KBR First-Quarter Income Down, but High-Dollar LNG Projects Loom in Company's Future

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Researched by Industrial Info Resources (Sugar Land, Texas)--Engineering, procurement and construction company KBR Incorporated (NYSE:KBR) (Houston, Texas) reported net income of $91 million for the first quarter of 2012, compared to net income of $105 million in 1Q11. However, from January through March, the company's revenue backlog increased 44%, rising from $10.93 billion on December 31, 2011, to $15.75 billion on March 31, 2012.

The rise in backlog came primarily from the inclusion of the Ichthys LNG project contract, which added $5.6 billion in revenue backlog. The Ichthys project, located in Australia's Northern Territory, is a joint venture (JV) of INPEX Corporation (TYO:1605) (Tokyo, Japan) and Total SA (NYSE:TOT) (Paris, France). KBR, JGC Corporation (TYO:1963) (Tokyo) and Chiyoda Corporation (TYO:6366) (Yokohama, Japan), formed the JKC JV, which won the EPC contract for the project earlier this year. The project, which will produce 8.4 million tonnes per year of liquefied natural gas (LNG) and 1.6 million tonnes per year of liquefied petroleum gas (LPG), is expected to be completed in the second half of 2016. For additional information, see January 17, 2012, article - Ichthys LNG Project Sanctioned: Total Investment Value Reaches $34 Billion.

During first-quarter 2012, the company's job income from its Hydrocarbons business segment was $136 million, up 9% from the corresponding quarter of 2011. The company pointed to income related to startup activities on the Ichthys project and other LNG projects as a primary contributor to the higher income. Conversely, job income for KBR's Infrastructure, Government and Power (IGP) business segment was $75 million, representing a decline of $32 million from 1Q11. A substantial portion of this lower income was caused by the completion of the LogCAP III (Logistics Civil Augmentation Program) contract in Iraq, under which KBR was constantly on call to provide life support and logistics services to the U.S. military in Iraq.

KBR is actively pursuing work on several high-dollar LNG projects. In addition to the Ichthys LNG project, the company expects to have an EPC bid for the Browse LNG project in Western Australia submitted by mid-2012. The company is also assisting with pre-front-end engineering and design (FEED) work on the addition of a fourth production train at the Gorgon LNG project, also in Western Australia. In addition, KBR is submitting bids for the FEED tendering process for Anadarko Petroleum Corporation's (NYSE:APC) (The Woodlands, Texas) grassroot LNG plant in Mozambique.

KBR is also seeing increasing opportunities in North America, particularly in Canada. For the Kitimat LNG project in British Columbia, for which KBR performed FEED work, the EPC tendering process is under way and is expected to be completed in the second quarter of this year, followed by a final investment decision in the second half of the year.

In a conference call regarding the company's earnings, KBR Chairman, President and CEO Bill Utt said: "The Canadian marketplace is showing far stronger levels of investment than originally anticipated. We're seeing more projects moving quickly from the engineering phase to the construction phase and we expect this trend to continue in the coming years. We have approximately $2 billion in tenders outstanding for projects that we expect to be awarded in 2012, including turnarounds, module fabrication, construction projects in the Alberta oil sands, gas processing projects in Western Canada and client camp support. Several of these tenders have already been awarded to KBR, and we anticipate making announcements in the coming weeks."

Utt added that KBR expects Canada's mining market to gain momentum in 2012, including mines producing gold, copper and potash, and that the company expects to began booking mining awards in Canada this quarter.

Lower natural gas prices are also driving increased engineering and construction opportunities for the company in North America. "KBR continues to see an acceleration of activity in many North American markets, particularly in our downstream, technology and power businesses," said Utt. "These opportunities are driven by the market fundamentals of a favorable natural gas forward price curve that provides compelling economics for new ethylene, power and ammonia facilities. Accordingly, we believe domestic natural gas-based industries will see significantly higher levels of capital investment over the coming years. Low-price natural gas, coupled with air-quality regulations, is also driving a compelling value proposition for the construction of new gas-fired combined-cycle power plants as older coal-fired power plants are retired." Utt added that the company was in the early stages of looking at prospects for other LNG and gas-to-liquids projects in Canada and the U.S.

Industrial Info is tracking more than $80 billion in projects involving KBR and KBR joint ventures throughout the world. Information on these and other projects is available in our Global Industrial Project Database.

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