Civeo halts dividends and warns of tough times ahead

Houston-based Civeo Corp., the owner of man camps (accommodation services) for energy workers, announced that it was suspending its quarterly dividend, limiting capital expenditures and adjusting its cost structure. The news on dividends sent its share price tumbling by nearly 50% on Tuesday.

The company said it had cut staff in the US  by 45% and in Canada by 30% since the beginning of 2014.

In its Initial 2015 Operating Guidance, Civeo informed that the acceleration in the decline of global crude oil prices in November, plus forecasts of a likely prolonged period of cheap crude, have resulted in drastic reductions in major oil companies’ 2015 capital budgets from 2014 levels.

This has resulted in lower spending on development or expansion projects in the oil sands, which drives the demand for the company’s services in Canada.

Civeo CorpCiveo is a global workforce accommodation specialist. (Photo: Civeo.com)

It has also made it much for difficult for Civeo to estimate what the 2015 occupancy levels for its facilities will be.

Business in Australia has also been affected by persistently low metallurgical coal prices, which undermine demand for accommodations in Civeo’s primary markets.



 

Australian and Canadian business will be down

The company expects to be negatively affected by the continuing declines in the value of the Australian and Canadian dollars, which are down 6% and 2% respectively over the past two months versus the US dollar. Since the beginning of the year, the Canadian and Australian dollars have fallen by 8% and 9% respectively.

The company expects first quarter 2015 revenues to be in the range of $160m to $175m, with EBITDA (earnings before interest, taxes, depreciation, and amortization) ranging from $45m and $55m. EBITDA can give a better idea of cash flow because it eliminates subjective accounting distortions.

Second quarter 2015 earnings are expected to be weaker as several contracts expire or are replaced with smaller ones (fewer committed rooms at lower rates). Business in Q2 2015 will be steeply down in Australia.

Civeo expects full year 2015 revenues to be between $540m and $600m, with expected 2015 EBITDA between $135m and $160m. The company also reiterated its Q4 2014 guidance of $200m to $210m of revenues with an EBITDA margin of 32% to 34%.

From 35% to 40% of its lodge rooms have been contracted in Canada as the company enters 2015, compared to 75% at the beginning of 2014.

For 2015, the company forecasts Canadian occupancy of 44% to 47% with an average daily rate of about C$139 to C$145. From 35% to 40% of its village rooms in Australia are booked, compared to 55% at the beginning of 2014. Australian occupancy is forecast to be between 55% and 57% with an average daily rate of A$88 to $95 for 2015.

President and Chief Executive Officer Bradley J. Dodson, said:

“As it became evident during the fourth quarter that capital spending budgets among the major oil companies were going to be cut, we began taking steps to reduce marketed room capacity, control costs and curtail discretionary capital expenditures.”

“In Canada, we have since closed our Athabasca and Lakeside lodges and are evaluating similar actions in select other locations. We are limiting our discretionary capital spending in 2015 to those projects that are supported by customer contracts.”

“From a revenue perspective, we are reassessing where in our regional markets we can profitably improve occupancy while maintaining the high safety and service levels for which our company is known. These efforts reflect our proactive approach to improving the company’s structural efficiency, managing cash flow and maintaining our balance sheet.”