Presentation for University of Houston Bauer College of Business Risk Management Class March, 2007

1. Presentation for University of Houston Bauer College of Business Risk Management Class March, 2007

2. Agenda • Halliburton Company Information • Risk Management & Insurance Programs • Separating RM Programs in Major Divestiture • Enterprise Risk Management

3. Halliburton Overview • Second-largest oilfield services company and leading engineering, procurement and construction company • # 103 on Fortune 500 ranking • Over $22 billion in annual sales • Equity market cap. of over $30 billion • ROCE in excess of 35% • Approximately 100,000 employees in over 100 countries

4. Operating Group Overview • Energy Services Group provides a broad array of products and services to help customers explore for and produce oil and gas globally • Approximately $13 billion in annual sales • Equity market cap. of over $30 billion • ROCE in excess of 40% • Approximately 46,000 employees in nearly 100 countries • KBR provides engineering, procurement, construction, and logistics capability to two main customer segments • Over $9 billion in annual sales • Equity market cap. of nearly $3.75 billion • ROCE of approximately 11% • Nearly 58,000 employees in over 100 countries • Anticipate full separation to be concluded by April, 2007

5. Halliburton Operations Worldwide

6. Top Line Strategies • KBR separation to enhance shareholder value • Pure play Energy Services company • Dominate North America, continue to grow in the East • Distinct competitive advantages • Global Footprint • Service Quality • Vertical Integration • Growth • Technology • Acquisitions 1

7. Halliburton / Energy Services Group

8. Halliburton Business Segments HALLIBURTON Drilling, Evaluation & Digital Solutions Fluid Systems Production Optimization Reservoir evaluation, advanced well placement, efficient drilling systems and transform wells into real-time digital asset Well construction, drilling and completion fluids and waste management Enhance recovery of hydrocarbons over the life of the asset • Revenue: $4 billion • Op. Inc. margin: 25.1% • Revenue: $3.6 billion • Op. Inc. margin: 22.2% • Revenue: $5.4 billion • Op. Inc. margin: 28.5%

9. Revenue Profile ($13 billion in 2006) Segment Revenue Geographic Revenue Production Optimization North America 41.5% 50% 31% Latin America 11.5% 21.5% 27.5% 17% Fluid Systems Drilling, Evaluation & Digital Solutions Europe / Africa Middle East / Asia Pacific

10. KBR

11. KBR: A Leading Global Engineering & Construction Service Provider • Headquarters: Houston, TX • LTM Revenue:(1) $9.8 Billion • Operating History: 100+ years • Employees: ~57,700 • Engineers: 4,000+ (Avg. 23 yrs. at KBR) • Countries: 45 • Two Operating Segments: • Energy & Chemicals (E&C) • Government & Infrastructure (G&I) • Extensive Service Capabilities: • Engineering, procurement, construction, commissioning and start-up (EPC-CS) to the global oil & gas and petrochemical industries • Defense, logistics, contingency support and infrastructure-related services $15 Billion Backlog at 9/30/06 By Segment By Contract Type (1) As of 9/30/06.

12. Investment Highlights Global Market Leader Compelling E&C Growth Opportunities Best-in-ClassTechnical Expertise Strong ManagementTeam Improving Financial Profile Blue-ChipClient Base Stringent Risk Management Balanced Project Portfolio

13. KBR: A History of Successful Innovation 1942 First fluid catalytic cracking facility DoD – WWII Completed 359 destroyer escort and other vessels 1947 World’s first offshore platform(Kerr McGee - Gulf of Mexico) 1964 First North Sea platform(BP West Sole) 2004 World’s largest LNG plant in operation (SEGAS) 2004 Largest CO2 sequestration project (In Salah) NASA Architect engineer for Johnson Space Center 2005 World’s largest ammonia plant at groundbreaking (BFPL Australia)

14. KBR: How We Walk the Talk Regarding Risk • Implementing a transversal risk awareness program throughout the organization • Instituted Business Development Oversight capability to insure transparency and best practices on all new projects and provide a “double regard” on project risk and returns • Separating project management oversight, estimating, scheduling, and project controls outside of business unit • Clearly defined delegation of authority at divisional, corporate, and board levels KBR’s Objective: To be the industry leader in risk awareness and risk management

15. Stringent Risk Review Process Targets Improved Results Prospecting Risk Review Stages IdentifyProspect Invitation to Bid ProjectExecution Division Corporate Executive BusinessDevelop-mentOversight Sales Technical Review KBR Mgmt. KBRBoard OngoingMonthly Review Executive Comm. Commercial Review Authorization Limits $25 to $250MM Fixed Price Contracts < $25MM >$250MM

16. Risk Management Services Global Insurance Programs & Systems Enterprise Risk Management Medical Management Claims Litigation Management Risk Management Accounting Risk Management

17. RM Services • - Design, implement and administer project insurance programs • - Identify and evaluate risk exposures • - Business acquisition and execution support

18. Global Insurance Programs • - Design and place Company and worldwide insurance plans • - Implement and administer insurance policies • - Manage internal communication and support

19. Global Claims - Employee Claims - General Liability Claims - Eastern Hemisphere Auto Liability Claims - Cargo Claims - Personal Effects Claims - Property Claims - Hull and Aircraft Claims

20. Medical Management • - Return to work • - Medical case management • - Absence case management • - STD, LTD, FMLA • - Health care provider management • - Medical treatment protocols • - Corporate Medical Director

21. Risk Management Accounting • - Retained risk program administration • - Record maintenance • - Accounting system & compliance • - Reporting • - Invoice processing and payment • - Cost distribution

22. Other Activity • - Law Department / Liability Claims • - Investigate & manage claims • - Identify and evaluate risk exposures • - Loss prevention support • - RM systems and data management • - Underwriting and compliance info • - Reporting

23. Business Services • Conduct risk management due diligence for acquisitions and mergers • Identify exposures arising from business activities • Determine desired means of managing exposures to risk of loss • Obtain insurance required by and in accordance with applicable laws • Review contract proposals for consistency with insurance program • Review bids to determine project specific insurance and bond needs • Provide evidence of insurance coverage or other required documentation to operating groups, customers, regulatory agencies, and courts • Execute project insurance and bonding requirements

24. Insurance Purchasing Philosophy The Company will assess the effects on its business activity of casualty, commercial, operational, financial and environmental risks, applying consistent techniques in the management of those risks. Insurance transfer mechanisms will be employed only in the following circumstances: • catastrophic risks where feasible and economical • exposures that can be insured at a cost less than expected losses • where required by law or contract

25. Global Insurance Placements • General Liability – 3rd party liability or civil liability • Auto Liability – Liability resulting from use of vehicles • Workers’ Compensation – Statutory requirements • Employer’s Liability – Covers liability to employees • Excess Liability • Cargo • Property – Fixed facilities • Vessels - Hull & Machinery • Protection & Indemnity • Other Corporate Coverages • Fiduciary Liability • Crime • Director’s & Officer’s Liability

26. Halliburton Co. Summary of Insurance (as of February 2007) *

27. Separating RM Programs in Major Divestiture

28. Divestiture Scenario • Existing organization: Parent Company with two major operating divisions (Energy Services Group and KBR) • RM organization • Insurance programs • Plan: Separation into two independent companies • Reasons • Method • Timing • RM/Insurance Considerations • Establishment of RM function and capability • Design and implementation of new, separate insurance placements for KBR • Create top rate program(s) while minimizing cost impact to both groups • Complete separation by or contemporaneously with effective date of transaction

29. Risk Assessment and Enterprise Risk Management

30. First – Risk Assessment Process

31. Why implement a formal risk assessment process at Halliburton? To satisfy NYSE corporate governance rules and Sarbanes Oxley internal controls requirements that dictate Halliburton have a formal approach for identification, evaluation and management of risks faced by the Company.

32. Purpose To develop and implement a plan that will enable the Company to demonstrate its activities to assess its business risk exposures and the effectiveness with which those risks are managed. Risks are defined as any events the occurrence of which has the potential for significant impact to the Company.

33. What we did to develop and put a Halliburton risk assessment process in place A team was formed to establish a system for: • Identification and categorization of risk exposures • Determination of executive responsibility for each risk category • Assessment of specific risk’s impact on Company success • Ascertain controls in place for management of the risks • Develop documentation and reports to demonstrate functioning of the process

34. Basic Risk Categories ·   Strategic –Factors that may interfere with the execution of Halliburton’s strategies and objectives such as reputation risks, adverse publicity, investor and analyst confidence and general and industry economic conditions. ·   Financial - Risks associated with Halliburton's capital structure, liquidity, margin erosion, tax burden, foreign exchange volatility and credit risks. ·   Legal & Regulatory - Traditional liability and regulatory compliance, as well as the vulnerability of intellectual capital and effectiveness of business transactions.

35. Basic Risk Categories, cont’d . Human Capital – Critical areas such as employee selection, retention and turnover, compensation, executive effectiveness, depth and succession planning. ·   Political– The affect of domestic and international politics, in addition to traditional nationalization, confiscation and trade disruption risks. ·   Operational & Project –Business-specific exposures such as contract performance, project and business entity management, customer relations, environmental damage and crisis management. ·   Technology - Product and process obsolescence, systems security and effectiveness and network liability.

36. Management Responsibility for Risk Exposures

37. Risk Ranking Scoring System Significance: This rating is based on the potential negative impact to the Company if a single significant adverse event or situation or a continuing series of connected events occurred within a specific risk exposure. The score is based on the largest monetary impact realistically possible for a particular event. 1 – Less than $5mm 2 – Between $5 - $50mm 3 – Between $50 - $125mm 4 – Between $125 - $500mm 5 – More than $500mm

38. Risk Ranking Scoring System, cont’d Likelihood:This rating is the quantification of how often a loss will occur within a specific risk exposure. The score here is based on how often it is thought that an event of the most significance within the particular risk exposure will happen. 1 – Extremely rare, not expected to occur once in 20 years 2 – Rare, may occur once in 10 years 3 – Periodic will probably happen in the next 5 years 4 – Recurrent, almost certain to happen in the next 2 years 5 – Frequent, multiple times per year

39. Top Ten Risks – Absolute BasisCorporate Level

40. Top Ten Risks – Controlled BasisCorporate Level

41. 4. Joint Venture Management Failure • Description: • Financial losses from unsuccessful business performance. Improper accounting leading to misstatements in accounts. • Controls: • Specific process for approval of and formation of joint ventures • Management oversight • Internal audit for compliance with company procedures

42. Next Stage – Enterprise Risk Management

43. ERM Progress – 2004 To Date • Risk Assessment • Established ESG ELT Risk Committee in Q3 2006 • Efforts focused so far on following areas: • Legal • Business operations • Information technology • Internal controls and SEC documentation • Completed “ballpark” assessment of largest exposures • High margin of error • Need for better and more detailed process • Risk Mitigation • Insurance program • Contractual risk transfer • Company policies and internal controls (i.e. HSE, financial controls, COBC hotline, etc.) • Increased awareness of exposures and consequences • Monitoring • In compliance with regulatory requirements • Documented risk assessment work to date • Annual Audit Committee updates

44. ERM Objectives • Enhance existing risk management process that leads to: • Higher returns on capital • Better margins • Reduce severity and frequency of losses • Reduced cash-flow volatility • Lower risk profiles for acquisitions • Reduced risk of unsuccessful projects and poor execution • Remaining in compliance with NYSE rule and Sarbanes Oxley guidance that require a formal approach to identification, evaluation, and management of risks faced by the Company • Incremental costs less than $500,000 annually • Risk management process overview: • Risk Assessment • Identify, understand, and prioritize exposures • Prioritize based on size of exposure and likelihood of occurrence • Risk Mitigation • Avoidance or transfer of unacceptable levels of risk • Monitoring • Ongoing monitoring of existing and new exposures and proper documentation of process

45. ERM Organization

46. Roles of ERM Participants • ERM Committee • Lead ERM process and make decisions • Recruit Subject Matter Experts (“SME’s”) • Utilize resources when necessary • Liaise with Audit Committee • Obtain input and assistance from the Advisory Committees as appropriate • Subject Matter Experts • Called upon to provide expertise and assistance in their area as needed • Advisory Committees • No decision making responsibility • Sounding boards for initiatives created in ERM • Door-opener within the organization to facilitate implementation of ERM

47. 2007 Plan • Risk Assessment • Refine estimates of previously identified exposures • Perform assessments in remaining areas: • Business operations • Mergers & Acquisitions group • Legal • IT • Business Development • Finance & Accounting • Supply Chain Management • Human Resources • Risk Mitigation • Reassess insurance philosophy in light of findings • Continue to quantify value of mitigation efforts • Transfer mitigation best practices among business lines and geographic regions • Monitoring • Fully integrate risk management into a sustainable process • Continue documentation of new information • Communication and training • Report to Board Audit Committee by December 2007

48. Q&A