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Executives

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

Daniel M. McCarthy - Executive Vice President and President of Lummus Technology

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

Lasse Petterson - Chief Operating Officer and Executive Vice President

Analysts

Michael S. Dudas - Sterne Agee & Leach Inc., Research Division

Andy Kaplowitz - Barclays Capital, Research Division

Robert F. Norfleet - BB&T Capital Markets, Research Division

Steven Fisher - UBS Investment Bank, Research Division

Andrew Buscaglia

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

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

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

Will Gabrielski - Lazard Capital Markets LLC, Research Division

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Chicago Bridge & Iron N.V. (CBI) Q3 2012 Earnings Call October 23, 2012 5:00 PM ET

Operator

Before beginning today's call, the company would like to caution you regarding forward-looking statements. Any statements made or discussed today that do not constitute or are not historical facts, particularly comments regarding the company's future plans and expected performance, are forward-looking statements that are based on assumptions the company believes are reasonable, but are subject to a range of uncertainties and risks that are summarized in the company's press release and the SEC filings.

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

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

Philip K. Asherman

Good afternoon, and thank you for joining us as we report Chicago Bridge & Iron's results for the third quarter of 2012. With me today are CB&I's Chief Operating Officer, Lasse Petterson, who will report on project backlog and steel plate structures; Dan McCarthy, President of Lummus Technology; and our Chief Financial Officer, Ron Ballschmiede, who will discuss our third quarter financial performance and outlook for the year.

We had another very strong quarter, highlighted by a year-over-year the growth in earnings and revenue, solid cash position and a sustainable backlog. New awards year-to-date increased to nearly $4.5 billion, consistent with the trajectory we had anticipated in our guidance for the year. During this quarter, we announced a $237 million EPC project built a peak shaver in Eastern Australia; a contract in excess of $80 million of engineering and procurement for an offshore facility in Europe; an exciting FEED contract for Occidental Chemical's new ethane cracker, which we hope to convert to EPC in early 2013 with a very interesting project for the engineering and construction management project for BASF in Belgium for a new butadiene crack plant. In addition, our quarterly run rate of new awards for smaller underpinning work in technology, tanks and services contracts around the world was in excess of $500 million.

We remain very confident that our focus in LNG, gas processing, petrochemicals, and other engineering and construction opportunities, combined with the great return that we're seeing from our technology sector and the global market position of steel plate structures. We are well poised to enter 2013 in an extremely strong position to capitalize on the continuing development of energy infrastructure in this country and around the world. As Ron will reaffirm, our guidance for this year is unchanged.

Of course, a large part of this world view is the pending of financial close of our acquisition of the Shaw Group. Since we announced on June 30 that we have signed a definitive agreement to acquire the Shaw Group, we've had the opportunity to speak with analysts, investors, bankers, employees, customers, as well as other stakeholders in both companies. From those conversations, I've been impressed with the tremendous support and anticipation about this important consolidation of 2 of the leading companies in our industry.

As we get to know more of the Shaw employees, we’re encouraged by their talent and dedication. As we further examine their work processes and technical capabilities, we clearly see an opportunity to leverage their expertise with the success we've had with our approach to execution. With our technology, EPC and tank fabrication and erection, combined with the Shaw businesses like pipe fabrication and plant services, we can scale our business model to provide a virtually seamless offering. The owners will require a safe and comprehensive solution for their capital projects, which by some estimates, will require a resource capability not seen in this industry for decades.

Let me provide an update on this transaction timeline: what's been accomplished and what's still to come. Activities are moving along as planned. Shaw announced that it successfully completed the divestiture of its energy and chemicals business, announced the extra size of put options to sell its Westinghouse shares with a settlement expected in January 1, both conditions to close. Lastly, Shaw has reported a cash position on August 31 of $1.4 billion and EBITDA for the past 3 quarters of $242 million, which obviously gives us great confidence that Shaw is satisfying the $800 million of unrestricted cash and $200 million EBITDA requirements for closing.

We also continue to make progress on the regulatory front. All necessary filings have been made and the waiting period under the Hart-Scott-Rodino has expired. We remain confident that the proposed transaction will receive the few remaining necessary governmental approvals. The next major milestone will be the filing of the final proxy statement, which is in process now. We're working towards and continue to expect a transaction close in the first quarter of 2013.

We're also well along with our transaction -- transition activities led by Beth Bailey, a seasoned CB&I executive who also drove our Lummus integration. She has a team of functional and business individuals with a complementary team from Shaw. These initial transition planning efforts will be critical as we ramp up towards the closing and future operations of our combined companies.

With all that said, we're limited in further commenting on the transaction, and we request that you keep your questions focused on today's main topic which is, of course, our quarter 3 performance and outlook for the remainder of the year.

Now let me that the focus of this afternoon's call over to Lasse, who will update you on our private engineering and construction business and steel plate structures. Lasse?

Daniel M. McCarthy

Thank you, Phil. Good afternoon. As in the last earnings call, I'll give my comments on some trends in our key markets and including new awards this quarter, and then provide a brief update on some of our larger ongoing projects.

Global market trends are still positive in all our end markets. The LNG market is particularly strong. CB&I continues to be involved in developing projects for LNG liquefaction in Australia, in the U.S. and Russia as previously reported, with new projects now emerging in Canada and East Africa.

We have completed the FEED for the Browse and Arrow projects in Australia, and the Yamal project in Russia. Each of these projects is targeting EPC contractor selection and final investment decision during 2013. In North America, we are currently executing the FEED studies for the conversion of existing LNG import terminals to export terminals at both Freeport Texas and at Cove Point, Maryland.

The petrochemical products market continued to be strong worldwide, with high demand for ethylene, propylene, butadiene, ammonia, ammonium nitrate and other related derivatives. In the U.S., shale gas production with liquid rich gas has resulted in a surge of new petrochemical projects. As previously reported, CB&I has been awarded contracts from both Williams and Westlake for new ethylene production expansion. For Williams, we won a contract valued in excess of the USD 300 million for revamping their existing ethylene complex in Geismar, Louisiana. The expansion will increase the olefins plant capacity from 1.3 billion pounds per year to 1.9 billion pounds. And for Westlake, we are adding new capacity at the petrochemical complex in Sulphur, Louisiana.

This quarter, we were awarded by BASF 155,000-ton per annum butadiene extraction unit in Antwerp, Belgium. We have also begun basic engineering and FEED work for Occidental on the grass [indiscernible] plant in the U.S. In Russia, we have recently been awarded a USD 45 million ethylene FEED and extended basic engineering contract for our 1 million ton per year facility for Nizhnekamskneftekhim, NKNK, in Tatarstan, Russia. The offshore oil and gas market is strong, particularly in the Norwegian sector of the North Sea, where we are bidding several topsides detailed engineering contracts. In the U.K. sector, we were awarded a detailed engineering of a topsides and bridge linked platform valued at USD 80 million.

Early in the third quarter, we announced a contract valued at USD 237 million for a gas peak saving facility from in Tomago in New South Wales, Australia. We also added the number of small- and medium-sized storage tank projects in the U.S., Canada and the Middle East. Our backlog stands currently at USD 9.5 billion, with a good mix to reimbursable and lump sum contracts.

Moving to our existing projects, I will start with projects in our Project Engineering and Construction business sector. The construction work at REFICAR is 150,000 [ph] barrels per day, a refinery in Cartagena, Colombia is progressing well. All edified process modules from our fabrication yard Beaumont has been received at site. 53 modules has been set, with a remainder in the process of being installed. Our manpower the project currently exceeds 9,500.

In Canada, on the Kearl initial development project, construction work is nearly complete. We have received all of the clients' applied modules and their hook-up work is proceeding on schedule to be completed this year. Engineering work in Houston on the Kearl expansion project will be completed this month as planned, and we have started work in the field north of Fort McMurray. Our new module assembly yard in Fort Saskatchewan is fully operational and we will use this yard to assemble 263 modules to be installed at the Kearl site next year. In the U.S., at Dominion's gas processing plant in Natrium, West Virginia, construction is well underway and we are working towards bringing first gas into the plant in December this year.

In Europe, the NIS Pancevo Oil Refinery modernization project in Serbia has reached mechanical completion. Some minor items to be completed before commissioning started this quarter. In the U.K., our work to install the additional LNG import pipeline at the Isle of Grain terminal is proceeding well and on schedule. In Papua New Guinea, on Exxon's Hides Gas Conditioning Plant in the islands, as I stated last quarter, engineering is complete. Procurement of materials and equipment has now been finalized and is in the process of being shipped to the site. The on-site construction has encouraged some delay due to the challenging logistics of bringing materials and equipment to the site. The client is constructing an air strip that can land [indiscernible] of cargo planes that can carry the 40-ton major equipment packages to the site once the air strip is complete.

Shifting to our Steel Plate Structures business sector, progress on our 2 nuclear projects, Vogtle and Summer, has been good in the period, where welding works on the containment vessel is continuing well. In Canada and in the U.S., we have several large conventional storage tanks contracts underway, all of which are progressing on schedule. In the Middle East, the GASCO project in Abu Dhabi is coming to a successful completion. All tanks has been purged with nitrogen and the project is scheduled to be finished this year, well ahead of the original schedule.

Additionally, we have several large conventional storage tanks projects underway in Saudi Arabia and Abu Dhabi, including 90 tanks as part of Takreer's refinery expansion project in Ruwais and Mussafah, scheduled to be completed in 2012 and '13.

Gorgon, on the MEI project, we have mobilized more than 400 strong management team import and we have received and installed the first 11 modules on the permanent foundations on Barrow Island. Over the next year, we will receive in total more than 400 modules coming from 4 fabrication yards in Asia. This is a construction-only scope for CB&I, with all engineering materials, logistics and process module fabrication provided by the client. The majority of the construction scope will be performed in 2013 and '14, and at peak, more than 4,000 CB&I employees will be engaged on the project.

We're also constructing 280,000 cubic meter full containment LNG tanks at the Gorgon project. Welding of the outer tank shale on the first tank is complete, and the roof raise was done in August. The roof raise on the second tank is planned for early November, well ahead of the next cyclone season. Following the roof raise, we'll be proceeding with the welding of the inner 9-nickel tanks, well protected from the weather.

Work on our contracts on Barrow Island has, as previously reported, had a slower ramp up than initially planned, transferring work scope from 2000 -- work scope into 2013 and '14. This has been due to delays experienced by the client's civil contractor, as well as difficult logistics associated with the island. Our plans have been modified to accommodate these changes.

On Curtis Island on the East Coast of Australia, we are erecting 2 full containment 160,000 cubic meter LNG tanks for ConocoPhillips' APLNG project. The tank foundations are in place, and we have started welding the outer tank walls. The project is progressing on schedule.

As I previously mentioned, we were awarded a USD 237 million EPC contract by LNG peak shaving facility, including a 63,000 cubic meter single containment LNG storage tank in New South Wales, Australia. The engineering is progressing well, and we are in the early mobilization phase at the site.

On the coast, in Papua New Guinea, close to Port Moresby, we are building 2 single containment, 160,000 cubic meter LNG storage tanks for Exxon's LNG project. The gas from the PNG gas plant in the highlands will be processed here, and then shipped to market. The air raises of the LNG has been completed, and we are currently installing LNG pumps, instrumentation, piping systems and fire protection on the tanks. The project is on schedule to be completed next year.

I would now hand it over to Dan to comment on Lummus technology.

Daniel M. McCarthy

Thank you, Lasse, and good afternoon. New investment commitments in gas processing, oil refining and petrochemicals continued at a high rate in the third quarter as reflected in our new awards of approximately $145 million. Our year-to-date new awards of $582 million exceeds our previous annual high, which occurred in 2008.

Once again, the quarter was heavily weighted towards licenses and catalyst awards which resulted in a higher-than-typical gross margin profile.

A large part of our new business was related to shale gas monetization in the United States. We have been predicting that U.S. projects would develop in 2012, and now see some of those proceeding rapidly. Similar to the petrochemical build cycle in the Middle East between 2000 and 2010, these projects are driven by plentiful, low-cost, gas feedstock, and advantaged energy prices. We were awarded 3 important contracts in the U.S. in the third quarter. Technology and equipment supply for gas plant, license and basic engineering for new ethylene plant, license and basic engineering for propane, dehydrogenation plant. Our PEC sector will be performing the feat for the ethylene plant, which as previously mentioned, is Occidental.

China has also contributed materially to new awards by ordering 3 propylene plants, a polypropylene plant, and a methanol to olefins facility. By comparison, investment commitments in refining were somewhat slower. We did receive 4 notices of award, but the contracting process was not completed in the third quarter. One very noteworthy third quarter award was a gasoline operation license for a new process, trade named [indiscernible]. Ethylene alkwood [ph] is a clean high octane blending component of gasoline. Today it is produced using acid catalysts such as hydrochloric or sulfuric acid, which have inherent erosion, safety and environmental risks. The active clean [ph] process uses a proprietary salt catalyst which eliminates all the risks of liquid assets. After the start up of this first plant, the active clean [ph] process has the potential to be considered best available technology.

Another area that I would like to discuss is income from operations, which is up substantially from previous quarters. This is attributable to 2 factors. First, the gross margin in our revenues has increased, reflecting the high level of license sales. Secondly, our overhead and S&A expenses have declined because high workload required that the ships mold ahead resources the project work. The fourth quarter is expected to be similarly strong as the third quarter. We continue to have a long prospect list, which should drive new awards into the range of previous quarters. Income from operations should also be close to that of the third quarter. Large volumes of catalyst are scheduled to be shipped in the fourth quarter, which will drive earnings in both the consolidated activities and equity income one. We also anticipate that over the next 6 months, heat transfer equipment sales will arrive as licensees begin ordering Specialty Equipment associated with ethylene and propylene [ph] licenses.

In summary, we are confident to achieve the higher performance level Phil mentioned in the previous earnings call.

With that said, I would like to turn the call over to Ron.

Ronald A. Ballschmiede

Thanks, Dan, and good afternoon, everyone. With that overview of our sectors' significant activities and markets around the world, let me take you through our strong financial performance for the quarter.

Revenue for the third quarter was $1,447,000,000, up $192 million or 15% from the third quarter of 2011. The year-over-year revenue increase was consistent with our expectations and reflects our higher beginning of the period backlog and continuing increase in construction activities on our major projects. We expect fourth quarter 2012 revenue to be essentially consistent with that of the third quarter. Beyond 2012, we expect our higher level of backlog in the opportunities on our global marketplace to generate significant revenue growth in 2013 and beyond.

Our record gross profit for the quarter was $189 million compared to $147 million for the 2011 quarter. On a percentage basis, our gross profit increased to 13.1% of revenues from 11.7% for the comparable 2011 quarter.

Each of our sectors continued to benefit from solid project execution, which is driving improved year-over-year operating results. We continue to believe that our mix of our revenues and contract current terms will generate consolidated gross profit in a 10.5% to 12.5% range, which we have discussed previously. However, we continue to believe that given our ever-changing revenue mix in the different sector operating characteristics, analyzing our performance at the sector level provides a better understanding of our performance. Consequently, I'll come back and discuss changes in our revenue and operating income by sector in a moment.

Consolidated selling and administrative expenses remain well controlled at $52.9 million or 3.7% of revenues for the quarter. The change from 2011 of $3.1 million reflects increases in -- associated with our business development efforts around the globe and increases in our global administrative support with the balance being global inflation in the low single digits.

2012 other operating expense include Shaw related transaction costs of $3.5 million and $5 million for the third quarter and year-to-date, respectively. We expect full year 2012 Shaw-related transaction costs to total approximately $8 million, or about $0.05 a share. Third quarter operating income totaled $128.2 million, the best quarter operating income in our history. Over the trailing 16-quarter period, our operating margins have been consistently in the 6% to 9% range and have averaged 7.7% of revenue, reflecting the quality and solid execution of our backlog and our unique combination of business units.

Net interest expense for 2012 third quarter totaled $4.9 million, an increase of $6 million over the comparable 2011 quarter. The significant items affecting comparability included a swing of income tax related interests, primarily around tax contingencies, and commitment fees related to the Shaw abridged financing. Third quarter 2012 income tax related interest expense was $2.4 million compared to a net benefit of $2.4 million in 2011, a swing of $4.8 million.

The third quarter Shaw financing commitment costs totaled $1.7 million with full year expected Shaw financing fees of approximately $5 million to $6 million. Our income tax rate for the quarter was 30.1% and 29.4% year-to-date. The third quarter rate increase reflects the impact of an income tax rate reduction enacted in the U.K. and an anticipated favorable geographic mix for our pretax income. The U.K. tax rate reduction required a write-down of our U.K. NOL asset, thereby increasing our third quarter rate by $2.4 million.

About half of this increase was offset by the more favorable geographic mix of our pretax income. We expect our full year tax rate to approximate our 2012 year-to-date rate of 29%. The quarter-over-quarter increase in noncontrolling interest primarily reflects the increased activities of our 2 major -- 2 large major -- majority-owned venture projects, the Papua New Guinea Gas Plant and Gorgon MEI, which the last, I spoke to earlier.

The summation of all that results in third quarter net income of $80 million, our strongest quarter ever, or $0.82 per diluted share. EBITDA totaled $145 million for the third quarter and $368 million year-to-date, compared to $110 million and $308 million, respectively, in 2011.

Our earnings to date and our confidence in the quality of our backlog have allowed us to maintain the range of 2002 EPS guidance of $2.85 to $3.05. This guidance includes the aforementioned Shaw acquisition cost and interest expense of $13 million to $14 million or about $0.10 per diluted share.

Finally, we expect to provide 2013 guidance for CBI on a stand-alone basis before the end of the calendar year. As an aside, I can also confirm that we have essentially completed our permanent financing for the Shaw acquisition, which is substantially consistent with our prior disclosures that will be re-communicated with the next filing of our form S4.

Lastly, Dan spoke to our new awards and prospect activities, so I'll provide some overall comments. Our new awards for the third quarter totaled $930 million, and year-to-date new awards are $4.5 billion. Press release awards for the third quarter of 2012 totaled approximately $400 million. The approximate $500 million aggregate balance of smaller new awards and project growth was spread nicely around our sectors and product types around the world. Our backlog totaled to $9.5 billion at the end of the third quarter compared to $9 billion at the beginning of the year.

Now let me take you through the sectors' Q3 results. Each of our sectors' 2012 results were within our expected annual range of operating results which we have discussed previously. Specifically, our performance expectations, our operating income in the range of 7% to 10% for Steel Plate Structures, 36% for Project Engineering Construction, and annual operating income for Lummus Technology of $110 million to $120 million.

Steel Plate Structures reported third quarter 2012 revenue of $497 million compared to $511 million in 2011. This slight decrease is attributable to our nearing completion on large projects in the Middle East and in the Caribbean, partially offset by the ramp up of our Australian LNG projects. The Australian LNG work will continue to ramp up and we expect significant revenue growth in 2013. Operating income totaled $51 million compared to $43 million in 2011. Increase in operating margin to $10.3 million of revenues for the quarter reflects the impact of net project savings in the quarter, offset by the effect of higher percentage of -- a higher percentage of revenue being derived from cost-reimbursable mechanical erection project in Australia. In addition, other changes in the mix affect that relationship.

Project Engineering Construction revenues totaled $800 million in the third quarter of 2012, an increase of $170 million or 27% from 2011, the most significant increase related to the increased activities on our REFICAR refinery project, which Lasse discussed earlier. The increased revenues generated from our gas processing plant projects in the United States and the Asia-Pacific region. Income from operations totaled $36 million or 4.5% of revenues compared to $23 million or 3.6% of revenues for 2011. Our 2012 third quarter results generally benefited from higher revenue volume and better cost recoveries from increased engineering activities, somewhat offset by increased level of cost-reimbursable projects, volume and higher precontract costs driven by an increase in business development activities around the globe.

Finally, our Lummus Technology sector had a fabulous quarter and is well on the way to deliver a spectacular year. The record new awards of the last year driven by the strong petrochemical market, which Dan discussed earlier, has contributed to significant revenue and earnings growth. Revenues totaled $150 million for the quarter, an increase of $37 million over the comparable 2011 year -- quarter. Operating income rose $41 million compared to $27 million last year. This results benefited from the increased revenue volume and higher margins on licensing activities.

Now a few comments on our balance sheet, cash flow and other financial matters, as we have many positive developments in the quarter.

Our balance sheet and liquidity remained strong with a cash balance of $655 million, up from $553 million at the start of the quarter. We have no revolver borrowings and cash net of debt of $615 million. The remaining $40 million of our Lummus global acquisition related debt will be paid off when due in the first half of November.

During the quarter, we returned $5 million to our shareholders through cash dividends. Year-to-date, our share repurchase of the dividend totaled $138 million. Our CapEx in the second quarter was $17 million, and $51 million for the third -- first 3 quarters. We expect full year CapEx to approximate $70 million. Our investment in contract capital reflecting the combined balance in the receivables, contracts and process and accounts payable stands at a negative $462 million at the end of the quarter compared to $540 million at the end of the second quarter, due primarily to the change in mix of our projects and the timing of receivable collections. We expect the portion of the third quarter change will be recovered over the balance of the year.

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

Phil?

Philip K. Asherman

Thank you, Ron. Now we'll open the call for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Michael Dudas of Sterne Agee.

Michael S. Dudas - Sterne Agee & Leach Inc., Research Division

First question, maybe to Dan, if you could elaborate about the rapidness of the shale gas phenomenon in the U.S. It’s of course been well talked about the last 6 to 9 months. Is it getting much more quicker? And could this lead, maybe for Lasse or Phil, some real EPC opportunities in the space in 2013 across-the-board?

Daniel M. McCarthy

I think the answer to your question is that it's hit and strike today, and so the projects that we're planning in 2011 are now going into engineering in 2012. And I do agree that this is definitely an opportunity for CB&I to do the EPC activities on some of these projects.

Lasse Petterson

Michael, just to expand on your question, clearly we've seen that. We saw with the Williams award in Louisiana earlier this year. And certainly the Occidental fee work, which again we were hoping would be converted to EPC sooner, but we certainly see that in early 2013, I think are good examples of the market accelerating.

Michael S. Dudas - Sterne Agee & Leach Inc., Research Division

You've talked about the integration team's early-stage opportunities. Is it too early to talk or think about the prospects for projects as a combined company as you're kind of mapping out the planning stage for once you guys get this acquisition done in the first part of next year? And are there any evidence to that is you see through it?

Lasse Petterson

From our perspective it's certainly not too early, and we have been thinking of that, certainly, as some of the larger scale projects, particularly in the Gulf region, are taking shape and being discussed in a very preliminary basis. We're looking at certain modeling and what the combined company will be able to provide in terms of more integrated solutions to these owners. So we're certainly looking at that. We think, again, the scale is going to provide us with a great position to address these major, major projects in front of us.

Michael S. Dudas - Sterne Agee & Leach Inc., Research Division

And just one final question, maybe for Ron or -- any more certainty on when votes might occur for shareholders? Have we gotten to a point that we're comfortable to come out with something like that?

Ronald A. Ballschmiede

We're getting close. We're working on comments we received from the SEC. We'll hopefully have a revised S4 filed shortly. And of course now with our 10-Q and 10-K available, we'll be updating the numbers for those most recent filings. So hopefully, we can get the process through the SEC's final review and continue to look for shareholder votes in likely late November or early or first part of December.

Operator

Your next question comes from Andy Kaplowitz with Barclays.

Andy Kaplowitz - Barclays Capital, Research Division

If I could ask Mike's question in a different way of Dan. Dan, it kind of sounds like you're on a different playing field now, mostly due as a PetChem, and I know I'm going to push here, but I seem to always do that on Lummus Tech. You talked about 4Q being similar to 3Q. We know your year is usually back-end loaded, but as you look into the future, could you continue with this kind of profitability going forward?

Daniel M. McCarthy

I think that when we look at year-on-year, certainly 2012 will be much better than 2011. And I think that 2013 will be an improvement over '12. Whether I could do 40 per quarter for the next year, I wouldn't commit to that.

Robert F. Norfleet - BB&T Capital Markets, Research Division

I didn't think you would, but it was worth asking. Okay, and so maybe Ron or Phil, like if you step back and think about your new awards forecast, it's $5.5 billion to $7 billion, you're at $4.5 billion. You did a relatively small amount of new awards in the quarter for the small stuff. I know you're going to tell me that’s sort of average. But Lasse talked about a lot of big LNG stuff going to FEED next year. So what's the visibility like in 4Q really around the new awards forecast. I mean, is it focused more on the low end of the range? Could you still do the middle of the range? And can you do it with the small to mid-size jobs?

Ronald A. Ballschmiede

I think this -- certainly, this quarter was impacted by a regional anticipation that perhaps the Occidental job would be awarded as full value, full EPC, which would’ve been several hundred million dollars more than we reported. And we also anticipated at the beginning of the year that we would see at least one of the large basable [ph] plants be awarded. As we see it right now, we think that's probably unlikely that the major projects that we're seeing in Australia and certainly here in the United States will probably be awarded and go to FID in the first half of next year. You may hear some other news of those projects progressing in selection but until we get to FID, you won't see us split. So that's really effective. Now as far as our guidance, we think right now is where we're staying. We certainly see the lower end of that range for new awards being achievable.

Andy Kaplowitz - Barclays Capital, Research Division

Okay, that's fine. And Ron, just to clarify the interest expense line. As we look into 4Q, it should look actually similar to 3Q. Is that how to sort of model it going forward. I know you’ve said a lot of stuff there, but just to simplify it.

Ronald A. Ballschmiede

Yes. The answer is yes. We'll have more Shaw-related commitment costs. And that unusual one-time tax item in the third quarter will go away. And it just so happens to look like the incremental amount on Shaw. So you got it right.

Operator

Your next question comes from Rob Norfleet of BB&T Capital Markets.

Robert F. Norfleet - BB&T Capital Markets, Research Division

I know you all are going to clearly stick by your margin guidance of 10.5% to 12.5%, and obviously this quarter we did above that. Execution, obviously, has been great. One question I want to ask though, are you seeing any improvements in pricing or any markets where capacity is tightening, which is resulting in some of that incremental margin improvement?

Ronald A. Ballschmiede

We're not seeing it on the actual basis. We haven't seen any major incremental increase in just what owners are willing to pay in terms of [indiscernible] margins. We're just seeing better performance on our projects. I think it has to do with our focus on the work that we know. Certainly, Lummus Technology has a tremendous influence on keeping our margins in a good place. And our performance on Steel Plate Structure's and work in our Engineering Construction has just been very good. And I think that's how it's being reflected. So we're pushing the upper end of that range, and we're hoping that, that range, as it has in previous quarters, will move up as we go forward by getting, again, a stronger and stronger execution.

Robert F. Norfleet - BB&T Capital Markets, Research Division

Okay, great. And my next question just revolves around obviously a lot of the discussion that you're having on the North American petrochemical market. One of the rationales that you all made in terms of buying Shaw was to have more North American resource capacity in order to bid on some of these larger projects. As you're looking at the licensing and catalyst, all that moving into the EPC role? I mean, do you see a point with the Shaw acquisition not closing until March where you are somewhat capacity constrained in bidding some of these larger projects, especially if the gas to liquids project were to be bid on the EPC basis in the next 3 months?

Philip K. Asherman

No, we don't see that constrain at all for the bidding on the work that we see. Actually, the timing of the Shaw acquisition is very, very advantageous to us in terms of our planning cycle going forward. As we look forward and we see some of the large projects that Shaw is involved in now and some of the free resources in some of the out years, certainly that fits well with what we see in terms of field and fabrication resources for some very large projects needed in the next 3 to 5 years.

Operator

Your next question comes from Steven Fisher of UBS.

Steven Fisher - UBS Investment Bank, Research Division

Can you just discuss the competition for EPC contracts in the U.S. chemicals market? And how much has the competitive landscape taken shape over the last 2 months on some of these ethylene and other projects? And I guess, Phil, if you expect big decisions in the first half of next year, I would assume it must be pretty clear by now.

Philip K. Asherman

Well, we can look at history as some indication of what that competitive landscape will look like. Certainly, I think those companies that have a technology component and capability will have some advantage, certainly, on early involvement on these jobs. But these jobs are very large, so those jobs that can demonstrate resource capacity, technology capability and certainly, a good resume, you can look at our space and certainly that would include all the major players in our space. So we expect the competition to be very strong in this petrochemical market, and be very inclusive of all the major companies in the United States.

Steven Fisher - UBS Investment Bank, Research Division

Do you have to still bid on the EPC space for Occidental?

Philip K. Asherman

Well we're hoping, as any job that we're doing the front end, that we'll be able to successfully convert that on a negotiated basis. But certainly, like most owners, Occidental reserves the right tender that work like anybody else. But we're certainly hopeful that the quality of our work will prove itself and we'll be able to convert that on negotiated basis.

Steven Fisher - UBS Investment Bank, Research Division

Okay. And then just shifting gears for a second, I'm just curious how the market is developing for you in project D & C segment in international refining and chemicals. I mean, are you seeing any sustainable pick-up in that market and are there any large projects here you're bidding on currently?

Philip K. Asherman

I think the opportunity in the international market in refining will be largely in Russia. There's quite a bit of activity there. And our experience working in that location is very, very helpful. There continues to be opportunity in the Middle East, but that tends to be a difficult contract structure. And we think that there is going to be some increase in activity in the next -- maybe not 2013, but moving towards 2014, even in the U.S.

Operator

Our next question comes from Jamie Cook with Credit Suisse.

Andrew Buscaglia

Actually guys, this is Andrew Buscaglia on behalf of Jamie. One thing that called my interest, you guys mentioned the build out or the potential of LNG opportunities in the U.S. And I was looking if you can give some more color on that and specifically, sort of on your timeline of when you see things start moving along or picking up speed.

Philip K. Asherman

Well, I mean, we've -- on our earnings call, we've talked about several potential LNG basable [ph] plants being developed around the U.S. and more is being announced all the time. Of course, we talk talked about our involvement with Freeport LNG, and we would anticipate that early in the first half of next year, we'll see that project transition from FEED study into EPC contract, and we would expect to go forward with that. Subsequent to that, besides [indiscernible] and Freeport, we'll see who's next in the queue. That could range anywhere from certainly Dominion at Cove Point to Sempra, as a strong possibility, and others. But certainly, there's a good handful, in our shortlist of a very viable projects in multi-billion dollar range, I think, which are certainly feasible, and I'm very encouraged in terms of their stages of development.

Andrew Buscaglia

All right. And then just one other question. If you could talk about the Steel Plate Structures segment this quarter. You think, I mean, just looking at how the revenues came in, if you guys -- how that tracks to according to what you guys were expecting, and then sort of what you see going forward in that segment?

Philip K. Asherman

I think what we talked about last quarter was probably true this quarter will probably continue as there is obviously some sluggishness on the larger Steel Plate Structures project we have at Gorgon, not certainly from what we're doing, but certainly the entire project is moving slower than anticipated. So that was certainly a contributing factor. But again, that project will continue to move and gain traction towards the end of this year into next. The steel plates and the LNG tanks are doing very well, and the other flat bound tanks and other steel plate structures around the world are performing as expected. So nothing that we saw was unexpected. Lasse, do you have anything you want to add?

Lasse Petterson

No, the market is good for our traditional business and steel plate structures, and this quarter, I think we came in as we expected with a little bit of a slowdown in Australia, but that will pick up again next year.

Operator

Your next question comes from John Rogers with D.A. Davidson.

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

Couple of things. First of all, I guess for Ron or -- in terms of the guidance range, it's still pretty wide for the fourth quarter. Is that just you want to keep what you've had or is it really that much variability to the current quarter?

Ronald A. Ballschmiede

I think we've had history of keeping things where they are and only move them when we see something happening. And certainly, the new news for the quarter is, as I mentioned earlier, we did add $0.10 into the full year for our 2012-related costs for Shaw transaction. However, I think the strength of the quarter, particularly with those numbers coming in as well as it did would give us great confidence that we'll be well within that range, so we need to move it.

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

Okay, okay. And then secondly, Phil or whoever, in terms of the opportunities in the North American market and CB&I's position there, how do you see this market compared to where you've been working primarily internationally in developed regions in the past years. And specifically, in terms of the size of the project awards, I know the size of the projects can be -- is big in North America. But the way that they'll be bid and awarded, and the margin opportunities given competition in your inherent capabilities or advantages in the market, could you talk a little bit about that more?

Philip K. Asherman

Well certainly, as you know, 2 years ago, we didn't have much of a market to talk about at all in North America. As we're seeing our portfolio, we’re being rebalanced in our markets, we're pretty encouraged by it. Part of that is certainly in project type is certainly in our technical range. A lot of projects within the $200 million to $300 million range is certainly a sweet spot for us in terms of book and [indiscernible] profitability. And I think certainly, and particularly related to how we're growing our scale and the additional service we’ll be able to provide in pipe fabrication as well as steel plate structures, we can address a lot of aspects of the very large petrochemical and basable [ph] plants that we saw. So even if we might miss an opportunity in the prime contract with some of these projects, we certainly have a wide range of type of offerings that we could participate at some level or some very good scopes of work. So we're quite encouraged. The difference in the margins, we haven't seen that. We see pretty much around the world of that bandwidth that we've talked about relative to our technology offerings, and we announce it to our tank and EPC offerings. In terms of our potential for [indiscernible], we think those margins are certainly sustainable within that bandwidth and that's what we expect from North America.

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

So if I'm hearing you right, it sounds as if the awards could be lot more midsized or smaller awards. And does that mean that it will be less lumpy, but did it also mean that you won't get multi years of visibility that you've had at times in the past?

Philip K. Asherman

No, I think, we will give that multiple years of visibility, and I'm not suggesting awards are small. To me, a few hundred million dollars is a large project. But there's going to be some very, very large projects in terms of some of the export facilities and some of the very large petrochemicals and potential gas to liquid developments over the next several years. So we'll have a lot of visibility in all of that. We don't envision a market opportunity that we won't have a look at. And certainly, we're planning to participate in that and certainly all those markets in North America.

Operator

Your next question comes from Chase Jacobson with William Blair.

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

Just wanted to ask another question here on the timing of some of these large LNG projects. I mean, it always seems that they take a little bit longer to move forward in their respected -- that's not a huge surprise. But over the last few weeks, I feel like we've been seeing more news of owners maybe reassessing final investment decisions not just because they're taking a little bit longer, but because there are so many projects out there and there's potentially some price competition between some of these projects. Could you comment on that at all? And what gives you confidence that this won't happen on the projects that CBI is positioned on?

Philip K. Asherman

Well, I can't guarantee that there's not going to be some change in timing on the projects. In fact, we almost would anticipate that. I can't tell you what's being told to us by the owners in the development of those projects, and again, if you take Browse as a good example, they are getting very near to their selection of EPC contractor. We will anticipate that they'll -- after the Board meeting at the end of the year, we'll be prepared to announce some of that. Certainly, it will be premature for us to take a leg right now. But again, as we said, that will not be backlog for us until they get their final financial approvals. We haven't seen any change in that, although there's, as you said, much speculation around the industry. The U.S. export facilities, certainly we've seen some delay in the Freeport job. We've also seen some interests by other major owners in that project, which I think will certainly accelerate the development of -- potentially accelerate the development of that work. And then there's the others that are in the queue. So none of this is really coming as a real surprise, but as you accurately say, it's all subject to timing and they do have a long cycle time. And even once awarded, and this is one of the things that we like to remind people, even once awarded, we still don't see huge returns in terms of revenue for those projects for at least about a year or so until the engineering is substantially complete and we get into the deal. So there are long cycle times and time is certainly a factor here when we try to forecast our new award guidance and our backlog.

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

Okay. And then one other question. I think I've probably asked this in the past, but when you look at petrochem opportunities, particularly on the EPC side, are you seeing opportunities with customers in the current market that you might not have in the past because of having one less technology --

Philip K. Asherman

I think we're seeing customers that we haven't seen in a very long time. Because of the opportunity, and exactly because of variables that Dan talked about in terms of the pricing situation and just the landscape out there and the availability and abundance of gas. So we haven't seen some of these owners in a very long time, but they're not necessarily new certainly to Lummus technology. I think what we've also recognized is that buying services from these owners tend to be a bit different that refineries perhaps, and that they tend to bundle more of the technology with the basic engineering. And if you have a delivery solution, your opportunity to perhaps stay involved on the EPC, I think, is greater than certainly in other oil and gas opportunities.

Operator

Your next question comes from Scott Levine of JPMorgan.

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

Talking about the U.S. coming back here. I was wondering if you could provide a little bit more specifics and color regarding your outlook for the power markets. And when you talk about large projects over the next 3 to 5 years, how important is power, nuclear, otherwise within your growth horizon, your expectation on that market moving forward in '13 and beyond?

Philip K. Asherman

Certainly, one of the analyses that we did in terms of potential market opportunities and justification, partial justification certainly for this acquisition is the opportunity for infrastructure projects in a market segment, which we are not necessarily -- which we are participating in. So as you look at the data that would support the conversion to gas-fired power plants and combined cycle power plants, those opportunities are going to be significant. So even beyond nuclear, and the only thing we've really anticipated was the 2 that we -- the backlog from the 2 that we are working on. Certainly, we recognize that it's a natural step for us as far as our involvement in gas prices, in natural gas business, LNG, to certainly looking at power generation as another source of opportunity for us on infrastructure work. So it's all around the energy and we're certainly encouraged by what we see in terms of development.

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

And could that conceivably be as your large market for you a couple of years out as some of the other major energy markets that you're in today, or is it too early to really tell?

Philip K. Asherman

I don't think it's too early. I think we're looking at the same day that you are going for and we think it can be a tremendous market opportunity. And the one thing that we really like about this acquisition is we are buying the #1 company, arguably, in that industry. So I think we have a great advantage in terms of existing relationships that Shaw brings with their customer base and the reputation in that business. So I think we're starting off in a good place and we're certainly hopeful that will continue.

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

Understood. One follow-up on, you have the step-up here, I think, this quarter with the noncontrolling interest on Gorgon MEI. Maybe for Ron or Phil, can you give us an understanding of how that's going to trend? I don't know if you covered this, in 2013, should we expect a major step-up in that line item into '13? Or any other specifics could offer will be helpful there.

Philip K. Asherman

Sure. We tried to give you a heads up on that a year ago on our Investor Day and unfortunately, we missed this by a little bit just simply because of the pace of these projects. But in our original guidance, underlying guidance, we talked about what's sort of this rate, $6 million perhaps a little bit more, kind of minority interest number, and I would look for that to go forward particularly as this project dissipates.

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

$6 million per quarter on a kind of steady-state environment, or are we still ramping?

Ronald A. Ballschmiede

We're still ramping a little bit, but it won't -- I don't think we'll get to double digits in the quarter.

Operator

Your final question comes from Will Gabrielski of Lazard Capital Market.

Will Gabrielski - Lazard Capital Markets LLC, Research Division

So can you talk about both the award opportunity and competitiveness currently in Steel Pipe Structures? And specifically around the award opportunity, I guess, if we were to see some of the Brownfield LNG expansion projects move forward that you have exposure to, like Gorgon or PNG, would there be incremental MEI or tank work done on those facilities? And then just from a competitive standpoint, can you talk about that broadly speaking?

Philip K. Asherman

Lass, would you want to address that?

Ronald A. Ballschmiede

Yes, most of the conversions here in the U.S. will come with additional storage capacity or capability requirements. And the same goes for the projects when they expand in other parts of the world. So typically, you see MEI opportunity and an additional tank on these projects.

Philip K. Asherman

Typically, what we're seeing in those developments is they will -- they did separately, the tank work is early works and that's something we can do independent. Even if we're looking at FEED work or preliminary engineering on some of these projects, we'd still go ahead and tender the tank work as we've seen, and that's good for the owner to get early work started, as well as us. The competitiveness, certainly throughout the world, certainly a lot of the Japanese are very competitive with this out there, and certainly in the U.S. we expect to see others that will be competing for us in the market. It's a little more fragmented here, so that really depends on the size of the project, but certainly on the large projects, we are very competitive here in the U.S.

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Okay. And I guess in the Middle East specifically, there's been some news about a competitor winning a project, and I know it's been a more competitive market, but has anything changed there?

Philip K. Asherman

Unfortunately not. That tends to be a very tight, very competitive market for us. We're very careful in terms of which products we're selecting. But that still hasn't changed in terms of extremely competitive market.

Lasse Petterson

Again, we tend to be more competitive on those value-add type opportunities, cryogenic or LPG storage or those types than certainly the large tank bonds or flat bottom tanks. So those are the opportunities we're going to continue to focus on.

Will Gabrielski - Lazard Capital Markets LLC, Research Division

Okay. And then in the U.S., given that you're -- it sounds like you've taken a step forward in terms of your confidence around what the spending cycle is going to look like here. Your ability to hire at this point and allocate resources around those projects, I guess within the broader landscape of the construction industry, there's certainly still an employment problem, or an unemployment problem, but I guess what specialty skills are you guys going to require for these projects and how does that market look in terms of hiring?

Philip K. Asherman

Well, it's going to be the important question going forward. I mean if we're looking at the market as soon as 2014, we're talking about 87,000 potential construction workers needed for just the energy infrastructure market we see alone in the U.S. 11,000 engineering procurement fabrication, these are large numbers. Certainly, engineering and in engineering we have an opportunity to certainly spread among the number of resource centers we have. The construction workers, you rightly pointed out, it's about 16% of employment in the Gulf Coast, it's going to require a lot of training, a lot of work on the part of companies like ours, but you got the skill sets and that's going to have a cost and productivity issues until the work starts stabilizing. We haven't seen this kind of investment potential in the United States for many, many years. But we'll take a period of time to get the craft labor to the point where it's productive as it was certainly a couple of decades ago.

Will Gabrielski - Lazard Capital Markets LLC, Research Division

Will you guys be comfortable taking any lump-sum risk?

Philip K. Asherman

I think, most of these projects will be a combination. Certainly, there's areas of the projects that we can certainly be comfortable taking fixed price work. It depends on a lot on the owners appetite for risk and premiums associated with that risk. So it really just depends. Certainly, there's some of these project that are in the couple of $100 million, $300 million range, we've demonstrated we’re quite willing to look at that on a fixed-price basis. But as these projects get larger, as with any market, certainly the risk premiums become substantial. And we find that owners are willing to look at more of a mix contract or our hybrid contract on those opportunities.

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Okay. Then really quickly. I just want to give you guys a chance to talk to the guidance from Shaw on Friday. I know you said you really want to get into it, but just sort of an opportunity, if you would, to comment on it or pass on it, if you would.

Unknown Executive

Well, I’ll just say the important numbers we saw coming out of certainly their announcement was a confirmation of their cash balances which was obviously important to us in closing and their progress on EBITDA and their, I guess their earnings, and that was better certainly than expected. Remember the $200 million EBITDA threshold was 4 quarters preceding close and they've achieved that and exceeded that after 3. As far as the guidance, certainly it's in line with what we saw in terms of our management projections, it wasn’t anything surprising to us. They certainly have the inside on those markets, and we certainly think that they're in good shape going forward, and we have every confidence that we'll be able to close this deal in February.

Operator

We have reached the allotted time for questions. I would now like to turn the call back to the leaders for closing remarks.

Philip K. Asherman

Thank you. We appreciate everyone's interest. Just as a footnote, there's been a lot of questions in terms of our giving guidance for 2013. We certainly plan to do that, and we'll get more information out to you before the end of the year. As you know, we had deferred our investment day because of this acquisition until early next year. We still plan to do that but as far as our guidance, we will be hosting a special call for our guidance, certainly before the end of the calendar year. So we'll give more information on that. But that will conclude our call, and we certainly appreciate your participation and your interest. Thank you.

Operator

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

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