MDR McDermott International Inc

Recently, energy-focused engineering and construction firm McDermott International, Inc. (MDR) received a major subsea contract from Murphy Sabah Oil Co., Ltd. Although none of the companies disclosed the financial terms of the deal, McDermott has included the contract’s value in its first quarter 2012 backlog.

Per the deal, McDermott will provide engineering, procurement, construction, transportation, installation and commissioning services to be utilized for the subsea infrastructure of the Siakap North - Petai ("SNP") Development Project in Malaysia. McDermott will execute the deal through its Malaysian arm – Berlian McDermott Sdn. Bhd

The scope of the contract includes works of rigid flowlines, flexible risers, an umbilical and subsea hardware and controls. McDermott will also set up five water injection and eight production wells that will be drilled from the manifolds at each of the four drill centre units.

Located in proximity to the Kikeh field, northwest of Labuan Island the SNP field is at a water depth of 3,900 - 4,900 feet and is operated by Murphy Sabah Oil Co. Ltd. The SNP field comprises two rigid, insulated, pipe-in-pipe production flowlines as well as one rigid water injection flowline. There is also one main umbilical system that connects eight new manifolds and subsea distribution units to existing riser slots on the Kikeh Floating Production, Storage and Offloading(FPSO) facility.

Extensive engineering and procurement works for the project are on track. Other works including fabrication of PLETs, jumpers and other installation aids is slated to start in the third quarter of 2012.

McDermott management stated that in-depth knowledge about subsea engineering and construction vessels along with track record of fabrication activity at the Batam Island facility aided the contract win.

McDermott currently retains a Zacks #3 Rank, which translates into short-term Hold rating. We are also maintaining a long-term Neutral recommendation on the stock.

We think McDermott’s improving award activity, geographic footprint in high-growth regions, and continued strong project execution provide solid visibility into its earnings for 2012 and 2013.

However, the transfer of the ‘Power Generation Systems’ and ‘Government Operations’ segments into a separate, independent and publicly traded entity The Babcock & Wilcox Company (BWC) has left McDermott with a less diversified business, thereby heightening its risk profile.

 
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