McDermott Collaborates with Baker Hughes for BP Contract

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Oilfield service providers McDermott International, Inc.MDR and Baker Hughes, a GE company BHGE are set to team up to provide integrated energy services for the supermajor BP plc's BP West African gas project, offshore Senegal and Mauritania.

Contract Details

McDermott and Baker Hughes will be required to conduct front-end engineering design (FEED) studies for BP's Tortue/Ahmeyim gas field development. The initial phase of the project will require McDermott to handle the subsea umbilicals, risers and flowlines aspects. Meanwhile, Baker Hughes will concentrate on defining the scope for the subsea production system. The FEED studies are likely to be completed by this year.

Later, the partnership agreement between the McDermott and Baker Hughes will be converted to an engineering, procurement, construction and installation (EPCI) contract wherein both the companies will provide optimized and integrated solutions for BP's project. The agreement marks the first EPCI contract for both McDermott and Baker Hughes in West Africa for BP.

The integrated solutions are likely to provide a sound technical solution for BP's project with higher efficiency and productivity within budget. McDermott values the contract between $500 and $750 million. This is the second deal the Zacks Rank #3 (Hold) company has secured from BP this month after landing a contract for the Cassia C Compression Platform from BP Trinidad & Tobago, LLC. You can see the complete list of today's Zacks #1 Rank stocks here.

Sector Consolidation Picks Up

The partnership between McDermott and Baker Hughes will position them better to compete with other biggies like Schlumberger Ltd. SLB and TechnipFMC. A wave of consolidation has hit the industry in the last couple of years amid the oil slump, in order to take advantages of integrated offerings, increased scale, synergies and new capabilities.

Notably, Technip and FMC Technologies completed their merger early last year that has resulted in substantial savings for the combined entity, while offering unique integrated offshore project solutions. Importantly, Schlumberger, which closed its merger with Cameron International Corp. for $14.3 billion in 2016, is set for a joint venture (JV) with Subsea 7 S.A. to provide clients with better subsea installations and oilfield services.

As such, Baker Hughes and General Electric also closed their merger last year to create one of the world's largest oilfield service providers in terms of revenues. Further, McDermott's merger with its onshore peers, Chicago Bridge and Iron is set to close by the second quarter this year.

The service providers believe that mergers and acquisitions will help them cut their average costs, and benefit from mutual technical expertise exchange.

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McDermott International, Inc. (MDR): Free Stock Analysis Report

Schlumberger Limited (SLB): Free Stock Analysis Report

BP p.l.c. (BP): Free Stock Analysis Report

Baker Hughes Incorporated (BHGE): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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