Risk Management University of Houston February 2010.

Risk Management

University of HoustonFebruary 2010

page - 2

Risk Management

Q&A

Business Overview & Results

Strategy

page - 3

Halliburton Overview

Provides a broad suite of products and services to help explore for and produce oil and gas

Two business segments- Drilling & Evaluation- Completion & Production

2009 sales of $14.7 billion

Equity market capitalization of over $30 billion, as of Jan. 20, 2010

2009 Return on capital employed of 11.5%(1)

50,000+ employees in approximately 70 countries

(1) Return on capital employed defined as: (net income plus after-tax interest) / (average shareholders’ equity + average total debt)

page - 4

Completion and Production

Production Enhancement

Cementing

Completion Tools

Drilling and Evaluation

Sperry

Wireline

Baroid

Security DBS Drill

Bits

Software & Asset

Solutions

Year Ended December 31, 2008

(in millions)

Testing & Subsea

2009 Division Revenue

49%

$7,256$7,419

51%

page - 5

Middle East / Asia Pacific

Shift to gas plays in the Middle East coupled with growing markets in India and China

North America

Continued development of unconventional markets, horizontal drilling trends, and deepwater

Europe / Africa / CIS

Deep/Harsh water environment with expanding North and West African markets

Latin America

Leveraging deepwater expertise, integrated projects, and expansion in non-traditional markets

39%61%North AmericaInternational

20%20%

26%26%

15%15%

39%39%

2009 Regional Revenue

page - 6

Risk Management

Q&A

Business Overview & Results

Strategy

page - 7

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

-12 12 36 60 84 108

1997-1999 Cycle

Number of weeks from peak

2008Cycle2008Cycle

International Rig Count (Indexed)

Global Energy Situation

Weak petroleum demand

Commodity price volatility and uncertainty

Customer pressure on service pricing

Contract re-tenders at lower price points

7

page - 8

Real U. S. Natural Gas Prices

10

100

1000

1922 1925 1928 1931 1934 1937 1940 1943 1946 1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006

Real Gas Price 2009 $'s

Three cycles are evident over the last 80+ years Three uplegs: average duration 13 years, average price increase 292% Three downlegs: average duration 18 years, average price decrease 40%

* Average wellhead price as reported by EIA, these prices were regulated from 1954 to 1978

27 years

Prices down 62%

No demand data

13 years

Prices up 111%

Demand up 167%

8 years

Prices down 18%

Demand up 59%

13 years

Prices up 496%

Demand down 20%

12 yearsPrices down 61%Demand up 32%

13 years

Prices up 268%

Demand up 5%

Current spot price

Rea

l U

.S.

Wel

lhea

d G

as P

rice

* (L

og

no

rmal

Sca

le)

page - 9

North America vs International

Spectrum of extremes

North America- Efficient (immediate response to commodity price changes)- Transactional- Extreme volatility

International- Longer terms- Less transactional

- Dampens extremes

9

page - 10

Halliburton Long-Term Strategy

Continue developing talent and business leadership

Anticipate North America structural change

Invest in strategic growth areas

Continue technology and capital investment

Leverage packaged services

Horizontal Rigs 48% of Total U.S. Rig Count*

* Baker Hughes Rig Count

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

J-91 J-92 J-93 J-94 J-95 J-96 J-97 J-98 J-99 J-00 J-01 J-02 J-03 J-04 J-05 J-06 J-07 J-08 J-09 J-10

Vertical & Directional Horizontal

page - 11

Near-Term Tactics

Protect market position

Lower input costs

Maintain financial flexibility

Live within cash flow

Protect “A” credit rating

Focus on return on capital employed

25%23%

13%

25%

21%19%

7%

36%

2006 2007 2008 2009 YTD June

ROCE = Net Income before after-tax interest annualized divided by average capital employed (shareholders’ equity + total debt)

RO

CE

* Average of SLB, BHI, WFT, SII

HAL

Peer Average*

page - 12

Growing Market Leadership*

* Based on Spears’ and Associates Sept., 2009 Oilfield Market Report and internal company data

Market Share Change

Product / Service Offering Market Position from 2008

Directional drilling 2 UP

Logging-while-drilling 2 UP

Logging 2 UP

Drilling & Completion fluids 2 UP

Drill bits 3 UP

Data interpretation 1 UP

Stimulation 1 UP

Cementing 1 UP

Completions 2 UP

Coiled tubing services 2 UP

Overall 2 UP

page - 13

Financial Headline Issues

No exposure to auction-rate securities or variable-rate demand notes

No subprime mortgage exposure

No off balance sheet financing other than disclosed leases

No ratings triggers

- Except revolver pricing grid and deferred compensation plan

No speculative trading

Manageable pension liability of ~$220 million, as of 12/31/2009

Halliburton Stock Fund closed, as of 12/31/2009

page - 14

Risk Management

Q&A

Business Overview & Results

Strategy

page - 15

Risk Management Organization

Functional report to Treasury

Insurance Programs Insurance and self-insurance procurement Fronting programs and captives Brokerage relationships

Global Claims Occupational injury administration Insurance recovery (all lines) Claim services vendor relationships

Risk Management Information Systems Data Management Financial and executive reporting

Risk Management Accounting Budget control Cost allocation Reserve management

page - 16

Risk Management Responsibilities

Identify exposures to risk of loss

Support SEC risk compliance

Determine desired means of managing exposures to risk of loss

Obtain insurance required by and in accordance with applicable laws

Negotiate customer insurance terms and assure compliance

Support pursuit of new business opportunities

Support due diligence for acquisitions and mergers

Provide surety services

Maximize insurance assets through efficient claim recovery

page - 17

Insurance Program

10M 500K 2M Nil 500K 1M 250K 50K 2.5M

Deductible Type of Coverage

5M 1M

D&OLiability

Hartford

Max ReAWACChartis

HCC

RSUIFreedom Specialty

ArchACEACE

EnduranceHCCRLI

AWACTravelers

AxisArchACE

Side A DIC

Fiduciary Liability

HCCTravelers

ELU

AxisCNA

WorkComp

Statutory Limits

Ace

AirCraft

VariousUSAIG

Vessels

PD PerSchedule P & I 5MLloyds

WellControl

Various limits

Lloyds

OffshoreProperty

PerSchedule

Lloyds

Cargo

15M PerShipment

Ace

Summary of InsuranceAs of 12/21/09

(not to scale)ACE (Bermuda)

Lloyds/Liberty Mutual

XL/Argo

AISLIC

Lloyds

Arch / XL / AWAC

GL / AL / EL

Crime

RLI

AIG

ExcessLiability

Llo

yds

Onshore Property

page - 18

Enterprise Risk Management

ERM sponsored at highest levels of Halliburton

Direct and independent reporting to Audit Committee of BOD

Advisory committees comprised of all senior corporate officers

Sustainable monitoring plans for risks and controls

Cultural permeation

Methods, framework, and processes utilized to manage risks by taking an integrated and holistic view of the various uncertainties involved across the organization. It is the process whereby an organization optimizes the manner in which it controls risks.

Required by SEC and NYSE

Evaluated and rated by rating agencies based on effectiveness of program.

page - 19

Enterprise Risk Management 1.0

ERM 1.0: Complete

Halliburton’s Enterprise Risk Management group has completed an in-depth identification of enterprise-level risks

Assessments performed for 8 major operational and functional areas

30 risk categories, based on commonality of triggers and controls

Each risk category assigned to Sr. Executive with reporting responsibility to Audit Committee

2006 2007 2008 20092005 2010

SeniorLeadershipEstablished

Formal Strategy for

Sustainability

Assessments Updated and

Validated

Monitoring Processes

Established

Identification of Leading Risk

Indicators

Develop & Refine Risk Assessment Processes

ERM 1.0 ERM 2.0

page - 2020

Enterprise Risk Management Leadership

Board of DirectorsHalliburton Senior Management

ERM Steering Committee

Chairman: Sr VP & TreasurerDirector Risk Management

VP Internal Audit & ControlsChief Ethics & Compliance Officer

Operations Advisory Committee

President Global Business LinesPresident Western HemispherePresident Eastern HemisphereSr Director Intellectual Asset

ManagementSr Director Operations Finance

Corporate Advisory Committee

VP & ControllerEVP Administration

VP and Deputy General CounselCIO

VP Supply ChainVP Tax

ERM Working Team

Risk Management, Internal Controls, Treasury, Audit, Law

Subject Matter Experts (“SME”)

Determined as needed

page - 21

Enterprise Risk Management 2.0

ERM 2.0: In-Progress

Identification of Leading Risk Indicators

Can data can be gathered which is predictive of changing risk severity?

What 3rd party info could be used to buttress the Halliburton data?

Can the data be assimilated into a meaningful management tool?

ALP Project Scope

Pilot project involving one or two Risk Categories

Interview / poll organization to identify appropriate quantitative data

Access to Sr. Finance Management

Opportunity to interact with management across organization

Utilize 3rd party providers to augment data gathered within Halliburton

Construct dashboard identifying potential risk / control changes

page - 22

Enterprise Risk Management – New Exposures

Formalized process for assessment of new exposures during 2009

New Risk Activity incorporated into ERM Tool & monitoring plan established

New Risk Activity incorporated into ERM Tool & monitoring plan established

IdentifyIdentify

Develop working document assessing risks and controls with Legal review prior to distribution

Develop working document assessing risks and controls with Legal review prior to distribution

EvaluateEvaluate ValidateValidate IncorporateIncorporate

Risk Activity to be analyzed by ERM Working Team and Subject Matter Experts

Risk Activity to be analyzed by ERM Working Team and Subject Matter Experts

Working document distributed to Advisory Committees for validation

Working document distributed to Advisory Committees for validation

page - 23

XX. Poorly designed / implemented compensation policies and practices

Description of Risk: Designing and implementing compensation policies and practices which are reasonably likely to have a material negative impact on Halliburton.

Principal Risk Area• Non-Compliance with reporting requirements leading to restatement, fines or penalties levied by SEC or DOJ.• Improperly aligned compensation incentives leading to increased shareholder risk• Poor capital allocation choices due to misalignment of short / long term success factors• Manipulative conduct by executive management

Strategic Controls• Board of Directors Compensation Committee • Centralized Compensation Organization with global oversight • Accounting organization including External Reporting group• Disclosure Committee• Global policies and practices

Existing Controls • External Reporting group’s coordinated reporting process that includes multiple reviews by several levels of

management• Disclosure Committee review of Company accounts, exposures and draft quarterly and annual reports along

with the proxy• Contract Approval System with management review of capital allocation choices• Policy 3-90020 Executive Compensation Administration  

Risk RatingWithout controls, significance is _______ likelihood is _______.With controls, significance is _______ likelihood is _______.

New Risk Exposure Analysis Example

page - 24

Health, Safety & Environment (“HSE”)

Health & Safety Strategy- Educate and Infuse Risk Management within the organization- Review Global Standards and HSE Processes- Involve Global HSE Team in the review of workplace Health and Safety data - Develop systematic approach to managing our Employee's Driving Behavior*

Environmental & Sustainable Development Strategy- Maintain regulatory compliance- Consistent waste management practices- Meet the increasing demand for environmentally responsible chemicals- Minimize resource consumption and operational costs- Improve Control of returned products- Develop a consistent message of "sustainability" internally and externally

* Description of Journey Management Overview in Appendix

page - 25

Recordable Vehicle Incident Rate – All Vehicles2009 Year End

Health, Safety and Environment Statistics

* No industry comparables available

page - 26

Employee Total Recordable Incident Rate2009 Year End

Health, Safety and Environment Statistics

* International Association of Drilling Contractors

page - 27

Employee Lost Time Incident Rate 2009 Year End

Health, Safety and Environment Statistics

* International Association of Drilling Contractors

page - 28

Additional Discussion

page - 29

Appendix

page - 30

Journey Management Program

Purpose – Mitigate Risk and Eliminate Unnecessary Trips

- Individual Trip Risk Assessment

- Determine Driver Competency and Fit for Duty

- Management Approval Based on Trip Risk Level

- Follow Up Notification for Overdue Arrivals

Early Results

- Deployed program in April 2009• 20 U.S. Districts and 2 Russian locations fully deployed

- Deployed location results• 102,223 total journeys tracked

• Vehicle Incident Rate before deployment = 0.27

• Vehicle Incident Rate after deployment = 0.16

page - 31

HSE Recognitions – Q3 and Q4 2009

Halliburton receives 2010 Diversity Leader Award from Profiles in Diversity Journal as one of top 38 U.S. based companies

Kuwait Oil Company and Chevron award Halliburton with “A-Grade Contractor” designation for incident-free HSE performance

Halliburton Malaysia’s Manufacturing Facility celebrates 2 years of injury-free for 214 employees

Chevron Upstream Europe awards 3 UK PSLs (Baroid, Sperry and Cementing) with “Grade A” ranking for HSE performance and management systems

TOTAL recognizes Congo Slickline Group for 3500 days without a lost time incident

ExxonMobil recognizes Halliburton contribution on 4 projects receiving ExxonMobil’s “Nobody Gets Hurt” award