What: Shares of McDermott International (MDR) are surging today, up as much as 28% at the time of this writing, on the announcement that it had agreed to a long-term service contract with Saudi Aramco, the world's largest oil and gas company.
So what: While the actual dollar amount for this deal was not announced today. McDermott's executives did say in their recent press release that this is the company's largest single contract for the Middle East region. Instead of many of McDermott's Engineering, Procurement, Construction, and Installation -- EPCI -- projects that focus on a single asset, this is a contract that will involve work at multiple existing offshore fields and will encompass work that will go all the way through the second quarter of 2018, more than double the length of any contract on McDermott's books today.
Now what: This contract will give McDermott its third major contract on the books with Saudi Aramco, which is becoming more and more its largest client. This should also help to give investors a little bit more reassurance that there will be continuing work for the company, as capital spending is on the decline across the oil and gas industry, and nine of the company's existing EPCI contracts will conclude between the end of 2015 and 2016.
Considering we don't know the amount of the lump-sum contract that has been awarded, it's hard to say whether today's stock surge is justified or not. If you are really looking to see how much this contract will impact the long-term profitability of the company, it may be worth waiting until we get more information about this new deal before making any immediate investment decisions.
