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PROJECT CHANGES IN ESTIMATES
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
PROJECT CHANGES IN ESTIMATES

NOTE 6—PROJECT CHANGES IN ESTIMATES

Our RPOs for each of our operating groups generally consist of several hundred contracts, and our results may be impacted by changes in estimated margins. The following is a discussion of our most significant changes in cost estimates that impacted segment operating income for the three months ended March 31, 2020 and 2019. For a discussion of significant changes in estimates resulting from changes in transaction prices, see Note 5, Revenue Recognition.

Three months ended March 31, 2020

Segment operating results for the three months ended March 31, 2020 were impacted by net unfavorable changes in estimates totaling approximately $150 million, including negative impacts from the COVID-19 pandemic of approximately $79 million. The estimated negative impact the COVID-19 pandemic had on our segment operating results was approximately $39 million, $11 million, $17 million and $12 million in our NCSA, EARC, MENA and APAC segments, respectively. Our Storage Solutions segment did not have material changes in cost estimates and was not materially impacted by the COVID-19 pandemic. We expect to negotiate recovery of a significant portion of these estimated additional project costs from our customers, however we have not recognized such recovery in our current project cost estimates as of March 31, 2020.

Unfavorable changes in estimates in our EARC segment (primarily on the Total Tyra redevelopment project), MENA (various projects not material individually) and APAC (primarily on the Reliance subsea field development project) segments were $11 million, $13 million and $7 million, respectively.

Our NCSA segment results in the first quarter were negatively impacted by net unfavorable changes in cost estimates aggregating approximately $115 million and included estimated $39 million of unfavorable changes attributable to the COVID-19 pandemic.

The net unfavorable changes were primarily due to cost increases on:

 

LNG projects – $11 million, including the Cameron LNG and Freeport LNG project, as a whole;

 

Downstream petrochemical projects – $54 million, including the Total ethane cracker project;

 

Offshore and subsea projects– $68 million, including the Rota 3 pipeline and other projects; and

 

various other projects.

See Note 5, Revenue Recognition, for further discussion of our projects that were in the substantial loss position as of March 31, 2020.

Three months ended March 31, 2019

Segment operating income for the three months ended March 31, 2019 was impacted by net favorable changes in estimates totaling approximately $19 million, primarily in our NCSA, EARC, MENA and APAC segments. Changes in cost estimates in our Storage Solutions segment were not material.

NCSA—Our segment results for the three months ended March 31, 2019 were negatively impacted by net unfavorable changes in estimates aggregating approximately $24 million. The net unfavorable changes were due to cost increases on the Freeport LNG Trains 1 & 2 project and a subsea pipeline flowline installation project, partially offset by savings on our ethane projects in Texas and Louisiana and our Freeport LNG Train 3 project.

EARC—Our segment results for the three months ended March 31, 2019 were positively impacted by net favorable changes in estimates aggregating approximately $4 million.

MENA—Our segment results for the three months ended March 31, 2019 were positively impacted by net favorable changes in estimates aggregating approximately $33 million. The net favorable changes were primarily due to reductions in costs on various projects in the Middle East.

APAC—Our segment results for the three months ended March 31, 2019 were positively impacted by net favorable changes in estimates aggregating approximately $6 million. The net favorable changes were due to reductions in cost to complete several projects, partially offset by cost increases and weather downtime on various projects.