McDermott International, Inc. (NYSE: MDR) announced today an update to certain operational matters. Through working capital management, the Company maintained its previously reported liquidity and leverage position at the end of March 2014 compared to amounts previously reported at the end of February 2014. Specifically, as of March 31, 2014, the Company had approximately $320 million of total cash, cash equivalents, restricted cash and investments and $307 million of total funded debt, including $250 million of borrowings under the Company’s credit facility and $57 million of separate vessel financing. The Company recently achieved significant operational milestones on several key projects, including:
- Malaysia (Siakap) Project – Pipe and subsea structure installation has been completed. The customer received first oil in February 2014, and the vessel North Ocean 105 has demobilized from the field. The Company expects mechanical completion in early April 2014. Although this project resulted in financial losses recorded in 2013, it was a major technical achievement of complex pipe-in-pipe and subsea structure installation in over 5,000 feet of water.
- Brazil (Papa Terra) Project – The installation of the extended tension leg platform was completed in March 2014 and the vessel DB 50 has demobilized from the field. This facility is a significant operational achievement because it includes the first dry tree in deepwater Brazil.
- Azerbaijan (COP) Project – The Company has progressed work as expected and continues to expect to complete the limited remaining offshore work by mid-May 2014.
- Australia (Ichthys) Project – The Company remains on schedule for fabrication operations in the Batam, Indonesia fabrication yard and anticipates the commencement of the offshore installation operations in the third quarter of 2014. McDermott’s work has resulted in the customer recognizing us as a leader among the program contractors, and the Company expects the work on the project will be a major subsea achievement for the Company.
The Company continues to expect the operating profit margins of projects in backlog to be in the low single digits, which does not cover the Company’s restructuring costs or a portion of the Company’s fixed costs for direct operating expenses and general and administrative expenses. All ongoing contracts and unresolved change orders are reviewed at the end of each quarter to assess performance, progress and likelihood of successful resolution and it is determined if there is any need for adjustments to estimates. While this review for the first quarter of 2014 will be conducted over the next few weeks, the Company is not aware, as a preliminary matter, of any issues that are believed to give rise to additional material losses on contracts, due to write-downs of change orders or otherwise, that, after taking into account offsetting positive developments, would materially and adversely impact the Company’s expectations regarding the first quarter of 2014. The Company’s preliminary estimates are based on various assumptions and on the Company’s review of preliminary financial results for only two months of the quarter, and the full quarterly results will be based, in substantial part, on estimates and assumptions as of (and, in some cases, particularly with respect to contracts in a loss position, subsequent to) March 31, 2014. Accordingly, it is possible that actual first quarter 2014 results will differ substantially from the Company’s current expectation. In addition, the Company’s preliminary estimates relating to the first quarter of 2014 and the related assumptions do not give effect to the Company’s financial closing procedures. The Company expects to complete its financial closing procedures for the quarter ended March 31, 2014 in May 2014, and those procedures may also result in actual first quarter 2014 results differing substantially from current expectations. Accordingly, one should not place undue reliance on the Company’s preliminary statements relative to the first quarter of 2014.
The Company completed the sale of the DLB KP1 in March 2014 for a gain of over $5 million.Approximately $149 million of new orders was booked in the first quarter of 2014, which includes a marine installation charter contract for the vessel North Ocean 105 for Petrobras in Brazil. The Company is implementing the previously announced plan to improve internal processes and risk management by increasing operational efficiency through a new organizational design aimed at delivering improved and more predictable performance. The new organizational design orients the Company’s management around offshore and subsea operations, with highly experienced business leaders who have responsibility for strategic direction of the business lines and for aligning operations with customer needs. These business leaders will also provide oversight and project execution support for regional operations and will have responsibility for efficiently allocating assets among the regional operations. Many of these leaders have been hired from outside McDermott and bring significant experience in the offshore industry. The Company recently hired approximately 150 new people with extensive experience in subsea projects. These new additions to the Company’s team bring expertise in determining bid levels for new projects and executing complex subsea work. The Company expects to continue adding subsea leadership at the executive level and within global, regional and local operations. About McDermott McDermott is a leading provider of integrated engineering, procurement, construction and installation (EPCI) services for upstream field developments worldwide. McDermott delivers fixed and floating production facilities, pipelines and subsea systems from concept to commissioning for complex Offshore and Subsea oil and gas projects to help oil companies safely produce and transport hydrocarbons. Operating in more than 20 countries across the world, McDermott’s locally focused and globally integrated resources include approximately 14,000 employees, a diversified fleet of specialty marine construction vessels, fabrication facilities and engineering offices.