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McDermott (MDR) Secures New EPCI Contract in Arabian Gulf


Energy-focused engineering and construction company McDermott International, Inc. MDR recently announced that it has received an engineering, procurement, construction and installation ("EPCI") contract from a customer in the Middle East. The news follows the company's strong third-quarter results, which showed a 72% year-over-year increase in quarterly revenues.

McDermott's customer in the Middle East, possibly Saudi Aramco, has provided the contract for a project in the Safaniya oil field in the Arabian Gulf. Although the financial details of the deal are yet to be announced, the project is expected to be worth $750 million to $1.5 billion. It is part of Saudi Aramco’s new $4.5 billion worth energy-related agreements.

McDermott will start working on the project immediately. Per the company, the impact of the project will be reflected in its fourth-quarter 2017 backlog. In this context, we would like to remind investors that as of Sep 30, McDermott had a backlog of $2.4 billion. While 85% of the total backlog is related to offshore operations, the remaining 15% pertains to subsea operations.

The company's strong foothold in the Middle East is expected to enable it to execute the project smoothly with its engineering and procurement teams in Dubai, Chennai and Al Khobar, Saudi Arabia. Per the company, its facilities in Saudi Arabia's Dammam and Jebel Ali, located in Dubai will carry out the construction work while its vessels will be charge of installation.

About McDermott

Incorporated in 1959, Houston, TX-based McDermott 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 the 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 major offshore oil and gas producing regions under three main reporting segments: Asia Pacific, Americas and the Middle East.

We appreciate McDermott’s broad product portfolio, diversified geographical footprint, good market position and strong relationship with national oil companies. However, due to the company’s exclusive focus on the offshore oil and gas business and the uncertain commodity price scenario expected over the next few quarters, investor sentiment toward the company is likely to remain lukewarm.

Price Performance

McDermott has gained 3.4% year to date against 20.7% fall of its industry.

Zacks Rank and Stocks to Consider

McDermott has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the oil and energy sector include Braskem S.A. BAK, ConocoPhillips COP and Denbury Resources Inc. DNR. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Braskem’s sales for 2017 are expected to increase 12.1%% year over year. The company delivered an average positive earnings surprise of 47% in the last four quarters.

ConocoPhillips’ sales for the fourth quarter of 2017 are expected to increase 2.7% year over year. The company delivered an average positive earnings surprise of 152.3% in the last four quarters.

Denbury Resources’ sales for the fourth quarter of 2017 are expected to increase 4.8% year over year. The partnership delivered an average positive earnings surprise of 125% in the last four quarters.

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