Fluor Corp (FLR) 2009 Q1 法說會逐字稿

Good morning and welcome to the Fluor Corporation's first quarter 2009 conference call. Today's call is being recorded. At this time all participants are in a listen-only mode. The question-and-answer session will follow management's presentation. A replay of today's conference will be available at approximately 11:00 a.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 also be available through 11:00 a.m. eastern time on May 18th at the following telephone number 888-203-1112. The passcode of 6293144 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 to Fluor's first quarter conference call. With us today are Alan Boeckmann, Fluor's Chairman and Chief Executive Officer and Mike Steuert, Fluor's Chief Financial Officer.

Our earnings announcement and our 10-Q were released and filed yesterday after the market closed. We have also posted a slide presentation on our website which we will reference while making prepared remarks this morning. Before getting started, I would like to refer you to our Safe Harbor note regarding forward-looking statements which is summarized on slide two. During today's call and slide presentation we will be making forward-looking statements which 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 a discussion of those risk factors in our 10-K which was filed February 25th, 2009.

Now with that I will turn it over to Alan Boeckmann, Fluor's Chairman and CEO.

Thank you, Ken. Good morning everybody and thank you for joining us. Today we will be reviewing our results for the first quarter of 2009 providing an update on our current business outlook and discussing our earnings guidance for the year.

To start off, I would to cover the highlights of our financial performance in 2009 and I'm now on slide number three. We had a very strong quarter. Net earnings attributable to Fluor for the first quarter rose 50% to $205 million and that was up sharply from $137 million in the first quarter of 2008. Earnings per diluted share $1.12, up 51% from $0.74 per diluted share for the same period last year. Segment profit for the quarter grew by 33% to $332 million, and that compares with $249 million in the first quarter of 2008. Both the oil and gas and government segments had very strong profit growth over last year. Segment profit margin rose to 5.7%, that compares with 5.2% just a year ago. Our revenue increased 21% to $5.8 billion up from $4.8 billion in the first quarter of 2008 and that was driven mainly by increases in the oil and gas industrial and infrastructure and government segments.

As I move to slide four, you will see the new project awards for the first quarter were $5.5 billion and that compares with $5.7 billion in new awards a year ago. The quarter included $2.5 billion in industrial and infrastructure awards, and $2 billion in oil and gas, with the balance representing orders across the other three segments. During the quarter the Company removed two previously disclosed project cancellations from backlog. The $2.1 billion Al-Zour refinery project in Kuwait and approximately $580 million for the construction portion of two hydrocrackers for Valero. First quarter backlog also included an $850 million reduction associated with a revised scope on the BP Whiting refinery contract.

Let me talk about the Al-Zour cancellation. This was not clearly something that we were expecting at the time of our last call. In fact, we had just received assurances from our client that the project was proceeding. We did not expect that it would ultimately lead to this project being canceled. So, we were certainly surprised and I would say definitely disappointed by this development. Consolidated backlog though declined at quarter end, but still remains a substantial $29.1 billion, down 7% from a year ago and down sequentially from $33.2 billion at the end of 2008. With regard to our markets and our prospects we continue to execute our strategy of serving key clients and pursuing strategic project opportunities that could generate sizable new awards in the coming quarters. And, while there continues to be a level of uncertainty, particularly around the specific timing of releases we do not -- we don't provide guidance on new awards but I would say that we do expect variability from quarter to quarter.

Let me talk a little bit about the markets in each of our segments and I will start with our largest market, oil and gas. As you turn to slide five, oil and gas had a relatively strong quarter from a new awards perspective. But, as we have expected we are seeing a shift towards international projects. In fact, in the first quarter, over 80% of the new awards were for projects located outside of the US. In downstream, while the US market has slowed considerably, there are opportunities internationally and we booked another phase of the refinery in [Tartaston] this quarter. In petro chemicals there are a few large prospects but this market is experiencing some fairly pronounced cyclicality as we had expected.

Finally, in upstream, we continue to track some very substantial prospects in the Middle East, Russia and Canada. We were awarded one sizable project in Russia in the first quarter. We remain focused on these large opportunities where we can bring our extensive program management capabilities to bear and which we believe have a higher probability of progressing into fully PC contracts in 2009 and 2010.

I'm now on slide six. In power we booked a gas plant in the quarter for Dominion Virginia Power and we expect to book at least one more gas fired plant this year. In the nuclear arena continued our support of Toshiba on NRG's South Texas Project. New coal projects continue to be elusive however, with considerable environmental hurdles and challenges. Clearly the lack of carbon legislation, and the aversion to anything that creates carbon emissions is going to continue to be an impediment to new investment in this area.

In addition to our traditional power generation markets we are positioning ourselves in a number of renewable energy markets including large scale wind farms, solar power, and biomass facilities. We are also performing feed work on several carbon capture programs which we believe will eventually become a very substantial market for Fluor. If the SaskPower project in Canada proceeds as planned it would be the first commercial scale carbon capture system used on a full fired power plant in North America. In industrial and infrastructure, our mining backlog grew again this quarter, with the award of the next phase of BHP Billiton's Iron Ore expansion program. We also have the potential to win another sizeable mining prospect this year with a key North American client.

In infrastructure we continue to focus on major road and rail opportunities in the US and Europe. As always these prospects generally require long development periods and require financing. We do hope to see at least one large road award in 2009. The offshore wind area continues to take shape in the UK where we recently formed Seagreen Wind Energy Limited, with Airtricity, the renewable energy division of Scottish and Southern Energy. Seagreen has bid for the exclusive rights to develop wind farms under the Crown Estate€™s Round 3 Offshore Wind Farm Development Programme.

I will ask you to please turn to slide seven, on the government segment. Here we remain focused on key programs for the Department of Energy and Department of Defense. With our recent successes at both Savanna River and on LOGCAP task orders, this group is expected to have a very strong year. For the DOD, we are expecting to hear on the next round of LOGCAP task orders in the very near future. This has the potential to be a very substantial award for us. We also continue to receive additional awards on our CETAC contract in Iraq. FEMA, in self, has been a steady contributor as well as helping us respond as we help to respond to a variety of events around the US.

The Department of Energy will be a likely growth area as well in 2009, as some fairly substantial stimulus funds were allocated to both the Savanna River and Hanford sites. Our global services business continues to be effective at renewing existing long-term contracts. We have definitely seen reductions though in small capital work as clients trim discretionary spending. In addition, oil and gas clients in particular, continue to delay refinery outages and turnaround work. And, however while volume in this area is down, the segment is still performing very well and maintaining some of the best margins in our portfolio.

In summary, Fluor booked a substantial $5.5 billion in new project awards and still maintains a significant backlog even after the project cancellations that we experienced during the quarter. I'm very encouraged by Fluor's ability to deliver solid results in an increasingly difficult market environment.

And, with that, let me turn the call over to Mike Steuert, to give you additional details on our operating performance and other financial information. Mike?

Thank you, Alan. And good morning. First let me provide you with a brief recap of results for each operating segment. Please turn to slide eight.

Fluor's oil and gas segment recorded a profit of $201 million, which is a 46% increase from 2008. Revenue was up 29%, to $3.4 billion. New awards in the first quarter were $2 billion including a $1.6 billion in non-US awards, with the majority of those in upstream. Pending backlog for oil and gas declined 20% from a year ago to $16.3 billion. Moving on to slide number nine, Fluor's industrial and infrastructure segment reported segment operating profit of $28 million, essentially level with the $29 million reported a year ago. Revenue of $1.2 billion, was 48% higher than the year ago, due to higher level pass through costs associated with certain mining projects. Backlog at the end of the quarter was $8.1 billion, a 41% increase from a year ago.

The government segment posted a profit of $28 million for the first quarter, substantially higher than the $8 million reported last year. Improved results were primarily driven by contributions from the Savanna River project, and the LOGCAP IV and FEMA task quarters. First quarter new awards totaled $243 million, bringing ending backlog to $574 million. Now turning to slide number ten, the global services segment reported a 23% decline in revenue, to $542 million. This decline was due to lower levels of small capital projects and delays in shutdown and turnaround orders. Segment profit for the quarter was $55 million, compared to $54 million a year ago. Despite the lower revenues, the strong profit results for the quarter reflected increased mix of higher margin work and improved performance and operation to maintenance and equipment services business lines. New awards were $276 million for the first quarter and backlog declined to $2.3 billion from $2.6 billion a year ago.

Fluor's power segment reported revenues of $339 million, a decline from $422 million in the first quarter of 2008. This was due to lower revenue from the Oak Grove project as it progresses closer to completion. Segment profit was essentially flat with a year ago at $20 million. New awards were $423 million, and backlog for the segment was $1.9 billion, down from $2.2 billion a year ago. As Alan mentioned Fluor's consolidated backlog at quarter end was $29.1 billion. This is a $4.1 billion decline from backlog at December 31st, includes the impact of $3.6 billion in project cancellations and scope reductions and $5.7 billion in first quarter work performed. 74% of total backlog value is cost reimbursable, and 53% of backlog value was for non-US projects.

Now I would like to move to corporate items shown on slide 11. G&A expense for the quarter showed solid improvement, declining to $25 million from $40 million in the first quarter of 2008. This improvement was primarily due to lower compensation expense as well as the impact of cost reduction efforts. First quarter G&A is also typically lower than subsequent quarters. For the year, we now expect G&A expense to be in the range of $180 million to $200 million. We had net interest income of $5 million for the quarter, down from $10 million in the first quarter of last year. This decline is mainly the result of lower rates of return on invested cash as our focus remains on protection of principle.

The tax rate for the March quarter was about 33%. The lower effective tax rate was primarily due to relatively new accounting rules regarding taxes on unremoved foreign earnings and earnings attributable to noncontrolling interest. For the year, our tax rate is expected to be slightly below 38%. During the quarter, the Company adjusted its income statement presentation for noncontrolling interest due to FAS 106 -- or 160, excuse me. Also the Company implemented APB14-1, which is intended to clarify the treatment for convertible debt instruments that may be settled in cash upon conversion. This resulted in negligible changes to additional paid in capital, taxes and interest expense. Please refer to footnotes 10 and 12 in the 10-Q for more information.

Shifting to the balance sheet, consolidated cash and marketable securities at the end of the quarter was $2 billion compared to $1.9 billion a year ago. To date in the second quarter cash has increased to slightly over $2.2 billion. During the quarter, we also repurchased $60 million or 1.8 million shares of the Company stock. We declared our normal quarterly dividend of $0.125 per share, which is payable July 2nd, 2009. Our debt to total capital ratio was 5% unchanged from last quarter and down from 12% reported a year ago. Capital expenditures for the quarter were $53 million, down from $59 million last year, with the majority of these expenditures attributable to our continued investment in our equipment services business. In summary, Fluor's financial position remains extremely strong, with minimal leverage, substantial liquidity and good access to capital based on our solid A credit rating.

Finally, let me address our guidance for 2009 which is shown on slide 12. We are reassured by the strength of our first quarter results and we are attracting a number of large new award prospects that could positively impact the year. However recent cancellations including the $2.1 billion refinery in Kuwait have created some downward pressure on our 2009 earnings forecast. As a result, the Company is lowering its 2009 earnings guidance to a range of $3.80 to $4.10 from the previously issued range of $3.90 to $4.20 per share. Operator with that, Alan and I will be happy to respond to questions.

Thank you. (Operator Instructions) We will take our first question from Andy Kaplowitz with Barclays Capital.

Good morning guys.

Good morning Andy.

Your corporate G&A was a lot lower than most people thought. Maybe Mike or Alan you could go over how you got there, how much of your business is variable costs and what are some of the initiatives that you undertook to get the lower or better than expected results?

Andy, it was lower than expected as I mentioned in my comments, we do expect it to increase in subsequent quarters. The first quarter is typically lower.

We did initiate a number of cost reduction activities late last year, early this year that impacted the quarter. We are certainly trying to control a lot of corporate G&A expenses including travel and other items of overhead. To your point, we have moved -- we worked over the last several years to move very strongly to a variable cost model that we can really adjust our overhead not only at the corporate level but on a business units based on the volume of activity that we see in the businesses. That's clearly benefiting us.

But again the first quarter was lower, we don't expect to track at that rate through the rest of the year, but we expect to have some meaningful improvements in terms of cost reductions in 2009, and that's reflected in our guidance of $180 million to $200 million for corporate G&A.

Okay, thanks Mike. Alan, last quarter you have given us some backlog guidance. Maybe you could update us if you can on it and then also what are your customers now saying versus a couple of months ago, are they any more comfortable with the way the world is or less comfortable. Where are we in the process?

Andy, that's a very good question, it depends on the market and in some cases, even on the customer and their current situation. Clearly on the last call we talked about backlog remaining relatively flat.

Obviously the recent cancellations have created some head wind for us there. But we see significant opportunities going forward as lumpy as it's going to be, there are some sizable prospects on our list for 2009. They are really more heavily weighted towards the second half of the year. And they're in a number of business groups -- oil and gas, mining, infrastructure, government and power. Really across our whole spectrum.

What we are seeing is -- there is uncertainty, we see some clients that are hesitant to spend because of that uncertainty. We see others who have strong balance sheets and strong investment intentions recognizing that this may be the best capital market they would be in to take their projects forward. So it is a bit of a mixed bag. We really do believe thought that we have some great targets of opportunities. And, in fact have had some positive developments in the backlog notwithstanding the cancellations we had. It's not gloom and doom but clearly is a lot more uncertain and lumpier than what we might have seen in the past.

That's fair. I will get back in queue, thank you.

We will take our next question from Jamie Cook with Credit Suisse.

Hi, good morning and congratulations.

Alan just a follow up on Andy's question -- can you comment specifically what your customers are saying within the oil and gas market with crude now pushing $60, how -- how do they feel about that? And what are you seeing on the labor and material cost side? I'm trying to figure out how much that needs to go down before it makes crude at $60 fairly economical. And then my follow up question is can you talk about what you're seeing on the competitive front as you are booking these projects, are you seeing margins and backlog go down as we think about beyond 2009 I guess?

Jamie, certainly in the oil and gas market it depends whether we are talking upstream or downstream in large part or petro chemicals. On the upstream side is where we are seeing our biggest opportunities going forward. The downstream side in the US a number of clients are still going forward with their projects, but others have slowed, and we have already mentioned the cancellations and delays we have seen.

A lot of our opportunity is overseas, even the downstream market, it's the overseas market that's providing opportunity for us. Interesting enough on the upstream side, we've got several clients -- I will go back to my previous comment -- that are very wisely understanding this may be the best capital market that they will get the opportunity to take advantage of because costs are down to your other question. We have seen a dramatic fall off in the cost of material, on the cost of fabricated equipment, on the schedules for delivery of fabricated equipment and pipe.

So there is some significant opportunities that are opening up here to get lower costs than what we have seen in the escalation that occurred over the last couple of years. But clients -- again, it's much dependant on their own balance sheet, on their own market outlook with probably the downstream refining market in the US being probably the one that is having the most trouble.

Okay and my follow-up question -- can you talk about what you are seeing on the competitive front how we think about projects you are booking in backlog today versus six to nine months ago?

Interestingly enough again, it depends on which industry segment we are talking about. On the oil and gas side the projects we are seeing are in significant in size. And even in the up market we had relatively little competition with only one or two people that actively effectively compete for that.

In the program management, the significant projects we do -- the utilities and offsites -- we are still seeing ourselves in a very favorable track towards those and not any real difference in the market conditions for bidding. In the -- in some of the consumer products areas, maybe even in the power markets and others, we clearly are seeing more increased competition because of the down markets and the uncertainty that's out there.

But having said that we have maintained selectivity on either side of this curve and are focused on the projects we know we can go after and have a strong competitive shot at.

Do you think as we think about projects cancellations and your conversations with customers do you think we are through the big cancellations or do you still think there are more risks?

I really think the big cancellations are behind us. I would never -- given the uncertainty -- it's hard for me to say that we won't have others but I think the ones that are extremely material to us like we have seen in the first quarter are in fact behind us.

There may be some others that occur. I don't think it will have the impact. We have taken some of that into account in our outlook.

Thank you very much.

We will take our next question from Richard Paget with Morgan Joseph.

Good morning everyone.

Richard, good morning.

Given this point in the cycle, have you guys started seeing any shift in the way that clients are contracting with you guys perhaps maybe putting some of the risk back to the contractors?

Richard, I'm sorry, we lost you.

Did I get cutoff?

You faded out pretty dramatically, I couldn't hear your question.

In terms of the way that clients are looking at contracting, are you starting to see any shifts in the contracting mechanisms that are putting the risk back to the contractors?

It's interesting. There is a shift, it's not in the intention or direction of our clients, it's more on the contractors side. We see more contractors now willing to come and bid lump sum because of the market. Clients have always wanted -- it's pretty traditional with a lot of clients -- whether they favor one type of contract or another.

In the Middle East for example where lump sum is absolutely the favorite. Over the last several years it's been difficult if not impossible to get a bid slate that would consider taking on the risks given the escalations in the market and so forth. Now that cycle has shifted in the other direction so we are seeing more opportunities to bid lump sum and more contractors willing to step up and bid into those risks.

Again that's not a market that we typically plan, most -- when we do a lump sum project it's with very limited competition or in a direct reimbursable phase contract. That's irrespective of the market. We have that -- have used that philosophy in oil and gas, power infrastructure, literally right across the board.

Then on the services side you said you saw some delays in some of the turnaround work. How long can that work be deferred, when do you think you should see people resume back to a normalized run rate?

Turnarounds are typically on a scheduled basis and again depends on the high hope of industrial plant. But typically most large refineries and so forth will go on a two or three year cycle for turnaround. But when they delay those, they can't delay them all that long because there are certain things that have got to be tended to.

In the oil and gas cycle -- my guess is -- you can delay a turnaround for six months. You may be to even to delay it up to nine months, but going on to a year is getting fairly dramatic. So I would anticipate these to start coming back sometimes towards the middle to the end of 2009.

Okay, finally on the accounting change with the noncontrolling interest, are there any margin impacts or anything that we should look at for a modeling going forward?

No. It really doesn't impact the margins. It could potentially impact the tax rate or making tax rate appear a little lower than what it actually is.

Okay. Thanks, I will get back in queue.

Thank you.

We will take our next question from Michael Dudas with Jefferies.

Good morning gentlemen.

Hi Mike.

Alan, could you share thoughts on the government side that looks like to be the best grower and best opportunity for business and margin. Do you see those opportunities accelerating and can that -- how significant of a contributor can the government business be for Fluor over the next 18 to 24 months?

It's clearly growing from where it was in 2007 and 2008, Mike. Our success at winning the contract and getting it in place in the middle of last year at Savanna River has been a very significant positive. And that continues with the opportunity to get into some of the stimulus funds that have been directed there at the site. So that's going to be a positive compared to what we had planned during the year and something we look forward to.

I would say our most signature contributor though in terms of growth has been our contingency operations area specifically for the Department of Defense -- the CETAC additional awards and the LOGCAP awards we have gotten to date have been a very positive contributor to the government's performance. We are bidding some very sizable LOGCAP awards right now. We expect to get a decision on I would say within the next four to six weeks. That I think could be very significant and have a fairly quick impact on the results in the government sector. We are pretty bullish in that area. That group has really done great things in building themselves up to this point and have got a great reputation going with a number of the agencies.

From the infrastructure side, you say maybe one large road project -- I'm assuming Texas this year -- is the stimulus monies and some of the opportunities looking a little bit better for Fluor for possibly 2010 sizable bookings?

Yes, it's interesting when people first started talking about the potential of the stimulus bill, the common knowledge was that it was all directed towards infrastructure of city road streets, buildings and the like. But, that's just not been the case. It's gone into a number of other areas. I think to the extent that stimulus monies find their way into spending in what I call the road and building infrastructure it will really be 2010 before that really occurs to any degree. So we are -- as I said we expect the biggest benefits for Fluor to be in our government and power business for stimulus funding.

I have a question on the power side -- a couple of things, one, the EPA actions with regard to Desert Rock does that significantly put that project in danger?

Yes, that project continues to be plagued by the issues and actions of the EPA and all the opponents that are against it on the clean air side. It's not something we counted on this year. It would have been really outstanding had it gone forward. And we had some hope that it might in the second quarter. But I think that's likely not to happen now. We are not looking at it for 2009.

Given that coal is out of the picture and nuclear -- everybody has their own opinion about when that happens -- does that make sense that natural gas is going to have to be that bridge to the power side and could we see some acceleration in announcements of new combined cycles planned for the next two or three years?

I think that's a very good point. What's changed in that dynamic over the last several quarters has been the very surprising growth in supply of natural gas here in the US in particular with the Barnett Shale discovery and production, the cost for natural gas per million BTU's has come down dramatically. And the predictions are it will continue to stay down for the next year or two. That's good news in this power market, because we clearly were in betwixt and in between in terms of how to implement new generation to meet the demand growth here in the US. And, there has been a slow down in that demand growth over this last year with the recession.

So to your question, I think we will continue to see gas -- combined cycle gas prospects -- come up. We are as I said looking to book one more in this year. I think we will continue to get a number of front end opportunities on combined cycle plants as we go through the year.

Thank you.

We will go to our next question from Mark Thomas with Simmons & Company.

Good morning, guys.

Good morning.

Mike I guess most of my questions have been answered. But, Mike, in the queue, is listed the oil and gas segment benefited from change order approvals. Can you elaborate on what impact that had on the segment results if any?

You cut out for a second there in your question. Could you repeat it?

Sure. In the queue it's listed the oil and gas segment benefited from some change order approvals. Can you elaborate on what impact that had on the segment results, if any?

They were very modest, those change order approvals would impact the profit very very modestly.

Does 6% --

(Inaudible - multiple speakers) -- make a profit on a 100% complete basis, it may not have been approved prior to the budget -- prior to that approval by the client.

So are those 6% margins -- are those pretty representative of the work performed for the quarter?

Yes, they are.

Okay, that's all for me, thank you.

We will take our next questions questions from Steven Fisher with UBS.

Hi, good morning. It sounded like the guidance reduction is pretty much entirely related to the cancellations. I wanted to confirm that you didn't reflect anything new about the business or economic environment in your guidance. How do you reflect the timing uncertainty of some of those larger projects into the guidance? You said it could have an impact on 2009.

You're very right. Some of the opportunities that we are looking at that could occur in the second half of the year are quite sizable. So when we do an outlook we look at what we call a factored basis of success.

To the extent that they occur they could be better than what we forecast to the extent they don't occur, we don't win them, it could have a depressing effect on our forecast. It is again a lumpy business where some of these things are so large that it's hard to do anything but scenario them. I think we did lower the outlook quite significantly due to the -- we didn't lower significantly -- but the significant effect of lowering it was from the cancellation of the Al-Zour refinery.

We had some other positive things occur. Our confidence level in some of these other awards and in the stimulus funding is higher than it was a quarter ago. We have seen the effect of our cost reductions, and others may have been expecting more of a reduction. We try to remain conservative but we think it's a range that we certainly intend to perform within.

That's helpful. Wondering what your drove your decision to buy back stock in the quarter? Compared to where you are --

I'm sorry, I apologize we are having trouble with our audio here, if you could speak directly into the microphone. We lost you on that last part of the question.

Just wondering what drove your decision to buy back stock in the quarter compared to where the stock is today it seems like a pretty good move. But I'm just -- do you get a sense that markets are stabilizing? Was it a lack of M&A opportunities? Or thoughts there.

It is a combination of factors, we have always said we would buy back shares on an opportunistic basis.

We can only buy back shares during a window after which we announced our earnings. We really only have about a three or four week period in which to do that every quarter. We look at the price -- we look at whether it is an accretive move for shareholders, what we believe is our going forward position and then we make the decision on that basis.

We clearly also can't be involved in any significant discussions around M&A or so forth that may result in a deal while we are repurchasing shares. It is very opportunistic. We intend to continue to buy back shares on an opportunistic basis and we will do obviously during the windows when we are allowed to do that.

Thanks a lot.

Our next question comes from [Will Gabrialski] with Broadpoint AmTech.

Thank you. Structurally here if we are talking about bigger government awards, can you help me understand what that's going to do to your business in terms of tracking it via backlog and the percentage of some of these LOGCAP contracts becoming book and burn within a quarter and a better way to handle the business versus just looking at backlog exiting a quarter as a way to forecast forward numbers.

You raise a good question. The LOGCAP awards in particular, while there will be a good size booking, a good part of that will be worked off if not within that quarter within the next two or at most three quarters. They move quickly, they are projects that the army needs done quickly, they put a high priority on that. We get a lot of positive marks and increase our competitiveness by being able to quickly respond. So it goes into the new awards but it comes out into revenue fairly quickly thereafter.

Then in terms of -- obviously you talked about the shift to global oil and gas from North American downstream oil and gas. Can you talk about -- North Americans really driven the business over the past few years. Can you talk about some of the opportunities out there in terms of dollar size and how you view that market in general over the next 12 months?

It's marked by what I call substantially large projects. A couple of the projects we are looking at and proceeding on and competing for are some of the largest we ever gone after in our Company's history. Again that just contributes to the lumpiness as we are successful on those.

It is in the upstream area. They are quite focused in Russia and the Middle East and in a couple of cases in Asia. And there is an opportunity that we see in Canada as well.

Very little in terms of the US on any downstream activity at all.

Could you provide a little more color on why you are having such success in Russia now and every piece of data that you see talks about 40%, 50% CapEx cuts and it seems to be one of the more effective markets globally.

We have again been very specific on being selective on the opportunities we pursue there. We have had some great success on performance over there, which gives us a pretty strong relationship with the clients and the projects that we are getting here are on a repeat basis with clients that are targeting their capital spending. The award that we took in this quarter was on the far eastern side of Russia where we have had several very successful projects.

One last one if you don't mind -- [SIPKIM] in Saudi Arabia and SABIC [funded MOU] last week and it looks like there is a pretty significant level of spending coming from that particular customer going forward. Can you talk about your visibility there and some general color about how you're positioned?

The combination of those clients -- we are in the process of doing a very large petro chemical project with them as we speak in Saudi Arabia. We have had a very long and positive relationship with SABIC and of course SIPKIM is a relatively new company, but we have been doing their front end awards and they are doing their only really large project.

We do get some good visibility there. And I'm hopeful that our reputation will continue to -- and relationship will continue to serve us very positively as they go forward with their capital plans.

Alright, great, thank you and good job.

We will take our next question from Alex Rygiel with FBR Capital Markets.

Thank you and good morning. First what's the timing of carbon capture projects significantly impacting new awards and backlog?

Alex, the projects we're doing now -- there's a few of them out there -- we are doing a demonstration plant in Europe right now with a utility company. This SaskPower one is always very significant and I think will be an extremely positive project as it goes forward. I think back to one of the earlier questions, the only way that it's -- that the world is going to be able to really use coal as we go forward in the future is to be able to truly take the carbon out of that process.

Fluor has a proprietary process that we have been using for quite a number of years in gas stream in the gas production arena, that is very applicable here and is one that is getting a lot of attention and we are putting a lot of focus on it. This would be a great award and a great project moving forward. In terms of it truly being something that would -- that really hits backlog and really starts driving results, it's probably 2010 or even 2011 before that really gets going.

There is a cost to implementing this. It is clearly more expensive than just pure burning of coal for power plants and so I think it's going to take a regulatory environment and/or a cap and trade system that would reward that investment to really drive it forward.

On the solar market in particular, how is your project in Montana proceeding?

On the solar I'm probably best not to speak to an individual project.

We are involved in the solar market pretty much across the globe. Our biggest involvement has been in the production of the polysilicon that goes into the solar cells. And that's the area we have have been focused on.

In our power business we are looking at some opportunities to get into some actual solar plants that produce electricity. But our biggest focus has been on the chemical side of that equation.

And lastly, what's your thinking on when you may add South Texas to backlog?

I'm sorry, we lost you again. We are having a really difficult time on our audio here. If you'd speak right into the microphone that might help.

Sure, what's your colonel thinking on when you may add South Texas to backlog?

Well, we have a pretty hard and fast rule on backlog. We have to have all licenses in place before we put something in backlog. I'm looking at 2012 would be really when that project gets it's COL. And so we won't put it in to backlog until that time.

Thank you.

We will take our next question from Barry Bannister with Stifel Nicolaus.

I had a follow up on the South Texas project. My understanding is that the nuclear regulatory commission is looking at -- and DOE -- is looking at a guarantee program for the reactors and the decision is imminent. Based on the structure of that likely guarantee program, South Texas would seem to be one of the early approvals for guarantee of losses due to construction delays. What's [David Cospell] been saying to you about that particular angle in terms of an incentive to go forward and push ahead on the project.

We are clearly hopeful that that comes to pass. But the approval to push forward on that with that as a backstop would come from our client. And their willingness to go forward and assume that risk or to benefit from that guarantee.

Again we are hopeful but right now without that decision we are still looking at a couple of years out before there is significant spending particularly on procurement of major equipment.

But you have heard of that and your global power group views that as a significant milestone.

It would be absolutely significant. I wouldn't forecast the likelihood of that occurring just now. But I do believe if it were to occur, it would certainly be a positive.

And the other blue chip stock in the engineering space that's publicly held has indicated that it's interested in M&A at this stage of the cycle. What is your disposition now that you entered the market to buy back stock. Would you rank order what you see is the likely uses of cash in the next year?

The stock buy backs cost us about $60 million to $80 million -- $60 million -- and we have a fairly significant cash reserve, so I wouldn't preclude doing both, in parallel.

We are looking at M&A, we continue to be very interested in M&A. I will tell you it's not easy in this market because of -- there has been a significant decline in valuations -- a lot of companies have a fairly high opinion of themselves, and reality hasn't sunk in.

But we are very actively looking at opportunities for M&A that would fill us out in a number of markets that are priorities to us. And I do expect we will be having some M&A activity as we go through the year that will have a significant benefit to the corporation.

Are you willing to accept up front dilution if you were to be a consolidator being a leading player in the industry.

Barry, I don't really believe in the concept of consolidation in this market. It's been tried in the past, it's not been a successful strategy.

What drives M&A should be where it fits into your strategy of where you want to grow and fills out capabilities -- or geographic regions that you currently don't have in your portfolio. And that's how we are looking at it. We are very active in looking at the infrastructure area, we are very active in looking in the global services O&M area, offshore oil and gas, and in the nuclear fuel cycle.

Thanks.

We will take our next question from Graham Mattison with Lazard Capital Markets.

Hi, good morning, guys.

Hi Graham.

You guys mentioned looking at some pretty sizable renewable energy projects out there. Do you see these as more of a 2009 event or is this probably going to be more a see those coming in in 2010?

On the renewable side I don't think we will have a sizeable one in 2009. With the exception maybe of the SaskPower, where it's not necessarily a renewable although it is aimed at the clean fuel arena. But wind power, biomass, so forth we are looking at more of 2010 opportunities.

Great. Then just on the US downstream market obviously your comments remains pretty stagnant, do you have sense of when we might see some turnaround there, at least leveling out?

It's clearly gone down -- it's interesting enough if you go back and look at the comments we have been making now for almost two years. We knew that the end of this cycle would come in late 2008, early 2009, simply because of the capital projects that had been lined up and the timing at which we saw they were going to occur.

What was really not predicted was the falloff in demand here in the US, and the reduction of cash flows in a number of our clients. So while we already predicted that new awards would stop in 2009, we really hadn't seen the effect that the cash flow issues were going to have on cancellations or delays.

So I think it's going be a while before that market moves back up again in the US. But keep in mind the investments have been dramatic over the last couple of years. The capital investments in the downstream infrastructure of the US have been rather significant. I think there will be an opportunity to work through those capacity increases over the next several years before you really see any significant investment coming back into that market.

Great, thank you very much.

(Operator Instructions) We will take our next question from Joe Ritchie with Goldman Sachs.

Good morning everyone.

Good morning.

Sounds like you are excited about your opportunities on the award front for the second half of the year. I was wondering if could you give use some insight into the second quarter, specifically, whether there's any large projects that you think could hit -- outside of the LOGCAP task orders -- that could hit in the next four to six weeks.

If you look at our last three quarters, we've averaged $6 billion a quarter but its gone from a high of $8.8 billion to a low of $4.2 billion. I do think that the big larger award quarters are going to be our third and fourth quarters in 2009. That could change, I mean something could move forward.

We've had a couple of prospects actually do just that and move forward -- which had not been the trend in the past couple of years. I do expect probably second quarter will be our lowest quarter of the year. And again that just the lumpiness but that's also again in the forecast we put into our outlook for the year.

Would you expect that to be within the range that you just spoke about -- the $4 billion, $4.5 billion to $8 billion range?

Yes, likely but probably towards the lower end of that.

On the LOGCAP forward task orders you mentioned you could see those awarded in the next four to six weeks. Can you talk about the size of those awards? Are we talking about awards greater than $500 million?

They are significant. The challenge with any of those awards when you get them, it's a scope of work that's very general. Then you receive individual releases against those that are more specific. Even when we get the award, again we are pretty conservative in how we book backlog. We would only book it when we've got a specific task order that had a direct identifiable scope with it that we can estimate.

It would be great news to get it because I know that the stuff that is in there is very high priority and would move quickly. We would probably take our awards into backlog on an individual task order basis.

Okay. And can you also comment on the BP Whiting scope reduction. Talk a little bit about the reduction and how that project is progressing today.

The project took a long time to get going because of some permit issues, but it's proceeding pretty strongly right now. The scope reduction was a look at how we could best manage that project from a resource standpoint and leveling out of resources. So it was a decision that was actually entered into in conjunction with our sales and our customer to a more optimize the execution on that project.

Okay. Thanks. Thanks for answering my questions.

Thank you very much.

We will take our next questions questions from John Rogers with D.A. Davidson.

Good morning.

Good morning John.

Couple of things, first, Alan following up on your comments about M&A, in the markets that you were looking at, is it your intent or expectation that you won't be 60% dependant on the oil and gas business four or five years from now?

It's amazing. If you look just back over a five or six year period, I don't have the numbers actually in hand but I would be willing to bet we've been down as much as 25% of our business in oil and gas during that time.

Yes, that's what I'm looking at.

Almost two-thirds, so --

Yes.

It varies, it depends on the market we are in. The advantage that we have is that we have a very strong position in all of the markets we play in. We have the ability to shift our resources between them pretty quickly.

I wouldn't predict where we are five or six years from now because I'm likely to be wrong that far out. But I do think we will continue to maintain a strong focus on each of the markets and be very cognizant of where they are moving and be in a position to be competitive in each one of them.

Secondly, for you or Mike, was there any significant margin impact from the cancellations of the projects, did you collect any fees or demobilizing benefits from that?

No, John, there really wasn't anything material at all in the quarter in terms of impact on margins.

To answer your question, 2002 it was 24%.

Okay. Thank you.

That does conclude's today question-and-answer session, I would like to turn the conference back over to Mr. Boeckmann for any additional or closing comments.

Thank you operator and I'd really like to thank all of you for participating on our call this morning. We strongly believe here at Fluor that our strategy of industry and geographic diversification is serving us well and it's enabling Fluor to meet or exceed expectations in this extremely tough environment. We will continue to do everything in our power to deliver the best possible results to our shareholders. We greatly appreciate your interest in Fluor and your confidence in our Company. Have a great day.