Percentage of Completion Contracts

6 Months Ended

Jun. 30, 2016

Contractors [Abstract]

Percentage of Completion Contracts

Percentage-of-Completion Contracts

We account for our long-term early production facility construction contracts in Iraq under the percentage-of-completion method. In the second quarter of 2016, we recognized an estimated project income of $52 million for our Zubair contract, and in the first six months of 2016 we are break-even. Cumulative estimated loss from the Iraq contracts was $532 million as of June 30, 2016.

On May 26, 2016, we entered into an agreement with our customer containing the terms and conditions of the settlement on the Zubair contract. The settlement to be paid to us is a gross amount of $150 million, of which $62 million was received in the second quarter 2016, and includes variation order requests, claims for extension of time, payments of remaining contract milestones and new project completion timelines that resulted in relief from the liquidated damages provisions. Of the remaining gross settlement, we expect to collect $72 million in the second half of 2016 and the last $16 million in the first quarter of 2017.

As of June 30, 2016, we have no claims revenue, and our percentage-of-completion project estimate includes $25 million in newly approved change orders and $32 million of back charges. Our net billings in excess of costs as of June 30, 2016 were $39 million and are shown in the “Other Current Liabilities” line on the Consolidated Balance Sheet.

In the second quarter and the first six months of 2015, we recognized estimated project losses of $69 million and $27 million, respectively, related to our long-term early production facility construction contracts in Iraq accounted for under the percentage-of-completion method. Cumulative estimated losses on these projects were $406 million at June 30, 2015. As of June 30, 2015, our percentage-of-completion project estimates include$137 million of claims revenue and $21 million of back charges.