Fluor Corporation announced that its third quarter results will include a charge of approximately $163m, or $0.90 per share, for estimated cost increases on the Greater Gabbard Offshore Wind Project.
During the third quarter, the project experienced a variety of execution challenges, including material and equipment delivery issues, primarily relating to the installation of wind turbine generators and subsea cabling. Following an evaluation of third quarter events, the company has revised estimates to include substantial costs for additional marine vessels and other subcontractor costs associated with equipment installation, equipment repairs and the estimated schedule impact which has been exacerbated by weather-related delays. The company has taken a number of remedial actions to mitigate further cost escalation and delays to the schedule.
In 2008, the company was awarded a $1.8 billion fixed price contract to construct a 500 megawatt wind farm approximately 25 kilometers off the east coast of the United Kingdom. To date, all 140 monopiles and tower transition pieces have been installed and 53 of 140 wind turbine generators are in place. Installation and commissioning of the remaining wind turbine generators, subsea inter-array cabling and grid substations are expected to continue through the latter part of 2011. The overall project is expected to be completed in early 2012.
The project has experienced a number of challenges since construction began in late 2008. Through the second quarter of 2010, the company had recorded $202 million in claim revenue relating to costs incurred on a dispute with the client regarding specifications for monopiles and transition pieces required under the contract. Additional costs arising from this dispute are expected to be incurred in future quarters. The company continues to pursue claims for costs recoverable under the contract.
Reducing Earnings Per Share (EPS) Guidance for 2010
The company is in the process of preparing third quarter financial statements, and expects that improvements in various parts of Fluor's diverse portfolio of businesses will partially offset the charge discussed above. However, as a result of the developments on the Greater Gabbard project the previous range for 2010 EPS of $2.90 to $3.20 per share will be reduced, by a net amount of approximately $0.70 per share, to a range of $2.20 to $2.50 per share.
The company continues to pursue a robust prospect list and expects to report strong third quarter new awards. The company will provide further discussion with regard to the Greater Gabbard project and will issue its initial range for 2011 EPS on its third quarter conference call on November 4, 2010.