Jackets similar to those contracted by Saudi Aramco. Source: McDermott via Business Wire.
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Offshore engineering and construction company McDermott International (MDR) stock jumped more than 15% in early trading today, and is still up about 12% as of this writing.
So what: McDermott International, which specializes in projects for offshore oil and gas development, announced that it has been awarded a contract from Saudi Arabian state oil company Saudi Aramco to construct and install 12 offshore jackets (underwater structures for long-term oil or gas rig installations). The contract calls for installation to be completed by the end of the first quarter of 2016.
Now what: This is great news for McDermott International, but investors shouldn't jump the gun on any one single deal. The global demand for crude continues to grow at a slow pace, and this will continue to weigh on demand for the kinds of services that McDermott provides. In many ways, offshore work remains under the most pressure due to the higher costs associated with offshore production, versus onshore.
While this is certainly good news for current shareholders, I encourage anyone considering buying shares of McDermott consider the bigger picture and the competitive landscape, as well as the aforementioned risk that slow demand growth creates for the company.
