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McDermott (MDR) Scoops Up FEED Contract for Oman LNG Project

Zacks Equity Research

McDermott International, Inc. MDR recently clinched a front-end engineering and design (FEED) contract from TOTAL S.A TOT in partnership with Oman Oil Company S.O.A.C for the Oman LNG project. Per the contract, McDermott will design the LNG bunkering project at Sohar port in Oman. The project is likely to establish Oman as a regional LNG bunkering hub capable of supplying LNG as a fuel to marine vessels.The contract value — which is expected within $1-$50 million — will be reflected in the company’s second-quarter 2019 backlog.

Recognized as one of the fastest LNG projects to come to fruition, the Oman LNG project operates three liquefaction trains with a total capacity of 10.4 million tons per year. Notably, last year, TOTAL had announced plans to set up a LNG bunkering service at the Sohar port with an initial capacity of around 1 million tons per year.

Slew of Contracts to Boost McDermott’s Backlog Amid Headwinds

For McDermott, the latest contract comes on the heels of another FEED contract that the company clinched a day before from Qatar Petroleum for the offshore North Field expansion project. The value of that contract, ranging within $1-$50 million, will also be reflected in the company’s second-quarter 2019 backlog. 

McDermott’s significant presence in countries where state-owned entities continue to scout for production growth and new resources is helping the company to win contracts regularly. It recently won more than $4.5 billion worth of EPCI contracts, associated with Saudi Aramco’s Marjan Increment Development project. The value of these contracts will also be reflected in McDermott’s second-quarter 2019 backlog.

While contract wins will further boost McDermott’s already impressive backlog, which came in at $15.4 billion at the end of first-quarter 2019, there are multiple headwinds hounding the Zacks Rank #4 (Sell) stock.High leverage ratio of 83% and cost overruns on its Cameron LNG project have dampened investors’ sentiments. McDermott expects cash flow deficit of around $470 million in 2019. Shares of the oilfield equipment provider have plunged 43% over a year. While strong backlog and its merger with Chicago Bridge bode well, execution issues, weak financials along with bleak cash flow outlook may play spoilsports.

Interested to Own an Oilfield Service Stock? Check Out These

Investors interested in oilfield service stocks can consider Helix Energy Solutions Group, Inc. HLX and Oceaneering International OII, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Helix managed to beat earnings estimates in three out of the trailing four quarters, with an average positive surprise of 71.88%. The company’s earnings per share are expected to grow 52.63% y/y in 2019.

Oceaneering surpassed earnings estimates in each of the trailing four quarters, with an average of 49.7%. The company’s top line is expected to grow 12.64% y/y in 2019.

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