Fluor Corp (FLR) 2008 Q3 法說會逐字稿

Good afternoon, and welcome to the Fluor Corporation third quarter conference call. (OPERATOR INSTRUCTIONS) A replay of the conference call will be available at approximately 8:30 p.m. eastern time today, accessible on Fluor's website at www.fluor.com. The web replay will be available for 30 days. A telephone replay will be available through 8:30 p.m. eastern time on November 13 at the following number (888)203-1112. The pass code of 4804796 will be required. At this time, for opening remarks, I would like to turn the call over to Ken Lockwood, Vice President of Investor Relations. Please go ahead, Mr. Lockwood.

Thank you, Operator. Welcome everyone to Fluor's third quarter 2008 conference call. With us today are Alan Boeckmann, Fluor's Chairman and Chief Executive Officer, and Michael Steuert, Fluor's Chief Financial Officer. Our earnings announcement was released this afternoon after the market closed and our 10-Q was filed today. We have posted a slide presentation on our website, which Alan and Mike will reference during their prepared remarks.

Before getting started, I would like to refer you to our Safe Harbor note regarding forward-looking statements which is summarized on Slide 2. During today's call and slide presentation, we will be making forward-looking statements. These forward-looking statements reflect our current analysis of existing trends and information, and there is an inherent risk that actual results and experience could differ materially. You can find the discussion of the factors that might cause expectations to be different than actual results in our 10-K filed on February 29 of 2008 and most recent 10-Q filed today on November 6, 2008. With that, I will turn the call over to Alan Boeckmann, Fluor's Chairman and CEO.

Thanks, Ken. Good afternoon, ladies and gentlemen, and thank you for joining us. Today, we will be reviewing our financial results for the third quarter of 2008, and we'll talk about our market outlook, particularly in light of recent economic developments, and then discuss our initial EPS guidance for 2009. As you have seen from our earnings release, our third quarter was extremely strong with all key financial metrics rising sharply from that a year ago. More importantly, our focus on winning major long-term capital projects with well funded clients continues to generate significant growth and opportunities for Fluor.

I'd ask you to turn to slide 3. Here I want to provide highlights of our financial performance in the third quarter. Our revenue rose by 38% to $5.7 billion and that compares with $4.1 billion in the third quarter of 2007. This was driven primarily by significant growth in the oil and gas and power segments. Operating profit for the quarter increased 71% to $324 million and that compares with $190 million a year ago, reflecting solid profit contributions from all five business segments. Operating margins increased to 5.7%, and that compares with 4. 6% in the third quarter of 2007.

Net earnings for the third quarter were $183 million, that's an increase of 95% over $94 million a year ago. The earnings per share effectively doubled to $1.01 per diluted share, that compares with $0.51 per diluted share for the same period of last year.

Moving to slide 4, new project awards of $8.8 billion completely eclipsed our previous record that was set just last quarter. The third quarter, of course, included the $3.4 billion award for the BP Whiting Modernization Project in the US, and a large gas processing project in Russia, along with a $1.3 billion mining project in Latin America. Consolidated backlog at the end of our third quarter rose once again to a new company record of $36.5 billion, that's a $3.5 billion sequential increase over last quarter and a 31% increase from the same period a year ago.

As you turn to slide 5, I want to make some comments on our markets. First, I think it goes without saying that the current economic environment creates uncertainty on a number of fronts, and this is certainly a story that will continue to evolve over time and it would be naive to suggest that our clients, our projects and our prospects are totally insulated from the issues of the credit markets our a slowing global economy. But, having said that, I would note that we have had no material cancellations to date, and I know of just two projects that have been slowed somewhat, but only temporarily.

We remain optimistic that our substance backlog and our diversified business model will allow us to continue to grow throughout 2009. The dramatic reduction we've seen in oil prices since they peaked in in mid July is certainly of have to our major clients and, as you are all aware, they are focused on the long term, and their price level that will deliver acceptable returns over the life of that project.

I think it's worth noting that when oil was trading in a range of $50 to $70 per barrel in 2005 and 2006, we booked $15 billion in new awards in oil and gas. So I think it's fair to say that our clients were not assuming that long-term pricing would be $100 or more per barrel. Of course, this price point varies depending on the type of project and I think everybody knows oil sands projects do require a higher sustainable price considering the cost associated with producing usable oil. On the other hand, I believe that the projects that we are looking at in the Middle East and Russia, for example, are significantly less acceptable to recent price declines.

It's noteworthy that Fluor has just secured almost $9 billion in new awards this quarter with over $5 billion coming from oil and gas projects, so I really don't expect demand for these new long-term programs to suddenly dry up. Finally, with regard to important global trends, we are begin to see lower costs for some building materials, including certainly copper, nickel, and steel products which we believe it should be actually is a positive impact on our new projects. There are still long delivery times on key components and fab space, but as steel costs come down, for example, it should help the economics of future projects.

Let me comment on each of our market segments as we look into 2009, and I'm turning now to slide 6. Starting with government, we continue to pursue opportunities to expand our services with the Department of Energy. We're expecting to hear on the liquid waste contract at the Savannah River in the very near future.

Looking ahead, There are several other large DOE procurements next year. We continue to seek opportunities in the UK and their planned nuclear remediation program. On [Log Cap IV] we received our first task order during the third quarter, and while it was relatively small, we are encouraged that the contracting process is finally beginning. Overall, we continue to see our government businesses stable with select opportunities for growth even in a soft economy.

Moving to the global services segment, we saw some adverse impact from the hurricanes during the third quarter but we expect that the fourth quarter will rebound as refineries come back online, and with demand for gasoline down somewhat, this may give our customers an opportunity to do some of the turn around work they have been deferring. Of course, most of our contracts are long-term and are renewable, so we expect global services will continue to be a strong contributor.

I'll ask you to turn to slide 7. In industrial and infrastructure, the two most active markets continue to be mining and infrastructure, but we also had a nice manufacturing award this quarter. We've consistently talked about how mining is probably the most economically sensitive business that we're in. And given recent commodity price declines and signs that Chinese demand may be slowing even though from a high level, BHP (inaudible), Rio Tinto and others have raised this as a concern. While we have to wait and see what impact this would have on capital suspended planning in the mining sector, we did book a very sizable mining project in this quarter which I think is very encouraging.

Infrastructure as we have discussed in the past is one of the few areas where financing is often integral to projects. And, for this reason, it could become an issue at some point, but I'd like to point out that we do not have any prospect that require financing within the next six months, and all of the projects that are in the backlog have their financing in place, so we think our position there is solid. Clients like the Virginia Department of Transportation have publicly talked about and expect budget constraint, but we don't believe that will impact our I-495 project which is fully financed. There are a number of significant road and rail programs in the US and Europe that we will continue to pursue.

The power market is going to continue to be relatively slow, at least for the next year or so, for all the reasons we've talked about previously but mainly the inability to secure permits for coal plants. We are receiving awards for gas fire plants and we should be seeing them come into backlog in the fourth quarter. There are a number of prospect on the gas side, and we have a few opportunities on the coal side but candidly they would be late 2009. On the nuclear side, we continue to support the South Texas project for Toshiba and NRG, and are continuing to position ourselves for other nuclear new build opportunities both in the US and certainly internationally. We are still projecting it will be late 2010 at the earliest before any significant nuclear work would begin and that's, of course, assuming financing can be obtained.

Finally, turning to oil and gas on slide 8. This segment has been extremely active over the last year, and this quarter was a record for that group with $5.1 billion in new awards. With the BP Whiting award, this is probably the last major refinery modification project that we will book in the US this year. There will be additional US awards, but not of this mega project size. And as we have discussed, there are other market areas, including both upstream and downstream projects outside the US that will be more prominent. Prospect list for 2009 is substantial.

Our key clients, and just to name two of them, ExxonMobil and Conoco Phillips have recently stated they intend to maintain current strong CapEx levels in 2009. Other clients like OPTI Canada, for example, recently indicated that their oil sands upgraded project phase 2 may be delayed in light of falling oil prices. On their call last week, Volero announced their decision to push back the construction completion schedule on their Port Arthur hydrocracker unit from 2010 to 2011. So it's probably best described as a mixed bag right now, but with significant opportunities going forward. We do have a very healthy prospect list across upstream, downstream and petro chemicals. The oil and gas segment has a backlog of almost 23 billion now, and at this point, we see a scenario quarterly awards are strong, and will continue to be strong, but they may be a bit lumpier than we have seen over the last year. For the oil and gas segment, our current view is we will sustain our backlog at or around this current level through 2009.

In summary, while there are a number of uncertainties in the global economic environment, our view at this time is that 2009 has the potential to be extremely strong for our Company overall. With that, let me turn the call over to Michael Steuert, our Chief Financial Officer, to review some details of our operating performance by segment, including key awards, some key corporate metrics and talk about our guidance for the balance of 2008 and 2009.

Thanks, Alan, and good afternoon to everyone. First, let me provide you with a brief recap of the results for each operating segment. Please turn to slide 9 of the presentation. Fluor's oil and gas segment reported third quarter revenue of $3.3 billion, up 52% from the third quarter of 2007. Operating profit rose 84% to $206 million. As Alan mentioned, new awards in the quarter totaled $5.1 billion, including a $3.4 billion refinery expansion award for BP in Whiting, Indiana, and a large gas processing project in Siberia. Ending backlog at September 30, 2008, for oil and gas rose to 22.8 billion, a 39% increase from a year ago.

Now turning to slide 10, Fluor's industrial and infrastructure segment reported a revenue $879 million in the quarter, up 19% over the last year. Operating profit for the third quarter was $28 million compared to $27 million a year ago. Strong operating performance from a mining and metals business line was partially offset by a $16 million charge in infrastructure relating to a contract claim dispute on the London Connect project. This charge was recognized as a result of reassessments of the remaining time and cost to complete the projection, probability of recovery of certain claim items. The project is about 95% complete and we expect to complete the project and to enter in the final arbitration process during 2009.

Industrial and infrastructure new award for the quarter were $2.2 billion, which $1.3 billion was for a large gold and copper processing project in Latin America and $420 million was for a solar panel manufacturing complex for REC in Singapore. Ending backlog was up 63% to $8.5 billion compared to $5.2 billion a year ago. Revenue for the government segment was $369 million for the quarter, up from $337 million a year ago. Operating profit was $18 million compared to a loss of $2 million a year ago when we had a $21 million charge relating to the Bagram Air Force Base project in Afghanistan. Third quarter new awards totaled $922 million, including approximately $600 million for transitional work in the first year of operations at the DOE Savannah River site. Ending backlog was $886 million compared to $839 million a year ago.

Moving on to slide 11, global services segment reported a 9% increase in revenue, to $593 million in the third quarter. Operating profit for the segment was $49 million compare to $48 million a year ago. Segment results were adversely impacted by delays in refinery turn around work and the hurricanes along the Gulf Coast. New awards for the quarter were $405 million, bringing total backlog for the segment to $2.7 billion. Fluor's power segment reported a 64% increase in revenue to $531 million up from $324 million last year. Operating profit was $24 million in the third quarter, up from $6 million a year ago.

Results for the quarter were favorably impacted by the significant progress made on two coal fired units currently under construction (inaudible) in Texas. Power segment new awards were $226 million, including a sizable scrubber project in the US. Backlog for the segment at the end of the third quarter was 1.6 billion. As Alan mentioned, Fluor set another record for backlog this quarter of $3.5 billion sequentially to $36.5 billion. Percentage of fixed price work in backlog is 25%, and from a geographical perspective, 47% of the total backlog is in the US or 53% for projects outside the US.

Let me shift gears and move on to some corporate items. Corporate G&A expense for the quarter was $45 million, even with the $45 million reported a year ago. For the full year, we expect corporate G&A expense to be in the range of $210 million to $220 million. Net interest expense was $16 million for the quarter compared with net interest income of $11 million last year, excuse me, net interest income of $16 million for the quarter. This increase reflects a higher cash balance than last year, offset somewhat by lower returns. The effective tax rate for the third quarter was 38%, in line with our expected tax run rate.

Shifting to the balance sheet, consolidated cash and marketable securities balance at September 30 was $2.2 billion up from $1.6 billion a year ago, and down from $2.4 billion at the end of the last quarter. Decrease from the last quarter is mainly due to $167 million of redemption payments to convertible note holders. As of September 30, 140 million of convertible notes remain outstanding. Capital expenditures for the third quarter were $85 million, including [Formico] additions to our computer infrastructure, and upgrades to our systems. We expect Cap Ex for the year to be approximately $260 million to $280 million. Fluor's Board of Directors approved our normal quarterly dividend of 12.5 cents per share payable on January 5, 2009.

Finally, let's talk about our updated guidance for 2008 and our initial 2009 guidance, which is shown on slide 13. With strong performance to date, and record third quarter new award levels, we are narrowing the 2008 guidance to a range of $3.70 to $3.80 per share. Looking towards 2009, the Company acknowledges probability or possibility that a prolonged economic downturn could moderate the demand for large new capital expansion projects. While the potential exists for near-term decline in demand in certain markets, we have confidence in our current prospect list and substantial earnings power of existing $36.5 billion of backlog. As a result, we are establishing our initial 2009 guidance in the range of $3.90 and $4.20 per share. With that, Alan and I will be happy to respond to questions.

Thank you. We'll go first to Jamie Cook with Credit Suisse.

Hi, good evening and congratulations.

Thank you, Jamie.

It's a pleasant surprise in this market.

I hope we stopped the domino affect.

I hope so. I'm not going to go there. Okay. So my question relates to the guidance and specifically within oil and gas. When I think about the burn rate on backlog within oil and gas in 2009, I would assume that the dollars in oil and gas, I'm assuming your revenues would be up year over year just because you're going through, more towards the construction stage which would mean bigger dollars, that's my first question. And then, second, your profit dollars in oil and gas were $200 million. That's about what you did for the full year in 2005. Is that, is that a sustainable rate on a profit dollar basis?

I think you're right, we will be ramping up, continued to ramp up revenue in oil and gas, by virtue of the strong bookings we have had in the quarters the last two years, lot of those projects are going into construction, although we have a number going into engineering as well. So that is true, we will be ramping up revenue. I made the comment in my prepared remarks that we think the backlog for oil and gas for 2009 will stay pretty constant. It may come up or down quarter to quarter, but stay pretty constant. Then your last question on total earnings, we had a strong margin in oil and gas and (inaudible) chemicals this quarter. I think it would be, I don't think we'll be maintaining that level of gross margin. I think it will be just a bit lower than that. On a profit dollar basis, is it fair to assume that you're in -- ? Yes, it's hard to, I'd have to go back and I don't have those numbers to do the math, but I think it will be in

Okay. And then.

In fact, I think there's a chance. Again, quarters are lumpy, so there may be some quarters that absolutely maybe do better than that.

Okay. My last question, just, you made the comment about the backlog within oil and gas, and you would assume that that stays fairly constant. Given the burn rate you are talking about and the implied revenues, that means in 2009 for orders within oil and gas, you are assuming you at least booked between, at least on the low end, that's assuming revenues are flat, $12 billion to $13 billion in new orders within oil and gas which is pretty amazing in this market. So I guess what gives you that confidence and given what we're seeing in the market, should we assume that's more back end loaded just as customers reevaluate the markets and look for maybe to get a better, for material or labor costs to go down? I'm just trying to think how that progresses throughout the year.

That's a great question. I've listened to the comments from a number of my CEOs in the last week, and I agree with all of them. In particular, in oil and gas, it's a long-term business. We do a lot of front end work, and the reaction to today's drop in oil or tomorrow's increase in oil does not drive these projects. So we're looking at a very solid '09, not just from watching backlog, but what we see in prospects, and I think too much is being made of some of the recent delays that we've seen. The fact of the matter is that almost every project in our backlog today on downstream oil and gas has had a delay. The Whiting project that we just announced had almost an one-year delay, so that's not unusual given the size and complexity of these projects.

People are jumping to conclusions that oh my gosh, it's the markets and oil is down, and I think that's wrong. I think that's wrong. I think right now our clients are being pretty savvy. They see commodities coming down. Steel, copper, and we've had a tremendous inflation in the cost of capital goods over the last 18 months to two years. There's an opportunity for that to come down and to have a positive impact on a project that gets delayed for 6 months to a year. So I think that there's a lot of dynamics in this market that aren't necessarily as obvious as the conclusions that the people jump to.

But in terms of the bookings, is it fair to say it's more back half or do you think it's just tough to tell and it could just come at any time throughout the year? I'm just trying to --

I use the word lumpy because that's about the best way to describe it. We had a great quarter, this quarter, but we had a couple of things that broke in half at the end of the quarter rather than going into fourth quarter, so a quarter can change just by a week's timing on some of these large projects.

Thank you very much and congratulations. I'll get back in queue.

Thanks a lot.

We'll go next to Barry Bannister with Stifel Nicolaus

Could you talk a little bit about the plans and ultimate disposition of the amazingly large amount of cash that the Company is accumulating? The Company's mix of business is rapidly approaching 70% oil and gas, sort of a 1970s average, and you've got more cash than twice the market cap of Shaw Group, and powers in the area where you've not gotten a lot of base load traction, including in nuclear. Are you more inclined to sit on the cash, acquire bolt-ons, fill out the business or buy back stock?

Barry, our absolute priority is going to be doing bolt-ons in key market areas. Right now, liquidity is a great opportunity maker. Valuations have come down, as you pointed out, dramatically. I think there's a great opportunity for us to make some moves that will set the Company on a great track for the future. Again, I don't expect any of them to be incredibly large. But I think they will be sizable enough to make a difference as we go forward, both from a strategy standpoint as well as accretion standpoint.

Given the market caps in this market, there's a lot of companies you could buy that wouldn't be incredibly large that used to be. Let me ask you a question about BP Whiting. It's been politically opposed by [Emanuel] and Obama, the Kuwait Azores had some press about re-bid and questioning financing, and I don't know but you touched on the delay at Port Arthur, but could you talk a little bit more about those first two?

You broke up a little bit, are you talking about the Azores and --

Well, BP Whiting has been opposed in Illinois politically by Obama and Emanuel, and Azores had some financing issues, and we're still waiting on [witt] River. I don't know if you booked that in the quarter, so could you just talk about that and the Volero delays?

We believe that both the Whiting project and Azore will be going forward strongly. There's been uncertainty about them on Whiting because of just a permit issue that has, they finally cleared the hurdle on that in the middle of the summer, so I think that one's full steam ahead. Azore, a lot of the slow down on that was because of a citing issue that was finally resolved last quarter, so we are moving strongly. I was just in Kuwait last week. We're staffing strongly on that project and moving forward. The other two projects, the Volero project and the Marathon Detroit projects were both projects that have been postponed or delayed, shipped, in fact, I would call it slowed down really rather than delayed, and the purpose for that is twofold. It's to look at balancing cash flow in one case and the other one is to look at taking an opportunity for a better procurement process and better construction window, both of which is make sense and we are in full sync with.

Thank you.

We'll go go next to Michael Dudas with Jefferies.

Good evening, everybody.

Hello, Michael.

I have two questions. First, Alan or Mike, a year ago at this time, would up anticipated a $36.5 billion backlog at the end of the third quarter? Do you think it's a bit better than you would had thought, and was there some acceleration of some projects from either timing or just decisions by your customers this year as opposed to smoothing out into 2009?

The answer is no, I would would not have predicted at that level, but actually, Mike, there's a certain component of backlog in the industry that's due to inflation of capital costs, but we've done extremely well on proposals and prospects. So we've had both of those things working in our favor that has had us go past our targets we had set, and we are expecting.

My second question is, Alan, maybe some reflection on your recent Board appointment to BHP. Can you maybe give a little sense on what you might be seeing or your colleagues of what's happening to Pacific rim and lots of, of course everybody happening in the pacific rim and of course everything has happened quite quickly over the past couple of months, but do you get a sense that it's a bit more of a pause or has there been some structural issues that might back up developing economies growth over the intermediate term?

I think clearly, that's been a drop in demand on some commodities, Mike, that's -- and the mining industry is one that reacts much quicker to market psyche and commodity prices than almost any other segment. So right now I think it's more of a pause, I think they expect merging economies will continue to grow again, will continue to ramp up demand for commodities. But right now, it's hard to say and I'd be hard pressed to give a time frame as to what that looks like. I think you're going to see though, and again, I come back to the positive side of that for Fluor as opposed to my BHP (inaudible) directorship, we're going to see reductions in the prices of steel, of cable, of anything that has to do with alloys, and that's a positive bit of information. We've been seeing dramatic increases in those over the last couple of years.

I appreciate your thoughts. Thanks, Alan.

We'll take the next question from Andy Kaplowitz from Barclays.

Good evening, guys. Nice quarter. Could you talk about when you said your initial guidance for 2009, I know you guys are usually pretty conservative. You look at this $36 billion in backlog. How much leeway do you think you really have? I assume you set disaster. You have seen a couple delays in your project. So how much is based on the run rate of backlog flowing through versus getting the new awards that you talk about in 2009?

It's a good balance, Andy. I think obviously with the backlog we've gotten, it gives us a bit more confidence on the number. We've had great bookings and we know they are solid projects. And the delay issues, while we certainly took that into effect, that's not uncommon as I've mentioned. The portfolio we see that on a fairly regular basis. So it's a good combination of things. We have given a number that we are confident we can hit. And if there's upside, it will unfold during the year and we'll update you if the situation becomes more dramatic or difficult. We will certainly update that as well, but I don't expect that.

Great, you had a nice tick up in your government backlog. I know you talked about booking Savannah River and Log Cap, but still a pretty big amount, I think bigger than I think you said maybe $300 million or $400 million on Savannah River when we last talked, and so seems like the first task on lock up was not that small, plus the margins you booked in the quarter were pretty good, and so the question is, what -- how big is Log Cap, and how big could it be for you guys going forward. In terms of margins, are the sort of 5% margins sustainable going forward in government?

Government I think your going to see a sustainable range more in the 4 to 4.5 side. Log cap is going to be a hard one to gauge. I think we will see a good flow of orders as we go forward because that process has now started, but it's one that you might not see a lot of in backlog, because the type of orders we get will be worked off within one or two quarters on each task order. So it's going to be hard to see and it's going to be more of a transactional run rate type of business model there. On DOE, as you know, we book every third quarter full year and only the next year's revenue. So you'll see it tail off a bit over the next several quarters as we work off, but then we'll update it again next third quarter.

Andy, in addition to the normal booking, we have some transitional work that impacted the Savannah River new awards this quarter.

Great, and Mike, if I could follow up for one second. The hurricane impact on O&M, is that quantifiable? Can you tell us what that is?

No, we can't, it impacted O&M and, to a modest degree, it also impacted oil and gas.

Okay. Great, thank you.

We'll go next to Curt Woodworth with JPMorgan.

High, good afternoon. Alan, in terms of the potential projects that you think you'll be awarded in 2009 with oil and gas in order to keep the backlog relatively flat, can you paint a picture of what end markets are those in and do you already have the feed work for some of those projects?

First of all, Curt, I normally don't do this, but let me commend you on your report you gave earlier in the week. I thought it was really well done. A couple people out there have talked about the disparity in pricing today versus our earnings, and I thought you described it very well.

Appreciate it.

We do, in fact. The answer is yes, we have visibility into a lot of those prospects because we are doing the feed work, and it gives us not just a clearer shot at the EPC award, but gives us a better understanding of the business model, timing, and the relative size of these projects. So our outlook looking at prospects at that includes prospect for '09 is based on a pretty strong view of them.

Okay, and another question just regarding the '09 guidance, if you look at the guidance you set last year at this time for this year it was around $2.55 a share, so you almost beat that by a dollar. Given this kind of new climate we're in, what are kind of the pinch points around that number and I guess more big picture thinking, what would have to happen either to oil prices or potentially the global economy for you to start seeing more substantial investment changes by your customer base?

Well, your first question, you're right, or original guidance for '08 was midpoint $2.55. Number of things happen. First of all, we had outstanding awards in every quarter in the year and that really gave us a whole lot more earnings power and revenue in '09 -- in '08 than what we originally forecast. We also because of our growth got a tremendous benefit on leverage on our overheads. And we had also very strong performance that was, that allowed us to capture the earnings in those projects, so we had a lot of things that went really well, and you plan for those, but a couple things went better than we expected. The - - Let me ask you to repeat the second part of your question.

Well, even despite what's going on in the oil price market in the global economy, it feels like for the most part, spending is going to hold up relatively well, so I guess that the question would be what would need to happen, and this is probably hard to answer, what would happen for you to see more significant cancellations, delays, among your customer base? Would it be prolonged period at $50 oil or how are you thinking about the potential outcome of where we're headed?

It would take a more dramatic and sustained decline than what we've seen for that to occur. And, again, it depends on which market your talking about, upstream varies different than downstream, different than the tar sands, different than GTL. I think it would take a much more sustain in a long term downtown and take other issues, maybe political, geopolitical, regulatory. Things like that that would drive it down.

Great, thank you much.

We'll take our next question from Graham Mattison with Lazard Capital.

Hi. Good evening, guys. Congratulations on the quarter.

Thanks.

Just following up on the, with these projects that have been shifted in terms of the refineries, how does that impact the people you have on site there? Do you get stand by rates or are you able to put them in different projects?

In both cases, we're, we really hadn't gotten into the construction yet. We are just starting so we really hadn't ramped up. We will maintain staff on those, and I made the comment that we haven't stopped, we've just slowed down. We have plenty of opportunities to place people in this market. So it's, if we have to take one or two people off or some portion of them off, we have no problem putting them on other projects, that was part of the rationale for our clients, the construction demand in that area both in the upper northeast and southwest is very, very strong.

Great. And then looking at the power markets you mentioned that most of the awards are probably going to come in natural gas. Have you seen any slow down in terms of awards there, given the economic outlook and potential for slowing economic growth in the US or are they still moving ahead as they were two or three months ago?

I think the base generation and peaking gas fires still going forward. I think we will probably see some slowdowns in the industrially connected power projects, those that are meant to provide additional power for industrial plants where they are directly connected. That one I think we may see some slowdown, but we are still getting a good, strong look at a number of gas projects that are sole sourced negotiated doing the front ends and we will be bringing at least one of those if not more into backlog in Q4.

Great. Just a final question if I could. Previous question you talked about polysilicon plants and potential awards out there and you booked one this quarter. Do you still see that as a potential area for growth or has that market sort of flattened off?

I still think it's a good market for growth. We have a very strong position in that market. We're looking at a number of potential new projects, little early, all over the globe, so I think it will stay very strong.

So they haven't pushed back in terms of their expansion plans, and nobody has changed their outlook there for the customer side?

Not recently, no.

Great, thank you very much. Appreciate it.

We'll go next to John Rogers with Davidson

Hi, congratulations as well. First of all, just in terms of the, your fourth quarter comments, obviously '09 has been great, but sequentially it's down. Is there anything special that is happening in the fourth quarter?

Sequentially it's down.

No, sorry, '09 looks great, but the guidance you've given for the full year would imply a little lower fourth quarter, I wanted to understand if there was anything there.

Nothing that I could point to, no.

Okay. Okay. And then in terms of just back on the power market for a second. The gas projects that you are looking at, are the terms similar to what you've seen in the last cycle? Or are you going to be able to do -- how is the market developing there?

The terms are very similar to the last cycle. Every one of the projects we got are negotiated. So it's extremely similar in the process we are using to develop the projects and the negotiation and contract terms we're getting.

Okay. Great, thank you.

(OPERATOR INSTRUCTIONS) We'll take a followup question from Barry Bannister with Stifel Nicolaus.

You're incremental margin in oil and gas was about 8.5%, and it looks like your pushing the 6% number for a full year run rate, which we've always hoped for. Are you getting closer to that is a goal in terms of the margin mix in 2009 or would you describe the mix as different, more revenue driven?

I think it's going to be more revenue driven because of the construction nature that continues to grow in our run rate. I would really look for a 5 to 5-1/2 range as we go forward.

Did the [Greater Gabbard] wind farm partial interest recently change hands.

It did.

At the value less than the implied value of the total contract to build it?

I do understand that it did change hands. I didn't see any pricing that was with it, nor have I heard of any, Barry. But there was a sale of partial portion of that equity.

How much was that booking?

We've lost you, Barry.

How much was that booking?

I'm sorry, you really cut out. We caught the last part. Could I ask you to repeat.

How much was the Greater Gabbard booking?

I think it was $1.8 billion for us.

Thank you.

We'll can next to Richard Paget with Morgan Joseph.

You talked about some material deflation potentially benefiting you guys, how is the labor market? Is it still pretty tight for your end markets and might you see some more available people in the near future?

It's still tight. But it's very regionally driven because the tightness today is more on the construction side than engineering side.

Thanks. That's it.

You bet.

This does conclusion the question and answer portion of the call. At this time I would like to turn the conference back over to Mr. Alan Boeckmann. Please go ahead.

Thank you thanks to all of you for participating on the call this evening. As I said, these are clearly uncertain times, but I really believe that given the strength of our current backlog and our third quarter results and you combine that with our visibility into 2009, we are confident that our end market and diversity will continue to be an asset. We greatly appreciate your interest in Fluor and your confidence in our Company. Have a good day.

This does concludes today's conference. Thank you for participating. You may now disconnect.