Struggling McDermott Outlook Amid Volatile Construction Sector
The former director said he expects McDermott’s EPC (engineering, procurement and construction) business to continue to come under pressure as large companies rethink major projects due to volatility and big project losses in the market.
But this pressure will be twofold, the former McDermott employee said, as Chinese EPC companies such as Sinopec Corp continue to gain more recognition internationally and secure major projects in places like the Middle East. These Chinese firms also have considerably lower budgets, with the former Lummus head warning they have the ability to underbid US companies by as much as 30-40% – maybe more.
The Interview delved into McDermott’s current financial woes and historic problems with completing big projects. Discussing the firm’s CB&I execution issues on legacy contracts, the ex-director warned the firm has a tendency to underestimate projects in terms of scale.
However, the construction specialist forecasts McDermott will be better prepared to complete the remaining sections of its Cameron and Freeport projects after learning some hard lessons – and could aim for at least a 10% schedule reduction.
Debating the company’s ability to turn its fortunes around, the former Lummus head said McDermott is taking steps to reign back on being an aggressive bidder for projects, while it is also implementing more stringent oversight and risk control policies and procedures, which should result in its estimates being more controlled.
The Interview also examined how the Houston-based construction firm will address its balance sheet going forward. With its market cap decreasing substantially, the former director believes the company will be forced to sell many of its assets to stay afloat – with its crowning glory Lummus being a possible sell off at around $2.5bn.
To access all the human insights from Third Bridge’s McDermott International – 2019 Strategy Update Interview, click below to view the full transcript.
The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.
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