McDermott International, Inc. (NYSE:MDR) Files An 8-K Regulation FD Disclosure
Item7.01
| Regulation FD Disclosure |
On March8, 2017, McDermott International, Inc. (McDermott), is
adding to its Web site supplemental QA information relating to
the memorandum of understanding discussed in Item 8.01 of this
report. Those materials can be accessed by using the Investors
link at McDermotts Web site, and clicking on Middle East Business
Operations Supplemental Questions and Answers, under
Presentations and Events.
The information furnished to this Item 7.01 shall not be deemed
to be filed for the purposes of Section18 of the Securities
Exchange Act of 1934, as amended, (the Exchange Act), or
otherwise subject to the liabilities of that section, nor shall
such information be deemed incorporated by reference in any
filing under the Securities Act of 1933, as amended, or the
Exchange Act, except as shall be expressly set forth by specific
reference in such filing.
| Item8.01 | Other Events |
On March8, 2017, McDermott International, Inc. (McDermott),
announced that it has entered into a memorandum of understanding
(the MOU) with Saudi Arabian Oil Company (Aramco), which
contemplates a long-term lease of land to McDermott at the new
maritime complex being developed by Aramco at Ras Al Khair in the
Kingdom of Saudi Arabia (the KSA). McDermott plans to develop a
new, technologically advanced fabrication yard, with increased
automation, and marine base on that leased property. The MOU
contemplates that McDermott will relocate its Middle East
regional headquarters, which include project management, general
administration, engineering and procurement operations and other
functions, to a location to be determined within the KSA, within
two years of entering into the lease agreement. The MOU provides
for an exclusivity period extending to June1, 2018 for the
negotiation and finalization of mutually acceptable definitive
documentation for the lease and related arrangements contemplated
by the MOU.
McDermott views the contemplated arrangements as a significant
opportunity to strengthen its long-term strategic relationship
with Aramco, the worlds largest oil and gas exploration and
development company and McDermotts largest customer. In addition,
McDermott believes the new facilities will be beneficial to other
customers in the Middle East and other regions. McDermott views
the arrangements contemplated by the MOU as an opportunity for a
long-term investment in McDermotts business, through the
modernization of its facilities in the Middle East region, and
intends to use those facilities to pursue profitable
opportunities throughout the value chain for engineering,
procurement, construction and installation (EPCI) services to
customers in both offshore and subsea markets, primarily in the
KSA, Bahrain, Kuwait, Qatar, Oman, the United Arab Emirates and,
to the extent commercially reasonable, the Arabian Gulf, the Red
Sea, the Caspian Sea and in certain markets in the Eastern
Mediterranean Sea and offshore India and East Africa.
2
The MOU contemplates the transition of the operations at
McDermotts yard in Jebel Ali, U.A.E. to the new maritime yard
over a period of time, and, based on the current schedule,
extending to the mid-2020s, assuming completion of several
milestone achievements. McDermott views the eventual move of its
Middle East regional facilities to the KSA as an evolution of its
long history in the region. McDermott believes that this move
will also be a key component to its continuing success in the
Middle East by demonstrating McDermotts support of Aramcos
In-Kingdom Total Value Add (IKTVA) program, which is intended to
expand KSA-based business operations to help drive KSA domestic
value creation and maximize long-term economic growth,
diversification, job creation and workforce development, to
support a rapidly changing Saudi economy, as well as to support
the KSAs Vision 2030. Aramcos IKTVA program aims to achieve 70%
localization of all spending on goods and services, and to enable
30% export of Saudi energy sector products by 2021.
The MOU contemplates that McDermott will agree to adhere to all
applicable KSA content requirements and that McDermott will also
target to achieve by 2030 at the new fabrication yard and marine
base and its regional headquarters a minimum combined average of
40% of its workforce comprised of KSA nationals, which would
equate to approximately 5,000 KSA nationals, based on currently
assumed activity levels and business volumes, although Aramco may
require, in the definitive documentation, the 40% combined
average Saudisation commitment to be increased to up to 60%,
provided that an appropriate number of qualified KSA nationals
are available in the market and such increase is cost effective
for McDermott. Subject to the requirements of applicable law,
qualified KSA nationals will be given preference by McDermott
over qualified non-KSA nationals, if such qualified KSA nationals
are available at commercially reasonable and commercially
sustainable cost when compared to such non-KSA nationals.
The new facilities are expected to include advanced automation,
an optimized layout, nearby port access, state-of-the-art
facilities and infrastructure that will increase fabrication
capacity and efficiency for McDermott. Subject to the execution
and delivery of mutually acceptable definitive lease and other
documentation, the completion by Aramco of the construction of
Phase I infrastructure and completion of other milestone
achievements, the MOU contemplates that the new facilities will
become initially operational as early as 2019, with a ramp-up in
man-hour capacity to 8million man-hours within six months
thereafter and, following further development, to 12million
man-hours and, eventually, 16million man-hours. The MOU
contemplates the complete shutdown and withdrawal of McDermotts
operations at its Jebel Ali yard shortly after reaching the
12million man-hour capacity threshold at the new facilities. The
Jebel Ali yard currently has a capacity of 8million man-hours.
McDermott will be responsible for providing all necessary funds
to satisfy and implement all of its commitments and obligations
contemplated by the MOU, including to construct certain Phase II
infrastructure (the infrastructure for the development to
increase capacity to 16million man-hours) and all of the
above-ground facilities at thenew fabrication yard and marine
base. McDermott currently estimates that such funding
requirements will need to be satisfied over a number of years,
although significant capital expenditures are not expected to be
incurred before 2018. The MOU does not contemplate any financing
condition to the closing under the definitive lease and other
documentation. McDermott expects to consider financing
alternatives for the capital expenditure requirements
contemplated by the MOU at an appropriate time.
3
The MOU provides
that, within 120 days of its signing, the long-term agreement
dated June10, 2015 between McDermott and Aramco (LTA-II) will be
amended to provide that in the event that, following entry into
the definitive lease and other documentation, McDermott fails to
meet: (1)its Saudisation commitment in full during any invoice
period, McDermott will pay a monetary penalty to Aramco; and
(2)its annual Saudisation Commitments for three consecutive
years, or fails to comply in any material respect with its other
obligations contemplated by the MOU for reasons that are solely
attributable to McDermott, Aramco shall have the right to exclude
McDermott from all bidding processes for offshore EPCI work for
Aramco.
The MOU also
provides that, in the event that McDermott withdraws from the
proposed transaction at any point, or fails to comply in any
material respect with its obligations set forth in the MOU to
such an extent that it would reasonably be regarded as having
withdrawn from the transaction in practice, McDermott will pay
Aramco a break fee of $7.5million.
The closing of the
transactions contemplated by the MOU is expected to occur no
later than June1, 2018. The closing is subject to various
conditions, including the negotiation, execution and delivery of
mutually acceptable definitive lease and other documentation.
McDermott can provide no assurance that the parties will agree to
the terms of the definitive documentation contemplated by the
MOU. If the parties fail to agree to such definitive
documentation, then McDermotts relationship with, and ability to
obtain future project awards from, Aramco could be adversely
affected.
On March8, 2017,
McDermott issued a press release announcing its entry into the
MOU with Aramco. A copy of that press release is attached to this
Current Report on Form 8-K as Exhibit 99.1.
FORWARD-LOOKING
STATEMENTS
In accordance with
the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995, McDermott cautions that statements in this
report which are forward-looking, and provide other than
historical information, involve risks, contingencies and
uncertainties that may impact McDermotts actual results of
operations. These forward-looking statements include, among other
things, statements about: the details regarding the transactions
contemplated by the MOU, including the timing of the closing of
those transactions; the expected benefits to be derived from
those transactions; the timing and results of the development of
the new fabrication yard and marine base at Ras Al Khair and the
relocation of McDermotts Middle East regional headquarters to the
KSA; the intention to use the new, modernized facilities to
pursue profitable opportunities throughout the value chain for
EPCI services to customers in both offshore and subsea markets in
specified regions; and the anticipated funding requirements to
satisfy and implement McDermotts commitments and obligations
contemplated by the MOU. Although we believe that the
expectations reflected in those forward-looking statements are
reasonable, we can give no assurance that those expectations will
prove to have been correct. Those statements are made by using
various underlying assumptions and are subject to numerous risks,
contingencies and uncertainties, including, among others: our
inability to agree with Aramco and other third parties on the
contractual arrangements referred to in this report, the effects
of competition, actions of third parties and changes in
conditions and other factors affecting our
4
industry. If one
or more of these risks materialize, or if underlying assumptions
prove incorrect, actual results may vary materially from those
expected. For a more complete discussion of these and other risk
factors, please see McDermotts annual and quarterly filings with
the Securities and Exchange Commission, including its annual
report on Form 10-K for the year ended December31, 2016. This
report reflects managements views as of the date hereof. Except
to the extent required by applicable law, McDermott undertakes no
obligation to update or revise any forward-looking
statement.
| Item9.01 | Financial Statements and Exhibits. |
| (d) | Exhibits |
| 99.1 | Press Release dated March8, 2017. |
5
McDermott International, Inc. (NYSE:MDR) Recent Trading Information
McDermott International, Inc. (NYSE:MDR) closed its last trading session at with 3,731,675 shares trading hands.
