Fluor Corporation Q3 2008 Earnings Call Transcript

Nov. 6.08 | About: Fluor Corporation (FLR)

Fluor Corporation (NYSE:FLR)

Q3 2008 Earnings Call Transcript

November 6, 2008, 5:30 pm ET

Executives

Ken Lockwood - VP, Corporate Finance and IR

Alan Boeckmann - Chairman and CEO

Michael Steuert - SVP and CFO

Analysts

Jamie Cook – Credit Suisse

Barry Bannister - Stifel Nicolaus

Michael Dudas - Jefferies

Andy Kaplowitz - Barclays

Curt Woodworth - J.P. Morgan

Graham Mattison - Lazard Capital

John Rogers - Davidson

Richard Paget - Morgan Joseph

Operator

Good afternoon and welcome to Fluor Corporation’s third quarter conference call. This 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. A replay of today’s conference call will be available at approximately 8:30 pm 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 8:30 pm Eastern Time on November 13, at the following number; 888-203-1112, the pass code of 4804796 will be required.

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

Ken Lockwood

Thank you, operator; Welcome everyone to Fluor’s third quarter 2008 conference call. With us today are Alan Boeckmann, Fluor’s Chairman and Chief Executive Officer; and Mike Stuart, Fluor’s Chief Financial Officer.

Our earnings announcement was released this afternoon after the market closed and our 10-Q was also filed today. We have posted a slide presentation on our website, which Alan and Mike will reference during their prepared remarks.

Before getting started, I would like to refer you to our Safe Harbor note regarding forward-looking statements, which is summarized on slide two. During today’s call on slide presentation we will be making forward-looking statements. These forward-looking statements reflect our current analysis of existing trends and information and there is an inherent risk that actual results and experience could differ materially.

You can find a discussion of those factors that might cause expectations to the different and actual results in our 10-K filed on February 29 of 2008 and in almost recent 10-Q filed today on November 6, 2008

With that, I will turn the call over to Alan Boeckmann, Fluor’s Chairman and CEO.

Alan Boeckmann

Thanks Ken. Good afternoon ladies and gentlemen and thank you for joining us. Today, we will be review on our financial results for the third quarter of 2008, and will talk about our market outlook particularly in light recent economic development and then discuss our initial EPS guidance for 2009. As you have seen from our earnings release, our third quarter was extremely strong; with all key financial metrics arising shortly from that a year ago.

More importantly, our focus on winning the major long-term capital projects with will-funded clients continues to generate significant growth and opportunity for Fluor. I would ask you to turn the slide three. Here I want to provide some highlights of our financial performance in the third quarter. Our revenue rose by 38% to $5.7 billion and that compares with $4.1 billion in the third quarter of 2007; this was driven primarily by significant growth in the oil and gas and power segments.

Operating profit for the quarter increased 71% to $324 million and that compares with $190 million a year ago, reflecting solid profit contributions from all five business segments. Operating margins increased to 5.7% and that compares with 4.6% in the third quarter of 2007. Net earnings for the third quarter were a $183 million, as an increase of 95% over $94 million a year ago. The earnings per share effectively doubled to $1.01 per diluted share that compares with $0.51 per diluted share for the same period of last year.

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

As you turn to slide five. I want to make some comments on our markets. First, I think it goes upstream that the current economic environment creates uncertainty on a number of fronts and this is certainly a story that will continue to evolve overtime. And it would be knife to suggest that our clients, our projects and our prospects are totally insolated from the issues of the credit market or a slowing global economy, but having said that I would note that we have had no material cancellations to-date and I know just two projects that have been slowed somewhat, but only temporarily.

We remain optimistic that our substantial backlog in our diversified business model will allow us to continue to grow throughout 2009. The dramatic reduction we seen in oil prices since they peaked in mid-July it certainly of interest to our major clients, and as you are all aware though they are focused on the long-term and their price level that deliver acceptable returns over the life of that project. I think its worth noting that when oil was trading in a range of $50 to $70 per barrel in 2005 and 2006.

We booked $15 million in new awards in oil and gas. So, I think it’s fair to say that our clients were not assuming that long-term prices would $100 or more per barrel. Of course this priced point various depending on the type of project and I think everybody knows Oil Sands projects do require a higher sustainable price considering the cost associated with producing useable oil. On the other hand, I believe that we are working at in the middle-east in Russia. For example are significantly less acceptable to recent price declines.

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

Let me comment on each of our market segments as we look into 2009 and I am turning now to slide six. Starting with government, we continued to pursue opportunities to expand our services with the Department of Energy. We are expecting to here on liquid waste contract in the Savannah River in the very near future. Looking ahead there are several other large DOE procurements next year. We are continuing to seek opportunities in the U.K. and their plan nuclear remediation program. On LOGCAP IV, we have received our first task order during the third quarter and while it was relative to the small we are encouraged that the contracting process is finally beginning. Overall, we continued to see our government business as stable and select opportunities for growth even in a soft economy.

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

I will ask you to turn the slide seven. In Industrial and Infrastructure, the two more active markets continue to be mining and infrastructure, but we also had a nice manufacturing award this quarter. We will have also consistently talked about, how mining is probably the most economically sensitive business that were in and given recent commodity price to clients and signs that Chinese demand maybe slowing even though from a high level. BHP Billiton, Rio Tinto and others have raised this has a concern.

While we have to wait and see, what impact is would have on capital spending plans in the mining sector; we did book a very sizable mining project in this quarter, which I think is very encouraging. Infrastructure as we have discussed in the past is one of the few areas we’re financing is often inter growth of projects and for this reason it could become an issue at some point, but I would like to point out that we do not have any prospects to require financing within the next six months and all of the projects that in our backlog have their financing in place, so we think our position there is solid.

Clients like the Virginia Department of Transportation has publicly talked about an expected budget constrain, but we don’t believe that will impact our I-495 project, which is fully financed. There are a number of significant road and rail programs in the U.S. and Europe that we will continue to pursue.

Power market is going to continue to be relatively slow, at least for the next year or so, for all other reasons we have talked about previously, but mainly the inability to secure permits for coal plants. We are receiving awards for gas-fired plants and we should be seen come into backlog in the fourth quarter. There are number of prospects on this gas side and we still have a few opportunities in the coal side, but candidly they would late 2009.

On the nuclear side, we continue to support the South Texas project for Toshiba and NRG and are continue to position ourselves for other nuclear new build opportunities both in the U.S. and certainly internationally. We are still projecting that will be late 2010 of the earliest before any significant nuclear work will begin and that’s of course assuming financing can be obtained.

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

Prospect list for 2009 is substantial. Our key clients and just to name two of them ExxonMobil and Conoco Phillips that recently stated they intend to maintain current strong CapEx levels in 2009, but other clients like Opti Canada, for example recently indicated that they are oil sands up greater project base two maybe delayed in light of falling oil prices and on their call last week Bolero announced services into pushback, the construction completion scheduled under Port Arthur hydro cracker unit from 2010 to 2011. So, it’s probably best described as a mixed bag right now, but with significant opportunities going forward.

We do have a very healthy prospect list across upstream, downstream and petrochemicals. The oil and gas segment has a backlog of almost $23 billion now. At this point we see a scenario were quarter awards are strong and we’ll continue to be strong, but they maybe be a bit lumpy than we have seen over the last year. For the oil and gas segment, our current view is that we will sustain our backlog at or around this current level through 2009.

In summary, while there are a number of uncertainties in the global economic environment. Our view at this time is that 2009 has the potential to be extremely strong for our company overall.

With that let me turn the call over to Mike Steuert, our Chief Financial Officer, to review some details of our operating performance by segment including key awards. Some key corporate metrics and talk about our guidance for the balance of 2008 and 2009.

Mike Steuert

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

Now, turning to slide ten; Fluor’s Industrial and Infrastructure segment reported revenue of $879 million in the quarter, up 19% over the last year. Operating profit for the third quarter was $28 million compared to $27 million a year ago. Strong operating performance from our Mining and Metals business line was partially offset by a $16 million charge infrastructure relating to a contract claim dispute on the London Connect project. This charge was recognized as a result of reassessments for the remaining time and cost to complete the project and the probability of recovery with certain claim items.

Items and projects is about 95% complete and we expect to complete the project and to enter in the final arbitration process during 2009. Industrial and Infrastructure new awards for the quarter were $2.2 billion of which $1.3 billion was very large gold and copper processing project to Latin America and $420 million was for a solar panel manufacturing complex for REC in Singapore. Ending backlog was up 63% to $8.5 billion compared to $5.2 billion a year ago.

Revenue for the Government segment was $369 million for the quarter up from $337 million a year ago. Operating profit was $18 million compared to a loss of $2 million a year ago, when we had a $21 million charge relating to the background Air Force based projects in Afghanistan. Third quarter new awards totaled $922 million, including approximately $600 million for transitional work in the first year of operations at the DOE Savannah River side. Ending backlog was $886 million compared to $839 million a year ago.

Moving on to slide 11, the Global Services segment reported a 9% increased in revenue to $593 million in the third quarter. Operating profit was the segment was $49 million compared to $48 million a year ago. Segment results were adversely impacted by delays in refinery turnarounds and hurricanes along the Gulf Coast. New awards for the quarter were $405 million bring total backlog for the segment $2.7 billion.

Fluor’s power segment reported a 64% increase in revenue to $531 million, up from $324 million last year. Operating profit was $24 million in the third quarter, up from $6 million a year ago. Results for the quarter were favorably impacted by the significant progress made on coal-fired units in a construction for movement in Texas. Power segment new awards for $226 million, including a sizeable discover project in U.S. Backlog for the segment at the end of the third quarter was $1.6 billion. As Alan mention, Fluor’s had another record for backlog this quarter up $3.5 billion sequentially to $36.5 billion. For percentage of fixed-price working backlog is 25% and from a geographical perspective 47% of the total backlog is in U.S. was 53% for projects outside the U.S.

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

Shifting to the balance sheet, consolidated cash and marketable securities balance of September 30, was $2.2 billion up from $1.6 billion a year ago and down from $2.4 billion at end of last quarter. The decrease from last quarter is mainly due to a $167 million of redemption payments to convertible note holders. As of September 30, a $140 million of convertible notes remained outstanding.

Capital expenditures for the third quarter were $85 million, including equipment for Mico additions to our computer infrastructure and upgrades to our systems. We expect CapEx for the year to be approximately $260 million to $280 million. Fluor’s Board of Directors approved a normal quarterly dividend of $12.5 per share payable on January 5, 2009.

Finally, let us talk about our updated guidance for 2008 and our initial 2009 guidance, which is shown on slide 13. It was strong performance today and record third quarter renewal order levels. We are narrowing to 2008 guidance to a range of $3.70 to $3.80 per share. Looking towards 2009, the company analogist probability of possibility that are prolonged economic downturn, could moderate the demand for large new capital expansion projects.

While our potential exists for near-term decline demand in certain markets, we have confidence in our current prospect list and substantial earnings power of existing $36.5 billion of backlog. As a result, we were establishing our initial 2009 guidance in the range of $3.90, $4.20 per share.

With that Alan and I will be happy to respond the questions.

Question-and-Answer Session

Operator

(Operator instructions) We’ll go first to Jamie Cook with Credit Suisse.

Jamie Cook - Credit Suisse

Hi, good evening and congratulations.

Alan Boeckmann

Thank you, Jamie.

Jamie Cook - Credit Suisse

It is a pleasant surprise in this market.

Alan Boeckmann

I think we stopped the domino of that

Jamie Cook - Credit Suisse

I hope so and I am not going to go there. Okay so, my question relates to the guidance and specific within oil and gas, when I think it how the burn rate on backlog and oil and gas in 2009. I would assume the dollars in oil and gas I am assuming revenues would be up year-over-year just because you are going through more towards the construction. The construction stage, which you mean bigger dollar, so that’s my first question and then second your profit dollars in oil and gas were $200 million and that’s about what you did for the full-year in 2005? Is that a sustainable way on a profit dollar basis? And I think it 2010?

Alan Boeckmann

I think you are right; we will be ramping up continued ramp up revenue in oil and gas right, which are the strong bookings we’ve had over in the quarters for the last years. A lot of those projects going into construction, although we have a number of it going to engineers as well, so that is true, we will be ramping up revenue. I made the comment in my prepared remarks, so we think the backlog for oil and gas for 2009 will stay pretty constant and they come up or down quarter-to-quarter, but to say pretty constant. Then to your last question on total earnings; we had a strong margin in oil and gas or any industry chemicals this quarter. I think just it will be, if I don’t think we will be maintaining that level of gross margin. I think it will be just a bit lower than that.

Jamie Cook - Credit Suisse

But, on the profit dollar base, is it fair to assume that you are in…

Alan Boeckmann

Yes, I don’t the target, I have to go back, not only have that those numbers before I’ll do the map or I think it will be at the ballpark.

Jamie Cook - Credit Suisse

Okay and then…

Alan Boeckmann

I think there is a chance from – again quarters are lumpy. So, there maybe it some quarters that we will now absolute we maybe do better than that.

Jamie Cook - Credit Suisse

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

Alan Boeckmann

Yes, that’s the great question. I have listened to the comments from a number mind over the last week and I agree with all of them. In particularly oil and gas it’s a long-term business. We do a lot of project work and the reaction today’s drop in oil or tomorrow is increased in oil does not drive these projects. So, we’re looking very solid ’09 not just from watching backlog, but what we see in prospects and I think too much is being made of some of the recent delays that we have seen. The fact of matter is that almost every project in our backlog today on downstream oil and gas has had a delay. The Whiting project that we just announced that had almost a one year delay.

So, it’s not unusual for given the size and complexities projects and I think people are jumping to conclusions that, oh my god it’s the market and mixed oils down, and I think that’s wrong. I think right now our clients should be in pretty savvy they see commodities coming down, steel, copper and we’ve had a tremendous inflation in the cost of capital goods over the last 18 months to 2 years. There is an opportunity for that to come down and in fact have a positive impact on the projects they get delayed for six months, two year. So, I think there is a lot of dynamics this markets that aren’t necessarily as obviously that conclusions that the people jump to.

Jamie Cook - Credit Suisse

So, in terms of that the bookings I mean, is it fair to say its more back half? Or do you think it’s just tough to tell. It could just come at any time throughout the year just I am trying to get an --?

Alan Boeckmann

I used a word lumpy because that’s about the best way I can describe it.

Jamie Cook - Credit Suisse

Okay

Alan Boeckmann

We had a great quarter this quarter, but we had a couple things that broken happened at the end of the quarter rather than going over in the fourth quarter. So, a quarter can change just by a weeks timing on some of these large projects.

Jamie Cook - Credit Suisse

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

Alan Boeckmann

Thanks a lot.

Operator

We’ll go next to Barry Bannister with Stifel Nicolaus.

Barry Bannister - Stifel Nicolaus

Could you talk a little bit about the plans and ultimate disposition of the amazingly large amount of cash that the company is accumulating? The company’s mix of businesses rapidly approaching 70% oil and gas sort of a 1970s average and you got more cash than twice the market cap of the Shaw Group and powers in area where you have not gotten a lot of base load traction including in nuclear. So, are you more in client to sit on the cash, acquire Billiton fill out the business or buyback stock?

Michael Steuert

Barry, our absolute priority is going to be doing Billiton in key market areas. Right now liquidity is a great opportunity maker. Evaluations have come down, as you just pointed out dramatically. I think there is a great opportunity for us to make some moves that will set the company on a great track for the future. Again I don’t expect any of them to be incredibly large, but I think there will be sizeable and enough to make a difference, as we go forward, both from the strategy standpoint as well as accretion standpoint.

Barry Bannister - Stifel Nicolaus

Given, the market caps in this market, though there is a lot of companies you could buy that wouldn’t be incredibly large, that used to be. Let me ask you a question about BP Whiting it is been politically opposed by a manual and Obama, the Kuwait outsource had some impress about, rebate and questioning, financing and I don’t know, but you touched on the delay at Port Arthur, but could you talk a little bit more about those first two?

Alan Boeckmann

You talked that the, you broke up just a little bit and Barry you talk about the outsource and --

Barry Bannister - Stifel Nicolaus

Well, BP Whiting’s has been opposed in Illinois politically by Obama and a manual, and outsource had some financing issues and we’re still waiting on would River I don’t know if you book that in the quarter, so could you just talk about that and the Bolero delays?

Alan Boeckmann

We have believed that both the Whiting project and Alsur we’ll be going forward strongly. There has been uncertainty about them bit in on Whiting, because of just a permit issue. That has they final clear to hurdle on that in the middle of the summer. So, I think that one still steam ahead. Alsur we a lot of the slowdown on that was because of a sighting issue that was finally resolved last quarter and so we’re moving strongly we’ve got up just over in the I mean Kuwait last week. We’re staffing strongly on that project and moving forward.

The other, two projects the Bolero project in the Marathon Detroit projects where both projects that have been postponed or delayed, shift and in fact I would even call it slowdown really rather than the delayed and the purpose for that is like twofold that’s to look at balancing cash flow in one case and the other one is to look at taking an opportunity for a better procurement process and a better construction window. Both of which make sense and we are in full sink with.

Barry Bannister - Stifel Nicolaus

Thank you.

Operator

We’ll go next to Michael Dudas with Jefferies

Michael Dudas - Jefferies

Good evening everybody.

Alan Boeckmann

Hello, Michael

Michael Steuert

Hi, Mike

Michael Dudas - Jefferies

I have two questions first Alan or Mike. A year ago at this time would you have anticipated a $36.50 billion backlog at the end of the third quarter, do you think it’s a bit better than you would thought and may was there some acceleration of some projects from either timing or just decisions by your customers this year as opposed to this moving out in the 2009?

Alan Boeckmann

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

Michael Dudas – Jefferies

My second question is Alan, maybe some reflection on your recent board appointment to BHP. Can you maybe give a little bit of sense of what you might be seeing or your colleagues? What’s happening in the Pacific Rim? And we have a lot of course every thing has happened quite quickly over the past couple of months, but do you get a sense that it’s bit more of a pause or is that the structural issues that might backup developing economies growth over the intermediate term?

Alan Boeckmann

Well, I think clearly there’s been a drop in demand on some of the commodities Mike, and the mining industry is one that reacts much quicker to market cycle than and commodity prices than almost any other segment. So, right now I think it’s more of a pause. I think they expect that emerging economies will continue to growth again, will continue to ramp up demand for commodities, but right now it’s hard to say and it would be hard for us to give a timeframe as to what that looks like.

I think you are going to see though, and again I come back to the positive side of that for Fluor as opposed to might BHP Billiton, the Directorship. We’re going to see reductions in the prices of steel of cable of anything that has to do with alloys and that’s a positive bit of information. We’ve been seeing dramatic increases in those over the last couple of years.

Michael Dudas - Jefferies

I appreciate your thought, thanks Alan.

Operator

We’ll take our next question from Andy Kaplowitz with Barclays.

Andy Kaplowitz - Barclays

Good evening guys, nice quarter.

Alan Boeckmann

Thanks Andy.

Andy Kaplowitz - Barclays

Could you talk about, when you said your initial guidance for 2009, I know you guys are usually pretty conservative and so, now you look at this $36 billion in backlog, how much only way do you think you really have? I assume you set disaster, you’ve seen a couple of delays in your projects. So, how much is based on just the run rate of backlog flowing through versus get these new awards that you talk about in 2009?

Alan Boeckmann

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

Andy Kaplowitz - Barclays

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

Alan Boeckmann

Government, I think you are going to see the sustainable range more in the four to four and a half side; LOGCAP is going to be hard to engage. I think we are going to see a good flow of orders as we go forward, because that process has now start, but it is one that you might not see a lot of in backlog because the type of orders we get will be worked up within one or two quarters for all these task quarter. So, that is – it is going to be hard to see and it is going to be more of our transactional run rate type of business model there. On DOE, as you know we booked every third quarter, full-years and only with the next year’s revenue. So, you will see it tail off a bit over the next several quarters as we work off within we will update it again in next third quarter.

Michael Steuert

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

Andy Kaplowitz - Barclays

And Mike, if I could often one second that the hurricane impact on O&M, is that quantifiable, can you talk what that is?

Michael Steuert

No, we can’t. That impacted at O&M into modest, we would also impacted at oil and gas.

Andy Kaplowitz - Barclays

Okay, great. Thank you.

Operator

We will next to Curt Woodworth with J.P. Morgan.

Curt Woodworth - J.P. Morgan

Yes, hi good afternoon.

Alan Boeckmann

Good evening. Good afternoon, Curt.

Curt Woodworth - J.P. Morgan

I want in terms of the potential projects that you think will be awarded in 2009 oil and gas in order to keep the backlog relatively flat. Can you pin a picture what end markets are those and you already have seed work for some of those projects?

Alan Boeckmann

I hope yes. First of all Curt, normally we do this, so let me just comment you on your report, which you gave earlier in the week. I thought it was really well done. A couple of people out there have talked about the disparity in pricing today versus our earnings and I thought you describe it very well.

Curt Woodworth - J.P. Morgan

I appreciate it.

Alan Boeckmann

We do in fact, the answer is yes. We have visibility into a lot of those prospects because we’re doing the field work and it gives us not just a clear shot of EPC award, but it gives us a better understanding of the business model, timing and the relative size of these projects. So, our outlook looking at prospects that they include prospects for ’09, this may sounded pretty strong view of them.

Curt Woodworth - J.P. Morgan

Okay and another question just regarding the ’09 guidance. If you look at the guidance that you said last year at this time for this year it was around, I think 255 a share; so you almost beat that by a dollar. Given this kind of new claim that we’re in and I guess what kinds of the pinch points around that number are and I guess more big picture thinking what would have to happen either to oil prices or potentially the global economy for you to start seeing more substantial investment changes by your customer base?

Alan Boeckmann

Well, to your first question, you are right our original guidance for ’08 was a mid-point 255. Number of things happened, first of all we had an outstanding award in every quarter in the year and that really give us a whole lot more earnings power and revenue in’08 than what we’ve had originally forecast. We also because of growth got a tremendous benefit on leverage, on our overheads and we had also very strong performance that allowed us to capture the earnings in those projects. So, we had a lot of things that went really well and you planned for those, but a couple of things what better than we expected.

Let me, ask you to repeat the second part of your question.

Curt Woodworth - J.P. Morgan

Well, even despite what’s going on an oil price market in the global economies feels like the most part, spending it’s going to hold up relatively well. So, I guess the question would be what would need to happen and this is probably hard to answer, what would need to happen for you to see more significant either cancellations, delays among your customer base? Would it be prolong inter-period at $50 oil? Or I mean how are you kind of thinking about the potential outcome of where we are headed?

Alan Boeckmann

It would the more dramatic and more sustained decline than what we’ve seen for that to occur, and again it depends on which market you are talking about upstream varies different than downstream is different than the tar sands and it is different than GTL. So, I think it would take a much more sustain in long-term, downturn in that and we will take other issues maybe political or geopolitical maybe regulatory things like that we would drive it down.

Curt Woodworth - J.P. Morgan

Great. Thank you very much.

Operator

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

Graham Mattison - Lazard Capital

Hi, good evening guys and congratulations on the quarter.

Alan Boeckmann

Hi, Graham. Thanks

Michael Steuert

Thanks.

Graham Mattison - Lazard Capital

Just have following up on, with these projects would have been shift in terms of the refineries. How does that impact the people you have onsite there? Do you get standby rates? Are you able to repay, put them into different projects?

Alan Boeckmann

In both cases we really had gotten into the construction yet, we just have started. So, we have really had to ramped up, we will maintain staff on those and I made the comment that in fact we haven’t stopped, we have just slowdown. We have a plenty of opportunities to place people in this market. So, if we have to take one or two people offer or some portion of them, we have no problem put them in one of the projects and that was part of the rational for our clients that the construction demand in that area for both in the up or mid Northeast and in the Southwest is very, very strong.

Graham Mattison - Lazard Capital

Great and then looking at the power markets, I know you have mentioned that most new awards are probably becoming natural gas. So, do you seen any slowdown in terms of the awards there just given the economic outlook in the potential for slowing economic growth in the U.S. or I think still moving ahead as they were two or three months ago.

Alan Boeckmann

I think that the base generation and even some peaking gas part still more forward we had - I think we will probably see some slowdowns in the - what I call the industrially connected power projects those at our met to provide additional power for industrial plants or they are directly connected? That I one I think, we may see some slowdown, but we still are getting a good, strong look at a number of gas projects that are sales force negotiated during the front ends and we will bring at least one of those at the more into backlog in Q4.

Graham Mattison - Lazard Capital

Great and just a final question if I could have, previous questions you talked about a power working plant when potentially awards out there and you put to in this quarter. Do you still that in the potential area for growth or is that market sort of flatten up?

Alan Boeckmann

I still think it is a good market for growth. We have got a very strong position in that market. We are looking at the number of potential new projects literally all over the globe. So, I think it will stay very strong.

Graham Mattison - Lazard Capital

So they haven’t pushback in terms of their expansions plans and no ones change their outlook there for the customer side?

Alan Boeckmann

Recently, no.

Graham Mattison - Lazard Capital

I agree. Thank you very much. I appreciate it.

Operator

We will go next to John Rogers with Davidson.

John Rogers - Davidson

Hi, congratulations as well.

Alan Boeckmann

Thanks, John.

John Rogers - Davidson

First of all just in terms of the, your fourth quarter comments, sequentially or obviously ’09 has been great, but sequentially it down. Is there anything special about that happening in the fourth quarter?

Alan Boeckmann

Sequentially it’s down on that.

John Rogers - Davidson

No, I didn’t sorry ‘09 looks great, but the guidance you have given for the full-year wouldn’t by little over fourth quarter I just wanted to understand if there is anything there?

Alan Boeckmann

Nothing, to that couldn’t point you know.

John Rogers - Davidson

Okay and then in terms of just back on the power market for a second. The gas projects that you are looking at. Are there terms similar to what you have seen in the last cycle or you going able do? How was the market development or is that the utility terms out there or it similar to last cycle?

Alan Boeckmann

That every one of the projects we have got is negotiated. So, it is extremely somewhere in the process we using to develop the projects and the negotiation in the contract terms we’re getting.

John Rogers - Davidson

Okay, great thank you.

Operator

(Operator instructions) We’ll take our follow-up question from Barry Bannister with Stifel Nicolaus

Barry Bannister - Stifel Nicolaus

Your incremental margin in oil and gas was about 8.5% and than it looks like you are pushing that 6% number of full-year run rate, which we have always hope for. Are you getting closer to that is the goal in terms of the margin mix in 2009 or would you describe the mix is different more revenue driven?

Alan Boeckmann

I think it’s going to be more revenue driven as we go for because, of the construction nature that continues to grow in our run rate. I would really look more for a mid five - 5 to 5.5 rages as we go forward.

Barry Bannister - Stifel Nicolaus

Did the greater Gabbard wind farm partial interest recently changed hands at the value less than the implied value of the total contract, to build it?

Alan Boeckmann

I do understand that it did change hands. I didn’t see any pricing that was with it nor have I heard of any – there was a sale of portion of that equity.

Barry Bannister - Stifel Nicolaus

How much was that booking?

Alan Boeckmann

We have lost you, Barry.

Barry Bannister - Stifel Nicolaus

How much was that booking?

Alan Boeckmann

I’m sorry you really cutout, we just understood a lot of couple last part your sense could you. Could I ask you to repeat?

Barry Bannister - Stifel Nicolaus

Sure, how much was the greater Gabbard booking?

Alan Boeckmann

I think it was $1.8 billion for us.

Barry Bannister - Stifel Nicolaus

Thank you.

Operator

We’ll go next to Richard Paget with Morgan Joseph.

Richard Paget - Morgan Joseph

You talked about some material deflation potentially benefiting you guys. How the labor market is is still pretty tight for your end markets and might you seen some more available people in the near future?

Alan Boeckmann

It’s still tight and again it’s very regionally driven just the tighten is today as more on the construction side then on the engineering side.

Richard Paget - Morgan Joseph

Okay thanks.

Operator

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

Alan Boeckmann

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

Operator

This does conclude today’s conference. Thank you for participating. You may disconnect.

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