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McDermott Inks EPCI Deal

Zacks Equity Research

A subsidiary of energy-focused engineering and construction firm McDermott International Inc. (MDR) has inked a contract for Mexico’s state oil monopoly Petroleos Mexicanos, or Pemex’s PB-Litoral-A production platform. This platform will serve the Litoral Tabasco Tsimin-Xux fields.

Estimated at $230 million, the engineering, procurement, construction and installation (:EPCI) contract will form part of McDermott's fourth quarter 2012 backlog.

Per the deal, McDermott is entitled to front-end engineering design, detailed engineering, procurement, fabrication, load-out, sea fastening, transport, installation and hook-up. The company will also be responsible for commissioning and start-up of an eight-legged 1,800-ton jacket, 4,500-ton topsides and 2,000 tons of tripods, bridges and piles.

After commissioning work, McDermott will train Pemex personnel for operation and maintenance of the facility. Total weight of the facility is approximately 8,300 tons. McDermott will also carry out bridge and piping tie in along with brownfield work on the CA-Litoral-A HP compression platform.

The engineering work is expected to start in early 2013 and the project will be completed by second quarter 2015. McDermott’s Houston and Chennai engineering offices will undertake the engineering work while fabrication will be carried out at Altamira, Mexico.

Incorporated in 1959, Houston, Texas-based McDermott International Inc. is an engineering and construction company, solely focused on the offshore oil and gas business. McDermott primarily serves the worldwide offshore oil and gas field developments, including front-end design and detailed engineering, fabrication and installation of offshore drilling and production facilities, as well as installation of marine pipelines and subsea production systems.

Additionally, the company provides project management and procurement services. It operates in most of the major offshore oil and gas producing regions, including the U.S., Mexico, Canada, the Middle East, India, the Caspian Sea and Asia Pacific.

However, we believe that 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.

McDermott, which currently retains Zacks Rank #3 (Hold), shares business ties with Williams Partners L.P. (WPZ).

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