McDermott Inks Shipyard Contract

Hydro Marine Services, Inc. – a subsidiary of energy-focused engineering and construction firm McDermott International Inc. (MDR - Analyst Report) has inked a contract with Keppel Singmarine Pte Ltd. for the construction and design of deepwater pipelay (S-Lay) vessel of high specification. The latter is a subsidiary of Singapore-based Keppel Offshore & Marine Ltd.

The S-Lay vessel is a dynamically-positioned vessel with a 2,000-ton crane. This high-spec vessel is provisionally named Derrick Lay Vessel 2000 or DLV2000. It will be constructed in Singapore and is slated to be delivered within 2.5 years.

DLV2000, which will be developed by Marine Technology Development (MTD), the company’s ship design arm – will be able to support advanced deepwater pipelay operations thereby allowing pipelines to be installed at depths of up to 10,000 feet. The transit speed of this vessel is expected to be 12 knots, which can go to a maximum level of up to 14 knots. The vessel is also expected to carry up to 400 personnel.

DLV2000 – will be the second newly built vessel for the McDermott fleet. Earlier in August, the company had signed a deal for the construction of High Capacity pipelay vessel. The vessel was tentatively named Lay Vessel 108 or LV108.

Incorporated in 1959, Houston, Texas-based McDermott International 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 of the major offshore oil and gas producing regions, including the U.S., Mexico, Canada, the Middle East, India, the Caspian Sea and Asia Pacific.

McDermott currently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating. We are also maintaining a long-term Underperform recommendation on the stock.

Based on the company’s exclusive focus on the offshore oil and gas business and the tentative commodity price outlook, we harbor a cautious sentiment for the company over the near term. We further believe that the transfer of the ‘Power Generation Systems’ and ‘Government Operations’ segments into a separate, independent and publicly traded entity – The Babcock & Wilcox Company (BWC - Snapshot Report), has left McDermott with a less diversified business, thereby heightening its risk profile.