McDermott says Ras Al-Khair MoU with Aramco to boost capabilities

US oilfield services provider McDermott International’s recent memorandum of understanding (MoU) with Saudi Aramco for development at Saudi Arabia’s Ras Al-Khair maritime complex is part of its strategy to increase capabilities and focus on markets where capital is being spent, the New York-listed firm said Thursday.

In a presentation to investors, McDermott responded to key questions about the agreement in Saudi Arabia. Argaam has compiled the highlights below:

Q: What is the benefit of signing the MoU?

A: The lease and related arrangements in this MOU enable us to build new, state-of-the-art facilities using the latest technology and automation processes. Once fully operational, the new facilities are expected to increase our Middle East fabrication capacity from 8-million manhours per year up to 16-million manhours per year.

This agreement also demonstrates our commitment to supporting Saudi Arabia’s Vision 2030 and Aramco’s IKTVA program and deepens our foothold in Saudi Arabia.

Q: What will be the near-term impact?

A: The next milestone will be working with Saudi Aramco to finalize the lease and related agreements. We will also continue to optimize the design and layout of the new yard to maximize the efficiency of the new facility.

Q: When will definitive documents be signed?

A: The MoU provides an exclusivity period through June 1, 2018, for the negotiation and finalization of mutually acceptable definitive documentation for the lease and related arrangements.

Q: Why did McDermott select Ras Al Khair for its new fabrication yard?

A: Saudi Arabia is developing a modern infrastructure at Ras Al Khair to support the maritime development. The yard will have close access to a major port and it will have sufficient space to accommodate a yard large enough to suit our needs.

Q: Why are Saudi Aramco and McDermott not doing a joint venture?

A:We believe this agreement provides the right structure and balance for both McDermott’s and Saudi Aramco’s long-term business strategies. McDermott has a strong leadership position and will continue to support both Saudi Aramco and other Middle East markets. We believe this positions us for continued success throughout the region.

Q: What is the estimated size of this new yard and marine base?

A: The new yard and marine base at Ras Al Khair is expected to cover an area of approximately 284 acres (115 hectares) within the new maritime complex, including approximately 5,380 feet (1,640 meters) of waterfront.

Q: Will you be closing your yard in Jebel Ali (Dubai)?

A: There will be a gradual transition from our yard in Jebel Ali to Saudi Arabia. We are still working on the details, but expect to close Jebel Ali shortly after the yard in Saudi Arabia reaches 12 million manhours of capacity per year.

Based on our current schedule, this will be sometime in the mid-2020s.

Q: How much capex do you anticipate you will spend on the new fabrication yard?

A: We anticipate multiple phases over the next decade. Subject to the build-out of the infrastructure, the MoU contemplates the yard will become initially operational as early as 2019; however, we do not foresee any significant capex to be incurred before 2018.

Q: What are the estimated costs to McDermott if you do not meet the stipulations in the MoU?

A: The MoU provides that, in the event that McDermott withdraws from the proposed transaction or fails to comply in any material respect with its obligations set forth in the MoU… McDermott will pay Aramco a break fee of $7.5 million.