McDermott Plunges 26.7% On Cameron LNG Project Cost Surge
Zacks Investment Research | Feb 13, 2019 08:33PM ET
McDermott International, Inc. (NYSE:MDR) plummeted 26.7% yesterday following the announcement of incurring a $168-million charge for cost overruns on the Cameron LNG project. The charge is expected to be reflected in the company’s fourth-quarter and full-year 2018 results, which is scheduled to be reported on Feb 25. The project under construction is expected to produce liquefied natural gas (LNG) of almost 14 million tons per year, once completed.
Cameron LNG Cost Overruns
Unfavourablelaborproductivity, as well as rising subcontracts, commissioning and construction management costs were the reasons behind the change in estimate. Notably, in second-quarter and third-quarter 2018, the company incurred additional costs of $165 million and $482 million, respectively, for the Cameron LNG project. Although the changes did not affect its net income during the quarters, delivering projects on budget still remains a target for the company. The latest overrun has further weakened investors’ confidence, as reflected in the recent price slump.
For the Cameron LNG project located in Hackberry, LA, McDermott entered into a joint venture (JV) with Chiyoda Corp. The JV was awarded the contract, valued at around $6 billion. McDermott’s scope of work on the project incorporates engineering, procurement and construction activities for the addition of liquefaction and export facilities.
Project on Schedule
The Houston, TX-based equipment and service providing company for upstream energy firms stated that the project is on track with its construction works. The facility is expected to receive feed gas in the first quarter of 2019, marking a major milestone. Notably, as a crucial step for commissioning of the Train 1, the solo run for gas turbine in the project was accomplished ahead of schedule. Moreover, cold circulation of hot oil in Train 1 and flare ignition tests were successfully accomplished in the first quarter. The project requires to add two more trains at a later stage.
Price Performance
McDermott has lost 70.8% in the past year compared with 28.2% collective fall of the Zacks Investment Research
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