McDermott ventures into the Amazon…

Whatever the mind may hope for

The Future is in the hands of the Gods

Plautus

I’m skiing this week but clearly this news captured my attention over Aperol…

McDermott and the Amazon: I don’t have much to add here except to say that clearly McDermott did a sale-and-leaseback not because they have cash flow issues but because they are keeping their powder dry for a serious acquisition. Yes, the vessel came at a huge discount to newbuild, but no one in the industry believed in the pipelay system (issues with the pipe deformation and firing line ostensibly) and as I have said before the asset specificity is such that is it really cheap? Just because something cost a lot doesn’t make it valuable. These vessels are dedicated assets and if you are not doing deepwater work then a vessel of that size is hard to justify.

Don’t get me wrong OMP and Northern have a great deal as I think McDermott is going to be a real winner in the “new offshore”. McDermott have waited to spend large, but if deepwater doesn’t come back quickly, and all the stats highlight it is not (as does the McDermott commentary), then all they have done is brought an asset at fair market value with the option of deepwater work later. Its a great deal, but not a game changer, as McDermott were credible in that space anyway. There is currently more than sufficient deepwater lay capacity at the moment to drive pricing to marginal levels already and another potential competitor won’t take prices lower it will only lengthen the industry recovery time.

I understand the vessel is going to be fitted with a modular SAT system and used as a multipurpose vessel in Africa (bad for external DSV owners) as an interim measure, where McDermott have good backlog, as the moonpools mean it essentially becomes an integrated DSV with a massive crane. It yet again highlights that asset value is a nebulous concept in this market where the hold costs are high and future demand uncertain. The price has de-risked another industry downturn and offered signficant upside: but in an industry in this bad a shape that is how deals need to be structured.

3 thoughts on “McDermott ventures into the Amazon…

  1. Jeremy – if this deal isnt good, deepwater has never recovered at all and subc/fti/tec/akso+++ are fractions of their current size!

    Best regards, Tord Aasen Augestad Arctic Securities Research +4748403237

    Den 22. feb. 2017 kl. 20.46 skrev From the South Sea… <comment-reply@wordpress.com>:

    fromthesouthsea posted: ” Whatever the mind may hope for The Future is in the hands of the Gods Plautus I’m skiing this week but clearly this news captured my attention over Aperol… McDermott and the Amazon: I don’t have much to add here except to say that clearly McDermott d”

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    • I am not sure we are more than semantically apart here? But if you allow USD 50-100m for the lay system then its only a 50% discount to some more recent tonnage? And since then growth rates are less, costs are higher, and margins are down?

      There are at least five companies with massive excess capacity and this creates another? Good for MCD but good for industry profitability ( as we agree on?). How many project a year and what margin do you think MCD need to make this work?

      Deal is good risk protected? But who will but the Lewek Express? 😉

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