Posted on 08/27/2015 12:50:13 PM PDT by thackney
Offshore engineering company McDermott International’s stock shot up by more than 30 percent Wednesday after the company said it had landed a $1.5 billion-plus contract with Saudi Aramco.
McDermott CEO David Dickson called the contract an important step in a turnaround for the Houston-based company, which as recently as 2013 had been struggling to build offshore platforms and support structures profitably. Investors sent the company’s shares up $1.03 to $4.49 in midday trading Thursday.
“We had a tough time through the end of 2013; 2014 was a real turnaround,” Dickson said in an interview with FuelFix. He joined McDermott in December of 2013.
“This strengthens our position in Middle East. It really strengthens our position in Saudi Arabia, and it gives us business through 2018,” he said.
McDermott didn’t disclose the exact value of the lump-sum contract, but said it was greater than $1.5 billion. It calls for McDermott to provide a range of services over the next three years, including replacing 13 offshore support structures and 13 platform decks, and upgrading 20 existing platforms.
The contract adds to McDermott’s ties to Saudi Aramco, Saudi Arabia’s national oil company. McDermott inked a broader agreement in June to provide services for the Kingdom’s existing offshore oil fields, and the company says further contracts with the world’s largest oil company are in the works.
Saudi Aramco has boosted its production despite an oil price collapse that has threatened producers — and offshore engineering contracts — in other parts of the world.
Dickson stressed that his company’s newly secured contracts likely wouldn’t be affected by low prices because they cover low-cost fields already in production.
“Because it is brownfield, and because it’s about maintaining existing production, we see a lot of that activity continuing,” he said. “In this current climate we’re very happy about it.”
About 90 percent of McDermott’s business comes from international contracts, many of which are with state-owned companies. The company has also expanded with a sub-sea construction business, and is helping to construct liquefaction facilities used to export natural gas.
Shares of McDermott have gained about 56 percent so far in 2015, including today’s sharp gain. But the company remains challenged by low oil prices that have shrunk the amount of money producers are willing to sink into expensive construction projects.
McDermott’s stock is still down about 30 percent year-over-year. Market values are sliding for most companies serving the oil and gas industry.
In early 2015, McDermott said it cut about 12 percent of its 14,000 employees globally. The job cuts included 48 corporate positions in Houston, but all of the skilled labor job cuts came outside of the U.S.
On Thursday, Dickson said the company is hiring again, but that the new jobs will be in the Middle East.
“We’ve come a long way. As of 18 months ago we were in our own downcycle. Today were in the same cycle as everyone else,” he said. “The awards we’ve got today are going to be a significant help as we manage through this.”
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