Halliburton Corporate Sustainability Report 2004-2005

Table of Contents

Connecting: Letter from the Chairman, President and CEO3

Halliburton at a Glance5

Structuring Our Company for Sustainability9

Globally Connected, Innovative People13

Sustainable Energy Solutions19

Connecting with Communities29

Standing By Our Convictions39

Contact InformationInside Back Cover

Pictured on the cover is a diagram of a scale-free network, which maps the number of connections

between nodes on a network. Scale-free networks provide the most efficient and effective communication system

possible within a given space – all they need is a framework, some basic rules and a desire to connect ... and grow.

We are all connected. We can no longer believe

that different parts of the Earth are separate

from us, or that our actions in one part of the

world do not affect others. Everything that

we do – whether it’s creating technology that

reduces gas flaring, helping nationals

start and grow a business, or donating books and

supplies to local schools – has an impact.

With the introduction of new forms of

communications technology and the Internet,

the world is more interwoven than ever. As people,

and as global corporate citizens, we are conscious

of the role we play in shaping our common destiny.

We must understand our responsibilities not only to

our employees, our customers and our shareholders,

but also to the wider community and the lives that

we touch. And we must strive to determine a course

that honors and supports each place where we work.

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Letter to Our Stakeholders

To a large extent, the scope, as well as the

boundaries, of our approach to Corporate

Sustainability and Sustainable Development

are defined by who we are and what we do for

our customers.

Halliburton – through its two main business

units, the Energy Services Group and KBR –

currently operates in more than 100 countries

and has a workforce of more than 100,000

people. We provide a comprehensive range

of products and services to the energy

industry and to other industrial and

governmental customers.

We believe that Halliburton has a

considerable part to play in finding

solutions to some of society’s most pressing

concerns. We also believe we can make a

difference in the lives of the people who work

for us, their families and our neighbors, whose

lives we connect with in the communities

where we work. There is much that we have

done of which we can be proud.

We are one of the world’s largest service

companies in the exploration and production

of clean-burning natural gas, which is

emerging as the energy of choice in the first

decade of the 21st century.

We are also a leader in constructing plants

for liquefied natural gas, one of the largest

growth areas in the natural gas market, and in

offering effective methods for accessing the

earth’s largest stranded natural gas resources.

We are enabling the development of

unconventional energy resources, such as

heavy oil, tight gas and geothermal power,

as well as fuel and power from coalbed

methane production and coal gasification.

We continue to invest our research dollars

into developing more environmentally

friendly, higher-performance drilling fluids;

minimizing drill cuttings disposal; and

eliminating flaring.

In today’s global society, the role of a

corporation goes beyond providing returns

to shareholders, wages to employees, and

products and services to its immediate

customers. A corporation must also respond

to the concerns and values of all its neighbors

in a respectful and accepting manner

according to the needs of each country in

which it operates.

Since the publication of our 2003 report,

Halliburton has formally adopted the

principles of Sustainable Development,

outlined a strategy and appointed a director

of Sustainable Development to lead us in

implementing that strategy. But in order to

be truly effective, these principles should be

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supported by metrics that report performance

and facilitate improvement, mitigate risk,

attract and retain talent, and raise our

credibility among all stakeholders. This is

why we added metrics into this report on the

Energy Services Group’s regional revenues

and operating incomes, greenhouse gas

emissions and supplier diversity practices.

By providing an accountability mechanism,

these metrics also assist our customers in

evaluating our performance. We are committed

to further expanding our reporting initiatives

to meet these objectives.

Halliburton is a company of people who,

by their knowledge and their very nature, are

driven to find solutions. Whether it’s creating

technology to lessen our customers’ and our

Company’s environmental impacts on the

planet or designing solutions to health and

safety concerns, we have achieved our greatest

successes through a unique approach that

empowers our regional and local operations

to become incubators for global change.

This approach involves high-level

engagement by Halliburton executives who

set global objectives for health and safety, and

for the environment and service quality – and

then empower each country or region to

develop its own way to meet these objectives.

Combined with progress reviews and sharing

of best practices, this approach has resulted in

innovative, locally driven solutions that meet

the cultural, social and economic needs of

each community. Our stakeholders can and

should expect us to apply the same approach

to our Sustainable Development strategy.

Every day, advanced communications and

a borderless economy are bringing the world

closer together. Our stakeholders not only

expect transparency and accountability, but

they also demand it. At Halliburton, we

understand the power and the opportunity

of this globally connected community, and,

despite challenges that we still need to

address, we are committed to reaching

out and being part of it.

David J. Lesar

Chairman of the Board, President and Chief Executive Officer of Halliburton

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The majority of Halliburton’s consolidated revenue

is derived from the sale of services and products

to major, national and independent oil and gas

companies from the earliest phases of exploration,

development and production of oil and gas

through refining, processing and marketing, and

to other industrial and governmental customers

around the world.

Halliburton’s two main businesses, the Energy

Services Group and KBR, include six business

segments organized around how our customers do

business and where we can add value. Production

Optimization, Fluid Systems, Drilling and

Formation Evaluation, and Digital and Consulting

Solutions are the four divisions of the Energy

Services Group. Government and Infrastructure,

along with Energy and Chemicals, form KBR.

In 2004, the Energy Services Group contributed

39 percent of revenues; KBR contributed

61 percent of revenues. Halliburton derived

approximately 78 percent of its 2004 revenues from

operations outside the U.S. In 2005, the Energy

Services Group contributed 48 percent of revenues;

KBR contributed 52 percent of revenues.

$10,100

$7,998

$6,995

$10,894

$12,468

$9,276

$20,994

$20,466

$16,271

2005

2004

2003

ESG KBR Total

Revenuesin millions of U.S. dollars

2005

2004

2003

ESG KBR Total

Operating Incomein millions of U.S. dollars

$2,279

$1,266

$826

$498

($342)

($36)

$2,662

$837

$720

GeneralCorporate

($115)

($87)

($70)

ESG Revenue by Regionin millions of U.S. dollars

North America

Latin America

Europe/Africa/CIS

Middle East/Asia

20032004

$3,609

$1,082

$1,924

$1,383

$3,085

$907

$1,442

$1,561

2005

$4,819

$1,344

$2,248

$1,689

ESG Operating Income by Regionin millions of U.S. dollars

North America

Latin America

Europe/Africa/CIS

Middle East/Asia

20032004

$722

$130

$214

$200

2005

$1,376

$192

$387

$324

$306

$165

$147

$208

Halliburton at a Glance

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Wind Farm Energy

KBR is applying its offshore engineering and construction expertise on

offshore wind farms in the U.K., and has also played a leading role in their development.

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Halliburton derived approximately 73 percent of its

2005 revenues from operations outside the U.S.

Accomplishments• We resolved our asbestos and silica liability,

achieving a fair solution for those who were

impaired by asbestos exposure and positioning

ourselves for long-term economic sustainability.

• We achieved a 138 percent increase in our

share price from Jan. 1, 2004, to Dec. 31, 2005.

• The Energy Services Group operating margins

were nearly 23 percent for 2005, compared to

just under 16 percent for 2004.

• We restructured KBR to return it to profitability.

KBR closed 2005 with its fourth straight

quarter of profitability.

• We introduced the Zero-D™ application for

hydraulic fracturing, which replaces diesel-

based additives with nondiesel-based products

in order to mitigate the remote risk of

contamination of groundwater sources.

• We executed new agreements to add to the

world’s liquefied natural gas capacity by

building additional trains to existing facilities,

and by designing and building grassroots

facilities in Africa, Asia and the Middle East.

• We’re also helping to pioneer innovative

gas-to-liquids (GTL) technology, which converts

natural gas to ultra-clean GTL diesel. In 2005,

KBR was awarded two major GTL projects,

including the world’s largest GTL facility.

Challenges• We cannot state strongly enough that any loss

of life is a tragedy not only for the families

involved but also for all of us at Halliburton.

In 2004, 50 Halliburton employees and

contractors lost their lives. Forty-one of these

fatalities were related to our work in Iraq.

In 2005, 18 Halliburton employees and

contractors lost their lives. All of these

fatalities were related to our work in Iraq.

We are committed to zero incidents and will

not be satisfied until that objective is achieved.

(see Standing By Our Convictions, Page 39)

• We realize the need to increase metrics to

measure our environmental performance and

assess our overall progress with regard to our

commitment to Sustainable Development

principles.

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At Halliburton, we believe that there is no value

more important than integrity. Our ethical and

legal obligations must never be sacrificed in the

name of profits. This belief is reflected in our

Code of Business Conduct – the ethical and legal

foundation of our Company, and the starting

point for every aspect of our business. It influences

the way in which we help our customers to

develop their resources, how we interact with the

communities where we live and work, and how we

behave toward our people and everyone with

whom we come into contact.

GovernanceGood governance is the hallmark of a well-run

company. Halliburton’s board of directors adheres

to a fair and honorable model of governance to

guide its role as the guardian of shareholder

interest. In addition to specifying the rights and

responsibilities of the board, and the board

committees, this general model of governance also

provides the structure through which Company

objectives are set – as well as the means

of attaining those objectives, monitoring

performance and promoting fairness, transparency

and accountability.

Our corporate governance guidelines, originally

put in place in 1997, are reviewed annually to

reflect today’s dynamic and evolving business

environment, to enhance the board’s effectiveness

and to ensure compliance with new regulatory

requirements enacted by the U.S. Securities and

Exchange Commission, the Internal Revenue

Service and others. Recent changes were made to

further clarify policies regarding the board’s lead

director, its independence and communications

with stockholders. Halliburton continually

monitors governance best practices models for

public companies, including those identified by

leading indicators of corporate governance

performance. We revise our guidelines as needed

in order to maintain the highest standards.

The board’s most recent corporate governance

guidelines can be found on the Corporate

Governance page of our Web site

at www.halliburton.com.

Code of Business ConductAll Halliburton directors, executive leadership,

employees and agents are required to abide by

the Code of Business Conduct (COBC)

(www.halliburton.com), a collection of 17 precepts

that serve as a code of ethics for how we do

business, and define the standards that we uphold

in our dealings with the public, the business

community, governments, regulatory authorities

and each other. At every office, field location or job

site, we actively promote our principles of ethical

behavior and enforce our code of conduct to

guide employees in the operating methods and

procedures of their day-to-day activities. COBC

training is available to all employees through

Structuring Our Company for Sustainability

“A corporation must also respond to the concerns and values of all its neighbors in a

respectful and accepting manner according to the needs of each country in which it operates.”

– Dave Lesar, chairman, president and CEO

classroom, CD ROM and online sessions. In 2004,

we recorded 28,000 COBC training course

completions by Company employees and

approximately 29,000 in 2005. We have also

updated our COBC Summary communications,

making it available in 16 languages. In December

2004, we became a charter member of the

Compliance and Ethics Leadership Council of

the Corporate Executive Board. As a Company

providing services to the energy industry and

other industrial and governmental customers,

Halliburton operations can be found in most

places where our customers operate. This

includes countries and regions where there are

geopolitical tensions and environmental and

cultural sensitivities. We respect the laws of the

U.S. government and operate only in countries

where it is legal to do so. Wherever we operate,

our activities are governed and supported by our

Code of Business Conduct and by our

commitment to Health, Safety and Environment,

Service Quality and Sustainable Development

policies. Should a customer request us to perform

activities that are contrary to our values or ethics,

employees are empowered to seek a resolution and,

if necessary, cease work. Employees are required

to report COBC violations to management.

Reports can be made directly or anonymously

through a Company mailbox or through the

Company’s Ethics Helpline, which is available

24 hours a day, 7 days a week, and operated by an

independent company.

We take compliance with our code very seriously,

and, when we find COBC violations, we take

disciplinary action up to and including

termination of employees and suppliers, along with

referral of matters to appropriate authorities for

prosecution. Halliburton expects its Code of

Business Conduct to be followed in all of our

business activities and in every country in which

we operate.

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Globally Connected,Innovative People

Halliburton people are acknowledged by our

customers for their hard work and dedication, and

their drive to find innovative solutions to whatever

problem is at hand – from creating safe, efficient

technology that helps customers develop their

resources and deliver energy to the world, to

working with leaders in remote villages to provide

the economic and social solutions their citizens

truly need. To attract such people, we must offer

rewarding careers, opportunities for professional

and personal development, equality of opportunity,

flexible compensation and working situations, fair

treatment and the expectation that employees will

be treated with dignity and respect.

Developing InnovativePeopleIn a highly competitive global market, having a

skilled and innovative workforce is more important

than ever. Halliburton offers more than 3,750 active

training courses both online and in classroom

settings to assist employees in their professional

and personal development.

We also continue to expand our Knowledge

Management (KM) initiative aimed at improving

service quality and encouraging innovation. Central

to this initiative are KM communities of practice

formed to address a specific business problem or

opportunity. More than 8,000 participants in 80

countries frequent these communities to connect

with each other about issues that pertain to their

jobs. Communities of practice are also being used

to help drive innovation in our coalbed methane

and water conformance businesses.

An internal survey conducted in November 2004

found that people participate because of the speed

with which they get replies, the quality of the

responses and the varied points of view. This

collaboration enriches client solutions and also

helps to foster greater innovation.

Halliburton monitors each community against

predefined business metrics to ensure that it

continues to provide value and evolves to meet

new business conditions and strategic priorities.

From 2002 to 2004, Halliburton recorded more

than $65 million in business value from 19

communities of practice with a three-fold return

on investment.

Patents and AwardsOne way of gauging our success in encouraging

innovation is our intellectual property. In 2003,

Halliburton was awarded 186 patents, ranking

No. 99 among U.S. companies. In 2004, we had

208 patents and ranked No. 87. Preliminary

figures from the U.S. Patent and Trademark

Office database for 2005 show 195 patents issued

for Halliburton.

Halliburton also receives numerous national and

international awards for technical innovation from

leading professional associations and publications.

“Halliburton is a company of people who, by their knowledge

and their very nature, are driven to find solutions.”

– Dave Lesar, chairman, president and CEO

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Recent awards include:

• 2004 European Institute (EI) Award for

Innovation. Halliburton was the first service

company to win an EI award.

• 2004 Woelfel Best Mechanical Engineering

Achievement Award from the American

Society of Mechanical Engineers (ASME).

• Six Hart’s E&P Meritorious Awards for

Engineering Excellence in 2004 (the most

Hart’s awards won by a service company).

In 2005, Halliburton won another four

Hart’s awards.

• Two Spotlight on New Technology Awards

in 2004 from the Offshore Technology

Conference, recognizing the most innovative

and significant offshore developments during

the year. Halliburton won another Spotlight

Award in 2005.

• 2004 and 2005 World Oil Best Data

Visualization Solution Awards.

Empowering PeopleHalliburton believes that Health, Safety and

Environment (HSE) and Service Quality (SQ)

excellence is critical to our success and long-term

sustainability. The annual Performance Improvement

Initiative (PII) process, launched in 1997 by the

Energy Services Group, is aimed at continuously

improving our performance in these areas. PII is

not about compliance but solutions, and is an

example of a behavioral-based performance system.

We are keenly aware that no single solution can meet

the needs of a global company whose operations

encompass many different languages, customs, world

views, religions, education and economic status.

With PII, the executive team, along with HSE and

SQ professionals, outline broad strategic objectives

every year and provide tools and guidance to assist

the local teams in meeting these objectives. Each

geographic area or country, with input from its

employees and support from local Energy Services

Group leadership, develops a plan for meeting yearly

targets within the context of its customs, culture

and values. The success of PII in reducing

workplace injuries has been well documented, and

we believe that the PII process helped develop a

learning culture and contributed to these safety

improvements. As shown in the chart above, since

the program began, the Energy Services Group has

seen a reduction in injury rates of 80 percent.

Historically, injury rates were tied to industry

activity as indicated by rig count. Through PII, this

trend has been broken.

In June 2005, the Cambridge Center for Behavioral

Studies (CCBS) Commission on Behavioral

Applications accredited the Halliburton Gulf of

Mexico Operations’ behavior-based safety program.

The accreditation was recommended for a period

of three years.

In their report, the reviewers noted that: “Injury

incident rates are … well below industry comparisons

provided by the Bureau of Labor Statistics.” The

CCBS is the only group providing accreditation for

a behavioral safety process.

Cultivating LeadersDeveloping highly skilled and qualified future

leaders is vital to a company’s sustainability and the

goal of our succession planning and professional

Safety Performance and Rig CountWorld Rig Count ESG Recordable Injury Rate

4,000

3,000

2,000

1,000

0

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6

4

2

0

‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ’05Rig count source: Baker Hughes

development programs. Each year, Halliburton

selects high-potential senior managers, directors

and first-time executives to participate in the

President’s Leadership Excellence Program, a

year-long leadership development event.

Participants from the Energy Services Group and

KBR are chosen annually for the program,

including employees from finance, legal, sales,

technology and operations groups who, as a whole,

represent the diversity of thought, geography,

operations and functions we find at Halliburton.

The President’s Leadership Excellence Program also

serves as an incubator for new ideas and innovative

processes. Participants work in teams to research

and provide recommendations to our Company’s

critical business issues. Past team projects include:

post-9/11 security of Company resources,

management in a cyclical business, Service Quality,

Sustainable Development, globalization of our

workforce and our annual employee goal-setting

process called People, Performance, Results (PPR).

The Supply Chain Management Program (SCMP).

As a two-and-a-half-year program created by the

Energy Services Group, the SCMP helps recent

college graduates with bachelor of science and

master of science degrees in engineering, as well as

MBAs with technical undergraduate degrees, develop

a broad understanding of the business functions

essential to sourcing, manufacturing and

delivering equipment and products. Started as a

manufacturing management program 11 years ago,

the SCMP has grown in recent years to encompass

a broader supply chain focus. The program has

been a source of managerial talent. Halliburton has

a retention rate of 79 percent of the individuals

who have graduated from the program. Of that

group, 20 now hold positions in management,

ranging from frontline supervisory positions to

director-level positions.

Recruiting for the SCMP occurs on leading U.S.

university campuses. Recently, the program has

begun targeting international students who plan

to return to their home countries to pursue their

professions. These countries include both lower-

cost markets where the Energy Services Group

supply chain will increasingly source products and

components in order to remain competitive in a

global marketplace, as well as countries whose oil

and gas reserves dictate that we will do business

there well into the future.

Building a GlobalWorkforceAs a global company, Halliburton is committed to

developing a workforce that represents the most

qualified personnel from around the world. At the

end of 2004, Halliburton began developing the

Transnational Employee Group (TEG) to recruit

and develop a core group of employees for

international assignments. The goal is for TEG

members to be highly skilled, respected in their

professions and in the industry, and to have the

ability to transfer their knowledge and technical

expertise to our other employees. Recruited

globally and deployed to Halliburton operations

around the world, TEG members will help to

expand our cultural diversity, thus enriching our

Company with the vitality and insights of many

points of view.

In 2005, we defined 18 “pilot” countries and began

mapping employee diversity and skill needs across

multiple managerial levels. A decision was made to

begin the gap analysis and skills assessment phase

in Africa in the first quarter of 2006. At the same

time, Halliburton began to develop partnership

opportunities with local universities in each of the

initial countries to provide employees with

opportunities for additional training. The first

partnerships were unveiled in Villahermosa, Mexico

(2005); Kuala Lumpur, Malaysia (2005); and Cairo,

Egypt (2006).

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CO2 Sequestration

In Algeria, the vast In Salah gas facilities development is located in the midst of a key area for

oil and gas operations in the 21st century. Halliburton has drawn upon its extensive experience in designing CO2

compression systems for fertilizer plants to help design and build the world’s largest system to sequester

and dispose of the CO2 gas being produced. Approximately 1 million tons of CO2 greenhouse gas from the

production will be separated and re-injected into deep wells every year throughout the two decades

of plant operations – about as much CO2 annually as 200,000 vehicles emit.

Supporting Our PeopleIn order to maintain a highly functioning

workforce, we must address the day-to-day stresses

that can affect an employee’s ability to work safely

and productively. Halliburton offers two programs

that deal specifically with employee issues: the

Employee Assistance Program and the Dispute

Resolution Program.

Employee Assistance Program. Halliburton’s

Employee Assistance Program (EAP) organization

is staffed internally in the U.S. by a range of licensed

mental health professionals, including licensed

clinical social workers, licensed professional

counselors, licensed chemical dependency counselors

and certified Employee Assistance professionals.

Provided free of charge to all employees, Halliburton’s

EAP offers 24-hour crisis interventions; individual

consultations on a wide variety of problems, such

as marital troubles, substance abuse, child rearing,

elder care and mental health issues; and stress

management for critical events – thus covering a

whole range of issues that employees and supervisors

may confront in the performance of their duties.

In 2004, the United Kingdom joined Australia

and Western Canada in selecting outside,

independent organizations to administer the

EAP program. Employees located elsewhere contact

the U.S. EAP helpline for initial assistance and

resource identification.

When Hurricanes Katrina and Rita hit the U.S.

Gulf Coast region in 2005, Halliburton established

an around-the-clock call center staffed by our EAP

and Human Resources professionals to provide

assistance to the Company’s employees living in

high-impact areas in Louisiana, Mississippi and

Alabama. The Company also provided on-site

disaster response assistance. With the help of

Halliburton’s Crisis Management System, which

provides a framework for responding to

emergencies and crisis events, we made sure that

our employees were safe and that their basic needs

for food, shelter and clothing were being met. Once

this was done, we set up transitional housing and

financial grants to assist them. In all, 485 hurricane-

impacted families were served by the EAP in the

second half of 2005.

Dispute Resolution Program. Halliburton’s Dispute

Resolution Program (DRP) gives all employees an

improved process and flexible options for airing

and settling workplace conflicts – from minor

everyday misunderstandings to possible violations

of legally protected rights.

The goal of the DRP is to focus on the actual

grievance and to resolve it to the mutual benefit of

all sides – either through internal conferences or

through external means such as mediation or

arbitration. Mediation often results in win-win

outcomes by saving time and money and by

preserving employment relationships – all of which

enhances organizational performance. Should any

employee feel he or she has any legal case against

Halliburton, the Company will pay for the

employee to consult with a legal representative of

the employee’s choosing. This ensures that all

employees, irrespective of individual means, have

access to legal representation.

The DRP, which operates under the strict Code

of Ethics and Standards of Practice of The

Ombudsman Association, has achieved national

acclaim and is now the most widely recognized,

most written about and copied alternative dispute

resolution program in the U.S. In 2005, the U.S.

Equal Employment Opportunity Commission

(EEOC) and Halliburton jointly entered into a

National Universal Agreement to Mediate (NUAM)

to resolve workplace disputes informally through

Alternative Dispute Resolution (ADR) procedures

before an EEOC investigation or potential litigation.

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Halliburton’s Code of Business Conduct’s Health,

Safety and Environmental policy states that “… the

goal will be to develop and provide products and

services that have no undue environmental impact,

are safe in their intended use, efficient in their

consumption of energy and natural resources, and

can be recycled, reused or disposed of safely …”

We are committed to being a partner in the pursuit

of sustainable energy solutions through the provision

of services and technologies for maximizing the

recovery of oil and gas in existing reservoirs, and for

developing clean and renewable energy sources for

the future. In 2004, Halliburton spent approximately

$228 million on technology research and

development (R&D) across all four Energy Services

Group divisions. The KBR Energy and Chemicals

Division spent just under $6 million on

technology research and development. Total

technology spend for all four Energy Services

Group divisions in 2005 was $218 million. The

KBR Energy and Chemicals Division spent just

over $2 million.

Maximizing ConventionalEnergy ResourcesToday, oil and natural gas represent two-thirds

of the world’s energy consumed to generate power

and fuel our cars. They also provide the raw materials

for chemicals, plastics, pharmaceuticals and almost

any synthetic item that contributes to our quality

of life. Halliburton’s advanced technology and

processes are enabling the energy and chemical

industries to keep pace with growing demand for

oil and natural gas.

New technologies; new ways of thinking. The high-

performance visualization and volume interpretation

technologies marketed under our Landmark and

GeoGraphix brands, together with our “real time”

drilling technologies and services, are enabling

operators to dramatically improve operating

efficiencies by reducing the time required to evaluate

prospects and to plan and drill wells. The use of

these technologies and our innovative workflows

in our Real Time Operating Centers is resulting

in considerable operational cost savings due to

shortened planning cycle times and decreased time

to production. These benefits are well-documented

in multiple industry papers.

Drilling and recovery techniques such as

multilateral wells and Geo-Pilot® – our slim-hole,

point-the-bit rotary steerable solution capable of

significantly extending horizontal production

sections and reaching small targets from existing

structures – are enabling customers to drill fewer

wells, often from single-well sites, and to maximize

the resources recovered from each reservoir.

The WellDynamics group, with its SmartWell®

technology, is a pioneer in intelligent completions.

WellDynamics – a joint venture with Shell, in which

Halliburton owns a 51 percent share – is an

example of innovative efforts to bring technology to

the industry. SmartWell intelligent completions,

which provide remote, downhole monitoring and

Sustainable Energy Solutions“We believe that Halliburton has a considerable part to play in

finding solutions to some of society’s most pressing concerns.”

– Dave Lesar, chairman, president and CEO

control capabilities, are acknowledged within the

industry as a key enabling technology in the

pursuit of best-practice reservoir management.

The technology enables the remote control of

multi-zonal production for more efficient asset

management, which can delay the production of

water, thus increasing the net present value of the

asset. It also reduces well intervention costs and

extends the life of existing infrastructure.

Solid expandable tubular (SET™) technology –

developed by Enventure, another Halliburton/Shell

joint venture company, is a technology whose most

significant legacy to sustainable development is the

monodiameter well. A radical departure from

conventional wells, monodiameter wells utilize a

single size of casing for the entire length of the

well, enabling operators to drill substantially deeper

than ever before, faster and more cost-effectively.

The slim profile – which utilizes smaller vessels,

lighter rigs and smaller risers – requires less rock to

be excavated and less use of steel, cement and other

materials. However, the biggest benefactor may be

the environment – from the reduced environmental

footprint to the decrease in energy expended to

produce each barrel equivalent of fluid.

Natural gas production. Halliburton is also

contributing to energy sustainability through the

development of clean energy technology that

builds on our traditional strengths in natural gas

production and development. Worldwide, increasing

natural gas demand is coming up against declining

productivity in mature reservoirs and barriers to

the development of new gas infrastructure.

Halliburton is helping its customers find solutions

to maximize gas production and recovery to feed

the increasing global demand for this clean-

burning fuel. Trillions of cubic feet of natural gas

around the world are “stranded” in remote areas

isolated from traditional gas infrastructure and are

consequently considered too remote for economic

development via traditional means such as

pipelines. Liquefied natural gas (LNG), which is

natural gas that has been cooled and condensed to

a liquid about one six-hundredth the volume of

gaseous natural gas so that it’s easier to transport,

is an effective method for commercializing these

resources. LNG can be transported safely and

economically on specially designed tankers to

import terminals in major world markets where it

is converted back into gas. For this reason, LNG is

one of the biggest growth areas in the natural gas

20

market. Halliburton’s KBR subsidiary is a world

leader in constructing plants for LNG and, alone

or in joint venture, is responsible for building more

than 55 percent of the world’s operating LNG

capacity in the last 25 years. KBR is also at the

forefront of designing “mega-trains” that

increase efficiency and lower construction and

operating costs.

We are at the forefront of constructing the

facilities for the emerging gas-to-liquids (GTL)

market. GTL involves the conversion of natural gas

directly into premium, environmentally friendly

transportation liquids. KBR is currently providing

design and engineering services for GTL facilities,

including a development in Qatar.

Additionally, Halliburton offers technology solutions

for low-energy, low-cost hydrogen plants and has

been involved in the design and/or construction of

34 refinery hydrogen plants.

DevelopingUnconventional ResourcesAs conventional oil and gas reserves are being

depleted, Halliburton is helping customers pursue

options for unconventional fuels sourced from oil

sands, shales and coal beds, either from in-situ

production of methane or gasification of mined

coal – and is also involved in the production of

geothermal power.

In addition to our in-house R&D, Halliburton

works with a variety of other companies and

organizations on the technical and economic issues

surrounding heavy oil, tight gas and coalbed

methane. One such effort is the Halliburton Center

for Unconventional Resources of the Crisman

Institute for Reservoir Management at Texas A&M

University. The center’s mission is to increase the

ability to characterize unconventional reserves and

to develop new, more efficient ways to reduce costs

and improve recovery. Halliburton also helped

create the Gas Technology Institute (GTI) at the

New Mexico Institute of Mining and Technology,

which is working on an unconventional gas

“roadmap” to identify unconventional gas

R&D needs.

Recently, Halliburton’s Magnetic Resonance

Imaging Logging-While-Drilling (MRIL®-WD™)

system helped BP estimate the viscosity of heavy oil

in its reservoirs at the North Slope in Alaska.

21

Because viscosity can vary by orders of magnitude

in individual reservoirs, techniques such as this are

needed in order to rank the reservoirs and map the

“sweet spots” that contain lower-viscosity oil. This

will enable the optimization of well spacing and

potentially reduce the number of wells needed to

produce the asset.

The International Energy Agency (IEA) estimates

that heavy oil will represent 10 percent of the

world’s daily oil production by 2030. Refineries and

upgraders worldwide are using our cost-efficient,

market-leading ROSE™ deasphalting technology to

process heavy crude oils into high-value transportation

fuels. A byproduct of the process is asphaltene,

which one operator in Europe is converting to

syngas for power generation. ROSE™ technology

is also being used to refine tar sands found in

Alberta, Canada, which represent as many as 300

billion recoverable barrels of petroleum, along with

another potential trillion-plus barrels that could

one day be reached using new retrieval methods.

Alberta plans to increase heavy oil production from

tar sands from the current 1 million to 3 million

barrels a day by 2015.

Clean CoalThe use of coal as an energy resource is now

considered less desirable because burning coal

produces more carbon dioxide per unit of energy

than oil or gas. Coal also produces emissions, such

as sulfur oxide (SO2), nitrogen oxide (NOx) and

mercury, which can pollute the air and water.

Yet, some 60 percent of the world’s fossil energy

reserves are in coal, which is located in areas

where the energy demand is greatest – including

North America, Europe, Russia and Asia.

Halliburton technologies are helping to tap this

valuable resource while eliminating some of its

harmful effects.

Methane recovery from coal. One of the ways we

are doing this is through the development of

technologies for enhancing and enabling coal mine

methane (CMM) and coalbed methane (CBM)

development around the world. Coalbed methane

is methane contained in coal seams, and is often

referred to as virgin coalbed methane, or coal

seam gas. Coal mine methane involves methane

extraction via hydraulic fracturing technology in

advance of coal mining operations. During this

process, methane – a greenhouse gas with 21 times

the potency of carbon dioxide – is captured and

used as a resource rather than being emitted to the

atmosphere as a waste product. When converted

into energy, methane is one of the cleanest-burning

fossil fuels available in its natural form.

The U.S. has made substantial progress in recovering

and using CMM. Of the 142 billion cubic feet (Bcf)

of CMM liberated from underground mines in one

year alone, about 42 Bcf is used as an alternative

energy source, most of which incorporates some

22

form of production enhancement technologies.

U.S. coal mines recently recovered 86 percent,

or 36 Bcf, of the gas liberated through drainage

systems – the equivalent of removing 3.2 million

cars from the road.

Halliburton continues to strategically focus on

technology to help unlock the vast potential of CBM

and CMM that represents up to 10,000 trillion cubic

feet of natural gas potential. We are also working to

advance industry knowledge of coalbed methane

development. Halliburton’s CBM experts have

shared their knowledge with our employees around

the world via an in-depth Intranet information

resource. This site enables our employees to

interface with operators and better optimize

development of CBM assets.

Coal gasification. Halliburton is also at the center

of initiatives to develop clean coal technologies for

power generation. KBR has been selected by the

U.S. Department of Energy (DOE) under the Clean

Coal Power Initiative (CCPI) to build an advanced

285-megawatt coal gasification facility in central

Florida. The project, which uses our transport

gasifier technology, is a commercial demonstration

of advanced coal-based gasification technology.

The KBR transport gasifier, derived from our fluid

catalytic cracking technology, is a simple and robust

design that operates at a much lower temperature

than commercially available alternatives. It effectively

handles low-rank coals, including sub-bituminous

coal and lignites that make up half the proven

worldwide coal reserves. These coals might otherwise

remain uneconomical as energy sources due to

high moisture and ash contents. Direct combustion

of low-grade coals in traditional coal-fired plants

burns up much of the carbonaceous energy to

eliminate the moisture. In the KBR process, the

moisture actually constitutes a useful reactant.

High ash content also doesn’t pose a problem for

the KBR process – it’s the only gasifier in which ash

is recovered in solid form rather than as a molten

slag. Using data derived by the Electric Power

Research Institute (an independent, nonprofit

center for public interest energy and environmental

research), it has been estimated that the KBR

process is expected to deliver power commercially

from sub-bituminous coal at a cost of 3.6¢ per

kilowatt hours (kWh) compared to 3.8¢/kWh from

the most advanced coal-fired plants, and with

superior emissions characteristics.

Capable of both air- and oxygen-blown operation,

the KBR gasifier is not only cost-effective for power

production, but it can also adapt to other applications,

such as the chemical production of fertilizers and

methanol, as well as clean-burning hydrogen for

tomorrow’s automobiles and power-generating fuel

cells. In the shorter term, di-methyl-ether (DME),

derived from syngas (synthetic gas, which is a

23

24

Mid-Continent Region

Pampa, Texas, is part of Halliburton’s Mid-Continent Region, which was the winner of

Halliburton’s 2004 PII Environmental Award. The region won the award by meeting its targets

for environmental performance improvement, sustainable development and

International Organization for Standardization (ISO) education. Evaporation ponds constructed in

off-channel areas, such as the one shown above, provide storage for produced water

and a relatively low-cost disposal method.

mixture of carbon monoxide and hydrogen), offers

the potential of a high-efficiency, cleaner, partial

replacement for diesel in conventional engines.

Renewable resources. Renewable energy sources

are defined as energy that comes from ongoing

natural processes such as sun, wind, flowing water,

biological processes and geothermal heat flow.

Halliburton’s high-temperature cementing and

completion solutions are being used to drill into

geothermal aquifers and to bring steam or hot

water to the surface for power generation.

Geothermal power plants have minimal or no

impact on the environment, while production of

individual fields can be sustained for decades and

even centuries.

During the last four years, KBR has applied its

extensive experience in designing, building and

maintaining offshore oil platforms to take a leading

role in the development of offshore wind power in

the U.K. KBR is presently part of a joint venture

with a turbine manufacturer to construct a wind

farm off the northwest coast of England. This wind

farm will have an installed capacity sufficient to

provide power to approximately 70,000 homes.

Addressing EnvironmentalChallengesWe cannot rely on conservation alone to solve

environmental challenges. Technology must play a

leading role. In our capacity as a provider of services

and technologies, Halliburton is actively developing

solutions for our clients that contribute to a cleaner

environment. Our efforts reduce the impact of

energy exploration and production activities by

reducing the visible footprint of our activities, and

by reducing emissions that may be contributing to

climate change or potential surface water and

groundwater pollution.

Drilling technologies. Eighty percent of future gas

in the Lower 48 states lies beneath protected lands.

Halliburton’s Geo-Pilot point-the-bit rotary

steerable drilling system, and the Landmark

DecisionSpace® suite of technologies are ideally

suited for such environmentally sensitive areas.

The Geo-Pilot system reduces environmental

impact by enabling operators to drill multiple

long-distance wells in all directions from a single drill

pad, and Landmark’s DecisionSpace visualization

technologies illuminate the drilling environment

so accurately that drilling work can often now be

performed more safely and efficiently away from

the drill site.

Gas flaring. One source of gas flaring occurs during

drillstem testing, which is used to evaluate the

potential of a new reservoir. After the borehole has

penetrated a potential productive zone, the drill bit

is removed and drillstem test tools are attached to

the drillstring and inserted back into the borehole.

25

26

Gas produced during a drillstem test is flared.

Halliburton’s alternative for drillstem testing, the

FasTestTM system, captures reservoir information

downhole, which eliminates the need to produce

hydrocarbons to the surface and any resulting

oil or gas flaring during testing operations.

The FasTest system has been tested and proven

in the Gulf of Mexico and offshore Brazil.

CO2 sequestration. One of the most challenging

aspects of the oil and gas industry is the amount

of CO2 produced, not only in downstream refining

but also during a variety of processes used to

deliver cleaner gas. Halliburton is helping to

mitigate CO2 emissions, either by injecting CO2

to enhance oil and gas recovery, or by storing CO2

in suitable underground formations.

Halliburton is currently working with the U.S.

Department of Energy and other industry partners

on CO2 sequestration technologies through the

FutureGen project. One of the findings of the

FutureGen project is that CO2 is much more

economically sequestered downstream of a

coal gasifier than from a direct-fired plant.

Halliburton is also involved in what is currently

the world’s largest CO2 capture and storage project

now under way at the In Salah gas development

project in Algeria. Rather than venting the associated

CO2 gas into the atmosphere, the project – a joint

venture between Sonatrach (Algeria’s national

energy company), BP and Statoil – is using a

method known as geologic storage to capture and

isolate excess carbon dioxide and inject it into a

brine formation a mile below the surface.

Managing produced water. Water produced during

hydrocarbon exploration and production is one of

the largest environmental challenges faced by the

petroleum industry. The average volume of produced

water in 1999 was estimated at 210 million barrels

of water each day worldwide, or approximately 77

billion barrels of produced water for the entire

year. As assets mature, the ratio of produced water

per barrel of oil produced increases.

Produced water may include dissolved salts and

organic compounds, hydrocarbons, trace metals,

suspended solids and other substances that can

have significant environmental effects. Treatment

and disposal of produced water within increasingly

strict regulatory standards represent a huge

technical and financial challenge for the industry.

We are addressing these problems through a variety

of solutions, both chemical and mechanical, for

water cleanup and re-injection, and for reducing

the amount of water produced. Halliburton set up

a water management advisory board in 2003.

Representatives from major and independent

operating companies meet two to three times a

year to share information related to the field of

water management and to identify potential

solutions to the ever-growing problem of produced

water. Through the direction of the board,

Halliburton is building an information resource

portal containing best-practice methods, research

on water management activities and design

mechanisms for identifying solutions.

Halliburton has led efforts recently to optimize the

environmental profile of its drilling fluid products

used to enhance production in unconventional gas

in the U.S. Our Zero-D™ application replaces

diesel-based additives previously used for hydraulic

fracturing operations with nondiesel-based

products in order to mitigate the remote risk of

contamination of groundwater sources.

Over the last two years, the Company has pioneered

a number of chemical products to meet or exceed

U.S. and European water quality standards. In

addition to developing products for meeting or

exceeding surface discharge requirements where

applicable, we’re replacing chemical additives and

developing chemical products with significantly

reduced environmental impacts.

27

28

29

Connecting with Communities“In today’s global society, the role of a corporation goes beyond providing returns

to shareholders, wages to employees, and products and services to its immediate customers.”

– Dave Lesar, chairman, president and CEO

The origin of the word community is the Latin word

munus, which means “the gift,” and cum, which

means “together, among each other.” Community

literally means, then, to give among each other.

Contributing to the communities in which we

operate, which is one of the fundamental concepts

of our Corporate Sustainability strategy, can take

many forms. At its most basic, it can be expressed

as “first do no harm.” For Halliburton, this means

upholding the highest standards with regard to

such key areas as workplace safety and

environmental protection.

In a broader sense, it can take the form of hiring

and training local workers and supporting local

businesses – either by using as many local goods and

services as possible, or by “seeding” new business

ventures and providing the management expertise

and guidance to ensure success. On some projects,

community involvement has included building

infrastructure for schools, roads and medical clinics.

Giving back to communities is clearly the right

thing to do. But there’s also a business case for

acting responsibly. If a community sees a company

as a fair employer and positive citizen, it’s more

likely that its projects will achieve consistent and

sustainable performance, and that the company

will be welcomed back by the community for

future engagements.

Woven into the Fabric of a CommunityThe ways Halliburton connects with communities

depends on the community, and on the nature of

our business there. For project-based assignments,

our involvement in a community often lasts only

for the duration of the project. When Halliburton

establishes operations in a country, we’re usually

there for the long term, as is the case with

Halliburton de Mexico, established in 1956 as a

Mexican company. Today, more than 89 percent

of our 1,810 employees, including management,

are Mexican, and some are third-generation

Halliburton employees. The community considers

us as one of its own, and we honor that trust. The

Halliburton office in Ciudad del Carmen has

received clean industry certifications from the

government agency PROFEPA/SEMARNAT and

our driver safety training programs have become

community mainstays. Our employees also

contribute to a variety of programs, sponsor local

schools, volunteer for charitable organizations and

reach out to neighbors with the greatest needs.

Through a program Halliburton designed with the

United Way in Mexico, the Company has provided

funding for 85 institutions throughout the country

since 2002. The United Way manages and distributes

the funds based on recommendations from a

Community Team at each Halliburton location,

which researches the organizations and follows up

on how the money is spent. The program is run

the same as other Performance Improvement

Initiative processes with a yearly plan and

internal performance reviews. During 2004-2005,

approximately 11,800 people directly benefited

from the program.

Clearly, Halliburton de Mexico is woven into the

community. But everywhere we go, and for however

long, we are guided by the same principle: to leave

every place as good as, or better than, we found it.

Local ContentHiring and training a country’s local workforce

and developing its local suppliers contribute to the

country’s sustainable economic growth. It’s also

essential for the long-term sustainability of

Halliburton in today’s global marketplace. By

transferring valuable skills to local workers and

businesses, we help create greater economic

opportunities for the entire community.

In Chad, where we have been the contractor for

the massive Chad-Cameroon oil development

project since 2000, we have implemented a

complex social economic program. With project

owners, KBR and its partners developed on-the-job

training programs that transformed inexperienced

Chadian employees into skilled, certified craftsmen

who helped the project set a truly impressive safety

record – more than 40 million work hours without

a lost-time incident.

When we started working here, Chad didn’t have

many subcontractors, but it did have people with

initiative. KBR registered more than 1,328 Chadian-

owned businesses to provide services and supplies,

and then helped them develop their businesses.

Currently, as the sole contractor on the Nya/Moundouli

satellite reservoir development, we are employing

many of the Chadian workers we previously

trained and certified, as well as a number of these

local subcontractors. All of our rented equipment,

sand and aggregates also come from local sources.

Community DevelopmentThe Chad project has also helped to improve the

quality of life for people in the project areas

through better housing, improved diets, malaria

prevention, vaccinations and health education.

In 2004, after months of field research and some

4,000 interviews in the villages of southern Chad,

a research team, employed by the World Bank’s

environmental and socioeconomic monitoring

group, concluded that the Chad-Cameroon project

30

has significantly improved living conditions for

residents in the oilfield and pipeline areas.

The finding was based on a village-by-village

socioeconomic index score similar to the United

Nations Human Development Index. Project-area

villages scored in a range that was about twice as high

on the socioeconomic index as the study’s control

villages, which are located outside the project area.

Supplier DevelopmentWe are committed to supplier diversity and to

being recognized as a global leader in supplier

development among oilfield service companies.

In support of this vision, we seek to maximize

opportunities for diverse business owners wherever

we operate in the world.

We accept third-party certifications for minority-

and women-owned businesses, along with small

business enterprises (M/W/SBEs) according to strict

standards established by recognized government and

nonprofit organizations within the U.S., Canada

and the U.K. These certifying agencies provide

Halliburton with assurances that our supplier

diversity initiative benefits those small, diverse

businesses for which it is intended.

In 2005, we redefined our supplier diversity initiative

by expanding our focus to global markets and

implementing process improvements to enhance

our reporting systems. These changes provide

increased visibility of our procurement processes,

diverse suppliers and expenditures.

31

2005 M/W/SBE Expenditure for ESG M/W/SBE ESG Spend $ M/W/SBE % of Total ESG Spend

$900 M

$800 M

$700 M

$600 M

$500 M

$400 M

$300 M

$200 M

$100 M

0

18%

17%

16%

15%

14%

13%

2003 20052004

32

The preceding chart captures Energy Services Group

global spend with minority- and women-owned

businesses, along with small business enterprises

for the U.S. and U.K. from 2003 through 2005 as a

percentage of overall procurement expenditures,

showing a steady increase in expenditures with

diverse suppliers.

Among our most notable accomplishments this

past year, Halliburton was recognized as a Trailblazer

by Minority Business News, which named the

Company as one of the top 50 corporations in Texas

for supplier diversity. We were also privileged to be

nominated by the National Minority Supplier

Development Council (NMSDC) for its prestigious

Corporation of the Year Award. Comprised of

more than 3,500 major corporations, NMSDC is

one of the leading business membership

organizations in the U.S.

In 2006, we plan to deploy strategic sourcing and

procurement programs to support our supplier

development initiative throughout the Energy

Services Group, and to increase the exposure of

diverse suppliers to key buyers and decision

makers. In addition, we will begin second-tier

diversity training for our key strategic suppliers,

ensuring that supplier rationalization efforts have a

minimal impact on our supplier diversity strategy.

One of our challenges is to expand the program to

address the need for local content no matter where

we work. We have gained valuable experience

developing local content in Mexico, Chad and

Nigeria. We hope to apply lessons learned and best

practices from these experiences to develop more

comprehensive global solutions for our long- and

short-term endeavors. In Nigeria, for instance, the

Energy Services Group has established a “local

content project team” to oversee local content

initiatives and to assure alignment with

governmental local content legislation.

In Bonny Island, Nigeria, where a KBR joint venture

has built four processes of the Nigeria liquefied

natural gas (NLNG) plant since 1995 and is now

working on processes 5 and 6, we have trained

2,100 workers in crafts and computer skills, and

have plans to train 3,000 more. We have also made

significant investments in Nigerian contractors

and suppliers by playing a prominent role in the

development of their businesses and by helping

them expand their pressure vessel and structural

steel manufacturing capabilities and facilities.

Our relationship with NETCO, Nigeria’s first

national engineering company, began in the early

phases of NLNG process 1. NETCO engineer

training programs in London have exceeded 50,000

hours in various engineering disciplines. Over the

years, their participation has grown – from front-

end engineering and design (FEED) to some

detailed engineering and design. Approximately

185,000 hours of work have been executed in

33

NETCO’s offices in support of the LNG processes

at Bonny Island. The relationship has been

productive for both NETCO and KBR, and we

will continue to expand NETCO’s role in NLNG

and other Nigerian projects.

In January 2005, KBR Energy and Chemicals began

another project in Nigeria, providing topside

engineering design and procurement services for

the 30,000-ton Agbami floating production, storage

and offloading (FPSO) vessel.

Throughout the 12 months of the contract,

NETCO’s 70 employees expended some 130,000

hours, more than doubling the firm’s original

contract for 57,000 hours of detail design.

KBR also provided supplemental training in its

Houston offices for NETCO engineers, helping them

advance their design capabilities from structural

elements to more complex processing units. This

enabled NETCO to execute 3-D duplicate designs

of two of the FPSO vessel’s gas injection modules

and to subcontract some of the basic design work

to a newly formed Nigerian engineering firm.

By strengthening the country’s indigenous design

resources, the Agbami project is enabling Nigeria

to play a greater future role in monetizing its rich

hydrocarbon reserves.

Technology Solutions toCommunity ChallengesOften, our contributions are the result of the work

that we do. Our expertise as one of the world’s

leading engineering and infrastructure firms is

providing communities with significant benefits

to their quality of life.

In December 2004, KBR and the City of Salisbury,

near Adelaide, Australia, jointly won an Engineering

Excellence Award from Engineers Australia, South

Australia Division, for the Parafield Storm Water

Harvesting Project. KBR undertook the design of

the project, which has transformed management of

storm water from a 1,600-hectare (4,000-acre)

urban catchment that extends north from

Parafield Airport, one of Australia’s busiest

general aviation airfields.

Formerly, much of the catchment’s storm water

flowed straight to the sea – carrying with it litter,

suspended solids, oil, animal feces, metals,

fertilizers, chemicals and other pollutants. Now,

70 percent of the water is diverted to a series of

birdnetted capture and holding basins on the edge

of the airport, before being directed through a

densely planted bed of reeds for final filtration

and cleansing.

The 1,100 megaliters (300 million gallons) per year

of recycled water – cheaper and less saline than

Adelaide’s mains water – are then used by local

industry, irrigators and the community, which frees

up potable water for other uses. An aquifer storage

34

and recovery facility, the largest of its kind in

Australia, is used to even out seasonal variation in

rainfall. Any surplus water is injected via wells into

an aquifer to be recovered in drier months.

The local marine environment is another

significant beneficiary of the project: Almost

90 percent of pollutants are removed from

the unused storm water that is directed to

the ocean.

Employee InvolvementHalliburton people routinely solve problems and

find solutions for our customers – a quality that

carries over to their volunteer activities. Around

the world, Halliburton employees contribute many

hours to the betterment of their communities.

Quite often, they are involved with small local

projects – planting trees; cleaning parks and repairing

playground equipment; adopting schools; and

visiting the ill, the elderly or the forgotten. These

are projects and causes that may, on the face of it,

seem modest, but they are ones for which employees

have a real passion. Collectively, their efforts add up

to thousands of hours of volunteer service in

hundreds of communities. Volunteer efforts by

Halliburton employees are being further

encouraged and facilitated through Halliburton

Volunteer Councils, the Company’s program to

help organize volunteer activities and raise

awareness of community needs within the

employee base. The program exists within the U.S.

and Canada at present and Halliburton will further

expand it internationally in 2006.

Here are a few examples of employee involvement

from 2004 and 2005:

Overcoming disaster. Over the past three years, a

number of Halliburton employees have worked

in Quang Ngai, Vietnam, on an AusAID project

designed to improve natural disaster management,

especially for flooding, in this central coastal

province. AusAID is the Australian Government

agency responsible for managing the Australian

Government’s official overseas aid program.

Teaching the people of this fishing community

how best to survive extreme weather conditions

– including floods, typhoons and droughts – is an

important part of the project. A program called

“Eat Waves, Speak Winds” was implemented as

part of the community education program.

Strong medicine. When KBR staff reassignments

left 100 beds free, employees at the PCO Oil South

Camp in Basra, Iraq, found a way to make good

use of them. Following a government-approved

process, employees delivered the beds to a local

hospital. Earlier, South Camp employees donated

boxes of surplus first-aid supplies to local clinics.

The efforts are part of a “Hands Across the Seas”

program started by the U.S. Army Corps of

Engineers to help needy families in Southern Iraq.

35

Trees for communities. Halliburton Venezuela

employees pitched in to make their environments a

little greener during the country’s 2005 Arbor Day

Campaign. Employees joined forces with other

volunteers, donating and planting more than

2,000 trees in the communities of Caracas, Maturín

and Santa Rita.

Aiding future scientists. The 2004 Stephens County

Science Fair in Oklahoma had a more professional

look to it this year. A group of volunteers from the

Duncan Technology Center in Duncan, Oklahoma,

worked to make the fair a success by serving as

judges, Web experts and mentors to area science

students. “The mentoring program is something

that I’ve dreamed about for a long time,” wrote an

appreciative fifth-grade science teacher, “and now it

has become a reality.”

Recycling for children. Members of the Barracuda

and Caratinga project team in Rio de Janeiro, Brazil,

started a paper recycling initiative that benefited

both the environment and the community. The

group collected almost seven tons of paper from

Halliburton’s Assembleia office for recycling, and

received a check for R$2,088 (around U.S.$700)

for it. The money was donated to the Creche Viva

Association, a local charity that runs daycare centers

for 200 children, to rebuild a kitchen in one of the

centers. The Creche Association works in the

largest disadvantaged area in Latin America.

Teaching safety. Members of Halliburton’s Restore

Iraqi Oil (RIO) team hosted a five-day seminar in

Baghdad for Iraq’s Ministry of Oil. Presenters

focused on our safety culture and provided helpful

pointers to teach the Ministry how to implement

these practices within its own organization. More

than 75 Ministry employees – from engineers to

plant managers to research doctors – attended the

seminar. “The concept of truly preventing all

injuries intrigued and excited the Iraqis,” noted

one of the organizers of the event.

Marathoners for causes. Four Halliburton employees

in the U.K. ran the Edinburgh, Scotland, marathon,

losing a few pounds and gaining many more. The

Halliburton runners raised £2,686 to be divided

evenly between the Friends of Stonehaven’s

Carronhill School, to upgrade facilities for students,

and the Friends of the Anchor Unit, to purchase

equipment to improve the diagnosis, treatment and

care of patients with cancer, leukemia and blood

disorders such as hemophilia.

Breaking the cycle. In 2005, Energy Services Group

Information Technology employees in Houston

donated 500 computers loaded with software to the

nonprofit Skills for Living, Inc. “20-20” financial

literacy program. The program helps low-income

Houston families plan for and accomplish financial

goals with the hope of ultimately breaking the cycle

of poverty.

36

Rescuing wildlife. When an oil spill from a train

derailment near Lake Wabamun in Alberta,

Canada, affected 235 area birds, members of

Halliburton’s Nisku Manufacturing and Technology

Environmental Team volunteered to help. Contacting

the local bird reclamation center, the team spent

the afternoon cleaning the distressed birds and

hand-feeding them through syringe tubes.

Responding in a crisis. 2005 was marked by natural

disasters, and Halliburton employees stepped up

with donations of money and much more. After

Hurricanes Katrina and Rita struck the U.S. Gulf

Coast, affecting more than 700 members of the

Halliburton family, employees donated enough

clothes and other necessities to stock a temporary

“store” from which storm victims could find

necessary items to help rebuild their lives. Employees

also gave generously to victims of the earthquake

in Pakistan, and of the tsunami that struck 12

countries on two continents. In addition to

contributing to the Halliburton Tsunami Relief

Fund, a number of employees traveled to the

affected areas, volunteering their time to help

the people there.

Corporate GivingHalliburton has a long tradition of giving back to

the community – both through Company-sponsored

programs and through the volunteer efforts of

Halliburton employees around the world. The

Halliburton Education Assistance and Resource

Team (H.E.A.R.T.) program provides processes and

guidelines for identifying, approving and funding

community projects in support of our global focus

on health and education. Halliburton began

reporting global charitable donations in 2003 in

accordance with standards set by the Committee to

Encourage Corporate Philanthropy (CECP), a

U.S.-based national forum of business CEOs and

chairpersons focused on corporate philanthropy.

Halliburton uses the CECP’s data collection,

reporting and benchmarking system to track our

year-over-year giving trends. Here are some of the

highlights of our Corporate Giving programs in

2004 and 2005:

• In 2003, Halliburton started a new employee

giving program, known as Giving Choices,

within the U.S. It is designed so that employees

can make contributions to the local, national

or international charity(ies) they designate.

Halliburton absorbs all of the administrative

costs of the program and adds a 10 percent

Corporate Giving

Halliburton Foundation (cash)in thousands of U.S. dollars

Total Contributionsin thousands of U.S. dollars

$4,196

$2,817

$2,512

2005

2004

2003

2005

2004

2003

2005

2004

2003

2005

2004

2003

Direct Cashin thousands of U.S. dollars

$136,253

$227,115

$144,301

In-Kind Donations (non-cash)in thousands of U.S. dollars

$2,232

$1,995

$1,603

$142,681

$231,927

$148,416

matching donation for annual employee

contributions of $50 or more. Employees

may donate to multiple organizations,

either through a one-time contribution or

through payroll deductions.

• In 2004, employees donated more than

$1.7 million to charities. During 2005, after

the program expanded to Australia, Canada

and the U.K., employees pledged in excess of

$2 million to more than 700 charities.

• In 2004, Halliburton donated more than

$2.8 million in cash to charities. In 2005, the

Company donated more than $6.4 million.

• The Halliburton Foundation gave more than

$1.9 million in cash to educational institutions

in 2004. In 2005, the Foundation contributed

more than $2.2 million.

• The Halliburton Foundation funds the

Halliburton Volunteer Incentive Program, also

known as HAL-VIP. The program aims

to encourage volunteer activity by awarding

grants to charities where employees are

volunteering their time. In both 2004 and

2005, grants were provided to more than

200 charities.

• Halliburton was a corporate sponsor for

the March of Dimes, as well as the presenting

sponsor and top corporate fundraiser at the Gulf

Coast Region’s March of Dimes WalkAmerica

2004 event, raising more than $250,000.

• In the aftermath of Hurricanes Katrina and

Rita, Halliburton set up the online Halliburton

Relief Fund. The Company matched employee

contributions dollar for dollar, and $1.25 million

was donated to six agencies assisting with relief.

• In-kind donations in 2004 amounted to more

than $227 million. The bulk of this came from

Digital and Consulting Solutions’ University

Grant Program, which donated more than $200

million of exploration and production software

and services to 38 universities worldwide. The

grants span a three-year period and provide

students with access to Landmark’s drilling,

production optimization, field development

and prospect generation applications. In-kind

donations in 2005 fell to just over $136 million,

reflecting a smaller number of university grants

being processed.

• Since 2002, Halliburton has contributed a total

of $639,000 to student memberships in the

American Association of Petroleum Geologists,

the Society of Exploration Geophysicists and the

Society of Petroleum Engineers.

37

38

Transparency and accountability are at the core of any effective corporate sustainability culture.Stakeholders must have trust in management’sleadership to guide the organization forward andknow that the success of the company is based on a strong foundation of energized employees, high-quality customer service, cohesive strategic direction,innovative research/technology, and vibrant communities where we work and our employeeslive. One way to establish and reinforce this trust is to report accurately on specified metrics thatconnect to our overall business goals/activities andto track progress over time against these metrics.

We are committed to continued development ofthe internal processes necessary to support acceptedsustainability reporting criteria for transparency andaccountability. To this end, Halliburton participatesin the Carbon Disclosure Project and the Dow JonesSustainability Index and also references the Oil and Gas Industry Guidance on Non-FinancialSustainability Reporting published by the AmericanPetroleum Institute (API) and the InternationalPetroleum Industry Environmental ConservationAssociation (IPIECA) in order to identify andimplement metrics that are representative of ourbusiness sector and meaningful to our stakeholdersand our business goals.

Halliburton began reporting our non-operatingperformance in 1992 when we published our firstHealth, Safety and Environmental (HSE) report,and, in 1997, began publishing reports annually,with the exception of the year 2000. (View the

Company’s HSE reports at www.halliburton.com.)In 2004/2005, we began to align our reporting withthe standard Sustainability Reporting Guidelinesoutlined by the Global Reporting Initiative (GRI).The report will continue to evolve as we enhanceour sustainability reporting framework and internalprocesses. Halliburton is currently one of only twocompanies in the oilfield services industry sectorthat publishes this type of report.

Employee SafetyOur most important concern is the safety of each

and every one of our employees. We cannot claim

to move toward more transparency without

addressing employee safety and fatalities. Twenty-six

employees and 24 subcontractors were killed in

2004 – 41 of whom were working in Iraq and Kuwait

in support of Coalition and U.S. troops. In the

Energy Services Group, there were seven employee

fatalities, four in a helicopter crash in the Gulf of

Mexico and three others in road incidents. Eleven

employees and seven subcontractors were killed

in 2005 in Iraq and Kuwait. A single death is too

many; it affects not only family members and

loved ones but also all 100,000 members of the

Halliburton family. KBR is contractually obligated

to work in a number of war zones, and, at

Halliburton, we do not walk away from our

contractual obligations. Significant efforts to

increase protection for our workers have

produced improvements but we continue

to strive for zero incidents.

Standing By Our Convictions“At Halliburton, we understand the power and the opportunity of this globally connected community, and,

despite challenges that we still need to address, we are committed to reaching out and being part of it.”

– Dave Lesar, chairman, president and CEO

39

Our Lost-Time Incident and Total Recordable

Incident rates are compared against the

Construction Industry Institute and the International

Association of Drilling Contractors rates that are

indicative of our industry sectors. Vehicle Incident

rates for 2005 showed an increase of about 20

percent, primarily due to increased incidents

associated with our trucking operations in Iraq.

Greenhouse Gas Emissions

In an effort to assess the significance of our greenhouse gas emissions, Halliburton providedinformation to the Carbon Disclosure Project(CDP) for publication on its Web site. In 2004,Halliburton was the only company in the oilfieldservices industry to make this information public.Emission data being reported for 2005 captures anestimated 85-90 percent of Halliburton’s total directemissions (up from 70 percent for 2003 emissions),not including Energy Services Group offices andfield camps outside the U.S., and work continueson processes to capture the remaining emission information from Company operations. Based on generally accepted calculation criteria,Halliburton’s estimated direct CO2 emissions for2004 is 5.511 million metric tonnes. For 2005, it is6.007 million metric tonnes.

40

Lost Time Incident Ratesper 200,000 work hours (ESG and KBR)

2005

2004

2003

2004

2004

0.41

0.43

0.39

0.33

0.64

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4

CII - Construction Industry Institute Contractors Industry Average

IADC - International Association of Drilling Contractors Industry Average

CII

IADC

Total Recordable Incident Ratesper 200,000 work hours (ESG and KBR)

2005

2004

2003

2004

2004

1.30

1.28

1.05

0.88

2.40

CII - Construction Industry Institute Contractors Industry Average

IADC - International Association of Drilling Contractors Industry Average

CII

IADC

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

2005

2004

2003

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

Recordable Vehicle Incident Ratesper million miles traveled (ESG and KBR)

0.90

0.75

0.69

0

7

1

2005

2004

2003

2005

2004

2003

2005

2004

2003

Fatalities

ESG Employees

11

19

4

7

24

10

Contractors

KBR Employees

0 05 10 15 20 25 30 35

The full text of Halliburton’s response to the third

CDP information request can be accessed at

www.cdproject.net.

Dow Jones SustainabilityIndex ProgressHalliburton continues to report to the Dow Jones

Sustainability Index (DJSI) and made progress in

our overall data capture program for 2004. As a

result, in the 2005 DJSI survey, our total score

improved from 36 points for 2003 data to 56 for

2004 data, compared to the industry sector average

of 43. While Halliburton was not chosen as one of

the three DJSI sector leaders, we are very close to

being considered as a sector leader based on the

range of leader scores from 59 to 66 points. In the

18 categories rated by DJSI, Halliburton scored

best in class for three categories and above the

industry average for 10 others in the 2005 survey.

Our score was significantly and adversely affected

by our inability to report our environmental

performance metrics, and we are committed to

rectifying this for we have much to be proud of in

this category. The DJSI survey will continue to be a

benchmark that we will measure ourselves against.

Environmental IncidentsHalliburton defines an environmental incident as

“any event that causes or has the potential to cause

environmental damage or any non-routine regulatory

inspection, citation or notice of violation.” We

believe that Halliburton’s more stringent internal

reporting requirements, along with the deployment

of a global reporting system, have led to an increase

in the number of environmental incidents being

reported over the past few years. However, we also

believe a plateau has been reached, and the number

of incidents for the Energy Services Group has

dropped 10 percent from 2003 to 2004. We recorded

a slight increase from 604 to 613 incidents in 2005.

We also believe, from the success we have had in

setting safety standards and targets for employees,

that the heightened awareness of environmental

incidents, coupled with the initiation of processes

to both identify and eradicate potential incidents,

will ultimately result in fewer occurrences. The

hydrocarbon spills for 2005 also increased from

23 cubic meters in 2004 to 210 cubic meters in

2005

2004

2003

Greenhouse Gasesin million metric tonnes CO2 equivalent

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0

TO COME

5.511

4.494

Reported Environmental Incidents

2005

2004

2003

613

604

675

0 200 400 500300100 600 700

Hydrocarbon Spillsin cubic meters

2005

2004

2003

210

23

45

0.0 30025020015010050

Environmental Reservesin millions of U.S. dollars

2005

2004

2003

$0 $20 $40 $50$30$10 $60 $70

$50

$41

$30

41

2005. Hydrocarbon spills increased from 23 cubic

meters in 2004 to 210 cubic meters in 2005. A large

portion of this increase – 71 percent of the spills,

or 149 cubic meters – occurred in our KBR

Logistics Civil Augmentation Program (LOGCAP)

activities in the Middle East, of which 141 cubic

meters of this percentage were related to six

incidents. The remaining 29 percent, or 61 cubic

meters, of Halliburton's recorded hydrocarbon

spills were reported from other KBR and Energy

Services Group operations worldwide.

Environmental reserves – reserves representing

contingent liabilities related to estimated costs of

investigating or remediating active and divested

properties and superfund sites – have risen in the

past year. We are now including non-U.S. sites in

the environmental reserves that were previously

accounted for in local operational reserves.

Done Right IndexThough a perfect job may seem like an unattainable

goal, Halliburton is working to make it a reality.

In 2003, the Energy Services Group developed the

Done Right Index (DRI), a system for measuring

overall job performance. Based on a composite of

five key indicators – Zero HSE Incidents, Zero Cost

of Poor Quality, Zero Nonproductive Time, Job

Purpose Achieved and Customer Satisfied – the

Done Right Index helps us monitor and improve

the Energy Services Group’s Service Quality and

change behaviors by discovering opportunities

for improvement.

The inclusion of health, safety and environmental

performance recognizes and reinforces that a

“Done Right” job is one that is done right in every

way. By the end of 2004, after six quarters of

measuring results in DRI categories, we have

improved our performance from 88 percent in

2003 to 92 percent in 2004. Performance remained

at 92 percent in 2005.

ISO 14001 and OSHAS 18001ComplianceOur global health, safety and environmental

management system, established in 1996, is ISO

14001 and OSHAS 18001 compliant. Certification

is sought only in cases where a business need has

been established. In other facilities, Halliburton

aims to achieve compliance with ISO 14001

standards as a means of standardizing across all of

its business lines and facilities. While this standard

does not guarantee environmental compliance,

certifying to the ISO 14001 guidelines indicates a

commitment by the Company to third-party

auditing, goal setting, corrective action, management

review and documentation.

In 2004 and 2005, 26 Energy Services Group

locations received ISO 14001 certifications for the

first time. Five locations received OSHAS 18001

certifications for the first time.

42

ISO 9000 and 9001CertificationsThe ISO is an international standards organization,

and the 9000 certification series addresses quality

management issues.

Halliburton is committed to the ISO 9000

principles of quality management and uses a global

management system that is ISO 9000 compliant.

Certification for individual operations and facilities

is based on business needs.

The Energy Services Group and KBR have achieved

numerous ISO 9000 certifications. In January 2004,

Digital and Consulting Solutions achieved ISO

9001:2000 certification for the U.K.-based Hosted

Data and Application Management Services

business – becoming the first vendor-neutral,

multi-client, hosted technology service in the

upstream E&P sector to receive this certification.

Digital and Consulting Solutions’ LMK Resources

affiliate in Islamabad, Pakistan, received ISO

9001:2000 certification for its data management

and archival solutions.

KBR’s entire Energy and Chemicals Division, along

with 10 Energy Services Group manufacturing

facilities and nine Energy Services Group product

service lines, are all currently certified.

Health, Safety andEnvironmental AuditsHalliburton’s Health, Safety and Environmental

Committee, established in 1990 and expanded to

include Sustainable Development in 2004, is

comprised of four outside directors and is one of

five standing committees within Halliburton’s

board of directors. The HSE Committee generally

meets two times each year to receive updates from

the Company’s chief HSE officer and HSE personnel.

The committee also receives written quarterly

reports on HSE issues, including progress on

strategic initiatives, safety performance, significant

compliance issues and an overview of the HSE audit

program. Emerging issue updates are distributed to

the committee throughout the year as needed. For

more information, please see the HSE Committee

charter at www.halliburton.com.

Internal HSE audits are carried out under the

auspices of the board of directors’ HSE Committee

through a Corporate HSE audit group within

Halliburton’s Legal Department. This structure,

which separates the audit function from

Halliburton operations, supports an impartial

audit process. The Corporate audit group furnishes

information to the HSE Committee quarterly and

makes presentations twice each year. HSE audits

are scheduled annually based on a risk-ranking

profile conducted on all Company operations, with

high-risk locations placed on a three-year audit

cycle. In 2004, the Company performed 55

corporate audits and, in 2005, it performed

43

44

48 corporate audits – a significant increase over the

19 audits performed in 2000. In addition, sites are

required to conduct self-assessments using the

same protocol as the Corporate auditors.

The Notices of Violations/Citations chart

represents instances where a governmental agency

inspected Halliburton operations and noted

instances of noncompliance. The reported HSE

notices of violations and citations have increased

over prior years due to a new internal reporting

requirement that captured 244 vehicle citations

in 2005. We are using this data, which we started

collecting in April 2005, to better globally track

and address our driving safety performance. At

this time, most of the data on vehicle citations

are coming from U.S. operations, and worldwide

numbers for vehicle-related incidents are not yet

included in the graph below.

However, the fines or penalties resulting from these

regulatory inspections have declined year over year.

Performance ImprovementInitiative (PII) AwardsWithin the Energy Services Group, at the end

of each calendar year, Halliburton’s Executive

Leadership Team evaluates each region’s

performance and gives out individual awards for

Health and Safety, Environmental and Service

Quality, along with the Chief Operating Officer’s

Award for best overall performance. Awards are

based on plan execution and results, and on

intangibles like employee commitment.

The PII award winners for 2004-2005 were:

Health and Safety

Middle East Northern Gulf Region

Environmental

U.S. Mid-Continent Region

Service Quality

Egypt

2004-2005 PII Chief Operating Officer’s Award

The United Kingdom

HSE Fines/Penaltiesin thousands of U.S. dollars

2005

2004

2003

$0 $20 $40 $50$30$10

$7

$24

$27

HSE Notices of Violations/Citations

2005

2004

2003

0.0 20 40 60 80 100

61

52

46

excluding vehicle-related violations and citations

45

46

47

Buckinghorse River Crossing

In Canada’s pristine Buckinghorse River Crossing, located in northeast British Columbia,

Anadarko Canada Corporation utilized Halliburton technology and services to access stranded

gas reserves. Two wells were drilled to a depth of 1,400 meters, beginning nearly two miles apart

on opposite sides of the gorge and intersecting beneath the river. A cross-disciplinary team of experts

from Anadarko and Halliburton used advanced survey and horizontal drilling techniques to plan,

model and steer the horizontal wells. Halliburton’s Real Time Operations Center in Calgary hosted

the operations, enabling the team to assess and troubleshoot the process, and to make critical decisions in

real time. The innovative approach, akin to designing and constructing the tunnel under the English

Channel, has added 50 million cubic feet/day production capacity from an otherwise unreachable area,

saving the client millions of dollars. What’s more, this was achieved without environmental impact

to the Buckinghorse River, thereby preserving the beauty of this natural setting.

For further information, please contact:

Halliburton

Director, Sustainable Development

sustainability@halliburton.com

10200 Bellaire Boulevard

Houston, Texas 77072-5206

United States

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