<

Must-know: JANA Partners discloses activist position in Civeo

Part 6
Must-know: JANA Partners discloses activist position in Civeo (Part 6 of 6)

Why Civeo expects growth opportunites in Canada

Civeo expects growth opportunities in Canada

As reported in an earlier section in this series, activist investor JANA Partners revealed a position in Civeo (CVEO), which was spun-off from Oil States International (OIS) last month. We discussed that Civeo has experienced lower occupancy rates and currency headwinds related to its businesses in Australia and Canada.

Civeo4Enlarge Graph

Civeo, a provider of “man camp” accommodations, said it expects to have sequentially lower results in the 2Q14. The management said, “We maintain our original second quarter guidance of $210 million–$215 million of revenues with EBITDA margins in the range of 33%–34% before spin-off related costs.” It expects 2014 capital expenditures will total approximately $325–$375 million, compared to 2013 capital expenditures of $292 million.

An investor letter from JANA Partners earlier this year noted “As we expected, earnings for the Accommodations unit have been pressured by weakness in the Australian coal mining sector, but room count growth in Canada will drive constant currency EBITDA growth in 2014 of 3% for the division. We believe the stability and growth prospects of the Accommodations unit are still misunderstood by investors and a sum of the parts discount will persist until the separation occurs.”

Civeo said in its filing that it already has a ten-year contract in support of future operations personnel working on Exxon­Mobil’s (XOM) Kearl Project—one of the Canadian oil sands potentially largest mining operations. It could also expand within western British Columbia to benefit from the liquefied natural gas (or LNG) export projects, news reports noted.

The company invested $63.5 million in capital expenditures during the 1Q14 that was mainly related to the ongoing expansion of the Canadian accommodations business, specifically the construction of the McClelland Lake Lodge, located North of Fort McMurray in the Athabasca oil sands region of Alberta, Canada. The lodge will have an initial capacity of 1,561 rooms and the potential to reach 1,997 rooms in the future. The lodge is expected to open in the summer of 2014 and reach full initial capacity in the 4Q14. McClelland Lake Lodge will initially support a new oil sands mining project in the region under a three-year contract for the majority of the rentable rooms.

Civeo is bullish about its Canadian prospects. It said in a May presentation that it sees a strengthening macro environment around oil sands development. It said key developers are expected to spend $23 billion in new build and expansion capex in 2014, an 11% year‐over‐year (or YoY) increase. Expenditures are projected to reach $30 billion in 2016. Premier old sands operators such as Imperial Oil, Suncor Energy Oil Sands L.P. (SU), Fluor Canada (or FLR), Devon Canada (DVN), and KKD Oil Sands Partnership (or STO), formerly known as Statoil Canada Partnership, among others are increasingly able to fund development from internal cash flow, increasing stability and consistency of oil sands expenditures.

The Realist Discussions