Chicago Bridge & Iron Company's CEO Hosts 2013 Guidance Conference (Transcript)

| About: Chicago Bridge (CBI)

Chicago Bridge & Iron Company (NYSE:CBI)

December 19, 2012 2:00 pm ET

Executives

Philip K. Asherman - Chief Executive Officer, President and Supervisory Director

Ronald A. Ballschmiede - Chief Financial Officer and Executive Vice President

Analysts

Andy Kaplowitz - Barclays Capital, Research Division

Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division

Steven Fisher - UBS Investment Bank, Research Division

John Rogers - D.A. Davidson & Co., Research Division

Richard Roy - Citigroup Inc, Research Division

Scott Justin Levine - JP Morgan Chase & Co, Research Division

Jamie L. Cook - Crédit Suisse AG, Research Division

Will Gabrielski - Lazard Capital Markets LLC, Research Division

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Chase Jacobson - William Blair & Company L.L.C., Research Division

John D. Ellison - BB&T Capital Markets, Research Division

Robert V. Connors - Stifel, Nicolaus & Co., Inc., Research Division

Brian Konigsberg - Vertical Research Partners, LLC

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the CB&I call on guidance. [Operator Instructions]

Before beginning today's call, the company would like to caution you regarding forward-looking statements. Any statements made or discussed today that do not constitute or are not historical facts, particularly comments regarding the company's future plans and expected performance, are forward-looking statements that are based on assumptions the company believes are reasonable but are subject to a range of uncertainties and risks that are summarized in the company's press release and the SEC filing. While forward-looking statements represent management's best current judgment as to what may occur in the future, the actual outcome or results may differ materially from what is expressed or implied in any such statement.

Now I would like to turn the conference over to Mr. Philip Asherman, President and CEO of CB&I.

Philip K. Asherman

Good afternoon. Ron Ballschmiede is here with me, and we want to spend some time with you this afternoon to discuss our CB&I stand-alone guidance for 2013 and respond to any questions you may have about the announcement on our shareholder vote and the status of the Shaw transaction.

First, the guidance. You will remember that during the last earnings call, we committed to providing 2013 guidance for CB&I stand-alone before the end of this year while anticipating we'll have an adjustment to include the combined companies at our Investor Day next March. It's our feeling that today's guidance should provide a good basis for those further adjustments affected not only by the Shaw transaction, but the possibility of major awards expected in the first quarter of the year. So as the announcement stated this morning, we see new awards in the range of $7 billion to $10 billion for 2013, which does include a factored amount for a significant LNG award during the year. We also anticipate revenue to be in the range of $6.3 billion to $6.7 billion and earnings per share at $3.35 to $3.65 on a diluted basis.

This guidance expresses our confidence that we will see continued development of capital projects in all of our key end markets and assumes that at least one of the major LNG export facilities will be awarded to us next year. We're also expecting to see petrochemical projects and gas processing to be a growing part of our backlog around the world, combined with significant contribution by technology and our Steel Plate Structure business sectors.

We'll provide further detail on these plans during our Q4 and year-end call towards the back of February. It's also worth mentioning that our current guidance for this year is solid. And even though in our last call we predicted that new awards would fall on the lower end of the range, it now appears that we'll be announcing some significant new contracts by year end, which will in fact be signed and exceed the top end of the $6.5 billion new award forecast, which will also include our underpinning work and some scope growth on major projects.

Now some other good news. I'm pleased to report that yesterday, during a special meeting of shareholders in Amsterdam, I certified on behalf of the company and our supervisory Board of Directors that our shareholders overwhelmingly approved our acquisition of the Shaw Group by over 90%, with over 75% of outstanding shares voted. And although Shaw will be reporting their own tally soon, the reports we have are that the trend is very good for their shareholders' approval as well. We're very excited and anxious to get going with the combined companies, and we're delighted with the positive response we're hearing, not just as expressed by the shareholders but by customers and employees across the board.

Before we open the call for your questions, Ron has a few comments about the 2013 guidance. Ron?

Ronald A. Ballschmiede

Thanks, Phil. Let me discuss some details, which will provide some additional insight into our 2013 revenue and earnings guidance. First, just a reminder that our guidance is for CB&I on a stand-alone basis, which excludes the operating results, transition -- transaction cost and financing cost of the Shaw transaction.

As Phil discussed, our 2013 revenue guidance is $6.3 billion to $6.7 billion, representing a 2012 to 2013 guidance midpoint revenue growth of 18%. This revenue growth compares to 2012 midpoint revenue guidance growth of 21% over 2011. The key contributors to the anticipated 2013 revenue growth includes our higher beginning of the period backlog and the additional ramp-up of the construction phases of our major projects, specifically the gas plant work in Papua New Guinea and the Gorgon MEI project and the continuation of our REFICAR refinery work. Each of our 3 sectors are expected to have double-digit percentage revenue growth, with Steel Plate Structures and Lummus Technology being a bit higher than project engineering and construction.

Our backlog 2012 new awards and continued strong project execution are expected to continue to support our historical consolidated gross profit range of 10.5% to 12.5%. As we have previously discussed, the changing mix of our revenues and the different operating performance metrics of our 3 sectors result in the need to understand them at an operating income level, and I'll come back to that in a moment.

Our consolidated selling and administrative expense is expected to increase in the mid-single digits, reflecting global inflation, and only a minor revenue volume impact. We expect this operating leverage improvement to more than offset the greater amount of our 2013 revenues coming from cost-reimbursable projects.

Our sector operating performance expectations remain consistent with our past communications. Those expectations are operating income of 7% to 10% of revenues for Steel Plate Structures and 3% to 6% of revenues for project engineering and construction. We do not expect significant movement from recent performance within those ranges. Finally, we expect annual operating income from Lummus Technology to be in $125 million range.

Last month, we paid off the final $40 million installment of our Lummus global acquisition-related debt, leaving us currently debt-free. As a reminder, our cash balance at the end of the third quarter net of the $40 million debt was $615 million. We expect our effective income tax rate to increase slightly in 2013 to approximately 30%. This increase reflects our higher level of operating activity in several higher tax rate countries, specifically the United States, Canada, and Australia.

Our net income attributable to non-controlling interest is driven by the aforementioned increase in activity of our 2 major projects with minority partners, Papua New Guinea and Gorgon MEI. We expect consolidated non-controlling interest to be slightly in excess of $30 million in 2013.

Those results result in our 2013 earnings per share guidance of $3.35 to $3.65 per diluted share. We have assumed a weighted average share outstanding number of $98 million to $99 million (sic) [98 million to 99 million].

Finally, a couple other metrics for your information. We expect our free cash flow to approximate our income from operations, with 2013 depreciation and amortization consistent with 2012 of under $70 million, and capital expenditures in the $80 million to $90 million range.

Philip?

Philip K. Asherman

Thanks, Ron. Why don't we open the call for your questions?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Andy Kaplowitz of Barclays.

Andy Kaplowitz - Barclays Capital, Research Division

Phil and Ron, you said 21% sales growth in the middle of the range. It implies a pretty significant pick up in backlog burn. CB&I has historically had some difficulty in getting some of the larger projects to ramp up quickly, so I guess I want to ask you guys sort of the confidence level that Gorgon, especially Papua New Guinea, are going to ramp up. How much do you need those to ramp up to sort of hit the middle of your range?

Ronald A. Ballschmiede

Both those projects were really just getting rolling in 2012, so they won't be our largest projects next year. I think we'll continue to see good revenue burn coming out of REFICAR, but a large degree of confidence that those things are going to -- that both those jobs are being manned up as we speak and will of course be with us for the full year of '13.

Andy Kaplowitz - Barclays Capital, Research Division

Okay, that's fine. So Phil -- go ahead, sorry.

Ronald A. Ballschmiede

No, go ahead.

Andy Kaplowitz - Barclays Capital, Research Division

I was just going to say that that's okay, Ron. It's a good enough explanation. Like -- so I'd be remiss if I didn't ask you, but what you said about new awards in 4Q. Care to elaborate in the sense -- how much scope growth? Is it Browse? Is it something else? Can you give us any more color around [indiscernible]...

Philip K. Asherman

Well, it's not Browse, it's not LNG. I think when we talked about -- looking at what was going to be the lower end of that range, if you recall, it was change in timing on the Occidental award that we had last quarter. Right? We got the front end. We thought perhaps the EPC was going to be awarded. It was -- the EPC side of that project was delayed until first half of the year. And we felt we had -- we're going to have an award on Browse, and neither of those happened. There's actually some other interesting work that we have been pursuing that it looks like we're going to be able to bring to contract by this year. That's the majority of the difference, plus there is some scope growth on some existing work and on our -- what we call our underpinning work that's coming in very, very strong. So you'll get a little more insight as we get those announcements approved and sent out in the next week or so. And as I said, I think it'll drive it towards, if not exceed, the upper end of our new award range, minus any major LNG awards. So it's good news.

Andy Kaplowitz - Barclays Capital, Research Division

That's great. Yes, that's great. So one quick clarification, Ron. The financing costs from Shaw are in 4Q, though. Right? And are you excluding them from the guidance next year?

Ronald A. Ballschmiede

Yes. Yes to both. The fourth -- both year-to-date and fourth quarter will have some continuing, both interest costs and transaction costs. And I talked about a number like $15 million pretax for the full year. There will be transaction costs and interest costs next year, significantly more of course than the $15 million that we have in this year's numbers. So these numbers essentially don't include anything for Shaw -- for guidance. Yes.

Operator

Your next question comes from Martin Malloy of Johnson Rice.

Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division

Lummus Technology, the guidance for '13 is extremely strong. Can you talk a little bit about what's in that and how it might lead to future work in terms of licensing technologies or design work?

Philip K. Asherman

Well, there's a -- that's probably old conversation by itself, Marty, because I think the very positive news is just on the basis of licensing technology, and also some interesting possibility for some [indiscernible] awards. We're also probably going to see this next year some more opportunities that we're going to be able to bundle our technology with EPC opportunities, particularly on some of the petrochemical jobs we see in front of us. So you're going to see that. But they continue to have a very strong performance in just pure sales from their business development activities outside the U.S. and throughout Russia, India and their historic markets. So they're just -- they're performing extremely well on that basis.

Ronald A. Ballschmiede

As you might remember, Marty, their new awards for the 9 months were larger than their new awards have been for any year that we owned them, just under $600 million. And of course, their annual revenues historically are sort of $400 million or $500 million. So some of those -- some of that will certainly support 2013 and beyond.

Philip K. Asherman

I think, Marty, too, when you're looking at the overall company, the general distribution is going to change a lot. Okay? I mean, the -- certainly, we're growing in all of our sectors. But the general distribution on income from operations level and backlog and I believe revenue, the general distribution probably won't look much different than it did this year.

Ronald A. Ballschmiede

I think the other thing on -- I think Dan talked about -- certainly, 2012's new awards and technologies have been nicely -- a nice level of technology-related awards. And I think he also discussed that the heater side of those awards, particularly as it relates to ethylene plants, come sometime down the road. So we certainly would expect some of that to come home in 2013.

Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division

Okay. And then you mentioned one large LNG export facility being included in your new award guidance for '13. Are there any other large projects included in that guidance?

Philip K. Asherman

It's pretty much the same mix that we've been experiencing. And actually, even the LNG export assumption is on a factored basis, simply because they're so large. It's our hope and expectation that by the time we talk about year-end or at least by guidance for the combined companies, we'll all have a clearer understanding of some of these new opportunities that will have a pretty dramatic impact on backlog.

Operator

Your next question comes from Steven Fisher of UBS.

Steven Fisher - UBS Investment Bank, Research Division

I guess just following on that last question -- I mean, I'm wondering if you're able at this point to give any more color on the timing or what is happening with any of those 4 or 5 big LNG prospects that you do have.

Ronald A. Ballschmiede

Well obviously, we certainly don't think it's going to happen before the end of this year. But as far as Browse, there's been some interesting reports put out on Browse. I think it's noteworthy that in today's Australia press, for example, that Browse was just awarded their EPA permit, which is a significant milestone for that project to go forward, and I think will predicate any additional permitting the need from the Australian government for approvals. We continue to work on that job with the owner and answering questions and refining our tender. So still out there. The timing, though, is as we expected. We had hoped that there'll be some more definitive information available to all of us by year's end, but it looks like it's drifting into first quarter as we also talked about. The other large one that's out there that we anticipate has a better-than-average probability of going forward this year, is certainly Freeport. So we expect that to go. But again, typically our practice is to factor these in our numbers. So anything that happens on either one or both of those certainly will be upside.

Steven Fisher - UBS Investment Bank, Research Division

And I guess a question that's somewhat along the same vein, and obviously it's very hard to predict the timing of some of these bigger projects, but do you just -- do you have any general sense of how we should think about the awards throughout the year? Is it going to -- I mean, do you want us to think about it as more back-end weighted or just kind of evenly balanced first half, second half, given that you do have some big potential still, it sounds like, in the first quarter or so?

Philip K. Asherman

Well sitting here today, I would say more of first half, and I don't think it's going to be a hockey stick. It's not going to be the last quarter of the year. So I would say first half, we're hopeful that one or both of these are going to be awarded.

Operator

Your next question comes from John Rogers of D.A. Davis. (sic) [D.A. Davidson]

John Rogers - D.A. Davidson & Co., Research Division

Phil, just -- in some of the reports in the press lately talking about the cost increases, especially on some of the LNG projects in Australia and elsewhere, could you just talk a little bit about what you're seeing in the market and sort of how that's rolling through your financials or the impact there?

Philip K. Asherman

Well -- I mean, you have to pick -- take a look at the jobs. I mean if you look at the Exxon job, and I think that's -- that's right on track with both the gas conditioning side, as well as what's happening in Port Moresby with their trains. That's one story. Gorgon certainly has extended its schedule for a variety of reasons and certainly, the cost is increasing. We're not necessarily seeing incremental costs necessarily in the price of materials or the price of labor on a unit basis. Certainly quantities are changing, and we're seeing that as far as what they expect to have to buy to build these jobs and fabricate those. So we do see that. But I think as -- the model is out there. Our -- what we're going to see on future jobs as far as the logistics and the coordination that's going to be required between the fabrication yards and the sites. And it is challenging. But again, we haven't seen any real volatility in the supply markets that would affect that, nor the – for the shops. So I think most of the unit costs are fairly well known. Again, the schedules on a couple of jobs certainly are challenged, but we're also seeing some great steady performance on other jobs, too. So the ones that are -- that we're talking about in the U.S., they're pretty straightforward. You have a lot of existing infrastructure. So there's no reason to believe today, certainly with the amount of availability of labor in the U.S., that those projects shouldn't be certainly more straightforward and predictable.

John Rogers - D.A. Davidson & Co., Research Division

And does it reduce your overall -- I mean increase your revenue and reduce your margins?

Philip K. Asherman

No. If you look at Gorgon, for example, we get reimbursed for any costs. We certainly will -- we have an obligation to increase our forecast as the owner would agree with that. That certainly would increase revenues. Most of the fee basis on that is fixed on some basis or incentives, which then have to be, in many cases, renegotiated or adjusted. So the overall -- so that would mean the overall margin percentage isn't diluted. It's just -- it's constant. That's the goal.

Ronald A. Ballschmiede

We haven't seen any income gross profit improvement or degradation from these bigger projects or the costs. We're just not seeing it.

John Rogers - D.A. Davidson & Co., Research Division

And Ron, when you say that, you're talking about the absolute dollar value as opposed to the percentage?

Ronald A. Ballschmiede

Both. Yes. Yes. Yes.

John Rogers - D.A. Davidson & Co., Research Division

Okay. And then secondly, if I could. I'm assuming, as you're moving through the process with Shaw, no change in terms of schedule? In closing?

Ronald A. Ballschmiede

No, we're very pleased. This is right where we -- maybe a week or so, a little later than we originally thought the shareholder vote would occur. But this is right on target. Shaw is right behind us, and we expect something on that very soon. Then the only step that's still in front of us is just financial close, which we anticipate mid-February. No reason to think that's not going to happen.

Operator

Your next question comes from Richard Roy of Citi.

Richard Roy - Citigroup Inc, Research Division

Just want to maybe get some more details about the new awards number and the factoring. If you could just walk through how exactly you do that factoring. I'm assuming it's a probability that you win the project, and probably that it moves forward. But also, how should we think about the range? I mean, if 2 of these large LNG projects slip, does that mean you would have to come back and reset the guidance range? Or just -- do all 4 of these...

Ronald A. Ballschmiede

Not necessarily. We try to look at the totality of our new award forecast in the context of how we factor these. Certainly, these are so, so large. We take it in terms of probability of award and probability of financial approvals, number of competitors, all those types of things you would anticipate. It's probably, of the new awards, it's certainly within a manageable amount that if we were unsuccessful across the board, certainly we -- I think we still would be -- our plan would still look pretty healthy just on the new awards. Keep in mind, as far as the revenue and the income side, it's really not affected by that year 1 of the awards by -- just minimally. So we're able to keep our plan in pretty good shape even if the projects were delayed, canceled or we lost them. So there's not a lot of risk -- well there is some risk, but there's not a tremendous amount of risk in the way we forecast this plan for new awards. Mostly upside, tremendous upside.

Richard Roy - Citigroup Inc, Research Division

And so if I understand you correctly -- so that means you feel very comfortable with the bottom end of the range then?

Ronald A. Ballschmiede

I do. I was hoping you were going to talk about your Browser board.

Richard Roy - Citigroup Inc, Research Division

That's for another time.

Ronald A. Ballschmiede

Oh, okay. All right. We'll [indiscernible]. But I do -- you didn't hear what my other comment was. Like I said, I think your reporting is very good, a lot of insight there. We're still working on the job, and they're working on permitting. So we're still optimistic it's going to go ahead.

Operator

Your next question comes from Scott Levine of JPMorgan.

Scott Justin Levine - JP Morgan Chase & Co, Research Division

So some comments, I guess, clarity regarding the outlook for 2013. We're waiting -- some additional clarity regarding how much export activity versus petrochemical activity we're likely to see in the market. And could you comment broadly in terms of the geographic mix? I mean, do you see North America being a much greater contributor to your bookings and your growth starting in '13 versus what it's been looking backwards? Or you still have to wait a couple years, with Freeport maybe perhaps being an exception, before we see a dramatic shift in geographic mix in your bookings and backlog?

Philip K. Asherman

Yes, we're still, as we sit here today, predominately somewhere outside the U.S. simply by value of the backlog. And we talked about it, beginning of the year of this trend of rebalancing of that -- of our portfolio. It's going to be probably 2014 before we see any significant shift in the concentration of projects by value. Now I think what we're going to see that's going to help that shift probably accelerate somewhat is there are several, I'll say, medium-valued projects. And when I say medium, that could be $300 million to $500 million of projects, which we see a number of these opportunities in front of us which are being developed in 2013. And should some of those accelerate, I think our ability to book and burn those certainly will be improved over what we've seen in the past. So it's going to be a mix. And we'll try to make sure that we're clear about that and not skewed too much by some of these large LNG jobs. Because as you know, those are going to have a slower burn because of the long engineering phase on those. But we see a number of these middle-sized projects, large projects that look very interesting to us that I think you're going to see some more activity. So we're going to see this continuing rebalancing, and this is exclusive of any backlog with Shaw. We're going to see this continuing rebalancing, particularly in petrochemical in the U.S., over this next year. But I think it's going to be 2014 before you see any really significant shift.

Ronald A. Ballschmiede

Yes. Certainly from a revenue growth standpoint in the United States, it's been pretty significant. Go back to 2008, '09 when the U.S. was pretty quiet. And certainly, we've maintained about the same percentage of U.S.-related backlog as we've grown it from 6 to 7 to 9 to north of 10 this year. So it's -- the growth is there, just -- it's just as -- the backlog is growing so fast with it, it hasn't changed the pie at all at this point in time.

Scott Justin Levine - JP Morgan Chase & Co, Research Division

And one follow-up if I may. So you've got maybe 5 or 6 of these LNG projects in motion. The ramp in your E&C work has been cost plus generally. Should we expect more of an orient back -- an orientation towards fixed-price or these hybrid contracts in all likelihood? Could you comment on the types of contract structures we're likely to see on some of these LNG jobs that are the next wave for you guys to book?

Philip K. Asherman

I think you're -- well, that's right. You're going to see fixed-price projects obviously, as well as more and more of the hybrid projects. And I think that's the model that seems to be agreeable with most owners and certainly with us. And so we'll see those mixes going forward. I don't think on most jobs will you see an entirely reimbursable nor an entirely fixed-price job on most of the -- on the process-related jobs.

Ronald A. Ballschmiede

And I would add, the other item that we'll have to make sure you understand when we come back and report, achieving our -- some of these new awards is these are so large. And with partners, we're going to have a little bit different conversation around how much revenue goes through our books and how much equity income we get to -- 1/3 ownership of some of these ventures. So too early to talk a lot about that, but that will be something new for us. And we will certainly fill you in on that when we land -- as we land some of these.

Scott Justin Levine - JP Morgan Chase & Co, Research Division

And is there a dramatic increase in non-controlling interest expected in '13 versus '12? Or did you already say -- or can you say?

Ronald A. Ballschmiede

Yes, we expect that number to go up to a little bit over $30 million and driven by that ramp in Gorgon MEI and Papua New Guinea. [indiscernible].

Operator

Your next question comes from Jamie Cook of Crédit Suisse.

Jamie L. Cook - Crédit Suisse AG, Research Division

So just 2 questions. Obviously good guidance and good, healthy award forecast for next year. Can you just talk about -- given the burn that we're expecting in 2013, what do you think that implies for any type of help you'd get from sort of better utilization? And as some of these large awards hit, how you're thinking about capacity or -- if any capacity constraints going into 2014? I think Shaw helped some of that with some of their construction capabilities. But if you could just comment on that.

Philip K. Asherman

Well, yes. I think when you look next year's burn, you can assume in the range of 50% to 55% as we have been. I think that's probably a good number to use right now. When you look at capacity, the nice thing about these new jobs that you're going to see at the tail end of this year and some of the beginning, excluding the LNG, is going to be a nice deployment of resources in a variety of offices. It doesn't overly concentrate this work in any one particular area, so we're getting -- we had a nice utilization in almost all of our offices. And of course, the LNG work will be concentrated either in London or Houston, along with our partner's office. So we don't -- from an engineering standpoint, we don't see any capacity constraints. Certainly, we're encouraged with the U.S. work ramping up, because that will give us a good ramp also to -- for the U.S. labor market and get them back in-stream and be able to get some good productivity measurements before we get into the extremely large capital projects. So I don't see any issues from there. I'm really liking -- we're really liking the size of work that we're seeing, especially in the petrochemical market in the U.S. and some other parts around the world, outside of the megaprojects that we've been talking about. Those are right in our sweet spot, we ought to do very well with those. So we see a continuing development of those, and we're very encouraged.

Operator

Your next question comes from Will Gabrielski of Lazard.

Will Gabrielski - Lazard Capital Markets LLC, Research Division

I was wondering -- as you guys are discussing with clients now projects, particularly in North America that are set to come out for a bid over the next year or maybe that you just bid recently, are you in any way communicating capacity that you're getting from Shaw? Or is that in any way coming through the conversations you're having with maybe North American customers at this point?

Philip K. Asherman

No, not really because the projects that we're talking about that are year-end awards, these are projects that have been developed in the development cycle, probably even before we started talking about the Shaw. I don't think -- I haven't seen any evidence that's really bled through in the decision-making process because these are so oriented on -- well a number of them, first of all, are international projects, which really wouldn't include the Shaw resources. So I really haven't seen that yet. We certainly anticipate getting into next year in some of the U.S. petrochemical. That would certainly be a factor in terms of shop and field capacity particularly. So -- but on the awards that we're seeing at the back end of this year and certainly the first of next year, it's not really a factor.

Will Gabrielski - Lazard Capital Markets LLC, Research Division

Okay. I was just wondering from a planning standpoint, especially with fabrication when you're looking at the central market on...

Philip K. Asherman

Well, we're definitely planning for it. We're definitely planning for it, we just haven't...

Will Gabrielski - Lazard Capital Markets LLC, Research Division

No, I mean...

Philip K. Asherman

Yes?

Will Gabrielski - Lazard Capital Markets LLC, Research Division

Okay. No. So on the margins on these jobs, maybe your winning in Q4. Is there going to be stuff running through Shaw's F&M business that'll be consolidated with you next year? Are you guys planning it that way at this point?

Philip K. Asherman

We will. We're going to talk a lot about that at year end and also in March, and you'll have a better feel for that when we announce the organization and the plan going forward. But certainly we look at that, at the work that we're just now starting to look at what impact that would have as far as the F&M work that we can now include in our forecast. But they're not included in any numbers we presented here today.

Will Gabrielski - Lazard Capital Markets LLC, Research Division

Okay. In North America on the storage side, what are you guys seeing as the opportunity maybe per ethylene plant or per LNG projects, maybe driving a bigger North American storage cycle over last few years?

Philip K. Asherman

You want to answer that?

Ronald A. Ballschmiede

Sure. I think the U.S. steel plate structure market has been improving for the last couple of years, particularly in pressurized storage, spheres and flat-bottom tanks. Prospectively, some of these developments have all the infrastructure they need for gas, for exporting gas, but there are a couple that, if they get expanded as we're talking, will require some more tankage. And then same on the petrochemical plants. Right now, the storage capacity is adequate. But if some of these large greenfield opportunities kick in, they certainly will be at a sweet spot for us in the storage of both petrochemicals.

Philip K. Asherman

Yes. And probably, if there is -- that scenario plays out, it'll probably maybe over 2014 impact, not 2013. [indiscernible].

Ronald A. Ballschmiede

Yes.

Will Gabrielski - Lazard Capital Markets LLC, Research Division

Okay, yes. And then one last one, it's going to be my last one. On Browse I'm just wondering, given where we are in the bid cycle there, has the customer made any notification yet to the bidding teams of who was a low bidder or where they're leaning?

Philip K. Asherman

The answer is yes, but the other question you'd have is who is it? I'm really not at liberty to tell you. But there's been no official notification given to the market yet. And we really have to wait for that. So we're still working and we're very hopeful. I think the -- again, the question mark is around the project going forward. I think we're probably on firmer ground than what's been implied elsewhere, but -- and I think the change in ownership is actually a very healthy thing for the project. It will probably accelerate itself. So we're still pretty optimistic, but the timing is going to be extended, at least through the first half of next year.

Operator

Your next question comes from Tahira Afzal of KeyBanc.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

My first question is in regards to Browse and Australia in general. And I'm sorry to be hopping on this, I know you've gotten a few questions on this. We've seen Shell increase its ownership in August for Browse, and they work fairly closely with PetroChina, which has taken over BHP ownership. Shell in August, when they took over the ownership, were vocal about considering floating LNG as an option. I just wanted to get a sense if there is a consideration of floating LNG for Browse with some of the other prospects. Would that influence the timing and scope for yourself?

Philip K. Asherman

Well as you correctly pointed out, Tahira, there's a number of other technology alternatives they've been discussing publicly. Certainly, some more land-based capacity, shipping the LNG to another facility has been one. And certainly the offshore facility. There was -- the initial -- the original Woodside concept years ago, and that was probably 8 years ago, was a gravity-based system, but they -- again, after a lengthy study, that's when they decided that land-based was best. So we've heard this. We've seen this. The only thing I can report to you today is what we know is -- as a project team and as a consortium is that we are -- a joint venture, rather, is that we continue to work with the owner on developing the concepts and the -- technical information for this James Point project. And we believe the feasibility is still very optimistic. And again, today, I mentioned the EPA granted a permit, which is a big milestone for the project. So all the signs are that they are still moving forward on the project as we've designed.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Super. And my second question was in regards to the gas processing opportunities in North America. Clearly, if you look at them and the shale developments there, you can go from the very simple natural gas processing, small plants in Bellevue, all the way up to fairly complex portions of integrated projects in gas to liquids. So when you frame up the opportunity set for yourselves along with Shaw, could you define what portions you are including and which ones you have more of a competitive advantage in?

Philip K. Asherman

Yes. Well, we've -- let's just exclude Shaw for now, because I think we certainly have talked about the advantage it gives us from a resource capacity and geographic advantage perhaps. But we looked at the gas processing opportunities and the shale gas opportunities much like we've always looked at LNG in that we always want to position ourselves where we can layer opportunities on these projects and really address each particular niche, if you will, of those markets. Of course on the shale gas, we offer a standard plan design through our technology group and equipment provider partner with us, so we can address some of those midstream opportunities. We've had some very large gas processing awards over the last year, certainly with Occidental and with Dominion, and we see some of those continuing to develop over this next year. So we try to be at several points of that development cycle. We're also seeing some very interesting developments come out of the oil side of the shale development where -- some of the refineries you're looking at expansions to be able to -- or at least process modifications to be able to refine some of the lighter crudes that they're getting out of the shale fields. So we position ourselves for much of that, either through technology, even in storage or certainly on the EPC opportunities. And that's -- that will be our strategy going forward. And I think we should be able to scale up very well for the extremely large projects that you're going to see out of gas to liquids.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Okay, great. And last question. I think in the U.S., especially some of the micro LNG markets which, as you know is pretty well developed in terms of small LNG, cryogenic tanks, it seems like Shell is indicating they might look at that opportunity on the transportation side. Is that an opportunity set for yourself? I know it's smaller, but would that be interesting for CB&I as well?

Philip K. Asherman

Well, we certainly -- I've addressed that market in some sense in the niche LNG technology that we can provide to owners and are doing that on some of the new smaller capacities, LNG floater-type opportunities out there in the U.S. and also globally. So we are addressing that. The peak shavers, of course, fit -- certainly fall nicely in that category, although there aren't as many peak shaving developments as we probably thought there would be. But certainly, we have at least one every couple of years that are nice projects for us. So we try to address that market as well.

Operator

Your next question comes from Chase Jacobson of William Blair.

Chase Jacobson - William Blair & Company L.L.C., Research Division

So just another question here on this potential for a large award in the fourth quarter. You gave some color on it, but I was wondering if you could comment at all on maybe what region or market it's in, and if it's an E&C project or a Steel Plate Structures project?

Philip K. Asherman

Yes, I didn't mean to be too coy with you, but I just -- I didn't want people leaving this call with the guidance that we had last time, that the bottom half of the new awards range was where we're going to fall. I certainly think we're now going to achieve our guidance for that and have a good opportunity to perhaps extend it. It's actually a nice mix. I mean there's a nice component of that, that Steel Plate Structure. There's a nice component of that, that kind of underpinning work that we -- that comprise our run rate every quarter. There's nice gas processing, if you will, in there. Some size -- good-sized jobs and some scope growth on some major projects. So it's really a mix of projects across the board that is going to certainly help us make our plan this year.

Chase Jacobson - William Blair & Company L.L.C., Research Division

Okay, so not weighted towards one [indiscernible]...

Philip K. Asherman

No, it's not concentrated, and that's what we like about it. It's a very, very healthy mix between our key -- our end markets and also our organizations.

Ronald A. Ballschmiede

It's the good alignment of the stars because there's so much -- there's several of them, not one mega one that's [indiscernible] brought that conclusion.

Philip K. Asherman

That's right. And that's how we like to see it. We don't like to be seen here at the end of the year with -- depending on one major job, win or -- so we don't like to see that anyway. So the mix is good.

Chase Jacobson - William Blair & Company L.L.C., Research Division

Yes, absolutely. Okay. And then one other question. So in your prepared remarks, you mentioned that you're happy obviously with the outcome of the shareholder vote and that you're making good progress on the deal really across the board, and you mentioned they've been having good conversations with customers about the deal. Can you elaborate on that at all? Is it conversations with your customers about the markets you're in or about going into other markets? Or any other color on [indiscernible]...

Philip K. Asherman

Well I think when I wrote the comment, I was thinking primarily of Shaw's customers and some of the utility companies, the power companies and some of their customers that we have some common -- we're on a number of those projects. There are energy forums, which I have a -- I tend to see some of these people. And we just feel the comments from the market. It's very good, very positive on Shaw's performance and also the confidence in the combined companies and the advantages to that market. And then just anecdotally, the remarks and the sense we get from all the employees from both companies, very excited about this combination. So we're very encouraged by all of that.

Operator

Your next question comes from John Ellison of BB&T Capital Markets.

John D. Ellison - BB&T Capital Markets, Research Division

Actually, I forgot to drop out of queue, but all of my questions were answered.

Philip K. Asherman

Well, thanks for calling in.

Operator

Your next question comes from Robert Connors with Stifel, Nicolaus.

Robert V. Connors - Stifel, Nicolaus & Co., Inc., Research Division

If I look at the North American LNG prospects, Conoco is really only a partner in one, and of course they always bring Bechtel to the table on their LNG jobs. So I'm just wondering if competitively, is the market more open to every other E&C outside of Bechtel since the Conoco-Bechtel technology appears to not be involved as much?

Philip K. Asherman

In North America?

Robert V. Connors - Stifel, Nicolaus & Co., Inc., Research Division

Yes. And then I guess sort of tying into that, is there something where there's a difference in the gas quality that makes that technology not as applicable?

Philip K. Asherman

No. It's primarily cost and efficiency, I guess, as a general sense of that technology versus another one in the application, equipment and a number of factors, which some owners think is a more feasible approach for their gas. There is some composition issues there. But generally, it's -- all those together, the cost factors are really what the driving point is. And also, the experience with the technology. You'll see, for example, British Gas has a great amount of experience with this technology. So all those play into it. But in terms of competition, I think you will see some interesting combinations of consortiums and joint ventures, addressing some of these big LNG opportunities. Certainly, ours on Freeport with...

Ronald A. Ballschmiede

Zachary.

Philip K. Asherman

Huh?

Ronald A. Ballschmiede

With Zachary.

Philip K. Asherman

Yes, with Zachary is fairly non-traditional. But you'll see that. And you'll probably see that certainly on some of the Canadian developments as well. So you'll see several companies, which alone may not be a historic contender but certainly combined, it could get -- be very interesting.

Robert V. Connors - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And I guess sort of tying into that, when you guys used to report margins by geography, the Americas was actually one of the higher margins, much higher than international. And I was just wondering, is that because of some of the domestic fabrication capabilities? Or what did I miss there?

Philip K. Asherman

Well that was a while back, but is -- but yes, we have some of that, and I think 2 things factor that. One, there was a high-engineering content from the clean fuels program that we were driving out of Howe-Baker. So engineering-only or FOB kind of jobs tended to drive fairly high margins, and also the premiums we used to get just on the Steel Plate Structure and the smaller projects throughout the United States particularly. And I think that's what drove U.S. There was nothing inherently better about margins in the U.S., other than our performance against -- both the engineering and Steel Plate Structures was very, very good.

Ronald A. Ballschmiede

Typically a greater proportion of fixed-price work in the United States and...

Philip K. Asherman

Yes. On both of those.

Ronald A. Ballschmiede

On those things, which is probably -- the fixed-price work around the globe is consistent margins, but more of it is done in the United States just because of the certainty we have around productivity and all the things -- the risk of taking that work.

Philip K. Asherman

And just going back to those days too, I think we'd probably focus more on gross margin at that point. Now we're kind of driving it toward -- looking at operating margin as the better comparator with our peers and certainly against ourselves. And that had different characteristics at that time as far as gross margins. So a lot of differences, which is one of the way -- reasons we moved away from regional alignment, went more to [indiscernible]. I think it's probably a better comparison around the world for those margins.

Robert V. Connors - Stifel, Nicolaus & Co., Inc., Research Division

Okay. Yes, just on the comment, Ron, do you think that maybe the fixed-price mix could start to tick back up since we're back in a market where you guys feel more comfortable?

Ronald A. Ballschmiede

Yes, yes. I think generally we're more comfortable taking lump-sum risks, fixed-price risks in the United States than many other countries around the world. It doesn't mean we're going to do them all, but there's probably more opportunities to do it here than certainly in Asia and some of the others, including the Middle East, that become challenging with some of the competitions that's in those markets.

Operator

Your final question comes from Brian Konigsberg of Vertical Research.

Brian Konigsberg - Vertical Research Partners, LLC

Most of my questions have been answered, and maybe just a couple of small ones here, just in regards to other regions. So a lot of emphasis obviously on Australia and the U.S. and the opportunities there, but maybe just talk about some other regions around the world where you see some opportunities emerging in '13, some things that may not be on our radar? Any color there would be great.

Philip K. Asherman

That may not be on your radar. Again, we've talked about Russia in the past as having some great opportunities there. We see a continuous development for offshore development. And again, our scope there tends to be more engineer and procurement top-side design, but very, very nice projects that we do out of our U.K. and Singapore and Hague office. So we'll see that continuing. And that doesn't necessarily mean it's -- I mean, there's great capital projects going on. It doesn't mean -- necessary mean that we're going to be doing all of them. But certainly, we have a component of that. Our technology organization would tell you that there's a strong demand for new technologies and capital development in places that you may not see us have construction activities, and that would be in, perhaps, China and India and certainly Russia. So clearly, we see the energy business in -- throughout the world is very robust. So -- and we see that continuing.

Brian Konigsberg - Vertical Research Partners, LLC

All right. And just for -- so in the conversations with your customers talking about kind of the new combined company, has there been any kind of hesitation or concerns regarding kind of the debt levels being held by the new company? Does that come up at all, or not a problem?

Philip K. Asherman

Not at all. I mean, we'd be the first one to talk about that, but we don't see that as any impairment to our ability to get these large capital jobs.

Ronald A. Ballschmiede

And one other things that was very important for us from the beginning is the structure of this transaction and the structure of financing in a way that allows us to maintain an investor-grade rating, which we have -- which we recently reaffirmed. So I think that by itself and the capacity we have in our revolver on top of the permanent financing makes our clients pretty comfortable.

Brian Konigsberg - Vertical Research Partners, LLC

If I can slip one last quick one in, I think you talked about the absorption of capacity in the market, particularly in the U.S. But -- and I apologize if you made a comment on this before, but as-sold margins kind of your outlook for '13, it does look like the pace of things are picking up. Do you -- it looks like your margin outlook is remaining fairly stable. But maybe you could just talk about your view on how the margins for the projects you're bidding on might progress.

Philip K. Asherman

I think the range that we gave historically, we were pleased to see that within those range of operating margins we're performing at the upper end of that range, and I think that would reflect stability certainly in the as-sold margins. Historically, in our industry, any improvement in as-sold margins has been only incremental, and I -- we think that we should continue even with -- as demand increases. There will become a point certainly when that'll be a factor, but I -- it would be -- I think it's, again, an incremental factor in the next few years, not a windfall.

Operator

This concludes the allotted portion for today's Q&A session. I would now like to turn the floor back over to Mr. Asherman for any closing remarks.

Philip K. Asherman

Well, thank you for joining us again. This is a very exciting time in the history of our company. We look forward to talking to you at the end of February. And certainly, watch the news because we got some great announcements for the end of the year, and we're looking forward to the tally on the Shaw votes. So it's going to be a great holiday. We want to wish all of you a Merry Christmas, a happy Hanukkah or a happy holiday with your friends and family and look forward to speaking with you again soon. Thank you for your interest today.

Operator

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

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