Fluor Incurs High Cost for U.S. Petchem Project, Backlog Grows

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Researched by Industrial Info Resources (Sugar Land, Texas)--Declining crude oil and metals prices have hindered many new-project plans for Fluor Corporation's (NYSE:FLR) (Irving, Texas) clients, and have, in turn, weakened the engineering, procurement and construction (EPC) contractor's bottom line. Other factors weighing on third-quarter 2016 results included a massive after-tax charge related to delayed activity at a U.S. petrochemical facility. Industrial Info is tracking $214.54 billion in active projects involving Fluor.

Revenues for the quarter stood at $4.77 billion, an 8.72% increase from third-quarter 2015, but net earnings fell to $4.8 million from $171.3 million. Capital expenditures for 2017 are now expected to be between $200 million and $275 million, depending upon business opportunities for subsidiary AMECO, an industrial services supplier.

Fluor's consolidated ending backlog rose to $44.3 billion, compared with $41.7 billion at the end of third-quarter 2015. The quarter saw $7 billion in new awards, including $5.6 billion from energy, chemicals and mining business and $955 million from government-related business.

Among the biggest awards was additional work at the Tengiz oil field in western Kazakhstan. Fluor is at work on many aspects of the development, notably Chevron Corporation's (NYSE:CVX) (San Ramon, California) $23 billion Crude Oil & Natural Gas Processing Plant 3, for which Fluor's U.K. subsidiary is performing EPC services. The facility, which is designed to have a capacity of 260,000 barrels per day (BBL/d) of crude oil and 960 million standard cubic feet per day of natural gas, is part of a $40 billion growth project that includes a $150 million, natural gas-fired powerhouse addition. For more information, including schedules, equipment and environmental requirements and contractor contact information, see Industrial Info's project reports on the processing plant and powerhouse.

Despite the growth in business, Fluor's Energy, Chemicals & Mining segment reported a segment loss of $60 million, much of it attributed to an after-tax charge of $154 million ($241 million pre-tax) for cost increases at a petrochemical facility. Chevron's 3.3 billion-pound-per-year addition of an ethylene cracker at its Cedar Bayou facility in Baytown, Texas, which is designed to convert ethane into ethylene. For more information, see Industrial Info's project report.

On the plus side, stronger execution on nuclear and gas-fired power projects helped the Industrial, Infrastructure & Power segment report a profit of $28 million, compared to a loss of $29 million in the third quarter of 2015. Fluor's Government segment benefited from additional funding on the Savannah River project, a nuclear reservation in Aiken, South Carolina, that is managed and operated by Savannah River Nuclear Solutions LLC, a partnership among Fluor, Newport News Nuclear and Honeywell International (NYSE:HON) (Morris Plains, New Jersey). Industrial Info is tracking the $1.34 billion addition of a salt waste-processing facility at the site, which would treat about 33 million gallons of radioactive liquid and salt cake, among other materials, prior to disposal. For more information, see Industrial Info's project report.

"When you think about our oil and gas customers as well as our mining customers, I think they've gotten their head around the fact that the commodity prices are going to be maintained at current levels for a long, long time; and they have, in fact, changed their business model to deal with a lower-for-longer oil price, as an example," said David Seaton, the chairman and chief executive officer of Fluor, in a quarterly earnings call. "So, when you look at what's out there, they're prioritizing those projects. You can argue they've taken a longer deep breath here--not having the confidence that the oil prices were going to moderate. That pushes even the high-quality projects out in time, and that's what we're experiencing now."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at https://www.industrialinfo.com.