Fewer large transmission projects under construction and delays on some projects have hurt earnings at Quanta Services (NYSE:PWR), along with low oil and natural gas prices that have affected pipeline work, Quanta officials said Feb. 25 during a conference call on 4Q15 earnings.
Quanta has a strong backlog of transmission projects and power industry spending on transmission is expected to pick up in the second half of 2016, Jim O’Neil, president and CEO of Quanta, said during the call.
The company experienced some challenges in transmission project delays during 2015, and “we expect some market headwinds to continue” into 2016, with lower transmission sector revenue in the first half of the year compared with the first half of 2015, when the power industry was spending heavily on transmission projects, O’Neil said.
Quanta also saw lower oil and gas prices in 2015 affect work on pipeline and gathering projects, including in the Gulf of Mexico and Australia, with asset impairment charges of $58.5m, or 27 cents per diluted share, during 4Q15, the company said in a [add date] statement.
Quanta is trimming costs to adjust to the current market environment, but it will not compromise its ability to meet customer needs and the company expects transmission growth to resume as the power grid continues to age and reliability challenges increase, O’Neil said. The C3 Group, an independent consulting firm, is projecting between $25bn and $30bn will be spent annually on transmission projects in North America through 2020, O’Neil said.
He did not specify projects that have been delayed, but in the past, Quanta has noted that work on Nalcor Energy’s Labrador Island Link project was delayed in accessing rights of way. That $2.1bn, 350-kV HVDC line, which will extend 683.5 miles between Muskrat Falls, Labrador and Soldiers Pond, Newfoundland, is now 22% complete, O’Neil said.
The Labrador Island project, which also has Emera Inc. as a project sponsor, is expected to be completed by the summer of 2017, according to TransmissionHub data.
O’Neil said that FERC’s Order 1000 has caused companies to delay transmission spending as they adapt to the regulatory environment, but Quanta believes that is a short-term dynamic and that some projects prompted by Order 1000 could be larger in scale and scope than previously anticipated.
“We don’t believe these will move to construction in a meaningful way until at least 2017,” he said.
Despite the Supreme Court’s stay of the U.S. Environmental Protection Agency’s Clean Power Plan, the generation mix continues to shift away from coal-fired plants toward cleaner resources, and new technologies are being developed, all of which requires power grid expansions and enhancements that Quanta can capitalize on, O’Neil said.
Many of the company’s customers have plans to expand their transmission and distribution networks, though some of the projects might not be of the large size that Quanta saw in the most recent past, he added.
Quanta on Feb. 25 reported a net loss from continuing operations of $2.6m, or a loss of 2 cents per diluted share, in 4Q15, compared with net income from continuing operations of $60.4m, or 27 cents per diluted share, in 4Q14. The 4Q15 loss included impairment charges of $58.5m, or 27 cents per diluted share, primarily resulting from lower oil and gas services revenues for Gulf of Mexico operations and certain operations in Australia, due to the low commodity price environment, Quanta said.
Net revenues in 4Q15 were $1.9bn, compared with revenues of $2.03bn in 4Q14.
For all of 2015, Quanta reported net income attributable to common stock of $120.3m, or 62 cents per diluted share, compared with net income attributable to common stock of $269.2m, or $1.22 per diluted share.