Houston-based Willbros Group, an upstream contractor, has announced financial results for the first quarter 2011. The Company recorded a net loss from continuing operations in the first quarter of $44.4 million, or $0.94 per share, on revenue of US$412.3 million. Contributing to the loss were charges of $8.4 million on non-performing projects in Canada, low capacity utilization caused by extreme weather conditions across North America in January and February and typical seasonality of the business model. First quarter results were also negatively impacted by $14.4 million in tax expense
Management noted that, in March, resource utilization in U.S.Upstream and in the Utility T&D segment improved markedly with mobilization on the Haynesville extension of the Acadian pipeline and Texas CREZ electric transmission work for Oncor. The return to normal weather conditions enabled the Company to make considerable progress on the BP Solar project in the Northeast and to begin mobilizing on two transmission construction projects in Maine. With better weather and work on these projects under way, the Company’s performance in March was substantially improved relative to the first two months of 2011.
Randy Harl, President and Chief Executive Officer, commented, “Despite the difficult quarter, the operating results we achieved in March set the stage for the improvements that we expect to see in the second quarter.”
“We are also making progress toward our recently stated 2011 objectives to return to profitability and to strengthen our balance sheet. During the first quarter we paid down $28.8 million of debt toward our objective to reduce debt by $50m to $100 million by the end of 2011. We also committed to reviewing our businesses to identify underperforming or non-strategic business units and underutilized assets that can be sold, closed or discontinued to improve future profitability and further reduce debt. As a result of our analysis, we believe that opportunities for growth in Canada are greater for Willbros in the oil sands maintenance, fabrication and facilities construction markets, rather than in the cross-country pipeline construction market. Therefore, starting in the second quarter, we have made the decision to discontinue our Canadian cross-country pipeline construction business. We anticipate that the assets of this business can be sold or redeployed in the next year, after we complete all its project commitments in an orderly fashion. We believe we can achieve more predictable margins by focusing on the more attractive maintenance and capital projects driven by investment in the oil sands in northern Alberta,” Harl added.
“Our vision for the Company remains one of profitable growth, diversification and a risk-limited project portfolio. Today, we are a larger, more diverse organization and our focus is on improving our execution and maximizing our exposure to the best growth opportunities in order to deliver positive results. Market conditions in all our segments have been improving since the latter part of the first quarter. High oil prices are driving a shift to more drilling rigs operating in liquids rich plays, and we are positioned well for future development of surface facilities, gathering and process systems, and terminal work. The historical trend of our earnings results late in the oil and gas development cycle, leads us to believe we are poised for an earnings breakout in 2012. We currently have greater visibility as we focus on building backlog and concentrate the entire organization on improved execution and risk reduction. We are now experiencing much higher utilization of our resources and currently expect strong revenue growth in the second quarter, leading to profitable operating performance.”
At March 31, 2011, Willbros reported backlog from continuing operations of $2.3 billion compared to $2.2 billion at December 31, 2010 and $483 million at March 31, 2010. The year-over-year increase is primarily related to the backlog associated with the InfrastruX acquisition. Historically, the Company has only recognized Master Service Agreement (“MSA”) backlog for the first twelve months following the reporting date. In conjunction with the InfrastruX acquisition and the resulting material increase in future MSA work, the Company is now reporting all expected MSA backlog until the conclusion of the contract. At March 31, 2011, $1.3 billion of the $2.3 billion backlog represents MSA backlog expected to be worked off in periods beyond twelve months from the reporting date and is comprised of $944 million and $306 million for the Utility T&D and Upstream segments, respectively.
Mr. Harl continued, “We are fully engaged in reviewing all our business unit strategies to measure their progress and identify additional cost savings and cross selling opportunities. Our complementary service offerings give us high confidence that we will capture significant new assignments in the Eagle Ford region and we are now working on projects in the Bakken. We have also introduced additional processes into the Utility T&D segment and believe this increased focus will enable us to identify the best opportunities for revenue growth and profit potential in this segment.”
Segment Operating Results:Â Upstream
For the first quarter of 2011, the Upstream segment reported an operating loss of $14.6 million on revenue of $227.2 million. First quarter operating results were reduced by $8.4 million due to further losses on non-performing projects in Canada. Seasonality of the U.S. pipeline construction industry typically translates into lower operating income in the first quarter; however, excluding the losses in Canada, the Upstream segment operating results improved as compared to the first quarter 2010 loss of $10.9 million.
Downstream
For the first quarter of 2011, the Downstream segment reported an operating loss of $4.4 million on revenue of $50.5 million, primarily as a result of work delayed to future quarters. The Downstream segment in the first quarter continued to be impacted by seasonality and curtailment of customer spending for small capital projects and maintenance in the refining sector. First quarter 2011 operating results declined as compared to the fourth quarter 2010, excluding the goodwill impairment charges, and improved as compared to the first quarter 2010 loss of $9.0 million. The Downstream segment was successful in adding new tank, turnaround and government projects to its work under contract in the first quarter. Improving crack spreads in the refining industry should not only support additional spend on maintenance and small capital projects; but also increase the likelihood of non-critical shutdowns moving further into the future.
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