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McDermott (MDR) Inks Construction Deal with Saudi Aramco

Zacks Equity Research

Energy-focused engineering and construction firm McDermott International Inc. MDR recently announced its intention to make offshore manufacturing investment in Saudi Arabia. To this end, the company has signed a memorandum of understanding with Saudi Aramco to construct fabrication and marine complex at Ras Al Khair in Saudi Arabia’s east coast.

The cost of construction of the complex is estimated to be more than $5 billion. McDermott intends to build avant-garde facilities with upgraded technology and increased automation. The future fabrication capacity is expected to be 16 million man-hours as against 8 million man-hours at Mc Dermott’s current Jebel Ali facilities.

Deal Objective

The deal will help Saudi Aramco to expand its local supply chain and improve its relationship with McDermott. It will bring about efficiencies along with increasing the local production and export of energy goods and services.

The project is also in sync with the Saudi Arabia’s 2030 Vision and its In-Kingdom Total Value Add (IKTVA) program. The program aims to enhance the domestic value creation of the country and maximize long-term diversified economic growth. This deal with Mc Dermott will create more job opportunities and lead to workforce development, boosting Saudi Arabia's economy.

The agreement will enable McDermott to strengthen its footprint in the Middle East markets, while boosting its strong and long-standing relationship with Saudi Aramco. The company aims to expand capacity in other regional markets by imparting world-class training to the workforce of Saudi Arabia.

Zacks Rank and Other Stocks to Consider

Incorporated in 1959, Houston, TX-based McDermott is an engineering and construction company that solely focuses on the offshore oil and gas business. McDermott is primarily engaged in worldwide offshore oil and gas field developments, including the front-end design and detailed engineering, fabrication and installation of offshore drilling and production facilities. It also engages in the installation of marine pipelines and subsea production systems.

 

McDermott has outperformed the Zacks categorized Oil & Gas-Mechanical and Equipment industry over the prior six months. During the aforesaid period, shares of McDermott rallied around 30%, while the broader industry gained around 8%. The company currently carries a Zacks Rank #2 (Buy).

Other favorably placed stocks in the broader industry include SemgroupCorporation SEMG, Crescent Point Energy Corporation CPG and Pioneer Natural Resources Company PXD. All the three companies sport a Zacks Rank #1(Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Semgroup had average positive earnings surprise of 79.10% in the last four quarters.

Crescent Point Energy reported positive earnings surprise in each of the four preceding quarters with an average beat of 127.16%.

Pioneer Natural Resources is expected to deliver year-over-year growth of 1086.4% in its earnings in 2017.

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