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Tickers in this Article: MDR, C.CST, AEP
McDermott International (NYSE: MDR), an engineering and construction firm with significant focus on the energy industry, may see its business grow by helping energy companies reduce carbon emissions.

It seems that everyone is focused on using clean, renewable energy sources to generate electricity. Yet, the reality is that for the foreseeable future, these methods will not be able to supply sufficient power at a competitive price to meet growing demand. Government subsidies are necessary to encourage development of these technologies. So, can existing power-generating methods be adapted to meet the economic demand for power? That's where McDermott comes in.

Controlling Carbon Emissions
McDermott's power generation business, The Babcock & Wilcox Company (B&W), came out of bankruptcy at the end of February 2006. This segment produced revenue of $655.4 million in the first quarter of 2007 with income of $43.5 million. It also had a backlog of $2.3 billion up from $2.2 billion in the most recent quarter.

B&W is working on several ways to use clean-burning coal that basically eliminates greenhouse gases including Carbon Dioxide (CO2) now produced by existing coal burning power plants. In Saskatchewan, Canada it's working on a 300-megawatt facility that has a potential to be free of all CO2 emissions. This project is just underway and still must demonstrate success. However, if it proves successful, it could lead to a significant reduction of CO2 and boost the fortunes of MDR.

In another development B&W and American Electric Power (NYSE: AEP) plan to pursue a new combustion technology to reduce CO2 and other emissions from coal-fired power plants. These firms intend to assess the application of oxy-coal combustion as a retrofit to an existing AEP plant, working toward the development of the first oxy-coal commercial validation project in the United States.

According to B&W, oxy-coal combustion uses pure oxygen for the combustion of coal in electricity-generating plants. The idea is to eliminate the nitrogen that comes in with air during the combustion process. When this is done the exhaust gas is a relatively pure stream of CO2 that is available for capture or used for alternative purposes, such as enhanced oil recovery. This technology is expected to result in near zero emissions from coal-fired electricity-generating plants. American Air Liquide is collaborating with B&W in this effort.

A pilot demonstration of the oxy-coal combustion technology will be completed during the summer of 2007 at B&W's Clean Environment Development facility in Alliance, Ohio. This facility is a 30-megawatt combustion testing facility that simulates the operating characteristics of a modern, fossil-fuel-fired power plant that is designed to emulate a larger facility. In addition AEP and B&W will evaluate and select the most suitable existing AEP plant location for the commercial application of the oxy coal combustion technology. This feasibility study is scheduled to be completed by the second quarter of 2008.

In a third development, B&W is teaming up with CO2 Solutions (CDNX: C.CST), a Canadian company traded on the TSX venture stock exchange. The initial goal of the agreement is to test the scalability of CO2 Solution's technology which uses an enzyme to transform CO2 into bicarbonate. The exclusive license agreement the two firms signed gives B&W the right to access and adapt this carbon-capture technology for power-plant applications in North America. The technology could be demonstrated as a pilot plant at B&W's Research Center in Barberton, Ohio.

At this point, the company has not become involved in any power generation ideas that require government subsidies, such as solar and wind, since these systems often encounters economic difficulties when scaled to commercially-viable enterprises. However, MDR does have a significant nuclear business primarily working for the U.S. Department of Energy.

Green Money from Offshore
McDermott's Offshore Oil and Gas Construction business continues to generate growth by providing support to exploration and production of oil and gas throughout the world. As of the first quarter of 2007, this segment's backlog grew to $4.2 billion from $2.4 billion in the first quarter of 2006, a 75% increase. Revenue grew by 86% to $550.3 million and operating income grew by 446% to $121.2 million.

Even this segment benefits from going green as countries and oil companies seek to meet more stringent environmental requirements. The companies' engineers are often asked to develop new approaches to the environmental challenges that the oil and gas industry faces.

MDR is not chasing the current, "hot" green technologies, though it is actively involved in pursuing ways to reduce generation of green houses gases while providing the necessary electrical power. McDermott's engineers have said that if the company had known earlier that CO2 elimination was important, it would have accomplished that, just like it eliminated other harmful particulates years ago.

If McDermott can achieve its goal of eliminating CO2 emissions, it should realize a substantial increase in the demand for its services and profit in the process.

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