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Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-02-26 · 209 added, 250 removed, 468 unchanged (50% of the section changed)

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This section of this annual report generally discusses key operating and financial data as of and for the years ended 2021 and 2020 and provides year-over-year comparisons for such periods.

For a similar discussion and year-over-year comparisons to our 2018 results, please refer to "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 27, 2020.

For a similar discussion and year-over-year comparisons to our 2019 results, refer to "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 26, 2021.

Description of the Business

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.

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

In many cases, we provide services that support the day-to-day operations of accommodation facilities, such as laundry, facility management and maintenance, water and wastewater treatment, power generation, communication systems, security and logistics.

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Overview and Macroeconomic Environment

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

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

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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.

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

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

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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.

The remainder of our revenue is largely generated by our hospitality services at customer-owned locations in Canada and Australia, mobile assets in Canada and the U.S and our lodges in the U.S.

Generally, our core Canadian oil sands and Australian mining customers make 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.

The actions taken by governments and the private-sector to mitigate the spread of COVID-19 and the risk of infection, including government-imposed or voluntary social distancing and quarantining, reduced travel and remote work policies, evolved with the introduction of vaccination efforts in 2021, and may continue to evolve as the surfacing of virus variants has added a degree of uncertainty to the continuing global impact.

Since the COVID-19 pandemic began, we have been impacted by increased staff costs as a result of hospitality labor shortages in Australia.

This has been exacerbated by state and international border closures due to COVID-19.

Border closures have affected the number of staff available, which has subsequently led to an increased reliance on more expensive temporary labor hire resources.

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.

Global oil demand has recovered throughout 2021 and into 2022 as COVID-19 lockdowns have begun to be lifted and other fossil fuels are experiencing supply shortages.

Oil supply did not keep up with the increase in demand in 2021, which was exacerbated by the impacts of Hurricane Ida in the Gulf of Mexico in the summer of 2021 and publicly-traded oil producers prioritizing returns of capital to shareholders over deploying capital to expand production capacity, resulting in falling inventories and a significant increase in oil prices.

In July 2021, OPEC+ agreed to phase out 5.8 million barrels per day of oil production cuts by September 2022.

In October 2021, OPEC+ declined requests from the Biden administration to accelerate production to help mitigate the growing deficit between oil supply and demand and address short-term fluctuations in the market.

Despite the continued increase in oil prices in early 2022 and pressure from consuming countries, OPEC+ announced in early February that they will maintain their current production increase targets.

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.

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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.

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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 Enbridge Line 3 replacement project was completed at the end of 2021 and the Trans Mountain Pipeline (TMX) is currently under construction and approximately 45% complete.

The Canadian federal government acquired the TMX pipeline in 2018, approved the expansion of the project and is currently working through a revised construction timeline to adjust for recent delays related to legal challenges, the COVID-19 pandemic, flooding along certain sections of the pipeline corridor and seasonal wildfires.

TMX construction has been delayed multiple times recently, and there is a risk that there are more delays to come.

Recent legal issues with the Canadian government and First Nation groups have been resolved for the time being and construction has resumed.

WCS prices in the fourth quarter of 2021 averaged $60.84 per barrel compared to an average of $31.34 in the fourth quarter of 2020.

The WCS Differential decreased from $15.35 per barrel at the end of the fourth quarter of 2020 to $14.12 at the end of the fourth quarter 2021.

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.

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 and inventory levels.

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, 2022, the WTI price was $92.35 and the WCS price was $79.12, resulting in a WCS Differential of $13.23.

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.

Together with the initial spread of COVID-19, 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.

Customers began increasing production activity in the fourth quarter of 2020 and throughout 2021.

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.

Additionally, if oil prices do not 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.

Our Sitka Lodge supports the LNG Canada project and related pipeline projects (see discussion below).

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.

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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.

The actual timing of when revenue is realized from the Coastal GasLink pipeline (CGL) and Sitka Lodge contracts could be impacted by any delays in the construction of the Kitimat LNG Facility or the pipeline, such as protest blockades and the COVID-19 pandemic.

Our current expectation is that our contracted commitments associated with the CGL pipeline project will be completed in early 2023.

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 late December 2020, British Columbia’s public health officer issued a health order limiting workforce size at all large industrial projects across the province, including LNGC.

These actions resulted in reduced occupancy at our Sitka Lodge beginning in the second quarter of 2020.

British Columbia's public health order was phased out in the second quarter of 2021.

It was replaced with less restrictive requirements focused on monitoring, allowing workforces to return to their optimal sizes, which increased occupancy in the second half of 2021 at our Sitka lodge.

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.

Met coal pricing and production growth in the Bowen Basin region is predominantly influenced by the levels of global steel production, which increased by 3.6% during 2021 compared to 2020.

As of February 22, 2022, met coal spot prices were $441.65 per metric tonne.

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.

The Chinese embargo on Australian coal continues, without any resolution foreseeable in the near term.

However, Australian met coal producers have found new markets, including India and Europe, for their premium product.

This has led to a rebalancing of the market globally, with China relying on domestic production along with much higher volumes of imports of U.S., Canadian and Mongolian met coal in 2021.

With the backdrop of continuing strong steel demand and met coal supply constraints, the spot price for met coal surged to record highs of over $400 in October 2021 and remains at this level.

Analysts expect elevated met coal prices to persist in the short-term, while steel demand and prices remain strong and until met coal supply issues are resolved.

If the trade impasse with China remains unresolved, there remains a possibility of further volatility in the short to medium term.

Civeo's activity in Western Australia is driven primarily by iron ore production, which is a key steel-making ingredient.

As of February 22, 2022, iron ore spot prices were $122.23 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.

Our integrated services business provides catering and managed services to the mining industry in Western Australia.

We have contracts to manage customer-owned villages in Western Australia which primarily support iron ore mines in addition to gold, lithium and nickel mines.

We believe iron ore 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.

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

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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.

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.

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

As oil prices began to recover in 2021, oil rig count and drilling activity recovered somewhat, with 480 oil rigs active at the end of 2021.

The Permian Basin remains the most active U.S.

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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.

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

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.

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Recent Commodity Prices.

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

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

Average Price (1)

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

(per bbl) WCS

(per bbl) Hard

(per tonne) Iron

First Quarter through February 22, 2022

$ 86.60 $ 73.00 $ 414.38 $ 123.65

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3/31/2019 54.87 44.49 203.30 79.26

12/31/2018 59.32 25.66 223.02 70.13

WTI crude prices are from U.S.

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

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

Foreign Currency Exchange Rates.

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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.

We continue to monitor the COVID-19 global pandemic and the responses thereto, the global economy, the price of and demand for crude oil, met coal, 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 2022 capital expenditures will be in the range of approximately $20 million to $25 million, compared to 2021 capital expenditures of $15.6 million.

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

See “Liquidity and Capital Resources ” below for further discussion of 2022 and 2021 capital expenditures.

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Total costs and expenses 588,411 676,917 (88,506)

Operating loss (147,188) (49,051) (98,137)

Operating income (loss) 6,052 (147,188) 153,240

Interest (expense) and income, net (13,378) (17,050) 3,672

Other income 13,199 20,823 (7,624)

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)

Income (loss) before income taxes 5,873 (143,415) 149,288

Income tax (expense) benefit (3,376) 10,635 (14,011)

Net income (loss) 2,497 (132,780) 135,277

Net income attributable to noncontrolling interest 1,147 1,470 (323)

Net loss attributable to Civeo Corporation (134,250) (58,491) (75,759)

Net income (loss) attributable to Civeo Corporation 1,350 (134,250) 135,600

Dividends attributable to Class A preferred shares 1,925 1,887 38

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We reported net loss attributable to Civeo for 2021 of $0.6 million, or $0.04 per diluted share.

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.

As further discussed below, net loss included a $7.9 million pre-tax loss resulting from the impairment of fixed assets included in Impairment expense.

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 $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.

As further discussed below, net loss included (i) a $93.6 million pre-tax loss resulting from the impairment of goodwill in our Canada segment included in Impairment expense, (ii) a $38.1 million pre-tax loss 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 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

associated with the settlement of a representations and warranties claim related to the Noralta Acquisition included in our Canada segment in Other income.

Consolidated revenues increased $64.7 million, or 12%, in 2021 compared to 2020.

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.

This increase was primarily due to (i) higher billed rooms at our Canadian oil sands lodges related to turnaround activities by a number of customers, (ii) increased mobile asset activity from pipeline projects in Canada, (iii) increased occupancy at our Australian integrated services villages and (iv) a stronger Australian and Canadian dollar relative to the U.S.

dollar in 2021 compared to 2020.

These items were partially offset by (i) lower revenue at our Sitka Lodge related to the COVID-19 pandemic and the British Columbia health order affecting activity in the first half of the year, (ii) reduced food service activity in Canada, (iii) decreased activity at our Bowen Basin villages and Western Australia villages and (iv) decreased activity at our U.S.

wellsite and offshore businesses.

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

Cost of Sales and Services.

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.

Our consolidated cost of sales and services increased $54.4 million, or 14%, in 2021 compared to 2020.

This increase was primarily due to (i) greater activity at our Canadian oil sands lodges related to turnaround activities by a number of customers, (ii) increased mobile asset activity from pipeline projects in Canada, (iii) increased occupancy at our Australian integrated services villages and increased cost of temporary labor due to ongoing labor shortages in Australia and (iv) a stronger Australian and Canadian dollar relative to the U.S.

dollar in 2021 compared to 2020.

These items were partially offset by (i) reduced activity at our Sitka Lodge related to the COVID-19 pandemic and the British Columbia health order affecting activity in the first half of the year, (ii) reduced food service activity in Canada, as an overflow site supporting a LNG-related project in 2020 is no longer required, (iii) decreased activity at our Bowen Basin villages and Western Australia villages and (iv) lower activity at our U.S.

wellsite and offshore businesses.

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 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.

SG&A expense increased $6.9 million, or 13%, in 2021 compared to 2020.

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

In addition, SG&A expense increased approximately $2.3 million due to a stronger Australian and Canadian dollar relative to the U.S.

dollar in 2021 compared to 2020.

The higher compensation expense year-over-year in 2021 was partially due to the cost containment efforts put in place during 2020 for our North American operations during the initial phase of the COVID-19.

The increase in share-based compensation was due to an increase in our stock price during 2021 compared to 2020.

Depreciation and Amortization Expense.

Depreciation and amortization expense decreased $13.4 million, or 14%, in 2021 compared to 2020.

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.

The decrease was primarily due to (i) certain assets and intangibles becoming fully depreciated during 2020, (ii) the impairment of certain long-lived assets in Canada and the U.S.

during the first quarter of 2020 and (iii) the extension of the remaining life of certain long-lived assets in the U.S.

during the third quarter of 2020.

These items were partially offset by a stronger Australian and Canadian dollar relative to the U.S.

dollar in 2021 compared to 2020.

Impairment Expense.

We recorded pre-tax impairment expense of $7.9 million in 2021 associated with long-lived assets in our Australian reporting unit.

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

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• 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.

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

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

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

(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.

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 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.

Operating Income (Loss).

Operating income increased $153.2 million, or 104%, in 2021 compared to 2020 primarily due to $144.1 million of impairment expense of goodwill and long-lived assets recorded in 2020.

Interest (Expense) and Income, net.

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.

Net interest expense decreased $3.7 million, or 22%, in 2021 compared to 2020 primarily related to lower average debt levels on term loan and revolving credit facility borrowings during 2021 compared to 2020.

Other Income.

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.

Other income decreased $7.6 million, or 37%, in 2021 compared to 2020.

Other income in 2021 included $3.5 million of other income related to proceeds from the Canada Emergency Wage Subsidy (CEWS), $2.7 million of other income related to the settlement of a contract dispute with a customer and a $6.2 million gain on sale of assets primarily related

to the sale of our West Permian Lodge in the U.S.

and the sale of a manufacturing facility and mobile assets in Canada.

Other income in 2020 included $13.0 million of other income related to proceeds from the CEWS and $4.7 million of other income associated with the settlement of a representations and warranties claim related to the Noralta Acquisition.

In addition, 2020 included a $2.9 million gain on sale of assets primarily related to the sale of unutilized lodge assets in Canada.

Income Tax (Expense) Benefit.

Our income tax expense for 2021 totaled $3.4 million, or 57.5% of pretax income, compared to a benefit of $10.6 million, or 7.4% of pretax loss for 2020.

Our effective tax rate for 2021 was higher than the Canadian federal statutory rate of 15%, primarily due to the higher Australian income tax rate of 30% and an increase in the valuation allowance related to a non-deductible Australian impairment charge of $5.1 million related to various undeveloped land positions in Australia.

Additionally, due to full valuation allowances maintained in both Canada and the U.S., no tax expense or benefit was recorded related to pre-tax income in Canada and pre-tax losses in the U.S.

Tax expense in Canada was offset by a valuation allowance release of $1.3 million and the tax benefit in the U.S.

was offset by the establishment of a valuation allowance of $0.8 million.

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.

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.

Due to maintaining full valuation allowances in Canada and the U.S., no tax expense or benefit was recorded.

The tax benefit related to pre-tax losses in Canada and the U.S.

was offset by the establishment of a valuation allowance of $6.4 million against net deferred tax assets in Canada and the U.S.

Other Comprehensive Income (Loss).

Other comprehensive income increased $6.2 million in 2020 compared to 2019 primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S.

Other comprehensive income decreased $27.2 million in 2021 compared to 2020 primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S.

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

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

dollar remained relatively consistent in 2021 compared to a 2% increase in 2020.

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

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

dollar decreased 6.1% in 2021 compared to a 10.4% increase in 2020.

Segment Results of Operations – Canadian Segment

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18,996 33,923 (14,927)

Manufacturing revenue (4)

— 1,014 (1,014)

Total revenues $ 321,378 $ 269,649 $ 51,729

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Food service and other services cost 16,750 30,616 (13,866)

Manufacturing cost 611 1,025 (414)

Indirect other cost 10,027 10,612 (585)

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

(4) Includes revenues related to modular construction and manufacturing services for the periods presented.

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

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

Our Canadian segment reported revenues in 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.

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 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.

Our Canadian segment reported revenues in 2021 that were $51.7 million, or 19%, higher than 2020.

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

dollar by 7% in 2021 compared to 2020 resulted in a $20.8 million period-over-period increase in revenues.

Excluding the impact of the stronger Canadian exchange rate, the revenue increase was due to higher billed rooms at our oil sands lodges related to turnaround activities by a number of customers and by increased mobile asset activity from pipeline projects.

Partially offsetting these items, revenue was lower at our Sitka Lodge related to the COVID-19 pandemic and the British Columbia health order affecting activity in the first half of the year and from reduced food services activity.

Our Canadian segment cost of sales and services increased $26.1 million, or 12%, in 2021 compared to 2020.

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

dollar by 7% in 2021 compared to 2020 resulted in a $14.9 million period-over-period increase in cost of sales and services.

Excluding the impact of the stronger Canadian exchange rate, the increased cost of sales and services was driven by increased occupancy at our oil sands lodges related to turnaround activities by a number of customers and by increased mobile asset activity from pipeline projects.

Partially offsetting these items, cost of sales and services decreased from reduced food services activity and from reduced activity at our Sitka Lodge related to the COVID-19 pandemic and the British Columbia health order resulting in reduced activity in the first half of the year.

Our Canadian segment gross margin as a percentage of revenues increased from 22% in 2020 to 27% in 2021.

This was primarily driven by increased mobile asset activity and related operating efficiencies.

Segment Results of Operations – Australian Segment

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Our Australian segment reported revenues in 2021 that were $16.5 million, or 7%, higher than 2020.

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 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.

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

dollar by 9% in the 2021 compared to 2020 resulted in a $19.8 million period-over-period increase in revenues.

Excluding the impact of the stronger Australian exchange rate, the Australian segment experienced reduced revenue due to decreased activity at our Bowen Basin villages and Western Australia villages, partially offset by increased occupancy at our integrated services villages.

Our Australian segment cost of sales increased $34.4 million, or 24%, in 2021 compared to 2020.

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.

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

dollar by 9% in 2021 compared to 2020 resulted in a $14.1 million period-over-period increase in cost of sales and services.

Excluding the impact of the stronger Australian exchange rate, the increase in cost of sales and services was largely driven by increased occupancy at our integrated services villages and increased costs of temporary labor due to ongoing labor shortages.

Our Australian segment gross margin as a percentage of revenues decreased to 29% in 2021 from 38% in 2020.

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.

This decrease was primarily driven by our integrated services business, which has a service-only business model, and therefore results in lower overall gross margins than the accommodation business.

The integrated services business gross margin decrease was further exacerbated as two key client contracts transferred from construction phase to operational phase with inherently lower margins.

Reduced occupancy at the Bowen Basin villages and Western Australia villages, further impacted gross margin as efficiencies were unable to be realized with a fixed cost structure at lower occupancy levels.

Segment gross margin has also been negatively impacted by increased staff costs as a result of a hospitality labor shortage in Australia which has been exacerbated by state and international border closures due to COVID-19.

State and international border closures have affected the number of staff available which has subsequently led to an increased reliance on more expensive temporary labor hire resources and has placed upward pressure on wages for permanent staff as competitors compete for a small pool of labor.

Segment Results of Operations – U.S.

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segment reported revenues in 2021 that were $3.5 million, or 14%, lower than 2020.

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 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.

This decrease was due to reduced U.S.

drilling activity affecting our wellsite business and reduced activity in our offshore fabrication business as a number of projects were completed in 2020 that did not recur to the same extent in 2021.

These decreases were partially offset by increased activity at our West Permian, Killdeer and Acadian Acres lodges.

segment cost of sales and services decreased $6.2 million, or 22%, in 2021 compared to 2020.

The decrease was due to reduced U.S.

drilling activity affecting our wellsite business, reduced activity in our offshore fabrication business as a number of projects were completed in 2020 that did not recur to the same extent in 2021 and reduced costs at our West Permian lodge under a new customer contract through September 30, 2021.

segment gross margin as a percentage of revenues increased from (10)% in 2020 to 0.5% in 2021, primarily due to improved margins at our West Permian lodge under a new customer contract through September 30, 2021.

Margins at our Killdeer and Acadian Acres lodges also increased due to increased activity.

These increases were partially offset by reduced operating efficiencies due to lower activity levels in our wellsite business.

Liquidity and Capital Resources

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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.

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

In the future, we may seek to access the debt and equity capital markets from time to time to raise additional capital, increase liquidity, fund acquisitions, refinance debt or retire preferred shares.

The following summarizes our material future cash requirements at December 31, 2021, 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

Debt maturities $ 175,130 $ 31,552 $ 31,552 $ 112,026 $ —

Interest payments (1)

18,134 6,104 9,111 2,919 —

Purchase obligations 9,290 9,290 — — —

Non-cancelable operating lease obligations 23,036 5,302 8,720 5,695 3,319

Asset retirement obligations – expected cash payments 76,057 564 1,951 1,248 72,294

Total contractual cash obligations $ 301,647 $ 52,812 $ 51,334 $ 121,888 $ 75,613

(1) Interest payments due under the Credit Agreement, which matures on September 8 2025;

based on a interest rate of 3.7% for Canadian term loan, 3.7% for Canadian revolver borrowings and 3.3% for Australian revolver borrowings for the twelve month period ended December 31, 2021.

Our debt obligations at December 31, 2021 are reflected in our consolidated balance sheet, which is a part of our consolidated financial statements in Item 8 of this annual report.

We have not entered into any material leases subsequent to December 31, 2021.

The following table summarizes our consolidated liquidity position as of December 31, 2021 and 2020 (in thousands):

Lender commitments $ 200,000 $ 167,300

$ 167,300 $ 263,500

Reductions in availability (2)

Borrowings against revolving credit capacity (112,026) (63,556)

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Total available liquidity $ 92,817 $ 105,412

(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 $88.5 million was provided by operations during 2021 compared to $117.4 million provided by operations during 2020.

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 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.

The decrease in operating cash flow in 2021 compared to 2020 was primarily due to lower cash provided by working capital.

Net cash used by working capital was $8.8 million during 2021 compared to net cash provided by working capital of $19.9 million during 2020.

The decrease in cash provided by working capital in 2021 compared to 2020 is largely due to increased accounts receivable balances, partially offset by increased accounts payable and accrual balances.

Cash was used in investing activities during 2021 of $0.7 million compared to cash used in investing activities of $1.8 million during 2020.

The decrease in cash used in investing activities in 2021 compared to 2020 was primarily due to higher proceeds from the sale of our West Permian Lodge in the U.S.

and the sale of our manufacturing facility and mobile assets in Canada during 2021, partially offset by $4.7 million of other income associated with the settlement of a representations and warranties claim in 2020 related to the Noralta Acquisition and lower capital expenditures during 2020.

Capital expenditures totaled $15.6 million and $10.1 million during 2021 and 2020, respectively.

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.

The increase in capital expenditures in 2021 was related primarily to deferred 2020 routine maintenance capital expenditures as well as increased Canadian pipeline-related capital expenditures during 2021.

We expect our capital expenditures for 2022 to be in the range of $20 million to $25 million, which excludes any unannounced and uncommitted projects, the spending for which is contingent on obtaining customer contracts or commitments.

Whether planned expenditures will actually be spent in 2022 depends on industry conditions, project approvals and schedules, customer room commitments and project and construction timing.

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

The foregoing capital expenditure forecast does not include any funds for strategic acquisitions, which we could pursue should the transaction economics be attractive enough to us compared to the current capital allocation priorities of debt reduction.

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.

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Total $ 5.1 $ 10.5 $ 15.6 $ 3.1 $ 7.0 $ 10.1

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.

Maintenance lodge and village spending in 2020 and 2019 was primarily related to routine maintenance projects at our major properties.

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 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.

Expansion lodge and village spending in 2021 was primarily related to infrastructure improvements at an Australian village.

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

Maintenance lodge and village spending in 2021 and 2020 was primarily associated with routine maintenance projects at our major properties.

Mobile asset spending in 2021 and 2020 was primarily associated with Canadian pipeline-related capital expenditures.

Other maintenance and expansion spending in 2021 and 2020 was primarily associated with purchases of miscellaneous equipment and supplies to support the day-to-day operations at our accommodation facilities and information technology infrastructure to support our business.

Net cash of $86.5 million was used in financing activities during 2021 primarily due to repayments of term loan borrowings of $125.5 million, $1.1 million used to settle tax obligations on vested shares under our share-based compensation plans, debt issuance costs of $4.4 million related to our Credit Agreement and $4.6 million used to repurchase our common shares, partially offset by net borrowings under our revolving credit facilities of $49.2 million.

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Canada Australia U.S.

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

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

Borrowings under revolving credit facilities 375,122 20,330 2,500 397,952

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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

Acquisitions have been, and our management believes acquisitions will continue to be, an element of our long-term business strategy.

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

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In addition, any additional debt service requirements we take on could be based on higher interest rates and shorter maturities and could impose a significant burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to shareholders.

Amended Credit Agreement

As of December 31, 2019, our Credit Agreement 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.

subsidiaries, as borrowers;

(B) a $183.5 million senior secured revolving credit facility in favor of Civeo and certain of our Canadian subsidiaries, as borrowers;

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, 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:

Amended and Restated Credit Agreement

As of December 31, 2020, our credit agreement provided for 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.

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

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

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

New Syndicated Facility Agreement

On September 8, 2021, we entered into a new Syndicated Facility Agreement (Credit Agreement), which, among other things, as compared to the prior credit agreement provided for a $200.0 million revolving credit facility scheduled to mature on September 8, 2025, allocated as follows:

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

subsidiaries, as borrower;

(B) a $155.0 million senior secured revolving credit facility in favor of Civeo, as borrower;

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

and (ii) 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;

(ii) asset sales;

(iii) acquisitions of margin stock;

(iv) specified acquisitions;

(v) certain restrictive agreements;

(vi) transactions with affiliates;

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 3.00 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 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.

In addition, it provided for a C$100.0 million term loan facility scheduled to be fully repaid on December 31, 2023 for certain lenders in favor of Civeo.

As of December 31, 2021, we had outstanding letters of credit of $0.3 million under the U.S facility, zero under the Australian facility and $1.2 million under the Canadian facility.

We also had outstanding bank guarantees of A$0.8 million under the Australian facility.

See Note 11 - Debt to the notes to the consolidated financial statements in Item 8 of this annual report for the terms of the Credit Agreement and further discussion regarding our debt.

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 Amended Credit Agreement.

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

Future agreements may also limit our ability to pay dividends, and we may incur incremental taxes if we are required to repatriate foreign earnings to pay such dividends.

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Quarterly dividends have been paid in-kind for each quarterly period beginning June 30, 2018 through December 31, 2021, thereby increasing the liquidation preference to $10,776 per share as of December 31, 2021.

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

We currently expect to pay dividends on the preferred shares through an increase in liquidation preference rather than cash until they mandatorily convert to Civeo common shares in April 2023.

For further information, see Note 16 - Preferred Shares to the notes to the consolidated financial statements included in Item 8 of this annual report for further information.

Effects of Inflation

Our revenues and results of operations have not been materially impacted by inflation in the past three years.

Off-Balance Sheet Arrangements

As of December 31, 2020, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Contractual Obligations

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 — — —

Non-cancelable operating lease obligations 28,344 5,682 9,745 7,106 5,811

Asset retirement obligations – expected cash payments 79,844 1,322 530 2,989 75,003

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

(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.

We have not entered into any material leases subsequent to December 31, 2020.

Critical Accounting Policies

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Upon the ultimate resolution of these uncertainties, our future reported financial results will be impacted by the difference between our estimates and the actual amounts paid to settle a liability.

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

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

Impairment of Tangible and Intangible Assets, including Goodwill

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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.

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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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).

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.

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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 assets and our manufacturing facility.

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

These properties are grouped in the following asset groups:

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• Geetla camp – British Columbia

• Boundary camp – Saskatchewan

• Antler River camp – Manitoba

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• Mobile assets

• Noble manufacturing facility

• Various land holdings in British Columbia purchased in anticipation of potential LNG related projects

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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.

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.

Our Australia segment consists of nine villages in several regions within the country, as well as our integrated services assets and land banked assets.

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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).

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

These properties are grouped in the following asset groups:

• West Permian Lodge – Texas

• Killdeer Lodge – North Dakota

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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.

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, 2021, 2020 and 2019.

Revenue and Cost Recognition

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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 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 also grant performance share awards under the Plan.

Awards are earned in amounts between 0% and 200% of the participant’s target performance share award, based on the payout percentage associated with Civeo’s relative total shareholder return rank among a peer group of companies.

The fair value of the awards was estimated using a Monte Carlo simulation pricing model.

Awards granted in 2021 are earned in amounts between 0% and 200% of the participant’s target performance share award, based on (1) the payout percentage associated with Civeo’s relative total shareholder return (TSR) rank among a peer group of other companies and (2) the payout percentage associated with Civeo's cumulative free cash flow over the performance period relative to a preset target.

Performance share awards granted prior to 2021 are earned in amounts between 0% and 200% of the participant’s target performance share award, based on the payout percentage associated with Civeo’s relative TSR rank among a peer group of other companies.

The fair value of the TSR portion of each award was estimated using a Monte Carlo simulation pricing model.

We chose this model because the performance awards contain complex vesting terms.

Utilizing the Monte Carlo simulation pricing model required us to estimate the risk-free interest rate and the expected market price volatility of our common shares as well as the peer group of companies over a time period equal to the expected term of the award.

The resulting cost is recognized over the period during which an employee is required to provide service in exchange for the awards, usually the vesting period.

The fair value of the free cash flow portion of each award was based on the closing market price of our common shares on the date of grant.

We evaluate the probability of achieving the performance criteria throughout the performance period and make adjustments based on the number of shares expected to vest based on our estimate of the most probable performance outcome.

The resulting costs for each portion of the award is recognized over the period during which an employee is required to provide service in exchange for the awards, usually the vesting period.

For additional details, see Note 19 – Share-Based Compensation to the notes to the consolidated financial statements included in Item 8 of this annual report.

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If any of the subsidiaries have a distribution of earnings in the form of dividends or otherwise, we would be subject to both Canadian income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various foreign countries.

We do not expect to provide Canadian income taxes on future foreign earnings.

We record a valuation allowance in each reporting period when our management believes that it is more likely than not that any recorded deferred tax asset will not be realized.

Our management will continue to evaluate the appropriateness of the valuation allowance in the future, based upon our operating results.

Please see Note 15 – Income Taxes to the notes to consolidated financial statements in Item 8 of this annual report for further discussion.

Our management will continue to evaluate the appropriateness of the valuation allowance in the future, based upon our current and historical operating results and other potential sources of future taxable income.

See Note 14 – Income Taxes to the notes to consolidated financial statements in Item 8 of this annual report for further discussion.

In accounting for income taxes, we are required to estimate a liability for future income taxes for any uncertainty for potential income tax exposures.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations.

We recognize liabilities for anticipated tax audit issues in the U.S.

and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due.

We recognize liabilities for anticipated tax audit issues in Canada and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due, including an accrual of interest and penalties, if applicable, related to the unrecognized tax benefits.

If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary.

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Recent Accounting Pronouncements

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.

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