哈里伯頓 (HAL) 2002 Q2 法說會逐字稿

Good day. Welcome to today's Halliburton Company second quarter 2002 results conference call. Today's call is recorded. At this time, for opening remarks and introductions, I want to turn the call over to the Vice President of Investor Relations, Mr. Cedric Burgher. Please go ahead, sir.

Thank you, maggie. Good morning and welcome to Halliburton's second quarter 2002 earnings release conference call. Joining us today are Dave Lesar, Chairman, President and Chief Executive Officer, and Doug Foshee, Executive Vice President and Chief Financial Officer. Because there are a number of items in addition to our normal quarterly review, today's call may last a little longer than normal. Following our prepared remarks, we will take questions from the investment community. In order to achieve maximum precipitation we will limit each caller to one question. This call is being recorded by Halliburton. With the exception of any participants' questions asked during the Q & A session, the including the Q & A session is copyrighted by Halliburton and cannot be recorded or rebroadcast without Halliburton's written permission.

Before turning the call over to Dave for opening comments, I'd like to remind our audience that in accordance with the safe harbor provisions of the Private Securities Litigation Reform act of 1995, Halliburton cautions some statements made today, which are forward-looking or provide other than historical information, involve risks that may impact the company's future actual results of operations. For more complete description of some of these risks, please refer to Halliburton's form 10-q for the quarter ended March 31, 2002, and Halliburton's form 10-k for the year ended December 31, 2001. Dave.

Thank you, Cedric. Good morning, everyone. Before I get into our ongoing operations, what I'd like to do is briefly address a number of other topics.

The first being the asbestos report, then the SEC preliminary inquiry, our restructuring efforts, our decision to no longer pursue fixed price, offshore EPC contracts, and our progress in non-core asset disposition. As to the asbestos report, because I think that's what everybody was really focused on this quarter, and we mentioned in the first quarter call that we had retained the leading independent third-party claims evaluation firm to assist us in estimating the number of claims that may be brought against us in the future, and the value of those claims. This report looked at our potential exposure over the next 50 years. Doug will go into more detail, but let me give you the highlights.

During the quarter, we accrued $483 million pre-tax for net asbestos liabilities. The results of that accrual are that we now have on our books a gross, undiscounted liability -- and I reinforce the undiscounted liability for both indemnity and defense costs, so both liability and the legal fees, covering the next 15 years, for $2.2 billion. And a gross undiscounted insurance receivable covering those same cases for the next 15 years of $1.6 billion. This resulted in a net liability of $602 million. This is lower than was expected by some. I think because of the higher insurance offset. So I can recap the two items at $602 total million and liability made up of a $483 million charge that we took this quarter, added to the $119 we already had accrued on the books, which gives us the total of $602. The third-party study also estimated the net present value of the asbestos liability for the Company over the next 50 years, so before insurance the MPV of the liability is $1.7 billion.

In addition, the report also calculated the net present value of the insurance receivable over the next 50 years at $1.2 billion. So on a net MPV basis, our exposure appears to be about $500 million. On an undiscounted basis, over the next 15 years, $602 million. What that implies to me is the market discount and our shares, which is well in excess of $6 billion, appears to me to be vastly overstated.

Now, what are we going to do with this report? We're certainly going to use it to inform our shareholders about the ongoing asbestos issue. We're going to give comfort to our banks and to the rating agencies about how we can manage it. And how we can access the market for excess insurance, if that's what we want to do, and obviously, we'll use it for ongoing negotiations with the plaintiffs counsel. Many shareholders have asked for greater certainty around this exposure. We believe that this independent third-party study confirms our previous assertions that while this is the significant issue, and I'm not trying to downgrade that at all, it's a manageable one. We plan to review the results of this report in much greater detail in a subsequent call following the filing of our 10-Q. But the bottom line for me is that this is great news because it shows that the asbestos liability is quantifiable, it's manageable, and it's solvable. Doug will go into more detail later in the call to give you some flavor for it.

Now let me talk about the SEC preliminary inquiry. In late May, we were notified by the SEC of their intention to conduct a preliminary inquiry into our accounting for cost overruns on construction jobs. We are actively engaged with the SEC to resolve their questions. Regarding our accounting policy and this application. Again, Doug will review in quite a bit of detail the issues and current status of this matter in his remarks. However, with the extraordinary media attention on this issue, we feel that it's important for us to provide additional details on these claims today. Please understand that we can't specifically identify the name of our customer, whether projects involve in the claims. In fact, we're in danger of potentially compromising our negotiating position on these claims by discussing them in detail during this call. But with all the surrounding publicity, I really see no other choice but to do that today.

Unfortunately, in today's environment, third parties and political agendas together with worldwide media coverage of this inquiry have triggered what I believe to be unfounded allegations and frivolous lawsuits against our company and Dick Cheney, our former CEO. This is about politics. This is not about fraud or legal accounting. Our accounting is absolutely legal. It's thorough and it's fully in accordance with generally accepted accounting principles. This issue has cast a shadow on us which is just not deserved. Halliburton is being covered by the media as a political story, not a business story. And frankly, that's just not fair, but it's the world we live in today. Our Company has the highest standards, and above all an absolute commitment to ethics. There is absolutely no question about whether accruing revenue on unapproved claims is appropriate. It is. In fact, we know that 15 of the largest -- of the 15 largest publicly traded E&C companies, all with revenues over a billion dollars a year, at least 10 use this method. Only one certainly does not, and another four won't disclose whether they do or don't. So the bottom line is that two-thirds of the E&C companies we know use it and perhaps 14 of the 15 use this method.

Now, before I leave the topic of the SEC inquiry, I really have to make some editorial comments. I've seen a lot of words like inappropriate, aggressive, fraudulent, in discussing Halliburton and its management. We need to get real and the media needs to get real. We have a proud company, we have 83,000 hardworking people. They're tax-paying citizens and they're dedicated employees, and they don't deserve the treatment they're getting today. As for the Vice President of New York, one could have known in August in 2000, the stock had hit one of its five-year highs. No one could have predicted the stock price of today. Dick Cheney sold his interest in the Company because it was the right thing to do. You might recall that at that time, all the political opponents he had were calling for the Vice President to divest himself of all of his personal investments. The future Vice President did not have to sell at that time, did not have to sell his stock or his options, but he insisted and the Board agreed that it was the right thing to do at that time.

The next thing I want to talk about is our restructuring efforts. We have made substantial progress in our corporate reorganization in the last quarter, and I'm very pleased to share with you today that we now estimate our cost savings to be at least $200 million per year. You will recall that the guidance we had previously given you was at least $100 million a year in cost savings. The $200 million per year equates to 28 cents per share after tax, if you assume our ongoing 39% effective tax rate, and those numbers will start -- those cost reductions will start kicking in this a big way in 2003, and of course will get some of them in the balance of 2002.

Another thing that I want to hit on before we get into some of the operational details is the decision to exit the offshore EPC business. It was done after careful consideration that we would no longer pursue lump sum engineering procurement and commissioning contracts, EPC contracts, for the offshore oil and gas business. An important aspect of this decision and the reorganization process was to look closely at each of the businesses we have to ensure that they were self-sufficient, inclusive of their use of capital and liquidity. And that process, I found that the EPC offshore business was using a disproportionate share of our bonding and letter of credit capacity. The decision then was the result of an in-depth study and a comprehensive, strategic review, particular particular done within the offshore product line. While this market segment was once a cornerstone of this historic Brown & Root organization, during the proliferation of North Sea activities, the market in fact has changed significantly in recent years. Particularly with the combination of our major customers, who are now insisting on transferring risk to contractors in the emergence of foreign competitors, who are willing to assume that risk.

Our bottom line is we're no longer going to accept that lump sum risk. No one is making any money in that business, and it's time for us to get out of it. We judge the potential rewards to go unacceptable, and are no longer going to take them on. We're currently considered the leaders in that market, and we will continue to pursue EPC projects, but only on a cost-reimbursable basis. We have a number of lump sum contracts and projects underway, and we're fully committed to the successful completion of these projects, and we also plan to retain the excellent offshore engineering and service capability we have. We're just going to make sure we get paid for the value we bring. Of the remaining EPC contracts that we have, four of them -- we have 7 of them ongoing right now -- four of them are at 98% or more complete, and will be finalized by the end of the year. The remaining three are the Barracuda Project in Brazil, which is about 45% complete, a contract we have for constructing some offshore platforms in Nigeria, that is in the 90% complete category, and a project that we are just starting in the South Nan Tuna Sea that is 15% complete. In terms of the impact on revenues going forward, of the revenue base of KBR, the offshore lump sum EPC market today is about a 5 for $600 million market. So as we exit that that business, of course we'll lose that revenue, but I believe we'll result in more predictable and higher margins for the KBR business.

Now let me talk a little bit about non-core asset dispositions. As we told you in our last call, both business units undertook a strategic review to identify assets that no longer fit within the core business of Halliburton. We announced on Monday we signed a letter of intent to sell our 50% interest in Bredero-shaw to Shawcor. The purchase price is $150 million, comprised of 50 million in cash and $100 million in stock and notes. Just so you can assess the impact, in 2002 Bredero-shaw was expected to contribute only one cent per share to Halliburton's income. We anticipate the transaction to close by the end of the year. We also anticipate asset sales in other non-core areas by the end of the year, which can total as much as $350 million in proceeds, with very little impact to the bottom line. In the operating highlight series, in the previous call I basically covered some data about how we compared to our competitors, which continue to show our market leadership, and the fact that with all the other issues swirling around Halliburton today, that we have absolutely not lost focus on our market or our customers. Overall, Halliburton Energy Services revenues in the second quarter increased 3% sequentially, compared to a couple of competitors who were up 2%, and also some competitors who had 3% and 1% declines in revenues. So basically, we held our own in terms of what was available in the marketplace.

In pressure pumping, our revenues increased 3%, compared to a 6% decline for one of our major competitors, who said yesterday that they were taking market share. I guess it's not from us. In the drill bid area, security DPS revenues declined 4%, compared to a 14% decline for one of our other competitors that reported out. Our completion products revenues were essentially flat sequentially, compared to a 2% decline for one of our competitors, and bay right sequential revenues increasesed 1%, basically a -- exactly on track with what is major competitor did.

If you move on to our business results, we believe that the cycle bottomed out early in the second quarter. While industry conditions are weaker than last year, we hope to see signs of improvement in the U.S. by the end of the year.

Overall, Energy Services Group revenues and operating income modestly improved over the first quarter. During the second quarter, we recorded a pre-tax loss of $119 million on an offshore development project in Brazil. Related to that project, we have assumed $101 million of claims which have not yet been approved by the customer. We have identified these claims, which we expect to submit in the third quarter. These claims will be substantially in session of this amount, while we're confident we will collect a significant portion of these claims, our confidence at this point in time does not yet rise to the level necessary for us to deem them collectable and probable under SOP 81-1, for anything more than $101 million. Therefore, $119 million loss was taken this quarter. However, after we file our claim, we will reassess the probability of collection on these amounts. That have been charged off. And in accordance with our accounting policy, we will recognize some of these claims if we deem recovery to be probable.

Now, Doug will be talking in detail about the job loss and our accrual for asbestos claims and the reorganization costs that we incurred. These items as well as impairment charge related to our equity investment will be all-excluded from the discussions on comparative results. In addition, all sequential results will exclude the effects of various non-recuring items discussed in the first quarter, essentially trying to give you an apples to apples comparison now. We did include tables in the press release to assist you in reconciling all reported earnings and making the comparative earnings calculations. All of our second quarter results were covered in the press release, if you take out the non-recuring items our second-quarter results from continuing operations were 18 cents per diluted share.

Just a couple other highlights as I said: Energy Services Group's revenue increased 4% sequentially and operating income was up 3% sequentially. And Landmark continues to hit their numbers and have excellent results and basically are now turning in record operating income and revenue quarter after quarter, and for instance, this quarter at a 6% increase in revenue sequentially, over the first quarter. And in the backlog and KBR area, we were awarded $1.1 billion of backlog during the quarter, primarily in the onshore operations, the operations in maintenance, and government product lines.

So for me, I'm basically pleased with how we came through the quarter. Obviously, it was a tough one, but we got a lot of things done, and I'm especially pleased with the performance of Energy Services Group. I'm obviously not pleased with what we've seen from results standpoint at KBR, but we have taken the actions to improve performance in this segment, as we said, we will get out of the offshore EPC, which is where our problems have been. I think what I'll do now is turn the call over to Doug, and let him go over some of these items in greater detail. Then I'll come back and make a few comments at the end and then we'll answer whatever questions you have.

Thank you, Dave. My comments today will include the following topics: Our corporate reorganization, company and segment results, the SEC preliminary inquiry, lump sum offshore EPC contracts, asbestos, and finally our liquidity situation. As we mentioned during our first quarter call, we commenced corporate reorganize and I'm pleased to report progress has been made. The separation of the Energy Services and engineering construction groups and the wholly owned operating subsidiaries is largely complete, and we expect that to be concluded by the end of the year.

In addition, the employee reductions are substantially complete. In connection with the reorganization, we incurred resurgery charges of $56 million during the quarter, which brings the year-to-date costs to $67 million. We'll have additional charges in the second half of this year, totaling around $20 million. The year-to-date charges include $51 million in personnel related costs, $13 million in certain asset write downs, and $3 million in contract terminations. As a result of the actions, we expect to achieve savings of $200 million on an annualized basis starting in 2003, exceeding our initial estimates by $100 million or more. The annualized cost savings of $200 million can be broken down as follows: $140 million in personnel savings, $35 million in it infrastructure related savings, a $5 million in cost for consulting projects, and about $20 million in other non-personnel costs.

Let me talk about the new reporting structure. In conjunction with our corporate reorg, we determined that major projects, Grand Hearn and production service by the nature of their operations were better suited under KBR for management and reporting purposes. Additionally, asbestos cost relates to our engineering business which were previously reported under general corporate, are now reported in the E&C segment. These reclasses have been restated for comparative purposes for all quarters, all quarterly periods in 2001 and 2000 and presented it an exhibit to the second quarter of 2002 press release. These reclasses have no effect on consolidated Halliburton financial statements, but will result in restated balances for segment disclosure.

Now, moving to our operating results, and I want to stress again that these proforma numbers exclude the items previously mentioned -- total company revenues of over $3.2 billion were down 3% year over year and up 8% sequentially. International revenues were 67% of the total in the second quarter, compared to 60% in the second quarter of last year. Operating income of $161 million was a decrease of $123 million, or 43% year over year, and a decrease of $15 million or 9%. Net income from continuing operations was $78 million or 18 cents per diluted share. Loss from discontinued operations was $140 million after tax. This is largely comprised of $159 million pre-tax charge for asbestos costs related to previously disposed businesses.

Now I want to give you a little more detail by segment on operating results. In the Energy Services Group, quarterly revenues were 1.8 billion dollars, a decrease of 13% year over year and an increase of 4% sequentially. Halliburton Energy Services, second quarter revenues fell 13% year over year, and increased 3% sequentially to $1.5 billion. As expected, revenues were lower than the second quarter of 2001 and all product service lines except for Sperry-sun due to the decline in the U.S. rig count and increase pricing pressures. Sequentially, however, revenues increased in most product service lines with logging up 10%, pressure pumping up 3%, Sperry-sun up 2%, and security DBS up 1%. Sperry-sun continues to experience great success with the deployment of their industry-leading slip tools in a directional drilling business, and we expect that success to continue for the balance of the year. Year over year, North America reported revenue decreases of 28%. The decrease in North America is primarily due to lower gas drilling activity. Revenues in Europe, Africa, and Latin America were essentially flat, while revenues in the Middle East and Asia-Pacific increased by an average of 15%. The largest increase occurred in Asia-Pacific, led by China geographically and Sperry-sun from a product service line perspective. Sequentially, revenues in all regions were up, except Europe after character which was flat.

Moving on, revenues for the balance of the ESG group decreased $30 million year over year. As you know, in late May we combined our Halliburton subsidy operations with DS and D Subsidy to form SUBC 7. This is due to the combination as we announced -- now account for our 50% ownership interest in SUBC 7 on the equity method of accounting. The decrease from Halliburton Subsidy was partially offset by a $6 million revenue increase at Landmark. Operating income for ESG decreased 39% year over year to $168 million, and increased 3% sequentially. AGS operating income of $158 million decreased approximately 40% year over yore. Operating income decreased in all product service lines except for Sperry-sun and completion products. Sequentially, AGS operating income decreased approximately 1% primarily due to writedowns associated with integrated solutions projects, which is mostly offset by approved pressure pumping results in the U.S..

From a geographic perspective and consistent with reduced activity, North American operating income decreased 53% year over year, but sequentially North American operating income increased 7%. Operating income in Latin America and Middle East increasesed on a sequential basis. Latin America operating income benefitted from price increases in both Brazil and Argentina, however, Europe, Africa and the Asia-Pacific region experienced operating income decreases. Asia-Pacific operating income was negatively impacted by mobilization for a new contract, and the previously mentioned integrated solutions project writedown. Operating income for the remainder of the segment increased $4 million year over year due to primarily dramatically improved results at Landmark. Revenues for E&C increased 11% for kbr to $1.5 billion. Operating income was $9 million, a decrease of $7 million -- 17 million year over year primarily due to a $17 million loss on pry reject in Asia-Pacific. Excluding the offshore product line, KBR had an overall operating margin of 2.8%. General corporate expenses were 25 million dollars, which included $9 million of reorg costs. All asbestos related costs are now being recorded in the E&C segment and our financial states have been restated accordingly. Interest expense of $30 million was down $2 million sequentially and down $4 million year to year. Fixed loss was $5 million few to the continuing economic and financial crisis in argentina. Excluding the impact of the impairment loss on Bredero and charges and with our asbestos exposure, our tax rate remained at 39%. Asbestos accrual generates a large deferred tax asset, which may not be fully realized based on future taxable income projections, and we therefore recorded a partial valuation allowance for that.

Capital expenditures totaled $169 million for the quarter, down $30 million year to year, and $66 million sequentially. We continue to invest a significant portion of our capital in hes primarily for track and equipment and directional and LWD tools at Sperry-sun. DDA expense was $135 million for the quarter, increase of $3 million sequentially. The prior year quarter, DDA of $128 million included goodwill amortization of $12 million. With regard to backlog, we end the quarter with Dallas 9.8 billion, flat quarter of quarter. KBR on a restated basis accounts for $9.4 billion of the $9.8 billion total backlog. About 41% of the backlog is for lump sum contracts and about 49% our backlog will be performed in the next year. Firm orders were $8.2 billion at the end of the your. The remainder of the backlog relates to government awards not yet funded with the Balkans support contract representing the majority of the balm during the quarter, KBR booked $1.1 billion worth of new backlog, including in the ONM segment $150 million related to the North Sea, and in government operations a $520 million contract for the U.K. Ministry of Defense, $168 million contract for industrial and facilities service for various sites, and a $60 million contract for the Army Core of Engineers. Approximately $1.3 billion of the current backlog relates to offshore EPC projects. Total debt at June 30, 2002, was $1.5 billion, flat sequentially and down from $1.8 billion last year. Our debt to cap at the end of the quarter rose slightly to 26 1/2% as a result of the unusual charges for the quarter. During the quarter, we entered into an agreement to sell undivided interest in some of our accounts receiveable to unaffiliated financial institutions. As of the end of the quarter, we'd received $200 million under this agreement. There have been inquiries in the media and the investment community about this agreement, and our first quarter financials and in our first quarter conference call we openly talked about both our intent and our actions with this form of funding.

But to recap, this is a short-term funding replace. For commercial paper because that market isn't readily available to us in the current environment. The facility ultimately gets funded by asset-backed securities, a $700 billion market in the U.S.. So this form of funding is not at all unusual. Most major financial institutions offer this type of program, and we chose a very conventional structure. Numerous companies use these types of securizations, including GE, Ford, AT&T, Dupont, GMAC, John Deere and Phillips. In short, we entered into this facility because it's a very low-cost capital source and serves use better than the CP market at this time. Finally, our head count was around 83,000 at the end of the quarter, down 2,000 sequentially, and 5,000 year to year.

Now I want to talk about the SEC's preliminary inquiry, which we announced in May. I believe there's been a great deal of misinformation in the marketplace about this, so I want to try to articulate this issue in plain english.

In summary, first, we're working with the SEC to answer their questions. Second, we make extensive reports to our shareholders every quarter. And third, of we're convinced our accounting accurately reflects the results of our business. I want to review with you what we believe the SEC is concerned with and what the status of the inquiry, and I also want to give you -- review at the end. So what is the SEC reviewing in this preliminary, and I stress it's preliminary inquiry. The SEC's reviewing our methods for accruing revenue on E&C contracts, specifically, they're focusing on our accounting practices relating to accruals of revenue on unapproved claims.

So what are the issues? As I see it, there are three extents to the inquiry. First, is it appropriate under gap to accrue revenue on unapproved claims? Second if it is appropriate, then did we, Halliburton, properly accrue revenue under the rules as they apply? And third, if it's appropriate and we applied it properly, then did we timely disclose the information to our investors? The term revenue on unapproved claims essentially relates to fixed fee projects, where we've committed to build a facility within certain specs for our fixed price and by a fixed date. When we incur costs for work, which could not have been contemplated at the time the contract was made, and the additional work is due to actions or requirements of the customer, we can accrue revenue related it a claim we will make, even if the customer has not yet approved the claim. If it meets the criteria, which I'm going to discuss in a minute.

As to the question of the appropriateness of accruing revenue on unapproved claims, this is not even open to discussion. Statement of position 81-1 titled "Accounting For Performance of Construction Type Contracts" commonly referred to so, and to as -- SOP 81-1 says in paragraph 65 the following "recognition of amounts of additional contract revenue relating to claims is appropriate only if it's probable that the claim will result in additional contract revenue and if the amount can be readily established." Those two requirements are satisfied by the existence of all of the following conditions: The paraphrase, there are four. One, there is a legal basis for a claim. Two, the additional costs are caused by unforeseen circumstances and not as a result of ditch sis in our own performance. Three, the costs are identifiable, determineable, and reasonable. And four, the evidence on supporting the claim is objective and verifiable. There is no question about whether accruing revenue on unapproved claims is appropriate. In fact, it is the accounting treatment used by most large publicly traded E&C companies.

So since the method is appropriate, is accepted, and is widely used, the next question is, did we, Halliburton, properly apply it? We certainly believe we did, and we're diligently working to assure the SEC of that fact. These claims are reviewed every quarter internally. In addition, they were reviewed every quarter by our external auditors. During the periods being reviewed, Arthur Andersen and subsequently KPG included our methodology is absolutely consistent with gap.

The final question, then, is did we timely disclose this issue to our investors? Our 1999 financial statements disclosed that beginning in 1998, the Company accrued revenue on unapproved claims. Our financials disclosed similar accruals in each subsequent year. In addition, we have consistently highlighted in our financial statements as risk factors the inherit risk associated with entering into fixed-operation con did not construction contracts and the negotiation of claims with customers. Also, when the SEC introduced the issue of critical accounting policies in 2001, we included accruals of claims in the discussion of our own critical accounting policies and Halliburton's 2001 10-k. Much of the noise seems to be around the fact that the first time we separately reported revenue on unapproved claims was in our 1999 10-k, even though we accrued them in 1998 as well. We believe that it was not a significant issue at that time, and that we fully disclosed it in 1999 and every quarter since. With perfect hindsight, could someone disagree with this conclusion? Yes. But the ultimate arbiter here is is the SEC, and we look forward to seeing their conclusions. But just for the sake of argument, let's put 1998 in perspective. We were in the midst of concluding the largest transaction in the Company's history, the Dresser, which would double the threshold for what was significant. Our operating income before special charges in 1998 was almost $1.3 billion. We were involved in finalizing and disclosing an almost $1 billion special charge related to that merger.

Now I want to give you some background about the claims process as well as the unapproved claims we've recorded. As you're aware, settling claims on large, long-term fixed price contracts frequently involves extended negotiations with the customer. Our experience is clients often wait until project completion before they will agree to settle claims, especially larger claims. Thus, it can take several years to resolve claims with a client. I've previously discussed the accounting guidance of SOP 81-1, specifically the four criteria required to be met. However, applying the four criteria requires professional judgment and a high degree of estimation. And we assess the recoverability of claims every quarter based on the most recent information available, Kplug project costs, negotiations and discussions with the customer, and in many cases advice from claims specialists. Based upon these periodic reviews, we adjust our accrued unapproved claims as appropriate based on the circumstances at that time. We believe we have a good track record in this area, and I'm now going to review some of our claim settlement history.

In 1998, we assumed $89 million of revenues for unapproved claims of which $87 million related to two projects located in South America and one in the Middle East. The remaining $2 million relates to a project in North America where the claim was collected in full. On one South American project, we assumed $18 million of claims in '98, during the fourth quarter of '99 based on the status of negotiations with the customer, we wrote off $3 million of the 18, and then in the third quarter of 2000 we settled these claims for the remaining $15 million balance, which was the value of the claims on the books at that time. On the second South American project, we assumed $38 million of claims during 1998. In the fourth quarter of 1999, based on claim negotiations, we wrote off $13 million of these claims, and resolved $12 million of these claims, leaving a balance of $13 million.

We continue to press our claims with the client in 2000. However, as our negotiations were beginning to affect our relationship with the key customer, we decided to settle our claims in order to protect our client relationship rather than press for additional claims we felt were due. As a result of this settlement, we recovered $10 million of the remaining $13 million of 1998, assumed claims, in the second quarter of 2001. Finally, during 1998 we assumed $31 million of claims on a Middle East project. This project won't be completed until later in 2002, and as a result we've not been able to settle our claims with the client. At June 30, 2002, our accrued claims on this project were $44 million. We've submitted claims to the client substantially in excess of the amount accrued, we're actively negotiating to settle the claims, and we remain confident we will recover significantly more than our accrued balm so to summarize, our experience with the $89 million of unapproved claims from 1998, we've collected $39 million so far. We're actively pursuing $31 million or more as part of a larger claim. And we've written off $19 million.

I'd also like to share an example where we collected more than we assumed. On a North Sea Project, we assumed $17 million of claims in the first and second quarters of 1999. Claims negotiations lasted until the end of 2001, when we settled our claim for more than we had assumed. We sometimes identified significant claims on projects where we can't conclude that the collection of the claim is probable based on current information, and thus we can't accrue a claim under the relevant accounting rules. That doesn't mean we don't think we're going to collect. For example, we recorded a $35 million loss in 2000, on a project in South America where we in submitted substantial claims, but we couldn't conclude that the collection was proveable and therefore we didn't record any claims. Many of the claims were settled in our favor in the fourth quarter of 2001, and we were able to reverse $32 million of losses we had recorded during 2000.

Now I want to give you the status of our significant open claims today. These claims along with the claims I just discussed, account for the unapproved claims we've assumed since the beginning of 1998. At the end of the second quarter of 2002, our total assumed claims were $200 million. These claims relate to several projects, including $44 million for the Middle East project I just discussed.

And now I'll discuss the remaining projects. We have $101 million of assumed claims for the offshore project in Brazil, on which just this quarter we recorded $119 pre-tax loss. We've assumed these claims over the last three-quarters, including $35 million this quarter, to get us to the $101 million balm based on information available during each quarter and our contribution as the to collections in the future. The loss recorded in this quarter includes additional expected cost overruns that were identified during the quarter. We've identified claims that are substantially in excess of the amount we've assumed. While we're confident that we'll collect this money, our confidence level doesn't yet rise to the level necessary for us to deem that collection is probable under SOP 81-1 for any more than $101 million. We expect to file claims relating to this charge in the third quarter, and at that time we'll revise our position on the probability of collection.

In accordance with our existing accounting policy, we'll recognize claims where recovery is deemed probable, when it's deemed probable. However, it's difficult to predict when we'll settle the claims because as I said earlier, it often takes several years to resolve large claims. The other projects with assumed claims at June 30, 2002, include $20 million for onshore facility in North America, which was assumed between mid-2000 and the end of 2001, $17 million for a gas processing facility in West africa, which was assumed during 2000 and 2001, $7 million for an offshore facility in Latin America, which was a this year, $5 million for a power facility in North America, which was assumed during 2000, $50 million for an offshore pipeline project in Latin America, assumed this year, and $1 million of other claims. We've submitted claims to our clients on these projects that are substantially in excess of the amounts assumed. We're actively negotiating the claims, with our clients, and we believe collection of the amounts we have assumed is probable. And believe recovery of additional amounts over our reported claims is warranted. The assumed claims of June 30, 2002, represent our best estimate of the probable amount of claims we'll recover for these jobs. We strongly believe that considering these claims, results and a more accurate presentation of the financial performance for these projects in our financial statements.

Finally, these assumed claims meet both the letter and the spirit of amicable accounting guidance. So what is the status of the SEC's review? We've met with the SEC. We've had one request for data, which we've vond responded to and a follow-up request for additional data which we're working on. We're in the process of documenting our thought processes and collecting the supporting documentation for each major claim accrual since the beginning of 1998. This is is no simple task, if it will take us sometime and effort but it's underway. I want to say here that we're not merely cooperating with the SEC. We're actively engaged in providing them all the information they've requested.

Let's look at some of the in addition to those I've already shared with you. Related to Halliburton. First, we have an independent board. In fact, only one insider serves, and that's Dave Lesar, our CEO. Evidence of that independence is the day the SEC notified us of the preliminary inquiry, we issued a press release, and the independent audit committee of the board immediately retained an outside law firm and a forensic accounting group to conduct a thorough review and work with the SEC to resolve the issue. In addition, as a Company we already comply with 90 plus percent of the new York Stock Exchange new listing requirements, and we did even before they were proposed because we didn't just start taking good governance seriously, we always have. Second, we have none of the trappings of the tarnished companies in the news today. No high-flying CEO, no CEO Condo in Boca Raton, no Company provided art collections, no loans to management, no hidden financings, no related party transactions for the personal gain of the CFO, what we have is an extremely conservative managed balance sheet, strong working capital and more than adequate liquidity. None of the indicia with those failures. Third, remember that since 1999, we have disclosed the amounts of unapproved claims and receiveables in all every of our 10-Qs and 10-Ks.

In addition, many analyst reports show the analysts were aware of our disclosures and do not consider them significant. We'll continue to refine and prove our disclosure to our investors. That means that I expect our second-quarter 2002 10-Q to be better than the first quarter. I have that expectation of our team every quarter. That doesn't mean that previous quarters are inaccurate or wrong. It means that we strive to continuously improve in every facet off our business, commuting to the investing public.

And finally, lest you think I left out outside sales, let's examine that. What were the total net proceeds from insider stock sales for this company with $11 billion in assets? The answer: less than $12 million cumulatively over the last 4 1/2 years, by nine people, most of whom were retiring Dresser executives. This is not an issue for our Company.

Now I want to move on to the asbestos issue. First, I want to update you on the study and the corresponding charge, and following that I'll review the normal statistics we track each quarter. The bottom line is we think this is good news. The liability now quantified by the leading independent expert in the field. The number is manageable and confirms that there's a disconnect between our current market capitalization and what we believe to be the true value of Halliburton. As we told you in our 2001 10-k and in the last earnings call we retained a leading third-party claims valuation firm to assist us in estimating the total number and value of both unresolved current claims and potential future claims. This work has enabled us to record a liability for potential future claims and a receivable for the related estimated insurance recoveries. If will also assist you in evaluating risk management alternatives and it's going to help you, the investment community, better understand and quantify this liability. Finally, as was mentioned earlier, it will form the basis for our ongoing negotiations with plaintiffs. The study is essentially complete and we're now able to give you an overview of the study framework, scope, values and results. We'll also host an additional call after we file our 10-q in order to cover this issue in greater detail.

We engaged Hamilton -- one of the preeminent firms in the world, to conduct the study. Dr. Francine, a distinguished professor and respected expert in the field, led the team conducting the effort. The firm has gone to great lengths and logged many hours to put together the most accurate and credible estimate of our linlt. The study 15 with a analysis of claims in four broad categories: The third party expert estimated the liability in both nominal and net present value terms using comprehensive data inputs and long-term forecasts. Estimating new claim filings and settlement values, a two-year historical average by claim type including defense costs was used. Other key assumptions include an inflation rate, 3%, and a discount rate of 7%. The first step was to estimate the population of persons exposed. Reviewing populations that have worked in both traditional and new industries, the study estimated the total number of people exposed to asbestos through the 50-year scope of the study. Next, the number of people who will get malignant diseases was estimated. The modified Nicholson curve was to develop a baseline estimate of claims. This is the definitive methodology for estimating malignancies used by plaintiffs and defendants universally. From that baseline, the other types of claims were forecast, assuming a ratio of claims to other types of claims. Last, a projection of the dollar value of the claims was developed using the two-year historical average. The models developed from this methodology were used to develop nominal and counted estimates for the next 50 years. Using the information from the study, we engaged outside counsel and our claims management consult ants to help us assess potential insurance recoveries under the various scenarios. As Dave mentioned wave crude an additional pre-tax charge of $483 million, increasing the net liability to $600 million. Our gross liability for claims increased by $1.5 billion, to $2.2 billion, and estimated insurance recoveries increased by a billion dollars to a total of $1.6 billion. The liability recovery from this approach is estimated at about half a billion dollars. While the stays in place, new claims in the area essentially can't be filed.

The additional Harbison-Walker claims prior to the bankruptcy. These new claims are also subject to the stay. On July 16, the stay was extended to September 18th and a consensual agreement with Harbison-Walker and the official committee of asbestos creditors. The committee has told the court that as long as their negotiations with us and with Harbison-Walker are constructive, we won't -- we will seek to extend the stay. While we won't comment on our negotiations, we will say that our discussions have included the possibility of a global settlement that would include all of our asbestos claims, including those that are not currently part of the stay. Also, during the quarter, we resolved 7,000 claims. That brings our total of resolved claims to 214,000. Our cumulative pre-tax costs for resolved claims is $173 million before insurance and $72 million after insurance. A significant amount of the increase in the after-insurance costs relts relates to the loss of highlands insurance coverage. Therefore the average is $808 before insurance and $336 net of insurance. These actual numbers are in line with the estimates and assumptions used in the study. At the end of the second quarter, we had $128,000 open claims relating to products formally manufactured by dresser. 38,000 in e and c claims. 7,000 in pre-spend harbison-walker claims, and 139,000 Post-Harbison-Walker claims. This brings the total open claims counts to 312,000, net increase of 20 for the quarter.

Now I want to move on to liquidity and take a minute to update you on several key issues affecting us. We ended the quarter with 383 million dollars in cash, up from $266 million at the end of March. In addition to inflows and out flows from normal operating activity, we received $200 million from proceeds which was largely offset by $106 million cash collateralization requirement for the patent infringement lawsuit reported last quarter, and $56 million of cash required to pre-fund certain insurance obligations. Our working capital position remains strong at $2.2 billion, and $350 of our $750 million in unused and undrawn bank lines will expire in August. We don't expect to replace the expiring bank lines, and we believe the remaining $350 million facility, which has a four-year remaining term, is enough to meet our financing needs for the future. We're in regular communication with the debt rating agencies, which continue to maintain investment grade ratings on both our short and long-term debt. We continue to evaluate assets that no longer fit our core business, and as Dave mentioned we've signed a letter -- of intent to sell our interest in bredero-shaw for $150 million and we accept our sales pit end of the year totaling up to $350 million. Now I'll turn the call back over to Dave, who will make some closing comments.

Thank you, Doug. I want first of all to thank all of the Halliburton employees for helping us remain focused on our business at hand. We are clearly on a course in our corporate reorganization and we expect to achieve estimated savings of $200 million a year, well in excess of the $100 million we've already committed to you. We have promptly responded to the SEC preliminary investigation, and inquiry, and will continue to do so in a proper and forthright manner. We remain confident that the facts support our position and that the company acted in an appropriate manner.

As I said earlier, obviously I'm disappointed in the performance in KBR's offshore business. But we're taking significant and timely action to focus our resources on other products and services, which will produce us the best returns for the company and our shareholders. Based on these actions, the engineering and construction groups operating margins, are expected to hold in the 3% range for the remainder of the year. The l and g and gas processing areas remain very active, with numerous l and g and receiving terminal proposals and studies currently being worked on. However, the current difficulty investment climate may delay the development of some new large-scale projects.

In addition, we also believe there will be increasing opportunities in our government operations business as governments continue to outsource their functions around the world. Improvement in oil and gas industry conditions in the U.S. And the second quarter has also begun to be reflected in the performance of the energy services group. We believe that the first part of the year and the second part of the -- early part of the second quarter was the earnings trough, in this cycle, and we do expect the second half of 2002 and into 2003 for things to get better. Natural gas demand and strengthening U.S. prices are expected to drive North American drilling activity. Although some weak economic recovery may delay that, and we also may have some near-term pricing fundamental issues to deal with. However, the international and deep-water markets where we're very well placed are expected to improve. We have followed through on our commitment to engage in independent, third-party to study our asbestos claims, and as the basis for recording the liability. It is expected this additional liability for unknown future claims will help alleviate some of the concerns in the investment community and the result adverse impact on our stock price. As I said earlier, and I'll say it again, the report is very good news for us.

And I also want to reemphasize something that Doug said. We're going to use the report for a number of things, but what we are not going to specifically comment on our negotiations, we do want to say again our discussions have included the possibility of a global settlement that would include all of our asbestos claim, including those that are not currently part of the Harbison-Walker bankruptcy. We expect the second half of the year to reflect an increase in Energy Services Group activity. We're going to get cost savings from the corporate reorganization, and have a more profitable second half of the year at KBR. We expect earnings per share from continued operations for the third quarter to be in excess of 20 cents. We bolstered other liquidity and cost control is evidenced by our expected savings from the organization. We've created opportunities to access cash from external sources. We clearly are well positioned to take advantage of improving market conditions. Our backlog is $9 million. And obviously, as we continue our reorganization efforts, that will further enhance our competitiveness and cost structures. Based on our strategic objectives, and the development we've made in this area, all of which we've discussed earlier, I am very confident about halliburton's future today.

I know that this is a long call, I think we've covered everything that you've told us concerns you. As usual, we've been open and straightforward. That's the way we operate at Halliburton. But I know there must be questions out there. So why don't we get to them. So let's open it up. Cedric.

The question and answer question will be conducted electronically. You may press the star key followed by the digit 1 on your telephone. Again, to ask a question, that's star one on your touch tone telephone. We'll pause to assemble our roster. Our first question comes from Curt with RBC Capital.

Yes, thank you for all the detail. My question is going to focus on the operational side of the business, and we've seen a little bit of a lull here in the North American drilling activity as we kick off the third quarter. I was wondering if you could give us general sense as to how you think pricing may be as we go into the third quarter, specifically pressure pumping, Sperry-sun --

I think, Curt, that you probably put your finger on it right. There has been a little bit of lulling drilling activities. Primarily because our customers are -- especially the North America based ones, are trying to figure out where gas prices and gas demand may go in the balance of year. There's clearly concerns about storage. There's concerns about depletion. There's concerns about availability in terms of demand. I think that's showing up in kind of a little bit of uncertainty at this point in time. Clearly, the market has not kicked back up in terms of areas like pressure pumping to the extent that the capacity has been absorbed in the industry, and therefore you're able to put price increases through. So I would see the balance of the year, if demand continues to stay up, that it would be more of an absorption of cass 50 and less an tablt ability to push price increases through in the pressure pumping. Now, the directional drilling business where sperry-sun drilling operates is different because those are typically longer term contracts, even in the U.S., and I think are a little bit less -- less dependent on the ups and down swings in the rig count.

Our Sperry-sun drilling business is doing very, very well right now. Because it's drilling out some technology that our customers love and are willing to pay somewhat of a premium for. And so we're keeping that equipment busy, and I think that that was going to continue to grow as Doug has indicated earlier. The bit business clearly more tied to the rig count, and really going to fluctuate up and down based on where that goes. As I indicated earlier, though, I don't think you've seen any market share exchange or if there is any, I think we're doing basically holding or maybe gaining a little bit in some of them. So I think those things will go up and down more with rig count, but in general I would say that in the U.S. market it's going to take a little higher activity to absorb the capacity before you're going to get price increases. That doesn't mean you can't grow your revenue because by absorbing capacity you're going to get that. The deep water and international markets continue basically to operate as they were, and we have not seen the impact there, although you have in places like argentina, but we're even seeing that stablize now. So in general, the general operationly we're in pretty good shape, but we're not going to get any real margin boosts until we can push price increases through.

Next question comes from Scott Gill.

Good morning. Thank you for a very thorough opening part of the conference call. Dave or Doug, as we look at the your balance sheet and liquidity and given where the study came out on a net liability of $602 million, you can talk a little bit about what your capital structure plans now look like going forward, and if you could within that answer if you're looking at buying back stock in the near future?

Okay. Of course, our ultimate capital structure will be somewhat dependent on whether we are successful or not, scott, in our negotiations either for a partial or global settlement, because ultimately that will have to be financed. In the interim, and/or assuming we don't arrive at a successful conclusion there, we've got 26 1/2% debt to cap. We're projecting we'll be cash-flow positive for the year. We're selling what I think in total will end up being close to half a billion dollars in non-core assets. So I actually feel pretty good by the balance -- by the end of year, in terms of our liquidity situation. We're not yet ready, although we have a very dated authorization from the board. We're not yet ready to commit that we are actively considering a share repurchase program.

Our next question comes from Ken Sill with Credit Suisse First Boston.

Good morning. I was wondering if you guys could give us a little guidance. The $200 million of cost savings you're going to be generating, how will that be allocated, maybe in a rough way, between corporate overhead, energy services, and the e and c group?

You'll see most -- you'll see the lion's share of those cost savings result in the -- improvement in operating income at the ESG level.

Our next question comes from jeef kooerbs with Solomon Smith Barney.

Thank you for the presentation. Could you kind of go beyond the current quarter and offer any comment on the consensus estimate for the year? And maybe also related offer of comment on your saysment of the internal employee morale at this point.

Yeah. Jeff, to answer your two-part single question that you're very good at every quarter, the answer to the first question with regard to the balance of the year, I think like everybody else in the segment, we're -- our fourth quarter and whether it meets consensus will largely depend on what happens to North American gas prices between now and the end of the year. And whether our customers respond favorably to affirming of -- firming up of gas prices. If you assume that happens, then I think we're probably comfortable with where we are for the year. But again, I would say it's highly dependent, and the reason we're not giving guidance beyond the next quarter is directly related to the sun uncertainty in North American gas markets.

Jeff, let me handle the morale questions because it's a good one and it's one that probably needs to be addressed. I think that there's really two elements of work here. I think in terms of the media scrutiny and the fact that as I said earlier we have become a political story and not a business story, in fact the discussions I have with our employees and the e-mails I get from our employees is that they are fighting mad over how people are portraying Halliburton in the market place, and I think that if you survey the typical Halliburton employee, they think that what is happening is unfair and unwarranted. And basically, they are doing what they can do every day to convince customers and their friends and their families that Halliburton is a fantastic place to work and has strong ethics and strong and moral business practices. Obviously, as you get within pieces of the business, morale goes up and down based on how that picture had particular -- particular business unit is doing. I would say the morale in the Energy Services Group right now is very good. Yes, we did have some cost reductions and head count reductions, but they were almost totally primarily focused on overhead and administrative kinds of functions. We took a very strong position through this downturn that we went through in the earlier part of the year and did not have any major reductions in our operating workforce, and therefore I think we'll be able to respond to an increase in demand.

If you go to the KBR side of the business, I think that there obviously is disappointment in those individuals who worked in the offshore EPC business, but as I said earlier, the strategy to exit the lump sum piece of it is wholeheartedly endorsed by the management, and those that work inside that business. The reality is nobody's making money in that business. -- the customers have pushed off the risk on to the contractors, and we're just not going to be part of that game anymore. We're going to maintain our engineering resource. We're going to maintain the technology and the project management capability we have. That's going to be in huge demand. Always has been. But we're not going to take the lump sum risk anymore. So if you're associated with that piece of it, I'm sure you're disappointed. But I think that there's enough demand and enough use for all of the resources out there that we have to really deploy those. I would say within kbr, and the government services of the onshore business, my guess is the employee base there is very happy with the decision. So you can't have an 83,000 employee base and have everybody happy every day. That's just impossible. But I would say that the general consensus is people are upset and furious about what is happening in terms of the media coverage of halliburton. They're focused on what needs to be done every day. I think the operating results, especially in the energy group, speak for themselves. But there's no doubt it's a day to day management issue that we have to spend a lot of time and a lot of effort on. But I think we're being successful in that.

The next question is from James Stone, UBS Warburg.

Doug, could you address the issue of a pension accounting and pension expense through last year, halliburton swung from an overfund position to an underfunded position. Are you looking at changing any of your assumptions given market conditions and what impact might that have on earnings this year and next?

Yes, I don't think we're not looking to change this year -- as of today, the assumptions on the calculations of our benefits for purposes of benefits accounting. Of course, those are all very long-term rates. We reassess that not at the beginning of the year but at the end of the year. And I believe the current assumed rate now is in the 7% range, something like that.

I think let me also point out that very little of our retirement program is defined benefit related types of accounts. We are primarily a defined contribution profit-sharing and 401(k) and 401(k) match company. So I think that if you peel apart the financial statements and peel apart our pnl, the reality is that although we didn't inherit and get some of that because of the Dresser merger, we continue to -- and will in the future primarily have our retirement programs around to fine contribution programs.

The next from Terry Darling with Goldman Sachs.

Thanks. Doug or Dave, I guess, one or -- wanted to address the question in terms of your feel for the timing of the resolution of some of the negotiations going on. You spoke to that issue at the analysts meeting. Wonder if you could update us there and relatedly update us on your thought process in terms of a formal corporate split, not the reorganization but a formal split into two companies as it relates to this process.

I think, Terry, obviously I don't want to compromise our negotiating position or any ongoing discussions that we have, and I think you can understand why I'm just going to have to duck that question in terms of timing because as we indicated earlier, we do have ongoing negotiations, and it may in fact result in a global settlement. But at this point in time, I'm certainly not going to commit to a time to getting that done. I think that it's clear that as we continue to get the stays that we have made progress that is satisfactory to both the plaintiffs and to halliburton, and continuing those discussions, and they will move forward and if we can get to a resolution we will. If we can't, then I think we have the accrual on the books. And we've got the liability exposed to the marketplace, and we'll move on at that point and do what we have to do. I think that any reaction or any discussion about splitting the two companies is certainly premature at this point in time, and we really have to let the negotiations with the plaintiffs attorneys play out before we would make any moves there.

Our next request comes from Steven with Jeffries and Company.

Thank you, good morning. You talked a little bit about the nc business but I was wondering if you could give us your feeling as we go through -- into 2003 and maybe it gets pushed out a little further, but without the epic business, where you think that the e and c margins can go with the landmark graphics gas and liquid types of projects, when they start hitting the books.

Yeah, this is Doug. I don't think we would back off of what we said previously, and that is we expect this business to consistently generate four or 5% margins overall.

Our next question comes from Paul McCrae with Wellington Management.

Good morning. Again, I thought your presentation was outstanding today. A public relations question, if I could, for Dave and Doug: I thought you did a good job of addressing the political allegations against the ethics of the Company as it relates to the charges made. Should the Company be doing something in the public relations aspects to say to the public beyond just those who are on this conference call, and your position about accounting and the ethics of the company?

This is Dave. That's a great question, and certainly one that we debate, if not daily almost hourly inside the company. It's clear that we have tried to get our message and position ourselves as the company we are, which is an ethical company, one that follows the rules, and one that is very conservative. Because this is a media story, this is a political story, and not a business story, those sound bites really don't resonate out because the coverage really has a different focus on it in terms of where the thrust of the story is going. It's clear that we have got to do a better job getting our message into the broader public, and we are looking at currently a number of ways of doing that. And I think that if we don't get better coverage in the media, in terms of what we are all about, in items of a positive way for Halliburton, we will go ahead and do that.

Our next question comes from Jim Lewis with Morgan Stanley.

Hi. My question relates to the cost savings and the breakdown that you gave suggested $140 million in ongoing personnel savings. And your press release mentioned that you had reduced head count already as a result of the restructuring by 1600. Is that the ultimate target for head count? Reductions related to restructuring? I know that the corporate head count stands 2,000 sequentially, I suspect some of that is not related to the retruck sturg to I'm trying to get an idea of what the sort of per-head burden reduction in terms of cost is that you're assuming in your cost savings.

Right. Jim, couple things. One is you're right iner -- in the quarterly and annual reduction and head count, there is both head count reduced as a result of the restructure and what I would characterize as normal attrition, and normal fluctuations that go along with the project side predominantly in KBR. The vast majority of the head count reduction that is going to occur has occurred. There are places outside the U.S. That have different statutory requirements than the U.S.. But it has largely occurred. I'd reemphasize and overwhelm not going to unfortunately I'm not going to give you what our assumed cost re -- burden cost reduction per employee is, but I will refamily size -- reemphasize that this restructure was predominantly overhead related and not field staff. And so arguably, the cost savings per employee for that reason is above where it would normally be.

Okay. We'd like to take one final question.

Our final question comes from E. Siegel with Securities.

Good morning. Doug, would you be able to break out two things, one is depreciation, how it is allocated between the two groups, and what ongoing cap x is, or better yet, what you view as maintenance cap x?

Okay. Bear with me here for just a second.

Doug is looking at our -- summary right now. He'll get it to you in a second.

Okay.

Let's see. For the quarter, for the total energy services group, $113 million. And the balance is split between e and g and corporate.

Okay.

As far as cap, your question was what our maintenance cap x level is. I think our maintenance cap x level on an annualized basis is probably in the 3 to 500 million dollar range.

Great.

Depending on activity level.

Okay.

Okay?

Yeah, that's great. Thanks a lot.

Okay. I'd like to thank you for joining us today. Recording of the call will be available on our website for the next seven days.

This does conclude today's conference. We thank you for your participation. You may now disconnect.