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Executives

Philip Asherman - President and CEO

Lasse Petterson - COO

Dan McCarthy - President of Lummus Technology

Ron Ballschmiede - CFO

Analysts

Scott Levine - JP Morgan

Joe Ritchie -Goldman Sachs

Jamie Cook - Credit Suisse

Graham Mattison - Lazard Capital Markets

Robert Connors - Stifel Nicolaus

Andrew Kaplowitz - Barclays Capital

John Rogers - D.A. Davidson

Avi Fisher - BMO Capital Markets

Marty Malloy - Johnson Rice & Company

Rob Norfleet - BB&T Capital Markets

Guy Baber - Simmons & Company

Chicago Bridge & Iron Co. (CBI) Q3 2010 Earnings Call October 26, 2010 5:00 PM ET

Operator

Good afternoon. 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 filings. 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 statements.

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

Philip Asherman

Thank you. Good afternoon and thank you for joining us to discuss our results in the third quarter. With me today is Ron Ballschmiede, CB&I's Chief Financial Officer; Lasse Petterson, our Chief Operating Officer; and, Dan McCarthy, President of Lummus Technology. After some brief comments, we will open the call for your questions.

For today's agenda, Lasse will begin with a summary of our operations for CB&I Lummus and Steel Plate Structures business sectors, followed by Dan McCarthy who will provide an update of current activities in Lummus Technology. Ron Ballschmiede will then discuss our financial results for the quarter, and then I'll conclude with a few summary remarks before opening the call for your questions.

I'll now turn the call over to Lasse for discussion of the CB&I Lummus and Steel Plate Structures. Lasse?

Lasse Petterson

Good afternoon. I take a moment to highlight some of our major projects on the way worldwide. I'll stop for the Peru LNG liquefaction project, we have just transferred the project over to the clients two weeks ahead of schedule and only 45 months after first starting work on the project. Peru LNG has been a great success completed on-time and on-budget at a lower cost per ton of product than any other recently built liquefaction facility. We are currently in discussions on other LNG liquefaction project prospects that have stemmed from our success in Peru.

In Colombia, construction is underway on the REFICAR refinery project in Cartagena. Currently, we have more than 900 employees dedicated to this EPC project including employees at site and in our engineering centers. That number will eventually increase to more than 5000 workers.

We are now in the process of heavy recruiting and training and expect to train more than 1500 local crafts worker for the project by year end. In Chile, the Quintero LNG project is fully operational and had been turned over to the client. We are completing final punch list and are in the process of demobilizing from the site.

In the US, Phase I of the Golden pass LNG plant in Texas is now mechanically complete. The first LNG ship docked this last Thursday. We expect the LNG to be uploaded this week to initiate cool down. Phase I includes 255,000 cubic meter LNG tanks and one ship berth. Phase II which is on schedule for completion in January includes three additional tanks and one additional ship berth. Also in the US, we are progressing the detailed engineering for our new 200 million cubit foot natural gas processing plant Occidental in California. We expect to mobilize to the site by year end. We announced this US$280 million EPC project in the last quarter.

Our US nuclear business is progressing steadily. We have mobilized back to a project site in Georgia where we will be constructing two containment vessels. The equipment and materials for the bottom head for one of the units has been delivered. Now, we are in the early stages of mobilizing on another southeastern nuclear project where we are also constructing two containment vessels.

In Canada, we continue to work on the [indiscernible] oil sands project. The engineering for the extraction units and associated vessels will be substantially completed by year end. Work on the foundations is progressing well and we expect the majority of the foundations to be completed in the next few weeks.

In the UK, our work on Isle of Grain LNG project is complete. Now, we are in the process of demobilizing from the site. In Qatar, the Pearl gas-to-liquid project for Shell is now on schedule for completion by year end. Seven of the total of nine startup blocks has been successfully turned over to the client.

In Abu Dhabi, the GASCO LPG project engineering and procurement for the storage tanks and interconnecting mechanical and electrical works are in the final stages. Construction of the LPG and after storage tanks and foundations for the mechanical systems is progressing well.

We've also been award several smaller storage tanks projects in the Middle East where our Steel Plate Structures business continue to be robust. In China, we just successfully harder tested the first of the two LNG tanks that are part of the two of the Fujian LNG import terminal project. The tank insulation is ready to begin and we are on schedule to complete the project in early 2011 well ahead of original plan.

Our Papua New Guinea gas conditioning plant project is well underway. We anticipate mobilizing to the height site in the PNG Highlands in November. On July 27, we issued a news release about $190 million LNG storage tanks award which we can now confirm is associated with PNG LNG project. That award includes the engineering procurement fabrication and construction of 260,000 cubic meter LNG tanks for the project.

In Western Australia, we received Practical Completion Certification for the two LNG tanks on the Pluto project in August and our mechanical work scope on the project has been expanded lately with more than $50 million of the rewards. Also in Australia, the engineering and procurement for the Gorgon LNG storage tank project are nearing completion. Steel fabrication for the inner and outer tanks continues on plant, preparation for site mobilization on Barrow Island is underway.

That concludes my remarks. Phil?

Philip Asherman

Thank you, Lasse. Dan McCarthy will now report on Lummus Technology. Dan?

Dan McCarthy

Thank you, Phil and good afternoon. In the third quarter, Lummus Technology continued to book new awards at the expected run rate. Ron's report will describe improved [FFO] results which are reflection of strong licensing earnings and improved performance on heat transfer supply contracts. In the second quarter earnings call, we reported delays in heat transfer orders. I'm pleased to note, however, that we have seen that logjam began to ease. We were awarded ethylene heater supply contracts in Russia and US as well as a refinery heater in the Middle East.

The licensing businesses major awards included a large CATOFIN propane dehydrogenation plant for Tianjin Bohua in China and two ethylene plants expansions. Refining licensing remains a challenge. Our equity income line shows quarter-over-over improvement, but is not at the level we expect for this business. We continue to see delays in hydrocracking and residue upgrading investments.

However, there is an uptick in catalyst orders and interest in our loop technology. In addition, we are seeing a greater level of hydrocracking inquiries and expect that this will translate into business in 2011. Through the remaining part of this year, we expect a high level of new awards. Petrochemicals will continue to lead the way. Lummus Technology has already been selected for several new petrochemical prospects, but we're just waiting for final contract authorization. These will provide both license and heat transfer bookings.

In addition, there is extraordinary interest in shale gas which for us means natural gas liquids recovery. Very importantly, I would like to communicate some technology milestones this quarter. Recently, we announced that Lummus will license BP's paraxylene separation technology. This is a linchpin technology in aromatics processing, a field not previously covered in Lummus Technology's portfolio. As a major producer, BP is a technology leader in this field and we are extremely excited about the new business opportunities this will create for us.

In previous phone calls, we mentioned that we were working on technology to convert methanol to olefins. In the third quarter, Shenhua, the Chinese coal company successfully started our first commercial plant based on this process. We anticipate that this commercial success will open new opportunities inside and outside China. We also successfully started up ethylene to propylene facility based on our proprietary dimerization and olefin conversion technology. This process provides product flexibility for regions rich in the same feedstock.

In conclusion, we will continue to see the best short-term opportunities at petrochemicals followed by natural gas. Refining margins are increasingly expected to see the licensing opportunities in that segment grew in 2011.

Regionally Asia-Pacific and the Middle East have the greatest potential for new investments, but India and Russia will also be important. The rest of the world is showing interest in increasing the efficiency and productivity of existing assets, which translates in two expansions. This is good news as it is a leading indicator of recovery in the sector. That includes by remarks. Thank you and back to Phil.

Philip Asherman

Thank you, Dan. Ron let's talk about this quarter's financial results.

Ron Ballschmiede

Thanks Phil and good afternoon everyone. With that review of our major sector activities and markets around the world, let me take you through our strong financial performance for the quarter. Revenue for the third quarter was 909 million down from 1 billion in the third quarter of 2009. The year-over-year revenue decline was consistent with our expectations. As we described in our prior call, the industry new awards slowed down in late 2008 and early 2009 combined with the engineering ramp up phases of our late 2009 significant new awards and the completion of our large LNG projects which Lasse just went through have quite a bit of an unusual revenue trend during the first three quarters in spite of our backlog at the beginning of the year of $7.2 billion.

Importantly, we expect that the 2000 third quarter reflects the end of that year-over-year revenue cramp. We believe the level of our fourth quarter revenues to approximate that of our fourth quarter of 2009 of approximately $1 billion and also expect an overall increasing revenue trend going into 2011. Our gross profit for the quarter was $120 million or 13.2% up from 11.6% in the third quarter of 2009. Our year-to-date gross profit of 362 million or 13.5% reflects our strongest gross profit percentage results since we extended our business outside the traditional tank business in the early 2000s.

The 2010 gross profit rate benefited from solid project execution and a greater portion of our gross profit coming from our higher margin businesses, Lummus Technology and Steel Plate Structures. As our major CB&I Lummus projects and related revenue continue to ramp up in 2010 and beyond, we continue to anticipate our consolidated gross profit will remain in historical range of 10.5% to 12.5% percent.

Selling and administrative expenses remained well controlled down $5 million or 10.2% over the comparable counter and down $18 million or slightly over 11% year-to-date. The decline reflects cost reduction activities implemented in 2009 and focused cost control throughout 2010. The lower equity earnings for the quarter and year-to-date reflect the temporary slowdown of refining activities, which Dan spoke to earlier in the call. For the overall Lummus Technology sector results, this decline was more than offset by the strength of the petrochemical activities during the quarter.

Third quarter operating income totaled $78 million or 8.6% of revenues, the best quarterly operating margin in our history. Over the trailing two-year period our operating margins have totaled 7.4% of revenues reflecting the quality of our backlog and solid execution of that backlog. Our income tax rate for the quarter was 27.1% and 29.3% year-to-date reflecting a continued favorable geographic mix of our pretax income. We expect our full year tax rate to be consistent with our third quarter rate plus or minus a point or two depending on the final mix of global income.

The summation of all that results in third quarter net income of $52 million or $0.52 per deluded share, EBITDA totaled $95 million for the third quarter and 273 million year-to-date or 10.5% and 10.1% of revenues respectively. Both the quarter and the year to date EBITDA returns are high watermarks for our company.

Lasse and Dan spoke to our new award and prospect activity, so I'll provide some overall comments. Our new awards for the third quarter totaled $893 million for a book to burn ratio of just under a 100% and year-to-date new awards totaled $2.4 billion. We had one award during the quarter in excess of $40 million, the PNG, LNG tanks, which Lasse spoke to earlier. The balance of the new award activity represents smaller projects and contract growth spread nicely between our sectors and project types around the world. Our backlog totaled $6.9 billion at the end of the third quarter compared to 7.2 billion at the beginning of the year. Based on our previous 2010 revenue and new awards guidance, we continue to expect to report year-over-year backlog growth.

Now let me take you through the sectors' Q3 results. Each of our sectors 2010 results were within our expected annual range of operating results, which we have discussed previously. Specifically our performance expectations, our operating income in the range of 7% to 10% for Steel Plate Structures, 3% to 6% for CB&I Lummus, and annual operating income for Lummus Technology of $80 million to $100 million. Steel Plates Structure reported third quarter 2010 revenue of 349 million compared to 383 million in 2009. The decrease of 34 million is attributable to the wind down of two large tank projects in Australia and lower activity for Steel Plate Structures oil sands related work in Canada, partially offset by a greater volume of storage tank work in Central America and the Middle East.

Our major 2009 Steel Plate Structure awards in Australia and the Middle East and our Asia-Pacific region LNG tank award announced this quarter will provide revenue growth for the balance of the year and into 2011. Operating income totaled $32 million or 9.1% of revenues compared to $34 million dollars or 8.9% of revenues in 2009. CB&I Lummus revenues totaled 471 million in 2010 down 57 million from 528 million in 2009. There are a couple of items driving this net change. The most significant reason for the 2010 revenue decline is the wind down and successful completion of our large LNG projects and the slowdown in US and European refinery work. This decline was partially offset by an increase in Canadian oil sands work taken on by CB&I Lummus and the impact of the continued ramp up of our major awards from the last half of 2009.

As Lasse mentioned both the REFICAR and PNG projects were off to a good start with higher revenue burn expected for the balance of the year and into 2011. Income from operations totaled $20 million or 4.2% of revenues in the third quarter compared to 19 million or 3.5% in 2009. In 2009 quarter and year-to-date operating margins of CB&I Lummus were negatively impacted by the UK project charges. Our CB&I Lummus sector carries a high relative percentage of fixed cost higher than our other two sectors. Accordingly the 11% decline in quarter-over-quarter revenue results in downward pressure on the sector's operating margins. This metric will improve as large backlog projects with lot of engineering and into the construction phase of the work.

Finally as we previously discussed, our Lummus Technology sector had a strong order of operating income of $26 million up from 22 million in the comparable quarter to 2009. Third quarter and year-to-date revenues and operating results affect some of the important project mixes which Dan discussed. The relative strength of the petrochemical demand compared to the refinery market is evident in the two components. However, in total operating income was up some 40%.

For Lummus Technology, the impact of these market trends results in higher petrochemical licensing revenues and gross profits which are primarily offset by lower joint venture results related to refining activities. Decline in third quarter revenue reflects lower heat transfer revenues due to the timing in new awards, which were partially offset by higher petrochemical licensing activities.

Now a few comments on our balance sheet, cash flow and other financial matters as we have had many positive developments in the quarter. Our balance sheet and liquidity remain strong with the cash balance of 361 million up from 300 million at June 30, 2010, reflecting the strong 2010 operating performance. We continue to have no revolver borrowings and have net cash in excess of debt of $240 million. One additional milestone I would like to point out is our shareholders equity at the end of the quarter is now in excess of $1 billion.

Our investment in contract capital reflecting the combined balances of receivables, contracts in process, funds payable stands at a negative $552 million at the end of the quarter compared to $682 million at year end reflecting the equation of several of our large LNG projects. Our year-to-date CapEx were $16 million. We expect our full year capital expenditures to be in the $25 million range. Year-to-date operating cash flow totaled 127 million compared to 111 million for the comparable period 2009.

In closing, our strong backlog and financial position provide us a necessary financial flexibility, to deliver our projects to our owners and take advantage of the energy market demands for our services. We are well positioned for opportunities to grow our company and continue to provide strong returns to our shareholders. Phil?

Philip Asherman

Thanks Ron. On summary let me just add little color to the remarks that all have been made. Clearly we're very pleased to be able to report another quarter of solid performance. For the past eight quarters, we've consistently performed at the high end of our gross profit expectations as Ron said, with this quarter, as reported coming in over 13% and with operating come at 8.6% of revenue. We reported at the beginning of this year that we expected that with the newish of backlog and the timing of new awards, there will be pressure on revenue. That said, previously we estimated a significantly reduced burn rate this year when compared to our annual norm rates as this major backlog that we booked in the second half of 2009 continues to unwind during the early phases of new projects, before picking up the pace in the first half of 2011.

We see this as more of a timing issue while our end markets continue to produce good opportunities particularly outside of the US and performance of our current work is solid in all sectors reported. As Lasse mentioned there were significant events on two of our projects recently. First as he said is the arrival of the first LNG tanker at the Golden Pass terminal at Sabine Pass, Texas. As you know, this was the project that was seriously damaged during hurricane Ike and because of the lot of hard work by the owners' team and CB&I we are able to have the terminal ready to receive the first cargo.

Secondly, the keys to Peru LNG have officially been turned over to Hunt Oil and its partners as of mid October well in advance of the original schedule. This may be the last time we talk about this project in an earnings call, but we're extremely proud of this accomplishment and congratulate our team and all of the stake owners of this world class LNG liquefaction project.

Certainly in front of us is nearly $7 billion of backlog, over 70% of which is outside the US, and which represents a healthy mix of work for our company both in terms of geographic diversity and improved risk profile. We also continue to book a steady run rate of smaller projects all around the world, with this quarter accounted for over $700 million of the new rewards and also includes a variety of interesting and diverse engineering and procurement projects which fill our ops in Europe, UK, Singapore and Texas.

They also include technology awards such as the license and basic design of the PDH unit in China as Dan mentioned and the range of steel plates storage opportunities in the US and all around the world. The amount is, Ron mentioned too, also includes contract changes on major projects and the award of the ongoing contract maintenance work on Peru LNG. Of course a major award we announced was the $109 million LNG tank in Australia, as we continue to capitalize on the tremendous LNG development throughout that region, bringing a total of new awards as Ron said to nearly $900 million for the quarter.

So income is solid, backlog is performing well and our balance sheet is healthy. We'll maintain our conservative approach to debt and our hand loaded cash flow and fully expect to continue to position the company to capitalize on the wide range of opportunities in the global energy market. Let's open the call to your questions.

Question-and-Answer Session

Operator

(Operator instructions). Our first question comes from the line of Scott Levine with JP Morgan.

Scott Levine - JP Morgan

Phil, it looks like the mix of smaller projects is large in the quarter with really only one that was press released outside of the Lummus Technology business, is there anything to be read into that and/or how would you characterize the mix of small projects that you're seeing, we would count 700 million plus here versus a run rate that was significantly lower and do you view that as a trend sustainable going forward or is there any trend to be inferred from the small project activity wins during the quarter?

Philip Asherman

Scott, we've consistently over previous quarters talked about this, what we have termed as the underpinning of our company in terms of new awards ranging anywhere from 5 to 600 million plus per quarter in terms of the run rate. It turns out that this quarter certainly that far exceeded the high end of that range. It's a very healthy trend. It's important because it shows that we can be very competitive all around the world on a wide range of projects, not just on the major projects. So we watch this very carefully and we're very pleased that we had that large amount of smaller projects and diverse type of projects around the world. So we see this as a very positive thing for our company.

Scott Levine - JP Morgan

Do you see it as a sustainable trend going forward or assume you consider this quarter's activity would be uniquely high?

Philip Asherman

This quarter was somewhat high. As we have discussed with you previously, we look at our business probably at an expectation between $500 million plus or minus, it will be around $500 million per quarter of that type of work that we should expect in new awards.

Scott Levine - JP Morgan

Maybe conversely on the larger projects, are there any general comments you can make regarding trends there or things taking a little bit longer to come to fruition and maybe anticipate the beginning of the year care to comment there?

Philip Asherman

In the absence of the US market that we, certainly in previous years we have fairly steady churn of projects in the $200 million plus range, that were fairly much quicker in terms of book and burn. The larger component of international work and in some of these locations, it has taken a bit longer, but we don't see that as a real issue. We certainly have large project opportunities, as we talked about, certainly in LNG going forward and oil sands and we expect to see continuing opportunities in the Middle East and elsewhere. Yes, it has, we thought that was going to be probably more of even distribution of major awards over the course of the year, but somehow moved to the right.

Scott Levine - JP Morgan

One last one for Ron, on the tax rate a little bit lower for the year than we expected, could you talk about what's driven that and whether that's a good tax rate to use on a go forward basis 2011 beyond?

Ron Ballschmiede

Yes, on a go forward 2011, a little bit earlier, but there wasn't anything that would cause me to believe that it's not back and what I would call historical norm. We did have higher rates in probably '08 and '09 as a result of some of the non-deductible losses we had particularly in the UK. Those are now behind us and none of that is impacting 2010. So we're just certainly enjoying our rates, on the lower end what we used to stay with our bandwidth of low 30s and high 20s. Right now it looks like we're going to stay right around that level. So hopefully in the high 20s.

Operator

Our next question comes from the line of Joe Ritchie with Goldman Sachs.

Joe Ritchie -Goldman Sachs

First question, can I, Ron can I just get a clarification on your award guidance for the year. Is it fair to assume given that you said backlog was going to grow, you expect backlog to grow this year that your award guidance of 4 billion to 4.5 billion has remained the same?

Ron Ballschmiede

We said that, but yeah, we, our guidance, we haven't changed our guidance.

Joe Ritchie -Goldman Sachs

Haven't changed your guidance, okay, great. Can you give us an update then on, obviously in the past few quarters you have talked about [Kroll], it seems like that project may have slipped a little bit, but can you give us an update on potential scope additions on that project?

Ron Ballschmiede

Yeah, [Kroll] was lost as well. We had mischaracterized it as project slipping; we have proceeded on a good basis as far as the schedule and the work, but only on a limited release basis. So that work has been added to backlog as we've been released to execute it, but we have not lost any pace on the overall scheduled objectives of the project.

Our discussion that we had with you as we have not yet gotten to a full contract agreement for the full job nor released the entire job. We are not concerned with that but as the owner has continued to work to reduce costs and look for other opportunities on that project, so as soon as we get to that point were we concluded what the estimated costs will be for the project, we will then take that entire matter into backlog. You going to have probably go back and revisit what we have already provided there just provide clarification for that project. The fundamentals of the project are sound. It's moving forward and we do not see any disruption in the project itself.

Joe Ritchie -Goldman Sachs

Switching gears a little bit, I saw that you are on the revenues and in general declines sequentially but you saw a nice operating leverage part of that was driven by your Lummus Technology business but specifically on the steel plate structure business again that you saw a decline in sequential revenues but an uptick in operating margin. My question is what kind of operating leverage do you think you can get in that business as you start to see revenues ramp from GASCO, from Gorgan, from another PNG projects that you booked?

Ron Ballschmiede

Not a lot leverage in that side of the business. The heavy fixed cost sector, heavy Euro fixed cost sector is the CB&I Lummus simply because they have much more of a home office component to their work. So with volume we would expect to for that primarily lump sum business to remain in that 7% of 10% range.

Joe Ritchie -Goldman Sachs

Even if the revenue starts accelerating to next year you think it is going to be difficult and you're at about 9.1% today. Is it fair to assume that that number goes up as revenues start to accelerate or not?

Ron Ballschmiede

We are going to stay with the range that we have somewhere between 7 and 10.

Joe Ritchie -Goldman Sachs

One last question on Lummus technology, the margins were really strong in this quarter. Was there anything one time that impacted the strong margin of this quarter?

Dan McCarthy

No, I would not say that you could attribute any one thing to that margin growth to. We had more licensing gross profit realization and the say heat transfer realization, therefore, you just get a higher natural margin.

Operator

Our next question comes from the line of Jamie Cook with Credit Suisse.

Jamie Cook - Credit Suisse

Ron, you talked about revenues for the fourth quarter being comparable to where they were last year and that you expected revenues to grow off of that as we move into 2011. I know you are not giving full year guidance here but I mean can you talk about your comfort level that this is just a function I presume of the existing projects moving forward and how we think about the delta with some of the newer awards like [Kroll] coming through? Are there any sort of structural headwind on the cross side we need to be aware of 2011? We talked about the tax rate but anything else we need to aware we just think about numbers moving forward?

Ron Ballschmiede

Let us see. On the backlog and related burden obviously with the guidance we have out there we'll continue to bump around ending the year with hopefully something like north of $7 billion in our backlog when you do the math. The phenomenon will be, as Phil alluded to earlier, our book and burn will head back to its historical norm of somewhere closer to 60 to 70, I do not think it will get there in one year. As these large projects move into out of the heavy engineering effort and into the construction phase of, as Lasse pointed out, in some time point in next couple of years 5,000 people working on site that by itself is gives us a better feel for how that backlogs going to burn out and approximate something back to normal.

On the cost structureish topic, we talked from the past about our estimated spent, there is very little in there tied to revenue pace. We've sized company to manage that backlog of give or take $7 billion. So, I would look for an estimated rate increase of something around the global inflationary increase as opposed to the double digit growth we would expect to see in revenues.

Jamie Cook - Credit Suisse

Okay but nothing like bidding proposal cost or anything like that significantly ramping up that we need to be aware of or…?

Ron Ballschmiede

Nothing big enough to talk about.

Unidentified Company Speaker

(inaudible) we have talked about but we have not seen any unusual trend even this year in terms of percent of project values that would stay on few contract cost.

Operator

Our next question comes from Graham Mattison with Lazard Capital Markets.

Graham Mattison - Lazard Capital Markets

Let me just talk on the LNG opportunities that you mentioned, a little bit more color on those in terms of where you those and perhaps since the timing of the booking, especially for 2010 or more 11 or 12?

Philip Asherman

I can give some broad strokes on the LNG opportunities and certainly we have seen tremendous development and we will continue to see that Australia and Asia Pacific markets. The other opportunity that we has been publicly talked about like by us and others is the Apache [Qoumet] job in British Columbia, which is now in the proposal phase for proceed from that project. We see that is continuing through this year.

We think the LNG has become online in Australia and we are going to continue see a lot of opportunities in certain various phases of the projects as we talked about. We participate in several parts of this project including the tanks and as well as lot of construction work in Australia as well as fully busy scope. So we paid a lot of attention to that region.

China, we talked about for several years now and that is we'll probably be talking about for few more years as they continue to develop their regasification capacity on the coast. Again, those projects moved very slowly and we do not see that trend is going to continue. Overall, because primarily development in Australia and in other perhaps opportunistic areas, we think LNG is going to be an important part of looking forward.

Graham Mattison - Lazard Capital Markets

On the US refining market you mentioned that still remains weak. Give me a sense of when you might see some sort of pickup in terms of the activity there or well that is a looking like that will be pretty stable to slow for the time being?

Dan McCarthy

Yeah, you have to assume it is going to be pretty stable slow through this year, next year, and the opportunity in the refining will be offshore.

Philip Asherman

(inaudible) start about that too there has been improvements in spreads. It has even some improved opportunities on specially distant marketing outside the US, so there is actual amount of activity there. Again as far as US, we do not see anything outside the gas processing as potentially important in for a while.

Dan McCarthy

Yeah. So in the over the course of time even in the refining business we always had more of a contribution from offshore projects than the US projects.

Operator

Our next question comes from line of Barry Bannister with Stifel Nicolaus.

Robert Connors - Stifel Nicolaus

It's actually Robert Connors for Barry.

Just a quick question regarding [Kidomat]. Do you know the gas coming in the Kidomat is similar to that in Peru coming in from [Kimocia] and whether the air product technology is a particularly good choice for that project?

Philip Asherman

No, that will be the preview of the owner to really talk about the compensation of the gas and of course there is still considering which technology to utilize on that. Obviously that's part of discussions we are in. We have gotten confirmation of either that the original feedback to us is that composition of the gas is pretty clean and is very similar to what we saw in Peru and some of the infrastructure required for Kidomat we see is very similar to what we built in Peru.

Robert Connors - Stifel Nicolaus

If I use the consensus fourth quarter estimate and year to date results you guys are running slightly above the high end of guidance. Have you updated your EPS guidance? I know you talked about awards guidance earlier?

Unidentified Company Speaker

We updated the EPS guidance last quarter and that is what we are staying.

Robert Connors - Stifel Nicolaus

Okay. Was that a $1.75 to $1.90?

Unidentified Company Speaker

That is correct.

Operator

Our next question comes from the line of Andrew Kaplowitz with Barclays Capital.

Andrew Kaplowitz - Barclays Capital

Phil, maybe I'm going to push you a little bit on that last comment. I know you are keeping guarded, but would you say that that's pretty conservative at this point given that 4Q end would have to be down versus the first three quarters, and Ron told us what the revenue guidance is for the quarter 4Q? So is there anything that we should know about that would keep the numbers down?

Phil Asherman

There's nothing to be concerned about. You might determine as conservative, looking forward, certainly confident of meeting our expectations and there's wide rage out there as you know of estimates. As we see this last period continues, we fully expect to update you by year's end. Right now we think just generally the overall estimates are within range.

Andrew Kaplowitz - Barclays Capital

Maybe I could ask you then about Lummus Tech. In other words, Lummus Tech had a great 3Q compared to the first half as you guys said, you guys kind of forecast that. It seems like Lummus Tech also is not operating on all cylinders given the refining and was expect to get better. So, is the performance that you had in the quarter now sustainable going forward? How lumpy is it going to be, because it does seem pretty lumpy this year? Maybe is better reason. Is 4Q going to be similar to 3Q and the conditions for Lummus Tech?

Unidentified Company Speaker

Andy, as we talked about if you look at the full-year, which is what we guided to and we've been fairly consistent saying that you need to that business as an $90 million to $100 million income opportunity and that's how we see that with very little variability to that number in its current form. So, you might see some variability quarter-to-quarter as we do in all of our business and less Lummus Technology, so we don't see anything as far as the outlook for this year that would change that original estimate.

Andrew Kaplowitz - Barclays Capital

The backlog, was there any currency effect to the backlog, because it looks a higher then we just do the simple equation, adding new awards and some tracking sales?

Unidentified Company Speaker

If you do that quarter-to-quarter basis, we were at a lower point at June 30th. Actually it's a very strong step with the dollar then we gave all that back and made some up in the third quarter. So, currency from the beginning of the year to the third quarter, minimal impact. It did move around the number between the second quarter and the third quarter by $100 million to $200 million down and then back up again.

Operator

Our next question comes from the line of John Rogers with DA Davidson.

John Rogers - D.A. Davidson

Just one follow-up in terms of your interest cost in the quarter jumped up quite a bit on a sequential basis and is that just working capital that moved that up or?

Ron Ballschmiede

No, that's a good observation. As we finalized our various tax returns in the third quarter. There are some unique provisions of percentage completion that requires us to look back several years on how you allocate profit around it, and a bit unusual, we had about $1.7 incremental expense in the quarter. So, the run rate if you do that math of interest expense should be around $4 million given what we have today, and that's when you cut through the interest on $120 million of term debt and then just the pure cost of the revolver. Obviously that went up a little bit as during the quarter we talked about this in the last call, we finalized our revised revolver to go from an exploration in October of 211 to a four year tenure goes up 2014, obviously there's some cost embedded in that. So, there is a bit of an uptick other than this one non-recurring item, but this is the order of magnitude of $0.5 million a quarter.

John Rogers - D.A. Davidson

Ron, that's drop back down then right away?

Ron Ballschmiede

Yeah, you can take out that $1.7 million of an odd ball in the quarter.

John Rogers - D.A. Davidson

Definitely, it seems conservative then for the fourth quarter with a couple of pennies there. Phil, in terms of pricing on the work that you are doing and any comment there on what you are seeing in the market, especially as it relates to risks? Finally, if you can give us the mix between domestic business or domestic backlog right now international?

Phil Asherman

I'll answer the second part of your question first. We are well over 78% of our total backlog somewhere outside the United States. You'll see that trend probably continuing. In fact, it may even increase next year, but we will see that trend continuing for the foreseeable future.

In terms of the price of [Carson] work, we're seeing very positive effect on capital spending by the stability of the supply market. We've seen stainless steel prices stabilized in fact reduce or decrease and in some critical areas as well as a number of others, commodity pricing and so that stability has really helped in terms of encouraging more capital spend.

A review of the macro numbers. If you look at global spending, it's pretty much been flat after or high of 2008, but it's probably energy markets around the world grew up flat to 2009 and forecasted to be flat throughout 2011 at pretty high levels, but still reduced them from what we saw the peak demand. So, what that means obviously for us, we got to get more of our in markets, and we got to continue to be extremely competitive and the small jobs as well as position for these large projects in these end markets we have talked about. We think we are positioned well.

So it's bit different landscape today that was there couple of years ago, but again, we're pretty confident our ability to get the opportunities.

Operator

Our next question comes from the line of Avi Fisher with BMO Capital Markets.

Avi Fisher - BMO Capital Markets

First question has to do with Golden Pass. Is it kind of a lower margin job or you guys after the (inaudible) and the Hurricane, and if you look at Lummus C&C margins in '10 versus '09 down significantly, does this sort of presage you an improvement in margins in the E&C segment going forward?

Unidentified Company Speaker

I wouldn't take Golden Pass as an example. We've said for a long time that job has been pretty much of a push considering all the work we had to do to get it ready for Asarco. So we think it's a great project and it's just about done, but as far as margins going forward, the bandwidth that Ron has talked about as far expectations in that particular business, we don't see any adjustment in that what's worked.

Unidentified Company Speaker

There's a lot of moving pieces even within the CB&I Lummus business. Obviously, we booked two large reimbursable jobs in 2009 that are going to start being a more meaningful part of our revenue. We made a great living out of the clean fuel in the US refinery work that's pretty much wrapped up in our delivery of that work in 2010. So, there's a lot of mixed characteristics in that business, but as we look forward and look at the profit within the backlog, we're comfortable with that 3% or 6% ratio.

Avi Fisher - BMO Capital Markets

You were at the high end of that last year. You're sort of closer to the low end of it for 3Q. The question is that, as Golden Pass completes, you get closer to the midrange or above it or closer to the high end?

Unidentified Company Speaker

Golden Pass was in a very commissioning mode, which means that you didn't spend a lot of revenue in the year, so it didn't Golden Pass by itself didn't have much impact on our overall CB&I Lummus business.

Avi Fisher - BMO Capital Markets

When you think about backlog, one can get to your backlog guidance, it's seems to imply, $1.2 billion $1.3 billion in bookings in 4Q. Haven't seen press releases on any new awards, so I guess the question is, can you talk about how much you have, what percentage of that you have now, or what projects to look forward to get there and what segments we should expect to see these awards in?

Unidentified Company Speaker

A couple of layers there, we talked about the small jobs. They think the $0.5 billion plus, and those smaller job return to run rates reflects a start. We've talked about the current job as being a big component of that that we expected to have just as total (inaudible) in the year, we still expect that to occur. Of course, so we expect that. There are other projects across the board that we think as matter of time, we will be able to close and have the right level of commitment before we actually take that backlog.

We've said from the beginning of the year that if we can hit the bottom end or close to bottom even bottom in that range that should results in incremental growth in our backlog going into 2011. Again the projects we see in front of us, it's not so much a matter of a win lose it is timing, as it always is the problematic at the end of the year. But, we are probably confident that we will be able to move into 2011 with strong backlog.

Avi Fisher - BMO Capital Markets

How much do you have, roughly what percent do you have under belt already for the quarter?

Philip Asherman

For this quarter, we haven't announced that. We authorized all those $40 million and we're getting them as soon as we can-

Avi Fisher - BMO Capital Markets

No, I guess, again to hit the low end of your bookings guidance, I mean, are you 20% of the way there or are you 40% of the way there, is there-

Ron Ballschmiede

We really can't.

Avi Fisher - BMO Capital Markets

You are not going to talk.

Ron Ballschmiede

Give anything shorter than a quarter.

Avi Fisher - BMO Capital Markets

Finally, you mentioned about 100 million, 200 million in benefit, from currency, is that also in backlog?

Ron Ballschmiede

It's only in backlog. Currency, really only dramatic increase on our company is in backlog because in most, first of all most of our backlog is in US dollars, even only 7% of our projects backlog is in the United States. However, the rest of it is generally contracted in the same currency that we are going to spend the money. So, and euro, and from giving it a euro to now, there has been little change in currency. We did go up and down in Q2 versus Q3 and had a little bit of bump in Q1. So, it moves the backlog at a point in time, but as much as it moved it down by somewhere between $100 million and $200 million in Q1 and moved to backup, I'm sorry in Q2, moving to back up in Q3, and as you might guess it has minimal impact as we'll burn that backlog over many, many years or quarters.

Operator

Our next question comes from the line of Marty Malloy with Johnson Rice & Company

Marty Malloy - Johnson Rice & Company

Could you talk a little bit more about the opportunities related to shale gas and are these the plants similar to what you announced earlier with Occidental?

Philip Asherman

It would be a mix as the shale gas development moves forward, as you well know there is a lot about that market that is yet to be refined. But, we are quite encouraged in terms of the potential out of volume levels. Dan, do you want to talk little bit about what you see in terms of the overall development of those fields?

Dan McCarthy

Sure, that the shale gas program is going to be – part of that here in the southeast where indeed there is a lot of infrastructure, but good portions of it are going to be in the Marcellus region which goes from New York down through West Virginia, also into Dakotas and Montanas and other huge fields, even place has been found on Canada. All of these whack the sort of infrastructure that is generally available here. The areas that are being developed first are those that are wet which means that they have these natural gas liquids of ethylene, propane, butane, and this just fits right into the types of projects we like to do, these gas recovery plants which maybe at a similar magnitude investment as Occy would, not necessarily the same type of project.

Philip Asherman

I just remind my colleague from New Jersey that Texas is in the southwest not east.

Marty Malloy - Johnson Rice & Company

Could you talk a little bit more about what you're seeing in terms of customer capital spending programs up in the oil sands outside of [indiscernible]?

Philip Asherman

We haven't seen a lot, to be quite honestly. We think if you are going to be involved in one of the programs in the oil sands, we're certainly involved in the program that we see. As far as the overall economics of the oil sands elsewhere in Canada they are struggling with that too.

Dan McCarthy

Yeah, we participate in the oil sands business from CLG through the actual upgrading of the liquids. Many of those projects were in the pipeline and were put off at the time we had the economic crisis. We do indeed see companies again rethinking and reassessing, looking for maybe restarting those projects. But, up until now we haven't received any commitment, but, $80 barrel oil makes you want to do those projects, I would think.

Operator

Our next question comes from the line of Rob Norfleet with BB&T Capital Markets.

Rob Norfleet - BB&T Capital Markets

Just a couple of quick questions, most of the mine has been already answered, but first of all I didn't notice whether or not you bought back any stock during the quarter.

Philip Asherman

We did not.

Rob Norfleet - BB&T Capital Markets

Did not, okay, can you just kind of discuss what's your thoughts are in terms of capital allocation especially with share repurchase?

Ron Ballschmiede

Sure, but it's hard to talk about one without talking about all the pieces. Our number one opportunities are going to be continue to look at growing our business either organically or through acquisitions. We've talked about the priority right now from a sector standpoint of what looks to be most desirable to expand that which would be Lummus Technology, Dan talked about a transaction that we did, done in the third quarter and there is others out there that we hope to execute and get it done in the next quarters. Beyond that we are always looking at what's the right mix of having our, being conservative, having a reasonable debt to capital structure, but also having drive, in additional to having dry powder for acquisitions, I will periodically revisit with our Board and otherwise when to return some money into this, to the shareholders through our stock repurchase program. So we look at it really with an eye toward the future of what some of the opportunities are and we'll continue to do it that way, the balance of three of those things.

Rob Norfleet - BB&T Capital Markets

Also second question, are you saying much of the change in the way some of your customers are bidding work, especially in the CB&I limited areas, is it relates to fixed price versus cost reimbursable? Is there little bit more of shift occurring towards fixed price work?

Unidentified Company Speaker

Not necessarily, we've seen a lot of fixed price work and there are some regions of the world like the Middle East that are historically and will continue as far as we can see, to always be fixed price with national companies. Usually on the large integrated oil companies around the world where price is not the only differentiator, we see a mix and especially on the very large capital projects where owners are less reluctant to pay the kind of risk premiums associated with contract with fixed price. It's usually more of an open process to see what the best cost approach is going be to that project as opposed to just the bid tender price rates. So it's a mix bag. I don't think that's a new trend. We've seen the pendulum swing certainly over the last few years, but projects are getting larger, so, in many cases. So you'll see certainly a lot of fixed price worth in more cases than not, more of a hybrid approach to these major contracts around the world.

Rob Norfleet - BB&T Capital Markets

You don't see your overall mix changing that much?

Unidentified Company Speaker

That's the question. We have maintained, at least we've got around 50-50 mix in terms of some type of de-risk or reimbursable contract versus [indiscernible]. Our Steel Plate Structure supply will continue in most major markets as a fixed price opportunity and which is some premium opportunities there while the CB&I Lummus will be typical EPC approach where you have a mix of fixed price and also reimbursable work.

Rob Norfleet - BB&T Capital Markets

Okay, great.

Unidentified Company Speaker

We think our 50-50 mix is a good spot place for us to be.

Rob Norfleet - BB&T Capital Markets

Definitely. Then last question just with respect to I guess one of those, earlier just about the SG&A leverage, I understand your point about the contract structure, they are not maybe being as much leveraged. If you look at Steel Plate Structures, the burn rate obviously this year has been significantly below that of previous years'. I would think that going into the fourth quarter, especially 2011, we should see that burn rates pick up. I am just curious as to why we wouldn't see more operating leverage in that business with that occurring.

Unidentified Company Speaker

You are probably going to see the change in the burn rate more of a phenomenon that will CB&I Lummus and those largely EPC projects than they would necessarily Steel Plate Structures. Again there's other, very little in terms of percentage of overall cost of engineering contents. So by the time we start that job, we're placing orders for materials and we're gong to build the field pretty quick. So, that business is going be a bit lumpy like that. CB&I Lummus we talked about we're in the initial phases of some very major projects such as in Peru and [indiscernible] that we should start seeing accelerated in terms of progress into the first half of 2011 which should drive the acceleration of revenue at that point. That's where you are going to see probably the acceleration of burn rate.

Unidentified Company Speaker

I'll add, we talked a lot about earlier the magnitude of small projects that are very important to us. Those are predominately in the Steel Plate Structure side of the business. As a result, that is a very competitive market, always has been. So, we run that business by design as a high variable, low fixed cost business, so we can compete on these small jobs that are very important to us. So if you start putting all that little story together, you can start to understand there is just not a lot of leverage inside that business. We certainly loved to get these large projects every now and then, but they are underpinning our small projects around the world that we are competing with everyday just like we have done for the last 100 years or so.

Operator

Our next question comes from the Guy Baber with Simmons & Company

Guy Baber - Simmons & Company

Thanks for taking my call guys. Hey, Dan, just building on some comments that you have already made, can you just provide a little bit more color with respect to your strategy to grow Lummus Technology via alliances, agreements, and potentially acquisitions. I'm just trying to get a better understanding of how impactful those initiatives could be and over what time horizon they could potentially lead to a meaningful uplift to your op income there?

Philip Asherman

Let me start, Guy, just for a second, and then I'll let Dan add some color to it, if I miss that. We talk to this issue pretty consistently and that we think that's, first of all a great use of our shareholders' capital and a great return on that. Probably one of the better examples of what we are doing as far as adding to the absolute value of our technology portfolio, the portfolio is para-xylene technology recently acquired from BP. If you break that down for us in terms of the opportunity, few projects three year and the type of output we are expecting, that's got in the range of 40, 50% margin on that. So, it's a great return on those technologies.

What we found is though that it's a process that you are going through some interesting owners to try to upgrade technology to part of our licensing technology portfolio. So, it does take a while and that's what we've discovered certainly in the para-xylene and we are seeing with others. But, Dan does that characterize it?

Dan McCarthy

Absolutely. That for us it's a combination of two types of technology to be something fully demonstrated and operational, such as this paraxylene technology which therefore should have a relatively rapid entry into the market. Sometimes we are working at some sort of semi-commercial scale or even lab scale and then that's usually four or five year period to get everything in place to actually start selling it. So it a range of different types of time frames.

Philip Asherman

The other component that we just don't talk about more as much is when you get the license and obviously the opportunity on the catalyst and the reoccurring nature of that as part of the overall offering. So, that's important part of this deal which technology we are developing or acquiring.

Guy Baber - Simmons & Company

You previously talked about broadening your Lummus Technology customer base in China with some of the private companies moving into petrochemical, how significant is that opportunity? Any incremental color you can provide on that front?

Dan McCarthy

Yeah, I mean, it's a very significant development for us because these companies, the big large state companies are all becoming sort of technology independent. For us the developing companies is smaller entrepreneurial type companies don't have a technology base and therefore provides us with a opportunity in China. So it's actually very interesting for us because as the one side faces down the other, the private side is moving up and so to balancing what otherwise could have been some decades.

Operator

We have no further questions at this time. Mr. Asherman, do you have any closing remarks?

Philip Asherman

Well, thank you for your time and interest today. I just wanted to add a reminder that we hope to see all of you at our Investor Day in New York City on November 10th. This is going to be preceded the night before with reception and will feature a speaker that I'm sure you will find interesting and useful as you think about the future of the oil and gas industry. If you haven't received any information or an invitation please contact our investor relations office. With that I will conclude today's call. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

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