Turnaround Letter-recommended McDermott (NYSE:MDR) announced that it will incur $168 million in additional cost over-runs at its Cameron LNG project in Louisiana. While the shares fell 27% yesterday, the stock remains up 4% year-to-date. This temporary setback does not change our favorable view of McDermott’s turnaround, led by CEO David Dickson who successfully turned around legacy McDermott prior to its 2018 acquisition of CB&I.
When completed, the Cameron LNG facility will convert natural gas into liquified natural gas (LNG) for export, as well as regassify LNG imports into natural gas. The construction project, with an estimated contract value of $6 billion, is a 50-50 joint venture with Chiyoda Corporation, a major Japanese LNG engineering firm.
McDermott inherited the troubled project when it acquired CB&I. Cameron has experienced significant delays and cost over-runs, producing a $482 million over-run charge in the third quarter 2018. As of September 30, 2018, the project was estimated to be 83% complete. McDermott will incur a loss on the project overall, which remains on-track to reach its next milestone and is currently targeted for completion this calendar year.
Located in Hackberry, Louisiana, near the Texas border, the Cameron LNG will connect to the Gulf of Mexico through about 18 miles of waterways. The facility’s owner/operators are Sempra LNG & Midstream, Mitsui & Co., Mitsubishi Corporation, Total, and NYK Line.
McDermott will provide a more detailed update on their February 25, 2019 quarterly earnings call.
We continue to rate shares of McDermott International (MDR) a BUY up to 28.50.
Disclosure Note: An employee of the Publisher owns MDR shares.