MDR
#<UNK> this is <UNK>.
Really the change in guidance is purely driven by the better-than-forecast performance for our second quarter related to the productivity improvements and some closeout and also some change orders on existing contracts.
And then rescheduling of marine campaigns in conjunction with our customers for the second half of the year.
Yes <UNK>, in terms of the second half with the resequencing it is essentially a wash from what we were previously have expecting for the second half.
That is absolutely correct, <UNK>.
We did highlight in the earnings discussion there that on Atkatun-A2 for example, out of $454 million of a contract we only expect about $26 million to be recognized in the second half of this year.
<UNK>, this is <UNK>.
Let me take that question.
So I think obviously the awards with Saudi Aramco, all that is under our existing LTA2.
And as you know, we've been there for a long time so we certainly know and understand our cost basis there.
So I would say nothing has materially changed on how we price our award there.
We are well positioned.
We often talk about being graphically integrated, and it's something which puts us in a strong position in the Middle East and then particularly with Aramco.
In terms of the award with Pemex, this was very strategic for us.
And as you know we came through a very painful lesson learned on the PB-Litoral, which after we had taken the initial rides on project was delivered in an excellent way and was able to recover some of that as the project progressed.
That has now created the new benchmark in terms of internal costing and in terms of execution, so moving into this Abkatun is that obviously we have a lot of confidence in terms of having both our cost basis correct and out execution method, which has been obviously validated by the work that we did on the PB-Litoral.
Thank you.
Marty, this has been something that we have been in discussion with Keppel for some time.
So Encom was created a couple of years ago as a new facility built in Qatar primarily on the shipbuilding side, but also to participate in the offshore EPCI space.
And as you know we have a very good relationship with Keppel.
We are obviously involved with them with other things, flow tech historically.
Obviously we've worked with them with that DLV 2000, et cetera.
And that led to a conversation, we said that if you look strategically at our business in the Middle East, and where potential workloads has been coming from, Aramco is, we need to increase our fabrication production capability for the area, but also to have some presence in Qatar.
And as we look at Qatar, although we are not seeing any immediate awards, there is a lot of long-term potential in what I would call three large fields, and where those projects are, customers are getting ready to move into more the feed stage for those.
So as we look at it longer term, we see this as a means of positioning us more strategically so that we can really participate in what could be some significant bids coming out over this next couple of years.
So obviously a lot of discussion in the market was happening really, was being created with Technip and FNC to create this large merger.
I would say that where we are positioned today is that we do have obviously a very good relationship with GE.
We obviously have the formal relationship through our I/O business, which both companies are very happy with at this stage.
But also ought to mind that we're also working with GE in other opportunities.
Ophir, a project in Equator New Guinea, but also working with GE, looking at other areas across the globe where we feel that with their technology, their equipment and supply and ends with our services, we'd make a good combination on some of the bids.
So we have a good working relationship with GE and we look forward to that to continue.
I think, Andy, we give the color on our revenue pipeline, and I think when you see the drop-off that's obviously reflective of the current macro-environment that we're living in.
We ---+ this is not just a high level generic number.
We take a long time in building the up, and we are ---+ as I said earlier in the call ---+ we continue to be as close as we can with our customers, looking at specific projects which we believe we can truly participate.
So I think when you see the drop-off, I think that is a reflection of just the overall macro-environment, and I think if you look at the supplemental deck, what you'll again is that the smaller part of it is still really from the majors and obviously the independents, but the majority is still if the bid's will be coming through the national oil companies.
And in this current climate, we see more awards coming from national oil companies than the majors and independents at this stage, and so if you look at our awards more recently, particularly in this last quarter coming from both Aramco and Pemex, and us preparing for some large potential bids will come out from India, which are in the public domain.
While there is a drop-off, we feel that there are some good opportunities out there.
And to go back to the second question is, I think if you look at it with $2.4 billion of revenue in the backlog for 2017, it's obviously we have a lot of focus in terms of what we do for 2018.
And a lot of the bids that we will be bidding in this next ---+ even the bids that are outstanding today, and the bids we are anticipating over this next six months ---+ most of that revenue will obviously be executed in 2018 and onward.
So yes, it is probably more of an 2018 issue than it is a 2017 issue today.
I think, Andy, what I would say is that too early for us to talking about guidance for 2017.
Obviously we are on ---+ we have had good success in terms of building the backlog for 2017.
But as we've said several times, timing of customer awards is uncertain and that is one the biggest challenges the we have today.
So a bit early for guidance, and may be something that we talk about in the next quarter.
Andy, in general I think McDermott has done ---+ and I talk about the general Management team, an outstanding job in right-sizing our cost structure.
So we have become a far more efficient Organization.
We're currently structured with a cost base to execute our current backlog and an expected backlog going into 2017.
Should we see a drop-off in expectation of what we would hope for 2017, there are still cost levers that we can pull within the Company, more I would say on the available cost side than on the fixed cost side.
Good evening.
<UNK>, this is <UNK>.
I think as we gave our original guidance for 2016 at the end of 2015, we did highlight that given the portfolio that we expecting to build, and some of the concentrations that we were having, we were going to have almost double the under-absorption in 2016 versus 2015.
And as we've worked through the first half, and as we've built into our guidance for the second half, that structure still remains for us.
So we're still looking at a pretty heavy under---+absorption for the second half of this year.
As we highlighted in our prepared remarks, fabrication in Altamira and Batam was a drag and the main contributor to our under-absorption in the second quarter.
As you move to the back half, the under-absorption in Altamira will ultimately be taken care of late in the second half with Abkatun.
We're still looking for prospects in Batam, but we are also going to see I think some gaps appear in some of the subsea vessel schedules for the second half.
So it's kind of a same but different mix on under-absorption for the second half.
I think what we have done over the last kind of two years, <UNK>, is focus the Company on execution.
So after we win a project, we are focused on how can we can execute as a minimum to the as-bid, but hopefully how can we execute on a more productive or better cost position.
So I think we're starting to see some of those cultural aspects come through in the execution.
But I think as we've always said over the last kind of year, the competitive environment in which we now operate is more competitive, given the overall supply and demand dynamics, and as such it gets harder and harder to be competitive and then beat your as-bid estimates.
So we're always very cautious, I would say, on being able to predict that we over-perform our as-bid margins.
Steve, this is <UNK>.
Yes, we just looked at the various impacts on working capital in the second half.
We have a very structured bottom-up approach, and we just had some kind of slight timing differences on milestones and when we would expect those to be received.
That resulted in the very marginal downgrade to our cash flow from operations forecast.
With Pemex, we work with them on essentially two fronts.
The first front is what is all of the documentation and approvals required to allow us to invoice, and that is what we're working through on that $20 million from 2015.
And then once we invoice, we are finding them pretty regular on meeting their kind of payment deadlines.
So we work with Pemex on both fronts.
We're still very confident of the ability for Pemex to meet the receivables, and we're still very confident of them as a customer for us going forward.
This is <UNK>.
So as we said in the opening remark, the project is progressing extremely well.
We still see completion some time in the first half of 2017, which is been consistent for some time.
Most of the equipment is being delivered.
We're working with our customer.
Obviously there's two floating units to be delivered into the field, which we eventually will connect up the final pipelines.
Are there some future change of opportunities.
I would say yes, but that would be subject just to logistics and timing and changes in sequence and things like that.
But overall, we are very happy with the project, and the customer is very happy with McDermott.
<UNK>.
Yes, Steve, on the backlog question, so at June 30, 2016 we had approximately $370 million of backlog for INPEX Ichthys.
And we would expect approximately $220 million to roll off in the second half of this year, with the balance rolling off in the first half of 2017.
Steve, there is always opportunity that we may say, what we call some vick and burn activity.
And then obviously that is something very difficult for us to forecast, so there are some ---+ we ---+ potentially there are some opportunities, but as I said, don't have the visibility on it, and as was said, those vick and burn items, typically you get the call the day before and we're normalizing the day after.
So difficult for us to forecast that.
<UNK>, this is <UNK>.
As we look at the capital allocation or liquidity management, we still remain very, very conservative.
The macro-environment still has a lot of uncertainty out there.
We talk a lot about the prospects in our revenue pipeline, so until there is a very clear path out and recovery from this cycle, we will remain very conservative on our liquidity.
Because of that, we remain focused on cost, focused on working capital, and we also take a very conservative view on our capital spending.
We've been spending the minimum on maintenance related items to make sure assets are in full working order, and then the additional CapEx is mainly related around to project-specific items.
And I think that will be our stance until we see a firm recovery from this cycle.
In the short term, <UNK>, our focus is on to build the cash.
Okay, fair.
Sure, we continue to advance a lot of our supply chain initiatives in our general operations.
So those are outside of the McDermott profitability initiative.
So we are still moving and setting up all of the structure to go from a project procurement model to a global procurement model.
So we're working around master service agreements, commodities management, we are actually investing in some new IT systems to allow us to interface and manage and collaborate with our supply chain on a more real-time and efficient basis.
So we are progressing on our plan there.
We haven't given specific detailed numbers on our targets for savings, but we are finding ---+ I would say we are finding far more efficient ways to work with our supply chain, and within our project cost estimates we're still getting a benefit to the new relationships.
No, there hasn't been from a customer side, there hasn't been any, what I would say, any significant change.
I haven't seen any more of resting pushed into the contractors.
I think that the main thing that has happened is obviously we live in a very competitive environment, and whilst we will remain disciplined in our building up our cost and our pricing, is that we could anticipate that maybe some players may not be as disciplined as people become, obviously very hungry for backlog.
So that is one of the things that is potentially out there, but certainly from the customer side, I haven't really seen any material change.
Hello, <UNK>, this is <UNK>.
Actual structure for the contract in terms of the milestones and the documentation and the requirements for billing remain the same as our current contracts with Pemex.
As we know, Pemex moved it's standard payment terms from what were typically 30 or 60 days to180 days last year.
So the whole industry is adjusting to that fact.
We just continue to work with Pemex to ensure that there are no hurdles to receiving approval for billings and that we meet all of the documentation requirement under the contract.
Yes, going into Pemex opportunities at the moment, we look at all of the risks and rewards associated with the potential opportunity.
And we price accordingly, yes.
Sure, the bulk of the $150 million as a run rate is now in operation, so there's little incremental run rate going into 2017.
And I think as we've said consistently, we try and benefit McDermott with some of those savings, but given the macro-environment we are passing a lot of those benefits onto the customers in the form of reduced pricing in this very competitive environment.
Thank you, operator.
We appreciate you taking the time today to participate in McDermott's second quarter 2016 earnings call.
As a reminder this call will be available for replay for seven days on our website.
And with that, operator, this concludes our call.
