Fluor Corp (FLR) 2010 Q1 法說會逐字稿

Good afternoon and welcome to the Fluor Corporation's first quarter 2010 conference call. Today's call is being recorded.

At this time, all participants are in a listen-only mode. A question-and-answer session will follow management's presentation.

30 PM Eastern time on May 16 at the following telephone number, 888-203-1112. The passcode of 918-2654 will be required.

At this time for opening remarks, I would like to turn the call over to Mr. Ken Lockwood, Vice President of Investor Relations. Please go ahead, Mr. Lockwood.

Thank you, operator. Welcome, everyone, to Fluor's first quarter 2010 conference call. With us today are Alan Boeckmann, Fluor's Chairman and CEO; David Seaton; and Mike Steuert, Fluor's Chief Financial Officer.

Our earnings announcement was released this afternoon after the market closed. We've also posted a slide presentation on our website which we will reference while making prepared remarks on today's call.

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 on February 25, 2010.

During this call, we may discuss certain non-GAAP measures. Reconciliations of these amounts of the comparable GAAP measures are reflected in our current earnings release and are posted in the investor relations section of our website at investor.Fluor.com.

Now I'll turn the call over to Alan Boeckmann, Fluor's Chairman and CEO. Alan?

Thanks, Ken. Good afternoon, everybody, and thanks for joining us today. I would like to review our results for the first quarter and at the same time, provide an update on our business outlook for 2010. So let's start by looking at some of our first quarter financial highlights and you'll see these on slide three.

Our net earnings attributable to Fluor for the quarter were $137 million or $0.76 per diluted share. These results are in line with our expectation for the quarter and as expected, reflect lower contributions from the oil and gas segment.

Our consolidated segment profit for the quarter was $243 million, comparable with $332 million a year ago. Segment margins were 4.9% in the quarter and this compares with 5.7% a year ago which at the time was very near a historical high point for the Company. Revenue for the quarter was $4.9 billion and that is down from $5.8 billion a year ago.

Overall, results reflect lower revenue and profit from oil and gas and also from global services. And that's partly been offset by growth in the power, government and industrial and infrastructure segments.

Let me refer you to slide four. First-quarter awards of $3.4 billion were diversified and included $1.4 billion in oil and gas, $1 billion in industrial and infrastructure and about $400 million in both government and global services. Backlog for the quarter ended at $25.7 billion which was a modest decline from the $26.8 billion we reported last quarter.

So to summarize at this point, I think our end market diversification has enabled us to deliver good profitability despite lower new award levels in the recent quarters and the trailing impact of a significant reduction in spending by our oil and gas clients. Now I would like to ask David Seaton, Fluor's Chief Operating Officer, to provide an update on the markets and each of our segments. David?

Thanks, Alan. I will start with oil and gas and then work my way through the segments. Turning to slide five, oil and gas had a good quarter with the award of the Jetty Boil-Off project for Qatar Gas. This is a strategic upstream win for us and is a great example of a project that's been pending for many quarters and has finally progressed to an award stage.

It's also characteristic of the current oil and gas market, although we do see signs that other key prospects could begin to move forward. In downstream, our [eco-Fluor] joint venture was awarded two clean gasoline projects for Pemex during the quarter and we also see downstream prospects in Asia, Middle East and in South America. In the US, we are making good progress on the remaining of the large refinery projects we currently have in backlog.

In the petrochemicals market, orders have slowed considerably over the last year as we expected, but we did book an incremental award for the expansion of a project in China. We continue to view China and the Middle East as the most likely areas for future awards, however this market is clearly between cycles and will take some time before it picks up materially.

As we've discussed in the past, the majority of capital investment going forward will be focused on the upstream projects. There's a substantial investment plan in the Middle East, Russia, Australia and Canada. I mentioned the award in Qatar and we also booked two strategically important fee contracts for offshore facilities located off the coast of Abu Dhabi.

We also had incremental upstream awards in Russia, Kazakhstan and in Canada for the first quarter. We are strengthening our position on the offshore side in particular to complement our depth of onshore oil and gas capability.

With regard to our major oil and gas markets, we're seeing numerous feed opportunities which is a positive sign for the future. We also have some large EPC prospects that will be awarded during 2010 and we are investing to position the organization to enable us to quickly respond to this business as recovery begins.

If you'll turn to slide six now, let's talk about power. We booked a strategic win in the first quarter with the award of the three-year site services contract to provide ongoing maintenance, modification and [outage trap] services to the PG&E Diablo Canyon nuclear generating units one and two.

Looking ahead, we continue to attract prospects in the US and Europe, including gas-fired power, solar, wind renewable energy and environmental betterment programs. We're also progressing on several feed programs involving application of CO2 capture for coal plants which could lead to EPC project opportunities in 2011.

We continue to support Toshiba on NRG's STP 3 and 4 nuclear project. The project owners are working very diligently to move this project forward with the goal of receiving DOE loan guarantees prior to the eventual award of a construction operating license by the NRC.

In industrial infrastructure, awards in the quarter were broad-based with key wins in transportation, biologics and mining. As we discussed over the last year, numerous mining prospects continue to progress into sizable EPC awards. The pipeline of projects in South America, Asia and Australia is robust and Florida continues to capture significant share of that market.

We expect to book several large programs across a variety of metals during 2010, further growing the strong backlog that we already have there. As you may have read, the Saudi Arabian Mining Company, or Ma'aden, recently issued letters of intent to us and others for their new aluminum refinery smelter and rolling mill facilities and we expect to book our scope in the second quarter.

In infrastructure, we booked the extension of SH 161 tollway here in Dallas in the first quarter. We continue to focus on a shortlist of road and rail opportunities in Europe and the US. This market still faces some challenges from a financing standpoint, given the overhang created by the global credit crisis.

With regards to the offshore wind development, we're making great progress on the Greater Gabbard project. During this quarter, we installed over 50 of the transition pieces that sit atop the monopiles and expect to begin the installation of the first turbines this summer.

Moving to the government segment on slide seven, this group had another strong quarter with awards of approximately $400 million in the LOGCAP IV task orders for Afghanistan. The transition in the north of Afghanistan is going very well and we expect to complete this process during the summer.

We also continue to execute under separate task orders in Southern Afghanistan as well as in Iraq. On the DOE side, our work at Savannah River which includes the American Reinvestment Recovery Act Fund, ARRA funding, is progressing and we are getting good feedback from our client relative to our performance.

Overall, the government group is performing very well and is pursuing a number of new opportunities that would help enable additional growth in the future. Of all of our business groups, the global services segment is one hit hardest in terms of impact of the economy.

They continue to experience fairly substantial reduction in discretionary maintenance and small capital activities of our client base. From a sales standpoint in the first quarter, we signed a five-year contract with IBM to provide facilities management to more than 300 sales, administrative, data center and corporate facilities throughout the United States.

As part of the joint venture, the group also signed a long-term maintenance and service contract with Qatar Shell Gas-to-Liquids Ltd. for its Pearl GTL project in the industrial city of Ras Laffan. In general, we expect the market for maintenance and turnaround services will continue to be under pressure for the next several quarters. That is a quick summary of the market highlights and I'll turn it back to Alan.

Thanks, David. I think the key message we would like you to take away from these comments is that all companies got hit by the downturn in backlogs that was precipitated by the global economic issues in 2008, but we are now very encouraged by our significant prospect list and we believe in fact that we are at an inflection point that should allow us to increase Fluor's backlog as we move through the second quarter and on in through 2010.

Now I would like to turn the call over to Mike Steuert and have him review some details on our segment operating performance and summarize some of our corporate financial metrics. Mike?

Thanks, Alan, and good afternoon. First I'll start by going over a brief recap of the results for each operating segment. Please turn to slide eight of the presentation.

Fluor's oil and gas unit reported a segment profit of $92 million for the quarter which is down from $201 million we reported in the first quarter of 2009. Revenue was $2.1 billion, reflecting lower new awards and a declining backlog over the past year.

Margins in the first quarter were lower due to the combination of reduced engineering man hour levels and the retention of key resources, in part to support increased bid and proposal activities. As we continue to invest in our oil and gas businesses, given the opportunities in front of us, we expect margins to average 4 to 5% for the remainder of 2010.

New awards for the segment totaled $1.4 billion, including a $700 million upstream award for the gas processing project in Qatar, ending backlog with $10.9 billion, a reduction of about $900 million last quarter as work performed exceeded new awards in this segment.

Moving on to slide nine, Fluor's industrial and infrastructure group reported segment profit of $32 million. This is up 13% from the first quarter of 2009 and primarily reflects the strong growth we have seen in the mining and minerals business line.

Revenue for the segment also improved, rising 6% to $1.2 billion, driven by increases in mining and metals and infrastructure. New awards of $1 billion in the quarter contributed to a sequential increase in backlog to $10.5 billion which is a 31% improvement from a year ago.

The government segment posted a profit of $35 million in the quarter, a solid increase from $28 million reported last year. Improving results continue to be driven by growth in the LOGCAP IV task orders.

Revenue for the quarter was up 79% to $663 million. New awards were $249 million (sic-see presentation slides) and backlog increased from $574 million a year ago to $829 million this quarter.

Now turning to slide 10, segment profit for the global services segment was $27 million in the quarter, down from $47 million a year ago as large industrial customers continued to defer discretionary operations and maintenance as well as small-cap activities.

Revenue for the quarter was $339 million and new awards for the quarter were $385 million, including a new long-term contract with IBM which David had just mentioned. Backlog improved by $400 million from a year ago to $2 billion.

Fluor's power group reported a doubling of first quarter segment profit to $56 million on revenue of $534 million which was a 16% increase over the first quarter of 2009. Quarterly results reflect strong contributions from ongoing projects and the benefit of solid strong profit performance on Oak Grove which is nearing completion. New awards for the quarter in power were $157 million and backlog was at $1.5 billion.

Regarding this segment, I'd like to call your attention to a reporting change we made this quarter. Beginning as of January 1, 2010, we moved the power services business from the global services segment to the power segment and all the comparative financials including revenue, segment profit, new awards and backlog have been recast to reflect this change.

As Alan discussed, Fluor's consolidated backlog was $25.7 billion or about $1.1 billion lower than last quarter. Percentage of fixed-price backlog now stands at 23% or 37% of total backlog in the US and 63% outside the United States. Now let me switch gears here and move on to corporate items.

We showed on slide 11, G&A expense for the quarter was $31 million which compares to $25 million last year. This increase was the net result of various items including marginally higher stock-based compensation costs, severance costs, and foreign currency related losses in 2010, partly offset by overhead reductions.

The effective tax rate was 34%, a slight increase from 33% in the first quarter of 2009. We expect the effective tax rate on a comparable basis to average 34 to 36% for the full year.

Shifting to the balance sheet, the consolidated cash and marketable securities position was $2.3 billion which compares to $2.6 billion last quarter. The reduction in consolidated cash is mainly due to an increase in working capital in the government and industrial infrastructure segments.

During the quarter, we repurchased approximately 380,000 shares of Fluor stock. We also declared a normal dividend of $0.125 per share which is payable on July 2, 2010.

Capital expenditures for the quarter were $48 million, roughly comparable to the $58 million of last year. Overall, Fluor's financial condition remains very strong.

Finally, let me conclude by talking about our outlook which is shown on slide 12. Looking at some key parts of Fluor's diverse global portfolio, prospects in mining continue to show particular strength, while operation and maintenance spending remains weak. Fluor's oil and gas markets are still in transition, but there are indications that a limited number of meaningful projects will be released this year.

Overall, while Fluor's new award prospects are substantial, it's important to note that the marketplace for engineering and construction services remains competitive. This will likely impact the Company's overall margin profile, especially when considering the growth in mining prospects which typically carry a lower than average margin.

As Alan mentioned, we're encouraged by the potential for increasing bookings in the coming quarters and are reaffirming our 2010 guidance for $2.80 to $3.20 per diluted share. With that, operator, we are ready to take questions.

(Operator Instructions) Michael Dudas, Jefferies & Co.

Two questions. First, following up on your comment about limited amount of meaningful projects in 2010 for bid, can you characterize a little bit by market? Is it primarily oil and gas driven and do these projects -- are they more project management, EPC? And where do they fit relative to your skill sets and your competitive advantage? Recognize you mentioned about there's excess capacity in the market.

I think primarily the projects that we're pointing to are in the oil and gas business and the mining business. And when you talk about the competitive advantage, they are generally large EPC projects where the size and the scale of them, the logistical and technical challenges with them give us an advantage and bring in with that our project execution capability,

My follow-up question is maybe moving on towards -- a little bit more specific on the mining. I'm sure everybody is quite aware of the super profits tax proposal put forth by the Australian government last week.

Maybe you can characterize your first blush of what you've been hearing from some of your major clients, Alan, and is that something that could impact maybe six to 12 month type opportunities for Fluor? Or are we talking a little bit longer term in nature? And could this accelerate development elsewhere from your customers outside of Australia that you guys could be well positioned for?

Well obviously we certainly are well aware of it. The proposal by the government is a proposal. It's not law yet; in fact, isn't even formulated legislation. It's a recommendation from basically a committee looking at how to set taxation going forward.

It's not very popular as you can expect within the government in Australia or within the public. And I think there's going to be a significant amount of resistance to it, because it's a pretty dramatic increase for all the resource industries.

I don't believe it would have -- even if it was legislation, it wouldn't have an immediate impact on ongoing projects. But it could have an impact on projects that are getting ready to go into the planning stages that would be released in our case probably anywhere from 18 to 24 months from now. But I think there's a lot of things that will occur in Australia before that becomes fact and I don't think it's a fait accompli.

Jamie Cook, Credit Suisse.

I guess a couple of questions. One, the oil and gas margins in the quarter, the 4.3%. I think you guided to 4 to 5% for the year. But I guess I'm surprised by the magnitude of the decline sequentially.

I'm just trying to get a feel for how much of that was -- you mentioned sort of competitive and lower engineering relative to -- the other thing hurting margins was higher bid and proposal costs. so given your enthusiasm on new awards, I am just trying to get a feel for how much that impacted -- how much that helped margins during the quarter. And then I guess my second question is related to your guidance for the full year, the $2.80 to the $3.20.

I guess for the first time, I'm surprised we are not taking numbers to the lower end on that basis. So if you can help me think about -- I think last quarter -- how we think about what you are assuming for the low end versus the high end. I think last quarter you said to make the low end, you would have to assume orders sort of stay where we are. Is that still the case? How do we get to low versus high end? And then I will get back in queue.

I'm going to let David answer the first question on E&C margins.

Sure, (multiple speakers) oil and gas specifically.

I would say you kind of put it in three buckets, the pressure there. One I think Mike spoke of which is the competitive nature of what we have won over the last probably two quarters and that explains part of it.

I think another bucket is moving from an engineering -- on a reimbursable basis, the engineering scope into the construction scope is part of that. And then also part of that is our continued investment in that business to make sure that we have got the talents and skills that we need to be successful in the future.

So it's kind of in three buckets there. I think there's significant projects out there that we feel comfortable about that will start to build that backlog back up and will also be the front end engineering types of work that typically on a reimbursable basis carry higher margin.

So then you are assuming that margin should theoretically improve as the quarters progress, but will stay within the total 4 to 5% range? I mean is Q1 the worst quarter in terms of margins or are we bottomed on margins, I guess is a better question?

You're going to hear me answer it the same way we have answered it before, it's going to be lumpy.

It is going to bounce around, Jamie (multiple speakers)

But I think Mike's comment from his statement is still good.

It really depends on how we invest in overhead on a quarter by quarter basis, keeping our staff in place to really leverage the new opportunities coming.

That's the big swing factor, I think, is just that last subject on what we do to maintain capability for what we see is a significant new orders inflow coming over in the next several quarters. And so we're positive enough on that that we are maintaining significant capability that we might not have otherwise have done.

Okay and I guess just two -- I mean last quarter, I think you sort of said to hit the low end of the range -- I guess to hit the low end of the range, we assumed awards would sort of stay in the 3 to $4 billion range. Are you still comfortable with that given (multiple speakers) the first quarter performance or do we need to see -- how should we think about orders progressing throughout the year?

Jamie, I think we are confident we will hit the range. That was the purpose of the range. So I probably would not like to parse between the upper and lower end of the range in the discussion here.

But I do believe we are extremely confident of some fairly significant new awards going through the quarters. The fact that they are happening in the second on through the fourth quarter, they won't have as much impact on 2010 earnings as they will on future income. So we are confident of hitting the range in the $2.80 to $3.20 and what we are going to be seeing as we go through the next several quarters is building up for 2011 and beyond.

And we're not saying that we expect new awards to stay in the 3.5 range at all.

We didn't -- I hope we are not signaling that.

What, you're not signaling to stay in the 3 to $4 billion range (multiple speakers) you expect it to improve.

Correct.

So you expect it to improve even with the low end of the range?

Yes, we're going to be in the range and we are going to build backlog as we do that.

Okay, thank you. I'll get back in queue.

Scott Levine, JPMorgan.

I think on the last call, you kind of suggested when you lowered guidance that you were seeing some slippage in the timing on the EPC conversions. Outside of the larger projects that you have highlighted, would you still say you're seeing that trend or should we assume the affirmation of guidance and the comments you have made suggest that that trend is stabilized or perhaps is improving your perspective now versus, say, in early March?

I think clearly we saw things move from '09 into '10 and even into the latter part of '10. I think there is still some of that, but I think we have seen particularly the large ones and the target ones have solidified and I think we're seeing more certainty in the markets as we go forward. We're seeing more front end awards, I think was David's comment, which is also very encouraging and we have seen that trend increase over the last several quarters.

Okay and I think on your last call, you had indicated that the tax rate -- you expected the tax rate for the year to be a bit higher than you are saying it is now. Is that correct? And what is driving the change in outlook there?

Well that is partially correct. I think what you need to do is get off line with Ken and Jason. With the new presentation format of our income statement now, the tax rate is going to look lower than it did in prior accounting periods because of the change of how we're doing some presentation.

So it looks like it's lower. Actually the guidance we're giving is for a fairly consistent tax rate of what we have seen in the last couple of years and what we expect going forward. Ken and Jason can take you through that change in presentation and how that impacts our tax rate.

Okay and then maybe one last one. Can you elaborate maybe a little bit more on the working capital outflows in the quarter? I think you said they were related primarily to two particular segments, maybe without giving guidance for the year, elaborate the thought process on cash flows as 2010 plays out.

Sure, we did build working capital in the quarter as I mentioned, primarily in government and industrial and infrastructure. In government, most of the working capital buildup was related to our LOGCAP IV activity. And in industrial and infrastructure segment, most of the working capital buildup is related to the Greater Gabbard project.

We do expect as we move through 2010 to see some meaningful collections on the LOGCAP program and see that working capital liquidate. But I do think the working capital investment at Greater Gabbard will be there, will continue until we resolve our dispute with the client.

Graham Mattison, Lazard Capital Markets.

I wondering -- just a question on global services. I know you mentioned that market is probably going to stay weak throughout 2010, but when do you think you might be able to see a turnaround of that market start to recover?

I'm hopeful it will start recovering by the end of 2010. But you know, that's -- it's been kind of a moving wave for us over the last 18 months. We just are seeing clients be consistently prudent in their discretionary spend at these sites. And so if they can put off investments, they are doing that. But that does catch up and I think we're going to start to see turnarounds and so forth start to occur in the latter part of the year.

Is that division seeing the same sort of margin pressure that you're seeing across other segments or is that something we should be looking for and modeling out?

A little bit, but not as much on a direct ratio basis. Because it's more a services thing that's on long-term contracts. The contracts have pretty much been set. It's releases against those that happen on a regular ongoing basis or in our case, not as often as we would like.

Great, and then just a question on SG&A. Do you still see the outlook for 2010 about $200 million for the year?

Yes, it could be slightly lower than that, but that's our current outlook. Typically our first quarter is one of our lowest quarters and we don't have a lot of large items in the first quarter. As you move through the year and especially in the fourth quarter, we have a lot of fees for IT maintenance. We have a lot of fees for audit activities, things like that that don't occur in the first half. So this -- 31 compared to 25 last year is pretty much in line. Last year was a little lighter. We came in about 180 versus 200 this year, and I think that guidance is still good.

Barry Bannister, Stifel Nicolaus.

Could you help us understand a little bit better the change in the cash in the quarter, the portion that was attributable to LOGCAP IV versus the Gabbard portion? Our understanding is the Gabbard receivable had been about $163 million. Did that change meaningfully up?

It went up somewhat in the quarter. We had a fairly sizable investment in LOGCAP in the quarter, more than -- I would say roughly half the increase in working capital is due to LOGCAP, the government (inaudible)

And you said the increase in costs related to carrying overhead for oil and gas was a differentiating factor in the margin, but also pricing a factor. By our calculations, the oil and gas margin was about 120 basis points below what it should have been and I heard your guidance for the year. Could you break it out roughly as to what was pricing related, what would have been the greater pass-through share of revenue, what would've been the overhead that you have been forced to carry pending success?

I don't think we will be able to give you hard numbers on that. All three were a factor. I think truly the one that we controlled was the overhead.

We made a decision there that was -- on a discretionary basis that we wanted to invest in the maintaining capability for some of the projects coming up. And had we not done that, we would have had a higher margin in oil and gas.

We clearly have had pressure on margins in terms of new awards, but I don't think that's -- even though that's been in effect, the one that we controlled and the one that was probably one of the bigger parts of that was in fact the decision to hold onto people and capabilities.

So going forward, it sounded like about half of the effect was holding onto the people and the other half might have been other factors related to the market.

And there will be some of that without a doubt in this next quarter, we're in it already. And so we are still maintaining some capability for some of these new awards that we see coming at us.

And then lastly, are there any special power bonuses or I&I spikes in margins that would make it possible to get beyond the low end of the range if indeed you just do a 4.5 margin in oil and gas? It's hard to break out of that low end.

There are some. We have got some projects that have incentives on them through the year.

Okay, so the margins in I&I based on the mix, the mining and bonuses as well as some of the tower business could be how you get that estimate up and did not have to change your guidance, despite the fairly weak guidance in oil and gas margins of 4.5% or so margins?

We believe, like I said to Jamie, we absolutely have confidence we're going to be in the range. But we thought -- again, it's just the end of the first quarter. We thought at this point in time, it was too early to make any modifications in the range, to the extent that when we get through the next quarter, we may look at tightening that up.

I understand. Okay. Thanks, guys.

Steven Fisher, UBS.

There's a lot of unusual things going on in the macro environment these days. Can you just give us a little color on what you are seeing that gives you the confidence that that backlog is going to increase, and then particularly as it relates to the second quarter on that inflection point?

Well I wish we could talk about some of the projects, but we don't have releases to do that. But the confidence is our position on those projects.

In a number of cases, already have awards and are just not in the position of announcing them yet. And the other thing is we're in a strong position in the final analysis or final evaluation with our clients.

We feel very strongly about the ability to raise our backlog as we go on through the year. So it's the fact that on all these projects, we are in direct contact and discussions with each of the clients and have a very strong sense of where those projects are and what the certainty of their award is.

That's helpful. Was there anything seasonal about the global services margins and how much margin impact did the power services move have on that global services margin?

There wasn't a lot of seasonal. Typically there isn't a lot of turnarounds and stuff in first quarter in any case. Those tend to occur more in second quarter and spring outages in the power segment (multiple speakers) those have been delaying -- so I wouldn't see much in seasonal. It's more of a -- just a general effect.

To answer your second question on the move on power services, I don't think that had an effect really on the margins in (multiple speakers)

Not meaningful, no.

How much did you actually move out?

We'll get you that number. The revenue was $120 million in the quarter that we moved out. $120 million and the segment profit's $8 million to $10 million range.

And was there backlog that was transferred?

(multiple speakers) was transferred as well as ongoing revenue (multiple speakers)

We're going to have all the details with that shift in our investor book.

Okay, fine. If I could just ask a follow-up then, how should we think about the power margins after Oak Grove finishes? I mean you've got feed work and maintenance, and that should be good margin work. So does that point to, say, upper single-digit margins or even maybe better?

Again, it' a mix. Feed work typically brings higher margins because it's service revenue only with no procurement or pass-throughs in it. So to the extent we're doing more feed work, then those margins will be higher. I'd rather do a large EPC project with a lower margin.

We would rather have the large volume of revenue.

I'd like to get a nice big new coal plant.

But on the lower revenues, it sounds like you'd still expect some decent margins.

But typically on lower revenues, the margins are higher.

Alex Rygiel, FBR Capital Markets.

Two different questions. First, could you comment on whether or not you think new awards in oil and gas or I&I are going to be greater this year?

Secondly, can you comment on the potential for I&I margins to go to this 3 to 4% range over the coming 12 months? And lastly, can you provide a little bit more color on the South Texas project and given the possibility that a loan guarantee is announced within a month or two, what the likelihood of an EPC contract within a month or two, what the likelihood of an EPC contract getting signed would be in 2010?

Your question on oil and gas and I&I, you meant with respect to 2009?

Correct.

Yes, I think clearly I&I will be larger in 2010 than it was in 2009 in new awards. I think there's a good chance that E&C will as well. But I think overall, from a total corporate standpoint, we clearly I think would expect to book more revenue in 2010 than we did in 2009.

And margins?

Well margins, your question was specific to I&I, right?

Yes.

I don't know. Mike, what do you think?

I think given the fact that most of the awards are going to be in the mining area, the margins are probably going to be pretty comparable year to year.

I think that's probably true. I don't see a big change in the I&I margins.

And South Texas?

Well South Texas, you probably saw the earnings announcement that a project labor agreement was signed on that project a few weeks ago. We think that pretty well paves the way for the loan guarantee. And I think our client is more in the direct discussions on that than we are with DOE. But your last question on a contract, without a doubt, there will be a contract, will be announced on that in 2010.

Andrew Kaplowitz, Barclays Capital.

So if I look at the oil and gas new awards, I see a good progression from Q4 to Q1. But Jetty Boil was half of the new awards and I think Pemex is worth a few hundred million, correct me if I'm wrong.

And so basically that puts the small oil and gas awards still quite low. And I know you guys gave talked about a bunch of feeds. But I guess my question is, what's going on with the small stuff? Is it still muted by the recession or are we going to see better small results going forward? That's the question.

I think that the feed work is starting to come back. I believe that for the first time in two or three quarters, we've got multiple prospects that start with a B. And that has not been the case for a while.

So that kind of talks to the upper end of that. But we think that a lot of the spending decisions are being pushed off, but at the same time, those front end projects are starting to come in.

I think the two offshore feed projects are indicative of needing a strategy around offshore, but also indicative of where those projects are going to emanate from. So I see the Middle East as still a continuing strong point for us and we will continue to grow those small projects and the feed projects.

Thanks. David, in the government business, slowly or quietly really, the government revenues have continued to rise. So my question is, does that continue or or are we going to level off soon? Obviously we know it's getting injected with more LOGCAP work, but generally the performance has been good in that business and it's relatively good margins. So maybe an outlook on that business.

I think we're very pleased with the increases in that business and provide some stability to the organization. I think the team has done very well with the contingency ops business and part of that continues to grow, but it's really dependent upon what the US government and other governments are doing around those types of deployments.

But I'm encouraged about our prospects during this year and into the next. I think we're also improving dramatically our performance on the DOE side and we're hopeful for some prospect awards during this year or early next year that would continue to grow that DOE business.

But, David, is Q1 generally a good run rate to use for the rest of the year in government?

I think so.

Okay, thanks. I'll get back in queue.

Andrea Wirth, Robert Baird.

I wonder if you could give us a little bit more color? You had mentioned you're looking to strengthen your upstream capabilities. Just curious, where specifically you're looking to improve your capabilities there. And just generally some commentary on your thoughts on acquisitions and your propensity to want to do larger deals.

Well the first part of that, we continue to invest in people and systems and tools in that market And that reflects some of the -- that's part of the answer to the margin question. We see offshore oil and gas as a big piece and I think the feed projects that we won is indicative that we're being successful in that organic growth of our talents and skill sets.

Obviously onshore gas production in the Middle East and the US, we're preparing for the Barnett and Marcellus Shale developments to see what part of that market we can participate in. But clearly it's an oil and gas recovery and production, both onshore and offshore. I think we continue to grow organically that capability and talent.

Andrea, we continue to be vigilant and proactive in looking for opportunities to acquire to build capability. And our focus hasn't changed there in terms of the markets that we're looking at. It would be in the offshore oil and gas industry, in the infrastructure design industry or in the nuclear markets.

Jon Rogers, DA Davidson.

I just want to follow up very quickly on the power comments. Outside of the South Texas project, what are the big prospects in terms of the US and Europe by end market? Are these coal plants, gas plants --?

It is a mixture. I think -- we are doing the front end on a coal plant here in Texas that will be using carbon capture and the environmental action groups have withdrawn their protest against it because of the carbon capture.

So we're hopeful that could be a big coal award in the next year. We think gas plants are going to grow in numbers based on the availability and price of natural gas and we still think that particularly in Europe and other areas, we're going to see a push towards renewables in both wind and solar and we have different positions in each of those markets. The other market that is out there is nuclear and of course, we have STP here in the US. We are looking at other potential opportunities here and abroad as well. It's a fairly diversified market set.

It's a fairly diversified market set. We have a pretty good position in each of those. We would like to increase our capability certainly in the nuclear side, but we think we're very strong across the board and can work in almost any fuel source.

Are there opportunities to book major awards in nuclear for this year outside STP?

You have to understand our booking philosophy which has been pretty consistent and is conservative. We won't book a full EPC on a nuclear plant until that operating license is issued and we get full notice to proceed by our clients.

In the interim, we may book some of the services work that is there supporting that licensed development and any possible early action design that the client decides to enter into. But the bulk of our -- the big revenue for nuclear plants we won't be booking until that license is issued and that's probably going to be 2012.

(Operator Instructions) Chase Jacobson, Sterne Agee.

I was just wondering if you could comment on the mix in the backlog, especially as it relates to oil and gas and I&I. We've seen a pretty big shift over the last few years. It's evened out between the two.

I was just wondering if you could comment on how you expect that to play out going forward. Maybe it goes back to what it was like in 2007 or if you have a target on how you would like the mix of your backlog to be over the next couple of years?

It will be how the market develops for us. We keep a pretty strong focus on each of those markets so we can see what prospects are developing. Clearly the resource industries of mining have been the strongest in our new awards complement for the last couple of quarters.

We think they will be over the next couple of quarters as well. However, we have some significant awards coming in an oil and gas. So I would -- honestly I think if you fast forward another three quarters, you'll see a pretty similar ratio as what we have in this current quarter.

Okay and then you mentioned that you would like to see -- you would love to see a large coal award in the near future. Can you just comment on your involvement with the plant [Washington] in Georgia?

With regard to --

I believe they were issued a permit about a month ago and I know Fluor was listed as part of the development team.

That's on the plant betterment side. It's ongoing (multiple speakers) if you're talking about plant McDonough.

I believe it was plant Washington, but we can follow up.

We'll have to, because we're aware of -- certainly of the McDonough work which is betterment.

Will Gabrielski, Broadpoint.

A couple of questions. So the comment you just made and you've made a few times, significant oil and gas awards coming, can you go a little more into detail on your conviction there? How does it compare to say last year when maybe you were looking at [IGD and South Ferry], highly convicted that that was a high probability Fluor award versus where you are today? Do you have a good look at who else is prequalified on some of these projects and how you stack up competitively and what your concerns would be around competitive pressure?

Yes, I think if you go back to that award, I guess what nobody foresaw was the bidding conditions that were going to be prevalent at the time that that award finally came out. If you recall, from the time that that first started as a competition, our market was incredibly hot.

Resource short and clients were having a hard time getting the bid list. By the time that award was made, the whole market had turned topsy-turvy and it became incredibly competitive.

We have a situation now where the markets have settled out, the clients have gone forward with some of these awards. We've been involved in a number of them on the front end or have gone through the competition already where we are in discussions on final terms and issues with our clients.

And some of these projects are such that it's only a pretty small competition slate that we are dealing with.

So as opposed to that particular one with [gas go], we feel we have a lot more riding on it than just one project. That was -- if you recall, that was a major project that was on its face value could've been something over $4 billion.

These are more -- they're big ones, but there are more of them that we are looking at. The other thing -- it's interesting that you mentioned that one. In that conference call we had after we lost that project, I made the comment that based on the competitive bidding, we thought we would see a return to program management services being necessary in the Middle East and on that issue, we received the BMC award for the shallow gas development project in this last quarter.

Okay, so from that standpoint, you would say you have a higher degree of conviction (multiple speakers)

We do.

As it stands today? Okay. The Worley Parsons JV for the aluminum project in Saudi Arabia that has been in the news that you guys have won, it's also in the news tat you guys won several packages on that project. Can you maybe give a little color on what scope you will have there? Can you talk about that yet?

Yes, Ma'aden actually had a release. Fluor has the overall program management for that project. We are in joint venture on the aluminum refinery with Worley Parsons on a 50-50 basis. But Fluor has on its own the rolling mill as well as the off sites in utilities, the infrastructures to support the entire facility and Bechtel was awarded the smelter.

So if you put all that together, you're looking at in excess of $1 billion in work, I would presume. Was that fixed price work? Was it more competitive than maybe you would have expected or how did that shake out?

It's a reimbursable contract and it was about what we expected from the competition given where we are and again, when we look at our selectivity sieve, it also has who we are competing against. And in those cases, we were competing against companies that price things the way we do.

That's great news. One last question [curl]. I think there's come competitions going on right now. Can you maybe give some color on what your opportunity is there, so on Phase I, and when does seed for Phase 2 maybe commence?

Well we think that we will roll into Phase 2 and some of the competition that's going on right now is for some of the packages underneath our overall program management responsibility.

Okay, so there are or there are not packages within that you'll be bidding on?

We will continue to manage it. We have got what we're going to do and there's a lot of different pieces and parts that will be bid and managed by Fluor.

On the government side, have you guys seen RFPs yet for Pentex, [slide 12] Portsmouth or any of the other sites that may be coming up for bid over the next 12 months?

(multiple speakers) you mentioned -- I think you are -- you've mentioned several opportunities there that are in very different market segments of the government. Pentex, no we are not in that business.

(inaudible) no.

But the Portsmouth --

Sorry, Portsmouth we didn't mention; but yes, we've competed for that and are awaiting decision by the DOE.

Okay, thank you.

Barry Bannister, Stifel Nicolaus.

You mentioned the increase in oil and gas pipeline. Could you talk a little bit about whether there's been a meaningful change in the fixed-price portion of oil and gas backlog in the quarter and what percent of the oil and gas pipeline would be fixed price?

I don't think it's really changed from previous years. I mean there's obviously a lot more fixed-price work in the marketplace, but it depends on where it is and who the customer is.

We are still focused on our key customers that are still having a fairly robust amount of reimbursable work, particularly on the front end and the program management types of stuff that Alan mentioned earlier. There will be select fixed-price projects that we look at. But again, it's going to be based on our selectivity sieve.

But there were none in the (multiple speakers)

Okay and then you mentioned a CCS project. But to my knowledge, I don't think anyone's ever built a utility scale CCS. You also engaged in the Gabbard windfarm, but also to my knowledge, I don't think anyone had ever built an offshore wind farm of that size in seas that rough.

So I'm trying to gauge the risk profile of the Company as you go after some of these next round of mega awards. Can you talk about your propensity to take those kinds of risks on it's never been done before, Fluor is going to do it and we're going to do it fixed-price kind of approach?

Well I think there you have to segment it. If you look at Greater Gabbard, yes, that was lump sum and; yes, nobody had built one that large before.

But actually, absent the dispute that's ongoing which we feel pretty positive on, we are progressing extremely well on schedule for that installation. We've set the -- the pylons will be putting generators on during this next season.

So I think we feel pretty good about that. We knew that was a risk that we could manage. The CCS we're talking about, again you have to segment it. There's certain parts that project that will be at risk, there will be some parts that aren't.

I can tell you from a process standpoint, Fluor is not likely to take on a first of a kind process guarantee. That's just not something that we would be doing. That gets into the too hard bucket.

And we've also done carbon capture on the back of many process plants around the globe. So the technology is something that's very well known to us and the application to a coal plant is different, but not that much different from what we have done in the past.

Okay then lastly, has there been any meaningful change in the settlements of past change orders or any liquidated damages that may have cumulatively added up to being a meaningful amount, both in oil and gas and in other segments that affected the quarter?

I think we are pretty proud of the fact that the estimates we put together on disputes and so forth, we have a pretty good track record of being very close to the actual result and to performance. So when we put those numbers out there, we put a lot of thought and get a lot of third-party backing on those estimates and making sure that we're giving the best estimate possible.

Thank you. This concludes our question-and-answer session. Mr. Boeckmann, I'll turn the conference back over to you.

Thank you, operator, and I thank all of you for participating on the call and for the great questions. But you know, as we discussed today, I think you get the sense that we are very encouraged by the strong list of 2010 prospects and are in fact expecting our backlog to increase beginning in the second quarter.

We are without a doubt the most diversified company in our industry. We think we've done a great job weathering a very tough period and we remain particularly well positioned to take advantage of an upturn in the business environment.

We look forward to continuing improvements in the economic picture and in fact, specifically to benefit that Fluor will then derive as these markets recover. We really appreciate your interest in Fluor and your confidence in our Company. Have a good day.

This concludes today's conference. Thank you for your participation.