Fluor has reached an agreement to pay $14.5 million to the US Securities and Exchange Commission (SEC) to settle charges related to "improper accounting" on two projects, including the Shell Penguins FPSO (Floating Production, Storage, and Offloading vessel) in the North Sea. This settlement also involves five former and current officers and employees.

The two projects in question were the design and construction of the FPSO for the Penguins field in the North Sea and a facility for the US Army. According to the SEC, Fluor provided bids that relied on "overly optimistic cost and timing estimates and subsequently experienced cost overruns that worsened over time."

Fluor noted that the agreement neither admits nor denies the SEC's findings. The company does not expect this settlement to impact its earnings, as it had set aside reserves to cover the penalty in 2022.

Fluor won the contract for Shell's Penguins FPSO in December 2017, valued at $491.7 million. The FPSO is currently located in Norway and represents Shell's first new manned vessel in the UK in 30 years.

The SEC highlighted issues with the subcontractor bid, which was responsible for the fabrication of the FPSO and accounted for 25% of the project's cost. The subcontractor's binding bid had expired by the time Fluor submitted its final bid, forcing the company to finalize the deal after signing the fixed-price contract.

By May 2018, Fluor personnel had concluded that the company would incur a loss on the FPSO project due to significantly higher subcontract costs than anticipated. Despite these challenges, the company recorded a project gross margin of $23.5 million, despite significant changes in circumstances.

Fluor's failure to account for the problems on these projects under US generally accepted accounting principles (GAAP) led to an overstatement of its net earnings by up to 37% from 2016 to early 2019. The delayed loss on the second project resulted in an overstatement of earnings in the second quarter of 2018 by 22%.

Five individuals, including Fluor's CFO Bradley Scott, were named in the settlement, with penalties ranging from $15,000 to $25,000. Fluor stated that the two projects in question are now largely completed, and the company has taken steps to address the issues raised by the SEC.

Fluor's chairman and CEO, David Constable, said, "Bringing closure to the SEC investigation is in the best interests of our key stakeholders, including our shareholders."

The Shell Penguins FPSO has faced delays in its first oil production, with Shell's CEO expecting the FPSO to leave Norway in 2024.