McDermott International, Inc. MDR jumped 12.6% yesterday after it announced positive news regarding the Cameron LNG project, located in Hackberry, LA. The company, along with Chiyoda International Corporation — its joint venture (JV) partner in the project — reported that the liquified natural gas (LNG) project’s Train 1 has reached the final commissioning stage, marking a significant milestone.
Significance of the Milestone
The recent development bodes well for the company. Notably, McDermott had been suffering for a long time due to the Cameron LNG project’s cost overruns. In the fourth quarter, the company incurred $168-million charge in overruns from the project. In third-quarter and second-quarter 2018, the company incurred additional costs of $482 million and $165 million, respectively, for the project. Unfavourable labor productivity, and rising subcontracts, commissioning and construction management costs were the reasons behind these changes in estimates.
McDermott has miles to go before it can heave a sigh of relief as it has to manage other troubled projects and effectively integrate Chicago Bridge & Iron, which was acquired by the company during 2017-end. However, the latest achievement will definitely ease pressure on the equipment and service provider.
The train 1, once it comes fully online, is expected to produce 4 million tons of LNG per annum. The project requires to add two more trains at a later stage. Once completed, the project is expected to produce almost 12 million tons of LNG per year.
In 2014, the JV was awarded the contract, valued at around $6 billion, to construct the Cameron LNG Project. McDermott’s scope of work on the project incorporated engineering, procurement and construction activities for the addition of liquefaction and export facilities. The recent development in the project includes the introduction of pipeline feed gas into the Train 1 of the export facility.
The Cameron LNG project is owned by the subsidiaries of Sempra Energy SRE, TOTAL S.A. TOT and Mitsui & Co. Ltd., and a joint venture by Mitsubishi Corporation and Nippon Yusen Kabushiki Kaisha.
McDermott has lost 45.7% in the past year compared with 31.3% collective fall of the industry it belongs to.
Zacks Rank and Stock to Consider
McDermott currently carries a Zacks Rank #3 (Hold). Investors interested in the energy sector can opt for a better-ranked stock as given below:
Houston, TX-based Dril-Quip, Inc. DRQ is an equipment and services provider for energy companies. For 2019, its bottom line, which has witnessed five upside revisions over the past 60 days, is expected to grow 81% year over year. The company currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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