In The NewsKBR alters its position regarding the Goldboro LNG Facility EPCC Contract

June 25, 2020

KBR to focus on government contracts, quit natural gas, energy business
Reuters June 22, 2020 6:23 PM EDT

HOUSTON — Engineering and construction firm KBR Inc will exit most of its liquefied natural gas (LNG) construction and other energy projects, it told investors and employees, as customers pull back on energy investments.

The company will refocus on government contracts and technology businesses, Chief Executive Stuart Bradie wrote to employees on Monday. It will “no longer engage in lump sum, blue collar construction services,” saying the COVID-19 pandemic accelerated the decision to leave fixed-contract energy projects.

KBR held contracts for engineering and construction services for several LNG projects, including at Freeport LNG in Texas, Pieridae Energy Ltd’s proposed Goldboro LNG facility in Nova Scotia, Canada, and Glenfarne Group’s Magnolia LNG project in Louisiana.

Freeport LNG has delayed its project to 2021 and planned to seek new bids for construction, spokeswoman Heather Browne said. Pieridae and Glenfarne did not respond to requests for comment on Monday.

KBR declined to discuss potential impairments on its current LNG projects, but pointed to an investor webcast last Tuesday that said it expected the energy business to be “marginally profitable” this year. It will disclose more details with second-quarter results next month, an executive said in the webcast.

About 85% of the company’s forecast earnings for 2020 are expected to derive from government business, up from about 11% in 2015, Bradie told investors during the call.

The changes will mean “significant realignment in some offices, a smaller office footprint as we transform to the new structure and the new way of working, and the exiting of certain markets/geographies and offices,” the email said. (Reporting by Jennifer Hiller in Houston; Editing by Peter Cooney)

KBR Exit from Energy Business to Benefit Other EPCs in U.S. LNG Build-Out
Leticia Gonzales June 25, 2020

KBR Inc. is exiting the energy business to expand its core government and technology businesses, leaving a handful of North American liquefied natural gas (LNG) projects to seek out new engineering, procurement and construction (EPC) contractors.

In an investor presentation earlier this month, CEO Stuart Bradie said the decision to exit “the blue-collar construction and lump-sum EPC areas within our energy business” marked another step in the company’s transformation. Since 2015, KBR has increased earnings from its government business to 85% from 11%.

Freeport LNG had secured KBR last year to build the fourth production unit at its export terminal on Quintana Island, TX, but it planned another competitive bidding process for the not-yet-sanctioned project when KBR made its announcement earlier this month, according to spokesperson Heather Browne.

“Given the current market conditions resulting from Covid-19, Freeport LNG does not expect to reach a final investment decision on Train 4 this year,” Browne told NGI. “Given that Train 4 is a brownfield project, we can be ready to start construction by mid-2021, if market conditions improve.”

Freeport has secured all the funding needed to move forward with the project, which would have nominal LNG production capacity of 5.1 million metric tons/year (mmty), with operations targeted for 2023. Total export capability at Freeport is to be more than 20 mmty.

KBR also had been selected to lead construction of the proposed Magnolia LNG project in Lake Charles, LA, now owned by Glenfarne Group LLC. Magnolia, planned for a 115-acre site near the Calcasieu Ship Channel, was approved by the Federal Energy Regulatory Commission in 2016. The project would include four production trains, each able to produce 2 mmty.

Glenfarne indicated that it “consistently” receives interest from EPC contractors to build Magnolia LNG, “and we are confident that should KBR decide to exit from its commitment to the project, we will engage an EPC contractor to build Magnolia LNG at an industry leading, cost-competitive rate.”

Pieridae Energy Ltd. also had been working to finalize its EPC agreement with KBR late last year for its proposed Goldboro LNG terminal in Nova Scotia. Sanctioning of the 10 mmty export project has been long delayed, with the project first announced in October 2012 with an initial startup set for late 2018.

Now, the pandemic has pushed back sanctioning Goldboro indefinitely, with management indicating that a “further announcement will be made once Covid-19 conditions improve and markets stabilize.”

KBR to focus on government contracts, quit most energy business
Jun. 22, 2020 6:55 PM ET Seeking Alpha Carl Surran, SA News Editor

KBR (NYSE:KBR) will exit most of its liquefied natural gas construction and other energy projects, CEO Stuart Bradie wrote to employees today.

The engineering firm will focus on government contracts and technology businesses, and "no longer engage in lump sum, blue collar construction services," as COVID-19 accelerated the decision to leave fixed-contract energy projects, Bradie said.

Potential impairments related to KBR's current LNG projects are not yet clear, but Bradie told an investor webcast last week that the energy business likely would be "marginally profitable" this year and ~85% of the company's FY 2020 earnings would come from government business.

KBR to Exit Most LNG, Energy Projects
Bertie Melinda Taylor Rigzone Staff Wednesday, June 24, 2020

The firm will focus mostly on government contracts and technology businesses going forward.

Engineering, procurement, and construction powerhouse KBR plans to exit most of its liquefied natural gas construction and other energy projects, and focus mostly on government contracts and technology businesses, according to a June 22 report from Reuters.

In a recent message to employees, KBR CEO Stuart Bradie wrote that the company will no longer engage in ‘lump sum, blue collar construction services’, according to Reuters. KBR also pointed to the ongoing pandemic as the main reason behind hastening the decision to leave such projects.

According to the news agency, KBR held contracts for engineering and construction services for several LNG projects, including Glenfarne’s Magnolia LNG project in Louisiana, Freeport LNG in Texas, and Pieridae Energy’s pending Goldboro LNG facility in Canada.

During the company’s 1Q conference call in April, Bradie said KBR’s updated outlook assumed no contribution of profit from the Energy Solutions segment, adding that the overall assumption for the guidance update “is the energy markets will remain stressed for the rest of the year. And there will be a slow return to the new normal workplace coming out of COVID.”

In an investor webcast last week, he said that the energy business was expected to be ‘marginally profitable’ this year and added that around 85% of the company’s 2020 earnings would come from the government solutions division, Reuters reported.

KBR provides professional services and technologies across the asset and program lifecycle within the Government, Technology and Energy sectors. The firm employs about 38,000 people worldwide with customers in more than 80 countries, and operations in 40 countries.

To contact the author, email bertie.taylor@rigzone.com

KBR Will Exit Fixed-Price Energy Construction, CEO Confirms
June 18, 2020 Debra K. Rubin Engineering News-Record

Stuart Bradie, CEO of publicly-traded design-build firm KBR Inc., Houston (KBR:NYSE), told investors and analysts in a June 16 presentation that it will exit fixed-price energy-project construction amid a sharp market turndown to focus on its higher-growth, higher-margin government services business. The firm did not announce the change.

"EPC lump-sum construction risk is completely off the table, it goes away," said Bradie, named CEO in 2014 from a previous post as group managing director at WorleyParsons. "This gives more weight to our government services business and marks another step in our transformation."

The firm joins other contractors that are reassessing fixed-price construction risk, a trend that strengthened last year.

Energy Project Prospects

Adding that "customers in our Energy Solutions business unit are understandably delaying capital commitments and conserving cash in this period of uncertainty," Bradie noted that the unit had accounted for more than 75% of company revenue in 2015, with a focus in liquefied natural gas (LNG) sector work.

KBR was until 2007 the engineering and construction unit of oil service giant Halliburton.

"KBR was energy. But this is no longer the case," said Bradie. "With our deliberate growth in high-end government, technology solutions and asset performance, we have reduced KBR’s exposure to capital expenditure in the energy sector to less than 10%."

More Detail in July.

Bradie did not offer further details on its current energy projects and prospects, saying that would be provided when KBR shares second-quarter results at the end of July, but the energy business was still set to be "marginally profitable" in 2020, the company told analysts.

The company did not respond to ENR queries to confirm status of its fixed-price energy project contracts.

KBR was selected last year as preferred EPC contractor for the planned Train 4 of the Freeport LNG project in Texas, with a $1-billion financing deal announced in March. But the project's final investment decision now is pushed out to 2021, and it will seek new bids for construction,

It also holds a contract on Glenfarne Group’s Magnolia LNG project in Louisiana. Glenfarne Managing Partner Brendan Duval said the company intends to make a final decision on the project's construction and operation, citing "the essential role that natural gas plays in the transition to a lower carbon world," according to The Houston Chronicle. He said the facility will provide clean, low-cost and reliable energy globally, "and we are proud to support this critical infrastructure project."

KBR also appears still linked to the Goldboro LNG project in Nova Scotia, an estimated $10 billion, 10-million tonne-per year project being developed by Canada’s Pieridae Energy. The developer told the Kallanish Energy publication that it is "fully committed" to the project, despite a final investment decision delayed to June 30, 2021, due to COVID-19 and KBR "not being able to press forward" on costs because of closed businesses and inability to “access such things as modular yards in China and Europe."

The project is set to start commercial operations in 2025/26.

Pieridae said it is "focused on progressing work with KBR to deliver a fixed-price contract to build the gas liquefaction facility. Finishing this work will allow [the developer] to complete final due diligence and proceed with project financing."

Even so, analysts noted key market issues.

"We are not surprised given the financial troubles that fixed-price LNG has created for the energy E&C names, including bankruptcy and capital raises," said Jamie Cook, Credit Suisse managing director and lead construction sector analyst in a June 17 report.

"KBR remained disciplined during the LNG up-cycle and does not have any fixed-price energy work in its backlog and also de-risked 2020 [financial guidance] by assuming energy services would be break-even" for the rest of the year, she said.

"We believe this was another sign energy services was less strategic to KBR’s portfolio," said Cook, but she noted uncertainty in its exit approach, whether the firm is "shutting down [work] or is there a potential divestiture in play?"

Steven Fisher, UBS sector analyst, said "we thought they would save any energy announcement until later this year."

KBR reported a loss of $104 million in its first quarter that ended March 31, related to writedowns of oil and gas sector assets, compared to a $40-million profit for that quarter in 2019. Quarter revenue rose 15% to $1.5 billion, from the previous year.

The company said in its April 29 earnings announcement that Bradie and the KBR board are taking a voluntary 15% salary reduction in the second quarter, with the company "leadership team" taking a 10% cut.

The CEO said at the time that "our preparedness for COVID-19 has enabled continuity of service, the resilience of our Government and Technology Solutions businesses and our actions to better position our Energy business [that] will enable continued delivery of predictable, stable and sound financial results."

Shifting Government Work

Bradie also that its government services work is shifting from past exposure to the federal "contingency operations business" that relied on uncertain annual budgets. In particular, KBR held U.S. Army logistics support contracts, known as LOGCAPs, over many years.

Said Cook: KBR "was largely a LOGCAP contractor, which was not only a low-margin business but also generated a volatile earnings stream."

Bradie told analysts that "some think our work is still dominated by that."

He said 90% of the firm's government work is "across space, science, engineering, training, cyber, facilities and supply-chain management and base operation," adding that its mix of internationally funded government work is about 25% of the total, "higher margin and a true differentiator."

KBR also announced on June 19 a global alliance with L&T Hydrocarbon Engineering, a unit of India-based engineering and construction conglomerate Larsen & Toubro Ltd., under which KBR will license proprietary technology and engineering services and the unit will be EPC services provider.

The firms will bid exclusively for refinery and petrochemical projects globally, with a specific focus on India, South East Asia and the Middle East and Africa markets, they said.

The alliance joins "KBR's century-long technology expertise and LTHE's strong capability as a major EPC player and modular solution provider," said Doug Kelly, KBR technology solutions president.

KBR ranks at No. 35 on ENR's 2020 Top 400 Contractors list, reporting more than $2.3 billion in 2019 construction revenue—most outside the U.S.—and at No. 3 on the 2020 Top 500 Design Firms list, with $3.3 billion in engineering revenue reported last year. About 34% of that is in manufacturing and 37% in industrial and petroleum.

Larsen & Toubro Ltd. ranks at No. 14 on ENR's 2019 Top 250 International Contractors list, its latest, reporting $17 billion in 2018 global construction revenue, about 45% in power, oil and industrial markets. It also ranks at No. 33 on the Top 225 Global Design Firms list, also the latest, reporting about $697 million in engineering revenue that year.

"The elements of KBR’s transformation are demonstrable in our ENR rankings, with a No. 1 rank in manufacturing driven by our growing aerospace business, our NASA franchise and the support to defense platform acquisition and sustainment globally, as well as our increasing scale in the manufacture of proprietary equipment." Bradie told ENR. "Our transformation has been achieved with zero lump-sum turnkey risk in our portfolio of projects, and we have transitioned a large component of our activity to be OpEx-facing."

The firm announced on June 16 a $570.3-million NASA contract at the Marshall Space Flight Center in Huntsville, Ala., to include Space Station payload operations and testing support for the space launch system.

"KBR will continue to evolve, and in many ways COVID-19 may become a catalyst for that evolution," said Bradie.

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