Evelyn Angelle - VP, IR Dave Lesar - CEO Chris Gaut - CFO Andy Lane - COO

James Wicklund - Banc of America Securities Daniel Henriques - Goldman Sachs Jim Crandell - Lehman Brothers Ken Sill - Credit Suisse James Stone - UBS Dan Pickering - Pickering Energy Scott Gill - Simmons & Company Roger Read - Natexis Bleichroeder Geoff Kieburtz - Citigroup

Good day and welcome to everyone to today's Halliburton Company first quarter 2006 results conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to the Vice President of Investor Relations, Ms. Evelyn Angelle. Please go ahead. Evelyn Angelle: Thanks, good morning and welcome to Halliburton's first quarter 2006 earnings release conference call. Today's call is being webcast and a replay will be available on our website for seven days. A podcast download will also be available on our website within 24 hours after the call. Joining me today are Dave Lesar, our CEO; Chris Gaut, our CFO; and Andy Lane, our COO. The press release announcing our first quarter results is available on our website at www.halliburton.com. We have tentatively scheduled tour 2006 second quarter earnings conference call for Friday, July 21. In today's call, Dave will provide opening remarks, Chris will discuss our overall operating performance and financial position, followed by Andy who will review the regions and our business outlook for 2006 and beyond. 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 the 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 31, 2005 and recent current reports on Form 8-K. Now, I'll turn the call over to our CEO, Dave Lesar.

Thanks, Evelyn and good morning, everyone. Let me highlight a few things about the quarter before I ask both Chris and Andy to address our results in our outlook in a little bit more detail. You will hear the word record a lot on this call, which is an indication of the very strong worldwide market we continue to see for our ESG services. We had an excellent first quarter, and posted EPS of $0.91, of which $0.01 came from production services, which this quarter has been moved out of KBR and into discontinued operations. It is expected to be sold in the second quarter with a pre-tax gain of approximately $100 million. First, some highlights. We had record revenue in the Energy Services Group which reached $2.9 billion, up 35% from the first quarter a year ago. High activity in North America, the Middle East, the North Sea, and Russia were the big drivers for these gains. More than overcoming our anticipated decline from Landmark and direct sales, which on a combined basis were almost $77 million lower in revenue than they were in the fourth quarter. I'll say more about direct sales in a minute. Continuing on the momentum that we built in the quarter, the month of March was the first time in our history in which we reported revenues in excess of $1 billion for the Energy Services Group. Record operating income at ESG in the first quarter grew to $727 million, from $678 million in the fourth quarter and from $513 million in the first quarter 2005 which included a $110 million gain on Subsea 7. In the first quarter of 2006, we saw activity increases, and we realized good pricing improvements. Particularly in the strong U.S. market following our October 2005 price book increases. ESG's operating margin jumped to a record 24.7% in the first quarter from a 23.8% margin in the fourth quarter. This indicates to us that we are still staying ahead of the inflationary pressures that we see in our ESG businesses. ESG's incremental margins in the first quarter were in excess of 50%. Our focus on pricing, equipment utilization, and cost control instead of market share, continues to be reflected in our results in our industry-leading return on capital employed over the past several quarters. Drilling inclination evaluation, fluid systems, and production optimization all had record revenue and record operating income in the first quarter. Even with its usual first quarter downturn, Landmark still had record revenue and operating income for a first quarter. This is the first time in the first quarter that all of ESG's divisions had in excess of 20% operating margins. Because we continue to see a multiple-year increase in demand for our services, we are moving forward with our aggressive capital spending plans, which I mentioned last quarter will be roughly a 40% increase in ESG for this year. We are focusing on pressure pumping and high-end Sperry directional tools. We are looking at incremental spending increases in other high-growth areas such as North America, Middle East, North Africa, and Russia. Our stellar results in North America are continuing to allow us to invest for the long term in the Middle East as demand for stimulation in drilling services remains robust. We are not only adding equipment but building infrastructure as well to capitalize on this expected growth. This will impact our results in the short term, but will have a long-term payback to our shareholders. Let me say a little bit more about direct sales, as they do have an impact on our eastern hemisphere results. I am very pleased with the success we've had in eastern hemisphere over the past two years. For example, our Russian revenues are up 67% over the prior year's first quarter, and Saudi revenues are up 74% over the prior year's first quarter. Given the strong market we are in today, we have changed our strategy with respect to direct sales. As business has expanded, we believe we need to use our manufacturing capacity to build equipment to serve the needs of our growing service business, instead of manufacturing items for sale. Therefore, we have moved to a strategy of being opportunistic in direct sales instead of such sales being an integral part of our business strategy. Manufacturing the equipment for our services fleet of course will produce revenue slower, but over a longer period of time versus selling equipment for an immediate revenue impact. Also in the past, we have targeted direct sales with specific eastern hemisphere markets like India and China, which had little service component to them. We now believe that some of these markets have now matured to the point where we can enter them with traditional service offerings where it no longer makes sense to sell directly into them. Both of these changes in approach will have a short-term impact on our eastern hemisphere business in terms of revenue comparisons, but we believe they are the appropriate step forward for our long-term strategy. Now, let me make a few comments on the market and pricing. As you know, natural gas spot prices in the U.S. have been fluctuating, dropping to a low of just under $6.50 last month. The prices have rebounded lately with the crude oil commodity price increase certainly helping. We've spoken to our customers to get their perspective on how these prices might affect their spending habits now and in the future. The response from our customers has been very clear. Their spending plans continue to be robust. Our customers are moving forward with their drilling plans and in many instances looking for more rigs. We have heard that they would continue drilling until the 12-month strip dropped to the $4.50 to $5 range and we're a long way from that. We still see the fundamentals for an extended period of strong demand for our services. Let me talk now about how we see this impacting our pricing. Because of our strong view of the U.S. market, we have started a series of price increases which started on April 15, and will continue until July 1. These price increases will affect all of our PSLs except for Landmark, whose price increase will be effective October 1, which is three months earlier than usual. We see no reason to back off price increases at this time. For competitive reasons, we are not going to disclose the specifics on timing or amount by PSL, but Andy will give you some additional insight in a moment. Turning to KBR, I'm pleased to welcome Bill Utt as our now CEO. Bill comes to us with many years of industry experience, and from what I've seen so far has jumped right in and is already making an impact at KBR. I'm also happy to report that we filed our S1 for the IPO of just under 20% of KBR last week. The next step is the SEC review process. We don't know how long that will take, but we continue to view the public market valuations of engineering and construction companies, as very favorable. We are committed to pushing the IPO forward as quickly as we can. Please keep in mind that we're precluded from speaking too much about KBR's future prospects right now because of the quiet period rules imposed by the SEC. So please don't be frustrated by the lack of details given today or in the next few months. Getting this IPO effort done has taken a huge effort on the part of our staff and outside professionals, and I want to thank them. Naturally, our first quarter 2006 corporate and KBR results were impacted by the professional costs we incurred related to this offering. As we've said in our press release, KBR and Petrobras have agreed to operational and technical acceptance on the Barracuda-Caratinga project. We've also recently won some major awards at KBR, including the $13.9 billion Allenby and Connaught project for the U.K. Ministry of Defense, and a $400 million EBIC ammonia project in Egypt. Andy will give you more details on this. We have also received our latest award fee scores on our LogCAP work for work performed primarily in the second half of 2005. We received an average score of 95% and were rated by our customers as excellent. You will recall that we settled all issues related to the RIO contract last year. I just want to say that despite the constant political bashing, our tens of thousands of American citizens and others working in Iraq continue to do a great job serving our brave soldiers. We ended the quarter with $2.3 billion in cash. I mentioned last quarter we were going to address direct returns to our shareholders with our Board of Directors. This resulted in a 20% increase in our dividend as well as a commencement of a stock buyback up to $1 billion. Looking forward to the rest of 2006, I continue to be very optimistic that the ESG market will grow at an accelerated pace. As I've said, our customers are telling us they continue to spend. We are investing and continue to invest in equipment, in people, in the right places around the world that will deliver the highest growth and income, both in the near term and in the long term. We're in the bidding process on several LNG and GTL projects where demand continues to remain robust. We expect to hear about those in the next few quarters. Let me turn the call over to Chris now, for some additional comments.

Thanks, Dave. Good morning. I will discuss our first quarter results compared sequentially to the fourth quarter of 2005. Halliburton Company revenue in the first quarter was $5.2 billion; that's down 7% from last quarter. ESG revenue was up $90 million or 3% sequentially with strong gains in the important North American and Middle Eastern markets, partially offset by the typical seasonal decline in the North Sea and Russia, as well as Landmark's international revenue. KBR revenue was down $452 million, or 17% sequentially, due primarily to declines in our Iraq work and the hurricane-related repair work we've been performing for the U.S. Navy along the U.S. Gulf Coast. International revenue was 55% of the total for ESG and 66% for Halliburton as a whole in the first quarter. Revenues outside of North America for ESG were down a bit from the fourth quarter but this decline is fully explained by the typical first quarter decline in Landmark, as well as the reduction in direct sales of export equipment as we deemphasize and take a more opportunistic approach to direct sales. Our underlying international growth was also offset by winter weather in the usual markets and substantial downtime on our international stimulation vessels. Halliburton achieved operating income of $755 million in the first quarter overall, ESG operating income increased to $727 million, reflecting a 90 basis point operating income margin improvement, led by pricing strength in North America. KBR operating income decreased 47 million in the first quarter to $62 million due primarily to charges and losses totaling $30 million related to KBR's investment in an Australian railroad, and a $15 million charge on Barracuda-Caratinga as we have now agreed upon final acceptance of that project with our customer. Let me highlight ESG segment results. Production optimization revenue increased $43 million or 4% compared to the fourth quarter of 2005. Demand for stimulation services for U.S. land rigs remained very strong, driving higher utilization and pricing; also increased rig activity in Canada and the Gulf of Mexico following the recovery from Hurricanes Katrina and Rita; as well as demand for deepwater services contributed to the revenue growth. Outside North America, we saw a decline in the revenue generated by downtime on several of our stimulation vessels, as certain vessels were dry docked for scheduled maintenance and others were mobilized to new locations. Our completion tool sales were down compared to the very strong levels of the fourth quarter although we did see good growth in Saudi Arabia for large completion product sales and slickline activity. Looking ahead we expect production optimization to be a significant contributor to international results in the second quarter 2006. Production optimization operating income increased $33 million or 11% with a 180 basis point improvement in margins. In addition to strong U.S. land results for stimulation services, production enhancement had increased utilization in Canada. Outside of North America, production optimization operating income was sequentially down from the fourth quarter due to the lower stimulation vessel activity and lower completion tool sales in West Africa. In the fluid segment, revenue increased $59 million or 8% over the fourth quarter of 2005. The increase was due to Gulf of Mexico activity returning to pre-hurricane levels and higher U.S. land activity, as well as pricing improvements. Fluid Systems operating income was up $25 million or 16%. Cementing services operating income increased 18% on strength in North America and in Africa. Baroid operating income increased 11% with improved margins in North America and Asia Pacific. Our drilling and formation evaluation segment had a revenue increase of $32 million or 5% sequentially, growth was strongest in North America, Southeast Asia, and Norway, but we had lower direct sales into Asia Pacific. Sperry showed solid growth in Latin America, Norway, and Asia Pacific. Security DBS drill bits continued their positive growth trend and posted a 7% sequential revenue increase driven primarily by activity in the Middle East and North America. We are on target to complete our fixed cutter bit manufacturing expansion by the end of the second quarter, so that we will be in good position to respond to the increased demand for these products. Drilling information evaluation operating income increased to $156 million, that's compared to 148 million in the fourth quarter of 2005, but that included a $24 million gain on an intellectual property settlement regarding our drill bit business. Sperry posted operating income increases in all regions, except Middle East and Asia which was relatively flat due primarily to a shift to less directional drilling by a large UAE customer that Andy will discuss in a moment. In the digital and consulting solution segment, revenue decreased as usual in the first quarter. Compared to the fourth quarter it was down by $44 million or 20%. Almost all of this decline was outside of North America. Operating income decreased from $66 million to $49 million or 26% decrease. The reduced results related to Landmark. The first quarter is always Landmark's weakness following the traditionally strong fourth quarter based on the usual cycles in which E&P companies purchase software. In looking ahead we expect Landmark to benefit from a higher customer spending level later in 2006. Let's turn to KBR's two segments. First, government and infrastructure had revenue for the first quarter of $1.7 billion, that's compared to $2.1 billion in the fourth quarter. The decrease resulted primarily from the higher fourth quarter revenue under our LogCAP contract due to the timing of procurement for certain long lead-time equipment under that contract. In addition, we saw hurricane-related repair services for U.S. Naval facilities in the Gulf Coast decrease as this work is wrapping up. Operating income in this division decreased $35 million to $20 million in the first quarter. Our first quarter results included $30 million in costs related to our investment in a railway joint venture in Australia. KBR constructed this railway from 2001 to 2004, and we realized good profit on that construction. This is one of those situations like the Dulles toll road that we sold last year in which we retained an ownership interest in the constructed asset. The venture is now forecasting slower growth in freight volume related to mining of minerals, the mining customers, as well as delays in the planned expansion of the Port of Darwin. Because of this, we recorded an impairment charge during the first quarter on our investment. We do not have an operational role in the venture nor of course do we have any involvement with the Port of Darwin or the mining projects. We were awarded a $68 million LogCAP award fee during the first quarter, due to our excellent performance ratings for which we recorded an additional $12 million in income above our normal award fee accrual rate. Revenues in our energy and chemical segment declined to $538 million from 594 million in the fourth quarter. Some of the decline is related to certain jobs nearing completion or in the case of our Tangu LNG project in Indonesia, a shift away from the heavy procurement activities typically incurred earlier in the project. These declines were partially offset by higher revenues on our Nigerian GTL and other LNG projects. Our operating income in this division declined by $12 million to $42 million. Closing of the financing for the EBIC project during the first quarter resulted in approximately $24 million in additional income, as we were reimbursed for our bid costs and certain other costs previously expensed. This was offset by $15 million in projected costs that we expensed in connection with the finalization of the Barracuda-Caratinga acceptance agreement with Petrobras, and for additional warranty reserves on that project. Now, let's review other financial items. Our general corporate expenses were $34 million in the first quarter, that's compared to $20 million in the fourth quarter of 2005. The increase primarily relates to increased professional services costs. We expect a run rate for the remainder of 2006 to be about $30 million as we previously indicated. In the first quarter of 2006 we began expensing the cost of our employee stock option awards as well as our employee stock purchase plan. These costs totaled approximately $10 million in the first quarter. This $10 million in costs, along with another $7 million in costs we have always expensed related to other equity compensation, were charged to segment results where our employees are assigned. When comparing our margins to others, keep in mind that we treat equity compensation as a direct expense while some of our competitors might exclude this expense from the margin calculation and treat it as part of G&A. From a corporate perspective, there are a few things regarding cash flow to keep in mind. This quarter we had an effective tax rate of 34%. As you recall, our tax rate in 2005 was quite low because of our strong outlook for 2006 and beyond, which allowed us to reverse much of the deferred tax asset valuation allowance related to the asbestos and silica settlements. Even though our effective tax rate for accounting purposes in 2006 will be approximately 35% to 36%, our cash taxes will be much lower as we are using NOLs from the asbestos and silica settlements to offset our U.S. taxable income. As of March 31, 2006, our gross debt to total capitalization ratio was 32% and our net debt to total capitalization -- taking into account our cash balance -- was 11%. Following the announcement of the stock repurchase program in February of 2006, we began repurchasing stock after our 10-K was filed in mid-March, and we repurchased approximately 600,000 Halliburton shares at an average price of $68.62 per share during the remainder of the first quarter. Let me turn it over to Andy Lane.

Thanks, Chris. Good morning everyone. This morning, I will be discussing ESG's operational highlights from a regional perspective. as well as speaking to you in a little more depth about KBR. Before doing that, I'd like to spend just a few moments addressing a couple of matters that are on the minds of many investors, our outlook on ESG pricing for the rest of 2006 and resource constraints. With respect to pricing at ESG, we've continued to realize pricing gains in the U.S. since the beginning of this year, driven by our ESG price book increase effective October 15. We are continuing our focus on working down customer discounts and we expect this to improve our price realization. The future U.S. price book increases Dave mentioned that we are implementing in the second and third quarters will be reflected in our results in the second half of this year and early 2007. Pushing through price increases when our customers' contracts turn over, both in the U.S. and internationally, is a management priority. Demand for equipment continues to challenge all of us in the industry. We've ramped up our capital spending plan significantly for this year. We're focused on adding equipment to our strongest growth markets such as Saudi Arabia, North Africa, Southeast Asia, the North Sea, Russia, and of course North America. We continue to invest heavily to meet strong demand for our geopilot systems worldwide. In particular, we'll see more Sperry and pumping services capital come online late this year and early 2007. From a human resource perspective, we continue to recruit aggressively worldwide for degreed professionals and skilled labor. To help us retain our talented people in our high turnover area such as the Rockies and western Canada, we've established incentive programs and specific retention programs for our field operations. Now, I'd like to point out a few highlights in each region, beginning with North America. The U.S. continues to be an incredibly strong market for us. Revenue in our pressure pumping business grew nearly 10% over the fourth quarter. That's even with a slight downturn in the Rockies due to the typical seasonal weather issues. We've opened a new multi-service field cap in Alvarado, Texas. This will better serve our customers' growing needs in the Barnett shale. At quarter end, the Gulf of Mexico's rig count is still about 10% below the pre-hurricane levels and production remains down approximately 20%. I'm pleased to report that all of our operations are back to pre-hurricane levels. When you look at the first quarter Gulf of Mexico revenue, it was the highest quarterly revenue since the fourth quarter of 2001. Our Gulf of Mexico team has done a great job. This recovery is faster than we had predicted and we expect to realize additional operational efficiency going forward as we continue to consolidate and upgrade our facilities and exit the temporary facilities we've established in the Gulf Coast. We've realized good pricing gains in the first quarter and we expect continued strength in U.S. activity and pricing throughout the rest of the year. In Canada, we experienced excellent growth in the first quarter of 2006, from the fourth quarter of 2005, as revenue increased 23% and operating income increased 32% versus a sequential average rig count improvement of 16%. We're in spring breakup now. After breakup, we expect to see an increase in rig deployment into the Canadian market. Many of these rigs will be working in deep gas formations where our services are in high demand. Now, I'll address Latin America where we saw a revenue decline of $22 million compared to the fourth quarter of which $15 million related to the seasonal decline in Landmark. Also affecting Latin America's results was the dry docking of a simulation vessel in Mexico and the redeployment of another vessel from Brazil to a higher utilization market in West Africa. Sperry drilling services benefited from increased demand for geopilot services in Brazil; and in Mexico we're still on track to complete the turnkey drilling project by the end of May. This will result in improved margins in Latin America in the second half of 2006. Our Europe/Africa CIS region had a revenue decline of $36 million compared to the fourth quarter of which $10 million was the result of seasonal decline in Landmark. Also impacting the quarter was the typical seasonal decline in continental Europe and the North Sea. Offsetting these declines was an increase in Sperry drilling services with higher activity in Norway as customers returned from their fourth quarter production activities to active drilling programs in the first quarter. Angola revenue was negatively impacted by a reduction in first quarter deepwater work for completion tools and lower vessel utilization. The low vessel utilization in the first quarter related to our customer's focus on drilling activities, which we have already seen shift to completion activities beginning in the second quarter. As a result we expect these vessels will be more highly utilized for the balance of the year. Russia had an extremely harsh winter. However, our Russia revenue was flat sequentially due to a strong March and the benefit from the deployment of additional fracturing units. We expect growth in Russia in 2006, as utilization of equipment and deployment of assets continues to increase. Our Middle East/Asia region is the one most affected by direct sales. As Dave mentioned, this is no longer an area where we plan to allocate a great deal of manufacturing capacity. In the Asia Pacific area, for example, we had approximately $29 million less in direct sales revenue compared to the fourth quarter. Exclusive of direct sales, Asia Pacific revenue grew 3% sequentially with particularly good results for Sperry in Southeast Asia. We expect continued growth in our base Asia Pacific operations throughout the year. In the Middle East, our completion tool business benefited from strong orders in Saudi Arabia. Well stimulation and drilling services in the Middle East also continued to be at a high demand. We see Saudi Arabia as one of our primary growth markets as drilling activity continues to ramp up. Offsetting the rapid growth in Saudi Arabia we are seeing less demand for DFE in the United Arab Emirates as some large customers move from horizontal to vertical drilling programs. This will allow us to redeploy equipment to other, more attractive markets. We've also recently opened a new tool repair center in Jebel Ali in the Emirates which will help us increase the utilization of these tools by repairing them more quickly and getting them back into the field. Now, I'll turn to KBR. This quarter we had some very good news at KBR, along with two adjustments that Chris discussed on legacy projects, Barracuda-Caratinga, and the Australian Railroad. We're very pleased about closing the two major projects Dave mentioned, Allenby and Connaught and the EBIC ammonia plant. We continue to add quality projects reflecting KBR's core competency into our backlog. The Allenby and Connaught project in the U.K. Ministry of Defense is a $13.9 billion project which we've been operating by joint venture in which we have a 45% ownership interest. The project will last 35 years and consist of a nine-year construction project to upgrade the British Army's garrisons at Aldershot and the Salisbury Plain; in addition to services to be provided throughout the 35-year duration of the contract such as catering, transport, office, and maintenance services. We like the risk profile of this project because the construction element is for simple buildings and the services portion of the contract is similar to work we've been doing in Iraq, but in a non-combative environment. This contract is a big step forward in executing our strategy to diversify and de-risk our government and infrastructure portfolio. We also consummated a financial close for the EBIC ammonia project, an approximately $400 million turnkey engineering procurement, construction, commissioning, and testing contract to design and construct of ammonia plant in Egypt. This is a true core competency for us since KBR has licensed more than 200 ammonia plants since 1943. Our exclusive advanced ammonia process technology positions the plant owner as a low-cost producer in the highly competitive ammonia business. Next, I want to update you on our outlook for LNG and GTL projects. We currently have four major LNG and GTL active projects, one in Indonesia, two in Nigeria, and one in Yemen. In addition, we're actively involved in a very large number of LNG and GTL feeds and project negotiation. LNG remains a core strength for KBR. Let me now turn it back to Dave for some closing comments.

Thank you, Andy. To summarize what you've heard, we continued to experience excellent oilfield services growth in North America and other focus markets such as the Middle East, Libya, and Russia. With the activity increases our customers are creating, our attention to pricing, and our capacity additions in key markets, we should continue to experience strong growth throughout the rest of the year. In fact, we're looking forward to what we believe will be a great several years ahead of us. We're entering into an exciting new chapter at KBR. We've talked a long time about the separation of KBR and ESG. Filing the S1 last week was a big milestone. I want to assure the employees and customers of KBR that we're making sure that this first step in the separation will not disrupt our operations at KBR. It is business as usual there and we will continue to be focused on serving customers and executing contracts. Now, we'll turn it over for questions. Please limit it to one question and one follow-up.

Thank you. (Operator Instructions) Our first question will come from James Wicklund, Banc of America Securities. James Wicklund - Banc of America Securities: Good morning, guys. Good quarter. On the energy services side, everything's rosy, everything's positive, everything's good. On a relative basis, where were you disappointed? What surprised you? Again, relative. I understand everything was great, but what would you have liked to have or expected to have seen or done better?

Jim, this is Dave. Let me answer that one. I think that on the KBR side we continue to be excited about the prospects. Obviously, getting Barracuda to final acceptance was a positive. It was a bit disappointing to have some final charges there, but we believe it is behind us at this point in time. I think the equity investment in the railroad having to be impaired is something that we wouldn't have liked, but again that's something akin, as Chris said, to the investment we made in Dulles toll road a number of years ago which did pay off for us in a big way last year, even though it didn't look good on the very front end. I think on the ESG side, it continues to be a battle out there for people and for capital. Certainly no lack of opportunities, but I think the turnover of people is disappointing. I think that that is one area that affecting everybody in the industry, and is something that we continue to be focused on. I think the bottom line for us is that we are very happy with the quarter, we're excited about the prospects we have, the demand for services is unprecedented out there, the amount of capital we have in the queue to come out in the next couple of quarters is very large, and we expect to be able to put it right to work. James Wicklund - Banc of America Securities: In terms of turnover, are you losing people to competitors or directly to your customers? Or to some other industries?

I would say, Jim, you certainly have a base turnover as people come in, experienced in the oilfield business. The oilfield business in the field is a tough business. It's physical work, it's long hours in this market. We do lose people outside the industry. I would say that we do have a large amount of customer poaching going on of our people in the industry today, as they struggle with their own growth rates and their own demographic issues. Clearly, there is some churn between the service companies, but that's not really as major an issue as you think it would be.

Our next question will come from Daniel Henriques with Goldman Sachs. Mr. Henriques, your line is open, please go ahead. Daniel Henriques - Goldman Sachs: My question is about seasonality in international markets. If you take a look at non-North American revenues in operating income this quarter, the percentage decline sequentially was almost the same as of the first quarter of '05. Is there any reason beyond normal seasonality? Anything in terms of growth outlook or cost of that growth to be a little bit more concerned on the margin with the quarter?

It was largely and almost fully impacted by just the seasonality that we spoke of, the $77 million revenue difference, when you look at Landmark and our direct sales deltas. We continue to invest in Russia, Libya, Saudi, and in West Africa as our key markets. We continue down the path we've been there. We had excellent results in a lot of areas that we want to highlight in Australia, in Malaysia, and Thailand, Saudi, and Oman in the Middle East/Asia were all great performers for us in the first quarter. Norway and the Caspian, Nigeria and Egypt were real strong also in the first quarter for us, and in Latin America, Brazil, and Argentina. The ones that were impacted most by the seasonality in both activity and Landmark was the UAE in China for direct sales, Russia with the weather, really the first two months of the quarter were impacted, but we're very encouraged by the new frac equipment going to work in March, they had the best month ever in Russia for us; that is a good sign for the rest of the year in Russia. Angola deepwater activity we mentioned is coming back strong and we're investing in Libya growth. So there's a lot of positives out there and nothing unusual that we didn't expect. The first quarter has always historically been our low quarter.

Our next question will come from Jim Crandell with Lehman Brothers. Jim Crandell - Lehman Brothers: Good morning. Could you comment on the magnitude of U.S. stimulation price increases versus recent quarters? In the quarter, do you think that customer wait times and job turndowns are increasing at this point?

First, customer turndowns and job times are about the same as the fourth quarter. Still a very, very high activity level. Now, I updated you on pricing last quarter, and we had approximately 40% of our customer base on our October 2005 price book. We now have approximately 60% to 65% of our customer base on our latest price book increase. Then Dave mentioned the increases that are coming in the second and third quarter, but we are not going to give out the percentage of that increase.

Jim, this is Dave. Let me just add to that a bit. I think what we have found since we have pricing leadership and a number of PSLs in North America, that our competitors have tended to sort of tuck in behind us on our price increases and draft off the work that we've done. So I think that we are now taking a more discrete approach to how we implement those price increases and we are not going to be as public as to where, when, and how much. There certainly was no loss of momentum in terms of pushing toward higher prices in Q1, and we do not believe that that will change as we go forward this year. Jim Crandell - Lehman Brothers: Okay, is it possible to comment whether your net pricing improvement during the quarter was greater than that of the last couple of quarters?

Yes, it was certainly no less than Q4, and it was accelerating during 2005, Jim.

Our next question will come from Ken Sill, Credit Suisse. Ken Sill - Credit Suisse: Good morning, guys. I'm going to try to ask a question about KBR that I hope you can answer. It relates to the capacity in terms of engineering. One of your competitors had said that engineering talent for both the oilfield was one of their big issues and we're starting to hear rumors of some of the E&C companies getting better terms and extending out business because they don't have capacity to do it. Is that a constraint in how quickly things can grow at the KBR backlog side over the next few years, or will it just stretch projects out?

Ken, on the KBR side, as you see LNG and GTL projects expand, there will be and there is already a very tight market for the key technical resources. But we're able to replace the resources and turnover we have had. It's going to be a issue for all companies in the E&C sector, but we feel very good about where we're placed and the resources we have for all the prospects we see coming in 2006. We continue to add 300 to 400 people a week for the GNI business, to support Iraq so that's still a very big effort for us. If you look at the ESG side where we added almost 10,000 people last year in 2005, we continue to be able to attract people to the industry and the big issue is getting them trained and developed and retaining them after that point. So there isn't a shortage of being able to attract people and the talent and skills we need from both the KBR and ESG perspective, but retention and development are key issues for everyone. Ken Sill - Credit Suisse: Then a follow-up, you were talking about pricing a lot of segments. I didn't really see any comments or hear anything about the drilling fluid business or Baroid. Are prices improving in the fluids business? Because it seems like most of that growth was attributable to volume and mix.

Pricing's improving slightly in the drilling fluids business for us. It remains extremely competitive with some large projects being bid in the eastern hemisphere and it's not as robust pricing-wise as the rest of the pumping services and some of our other product service lines.

A lot of that business is bid whereas maybe stimulation are cementing more on the price book.

Our next question comes from James Stone with UBS. James Stone - UBS: I just wanted to ask a couple of questions, the first is when you look at your CapEx budget, can you just give us a sense of how much of that spending is going towards the domestic market versus the international market for 2006? On the ESG side.

Right, we haven't broken that out. It's expanding significantly on both sides. The growth rate outside North America is higher than North America, for the reasons that Dave mentioned during the presentation. We are not backing off in any way in our capital spending estimates for the year. March was our highest rate of deliveries that we've had ever, and we expect that high rate of deliveries of new capital equipment to continue into Q2 and for the rest of the year, bringing us to the guided level that we said of $750 million to maybe close to $800 million of capital spending within ESG for the year. James Stone - UBS: Just related to KBR -- well, actually not so much KBR but with the IPO now on schedule and the potential proceeds from that with the cash balance -- do you see yourselves getting even more aggressive with the buyback program that you already have in place? I realize you were out of the market for a long period of time in the first quarter, but I'm just trying to get a sense as to how you map that out as you go through the year because you do have a lot of cash coming in the door on top of a mountain sitting on the balance sheet.

We are fortunate to have a good cash position. Of course our first priority with cash is organic growth in our capital program, acquisitions, and then returning cash to shareholders with our higher dividend and with the approved stock repurchase program. We are taking an opportunistic approach with the stock repurchase program and therefore, can't comment on what levels we'd be buying and what we wouldn't be buying. Certainly we'd be aggressive on any weakness in the stock, it goes without saying. We have the program in place, it started up and we're going to be opportunistic in looking to buy into any weakness here.

Our next question come from Dan Pickering with Pickering Energy. Dan Pickering - Pickering Energy: Good morning, guys. When we look at the price increase that you're putting in place, I wanted to clarify -- is it North America or international as well? Also, what percentage of your customer base is exposed to that, here in the short term? In other words, how much business is now long term and will take a little while to roll over?

Yes, Dan, good morning. There's a succinct difference with the eastern hemisphere and the western hemisphere. The eastern hemisphere, much longer term contracts, much harder, takes longer to roll over new pricing, and see the results of that. We're very positive on the steps we're taking in the eastern hemisphere but that market you won't see as quick a impact to our pricing efforts and the management priority we're putting on that. The western hemisphere you have a lot more transactional business, you see a quicker return from that. So we're still, as Dave said, very bullish on the market and there's very tight supply and demand. So we will see pricing improvements for the first quarter on this year. Dan Pickering - Pickering Energy: So the new price book is both domestic and international?

We have one price book, a global price book. The bigger impact will be a focused on the U.S. market.

The domestic market tends to be more oriented towards the price book, the international tends to not be, it tends to be a bid market. Dan Pickering - Pickering Energy: Thank you. Chris, I'm not sure if you quantified in aggregate the export sales decline quarter-to-quarter? I heard the number in Asia which was about $30 million. Was that the total decline?

Just looking at China and India and DFE, which is by far the bulk of the change, that's about $31 million reduction in Q4 to Q1.

Then there's another $4 million, $35 million total.

Our next question comes from Scott Gill, Simmons & Company. Scott Gill - Simmons & Company: Good morning, gentlemen. Dave, I want to go back to your comments, your change in strategy with respect to using your capacity to build for your own account as opposed to direct sales. Can you give us some sort of indication on a trailing 12-month basis how much revenue is attributable to direct sales? If you could contrast the profitability between direct sales and traditional revenue?

Scott, on profitability, in general, the margins on the direct sales are not that different from our overall profitability, if not a little bit less. It has helped us from time to time on the overall efficiency of our manufacturing and fabrication business, but as we've said, with the higher utilization internally. The opportunity to earn better margins over time on a sustained basis, and not wanting as we move into these markets of China and India, for instance, that Dave mentioned, not wanting to compete against our own equipment, it just doesn't make as much sense overall. So we will be opportunistic there with a general de-emphasis of it. Scott Gill - Simmons & Company: How big is that, Chris, as far as annual revenue goes?

It's varied from year to year, Scott. We're not wanting to quantify what it is in a particular year. Although it will be de-emphasized here going forward, as we've said. Scott Gill - Simmons & Company: Chris if I could follow-up with that. Is the strategy here to get completely out of direct sales or is it just to start reducing the amount of direct sales?

Reduction on emphasis and taking a more opportunistic approach.

(Operator Instructions) We'll take our next question from Roger Read with Natexis Bleichroeder. Roger Read - Natexis Bleichroeder: Good morning. Just as a follow-up on direct sales, what is it about the markets in China and India that have most changed that lead you to want to go in from a more aggressive service as opposed to a direct sales component?

Roger, this is Dave. I think traditionally those markets have not demanded a high level of traditional western service company activities, in many cases it was please sell us your equipment and we'll supply the service labor. Those markets have matured, in our view, to the point where we believe that we can run a profitable service business in those places. Therefore, it's in our best interest, as Chris said, not to compete against our own equipment in the long run. Therefore, we have engendered this change in strategy that we have. Roger Read - Natexis Bleichroeder: As a follow-up to that, how long do you think it will take to make those markets meaningful to your overall results? Or at least, let's say, maybe equal to or exceeding the direct sales that you've been making historically?

It certainly will take several years.

Our next question will come from Geoff Kieburtz with Citigroup.

We'll make this the last question, if we could. Geoff Kieburtz - Citigroup: Good, hopefully I won't get cut off. Actually two questions, if I could, one a near-term question. In North America, ESG you brought $105 million of additional EBIT from $160 million of additional revenue. Is that kind of incremental sustainable?

That's an awfully high hurdle. I think that's reflective of very good pricing improvements that we had during the quarter. So to answer your question, Geoff, no, I don't think that percentage is sustainable, but very good percentages are sustainable. Geoff Kieburtz - Citigroup: Was there anything kind of unusual that resulted in that?

Kind of a utilization.

Geoff, you're seeing the big improvement in the Gulf of Mexico from fourth quarter where we were really down; to the first quarter, back to normal activity.

Covering the fixed costs in Canada and the Gulf Coast, those are going back, plus pricing. Geoff Kieburtz - Citigroup: The longer term question is, if we were to do a hypothetical here and just assume the demand was there, what kind of top line growth do you think ESG could sustain on a three to five-year horizon? Given all that you've said about tightness and availability of equipment, people, so on.

We don't want to get boxed on a guidance there, but we see a very positive fundamental outlook for our business. We see, in the North America market, quite a few rigs being added. Good growth in non-rig activity. Eastern hemisphere rapid increase in demand for services. So over the three to five-year horizon, we're very constructive on the outlook and we see no signs of any slowing at this point in time.

That would conclude today's question-and-answer session. I'd like to turn the conference back to our speakers for any additional or closing comments. Evelyn Angelle: This is Evelyn Angelle, I'd like to thank everyone for joining us today. If some did not get in on questions I'll be available all day for questions here at the office. With that, I'll conclude the call, everyone have a nice day.

Thank you for your participation on today's conference, you may disconnect at this time.