McDermott Scoops Up EPC Contract For Mozambique LNG Project

McDermott International, Inc. (NYSE:MDR) recently clinched a major engineering, procurement and construction (EPC) contract for Anadarko Petroleum Corporation’s (NYSE:APC) Mozambique LNG project. Texas-based Anadarko awarded the multibillion-dollar LNG project to CCS joint venture (JV), comprising Italy’s Saipem, Japan-based Chiyoda Corporation and McDermott. Notably, the CCS JV has completed contracts for more than 40% of LNG production projects across the world.

Per the Mozambique LNG deal, the CCS JV will engineer and construct a two-train LNG facility (with a total rated capacity of 12.88M million tons per year), along with associated utilities and infrastructure like storage tanks and export jetties. Per McDermott, its initial share of the EPC contract is $2 billion. The contract will be reflected in McDermott’s backlog after Anadarko makes a final investment decision on the project, which is expected in June 2019.

Investors should note that post Occidental Petroleum’s (NYSE:OXY) acquisition of Anadarko, the former will sell Mozambique assets to French energy biggie TOTAL S.A. (NYSE:TOT) , which is likely to gain the ownership of the project next year.

Markedly, McDermott inherited the LNG business with the acquisition of Chicago Bridge and Iron in 2018. While the buyout has added onshore services to the offshore-focused portfolio, cost overruns and project delays of LNG projects are denting the company’s overall profits. Shares of McDermott have plunged more than 68% over the past year amid stretched balance sheet, and poor execution issues associated with Cameron and Freeport LNG projects. Resultantly, it lagged earnings estimates in three out of the trailing four quarters.

On a positive note, the Zacks Rank #3 (Hold) company has an impressive $15.4-billion backlog, which will position it to become a powerhouse in the energy construction business in the long term.However, investors should be prepared for volatility until it displays strong and efficient project execution. While McDermott has a lot on its plate that may boost the firm’s earnings and revenue prospects, execution issues, weak financials and bleak cash flow outlook may play spoilsports. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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