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McDermott International's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Stocks in this article: MDR

In total, the net impact was about $66 million negative. None of the items had a taxable impact, so the operating income effect dropped straight to the bottom line. Clearly, the 2 major negatives were the Atlantic projects that we discussed in some detail in late October. They represent over 90% of the gross charges this quarter, so they are worth talking about further. As you may recall, both our marine projects entered into during 2011 that are utilizing previously-idled vessels, and the work on this projects hadn't begun as of the third quarter last year. Beyond that, the issues are largely unique to each project so let me take them one at a time.

The largest negative impact this quarter was the pipelay project in Mexico under contract to PEMEX. In addition to our DB16 vessel, we also have a subcontracted dynamically-positioned support vessel working with us. As you may recall, the project was awarded in the early spring of 2011 and we were expecting to complete it by the fall of that year. Before the difficult weather that is characteristic of the winter months, unfortunately, we experienced delays beginning the project due to a summer tropical storm, combined with customs clearance and site access issues in Mexico. This delay moved the project into challenging weather months. As such, in our third quarter results, we increased the expected marine days necessary to complete the job by over 50% for our DB16 pipeline barge.

However, in late October 2011, our vessel still hadn't begun pipelay work. We started in mid-November. And as it turns out, the weather we experienced was worse than the third quarter forecast. Further, the repeated starting and stopping associated with the weather downtime resulted in productivity at subpar levels. With actual time and experience now under our belts on the project, we have again increased the days expected to be necessary to finish out this project. This time, more substantially reflecting our actual experience on the project through mid-February, as well as our expectations for the remainder of the project.

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