Operationally, four of McDermott’s five operating segments reported solid performance during the third quarter, led by the Middle East and North Africa (MENA), which reported operating income of $69mn and an operating margin of 13.3%, both sharply improved from the second quarter of 2019. Additionally, the company reported backlog of $20.1bn, new awards of $1.7bn and a revenue opportunity pipeline of a near-record $89.1bn for the third quarter of 2019.David Dickson, president and CEO of McDermott, said: "We experienced continued strong backlog, with several significant customer project awards, including the Ichthys Phase 2a Gas Field Development Project in Australia, which we developed in conjunction with our integrated subsea-solutions partner, Baker Hughes, as well as a large LNG tank project on the US Gulf Coast. We also achieved solid operating results in our MENA, Asia Pacific (APAC), Europe, Africa, Russia and Caspian (EARC) and Technology segments.”
“At the same time, our capital structure continues to be pressured by certain legacy CB&I projects. Our recently announced $1.7bn financing agreement with our lenders signals their confidence in our underlying business. We continue working with them to achieve a long-term balance sheet solution as we remain focused on delivering value for our customers, employees, subcontractors, and suppliers."As announced on 21 October 2019, McDermott has obtained a $1.7bn financing agreement from certain of its first-lien lenders, of which $650mn has been accessed. The company elected to enter into the 30-day grace period with respect to a 1 November 2019 interest payment on its 10.625% senior notes due in 2024 in order to continue collaborative discussions with its lenders and noteholders to find a long-term balance sheet solution.
The company’s adjusted operating loss in the third quarter of 2019 was $125mn. The solid performance of its MENA, APAC, EARC and technology segments was more than offset by the $256mn of changes in project gross profit on specified projects identified in a covenant of the company’s new Superpriority Credit Agreement.McDermott’s operating loss of $1.7bn was primarily due to the $1.5bn goodwill and intangible assets impairments in addition to the $256mn of changes in project gross profit on specified projects. The goodwill impairment of $1.4bn primarily resulted from updates to the 2019 management budget and increases in discount rate assumptions driven by increases in the company’s cost of capital and risk premium assumptions associated with forecasted cash flows. The intangible assets impairment of $0.1bn primarily resulted from a reduction in the estimated remaining useful life of the trade names associated with its NCSA segment, causing a decrease in future attributable cash flow expectations.
MENA reported revenues of $520mn and operating income and margin of $69mn and 13.3%, respectively. Key contributors to revenues and operating income were primarily the Saudi Aramco Safaniya Phase 5 and 6, Marjan TP10, NFPS and NFE jackets, LTA II, 3 CRPOs, QP Bul Hanine, ADNOC Crude Flexibility, SASREF and Liwa projects.The ADNOC Crude Flexibility project is on schedule with the commencement of critical equipment deliveries; isometric production has started to support the piping programme, and teams have mobilised to the site with first tank courses being erected.
The SASREF MMG Light project has recovered from earlier construction delays, and start-up of the refinery is expected in November, achieving three million man-hours without a lost-time incident. Following the September 2019 attacks on the Abqaiq oil processing facility in Saudi Arabia, McDermott mobilised an emergency response team to assess requirements and immediately carried out repairs to damaged spheroid vessels.For the latest refining and petrochemical industry related videos, subscribe to our YouTube page.