CB&I warns of massive losses on LNG projects in UK

The Woodlands, Texas - CB&I (Chicago Bridge & Iron Co.) expects to be hit by pre-tax charges of around $317 million for cost overruns on the South Hook and Isle of Grain LNG projects in the UK. Most of the charges were encountered on the South Hook project at Milford Haven in west Wales, where the company has had to pay out an extra $195 million on subcontractors.

The US group blamed the forecast charges on "continued poor labour productivity, weather delays, and the need to supplement critical subcontractor areas. The project charges will cause CB&I to be out of compliance with its lender agreements thugh the group said it expects to secure the necessary amendments to its credit terms.

According to the Texas-based group,  problems on the projects will impact the schedule and require spending well above previous estimatesthe additional costs over the next three to four months. The measures, it said, are necessary to complete the projects to deadline and meet the urgent need for natural gas imports into the UK ahead of the winter season. Both projects are scheduled for first gas supply early in the fourth quarter

"We have been working diligently for nearly two years to mitigate increasing labour costs and weather delays, while maintaining our commitment to have these facilities ready for first gas in time for the upcoming heating season," said Philip Asherman, CBI's president and CEO. "In order to meet the project objectives, it became clear in the second quarter that we would have to compensate for inadequate subcontractor performance and an increasingly difficult trade union environment."

The South Hook project was awarded to CB&I in November 2004 and Isle of Grain was awarded in March 2005. When fully operational, these two new facilities will be the receiving point for nearly 35% of the natural gas supply into the UK.