HALLIBURTON CO

RESULTS OF OPERATIONS IN 2024 COMPARED TO 2023

Three Months Ended June 30, 2024 Compared with Three Months Ended June 30, 2023

Operating Segments

Completion and Production

Completion and Production revenue in the second quarter of 2024 was $3.4 billion, a decrease of $75 million, or 2%, when compared to the second quarter of 2023. Operating income in the second quarter of 2024 was $723 million, an increase of $16 million, or 2%, when compared to the second quarter of 2023. The decrease in revenue was primarily driven by lower pressure pumping services in U.S. land, partially offset by improved completion tool sales in the Eastern Hemisphere. Operating income for the segment increased due to international activity growth for pressure pumping services and completion tool sales.

Drilling and Evaluation

Drilling and Evaluation revenue in the second quarter of 2024 was $2.4 billion, an increase of $110 million, or 5%, when compared to the second quarter of 2023. Operating income in the second quarter of 2024 was $403 million, an increase of $27 million, or 7%, when compared to the second quarter of 2023. These results were primarily driven by increased drilling services in U.S. land and the Middle East and improved testing services in Latin America and the Middle East. Partially offsetting these improvements were lower drilling-related services in Africa.

Geographic Regions

North America

North America revenue in the second quarter of 2024 was $2.5 billion, an 8% decrease compared to the second quarter of 2023. This decline was primarily driven by decreased pressure pumping services and lower artificial lift activity in U.S. land. Partially offsetting these declines were increased completion tool sales in the Gulf of Mexico and higher drilling services in U.S. land.

Latin America

Latin America revenue in the second quarter of 2024 was $1.1 billion, a 10% increase compared to the second quarter of 2023. This increase was primarily driven by higher stimulation activity and improved wireline services in Argentina and Mexico, increased testing services in Mexico and the Caribbean, and improved project management activity in Ecuador. Partially offsetting these improvements were lower well construction activity, decreased software sales, and lower project management activity in Mexico, along with lower completion tool sales in Brazil.

Europe/Africa/CIS

Europe/Africa/CIS revenue in the second quarter of 2024 was $757 million, an 8% increase compared to the second quarter of 2023. This increase was primarily driven by higher well construction activity, increased wireline services, and improved project management activity in Norway and increased completion tool sales in the region. Partially offsetting these increases was lower well construction activity in Africa.

Middle East/Asia

Middle East/Asia revenue in the second quarter of 2024 was $1.5 billion, a 6% increase compared to the second quarter of 2023. This increase was primarily driven by higher drilling services in Saudi Arabia and Qatar, improved well construction activity in United Arab Emirates, improved project management activity in Kuwait, and increased completion tool sales in Saudi Arabia. Partially offsetting these improvements were decreased fluid services in Saudi Arabia, lower project management activity in Iraq, Saudi Arabia, and Asia, along with decreased wireline activity across the region.

Other Operating Items

SAP S4 Upgrade Expense. During 2023, we began our migration to SAP S4, which we expect to complete by the end of 2025. During the second quarter of 2024, we recognized $29 million of expense on our SAP S4 migration. During the second quarter of 2023, we recognized $13 million of expense on our SAP S4 migration.

Nonoperating Items

Argentina Blue Chip Swap. The Central Bank of Argentina maintains currency controls that limit our ability to access U.S. dollars in Argentina and remit cash from our Argentine operations. The execution of certain trades known as Blue Chip Swaps, effectively results in a parallel U.S. dollar exchange rate. During the three months ended June 30, 2023, we entered into Blue Chip Swap transactions, which resulted in a $104 million pre-tax loss on investment.

Income Tax Provision. During the three months ended June 30, 2024, we recorded a total income tax provision of $207 million on a pre-tax income of $920 million, resulting in an effective tax rate of 22.5% for the quarter. During the three months ended June 30, 2023, we recorded a total income tax provision of $167 million on a pre-tax income of $783 million, resulting in an effective tax rate of 21.3% for the quarter.

Pillar Two. The Organization for Economic Co-operation and Development enacted model rules for a new global minimum tax framework, also known as Pillar Two, and certain governments globally have enacted, or are in the process of enacting, legislation considering these model rules. These rules did not have a material impact on our taxes for the three months ended June 30, 2024.

Internal Revenue Service Notice of Proposed Adjustment. We are subject to taxes in the United States and in numerous jurisdictions where we operate or where our subsidiaries are organized. Our tax returns are routinely subject to examination by the taxing authorities in the jurisdictions where we file tax returns. In most cases we are no longer subject to examination by tax authorities for years before 2012. The only significant operating jurisdiction that has tax filings under review or subject to examination by the tax authorities is the United States. Our United States federal income tax filings for tax years 2016 through 2023, including carry back of 2016 net operating losses to 2014, are currently under review or remain open for review by the IRS.

On September 28, 2023, we received a NOPA from the IRS covering our 2016 U.S. tax return. The NOPA proposed an adjustment to reclassify approximately 95% of the $3.5 billion termination fee paid to Baker Hughes in 2016 from an ordinary expense deduction to a capital loss. The termination fee was paid to Baker Hughes under the merger agreement after antitrust regulators in multiple jurisdictions failed to approve our proposed merger. It is common commercial practice to include a termination fee in a merger agreement to compensate the target for damages incurred when the acquisition does not go forward. The IRS’s long-understood position at the time of the payment had been to treat such payments as an ordinary and necessary business expense. We strongly disagree with the proposed adjustment on both a factual and legal basis, and we plan to vigorously contest it.

We expect that resolving this dispute will take substantial time. In December 2023, we initiated the IRS administrative appeals process, which may take more than twelve months to complete. Failing a resolution through that process, the matter would ultimately be resolved by the United States federal courts.

We regularly assess the likelihood of adverse outcomes resulting from tax examinations to determine the adequacy of our tax reserves, and we believe our income tax reserves are appropriately provided for all open tax years. We cannot assure you that the matter will be determined in our favor or against us, and if the matter is ultimately determined unfavorably to us, it could have a material adverse impact on our results of operations and cash flows. Based on tax attributes currently available, we estimate that, should the IRS's position prevail through its appellate process and subsequent litigation, the proposed adjustment could result in cash taxes due of approximately $650 million (plus interest thereon in the case of amounts due for previous tax years). Our estimates are calculated under current tax law and on the bases of our assumptions regarding taxable income and loss and other tax attributes over the relevant period, which law could change and which assumptions could and likely will differ materially from actual results. In any event, no payment of any additional tax is currently required, nor do we anticipate that the proposed adjustment would materially and adversely impact our ability to meet our expected uses of cash, including future capital expenditures, working capital investments, and scheduled debt repayments, or our ability to return cash to shareholders, even if a final determination of the matter is reached that is adverse to us.