Fluor Corporation Presents at BofA Merrill Lynch Global Industries Conference, Dec-06-2011 08:20 AM

Dec. 6.11 | About: Fluor Corporation (FLR)

Fluor Corporation (NYSE:FLR)

December 06, 2011 8:20 am ET


Kenneth H. Lockwood - Vice President of Corporate Finance and Investor Relations

David T. Seaton - Chief Executive Officer and Director


Unknown Analyst

Andrew Obin - BofA Merrill Lynch, Research Division

Andrew Obin - BofA Merrill Lynch, Research Division

And we also have Jason Landkamer, who works on the team as well, on IR team. Fluor is the largest publicly-traded U.S. engineering and construction company, with a leading position in a diverse range of industries from oil and gas and petrochemicals to mining and power gen. We have a buy rating on the stock as we think people underestimate our company's ability to grow its backlog and revenues long term and as well as company's very steady execution. And with that, I will let Ken talk. Thank you.

Kenneth H. Lockwood

Thank you, Andrew. Good morning, everyone. I'll give a brief overview of the company and allow time for Q&A, I think that will work best. So I'll get through this fairly quickly. As Andrew said, Fluor is the largest publicly-traded U.S. C&C in the space and by a wide margin.

Just very briefly, I'll show you our Safe Harbor Statement there. For those of you who may not be familiar and those of you listening on the webcast, Fluor is a -- definitely a leader in the engineering procurement construction and maintenance space. We call it EPC or E&C as the sector is called. Important that we do everything from the very conceptual work to -- and through the maintenance after we've built the project. Very, very long-term global presence. So we're not in the mode of necessarily trying to go out and pursue the markets that have developed over the last couple of years. Fluor has been in the Middle East for 60 years, been in China for nearly 40 years, been in South America for many, many years. And so we're really already positioned in all the places that are both emerging and continuing to develop. We are a very diversified company. I think most of the companies in our peer group have sought to diversify over the years to try to blend out some of the cyclicality of various markets. I think we've done that better than anybody else and in a material way. I'll show you some charts in a moment that demonstrate that.

We're diversified in the energy space. That includes not only oil, gas, petrochemical but also power, and we're very diversified in the industrial space as well. I'll show you some charts that demonstrate our backlog in mining in particular. And then also in the infrastructure space in the U.S., we build significant road programs and rail programs.

And then finally, for the U.S. Government, which is, as you might imagine, a very, very large market, we work for the Department of Energy, Department of Defense. We've effectively tripled the size of that business over the last several years. We're very proud of that accomplishment.

The next point is key, and I will touch on it several times as I talk about our markets. That's in terms of this front-end engineering and design work. We call it FEED for short. Basically that's the very technical front end work that goes on before a major industrial client pulls the trigger on a multibillion-dollar investment. So it's important if you can position yourself to do that work, get inside the fence with the customer, help them solve their problem, help them create solutions that create value for their shareholders and then ultimately, position yourself for the follow-on EPC engineering procurement construction work that follows that. And that's where we get the very, very large programs.

We do have a very strong balance sheet, as you might imagine in this market, particularly given our performance. We ended the quarter with $2.8 billion in cash and marketable securities. We also have very robust bonding capacity, which we need as a major EPC contractor in the space. So as you might imagine, these multibillion-dollar infrastructure programs do require bonding of the contractor. And then finally, in the E&C space, new awards and backlog are absolutely key in monitoring the performance. We did book $6.7 billion in new work in the quarter, which was substantial, and that led to a record backlog for the company of $41.8 billion, not insignificant given that really over the last couple of years, the markets have not been that strong.

We're going to move to the next slide now and look at some of the segmentation of the business. On the left side of the chart is our revenue performance in the most recent quarter, and you can see that 40% of the business was from our industrial infrastructure business, which is mining and infrastructure principally. Oil and gas business was a little over 1/3 of the business, and that's an interesting point there because in our history I would say that fairly consistently, the oil and gas business is the largest business. So we're actually encouraged by that. It says 2 things: number one, we've very dramatically grown our industrial business, which we're proud of but also, oil and gas is poised really to be the growth driver again for the company.

At the top there, you see Global Services, 6% of the business. That's our operation and maintenance business, long-term renewable business and the 15% represents our Government business, as I mentioned. If you look to the right side, you see the backlog, the $41.8 billion at September 30, about half of the business again industrial infrastructure, and you can see the other balance there. We don't typically carry a large backlogs on our Global Services operations and maintenance business or our Government business. We tend to book those on a very conservative basis, tend to book an annual amount rather than very large long-term contract values.

And finally, I'll just quickly touch on the gray slice there which is fairly minimal today, but our Power business has actually been one of our larger businesses in years past. And obviously based on some of the comments this morning by the Economist and what you're all painfully aware of, the U.S. economy has not been particularly robust and what happens is manufacturers scale back their facility significantly, which puts a lot of power back into the grid. And currently, the excess reserve margin on the grid is substantial. So we're not seeing a lot of new power activity there. But again, it's actually a -- it is and will be a growth driver for the company in the future, and I'll talk a little bit more about that.

Moving to the next slide. These are just a couple of examples of strengths of the company. Clearly, the mining business, which if you follow E&Cs you'll know that we're really one of the very few companies that have a mining business, and we're absolutely the only company that has a substantial mining business. We ended the quarter with about, I believe, $18 billion in backlog of mining work, and that is not at all insignificant. If you go back 5 years, that number was probably $1 billion to $2 billion.

We operate across the various minerals, iron, ore copper, gold, nickel. All of which are in high demand from those emerging markets that were mentioned earlier: China, India, South America, et cetera. All the economies that are growing. We're also very diverse there geographically operating literally all over the world, including: Africa, South America, Canada, Australia, Mongolia, very large copper project there.

Oil and gas is continuing to -- as a very, very strong business for Fluor. We operate across all aspects of that business. Once the downhole folks, if you will, have drilled and proven the reserves, then we go in at the upstream, on the upstream side and develop production capacity pipelines, et cetera. We go in on the downstream side, develop the refining, refine the products, and on the petrochemical side, we're very strong across that space. And as you can see, the market is clearly not in the U.S. It's in all those places that are developing the natural resources on the oil and gas side, particularly Middle East, Russia, Canada, Australia as a few examples, but we're literally active all over the globe.

I mentioned infrastructure. I won't dwell on that necessarily, but we do have 5 or 6 very large programs across the United States. The Oakland -- San Francisco-Oakland Bay Bridge that we're constructing today, very major highway programs in Utah, Virginia, Texas, and we're doing the very large Denver light rail program that's going to take folks from the Denver airport downtown, very large program.

Government work in Afghanistan and the United States, Fluor is basically doing all the life support services for the U.S. military in the northern part of Afghanistan, obviously, very challenging work but it pays well fortunately, and we're doing a good job there and proud to be supporting the military effort, very large long-term program. We're actually, to give you an indication of our scope there, we're running about $2 billion of annual revenue on that program alone, and then we're very active on Department of Energy sites in the U.S.

I'll mention power generation briefly. The market is not robust, but it's not dead either. We recently announced a gas-fired power plant in Texas that's going into our backlog in the upcoming quarter. It's probably on the $400 million to $500 million scale. We also do plant betterment, which is basically scrubbing coal plants, which is going to be a topic of interest in the next several quarters to the next couple of years as the new clean air rules go into place. And we also actually have a proprietary technology for capturing carbon, which I think will be a developing market in the future.

Moving to the next slide very briefly. I mentioned new awards and backlog and the importance of that from an investor perspective. On the left side is the new awards. Don't be concerned by the bumpiness of that. We call it lumpy, simply because we can't predict with certainty when major programs will go into our backlog. We are conservative as to what we put in the backlog and when we put it in the backlog, but you can see that we've had some very, very large numbers, a couple of which have started with a 9 in recent quarters. But basically that has led to a very nice sustainable backlog growth, which again, is very unusual in this space. You'll -- I really think you'll struggle to find another company that's delivered that kind of performance in the economy that basically kind of went off the rails back in early '09.

Moving to the next chart. I mentioned that I would sort of bifurcate our backlog a little bit here. As you can see, it's very well distributed geographically. The yellow slice there is our U.S. backlog, which, not surprisingly, in this environment, is only about 20%, and that's absolutely probably the smallest percentage in the company's recent history, last 20 to 30 years. And that's simply because the markets have shifted internationally, and we're quite happy to go where the work is, and we're very well positioned to capture that work. So we're very active in the Americas, which would include: Canada, South America and in particular, very active in Europe, Africa and Middle East. And the bulk of that would be in the Middle East in Saudi and Qatar, Abu Dhabi, as an example. And then very active in Asia, which is where we put all of our Australian work. And Australia is a huge market for us and will continue to be so.

On the right side, it's important to look at contract type when looking into this kind of business. Obviously, fixed-price work is more risky than reimbursable work. It also generates a higher return typically. We currently were about 14%, which is a pretty modest amount. We've been as high as 45% in our history, and that's really driven by particular markets that tend to contract on a fixed-price basis including power and infrastructure. So if you look at our risk profile, we have a very good distribution there.

Looking very quickly at our third quarter performance, I won't dwell on this either but obviously, nice growth in revenue, segment profit, et cetera, earnings, new awards. As I mentioned, $6.7 billion in backlog was up about 27% over the prior year, which is nice growth.

Now I think this is probably the best place to pause for a moment and talk briefly about our wind farm project in the U.K. You can see that we obviously lost money in the quarter 1 year ago, and that was driven by a large fixed-price wind farm project in the United Kingdom that has been a particular challenge for us. The good news is we're about 90% complete on that job now. We're in the final stretches. We've indicated that we expect to finish that job sometime around April time frame, and we look forward to talking about that in the past tense. But in the meantime, we're very actively engaged in finishing that project and pursuing reimbursement from the client for a substantial amount of costs that we believe is attributable to changes that they introduced on the job.

Cash marketable securities, I mentioned before debt-to-cap rose in the most recent quarter when we issued a $500 million bond to raise cash in the U.S. All the same reasons that we've talked about, a lot of cash being generated internationally but to engage in the substantial share buyback program that we undertook and to continue to do that and also pay the dividend on a quarterly basis, we felt it would be prudent to get some very inexpensive money in the market at this the time and bring that in. So I would mention that we're I think 1 of only 2 companies in this space to pay a dividend. We're also proud of that, and we think that's an important vehicle for returning funds to the shareholders.

Moving to the next slide. Just a very quick depiction of our historical earnings per share going back a couple of years, as well as our guidance range for 2011, guidance range for 2012. The guidance that we just introduced of $3.40 to $3.80 includes the impact of approximately $0.15 to $0.25 for the research and development that we'll be putting into a small modular reactor nuclear company, which is developing a what we believe will be one of a few small modular reactor designs that will go forward to commercial viability in the future. The company again is called NuScale. We bought a majority share in that company in the most recent quarter for a very nominal amount of money, and we expect to work towards NRC approval of that design and ultimately terminus liability. I think the latest predictions are that you'll see power coming out of small modular reactors or SMRs in the 2020 time frame.

Looking very quickly at the segments. Government I mentioned, I won't dwell on this, but in terms of our Department of Energy work, we're the prime contractor at the Savannah River nuclear site for the Department of Energy, which is a operating part of the nuclear system for the U.S. Government, a very long-term, large-scale, renewable contract, and that's kind of the name of the game when working for the Department of Energy, you want to be that prime contract role. We're also the contractor at Portsmouth and have several opportunities to expand that footprint. I've talked about our business in Afghanistan, and again, this is very steady renewable backlog, good margins. And I think fairly predictable revenue stream and earnings stream.

Now looking on the next slide at Global Services. Again, this is a, again, a long-term renewable backlog as well. You can see that it doesn't really necessarily pop up simply because we have long-term contracts, which we put in 1 year at a time so that we don't get too far out ahead of ourselves. We carry about 3 years backlog in total on these very long-term contracts. And the reason that's important, for example is, we're the contractor for Luminant Energy in Texas. We do all of the fossil maintenance on their power facilities, and we've been there for over 20 years. So needless to say, we don't want to put in that kind of backlog. We want to be conservative about that and roll it out here.

In addition to the O&M or operations and maintenance business, which does carry a backlog, we have businesses that don't carry backlogs that actually contributes significantly to the profitability in the segment, including our equipment services division, our staffing division and our global procurement business.

Looking at one of the big growth drivers of our company over the last several years, the Industrial & Infrastructure segment, as I mentioned, is predominantly mining today, about 2/3 of the business. It's about $17 billion in backlog represented by the gray bar there, and we basically go in and we do all the infrastructure and the processing facilities for these very, very major mine developments. We don't mine the ore per se ourselves obviously. That's something the customers do, but the work that we add is absolutely critical when you consider that most of these developments are somewhere in a challenging environment like 15,000 feet in the Andes, out in the Pilbara in Australia, very demanding challenging environments, mobilizing resources, equipment, et cetera. So you basically have to bring in all of the infrastructure, the power, the water, the living facilities, the roads, et cetera. Very large business for Fluor. We think it will continue to be a very strong business. I know that from experience, the commodity businesses tend to be more cyclical than others, but it appears that and we somewhat jokingly indicated, it appears we're in the fifth year of a typical 2-year cycle. So it is definitely not a typical cycle, and we believe it will continue to be robust on the back of emerging economies, which aren't going away.

Infrastructure business I mentioned, I won't dwell on that other than to say that it is a predominantly, a U.S., Canadian and Western European business, although we do have a very nice foothold in the Middle East where we're doing all of the planning for Abu Dhabi for their transit systems.

Power business, as I mentioned, has been somewhat in decline over recent years. Having said that, this is the backlog curve but the earnings curve, as Andrew is aware, has been very strong and has a potential to be that again. We did book an environmental compliance program for Luminant Energy in Texas during the most recent quarter, and as I mentioned, we've invested in the NuScale SMR business.

I would expect this backlog to begin to grow beginning in the next quarter, and I think you'll see some sustained growth in this business going forward.

Finally, in terms of segments, the oil and gas business on this slide shows that we definitely came off of a very, very strong U.S.-based market. Fluor was very, very successful in capturing the majority of the refinery modification and expansion work in the U.S., where basically all the major refineries were improved and expanded to process Canadian crudes, which are the very, very heavy crudes that require large coking facilities, things like that. So we've come down off of that, where we booked 5 of 7 major programs in the U.S. We're now sort of restocking the backlog, if you will, on the back of international expansion, first, in the upstream arena but more recently, we've begun to see substantial new investment indicators in the petrochemical arena, not only in the Middle East, in China, which are typical, but we're seeing the beginnings of petrochemical investment in the U.S. We're doing some front-end work for Dow, as an example, and then we believe that over the next several years, there will be decisions made to build new ethylene cracker facilities in the U.S. And as I mentioned earlier, when you're involved in the FEED on an effort, it puts you in a great position to do the follow-on EPC work.

FEED activity is strong, and that's another indicator. The FEED activity typically takes 12 to 18 months to execute. It's very man-hour intensive, very engineering intensive, that's where we put all of our specialists to add that value to the client during their decision-making process. So the important thing is, the FEED activity is very strong, which bodes well for follow-on EPC work in future quarters and future years.

Very broad prospect list across really, the whole globe. A couple areas mentioned there that are more active than others, but we see substantial opportunity across those geographies. And we're also starting to see interestingly, and I think this is a change over the last 6 months, substantial FEED activity and bidding activity around refining, not in the U.S. but in various international locales. So that, we believe, will be also one of the key growth drivers going forward for us.

Finally, just very quickly, in summary, I mentioned the awards and the prospect in FEED activity, which continues to be very strong. We're very encouraged by that.

Record backlog, which is very important. Obviously, the bigger the hill, the tougher the climb gets, but we think we're up for that. And we think we can continue to deliver growth in backlog into the future. It will be a little bit bumpy or lumpy, as we often describe it, but we think we can continue to grow that.

Very diversified portfolio, which is important. If we were only an oil and gas business or only a power business, we would be in deep yogurt today. But the reality is, our very long-term presence and capabilities in the mining business have helped sustain us and grow us our very strong, developing business. And the infrastructure has helped us to grow and our very strong growth in the Government business helped us to grow. So we really do believe that we have an unmatched diversification story.

2012 EPS, as I mentioned, is there and including the NuScale investment, and finally, our considerable financial strength is not to be, I think, overlooked. We do have a new $12 million share authorization for share repurchase. I can say that we've been in the market recently, on a modest basis, buying back additional shares. We took out about 6% of the shares over the last 3 quarters, and we think we'll continue to be the buyer of our shares, as we do believe they're very, very good buy at today's prices.

With that, Andrew, I think we're ready to take Q&A. I've left an entire 16 minutes for that.

Question-and-Answer Session

Andrew Obin - BofA Merrill Lynch, Research Division

Sure. Why don't I start? I'll just ask the first question and what's interesting, my sense is that people keep asking questions about Greater Gabbard. I understand it's 92% finished, and how do you guys look at your potential exposure? What do you think is potential liability of Greater Gabbard if everything goes wrong? Well, because it seems it's such a disproportionate drag on the stock and it sort of obscures all the really good things that's happening within the company. What do you tell people?

Kenneth H. Lockwood

Yes. People love to imagine the worst-case scenario, and while we really don't think that's realistic, we're probably not going to speculate on that, Andrew. With the possible exception, that we do have a claim outstanding with the client. It's substantial. I think it was $243 million at the end of the quarter, and what that means is we have to prevail in an arbitration proceeding, which will proceed over the next 18 to 24 months. We're very confident that we will. It's one of the things that I think distinguishes Fluor in terms of its size and scale because we basically got to carry this $243 million work in process or receivable until the job is done, and we get the courts to rule on our client. So we think, Andrew, the absolute worst case would be if we didn't prevail on our claim, and we don't believe that will happen. In terms of finishing the job, we're in the finals stages of burying the cables as you know, on the final set of wind turbines, and we think that we'll be able to do that more or less within the estimate. Personally, I don't think it would be surprising if there was some very minor noise level as we get to the finish line on this project and finish it up but at this point, we think that the latest small reserve that we took should be adequate.

Andrew Obin - BofA Merrill Lynch, Research Division

But the receivable is not about what I think about the worst-case scenario?

Kenneth H. Lockwood

That's the way I would think of a worse-case scenario, but I will point out that we have been in claim situations like this in the past with similar sized numbers, and we've generally always collected our money. And so we feel good about that. We have a good track record.

Unknown Analyst

Can you talk a little bit more about the chemical market outside the U.S. [indiscernible] outside the U.S.?

Kenneth H. Lockwood

Yes. Well, the biggest job we have going on today is the Ras Tanura Integrated Petrochemical Project in Saudi Arabia, otherwise known as the Sadara project. The client is a joint venture of Saudi ARAMCO and Dow. The Saudi in particular has led the market, if you will, in terms petrochemical development over the last 5 years. We've done a lot there. We've made a lot of money there. Of course, in the past, the drive has been towards generating bulk chemicals in that arena to take advantage of the cheap gas feedstock. The current market is really driven more by downstream petrochemicals and fine chemicals. The Saudis, as you might imagine, have a very deliberate strategy in terms of their capital investment. The petrochemical arena, in particular, is one area that they see is ripe for creating local employment and local industry. So that's what they're doing, and we're helping them do that. The other area that I think, and I think Saudi will continue to be a very strong petrochemical market. The other market where we're being particularly active is China. Same reasoning, they tend to have -- they want to control their destiny in terms of certain critical commodities, and they've been very, very active. Fluor tends to work with major western petrochemical companies. A good example there would be BASF, where we've done a number of projects for them. I think those are the 2 principal markets simply because that's where the gas feedstock is, and we think that it'll continue to develop. And then as I mentioned, we actually see some pretty good opportunities developing in the U.S. as well, although I think in a much smaller scale.

Unknown Analyst

Government around the world have been putting huge amount of moneys at infrastructure since 2008. Now it seems that budget constraints are getting tougher and tougher around the world. Do you see any inflection point here going forward?

Kenneth H. Lockwood

Well, it's interesting. Our business has been focused on public-private partnership type developments in the infrastructure arena. For the simple fact that, in the case of the U.S., the states, the Department of Transportation don't tend to have any money available. The federal transportation funding has been a bit of a mess, needless to say, over the last several years, and it's not going to get any better. So we have been, as a company, focused on helping to develop public-private partnership or P3 businesses. I mentioned several of them in my opening remarks, including Denver light rail, and we do think that, that will continue to be a vehicle for getting major infrastructure projects done. We actually think the lack of funding on a federal and state level is helpful in terms of going toward that type of project. The Europeans have had tremendous success there. The U.S. now has a fair amount of experience there. Canada is developing experience. We're doing a P3 project in Canada in Ontario. So we're actually not overly concerned about the budget environment in the U.S. I think internationally, the opportunities are a little bit different. Certainly, the Abu Dhabi government is looking at substantial investment in infrastructure, and I mentioned we're doing all the planning for them. And of course, you may be aware that Qatar is looking at very, very large infrastructure development to support the World Cup that's coming up there. So we see a lot of opportunities. We're actually fairly bullish on infrastructure, and we think our team has demonstrated tremendous ability to capture those projects very early on so that when they are finally financed and financing is a little bit more of a concern, I think getting some of those over the hump, but once they do get financial closing, they're very large projects and very profitable.

Unknown Analyst

I'm new to the space, so forgive me if I'm asking a rudimentary question here. When I look at your operating margins, it's in sort of -- they're in the sort of 3% to 5% range over the latter part of the last decade, but then I look at your scale and you guys seem to bring some fairly distinctive scales to the table. Is operating margin maybe not the right way to think about it? Are there things embedded in the sales line that maybe make that less relevant maybe? Can you talk about how you guys think about profitability and how that has evolved and might involve going forward?

Kenneth H. Lockwood

Yes, absolutely. That's a great question and one that we often get as you might imagine, don't we, Andrew? You really need to break it down by segment, and I'll cover a couple of the easy ones first. The Government business and Global Services businesses are both basically service-oriented business, so there's really not much material or construction that goes on there. So as a result, the margin on the services flow basically straight through to the bottom line. So talking in the government arena in the 5%, 5% to 6% margin basis, which we think will increase over time. In the Global Services business, you're talking about 8% or 9%, which is actually, obviously, much higher than that corporate average and if you look at our recent quarters in the power business, when we're completing a couple of the very large power projects there, they were in the strong double-digit arena. Now over time, power from inception to completion is probably more of a 7% business but again, a strong business. That leaves me with oil and gas and the industrial infrastructure. Industrial infrastructure is really heavily impacted by the client first materials or the very large pieces of equipment that we install for the customer. We don't engineer the equipment. We don't manufacture the equipment. We simply engineer and design and construct around it and then help them install that. So there's a lot of big pieces of revenue flowing through that we don't earn any margin on. If you look at the underlying margin in the services that we provide, it would be very strong as it is in those other businesses that I mentioned earlier. Infrastructure business resides in the I&I space actually has our highest margins because of the fact it is fixed price and we tend to perform very well. Those will be in the low double-digits, but of course, that's only about 25% of the business today. So you don't really see that flowing through. That brings us to oil and gas, which is, as I said, typically our largest business, and it's also somewhat unique in 2 ways. Number one, it's our largest sort of cost-related business. In other words, we have large engineering centers all over the world, and so you sort of have a certain amount of fixed overhead cost that resides there that we've got to cover to get the margins moving up, and that's the sort of the inflection point that we're in today. We've sort of come down off the backlog. We started restocking that and bringing in new margins, but you've got this underlying overhead that we've got to cover. So I think you'll see the margins improve there back toward the norm sort of long-term 5% level. It's going to take a couple of years to get back to that level, but I think we will. And then, I think that kind of covers the landscape but again, oil and gas is also heavily impacted by the very large chunks of client-furnished materials or CFM that we bring through there. A good example of that is the big oil sands project that we're doing for Imperial Oil in Canada, it's called the Kearl project. Because of the labor environment there and because of the weather environment there, the client is manufacturing most of the very large modules offshore. Another contractor engineered those. Another firm manufactured those, but again, when they come in there, we have responsibility for getting them into the site and installing and hooking them up and all the infrastructure and foundations and everything for all that, so we do pull that through our revenue. So because we're a very large company, and we tend to do a lot of construction management, program management, we do bring in large pieces of revenue that unfortunately, that don't directly generate margins. That's one of the reasons our margins look comparatively low when you consider all the value that we add to the customer.

Unknown Analyst

Just a question on this broad prospect list of oil and gas, can you just give a little insight into the mindset of your customers, given the volatility in the world, how, with the stability of Brent crude prices how willing do you think some of these projects will get greenlighted here near-term versus longer-term?

Kenneth H. Lockwood

Yes, that's a great question. I had actually intended to comment on that in some of my opening remarks. As Jason and I know very well, as the price of oil goes, so does our stock to some extent, if you look back historically. And there's a lot of reasons for that but obviously, typically, high oil price tends to mean that there's robust demand and the economies are cooking and there's a lot of different things going on and then obviously, there's a lot of investment in the oil and gas space. I talked about the very large scale of many of those projects and our capabilities globally to execute those projects. The reality is over time, as the oil price has steadily increased and seems to be heading towards a kind of a sustained high number, whether it be $60, $70, $80 or $100 or more, the clients have gradually increased sort of their hurdle rate for projects and what that means is that while they're not particularly concerned with the daily spot price, they are seeing and getting more comfortable with a long-term price that's probably well north of $50 a share, and that's important because obviously above $50 a share they're very profitable. When you get into $70, $80 a share, they're very, very profitable, and it's not just the international companies that you tend to think of, the headlines that you read from ExxonMobil with billions and billions of profitability. It really goes more today to the national companies, which control about 95% of the world's oil and gas reserves, and they need and they're obviously to some extent trying to manipulate the price because their economies are so dependent on oil and gas revenues that they're looking at $80, $90, $95 a barrel to sustain their economies. So we don't have a specific view on oil price other than to say that our clients take a very long-term view. When oil went down in first quarter 2009 into the $20s and then briefly into the $30s, we got a lot of questions, gee, is everybody pulling back, canceling projects, walking away, and the reality is no, because they obviously don't behave that way. These are very, very large long-term, multi-billion dollar programs that are going to generate revenues over a very long period of time. And so if anything, kind of in a nutshell, our clients are very encouraged, I think, by the trend in oil prices. We're very encouraged by the trend in oil prices. I would say we support a view that prices will be well above investment levels, and we think that bodes very well for the company and the sector.

Unknown Analyst

Can you comment on Peru and the status of your Newmont contract that you booked last quarter, please?

Kenneth H. Lockwood

Yes. The question is regarding our -- it's called the Conga project. It's a very large project in Peru for Newmont Mining. We booked that into backlog the last quarter. It's about $2.3 billion. There's 2 major pieces to that project. One is the earthworks portion of the project, which would obviously proceed a lot of the other work. That has been a challenging project for Newmont, which is not unusual because most of these mine sites, as you might imagine, are very, very large, and I think Peru has a history of kind of social involvement, if you will, in major industrial developments. Obviously, when you go in and start moving mountains around and things like that, it impacts the local community. Newmont, I think, had done a very good job of getting all of their approvals and environmental statements, et cetera, et cetera. And as you might imagine, they are very, very cautious about when they pull the trigger on a multibillion-dollar investment. They did pull the trigger. They awarded us the work. We mobilized. We're there today, but as you indicated and as you others may have read, the local unrests or protests seen, if you will, from multiple constituencies gotten to the point where the client has stopped work. And I assume they're in trying to figure out how to appease the various factions. So at this point, we're standing down. We do have many, many people mobilized at the site, and we'll just see how it goes. It would be very surprising to me if Newmont didn't put up a pretty significant fight and figure out a way to get this project moving forward again. But having said that, as I said, there are multiple constituencies involved who have varying degrees of upset with parts of the program. So we'll see how it goes, but for now, we're doing anything we can to assist the client, but we're unfortunately standing down at the site.

Andrew Obin - BofA Merrill Lynch, Research Division

I think this will be it.

David T. Seaton

Well, thanks very much. I appreciate all the good questions, and we look forward to seeing many of you later today.

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