Hindsight Offshore: McDermott Amazon

Way back in February 2017 I asked how good a deal McDermott buying the Amazon really was?

Here is the answer in their latest results… and it is that it was not that good a deal:

On July 27, 2018, we entered into agreements (the “Amazon Modification Agreements”) providing for certain modifications to the Amazon vessel and related financing and amended bareboat charter arrangements. The total cost of the modifications, including project management and other fees and expenses, is expected to be in the range of approximately $260 million to $290 million.

So they got a deepwater lay vessel finally for $310-345m including the initial purchase price. I would say Saipem got a much better deal on the Constellation (€250m) if they can ever get any work for it (and given their strained relations with Aker on North Sea work the real winner in that deal were the banks).

McDermott face trying to break into the UDW installation market with that asset in order to have any hope of recouping that level of investment, and although they have vast technical expertise the fact is most of it is in shallower water, and the only way someone is going to hire them for UDW work is for them to be cheap. SS7, Technip FMC, and Saipem all have substantial excess capacity in this regard. Entering this market will also require vast amounts of working capital, something McDermott clearly lacks at the moment. They are going to have to take delivery of the new vessel and associated kit in an oversupplied market with no backlog of note with the only certainty being the lease payments on a ~300m worth of kit (and use this to fund a loss making onshore construction business).

The Winners Curse.

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