Lynchburg-developed reactors may be key to McDermott International’s strategy

McDermott International sees the stars aligning for its small, modular nuclear reactor that is being developed in Lynchburg.

John Fees, chief executive officer, said federal regulators and nuclear power industry leaders are responding well to the idea for the mPower Reactor. In a conference call to discuss third quarter 2009 earnings, he told investors that it is important to the company’s future as coal power plants get less use.

“Year to date we have invested about $34 million in (research and development), primarily in our mPower modular nuclear program and our carbon capture technologies, and see that spending increasing as we go forward,” Fees said.

McDermott introduced the mPower Reactor concept in June. The Babcock & Wilcox Company, McDermott’s subsidiary that employs about 2,500 people in the Lynchburg area, is leading the design and licensing of the reactor.

The modular reactor would allow power companies to add generation capacity in increments of 125 megawatts, instead of 1,000 or more megawatts provided by most commercial reactors on the market.

“We continue to make design progress on our mPower Reactor and are pleased at how government and industry (are) embracing our approach,” Fees said Tuesday.

The Nuclear Regulatory Commission has assigned staff to work on the licensing of modular reactors, and the Department of Energy has established a public-private cost-sharing initiative to develop small reactors, Fees said.

“We continue to be pleased with the evolution of this technology,” he said.

McDermott is diversifying its power generation business segment, which before has focused heavily on servicing coal-fired power plants. This year, natural gas plants have supplanted much of the electricity production of coal plants, Fees said.

The Energy Information Administration said Tuesday that coal-fired power production was down 11 percent in the first half of 2009, compared to the same time in 2008, in part because of the increased use of natural gas power plants.

McDermott’s coal-burning customers also face uncertainty about when or how cap-and-trade legislation could affect coal. Along with the recession, such factors drove McDermott’s power generation segment in-come in the third quarter down nearly 60 percent from the third quarter of 2008, according to a news release.

Fees also said that the government operations segment, which includes most activities at B&W sites in the Lynchburg area, was off the mark. That segment’s income was $19.8 million in the third quarter, compared to income of $34.5 million in the third quarter of 2008.

Fees said the decline was caused by $16 million in non-recurring expenses, including depreciation and amortization expenses related to the purchase of Nuclear Fuel Services in Tennessee. B&W bought NFS in December 2008.

“The rest of our government operations continue to perform about as expected,” he said.

McDermott’s offshore oil and gas construction division had a record quarterly income that offset the income decline in the other segments.

In the third quarter McDermott had net income of $118 million attributable to shareholders, compared to net income of about $85 million in the third quarter of 2008.
McDermott’s stock closed on Tuesday at $23.59, down 57 cents.