Chicago Bridge & Iron NV (CBI) Philip K. Asherman on Q1 2016 Results - Earnings Call Transcript

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Chicago Bridge & Iron Co. NV (NYSE:CBI)

Q1 2016 Earnings Call

April 20, 2016 5:00 pm ET

Executives

W. Scott Lamb - Vice President-Investor Relations, Chicago Bridge & Iron Co. NV

Philip K. Asherman - President & Chief Executive Officer

Michael S. Taff - Chief Financial Officer & Executive Vice President

Analysts

Steven Michael Fisher - UBS Securities LLC

Andrew Kaplowitz - Citigroup Global Markets, Inc. (Broker)

John Bergstrom Rogers - D.A. Davidson & Co.

Michael S. Dudas - CRT Capital Group LLC

Jamie L. Cook - Credit Suisse Securities (NYSE:USA) LLC (Broker)

Jeffrey Y. Volshteyn - JPMorgan Securities LLC

Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker)

Jerry Revich - Goldman Sachs & Co.

Operator

Greetings and welcome to the CB&I First Quarter Earnings Conference Call. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Scott Lamb, Vice President, Investor Relations for CB&I. Thank you, Mr. Lamb. You may begin.

W. Scott Lamb - Vice President-Investor Relations, Chicago Bridge & Iron Co. NV

Thank you, Holly. Good afternoon, everyone, and welcome to the CB&I first quarter earnings call. Thank you for joining us today. This afternoon, you will hear from Phil Asherman, President and Chief Executive Officer; and Mike Taff, Executive VP and Chief Financial Officer. Phil and Mike will offer commentary on the results for the quarter and then we'll open up the lines for your questions.

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 our SEC filing. While forward-looking statements represent management's best current judgment as to what may occur in the future, the actual outcome or results may differ materially from what is expressed or implied in any such statements.

I'll now turn the call over to Phil.

Philip K. Asherman - President & Chief Executive Officer

Thank you, Scott. Good afternoon and thank you for joining us as we report Chicago Bridge & Iron's results for the first quarter of 2016. First, welcome to Scott Lamb as our new Head of Investor Relations. Many of you know him from his years with Foster Wheeler and more recently, Cameron International. Scott's a seasoned IR professional and he's a great addition to the team. I also want to thank Jaime Correal for his tremendous contribution to this role and congratulate him in assuming another important position within our Corporate Strategic Planning Group.

Now first, let me convey our thoughts and prayers to all of our neighbors in the Houston area that suffered through these past few days of storms of flooding. CB&I has nearly 4,000 employees in the area on projects and technology labs, fabrication plants, warehouses and offices. And I'm relieved to advise you that we have no reports of any significant impact to our employees other than some cases of being unable to get to work. Secondly, our major projects along the Gulf Coast or any of our operations in the Houston area experienced minimal disruption or damage due to flooding. We are, of course, monitoring the situation but believe the worst is behind us.

Now, as you know, I begin every call with a comment about safety. And we're very proud of maintaining our position as one of the safest companies in the world. We have the lowest lost time incident rate in the industry. 17 of our sites are without a loss time accident. 26 of our sites have worked over 1 million man-hours without an injury. And 50 sites have over a quarter million man-hours without a recordable injury.

But as impressive as this record is, we're not infallible. Last month, we experienced three serious incidents at different sites with different circumstances and where different work was being done. What they had in common was that each of the incidents involved fairly routine tasks that ended tragically because of some decision or judgment that resulted in fatalities that should not have happened. Although we recorded nearly 650 million man-hours without a fatality, this is a tragic reminder that the work we do requires constant vigilance and attention in every project, lab, shop, and office every day around the world.

So, a brief comment on our financial performance which Mike will discuss in a minute. Good news on operating cash flow which was $142 million or 1.3 times our net income for the quarter. Including the cash flows from our unconsolidated equity joint venture projects, which are essentially advanced payments to finance our operational activities, this amount totaled $257 million or 2.4 times our net income for the quarter. Our consolidated financial performance for the first quarter resulted in income from operations of $188 million, revenue of $2.7 billion and net income of $107 million or $1.1 per diluted share.

Earnings were less than expected due to underperformance in our fabrication services group which was over budget on two unrelated projects that completed in the first quarter and both charges are non-recurring. The impact on EPS for these projects was approximately $0.18 per diluted share.

Now year-to-date, we've already seen improvement in new work bookings early in the second quarter, countering what is at a continuing delay and final capital decision most of our markets. We're not seeing cancellations but the continuing weakness in commodity prices is delaying commitments.

Given the overall market dynamics, we are taking the most conservative position in terms of what we see – what we take into backlog as a new award. This delay has been felt this quarter in our new awards expectations and more specifically in our previous outlook on Cameron LNG Train 4.

Although we have an agreement in principle for the EPC, we felt it was prudent to defer taking this billion dollar contract into backlog until the owners move closer to the FID. We are taking the same position on Anadarko's Mozambique LNG, which we had expected to book this first half of the year. But having said that, neither project substantially impacts our 2016 outlook for revenue, earnings or cash flow.

Other new awards for the first quarter include scope increases on an LNG mechanical erection and instrumentation project in Australia, refinery maintenance work in the United States and Canada, crude oil storage in the Middle East and Canada, petrochemical licensing in the Asia-Pacific region and China, catalyst awards in the Middle East, environmental remediation work for the U.S. Navy, and a variety of technology and fabrication awards globally.

Now, I'll briefly discuss highlights from our operating groups from the quarter and provide some perspectives on our outlook. For Engineering & Construction in the U.S., we have a number of large projects currently under construction including our LNG export terminals for Cameron and Freeport LNG and our petrochemical plants for OxyChem, Shintech and Axiall-Lotte. We also have three combined cycle power plants currently under construction.

The backlog distribution of our Engineering & Construction business in the U.S. is about 78% and concentrated in the three end markets I just mentioned. For Engineering & Construction, LNG is nearly 50%, petrochemicals 30%, with the remainder distributed between power, refining and underpinning work.

Orpic, the large multibillion-dollar petrochemical project in Oman that we booked last quarter, combined with the anticipated LNG work in East Africa as well as steel plate structures, pipe fabrication and technology should increase our international work over the next two to three years, returning our overall portfolio to a more balanced geographic distribution. Currently, markets at Asia Pacific, South America, and Canada remain opportunistic with much substantial activity while we wait for improve stability in commodity prices.

The Clean Fuels project in Kuwait is over the halfway mark in physical progress, and in Australia Train 1 at Gorgon LNG is substantially complete with our mechanical/electrical subcontract and piping supply contract for Wheatstone LNG well over half complete as well.

Now, our outlook for E&C, our expected 2016 awards represent approximately 60% of our anticipated total for the company for the year. The mix of these awards is comprised of approximately 50% to 60% LNG, 20% to 30% refining and petrochemical, and the remaining to distribute between power, gas processing, refining and underpinning work.

Turning to Fabrication Services, our ability to in-source major components of our large projects combined with a solid reputation and market share for heat exchangers, tanks and fabricated piping is a critical part of our value proposition to our customers. It also provides strong margin opportunities and steady cash generation for our shareholders. As we continually improve efficiencies, consolidate fabrication capacity, and leverage a fairly stable supply market, we expect to see long-term growth and margin expansion.

This first quarter, however, we've seen substantial headwinds for new project deferrals in the steel plate structure business, plus as I mentioned, underperformance on two projects that diluted the earnings of the operating group this quarter.

But given the fairly quick book and burn attribute of this group, the high win ratios of its U.S. steel plate structures, fab and manufacturing and engineering products, and expected margin performance, we see some great opportunities already developing in the second quarter to offset the slow start to the year and achieve the fabrication services operating plan.

Now opportunities for fabrication services are concentrated in capital investments and natural gas liquids, petrochemicals, terminals, LNG and power work in North America and the Middle East, particularly, in Saudi Arabia and Kuwait. In other geographies such as Western and Eastern Africa and Central and South America, we are pursuing selective opportunities.

Moving to Technology, during the quarter, the catalyst plant where we partnered with Clariant is progressing as planned and is projected to reach mechanical completion in June with production to start in October. Also, as we previously announced, we broke ground in March on the net power demonstration plant with our partners Exelon and 8 Rivers Capital and expect completion early next year with commercial operation scheduled for mid-2017. We're also pursuing a number of initiatives continuing to provide new opportunities for technology licensing, catalysts and additional pull-through for broader CB&I offerings.

Prospective petrochemical opportunities continue to be positive. Although the gap between ethane crackers has narrowed, the U.S. continues to be the preferred location for ethane crackers while the Middle East and Asia focus on liquid crackers.

Refining markets for Technology are experiencing activity tied to gasoline demand growth, driving demand for alkylate blends, a move towards production of cleaner fuels and lower crude prices encouraging search for oil-related projects and products.

Capital Services, during the quarter we performed several nuclear outages and completed a number of turnarounds at various locations in North America. The group also continues to collaborate with our other operating groups to enhance the organization's overall competitive positioning. Opportunities for capital services remain primarily in North America and concentrated in power and industrial maintenance, environmental and sustainability work and selective opportunities for federal services.

Importantly, capital services is supported by a good track record of performance in the nuclear operations and maintenance market with good prospects on the fossil and nuclear power maintenance business, emergency relief work, opportunities in selective states, and industrial services. Federal government spending trends continue to present challenges for this operating group in the near term.

So in summary, we're pleased to see the strong operating cash performance. And as we previously discussed, we have very good that visibility into 2016 but over 75% of our projected revenue currently in backlog. And we have every expectation that we will sustain margins and our strong backlog. We remain confident in our ability to achieve our 2016 guidance of $11.4 billion to $12.2 billion in revenue and our EPS range for the year of $5 to $5.50.

So with that, let me turn it over to Mike, who will report the financials for the first quarter. Mike?

Michael S. Taff - Chief Financial Officer & Executive Vice President

Thanks, Phil, and good afternoon, everyone. Phil gave you a good headline summary of our solid operating results for the quarter. With earnings per share of $1.01, a significant increase in operating cash flow, sequential quarter reduction in total debt, and a healthy backlog. The results also reflected a decline in SG&A expense and an effective tax rate that is both competitive and sustainable.

I will now walk you through some additional detail. First, let me offer a quick housekeeping note before I begin my discussion of our Q1 performance. As you all know, we completed the sale of our nuclear business at the end of 2015. And of course, our financial results for the first quarter of 2016 do not include any operating results from that now divested business.

You will have noticed that our press release includes tables that show 2015 key metrics on a pro forma basis excluding the nuclear operations. In my remarks today, I will refer to operating results for 2015. I will, in fact, be referring to those pro forma numbers. We think this is the most meaningful way to evaluate our Q1 2016 performance because it really gives you an apples to apples comparison.

Now, with this in mind, let's start with a look at the top line for CB&I. Our Q1 consolidated revenue was $2.7 billion, roughly flat as compared to the year-ago quarter, as a 14% increase in E&C revenue was offset by revenue declines in Fabrication Services and our Technology Group. Gross margin was 10.8% of revenue. The decline in gross margin year-over-year is a result of lower revenue volume in the Fabrication Services and Technology groups as well as reduced operating leverage and an overall lower margin mix.

For the quarter, selling and administrative expense was $93 million or 3.5% of revenue versus $106 million in the year ago quarter. The improvement in SG&A is due in part to lower incentive compensation costs in the first quarter of 2016. Operating income was $188 million or 7% of revenue versus $201 million or 7.6% of revenues during the first quarter of 2015. The decline in operating income dollars and margin reflects the factors I just mentioned.

As I stated previously, diluted earnings per share were $1.01 for the first quarter of 2016, a 5% increase from the $0.96 for the year ago quarter. EPS increased year-over-year despite the lower levels of gross profit due in part to controlling SG&A expense, a slight decline in effective tax rate to 27% versus nearly 29% in the year ago quarter and a modest reduction in the number of fully diluted shares outstanding.

As Phil highlighted previously, new awards for the first quarter of 2016 totaled $1.2 billion, down from the $3 billion for the year ago quarter. As you all know, the quarterly pattern of new awards can be lumpy over the course of any given year. Having said that, we continue to have confidence that orders will rebound as the year progresses. Our confidence in that regard is based on the sheer share volume and quality of our prospect list.

Now let's review the operating group results for the year and, again, please remember that when I refer to 2015 results, I am citing the pro forma numbers that exclude the nuclear operations. New awards for Engineering & Construction were $323 million for the quarter as compared to $1.2 billion in the year ago period. E&C revenue for the first quarter was $1.5 billion, up 14% as compared to the year ago quarter, due mainly to increased activity in our LNG export facilities.

For the first quarter of 2016, E&C operating income increased 23% to $112 million or 7.4% of revenues from $91 million or 6.8% of revenues for the comparable period in 2015. The improvement in operating income and margin was attributable to higher volume and solid execution.

Our Fabrication Services Group generated new awards of $374 million for the first quarter of 2016, down from the year ago period. Revenues in the first quarter of 2016 came in at $518 million, representing decline versus the year ago quarter. The decline was due to the wind down of various storage tank projects. Operating income Fabrication Services in the first quarter of 2016 totaled $38 million or 7.4% of revenue compared to $52 million or 8.2% of revenues in the first quarter of 2015.

The softer results reflected lower revenue volume and the unfavorable impact of two project charges totaling $26 million. The charges were partly but not fully offset by savings on various other projects. The important part here is the jobs are now essentially completed and we would expect fabrication services margins to improve in the remaining quarters of the year.

Our technology group reported new awards for the first quarter of 2016 of $84 million as compared to $77 million in the year ago period. Revenue for the technology group in the first quarter of 2016 declined to $65 million as compared to $99 million in the comparable period in 2015. The decline in revenue reflected lower catalyst volume and the timing of new awards. We expect quarterly revenues to improve in this segment over the course of 2016.

Operating income for the Technology Group in the first quarter of 2016 was $26 million or 41% of revenues compared to $48 million or 48% of revenue in the year ago quarter. The decline is due primarily to lower volume although, bear in mind, that the year ago quarter also included a one-time gain of $8 million.

Lastly, our Capital Services Group generated new awards of $417 million in the first quarter of 2016, down by $400 million as compared to the year ago quarter. Revenues for the quarter was relatively unchanged versus a year ago at about $569 million as lower industrial maintenance revenue was offset by higher U.S. powered maintenance revenue. Operating income for Capital Services in the first quarter of 2016 was $11 million or 2% of revenues, a modest improvement as compared to $10 million or 1.9% of revenue in the year ago period.

Now, let's turn to the balance sheet cash flow and liquidity. Operating cash flow in the first quarter of 2016 amounted to $257 million, which represents a dramatic improvement from the year ago period. If you do a comparison to the year ago period on a reported basis, the positive swing in cash flow is $547 million. If you do a comparison on a pro forma basis, excluding the nuclear business from a year ago, the swing is still impressive at $243 million.

Now, I need to pause here to talk about the geography of the cash flow statement for just a minute. As most of you know, advance payments that come to us in connection with projects executed through unconsolidated equity method joint ventures appear in the statement of cash flows in financing activities. In recent reporting periods, these advanced payments were immaterial. However, this changed in Q1 because of the advanced payment we received on one of our recent large equity method awards.

So, the $257 million I cited is the sum of the $142 million of operating cash flow and the $115 million of advanced payments for the unconsolidated equity method venture. On a go forward basis, for the sake of transparency and consistency, we will cite the dollar amount of such advances each quarter whenever they are material. As a reminder, and as we discussed in our recent Investor Day, we expect our operating cash flow performance in 2016 to be at or above net income.

At quarter end, our cash and cash equivalents balance was $641 million, which represents an increase of almost $300 million compared to the year ago quarter and $90 million compared to yearend 2015. Our three-part capital allocation strategy is unchanged. As we return capital to shareholders, continue to make ongoing investments in the business and steadily reduce our total debt. For the first quarter of 2016, we paid $7 million in common stock dividends, we spent $8 million to repurchase shares, invested $22 million in our CapEx program and reduced our total debt on a sequential quarterly basis by $120 million or roughly 5%.

Finally, I'd like to reaffirm our guidance. We expect revenue in the range of $11.4 billion to $12.2 billion and diluted earnings shares in the range of $5 to $5.50 per share with a slight bias towards the midpoint of the range for both revenue and EPS. As many of you know, it's quite common for CB&I's first quarter results to be the weakest of any given year and we are likely to see that pattern play out again in 2016. We fully expect earnings to progressively improve as we move through the remaining quarters of the year.

With that, I will turn it back over to Phil.

Philip K. Asherman - President & Chief Executive Officer

Thanks, Mike. Let's open the call for your questions.

Question-and-Answer Session

Operator

Our first question will come from the line of Steven Fisher with UBS.

Steven Michael Fisher - UBS Securities LLC

Thanks.

Philip K. Asherman - President & Chief Executive Officer

Hi, Steve.

Steven Michael Fisher - UBS Securities LLC

Hi, Phil. Thanks good afternoon.

Philip K. Asherman - President & Chief Executive Officer

Thank you.

Steven Michael Fisher - UBS Securities LLC

You guys didn't change your guidance despite the fabrication issue. So, is there something you're planning on for the rest of the year that will offset that $0.18 of fabrication disappointment or you said you're kind of trending towards the big point where you're expecting to be at the upper end before?

Philip K. Asherman - President & Chief Executive Officer

Yeah, as we said Steve, the charges in fabrication of the two projects are non-recurring. Both projects are 100%. I think if those had occurred in a different quarter in terms of normal offsets, we probably would not even be discussing it much. But certainly, we see the business will be able to offset those with the earnings that we see in front of us and the margin improvement that we see. So we fully believe that our guidance is intact.

Steven Michael Fisher - UBS Securities LLC

And the sluggish bookings in the quarter didn't put you further behind in the plan at all for the year?

Philip K. Asherman - President & Chief Executive Officer

Well, the real sluggish booking in the quarter was actually Cameron. We thought that we might come in at $2.5 billion to $3 billion mark. But primarily, that had to do on two fronts. One, some steel plate structure business that looked like they're deferred to the next quarter and we're already seeing a rebound from that. But the big one was Cameron and although we had come to an agreement on the EPC, contract, there's some current discussions within the owners group that looks like FID was sliding.

So we just decided to take a more conservative view on when we might book that EPC contract and wait until we get a heads up from the owners. So we're confident the job is certainly bankable and we'll go forward and so there is nothing inherently wrong with the project. It's just going to slide a little further into the year.

Michael S. Taff - Chief Financial Officer & Executive Vice President

Yeah. And, Steve, as Phil mentioned in his opening comments, we don't have anything booked -- really in our plan for the year related to Cameron other than a booking. So we haven't lost any revenue or cash flow or EPS associated with that project.

Steven Michael Fisher - UBS Securities LLC

Okay. So in terms of bookings for the year then, I mean, can you just comment on the pace of underpinning? How does that look in the quarter? Are you still thinking about $4 billion or $5 billion for the year? And then I guess just in aggregate for the whole year, what are you thinking about now with and without mostly Cameron and Mozambique happening?

Philip K. Asherman - President & Chief Executive Officer

Yeah, well, I think generally, I mean, if Mozambique and Cameron just don't come through this year with EPC, obviously, that's about a $3 billion dollar correction in our new award forecast. Underpinning, I think with the amount of revenue and the kind of work we see is pretty solid at probably $4.5 billion to $5 billion for the year. And then I think that's pretty good. But we've got a number of other developments. We've got some good petrochemical business in front of us and we feel pretty confident that even without those two big LNG jobs, we should come up between $10 billion and $12 billion.

Steven Michael Fisher - UBS Securities LLC

Okay. And then just lastly, so the key things that still have to happen to hit that $11.4 billion to $12.2 billion of revenues just basically you've got to get the other 25% of your revenues and backlogs as underpinning or are there other (28:22)

Philip K. Asherman - President & Chief Executive Officer

Yeah, you're absolutely right. 75%'s in our backlog. That means we've got 25% of work that's out there that we need to book and burn. I think the good news is the petrochemical work that we see in front of us, we're well-positioned for that and providing timing is on our side, we feel pretty good with that. But we got revenue – we got visibility on 75% of that revenue, so we're pretty confident in that. And remember last year, we had about close to $1 billion of FX impact on our revenue. So, we don't see that necessarily this year. So we've got a good start on that.

Michael S. Taff - Chief Financial Officer & Executive Vice President

Yeah, Steve, if you just kind of do the math on the revenue, which I know you and all you guys will do over the next few days, just kind of for the remaining three quarters, I did that this afternoon. We would need to average about $3 billion a quarter to hit our midpoint. Last year, we averaged 2.75 and as Phil said, we also averaged between $200 million and $250 million almost per quarter of FX. And what we saw this quarter, the FX impact, there was a slight impact of FX, but it was below $50 million or so. So, that's a great improvement from FX standpoint.

Philip K. Asherman - President & Chief Executive Officer

Yeah, I think the real swing unit in our business is our fabrication services. I mean, it's got the right combination of certainly volume and margin and a quick book and burn. So I think that's going to be the real – because the EPC work is solid and good durable backlog, but as far as our ability to book and burn revenue and earnings in one year, certainly, that's going to be important that we make sure that unit is performing where we think it ought to.

Steven Michael Fisher - UBS Securities LLC

Okay. I'll turn it over. Thanks.

Philip K. Asherman - President & Chief Executive Officer

Yeah. Thanks, Steve.

Operator

And your next question will come from the line of Andrew Kaplowitz with Citigroup.

Philip K. Asherman - President & Chief Executive Officer

Hi, Andy.

Andrew Kaplowitz - Citigroup Global Markets, Inc. (Broker)

Good afternoon, guys. How you're doing?

Philip K. Asherman - President & Chief Executive Officer

Good.

Michael S. Taff - Chief Financial Officer & Executive Vice President

Hi, Andy.

Andrew Kaplowitz - Citigroup Global Markets, Inc. (Broker)

Welcome back, Scott. So, just talking about cash. Even if we exclude the unconsolidated advances, your cash from operations was 1.3 times your net income in the quarter and what usually is a pretty seasonal weak quarter and again, excluding the unconsolidated advances, you really didn't have any bookings in the quarter, so can you talk about – Mike, I know this is for you, why your cash from ops wouldn't be at least 1.3 times net income over the next two quarters? I mean, I know you want to be conservative, but you know I want to push you on it.

Michael S. Taff - Chief Financial Officer & Executive Vice President

Thanks, Andy, and I always appreciate that. No, I think we've said that before is that kind of our benchmark is 1 time. And I think when your benchmark is 1 time with the ability to get up in the 1.5, 1.8 range in any given year, based on the timing of some payment. Certainly, the payment from Orpic was nice and actually, about I think $25 million of that is sitting in operating cash flow that was related to the subcontract fees and the other $115 million was sitting in the finance section of cash flow.

So yes, certainly, Andy, we do have that capability and I will tell you what, we were pleased with this quarter. The units did a great job of going out and just doing some of the basic things like timely billing and good collections and managing our payables. And also, we saw a good indication that DSO held pretty steady. Our DPO actually improved for the quarter. So things are going in the right direction from that standpoint.

Andrew Kaplowitz - Citigroup Global Markets, Inc. (Broker)

Okay, Mike, that's helpful. So, maybe I can ask you about fab services. Obviously, you said these two projects at 1 time, they're finished. But I feel like over the last couple of years, we've heard about more volatility in this business. Maybe, there tends to be timing issues around underutilization so these things get magnified a bit, but it does feel like there's more volatility, maybe since you bought Shaw back when in this business around. So maybe you could comment on that and how likely this business is to sort of maintain this 10% to 13% margin that you've talked about going forward from here?

Philip K. Asherman - President & Chief Executive Officer

Yeah, well, keep in mind that the projects that we are talking about were CB&I's legacy business, which is a business that we rarely have these kind of issues. So I probably would argue a bit about historical perspective on that. But I'll tell you exactly what it was. We had one project in the Northeast which arguably was marginally profitable. But when the project was complete, there was a warranty issue on a very large prefabricated unit, I mean, this is a big unit and it separates hydrogen from LPG on the refinery fuel gas. But large unit.

So the vendor has a responsibility for replacing the unit and fixing it. We have the responsibility for supporting it with engineering and construction sources. So that created that overcharge. So it's non-recurring, the units going to go in and we'll be done. We are out of there.

The second is a tank we build in Australia and just could not tackle the productivity of Australian labor in that particular area and it just got – so we have left I think it was $11 million charge. So in and of itself, there are things that normally would be offset in a normal quarter but given this was such a thin quarter (33:47) but nothing systemic in the operations.

I mean, we've got 1,000 contracts and 85 places in the world and I'd like to say that we're absolutely infallible, but they always concern us. We always look for the solution to make sure they don't happen again, but those are the kind of the circumstances. So, they're not something that would just linger and ongoing and we feel pretty confident we can make that up over the course of the year. But I will say Fabrication Services generally I think have a great opportunity. Their add sell (34:15) margins are pretty healthy. I think we've got a – we've wrestled the utilization issues down in the piping side of the business.

We are going to do some more consolidation. We've restructured that and so that as we work into our own internal backlog, the outlook for that is pretty good. So I think that what we've been experiencing is 8% to 9% operating margin, Mike and I still are pushing that towards a couple of points and with the amount of volume we see can go through there, that's like when I told Steve, that's kind of the pivot group if you will or the swing group that's going to really determine whether we can hit our targets or not this year.

Andrew Kaplowitz - Citigroup Global Markets, Inc. (Broker)

Got it. Phil, maybe I could just ask you about the sensitive topic of safety for a second, two big incidents after a long period of good performance. I know you know it doesn't make you guys feel good. What are the lessons learned from these issues and are there any changes you're making going forward?

Philip K. Asherman - President & Chief Executive Officer

Well, it is tragic and we needed to tell you that because I always talk about safety and our pride in our safety performance. And it was – it's difficult to explain because different parts of the world, different parts of the different businesses. I guess what was common which I mentioned is they are routine tasks which became dangerous. The judgment around and situational awareness is what we describe it just failed the individuals on those projects and had tragic consequences.

So we had a corporate safety stand down. We've communicated with every one of our employees. This is probably the most important thing in our business, to keep our people safe. So I think people have confidence in our safety record. Certainly, the owners do. It's just a tragic series of events that certainly is unprecedented in our company. But it happened. So we have certainly all of the improvements are around the root causes of those incidents. But it's like a kick in the stomach to us as you can imagine.

But we've addressed it. We've shared this with other people in our space and owners so they can learn from it and that's what we do in this business because everybody has got the same interest. But thank you for asking that question.

Andrew Kaplowitz - Citigroup Global Markets, Inc. (Broker)

Okay, thanks Phil.

Philip K. Asherman - President & Chief Executive Officer

All right.

Operator

And your next question will come from the line of John Rogerson (sic) [Rogers] with D.A. Davidson.

John Bergstrom Rogers - D.A. Davidson & Co.

Hi, good afternoon. Can you hear me?

Philip K. Asherman - President & Chief Executive Officer

We can, John, even though you are in California.

John Bergstrom Rogers - D.A. Davidson & Co.

I'm just wondering, Phil, as Cameron and Mozambique seems at more risk of delay, do you start to pivot some of your people to think about other opportunities especially, out into 2017 and 2018 that you've got to be working on winning now?

Philip K. Asherman - President & Chief Executive Officer

Yeah, we've got a number of development LNGs that we certainly have teams working on that. There are teams that are absolutely dedicated to Train 4 in Cameron doing the preliminary work as we have Anadarko Mozambique. Those activities are funded. They are progressing the preliminary work. I just think it's important just to be prudent in terms of all of the internal decisions that have to be made by very complicated owners groups and off-take agreements and so forth. And just make sure that we don't get ahead of any of that when we actually book work into our backlog because we have always taken a very conservative view on that.

We require a lot of documentation and diligence before we take a large job in the backlog. So I think just in the general environment today, where we are seeing a lot of delay in commitments, we just think we're going to be able to prudent. There's nothing structurally wrong with the jobs or inherently wrong with the jobs. We're continuing our work. It's all funded. But we see this around the world that things are just slowing in some areas fairly significantly in terms of delays and in terms of commitments and financial commitments. So we just want to talk about that a little bit.

Michael S. Taff - Chief Financial Officer & Executive Vice President

And John, I'd point out, too, that also I'd just highlight a number of other areas that we've got great possibilities in and we are certainly tracking. You look at petrochemical, we see two or three large multibillion dollar jobs coming to market in North America. This year, we think we're well-suited for several I'd say three to four of the jobs we've talked about in the past on the power side that are there.

And we've also got a number of opportunities related to refinery both in the U.S. as well as the Middle East and Russia. So it's not just we're only got folks working on some of the big elephants in LNG, we've got our critical assets deployed in all of the different end markets that we see, that we contribute to our booking base for the year.

Philip K. Asherman - President & Chief Executive Officer

I think – and you know this as well as anybody, I think if you look at just how we're layered, remember, since the end of 2013 through the end of 2015, we booked over $41 billion worth of new work, $41 billion. And a lot of that has to do with long, durable backlog, much of which goes out to 2019 and below.

Then you've got another layer of petrochemical work, which cycle times vary between two, three and four years, which also contributes to that. Beyond that, you have quick book and burn characteristics of all our fabrication work and all of our underpinning work.

So when you look at all of that, just how work flows through our group, we feel pretty confident that with even some delays on some of these headline projects, we certainly are well-positioned to add and still continue to return the earnings and the cash flows.

John Bergstrom Rogers - D.A. Davidson & Co.

Okay. Thank you. If I could just one follow-up, what are you expecting in terms of an investment in net power this year?

Philip K. Asherman - President & Chief Executive Officer

Most of our investment I think was $43 million with the CapEx investment. I think most of that will actually come next year as we get closer to getting into operations. So I think relative to the internal returns – internal rate of returns that we anticipate, it will be – I think it will turn out to be a good investment. So that job is going along just fine and we'll keep reporting on it because we're pretty excited about what that's going to do for us.

Michael S. Taff - Chief Financial Officer & Executive Vice President

Yeah. John, what I talked about at Analyst Day was that we expected, kind of, total CapEx and that's kind of traditional CapEx, as well as our investment in NET Power and Clariant to be in that $140 million to $150 million range and you saw that being about $22 million this quarter with $11 million of that showing up in cash flow under the CapEx line and then there's another $10 million or $11 million in other related to Clariant this quarter.

John Bergstrom Rogers - D.A. Davidson & Co.

Okay. I just wanted to understand how much that was impacting cash flow this year.

Philip K. Asherman - President & Chief Executive Officer

No, not that much.

John Bergstrom Rogers - D.A. Davidson & Co.

Okay. Great. Thank you very much.

Philip K. Asherman - President & Chief Executive Officer

All right, John. Thanks.

Operator

And your next question will come from the line of Michael Dudas with Sterne Agee.

Philip K. Asherman - President & Chief Executive Officer

Michael, I thought you were – party on.

Michael S. Dudas - CRT Capital Group LLC

Party on. It's a party here on Wall Street. Thanks, Phil, and welcome back, Scott.

W. Scott Lamb - Vice President-Investor Relations, Chicago Bridge & Iron Co. NV

Great to be here.

Michael S. Dudas - CRT Capital Group LLC

Absolutely. And the first question is on Mozambique. Certainly, the caution is probably guided. Your thoughts on – is there anything different that's maybe causing things to push to the right than you would have thought maybe two, three months ago, and how do you think Exxon's potential involvement in that gas play could impact – I don't know if it impacts your Anadarko, but maybe for the whole investment thesis for that play?

Philip K. Asherman - President & Chief Executive Officer

Yeah, well, getting to the first question, I think there's really nothing different. It's just taking longer to get the number of commitments and agreements from the government and the off-take buyers to reach agreement on the terms that they want. So it's just -- Anadarko is working those. We've seen no slowdown and our preliminary work is funded. So we just – it's just the caution that's taking longer than what everybody expected which is we've seen this before on these very large LNG developments. So that hasn't necessarily changed. And your second question was...

Michael S. Dudas - CRT Capital Group LLC

Exxon.

Philip K. Asherman - President & Chief Executive Officer

Exxon. Well, I think it's great. I think for Exxon to come in at this point when everyone is feeling a little bit nervous about LNG developments is a pretty good endorsement for that project and the quality of those assets. From our perspective, we have a long-term relationship with Exxon as does (43:08) I think we served them well on the Papua New Guinea plant which arguably is probably one of the better LNG developments that have been done in the last decade.

So we would hope that as that work develops, we would be well positioned to participate. But first, our first obligation is the work at hand and that's with Anadarko. So we are focused on that and committed to that and we'll just have to see how that other work develops.

Michael S. Taff - Chief Financial Officer & Executive Vice President

And Phil, when you say it's fair to say that from our daily involvement with Anadarko, we've seen no change in their commitment not to this project.

Philip K. Asherman - President & Chief Executive Officer

Absolutely not. That's a good point. Absolutely not.

Michael S. Dudas - CRT Capital Group LLC

I appreciate the answer. And for Mike, just I think you might've mentioned in one of the – in your prepared remarks for a question that the Orpic payment came in first quarter?

Michael S. Taff - Chief Financial Officer & Executive Vice President

It did. It did.

Michael S. Dudas - CRT Capital Group LLC

Okay, terrific. And are there any other milestones, any ones that are visible in the horizon that you can highlight here maybe for the next one or two quarters?

Michael S. Taff - Chief Financial Officer & Executive Vice President

Actually, over the next quarter or so, it mainly is going to be just good block and tackling. I mean, obviously, there's going to be milestones payments we get on some of the large projects that are ramping up such as the Cameron and Freeport and others. But we do see some large bookings in the back half of the year that could have that especially, say on the power side and as well as petrochemical side. So I think, we are very pleased at the kind of the start of the year and hopefully we feel this bodes well to a very strong cash flow year for the company that allows us to focus on our capital allocation plan of returning capital to our shareholders, investing in the business and reducing our debt.

Michael S. Dudas - CRT Capital Group LLC

And will that capital allocation to be more optimistic as the year goes through, since I know you've got to probably catch up on some of the CapEx that you see in the next few quarters, it would be more just how the cash flows turn and how it plays through to retired debt and buyback stock this year?

Michael S. Taff - Chief Financial Officer & Executive Vice President

I think that makes sense.

Michael S. Dudas - CRT Capital Group LLC

Terrific. Thank you, gentlemen.

Philip K. Asherman - President & Chief Executive Officer

Thanks, Mike.

Operator

Your next question will come from the line of Jamie Cook with Credit Suisse.

Philip K. Asherman - President & Chief Executive Officer

Hello, Jamie.

Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker)

Hi, good evening.

Michael S. Taff - Chief Financial Officer & Executive Vice President

Good evening, Jamie.

Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker)

A couple of questions. One, Mike, back to the cash flow question, obviously, the cash flow on the first quarter was good any way you look at it but how comfortable are you with your ability to hit the longer term target of 1.5 times debt to EBITDA over the next sort of 12 to 18 months? While the first quarter was good, it sounds like there's some delay, you talked about delays in projects where you're probably counting on advanced payments so does that have – I mean, are you less confident in that target?

My second question, on the Technology side, I appreciate the one-time things you pointed out. But most people view that as a more recurring earnings base and the declines of revenue and profit were fairly dramatic. So, can you talk about -- I know you're expecting to improve sequentially, how much did you recapture, do you expect to recapture in the second quarter? And just how do we think about the cadence of our earnings there just because that is a leading indicator for new wins, new EPC wins?

And then I guess my last question is on SG&A. It was a little lighter in the first quarter. I know you talked about stock comp, but have your expectations for SG&A for the year changed? Is it now lower versus when you guided at the Analyst Day? Thanks.

Michael S. Taff - Chief Financial Officer & Executive Vice President

Okay, so I'll take the first one and then let Phil talk about Technology revenue. But, no, from getting our debt down to that 1.5 metric that we talked about at Investor Day, no, it hasn't changed from that. I mean, I think it's – we've set that as a long-term target of 12 to 18 months. And I still think as we get into 2017 and towards the middle or 2017, that's certainly still very attainable. We made good improvement this quarter. Some of the advanced payments you referred to, we weren't expecting those until 2017 and so whether that slips a month or two or three, not going to change that as we get into the end of the year on that.

So, again, we're very pleased at almost $550 million improvement year-over-year on a quarterly basis. It's certainly heading in the right direction and as we expected, with that divestiture that we made it to the end of the year.

As it relates to the Technology revenue, I'll let Phil talk about the business, but when you look at that as a whole, we certainly expect that business to get back to near or above where they were on a annualized basis in 2015 and 2016. So we do see some ramping of that business as we get towards the end of the year as it relates to catalyst sales as well as new technology. And, Phil, do you want to (48:04)

Philip K. Asherman - President & Chief Executive Officer

Well, I think if you look at just the overall health check of the business, certainly, new awards were less than we expected. I think we probably got about 85% or 90% of the new awards that we expected but the slowdown in China is certainly meaningful. Historically, licensing awards for that group has been about 26% of the total and that's been down certainly we've talked about it. That certainly is one group which does have a direct correlation to the pressure on oil prices.

But still, we are starting to see that trend reversed itself but the interesting thing about that business, certainly watch new awards because that has a direct slowdown on licensing right to the bottom line. But we also have catalyst sales where we have had some improvement in prior quarters and certainly looking out where our projection for just our operating income is pretty close to what we originally planned. So if we can get our licensing activity back up to where it should be, we should see some pretty good results from the whole group.

Our revenues, I mean, our backlog in that group is close to $1 billion which is pretty strong for a technology group of that type. So we're pretty encouraged by it. I think that there are some great developments in refining, potentially around Appalachian. And our patents and our Appalachian technology is doing very well outside the company. Even though ethane crackers is strong in the U.S., we also have some naphtha technology where we're looking at the liquids development in the Middle East and elsewhere that we have a play.

So I think our outlook is confident and positive. I don't think this will be a long-term issue with technology, but we expect to see them contribute at their normal pace and, certainly, their margins at, I think, around 40% gross margins will continue. So it's still a good earner for us, Jamie.

Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker)

Okay.

Michael S. Taff - Chief Financial Officer & Executive Vice President

And then, Jamie, your last question on SG&A...

Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker)

Yeah. And on tax – sorry, if I missed that too. What's just the new tax number and SG&A?

Michael S. Taff - Chief Financial Officer & Executive Vice President

Okay. So SG&A – I would expect that $50-million improvement that we saw in the first quarter to carry over towards the end of the year. So I'd say what we're expected for the year is probably about $50 million less. So you should see SG&A – as I spoke at analyst day, I said it's going to be a little higher than what you saw last year. Last year, we were at 3.0. So I think it will be in that 3.2, 3.3 range for the year. And our tax rate for the year is unchanged. As I said at the analyst day, I expect that to be around 28%. So I think it will be kind of 27%, 28% for the year.

Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker)

Okay. All right. Thanks. I'll get back in queue.

Michael S. Taff - Chief Financial Officer & Executive Vice President

Thanks.

Operator

And your next question will come from the line of Jeff Volshteyn with JPMorgan.

Michael S. Taff - Chief Financial Officer & Executive Vice President

Hello, Jeff.

Philip K. Asherman - President & Chief Executive Officer

Good afternoon.

Jeffrey Y. Volshteyn - JPMorgan Securities LLC

Hello. Thanks for taking my question. I wanted to follow up on some of the ongoing projects. Phil, you gave some commentary on a couple of them, but if you could expand on how they're performing against your expectations, particularly Freeport, Cameron, , number one through three and the cracker projects?

Philip K. Asherman - President & Chief Executive Officer

Sure. I think, again, although we focus some on the fabrication jobs, in their entirety, they're fairly – they're much smaller in terms of how they move the needle, as you could imagine, but certainly important. So it's always important to remember, as you so readily point out, that we're kind of an 80/20 company where 20% of our backlog drives about 80% of our profitability. So obviously, how these jobs are performing, particularly Freeport and Cameron, are absolutely critical. They're progressing well. We're right on plan for the completion dates.

I think it is no secret we're looking at the first or second quarter of 2019 for Freeport. It is performing well against all of its margin expectations as well as cash flows as well as Cameron. Cameron is a bit behind, not off their schedule but certainly behind Freeport. And again, it's forecasted to complete as planned.

So we're really looking at kind of the almost getting closer to the halfway point on these two projects. And the important thing is that we are in the – the revenue streams will kind of plateau at some fairly high levels and, again, out through about 2018, and then we'll start to see tail off for the last year. So these next couple of years are going to be very important in terms of our overall performance and the production of revenue and profits from those jobs. But they're both tracking very well.

Our three – I think it was three petrochemical jobs. OxyChem is the farthest advanced and again they are – OxyChem is pretty close to being complete. And again, the performance on that has been very good. Remember on that job, we provided technology, as well as the EPC, as well as all the tanks and the tankage on that job. So that's been a very good example of how we layer in profitability on the job and we're very pleased with how that's – as well as the owners are very please on how that job has progressed and we'll finish up.

When you look at Shintech and Axiall-Lotte, and I apologize because I always mispronounce Lotte, that job again is just getting started as is Shintech, they are in the single digit in terms of progress so far. So, it's a little bit early to report, but certainly, there is nothing early on that would alarm us as far as their progress or the performance. So I'd have to say all-in-all, on the 20% of the projects that are contributing 8% of our earnings, we've good things to say about virtually all of them.

Jeffrey Y. Volshteyn - JPMorgan Securities LLC

Very helpful. And then just following up on Ingleside, is it completely done or is there a tail of some percentage of revenue?

Philip K. Asherman - President & Chief Executive Officer

Now, I think Ingleside is completed, yeah.

Jeffrey Y. Volshteyn - JPMorgan Securities LLC

Okay. A couple of more housekeeping questions if I may.

Michael S. Taff - Chief Financial Officer & Executive Vice President

Sure.

Jeffrey Y. Volshteyn - JPMorgan Securities LLC

Decline in backlog, is it all burn or were there some reductions in scope or cancellations?

Michael S. Taff - Chief Financial Officer & Executive Vice President

It was all burn. It was just simply kind of doing the math between sales versus bookings and then you had a little bit of FX impact. But there were no significant scope reductions.

Jeffrey Y. Volshteyn - JPMorgan Securities LLC

And the last question. Are there any one-time comps and one-time items in 2015 that will make comps difficult into 2016 in the remaining quarters?

Philip K. Asherman - President & Chief Executive Officer

So, one-time events are you saying?

Jeffrey Y. Volshteyn - JPMorgan Securities LLC

Correct. Excluding nuclear.

Michael S. Taff - Chief Financial Officer & Executive Vice President

Yeah. No, not significant. I think, as I pointed out in the first quarter, we did have the one good guy in 2015 related to that, $8 million one-time gain. But outside of that, there is nothing significant in the remaining quarters that I recall from a comp standpoint.

Jeffrey Y. Volshteyn - JPMorgan Securities LLC

Great. Thank you very much.

Philip K. Asherman - President & Chief Executive Officer

Thank you.

Michael S. Taff - Chief Financial Officer & Executive Vice President

Thank you.

Operator

Your next question will come from the line of Andy Wittmann with Robert W. Baird.

Philip K. Asherman - President & Chief Executive Officer

Hello, Andy.

Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker)

Hi. So others have talked about some of the customers asking the contractors to slow down the pacing of the work. I was just wondering with the revenue trends we saw in the quarter, if you're seeing any of that from your customer base?

Philip K. Asherman - President & Chief Executive Officer

No, I mean, there's certainly is some customer influence generally on primarily reimbursable work, we don't have much of that. But the pace of the projects on fixed price work is pretty much determined by the contract and our obligation and us. So it would be unusual for the customer to try to slow those projects down.

Plus, when you look at all of those LNG jobs, I mean, they have take or pay contracts and they've got schedules absolutely critical as well as the petrochemical and other work we're doing. So we are seeing – I'm going to say in my closing remarks, some commentary around how we do see that impact, because I think, generally we see this – generally even though they're not correlated directly with gas, but oil and gas prices, generally, there is a lot of pressure from many IOCs and NOCs as far as margins and commitments in projects.

So, I would have to say if there's customer impact in today's environment, it has to do with just again a delay in making financial commitments and we've seen that. However, we haven't seen any cancellations in current backlog or in prospective work. So, that's good. It just seems to be pushing out a little further.

Michael S. Taff - Chief Financial Officer & Executive Vice President

Yeah. And Andy, as Phil said, in a fixed price environment where 70% of that that's our backlog, they really kind of don't have that option because, as Phil said, they have got deadlines, we have deadlines in the contract, so we would have to negotiate those contracts if they slowed us down in anything.

Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker)

Customers have talked a little bit about obviously revisiting the capital budget as part of the delays. What are you seeing in terms of the competitive environment on price and risk terms? Are those changing with the softening environment slowing environment?

Philip K. Asherman - President & Chief Executive Officer

Sure. Yeah I think it is. I mean, it's going to be – especially this year and while there's instability in the oil and gas prices, companies like ours are going to be have to be very careful and very selective in terms of where they are working and what kind of terms they are willing to accept.

And it's not just a fixed price versus reimbursable because reimbursable is subject to margin compression and fixed price is a very competitive environment out there as well. So, I think all companies in our industry – as well as other suppliers, I mean it affects us just like it affects GE. So, all the suppliers are feeling this pressure and are being very careful I think in terms of what they commit to going forward.

Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker)

That's helpful. And I guess one more question here on Reficar. You haven't had a chance to address this one publicly and I think, it's probably worth checking in on. There's obviously a lawsuit pending. I don't know if it's been filed yet. I think it has. It's claiming billions of overruns on a reimbursable contract for you guys. Could you just talk about the basis for that? How that could get resolved or what courts would be resolved in and what the cash impact is? In other words, how much cash do they owe you as of today?

Philip K. Asherman - President & Chief Executive Officer

Yeah, we talked about that. We didn't put it in our commentary because quite honestly, it's not a lawsuit. It's a remedy in the contract which calls for the parties to pursue arbitration for any disputes.

The claims that they have against us, we don't see if they have any merit, but we now do have some disputes against them because they have, since our last earnings call, withheld some receivables and some money of ours that we certainly will work to get back.

So, this is going to be kind of long-term. I think the (59:22) has turned down a little bit and we've got some discussions. So, we don't see any real impact on us. We'll just see how that goes. But it's not a lawsuit and I think, we'll just let, it's primarily some of the lawyers and the counsel will have to deal with it, but we don't have any impact built into the plan.

Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker)

Is that settled in the jurisdiction that...

Philip K. Asherman - President & Chief Executive Officer

It will be settled in U.S. courts, in U.S. jurisdictions. It's international rules, arbitration rules, international rules, so it will be a panel. And it's a reimbursable contract. It's quite transparent. And I think all of the payments that have been made, have been audited throughout the project and there's been no disputes before then. And I think the important thing is that the plan itself is operating very well, probably above expectations of where they thought it would be at this point, so that's good. We're very happy about that.

But I think, as I said in my last call that, I think that too is fairly symptomatic of big IOCs and NOCs, trying to rationalize their capital plans. And in this case, the plan is already built, so the economics have changed with these low oil prices. But I can't do anything about that. But I think we gave them a good plan and I think they know it, too. So we're going to work through this issue and if anything, remember, the arbitration has some confidentiality aspects to it, so I can't really report on that, per se but should anything material come out of that, of course, we will certainly make our investors aware of it.

Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker)

Thanks.

Philip K. Asherman - President & Chief Executive Officer

Okay.

Operator

And we do have time for one final question. Your final question will come from the line of Jerry Revich with Goldman Sachs.

Philip K. Asherman - President & Chief Executive Officer

Hey, Jerry.

Jerry Revich - Goldman Sachs & Co.

Hi. Good afternoon. I'm wondering if you folks can talk about what the outlook is for your natural gas power business, what's the cadence of new inquires that you are seeing today versus 6 to 12 months ago, and where do you think we are in the cycle? And also, can you comment on the competitive environment? Has that improved at all? Looks like there have been of couple of cost overruns for folks and I'm wondering what the competitive landscape is like today versus six to 12 months ago as well.

Philip K. Asherman - President & Chief Executive Officer

I don't think we see a lot of change in the market. I think, when we first went down that path, we talked about the opportunity set out there. We looked at, I don't know, something like 70 plants that were being thought about with various owners around the country. And this is all the U.S. market that we are addressing. Right now, we've got three under construction. They're all going pretty well. These are all fixed price jobs. They're very schedule-sensitive to these projects. So, we're working on those.

We probably see maybe a potential of three this year, we would hope. So that is kind of the pace that we see these on. It varies in terms of owners and how they view on their role in buying major equipment or what they want to pursue in terms of equipment and changes in schedule. So they all vary. But they all tend to be around I would say $500 million to $700 million. And so we think we might be successful and certainly two or three new awards this year.

Michael S. Taff - Chief Financial Officer & Executive Vice President

Yes. And Jerry, I think we still remain very positive. I think, when you talk to the owners and you look at this baseload capacity, the coal fleet continues to diminish. As we all know, not long ago, coal was accounted for over 40% of our baseload capacity in the U.S.

Today, that number is probably closer to 30% and all projections have a going to 20% over the next five years. So that baseload has to get replaced with something and I think the common belief is majority of that replacement is going to come from natural gas with the balance coming from alternative sources. And also, we do still feel this is going to be a nice market for us over the next five years or so.

Philip K. Asherman - President & Chief Executive Officer

As far as the competition, it's pretty much the same subject that we talk about. Owners are looking for companies that have experience in certain types of plants and certain capacities and certain experience with various types of equipment. So that tends to break down with us and (01:03:49) and that's about it. So it's a reasonable competitive slate of company. We like the business. We think we can do it well and it certainly something we are going to pay a lot of attention to going forward.

Jerry Revich - Goldman Sachs & Co.

Okay. Thank you. And last question, Phil, you mentioned there was a lot of work to do in Mozambique LNG before and FID could be reached. Has that timeline shifted at all? Have your plans moved around at all?

Philip K. Asherman - President & Chief Executive Officer

No, our preliminary work is funded for the time up until FID and then beyond. And all that really means is there's a tremendous amount of planning and scoping and working with equipment vendor and supplier. It is just the important thing about the EPC contract to us, it allows us then to get into the next phase which is firming up those commitments so then we can sharpen prices, we can get some commitments and just get real progress going. Right now, it's all preliminary work.

So that can go on much further and we'll be fine with that because everything is meaningful to the job. So we are doing things that are making the job move forward. It's just until we get to some of the real important commitments, we'll be working preliminary work and closer with Anadarko. So, that's not a concern, but we certainly would like to see the project get moving forward and that's going to be an exciting part of the world to develop over the next several years.

Michael S. Taff - Chief Financial Officer & Executive Vice President

Yes, Jerry, if you just look at some of the things that Anadarko is working on, they're making good progress, but it's groundbreaking work until you think about negotiating all the tax codes over there in Mozambique. They just don't have the level of detail, obviously, that we have there. So that's new. They are inventing new tax code there. They've also publicly stated that they've heads of agreement, which are basically agreements in place for over 80% of the off-take.

So they're basically taking those heads of agreements as we speak today and converting those into firm contracts. Those are the two really important tasks that Anadarko needs to get done this year. We think they're on schedule to get those complete by the end of the year and then, as Phil said, after that's complete, we'll finalize our EPC contract with them. But whether that happens in November, December or January or February really doesn't change the economics of the job for us. It just may change whether we have a booking in Q4 or Q1.

Philip K. Asherman - President & Chief Executive Officer

Once the job gets started, Jerry, we're going to be taking names for an analyst trip over to East Africa, so I'm sure we can count on you, right?

Jerry Revich - Goldman Sachs & Co.

I'll let Jamie take that one. Thank you, guys. I appreciate it.

Michael S. Taff - Chief Financial Officer & Executive Vice President

All right. Take care.

Operator

Thank you. I'll now turn the call back over to Mr. Asherman for closing remarks.

Philip K. Asherman - President & Chief Executive Officer

Thank you. I do have a couple of brief remarks. But as we've been quick to point out in previous calls, very little of our new work has been correlated to the downward pressure on crude prices. And while that still may be technically accurate from the unit operation standpoint relative to that capital investment, the continuing instability in the industry is absolutely impacting the timing of financing and commitment decisions.

Now, long term, we have seen great opportunity driven by demand in our primary end markets and we're confident in our position to capture much of that work. Quite honestly, this looks like another year of difficult navigations for companies in our space who want to book quality backlog while working in an environment of margin pressure and delayed commitments.

And this is a global phenomenon but we're confident that our integrated business model which provides diversified earnings potential, our durable backlog which is predominantly at the start of the curve, not at the end, our selectivity of projects that meet our filters for cash flow margin risk and truly to focus on things that we do better than anyone will not only sustain this year but will continue to improve our ability to return value to our shareholders.

So, thank you for your time and interest today. This concludes our call.

Operator

Thank you for participating on today's conference call. You may now disconnect.

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