Heartland Canada Partners (“HCP”) — a 50/50 partnership between Fluor Corporation FLR and Kiewit Construction Services ULC — has received an EPC contract from the Canada Kuwait Petrochemical Corporation (“CKPC”).
Per the deal, HCP will provide engineering, procurement and construction-related services to CKPC’s new propane dehydrogenation (“PDH”) unit, located in Sturgeon County, Alberta, Canada. Notably, Fluor expects to book its portion of the contract value in first-quarter 2020 backlog.
Importantly, engineering-related work on the project has already begun and construction is expected to begin in late 2020. Meanwhile, mechanical completion of the new PDH unit is likely to end in second-half 2023.
CKPC is a 50/50 joint venture between Pembina Pipeline Corporation PBA and Kuwait's Petrochemical Industries Company K.S.C. or PIC. The two industry-leading contractors — HCP and CKPC — have worked together throughout the process to de-risk the project. Post completion of the project, CKPC’s integrated PDH plant and polypropylene upgrading facility will convert locally sourced, low-cost propane into 550,000 tons of polypropylene per year.
Notably, Fluor’s Energy & Chemicals business has performed more than 25 million hours of work in Alberta. Moreover, the company is committed to build a safe and reliable facility that promotes a positive economic impact, and provides a long-term, sustainable solution for polypropylene production in Canada.
New Awards to Revive Fluor’s Energy & Chemicals Unit
The Energy & Chemicals Business segment — which contributed nearly 41% to the company’s total revenues — reported a profit of $84.9 million in third-quarter 2019, up 69.1% from a year ago. Segmental margin was also up 270 basis points from the prior-year quarter.
Quarter-end backlog amounted to $13.7 billion compared with $11.4 billion in the year-ago period. Fluor, being an industry leader in nuclear remediation at government facilities throughout the United States, is expected to benefit from rising demand for energy across the globe. Relative stability in commodity prices is expected to boost investments in downstream and petrochemicals.
The company recently received project management contractor services or the PMC+ contract from PKN ORLEN. Per the contract, Fluor will support the expansion of PKN ORLEN’s olefins complex in Plock, Poland.
However, the said business segment has been recording dismal results over the last few quarters due to reduced volume of project execution activities, and lower volume of broad-based new awards in 2018 and 2019. Resolution of certain close-out matters with a customer and lower volume of project execution activities further added to the woes.
Going forward, the company believes that clients of the Energy & Chemicals segment will maintain a cautious approach while taking investment decisions, further adding to the woes. Shares of the company have declined 48% in the past year against the Zacks Engineering - R And D Services industry’s 17.9% rally.
Nevertheless, continuous contract wins, strong end-market prospects, solid backlog level and a good business portfolio mix are expected to drive growth. Encouragingly, at the end of third-quarter 2019, Fluor’s consolidated backlog rose to $30.3 billion from $30 billion in the year-ago period.
Fluor — which share space with Quanta Services, Inc. PWR and AECOM ACM in the industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here..
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