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McDermott Plunges 26.7% on Cameron LNG Project Cost Surge

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McDermott International, Inc.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 industry it belongs to.

Zacks Rank and Stocks to Consider

McDermott currently carries a Zacks Rank #3 (Hold). Investors interested in the energy sector can opt for some better-ranked stocks as given below:

San Antonio, TX-based NuStar Energy L.P. NS is a midstream energy company. For 2019, its bottom line, which has witnessed three upside revisions over the past 30 days, is expected to grow 64.2% year over year. The company currently holds a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Madrid, Spain-based Repsol, S.A. REPYY is an integrated energy company. Its bottom line for 2019 is expected to increase 13.7% year over year. The company delivered average positive earnings surprise of 9% in the trailing four quarters. The stock currently has a Zacks Rank #2.

Enbridge Inc ENB is a Calgary, Canada-based energy infrastructure provider. The company delivered average positive earnings surprise of 33.2% in the trailing four quarters. It currently has a Zacks Rank #2.

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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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