URS Earnings Call Insights: Oil and Gas Backlog, Infrastructure Business

On Tuesday, URS Corporation (NYSE:URS) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Oil and Gas Backlog

Alex Rygiel – FBR Capital Markets & Co.: First I wanted to thank you for breaking out oil and gas and renaming I&C to just I. I do appreciate that. Could you provide us with the oil and gas backlog from first quarter of 2011?

H. Thomas Hicks – VP and CFO: Alex its Tom Hicks. I’ll announce it later in the call. We’ll have to pull out some new segments or new reporting segment for us so we are doing with it just a minute. Why don’t we move on to your next question.

Martin M. Koffel – Chairman, President and CEO: We’ll come back.

Alex Rygiel – FBR Capital Markets & Co.: Martin, any chance you could touch upon the US pipeline design market I know you’ve commented on it in the past and clearly there seems to be a fair amount of activity in the pipeline market, could you expand upon your current involvement and subsequently with Flint the opportunity ahead.

A Closer Look: URS Earnings Cheat Sheet>>

Martin M. Koffel – Chairman, President and CEO: Bob Zaist who heads our E&C division is here and he’s pretty active in that market and I’ll have him speak and then I’ll come back commenting behind him.

Robert W. Zaist – President, Energy & Construction: Alex, if I could perhaps I could frame the market as we see it, little beyond the pipeline work with Flint. Let’s start with the oil sands work. The capital expending projections in the Canadian oil sands is expected to be around $180 billion spread over 10 years. That’s according to Peters and Company. Right now the spend is somewhere in the range of $12 billion to $14 billion a year on capital projects. That objective is to take the production capacity from about 1.5 million barrels a day up to about 3.5 million barrels a day by 2025. That’s going to present capital project opportunities for URS and the combined organization for the full EPC suite of services. The trend also is towards increasing SAGD which is steam assisted gravity drain extraction technology, that’s another area where the combined company kind of hits the sweet spot for capabilities, and about 80% of that resource is susceptible to that type of extraction. As facilities get built, then the provision of maintenance service opportunities increases for us, and if you look at the rig count in North America, the rig count in North America April to April this year to last year is up about 150 rigs, and that is again an area that is going to be a service area for the combined company. You couple that with the fact that about a year and a half or two years ago, we bought ForeRunner, which is a company that is focused on the design elements of pipeline provision services and you couple that up with Flint’s pipeline installation capabilities and then we can provide a full suite of services for EP&C.

H. Thomas Hicks – VP and CFO: Canada has got about 62,000 miles of pipeline. It’s principally concentrated in the western provinces, and Flint is active in that. It does construct pipelines up to a certain size, and the real interest for us of course is beyond that as the pipeline linking Canada with United States and there isn’t anyone in the industry who isn’t closely following the fortunes of the Keystone pipeline, and I’m sure we won’t hear much about that before the election, but I am pretty sure we’ll hear something in the first quarter.

Robert W. Zaist – President, Energy & Construction: One last quick question for Tom, have you finalized the accounting treatment for JV that you are going to be acquiring through Flint?

H. Thomas Hicks – VP and CFO: Alex, we haven’t finalized much on the accounting treatment. As you know, there’s a lot of moving parts when you do purchase accounting, but in that case, we will report to you fully how we plan to report that in the second quarter when we come back to you. Canada did go to IFRS and away from Canadian GAAP to IFRS and now we are taking them back to U.S. GAAP as part of this deal, so a lot of moving parts. I want to get back to you on our other question about the oil and gas backlog for Q1 of last year. We have not broken that out yet. We just did year-end numbers, so I can’t give you that number right now, maybe Sam can provide at some point in the future.

Infrastructure Business

Jamie Cook – Credit Suisse: Two quick questions. One, on the infrastructure business, the revenues in the quarter were a little lighter than we had thought, it makes the run rate for – to make your full year numbers a little more difficult. You talked about some projects that didn’t hit backlog yet. I am just wondering if you could sort of size that and how we think about the revenues back half weighted, is it more – in the second quarter we start to see it pickup. And then second question is just more bigger picture. Can you talk about what you are seeing in terms of new gas-fired power plant opportunities as well as what you’re seeing on the emission side in terms of prospects for bookings within power? And I’ll get back in queue after that.

Martin M. Koffel – Chairman, President and CEO: First of all, its Martin, Jamie. I am huge long-term infrastructure enthusiast as you know and I feel pretty good about our year. Revenues were down a little bit in the first quarter because we had some projects that haven’t quite started, but Gary is champion at the bid here to answer your question more directly. Gary Jandegian?

Gary V. Jandegian – President, Infrastructure & Environment Business: Jamie, we need to distinguish the two pieces of business, engineering, design and construction. Infrastructure and environment performs primarily the design work and energy and construction performs the construction. So, I’ll address the IE side of the business of your question and then I’ll ask Bob Zaist to discuss construction. Our infrastructure revenues in IE were down slightly but the backlog was up significantly and we have now historically high backlog. There is some seasonality effect in the winter months for our front end work. Of course our overtime and our summer months have longer days. So I expect the revenue to increase in the IE side of the business as notices to proceed on those new contracts are released and my confidence is bolstered by the engineering opportunities that we’re pursuing and also, our high win rate and market leadership position again as evidenced by the increase in our backlog. I will turn it over to Bob.

Robert W. Zaist – President, Energy & Construction: Jamie, I would simply tell you that directionally I think our backlog on larger projects side is improving. We had several projects last year that finished up, including the levee program down in the New Orleans area. As Gary said we’ve got seasonal issues in the first quarter. For example, at that very large Olmsted Dam program that we have is affected by high water in the spring where we can’t work out on the river and also just the general climate. As that gets better we will start to pick up through revenues later this year. We’re encouraged by some of the larger projects that we have in our pipeline and we are in process of pursuing particularly in the light rail category. Martin mentioned a design build award down in Atlanta that we just received which we will just be kicking off and we’ve got some terrific opportunities on the transit side that will hopefully materialize later this year. As we go on with the rest of your questions on the gas-fired power plant outside of the equation. The gas price stability or horizon if you will and the stability of prices I think is encouraging from the standpoint that it will allow energy users to have a better profile of what their costs are going to be for a longer horizon. We are starting to see opportunities on the combined cycle site present themselves and of course, that we’ve had a warm winter across the country. A lot of utilities are fairly challenged on the revenue side and so I think the decisions are going to be a little bit slower until they see those revenues coming back hopefully this summer. We will see some comparisons made as capital decisions are made to put those dollars into coal plants on air quality side of the equation. Whether those dollars are put from a capital standpoint into a new generation. We haven’t seen those decisions affect the air quality control projects thus far we are engaged in I believe it’s 23 projects in various stages of development. Some in the very early study stages, some actually contracted for major retrofits and we expect some of those larger projects to be rolling out as we progress this year.

Jamie Cook – Credit Suisse: Just a final comment on infrastructure one thing that gives me quite a bit of confidence in the outlook for infrastructure, is just the changing dynamics of financing. Traditionally as we’ve explained in many calls, the federal financing, the federal match for large highway projects and the like, it was 70% or 80% coming out of the highway fund, and we’ve been talking on these calls for several years about the increasing diversity and localization of funding sources, everything from local bonds to special taxes and use of fees and everything else, that’s really taken hold, and today the – overall, the average federal match is no longer 70% or 80%, it’s actually 30% which is very surprising. I know, people on the call might be quite surprised to hear that. So, that means now that something like 70% has to be derived from all kinds of diverse sources, and when the money comes from the community rather than Washington, you are much more like to get the projects built, and that’s why we have the backlog and we are confident in our infrastructure growth this year and beyond.