McDermott, Petrobras Sign Subsea Deal - Analyst Blog

Offshore oil and gas-focused engineering and construction firm, McDermott International Inc. MDR signed a deal to supply its subsea Lay Vessel North Ocean 105 to the Brazilian state-run energy giant Petroleo Brasileiro SA or Petrobras PBR. McDermott also mentioned that this contract would be part of its first quarter backlog.

The vessel, expected to start work during the third quarter, will be responsible for the installation of deepwater umbilical and flexible pipelines in the pre-salt area and the Campos Basin, off the coast of Brazil.

The agreement is initially for about 200 days but includes the option of an extension. McDermott stated that this contact is in sync with its vessel utilization target of three deepwater vessels on contract with Petrobras during the second quarter of the year.

Houston, Texas-based McDermott is an engineering and construction company, solely focused on the offshore oil and gas business. McDermott primarily serves the worldwide offshore oil and gas field developments, including front-end design and detailed engineering, fabrication and installation of offshore drilling and production facilities, as well as installation of marine pipelines and subsea production systems. Additionally, the company provides project management and procurement services.

The company reported poor bottom line all through 2013, missing the Zacks Consensus Estimate in all the four quarters. For the most recently reported quarter, McDermott reported a loss of 80 cents against the Zacks Consensus Estimate of earnings of 16 cents. Things do not look too good for the company in the near term as well.

Thus, McDermott currently has a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider better-ranked players in the energy sector like Range Resources Corp. RRC and Patterson-UTI Energy Inc. PTEN. Both these stocks currently sport a Zacks Rank #1 (Strong Buy).