Halliburton Announces First Quarter Results

Halliburton (NYSE: HAL) announced that first quarter of 2005 income from continuing operations was $367 million or $0.72 per diluted share. Income from continuing operations was $76 million or $0.17 per diluted share in the first quarter of 2004.

Net income for the quarter was $365 million or $0.72 per diluted share and included a loss from discontinued operations, net of tax, of $2 million.

Consolidated revenue was $4.9 billion in the first quarter of 2005, down 11% from the first quarter of 2004. This decrease was largely attributable to lower activity on government services projects in the Middle East and the winding down of lump-sum offshore engineering, procurement, installation, and commissioning contracts. This was partially offset by a 20% revenue increase in the Energy Services Group (ESG).

Consolidated operating income was $586 million in the first quarter of 2005 compared to $175 million in the first quarter of 2004. Impacting first quarter of 2005 operating income was a previously announced $110 million gain on the sale of a 50% interest in Subsea 7, Inc. Results from the first quarter of 2004 included a $97 million loss on the Barracuda-Caratinga project and a $13 million gain related to the Anglo-Dutch lawsuit.

"We are pleased with our first quarter performance, both for ESG and KBR," said Dave Lesar, chairman, president, and chief executive officer of Halliburton. "ESG's record performance benefited from increased oilfield activity and price increases we implemented during 2004. KBR's restructuring efforts have resulted in a more efficient operation, which is evidenced by the profitable results we have posted this quarter. In addition, KBR continues to make progress on resolving issues with our customer related to our work in Iraq, resulting in a settlement of the Dining Facilities matters."

    2005 First Quarter Segment Results

    Energy Services Group

ESG posted first quarter of 2005 revenue of $2.2 billion, a $368 million or 20% increase over the first quarter of 2004, and operating income of $513 million, up $299 million or 140% from the same period in the prior year.

Production Optimization operating income for the first quarter of 2005 was $291 million, an increase of $209 million over the first quarter of 2004. First quarter of 2005 results included a gain of $110 million on the sale of the company's equity interest in the Subsea 7, Inc. joint venture. Excluding the Subsea 7, Inc. gain, Production Optimization quarterly operating income increased 121% year-over-year. Production enhancement services operating income increased 76% in the first quarter of 2005, primarily on increased demand for well stimulation services, especially in natural gas applications in the United States, higher equipment utilization, and improved pricing in North America. Completion tools operating income increased 93% in the first quarter of 2005 compared to the first quarter of 2004. Improvements were made in each of the four geographical regions as a result of increased well completion, sand control, and reservoir performance activities. First quarter of 2004 results included an operating loss of $17 million for Subsea 7, Inc.

Fluid Systems operating income for the first quarter of 2005 was $113 million, a $53 million or 88% increase over the first quarter of 2004. Cementing services operating income increased 60% due to higher drilling activity worldwide and improved pricing and asset utilization in North America. Baroid Fluids Services operating income increased 230% on higher margins in Africa and Asia Pacific and increases in both price and volume in the Gulf of Mexico. Baroid Fluids Services results from the Gulf of Mexico also benefited from cost efficiencies realized from the restructuring efforts initiated last year.

Drilling and Formation Evaluation operating income of $80 million was up $37 million or 86% over the prior year first quarter. Sperry Drilling Services operating income increased 71%, benefiting from increased U.S. activity, improved pricing, deepwater contracts in Brazil that utilize GeoPilot® and GeoTap® technologies, and $9 million in lower depreciation expense due to the extension of the useful life of drilling tools beginning in the second quarter of 2004. Logging services operating income increased 65% due to improved activity and pricing in North America. In addition, logging services operating income improved in the Middle East/Asia region. Drill bits operating income improved 300% primarily due to strong fixed cutter bit sales in North America.

Digital and Consulting Solutions operating income was flat compared to the prior year period. Operating income for Landmark Graphics increased 33% in the first quarter of 2005 compared to the first quarter of 2004 mainly driven by sales of the company's real-time drilling applications as well as increased revenue from data bank projects.


KBR revenue for the first quarter of 2005 was $2.8 billion, a 26% decrease compared to the first quarter of 2004. Operating income for the first quarter of 2005 was $105 million compared to an operating loss of $15 million in the first quarter of 2004.

Government and Infrastructure (G&I) operating income for the first quarter of 2005 was $53 million compared to $62 million in the first quarter of 2004, a 15% decrease. Most of this decrease was attributable to the completion of the RIO contract. Operating income in the first quarter of 2005 was positively affected by a settlement with KBR's customer for its Iraq-related work under the LogCAP III contract.

Energy and Chemicals (E&C) operating income totaled $52 million in the first quarter of 2005 compared to a $77 million loss in the first quarter of 2004, which included a $97 million loss on the Barracuda-Caratinga project. The first quarter of 2005 results were positively impacted by stronger results on many projects, including offshore engineering and management projects in the Caspian and Angola and offshore production services projects in the United Kingdom.

KBR's backlog at March 31, 2005 was $9.4 billion, up approximately $1.0 billion from December 31, 2004, primarily due to a recent LNG award. Of the total backlog, $4.8 billion is for G&I projects, and $4.6 billion is for E&C projects.

Halliburton's Iraq-related work contributed approximately $1.5 billion in revenue in the first quarter of 2005 and $38 million of operating income, or a 2.6% margin.

Technology and Significant Achievements

Halliburton had a number of advances in technology and new contract awards.

    Energy Services Group new technologies:
     *  Halliburton's Sperry Drilling Services continues to lead the industry
        with its GeoTap® while-drilling formation pressure tester, an
        integral part of its Stellar® formation evaluation suite.  The
        GeoTap formation pressure tester allows drilling engineers, reservoir
        engineers, and petrophysicists to acquire fast and accurate pressure
        measurements to make timely decisions.  The 6 3/4-inch GeoTap logging-
        while-drilling sensor was the first commercially available pad/probe
        while-drilling formation pressure tester for 8 1/2-inch to 10 5/8-inch
        hole sizes.  In addition, the 8-inch GeoTap sensor has now
        successfully performed pressure tests in 12 1/4-inch hole sizes in
        Norway, the Gulf of Mexico, the Caspian, and offshore Brazil.
     *  Halliburton's Sperry Drilling Services successfully completed its
        field trials of its third-generation Geo-Pilot® 5200 Series system
        and is now providing commercial services to its customers.  With the
        addition of the 5200 Series system to the FullDrift® drilling suite,
        Sperry offers a slim hole point-the-bit rotary steerable solution
        capable of significantly extending horizontal production sections and
        reaching small targets from existing structures.
     *  Halliburton's Digital and Consulting Solutions group has acquired the
        smartSECTION® geologic software business from A2D Technologies, a
        TGS-NOPEC Company.  SmartSECTION software provides the industry's
        leading raster image cross-section application and pioneered the use
        of depth-calibrated well log images for a faster, more affordable
        approach to high volume well log correlation and geologic
     *  Halliburton's Landmark Graphics achieved global certification for the
        third consecutive year under the prestigious Support Center Practices
        (SCP) program that establishes the service quality benchmark for all
        information technology service support centers and help desks.  SCP
        certification is an internationally recognized standard that defines
        best practices for delivering world-class technology support.

    KBR new contract awards:
     *  KBR and joint venture partners Snamprogetti of Italy and JGC of Japan
        have been awarded a $1.7 billion engineering, procurement, and
        construction (EPC) contract for the Chevron Nigeria Ltd./Nigeria
        National Petroleum Corporation gas to liquids (GTL) facility.  The
        facility is located approximately 100 kilometers southeast of Lagos in
        Escravos, Nigeria.  This award marks KBR's first GTL EPC contract.
        The Escravos GTL facility will provide environmental benefits by
        converting natural gas to ultra clean GTL diesel.  The facility will
        produce 34,000 barrels per day of GTL diesel, naphtha, and liquefied
        petroleum gas for export.
     *  KBR, along with joint venture partners JGC of Japan and PT
        Pertafenikki Engineering of Indonesia, has been awarded a $1.8 billion
        engineering, procurement, and construction contract for the Tangguh
        LNG Project of BP and partners in Indonesia.  The scope of the project
        includes the construction of a two-train LNG processing plant and
        associated support facilities.  Each train will have a capacity of 3.8
        million tonnes per annum (MTPA).  The project is expected to begin
        producing LNG in 2008.
     *  KBR has been appointed by the United Kingdom Ministry of Defence (MoD)
        to be the preferred Physical Integrator for the Future Aircraft
        Carrier Programme, under which two new aircraft carriers are to be
        delivered to the MoD with target in-service dates of 2012 and 2015.
        As preferred Physical Integrator, KBR will be responsible for
        developing and proposing the optimum build strategy for approval by
        the alliance participants, creating and maintaining the program master
        schedule, providing support to the MoD and negotiating the alliance
     *  KBR is one of four contractors awarded a United States Navy Multiple
        Award Construction Contract (MACC) by the Southern Division Naval
        Facilities Engineering Command to repair northwest Florida Navy
        facilities damaged by Hurricane Ivan.  KBR was also selected as the
        contractor for the initial task order on this project.  Under the
        MACC, KBR and the three other contractors will compete for each task
        order on an individual basis, with the anticipated value of each task
        order ranging from $3 million to $15 million.  The initial task order
        awarded to KBR is valued at approximately $3 million and covers work
        that will be carried out at the Naval Air Station in Pensacola,