Global engineering and construction giant Fluor has agreed to pay more than £11.6 million to US authorities to settle a case involving “improper accounting” for an oil and gas project in the UK North Sea.
The company is said to have bid for two contracts using “overly optimistic cost and timing estimates”.
According to the US Securities and Exchange Commission, it later “experienced cost overruns that worsened over time”.
One of these contracts was a near £395m construction deal, secured in December 2017 for Shell’s Penguins development 150 miles north-east of Shetland.
Fluor’s North Sea contract run from Manila
A subcontractor’s offer to carry out work worth about 25% of Penguins’ total cost had expired by the time Fluor tendered its final bid and then signed a fixed price contract.
Shell took a final investment decision on Penguins in January 2018.
US-based Fluor was tasked with managing the design and construction of a floating offshore storage and production vessel (FPSO).
It managed the contract from its office in Manilla in the Philippines.
By May 2018, Fluor had concluded it would make a loss on the project.
The final subcontract terms were “significantly more expensive” than it had either anticipated and budgeted for in its contract bid, SEC said.
Fluor’s “improper accounting” also extended to a contract with the US army.
Company overstated net earnings following its ‘improper accounting’
SEC said the firm failed to account for problems on the two projects under US accounting standards. As a result, it also failed to report the losses it subsequently suffered.
The company materially overstated its net earnings by up to 37% between 2016 and early 2019. the comission said.
Fluor noted the settlement neither admitted nor denied SEC’s findings. It does not expect an impact on earnings, as it set aside reserves to cover the penalty in 2022.
The agreement struck with the SEC named five current or ex-senior bosses at Fluor.
Chief financial officer Bradley Scott and former employees Robin Chopra, James Brittain, Jon Eric Best and Kent Smith are paying penalties ranging from £12,000 to around £20,000.
Mr Brittain was president of Fluor’s energy and chemicals segment. The SEC said he was a “cause of Fluor’s failure” to accurately report on costs for the Penguins project.
The agency ordered him to pay £20,000 for his inaccurate reporting.
Carolyn Welshhans, associate director in the SEC’s enforcement division, said: “Dependable estimates and the internal accounting controls that facilitate them are the backbone of… accounting and critical to the accuracy of the financial statements investors rely on. We will continue to hold companies and individuals accountable for serious controls failures, and resulting recordkeeping and reporting violations.”
‘Bringing closure’
Fluor said both projects were now largely completed and involved historical transactions that were “restated” in September 2020.
David Constable, the company’s chairman and chief executive, added: “The SEC investigation concerned accounting errors on legacy risk projects and associated internal controls weaknesses.
“Fluor now has a refreshed board and a new management team that is driving a balanced risk profile and healthy backlog. Bringing closure to the SEC investigation is in the best interests of our key stakeholders, including our shareholders.”
FPSO sailaway expected next year
China’s Offshore Oil Engineering Company completed construction of the cylindrical FPSO in November 2022.
Shell has repeatedly had to delay first oil from the project, its first manned vessel in the UK for 30 years.
In July, Shell chief executive Wael Sawan said he expected the FPSO to leave Norway in 2024.
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