What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-10-28 compared with 2020-07-29 · 247 added, 218 removed, 369 unchanged (56% of the section changed)

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Consequently, these investments are dependent on those customers’ long-term views of commodity demand and prices.

The spread of COVID-19 and the response thereto during the first half of 2020 has negatively impacted the global economy.

The spread of COVID-19 and the response thereto during the first nine months of 2020 has negatively impacted the global economy.

The actions taken to mitigate the spread of COVID-19 and the risk of infection have altered, and are expected to continue to alter, governmental and private-sector policies and behaviors in ways that have had a significant negative effect on oil consumption, such as government-imposed or voluntary social distancing and quarantining, reduced travel and remote work policies.

Additionally, global oil prices dropped to historically low levels in March and April 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 as Saudi Arabia, Russia and the U.S.

While in mid-April 2020, OPEC+ (the combination of historical OPEC members and other significant oil producers, such as Russia) announced potential production cuts of up to approximately 10 million barrels per day, these cuts are not expected to be sufficient to avoid a historic glut in the second and third quarters of 2020.

As a result, oil prices are expected to remain at low levels for the remainder of 2020.

The economic disruption in 2020 caused by the decline in the price of and demand for oil has impacted the activity in the Canadian oil sands and we have seen a decrease in occupancy by our oil sands customers.

A reduction in the occupancy at our Canadian oil sands lodges negatively impacted our business in the quarter ended June 30, 2020 and could continue to negatively impact our business if oil prices remain at the current lower levels.

Due to lower oil prices and the economic disruption caused by COVID-19, we implemented certain cost containment initiatives, including salary and total compensation reductions of between 10% to 20% for the Board, executive leadership team and other senior management, headcount reduction in North America of approximately 25% in March through June 2020, and cutting expected 2020 capital spending by approximately 25%.

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 for individuals that enter our facilities, social distancing practices, enhanced cleaning and deep sanitization, the suspension of nonessential employee travel and work-from-home policies, where applicable.

While in mid-April 2020, OPEC+ (the combination of historical OPEC members and other significant oil producers, such as Russia) announced potential production cuts of up to approximately 10 million barrels per day, oil prices have remained at depressed levels and prices are expected to remain at low levels for the remainder of 2020 and into 2021.

The economic disruption in 2020 caused by the decline in the price of and demand for oil has impacted the activity in the Canadian oil sands and we have seen a decrease in demand for rooms by our oil sands customers.

A reduction in the occupancy at our Canadian oil sands lodges negatively impacted our business in the quarter ended September 30, 2020 and could continue to negatively impact our business if oil prices remain at the current lower levels.

Due to lower oil prices and the economic disruption caused by COVID-19, we implemented certain cost containment initiatives, including salary and total compensation reductions of 20% for the Board and Chief Executive Officer for 2020 from March levels, headcount reduction in North America of approximately 25% in March through June 2020, and cutting expected 2020 capital spending by approximately 25%.

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 deep sanitization, the suspension of nonessential employee travel and implementation of work-from-home policies, where applicable.

Alberta, Canada.

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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) and recent actions by the Alberta provincial government to limit oil production from the province.

Historically, WCS has traded at a discount to WTI, creating a “WCS Differential,” due to transportation costs and limited capacity to move Canadian heavy oil production to refineries, primarily along the U.S.

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 the U.S.

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 accommodations assets and to improve take-away capacity for Canadian oil sands producers over the longer term.

While these pipeline projects, including Kinder Morgan’s Trans Mountain Pipeline and the Keystone XL Pipeline (KXL), have recently received incremental regulatory approvals, it is still not certain if any of the proposed pipeline projects will ultimately be constructed.

These projects have been delayed due to the lack of agreement between the Canadian federal government, which supports the pipeline projects, and the British Columbia provincial government.

The Canadian federal government recently acquired Kinder Morgan’s Trans Mountain Pipeline, approved the expansion of the project and is currently working through the construction timeline.

It was recently announced that the Alberta provincial government will financially support the construction of the KXL pipeline and construction of this pipeline expansion could begin later in 2020.

Additionally, the U.S.

Supreme Court refused to renew a water permit for the KXL pipeline in July 2020.

Construction of the KXL pipeline in the U.S.

is currently suspended, which may delay connection of the pipeline with Canadian oil sands producers.

While WCS prices in the second quarter of 2020 averaged $19.73 per barrel, by June 30, 2020 the WCS price had increased to $29.14 per barrel.

The WCS Differential decreased from $15.40 per barrel at the end of the first quarter of 2020 to $10.13 per barrel at the end of the second quarter of 2020.

As of July 24, 2020, the WTI price was $41.14 and the WCS price was $31.62, resulting in a WCS Differential of $9.52.

While these pipeline projects, including Kinder Morgan’s Trans Mountain Pipeline (TMX) and the Keystone XL Pipeline (KXL), have recently received incremental regulatory approvals, it is still not certain if any of the proposed pipeline projects will ultimately be completed.

Certain segments of the TMX pipeline have begun construction;

however, the construction timeline continues to be delayed due to the lack of agreement between the Canadian federal government, which supports the pipeline projects, and the British Columbia provincial government.

The Canadian federal government acquired Kinder Morgan’s Trans Mountain Pipeline in 2018, approved the expansion of the project and is currently working through the revised construction timeline.

Regarding the KXL pipeline, the Alberta provincial government announced in April 2020 its intent to financially support the construction of the pipeline.

The construction of this pipeline expansion is currently suspended due to the U.S.

Supreme Court refusing to renew a water permit for the KXL pipeline in July 2020.

WCS prices in the third quarter of 2020 averaged $31.15 per barrel, and on September 30, 2020, the WCS price was $29.38 per barrel.

The WCS Differential decreased from $15.40 per barrel at the end of the first quarter of 2020 to $10.84 per barrel at the end of the third quarter of 2020.

As of October 23, 2020, the WTI price was $39.67 and the WCS price was $29.33, resulting in a WCS Differential of $10.34.

The depressed price levels of both WTI and WCS are expected to materially impact exploration, development, maintenance and production spending and activity by Canadian operators and, therefore, demand for our hospitality services.

For example, on March 23, 2020, the Fort Hills Energy LP project announced a reduction of activity from two trains to one

Many of the publicly traded oil and gas companies have announced significant reductions in their spending forecasts for 2020, reductions in the range of 30-40%.

Companies have significantly reduced spending year-to-date and announced further reductions to their spending forecasts for the remainder of the year.

While some of our Canadian oil sands customers conducted maintenance projects in the third quarter, activity was negatively impacted by the current environment.

Continued uncertainty, including about the impact of COVID-19, and commodity price volatility and regulatory complications are expected to cause our Canadian oil sands and pipeline customers to delay expansionary and maintenance spending and defer additional investments in their oil sands assets.

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As a result, British Columbia LNG activity and related pipeline projects have become a material driver of activity for our Sitka Lodge, as well as for our mobile fleet assets, which are contracted to serve several portions of the related pipeline construction activity.

The actual timing of when revenue is realized from the CGL pipeline and Sitka Lodge contracts could be impacted by any delays in the construction of the Kitimat LNG Facility or the pipeline, including recent blockades that aim to delay construction.

In late March 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.

This resulted in a reduction in occupancy at our Sitka Lodge during the second quarter of 2020.

Occupancy at the Sitka Lodge has returned to expected levels during July 2020.

Occupancy at the Sitka Lodge returned to expected levels during July 2020 and has remained at expected levels thorough the third quarter of 2020.

In Australia, 82% of our rooms are located in the Bowen Basin and primarily serve met coal mines in that region.

Met coal pricing and production growth in the Bowen Basin region is predominantly influenced by the levels of global steel production, which decreased by 6% during the first half of 2020 compared to the first half of 2019.

As of July 24, 2020, met coal spot prices were $112 per metric tonne.

Met coal pricing and production growth in the Bowen Basin region is predominantly influenced by the levels of global steel production, which decreased by 3.2% during the first nine months of 2020 compared to the same period of 2019.

As of October 23, 2020, met coal spot prices were $110 per metric tonne.

Long-term demand for steel is expected to be driven by increased steel consumption per capita in developing economies, such as China and India, whose current consumption per capita is a fraction of developed countries.

The outlook for steel consumption is currently uncertain from both a supply and demand perspective with some large iron ore and met coal producing jurisdictions curtailing or ceasing production during the COVID-19 pandemic, affecting supply.

There is still a level of uncertainty for demand of iron ore and met coal.

The impact on the demand for steel with the closure or curtailment of manufacturing in economies affected by COVID-19, which will only return to normal levels of consumption once jurisdictions lift quarantine requirements and manufacturing facilities are reopened, is also uncertain.

There is a high likelihood that many countries will use infrastructure spend as part of their economic recovery plan, which would have a positive impact on the demand for met coal and the spot price.

To date, we have not seen a decline in occupancy at our Australian villages resulting from COVID-19.

However, a new round of stimulus in China and recovering steel production in other regions continues to support demand for raw materials particularly iron ore.

We believe there is a high likelihood that many countries will use infrastructure spend as part of their economic recovery plan, which would have a positive impact on the demand for met coal and the spot price.

To date, we have not seen an overall material decline in occupancy at our Australian villages resulting from COVID-19.

Activity in Western Australia is driven primarily by iron ore production, which is a key steel-making ingredient.

As of July 24, 2020, iron ore spot prices were $106.27 per metric tonne.

As of October 23, 2020, iron ore spot prices were $117.07 per metric tonne.

On July 1, 2019, we acquired Action Industrial Catering (Action), a provider of catering and managed services to the mining industry in Western Australia.

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shale formations in the Permian Basin, the Mid-Continent, the Bakken and the Rockies.

oil rig count and associated completion activity has been negatively impacted in the first half of 2020 due to the global oil price decline discussed above.

Currently, only 188 oil rigs were active at the end of the second quarter of 2020.

oil rig count and associated completion activity has been negatively impacted in the first nine months of 2020 due to the global oil price decline

discussed above.

Only 183 oil rigs were active at the end of the third quarter of 2020.

The Permian Basin remains the most active U.S.

unconventional play, representing 67% of the oil rigs in the U.S.

market at the end of the second quarter of 2020.

As of July 24, 2020, there were 181 active oil rigs in the U.S.

market at the end of the third quarter of 2020.

As of October 23, 2020, there were 211 active oil rigs in the U.S.

(as measured by Bakerhughes.com).

With the recent reduction in oil prices and resulting reduction in spending by exploration and production companies, we will be exiting the

Bakken and Rockies markets for our mobile well site units.

With the recent reduction in oil prices and a resulting reduction in spending by exploration and production (E&P) companies, we will be exiting the Bakken and Rockies markets for our mobile well site units.

Those assets will either be sold or transported to our Texas and Oklahoma district locations.

This process is underway and we expect it to be completed in a phased approach through 2020 and the first half of 2021.

oil shale drilling and completion activity will continue to be dependent on sustained higher WTI oil prices, pipeline capacity and sufficient capital to support E&P drilling and completion plans.

In addition, consolidation among our E&P customer base in the U.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.

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(per bbl) Hard

Third Quarter through 7/24/2020 $ 40.74 $ 32.27 $ 114.16

Fourth Quarter through 10/23/2020 $ 40.13 $ 30.33 $ 125.16

9/30/2020 40.90 31.15 113.30

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 Change Percentage 2020 2019 Change Percentage

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dollar $0.716 $0.686 0.03 4.3% $0.677 $0.699 ($0.02) (3.1)%

June 30, 2020 December 31, 2019 Change Percentage

September 30, 2020 December 31, 2019 Change Percentage

Canadian dollar to U.S.

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We continue to monitor the COVID-19 global pandemic and the responses thereto, the global economy, the price of and demand for crude oil, met coal and iron ore and the resultant impact on the capital spending plans of our customers in order to plan our business activities.

In April 2020, we revised downward our 2020 capital expenditure plans

and we currently expect that our 2020 capital expenditures, exclusive of any expansionary spending, which is contingent on obtaining customer contracts, will total approximately $15 million, compared to 2019 capital expenditures of $29.8 million.

In April 2020, we revised downward our 2020 capital expenditure plans and we currently expect that our 2020 capital expenditures, exclusive of any expansionary spending, which is contingent on obtaining customer contracts, will total less than $15 million, compared to 2019 capital expenditures of $29.8 million.

We may adjust our capital expenditure plans in the future as we continue to monitor the impact of COVID-19.

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Results of Operations

Unless otherwise indicated, discussion of results for the three and six months ended June 30, 2020, is based on a comparison to the corresponding period of 2019.

Results of Operations – Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

Unless otherwise indicated, discussion of results for the three and nine months ended September 30, 2020, is based on a comparison to the corresponding period of 2019.

Results of Operations – Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Three Months Ended

September 30,

2020 2019 Change

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Total costs and expenses 135,767 145,287 (9,520)

Operating loss (1,841) (12,056) 10,215

Operating income 7,090 2,876 4,214

Interest expense and income, net (4,029) (7,298) 3,269

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Income tax (expense) benefit (180) 6,629 (6,809)

Net income (loss) 6,829 (14,849) 21,678

Net income 7,423 5,056 2,367

Net income attributable to noncontrolling interest 434 60 374

Net income (loss) attributable to Civeo Corporation 6,607 (14,849) 21,456

Net income attributable to Civeo Corporation 6,989 4,996 1,993

Dividends attributable to preferred shares 472 464 8

Net income (loss) attributable to Civeo common shareholders $ 6,136 $ (15,310) $ 21,446

We reported net income attributable to Civeo for the quarter ended June 30, 2020 of $6.1 million, or $0.03 per diluted share.

As further discussed below, net income included $4.7 million ($4.7 million after-tax, or $0.03 per diluted share) of income associated with the settlement of a representations and warranties claim related to the Noralta acquisition included in Other income.

We reported net loss attributable to Civeo for the quarter ended June 30, 2019 of $15.3 million, or $0.09 per diluted share.

As further discussed below, net loss included a $5.5 million pre-tax loss ($5.5 million after-tax, or $0.03 per diluted share) resulting from the impairment of fixed assets included in Impairment expense.

Consolidated revenues decreased $7.5 million, or 6%, in the second quarter of 2020 compared to the second quarter of 2019.

This decrease was primarily due to lower revenue in Canada resulting from lower occupancy at oil sands lodges and reduced food services activity, both related to the COVID-19 pandemic and lower oil prices.

Additionally, lower

activity levels in certain markets in the U.S.

and weaker Canadian and Australian dollars relative to the U.S.

dollar in the second quarter of 2020 compared to the second quarter of 2019 contributed to decreased revenues.

These items were partially offset by higher revenues in Australia due to the Action acquisition completed on July 1, 2019, increased occupancy at our Bowen Basin villages and increased mobile camp activity from a pipeline project in Canada.

Net income attributable to Civeo common shareholders $ 6,517 $ 4,532 $ 1,985

We reported net income attributable to Civeo for the quarter ended September 30, 2020 of $6.5 million, or $0.03 per diluted share.

We reported net income attributable to Civeo for the quarter ended September 30, 2019 of $4.5 million, or $0.02 per diluted share.

As further discussed below, net income included a gain on sale of assets related to the sale of a village in Australia and related $2.2 million release of an asset retirement obligation (ARO) liability assumed by the buyer.

Consolidated revenues decreased $5.3 million, or 4%, in the third quarter of 2020 compared to the third quarter of 2019.

This decrease was primarily due to lower revenue in Canada resulting from lower occupancy at oil sands lodges related to the COVID-19 pandemic and lower oil prices.

Additionally, lower activity levels in certain markets in the U.S.

and a weaker Canadian dollar relative to the U.S.

dollar in the third quarter of 2020 compared to the third quarter of 2019 contributed to decreased revenues.

These items were partially offset by (i) higher revenues in Australia due to increased activity at the Action villages and increased occupancy at our Bowen Basin villages, (ii) higher revenue in Canada due to increased mobile camp activity from a pipeline project and an increase from food service activity, (iii) increased activity in our offshore rental business in the U.S.

and (iv) a stronger Australian dollar relative to the U.S.

dollar in the third quarter of 2020 compared to the third quarter of 2019.

See the discussion of segment results of operations below for further information.

Cost of Sales and Services.

Our consolidated cost of sales and services decreased $2.1 million, or 2%, in the second quarter of 2020 compared to the second quarter of 2019.

This decrease was primarily due to lower cost of sales in Canada resulting from lower occupancy at oil sands lodges and reduced food services activity, both related to the COVID-19 pandemic and lower oil prices.

Our consolidated cost of sales and services decreased $2.0 million, or 2%, in the third quarter of 2020 compared to the third quarter of 2019.

This decrease was primarily due to lower cost of sales and services in Canada resulting from lower occupancy at oil sands lodges related to the COVID-19 pandemic and lower oil prices.

Additionally, lower activity levels in certain markets in the U.S.

and weaker Canadian and Australian dollars relative to the U.S.

dollar in the second quarter of 2020 compared to the second quarter of 2019 contributed to decreased cost of sales and services.

This was partially offset by the Action acquisition, increased occupancy at our Bowen Basin villages in Australia and higher cost of sales and services due to increased mobile camp activity from a pipeline project in Canada.

and a weaker Canadian dollar relative to the U.S.

dollar in the third quarter of 2020 compared to the third quarter of 2019 contributed to decreased cost of sales and services.

These items were partially offset by increased cost of sales and services due to (i) increased activity at the Action villages and increased occupancy at our Bowen Basin villages in Australia, (ii) increased mobile camp activity and the implementation of enhanced COVID-19 measures in Canada, (iii) increased activity in our offshore rental business in the U.S.

and (iv) a stronger Australian dollar relative to the U.S.

dollar in the third quarter of 2020 compared to the third quarter of 2019.

See the discussion of segment results of operations below for further information.

Selling, General and Administrative Expenses.

SG&A expense decreased $1.0 million, or 8%, in the second quarter of 2020 compared to the second quarter of 2019.

This decrease was primarily due to lower share-based compensation expense, lower professional fees and lower travel and entertainment expenses, partially offset by higher incentive compensation costs.

The decrease in share-based compensation was due to a reduction in the amount of restricted share and performance share awards outstanding and the reduction in our stock price associated with phantom share awards during the second quarter of 2020 compared to the second quarter of 2019.

SG&A expense decreased $0.9 million, or 6%, in the third quarter of 2020 compared to the third quarter of 2019.

This decrease was primarily due to reduced compensation as a result of workforce reductions, lower share-based compensation expense, lower professional fees and lower travel and entertainment expenses, partially offset by higher incentive compensation costs.

The decrease in share-based compensation was due to a reduction in the amount of restricted share and performance share awards outstanding and the reduction in our stock price associated with phantom share awards during the third quarter of 2020 compared to the third quarter of 2019.

Depreciation and Amortization Expense.

Depreciation and amortization expense decreased $8.8 million, or 28%, in the second quarter of 2020 compared to the second quarter of 2019.

The decrease was primarily due to (1) certain assets and intangibles becoming fully depreciated during 2019, (2) the extension of the remaining life of certain long-lived accommodation assets in Canada during the fourth quarter of 2019, (3) the impairment of certain long-lived assets in Canada and the U.S.

during the first quarter of 2020 and (4) weaker Canadian and Australian dollars relative to the U.S.

dollar in the second quarter of 2020 compared to the second quarter of 2019.

These items were partially offset by additional depreciation and intangible amortization expense related to our Action acquisition in 2019.

Impairment Expense.

We recorded pre-tax impairment expense of $5.5 million in second quarter of 2019 associated with long-lived assets in our Australian reporting unit.

Please see Note 6 - 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 loss decreased $10.2 million, or 85%, in the second quarter of 2020 compared to the second quarter of 2019, primarily due to lower depreciation and amortization expense, lower impairment expense and increased activity levels in Australia, partially offset by decreased activity levels in Canada and U.S.

Depreciation and amortization expense decreased $6.4 million, or 20%, in the third quarter of 2020 compared to the third quarter of 2019.

The decrease was primarily due to (i) certain assets becoming fully depreciated during 2019, (ii) the extension of the remaining life of certain long-lived accommodation assets in Canada during the fourth quarter of 2019 and (iii) the impairment of certain long-lived assets in Canada and the U.S.

during the first quarter of 2020.

These items were partially offset by additional intangible amortization expense related to the acceleration of the Action trade name in Australia.

Operating Income.

Consolidated operating income increased $4.2 million, or 147%, in the third quarter of 2020 compared to the third quarter of 2019, primarily due to lower depreciation and amortization expense, lower SG&A expense and increased activity levels in Australia, partially offset by decreased activity levels in Canada and U.S.

Interest Expense and Income, net.

Net interest expense decreased by $2.8 million, or 43%, in the second quarter of 2020 compared to the second quarter of 2019, primarily related to lower average debt levels and lower interest rates on term loan and revolving credit facility borrowings during 2020 compared to 2019.

Net interest expense decreased by $3.3 million, or 45%, in the third quarter of 2020 compared to the third quarter of 2019, primarily related to lower average debt levels and lower interest rates on term loan and revolving credit facility borrowings during 2020 compared to 2019, partially offset by increases from the 2020 write-off of debt issuance costs associated with the Amended Credit Agreement.

Other Income.

Consolidated other income increased $11.6 million, or 1098%, in the second quarter of 2020 compared to the second quarter of 2019, primarily due to $4.7 million of other income associated with the settlement of a representations and warranties claim related to the Noralta acquisition, $6.2 million of other income related to proceeds from the Canada Emergency Wage Subsidy (CEWS) and a higher gain on sale of assets compared to the second quarter of 2019.

The second quarter of 2019 included $1.1 million of other income related to proceeds from an insurance claim associated with the closure of a lodge in 2018 for maintenance-related operational issues.

Income Tax Benefit.

Our income tax benefit for the three months ended June 30, 2020 totaled $0.1 million, or 1.8% of pretax loss, compared to a benefit of $2.9 million, or 16.1% of pretax loss, for the three months ended June 30, 2019.

Consolidated other income increased $1.7 million, or 59%, in the third quarter of 2020 compared to the third quarter of 2019, primarily due to $3.6 million of other income related to proceeds from the CEWS, partially offset by a lower gain on sale of assets in 2020 compared to 2019.

The third quarter of 2019 included a gain on sale of assets related to the sale of a village in Australia and related $2.2 million release of an asset retirement obligation (ARO) liability assumed by the buyer.

Income Tax (Expense) Benefit.

Our income tax expense for the three months ended September 30, 2020 totaled $0.2 million, or 2.4% of pretax income, compared to a income tax benefit of $6.6 million, or 421.4% of pretax loss, for the three months ended September 30, 2019.

Our effective tax rate for the three months ended September 30, 2020 was impacted by tax expense of $0.1 million related to foreign withholding and U.S.

state income taxes.

Our effective tax rate for the three months ended September 30, 2019 was impacted by a tax benefit of $3.0 million related to a reduction in the Alberta, Canada income tax rate as well as a $2.1 million tax benefit related to the change in the valuation allowance in Australia resulting from the acquisition of Action.

Under ASC 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 Income (Loss).

Other comprehensive income increased $28.3 million in the second quarter of 2020 compared to the second quarter of 2019, primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S.

Other comprehensive income increased $23.2 million in the third quarter of 2020 compared to the third quarter of 2019, primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S.

The Canadian dollar exchange rate compared to the U.S.

dollar decreased 4% in the second quarter of 2020 compared to a 2% increase in the second quarter of 2019.

Australian dollar exchange rate compared to the U.S.

dollar decreased 2% in the second quarter of 2020 compared to a 1% decrease in the second quarter of 2019.

dollar increased 2% in the third quarter of 2020 compared to a 1% decrease in the third quarter of 2019.

The Australian dollar exchange rate compared to the U.S.

dollar increased 4% in the third quarter of 2020 compared to a 4% decrease in the third quarter of 2019.

Segment Results of Operations – Canadian Segment

Three Months Ended

September 30,

2020 2019 Change

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(6) Billed rooms represent total billed days for the periods presented.

Our Canadian segment reported revenues in the second quarter of 2020 that were $25.1 million, or 32%, lower than the second quarter of 2019.

Our Canadian segment reported revenues in the third quarter of 2020 that were $19.3 million, or 21%, lower than the third quarter of 2019.

The weakening of the average exchange rates for the Canadian dollar relative to the U.S.

dollar by 4% in the second quarter of 2020 compared to the second quarter of 2019 resulted in a $1.9 million period-over-period decrease in revenues.

dollar by 1% in the third quarter of 2020 compared to the third quarter of 2019 resulted in a $0.8 million period-over-period decrease in revenues.

Excluding the impact of the weaker Canadian exchange rates, the segment experienced a 21% decrease in revenues.

This decrease was driven by lower occupancy at oil sands lodges, where billed rooms were down 45% year-over-year, and reduced food services activity.

These decreases were both related to the COVID-19 pandemic and lower oil prices.

Additionally, revenue was negatively impacted by reduced manufacturing activity as 2019 included two projects that did not recur in 2020.

Partially offsetting these items was increased mobile camp activity from a pipeline project.

Our Canadian segment cost of sales and services decreased $16.8 million, or 28%, in the second quarter of 2020 compared to the second quarter of 2019.

This decrease was driven by lower occupancy at oil sands lodges, where billed rooms were down 42% year-over-year.

This decrease was related to the COVID-19 pandemic and lower oil prices.

Partially offsetting this was increased mobile camp activity from a pipeline project.

Our Canadian segment cost of sales and services decreased $10.9 million, or 17%, in the third quarter of 2020 compared to the third quarter of 2019.

The weakening of the average exchange rates for the Canadian dollar relative to the U.S.

dollar by 4% in the second quarter of 2020 compared to the second quarter of 2019 resulted in a $1.5 million period-over-period decrease in cost of sales and services.

Excluding the impact of the weaker Canadian exchange rates, the decreased cost of sales and services was driven by lower occupancy at our oil sands lodges and reduced food services activity.

These decreases were both related to the COVID-19 pandemic and lower oil prices.

Additionally, lower costs resulted from reduced indirect other costs due to a continued focus on cost containment and operational efficiencies, partially offset by increased costs related to enhanced measures during the COVID-19 pandemic and increased mobile camp activity.

Our Canadian segment gross margin as a percentage of revenues decreased from 24.1% in the second quarter of 2019 to 19.9% in the second quarter of 2020.

This was primarily driven by increased costs related to enhanced measures during the COVID-19 pandemic, as well as reduced operating efficiencies due to lower occupancy.

dollar by 1% in the third quarter of 2020 compared to the third quarter of 2019 resulted in a $0.5 million period-over-period decrease in cost of sales and services.

Excluding the impact of the weaker Canadian exchange rates, the decreased cost of sales and services was driven by lower occupancy at our oil sands lodges.

This decrease was related to the COVID-19 pandemic and lower oil prices.

Additionally, lower costs resulted from reduced indirect other costs due to a continued focus on cost containment and

operational efficiencies, partially offset by increased costs related to the implementation of enhanced measures during the COVID-19 pandemic and increased mobile camp activity.

Our Canadian segment gross margin as a percentage of revenues decreased from 31.6% in the third quarter of 2019 to 28.4% in the third quarter of 2020.

This was primarily driven by increased costs related to the implementation of enhanced measures during the COVID-19 pandemic, as well as reduced operating efficiencies due to lower occupancy.

Segment Results of Operations – Australian Segment

Three Months Ended

September 30,

2020 2019 Change

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(4) Billed rooms represent total billed days for the periods presented.

Our Australian segment reported revenues in the second quarter of 2020 that were $26.1 million, or 84%, higher than the second quarter of 2019.

Action contributed $22.1 million in revenues in the second quarter of 2020.

The weakening of the average exchange rates for Australian dollars relative to the U.S.

dollar by 6% in the second quarter of 2020 compared to the second quarter of 2019 resulted in a $2.2 million period-over-period decrease in revenues and a $5 reduction in the average daily rate.

Excluding the impact of the weaker Australian exchange rates, the Australian segment experienced an 96% increase in revenues largely due to the Action acquisition and increased occupancy of our Bowen Basin villages, partially offset by decreased activity at our Western Australia villages.

Our Australian segment cost of sales increased $18.9 million, or 117%, in the second quarter of 2020 compared to the second quarter of 2019.

The increase was largely driven by the Action acquisition.

Increases also related to increased occupancy at our Bowen Basin villages which were entirely offset by decreased activity at our Western Australia villages, additional accretion expense in 2019 related to an asset retirement obligation at one of our Australia villages and the weakening of the Australian dollar.

Our Australian segment gross margin as a percentage of revenues decreased to 38.8% in the second quarter of 2020 from 48.2% in the second quarter of 2019.

This was primarily driven by Action, which has a service-only business model and therefore results in lower overall gross margins than the accommodation business, partially offset by improved margins at our Bowen Basin villages as a result of increased occupancy.

Our Australian segment reported revenues in the third quarter of 2020 that were $16.9 million, or 35%, higher than the third quarter of 2019.

The strengthening of the average exchange rates for Australian dollars relative to the U.S.

dollar by 4% in the third quarter of 2020 compared to the third quarter of 2019 resulted in a $2.8 million period-over-period increase in revenues and a $4 increase in the average daily rate.

Excluding the impact of the stronger Australian exchange rates, the Australian segment experienced a 30% increase in revenues largely due to increased activity at the Action villages and increased occupancy at our Bowen Basin villages.

Our Australian segment cost of sales increased $9.9 million, or 34%, in the third quarter of 2020 compared to the third quarter of 2019.

The increase was largely driven by increased activity at the Action villages, increased occupancy at our Bowen Basin villages and the strengthening of the Australian dollar.

Our Australian segment gross margin as a percentage of revenues increased to 40.4% in the third quarter of 2020 from 40.0% in the third quarter of 2019.

This was primarily driven by improved margins at our Bowen Basin villages as a result of increased occupancy.

Segment Results of Operations – U.S.

Three Months Ended

September 30,

2020 2019 Change

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Gross margin as a % of revenues (17.6) % 8.7 % (26.3) %

segment reported revenues in the second quarter of 2020 that were $8.4 million, or 64%, lower than the second quarter of 2019.

This was primarily due to reduced occupancy at our West Permian, Killdeer and Acadian Acres lodges, reduced U.S.

drilling activity affecting our wellsite business and reduced activity in our offshore rental business, all resulting from the COVID-19 pandemic and lower oil prices.

segment cost of sales decreased $4.2 million, or 42%, in the second quarter of 2020 compared to the second quarter of 2019.

The decrease was driven by reduced occupancy at our West Permian and Killdeer lodges, reduced U.S.

drilling activity affecting our wellsite business and reduced activity in our offshore rental business.

segment gross margin as a percentage of revenues decreased from 24.1% in the second quarter of 2019 to (23.9)% in the second quarter of 2020 primarily due to reduced activity in all areas of the business and reduced operating efficiencies at lower activity levels.

Results of Operations – Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Six Months Ended

segment reported revenues in the third quarter of 2020 that were $3.0 million, or 32%, lower than the third quarter of 2019.

This was primarily due to reduced occupancy at our West Permian and Killdeer lodges and reduced U.S.

drilling activity affecting our wellsite business.

These decreases were partially offset by increased activity in our offshore rental business, as two fabrication projects were completed in the third quarter.

segment cost of sales decreased $1.0 million, or 12%, in the third quarter of 2020 compared to the third quarter of 2019.

The decrease was driven by reduced occupancy at our West Permian and Killdeer lodges and reduced U.S.

drilling activity affecting our wellsite business.

These decreases were partially offset by increased activity in our offshore rental business.

segment gross margin as a percentage of revenues decreased from 8.7% in the third quarter of 2019 to (17.6)% in the third quarter of 2020 primarily due to reduced activity in most areas of the business and reduced operating efficiencies at lower activity levels.

Results of Operations – Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Nine Months Ended

September 30,

2020 2019 Change

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Net loss attributable to Civeo common shareholders $ (133,885) $ (28,276) $ (105,609)

We reported net loss attributable to Civeo for the six months ended June 30, 2020 of $140.4 million, or $0.83 per diluted share.

We reported net loss attributable to Civeo for the nine months ended September 30, 2020 of $133.9 million, or $0.79 per diluted share.

As further discussed below, net loss included (i) a $93.6 million pre-tax loss ($93.6 million after-tax, or $0.55 per diluted share) resulting from the impairment of goodwill in our Canadian reporting unit included in Impairment expense, (ii) a $38.1 million pre-tax loss ($38.1 million after-tax, or $0.22 per diluted share) resulting from the impairment of long-lived assets in our Canadian reporting unit included in Impairment expense and (iii) a $12.4 million pre-tax loss ($12.4 million after-tax, or $0.07 per diluted share) resulting from the impairment of long-lived assets in our U.S.

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Net loss was partially offset by $4.7 million ($4.7 million after-tax, or $0.03 per diluted share) of income associated with the settlement of a representations and warranties claim related to the Noralta acquisition included in Other income.

We reported net loss attributable to Civeo for the six months ended June 30, 2019 of $32.8 million, or $(0.20) per diluted share.

Consolidated revenues increased $22.8 million, or 10%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

This increase was primarily due to higher revenues in Australia due to the Action acquisition completed on July 1, 2019, increased occupancy at our Bowen Basin villages and at our Sitka Lodge, as well as higher mobile camp revenues in Canada related to a pipeline project.

We reported net loss attributable to Civeo for the nine months ended September 30, 2019 of $28.3 million, or $0.17 per diluted share.

As further discussed below, net loss included (i) a $5.5 million pre-tax loss ($5.5 million after-tax, or $0.03 per diluted share) resulting from the impairment of fixed assets included in Impairment expense and (ii) a gain on sale of assets related to the sale of a village in Australia and related $2.2 million release of an ARO liability assumed by the buyer.

Consolidated revenues increased $17.5 million, or 5%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

This increase was primarily due to higher revenues in Australia due to the Action acquisition completed on July 1, 2019, increased occupancy at our Bowen Basin villages and higher mobile camp revenues in Canada related to a pipeline project.

These items were partially offset by lower revenue from reduced occupancy at our north oil sands lodges in Canada resulting from the COVID-19 pandemic and lower oil prices.

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and weaker Canadian and Australian dollars relative to the U.S.

dollar in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 also offset the increased revenues.

dollar in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 also offset the increased revenues.

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 $21.6 million, or 13%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to the Action acquisition and increased occupancy at our Bowen Basin villages in Australia and at our Sitka Lodge as well as higher cost of sales and services in Canada due to increased mobile camp activity from a pipeline project.

Our consolidated cost of sales and services increased $19.5 million, or 7%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to the Action acquisition and increased occupancy at our Bowen Basin villages in Australia and higher cost of sales and services in Canada due to increased mobile camp activity from a pipeline project.

These items were partially offset by decreased cost of sales and services due to reduced occupancy at our north oil sands lodges in Canada resulting from the COVID-19 pandemic and lower oil prices.

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and weaker Canadian and Australian dollars relative to the U.S.

dollar in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 offset the increased cost of sales and services.

dollar in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 offset the increased cost of sales and services.

See the discussion of segment results of operations below for further information.

Selling, General and Administrative Expenses.

SG&A expense decreased $3.2 million, or 11%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

This decrease was primarily due to lower share-based compensation expense, partially offset by higher incentive compensation costs and professional fees.

The decrease in share-based compensation was due to a reduction in the amount of phantom share awards outstanding and the reduction in our stock price during the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

SG&A expense decreased $4.1 million, or 9%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

This decrease was primarily due to lower share-based compensation expense and lower travel and entertainment expenses, partially offset by higher incentive compensation costs.

The decrease in share-based compensation was due to a reduction in the amount of phantom share awards outstanding and the reduction in our stock price during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Depreciation and Amortization Expense.

Depreciation and amortization expense decreased $14.1 million, or 23%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

during the first quarter of 2020 and (4) weaker Canadian and Australian dollars relative to the U.S.

dollar in the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

Depreciation and amortization expense decreased $20.4 million, or 22%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

The decrease was primarily due to (i) certain assets and intangibles becoming fully depreciated during 2019, (ii) the extension of the remaining life of certain long-lived accommodation assets in Canada during the fourth quarter of 2019, (iii) the impairment of certain long-lived assets in Canada and the U.S.

during the first quarter of 2020 and (iv) weaker Canadian and Australian dollars relative to the U.S.

dollar in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

These items were partially offset by additional depreciation and intangible amortization expense related to our acquisition in 2019.

Impairment Expense.

Impairment expense of $144.1 million in the six months ended June 30, 2020 included the following items:

Impairment expense of $144.1 million in the nine months ended September 30, 2020 included the following items:

• Pre-tax impairment expense of $93.6 million related to the impairment of goodwill in our Canadian reporting unit.

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reporting unit.

Impairment expense of $5.5 million in the six months ended June 30, 2019 was associated with long-lived assets in our Australian segment.

Impairment expense of $5.5 million in the nine months ended September 30, 2019 was associated with long-lived assets in our Australian segment.

This includes $1.0 million of impairment expense related to an error corrected in the second quarter 2019.

We identified a liability related to an ARO at one of our villages in Australia that should have been recorded in 2011.

We determined that the error was not material to our previously issued financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, and therefore, corrected the error in the second quarter of 2019.

Specifically, we recorded the following amounts in our second quarter 2019 unaudited consolidated statements of operations related to prior periods:

(i) additional accretion expense related to the ARO of $0.9 million, (ii) additional depreciation and amortization expense of $0.5 million related to amortization of the asset retirement cost and (iii) additional impairment expense related to the impairment of the asset retirement cost of $1.0 million offset by recognition of an ARO liability totaling $2.3 million as of June 30, 2019.

See Note 6 - 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 loss increased $121.0 million, or 404%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to impairments of goodwill and long-lived assets, partially offset by increased activity levels in Australia, as well as lower depreciation and amortization expense.

Operating Loss.

Consolidated operating loss increased $116.7 million, or 431%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to impairments of goodwill and long-lived assets, partially offset by increased activity levels in Australia, as well as lower depreciation and amortization expense.

Interest Expense and Income, net.

Net interest expense decreased by $3.9 million, or 29%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily related to lower average debt levels and lower interest rates on term loan and revolving credit facility borrowings during 2020 compared to 2019.

Net interest expense decreased by $7.1 million, or 35%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily related to lower average debt levels and lower interest rates on term loan and revolving credit facility borrowings during 2020 compared to 2019.

Other Income.

Consolidated other income increased $8.6 million, or 214%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to $4.7 million of other income associated with the settlement of a representations and warranties claim related to the Noralta acquisition, $6.2 million of other income related to proceeds from the CEWS and a higher gain on sale of assets compared to the first half of 2019.

The first half of 2019 included $2.6 million of other income related to proceeds from an insurance claim associated with the closure of a lodge in 2018 for maintenance-related operational issues.

Consolidated other income increased $10.3 million, or 150%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to $9.7 million of other income related to proceeds from the CEWS and $4.7 million of other income associated with the settlement of a representations and warranties claim

related to the Noralta acquisition, partially offset by a lower gain on sale of assets in 2020 compared to 2019.

The nine months ended September 30, 2019 included $2.6 million of other income related to proceeds from an insurance claim associated with the closure of a lodge in 2018 for maintenance-related operational issues and a gain on sale of assets related to the sale of a village in Australia and related $2.2 million release of an ARO liability assumed by the buyer.

Income Tax Benefit.

Our income tax benefit for the six months ended June 30, 2020 totaled $8.7 million, or 5.9% of pretax loss, compared to a benefit of $7.3 million, or 18.7% of pretax loss, for the six months ended June 30, 2019.

Our effective tax rate for the six months ended June 30, 2020 was impacted by a deferred tax benefit of $9.6 million offset by an increase of $0.7 million in the valuation allowance in Canada.

For the six months ended June 30, 2020, Canada and the U.S.

were considered loss jurisdictions for tax accounting purposes and were removed from the annual effective tax rate computation

for purposes of computing the interim tax provision.

Although Australia is not considered a loss jurisdiction for the six months ended June 30, 2020, our effective tax rate is impacted by utilization of deferred tax assets and a release of the corresponding valuation allowance in Australia, resulting in no income tax expense for that jurisdiction.

For the six months ended June 30, 2019, Australia and the U.S.

were considered loss jurisdictions for tax accounting purposes and were removed from the annual effective tax rate computation for purposes of computing the interim tax provision.

Our income tax benefit for the nine months ended September 30, 2020 totaled $8.5 million, or 6.1% of pretax loss, compared to an income tax benefit of $14.0 million, or 34.2% of pretax loss, for the nine months ended September 30, 2019.

For the nine months ended September 30, 2020, Canada and the U.S.

were considered loss jurisdictions for tax accounting purposes and were not included in the annual effective tax rate computation for purposes of computing the interim tax provision.

Although Australia was not considered a loss jurisdiction for the nine months ended September 30, 2020, our effective tax rate was impacted by utilization of deferred tax assets and a release of the corresponding valuation allowance in Australia, resulting in no income tax expense for that jurisdiction.

Our effective tax rate for the nine months ended September 30, 2020 was impacted by a deferred tax benefit of $9.0 million, offset by a valuation allowance of $0.1 million, against the Canadian net deferred tax assets.

For the nine months ended September 30, 2019, the U.S.

was considered a loss jurisdiction.

Additionally, the effective tax rate for the nine months ended September 30, 2019 was impacted by a tax benefit of $3.0 million related to a reduction in the Alberta, Canada income tax rate, as well as a $2.1 million tax benefit related to the change in the valuation allowance in Australia resulting from the acquisition of Action.

Other Comprehensive Income (Loss).

Other comprehensive income decreased $25.6 million in the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S.

Other comprehensive loss increased $2.4 million in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S.

The Canadian dollar exchange rate compared to the U.S.

dollar decreased 5% in the six months ended June 30, 2020 compared to a 4% increase in the six months ended June 30, 2019.

dollar decreased 3% in the nine months ended September 30, 2020 compared to a 3% increase in the nine months ended September 30, 2019.

The Australian dollar exchange rate compared to the U.S.

dollar decreased 2% in the six months ended June 30, 2020 compared to a 1% decrease in the six months ended June 30, 2019.

dollar increased 2% in the nine months ended September 30, 2020 compared to a 4% decrease in the nine months ended September 30, 2019.

Segment Results of Operations – Canadian Segment

Six Months Ended

Nine Months Ended

September 30,

2020 2019 Change

23 unchanged sentences

(6) Billed rooms represent total billed days for the periods presented.

Our Canadian segment reported revenues in the six months ended June 30, 2020 that were $12.5 million, or 9%, lower than the six months ended June 30, 2019.

Our Canadian segment reported revenues in the nine months ended September 30, 2020 that were $31.8 million, or 13%, lower than the nine months ended September 30, 2019.

The weakening of the average exchange rates for the Canadian dollar relative to the U.S.

dollar by 2% in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 resulted in a $2.6 million period-over-period decrease in revenues.

dollar by 2% in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 resulted in a $3.4 million period-over-period decrease in revenues.

Excluding the impact of the weaker Canadian exchange rates, the segment experienced a 12% decrease in revenues.

This decrease was driven by reduced occupancy at our lodges in the north oil sands region related to lower oil prices and the COVID-19 pandemic.

Additionally, revenue was negatively impacted by reduced manufacturing revenue as 2019 included two projects that did not recur in 2020.

Partially offsetting these items, revenue was favorably impacted by higher occupancy at our Sitka Lodge related to an LNG project and increased mobile camp activity from a pipeline project.

Our Canadian segment cost of sales and services decreased $7.2 million, or 6%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

This decrease was driven by reduced occupancy at our lodges in the oil sands region related to lower oil prices and the COVID-19 pandemic.

Partially offsetting these items, revenue was favorably impacted by increased mobile camp activity from a pipeline project.

Our Canadian segment cost of sales and services decreased $18.1 million, or 10%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

The weakening of the average exchange rates for the Canadian dollar relative to the U.S.

dollar by 2% in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 resulted in a $2.2 million period-over-period decrease in cost of sales and services.

dollar by 2% in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 resulted in a $2.7 million period-over-period decrease in cost of sales and services.

Excluding the impact of the weaker Canadian exchange rates, the decreased cost of sales and services was driven by reduced occupancy at our lodges in the north oil sands region and reduced indirect other costs from a continued focus on cost containment and operational efficiencies.

These decreases were partially offset by higher occupancy at our Sitka Lodge, as well as increased mobile camp activity from a pipeline project and increased costs related to enhanced measures during the COVID-19 pandemic.

Our Canadian segment gross margin as a percentage of revenues decreased from 21.4% in the six months ended June 30, 2019 to 19.3% in the six months ended June 30, 2020.

This was primarily driven by increased costs related to enhanced measures during the COVID-19 pandemic, as well as reduced operating efficiencies due to lower occupancy.

These decreases were partially offset by increased mobile camp activity from a pipeline project and increased costs related to the implementation of enhanced measures during the COVID-19 pandemic.

Our Canadian segment gross margin as a percentage of revenues decreased from 25.3% in the nine months ended September 30, 2019 to 22.5% in the nine months ended September 30, 2020.

This was primarily driven by increased costs related to the implementation of enhanced measures during the COVID-19 pandemic, as well as reduced operating efficiencies due to lower occupancy.

Segment Results of Operations – Australian Segment

Six Months Ended

Nine Months Ended

September 30,

2020 2019 Change

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(4) Billed rooms represent total billed days for the periods presented.

Our Australian segment reported revenues in the six months ended June 30, 2020 that were $46.8 million, or 79%, higher than the six months ended June 30, 2019.

Action contributed $38.7 million in revenues in the six months ended June 30, 2020.

Our Australian segment reported revenues in the nine months ended September 30, 2020 that were $63.7 million, or 59%, higher than the nine months ended September 30, 2019.

Action contributed $63.9 million in revenues in the nine months ended September 30, 2020.

The weakening of the average exchange rates for Australian dollars relative to the U.S.

dollar by 7% in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 resulted in a $5.0 million period-over-period decrease in revenues and a $5 reduction in the average daily rate.

Excluding the impact of the weaker Australian exchange rates, the Australian segment experienced an 92% increase in revenues primarily due to the Action acquisition.

dollar by 3% in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 resulted in a $2.2 million period-over-period decrease in revenues and a $2 reduction in the average daily rate.

Excluding the impact of the weaker Australian exchange rates, the Australian segment experienced a 64% increase in revenues primarily due to the Action acquisition.

In addition, increased activity at our Bowen Basin villages was partially offset by decreased activity at our Western Australia villages.

Our Australian segment cost of sales increased $33.4 million, or 108%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

Our Australian segment cost of sales increased $43.3 million, or 72%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

The increase was primarily driven by the Action acquisition.

Increases related to increased activity at our Bowen Basin villages were almost entirely offset by decreased activity at our Western Australia villages and the weakening of the Australian dollar.

Our Australian segment gross margin as a percentage of revenues decreased to 39.3% in the six months ended June 30, 2020 from 47.7% in the six months ended June 30, 2019.

Increases related to increased activity at our Bowen Basin villages were partially offset by decreased activity at our Western Australia villages and the weakening of the Australian dollar.

Our Australian segment gross margin as a percentage of revenues decreased to 39.7% in the nine months ended September 30, 2020 from 44.3% in the nine months ended September 30, 2019.

Segment Results of Operations – U.S.

Six Months Ended

Nine Months Ended

September 30,

2020 2019 Change

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Gross margin as a % of revenues (6.5) % 20.5 % (27.0) %

segment reported revenues in the six months ended June 30, 2020 that were $11.4 million, or 43%, lower than the six months ended June 30, 2019.

segment reported revenues in the nine months ended September 30, 2020 that were $14.4 million, or 40%, lower than the nine months ended September 30, 2019.

This was primarily due to reduced occupancy at our West Permian, Killdeer and Acadian Acres lodges, reduced U.S.

drilling activity in the Bakken, Rockies and the Mid-Continent market affecting our wellsite business, partially offset by increased activity in the West Permian market positively affecting our wellsite business.

segment cost of sales decreased $4.7 million, or 23%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

The decrease was driven by reduced occupancy at our West Permian and Killdeer lodges, reduced U.S.

drilling activity in the Bakken, Rockies and the Mid-Continent markets affecting our wellsite business, partially offset by increased activity in West Permian market positively affecting our wellsite business.

segment gross margin as a percentage of revenues decreased from 24.7% in the six months ended June 30, 2019 to (1.8)% in the six months ended June 30, 2020 primarily due to reduced activity at our lodges and certain wellsite markets and reduced operating efficiencies at lower activity levels.

drilling activity in the Bakken, Rockies, Mid-Continent and West Permian markets affecting our wellsite business, partially offset by increased activity in our offshore rental business, as there were a greater number of large fabrication jobs completed in the period.

segment cost of sales decreased $5.7 million, or 20%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

The decrease was driven by reduced occupancy at our West Permian, Killdeer and Acadian Acres lodges, reduced U.S.

segment gross margin as a percentage of revenues decreased from 20.5% in the nine months ended September 30, 2019 to (6.5)% in the nine months ended September 30, 2020 primarily due to reduced activity at our lodges and wellsite markets and reduced operating efficiencies at lower activity levels.

Liquidity and Capital Resources

In September 2020, we entered into an amendment to our Credit Agreement, which reduced total lender commitments by $96.2 million.

For additional information regarding the Amended Credit Agreement, see "Amended Credit Agreement" below.

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, fund strategic business acquisitions and pay dividends.

Historically, our primary sources of funds have been available cash, cash flow from operations, borrowings under our Credit Agreement and proceeds from equity issuances.

Historically, our primary sources of funds have been available cash, cash flow from operations, borrowings under our Amended 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 June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020 December 31, 2019

The following table summarizes our consolidated liquidity position as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020 December 31, 2019

Lender commitments (1) $ 167,300 $ 263,500

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(1) We also have a A$2.0 million bank guarantee facility.

We had bank guarantees of A$0.7 million under this facility outstanding as of both June 30, 2020 and December 31, 2019, respectively.

(2) As of June 30, 2020, there were no reductions in our availability under the Credit Agreement.

We had bank guarantees of A$0.7 million under this facility outstanding as of both September 30, 2020 and December 31, 2019, respectively.

(2) As of September 30, 2020, there were no reductions in our availability under the Amended Credit Agreement.

As of December 31, 2019, $6.6 million of our borrowing capacity under the Credit Agreement could not be utilized in order to maintain compliance with the maximum leverage ratio financial covenant in the Credit Agreement.

Cash totaling $45.3 million was provided by operations during the six months ended June 30, 2020, compared to $10.0 million provided by operations during the six months ended June 30, 2019.

During the six months ended June 30, 2020 and 2019, $2.9 million was provided by working capital and $22.7 million was used in working capital, respectively.

Cash totaling $80.7 million was provided by operations during the nine months ended September 30, 2020, compared to $33.5 million provided by operations during the nine months ended September 30, 2019.

During the nine months ended September 30, 2020 and 2019, $4.6 million was provided by working capital and $29.4 million was used in working capital, respectively.

The increase in cash provided by working capital in 2020 compared to 2019 is largely due to decreased accounts receivable balances in Canada.

Cash was provided by investing activities during the six months ended June 30, 2020 in the amount of $2.7 million, compared to cash used in investing activities during the six months ended June 30, 2019 in the amount of $15.0 million.

The decrease in cash used in investing activities was primarily due to lower capital expenditures and $4.7 million of other income associated with the settlement of a representations and warranties claim related to the Noralta acquisition in the six months ended June 30, 2020, partially offset by higher proceeds from the disposition of property, plant and equipment in the six months ended June 30, 2019.

Capital expenditures totaled $3.8 million and $21.2 million during the six months ended June 30, 2020 and 2019, respectively.

Cash was provided by investing activities during the nine months ended September 30, 2020 in the amount of $1.7 million, compared to cash used in investing activities during the nine months ended September 30, 2019 in the amount of $34.7 million.

This compares to $16.9 million to fund the Action acquisition in the nine months ended September 30, 2019.

Capital expenditures totaled $6.2 million and $25.5 million during the nine months ended September 30, 2020 and 2019, respectively.

The decrease in capital expenditures from 2019 to 2020 was related primarily to the completion of the Sitka Lodge expansion, which occurred during 2019.

We expect our capital expenditures for 2020, exclusive of any expansionary spending, to be approximately $15 million, which excludes any expansionary projects, the spending for which is contingent on obtaining customer contracts.

We expect our capital expenditures for 2020, exclusive of any expansionary spending, to be less than $15 million, which excludes any expansionary projects, the spending for which is contingent on obtaining customer contracts.

Whether planned expenditures will actually be spent in 2020 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.

We expect to fund these capital expenditures with available cash, cash flow from operations and revolving credit borrowings under our Amended Credit Agreement.

The foregoing capital expenditure forecast does not include any funds for strategic acquisitions, which we could pursue should the economic environment in our industry improve and the transaction economics are deemed to be attractive to us.

We continue to monitor the COVID-19 global pandemic and the responses thereto, the global economy, the prices of and demand for crude oil, met coal and iron ore 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 as we continue to monitor the impact of COVID-19.

Net cash of $43.6 million was used in financing activities during the six months ended June 30, 2020 primarily due to net repayments under our revolving credit facilities of $25.6 million, repayments of term loan borrowings of $16.5 million and $1.5 million used to settle tax obligations on vested shares under our share-based compensation plans.

Net cash of $6.1 million was provided by financing activities during the six months ended June 30, 2019 primarily due to net borrowings under our revolving credit facilities of $27.8 million, partially offset by repayments of term loan borrowings of $17.4 million and $4.3 million used to settle tax obligations on vested shares under our share-based compensation plans.

The following table summarizes the changes in debt outstanding during the six months ended June 30, 2020 (in thousands):

Net cash of $79.6 million was used in financing activities during the nine months ended September 30, 2020 primarily due to net repayments under our revolving credit facilities of $44.5 million, repayments of term loan borrowings of $31.1 million, $1.5 million used to settle tax obligations on vested shares under our share-based compensation plans and debt issuance costs of $2.6 million.

Net cash of $2.8 million was used in financing activities during the nine months ended September 30, 2019 primarily due to repayments of term loan borrowings of $26.1 million, $4.3 million used to settle tax obligations on vested shares under our share-based compensation plans and debt issuances costs of $1.9 million, partially offset by net borrowings under our revolving credit facilities of $29.5 million.

The following table summarizes the changes in debt outstanding during the nine months ended September 30, 2020 (in thousands):

Balance at December 31, 2019 $ 359,080

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Translation (10,931)

Balance at June 30, 2020 $ 299,530

Balance at September 30, 2020 $ 272,546

We believe that cash on hand and cash flow from operations will be sufficient to meet our anticipated liquidity needs in the coming 12 months.

If our plans or assumptions change, including as a result of the impact of COVID-19 or the historic decline in the price of and demand for oil, or are inaccurate, or if we make acquisitions, we may need to raise additional capital.

If our plans or assumptions change, including as a result of the impact of COVID-19 or the decline in the 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.

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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.

Credit Agreement

As of June 30, 2020, our Credit Agreement (as then amended to date, the Credit Agreement), provided for:

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.

Amended Credit Agreement

As of December 31, 2019, our Credit Agreement, as then amended, provided for:

(i) a $263.5 million revolving credit facility scheduled to mature on November 30, 2021 for certain lenders, allocated as follows:

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and (ii) a $285.4 million term loan facility scheduled to mature on November 30, 2021 for certain lenders in favor of Civeo.

As of June 30, 2020, one lender had an outstanding Canadian term loan of $5.9 million and an outstanding Canadian revolver loan of $8.7 million that matures on November 30, 2020.

One other lender had an outstanding Canadian revolver loan of $12.5 million that matures on November 30, 2020.

Maturities in 2020 are not classified as current as of June 30, 2020 and December 31, 2019, since we are able, and have the intent, to repay the outstanding 2020 maturities by borrowing amounts equal to such maturities under our existing revolving credit facility, which matures on November 30, 2021.

On September 3, 2020, the third amendment to the Credit Agreement (as so amended, the Amended Credit Agreement) became effective, which, among other things:

• Extended the maturity date by 18 months of the commitments and loans of each lender remaining a lender following the effectiveness of the Amended Credit Agreement to May 30, 2023.

Certain lenders are not extending the maturity date of their commitments and loans;

the loans of the non-extending lenders were paid in full primarily with borrowings under the facility, and their commitments terminated on the date the Amended Credit Agreement became effective.

• Increased the margin applicable to loans and the commitment fee payable on the commitments of the lenders.

Prior to entering into the Amended Credit Agreement, (i) the margin applicable to Eurocurrency loans, BBSY rate loans and B/A loans ranged from 2.25% to 4.00%, (ii) the margin applicable to ABR loans, Canadian Prime rate loans and U.S.

Base rate loans ranged from 1.25% to 3.00% and (iii) the commitment fee ranged from 0.51% to 0.90%, in each case increasing as the total leverage ratio of the parent borrower and its subsidiaries increased from less than 2.00 to 1.00 to greater than 4.00 to 1.00.

Following entry into the Amended Credit Agreement, these ranges have increased to (i) 3.50% to 4.50%, (ii) 2.50% to 3.50% and (iii) 0.875% to 1.125%, respectively, in each case as the total leverage ratio increases from less than 2.50 to 1.00 to greater than 3.50 to 1.00.

• Decreased (i) the U.S.

revolving commitments from $20.0 million to $10.0 million, (ii) the maximum permitted amount of U.S.

L/C exposure from $15.0 million to $10.0 million to match the reduction in the U.S.

revolving commitments, (iii) the Canadian revolving commitments from $183.5 million to $122.3 million and (iv) the Australian revolving commitments from $60.0 million to $35.0 million.

We are required to maintain, if a qualified offering of indebtedness with gross proceeds in excess of $150 million has been consummated, a maximum leverage ratio of 4.00 to 1.00 and, if such qualified offering has not been consummated, a maximum leverage ratio not to exceed the ratios set forth in the following table:

Period Ended Maximum Leverage Ratio

June 30, 2020 & September 30, 2020 3.75 :

December 31, 2020 & thereafter 3.50 :

dollar amounts outstanding under the facilities provided by the Credit Agreement bear interest at a variable rate equal to the London Inter-Bank Offered Rate (LIBOR) plus a margin of 2.25% to 4.00%, or a base rate plus 1.25% to 3.00%, in each case based on a ratio of our total debt to consolidated EBITDA (as defined in the Credit Agreement).

Canadian dollar amounts outstanding bear interest at a variable rate equal to a B/A Discount Rate (as defined in the Credit Agreement) based on the Canadian Dollar Offered Rate (CDOR) plus a margin of 2.25% to 4.00%, or a Canadian Prime rate plus a margin of 1.25% to 3.00%, in each case based on a ratio of our total debt to consolidated EBITDA.

Australian dollar amounts outstanding under the Credit Agreement bear interest at a variable rate equal to the Bank Bill Swap Bid Rate plus a margin of 2.25% to 4.00%, based on a ratio of our total debt to consolidated EBITDA.

The future transitions from LIBOR and CDOR as interest rate benchmarks is addressed in the Credit Agreement and at such time the transition from LIBOR or CDOR takes place, we will endeavor with the administrative agent to establish an alternate rate of interest to LIBOR or CDOR that gives due consideration to (1) the then prevailing market convention for determining a rate of interest for syndicated loans in the United States at such time for the replacement of LIBOR and (2) any evolving or then existing convention for similar Canadian Dollar denominated syndicated credit facilities for the replacement of CDOR.

The Credit Agreement contains customary affirmative and negative covenants that, among other things, limit or restrict:

September 30, 2020 3.75 :

December 31, 2020 and thereafter 3.50 :

dollar amounts outstanding under the facilities provided by the Amended Credit Agreement bear interest at a variable rate equal to the London Inter-Bank Offered Rate (LIBOR) plus a margin of 3.50% to 4.50%, or a base rate plus 2.50% to 3.50%, in each case based on a ratio of our total debt to consolidated EBITDA (as defined in the Amended Credit Agreement).

Canadian dollar amounts outstanding bear interest at a variable rate equal to a B/A Discount Rate (as defined in the Amended Credit Agreement) based on the Canadian Dollar Offered Rate (CDOR) plus a margin of 3.50% to 4.50%, or a Canadian Prime rate plus a margin of 2.50% to 3.50%, in each case based on a ratio of our total debt to consolidated EBITDA.

Australian dollar amounts outstanding under the Amended Credit Agreement bear interest at a variable rate equal to the Bank Bill Swap Bid Rate plus a margin of 3.50% to 4.50%, based on a ratio of our total debt to consolidated EBITDA.

The future transitions from LIBOR and CDOR as interest rate benchmarks is addressed in the Amended Credit Agreement and at such time the transition from LIBOR or CDOR takes place, we will endeavor with the administrative agent to establish an alternate rate of interest to LIBOR or CDOR that gives due consideration to (1) the then prevailing market convention for determining a rate of interest for syndicated loans in the United States at such time for the replacement of LIBOR and (2) any evolving or then existing convention for similar Canadian Dollar denominated syndicated credit facilities for the replacement of CDOR.

The Amended Credit Agreement contains customary affirmative and negative covenants that, among other things, limit or restrict:

(i) indebtedness, liens and fundamental changes;

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and (vii) investments and other restricted payments, including dividends and other distributions.

In addition, we must maintain an interest coverage ratio, defined as the ratio of consolidated EBITDA to consolidated interest expense, of at least 3.0 to 1.0 and our maximum leverage ratio, defined as the ratio of total debt to consolidated EBITDA, of no greater than 3.75 to 1.0 (as of June 30, 2020).

As noted above, the permitted maximum leverage ratio changes over time.

As noted above, the permitted maximum leverage ratio to 3.5 to 1.0 beginning December 31, 2020.

Following a qualified offering of indebtedness with gross proceeds in excess of $150 million, we will be required to maintain a maximum senior secured ratio less than 2.50 to 1.0.

Each of the factors considered in the calculations of these ratios are defined in the Credit Agreement.

Each of the factors considered in the calculations of these ratios are defined in the Amended Credit Agreement.

EBITDA and consolidated interest, as defined, exclude goodwill and asset impairments, debt discount amortization, amortization of intangibles and other non-cash charges.

We were in compliance with our covenants as of June 30, 2020.

Borrowings under the Credit Agreement are secured by a pledge of substantially all of our assets and the assets of our subsidiaries.

The obligations under the Credit Agreement are guaranteed by our significant subsidiaries.

As of June 30, 2020,

we had ten lenders that were parties to the Credit Agreement, with total commitments (including both revolving commitments and term commitments) ranging from $24.9 million to $85.4 million.

As of June 30, 2020, we had outstanding letters of credit of $0.3 million under the U.S.

We were in compliance with our covenants as of September 30, 2020.

Borrowings under the Amended Credit Agreement are secured by a pledge of substantially all of our assets and the assets of our subsidiaries.

The obligations under the Amended Credit Agreement are guaranteed by our significant subsidiaries.

As of September 30, 2020, we had eight lenders that were parties to the Amended Credit Agreement, with total commitments (including both revolving commitments and term commitments) ranging from $22.4 million to $71.1 million.

As of September 30, 2020, we had outstanding letters of credit of $0.3 million under the U.S.

facility, $0.5 million under the Australian facility and $2.6 million under the Canadian facility.

The declaration and amount of all potential future dividends will be at the discretion of our Board of Directors 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 of Directors deems relevant.

In addition, our ability to pay cash dividends on common or preferred shares is limited by covenants in the Credit Agreement.

In addition, our ability to pay cash dividends on common or preferred shares is limited by covenants in the Amended 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.

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The preferred shares we issued in the Noralta 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 on June 30, 2020, thereby increasing the liquidation preference to $10,459 per share as of June 30, 2020.

Quarterly dividends were paid in-kind on September 30, 2020, thereby increasing the liquidation preference to $10,511 per share as of September 30, 2020.

We currently expect to pay dividends on the preferred shares for the foreseeable future through an increase in liquidation preference rather than cash.

Off-Balance Sheet Arrangements

As of June 30, 2020, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

As of September 30, 2020, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Contractual Obligations

For additional information about our contractual obligations, refer to “Liquidity and Capital Resources—Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2019.

As of June 30, 2020, except for net repayments under our revolving credit facilities, there were no material changes to the disclosure regarding our contractual obligations made in our Annual Report on Form 10-K for the year ended December 31, 2019.

As of September 30, 2020, except for net repayments under our revolving credit facilities, there were no material changes to the disclosure regarding our contractual obligations made in our Annual Report on Form 10-K for the year ended December 31, 2019.

Critical Accounting Policies

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis