, some seasonality there and weather factors in December. Q – Dan Pickering: Okay, great. And then I guess as we look into 2006, particularly in the first quarter, as you look at whether you want to talk about it geographically or by business segment, we all understand seasonal fourth to first quarter issues in the Landmark business, but is there any reason to think that any of your other segments as we move into Q1 should show any revenue or margin slowdown relative to Q4? A – Andrew Lane: Well Dan, I think the only other thing that I would say Landmark of course is a big impact as it always is and the first quarter is a drop-off from its great fourth quarter of the more significant this year because of the very strong performance Landmark delivered. You will see a drop-off in direct sales and DFE that we have talked about in the $30 million range. We have weather impacts in the Rockies that we talked about. North Sea and Russia is experiencing an extremely cold winter. So, we expect to see all that hit us in the first quarter. Q – Dan Pickering: Does that aggregate in your mind to improvement in overall revenue or decline? A - Christopher Gaut: We are not providing guidance Dan, but there are some puts and takes there and obviously this is January. The overall trends remain in place as we have been saying throughout this call. There are some places where there is some seasonality. Q – Dan Pickering: Thanks very much.

We will take our next question from Robin Schumacher with Bear Stearns. Q - Robin Schumacher: Yes. Thank you. I wanted to ask your views on cost structure and cost of operations, oilfield inflation etc., particularly just with respect to your 48% incremental margins in oil services in 2005, with the cost pressures you are experiencing is that an achievable kind of incremental margin in 2006 or should we think of something perhaps lower than that as an achievable target? A – David Lesar: Robin, I will just talk in general terms about what we see in pricing. We as you know, the labor market is very tight. We see our historical annual increasing labor cost. In the second quarter we normally do that adjustment. We still see tightness in cements, we see tightness in some specialty chemicals that we use in operations, definitely in materials and steels, and tools, the main drivers for pressure on cost increases, but we will push pricing, we will push pricing very hard through 2006 and that is our plan. Q - Robin Schumacher: 14%, that’s a big number. Right, understood. So, just as related, in the things that may have held back your margins a bit in 2005 from what even the very good margins achieved would have been as I think of the Mexico turnkey project and the hurricane impact primarily, which presumably wouldn’t impact you in 2006? A - Christopher Gaut: Good point. Good point. Q – Robin Schumacher: Okay. Thank you. A - Christopher Gaut: Mexico has been depressing our results the whole year, not only taking some losses, but then in another quarters, like this quarter having zero margin contributions from that work. Q – Robin Schumacher: Right. Thank you.

We will go next to Michael Urban at Deutsche Bank. Q - Michael Urban: Thanks, good morning. I wanted to go little more into the pricing trends. I’m wondering if you could quantify or at least differentiate where you are seeing better or worse price increases? And then also if you have an idea what the interest is going to be, actually getting to we are getting to where if any, is there going to be laggers or disappointments that are now showing better price increases? A - Christopher Gaut: Certainly North America as we were saying quite strong, and then of course the Middle East, the Gulf and Asia. I think the offshore markets have come along quite well. If we would think about where we might have some laggers in terms of price they are probably parts of Latin America, outside of Brazil, and working with national companies too, those are going to be longer contracts and so there is some lag there as well and then in probably parts of Southeast Asia, we also have longer-term contracts there and depending on the competitive dynamics in a particular country, and whether rigs are going or coming, we have a probably particular markets there, particular countries where we have some flatter areas there. Q - Michael Urban: And how about on a product line basis, anything that’s continuing to not get as much price gain you might like or were you suddenly seen a pick-up off late? A - Christopher Gaut: Probably, the only CSO now that it does not have pricing that is higher than the 2001 peak is logging. It is just going to lag it from a pricing standpoint, I think for the industry as a whole. Q - Michael Urban: Any particular driver that you think is causing that or anything that might change? A – Andrew Lane: Well, Mike, I think logging as a whole we have had some very good job in the last year in improving the possibility. We remain in a less than advantageous market share position. So we are not the pricing leader in logging by far so, but they have done very well in logging. We also would like to see very well to accelerate and at even faster pace that’d be the other area I’d mentioned. Q - Michael Urban: Great. Thank you.

We are going next to Ken Sill at Credit Suisse. Q – Ken Sill: Yeah. Good morning guys. I know you do not want to provide guidance, but if you going to IPO KBR, may be you could help us a little bit here. You know, obviously great source of positive surprise, but just looking at the numbers you are seeing, the revenue for Iraq declined in 2006 is going to be more dramatic than 2005 and yet the revenues were up in the fourth quarter, so should we see that tail-off kind of ratably as we move through 2006 from Iraq? A – David Lesar: Yes Ken, I think we will. We have the uptick in revenue in Q4 because we were charged with purchasing some long lead-time items with the military. We expected it to be a consistent decline over 2006 and you have read as we have increasing talk from Washington about reducing troop counts ahead of the congressional election and the term elections later this year that may have an impact on the timing of the true production. So that’s probably a biggest driver overall is the troop count, as well as they move more towards sustainment in building a new facility. Q – Ken Sill: And the margin should remain pretty strong in government or in Iraq in the first place there is going to be some more award fees get booked, so continuing in the 3% plus? A – David Lesar: Well don’t know about that Ken. We had some settlements here in 2005 and as we said this morning, we’ve made very good progress on settling the big issues here and the LOGCAP contract is probably in a more than 2% to 3% margin contract overall. Q – Ken Sill: And then energy and chemical, I noticed, you know, the backlog was down just slightly, the revenues were up nicely, you are talking about 5% plus margins there. Is the LNG and petrochemical stuff is coming on is going to kind of ramp-up and result in better revenue 2006 or is 2006 kind of a transition year where it is going to flattish relative to 2005, because you had a really good fourth quarter in that business? A – David Lesar: Yeah. We see that business is continuing to grow and we are rolling off some revenue of these older oil and gas facilities contract at very low margins and rolling on these gas monetization contracts that carry and contribute a higher margin. So, that is going to be a better fit in 2006 and based on our plans and the increase in backlog, I think that is a pretty good indicator of where we feel that business going. Q – Ken Sill: Okay, is there going to be any seasonality Q4 to Q1 in that business like we have seen in some prior years or is that just been a normal trend down and you kind of bottom going the other way now? A – David Lesar: Well I do not expect to see any seasonality on the E&C business. Q – Ken Sill: Okay. A - Evelyn Angelle: Dustin, we are through running short on time, so lets take one more question.

Okay. We will take our last question from Kurt Hallead, RBC Capital Markets. Q - Kurt Hallead: Hi, good morning. A question to relate to whether or not you guys are seeing any differential pushback from your customers with respect to the price increases, whether or not your North American customer base, whether or not you see any nervousness or skittishness as it relates this seasonal downtick in the natural gas price? A – David Lesar: This is Dave, let me answer that because I spend a lot of time with our customers and it is really the pushback we get is not on pricing, its getting the equipment and get it for me now that I have got drilling commitments, I have got rigs leased and I need you guys there especially in the stimulation market where they will pay in premium for the type of work we do. So, the pushback really is we need more investments. We are asking for a longer term commitments, but with more flexibility on pricing and in the number of cases we are getting that. So I think that we see that the supply-demand balance is still in the favor of the service companies and that’s how we believe we can continue to bring equipment into the marketplace and at the same time increase our prices. Q - Kurt Hallead: And, you are not getting any sense of any nervousness at all about this seasonal shift in natural gas price? A – David Lesar: No, not at this point. Q - Kurt Hallead: Right. That’s it. I will follow-up offline. Thanks. Evelyn Angelle, Vice President of Investor Relations: I’d like to thank everyone for joining us today. If others have additional questions, please feel free to call me today and that concludes our call this afternoon. Thank you.

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