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Item 7. Management’s Discussion and Analysis

2021-02-26 compared with 2020-02-27 · 336 added, 285 removed, 382 unchanged (62% of the section changed)

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Description of the Business

We are a hospitality company servicing the natural resources industry in Canada, Australia and the U.S.

We provide hospitality services to the natural resources industry in Canada, Australia and the U.S.

We provide a full suite of hospitality services for our guests, including lodging, food service, housekeeping and maintenance at accommodation facilities that we or our customers own.

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We also offer development activities for workforce accommodation facilities, including site selection, permitting, engineering and design, manufacturing management and site construction, along with providing hospitality services once the facility is constructed.

We primarily operate in some of the world’s most active oil, metallurgical (met) coal and iron ore producing regions, and our customers include major and independent oil companies, mining companies, engineering companies and oilfield and mining service companies.

We operate in three principal reporting business segments – Canada, Australia and U.S.

Action Acquisition

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

We funded the purchase price of $16.9 million in cash through a combination of cash on hand and borrowings under our revolving credit facility.

The acquisition expands our business by providing an entry point into the growing integrated services opportunities in the Western Australian mining market.

Action's operations are reported as part of our Australia reporting business segment beginning on July 1, 2019, the date of acquisition.

Action revenue and cost of sales and services are included in Food service and other services revenues and Food service and other services cost, respectively, in the Segment results of operations - Australia segment table in Results of operations.

Please see Note 7 – Acquisitions to the notes to the consolidated financial statements included in Item 8 of this annual report for further information.

We primarily operate in some of the world’s most active oil, metallurgical (met) coal, liquefied natural gas (LNG) and iron ore producing regions, and our customers include major and independent oil companies, mining companies, engineering companies and oilfield and mining service companies.

We operate in three principal reporting business segments – Canada, Australia and the U.S.

Reverse Share Split

On November 19, 2020, we effected a reverse share split where each twelve issued and outstanding common shares were converted into one common share (Reverse Share Split).

Our common shares began trading on a reverse share split adjusted basis on November 19, 2020.

All common share and per common share data included in this annual report have been retroactively adjusted to reflect the Reverse Share Split.

See Note 1 - Description of Business and Basis of Presentation to the notes to the consolidated financial statements in Item 8 of this annual report for further discussion regarding the Reverse Share Split.

Basis of Presentation

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and (ii) all references in this annual report to “dollars” or “$” are to U.S.

Macroeconomic Environment

We provide hospitality services to the natural resources industry in Canada, Australia and the U.S.

Overview and Macroeconomic Environment

Demand for our services can be attributed to two phases of our customers’ projects:

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and (2) the operations or production phase.

Historically, initial demand for our hospitality services has been driven by our customers’ capital spending programs related to the construction and development of oil sands and coal mines and associated infrastructure, as well as the exploration for oil and natural gas.

Long-term demand for our services has been driven by continued development and expansion of natural resource production and operation of oil sands and mining facilities.

Historically, initial demand for our hospitality services has been driven by our customers’ capital spending programs related to the construction and development of natural resource projects and associated infrastructure, as well as the exploration for oil and natural gas.

Long-term demand for our services has been driven by natural resource production and operation of those facilities as well as expansion of those sites.

In general, industry capital spending programs are based on the outlook for commodity prices, economic growth, global commodity supply/demand dynamics and estimates of resource production.

As a result, demand for our hospitality services is largely sensitive to expected commodity prices, principally related to oil, met coal and iron ore.

In Canada, WCS crude is the benchmark price for our oil sands customers.

Pricing for WCS is driven by several factors, including the underlying price for 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.

As a result, demand for our hospitality services is largely sensitive to expected commodity prices, principally related to oil, met coal, LNG and iron ore.

Other factors that can affect our business and financial results include the general global economic environment and regulatory changes in Canada, Australia, the U.S.

and other markets, including governmental measures introduced to fight climate change or to help slow the spread or mitigate the impact of COVID-19.

Our business is predominantly located in northern Alberta, Canada;

British Columbia, Canada;

Queensland, Australia;

and Western Australia.

We derive most of our business from natural resource companies who are developing and producing oil sands, met coal, LNG and iron ore resources and, to a lesser extent, other hydrocarbon and mineral resources.

Approximately 66% of our revenue is generated by our lodges in Canada and our villages in Australia.

Where traditional accommodations and infrastructure are insufficient, inaccessible or cost ineffective, our lodge and village facilities provide comprehensive hospitality services similar to those found in an urban hotel.

We typically contract our facilities to our customers on a fee-per-person-per-day basis that covers lodging and meals and is based on the duration of customer needs, which can range from several weeks to several years.

Generally, our core Canadian oil sands and Australian mining customers are making significant capital investments to develop their prospects, which have estimated reserve lives ranging from ten years to in excess of 30 years.

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

The spread of COVID-19 and the response thereto have negatively impacted the global economy.

The actions taken 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.

In mid-April 2020, OPEC+ (the combination of historical OPEC members and other significant oil producers, such as Russia) announced production cuts of up to approximately 10 million barrels per day.

However, oil prices remained at depressed levels throughout most of 2020, before modest improvement late in the year and into early 2021.

Prices are expected to remain relatively volatile throughout 2021.

The economic disruption caused by the spread of COVID-19 and decline in the price of and demand for oil have impacted the activity in the Canadian oil sands, and we have seen a decrease in demand for rooms by our oil sands customers.

The reduction in the occupancy at our Canadian oil sands lodges negatively impacted our business in 2020 and could continue to negatively impact our business if oil prices continue to remain volatile.

Due to lower oil prices in 2020 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, salary reductions for senior management in Canada and the U.S., headcount reductions in North America of approximately 33% from March through December 2020, and decreases to 2020 capital spending by approximately 25%.

Despite the aforementioned negative impact of COVID-19 on the global economy, the impact on the Australian mining industry in 2020 was relatively muted.

Due to strong Chinese steel demand, supply disruptions in other countries and limited COVID-19 cases in Australia, Australian met coal and iron ore activity was relatively buoyant in 2020.

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 .

In Canada, Western Canadian Select (WCS) crude is the benchmark price for our oil sands customers.

Pricing for WCS is driven by several factors, including the underlying price for West Texas Intermediate (WTI) crude, the availability of transportation infrastructure (consisting of pipelines and crude by railcar) 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 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.

During the first quarter of 2016, global oil prices dropped to their lowest levels in over ten years due to concerns over global oil demand, global crude inventory levels, worldwide economic growth and price cutting by major oil producing countries, such as Saudi Arabia.

Increasing global supply, including increased U.S.

shale oil production, also negatively impacted pricing.

Although prices began to increase in 2016 and continued to increase through the third quarter of 2018 due to global oil production cuts rebalancing supply/demand dynamics, oil prices decreased again during the fourth quarter of 2018 as OPEC oil production ramped up once again despite more concerns of decreasing global oil demand.

In the first half of 2019, positive oil price trends are primarily related to OPEC oil production falling faster than the markets expected, leading to a more positive oil environment throughout the first half of the year.

Oil prices have fallen since early summer due to continued demand growth volatility and fear of a global economic slowdown.

In addition, global health concerns, including the outbreak of pandemic or contagious disease, such as the recent coronavirus, have recently reduced prices for oil, as well as met coal and iron ore, because of reduced global and national economic demand.

WCS prices in the fourth quarter of 2019 averaged $37.94 per barrel compared to a low of $20.26 in the first quarter of 2016 and a high of $49.93 in the second quarter of 2018.

The WCS Differential increased from $15.75 per barrel at the end of the fourth quarter of 2018 to $22.49 at the end of the fourth quarter 2019.

On December 2, 2018, the Government of Alberta announced it would mandate temporary curtailments of the province’s oil production and has extended the curtailment through 2020.

This curtailment initially resulted in a narrowing WCS Differential in December 2018, which increased in 2019 before narrowing again in the first quarter of 2020.

Certain expansionary oil pipeline projects have the potential to both drive incremental demand for mobile assets and to improve take-away capacity for Canadian oil sands producers over the longer term.

While these pipeline projects, including Kinder Morgan’s Trans Mountain Pipeline (TMX), 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 TMX pipeline in 2018, approved the expansion of the project and is currently working through the revised construction timeline.

In April 2020, the Alberta provincial government announced its intent to financially support the construction of the Keystone XL pipeline (KXL).

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

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

After President Biden's inauguration in January 2021, he implemented an executive order to revoke a necessary cross-border permit, canceling the project.

WCS prices in the fourth quarter of 2020 averaged $31.34 per barrel compared to a low of $19.73 in the second quarter of 2020 and a high of $49.93 in the second quarter of 2018.

The WCS Differential decreased from $22.49 per barrel at the end of the fourth quarter of 2019 to $15.35 at the end of the fourth quarter 2020.

In 2018, the Government of Alberta announced it would mandate temporary curtailments of the province’s oil production.

However, monthly production limits were put on hold in December 2020 until further notice, allowing operators to produce freely at their discretion while the government monitors production.

Should forecasts show storage inventories approaching maximum capacity, the government may reintroduce production limits.

The curtailment initially resulted in a narrowing WCS Differential in December 2018, which increased in 2019 before narrowing again in the first quarter of 2020.

As of February 22, 2021, the WTI price was $61.49 and the WCS price was $49.95, resulting in a WCS Differential of $11.54.

There remains a risk that prices for Canadian oil sands crude oil related products could deteriorate for an extended period of time, and the discount between WCS crude prices and WTI crude prices could continue to widen.

The depressed price levels through the first quarter of 2016 negatively impacted exploration, development, maintenance and production spending and activity by Canadian operators and, therefore, demand for our hospitality services.

Although we have seen an increase in oil prices since late 2016 and through 2019, we are not expecting significant improvement in customer activity in the near-term, partially due to the volatility in the WCS Differential discussed above.

The current outlook for expansionary projects in Canada is primarily related to proposed pipeline and in-situ oil sands projects.

However, continued uncertainty and commodity price volatility and regulatory complications could cause our Canadian oil sands and pipeline customers to delay expansionary and maintenance spending and defer additional investments in their oil sands assets.

Additionally, if oil prices decline, the resulting impact could negatively affect the value of our long-lived assets, including goodwill.

Our Sitka Lodge supports the British Columbia LNG market and related pipeline projects.

From a macroeconomic standpoint, global LNG imports set a record in 2018, reaching 308 million tonnes per annum, up from 284 million tonnes per annum in 2017, reinforcing the need for the global LNG industry to expand access to natural gas.

The depressed price levels of both WTI and WCS materially impacted 2020 maintenance and production spending and activity by Canadian operators and, therefore, demand for our hospitality services.

While some of our Canadian oil sands customers conducted maintenance projects in the third quarter 2020, activity was negatively impacted by the current environment.

Customers began increasing production activity in the fourth quarter of 2020.

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

Additionally, if oil prices do not improve or stabilize, the resulting impact could continue to negatively affect the value of our long-lived assets.

British Columbia, Canada .

Our Sitka Lodge supports the LNG Canada project and related pipeline projects.

From a macroeconomic standpoint, LNG demand continued to grow despite the COVID-19 pandemic, reinforcing the need for the global LNG industry to expand access to natural gas.

Evolving government energy policies around the world have amplified support for cleaner energy supply, creating more opportunities for natural gas and LNG.

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Currently, Western Canada does not have any operational LNG export facilities.

On October 1, 2018, LNG Canada (LNGC), a large LNG export project proposed by a joint venture between Shell Canada Energy, an affiliate of Royal Dutch Shell plc (40 percent), and affiliates of PETRONAS, through its wholly-owned entity, North Montney LNG Limited Partnership (25 percent), PetroChina (15 percent), Mitsubishi Corporation (15 percent) and Korea Gas Corporation (5 percent), announced that a positive final investment decision (FID) had been reached on the proposed Kitimat liquefaction and export facility in Kitimat, British Columbia (Kitimat LNG Facility).

With the project moving forward, 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.

In Australia, approximately 80% 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 increased by 3.4% during 2019 compared to 2018.

LNG Canada (LNGC), a joint venture among Shell Canada Energy, an affiliate of Royal Dutch Shell plc (40 percent), and affiliates of PETRONAS, through its wholly-owned entity, North Montney LNG Limited Partnership (25 percent), PetroChina (15 percent), Mitsubishi Corporation (15 percent) and Korea Gas Corporation (5 percent), is currently constructing a liquefaction and export facility in Kitimat, British Columbia (Kitimat LNG Facility).

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

The actual timing of when revenue is realized from the Costal Gas Link 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 pipeline 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 returned to expected levels during July 2020 and remained at expected levels thorough the end of 2020.

In Australia, 82% of our rooms are located in the Bowen Basin of Queensland, Australia 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 0.9% during 2020 compared to 2019.

As of February 22, 2021, met coal spot prices were $138.50 per metric tonne.

Current met coal pricing levels have not led our customers to approve many significant new projects.

We expect that customers will look for a period of sustained higher prices before the volume of new projects being approved

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.

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

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

In 2020, the impact of the outbreak of COVID-19 led to a high 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.

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

Currently, China and Australia are in a trade dispute that has led to China implementing an unofficial trade embargo on Australian coal.

China has historically accounted for approximately 22% of Australia’s met coal exports.

The continuing uncertainty in the Chinese demand for Australian met coal led to a decrease in the met coal spot price to US$103 per tonne at December 31, 2020, though, as noted above, prices recovered somewhat to $138.50 per metric tonne at February 22, 2021.

The softening of the met coal spot price has been exacerbated as Chinese mills and traders resell stranded Australian met coal at a discount.

As a result, there is currently a shuffling of global export trade flows, coupled with growing demand for steel with an

infrastructure led recovery which may lead to near term volatility in Australian met coal spot pricing.

If this dispute continues, it could continue to negatively impact pricing and demand for Australian met coal.

To date, we have not seen an overall material decline in occupancy at our Australian villages resulting from the COVID-19 pandemic or the Chinese trade dispute.

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

As of February 22, 2021, iron ore spot prices were $168.48 per metric tonne.

On July 1, 2019, we acquired Action, a provider of integrated services to the mining industry in Western Australia.

Accordingly, we also have contracts in place to service customer-owned villages in Western Australia which service primarily iron ore mines in addition to gold, lithium and nickel mines.

We believe prices are currently at a level that may contribute to increased activity over the long term if our customers view these price levels as sustainable.

Met coal and iron ore prices to date have remained at levels that should support the current levels of occupancy in our Australia villages and the customer locations that we manage under our integrated services business.

Accordingly, we plan to continue focusing on enhancing the quality of our operations, maintaining financial discipline, proactively managing our business as market conditions continue to evolve.

business supports oil shale drilling and completion activity and is primarily tied to WTI oil prices in the U.S.

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

After a recovery in the U.S.

rig count from 2017 to 2018, the U.S.

oil rig count and associated completion activity drifted lower in 2019 due to the oil price decline in late 2018 and early 2019 coupled with other market dynamics negatively impacting E&P spending, finishing the year at 677 rigs.

During 2019, the U.S.

oil rig count and associated completion activity decreased due to the oil price decline in late 2018 and early 2019 coupled with other market dynamics negatively impacting exploration and production (E&P) spending, finishing the year at 677 rigs.

In 2020, the U.S.

oil rig count and associated completion activity further decreased due to the global oil price decline discussed above.

Only 267 oil rigs were active at the end of 2020.

The Permian Basin remains the most active U.S.

unconventional play, representing 60% of the rigs in the U.S.

market at the end of 2019.

Despite the lower rig count and decline in oil prices, improvements in rig efficiency coupled with production lagging oil price movement resulted in increased U.S.

unconventional play, representing 66% of the oil rigs active in the U.S.

at the end of 2020.

The lower U.S.

rig count and decline in oil prices resulted in decreased U.S.

oil production from an average of 12.2 million barrels per day in 2019 to an average of 11.3 million barrels per day in 2020.

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(as measured by Bakerhughes.com).

With the recent volatility in oil prices and a resulting reduction in spending by E&P companies, we have exited the Bakken and reduced our presence in the Rockies regions for our U.S.

mobile assets.

Those assets have either been sold or transported to our Permian Basin and Mid-Continent district locations.

This process is underway and we expect it to be completed during 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.

Recent WTI crude, WCS crude and met coal pricing trends are as follows:

Average Price (1)

Coking Coal (Met Coal)

Quarter WTI Crude WCS Crude Coking Coal (Met Coal)

ended (per bbl) (per bbl) (per tonne)

First Quarter through 2/22/2021 $ 54.77 $ 42.14 $ 133.18

12/31/2020 42.63 31.34 109.37

9/30/2020 40.90 31.15 113.30

6/30/2020 27.95 19.73 120.27

3/31/2020 45.38 27.92 156.17

12/31/2019 56.85 37.94 141.39

9/30/2019 56.40 43.88 160.25

6/30/2019 59.89 47.39 204.78

3/31/2019 54.87 44.49 203.30

12/31/2018 59.32 25.66 223.02

9/30/2018 69.61 41.58 188.46

6/30/2018 67.97 49.93 189.41

3/31/2018 62.89 37.09 228.82

12/31/2017 55.28 38.65 202.33

WTI crude prices are from U.S.

Energy Information Administration (EIA), and WCS crude prices and Seaborne hard coking coal contract prices are from Bloomberg.

As noted above, demand for our hospitality services is primarily tied to the outlook for crude oil and met coal prices.

Other factors that can affect our business and financial results include the general global economic environment and regulatory changes in Canada, Australia, the U.S.

and other markets.

Our business is predominantly located in northern Alberta, Canada and Queensland, Australia, and we derive most of our business from natural resource companies who are developing and producing oil sands and met coal resources and, to a lesser extent, other hydrocarbon and mineral resources.

Approximately 80% of our revenue is generated by our lodges and villages.

We typically contract our facilities to our customers on a fee-per-day basis that covers lodging and meals and is based on the duration of customer needs, which can range from several weeks to several years.

Generally, our customers are making multi-billion dollar investments to develop their prospects, which have estimated reserve lives ranging from ten years to in excess of 30 years.

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

During the period of low crude oil prices that extended through the first quarter of 2016, many of our customers in Canada curtailed their operations and spending, and most major oil sands mining operators began reducing their costs and limiting capital spending, thereby limiting the demand for hospitality services of the kind we provide.

In the last several years, however, several catalysts have emerged that we believe could have favorable intermediate to long-term implications for our core end markets.

Since the announcement by OPEC in late November 2016 to cut production quotas and the subsequent rise in spot oil prices and future oil price expectations, certain operators with steam-assisted gravity drainage operations in the Canadian oil sands increased capital spending in 2017.

Despite construction at the Fort Hill Energy LP project ending in early 2018, Canadian oil sands capital spending in 2018 has been relatively flat, in the aggregate.

OPEC announced additional production cuts in late 2018 in an effort to further support global oil prices.

Also, on December 2, 2018, the Government of Alberta announced it would mandate temporary curtailments of the province’s oil production, which has helped increase WCS prices.

Recent regulatory approvals of several major 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.

However, 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 acquired Kinder Morgan’s Trans Mountain Pipeline, emphasizing their support for this particular project.

Despite some resistance, the federal government approved the expansion of the Trans Mountain Pipeline project on June 18, 2019 and is currently working through the construction timeline.

Additionally, we believe that the Keystone XL pipeline in the U.S., if constructed, would be a positive catalyst for Canadian oil sands producers, as it would bolster confidence in future take-away capacity from the region to U.S.

Gulf Coast refineries.

In Australia, approximately 80% of our owned rooms are located in the Bowen Basin and primarily serve met coal mines in that region, where our customers continue to implement operational efficiency measures, in order to drive down their cost base.

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

Accordingly, we also have contracts in place for customer-owned villages in Western Australia which service iron ore, gold, lithium and nickel mines.

We believe prices are currently at a level that may contribute to increased activity over the long term if our customers view these price levels as sustainable.

While we believe that these macroeconomic developments are positive for our customers and for the underlying demand for our hospitality services, we do not expect an immediate improvement in our business.

Accordingly, we plan to continue focusing on enhancing the quality of our operations, maintaining financial discipline, proactively managing our business as market conditions continue to evolve and integrating Noralta and Action into our business.

We began the expansion of our room count in Kitimat, British Columbia during the second half of 2015 to support LNG projects on the west coast of British Columbia.

We developed a new accommodations facility, Sitka Lodge, which includes private washrooms, recreational facilities, a pub and other amenities.

The lodge had 774 rooms as of the end of 2018.

Expansion of the lodge was completed in the third quarter of 2019, which resulted in 1,186 total available rooms.

As previously discussed, on October 1, 2018, LNGC's participants announced a positive FID on the Kitimat LNG Facility.

With the project moving forward, 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 camp assets, which are contracted to serve several portions of the related pipeline construction activity.

We previously announced contract awards for locations along the CGL pipeline project and room commitments for our Sitka Lodge.

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.

Energy Information Administration (EIA), and WCS crude prices are from Bloomberg and hard coking coal prices are from IHS Markit.

Foreign Currency Exchange Rates.

Exchange rates between the U.S.

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dollar reported financial results.

Our business has historically derived the vast majority of its revenues and operating income in Canada and Australia.

Our business has historically derived the vast majority of its revenues and operating income (loss) in Canada and Australia.

These revenues and profits/losses are translated into U.S.

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Year Ended December 31,

2020 2019 Change Percentage

Average Canadian dollar to U.S.

dollar $0.746 $0.754 (0.008) (1.1)%

Average Australian dollar to U.S.

dollar $0.691 $0.695 (0.004) (0.6)%

As of December 31,

2020 2019 Change Percentage

Canadian dollar to U.S.

dollar $0.785 $0.770 0.015 2.0%

Australian dollar to U.S.

dollar $0.773 $0.700 0.073 10.4%

These fluctuations of the Canadian and Australian dollars have had and will continue to have an impact on the translation of earnings generated from our Canadian and Australian subsidiaries and, therefore, our financial results.

We continue to monitor the global economy, the 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.

Capital Expenditures.

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

We currently expect that our 2021 capital expenditures, exclusive of any business acquisitions, will total approximately $20.0 million to $25.0 million, compared to 2020 capital expenditures of $10.1 million.

Please see “Liquidity and Capital Resources ” below for further discussion of 2020 and 2019 capital expenditures.

See “Liquidity and Capital Resources ” below for further discussion of 2021 and 2020 capital expenditures.

Results of Operations

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Results of Operations – Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

2020 2019 Change

($ in thousands)

United States and other

Canada $ 269,649 $ 325,651 $ (56,002)

Australia 234,542 156,093 78,449

25,538 45,811 (20,273)

Total revenues 529,729 527,555 2,174

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Cost of sales and services

United States and other

Canada 209,283 239,624 (30,341)

Australia 144,709 89,090 55,619

28,096 38,100 (10,004)

Total cost of sales and services 382,088 366,814 15,274

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Interest expense and income, net (17,050) (27,305) 10,255

Other income 20,823 7,281 13,542

Loss before income taxes (143,415) (69,075) (74,340)

Income tax benefit 10,635 10,741 (106)

Net loss (132,780) (58,334) (74,446)

Net income attributable to noncontrolling interest 1,470 157 1,313

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We reported net loss attributable to Civeo for 2020 of $136.1 million, or $9.64 per diluted share.

As further discussed below, net loss included (i) a $19.9 million pre-tax loss ($19.9 million after-tax, or $0.12 per diluted share) resulting from the impairment of goodwill in our Canadian reporting unit included in Impairment expense, (ii) a $6.2 million pre-tax loss ($6.1 million after-tax, or $0.04 per diluted share) resulting from the impairment of fixed assets included in Impairment expense, and (iii) a $0.2 million (after tax, or $0.0 per diluted share) 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.

As further discussed below, net loss included (i) a $93.6 million pre-tax loss ($93.6 million after-tax, or $6.63 per diluted share) resulting from the impairment of goodwill in our Canada segment included in Impairment expense, (ii) a $38.1 million pre-tax loss ($38.1 million after-tax, or $2.69 per diluted share) resulting from the impairment of long-lived assets in our Canada segment included in Impairment expense and (iii) a $12.4 million pre-tax loss ($12.4 million after-tax, or $0.88 per diluted share) resulting from the impairment of long-lived assets in our U.S.

segment included in Impairment expense.

Net loss was partially offset by $4.7 million pre-tax income ($4.7 million after-tax, or $0.33 per diluted share) associated with the settlement of a representations and warranties claim related to the Noralta acquisition included in our Canada segment in Other income.

We reported net loss attributable to Civeo for 2019 of $60.3 million, or $4.33 per diluted share.

As further discussed below, net loss included (i) a $28.7 million pre-tax loss ($20.9 million after-tax, or $0.13 per diluted share) resulting from the impairment of fixed assets included in Impairment expense, (ii) costs totaling $9.1 million ($8.0 million after-tax, or $0.05 per diluted share) incurred in connection with the Noralta Acquisition, and included in Costs of sales and services ($1.0 million), Selling, general and administrative (SG&A) expense ($7.2 million) and Other income ($0.9 million) below, and (iii) $49.6 million of dividends attributable to the preferred shares issued in the Noralta Acquisition.

As further discussed below, net loss included (i) a $19.9 million pre-tax loss ($19.9 million after-tax, or $1.43 per diluted share) resulting from the impairment of goodwill in our Canada segment included in Impairment expense, (ii) a $6.2 million pre-tax loss ($6.1 million after-tax, or $0.44 per diluted share) resulting from the impairment of fixed assets included in Impairment expense, and (iii) a $0.2 million 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 increased $2.2 million, or 0%, in 2020 compared to 2019.

This increase was primarily due to increases in Canada due to increased food service and other services revenue and the Noralta Acquisition and higher room demand at our Sitka Lodge related to an LNG project, partially offset by lower room demand in the Canadian oil sands related to the continued impact of provincially imposed oil production curtailments.

In addition, increased revenues in Australia were due to the Action acquisition completed on July 1, 2019 and higher activity levels at our Bowen Basin villages.

These items were partially offset by lower activity levels in certain markets in the U.S.

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

dollar in 2019 compared to 2018 contributed to decreased revenues.

Please see the discussion of segment results of operations below for further information.

This increase was primarily due to the full year impact in 2020 of our Australia integrated services business due to the Action acquisition completed in July 2019, increased occupancy at our Bowen Basin villages in Australia and increased mobile asset activity from our pipeline

project in Canada.

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

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

and weaker Canadian dollars relative to the U.S.

dollar in 2020 compared to 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 increased $34.4 million , or 10% , in 2019 compared to 2018 , primarily due to the Action acquisition and higher activity levels at our Bowen Basin villages.

In addition, increased cost of sales and services in Canada was driven by increased food services activity and the Noralta Acquisition in the second quarter of 2018.

This was partially offset by lower activity levels in certain markets in the U.S.

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

dollar in 2019 compared to 2018 contributed to decreased cost of sales and services.

Please see the discussion of segment results of operations below for further information.

Our consolidated cost of sales increased $15.3 million, or 4%, in 2020 compared to 2019.

This increase was primarily due to increased activity at our Australian integrated services business due to the Action acquisition, increased occupancy at our Bowen Basin villages in Australia and increased mobile asset activity from our pipeline project in Canada.

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

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

and weaker Canadian dollars relative to the U.S.

dollar in 2020 compared to 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 $5.9 million, or 10%, in 2020 compared to 2019.

This decrease was primarily due to lower costs incurred in connection with the Noralta Acquisition of $7.2 million and lower share-based compensation expense.

The decrease in share-based compensation was largely due to a reduction in the amount of phantom share awards outstanding during 2019 .

These items were partially offset by higher incentive compensation costs.

This decrease was primarily due to lower share-based compensation expense, travel and entertainment expenses and compensation expense, 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 average stock price during 2020 compared to 2019.

The decrease in travel and entertainment expenses was largely a result of reduced travel due to COVID-19.

Depreciation and Amortization Expense.

Depreciation and amortization expense decreased $27.2 million, or 22%, in 2020 compared to 2019.

Decreases are due to (1) certain assets and intangibles becoming fully depreciated during 2018, (2) reduced depreciation expense resulting from impairments recorded in 2018 and (3) weaker Canadian and Australian dollars relative to the U.S.

dollar in 2019 compared to 2018 .

These items were partially offset by additional depreciation and intangible amortization expense related to acquisitions in 2018 and 2019.

The decrease was primarily due to (i) the impairment of certain long-lived assets in Canada and the U.S.

during the first quarter of 2020, (ii) the extension of the remaining life of certain long-lived accommodation assets in Canada during the fourth quarter of 2019 and (iii) certain assets and intangibles becoming fully depreciated during 2019.

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

Impairment Expense.

Impairment expense of $144.1 million in 2020 included the following items:

Pre-tax impairment expense of $19.9 million in the fourth quarter of 2019 related to the impairment of goodwill in our Canadian reporting unit.

Pre-tax impairment expense of $0.7 million in the fourth quarter of 2019 associated with long-lived assets in our Canadian segment.

Pre-tax impairment expense of $5.5 million in the second quarter of 2019 associated with long-lived assets in our Australian segment.

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

• Pre-tax impairment expense of $38.1 million associated with long-lived assets in our Canadian segment.

• Pre-tax impairment expense of $12.4 million associated with long-lived assets in our U.S.

Impairment Expense.

Impairment expense of $26.1 million in 2019 included the following items:

• Pre-tax impairment expense of $19.9 million related to the impairment of goodwill in our Canadian reporting unit.

• Pre-tax impairment expense of $0.7 million associated with long-lived assets in our Canadian segment.

• Pre-tax impairment expense of $5.5 million 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.

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(1) additional accretion expense related to the ARO of $0.9 million, (2) additional depreciation and amortization expense of $0.5 million related to amortization of the asset retirement cost and (3) 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.

We recorded pre-tax impairment expense of $28.7 million in the first quarter of 2018 associated with long-lived assets in our Canadian segment.

Please see Note 4 - Impairment Charges to the notes to the consolidated financial statements included in Item 8 of this annual report for further discussion.

See Note 4 - Impairment Charges to the notes to the consolidated financial statements included in Item 8 of this annual report for further discussion.

Operating Loss.

Operating loss decreased $39.0 million , or 44% , in 2019 compared to 2018 primarily due to increased activity levels in certain Canadian and Australian markets and lower impairment, SG&A and depreciation and amortization expenses.

Operating loss increased $98.1 million, or 200%, in 2020 compared to 2019 primarily due to impairments of goodwill and long-lived assets, partially offset by increased operating profit in Australia, as well as lower depreciation and amortization expense.

Interest Expense and Income, net.

Net interest expense increased $0.5 million , or 2% , in 2019 compared to 2018 , primarily related to higher average debt levels and higher interest rates on term loan and revolving credit facility borrowings during 2019 compared to 2018, partially offset by the 2018 write-off of $0.7 million of debt issuance costs associated with our Credit Agreement.

Net interest expense decreased $10.3 million, or 38%, in 2020 compared to 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.

Other income increased $5.7 million , or 349% , in 2019 compared to 2018 , primarily due to $2.6 million of other income for proceeds received in 2019 from a property damage and business interruption insurance claim related to the closure of a lodge in 2018 for maintenance-related operational issues.

In addition, a higher gain on sale of assets in 2019

compared to 2018 was related to the sale of a village in Australia and related $2.2 million release of an ARO liability assumed by the buyer in 2019 .

Other income increased $13.5 million, or 186%, in 2020 compared to 2019, primarily due to $13.0 million of other income related to proceeds from the Canada Emergency Wage Subsidy (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 smaller gains on sale of assets in 2020 compared to 2019.

Other income in 2019 also included $2.6 million of other income related to proceeds from an insurance claim associated with 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 2020 totaled $10.6 million, or 7.4% of pretax loss, compared to a benefit of $10.7 million, or 15.5% of pretax loss for 2019.

Our effective tax rate for 2019 was lower than the Canadian combined federal and provincial statutory rate of 26.5%, primarily due to the Canadian goodwill impairment of $19.9 million and a release of a valuation allowance of $2.3 million against the net deferred tax assets in Australia due to the Action acquisition.

This was partially offset by pre-tax losses in Australia and the U.S.

for which no tax benefit was recorded.

As a result, a valuation allowance of $3.2 million was established against net deferred tax assets in the U.S.

and Australia.

Our effective tax rate for 2018 was higher than the Canadian (combined federal and provincial) statutory rate of 27%, primarily due to the release of a valuation allowance of $4.9 million against the net deferred tax assets in Canada due to Canada no longer being considered a loss jurisdiction.

Our effective tax rate for 2020 was lower than the Canadian federal statutory rate of 15%, primarily due to a non-deductible Canadian goodwill impairment charge of $95.3 million, as well as the release of a valuation allowance of $9.1 million against the net deferred tax assets in Australia.

This was partially offset by a valuation allowance of $6.4 million established against net deferred tax assets in the U.S.

Our effective tax rate for 2019 was lower than the Canadian combined federal and provincial statutory rate of 26.5%, primarily due to a non-deductible Canadian goodwill impairment charge of $19.9 million and a release of a valuation allowance of $2.3 million against the net deferred tax assets in Australia due to the Action acquisition.

This was partially offset by pre-tax losses in Australia and the U.S.

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and Australia.

Dividends Attributable to Preferred Shares.

We recorded dividends attributable to preferred shares of $49.6 million in 2018 primarily resulting from a beneficial conversion factor associated with the preferred shares issued as part of the Noralta Acquisition.

Please see Note 20 – Preferred Shares to the notes to the consolidated financial statements included in Item 8 of this annual report for further discussion.

Other Comprehensive Income (Loss).

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

dollar increased 5% in 2019 compared to a 9% decrease in 2018 .

dollar increased 2% in 2020 compared to a 5% increase in 2019.

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

dollar was flat in 2019 compared to an 10% decrease in 2018 .

dollar increased 10.4% in 2020 compared to remaining flat in 2019.

Segment Results of Operations – Canadian Segment

2020 2019 Change

Revenues ($ in thousands)

Accommodation revenue (1)

$ 202,534 $ 281,577 $ (79,043)

Mobile facility rental revenue (2)

33,192 9,575 23,617

Food service and other services revenue (3)

33,923 33,485 438

Manufacturing revenue (4)

— 1,014 (1,014)

Total revenues $ 269,649 $ 325,651 $ (56,002)

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Average daily rate for lodges (5)

$ 95 $ 91 $ 4

Total billed rooms for lodges (6)

2,095,784 3,078,727 (982,943)

Average Canadian dollar to U.S.

dollar $ 0.746 $ 0.754 $ (0.008)

(1) Includes revenues related to lodge rooms and hospitality services for owned rooms for the periods presented.

Includes revenues related to mobile camps for the periods presented.

(2) Includes revenues related to mobile assets for the periods presented.

(3) Includes revenues related to food service, laundry and water and wastewater treatment services for the periods presented.

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(5) Average daily rate is based on billed rooms and accommodation revenue.

Billed rooms represents total billed days for the periods presented.

Our Canadian segment reported revenues in 2019 that were $29.6 million , or 10% , higher than 2018 .

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

(6) Billed rooms represents total billed days for owned assets for the periods presented.

Our Canadian segment reported revenues in 2020 that were $56.0 million, or 17%, lower than 2019.

Excluding the impact of a weaker Canadian dollar exchange rate, the segment experienced a 16% decrease in revenues.

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

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

dollar by 1% in 2020 compared to 2019 resulted in a $2.6 million period-over-period decrease in revenues.

Excluding the impact of the weaker Canadian exchange rates, the segment experienced a 13% increase in revenues.

This increase was driven by higher room demand at our Sitka Lodge related to a LNG project and the Noralta Acquisition in the second quarter of 2018, partially offset by lower room demand during 2019 from major customers in our core oil sands lodges.

This lower room demand was related to a reduced impact of large customer turnaround projects and the continued impact of provincially imposed oil production curtailments.

Additionally, revenue was favorably impacted by increased food service and other services activity due to a new contract with an oil sands customer.

Our Canadian segment cost of sales and services increased $12.4 million , or 5% , in 2019 compared to 2018 .

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

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

Our Canadian segment cost of sales and services decreased $30.3 million, or 13%, in 2020 compared to 2019.

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

dollar by 1% in 2020 compared to 2019 resulted in a $2.1 million period-over-period decrease in cost of sales and services.

Excluding the impact of the weaker Canadian exchange rates, the increased cost of sales and services was driven by increased food services and accommodation activity, partially offset by (1) reduced manufacturing cost as two projects from 2018 did not occur in 2019, (2) reduced mobile facility rental cost as a similar level of activity in 2019 was executed more efficiently and (3) reduced indirect other cost from a continued focus on cost containment and operation efficiencies.

Our Canadian segment gross margin as a percentage of revenues increased from 23% in 2018 to 26% in 2019 primarily driven by an increase to the average daily rate due to an increase in billed rooms at our Sitka Lodge, which are billed at a higher daily rate.

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

These decreases were partially offset by increased mobile asset 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 26% in 2019 to 22% in 2020.

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

Segment Results of Operations – Australian Segment

2020 2019 Change

Revenues ($ in thousands)

Accommodation revenue (1)

$ 144,070 $ 126,047 $ 18,023

Food service and other services revenue (2)

90,472 30,046 60,426

Total revenues $ 234,542 $ 156,093 $ 78,449

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Average daily rate for villages (3)

$ 73 $ 73 $ —

Total billed rooms for villages (4)

1,968,284 1,717,186 251,098

Australian dollar to U.S.

dollar $ 0.691 $ 0.695 $ (0.004)

(1) Includes revenues related to village rooms and hospitality services for owned rooms for the periods presented.

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(3) Average daily rate is based on billed rooms and accommodation revenue.

Billed rooms represents total billed days for the periods presented.

(4) Billed rooms represents total billed days for owned assets for the periods presented.

Our Australian segment reported revenues in 2020 that were $78.4 million, or 50%, higher than 2019.

The increase in revenue was primarily due to our integrated services business, acquired July 1, 2019, which contributed $90.5 million in revenues in 2020 compared to the $30.0 million in 2019.

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

dollar by 7% in 2019 compared to 2018 resulted in a $9.3 million year-over-year 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 a 41% increase in revenues due to the Action acquisition and increased activity at our Bowen Basin villages, partially offset by decreased activity at our Gunnedah Basin villages.

dollar by 1% in 2020 compared to 2019 resulted in a $0.9 million year-over-over decrease in revenues.

In addition, the revenue increase was driven by increased occupancy at our Bowen Basin villages, which was partially offset by decreased occupancy at our Western Australia villages.

Our Australian segment cost of sales increased $55.6 million, or 62%, in 2020 compared to 2019.

The increase was primarily driven by the Action acquisition, increased activity at our Bowen Basin villages and additional accretion expense related to an ARO we identified at one of our villages in Australia that should have been recorded in 2011, partially offset by the weakening of the Australian dollar.

The increase was primarily due to our integrated services business.

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

Our Australian segment gross margin as a percentage of revenues decreased to 38% in 2020 from 43% in 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 and the additional accretion expense noted above, partially offset by improved margins at our Bowen Basin villages as a result of increased occupancy.

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

Segment Results of Operations – U.S.

2020 2019 Change

Revenues ($ in thousands) $ 25,538 $ 45,811 $ (20,273)

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segment reported revenues in 2020 that were $20.3 million, or 44%, lower than 2019.

The decrease was primarily due to reduced activity at our West Permian and Acadian Acres lodges and lower revenues from our offshore

fabrication business resulting from lower project activity.

These items were partially offset by greater U.S.

drilling and completion activity in the Bakken, Rockies, Mid-Continent and Texas markets benefiting our wellsite business.

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, Mid-Continent and West Permian markets affecting our wellsite business and reduced activity in our offshore rental business.

segment cost of sales decreased $10.0 million, or 26%, in 2020 compared to 2019.

The decrease was driven by reduced activity in our offshore business and at our West Permian lodge.

segment gross margin as a percentage of revenues increased from 14% in 2018 to 17% in 2019 , primarily due to greater U.S.

drilling and completion activity in the Bakken, Rockies, the Mid-Continent and Texas markets benefiting our wellsite business, partially offset by reduced activity in our offshore business and at our West Permian lodge.

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

drilling activity in the Bakken, Rockies, Mid-Continent and West Permian markets affecting our wellsite business and reduced activity in our offshore rental business.

segment gross margin as a percentage of revenues decreased from 17% in 2019 to (10)% in 2020, primarily due to reduced activity at our lodges and wellsite markets and reduced operating efficiencies at lower activity levels.

Liquidity and Capital Resources

Our primary liquidity needs are to fund capital expenditures, which in the past have included expanding and improving our hospitality services, developing new lodges and villages, purchasing or leasing land, and for general working capital needs.

In addition, capital has been used to repay debt, 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.

In addition, capital has been used to repay debt and fund strategic business acquisitions.

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.

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Lender commitments (1)

$ 167,300 $ 263,500

Reductions in availability (2)

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Total available liquidity $ 105,412 $ 124,092

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 December 31, 2019 and 2018 , respectively.

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

(1) As of December 31, 2020, we had two bank guarantee facilities totaling $3.0 million which mature on March 31, 2021.

As of December 31, 2019, we had one bank guarantee totaling $2.0 million.

We had bank guarantees of A$0.8 million and A$0.7 million under these facilities outstanding as of December 31, 2020 and 2019, respectively.

(2) As of December 31, 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 $117.4 million was provided by operations during 2020 compared to $74.5 million provided by operations during 2019.

The increase in operating cash flow in 2019 compared to 2018 was primarily due to increased earnings in certain Canadian and Australian markets, partially offset by higher cash used by working capital.

Net cash used by changes in operating assets and liabilities was $14.3 million during 2019 compared to $1.6 million during 2018 .

The increase in cash used in 2019 compared to 2018 was primarily the result of increased accounts receivable balances in Canada, offset by increased accounts payable.

The increase in operating cash flow in 2020 compared to 2019 was primarily due to higher cash provided by working capital, increased earnings from our Australian operations and proceeds from the CEWS.

Net cash provided by working capital was $19.9 million during 2020 compared to net cash used by working capital of $14.3 million during 2019.

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 used in investing activities during 2020 and 2019 in the amounts of $1.8 million and $38.6 million, respectively.

The decrease in cash used in investing activities in 2019 compared to 2018 was primarily due to $161.4 million to fund the Noralta Acquisition and $23.8 million to fund the Acadian Acres asset acquisition in 2018.

The decrease in cash used in investing activities in 2020 compared to 2019 was primarily due to lower capital expenditures and $4.7 million of other income associated with the settlement of a representations and warranties claim in 2020 related to the Noralta Acquisition.

This compares to $16.9 million to fund the Action acquisition in 2019.

Capital expenditures totaled $10.1 million and $29.8 million during 2020 and 2019, respectively.

The increase in capital expenditures in 2019 was related primarily to the expansion of the Sitka Lodge.

Capital expenditures in 2018 consisted primarily of routine maintenance capital expenditures.

We expect our capital expenditures for 2020 , exclusive of any business acquisitions, to be in the range of $18.0 million to $22.0 million , which excludes any unannounced and uncommitted projects, the spending for which is contingent on obtaining customer contracts.

The decrease in capital expenditures in 2020 was related primarily to the completion of the Sitka Lodge expansion, which occurred during 2018 and 2019.

In addition, we received proceeds from the sale of property, plant and equipment of $3.7 million and $5.9 million during 2020 and 2019, respectively.

We expect our capital expenditures for 2021, exclusive of any business acquisitions or any growth capital expenditures, to be in the range of $20.0 million to $25.0 million, which excludes any unannounced and uncommitted projects, the spending for which is contingent on obtaining customer contracts.

Whether planned expenditures will actually be spent in 2021 depends on industry conditions, project approvals and schedules, customer room commitments and project and construction timing.

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

The foregoing capital expenditure forecast does not include any funds for strategic acquisitions, which we could

pursue depending on the economic environment in our industry and the availability of transactions at prices deemed to be attractive to us.

The table below delineates historical capital expenditures split between expansionary and maintenance spending on our lodges and villages, mobile camp spending and other capital expenditures.

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.

The table below delineates historical capital expenditures split between expansionary and maintenance spending on our lodges and villages, mobile asset spending and other capital expenditures.

We classify capital expenditures for the development of rooms and central facilities at our lodges and villages as expansion capital expenditures.

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Year Ended December 31,

Expansion Maint Total Expansion Maint Total

Lodge/village $ 1.5 $ 5.9 $ 7.4 $ 17.6 $ 5.1 $ 22.7

Mobile assets 0.7 — 0.7 1.4 0.5 1.9

Other 0.9 1.1 2.0 1.9 3.3 5.2

Total $ 3.1 $ 7.0 $ 10.1 $ 20.9 $ 8.9 $ 29.8

Expansion lodge and village spending in 2020 was primarily related to the purchase of previously rented rooms for a lodge in the U.S segment.

Expansion lodge and village spending in 2019 was primarily related to the expansion of our Sitka lodge in British Columbia.

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Other maintenance spending in 2020 and 2019 was primarily related to miscellaneous equipment and supplies to support the day-to-day operations at our accommodation facilities.

Other expansion spending in 2019 was primarily related to information technology infrastructure to support our business.

Other expansion spending in 2018 was primarily related to the construction of a food production facility in Canada and information technology infrastructure to support our business.

Net cash of $44.6 million was used in financing activities during 2019 primarily due to net repayments under our revolving credit facilities of $3.5 million , repayments of term loan borrowings of $34.9 million , $4.3 million used to settle tax obligations on vested shares under our share-based compensation plans and debt issuance costs of $2.0 million .

Net cash of $109.5 million was provided by financing activities during 2018 primarily due to net borrowings under our revolving credit facilities of $141.0 million (primarily to fund the Noralta Acquisition), partially offset by repayments of term loan borrowings of $26.6 million and debt issuance costs of $4.0 million .

Other expansion spending in 2020 and 2019 was primarily related to information technology infrastructure to support our business.

Net cash of $114.2 million was used in financing activities during 2020 primarily due to net repayments under our revolving credit facilities of $70.3 million, repayments of term loan borrowings of $39.9 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 related to our Amended Credit Agreement.

Net cash of $44.6 million was used in financing activities during 2019 primarily due to net repayments under our revolving credit facilities of $3.5 million, repayments of term loan borrowings of $34.9 million, $4.3 million used to settle tax obligations on vested shares under our share-based compensation plans and debt issuance costs of $2.0 million related to our Credit Agreement.

The following table summarizes the changes in debt outstanding during 2020 (in thousands):

Canada Australia U.S.

Balance at December 31, 2019 $ 359,080 $ — $ — $ 359,080

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Repayments of term loans (39,855) — — (39,855)

Translation 729 1,442 — 2,171

Balance at December 31, 2020 $ 233,319 $ 17,767 $ — $ 251,086

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, 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 business strategy.

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

The timing, size or success of any acquisition effort and the associated potential capital commitments are unpredictable and uncertain.

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Our ability to obtain capital for additional projects to implement our growth strategy over the longer term will depend on our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing.

Capital availability will be affected by prevailing conditions in our industry, the

global economy, the global financial markets and other factors, many of which are beyond our control.

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.

In some cases, we may incur costs to acquire land and/or construct assets without securing a customer contract or prior to finalization of an accommodations contract with a customer.

If the contract is not obtained or the underlying investment decision is delayed, the resulting impact could result in an impairment of the related investment.

Credit Agreement

As of December 31, 2018 , our credit agreement, as then amended, provided for:

(i) a $239.5 million revolving credit facility scheduled to mature on November 30, 2020, allocated as follows:

Amended Credit Agreement

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

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

(A) a $20.0 million senior secured revolving credit facility in favor of certain of our U.S.

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and (C) a $60.0 million senior secured revolving credit facility in favor of one of our Australian subsidiaries, as borrower;

and (ii) a $285.4 million term loan facility scheduled to mature on November 30, 2020 in favor of Civeo.

On September 30, 2019, we amended our credit agreement (as so amended, the Credit Agreement), which, among other things:

increased the aggregate revolving loan commitments by $24.0 million under the Credit Agreement, to a maximum principal amount of $183.5 million under the Canadian revolving credit facility until November 30, 2020, which will be reduced thereafter to reflect the termination of the commitments of the non-extending lenders described below;

extended the maturity date of the commitments and loans of certain lenders to November 30, 2021.

Two lenders did not extend the maturity date of their commitments and loans.

At the date of the amendment, one non-extending lender has outstanding Canadian term loans of $6.9 million, a Canadian revolving commitment of $15.7 million and an Australian revolving commitment of $10.4 million that matures on November 30, 2020.

The other non-extending lender has a U.S.

revolving commitment of $7.4 million and a Canadian revolving commitment of $22.5 million that matures on November 30, 2020;

adjusted the maximum leverage ratio financial covenant as follows:

If a qualified offering of indebtedness with gross proceeds in excess of $150.0 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:

Maximum Leverage Ratio

December 31, 2019

March 31, 2020, June 30, 2020 & September 30, 2020

December 31, 2020 & thereafter

As of December 31, 2019, one non-extending lender had outstanding Canadian term loans of $6.8 million and an outstanding Canadian revolver loan of $11.5 million that matures on November 30, 2020.

The other non-extending lender had an outstanding Canadian revolver loan of $16.4 million that matures on November 30, 2020.

Maturities in 2020 are not classified as current as of December 31, 2019, since we are able and have the intent to extend the stated maturities by borrowing amounts equal to the 2020 maturities under the revolving credit facility, with a maturity date after one year.

dollar amounts outstanding under the facilities provided by the Credit Agreement bear interest at a variable rate equal to 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 based on the Canadian Dollar Offered Rate 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:

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

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

As of December 31, 2020, our Credit Agreement, (as so amended, the Amended Credit Agreement) provided for:

(i) a $167.3 million revolving credit facility scheduled to mature on May 30, 2023, allocated as follows:

(A) a $10.0 million senior secured revolving credit facility in favor of certain of our U.S.

subsidiaries, as borrowers;

(B) a $122.3 million senior secured revolving credit facility in favor of Civeo and certain of our Canadian subsidiaries, as borrowers;

and (C) a $35.0 million senior secured revolving credit facility in favor of one of our Australian subsidiaries, as borrower;

and (ii) a $194.8 million term loan facility scheduled to mature on May 30, 2023 for certain lenders in favor of Civeo.

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 4.0 to 1.0 (as of December 31, 2019 ).

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

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.

In addition, we must maintain an interest coverage ratio, defined as the ratio of consolidated EBITDA to consolidated interest expense, of at least 3.00 to 1.00 and a maximum leverage ratio, defined as the ratio of total debt to consolidated EBITDA, of no greater than 3.50 to 1.00.

Following a qualified offering of indebtedness with gross proceeds in excess of $150.0 million, we will be required to maintain a maximum leverage ratio of no greater than 4.00 to 1.00 and a maximum senior secured ratio less than 2.50 to 1.00.

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 December 31, 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 December 31, 2019 , 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 December 31, 2019 , we had outstanding letters of credit of $0.3 million under the U.S facility, $0.5 million under the Australian facility and $1.2 million under the Canadian facility.

In addition to the Credit Agreement, we have an A $2.0 million bank guarantee facility, which matures March 31, 2020 .

There were bank guarantees of A $0.7 million under this facility outstanding as of December 31, 2019 .

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 December 31, 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.

December 31, 2020, we had outstanding letters of credit of $1.2 million under the U.S facility, $0.6 million under the Australian facility and $2.7 million under the Canadian facility.

In addition to the Amended Credit Agreement, we have two bank guarantee facilities totaling $3.0 million which mature March 31, 2021.

There were bank guarantees of A$0.8 million under these facilities outstanding as of December 31, 2020.

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 March 31, June 30, September 30 and December 31, 2019 , thereby increasing the liquidation preference to $10,355 per share as of December 31, 2019 .

Quarterly dividends have been paid in-kind for each quarterly period beginning June 30, 2018 through December 31, 2020, thereby increasing the liquidation preference to $10,563 per share as of December 31, 2020.

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

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The following summarizes our contractual obligations at December 31, 2020, and the effect such obligations are expected to have on our liquidity and cash flow over the next five years (in thousands):

Total Less Than 1

Year 1 – 3 Years 3 – 5 Years More

Total debt $ 251,086 $ 35,052 $ 216,034 $ — $ —

Interest payments (1)

21,267 9,428 11,839 — —

Purchase obligations 9,286 9,286 — — —

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Total contractual cash obligations $ 389,827 $ 60,770 $ 238,148 $ 10,095 $ 80,814

Interest payments due under the Credit Agreement, which matures on November 30, 2021;

based on a weighted average interest rate of 5.8% for Canadian term loan and 6.7% for Canadian revolver borrowings for the twelve month period ended December 31, 2019 .

(1) Interest payments due under the Amended Credit Agreement, which matures on May 30, 2023;

based on a weighted average interest rate of 4.0% for Canadian term loan, 4.1% for Canadian revolver borrowings and 3.6% for Australian revolver borrowings for the twelve month period ended December 31, 2020.

Our debt obligations at December 31, 2020 are reflected in our consolidated balance sheet, which is a part of our consolidated financial statements in Item 8 of this annual report.

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We have contingent liabilities and future claims for which we have made estimates of the amount of the eventual cost to liquidate these liabilities or claims.

These liabilities and claims sometimes involve threatened or actual litigation where damages have been quantified and we have made an assessment of our exposure and recorded a provision in our accounts to cover an expected loss.

We make an assessment of our exposure and record a provision in our accounts to cover an expected loss when we believe a loss is probable and the amount of the loss can be reasonably estimated.

These liabilities and claims sometimes involve threatened or actual litigation where damages have been quantified.

Other claims or liabilities have been estimated based on their fair value or our experience in these matters and, when appropriate, the advice of outside counsel or other outside experts.

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Examples of areas where we have made important estimates of future liabilities include litigation, taxes, interest, insurance claims, warranty claims, contract claims and obligations.

Business Combinations

The acquisition method of accounting requires that the purchase price for a business combination be assigned and allocated to the identifiable assets acquired and liabilities assumed based upon their fair value.

Generally, the amount recorded in the financial statements for an acquisition’s assets and liabilities is equal to the purchase price (the fair value of the consideration paid);

however, a purchase price that exceeds the fair value of the net assets acquired will result in the recognition of goodwill.

Conversely, a purchase price that is below the fair value of the net assets acquired will result in the recognition of a bargain purchase in the income statement.

In addition to the potential for the recognition of goodwill or a bargain purchase, differing fair values will impact the allocation of the purchase price to the individual assets and liabilities and can impact the gross amount and classification of

assets and liabilities recorded in our consolidated balance sheets, which can impact the timing and amount of depreciation and amortization expense recorded in any given period.

In determining the fair value of intangible assets, we utilize the cost approach, the market approach and the income approach.

The income approach may incorporate the use of a discounted cash flow method.

In applying the discounted cash flow method, the estimated future cash flows and residual values for each intangible asset are discounted to a present value using a discount rate based on an estimated weighted average cost of capital.

There is a significant amount of judgment involved in cash-flow estimates, including assumptions regarding market convergence, discount rates, commodity prices, customer attrition, useful lives and growth factors.

The assumptions used by another party could differ significantly from our assumptions.

While we use our best estimates and assumptions as part of the process to value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement.

During the measurement period, which occurs before finalization of the purchase price allocation, changes in assumptions and estimates that result in adjustments to the fair value of assets acquired and liabilities assumed are recorded in the period they are determined, with the corresponding offset to goodwill.

We also may hire independent appraisers or valuation specialists to help us make this determination as we deem appropriate under the circumstances.

For further discussion about our acquisitions, please see Note 7 - Acquisitions to the notes to consolidated financial statements in Item 8 of this annual report.

Impairment of Tangible and Intangible Assets, including Goodwill

Goodwill represents the excess of the purchase price paid for acquired businesses over the allocated fair value of the related net assets after impairments, if applicable.

We do not amortize goodwill.

We evaluate goodwill for impairment, at the reporting unit level, annually and when an event occurs or circumstances change to suggest that the carrying amount may not be recoverable.

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Each segment of our business represents a separate reporting unit, and all three of our reporting units have or previously had goodwill.

In the fourth quarter of 2019 , we adopted Accounting Standard Update (ASU) 2017-04, "Intangibles-Goodwill and Other (Topic 350)" to simplify the test for goodwill impairment.

Under the revised guidance, an entity recognizes an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value;

however, the loss recognized may not exceed the total amount of goodwill allocated to the reporting unit.

In connection with the Noralta Acquisition, we recognized $123.6 million of goodwill in our Canada reporting unit and in connection with the Action acquisition, we recognized $7.9 million of goodwill in our Australia reporting unit.

For further discussion, please see Note 7 - Acquisitions and Note 11 - Goodwill and Other Intangible Assets to the notes to consolidated financial statements in Item 8 of this annual report.

In connection with the preparation of our financial statements for the three months ended March 31, 2020, we performed a quantitative goodwill impairment test as of March 31, 2020, and we reduced the value of our goodwill in our Canadian reporting unit to zero.

Please see Note 4 – Impairment Charges to the notes to consolidated financial statements in Item 8 of this annual report for further discussion of goodwill impairments recorded in the years ended December 31, 2020 and 2019.

We conduct our annual impairment test as of November 30 of each year.

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We are given the option to test for impairment of our goodwill by first performing a qualitative assessment to determine whether it is more likely than not (that is, likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount, including goodwill.

If it is determined that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then performing the currently prescribed impairment test is unnecessary.

If it is determined that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then performing the currently prescribed quantitative impairment test is unnecessary.

In developing a qualitative assessment to meet the “more-likely-than-not” threshold, each reporting unit with goodwill is assessed separately and different relevant events and circumstances are evaluated for each unit.

We have the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the goodwill impairment test.

When performing our annual assessment on November 30, 2019, due to a reduction in our share price in the fourth quarter of 2019, we chose to bypass the qualitative assessment and proceed directly to the impairment test for goodwill in our Canada and Australia reporting units.

In performing the goodwill impairment test, we compare each reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit.

Because none of our reporting units has a publically quoted market price, we must determine the value that willing buyers and sellers would place on the reporting unit through a routine sale process (a Level 3 fair value measurement).

In our analysis, we target a fair value that represents the value that would be placed on the reporting

unit by market participants, and value the reporting unit based on historical and projected results throughout a cycle, not the value of the reporting unit based on trough or peak earnings.

We have the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test.

When performing our annual assessment on November 30, 2020, we performed the qualitative assessment related to our Australia reporting unit.

All of our goodwill resides in our Australia reporting unit as of November 30, 2020.

Qualitative factors that we considered as part of our assessment include industry and market conditions, macroeconomic conditions and financial performance of our business.

After assessing these events and circumstances, we determined that it was more likely than not that the fair value of the Australia reporting unit was greater than its carrying value.

Based on the interim quantitative testing performed as of March 31, 2020, the fair value of the Australia reporting unit exceeded its carrying value by 127%.

In performing the quantitative goodwill impairment test, we compare each reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit.

Because none of our reporting units has a publicly quoted market price, we

must determine the value that willing buyers and sellers would place on the reporting unit through a routine sale process (a Level 3 fair value measurement).

In our analysis, we target a fair value that represents the value that would be placed on the reporting unit by market participants, and value the reporting unit based on historical and projected results throughout a cycle, not the value of the reporting unit based on trough or peak earnings.

The fair value of the reporting unit is estimated using a combination of (i) an analysis of trading multiples of comparable companies (Market Approach) and (ii) discounted projected cash flows (Income Approach).

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Market Approach - This valuation approach utilizes publicly traded comparable companies’ enterprise values, as compared to their recent and forecasted earnings before interest, taxes and depreciation (EBITDA) information.

We use EBITDA because it is a widely used key indicator of the cash generating capacity of companies in our industry.

We use EBITDA because it is a widely used (1) key indicator of the cash generating capacity and (2) valuation metric of companies in our industry.

Income Approach - This valuation approach derives a present value of the reporting unit’s projected future annual cash flows over the next five years with a terminal value assumption.

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We discount our projected cash flows using a long-term weighted average cost of capital based on our estimate of investment returns that would be required by a market participant.

The discount rates used to value our reporting units for the March 31, 2020 interim goodwill impairment test ranged between 10.5% and 14.0%.

The fair value of our reporting units is affected by future oil, coal and natural gas prices, anticipated spending by our customers and the cost of capital.

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The fair value of each reporting unit would change if our assumptions under these valuation approaches, or relative weighting of the valuation approaches, were materially modified.

In 2019, in performing the goodwill impairment test on our Canadian reporting unit, the carrying amount of our reporting unit was more than our estimated fair value.

Accordingly, we reduced the value of our goodwill in our Canada reporting unit by $19.9 million .

As noted above, the fair value of our reporting units is affected by numerous factors.

Please see Note 4 – Impairment Charges to the notes to consolidated financial statements in Item 8 of this annual report for further discussion of impairments of goodwill recorded in the year ended December 31, 2019 .

The following assumptions are significant to our evaluation process:

Business Projections - We make assumptions about the level of revenues, gross profit, operating expenses, as well as capital expenditures and net working capital requirements.

These assumptions drive our planning assumptions and represent key inputs for developing our cash flow projections.

These projections are developed using our internal business plans

over a five-year planning period that are updated at least annually;

Long-term Growth Rates - We also utilize an assumed long-term growth rate representing the expected rate at which our cash flow stream is projected to grow.

These rates are used to calculate the terminal value and are added to the cash flows projected during our planning period;

Discount Rates - The estimated future cash flows are then discounted at a rate that is consistent with a weighted-average cost of capital that is likely to be expected by market participants.

The weighted-average cost of capital is an estimate of the overall after-tax rate of return required by equity and debt holders of a business enterprise.

Definite-Lived Tangible and Intangible Assets.

The recoverability of the carrying values of tangible and intangible assets is assessed at an asset group level which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

Whenever, in management’s judgment, events or changes in circumstances indicate that the carrying value of such asset groups may not be recoverable based on estimated future cash flows, an asset impairment evaluation is performed.

Whenever, in management’s judgment, we review our assets for impairment in step one when events or changes in circumstances indicate that the carrying value of such asset groups may not be recoverable based on estimated future cash flows, an asset impairment evaluation is performed.

Indicators of impairment might include persistent and sustained negative economic trends affecting the markets we serve, recurring cash flow losses or significantly lowered expectations of future cash flows expected to be generated by our assets.

As part of the initial step, we also reevaluate the remaining useful lives and salvage values of our assets when indicators of impairment exist.

Identification of Asset Groups – The following summarizes the asset groups that we have identified in each of our reporting segments.

Our Canada segment consists of numerous lodges, as well as our mobile camp assets and our manufacturing facility.

Our Canada segment consists of numerous lodges, as well as our mobile assets and our manufacturing facility.

These properties are grouped in the following asset groups:

• Core Region

◦ Fort McMurray Village – North Athabasca

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• McClelland Lake Lodge – North Athabasca

Wapasu Lodge – North Athabasca

• Wapasu Creek Lodge – North Athabasca

• Grey Wolf Lodge - North Athabasca

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• Christina Lake camp – Alberta

Mobile camp assets

• Mobile assets

• Noble manufacturing facility

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In general, the lodges are operated on a lodge by lodge basis.

However, for one set of lodges (the Core Region, including Beaver River, Athabasca, Firebag, Hudson and Borealis Lodges and Fort McMurray Village), there are no identifiable cash flows largely independent of the cash flows of other assets and liabilities for such lodges, and therefore, such lodges are combined into a single asset group.

However, for one set of lodges (the Core Region, including Beaver River, Athabasca, Hudson and Borealis Lodges and Fort McMurray Village), there are no identifiable cash flows largely independent of the cash flows of other assets and liabilities for such lodges, and therefore, such lodges are combined into a single asset group.

Factors such as proximity to each other, commonality of customers, common monitoring by management and operating decisions being made to optimize these lodges as a group result in these lodges being treated as a single asset group for the purposes of our impairment assessments.

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• Karratha – Pilbara Region, Western Australia

Action – Assets held on client owned sites in Western Australia

• Integrated services – Assets held on client owned sites in Western Australia

• Kambalda – Kambalda, Western Australia

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◦ Boggabri – Gunnedah Basin, New South Wales

• Bowen Basin

◦ Moranbah – Bowen Basin, Queensland

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Factors such as commonality of customers, location, resource basins served and common monitoring by management result in the Bowen and Gunnedah Basins to be treated as single asset groups for the purposes of our impairment assessments.

The Action assets provide catering and managed services to the mining industry in Western Australia.

segment consists of lodges in three geographical areas, mobile camp assets in various geographical areas, and a wastewater treatment plant (WWTP).

Integrated services assets provide catering and managed services to the mining industry in Western Australia.

segment consists of lodges in three geographical areas, mobile assets in various geographical areas, and a wastewater treatment plant (WWTP).

These properties are grouped in the following asset groups:

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• Acadian Acres Lodge – Louisiana

Offshore – this asset group includes mobile camp assets which are utilized in the Gulf of Mexico

Wellsites – this asset group includes mobile camp assets, primarily in the Rocky mountain corridor, the Bakken shale region, the Mid-Continent and the Permian Basin region

• Offshore – this asset group includes mobile assets which are utilized in the Gulf of Mexico

• Wellsites – this asset group includes mobile assets, primarily in the Permian Basin region, the Mid-Continent and the Rocky mountain corridor

• Killdeer WWTP – this asset group represents a WWTP in Killdeer, North Dakota, which was constructed in early 2014

Recoverability Assessment – In performing an impairment analysis, the first step is to compare each asset group’s carrying value to estimates of undiscounted future direct cash flows associated with the asset group over the remaining useful life of the asset group's primary asset.

Recoverability Assessment – In performing an impairment analysis, the second step is to compare each asset group’s carrying value to estimates of undiscounted future direct cash flows associated with the asset group over the remaining useful life of the asset group's primary asset.

We use a variety of underlying assumptions to estimate these future cash flows, including assumptions relating to future economic market conditions, rates, occupancy levels, costs and expenses and capital expenditures.

The estimates are consistent with those used for purposes of our goodwill impairment test, as further discussed in Goodwill , above.

Fair Value Determination – If, based on the assessment, the carrying values of any of our asset groups are determined to not be recoverable as a result of the undiscounted future cash flows not exceeding the net book value of the asset group, we proceed to the second step.

In this step, we compare the fair value of the respective asset group to its carrying value.

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We discounted our estimated future cash flows using a long-term weighted average cost of capital based on our estimate of investment returns required by a market participant.

The discount rates used during the 2020 Canadian and U.S.

segments long-lived asset impairment analysis ranged between 10.5% and 14.0%.

Please see Note 4 – Impairment Charges to the notes to consolidated financial statements in Item 8 of this annual report for further discussion of impairments of definite-lived tangible and intangible assets recorded in the years ended December 31, 2020, 2019 and 2018.

Indefinite-Lived Intangible Assets.

We are required to evaluate our indefinite-lived intangible assets for impairment annually and when an event occurs or circumstances change to suggest the carrying amount may not be recoverable.

In performing the impairment test, we compare the fair value of the indefinite-lived intangible asset with its carrying amount.

The measurement of the impairment is calculated based on the excess of the carrying value over its fair value.

Revenue and Cost Recognition

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For stock option awards, which were all granted prior to our May 30, 2014 spin-off from Oil States, to estimate the value of the awards under the Plan, Oil States selected a fair value calculation model.

Oil States chose the Black-Scholes option pricing

model to value stock options awarded under the Plan.

Oil States chose this model because option awards were made under straightforward vesting terms, option prices and option lives.

Oil States chose the Black-Scholes option pricing model to value stock options awarded under the Plan.

Oil States chose this model because option awards were made under

straightforward vesting terms, option prices and option lives.

Utilizing the Black-Scholes option pricing model required Oil States to estimate the length of time options will remain outstanding, a risk free interest rate for the estimated period options are assumed to be outstanding, forfeiture rates, future dividends and the volatility of its common stock.

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We record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law, making significant changes to the U.S.

Internal Revenue Code.

Changes included, but were not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017.

As of December 31, 2017, we had no unrepatriated U.S.

foreign earnings subject to the transition tax.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the FASB), which are adopted by us as of the specified effective date.

Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our consolidated financial statements upon adoption.

Please see Note 2 – Summary of Significant Accounting Policies – Recent Accounting Pronouncements to the notes to consolidated financial statements in Item 8 of this annual report for further discussion.

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-K

Item 7. Management’s Discussion and Analysis