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Shaw Group (NYSE:SHAW)

Q2 2012 Earnings Call

March 29, 2012 9:00 am ET

Executives

Gentry Brann - Vice President of Investor Relations and Corporate Communications

J. M. Bernhard - Founder, Chairman, Chief Executive Officer, President and Member of Executive Committee

Brian K. Ferraioli - Chief Financial Officer and Executive Vice President

Analysts

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

Scott J. Levine - JP Morgan Chase & Co, Research Division

Steven Fisher - UBS Investment Bank, Research Division

Brian Konigsberg - Vertical Research Partners Inc.

Jamie L. Cook - Crédit Suisse AG, Research Division

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Andy Kaplowitz - Barclays Capital, Research Division

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Tristan Richardson - D.A. Davidson & Co., Research Division

Richard Roy - Citigroup Inc, Research Division

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

Operator

Welcome to the Shaw Group Inc. Second Quarter Fiscal Year 2012 Earnings Conference Call. My name is John, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Gentry Brann. Ms. Brann, you may begin.

Gentry Brann

Thank you, John. Good morning, everyone, and welcome to Shaw's Second Quarter Fiscal Year 2012 Earnings Conference Call. On the call with me today are Jim Bernhard, Shaw's Chairman, President and Chief Executive Officer; and Brian Ferraioli, Shaw's Executive Vice President and Chief Financial Officer.

This morning, we'll be referencing the slides that are available on our website, www.shawgrp.com. But we are having a few little technical issues with the Investor Relations page. So if you're not able to access the slides there, they are posted on the homepage of our website, and you should be able to access all of the information directly from the homepage.

Now before we get started, I'd like to ask that you please review the cautionary statement on Slide 2 of the presentation, which addresses the use of forward-looking statements and Regulation G disclosures to our non-GAAP items. We'd ask that you please consider this information with respect to our presentation and today's call.

Now I'll refer you to Slide 3 and turn the call over to Jim Bernhard.

J. M. Bernhard

Good morning. Our results this quarter were driven by strong operational performance in our Plant Service, Environmental & Infrastructure and Fabrication & Manufacturing segments, as well as our nuclear contracts. Last quarter, Arizona Public Service awarded us a contract for our nuclear maintenance services. This quarter, they awarded us a new contract for maintenance services of their 8 fossil plants. Our Plant Service segment has continued to show strong growth and is now a major entry into these fossil plant nuclear -- fossil plant maintenance business.

Also, as most of you know, Southern Company received a COL for plant Vogtle in February. The NRC is scheduled to vote on SCANA's COL tomorrow. The COL enables us to begin the majority of the construction at the site. Both companies expected these to come earlier this year. So there's a slight delay in the ramp up of work at the sites.

The regulatory design changes and delay in getting the COLs created additional costs at both projects. Because there were additional costs, the project percent completion calculation changed, which had an adverse effect of the quarter of approximately $8.3 million or $0.08 per share. However, this is just related to timing. And we believe the increased costs are recoverable from our clients. We have in fact already reached a preliminary agreement with SCANA.

Our Power segment was negatively impacted by net cost increase of approximately $7.6 million or $0.16 per share of 2 coal projects that are nearing completion, while the balance of the projects performs well. I know many of you are expecting announcement on the E&C sale. And as we have previously -- we have received offers from potential acquirers. Due diligence has been going quite well and we expect to have a decision in the third quarter, and completion of the transaction by the fourth quarter.

Finally, this quarter, we recognized a foreign exchange translation gain in our Westinghouse segment of approximately $51.5 million pretax. Now let me turn it over to Brian for a review of our financials.

Brian K. Ferraioli

Thank you, Jim, and good morning, everyone. Turning to Slide 4. We have the typical format we usually speak to. The first column includes our as-reported or our Generally Accepted Accounting Principles results, which include the $51.5 million pretax gain from foreign exchange on Westinghouse that Jim already referred to.

We look at the column, the shaded column, the excluding Westinghouse column, as [indiscernible] reflective of our underlying operations. So if you look at the revenues, year-over-year they're up slightly about 3.5%. If you look at the gross profit percentage and the earnings, they are down slightly year-over-year. But I remind you in 2011, we had a $23 million pretax gain associated with an arbitration award, $20 million of which was in gross profit and about $3.8 million of which was included in interest income. So when you compare year-over-year, excluding that gain from 2011, we're up. If you look at the earnings per share, the $0.78, including the foreign exchange gain, $0.46, excluding the Westinghouse component, again, up over the prior year.

Cash flow was slightly negative as expected for the quarter at $9.5 million on a consolidated basis and $18.1 million, excluding the Westinghouse segment. This was again as expected. We anticipate the second half of the year will be cash positive, and especially the fourth quarter. And the cash reflects some working capital, favorable working capital positions on some of the coal projects that are reversing as the projects near completion and the cash balance runs down to the earnings on those individual projects.

Total cash on an adjusted basis is $877 million at the end of the quarter, still a robust cash balance. And as I mentioned, we expect Q4 in particular to be a very positive cash flow quarter. New bookings totaled $1.2 billion for the quarter, and our backlog of unfilled orders remains very healthy at $19.8 billion.

Turning to Slide 5 and looking at the segments. The Power results were down due to some lower volumes and a $17 million cost -- pretax cost increase on coal projects, as well as a reduction in the percent complete on the nuclear projects that Jim previously referred to. And again, the 2011 results for power included that $23 million pretax favorable arbitration award, which was not repeated, obviously, in 2012.

Our Plant Services segment had a great quarter. They had record revenues and EBITDA for the second quarter. Second quarter typically is a slow quarter for them, as many of the utilities typically are not in an outage mode, and therefore are not performing major maintenance. This year, they performed a number of additional outages at nuclear power plants. They conducted 7 outages versus 3 a year ago. And they continue to win new work, as Jim mentioned, most recently with the fossil award in Arizona.

Our E&C segment revenue declined as the major ethylene project in Singapore nears completion. The earnings improved quarter-over-quarter, as 2011 included a $15 million pretax cost increase associated with that project. During this quarter, there was no significant change in our earnings position on that project.

Moving on to our Environmental & Infrastructure group. The revenue improved with increased volume at the mixed oxide or MOX facility that we're performing for the Department of Energy in South Carolina. However, earnings were down a bit, and that's more a factor of some of the mix of the projects in the backlog versus any sort of market trend or anything significant in terms of changes to their business.

And finally, our Fabrication & Manufacturing group continues to perform very well. Their revenues are up year-over-year, as are the earnings, this is largely work that they're doing on the nuclear projects, as well as a number of projects they're performing, particularly abroad for refineries, for clients, as I mentioned, abroad, which includes the new facility that we've opened in Abu Dhabi.

So with that, I'll turn the call back over to Jim and he'll talk about our markets.

J. M. Bernhard

Okay. Thank you, Brian. You can turn to Slide 6, please. Our market opportunities look pretty good in our segments. First, let's turn to Plant Services. We continue to expand our leadership position, as we discussed earlier. We anticipate over the next 12 months gaining additional market share in the nuclear business. And as we continue to enter the fossil maintenance business, we have great expectations for that business and the opportunities there are very significant, and the overall Plant Service continue to do well. And we've expanded, as we talked about before, not only are they doing maintenance business now, they're doing outage business, they're also doing M&A. Great opportunity in nuclear uprates. We're doing a major uprate for Entergy at Grand Gulf currently. And so that business continues to do very well.

Our Environmental & Infrastructure business, we see significant opportunities even with the downturn of government spending, particularly in the Nuclear Modernization Program, which is a project that the Department of Energy is undertaking, and it's over $86 billion over the next decade. So E&I continues to do well and expand, and their particular markets should do very well over the next few years.

Fab & Manufacturing are seeing opportunities with refinery expansions. We still anticipate power opportunities related to EPA regulations in the next 12 and 18 months on the AQCS work. First look at the Fab, where they continue to do well in the United States, particularly in refinery expansions, some solar activity, et cetera. Outside the United States, from Venezuela, Brazil, UAE, they continue to expand their market. And I would anticipate over the next 12 to 18 months that the opportunities for growth into different parts of the world will continue.

The AQCS work over the next 12 to 18 months, as we've talked about, well, should be very robust on awards, as well as new gas plants as the tremendous influence of the ability to expect natural gas using frac-ing techniques penetrates the power market in the U.S. We also have full notice to proceed on Ninemile energy project, which we are currently working on outside of New Orleans. On the nuclear ramp up, the Chinese continue to -- have announced that they're going to go forward with building of nuclear plants this quarter, and we anticipate that we will participate in that market.

This morning, as expected, Horizon announced the 2 main equity participants from Germany would not continue with the equity participation on that particular project. While this was not unexpected, the -- we thought it might have been difficult for German companies after Fukushima with the shutting down of their nuclear industry to be able to maintain an expansion policy of new plants outside their country. However, other countries continue, where natural gas is at a premium, and coal continues to be used less and less, other countries continue to look at nuclear as a strategic alternative.

Let's turn to Slide 7 now, if we would, and attention to the revenue. As we stated at the beginning of the year, we gave guidance subject to getting our COLs in January. Although they're expanded, have taken a little less -- a little more time here, we're able to maintain our guidance for the year, $2.05 to $2.15 per share. And I'm sure a lot of you know, tomorrow, the COL for SCANA will be voted on by the NRC.

So let me open for questions now and -- for Brian and I.

Gentry Brann

Okay. Thank you, Jim. We'll now begin the question-and-answer session. John, may we please have the first question.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Martin Malloy from Johnson Rice.

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

On the Fabrication & Manufacturing segment, could you talk maybe a little bit more about some of the domestic opportunities you see out there over the next 12 or 18 months? And in particular, how you might benefit from facilities being built as a result of the ample supply of NGLs and low-priced natural gas?

J. M. Bernhard

Well, as natural gas, in particular, will have a tremendous influence on the ethylene market, and there are several of those plants to be built. And we look at a lot of chemicals, petrochemical plants, natural gas-based expansions and new facilities there. But the piping part of these plants is very, very significant. And we are certainly leading market share, so it's a good market for them in the United States. Brazil is booming, the UAE facility is booked. We're looking at expansion already in Brazil. So the ability to fabricate pipe on a non-project basis has really started to take off throughout the world. So piping is used for all the market segments from mining to LNG to refineries to solar facilities. So they have a very good market and now that we're able to expand it international, have huge growth opportunities.

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

And then after you get cash in from the sale of the E&C segment, could you talk about thoughts about potential use of that cash?

J. M. Bernhard

We'll continue to first, to focus on acquisitions in the energy segment of the economy. And that's about all the detail that we can give you now. Any further -- in the best interest of shareholders, that's probably enough said. But we continue to look at that particular part of the market.

Operator

Our next question comes from Scott Levine from JPMorgan.

Scott J. Levine - JP Morgan Chase & Co, Research Division

Excluding the charges that you guys posted on the Power side and with the slight nuclear delay, your margins moved up very nicely during the quarter. And I think a lot of that was fueled by an increase in Fabrication & Manufacturing. You've talked for a while about expectations of improvement and nice margins as the nuclear work ramps. I'm wondering if you could provide some additional color with regard to what the margin trajectory looks like in the back half of the year and perhaps into '13? And some additional color maybe with regard to competition that you're seeing within the business? And does the pricing, in terms on new work that you're booking, is that getting better, is it consistent or is it still pretty competitive with regard to what you're seeing on recent quarters?

Brian K. Ferraioli

Well, Scott, this is Brian. Let me lead off. As you know, we haven't given and we don't intend to give margin guidance. I think what we have said consistently is that some of the projects in our backlog, as they're burning off, have had no margin or low margin. So we haven't been anticipating margin expansion in general. But beyond that, we really don't want to get into much more detail. In terms of the markets, I'll defer to Jim.

J. M. Bernhard

There's always competitions in market, but I don't believe that we've seen any extraordinary competition other than we've had over the last 2 or 3 years.

Scott J. Levine - JP Morgan Chase & Co, Research Division

Would you say the level of competition is consistent than what you've seen, no better, no worse, just the same?

J. M. Bernhard

I don't think it's -- I mean, a lot of these projects or award, our performance has been exemplatory (sic) [exemplary]. Our technical knowledge is far superior than a lot of others. And really, the market has been reflected of the need for new facilities more than a competitive environment. And now that the AQCS market, the natural gas market, Fab & Manufacturing has, certainly, have all they can continue to expand to the E&I market with the federal government, particularly in the Department of Energy. It all looks pretty promising to me. It was pretty good. I mean, it looks pretty good, so we're excited.

Scott J. Levine - JP Morgan Chase & Co, Research Division

Understood. One follow-up then, maybe on nuclear, really quickly. So could you comment maybe with regards to your thoughts on how you plan to attack that market here with you guys ending the Westinghouse and exercising the put there. I think you've talked about agreements in ventures in the small modular area. Can you talk about how your strategy in tapping nuclear looks going forward? And are you guys looking to capitalize, in any way, with regard to additional work? I think you mentioned Lee Country as a possibility in the U.S. last quarter, so an update there would be helpful.

J. M. Bernhard

Yes, I think there'll be too -- in the next 5 years, I think -- 3 to 5 years, I think there'll be a couple more units built in the United States, small modular reactors. I'd comment there that, that's the way we see it. That's a decade away of anything, of any significance. So it's a long, long way to come. If that market takes off, it's certainly way down the line. But the nuclear market as far as expansion in terms of uprates is very, very robust. And outside the United States, the nuclear market continues on track. And in particular, in countries like Saudi Arabia, which wants to take their 3.5 million barrels a day, which they currently burn to produce electricity, they want to convert that to export further downstream products and use nuclear energy as one of their chief sources of electricity. So outside the country, where LNG is a major fuel source for power or coal, nuclear, in particular -- oil, nuclear in particular, is of particular importance. Countries like China were it announced, this quarter, that after thorough review after the Fukushima accident that they're going to continue on their nuclear build out.

Operator

Our next question comes from Steven Fisher from UBS.

Steven Fisher - UBS Investment Bank, Research Division

Jim, you said despite the COL delays, you're keeping your guidance unchanged. And you did also have the coal charters. So is there something else like fab or in plant services that's running ahead of expectations?

J. M. Bernhard

Brian?

Brian K. Ferraioli

Yes. I'll answer, Steve. Yes, as I mentioned, the Plant Services is performing exceptionally well. And the fact that they had a strong second quarter, which is typically slow for them, is incremental. The E&C group has also performed well, and the fab. So when you look at those segments, they provided an offset to some of the opportunities that we may have lost during the quarter. So we remain cautiously optimistic that we're still going to be able to hit those numbers that we gave in the beginning of the year. And that's one of the benefits, I think, of the operation we have. Some are performing better; when another one stubs their toe, you have the opportunity for the other groups to make it up. So as Jim mentioned, Plant Services, Fab and E&I are all performing exceptionally well. And Power, the nuclear projects are going well. So again, with a portfolio approach, we're able to cover maybe a little hiccup on the Power side.

Steven Fisher - UBS Investment Bank, Research Division

Okay. And then on the E&C side, I mean was there anything onetime or unusual in the $8.4 million of EBITDA reported in the quarter?

Brian K. Ferraioli

They actually closed out a contract a little bit earlier than we had forecast, and that occurred in the second quarter. So they closed that out with a little bit of a positive pick up. We would expect the second half of the year to be a little bit more challenging for them, excluding any gain to be recognized by a potential divestiture.

Steven Fisher - UBS Investment Bank, Research Division

Okay. And then maybe just an accounting question. I mean, was there any segment accounting impact from the nuclear project that had any unusual impact on the Fab margins?

Brian K. Ferraioli

No. Not that -- no.

Operator

Our next question comes from Brian Konigsberg from Vertical Research.

Brian Konigsberg - Vertical Research Partners Inc.

Just quick question, you mentioned the Chinese are starting to ramp up to begin with their nuclear ambitions. Just curious, the -- maybe you can give us a sense of what you see as your opportunity in '13 and beyond. And are the -- is it going to be of a similar scope as what you are doing on Sanmen and the other project working there right now?

J. M. Bernhard

It will be similar but less. I think it probably will be about half of what we're doing at those current plants.

Brian Konigsberg - Vertical Research Partners Inc.

Got you. And also with, I guess, V.C. Summer very close to getting their COL, are you anticipating that you're going to able to book the rest of that EPC booking in the second half of the year, are those part of your guidance?

Brian K. Ferraioli

The answer would be yes, but it is dependent upon receiving the full notice to proceed from the client and not necessarily just because of the COL.

Brian Konigsberg - Vertical Research Partners Inc.

Okay. But the approximately $22 billion, that does include, that expects that to come in the door?

Brian K. Ferraioli

It does.

Operator

Our next question comes from Jamie Cook from Credit Suisse.

Jamie L. Cook - Crédit Suisse AG, Research Division

A couple questions. First, can you just talk to, I mean, what's the risk, I know you took a little hit in the quarter because the COLs took longer. I mean, is there a risk that we're behind the 8 ball and there could be potential charges, or do you see this as the worst behind? And then my second question is can you just talk, now that -- can you give us an update on, at the end of the year, now that the COL is approved, what percentage you'll expect to be complete and how we should think about the nuclear projects going forward in terms of burn rate? Just because it sounds like now the big risk of delays, I would think would be over for you, unless it's more company specific on CapEx, if you could talk to that as well?

J. M. Bernhard

I guess I'll take a shot, Jamie. In terms of the percent complete, let me try this, we had previously said that we would expect the domestic nuclear projects to account for something in the high-teens in terms of a percentage of our consolidated revenues for our fiscal 2012. With the delay, we think that'll drop down a little bit and probably be somewhere around the mid-teen level because of the delay. And it is just a delay. So the project, for us, the revenues and the respective earnings just move to the right.

Jamie L. Cook - Crédit Suisse AG, Research Division

Okay. So there is no concern you're starting behind the 8 ball or anything like that. It's just more of a catch-up -type thing is the way to think about it.

J. M. Bernhard

Absolutely not. The way to think about it, just instead of starting in January, we started in March. So I mean, those costs are obviously recoverable.

Brian K. Ferraioli

And as we mentioned…

J. M. Bernhard

We believe it will be recovered.

Brian K. Ferraioli

Yes. We already agreed with SCANA.

Jamie L. Cook - Crédit Suisse AG, Research Division

Okay. But then, I mean, Jim or Brian, what do you see? I mean now that the COLs are approved, I mean, what could be the potential risk going forward? Because I would think at this point with the COLs approved now, I mean, these projects should really start to move forward with little or no risk of delay, so if you could talk to that. And then my last question is, Brian, just on the other side of guidance, if I look at what your core earnings were in the second quarter x the charges, they were pretty impressive. And based on what your guidance implies, it implies the second half core earnings would be down relative to what you saw in the second quarter. So I'm just trying to get a sense for how much conservatism there is. Is it just we had some help from E&C? I would just think your earnings trajectory going forward with how good your core earnings were and SCANA and Southern coming on, on full ramp, all that stuff should make the earnings progression ramp versus go down in the back half?

J. M. Bernhard

Let me answer the first part of the question. I just want to remind people that use the terminology. The COL is a combined operating license, which before nuclear power plants, we get ability to start to building a plant and then maybe stops and start. It wouldn't even have an operating license until it was finished and then you'd go back and start again. By receiving a combined operating license, construction and operating license, we're able to build the plant without delay and when we finish, to operate it. So it's different than the past. And unless there's some unusual circumstances to happen over the next 3 to 4 years, you should be able to continue the project without interference from the NRC. But I mean, that's always a risk there. So we continue to move forward unabated. There are going to be a few changes in the -- because of Fukushima, but nothing that we anticipate that would delay the project. But it would be some likely minimum extra work in the completion of the project.

Brian K. Ferraioli

And Jamie, to follow on with the second part of your question. I mean the second quarter typically is a slow quarter for the Plant Services group, as well as the E&I group. During the winter months, our second quarter is December, January and February. So pretty tough to be doing a lot of work outdoors in the northern part of the country. So we would expect to see the third and fourth quarters pick up from where we were. Now the second quarter was stronger than normal though for Plant Services. So you got to balance a little bit of the second quarter performance out with -- traditionally, that'd be slower and the work that would have be done in the third quarter maybe was done in the second quarter. But I think it's been pretty consistent. We've been saying that the back half of this year would be stronger for us. And that's why we're pretty comfortable with...

Jamie L. Cook - Crédit Suisse AG, Research Division

Yes. Brian, I guess my point is, x the charges, you did like $0.70. And the back half of your guidance implies you're going to be lower than that. So I feel like your guidance in the back half is a little light relative to what you could really do, is the point I was trying to make.

J. M. Bernhard

We're trying to...

Brian K. Ferraioli

Well, okay.

J. M. Bernhard

We've been on the other side...

Jamie L. Cook - Crédit Suisse AG, Research Division

I was trying to give you a compliment. Come on, Brian, take it.

Brian K. Ferraioli

I'll take any I can get.

Operator

Our next question comes from Andrew Wittmann from Baird.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

So just on the SCANA negotiations about some of the cost issues and the resolution of those issues. They talked on their conference call a little bit. So I just want to triangulate a little bit. They mentioned some of the quality control, the little bit of life in the COL and some foundation work. Now you guys mentioned that you've got a preliminary resolution to that. What percentage of the cost overruns that have been experienced so far are you bearing? Is it 100% being reimbursed by SCANA or how should we be thinking about that?

J. M. Bernhard

Well, we don't believe there's cost overruns. In effect, this is new work that wasn't required by the NRC when the first submittal was there. So I mean, it's not like it's additional work. I think SCANA will have a press release momentarily, which will offer you more details.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then just in terms of preliminary negotiations with Southern Company, do you kind of feel like some of the issues that were similar between the 2 in terms of the COL delay, is it your outlook that's fairly similar for the Southern Company or how are you looking at that one?

J. M. Bernhard

It's the same. They are similar. I mean, it's the NCR, we're talking about the shield building, but there's difference in both projects. So they're similar, they're both AP1000 technology and both of them centered around the shield building, delays, of COLs, so I guess it's similar.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then just on the E&C sale. Is it possible just given that the trends in that business continue to be strong, maybe are getting stronger? Is it possible that to read into the delay that, that segment might actually not be sold or do you still have full confidence that, that is the likely conclusion here?

J. M. Bernhard

Anything is possible, but the likely conclusion is that we'll continue to execute our plan with the divestiture of E&C. Part of the delay, this is the first time we've ever had a divestiture as part of the bid. We misestimate how long it would take. And quite frankly, because of the ethylene market coming up in the United States, there has been -- they had quite a few latecomers into the process who had interesting offers, so let me leave it at that. And we're moving forward on our plan. Should have an announcement in the third quarter and completion before our fiscal year end.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then just on the Plant Services, you kind of talked about, you're newer entrants into the coal side of Plant Services, and it's showing some early results there. Can you give us as investors a little bit better idea about kind of where you are on that plan today? How early are you in that movement into coal? And can you talk about the competitive dynamics about who you're displacing and what the runway could look like from here on that business? And maybe a potential market opportunity you think is realistic over the next couple of years.

J. M. Bernhard

Well, I believe contrary to -- our difference in doing this outage work is, and this maintenance work, it's different than a lot of our people do currently. We manage our own tasks. A lot of our competitors just succumb people to the utility and not responsible for the management of the work. Since we've began this type of solution to the plant betterment of nuclear plants and now coal plants, it's been very attractive to the owners to have a continuous process of management by outside contractors, such as us, and they're able to put their employees more to the operational part. I would expect that in the next 12 months, an additional 20 to 30 units of coal plants and then perhaps accelerating from there over the next 24 to 36 months.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

And can you just remind us how many you're servicing today?

J. M. Bernhard

Eight.

Brian K. Ferraioli

Eight coal and 44 of the 104 reactors.

Operator

And our next question comes from Andy Kaplowitz from Barclays.

Andy Kaplowitz - Barclays Capital, Research Division

Jim, maybe you can talk about, last quarter, you had mentioned up $50 billion or more of spend on environmental coal and replacement of coal. Do you still see that -- over the last few months, we've seen the stay of the Cross-State Air Pollution Rule. And have you seen any uptick in that gas plants as you've seen natural gas prices come down?

J. M. Bernhard

Yes. I mean, there are several gas plants on the market. And on the AQCS regulations, there's new regulations this week and the owners can -- operators continue to sort through that in different directions whether -- how they can proceed as far as for environmental capture, expansion of plants. So we're in the middle of all that. Over the next 12 and 24 months, there'll be significant amount of work in the industry, that's for sure. How it'll come out sometimes is difficult to quantify, as a lot of studies has to be done for direction of cost anticipated, maybe more environmental restrictions. How long is natural gas going to be $2 and change, there's a lot of variables here. So as we help our clients work in the future of what their solutions to the portfolio of plants to produce electricity, it really feels like that there's a solid foundation for a significant amount of work moving forward.

Andy Kaplowitz - Barclays Capital, Research Division

Jim, would you just say the activity will be sort of slow and steady increase? Is that kind of how you look at the environmental stuff?

J. M. Bernhard

I think that it'll ramp up on a slow basis, and then I think it will be -- once the horses are in the gate, they'll take off very quickly and rush to get it all done.

Andy Kaplowitz - Barclays Capital, Research Division

,

Okay. That's helpful, Jim. And Brian, if you could talk to us about sort of the coal projects that are still causing the issues, I think you had mentioned that they were done maybe even midsummer, at least one of them, maybe if you could give us an update on that? And then, Jim, just maybe one follow-up. People -- we haven't really asked you about the contract structure of the nuclear projects in a while. I know we did a lot of that when they came out. And now a couple years later, we're entering the meat of these projects. And so given Shaw's history with the coal projects, I know these are better written contracts for you in nuclear. But how do we get comfortable that we won't see noise over the next couple years on these projects?

J. M. Bernhard

Well, the coal plants, we've had difficulties finishing these coal plants, that's not a secret, and the -- but we will progress on these coal plants. We've already fired up that first fire, we fired with coal. We synced to the grid on one of them, the other one's right behind it. So finishing these things has been difficult and challenging. And I believe that we've again captured the finite costs on this. The guys are working hard out there to finish these things, and both projects are on schedule. In fact, one's probably going to finish a couple of months ahead of schedule. So as far as that part of business, the clients are still happy about the performance of the timing of the plants. On the nuclear plant, I'll refer you to the last conference call when we gave you -- talked about contract structure a few years ago. But these contracts are not contracted on a lump sum turnkey basis. The fees are variable based on the execution of the projects. Think that's probably -- Brian may want a turn on there.

Brian K. Ferraioli

Well, I think the other thing we remind you, Andy, as we've said repeatedly that we would not take unlimited field construction labor risks on these jobs. And that's the majority of the issues that we've had to close out the coal plants have been.

Andy Kaplowitz - Barclays Capital, Research Division

Okay, Brian, that's fair. Just one quick cleanup. The share count in your guidance, has that changed or is still 68.4 million?

Brian K. Ferraioli

It hasn't changed from last quarter. As you know, we bought $150 million of shares back, $150 million worth of shares back under the Dutch Auction in December, and we have not made any additional purchases since then.

Operator

And our next question comes from Joe Ritchie from Goldman Sachs.

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

So Jim, you mentioned some late entrants on the potential sale of the E&C business. Does that give you more optimism on the potential value that you could generate from selling that business later this year?

J. M. Bernhard

I think that the value that we're receiving indications for is all within the ranges that we anticipated from the beginning. So we're moving forward and we should have an announcement in the third quarter, like I said, and completion fourth quarter.

Brian K. Ferraioli

Yes. When we have definitive agreement with someone, that would be the point in time when we would make an announcement.

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Okay. And then maybe a follow-up question for you, Brian. I know that originally when you guys gave guidance, the E&C business, you weren't really assuming much profitability from that business for this year. So it would appear that by not raising guidance, how am I supposed to think about that? Because it appears to me that, that's slightly conservative given that the E&C business probably won't be -- the acquisition of – or the sale of that business won't be completed until the fourth quarter. So help me understand how I should be thinking about that?

Brian K. Ferraioli

I don't think our view on the earnings for the year of E&C have changed. The timing may have shifted a little bit. And as I tried to indicate earlier, they did have a closeout or some release of contingency on our project a little bit earlier than we had originally anticipated. But I don't think anything has changed in our regard, in our view of their earnings for the year.

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Okay. And I mean, I guess, a follow-up on that, can you give us an update on the ethylene project in Singapore and what the status of that project is?

J. M. Bernhard

The project is working toward completion. I believe we're 98% complete at the project at this time. We assist in startup, we're not responsible for startup, so the actual completion of the project is more client-based as far as production of ethylene as the startup part of the project is not in our scope of work, just the assistance of it.

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Okay. And then I guess one last question. We talked a little bit about SCANA today. Just wanted to get an update on Southern. They disclosed in their Georgia PST filings that there could be potential for cost increases on that project. I'm just wondering how that relationship is going so far and whether you can comment on that specifically?

J. M. Bernhard

Relationship is going fine. I mean, working on a project as a team together, I think that we have issues, good, bad, indifferent from time to time. We address them. We move forward, it's been a very cooperative relationship. At this time, we don't believe anything will changed going forward.

Brian K. Ferraioli

Very professional, I would say.

Operator

And our next question comes from John Rogers from D.A. Davidson.

Tristan Richardson - D.A. Davidson & Co., Research Division

This is Tristan in for John. Just going back to the Plant Services. I'm just curious there, does mix in that business matter as you're performing some of these different -- entering some of these different markets, specifically coal and some of the outage work. Does mix matter in that business?

Brian K. Ferraioli

I don't know that it's market driven. The type of project can vary. If we have a small construction project versus the maintenance work, so you can have some variability. But I wouldn't say it's nuclear versus fossil versus steel or versus another industry. It could be project specific, the mix could be a little bit different but not necessarily just the industry.

Tristan Richardson - D.A. Davidson & Co., Research Division

Got you. Perfect. And then on the SCANA project, and you talked about a resolution. Does that accelerate the potential for a notice to proceed, assuming that a COL is granted? Or I guess, I'm curious as sort of the process to go through, assuming a COL is granted, what process is to go through before full notice to proceed would be issued?

Brian K. Ferraioli

I would say the process is really up to the client, it's client driven. There's not really a formal process per se. We're working at the site. We have a schedule that we're working to. And to the extent that the client gets the combined operating license, then the ball is really then in their court to give us the full release. Clearly, the more issues we get resolved, the faster we get them resolved, the easier it would be for a client to grant us the full notice to proceed. But I would suggest that you talk with SCANA in terms of what their decision-making process would be. There's no formal hurdle or process that we have to complete something in order for them to give us the full notice to proceed.

Operator

Our next question comes from Richard Roy from Citi.

Richard Roy - Citigroup Inc, Research Division

My questions have been answered.

Operator

Our next question comes from Robert Connors from Stifel, Nicolaus.

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

Just looking at Plant Services, looks like some potentially aggressive growth ramping from right now about 8 plants, to a possibility of 20 or 30. It looks like you're going to be taking on more direct control of the O&M rather than subcontracting it out. So I guess will we see a material increase in the headcounts and overheads coming as that business looks to grow?

J. M. Bernhard

No.

Brian K. Ferraioli

No. I wouldn't...

J. M. Bernhard

The business is self-contained in the utilities. So no, I wouldn't think so. You might actually -- no, as a percentage of sales, I don't think you'd see an increase in overhead at all.

Brian K. Ferraioli

And Rob, the other thing, too, is I wouldn't focus only on expansion on the fossil side. We also have opportunities to continue to expand on the nuclear side.

J. M. Bernhard

Yes. With relative certainty, that will expand in the next 12 months.

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

Okay. And then just stepping back about a decade ago, we saw the IPPs had a large amount of gas-fired capacity that is really still being underutilized. So I guess my question is, are you seeing utilities sort of flipping back on the switch for these old idled plants? Or is there some sort of connectivity in structural problems with these plants where it's just cheaper for the utilities to construct a new one rather than bringing back the older plants?

J. M. Bernhard

We're seeing both. Some of the plants that are older pretty much have been purchased by utilities, PPAs for long term have taken place. And some of the plants that were built just in the wrong doggone location, stayed idle and not worked for a long period of time. So I think that, that kind of spoiled and I think the rest is going to be newbuilds. And you're going to see a steady newbuild for the next 7 to 10 years on gas plants. It's not going to go run go build 100, but it's going to be a steady newbuild, especially if this -- it looks to be more certainty in the price of natural gas. It's going to be significantly lower than it was forecast 3 years ago because of the ability to extract it in a different manner. As you see Exxon and Shell enter the market, as you see huge ethylene plants gives you certainty that those type of investments rely on the feedstock there, puts more certainty of what there might be for a longer period of time. So that's what we see today. But 8 years ago, the price of natural gas is never going to get below $6. Three years ago, it was $15, it was never going to get below $10. Today, it's never going to get below or higher than, pick a number. So things change in the business pretty good, but it does look to us the ability frac gas, unless something would happen environmentally to raise the costs or to slow that industry, it looks like it's going to be a significant part of the energy mix in the world for some time to come.

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

And just sort of related to that on the gas-fired side, have you seen -- has there been much in an advance in technologies where some of the newer plants sort of have a higher heat rate content than what we saw previously? That would make some of those older facilities sort of uncompetitive and obsolete?

Brian K. Ferraioli

That was far back ago.

J. M. Bernhard

Yes. The ones over the next 6 -- last 10 years, nothing of significance. The ones 40 years ago, absolutely.

Operator

And our last question comes from Steven Fisher from UBS.

Steven Fisher - UBS Investment Bank, Research Division

So just on SCANA. They talked about preferring to delay unit 2 and accelerating unit 3. Would that end up having any impact on your fiscal '12 or would that be beyond? And is that what you're currently contemplating in your schedule?

J. M. Bernhard

It would have an impact on fiscal '13. And I would refer to you to ask that question to SCANA.

Gentry Brann

All right. Thank you, all, very much.

J. M. Bernhard

Thank you. And it looks like there's a significant amount of work, market to be developed in our ethylene market. Power market is going to have more certainty going forward, and the E&I market certainly has the opportunity to secure some major projects, particularly in the Department of Energy. We appreciate your attendance and look forward to our next quarter.

Gentry Brann

That concludes our call today. Thank you again for joining us today.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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