哈里伯頓 (HAL) 2001 Q1 法說會逐字稿

Good day and welcome to today's Halliburton CO's first quarter 2001 results conference call. Today's call is being recorded. At this time for opening remarks and introduction, I would like to turn the call over to the Vice President of Investor Relations, Mr. Guy Market. Please go ahead, sir.

Thank you. Good afternoon. Welcome to Halliburton CO's first quarter 2001 earnings release conference call. Joining us today in Dallas, are Dave Lesar, Chairman President and Chief Executive Officer of the company and Gary Morris, Executive Vice President and Chief Financial Officer. Following management's comments, Dave and Gary will take questions from the investment community. Due to the limitations on time, we have asked the operator to take only one question from each caller. These questions will be put into the queue and the caller will then be released. Before turning the call over to Dave for opening comments, I would like to remind our audience of the following: In accordance with the safe harbor provisions of the Private Securities Litigation Reforms Act of 1995, Halliburton Co cautions that some statements made today, which are forward-looking or provide other than historical information, involve risks and uncertainties that may impact the company's future actual results of operations. For more complete description of some of these risks and uncertainties, please refer to Halliburton CO's form 10-K for the period ended December 31 2000. Dave?

Thank you, Guy, and good afternoon to everyone. We have just come through with what I think is a very good, strong first quarter for Halliburton and are very much well on our way to doing it again in the second quarter, and I will come back and give some earnings guidance and look-ahead after we go over some of the details on the quarter. I am very pleased to report to you today that our earnings for the first quarter were $0.25 per share. This really reflects the continued focus of all of our employees around the world on developing and delivering innovative solutions to our big, wide customer base we have. Our Halliburton Energy Service operations in North America continue to be the main driver for Halliburton CO's earnings today. However, as I said, I think we are also seeing signs of a broader recovery. Higher natural gas prices within the US and continued strong worldwide oil prices have clearly translated into increasing levels of our stream spending. This combined with implementation of our strategy, a flattened down organization and improved operational efficiencies, is allowing us to benefit from the increased levels and higher equipment utilization that we are seeing, as well as improved pricing in terms of our products and services in North America. Our first quarter results from the Energy Services Group reflects this very positive environment, as all of our product service lines within the group posted substantial increases in year over year revenue growth and improved profit margins. More importantly, for Halliburton Energy Services, we saw a 21% year over year increase in revenues from outside North America and a 29% incremental margin and was increased international revenues. So, we are starting to see the international market come up, albeit not at the rate we would like. It definitely is on the upturn at this point in time. And I also might say that as well as the Energy Services group is doing, we still have a business today that is 62% non-US. And we really have the operational and profit uplift leverage from those revenues still to come, as the international markets get better. A few highlights from the ESG for the quarter include a 43% year over year growth in revenues for the group, operating income, which quadrupled year over year for the Energy Services group, the highest we have seen since we had the merger with Dresser. Incremental margins within Halliburton Energy Services are 31% year over year. We continue to see the profit benefits of high equipment utilization and reducing discounts, particularly within North America and we will have an additional price increase within Halliburton Energy Services later this summer. Pressure pumping continues to be the big profit engine and a very strong opponent of our performance. Its operating income was up for these two parts of our business, up over 200% year over year with an additional 20% growth sequentially in the first quarter. Additionally, we see efforts from our investments in other technologies and areas increasingly starting to continue to contribute to our performance. For instance, we are moving rapidly now towards securing the completion products leadership in the industry, where revenues were up substantially year over year and we are also up on a sequential basis. Our wireline log in operation experienced significant improvements in revenues, which were up over 65% year over year and reported over a 300% increase in profits on a year-to-year basis. Our spares and drilling systems also continues to introduce new technologies and tools into the market place that our customers like and appreciate and we saw a $0.30 profit increase over 300% year over year. Security DBS, our Drill Bits organization, which is our stated roller common bit manufacturing plant that we put in place throughout 1999 and 2000 is now setting production records and delivering bits to meet our customer's needs. And SDBS reported operating income growth of 300%, both year over year and sequentially. If you look sequentially our revenues for Halliburton Energy Services increased almost 4% over the fourth quarter of 2000. Our sequential revenues were impacted by our decision to reduce our continental year of service centers, which we reduced from 18 to 3 locations. This was done so we could redeploy our equipment out of these locations and put them into areas where we see more potential upside, such as Russia and South America. This equipment will begin working at higher rates in the second quarter after it has been redeployed. In the Engineering and Construction Group, we have completed the consolidation of our Engineering and Construction business under a single E&C business called Kellogg Brown & Root. I am very encouraged with the progress we made this quarter in building a foundation to provide a sustainable, predictable, and improved profitability, which is what I told our investors we were going to do when we announced it in the third quarter of last year. This is focussed in trade group of employees. It is continuing and will continue to deliver quality technologies and solutions to our customers and I am now quite confident that we will be able to deliver on our commitment of 2.5 to 3% margins and between $4 and $4.2 billion of work for the Engineering and Construction Group in the year 2001. My confidence is really evidenced by a series of recent contracts towards subsequent to the end of the first quarter, including the engineering procurement and construction management for LNG project in Australia, an Ethylene plant award in Thailand, an Ammonia and Fertilizer plant award in China and the announcement we made last week that we have now reached close on the contract on the alloys springs to Darwin Railroad, which is a big civil project in Australia. As I said, this all gives me confidence about the future of this group. I will now turn the call over to Gary Morris who will go over some more of the details of the quarter and then I will come back and give some guidance on our earnings as we look forward. Gary?

Thank you, Dave. As we promised, we closed on the sale of Dresser Equipment Group and so as a result in our call today, we will try to focus more on our continuing operations and certainly going forward, we won't have that in the mix to confuse people. But to provide you with information on a comparative basis for the new segments, we have provided restated historical quarterly information and additional supplemental financial information in our press release, which I hope you can all use to get a more accurate comparison on what's going on here in Halliburton Co. Let me review the results for the first quarter of 2001. Our total company revenues improved 10% year over year. The international revenues, as Dave indicated were 62% of total of the first quarter of 2001 and that compares to 66% in the first quarter of 2000, that being driven primarily by the increased activity in North America. Total operating income increased to $117 million or 144% year over year. Our diluted earnings per share were $0.25 including $0.5 from the discontinued operations. In the Energy Services Group, quarterly revenues exceeded $2 billion, an increase of over 43% year over year. We are pleased with this result as all of our operations reflected growth, compared to the prior year. Moving in to Halliburton Energy Services, Halliburton Energy Services' first quarterly revenues of just over 1.5 billion, increased 40% year over year with significant improvements across all product service lines. The increased activity in North America was of course the primary contributor to revenue improvements while our pressure pumping product service lines continue to grow. We are pleased with the growth in all of our other product service lines, especially logging, and ____ 00:10:59 drilling fluids which increased 65% and 55% year over year respectively. Year over year, all geographic regions reported revenue increases. The US revenues increased by 64%, Latin America, and Middle East revenues increased 33% and 29% respectively. Particularly, strongly improvements were also reported in Argentina, Brazil, Venezuela, Egypt, and Oman, and Saudi Arabia. The revenues for the balance of the Energy Services rig site increased $165 million year over year. Driving this improvement is the ramping up of the ____ 00:11:14 project in Brazil, as well as increase in levels of work within our production and services in sub-sea operations which increased to 29% and 33% respectively. Denmark revenues increased 16% compared to the prior year. Operating income for the Energy Services Group increased over 300%. Moving on to Halliburton Energy Services' operating income, it increased to almost 250% year over year. This improvement largely reflects the increase in activity levels and improvement in pricing in North America for all of our product service lines. Operating income for pressure pumping, logging, ____ 00:12:22 and Security DBS all increased over 200%. Geographically, operating income in North America increased over 100%. Latin America increased almost 250% and the Middle East increased over 300% due to increase in activity. North America also benefitted from the price increases that we implemented last year and earlier this year. Incremental margins for Halliburton Energy Services for the quarter were 31% year over year. Incremental margins outside North America were 29% year over year on a 21% increase in revenues, signaling what we expect to be an upward trend outside North America. This is good news. While we would certainly prefer to see more aggressive spending by our international customers, we were pleased with the gradual build-up that we are seeing in the non-US markets. Incremental margins with pressure pumping were 59% sequentially and 40% year over year - very strong results. Pricing continues to be particularly strong for Halliburton and strong demands for our services combined with elevated utilization of our equipment and personnel have enabled us to continue to improve our pricing, net of discounts in North America. And as we mentioned last quarter, Halliburton Energy Services implemented an 8-10% price increase across most of its product service lines effective January 15 within North America. We are beginning to see the benefits of this price increase during the first quarter. The operating income for the remainder of the segment increased $13 million year over year, consistent with the higher revenues. Within the Engineering and Construction Group, Kellogg Brown & Root, revenues decreased 7% sequentially and 23% year over year, reflecting the continued low activity levels in the industry. The decreases in revenues were mostly attributable to the completion of the major projects, which at the end of the first quarter had not yet been replaced with new projects awards as we saw customers continuing to delay projects. In addition, the government services revenue services had declined year over year due to lowers levels of activity on the Balkan's projects as it moved from a construction mode into a sustaining mode during the year 2000. On a more positive note though, the operation and maintenance revenues increased 16% sequentially and 12% year over year which partially offset the decline. And as Dave just noted a minute ago, recent awards of some work on a LNG project in Australia, rail project in Australia, and Ethylene project in Thailand, all awarded after the end of the close of the first quarter are also very positive signs that our backlogs have continued to grow. The first quarter of operating income for the Engineering and Construction Group at $18 million, was out $7 million sequentially excluding the effects of the fourth quarter charges and down 31 million year over year reflected in the lower level of activity. The discontinued operations as we said, provided about 22 million of net income for the first quarter consistent with our expectations and the guidance given in the prior period. For those of you that are tracking that specifically, the revenues in that were 359 million, operating income was 37 million, taxes and minority interest a deduction of 15, which yielded the 22 million net income. Our general corporate expenses of all the quarter increased by $2 million, primarily due to additional expenses incurred through retirement of several executives. Interest expense of 47 million was up $14 million year over year and up 5 million sequentially, primarily due to increased average borrowings in relation to working capital needs and the stock re-purchases during the fourth quarter of 2000. During the second quarter, we have initially paid down some of the short-term proceeds from the sale of the Dresser Equipment Group, so future quarterly interest expense will be significantly lower during the second quarter. We expect net interest expense to rise between 32 and 37 million for the second quarter. At the end of the quarter, we ended up with a cash balance of about $278 million. Our change in the accounting method of credit reflects less than a million dollar effect of adopting the financial accounting standard 133 on derivatives at the beginning of 2001. It really wasn't meant for us. Capital expenditures related to continuing operations totalled $145 million up $66 million year over year and down $66 million sequentially. Depreciation depletion and amortization expense for continuing operations was $134 million for the quarter, up $19 million year over year. This amount includes $11 million amortization of goodwill. As you can see, goodwill amortization is not particularly a large component of our net income. However, it will grow with the Landmark acquisition, I will review in a minute. And as a result, when or if we do with accounting rules regarding suspension of goodwill amortization are effective, we would expect the quarterly improvement of operating income to be about $13-$15 million or about $0.02 per share net of tax. We ended the quarter with a total backlog from continuing operations of $9 billion; that is up $700 million year over year. Backlog increasing resulting from the Barracuda ____ 00:17:58 Deepwater project awarded in Brazil last year partially offset the declines in the Engineering and Construction backlog due to completion of major projects and delays in new awards for our customers. Approximately 61% of the backlog from continuing operations is for lumpsum contracts, half of which is expected to be performed in the next 12 months. Firm orders related to continuing operations, were settled 0.4 billion at the end of the quarter. The remainder of the backlog mostly relates to government awards not funded with the Balkan support contract in Fuji has been the majority of balance. Subsequent to the end of the quarter, are the specific transport consortium finalized the contract on the $1.3 billion Australian alloy springs to Darwin Rail project. The Engineering and Construction Group, which leads the consortium will record about US $300 million in backlog during the second quarter, representing our portion of the design and construction phase of project. The Kellogg Brown & Root joint venture has been awarded the contract to provide contract engineering procurement and construction management services and LNG expansion projects in Western Australia. The contract was signed with project operator with Site Energy, from the ________ 00:19:16 northwest shell potential participants. During the quarter, our Landmark as I indicated earlier completed the purchase of the data management division of PGS for $175 million including goodwill of approximately 153 million. The acquisition is not expected to be delivered to our 2001 earnings and is expected to be accretive after that. And on April 10, Halliburton completed the sale of the Dresser Equipment Group for $1.55 billion in cash and the same liabilities. That cash proceeds received for $1.3 billion after payment of the expense and income tax as related to the sale. Halliburton made about a billion dollars in cash. This transaction will result in an after-tax gain of approximately 300 million or $0.69 per share, which will be recorded in the second quarter. No incoming loss from operations will be recorded for the second quarter, so our operations will be true from that standpoint. Total debt at March 31, 2001 was 2.9 billion which was up from 2.6 billion at the end of the year, the increase is due to short-term borrowings primarily related to the purchase of the PGS data management and from working capital requirements, but as I indicated, they were paid that down pretty much in the second quarter. The debt to capitalization ratio at the end of the quarter was 42% up from 40% of December 31, 2000. Subsequent to quarter end, we will use the proceeds from sale of DEG to pay off the short-term debt or large portion of it, which will turn our debt to capitalization ratio to the low 30% range. We had no share repurchases under the share repurchase program during the quarter and our head count from continuing operations that is excluding the DEG business group sold were about 86,000 people at the end of the quarter. Now I think Dave would like to make a few closing comments before we take questions.

Thanks, Gary. Now as I said in the beginning, I believe that we have had an outstanding start to the year 2001. In addition to the strong operating results, we continue the execution of our business strategy that we put into plan last fall. So far during 2001, we have introduced and finalized our streamlined business structure, managed and reported. Now there are only two groups in the organization. The Energy Services Group and the Engineering and Construction Group and I think that has vastly simplified the structure that we are operating today. We have also, as I said earlier, completed the restructuring and the combination of all of our Engineering and Construction operations now into one company Kellogg Brown & Root. We continue very much to focus on pricing in our Energy Services Group, particularly in North America where they said we will have further price increases later this summer. We also continue to be very careful about where we put increases of capital spending within Halliburton Energy Services to make sure that the rate of return that we will earn an additional investment is commensurate with the level of investment we are doing. We are maintaining a very strong focus on controlling costs even in an upward turn market in both the Energy Services Group and making sure that our cost structure is consistent with our operations on the E&C side of the business. We made, as Gary has indicated, the acquisition of the data management business of Petroleum G services, I think that would be a great addition to the Landmark Swedish services. It will have no negative impact on our earnings for 2001 and I believe it will a great revenue and profit generator for Landmark as we move forward and of course, we completed the divestiture of the DEG, what I think everyone would agree was a very good price. So, this has been a busy quarter for us. As I said, we have a much more flatter responsible organization today. As we look at the market, I strongly believe that exploration and development activity in the rest of the world will gradually continue to increase throughout the year. In the short-term, we expect the Energy Services Group to provide good, continued growth in both revenues and earnings in North America and internationally, especially internationally in the North Sea, Latin America, West Africa, and the Middle East. As I have stated before, I am more confident than ever, that Halliburton Energy Services will double its operating income in 2001 over 2000. And as I said, and I repeat it again, we are very well positioned and we feel very strong about our promise and commitment to deliver consistent profitable E&C operations and believe that with the awards we have and the profit we have in the backlog that we are working on, that we will have somewhere between 4 and 4.2 billion in revenue for the E&C group in 2001 with margins in the 2.5 to 3% range. If you take all of these into account, then we remain very, very positive about the year 2001. For the second quarter, we expect our earnings from continuing operations to be somewhere between $0.30 and $0.32 up from the $0.20 per share that we earned this quarter, so second quarter over first quarter, we are really looking for somewhere between a 50% and 60% increase in our earnings per share. So if we then step back and recap the year, start with $0.25 per share that we just recorded, and again back in the second quarter, that will have no impact at all from operations of the DEG, and it is all moving forward as Gary said, it will be kind of a kind of the BR operations of the company that we are going forward with. But, for the year, if we take the $0.25 that we just earned, the guidance that I had just given you, of $0.30 to $0.32 for the second quarter, we would expect earnings per share for the year to be at or above a dollar 30. Now this might be a little lower if the international market doesn't come back, as strong as we like, but it may be higher than that, if the international market comes back faster than we think, but clearly, we are seeing a very strong uptake in our business at this point in time. So, with that let me stop, and let us turn it over for some questions, and we will see what is on people's minds.

Our question and answer session will be conducted electronically. To ask a question, please press the *key followed by the digit 1 on your touchtone telephone. We will take as many as questions as time permits and we will proceed in the order that you signal. Again, it is *1 to ask a question. Our first question will come from Arvind Singer of Deutsch Bank.

Thank you. Good afternoon gentleman. Dave, I am just trying to get a little better understanding of what is going on in the, you have given some very aggressive growth from BR and you give some very aggressive sequential growth in pressure pumping within ATS. I am a little bit puzzled by the fact that the Energy Services Group, I guess, at least certainly it was to my expectation, had a very modest operating income growth from Q4 to Q1 192 million going $200 million, and I guess the incremental margin is in fact 29% and obviously, the revenue growth was not very high in the ST may be seasonally. What kind of is on a sequential basis over the next couple of quarters? What kind of revenue growth given the international recovery? And what kind of incremental margins, do you think that we can look for, because I guess that is going to take pretty strong numbers to get in the kind of earnings guidance you just gave for the year?

Yes. Let me start Arvind and then let Gary comment here. I think somewhere your sequential numbers, I think, for instance HES sequentially went up from Gary has got it in front of me here.

Is it for revenues

No operating income.

No I do not have it.

Okay. I think I got it. If you look at operating income and let me pull a lot them up of the cop and might add it went from $170 million for about $194 million. So, for HES it was about 15-20% growth in our income sequentially. I think, what you have also baked into the ESG numbers is the operating results of the subsea construction businesses, which did not grow as much from a sequential standpoint. Again keep in mind, there is some seasonality to that business because there during the fourth quarter, or early in the first quarter usually have those puzzles working, but during the winter months especially to the extent deployed in the North Sea, they typically do not work as much. So, we are usually have a higher fourth quarter than we do first quarter for the Subsea construction assets. But I think, that in terms of operating income, we were very pleased with the sequential growth as HES had as I also indicated, we are in the process of redeploying a significant amount of assets out of the continental Europe area two areas where we have contracts that we can put them to work on at higher rates. So, I think that I would not have given the aggressive sequential growth into the second quarter, if I did not feel absolutely confident that we were to going to meet it. So, it is really a matter of getting assets out of places that were not earning the kinds of returns that we wanted into places where we have the contracts where we can earn those the kinds of rates return will drive those numbers. So, I think that although the 50-60% increase sequentially from first quarter to second quarter sounds high, we are committed to make it and we will.

Our next question comes from Kevin Simpson of Merrill Lynch.

Good afternoon and thanks. I have got, I was wondering if you can may be get into a little bit depth on the E&C of the side of the business, Dave, it sounds like, pretty positive forecast for the rest of the year. What sort of margins that was a little bit lower than your 2.5-3%? Whole of the first quarter? Can you give us a sense, of how that is going to track? Is there going to be more back-end loaded or is that can be one of the important contributors to the numbers in the incremental growth in the second quarter?

I think Kevin as I have said in the past there is not as much granularity if you will, to the E&C earnings. If you took the guidance I gave and you take the 2.5% kind of low-end of the revenue of $4 billion that kind gives you $100 million in operating income and if you take the higher-end of the revenues and higher range it gives you something around a $125 million in operating incomes. So, I am very confident it will be in someplace within those forecasts. I don't think it will be as back-end loaded as we have typically seen because for the E&C group they are inline with that and the offshore construction assets are really part of the ESG still. So, I think you will see probably a pick up in the E&C profitability in the second quarter fairly inline with the guidance we have given for the overall increase in the company, probably, we will have a better third quarter and as I remember the track that we have, it will start to drop off a bit in the fourth quarter as a couple of projects start to wind down. So, I think in this particular case, the second quarter will be higher than the first, the third will be higher than the second, and then we will have some drop off in the fourth quarter. I think you will see the real top up in contribution both in the second and third quarters.

Our next question will come from Jeffery Freedman of Prudential Securities.

Good afternoon guys. Not the simple way for this point is, but let me see if do understand this. HES in the first quarter of 2001 should have been fairly comfortable through the HES organization and financial results as it existed in the fourth quarter, is that correct?

That is correct.

I think Gary said that revenues were a little over $1.5 billion and by my estimate sense sequentially, you had about the same revenues in HES in the first quarter as you did in the fourth?

No. They are up about 4%.

Up about 4%.

Right.

This acceleration that you now are anticipating, is that largely now due to certain expensive days that you were varying in the first quarter moving equipment and personnel around and we are going to announce start get and start within benefits from that higher utilization and then the pass through of pricing is this part of what will happen at HES 's results?

Yeah, I think Jeff it is really three things that is going to drive the second quarter over the first quarter at least the robust growth we see; one is pricing and then we put a price increase through in the first quarter, but we did not realize all the benefit in that price increase in the first quarter. We should recognize all of that benefit in the second quarter. We see international revenues on the uptake in the second quarter in the areas where we had little or no contribution in the first quarter, and we see redeployment of assets out of continental Europe into places like Russia where we have contracts in place and can start that equipment to work at rates that are higher than what we had in the past, and I think we are going to continue to see than a seasonal contribution from the Subsea's and offshore construction assets that did not have particularly good first quarter mainly driven by the usage patterns that you see for those assets, and I think we will get additional contribution on our Landmark. So, it is not one particular thing that we are pointing to, I think it is a combination of positive events that we are seen all the way across our upstream businesses, the whole Energy Services group. So, I think Landmark will contribute, the Subsea constructions assets will contribute, the Barracuda ____ 00:35:29-30 project will contribute, and improving operations all the way across the HES will contribute. So, I think you are starting to see some of the leverage we get when things get better on an international basis, and we get pricing back to where it needs to be and equipping utilization where it needs to be across the whole organization, because we have been bearing an additional and large costs for the geographic diversity, we have in our organization over a 130 countries that we have to support infrastructure and once business picks up across that infrastructure you are starting to see the leverage to get out of that. I think that is what we were going to see down 2001.

Our next question will come from Bourdon Hall of CS first Boston.

Where is the capacity constraints primarily about PSL and what is your current thoughts and expansion, you did say one of the either prudent about making sure you get the returns or where which you think you need to add capacity both on equipment and people and internationally as that begins to pickup where do you going to have the build out thereto?

I think if you look at the product service lines today, it started obviously with capacity issues in the US. Pressure pumping is one that is very, very robust right now. We have not added a lot of equipment to our fleet especially in the US, because we wanted pricing to start to respond, I think, we are starting to see clearly the results of that on our margin on pressure pumping are very robust right now, and we will make some additional investment in the pressure pumping area to make sure that as worldwide market comes back that we fully participate in that as the market leader. As I have said earlier, let me just talk about each product line and then our goal geographically. Wireline logging is another area that we have made a large investment and over the past several years. We have got some interesting new technologies there, and I would say that certainly from the US standpoint that we are starting to get a little capacity constraint on both the wireline logging and the ____00:37:59 side. Manufacturing lines for both bits and completion products, I think we still got fair capacity to handle and increase load in those particular lines. If you look internationally where our business is growing right now, we are certainly starting to see robust growth and goodwill in Brazil, Venezuela, Mexico, and South America. We are seeing in the Middle East especially in the Saudi Arabia and Oman comeback very strong and of course West Africa, Nigeria, and Angola, I think, hold a lot of promise, but we have not seen the uptakes there we have seen in some of the other places, although we do believe it really is just around the corner at this point in time. So, we do have certainly some ability to absorb additional revenues especially in the international market before we did even think about bringing new equipment out there, but we certainly are going to start adding capacity to the US market, because we believe that we can do so with a little or no detrimental impact on pricing our margins.

Our next question will come from Scott Gill of Simons and Company.

Yes, good afternoon. Dave I just wondered, if you may, would you get into a little more detail on this sequential progression at HES up 4% quarter-to-quarter, you also said pressure pumping was up 20% quarter-to-quarter, which would almost imply that something other PSLs or may be flat or down, can you may be give us a little more color as to how the other PSLs did sequentially?

Oh, this is Gary, you were talking about revenue, I think it is 3% for HES in total. It has gone up. I think that you may have a little confused.

Okay, but if we look at pressure pumping up 20% sequentially, revenue buys again would net imply that some of the other PSLs were may be flat or down and I was just kind of wondering can you give us a little bit of color on that?

I think Scott the 20% was up operating income sequentially, and I think the pressure pumping was up probably in 7% or 8% sequentially, and in total we are about somewhere between 3-4 I think we are close to the 4% on a revenue basis for the all of HES with pressure pumping being up about 7% with the operating income that was up for pressure pumping 20% on a sequential basis.

Okay, David just could you kind of clarify, can you may be give us a little bit of color as to may be which product line other product lines were up and which ones are kind of ____ 00:40:47 and maybe reasons why?

If you look at the revenues as I said, we had basically all of the product lines were up except logging was basically flat obvious to this in terms of sequential growth everything else was up around anywhere from 2%-5% and as I said pressure pumping was up about 7%, for the operating income on a sequential basis as I have said pressure pumping was up about 20%, logging was up on a sequential basis as was drilling, as was completion products, and basically, the only one that did not post any sequential growth in operating income was the fluids business Baywide and then we had a decline in operating income out of our Integrated Solutions Group in terms of some projects we had there that we took from ____ 00:42:01.

Our next question will come from Terry Darlington of Goldman Sachs.

Thanks. Good afternoon gentlemen. I wanted to I guess followup with that question in terms of the sequential performance geographic breakdown for us and also could you comment on potential for additional buybacks, you have given the strong cash balance and the improved outlook?

Let Gary go ahead and handle that one.

On a regional basis on HES across the strong growth in revenues driven primarily in North America, we had our biggest increase. Sequentially, over the fourth quarter most of the other regions had some form of the decline ranging from about 0.5%-6%, 7% depending on which region, but that is sort of the cyclical nature of the business in the first quarter. I think what is plying contrary to the trends these days is certainly the US and Canada where operations discontinued continued to be very, very strong. With respect to your question on share buyback that is something that we continue to look at quarter-over-quarter, and we are going to invest the funds that we have available in either acquisitions, working capital needs, or share buybacks going forward although we don't have, we are still authorized to buyback a fair number of shares of the Board of Directors.

Our next question will come from Jeff Hiebert of Salomon Smith Barney

Good afternoon. Gary, I was hoping that you could describe what your outlook is for the international market in terms of volume of increase. I am talking just about the Energy Services Group, mixed business, and pricing in particular touching on what risks there may be out there and opportunities that where the principle variables are in terms of missing or exceeding your dollars 30 number for 2001 earnings and may be included in that given the very robust sequential increase you have indicated for the second quarter, if you could perhaps explain it almost seems like doubling HES operating profit in the year... is a conservative expectation?

Let me try that Jeff, in response to your last point, I think that if the trend continues that we see in the second quarter. I agree it is the conservative expectation and in fact HES will more than double and I think, we put that out there as a marker in the fourth quarter as a goal to shoot for. We have done very well against that goal in the first quarter. We see acceleration of that in terms of the second quarter and if that acceleration continues along the path, we see, I agree it is conservative and there would be upside to that number. I believe say that as you look at the non-US and you just assumed, which we are at the US will continue strong and that we will be able continue to get price increases through if you look outside the US, I think that we are fairly confident about where countries like Mexico, Brazil, Argentina, and Venezuelae are going. We have got good contracts there. We basically know a lot of work we have in place, and I think that, that becomes fairly predictable for us. If you look at the Middle East, I think, there is big upside in Saudi right now, I was over in Saudi just several weeks ago, and came away pretty optimistic about their market place and our position in it. There are several big contracts that are basically on the verge of being awarded. I am very optimistic about our position on those particular awards, and that is the kind of work that will start during the second quarter, and firmly contribute to the balance of the year. If you look at West Africa, I think that the biggest question mark there is when do some of these big contracts start giving picked off in Angola. Again, we are very well positioned. We have won a number of major awards in Angola for some of the big deep water projects, but the facts are ... I was in Angola last week and the equipment is there, the rigs are there, but for whatever reason, our customers have not yet started their drilling program. If those get started within the timeframe, then we see it will be a big contributor of profitability for the balance of the year. So, I would say that in Angola here is something that we are definitely counting on, and these look forward, but it is a risk. I think Nigeria is another area where there are several deep-water projects that are about to get going, and we have won a significant amount of predominant services on. I think they will go, but if they don't that would have some sort of a negative impact on us. I think that overall as is we look at the work that is there, the ongoing contract that we don't see a significant amount beyond other than may be a penny or two of downside risk to the guidance I have given you. We probably see more upside to it, but at this in point in time, we want to be optimistic, but we are going to probably have to wait a little bit of time before we can be more definitive, and what may be some of the upside above that dollar 30 is.

Our next question will come from Tag Della of RBC ____00:48:26.

Sorry guys, this is actually Jim Wakeland. As best as I know_____ 00:48:31 to bring up, but can you bring us up-to-date on where we stand on day after reserve, the _____00:48:37 visibility? Is that going to go away?

Well Jim, I think we have been about as upfront on the whole issue as best as any company could possibly be, and our queue that is very complicated issue obviously. We put in each of our queue the very detailed information of our number of plans, and how much it costs us to settle them historically. We are not seeing any kind of significant different trends in that. I believe, we are adding about 18,000 cases for the first quarter you have been able to see that number in the queue, and I think the best thing is really to do is there is no need to no news to give out on that subject and probably, the best thing to do is just wait here for a couple of days and we will get that queue information out and you will able to see all the numbers in slides and guides exactly the way you would like to.

No news is good news in that sector.

In the Saudi, the day we are just over in Saudi several big contracts could be awarded, there is different upside there. In what business, are these backing into the gas wells?

Yeah, it is basically ...frankly you know both got stuffed down in the empty quarter stuff _____00:49:54 got around, but mainly it is gas and it is _____00:49:58 and it is getting ready for some of these big downstream gas projects that are also being bid out at this point in time. So, it is the upstream event in some of the big downstream projects that _____ 00:50:12 trying to basically entice some of our big customers and to take in.

We now have time for one more question.

Our final question will come from Keith Seagull First Union Securities.

Good afternoon. Could you Dave or Gary, just describe in terms of the nature of the contracts? What is the pricing outlook is there in terms of how you are getting how you won these awards, and also could you also describe what kind of incremental margins do you expect going forward?

Okay, I think Keith if you look at our what we have visibility on, which is certainly the second quarter and to some extent end of the summer, I think that we are looking at an incremental margins certainly in the 25%-30% range, may be even a little bit higher than that I think certainly in the US it will be higher than that, and internationally it will probably would be a tag lower, but I think on balance somewhere around 30% is probably a good average to go with, and I would say general in terms of international pricing, the contract ... it is certainly still competitive out there, and because it has not been busy as the US has gotten. But I think, everyone is being fairly rationale in their pricing right now, understanding that it does cost more and it is more expensive to operative outside the US, and we are very pleased with not only the rates that we need to contract, but the prices that we are getting on now, and keep in mind that when the international market place is moving forward from a revenue growth standpoint, and it is humming along and very busy, it is quite a bit more profitably actually than the US operation. So, that is why we think, we have got a lot more in leverage to an uptake in the international and why as I said we are very confident that we are looking at activity to 50%-60% in earnings per share in the second quarter over the first quarter, and commensurate uptake in our view for the rest of the year if that kind of trend holds.

Operator, I want to thank everybody for participating in the conference call this afternoon, and I will be in the office tomorrow if you have any followup questions. Thank you.

That does conclude today's Halliburton Company's first quarter 2001 results conference call. You may disconnect that at this time. We do appreciate your participation.