hal q2 2011 ccall

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F I N A L T R A N S C R I P T

HAL - Q2 2011 Halliburton Co Earnings Conference Call

Event Date/Time: Jul. 18. 2011 / 1:00PM GMT

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C O R P O R A T E P A R T I C I P A N T S

Christian Garcia

Halliburton - IR

Dave LesarHalliburton - Chairman, President & CEO

Mark McCollum

Halliburton - EVP & CFO

Tim Probert

Halliburton - President, Strategy and Corporate Development

C O N F E R E N C E C A L L P A R T I C I P A N T S

David Anderson

JPMorgan - Analyst

Doug Becker

BofA Merrill Lynch - Analyst

Kurt Hallead

RBC Capital Markets - Analyst

Brad Handler

Credit Suisse - Analyst

Ole Slorer

Morgan Stanley - Analyst

Bill Herbert

Simmons & Company - Analyst

Angie Sedita

UBS - Analyst

Jim CrandellDahlman Rose - Analyst

Jeff Tillery

Tudor Pickering - Analyst

P R E S E N T A T I O N

Operator

Good day, ladies and gentlemen, and welcome to the Halliburton second-quarter 2011 earnings call.

At this time all lines are in listen-only mode. Later we will conduct a question-and-answer session and instructions will be given

at that time. (Operator Instructions) As a reminder this conference is being recorded. I would now like to turn the conference

over to your host today, Christian Garcia, Senior Vice President Investor Relations. Please begin.

Christian Garcia - Halliburton - IR

Good morning and welcome to the Halliburton second-quarter 2011 conference call. Today's call is being webcast and the

replay will be available on Halliburton's website for seven days. The press release announcing the second-quarter results is

available on the Halliburton website.

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2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by

framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and theThomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.


Jul. 18. 2011 / 1:00PM, HAL - Q2 2011 Halliburton Co Earnings Conference Call

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Joining me today are Dave Lesar, CEO; Mark McCollum, CFO; and Tim Probert, President, Strategy and Corporate Development.

I would like to remind our audience that some of today's comments may include forward-looking statements reflecting

Halliburton's views about future events and their potential impact on performance. These matters involve risks and uncertainties

that could impact operations and financial results and cause our rational results to differ from our forward-looking statements.These risks are discussed in Halliburton's Form 10-K for the year ended December 31, 2010, Form 10-Q for the quarter ended

March 31, 2011, and current reports on Form 8-K.

Our comments include non-GAAP financial measures. Reconciliation to the most directly comparable GAAP financial measures

are included in the press release announcing the second-quarter results, which can be found on our website. Dave?

Dave Lesar - Halliburton - Chairman, President & CEO

Thank you, Christian, and good morning, everyone. I am very pleased with the overall performance of our business in the second

quarter. Total revenues of $5.9 billion, which was a new company record, represents 12% growth sequentially. Our operating

income grew 43% sequentially with our North American and international businesses both registering double-digit growth

rates.

North America continued to experience strong margin growth while our international business saw a modest seasonal recovery

from the first quarter. Against prior year, revenue and operating income grew 35% and 52%, respectively, with operating income

more than doubling in North America. International revenues surged 9% against a rig count growth of 5%, while operating

income declined from prior-year level due to disruptions caused by the turmoil in North Africa and international pricing

deterioration.

We are now seeing evidence that the international pricing is stabilizing. We believe that steady volume increases should be a

precursor for overall international pricing to improve toward the end of the year. We also believe that continued execution of

our strategies will lead to margin expansion in both our North America and international businesses, and provide us with

continued overall strong performance for the remainder of 2011 and beyond.

Let me now discuss our operating results in more detail starting with North America. North America experienced sequentialrevenue and operating income growth of 16% and 36% in the second quarter compared to a US rig count growth of just 6%.

We achieved these results despite weather-related issues in the Bakken and high decrementals we get from the Canadian spring

breakup.

Sequential incremental operating margin for the quarter was 57%, which is the highest level since the start of the North American

recovery in the third quarter of 2009. More importantly, for the first time in many years incremental margins were consistent

between our C&P and D&E divisions, evidence of the continued adoption of our integrated services offerings and that all of our

well construction related PSLs are benefiting from this strong market.

Overall growth in the demand for our services has outpaced capacity additions and we expect this imbalance to continue going

forward. We have always been confident in the strength of this North American cycle, even when others have not been, and

our results this quarter validate our bullish view of the market.

The continued shift to oil and liquids-rich activities has propelled sustained volume growth in our US land business. Even gas

drilling, which was down only 2% in the quarter, remained relatively resilient, spurred by the increased demand for power

generation due to substitution of natural gas for coal and harsh summer temperatures in various regions.

Last year we discussed a strategy of staying with our dry gas basin customers and not moving equipment elsewhere and to

work with them to find a business model that allowed both of us to achieve our financial goals by driving project deficiencies

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in the high-quality portions of their gas portfolios. While we did sacrifice some margin opportunities at that time, and some of

you were critical of that, I believe the strategy is starting to pay off. Our customers are seeing the returns they need and we are

now seeing only a small difference in operating margin between the gas plays and our liquid-rich shale plays.

Despite this success, we remain a bit cautious on natural gas drilling for the rest of the year. We continue to believe, however,that any further curtailment would be outweighed by continued expansion in liquids activity.

The changing landscape in North America and the corresponding increase in service intensity are playing to our strengths.

Operators are drilling longer laterals that require more complex completions to maximize production. In this regard, we are

pleased to announce that we have introduced a great new product for our customers called RapidFrac.

We believe RapidFrac is now the best sliding sleeve completion system in the market for horizontal well bores. RapidFrac

technology allows for accurate and efficient stimulation, but most importantly, gives our customers enhanced reservoir contact.

RapidFrac is being introduced first in the Bakken with outstanding results. One operator, for instance, experienced a 75% increase

in production with a 50% reduction in pumping time compared to an offset well using traditional plug and perforate design.

This customer is now looking at switching all of their completion work to using RapidFrac.

In addition to this technology, we continue to develop innovations that improve reservoir conductivity to enhance production

and Tim will talk about these in a few minutes. We believe the commercialization of these innovative offerings will continue to

enable us to sustain our North America leadership position.

Activity in the Deepwater Gulf of Mexico is continuing to recover due to the resumption of the issuance of permits that took

place earlier this year. Current approved permits are heavily weighted towards larger operators, which have traditionally been

our core customers. We experienced strong incrementals in the second quarter and are currently delivering drilling and

completion services at a market share level that is higher than our historical Gulf activity, including providing cementing services

for eight of the 18 new well permits.

While we are pleased with the Gulf of Mexico improvement in the second quarter, the pace of permit issuance has slowed again

and the fact that some of the initially permitted wells are nearing completion creates a risk that the Gulf recovery could slow

or stall in the second half of 2011. As a result, we don't expect to generate the same level of incrementals from the Gulf of Mexico

in the third quarter.

Through 2011 we expect that land activity will remain robust as operators continue to pursue an increase in activity for the

liquids portion of their asset portfolios. We believe that we will continue to generate margin expansion, but it will be slowed

down by general cost inflation, particularly for labor, chemicals, and profits.

Now let me talk about our international business for a few minutes. Latin America posted good sequential revenue growth

from increased activity across most of the region, but margins were impacted by some unusual costs in Argentina and Columbia.

Brazil continues to be a stellar performer in the region with a 21% sequential revenue growth from the first quarter with improving

margins.

Due to the rapid growth in our Brazil business over the last several years, we expect Brazil operations should soon surpassMexico as our largest operation in Latin America. We continue to strengthen our presence in the country and are very pleased

with our role in assisting our customers in unlocking the value of their deepwater assets.

Mexico had a good quarter with revenues growing 12% sequentially and there are emerging signs that prospects in the country

may be improving, but at this point it is still too early to say whether this performance will be sustainable. Increased interest

from our customer to work on their offshore fields and continuing work on the shale plays in North Mexico are contributing to

a more positive view of this market over time.

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Now let's turn to the Eastern Hemisphere. I am actually quite pleased with where we are in the Eastern Hemisphere.

We experienced a modest recovery in our Eastern Hemisphere business as the seasonal rebound of harsh weather conditions

in Russia, North Sea, and Australia offset disruptions in some markets. We have been growing our Eastern Hemisphere revenue

faster than the market and our revenue per rate has increased.

We currently have five specific areas that are pulling our Eastern Hemisphere margins down. Other than these areas, our margins

would be where we would all expect them to be at this point in their recovery. Let me talk about these five areas.

First is Libya. We are completely shut down in Libya but we have maintained our local employee base and the related ongoing

expenses, all subject to applicable law, pending the outcome of the turmoil.

Iraq continues to weigh on our near-term results. As a mentioned in the first quarter, our work in Iraq has shifted from workover

to new drilling, but rig mobilization delays on our project startups have led to significant underabsorption of our fixed costs.

We continue to believe that these drilling projects will commence later in the third quarter when we expect to have seven rigs

running compared to zero today.

Currently we believe that we will return to profitability by the fourth quarter when the performance of these contracts should

be in full swing. Even though these contract delays have impacted our short-term results, they have not dampened our enthusiasm

for Iraq. We believe that Iraq will be one of the fastest-growing countries internationally in the coming years and that we will

benefit significantly as a result of a first-mover strategy.

In Sub-Saharan Africa we have been successful at winning contracts in both East and West Africa in the past several years. In

many cases these contracts have been in countries new to Halliburton, such as Uganda, Tanzania, and Mozambique, or have

included the introduction of some of our Drilling and Evaluation product lines to some of our existing countries of operation.

As you know, it is expensive to set up new drilling, logging, or fluid operations. These new deployments are requiring heavy

investment in new facilities and mobilization of equipment and people and are negatively impacting our Eastern Hemisphere

margins while these mobilizations are being implemented. However, we believe these new areas of work should position us

for many years of profitable operations going forward.

Our UK North Sea operations are suffering from a lack of customer drilling commitment to that market because of UK tax reform

policies. We have a large fixed cost structure to our operation in the UK and businesses not currently at a level that will absorb

these costs. We are now in the process of redeploying equipment and people to other parts of the Eastern Hemisphere.

And finally, Algeria. We continue to have administrative procedures relating to contract renewals and new awards that are

unpredictable and have impacted our level of profitability there. While the timing is uncertain, we expect the issues in Algeria

to be resolved allowing this market to recover.

As such, we have made cost structure adjustments, primarily in our Europe/Africa/CIS region, resulting in employee separation

costs that impacted our results by $0.01 in the second quarter. In total, the issues related to these five areas had an impact of

approximately 400 basis points on our eastern hemisphere margins. We are going to stay the course in these markets as I believe

that future upside is well worth it despite the current downside pressure it puts on the margins.

There have also been numerous discussions in the investment community regarding international pricing. Our pricing strategy

has supported our overall objective of gaining share in certain deepwater markets during the downturn. We won contracts in

key geographies by deploying fit-for-purpose technologies and leveraging our customers' need to have multiple providers for

their projects.

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Specifically, we are currently mobilizing PSLs for 31 new projects, 18 of which are in our Drilling and Evaluation division. Many

of these projects are in Sub-Saharan Africa, as I mentioned earlier.

Outside of key deepwater markets our pricing behavior is consistent with that of our peers and we believe that any suggestion

that we have been more aggressive is inaccurate and misleading. And for every bid outcome where we could be accused ofhaving an aggressive price I can give you one from each of our major competitors. So, as the cycle enters a new phase, we

believe that the contracts we have won will provide us with the opportunity to deploy new technologies and process efficiencies

that create value for our customers and incremental margins for us.

We see this strategy for deploying new technologies already working. For example, in a recent contract in Norway for drilling

fluids, we replaced standard mud with a proprietary water-based system that provides the hole stability our customer was

seeking, providing incremental value for the customer and an uplift in margins from single to double digits for us.

In the Middle East, fluid sampling and magnetic resonance imaging tools were added to a wireline contract to assist our customer

with their formation evaluation challenges. The expanded scope of this contract led to improved production for our customer,

but provided us with a 25% increase in contract revenues and improving margins.

I could mention many more cases like this where we are seeing opportunities to broaden the scope of the services we provide

our customers. By introducing these new technologies, we help improve our customers' effectiveness while at the same time

favorably impacting revenue and margins.

The pricing environment in the international markets has been challenging. However, we are now seeing the emerge of

conditions that will enable leading-edge pricing to improve. Continued strong growth in certain geographies like Brazil, Colombia,

and Norway, and volume increases in the Middle East and in deepwater regions are creating an inflection point.

We believe this will serve to assist in the tightening of capacity and will lead to improved pricing by the end of the year. How

much improvement and how quickly it comes will depend a large part upon commodity price behavior and the pace of the

global economic recovery.

So in the second half of the year we expect a gradual progression of our international margins as activity improves. We expect

our international margin expansion to continue into 2012 as leading edge pricing improves and new technologies are introduced.

Overall, we believe that what we are seeing in North America, plus the continued international recovery, will lead to even a

more favorable earnings picture as we go through 2011 and beyond.

The execution of our strategies is providing us with momentum for the second half of the year. By securing fee contract wins,

deploying new technologies, and establishing bases in new frontier markets for Halliburton, we believe we are in a unique

position to continue to outperform as the industry enters the next phase of this cycle.

I will let Mark give some more details now.

Mark McCollum - Halliburton - EVP & CFO

Thanks, Dave, and good morning, everyone. Let me provide you with our second-quarter financial highlights.

Our revenue in the second quarter was up $5.9 billion, up 12% from the first quarter. Total operating income for the second

quarter was $1.2 billion, up 43% from the previous quarter. Our results in the second quarter included approximately $11 million

in employee separation costs, primarily related to our Europe/Africa/CIS region.

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Our first-quarter results included a charge of approximately $59 million to reserve for certain receivables and inventory in Libya.

And I will be comparing our second-quarter results sequentially to the first quarter, excluding both the second-quarter

restructuring charge and the first-quarter Libya charge.

For North America we saw our incrementals accelerate in the second quarter as we continued to benefit from the shift to oiland liquids-rich reservoirs. The combination of the greater service intensity of these basins, coupled with higher activity levels

from capacity additions and rig count increases, have resulted in better fixed cost absorption. We were also able to capture

sufficient pricing to offset cost inflation.

We believe that we are going to continue to see continued margin expansion in the third quarter, but we expect incrementals

will be less than what we experienced in the second quarter due to both cost inflation and lower incrementals in the Gulf of

Mexico. For international, we believe that margins will gradually improve from second-quarter levels due to increased activity

with margin improvement to be weighted toward the latter part of the year.

In terms of our segment results, Completion and Production revenue increased $446 million or 14%, while operating income

grew by 33%. The sequentially incremental operating margin for the division was a healthy 51%, driven primarily by higher

activity in North America.

Looking at Completion and Production on a geographic basis, North America revenue increased by 17% while operating income

grew by 35%, due primarily to the higher activity and capacity additions across most US land basins, especially in the oil and

liquids-rich basins. Offsetting the strength in the US land are the impact of the Canadian breakup and the timing of completion

tool sales for the Gulf of Mexico.

In Latin America, Completion and Production revenue increased 12%, but operating income fell 19% as higher employee and

equipment costs in Argentina and Columbia offset higher production enhancement activity in Northern Mexico and increased

completion tool sales in Brazil.

In our Europe/Africa/CIS region, Completion and Production revenue increased 3% and operating income doubled as seasonally

higher activity in the North Sea and higher complete tool sales across the region offset lower activity in Algeria and the shutdown

in Libya.

In Middle East/Asia Completion and Production posted sequential increases in revenue and operating income of 12% and 33%,

respectively, due to increased production enhancement services in Saudi Arabia, higher completion tool sales in Kuwait and

Brunei, and a seasonal rebound in Australia. Additionally, the division saw increased stimulation work and higher sand control

product sales in Indonesia.

In our Drilling and Evaluation division, revenue and operating income increased by 10% and 30%, respectively, led by gains in

both North America and Latin America.

In North America, Drilling and Evaluation revenue increased 13% and operating income improved by 44% as most of our product

service line saw pricing improvements in US land and continue to benefit from the increased horizontal rig count. Further, the

division benefited from higher drilling activity in the Gulf of Mexico, which was partially offset by the impact of the spring

breakup in Canada.

Drilling and Evaluation's Latin America revenue and operating income increased 13% and 30%, respectively, due to drilling

activity increases in Brazil, software sales in Argentina, and consulting work in Ecuador.

In the Europe/Africa/CIS region Drilling and Evaluation revenue and operating income were up 9% and 27%, respectively, due

to higher drilling activity in the North Sea and Russia and the recovery in Egypt's drilling operations, partially offset by rig delays

in Angola and the shutdown in Libya.

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Drilling and Evaluation's Middle East/Asia revenue was up 4%, but operating income remained flat as higher wireline sales and

services and software sales in Kuwait and higher direct sales in China fully offset project delays in Iraq and higher repair costs

we experienced in Saudi Arabia.

Now I will address some additional financial items. We are making considerable progress in our initiative to reinvent our servicedelivery platform in North America and to reposition our supply chain manufacturing and technology infrastructure to better

support our projected international growth. The investments for these initiatives, which are included in Corporate and Other,

impacted our results by approximately $0.01 per share in the second quarter. These activities will continue into 2012, and we

currently expect the impact of these investments to increase to $0.02 per share in the third quarter.

Finally, the effective tax rate for the second quarter came in at 32%, which was in line with our guidance. For the balance of the

year, we are projecting that our effective tax rate will be closer to 33% given the overall robustness of our North American

operations. Tim?

Tim Probert - Halliburton - President, Strategy and Corporate Development

Thanks, Mark, and good morning, everyone. We continue to develop technology innovations designed to improve the efficiencyand effectiveness of unconventional resource development. As Dave mentioned, the newly introduced RapidFrac completion

system has provided material time savings and production increases, primarily because it allows a more surgical approach to

stimulating the lateral and also allows us to reduce water usage.

Improving reservoir conductivity is another key objective and has been a focus of ours for some time. We have introduced a

range of conductivity enhancers, such as SandWedge and Expedite, which provide improved flow power to the hydrocarbons

through the fracture resulting in sustained improvement in production. With some 25,000 treatments worldwide in North

America, Asia, Latin America, and the Middle East, they are proving their value in a range of operating environments.

Further on the innovation path, operators are constantly looking for technologies that maximize their fracture stimulation

investment and there is a significant opportunity in building a permanent connection with the maximum amount of reservoir

while balancing cost and time to initial production.

Halliburton's new [access frac] uses a basin-specific design process combined with biodegradable and environmentally-friendly

chemistry to redirect the fracturing slurry into portions of the reservoir not previously treated. Trials have demonstrated much

improved well productivity in a wider range of applications than even Halliburton's patented [prop-and-pillar] distribution

technology used by us and others as a result of this greater stimulated reservoir volume.

Now we continue to be very bullish about the global outlook for gas and unconventionals in particular. Last month the IEA

released a special report on natural gas in the global energy mix projecting gas consumption will rise by more than 50% from

today and will account for 25% of world energy consumption by 2035. Importantly, they estimate that unconventional gas

resources are now equal to those of conventional fields.

Exploration for unconventional resources is underway in many areas outside the US including Mexico, Argentina, Australia, and

Poland, where here the government has granted 86 concessions and has attracted broad interest from IOCs and independents.

In our recent integrated services award for Chevron's drilling program in southeastern Poland we will be providing project

management on a wide variety of well construction and stimulation services for this three-year contract.

Worldwide natural gas development, both conventional and unconventional, will be an important component of the upcoming

international cycle. And we believe this secular trend will be a key driver in our future prospects. Dave?

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Thank you, Tim. Let me just quickly summarize.

Our contract wins in key Eastern Hemisphere markets should allow us to expand our international margins in 2012 by introducing

incremental technology, our visibility in North America suggests a prolonged cycle with opportunities to improve our revenue

and margins further. So at this point we believe that these improvements in North America, plus the international recovery, will

lead us to a more favorable earnings picture during the second half of the year and into 2012.

So let's open it up for questions now.

Q U E S T I O N S A N D A N S W E R S

Operator

(Operator Instructions) David Anderson, JPMorgan.

David Anderson - JPMorgan - Analyst

Thanks. Good morning, Dave. As you start thinking about the strength of the North America market through 2012, it appears

that pressure pumping and other services still are the gating factor in rig count growth.

But how concerned are you now about the pace of newbuild rigs out there? We have talked a lot about rig count kind of being

restrained 10% to 15%, but how great a risk are there that rigs all of a sudden become that gating factor, perhaps in the second

half of 2012?


Dave, this is Tim. I think that is possible, but the one thing that we are seeing is tremendous efficiency gains in terms of theoverall drilling process. The well construction process, if you like. It has been quite impressive.

We are drilling laterals now up to 10,000 feet or so, and the degree of efficiency has, I think, being quite surprising to all. So I

am, frankly, less concerned about rig supply today than I probably was two or three quarters ago.


And then I guess just following up on that North American side. Obviously a very different market today than we were back in

2006, 2007, 2008. How different is your strategy now in terms of as you are looking at, say, pricing increases or perhaps how are

you looking at cost or how are you actually adding in the capacity?

Is that -- how has your thinking evolved over the last time to -- really kind of in order to keep that margins continuing to go

progressively higher?


Dave, this is Mark. I think that probably the most marked difference in our strategy this time than last was in the last cycle we

probably were more myopically focused on strictly increasing price to maximize margins.

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And I think this time around what we are trying to do is to think more holistically about our position in the marketplace to

develop a strategy where our pricing reflects value add to our customers. Not only in the ability to integrate the products and

services that we have so that our pricing model is lifting all of our product service lines, but also thinking about the returns that

our customers are getting from the work that we are doing in each of the basins that they work in.

Dave made a comment about our thinking about the dry gas basins and helping our customers there. And while I think that

the difference in margins that we are receiving today have leveled out between those various basins, as we just think about

that we are covering our costs certainly and we are getting a little bit more pricing.

But we are trying to add equipment on a customer-specific basis to address the work that they are presenting to us. We are

trying to work with them in what I call a very symbiotic way to maximize their value. And I think that it's -- this type of environment

is lifting all boats.

So we are seeing margin increases. We are seeing, as we look out ahead, a number of our customers coming forward with even

more robust drilling programs, extending the relationships that we have with them, not only through the end of this year but

the end of next year and beyond.

And so, at least from our view, there is still the ability to add capacity into this market. There is still a lot of work to be done.

There is still a lot of value to add. And I think as a result what we will see is continued not only top-line growth but marginal

growth as well.


And there is still ability to add pricing as well?


Oh, yes. But I think that -- again, we are trying to add price and making sure that we are covering our costs, but we are -- it's not

all about just adding price for price sake.


Understood. Thank you.

Operator

Doug Becker, Bank of America.

Doug Becker - BofA Merrill Lynch - Analyst

Thanks. I want to touch base on the international margins. I think on the last call it was mentioned that there was the potentialto get to 2010 levels late in the year. Is that still a realistic expectation given the second-quarter results?


Doug, this is Mark again. I think that the way we look at it; trying to reach that margins that we had at the end of last year is still

the goal for us. That is what we are working toward.

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Obviously, it's going to be very, very dependent upon recovery of some of the markets that Dave spoke to, the overall general

economic recovery and the overall pricing environment, but we are still working toward it. But it's going to be challenging, we

know that, and it's going to get some -- we need some help from the markets to get there.


So I guess the impact was talked about, 400 basis points, and certainly Libya and Algeria would seem to have limited visibility

in those. Could those -- I guess what percentage of the Sub-Sahara Africa, fixed cost structure in the UK, how much of that 400

basis points would those two account for?


Doug, I don't know that I have that on the top of my head. We will have to just kind of think through it, but obviously it's not a

small increment. Those are -- they are smaller markets but they are widespread.

But I think as you think about Africa, the Libya market, Algeria, those are all the largest markets in Africa. They will definitely

continue to be a drag as long as the conflict is there and the political issues persist.


Okay. And then in the past you have mentioned the number of uncompleted wells or at least your estimate. Any update to that

number?


Yes, I think in the last quarter we said there were about 3,500 wells. We know that that has crept up and probably will continue

to incrementally creep up towards the end of the year.


Thank you.

Operator

Kurt Hallead, RBC.

Kurt Hallead - RBC Capital Markets - Analyst

Good morning. The question I would have is on the sliding sleeve technology you reference that there has been a significant

increase in efficiency and productivity. Just wondering what you guys may think that means from an industry standpoint.

Or is that going to lead to too much equipment-related capacity if the fracture becomes more efficient? Is this the Bakken-specific

opportunity? It sounded like it isn't.

So I am just trying to gauge, with the increase in efficiency, how this all translates in your mind to a supply/demand balance as

we head out into 2012.

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Kurt, this is Tim. Yes, we are very pleased with the performance of RapidFrac to date and it's really providing some significant

improvements in sort of well-to-well times for us and our customers.

And there is no doubt that it allows us to be more efficient in what we do and allows us to optimize the performance of our

fleet, but that is not something that we see spreading to the industry in general. I think this is something that Halliburton intends

to capture for ourselves, so I don't see it having a broad impact on the industry at large.


Okay. And then, Dave, maybe a follow-up for you. You referenced that the pace and magnitude of pricing improvement

internationally will largely depend on some macro factors and I know how close you are to your large international customers.

So what kind of hesitation or are your customers showing any reason to hesitate on their spending plans internationally? Are

they getting cold feet or are they moving pretty aggressively forward?


I think, Kurt, a couple things. One is we are finally, I think, getting past the reengineering look and the process assurance look

that a number of our customers were doing post Macondo with respect to their offshore development.

I think liquids prices are at a sufficient level that would allow these projects to go forward. These projects are getting sanctioned.

They are getting final investment decisions in a positive way.

It's really just how quickly the industry can gear up for some [of these] major projects. They are coming. Whether they will start

toward the back end of this year or into 2012, they are definitely there, they are definitely coming at us, and we should get the

benefit of equipment basically being picked up and put to work at that point in time.

So I am pretty optimistic that that is all going to fall to the service industry's advantage.


Okay, thanks.

Operator

Brad Handler, Credit Suisse.

Brad Handler - Credit Suisse - Analyst

Thanks. Good morning, guys. Perhaps first, Dave, just to come back to your comments on where incremental margins are headed

over the next couple of quarters in North America. Perhaps you can parse out just how much the Gulf of Mexico contributed

to that, to the 57% in the second quarter?

So in other words, maybe if we just looked at the US land business on its own can you share the incrementals there.

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I don't know that I want to share exactly the incrementals -- Brad, this is Mark-- but the Gulf of Mexico incrementals were much

higher than the US land incrementals during the quarter. Again, we are coming off a very, very low base.


Sure.


And so I wouldn't expect that that will continue as activity levels out there.

Of course, we highlighted the fact that we are somewhat concerned that the pace of permit approvals have been slowly down

quite a bit. And you know most of these permits were for single wells. That work is underway; at some point here those are

going to start wrapping up and the question is what is next. So we need that pace to pick up if we want to continue to expandthe Gulf of Mexico operations.


Understood, all right. I guess as a follow-up, if I stick with the US land side of the business, you mentioned some cost creep

impacting the opportunity to raise margins. I understand that. But can you comment on the opportunities for volume, maybe

sort of revenue per rig as you see it over the second half of the year but on a volume side?


This is Dave; let me take the first shot at that. Certainly with the frac equipment being a serious gating issue right now our ability

to pull-through other services I think was really demonstrated this quarter. And I think it was easy to overlook one of thecomments I made in that our incremental margins on our Drilling and Evaluation business in North America were basically the

same as our Completion and Production.

So I think the pull-through is one. Adding capacity is certainly something we are doing in all of our product lines in North America

and obviously we are well past the point where we have absorbed our fixed costs, so that should also have an ability to increase

our margins without any pricing impact.

We also are looking at, on things like fuel, diesel, things like that, either going to customer furnished or to a pure pass-through

on some of these things. So I would say there is a lot of moving pieces, but all of them added together gives us confidence that

we should be able to expand our margins and our absolute operating income.


Very good. All right, I will turn it back. Thanks for the color, guys.

Operator

Ole Slorer, Morgan Stanley.

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Ole Slorer - Morgan Stanley - Analyst

Thank you very much. Congratulations in taking a significant share of international work in line with what you highlighted at

your capital markets day back in the fall. But could you sort of readdress a little bit where you stand right now on your strategy

on market share relative to margin expansion?


Yes, this is Tim. I think that, as Dave said on this call and as we outlined to all of you during our analyst day, we are very focused

on some specific areas. One of them being an area we felt that historically we had underserved as a company for a variety of

reasons and that one being deepwater.

I think that was driven by a number of factors including the availability to provide our customers with some of the technology

which they required. And we have worked hard on that as you know.

So I think that we have been very pleased with our win rate. We have gotten ourselves to a position that I think we feel fairly

comfortable with respect to deepwater. I think for us now the focus is on execution, to make sure that we execute well, and weare confident we will do that.

I think secondly, as Dave mentioned, lots of rhetoric around pricing out there in the market but I stand by what Dave said. For

every contract that someone whines about I think I can demonstrate at least one or two where the offers there may be true

with another competitor, so I think that is just in the noise.


Ole, this is Mark; let me add to Tim's comments. You saw obviously we took a restructuring charge in the quarter related to

some employee separation costs. It was primarily focused in the part of the world that Dave highlighted, were places where

we were struggling a bit with our cost, and I think that sort of lends to what Tim said that we are beginning to focus on margins.

We also been highlighting on a quarterly basis over the last several quarters the initiatives that were underway to -- part of

those initiatives are addressing our North American service platform and reducing costs there, but there is a big chunk of that

that is also addressing our supply chain and our manufacturing and technology delivery in the Eastern Hemisphere as well. The

headline on those is that is all designed to make us much more cost effective and to reduce our cost platform, service delivery

platform in the Eastern Hemisphere as well.

So all of these taken together are designed to sort of focus in on the cost side. Of course, now as we get these projects underway

we have got the ability to begin to pull-through other services, to add incremental high-value technologies that should allow

us to expand the top line just as well. So definitely it's time to and we are focused on margins.


Okay. It sounds that you have gained the position that you want to have. It's about defending and it's about being more efficient

and it's about getting more margin out of what you are doing. Is that correct?


That is absolutely right.

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Another question on North America. You highlighted two constraints, people and profits. I think you also (inaudible) with

people, but could you highlight a little bit what it means to be constrained on the profit side and what you are doing about it?


Yes, I think, as you know, Ole, we have taken a fairly aggressive stance in terms of building capital equipment to satisfy what

has been a gating issue in North America for stimulation equipment. Hand in glove with that we have developed what I think

is an extremely robust supply chain strategy which our North America operations have executed.

And that included, has included investing in our supply chain to make sure that our supply chain can support our requirements.

That includes their specific investments in terms of providing profit and our specific investments in making sure that we can

get it to the well site effectively. And that includes obviously sand plants, transportation, et cetera, et cetera.

So I think there are clearly shortages in North America today, and there are some disruptions that I think certain service providers

have experienced. I think we feel very good about our supply system, and I think that making that investment hand in glovewith our capital investment has paid dividends for us in the last quarter or so.


So we are pumping about 1.3 billion pounds of profits a month today. The entire industry pumped about 3 billion pounds in

2000. So I mean, it is quite dramatically different and we are obviously working to make sure that we have the profit in the right

place, the right profit in the right place at the right time. It is obviously a very big challenge for the industry.


Thank you very much.

Operator

Bill Herbert, Simmons & Company.

Bill Herbert - Simmons & Company - Analyst

Thanks, good morning. Mark, with regard to North American incrementals, I get the message with regard to a less robust rate

of change in the third quarter for the Gulf of Mexico.

On the other hand, you have Canada coming back. I know it is small for you guys, but when you distill it all into a conclusion,

net pricing continues to be forthcoming, notwithstanding cost of goods sold, inflation, new frac equipment pricing, Canada

up and Gulf of Mexico more muted. Are we in a range where incrementals are better than typical volumetric incrementals of,

call it, 30% to 35% but well off what we saw in the second quarter?


Yes, I think that you have probably got it targeted right. I think that that should continue. But as you rightly said, Canada is not

going to really replace what potentially were the incrementals in the Gulf. And I think that is going to be a big factor in this.

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And I think that you have some level of seasonal recovery that happens in Q2 that we offset from Q1 that probably played an

impact in the incrementals this quarter that won't repeat. But I think you're absolutely right. As you think about the capacity

additions and where those gross margins come in, the fact that we will get a higher fixed cost absorption will probably make

it a little bit higher than the average margins today.


Okay, so it is not necessarily unreasonable to think about something in the 40% range?


Not going to give you any information on that. You'll have to pick your number.


Okay, I think I have already done that, but that is okay. Then secondly, with regard to international, you guys have been prettyconsistent here with regard to the pace of international recovery, which is basically labored. And you are starting to refine your

cost structure internationally, I guess to right-size to the expected environment and some of the dislocations that we talked

about.

With regard to pricing initiatives that perhaps will be forthcoming late this year, probably not a P&L impact, but should we --

sometime this year but should we expect a P&L impact from some of these pricing gains perhaps in 2012?


Yes, this is Tim, Bill. I think it's sort of helpful when we talk about this to sort of go back and take a look at what is the fundamental

driver for our business, which is rig count. If we look in the short term back, just over the last quarter, quarter on quarter, both

land and offshore rig count is down about 2% so that kind of demonstrates the labored nature of the recovery.

When we take a look at sort of year on year, you start to see some other pictures. On land obviously we have got Libya which

declines a whole bunch; Asia Pacific flat, Middle East is up, and Latin America is up.

So it stands to reason to us that when you start to think about where you might exercise some increased pricing power it's

going to be in those areas where you have got a trajectory change in rig count. That means Latin America and that primarily is

restricted to Brazil, Venezuela, Colombia. But Brazil, as we all know, is a very tightly managed market and the ability to move

margins there is more restrictive, perhaps, than in other areas.

Then in the Middle East where we have seen, obviously, big declines in Yemen, Saudi in fact is down near year to year, on land

at least. And we are seeing some sizable increases in Kuwait with a restoration of Egyptian activities.

So in terms of just kind of giving you a sense and a feel for what has to happen, we have to see a trajectory change and it's only

in those areas where we are going to see a movement in rig count which is going to drive that. So we feel, to answer your last

point, that yes we are starting to see some stability in these certain markets, starting to see that trajectory change. And the

markets that I have discussed seem to be, to us, the most likely ones where we will see some ability to move pricing.


And when we talk about moving price, Tim, are we talking about gross pricing or net pricing?

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Volume becomes a precursor to pricing change. And as Dave outlined I think with a couple of good examples of which we have

many, the first opportunity there generally is in the area of scope change, where operators may feel the need to expand scope

to achieve certain objectives. And so will you will see is volume, which obviously helps drive margin, accompanied by scope

change, and then the third block in the chain, if you like, are real changes in price.


Okay, thanks very much.

Operator

Angie Sedita, UBS.

Angie Sedita - UBS - Analyst

First going back to the US and the pressure pumping market, Dave. Your thoughts on your pressure pumping capacity additions

that you could see in 2012; could you add as much capacity in 2012 as you did in 2011?


Angie, this is Mark. I don't have that we want to give any information yet about that. We are going to be actually visiting with

our Board later this week to begin talking about our general views on the market.

But maybe just closing and say it's fair to say -- you heard our comments; it does not appear to us that this market is slowing

down in any way and so that may frame how the discussion goes. But I don't think at this point we are in a position to say.


All right, all right. That was a partial answer, we will take it.

Then also the only relatively important segment that Halliburton does not operate in today is artificial lift. Strategically, do you

believe that you need to be in this segment long term? And if so, what do you consider your viable options to get into this

business?


Well, I think that historically I would say that artificial lift has generally historically been considered to be a relatively stand-alone

business. I think that as you all know, whether it's on the well construction side, whether it's on the completion side or thesimulation side in general, the degree of integration which is either requested by our customers or desirable from a service

operator standpoint is significant. And we continue to invest a significant amount in trying to improve efficiency and effectiveness.

So I think as you look forward over the next five years or so, the degree of integration in all aspects of the completion, including

artificial lift, intelligent wells, etc., will become a more important factor. As to how we plan to address that, Angie, I am afraid

that that is something we prefer not to chat about.

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All right. And then finally on pricing and the international markets, you cited clearly that we are going to see a little bit of

strength, ultimately, in the Middle East, parts of Latin America. Give us your thoughts on the rest of the markets, when can we

see pricing? Is it not until the second half of 2012 in areas such as Southeast Asia, Russia, West Africa? Just a little color there.


We are still -- Angie, this is Tim again. Obviously I have to go back to the basics, which is the rig count, and we have to see rig

count trajectory change to see the potential for pricing. I think we have been pretty consistent in terms of our dialogue on a

quarterly basis about the pace of the recovery and the fact that we have always felt that it's going to be somewhat sluggish

and that, absent certain areas and deepwater that we have just discussed, I think the jury is still out.

When we look at some of these areas, the rig count changes just haven't happened yet and I think we feel certainly more bullish

as we look out. I would say that in general if we look at our quotation activity coming through the system we feel more positive

about some of the areas you have just described, but it's going to require those rig activities to come through.


I was also going to add, it's also going to make a big difference on how our competitors behave because in some of those

markets there is still -- we see and our competitors continue to keep prices low.


So still a very difficult market competitively?


Yes.


Great. Thanks, that is all I have. Thanks, guys.

Operator

Jim Crandell, Dahlman Rose.

Jim Crandell - Dahlman Rose - Analyst

Good morning, guys. My first question has to do with the fracturing market in the US. I was wondering if you could take just

the major markets there and describe how you think supply demand has changed, if it has changed, both in the big oil basins

such as Eagle Ford or liquids-rich basins -- Permian, Bakken, etc. And then how things might have changed in areas like the

Haynesville and Marcellus?

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Yes, Jim, this is Dave. I think it's basically a tale of two cities. Any of the liquids plays -- be it the Bakken, the Eagle Ford, the liquids

end of the Marcellus -- they are all continue to be undersupplied and in some cases undersupplied dramatically from a fracturing

market.

In some of the dry gas basins we are starting to see competitors leave. We understand, I think we heard the other day that one

of our major competitors, I believe, has left Kilgore or somewhere in the Haynesville. We are not leaving those markets as I have

said before. We have found, I think, a business model that would allow us to stay there with our customers and make the kind

of returns that they want and the kind of returns we want.

But I think if you think about the dry gas basins, I would say they are probably at equilibrium and the oil basins or liquids basins

they all continue to be underserved.


Dave, might you, in looking at the market, you have indicated that you intend to stay in the Haynesville. But if pricing in the

Haynesville does come off in here and it just continues to strengthen, might you take equipment out of those markets andmove them into the oil markets?


Yes. As I said, Jim, we have to find a business model that works for both sides. We are not going to leave equipment in a market

that doesn't give us the kind of returns we want. So we will search for that model with a specific subset of customers and if we

get there we will stay, but if we don't get there we will go to the liquids-rich plays.


And we are bringing our costs down as we speak so that could be a ways off.


Okay. And just one last question related to that, Dave. In the areas that are very strong, let's just take the Eagle Ford example,

are you attempting in that region to package your -- I don't know if package is the right word -- but sell your entire product line

and package other products with pressure pumping, services as part of the pressure pumping contract?


Absolutely.


Okay. So that is a strategy that is not just the case in the Haynesville, but it's the case across the board in the US?

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No, I think that anywhere where there is a market underserved by frac equipment and we have our other product lines, which

we do, we will insist on some or most of our other product lines being involved with that customer.


We are even beginning to see some cases where our D&E product service lines are pulling through our frac work. It's actually

turning the opposite way now. But yes, absolutely, a strategy.


Great. Okay, thank you.


We will take one more caller, Sean.

Operator

Jeff Tillery, Tudor Pickering.

Jeff Tillery - Tudor Pickering - Analyst

Good morning, guys. You guys are clearly optimistic about the business. The $3 billion CapEx number you guys have targeted

and talked about this year, you have under spent a little bit. I am just trying to understand is there -- are you running into

bottlenecks which you can -- is $3 billion the maximum you could realistically get through the Halliburton system? And if not,

what would take that number to $3.5 billion to $4 billion?


No, no, there is no general constraints. I think it's just the pace of how things work through the system. Typically when you

approve your budget it takes a little while for things to get mobilized.

We do expect our CapEx for the entire year to probably be a little bit higher than $3 billion. I am sort of currently forecasting

maybe $3.1 billion to $3.2 billion for the year, and it will just -- as we go through the year, things will accelerate just a bit. So,

yes, no real bottlenecks at all.


All right, understood. And just a quick follow-up question. Mark, you had mentioned some unusual Latin American costs in a

couple of countries. Could you just provide a little color on that?


Obviously, there is some -- as we look across Latin America they are small dollars but add up over the course of several ones.

There were some in Argentina related to personnel costs there.

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They are somewhat unusual. I do not expect them to be a long-term added cost. It's just something that we had to deal with

from an accounting standpoint.

Then in Colombia, as well, we had some unusual costs. We had some equipment problems due to -- had a lost there that we

just had to take care of and clean up. My own view is that, as we look forward, part of the confidence that I have that marginswill improve is also that some of these costs will not repeat over the long term.


Okay, thank you very much.


Okay. So before we close we would like to announce that our third-quarter earnings call will be held on Monday, October 17 at

8 a.m. Central, 9 a.m. Eastern time. Sean, please close out the call.

Operator

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the conference.

You may now disconnect.

Everyone have a wonderful day. Thank you.

D I S C L A I M E R

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