“No Longer Business As Usual” as McDermott Has Shocking 4th Quarter

DB 30 crane barge
DB 30 crane barge, image: McDermott

Changes are underway at McDermott International, the Houston-based offshore engineering and construction company which reported an eye-watering fourth quarter with net losses of $324 million.  McDermott’s net losses for the year reached $516 million compared to profits of $206 million in 2012.

McDermott’s President and CEO David Dickson was recruited last fall from the top post at rival offshore contractor, Technip USA and admits the fourth quarter results are “disappointing” and that it’s “no longer business as usual” from here on out while he implements major changes to his company

“We are addressing some of the deepest challenges our company has seen in years,” commented Dickson in his company’s 4th quarter earnings call yesterday.  Since he was hired in mid-December, he and his staff have been conducting a review of the strategic focus, projects, operations, oversight, accountability and cost structure of the company and come up with a plan to stabilize their position and lead the company forward.

A lot is at stake too as McDermott sets their sights on $16 billion in project bids over the next few years, 0f which 85 percent are offshore projects, and 15 percent are subsea.  This is a significant shift toward the offshore sector as their current revenue backlog is 59 percent offshore and 41 percent subsea.  Of bids they have already submitted, the split is 75/25 respectively.

Dickson’s first immediate action is to implement a new organizational design based around their two key focus areas, offshore and subsea, led by McDermott veteran Scott Cummins and former Subsea 7 executive, Tony Duncan, respectively.  Cummins and Duncan will be focused on the strategic direction, operational and financial oversight of their respective divisions while being supported from four regional teams located in the Americas, North Sea and Africa, Asia Pacific and the Middle East.

With this new organization, Dickson also looks to flatten out the management ranks to ensure greater accountability, but with that, the company is also aggressively recruiting from his rivals to bring in new tier one expertise.

The aggressive recruitment by McDermott also supports Dickson’s other priorities, which is to re-focus on a culture of accountability and performance-oriented operations.

After incurring huge losses last year, Dickson and his team are re-evaluating McDermott’s financial plans as well including the canceling of a planned DP2 upgrade to their DB 30 crane barge and the divesting of some of their non-core assets.

In more positive news, Dickson highlights the $2 billion INPEX Icthys subsea umbilical, riser, flowline  (SURF) project is making good progress and that the detailed engineering is nearly complete.  The offshore portion of this contract, which was awarded in January 2012, is expected to begin in the second half of 2014 and to be completed on time, and profitably.  He notes that he will remain personally focused on the project.

The company is also demobilizing from the operationally successful tensioned-leg platform installation at Papa Terra which McDermott notes should result in a break-even situation for them after being plagued by weather issues an poor seabed conditions that resulted in project delays.