CIVEO CORPORATION You should read the following discussion and analysis together with our consolidated financial statements and the notes to those statements included elsewhere in this quarterly report on Form 10-Q.
Overview and Macroeconomic Environment
We provide hospitality services to the natural resources industry inCanada ,Australia and theU.S. Demand for our services can be attributed to two phases of our customers' projects: (1) the development or construction phase; and (2) the operations or production phase. Historically, initial demand for our hospitality services has been driven by our customers' capital spending programs related to the construction and development of natural resource projects and associated infrastructure, as well as the exploration for oil and natural gas. Long-term demand for our services has been driven by natural resource production, maintenance and operation of those facilities as well as expansion of those sites. In general, industry capital spending programs are based on the outlook for commodity prices, economic growth, global commodity supply/demand, estimates of resource production and shareholder expectations. As a result, demand for our hospitality services is largely sensitive to expected commodity prices, principally related to oil, metallurgical (met) coal, liquefied natural gas (LNG) and iron ore. Other factors that can affect our business and financial results include the general global economic environment and regulatory changes inCanada ,Australia , theU.S. and other markets, including governmental measures introduced to fight climate change or to help slow the spread or mitigate the impact of COVID-19. Our business is predominantly located in northernAlberta, Canada ;British Columbia, Canada ;Queensland, Australia ; andWestern Australia . We derive most of our business from natural resource companies who are developing and producing oil sands, met coal, LNG and iron ore resources and, to a lesser extent, other hydrocarbon and mineral resources. In the third quarter of 2022, approximately 60% of our revenue was generated by our lodges inCanada and our villages inAustralia . Where traditional accommodations and infrastructure are insufficient, inaccessible or cost ineffective, our lodge and village facilities provide comprehensive hospitality services similar to those found in an urban hotel. We typically contract our facilities to our customers on a fee-per-person-per-day basis that covers lodging and meals and is based on the duration of customer needs, 20 -------------------------------------------------------------------------------- which can range from several weeks to several years. The remainder of our revenue is generated by our hospitality services at customer-owned locations inCanada andAustralia , mobile assets inCanada and theU.S and our lodges in theU.S.
Generally, our core Canadian oil sands and Australian mining customers make significant, upfront capital investments to develop their prospects, which have estimated reserve lives ranging from ten years to in excess of 30 years. Consequently, these investments are primarily dependent on those customers' long-term views of commodity demand and prices.
The spread of COVID-19 and the response thereto have negatively impacted the global economy. The actions taken by governments and the private-sector to mitigate the spread of COVID-19 and the risk of infection, including government-imposed or voluntary social distancing and quarantining, reduced travel and remote work policies, evolved with the introduction of vaccination efforts in 2021, and may continue to evolve as virus variants have added uncertainty to the continuing global impact. Since the COVID-19 pandemic began, we have been impacted by increased staff costs as a result of hospitality labor shortages inAustralia . This labor shortage has been exacerbated by significantly reduced foreign labor availability and reduced labor mobility inAustralia , which has subsequently led to an increased reliance on more expensive temporary labor resources. We continue to closely monitor the COVID-19 situation and have taken measures to help ensure the health and well-being of our employees, guests and contractors, including screening of individuals that enter our facilities, social distancing practices, enhanced cleaning and sanitization efforts, the suspension of nonessential employee travel and implementation of work-from-home policies, where applicable. In part due to the impact of COVID-19 on the global economy and governmental responses thereto, increasing inflationary pressures are being experienced worldwide. These price increases have, and are expected to continue to have, a negative impact on our labor and food costs, as well as consumable costs such as fuel. We are managing inflation risk with negotiated service scope changes and contractual protections. Global oil prices dropped to historically low levels in March andApril 2020 due to severely reduced global oil demand, high global crude inventory levels, uncertainty around timing and slope of worldwide economic recovery after COVID-19 related economic shut-downs and effectiveness of production cuts by major oil producing countries, such asSaudi Arabia ,Russia and theU.S. Since this trough in early 2020, global oil prices increased later in 2020 and throughout 2021 primarily due to improved global oil demand and lagging global oil supply due to oil production discipline from publicly traded oil producers and OPEC+ countries. These supply/demand dynamics have continued in 2022 and have been exacerbated by the recent conflict betweenRussia andUkraine and related sanctions onRussia as well as actions taken by OPEC+ to adjust production levels, which are decreasing global fossil fuel supply even further. This led to a significant increase in global oil prices to above$100 per barrel. In response, several governments, including theU.S. government under the Biden administration, have begun to release oil from the government controlled strategic reserves.Alberta, Canada . InCanada , Western Canadian Select (WCS) crude is the benchmark price for our oil sands customers. Pricing for WCS is driven by several factors, including the underlying price for West Texas Intermediate (WTI) crude, the availability of transportation infrastructure (consisting of pipelines and crude by railcar), refinery blending requirements and governmental regulation. Historically, WCS has traded at a discount to WTI, creating a "WCS Differential," due to transportation costs and capacity restrictions to move Canadian heavy oil production to refineries, primarily along theU.S. Gulf Coast . The WCS Differential has varied depending on the extent of transportation capacity availability. Certain expansionary oil pipeline projects have the potential to both drive incremental demand for mobile assets and to improve take-away capacity for Canadian oil sands producers over the longer term. The Enbridge Line 3 replacement project was completed at the end of 2021 and theTrans Mountain Pipeline (TMX) is currently under construction and continues to progress towards completion. The Canadian federal government acquired the TMX pipeline in 2018, approved the expansion of the project and is currently working through a revised construction timeline to adjust for recent delays related to legal challenges, the COVID-19 pandemic, flooding along certain sections of the pipeline corridor and seasonal wildfires. As a result, the TMX pipeline construction has been delayed, and there is a risk that there could be future delays. Recent legal issues between the Canadian government and First Nation groups have been resolved for the time being and construction has resumed. WCS prices in the third quarter of 2022 averaged$70.70 per barrel compared to an average of$57.58 in the third quarter of 2021. The WCS Differential increased from$14.12 per barrel at the end of the fourth quarter of 2021 to$21.72 at the end of the third quarter of 2022. As ofOctober 21, 2022 , the WTI price was$86.65 and the WCS price was$58.72 , resulting in a WCS Differential of$27.93 . Together with the initial spread of COVID-19, depressed price levels of both WTI and WCS materially impacted 2020 maintenance and production spending and activity by Canadian operators and, therefore, demand for our hospitality services. Customers began increasing production activity in the fourth quarter of 2020 and production capacity has approached pre- 21 -------------------------------------------------------------------------------- pandemic levels in 2022. Although oil prices reached multi-year highs in the first half of 2022, there is continued uncertainty around commodity price levels, including the impact of COVID-19, inflationary pressures, actions taken by OPEC+ to adjust production levels and regulatory implications on such prices, which could cause our Canadian oil sands and pipeline customers to reduce production, delay expansionary and maintenance spending and defer additional investments in their oil sands assets.British Columbia, Canada . OurSitka Lodge supports the LNG Canada project and related pipeline projects (see discussion below). From a macroeconomic standpoint, LNG demand continued to grow despite the spread of COVID-19, reinforcing the need for the global LNG industry to expand access to natural gas. Evolving government energy policies around the world have amplified support for cleaner energy supply, creating more opportunities for natural gas and LNG. The conflict betweenRussia andUkraine has further highlighted the need for secure natural gas supply globally, particularly inEurope . Accordingly, additional investment in LNG supply will be needed to meet the resulting expected long-term LNG demand growth. Currently,Western Canada does not have any operational LNG export facilities. LNG Canada (LNGC), a joint venture amongShell Canada Energy , an affiliate of Shell plc (40 percent), and affiliates ofPETRONAS , through its wholly-owned entity,North Montney LNG Limited Partnership (25 percent), PetroChina (15 percent), Mitsubishi Corporation (15 percent) and Korea Gas Corporation (5 percent), is currently constructing a liquefaction and export facility inKitimat, British Columbia (Kitimat LNG Facility). British Columbia LNG activity and related pipeline projects are a material driver of activity for ourSitka Lodge , as well as for our mobile assets, which are contracted to serve designated portions of the related pipeline construction activity. The actual timing of when revenue is realized from the Coastal GasLink (CGL) pipeline andSitka Lodge contracts could be impacted by any delays in the construction of the Kitimat LNG Facility or the pipeline, such as protest blockades or COVID-19. Our current expectation is that our contracted commitments associated with the CGL pipeline project will be completed in 2023. Any new delays in facility or pipeline construction may result in extensions to these dates. In lateMarch 2020 , LNGC announced steps being taken to reduce the spread of COVID-19, including reduction of the workforce at the project site to essential personnel only. In lateDecember 2020 ,British Columbia's public health officer issued a health order limiting workforce size at all large industrial projects across the province, including LNGC. These actions resulted in reduced occupancy at ourSitka Lodge beginning in the second quarter of 2020.British Columbia's public health order was phased out in the second quarter of 2021. It was replaced with less restrictive requirements focused on monitoring, allowing workforces to return to their optimal sizes, which increased occupancy at ourSitka Lodge in the second half of 2021 and into 2022.Australia . InAustralia , 82% of our rooms are located in theBowen Basin ofQueensland, Australia and primarily serve met coal mines in that region. Met coal pricing and production growth in theBowen Basin region is predominantly influenced by the level of global steel production, which decreased by 5.1% throughAugust 2022 compared to the same period of 2021. Analysts forecast steel production for 2022 to remain subdued for the full year when compared to 2021, as a result of weakness in the Chinese residential sector and slowing global growth due to inflationary pressures. As ofOctober 21, 2022 , met coal spot prices were$285 per metric tonne. Steel output is forecast to improve marginally through 2024, with large infrastructure rollouts in a number of major economies including theU.S. andIndia . The Chinese embargo on Australian coal continues. However, Australian met coal producers have found new markets, includingIndia andEurope , for their premium product. This led to a rebalancing of the market globally in 2021, withChina relying on domestic production along with increased met coal imports from theU.S. ,Canada andMongolia . With the historical backdrop of strong steel demand and met coal supply constraints, the spot price for met coal surged to record highs through the second half of 2021 into early 2022. Since the historic highs in early 2022, prices have stabilized with weather-related supply interruptions inAustralia offset by weakening steel demand. Analysts forecast the current stable prices to rise in the fourth quarter 2022 due to higher demand inIndia and supply pressure related La Niña impacts inAustralia's production. Analysts are forecasting prices to remain close to$250 into 2023, though volatility with both supply and demand drivers could impact prices and drive them higher or lower.Civeo's activity inWestern Australia is driven primarily by iron ore production, which is a key steel-making ingredient. Through the second half of 2021, with forced cuts in Chinese steel production, prices retreated from the peaks experienced in mid-2021. Iron ore prices remained stable through early 2022 and fell to just below$100 during the third quarter of 2022 with a slowdown in steel production. As ofOctober 20, 2022 , iron ore spot prices were$87.84 per metric tonne. Analysts anticipate that infrastructure-led construction activity inChina and other large world economies will continue to stabilize prices at current levels, though residential activity inChina remains subdued. Analysts forecast pricing through 2023 to remain between$90 and$110 . 22 --------------------------------------------------------------------------------U.S. In September, we sold our wellsite services business. Our remainingU.S. business supports offshore oil and gas activities in theGulf of Mexico , completion activity in the Bakken and construction and turnaround work in theLouisiana industrial area. All these activities are primarily tied to WTI oil prices in the U.S. market. In 2020, theU.S. oil rig count and associated completion activity decreased due to COVID-19 and the global oil price decline discussed above. Only 267 oil rigs were active at the end of 2020. With the recovery of oil prices, oil rig count and drilling activity have recovered substantially, with 604 oil rigs active at the end of the third quarter 2022. The increase in theU.S. rig count and oil prices has only resulted in slight increases toU.S. oil production from an average of 11.3 million barrels per day in 2021 to an average of 11.8 million barrels per day at the end ofJuly 2022 . As ofOctober 21, 2022 , there were 612 active oil rigs in theU.S. (as measured by Bakerhughes.com).U.S. oil drilling and completion activity will continue to be impacted by oil prices, pipeline capacity, federal energy policies and availability of capital to support exploration and production (E&P) drilling and completion plans. In addition, consolidation among our E&P customer base in theU.S. has historically created short-term spending and activity dislocations. Should the current trend of industry consolidation continue, we may see activity, utilization and occupancy declines in the near term.
Recent Commodity Prices. Recent WTI crude, WCS crude, met coal and iron ore pricing trends are as follows:
Average Price (1)
Hard
WTI WCS Coking Coal Iron
Quarter Crude Crude (Met Coal) Ore
ended (per bbl) (per bbl) (per tonne) (per tonne)
Fourth Quarter through
2022 $ 87.20 $ 59.78 $ 279.41 $ 92.31
9/30/2022 91.63 70.70 252.63 99.21
6/30/2022 108.77 92.89 464.61 128.80
3/31/2022 95.17 82.04 474.83 129.46
12/31/2021 77.31 60.84 371.95 104.88
9/30/2021 70.54 57.58 258.41 164.90
6/30/2021 66.19 53.27 136.44 195.97
(1)Source: WTI crude prices are from
Foreign Currency Exchange Rates. Exchange rates between theU.S. dollar and each of the Canadian dollar and the Australian dollar influence ourU.S. dollar reported financial results. Our business has historically derived the vast majority of its revenues and operating income (loss) inCanada andAustralia . These revenues and profits/losses are translated intoU.S. dollars forU.S. GAAP financial reporting purposes. The following tables summarize the fluctuations in the exchange rates between theU.S. dollar and each of the Canadian dollar and the Australian dollar: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 Change Percentage 2022 2021 Change Percentage Average Canadian dollar to U.S. dollar$0.766 $0.794 ($0.03 ) (3.5)%$0.779 $0.799 ($0.02 ) (2.5)% Average Australian dollar to U.S. dollar$0.683 $0.735 ($0.05 ) (7.1)%$0.707 $0.759 ($0.05 ) (6.8)% As of September 30, 2022 December 31, 2021 Change Percentage Canadian dollar to U.S. dollar$0.730 $0.789 ($0.06 ) (7.5)% Australian dollar to U.S. dollar$0.648 $0.726 ($0.08 ) (10.7)%
These fluctuations of the Canadian and Australian dollars have had and will continue to have an impact on the translation of earnings generated from our Canadian and Australian subsidiaries and, therefore, our financial results.
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Capital Expenditures. We continue to monitor the global economy, commodity
prices, demand for crude oil, met coal, LNG and iron ore, inflation, the
COVID-19 global pandemic and the responses thereto and the resultant impact on
the capital spending plans of our customers in order to plan our business
activities. We currently expect that our 2022 capital expenditures will be in
the range of approximately $24 million to $29 million , compared to 2021 capital
expenditures of $15.6 million . We previously increased 2022 capital expenditures
estimates primarily as a result of recently awarded contracts for our Wapasu
Lodge in Canada and our Australian integrated services business in Western
Australia . We may adjust our capital expenditure plans in the future as we
continue to monitor customer activity.
We have agreed to not renew an expiring land lease associated with our
McClelland Lake Lodge in Alberta, Canada , which currently expires in June 2023 ,
to support our customer's intent to mine the land where the lodge currently
resides. We are currently working with the customer to (i) secure an alternative
site for the lodge and (ii) obtain a contract to economically justify the cost
of moving and reinstalling the lodge assets. However, we can provide no
assurances that we will reach an agreement on a satisfactory contract to support
the future utilization of the McClelland assets and the resulting impact could
negatively affect our results of operations, financial condition and cash flows.
We are in preliminary discussions with potential strategic joint venture
partners that would participate in both the economics of relocating the lodge
and its ongoing ownership. We expect to have further clarity on any potential
contract associated with our McClelland Lake Lodge in the first half of 2023.
See "Liquidity and Capital Resources" below for further discussion of our 2022 capital expenditures.
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--------------------------------------------------------------------------------Results of Operations
Unless otherwise indicated, discussion of results for the three and nine months endedSeptember 30, 2022 , is based on a comparison to the corresponding periods of 2021.
Results of Operations - Three Months Ended
Three Months Ended
September 30,
2022 2021 Change
($ in thousands)
Revenues
Canada $ 103,009 $ 84,057 $ 18,952
Australia 73,805 65,118 8,687
U.S. and other 7,413 5,888 1,525
Total revenues 184,227 155,063 29,164
Costs and expenses
Cost of sales and services
Canada 72,878 59,214 13,664
Australia 53,333 46,374 6,959
U.S. and other 7,285 5,842 1,443
Total cost of sales and services 133,496 111,430 22,066
Selling, general and administrative expenses 17,677 17,320 357
Depreciation and amortization expense 22,608 20,282 2,326
Other operating (income) expense (339) 21 (360)
Total costs and expenses 173,442 149,053 24,389
Operating income 10,785 6,010 4,775
Interest expense, net (2,988) (3,582) 594
Other income 2,179 364 1,815
Income before income taxes 9,976 2,792 7,184
Income tax expense (3,713) (1,770) (1,943)
Net income 6,263 1,022 5,241
Less: Net income attributable to noncontrolling
interest 546 478 68
Net income attributable to Civeo Corporation 5,717 544 5,173
Less: Dividends attributable to preferred shares 492 482 10
Net income attributable to Civeo common
shareholders $ 5,225 $ 62 $ 5,163
We reported net income attributable to Civeo for the quarter ended September 30,
2022 of $5.2 million , or $0.32 per diluted share compared to net income
attributable to Civeo for the quarter ended September 30, 2021 of $0.1 million ,
or $0.00 per diluted share.
Revenues. Consolidated revenues increased $29.2 million , or 19%, in the third
quarter of 2022 compared to the third quarter of 2021. This increase was
primarily due to (i) higher billed rooms at our Canadian lodges related to
turnaround activities by a number of customers, (ii) higher average daily rate
at our Canadian lodges largely due to occupancy mix, (iii) increased mobile
asset activity from pipeline projects in Canada , (iv) increased activity at our
Civeo owned villages in the Australian Bowen and Gunnedah Basins and (v)
increased activity at our Australian integrated services villages in Western
Australia . These items were partially offset by a weaker Australian and Canadian
dollar relative to the U.S. dollar in the third quarter of 2022 compared to the
third quarter of 2021. See the discussion of segment results of operations below
for further information.
Cost of Sales and Services. Our consolidated cost of sales and services
increased $22.1 million , or 20%, in the third quarter of 2022 compared to the
third quarter of 2021. This increase was primarily due to (i) higher billed
rooms at our Canadian lodges, (ii) increased mobile asset activity from pipeline
projects in Canada , (iii) increased activity at our Civeo owned villages in the
Australian Bowen and Gunnedah Basins and (iv) increased activity at our
Australian integrated services villages in Western Australia . These items were
partially offset by a weaker Australian and Canadian dollar relative to the U.S.
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--------------------------------------------------------------------------------dollar in the third quarter of 2022 compared to the third quarter of 2021. See the discussion of segment results of operations below for further information.
Selling, General and Administrative Expenses. SG&A expense increased$0.4 million , or 2%, in the third quarter of 2022 compared to the third quarter of 2021. This increase was primarily due to higher information technology expense and travel and entertainment expense. This increase in information technology expense was related to set-up costs incurred in a cloud computing arrangement for our newly implemented human capital management system, which are being amortized through SG&A expense instead of depreciation and amortization expense. The increase in travel and entertainment expenses was largely a result of a return to more normalized travel expenses with the lifting of travel restrictions associated with COVID-19. These items were partially offset by lower incentive compensation costs and a weaker Australian and Canadian dollar relative to theU.S. dollar in the third quarter of 2022 compared to the third quarter of 2021. Depreciation and Amortization Expense. Depreciation and amortization expense increased$2.3 million , or 11%, in the third quarter of 2022 compared to the third quarter of 2021. The increase was primarily due to shortening the lives on certain assets inCanada , partially offset by certain assets inCanada becoming fully depreciated during 2021 and the disposal of ourWest Permian Lodge in theU.S. during 2021. In addition, depreciation and amortization expense decreased due to a weaker Australian and Canadian dollar relative to theU.S. dollar in the third quarter of 2022 compared to the third quarter of 2021. Operating Income. Consolidated operating income increased$4.8 million , or 79%, in the third quarter of 2022 compared to the third quarter of 2021, primarily due to higher activity levels inCanada andAustralia in the third quarter of 2022 compared to the third quarter of 2021. Interest Expense, net. Net interest expense decreased by$0.6 million , or 17%, in the third quarter of 2022 compared to the third quarter of 2021, primarily related to lower average debt levels on credit facility borrowings during 2022 compared to 2021, partially offset by higher interest rates on credit facility borrowings. Other Income. Consolidated other income increased$1.8 million in the third quarter of 2022 compared to the third quarter of 2021 primarily due to higher gain on the sale of assets related to the sale of our Kambalda village and an undeveloped land holding inAustralia , our wellsite business in theU.S. and various mobile assets and unused corporate office space inCanada in the third quarter of 2022 compared to the third quarter of 2021. Income Tax (Expense) Benefit. Our income tax expense for the three months endedSeptember 30, 2022 totaled$3.7 million , or 37.2% of pretax income, compared to an income tax expense of$1.8 million , or 63.4% of pretax income, for the three months endedSeptember 30, 2021 . Our effective tax rate for the three months endedSeptember 30, 2022 was impacted by considering theU.S. a loss jurisdiction that was removed from the annual effective tax rate computation for purposes of computing the interim tax provision. For the three months endedSeptember 30, 2021 , our effective tax rate was impacted by consideringCanada and theU.S. loss jurisdictions that were removed from the annual effective tax rate computation for purposes of computing the interim tax provision. Additionally, under Accounting Standards Codification 740-270, "Accounting for Income Taxes," the quarterly tax provision is based on our current estimate of the annual effective tax rate less the prior quarter's year to date provision. Other Comprehensive (Loss) Income. Other comprehensive loss increased$8.5 million in the third quarter of 2022 compared to the third quarter of 2021, primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to theU.S. dollar. The Canadian dollar exchange rate compared to theU.S. dollar decreased 6% in the third quarter of 2022 compared to a 3% decrease in the third quarter of 2021. The Australian dollar exchange rate compared to theU.S. dollar decreased 6% in the third quarter of 2022 compared to a 4% decrease in the third quarter of 2021. 26 --------------------------------------------------------------------------------
Segment Results of Operations - Canadian Segment
Three Months Ended
September 30,
2022 2021 Change
Revenues ($ in thousands)
Accommodation revenue (1) $ 72,724 $ 60,511 $ 12,213
Mobile facility rental revenue (2) 25,283 19,075 6,208
Food service and other services revenue (3) 5,002 4,471 531
Total revenues $ 103,009 $ 84,057 $ 18,952
Cost of sales and services ($ in thousands)
Accommodation cost $ 50,308 $ 41,470 $ 8,838
Mobile facility rental cost 15,597 11,144 4,453
Food service and other services cost 4,447 4,007 440
Indirect other costs 2,526 2,593 (67)
Total cost of sales and services $ 72,878 $ 59,214 $ 13,664
Gross margin as a % of revenues 29.3 % 29.6 % (0.3) %
Average daily rate for lodges (4) $ 99 $ 98 $ 1
Total billed rooms for lodges (5) 730,708 613,017 117,691
Average Canadian dollar to U.S. dollar $ 0.766 $ 0.794 $ (0.028)
(1)Includes revenues related to lodge rooms and hospitality services for owned
rooms for the periods presented.
(2)Includes revenues related to mobile assets for the periods presented.
(3)Includes revenues related to food services, laundry and water and wastewater
treatment services for the periods presented.
(4)Average daily rate is based on billed rooms and accommodation revenue.
(5)Billed rooms represents total billed days for owned assets for the periods
presented.
Our Canadian segment reported revenues in the third quarter of 2022 that were
$19.0 million , or 23%, higher than the third quarter of 2021. The weakening of
the average exchange rate for the Canadian dollar relative to the U.S. dollar by
3% in the third quarter of 2022 compared to the third quarter of 2021 resulted
in a $3.7 million period-over-period decrease in revenues. Excluding the impact
of the weaker Canadian exchange rate, the increase was driven by (i) higher
billed rooms at our lodges related to turnaround activities by a number of
customers, (ii) a higher average daily rate at our lodges largely due to
occupancy mix and (iii) increased mobile asset activity from pipeline projects.
Our Canadian segment cost of sales and services increased $13.7 million , or 23%,
in the third quarter of 2022 compared to the third quarter of 2021. The
weakening of the average exchange rate for the Canadian dollar relative to the
U.S. dollar by 3% in the third quarter of 2022 compared to the third quarter of
2021 resulted in a $2.6 million period-over-period decrease in cost of sales and
services. Excluding the impact of the weaker Canadian exchange rate, the
increase in cost of sales and services was driven by increased occupancy at our
lodges and by increased mobile asset activity from pipeline projects.
Our Canadian segment gross margin as a percentage of revenues was largely unchanged, decreasing from 29.6% in the third quarter of 2021 to 29.3% in the third quarter of 2022.
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--------------------------------------------------------------------------------Segment Results of Operations - Australian Segment
Three Months Ended
September 30,
2022 2021 Change
Revenues ($ in thousands)
Accommodation revenue (1) $ 38,316 $ 38,104 $ 212
Food service and other services revenue (2) 35,489 27,014 8,475
Total revenues $ 73,805 $ 65,118 $ 8,687
Cost of sales and services ($ in thousands)
Accommodation cost $ 17,818 $ 18,351 $ (533)
Food service and other services cost 33,465 26,007 7,458
Indirect other cost 2,050 2,016 34
Total cost of sales and services $ 53,333 $ 46,374 $ 6,959
Gross margin as a % of revenues 27.7 % 28.8 % (1.0) %
Average daily rate for villages (3) $ 73 $ 78 $ (5)
Total billed rooms for villages (4) 525,359 491,218 34,141
Australian dollar to U.S. dollar $ 0.683 $ 0.735 $ (0.052)
(1)Includes revenues related to village rooms and hospitality services for owned
rooms for the periods presented.
(2)Includes revenues related to food services and other services, including
facilities management for the periods presented.
(3)Average daily rate is based on billed rooms and accommodation revenue.
(4)Billed rooms represent total billed days for owned assets for the periods
presented.
Our Australian segment reported revenues in the third quarter of 2022 that were
$8.7 million , or 13%, higher than the third quarter of 2021. The weakening of
the average exchange rate for Australian dollars relative to the U.S. dollar by
7% in the third quarter of 2022 compared to the third quarter of 2021 resulted
in a $5.5 million period-over-period decrease in revenues. On a constant
currency basis, the Australian segment experienced a 22% period-over-period
increase in revenues. Excluding the impact of the weaker Australian exchange
rate, the increase in the Australian segment was driven by increased activity at
our Civeo owned villages in the Bowen and Gunnedah Basins and our integrated
services sites in Western Australia .
Our Australian segment cost of sales and services increased $7.0 million , or
15%, in the third quarter of 2022 compared to the third quarter of 2021. The
weakening of the average exchange rate for Australian dollars relative to the
U.S. dollar by 7% in the third quarter of 2022 compared to the third quarter of
2021 resulted in a $4.0 million period-over-period decrease in cost of sales and
services. Excluding the impact of the weaker Australian exchange rate, the
increase in cost of sales and services was largely driven by increased activity
at our Civeo owned villages in the Bowen and Gunnedah Basins and our integrated
services sites in Western Australia .
Our Australian segment gross margin as a percentage of revenues decreased to
27.7% in the third quarter of 2022 from 28.8% in the third quarter of 2021. This
was primarily driven by a higher proportion of revenue from our integrated
services business, which has a service-only business model and therefore
generates lower overall gross margins than our accommodation business.
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Segment Results of Operations -
Three Months Ended
September 30,
2022 2021 Change
Revenues ($ in thousands) $ 7,413 $ 5,888 $ 1,525
Cost of sales and services ($ in thousands) $ 7,285 $ 5,842 $ 1,443
Gross margin as a % of revenues 1.7 % 0.8 % 0.9 %
Our U.S. segment reported revenues in the third quarter of 2022 that were $1.5
million , or 26%, higher than the third quarter of 2021. This increase was due to
greater U.S. drilling activity positively impacting our wellsite business in
July and August, partially offset by reduced revenue due to the sale of this
business on September 1, 2022 . In addition, the offshore business had increased
activity from completed projects and unit sales in the third quarter of 2022
that did not occur to the same extent in the third quarter of 2021. These
increases were partially offset by the reduced revenue from our former West
Permian Lodge , which operated in the third quarter of 2021 and was sold in the
fourth quarter of 2021.
Our U.S. segment cost of sales and services increased $1.4 million , or 25%, in
the third quarter of 2022 compared to the third quarter of 2021. This increase
was due to greater U.S. drilling activity impacting our wellsite business in
July and August.
Our U.S. segment gross margin as a percentage of revenues increased from 0.8% in
the third quarter of 2021 to 1.7% in the third quarter of 2022 primarily due to
improved margins in our wellsite business due to operating efficiencies at
higher activity levels and increased margins from product sales in our offshore
business. These were partially offset by our former West Permian Lodge , which
generated a 79% gross margin as a percentage of revenues in the third quarter of
2021 and was sold in the fourth quarter of 2021.
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Results of Operations - Nine Months Ended
Nine Months Ended
September 30,
2022 2021 Change
($ in thousands)
Revenues
Canada $ 307,984 $ 229,223 $ 78,761
Australia 205,154 188,774 16,380
U.S. and other 21,721 16,672 5,049
Total revenues 534,859 434,669 100,190
Costs and expenses
Cost of sales and services
Canada 223,093 168,441 54,652
Australia 145,539 134,172 11,367
U.S. and other 20,760 16,629 4,131
Total cost of sales and services 389,392 319,242 70,150
Selling, general and administrative expenses 50,572 46,204 4,368
Depreciation and amortization expense 65,818 62,928 2,890
Impairment expense - 7,935 (7,935)
Other operating (income) expense (187) 122 (309)
Total costs and expenses 505,595 436,431 69,164
Operating income (loss) 29,264 (1,762) 31,026
Interest expense, net (8,062) (10,343) 2,281
Other income 4,290 6,066 (1,776)
Income (loss) before income taxes 25,492 (6,039) 31,531
Income tax expense (7,091) (2,354) (4,737)
Net income (loss) 18,401 (8,393) 26,794
Less: Net income attributable to noncontrolling
interest 1,706 534 1,172
Net income (loss) attributable to Civeo Corporation 16,695 (8,927) 25,622
Less: Dividends attributable to preferred shares 1,469 1,440 29
Net income (loss) attributable to Civeo common
shareholders $ 15,226 $ (10,367) $ 25,593
We reported net income attributable to Civeo for the nine months ended September
30, 2022 of $15.2 million , or $0.91 per diluted share compared to net loss
attributable to Civeo for the nine months ended September 30, 2021 of $10.4
million , or $0.73 per diluted share. As further discussed below, net loss for
the nine months ended September 30, 2021 included a $7.9 million pre-tax loss
resulting from the impairment of fixed assets included in Impairment expense.
Revenues. Consolidated revenues increased $100.2 million , or 23%, in the nine
months ended September 30, 2022 compared to the nine months ended September 30,
2021 . This increase was primarily driven by (i) higher billed rooms at our
Canadian lodges as occupancy in the first nine months of 2021 was negatively
impacted by the COVID-19 pandemic, (ii) higher average daily rate at our
Canadian lodges largely due to occupancy mix, (iii) increased mobile asset
activity from pipeline projects in Canada , (iv) increased activity at our
Australian Civeo owned villages in the Bowen and Gunnedah Basins and (v)
increased activity at our integrated services villages in Western Australia .
These items were partially offset by a weaker Australian and Canadian dollar
relative to the U.S. dollar in the nine months ended September 30, 2022 compared
to the nine months ended September 30, 2021 . See the discussion of segment
results of operations below for further information.
Cost of Sales and Services. Our consolidated cost of sales and services
increased $70.2 million , or 22%, in the nine months ended September 30, 2022
compared to the nine months ended September 30, 2021 . This increase was
primarily due to (i) higher billed rooms at our Canadian lodges, (ii) increased
mobile asset activity from pipeline projects in Canada , (iii) increased activity
at our Australian Civeo owned villages in the Bowen and Gunnedah Basins and (iv)
increased activity at our integrated services villages in Western Australia
These items were partially offset by a weaker Australian and Canadian dollar
relative to the U.S. dollar in the nine months ended September 30, 2022 compared
to the nine months ended September 30, 2021 . See the discussion of segment
results of operations below for further information.
30
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Selling, General and Administrative Expenses. SG&A expense increased $4.4
million , or 9%, in the nine months ended September 30, 2022 compared to the nine
months ended September 30, 2021 . This increase was primarily due to higher
share-based compensation expense, travel and entertainment expense and
information technology expense. The increase in share-based compensation expense
was due to a relative increase in our stock price during the nine months ended
September 30, 2022 compared to the nine months ended September 30, 2021 . The
increase in information technology expense was related to set-up costs incurred
in a cloud computing arrangement for our newly implemented human capital
management system, which are being amortized through SG&A expense instead of
depreciation and amortization expense. The increase in travel and entertainment
expenses was largely a result of a return to more normalized travel expenses
with the lifting of travel restrictions associated with COVID-19.
Depreciation and Amortization Expense. Depreciation and amortization expense
increased $2.9 million , or 5%, in the nine months ended September 30, 2022
compared to the nine months ended September 30, 2021 . The increase was primarily
due to shortening the lives on certain assets in Canada , partially offset by
assets in Canada becoming fully depreciated during 2021 and the disposal of our
West Permian Lodge in the U.S. during 2021.
Impairment Expense. We recorded pre-tax impairment expense of $7.9 million in
the nine months ended September 30, 2021 associated with long-lived assets in
our Australian reporting unit.
See Note 3 - Impairment Charges to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.
Operating Income (Loss). Consolidated operating income increased$31.0 million , or 1,761%, in the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , primarily due to higher activity levels inCanada andAustralia in the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 and lower impairment expense inAustralia in the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . Interest Expense, net. Net interest expense decreased by$2.3 million , or 22%, in the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , primarily related to lower average debt levels on credit facility borrowings during 2022 compared to 2021. Other Income. Consolidated other income decreased$1.8 million in the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . The nine months endedSeptember 30, 2022 included gains on the sale of assets primarily related to our Kambalda village and undeveloped land holdings inAustralia , our wellsite business in theU.S. and various mobile assets acrossCanada ,Australia and theU.S. The nine months endedSeptember 30, 2021 included$3.5 million related to proceeds from theCanada Emergency Wage Subsidy (CEWS) and a lower gain on the sale of assets primarily related to the sale of a manufacturing facility and mobile assets inCanada . Income Tax (Expense) Benefit. Our income tax expense for the nine months endedSeptember 30, 2022 totaled$7.1 million , or 27.8% of pretax income, compared to an income tax expense of$2.4 million , or (39.0)% of pretax loss, for the nine months endedSeptember 30, 2021 . Our effective tax rate for the nine months endedSeptember 30, 2022 was impacted by considering theU.S. a loss jurisdiction that was removed from the annual effective tax rate computation for the purposes of computing the interim tax provision. Our effective tax rate for the nine months endedSeptember 30, 2021 was impacted by consideringCanada and theU.S. loss jurisdictions that were removed from the annual effective tax rate computation for the purposes of computing the interim tax provision. Other Comprehensive (Loss) Income. Other comprehensive loss increased$17.3 million in the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to theU.S. dollar. The Canadian dollar exchange rate compared to theU.S. dollar decreased 8% in the nine months endedSeptember 30, 2022 and was flat in the nine months endedSeptember 30, 2021 . The Australian dollar exchange rate compared to theU.S. dollar decreased 11% in the nine months endedSeptember 30, 2022 compared to a 7% decrease in the nine months endedSeptember 30, 2021 . 31 --------------------------------------------------------------------------------
Segment Results of Operations - Canadian Segment
Nine Months Ended
September 30,
2022 2021 ChangeRevenues ($ in thousands)
Accommodation revenue (1)$ 219,349 $
176,800
Mobile facility rental revenue (2) 73,359
38,240 35,119
Food service and other services revenue (3) 15,276 14,183 1,093 Total revenues$ 307,984 $ 229,223 $ 78,761
Cost of sales and services ($ in thousands)
Accommodation cost$ 156,543 $
124,798
Mobile facility rental cost 44,939
23,562 21,377
Food service and other services cost 13,782
12,583 1,199
Indirect other costs 7,829 7,498 331 Total cost of sales and services$ 223,093 $
168,441
Gross margin as a % of revenues 27.6 %
26.5 % 1.0 %
Average daily rate for lodges (4)$ 102 $
97
Total billed rooms for lodges (5) 2,137,530
1,816,407 321,123
Average Canadian dollar to
(1)Includes revenues related to lodge rooms and hospitality services for owned rooms for the periods presented. (2)Includes revenues related to mobile assets for the periods presented. (3)Includes revenues related to food services, laundry and water and wastewater treatment services for the periods presented. (4)Average daily rate is based on billed rooms and accommodation revenue. (5)Billed rooms represents total billed days for owned assets for the periods presented. Our Canadian segment reported revenues in the nine months endedSeptember 30, 2022 that were$78.8 million , or 34%, higher than the nine months endedSeptember 30, 2021 . The weakening of the average exchange rate for the Canadian dollar relative to theU.S. dollar by 3% in the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 resulted in a$8.2 million period-over-period decrease in revenues. Excluding the impact of the weaker Canadian exchange rate, the increase was driven by (i) higher billed rooms at our lodges as occupancy in the first nine month of 2021 was negatively impacted by the COVID-19 pandemic, (ii) a higher average daily rate at our lodges largely due to occupancy mix and (iii) increased mobile asset activity from pipeline projects. Our Canadian segment cost of sales and services increased$54.7 million , or 32%, in the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . The weakening of the average exchange rate for the Canadian dollar relative to theU.S. dollar by 3% in the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 resulted in a$5.6 million period-over-period decrease in cost of sales and services. Excluding the impact of the weaker Canadian exchange rate, the increase in cost of sales and services was driven by increased occupancy at our lodges and increased mobile asset activity from pipeline projects. Our Canadian segment gross margin as a percentage of revenues increased from 26.5% in the nine months endedSeptember 30, 2021 to 27.6% in the nine months endedSeptember 30, 2022 . This was primarily driven by an increased relative contribution from mobile asset activity which generates higher gross margin. 32 --------------------------------------------------------------------------------
Segment Results of Operations - Australian Segment
Nine Months Ended
September 30,
2022 2021 ChangeRevenues ($ in thousands)
Accommodation revenue (1)$ 114,967 $
109,559
Food service and other services revenue (2) 90,187 79,215 10,972
Total revenues$ 205,154 $
188,774
Cost of sales and services ($ in thousands)
Accommodation cost$ 55,065 $
53,538
Food service and other services cost 84,836
75,458 9,378
Indirect other cost 5,638 5,176 462 Total cost of sales and services$ 145,539 $
134,172
Gross margin as a % of revenues 29.1 %
28.9 % 0.1 %
Average daily rate for villages (3)$ 76 $
79
Total billed rooms for villages (4) 1,505,143
1,382,182 122,961
Australian dollar to U.S. dollar$ 0.707 $
0.759
(1)Includes revenues related to village rooms and hospitality services for owned rooms for the periods presented. (2)Includes revenues related to food services and other services, including facilities management for the periods presented. (3)Average daily rate is based on billed rooms and accommodation revenue. (4)Billed rooms represent total billed days for owned assets for the periods presented. Our Australian segment reported revenues in the nine months endedSeptember 30, 2022 that were$16.4 million , or 9%, higher than the nine months endedSeptember 30, 2021 . The weakening of the average exchange rate for Australian dollars relative to theU.S. dollar by 7% in the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 resulted in a$15.1 million period-over-period decrease in revenues. Excluding the impact of the weaker Australian exchange rate, the increase in the Australian segment was driven by increased activity at ourCiveo owned villages in the Bowen and Gunnedah Basins and our integrated services villages inWestern Australia . Our Australian segment cost of sales and services increased$11.4 million , or 8%, in the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . The weakening of the average exchange rate for Australian dollars relative to theU.S. dollar by 7% in the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 resulted in a$10.7 million period-over-period decrease in cost of sales and services. Excluding the impact of the weaker Australian exchange rate, the increase in cost of sales and services was largely driven by increased activity at ourCiveo owned villages in the Bowen and Gunnedah Basins and our integrated services villages inWestern Australia . Our Australian segment gross margin as a percentage of revenues increased to 29.1% in the nine months endedSeptember 30, 2022 from 28.9% in the nine months endedSeptember 30, 2021 . This was primarily driven by improved margins atCiveo owned villages in the Bowen and Gunnedah Basins as a result of increased activity, partially offset by increased relative revenue contribution from our integrated services business, which has a service-only business model, and therefore generates lower overall gross margins than our accommodation business. 33 --------------------------------------------------------------------------------
Segment Results of Operations -
Nine Months Ended
September 30,
2022 2021 Change
Revenues ($ in thousands) $ 21,721 $ 16,672 $ 5,049
Cost of sales and services ($ in thousands) $ 20,760 $ 16,629 $ 4,131
Gross margin as a % of revenues 4.4 % 0.3 % 4.2 %
Our U.S. segment reported revenues in the nine months ended September 30, 2022
that were $5.0 million , or 30%, higher than the nine months ended September 30,
2021 . This increase was due to greater U.S. drilling activity positively
impacting our wellsite business that was sold on September 1, 2022 , partially
offset by reduced revenue from our former West Permian Lodge , which operated in
the first nine months of 2021 and was sold in the fourth quarter of 2021.
Our U.S. segment cost of sales and services increased $4.1 million , or 25%, in
the nine months ended September 30, 2022 compared to the nine months ended
September 30, 2021 . This increase was due to greater U.S. drilling activity
impacting our wellsite business that was sold on September 1, 2022 , partially
offset by reduced costs from our former West Permian Lodge , which operated in
the first nine months of 2021 and was sold in the fourth quarter of 2021.
Our U.S. segment gross margin as a percentage of revenues increased 4.2% from
the nine months ended September 30, 2021 to the nine months ended September 30,
2022 primarily due to improved margins in our wellsite business due to operating
efficiencies at higher activity levels, partially offset by our former West
Permian Lodge , which operated in the first nine months of 2021 and was sold in
the fourth quarter of 2021.
Liquidity and Capital Resources
Our primary liquidity needs are to fund capital expenditures, which in the past have included expanding and improving our hospitality services, developing new lodges and villages, purchasing or leasing land, and for general working capital needs. In addition, capital has been used to repay debt, repurchase our common shares and fund strategic business acquisitions. In the future, capital may be required to move lodges from one site to another. Historically, our primary sources of funds have been available cash, cash flow from operations, borrowings under our Credit Agreement and proceeds from equity issuances. In the future, we may seek to access the debt and equity capital markets from time to time to raise additional capital, increase liquidity, fund acquisitions, refinance debt or retire preferred shares.
The following table summarizes our consolidated liquidity position as of
September 30, 2022 December 31, 2021 Lender commitments $
200,000 $ 200,000
Borrowings against revolving credit capacity (89,736) (112,026) Outstanding letters of credit (1,352) (1,439) Unused availability 108,912 86,535 Cash and cash equivalents 8,361 6,282 Total available liquidity $ 117,273 $ 92,817 Cash totaling$62.4 million was provided by operations during the nine months endedSeptember 30, 2022 , compared to$63.2 million provided by operations during the nine months endedSeptember 30, 2021 . During the nine months endedSeptember 30, 2022 and 2021,$29.9 million and$5.0 million was used in working capital, respectively. The increase in cash used in working capital in 2022 compared to 2021 is largely due to the timing of customer payments and revenue recognition as it relates to mobile asset activity inCanada during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . Cash was used in investing activities during the nine months endedSeptember 30, 2022 in the amount of$5.3 million , compared to cash used in investing activities during the nine months endedSeptember 30, 2021 in the amount of$2.1 million . The increase in cash used in investing activities was primarily due to higher capital expenditures. Capital expenditures totaled 34 --------------------------------------------------------------------------------$17.5 million and$9.6 million during the nine months endedSeptember 30, 2022 and 2021, respectively. Capital expenditures in both periods were primarily maintenance related. Offsetting these capital expenditures, we received proceeds from the sale of property, plant and equipment of$12.0 million during the nine months endedSeptember 30, 2022 primarily related to the sale of our Kambalda village and undeveloped land holdings inAustralia , unused corporate office space and various mobile assets inCanada and our wellsite business in theU.S. , compared to$7.5 million during the nine months endedSeptember 30, 2021 primarily related to the sale of our manufacturing facility and mobile assets inCanada . We expect our capital expenditures for 2022 to be in the range of$24 million to$29 million , which excludes any unannounced and uncommitted projects, the spending for which is contingent on obtaining customer contracts or commitments. Our 2022 capital expenditures estimate includes the capital expenditures associated with our recently announced 12-year contract renewal for ourWapasu Lodge in the Canadian oil sands. Whether planned expenditures will actually be spent in 2022 depends on industry conditions, project approvals and schedules, customer room commitments and project and construction timing. We expect to fund these capital expenditures with available cash, cash flow from operations and revolving credit borrowings under our Credit Agreement. The foregoing capital expenditure forecast does not include any funds for strategic acquisitions, which we could pursue should the transaction economics be attractive enough to us compared to the current capital allocation priorities of debt reduction and return of capital to shareholders. We continue to monitor the global economy, commodity prices, demand for crude oil, met coal, LNG and iron ore, inflation, the COVID-19 global pandemic and the responses thereto and the resultant impact on the capital spending plans of our customers in order to plan our business activities, and we may adjust our capital expenditure plans in the future. Net cash of$53.1 million was used in financing activities during the nine months endedSeptember 30, 2022 primarily due to net repayments under our revolving credit facilities of$14.8 million , term loan repayments of$23.1 million , repurchases of our common shares of$14.2 million and payments to settle tax obligations on vested shares under our share-based compensation plans of$1.0 million . Net cash of$61.1 million was used in financing activities during the nine months endedSeptember 30, 2021 primarily due to repayments of term loan borrowings of$117.6 million , payments to settle tax obligations on vested shares under our share-based compensation plans of$1.1 million , debt issuance costs of$4.4 million and repurchases of our common shares of$0.4 million , partially offset by net borrowings under our revolving credit facilities of$62.5 million .
The following table summarizes the changes in debt outstanding during the nine
months ended
Balance at December 31, 2021 $ 175,130
Borrowings under revolving credit facilities 204,951
Repayments of borrowings under revolving credit facilities (219,775)
Repayments of term loans (23,059)
Translation (11,031)
Balance at September 30, 2022 $ 126,216
We believe that cash on hand and cash flow from operations will be sufficient to
meet our anticipated liquidity needs for the next 12 months. If our plans or
assumptions change, including as a result of the impact of COVID-19 or changes
in price of and demand for oil, or are inaccurate, or if we make acquisitions,
we may need to raise additional capital. Acquisitions have been, and our
management believes acquisitions will continue to be, an element of our
long-term business strategy. The timing, size or success of any acquisition
effort and the associated potential capital commitments are unpredictable and
uncertain. We may seek to fund all or part of any such efforts with proceeds
from debt and/or equity issuances or may issue equity directly to the sellers.
Our ability to obtain capital for additional projects to implement our growth
strategy over the longer term will depend on our future operating performance,
financial condition and, more broadly, on the availability of equity and debt
financing. Capital availability will be affected by prevailing conditions in our
industry, the global economy, the global financial markets and other factors,
many of which are beyond our control. In addition, any additional debt service
requirements we take on could be based on higher interest rates and shorter
maturities and could impose a significant burden on our results of operations
and financial condition, and the issuance of additional equity securities could
result in significant dilution to shareholders.
35
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In
Credit Agreement
As ofSeptember 30, 2022 , our Credit Agreement (as then amended to date, the Credit Agreement) provided for: (i) a$200.0 million revolving credit facility scheduled to mature onSeptember 8, 2025 , allocated as follows: (A) a$10.0 million senior secured revolving credit facility in favor of one of ourU.S. subsidiaries, as borrower; (B) a$155.0 million senior secured revolving credit facility in favor ofCiveo , as borrower; and (C) a $35.0 million senior secured revolving credit facility in favor of one of our Australian subsidiaries, as borrower; and (ii) aC$100.0 million term loan facility scheduled to be fully repaid onDecember 31, 2023 in favor ofCiveo . As ofSeptember 30, 2022 , we had outstanding letters of credit of$0.3 million under theU.S. facility, zero under the Australian facility and$1.1 million under the Canadian facility. We also had outstanding bank guarantees ofA$0.8 million under the Australian facility.
See Note 8 - Debt to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.
Dividends
The declaration and amount of all potential future dividends will be at the discretion of our Board and will depend upon many factors, including our financial condition, results of operations, cash flows, prospects, industry conditions, capital requirements of our business, covenants associated with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors the Board deems relevant. In addition, our ability to pay cash dividends on common or preferred shares is limited by covenants in the Credit Agreement. Future agreements may also limit our ability to pay dividends, and we may incur incremental taxes if we are required to repatriate foreign earnings to pay such dividends. If we elect to pay dividends in the future, the amount per share of our dividend payments may be changed, or dividends may be suspended, without advance notice. The likelihood that dividends will be reduced or suspended is increased during periods of market weakness. There can be no assurance that we will pay a dividend in the future. The preferred shares we issued in theNoralta acquisition are entitled to receive a 2% annual dividend on the liquidation preference (initially$10,000 per share), paid quarterly in cash or, at our option, by increasing the preferred shares' liquidation preference, or any combination thereof. Quarterly dividends were paid in-kind onSeptember 30, 2022 , thereby increasing the liquidation preference to$10,939 per share as ofSeptember 30, 2022 . We currently expect to pay dividends on the preferred shares through an increase in liquidation preference rather than cash until they mandatorily convert toCiveo common shares inApril 2023 .
Critical Accounting Policies
For a discussion of the critical accounting policies and estimates that we use in the preparation of our consolidated financial statements, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . These estimates require significant judgments, assumptions and estimates. We have discussed the development, selection and disclosure of these critical accounting policies and estimates with the audit committee of our Board of Directors. There have been no material changes to the judgments, assumptions and estimates upon which our critical accounting estimates are based. 36
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