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Released August 07, 2017 | SUGAR LAND
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Researched by Industrial Info Resources (Sugar Land, Texas)--Engineering, procurement and construction (EPC) firm Fluor Corporation (NYSE:FLR) (Irving, Texas) last week reported a second-quarter 2017 net loss of $24 million caused by a $124 million charge on cost increases for three natural gas-fired power plants under construction. "The challenges we have experienced over the last two years on gas-fired power projects are inconsistent with the results we have historically achieved," said Fluor Chief Executive Officer David Seaton in a press release. Industrial Info is tracking $227 billion of projects involving Fluor.
In the company's earnings conference call, Seaton, discussing the cost overruns, said, "All three projects--four, if you include the Brunswick project that incurred a charge in 2015--had a fundamental problem, and the projects did not meet the original baseline assumptions due to improper estimating, craft productivity and equipment issues. All of these projects were bid in 2014 by the same pursuit team."
While Seaton didn't name the three projects that were causing the current issues, the Brunswick County Power Station in Virginia is owned by Dominion Energy Incorporated (NYSE:D) (Richmond, Virginia). Construction on the $1.3 billion project began in 2013, with Fluor acting as EPC contractor, and was completed in 2016. The plant is a 1,358-megawatt (MW) combined-cycle plant. For more information, see Industrial Info's project report.
Seaton said of the three currently active projects, construction on one was 95% done with completion set for the fourth quarter of this year, another was 45% done with a completion date of second-quarter 2018, and the other was 42% done with an estimated completion date of fourth-quarter 2018.
"As we do periodically with all of our markets, we're in the middle of reassessing the gas-fired power market to determine where there are opportunities for returns consistent with our expectations and long-term experience," said Seaton. "The power market is extremely competitive. And unfortunately, we are not immune to the challenges others have seen in this segment of the Power Industry. We will only participate in this market if we believe we can achieve appropriate risk-adjusted returns. ... Unfortunately, it takes a few poor performing projects to overshadow the great work we are doing on most of our projects."
In all four of Fluor's business segments, the company's backlog was down from second-quarter 2016. In the case of its Industrial, Infrastructure & Power segment, this included an adjustment for the winding down of the V.C. Summer nuclear power station in South Carolina. Seaton said, "Both SCANA (NYSE:SCG) and Santee Cooper are starting the process to abandon both units at that location, and we are working with them to assist in the orderly and safe closure of those sites." For more information, see August 1, 2017, article - Utilities Abandon Construction of Summer Nuclear Plant in South Carolina.
Fluor also is performing construction on the only other nuclear project under construction in the U.S., units 3 and 4 of the Vogtle Nuclear Power Station in Waynesboro, Georgia. The project is owned by Georgia Power Company, a unit of Southern Company (NYSE:SO) (Atlanta, Georgia), which is performing a review of the project. For more information, see Industrial Info's project report. "We continue to support and progress at Southern as they wrap up their assessment efforts for that site, and we expect that assessment to be done in the next four weeks or so," said Seaton.
Although the backlog from the company's Energy, Chemicals & Mining segment slipped from $25 in second-quarter 2016 to $19.2 billion in the just-passed quarter, Seaton expressed optimism for project activity in the ailing commodities sector: "The Energy, Chemicals & Mining segment booked $860 million of new awards for the quarter, and their ending backlog was $19 billion. Of this amount, approximately $1.2 billion is in mining. Now we continue to have positive conversations with clients and see some sizable EPC awards over the next two quarters. Our oil and gas customers have become accustomed to the current range of crude oil prices, but they are moving forward with capex spending, but with a focus on advantaged projects."
In addition to the Vogtle nuclear plant, among the largest Fluor power projects being tracked by Industrial Info in the U.S. is Duke Energy Corporation's (NYSE:DUK) (Charlotte, North Carolina) Citrus County Power Station in Crystal River, Florida. The $1.5 billion project kicked off in 2015 and is expected to be completed in the second quarter of 2018, making it a likely candidate for Fluor's cost overruns. The 1,640-MW plant is being constructed on a 400-acre brownfield site. For more information, see Industrial Info's project report.
Also on the books is Dominion Energy's Greensville County Power Station in Emporia, Virginia. Construction on the $1.3 billion project began in 2015 and is expected to be wrapped up in late 2018. The combined-cycle plant will have a generating capacity of 1,588 MW. For more information, see Industrial Info's project report.
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 http://www.industrialinfo.com.
In the company's earnings conference call, Seaton, discussing the cost overruns, said, "All three projects--four, if you include the Brunswick project that incurred a charge in 2015--had a fundamental problem, and the projects did not meet the original baseline assumptions due to improper estimating, craft productivity and equipment issues. All of these projects were bid in 2014 by the same pursuit team."
While Seaton didn't name the three projects that were causing the current issues, the Brunswick County Power Station in Virginia is owned by Dominion Energy Incorporated (NYSE:D) (Richmond, Virginia). Construction on the $1.3 billion project began in 2013, with Fluor acting as EPC contractor, and was completed in 2016. The plant is a 1,358-megawatt (MW) combined-cycle plant. For more information, see Industrial Info's project report.
Seaton said of the three currently active projects, construction on one was 95% done with completion set for the fourth quarter of this year, another was 45% done with a completion date of second-quarter 2018, and the other was 42% done with an estimated completion date of fourth-quarter 2018.
"As we do periodically with all of our markets, we're in the middle of reassessing the gas-fired power market to determine where there are opportunities for returns consistent with our expectations and long-term experience," said Seaton. "The power market is extremely competitive. And unfortunately, we are not immune to the challenges others have seen in this segment of the Power Industry. We will only participate in this market if we believe we can achieve appropriate risk-adjusted returns. ... Unfortunately, it takes a few poor performing projects to overshadow the great work we are doing on most of our projects."
In all four of Fluor's business segments, the company's backlog was down from second-quarter 2016. In the case of its Industrial, Infrastructure & Power segment, this included an adjustment for the winding down of the V.C. Summer nuclear power station in South Carolina. Seaton said, "Both SCANA (NYSE:SCG) and Santee Cooper are starting the process to abandon both units at that location, and we are working with them to assist in the orderly and safe closure of those sites." For more information, see August 1, 2017, article - Utilities Abandon Construction of Summer Nuclear Plant in South Carolina.
Fluor also is performing construction on the only other nuclear project under construction in the U.S., units 3 and 4 of the Vogtle Nuclear Power Station in Waynesboro, Georgia. The project is owned by Georgia Power Company, a unit of Southern Company (NYSE:SO) (Atlanta, Georgia), which is performing a review of the project. For more information, see Industrial Info's project report. "We continue to support and progress at Southern as they wrap up their assessment efforts for that site, and we expect that assessment to be done in the next four weeks or so," said Seaton.
Although the backlog from the company's Energy, Chemicals & Mining segment slipped from $25 in second-quarter 2016 to $19.2 billion in the just-passed quarter, Seaton expressed optimism for project activity in the ailing commodities sector: "The Energy, Chemicals & Mining segment booked $860 million of new awards for the quarter, and their ending backlog was $19 billion. Of this amount, approximately $1.2 billion is in mining. Now we continue to have positive conversations with clients and see some sizable EPC awards over the next two quarters. Our oil and gas customers have become accustomed to the current range of crude oil prices, but they are moving forward with capex spending, but with a focus on advantaged projects."
In addition to the Vogtle nuclear plant, among the largest Fluor power projects being tracked by Industrial Info in the U.S. is Duke Energy Corporation's (NYSE:DUK) (Charlotte, North Carolina) Citrus County Power Station in Crystal River, Florida. The $1.5 billion project kicked off in 2015 and is expected to be completed in the second quarter of 2018, making it a likely candidate for Fluor's cost overruns. The 1,640-MW plant is being constructed on a 400-acre brownfield site. For more information, see Industrial Info's project report.
Also on the books is Dominion Energy's Greensville County Power Station in Emporia, Virginia. Construction on the $1.3 billion project began in 2015 and is expected to be wrapped up in late 2018. The combined-cycle plant will have a generating capacity of 1,588 MW. For more information, see Industrial Info's project report.
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 http://www.industrialinfo.com.
