McDermott Slashes Full-Year Capital Spending Plans as Ichthys, Other EPC Projects Face Delays

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Researched by Industrial Info Resources (Sugar Land, Texas)--Solid revenues from major projects in Australia and the Middle East spurred profits for McDermott International Incorporated (NYSE:MDR) (Houston, Texas) in second-quarter 2015. But the oil & gas services company lowered its estimates for full-year revenues and capital spending, cutting the latter more than 50% as major projects faced delays. Industrial Info is tracking $3.9 billion in active projects involving McDermott, including the Ichthys Field development in Australia.

Capital expenditures for the second quarter stood at $24.01 million, compared with $117.06 million in second-quarter 2014. McDermott's backlog was reported to total $3.13 billion, compared with $4.06 billion in the same period last year. Order intake in second-quarter 2015 included new awards from PEMEX (Mexico City, Mexico) in the Mexican Gulf of Mexico; LLOG Exploration Offshore (Houston, Texas) in the U.S. Gulf of Mexico; and Saudi Aramco (Riyadh, Saudi Arabia) in the Persian Gulf.

Industrial Info is tracking Saudi Aramco's $500 million construction of offshore platforms in the Persian Gulf's Safaniya Field, on which McDermott is performing engineering, procurement and construction (EPC) work. The project, which is expected to be completed in second-quarter 2016, involves constructing and installing a new tie-in platform; two auxiliary platforms; several jackets and bridges; five observation platforms; 72 kilometers of pipelines; and 45 kilometers of subsea cables. McDermott also is contracted to perform brownfield work, which includes enhancing, adding to and maintaining current producing fields.

"We were awarded two new sizable and one large award during the [quarter], and most importantly, we were once again selected by Saudi Aramco to participate in their new long-term agreement," said David Dickson, the president and chief executive officer of McDermott, in a conference call. "This was a significant achievement for McDermott, and ensures that we will have the opportunity to bid on future Saudi Aramco greenfield and brownfield projects through 2021."

Net income was reported to be $11.53 million, compared with net losses of $7.4 million in the second-quarter 2014; revenues stood at $1.05 billion, compared with $476.08 million in the same period last year. The strongest revenues came from the Ichthys project; Royal Dutch Shell plc's (NYSE:RDS.A) petroleum project in Brunei; and several other projects in the Middle East.

Ichthys, Other Delays Diminish Capex, Revenue Outlook
Capital-expenditure estimates for full-year 2015 were more than halved from estimates in March to between $130 million and $140 million, largely due to construction delays on the Derrick Lay Vessel 2000, which is being built in Singapore to support advanced deepwater pipeline construction. McDermott executives noted that low commodity prices have made the timing of new orders less predictable.

"The drop in capital expenditures in 2015 is attributable to the Derrick Lay Vessel 2000 delay in construction," said Stuart Spence, the executive vice president and chief financial officer of McDermott, in the conference call. "It's all going to move to the first quarter of 2016. Today, when we look at capital expenditures, we set a very high hurdle rate, and we also want to link any capital to a project that's just been awarded. So we'll continue that approach as we move forward, and we will continue to look to conserve cash as we manage our way through this lower-for-longer cycle."

McDermott also lowered its guidance for full-year revenues to between $3 billion and $3.3 billion, compared with the March estimate of between $3.3 billion and $3.6 billion. Executives cited first-quarter delays at the subsea development of the Ichthys Field in the Browse Basin, offshore Western Australia, earlier in the year as the major reason for the reduced expectations. McDermott is performing EPC and installation work on the project, which has a total investment value of $1.83 billion and is designed to supply an 8.4 million-tonne-per-year liquefied natural gas (LNG) production plant in Darwin, via a 552-mile pipeline.

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