North American Construction Group Ltd (NOA) 2010 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the North American Energy Partners fiscal 2010 fourth quarter earnings call. (Operator Instructions.) I would now like to turn the conference to Kevin Rowand, Director, Strategic Planning and Investor Relations, of North American Energy Partners Inc. Please go ahead, sir.

Good morning, ladies and gentlemen, and thank you for joining us. On this morning's call we will discuss our financial results for the three and 12 months ended March 31st, 2010. All amounts are in Canadian dollars. Participating on the call are Rod Ruston, President and CEO; David Blackley, CFO; Chris Yellowega, Vice President Operations; and Bernie Robert, Vice President, Corporate Affairs and Business Strategy. Before I turn the call over to Rod, I would like to remind everyone that statements made during our prepared remarks or in the Q&A portion of the conference call with reference to management's expectations or predictions of the future are forward-looking statements.

All statements made today which are not statements of historical fact are considered to be forward-looking statements. Certain material factors or assumptions were applied when drawing a conclusion or making forecast or projection as reflected in the forward-looking information. The business prospects of North American Energy Partners are subject to a number of risks and uncertainties that may cause actual results to differ materially from the conclusion, forecast, or projection in the forward-looking information. For more information about these risks, uncertainties and assumptions, please refer to our March 31st, 2010, management's discussion and analysis which is available on SEDAR and EDGAR. As previously mentioned, management will not provide financial guidance. At this time I will turn the call over to our CEO Rod Ruston.

Thank you, Kevin, and good morning, ladies and gentlemen, thank you for joining us today. We achieved strong operating results in fiscal 2010, generating CAD122 million of consolidated EBITDA despite significant economic challenges. Just as importantly, fiscal 2010 gave us the opportunity to demonstrate the robust, long-term nature of the oil sands in general, and our business in particular. Despite uncertain economic conditions and the low oil price environment, our oil sands customers continued to run their plants at or near full capacity as we expected they would. This resulted in a steady demand for our extensive range of mining services, which in turn helped mitigate the impact of the downturn in our construction-related business. Out of adversity comes opportunity, and this was certainly the case in fiscal 2010.

The challenging conditions created a opportunity to work more closely with our customers in order to improve planning and reduce costs. Our demonstrated commitment to safety excellence, cost reduction and strong project execution culminated in three major contract renewals, two of which provided for increased scope of services. To give you some examples, we renewed our services agreement with Shell, and were able to offer this client improved pricing as a result of extending this contract to a three-year term, and identifying a base load of scope within the contract. Early in the year, we also initiated mining services with Suncor under an agreement to provide a fleet of fully maintained mining equipment, to supplement Suncor's own fleet. In December, 2009, Suncor renewed this agreement for an additional 12 months, and requested larger sized haul trucks, thereby increasing their capacity.

More recently we renewed our site services agreement with Syncrude to November, 2010, and we continue to provide overburden removal services to Canadian Natural under our 10-year contract. So in other words we were providing recurring services to every operational mine site in the oil sands throughout fiscal 2010. We are the only mining and construction contractor that can say that, and it's a key competitive advantage for us. It enables us to provide valuable operational flexibility to our customers, and it brings considerable stability to our own operations. Some of our competitors have not been so fortunate and have fallen by the wayside as competition in the market escalated over the past year. While we also felt the impact of the slowing economy in some parts of our business, overall our oil sands business model has proven to be very sustainable.

Now looking briefly at our segment results, Heavy Construction & Mining revenue was up 29% during the fourth quarter, and down 7% on a full-year basis, compared to the same periods last year. This was largely driven by the 29% increase in recurring services revenue during the fourth quarter, and the 12% increase on a full-year basis. The growth in our recurring services revenue reflects increased activity at Shell's sites under our new three-year master services contract. It also reflects increased mine services support to Suncor, along with increased activity at CNRL as we return to plain production levels under our 10-year overburden removal contract.

On a full-year basis, project development revenue in Heavy Construction & Mining was lower compared to the same period last year, as a result to delays of several major oil sands project announced in late 2008. However, we began to see project development revenues come back in the fourth quarter of fiscal 2010. We posted a year-over-year fourth quarter increase in project development revenue as a result of our work on the [Kellogg] refinery in Saskatchewan and several construction-related projects in the oil sands.

Turning to Piling, revenues for both the fourth quarter and the full-year periods continued to be negatively impacted by weak commercial and industrial construction markets, as well as by delays to some of the new high-volume oil sands projects. We expect to face continued strong competition for the available work in this sector both in the near and the mid term, particularly with commercial construction activity remaining weak in the Western provinces. However, our expansion into the Ontario market is expected to help offset this impact. Results in our Pipeline segment also reflect a more competitive market environment. Although we secured two new contracts during fiscal 2010, we ended the year with a fourth quarter loss as we worked to maintain schedule on one lump-sum contract, despite adverse weather and ground conditions.

One of the outcomes of a very competitive market environment is that contractors are being asked to accept more risk and in some cases those risks are being realized. In this case, the customer recognized the challenging conditions we endured, and our commitment to deliver their project safely and on time. Not only were we awarded the second phase of this project, but this new project's end contract structure mitigates the risks. The second phase will get underway this summer, and involves the construction of 30 kilometers of 24-inch pipeline in British Columbia. At about the same time we will start work on TransCanada Pipeline's NPS Groundbirch Mainline project, a 77 kilometer, 36-inch pipeline also in British Columbia. Overall we are pleased with our fourth quarter and fiscal 2010 results, and we believe that we performed well in the midst of challenging economic conditions. At this point, I'll call on David Blackley to provide more detail on our fourth quarter financial results. David?

Thank you, Rod, and good morning, everyone. I'm going to review results for the fourth quarter ended March 31st, 2010, as compared to the fourth quarter ended March 31st, 2009. Stronger volumes in our Heavy Construction & Mining and Pipeline segments bolstered revenues resulting in consolidated revenues of CAD220.6 million, a 26% increase from last year. Gross margin was 14.8%, compared to 18.9% last year, resulting in gross profit of CAD32.7 million, compared to CAD32.9 million last year. The reduction in gross margin reflects a loss on one pipeline contract during the period. Turning to operating income, in the fourth quarter, we generated operating profit of CAD13.1 million, or 6% of revenue, up from an operating loss of CAD129.2 million last year.

Excluding the impact of goodwill impairment, last year's operating profit would have been CAD14.2 million or 8.1% of revenue. We recorded a net loss of CAD0.03 per share in the fourth quarter, compared to a net loss of CAD3.80 per share last year. Backing out the impacts of various non-cash items, we would have posted zero net income in the current period versus CAD0.06 last year on a diluted per-share basis. Turning to capital, total capital spending for the fourth quarter amounted to CAD7.3 million, made up of CAD4.8 million in sustaining capital, and CAD2.5 million of growth capital. We also added CAD30.5 million of new operating leases in the quarter, including 6-930E Komatsu 300 ton haul trucks used to support growth in recurring services, such as our mine services contract with Suncor. Looking at liquidity, as of March 31st, 2010, we had approximately CAD80 million of borrowing availability and a cash position of CAD103 million, Compared to borrowing availability of approximately CAD104 million, and a cash position of CAD99 million at the beginning of the fiscal year.

Subsequent to March 31st, 2010, we executed a two-step strategy that we had developed to restructure our balance sheet. This involved working with our financial advisors to execute two almost simultaneous transactions. First, we completed the private placement of CAD225 million of 9.125% senior debentures due in 2017. Secondly we restructured our existing credit agreement to extend the term to 2013 and increased the line of credit by approximately CAD40 million, to a total of CAD163.4 million. Net proceeds from this refinancing, together with a portion of our cash on hand, were used to redeem our outstanding US dollar denominated debt and liquidate the associated interest and currency swaps.

The new debt structure, which reduced our outstanding debt by approximately CAD10 million, is better aligned with the currency of our operations and will result in lower interest expense and decreased refinancing risk. Pleasingly we appear to have accessed the debt market at just the right time. That summarizes our fourth quarter results. I will now turn the call back to Rod to tell you about our outlook.

Thanks, David. As we move into fiscal 2011, we're encouraged by signs of economic recovery in our markets. While we are still cautious in our outlook, there are significantly more opportunities available to us now than there were a year ago. In our oil sands recurring services business, we expect steady demand overall with some short-term variability while Shell transitions to a two-mine operation. On the project development front, recent announcements signal a return to more favorable market conditions, and increased demand for service providers and construction contractors. Suncor, ConocoPhillips and Husky have all announced that their respective projects will commence construction in 2010. More recently, there are also indications that CNRL will green light phase 2 of the Horizon mine, and provide go-ahead to the Kirby SAGD project. These projects are expected to get underway later this year. Meanwhile, progress continues on construction of Imperial Oil's Kearl mine, and we continue to pursue construction opportunities on this site.

We also see interesting opportunities related to oil sands tailings management. The Alberta government recently introduced Directive 74, which lays out the new regulations for handling tailings disposal in two stages. In the first stage all oil sands operators will be required to reclaim new trailings material to a trafficable state within five years. This is a significant change from the 20-plus year time frame they had been working with previously, and significantly changes the way in which producers will manage tailings. The second stage requires pro -- producers are required to submit a plan to reduce legacy tailings within an acceptable time frame. Producers are to submit their plans for approval by the regulator during 2010. To meet the new requirements, producers will need to do two things. First, they need to find an alternative to the single mega-sized 20-plus year dam. Secondly, they'll need to develop a technique for consolidating the mature fine tailings known as MFT, which consist of micron-size particles held in suspension in wastewater. While the actual process has not yet been fully developed, we know that every one of our clients is working very hard on a solution, and we know the solution they are developing will involve a number of services, many of which we provide today.

The services required include engineered earth works, pipeline corridors, piling, dredging, centrifuging, [mud balming] and reclamation. Importantly, both the construction of new tailings ponds and the handling of MFT are ideally suited for outsourcing to organizations like North American because they have no impact on the production of oil. Near term, producers are under pressure to put these new processes in place, and provide -- and prove that they are viable. This is creating opportunities for us to provide construction services, and we have recently secured some contracts in this regard. Long-term we have developed in our marketing an end-to-end tailings management service offering to our customers. Based on the aggressive timeline set out for producers to achieve compliance, the amount of tailings material already in existence, and the tailings material generated from future production, we expect this to be one of the largest growth opportunities for the Heavy Construction & Mining segment.

Turning to the outlook for our Piling business, we expect the weak commercial and industrial construction markets and the strong competition for contract will continue to put pressure on revenue and margins in fiscal 2011. Although we do expect year-over-year improvements in this market, and as I said previously the oil sands project development side of our business is starting to look more promising, and all of our divisions stand to benefit from this activity. In addition, the piling business we acquired in Ontario is really starting to ramp up. We are bidding on infrastructure projects and making inroads with clients in that region. This could help offset some of the impact of reduced commercial construction opportunities in the Western provinces. We expect a continued positive contribution from our Piling team in fiscal 2011. Over in Pipeline, we have two new contracts we're working on and we're continuing to bid on additional opportunities.

To date we have had good success winning mainline projects related to the Northeastern BC gas field, and it continues to be an area of opportunity for us. With all of our pipeline contracts, we are focusing very closely on risk and have made some further changes to our reporting and control systems to monitor these projects. Looking at the business as a whole, while market conditions remain challenging, and competition for contracts continues to put pressure on our revenue and margins, overall we see opportunities in all areas of our business, including growth in all of our market segments, both organically and through acquisitions. Going forward, our progress will remain on safe and cost-effective execution of the work we have, identifying and winning projects that leverage our strengths and offer reasonable returns, developing new markets in environmental services, and utilizing the new financial structure of our business to grow and be successful. With that, I'll now turn the call back to the operator.

Thank you. (Operator instructions). Our first question is from Matt Duncan with Stephens. Please proceed with your question.

Good morning, guys.

Good morning, Matt.

The first question I've got is sort of looking at gross margins for a moment. I'm trying to get a sense of how much mix shift is to blame for some of the little bit lower margin in the Heavy Construction and Mining segment. Obviously overburden removal is a lower-margin business for that segment, and CNRL is now back up to full speed. And then you mentioned you're seeing price competition, and just increased competition in general. Is that sort of new this quarter, or is that just something you have really been seeing over the last year?

The increased competition, it has been around for a year, let's say it's grown more fiercely as we came into the latter part of the year. However, the ultimate result of that is that we have actually seen three of our competitors going out of the market, because we just -- a couple of places we got to a point where we just either wouldn't bid or we were very, very happy that we didn't win the particular bid. So we're seeing Adcon and Cross, both lead the markets, and currently Cow Harbor is in bankruptcy protection. So it has been a push to get work as the construction sites have gone off, and so people have been pushing to do the more recurring-type revenue work, and they are making bids that are basically below cost obviously. With the demise of those organizations, we see a more sensible return to the market.

Okay. That's very helpful, and then the second question I've got and I'll jump back in to queue, is with regard to the tailings ponds opportunity, and you spent a lot of time obviously talking about sort of what that is, and giving us some details. Is it too early to try and size how big that opportunity is in relation to your business?

I can only give you an anecdotal size of it in relation to our business, and that is the -- factually, not anecdotally, the CNRL overburden contract is a contract to remove around 400 million cubic meters of earth over a 10-year period. Anecdotally, we understand that there's around about 800 million cubic meters of mature fine tails in tailings dams in Fort McMurray as we speak, that's assuming they don't add and more, that's more than twice the size of the CNRL overburden. And the other interesting thing about it is that a significant amount of that material will have to be moved -- actually moved twice, because it has to be removed out of the dam, dried, and then put back in. So obviously a very, very large opportunity for us. We're working with all of the clients to indicate to them what our service offering is. We have already got a contract with CNRL to do some work on their tailings, work -- we have also got a contract with Shell to do some work with them, and we're working with and I believe close to getting some -- a contract with Suncor.

Thank you. Our next question is from Ben Cherniavsky with Raymond James Financial.

Good morning, guys.

Good day, Ben.

Just going back to the margins and the competitive pressures, you make some mention of pending change orders in the Piling group. Does this suggest there will be a potential recovery in the margins to reflect that in the upcoming quarters?

Yes, that's correct, Ben. There will be a pickup, but what I think is important to understand with Piling is that we're not expecting margins to go back to the low 20s that we experienced two years ago. You know, we're continuing to see a lot of pressure on pricing still. The construction activity is still a little low, so we expect margins to continue to track in sort of a low to mid-teens over the coming quarters.

By the same token, Ben, we are seeing some very large piling jobs potentially coming to the market, and the size of these piling jobs -- and by size, I mean the physical size of the actual pile that has to be installed -- actually limits the market quite substantially to only a very few players, and as those projects come, then we expect some margin growth and obviously a lot of competitive environment.

And where would those opportunities be in the oil sands or in infrastructure?

Yeah, predominantly in the oil sands. The other thing that we should mention here is that we're now doing quite a significant piling job at Kearl.

So just to be clear, then, the competitive pressure that you mentioned, are they primarily isolated to piling outside of the oil sands, or has the whole oil sands opportunity and piling and earth moving and everything else, has there been new entrants there, new competitive pressure, because I always thought that was more of a higher-barrier entry to business.

Yeah, generally with the Piling business the main pressures of being in the commercial and industrial construction outside of the oil sands. We're still a major player with piling in the oil sands, and the number of players up there tend to be a lot more limited. With general, the earth-moving side, as I mentioned, there's three competitors that have basically gone out of the market in the last 12 months. There is one new one that has come in. That's Graham Construction. In fact, they have been a player in the oil sands for a long time on the construction side of the business, and basically, what they have done is they have expanded their construction offering by getting into the smaller truck size, so up to 240-ton truck. It's their first step. So they are not really a new entrant, they have been working there for a long time. They just expanded their offering.

Thank you. Our next question is from Greg McLeish with GMP Securities.

Hey guys, I was just wondering if we could drill down on the earnings that you sort of highlighted. In the report you have got CAD0.57 of earnings, and then when I sort of calculate it out with taking out the unrealized and realized [FX] gains and losses, I end up getting about CAD0.87. Am I missing something there or is it -- I sort of view that if you have a realized loss as a onetime item.

Yes, Greg, that's correct. There are some one time realized losses with respect to the derivatives on the (inaudible). If you factor that in, I believe the after tax impacts for the quarter, it's about an CAD0.09 on a EPS basis, and for the full year, it's about a CAD0.32 impact.

Great.

And of course our refinancing has meant that issue has gone away.

Yes. Yes. Okay. And then when I did sort of a -- just on the pipeline side, I understand you did take a loss there. Was that strictly weather related? Was it just an underbid contract? What exactly happened on that loss?

It was weather-related and ground conditions. We didn't -- we don't believe we underbid the contract. We believe that we -- well, I think we did in the fact that we made a loss, but when we bid the contract, we account for a certain number of weather delays, and certain kinds of ground conditions, so we do our estimate saying we can achieve a certain amount of pipeline distance laid per day, or per hour, whichever way we measure. We didn't achieve that productivity, and we didn't achieve the productivity because we were impacted by significantly poorer weather and ground conditions than we have been in the past or than we expected in the contract bid. The important thing there was that we did recognize that we were behind schedule. We took a decision because the finish date of that job was very, very important to the client, so we took a decision, and said we have just got to finish this thing on time, because our reputation is very much built on the fact that we will -- when someone asks us to do something, we will deliver it, and this was an important part of maintaining our reputation.

Thank you. (Operator instructions). Our next question is a follow-up question from Matt Duncan with Stephens. Please proceed with your question.

Hi, Rod, just sticking on the Pipelines (inaudible) for a moment. The CAD6 million in revenue there this quarter seemed awfully low for a normal March quarter, was that also the weather impact there kind of slowing you down?

Yes. We only picked up two jobs in the year. One of those jobs, the revenue earning has been delayed, and the other job, as you are aware, made the loss. It was a very small pipeline season for us.

Okay. And then on the second Spectra contract, what is sort of different between the first and the second that's going to give you a little bit better margin protection on this one?

We increased our -- or reduced our bid production rates, and that was accepted by the client, so we were less aggressive, let's say, on how much we could achieve by improving the -- or reducing the amount of pipeline per day that we would put in.

Okay. That's helpful. And back to the tailings ponds just for a second, when do you think the more meaningful revenue may start there? I guess, my understanding is the contracts you've got now are sort of smaller, trial contracts. When do you think the bigger revenue numbers could start to flow in from this tailings pond opportunity.

Half the contracts we've got, everything is just starting at the present time. So part of the contracts that we have got now, one is a design build for a trial project for a -- or a trial process for one of our clients. The others are focused towards laying pipeline and [fines] transport systems, let's say, to the potential drying areas. Everyone has got to have their planning approved by the end of 2010, and we expect a pretty substantial ramp-up probably starting in calendar 2011.

Thank you. Our next question is from Kalpesh Patel with Jefferies & Company. Please proceed with your question.

Hello, good morning.

Good morning.

Some more detail on the tailings opportunity, how -- I mean, I guess you said that you are going to see the opportunities in 2011. How big are these contracts? Are we talking about CAD100 million contracts, or CAD25 million contracts? I just wanted to get a sense of the range of these contracts.

It's a bit hard to say at this time because basically the tailings cleanup exercise, let's say, requires around five stages, and it is possible for some of those stages to be done by different contracting groups. It's also possible for some of those stages to be done by the client. What we're working on is saying to the client, well, it's sensible for all of those stages to be done by a single supplier, and as far as I'm aware, we're the only organization that has put together a group that can be -- that has the capability to supply all of those five stages. If all five stages led to a single contractor, I wouldn't be able to say exactly how much it would be, but it would be a long life, five to seven-year, at least, contract, just clearing up the old materials on any site, and then an ongoing contract, treating the materials as they come out of the plant. Every supplier -- every producer up there will have a requirement for this type of work. That's about the best I can give you. The exact size of it, I would be taking a wild guess at this stage.

Okay. So you are saying about a five to seven-year contract --

That's what I would expect that would be put in place. The process requires significant dredging, and with -- tied up in a joint venture with one of the largest and most expert dredge companies in the world, and it then requires significant pipeline work. It requires dozer work to spread the material, so that it can dry. It requires work to pick up the material once it has dried and put in the back of trucks. Then it requires truck haulage back to where it's going to be put into the [oil] dams where it will be reclaimed, and the reclamation work shaping it to the landscape and everything else, getting it ready for seeding.

Gotcha. Now you mentioned competition in tailings. You said your clients can do some of this work. What other companies out there will you be competing with for the tailings?

There's two other companies out there that do a small part of the type of work that we talk about.

Canadian Dewatering is one company, and CEDA is a the other one.

Canadian Dewatering. And what was the other one?

CEDA.

Gotcha.

Canadian Dewatering is a subsidiary of Mullen group.

Okay. Also I guess in terms of the Surmont and the Sunrise and the Firebag, what is the time line for bids on those projects, and I guess where are you in terms of pursuing those opportunities?

The initial bids for ConocoPhillips' Surmont project are already in. The initial work there is not an area that we are highly competitive in. That's scraper work and we don't operate scrapers, and -- that's the initial earth works. There will be further earth works after that, and that's probably still six to nine months away before that goes out. The Firebag, and Husky Sunrise is --

Firebag is under construction right now, and we'll see some [packages] come out of that -- you know, in the next few months, but the significant construction on that project is already underway, and Sunrise would be somewhere along the tail end of ConocoPhillips, so six to 12 months away.

Thank you our next question is from Matt Duncan with Stephens. Please proceed with your question.

Hi, guys, two follow-up things for me. First, on sort of what we ought to be thinking about for the June quarter, it sounds like you are expecting the year to get off to a little bit of a slow start. I know that there's normally a slow start due to seasonality. Are we expecting a little bit more seasonality than normal this year?

In fact, the seasonality started early. The spring breakup occurred in the latter part of the fourth quarter of last year, and so we're impacted by the fact that we couldn't operate our big equipment right through to the end of the quarter. And the other thing that happened towards the end of last year was Suncor had a fire in one of their plants, and that also made some significant opportunity lost, and that opportunity was lost from two points of view. Number one is that there was some overburden removal opportunities viable at the time, so that was missed. But secondly because of the time taken to get that plant back into full operation, during that period Suncor doesn't require oil sands so they put their own trucks into the overburden removal, and they caught up on a fair bit of overburden removal, so that was an expectation that we had that would be early in the year, which we think will still become a viable opportunity for us, but a little bit later in the year. We have actually kicked into the year reasonably well in the first couple of months. Yes it is seasonal, but I think it will be a pretty standard seasonal year.

Okay Rod, thanks. And then last thing I've got is Dave, when you look at your balance sheet, after the new bond is put in place, can you kind of pro forma what your debt and cash balances would look like in that world?

As I said earlier, Matt, we used about CAD10 million of our cash to reduce the debt. I think there was about another CAD6 million or CAD7 million with the associated fees for the refinancing, so that obviously brought the cash side of it down. When you look at the debt side of it, the CAD225 million on the new notes, there's about CAD50 million in terms of additional term loan under our facility, as well as the existing term loan we had on our balance sheet at March 31st. So that's the kind of structure that you can expect to see.

Thank you. Our next question is from Todd Garman with Peters and Company, please proceed with your question.

Good morning. Just regarding the expirations, or the upcoming expirations of Suncor and Syncrude, what should we think about in terms of price increases going forward for those agreements into 2011, just given the activity in the area over the next couple of years?

Syncrude has, in November last year, awarded new set of contracts for the site reclamation, overburden removal and muskeg removal on the basis of five-year contracts. The contractors that was let to, and we weren't one, didn't perform particularly well, and in fact that's where Cow Harbor was up until a short while ago operating, and the result of that was they didn't achieve anywhere near the expected reclamation, muskeg removal and overburden removal in the last winter period. Our understanding, and there's a pretty strong indication from Syncrude, they have extended our contract by a year, and they expect to go ahead and retender, and they are reviewing their haul supply basis that they are going out to tender on. That will happen in November of this year, and we expect the pricing to be competitive, but certainly reasonable, and certainly something that we would be able to compete in quite well, and make a good margin on. Suncor, they used to work with Cow Harbor. Cow Harbor no longer works from their side. They are currently operating now with a single overburden removal contractor. They tend to like to have a balance on their site. We expect that will be going up for tender later on, really at a similar time frame actually as Syncrude, and again, we expect that to be a bid that will be reasonable, fair margins, and one that we can make, that we'll be very competitive with and one that we can certainly make a profit off of.

And where if you had to think about where that bid might fall in November or December of this year, where the bids might fall price wise, do you think that those prices will be higher than what were submitted year-over-year?

Actually I think it would be more likely to be the same as what we submitted year over year, but then we didn't get any of the contract last year because Cow Harbor in particular but also a couple of other contractors went in basically with bids that were unsustainable. And we're seeing the fact that they were unsustainable in the fact that Cow Harbor no longer exists. So we wouldn't go in at the level, and we would never have gone in at the level, that Cow Harbor did. It was a completely non commercial bid as far as Cow Harbor went. And they have now gone -- they will be out of the business by the end of the year, and so the bidding will probably be more on the level that we bid last year, but the number that we bid last year was perfectly reasonable. It was one that we have made reasonable margins on, and of course, if a client like Syncrude gets a bid that's 10% or 15% below the sort of level that we're bidding, they are obviously going to look at it very seriously, and they did, and they took it, because they took low price. Unfortunately for Syncrude, the acceptance of that very low-cost bid has ultimately cost them, and I think they are very much looking at reviewing their strategy for bids, and they'll be going out again, as I said, in November.

Thank you. Our next question is a follow-up from Greg McLeish with GMP Securities.

Hey guys, I was just wondering if you gave us any order of magnitude on the two pipeline contracts that you were awarded?

The overall value of those two contracts would be about CAD70 million.

They will be completed within the year?

Yes.

Most of them?

Yes.

Okay. And just finally, just looking at Shell Albian, as you said there will be some short-term demand variability. How much is that going to impact you early in the year?

It will impact us mostly earlier in the year. We've got some -- we're still doing a lot of work on that site. They started their shutdown around at the end of March, and the whole exercise is -- we've been building their second mine for them, and of course, they have got a second initial processing plant and everything else, but ultimately everything ties into their MRM operation, and they know it's a tie in, they actually shut down their entire oil sands production stream from Fort McMurray right through to Edmonton. And they are commissioning all of the various new parts that have been building, and we have been helping them build, over the next couple of years, and they expect to be getting back online and probably back to full production probably in the next month or so.

Thank you. Our next question is from Tatiana Thibodeau with Clear Bridge Advisors. Please proceed with your questions.

Yes, hi, guys.

Hi, Tatiana, how are you?

I'm good. My question is, both on the mining and site preparation segments. When we talk about higher pressure, competitive pressures in this segment, how do you think about long-term sustainable operating margins for this division?

The sort of site preparation, and site construction-type work, long-term sustainable margins, should still be in the 14% or 15%.

Okay. And then the similar question on the two pipeline contracts, so they all will be finished next year, right? Or rather this year for you?

During this fiscal year, yeah.

Yes. So you have said CAD17 million in revenues or so. How should we think about margins in those two contracts?

You should think that the pipeline business is very competitive. So the margins in that sort of contract is in the sort of 11% or 12%.

Okay. All right. Similar to what you have been talking in the past?

Yes.

Okay. Thank you.

Thank you. Our next question is from Matt Duncan with Stephens. Please proceed with your question.

Hey, guys, just another real quick numbers question. It's kind of difficult to see what the quarterly P&L looked like, given the accounting change, so I wanted to make sure I was kind of looking at these line items correctly. On the G&A expense line, what was your quarterly G&A expense this quarter?

The G&A was a little bit higher in the quarter. It was CAD19 million. There were just a few year-end adjustments as well as some increased costs on the stock-based compensation side, just the variability that we have seen in our share prices has played out in terms of how we value some of that stock-based compensation, so that impacted the number. So that's what's driven it up in the quarter.

So was that a one time impact then? Or is that going to stick going forward? I'm just trying to get a sense of what those quarterly costs are going to look like? Is it still in the CAD14 million to CAD15 million range, or is it now CAD19 million?

No, it wouldn't be as high as the CAD19 million. I would say that was a one time. We are sort of targeting in that CAD15 million or CAD16 million range.

Okay. That's helpful. And from a gross margin perspective, obviously there were a couple of things that negatively impacted you this quarter. I think in the past you guys have felt like an annual gross margin between 16% and 17% was doable on an annual basis. Would that still be the case right now? Or are competitive pricing pressures maybe weighing on that?

No, I think overall the margins that we have typically talked about in sort of that 14% to 16%, 14% at the lower end, 16% is reasonable. There will be periods obviously where it may go a little bit up or down, depending on the types of projects that we do. Because we have had some very successful projects at higher margins in the past that has driven it up.

Sure. Okay. Thanks, guys.

Thank you. Our final question comes from Greg McLeish with GMP Securities. Please proceed with your questions.

Hi, guys, if I could just again drill down on the earnings for the year. You said CAD0.57, and David I think you indicated that you would add back the CAD0.32 which would be a non-recurring item.

A one-time item. Yes.

So it would be an CAD0.89 year, then?

Yes, that sounds about right.

Perfect. Okay. Thanks, guys.

Thank you. There are no further questions at that time. I would like to turn the floor back over to management for closing comments.

Thank you very much here, everybody for joining us in the conference call today, and we look forward to talking to you again in the near future.

Thank you. And this concludes the North American Energy Partners conference call.