Civeo Corp 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis together with our consolidated financial statements and the notes to those statements included elsewhere in this quarterly report on Form 10-Q. Overview and Macroeconomic Environment We provide hospitality services to the natural resources industry in Canada, Australia and the U.S. Demand for our services can be attributed to two phases of our customers’ projects: (1) the development or construction phase; and (2) the operations or production phase. Historically, initial demand for our hospitality services has been driven by our customers’ capital spending programs related to the construction and development of natural resource projects and associated infrastructure, as well as the exploration for oil and natural gas. Long-term demand for our services has been driven by natural resource production, maintenance and operation of those facilities as well as expansion of those sites. In general, industry capital spending programs are based on the outlook for commodity prices, economic growth, global commodity supply/demand, estimates of resource production and the expectations of our customers' shareholders. As a result, demand for our hospitality services is largely sensitive to expected commodity prices, principally related to oil, metallurgical (met) coal, liquefied natural gas (LNG) and iron ore, and the resultant impact of these commodity price expectations on customers' spending. Other factors that can affect our business and financial results include the general global economic environment, including inflationary pressures, supply chain disruptions and labor shortages, volatility affecting the banking system and financial markets, and regulatory changes in Canada, Australia, the U.S. and other markets, including governmental measures introduced to fight climate change. 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 63% 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- 18 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. The remainder of our revenue is generated by our hospitality services at customer-owned locations in Canada and Australia, mobile assets in Canada and our lodges in the U.S. Generally, our core Canadian oil sands and Australian mining customers make significant, upfront capital investments to develop their prospects, which have estimated reserve lives ranging from ten years to in excess of 30 years. Consequently, these investments are primarily dependent on those customers’ long-term views of commodity demand and prices. During 2022 and into 2023, increasing inflationary pressures and supply chain disruptions have been, and are being, experienced worldwide. Price increases resulting from inflation and supply chain concerns have, and are expected to continue to have, a negative impact on our labor and food costs, as well as consumable costs such as fuel. We are managing inflation risk with negotiated service scope changes and contractual protections. In addition to the macro inflationary impacts on labor costs noted above, during the COVID-19 pandemic, we were, and continue to be, impacted by increased staff costs as a result of hospitality labor shortages in Australia as government-imposed and voluntary social distancing and quarantining impacted travel. This labor shortage has been exacerbated by significantly reduced migration in and around Australia affecting labor availability, which has subsequently led to an increased reliance on more expensive temporary labor resources. Since historic lows in early 2020 during the start of the COVID-19 pandemic, global oil prices increased in late 2020 and throughout 2021 primarily due to improved global oil demand and lagging global oil supply due to oil production discipline from publicly traded oil producers and OPEC+ countries. These supply/demand dynamics continued in 2022 and were exacerbated by the ongoing conflict between Russia/Ukraine and related sanctions on Russia, as well as actions taken by OPEC+ to adjust production levels, which decreased global fossil fuel supply even further. This led to a significant increase in global oil prices to above $100 per barrel in the second quarter of 2022. Severe inflation and rising interest rates in the second half of 2022 led to concerns of an economic recession and lower oil demand which resulted in decreased oil prices through the remainder of 2022 and into early 2023. In an effort to support the price of oil amidst demand concerns, OPEC+ announced additional oil production cuts in April 2023. 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), refinery blending requirements and governmental regulation. Historically, WCS has traded at a discount to WTI, creating a “WCS Differential,” due to transportation costs and capacity restrictions to move Canadian heavy oil production to refineries, primarily along the U.S. Gulf Coast. The WCS Differential has varied depending on the extent of transportation capacity availability. Certain expansionary oil pipeline projects have the potential to both drive incremental demand for mobile assets and to improve take-away capacity for Canadian oil sands producers over the longer term. The Enbridge Line 3 replacement project was completed at the end of 2021 and the Trans Mountain Pipeline (TMX) is currently under construction and continues to progress towards completion. TMX recently announced that the project is close to 80% complete, with mechanical completion expected to occur at the end of 2023, and the pipeline is expected to be in-service in the first quarter of 2024. WCS prices in the first quarter of 2023 averaged $56.61 per barrel compared to an average of $82.04 in the first quarter of 2022. The WCS Differential decreased from $27.62 per barrel at the end of the fourth quarter of 2022 to $14.31 at the end of the first quarter of 2023. As of April 24, 2023, the WTI price was $64.11 and the WCS price was $78.76, resulting in a WCS Differential of $14.65. Although oil prices reached multi-year highs in the first half of 2022, they fluctuated through the second half of 2022 and into the first quarter of 2023. There is continued uncertainty around commodity price levels, including the impact of inflationary pressures, actions taken by OPEC+ to adjust production levels, geopolitical events such as the ongoing Russia/Ukraine conflict, and regulatory implications on such prices, which could cause our Canadian oil sands and pipeline customers to reduce production, delay expansionary and maintenance spending and defer additional investments in their oil sands assets. We have agreed to not renew an expiring land lease associated with our McClelland Lake Lodge in Alberta, Canada, which expires in June 2023, ten years earlier than originally expected, in order to support our customer’s intent to mine the land where the lodge is located. In addition, the accompanying hospitality services contract at McClelland Lake Lodge expires in June 2023. Based on ongoing discussions with customers in the region, our current assessment is there are no commercially viable opportunities that support the reinstallation of these assets in a different location within the Regional Municipality of Wood Buffalo. Accordingly, we intend to market these assets for new opportunities within Canada and the U.S. Based on our 19 knowledge and understanding of the marketplace, we believe there is demand for these assets for sale or redeployment. Should our marketing efforts fail to identify an economic alternative, other options will be considered. Revenues for the full year 2022 associated with our McClelland Lake Lodge were approximately C$60 million. We expect to have further clarity on potential sales or redeployment opportunities for these assets as we move through 2023. British Columbia, Canada. Our Sitka Lodge supports the LNG Canada project and related pipeline projects (see discussion below). From a macroeconomic standpoint, LNG demand has continued to grow, reinforcing the need for the global LNG industry to expand access to natural gas. Evolving government energy policies around the world have amplified support for cleaner energy supply, creating more opportunities for natural gas and LNG. The conflict between Russia/Ukraine has further highlighted the need for secure natural gas supply globally, particularly in Europe. Accordingly, additional investment in LNG supply will be needed to meet the resulting expected long-term LNG demand growth. Currently, Western Canada does not have any operational LNG export facilities. LNG Canada (LNGC), a joint venture among Shell Canada Energy, an affiliate of 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 designated portions of the related pipeline construction activity. While our current expectation is that our contracted commitments associated with the CGL pipeline project will be completed in the second half of 2023, any new delays in facility or pipeline construction may result in extensions to these dates. Australia. In Australia, 84% 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 level of global steel production, which decreased by 0.1% during the first three months of 2023 compared to the same period in 2022. The decrease was the result of weakness in the Chinese residential sector and slowing global growth due to inflationary pressures. As of April 24, 2023, met coal spot prices were $257.90 per tonne. Steel output is forecast to improve marginally through 2024, with large infrastructure rollouts in a number of major economies including the U.S. and India. Following historic highs in early 2022, met coal prices have since stabilized and were further supported in early 2023 with seasonal weather-related supply interruptions in Australia. Analysts forecast met coal prices to face downward pressure through the second half of 2023 with supply recovery and weaker demand sentiment impacted by the global financial markets. Downward pressure on prices could accelerate in the short term if demand in China worsens. Civeo's activity in Western Australia is driven primarily by iron ore production, which is a key steel-making ingredient. Iron ore prices fluctuated in the second half of 2022 and have since stabilized in early 2023. As of April 21, 2023, iron ore spot prices were $110.82 per tonne. Analysts anticipate that infrastructure-led construction activity in China will gradually improve and continue to support more stable prices. Analysts forecast pricing in 2023 to remain between $100 and $115. Other. In the first quarter of 2023, we sold our Acadian Acres lodge assets. In addition, in the second half of 2022, we sold both our wellsite services and our offshore businesses. Our remaining U.S. business supports completion activity in the Bakken. U.S. oil completion activity will continue to be impacted by oil prices, pipeline capacity, federal energy policies and availability of capital to support exploration and production completion plans. 20 Recent Commodity Prices. Recent WTI crude, WCS crude, met coal and iron ore pricing trends are as follows: Average Price (1) Quarter ended WTI Crude (per bbl) WCS Crude (per bbl) Hard Coking Coal (Met Coal) (per tonne) Iron Ore (per tonne) Second Quarter through April 24, 2023 $ 80.43 $ 65.28 $ 281.04 $ 116.79 3/31/2023 75.96 56.61 341.08 117.08 12/31/2022 82.82 54.72 276.19 94.93 9/30/2022 91.63 70.70 252.63 99.21 6/30/2022 108.77 92.89 464.61 128.80 3/31/2022 95.17 82.04 474.83 129.46 (1) Source: WTI crude prices are from U.S. Energy Information Administration, WCS crude prices and iron ore prices are from Bloomberg and hard coking coal prices are from IHS Markit. Foreign Currency Exchange Rates. Exchange rates between the U.S. dollar and each of the Canadian dollar and the Australian dollar influence our U.S. dollar reported financial results. 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. dollars for U.S. GAAP financial reporting purposes. The following tables summarize the fluctuations in the exchange rates between the U.S. dollar and each of the Canadian dollar and the Australian dollar: Three Months Ended March 31, 2023 2022 Change Percentage Average Canadian dollar to U.S. dollar $0.740 $0.790 ($0.05) (6.3)% Average Australian dollar to U.S. dollar $0.684 $0.724 ($0.04) (5.5)% As of March 31, 2023 December 31, 2022 Change Percentage Canadian dollar to U.S. dollar $0.739 $0.738 $0.00 0.1% Australian dollar to U.S. dollar $0.670 $0.679 ($0.01) (1.4)% 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. Capital Expenditures. We continue to monitor the global economy, commodity prices, demand for crude oil, met coal, LNG and iron ore, inflation and the resultant impact on the capital spending plans of our customers in order to plan our business activities. We currently expect that our 2023 capital expenditures will be in the range of approximately $45 million to $50 million, compared to 2022 capital expenditures of $25.4 million. The $20 million increase relates to village enhancements in Australia, for which our customer will reimburse us, resulting in a net neutral cash flow impact in 2023. We may adjust our capital expenditure plans in the future as we continue to monitor customer activity. See “Liquidity and Capital Resources ” below for further discussion of our 2023 capital expenditures. 21 Results of Operations Unless otherwise indicated, discussion of results for the three months ended March 31, 2023, is based on a comparison to the corresponding period of 2022. Results of Operations – Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022 Three Months Ended March 31, 2023 2022 Change ($ in thousands) Revenues Canada $ 89,453 $ 95,952 $ (6,499) Australia 76,989 63,529 13,460 Other 1,149 6,197 (5,048) Total revenues 167,591 165,678 1,913 Costs and expenses Cost of sales and services Canada 73,905 75,206 (1,301) Australia 58,308 44,514 13,794 Other 1,301 6,123 (4,822) Total cost of sales and services 133,514 125,843 7,671 Selling, general and administrative expenses 16,190 15,213 977 Depreciation and amortization expense 21,662 20,127 1,535 Other operating expense 129 258 (129) Total costs and expenses 171,495 161,441 10,054 Operating income (loss) (3,904) 4,237 (8,141) Interest expense, net (3,624) (2,468) (1,156) Other income 2,450 1,696 754 Income (loss) before income taxes (5,078) 3,465 (8,543) Income tax expense (1,233) (1,557) 324 Net income (loss) (6,311) 1,908 (8,219) Less: Net income attributable to noncontrolling interest 42 498 (456) Net income (loss) attributable to Civeo Corporation (6,353) 1,410 (7,763) Less: Dividends attributable to preferred shares — 487 (487) Net income (loss) attributable to Civeo common shareholders $ (6,353) $ 923 $ (7,276) We reported net loss attributable to Civeo for the quarter ended March 31, 2023 of $6.4 million, or $0.42 per diluted shares compared to net income attributable to Civeo for the quarter ended March 31, 2022 of $0.9 million, or $0.06 per diluted share. Revenues. Consolidated revenues increased $1.9 million, or 1%, in the first quarter of 2023 compared to the first quarter of 2022. This increase was primarily due to (i) increased occupancy at our Civeo owned villages in the Australian Bowen and Gunnedah Basins, (ii) increased activity at our integrated services villages in Western Australia and (iii) higher billed rooms at our Canadian lodges. These items were partially offset by (i) lower average daily rates at our Canadian lodges largely due to occupancy mix, (ii) decreased mobile asset activity from pipeline projects in Canada, (iii) reduced activity in the U.S. operations due to the sale of our wellsite and offshore businesses in the second half of 2022 and (iv) a weaker Australian and Canadian dollar relative to the U.S. dollar in the first quarter of 2023 compared to the first quarter of 2022. See the discussion of segment results of operations below for further information. Cost of Sales and Services. Our consolidated cost of sales and services increased $7.7 million, or 6%, in the first quarter of 2023 compared to the first quarter of 2022. This increase was primarily due to (i) increased occupancy at our Civeo owned villages in the Australian Bowen and Gunnedah Basins, (ii) increased activity at our integrated services villages in Western Australia, (iii) higher billed rooms at our Canadian lodges and (iv) increased operating costs due to inflationary pressures in Canada and Australia. These items were partially offset by (i) reduced activity in the U.S. operations due to the sale of our wellsite and offshore businesses in the second half of 2022 and (ii) a weaker Australian and Canadian dollar relative to the U.S. 22 dollar in the first quarter of 2023 compared to the first quarter of 2022. See the discussion of segment results of operations below for further information. Selling, General and Administrative Expenses. SG&A expense increased $1.0 million, or 6%, in the first quarter of 2023 compared to the first quarter of 2022. This increase was primarily due to higher compensation expense and information technology expense. The increase in compensation expense was primarily due to increased staff and recruitment costs. The increase in information technology expense was related to ongoing investment in our newly implemented human capital management (HCM) system and set-up costs incurred in a cloud computing arrangement for the HCM system, which are being amortized through SG&A expense instead of depreciation and amortization expense. These items were partially offset by lower share-based compensation expense and a weaker Australian and Canadian dollar relative to the U.S. dollar in the first quarter of 2023 compared to the first quarter of 2022. The decrease in share-based compensation expense was due to a relative decrease in our stock price during 2023 compared to 2022. Depreciation and Amortization Expense. Depreciation and amortization expense increased $1.5 million, or 8%, in the first quarter of 2023 compared to the first quarter of 2022. The increase was primarily due to shortening the useful lives on certain assets in Canada, including the McClelland Lake Lodge. This was partially offset by lower depreciation and amortization expense due to a weaker Australian and Canadian dollar relative to the U.S. dollar in the first quarter of 2023 compared to the first quarter of 2022 and the sale of our wellsite and offshore businesses in the U.S. in the second half of 2022. Operating Income. Consolidated operating income decreased $8.1 million, or 192%, in the first quarter of 2023 compared to the first quarter of 2022, primarily due to increased operating costs due to inflationary pressures in Canada and Australia and reduced mobile asset activity in Canada in the first quarter of 2023 compared to the first quarter of 2022. Interest Expense, net. Net interest expense increased by $1.2 million, or 47%, in the first quarter of 2023 compared to the first quarter of 2022, primarily related to higher interest rates on credit facility borrowings during 2023 compared to 2022, partially offset by lower average debt levels on credit facility borrowings. Other Income. Consolidated other income increased $0.8 million in the first quarter of 2023 compared to the first quarter of 2022 primarily due to higher gain on the sale of assets related to the sale of our Acadian Acres accommodation assets in the U.S. in the first quarter of 2023 compared to the first quarter of 2022. Income Tax (Expense) Benefit. Our income tax expense for the three months ended March 31, 2023 totaled $1.2 million, or (24.3)% of pretax income, compared to an income tax expense of $1.6 million, or 44.9% of pretax income, for the three months ended March 31, 2022. Our effective tax rate for each of the three months ended March 31, 2023 and 2022 was impacted by considering Canada and the U.S. loss jurisdictions that were removed from the annual effective tax rate computation for purposes of computing the interim tax provision. Other Comprehensive (Loss) Income. Other comprehensive loss increased $10.2 million in the first quarter of 2023 compared to the first quarter of 2022, primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S. dollar. The Canadian dollar exchange rate compared to the U.S. dollar remained constant in the first quarter of 2023 compared to a 1% increase in the first quarter of 2022. The Australian dollar exchange rate compared to the U.S. dollar decreased 1% in the first quarter of 2023 compared to a 3% increase in the first quarter of 2022. 23 Segment Results of Operations – Canadian Segment Three Months Ended March 31, 2023 2022 Change Revenues ($ in thousands) Accommodation revenue (1) $ 64,228 $ 67,194 $ (2,966) Mobile facility rental revenue (2) 20,031 24,018 (3,987) Food service and other services revenue (3) 5,194 4,740 454 Total revenues $ 89,453 $ 95,952 $ (6,499) Cost of sales and services ($ in thousands) Accommodation cost $ 52,098 $ 53,127 $ (1,029) Mobile facility rental cost 14,502 14,884 (382) Food service and other services cost 4,774 4,359 415 Indirect other costs 2,531 2,836 (305) Total cost of sales and services $ 73,905 $ 75,206 $ (1,301) Gross margin as a % of revenues 17.4 % 21.6 % (4.2) % Average daily rate for lodges (4) $ 96 $ 106 $ (10) Total billed rooms for lodges (5) 642,796 635,555 7,241 Average Canadian dollar to U.S. dollar $ 0.740 $ 0.790 $ (0.050) (1) Includes revenues related to lodge rooms and hospitality services for owned rooms for the periods presented. (2) Includes revenues related to mobile assets for the periods presented. (3) Includes revenues related to food services, laundry and water and wastewater treatment services for the periods presented. (4) Average daily rate is based on billed rooms and accommodation revenue. (5) Billed rooms represents total billed days for owned assets for the periods presented. Our Canadian segment reported revenues in the first quarter of 2023 that were $6.5 million, or 7%, lower than the first quarter of 2022. The weakening of the average exchange rate for the Canadian dollar relative to the U.S. dollar by 6% in the first quarter of 2023 compared to the first quarter of 2022 resulted in a $6.0 million period-over-period decrease in revenues. Excluding the impact of the weaker Canadian exchange rate, the revenue decrease was driven by (i) reduced mobile asset activity from pipeline projects and (ii) a lower average daily rate at our lodges due to occupancy mix and a tiered pricing structure at certain lodges that reduces at higher volumes. These items were partially offset by higher billed rooms at our lodges. Our Canadian segment cost of sales and services decreased $1.3 million, or 2%, in the first quarter of 2023 compared to the first quarter of 2022. The weakening of the average exchange rate for the Canadian dollar relative to the U.S. dollar by 6% in the first quarter of 2023 compared to the first quarter of 2022 resulted in a $5.0 million period-over-period decrease in cost of sales and services. Excluding the impact of the weaker Canadian exchange rate, the increase in cost of sales and services was driven by (i) increased occupancy at our lodges and (ii) increased operating costs due to inflationary pressures. Our Canadian segment gross margin as a percentage of revenues decreased from 21.6% in the first quarter of 2022 to 17.4% in the first quarter of 2023. This was primarily driven by reduced margins at our lodges due to inflationary pressures and reduced margins from our mobile asset activity as certain higher margin components were recognized over the initial contract terms through late 2022, with 2023 representing continuing operations. 24 Segment Results of Operations – Australian Segment Three Months Ended March 31, 2023 2022 Change Revenues ($ in thousands) Accommodation revenue (1) $ 40,599 $ 37,599 $ 3,000 Food service and other services revenue (2) 36,390 25,930 10,460 Total revenues $ 76,989 $ 63,529 $ 13,460 Cost of sales and services ($ in thousands) Accommodation cost $ 20,318 $ 18,407 $ 1,911 Food service and other services cost 35,862 24,363 11,499 Indirect other cost 2,128 1,744 384 Total cost of sales and services $ 58,308 $ 44,514 $ 13,794 Gross margin as a % of revenues 24.3 % 29.9 % (5.7) % Average daily rate for villages (3) $ 78 $ 79 $ (1) Total billed rooms for villages (4) 522,713 474,474 48,239 Australian dollar to U.S. dollar $ 0.684 $ 0.724 $ (0.040) (1) Includes revenues related to village rooms and hospitality services for owned rooms for the periods presented. (2) Includes revenues related to food services and other services, including facilities management for the periods presented. (3) Average daily rate is based on billed rooms and accommodation revenue. (4) Billed rooms represent total billed days for owned assets for the periods presented. Our Australian segment reported revenues in the first quarter of 2023 that were $13.5 million, or 21%, higher than the first quarter of 2022. The weakening of the average exchange rate for Australian dollars relative to the U.S. dollar by 5% in the first quarter of 2023 compared to the first quarter of 2022 resulted in a $4.6 million period-over-period decrease in revenues. On a constant currency basis, the Australian segment experienced a 28% period-over-period increase in revenues. Excluding the impact of the weaker Australian exchange rate, the increase in the Australian segment was driven by increased occupancy at our Civeo owned villages in the Bowen Basin and Gunnedah Basin and higher activity for our integrated services business in Western Australia. Our Australian segment cost of sales and services increased $13.8 million, or 31%, in the first quarter of 2023 compared to the first quarter of 2022. The weakening of the average exchange rate for Australian dollars relative to the U.S. dollar by 5% in the first quarter of 2023 compared to the first quarter of 2022 resulted in a $3.5 million period-over-period decrease in cost of sales and services. Excluding the impact of the weaker Australian exchange rate, the increase in cost of sales and services was largely driven by increased occupancy at our Bowen Basin and Gunnedah Basin owned villages and our integrated services business in Western Australia and increased operating costs due to inflationary pressures. Our Australian segment gross margin as a percentage of revenues decreased to 24.3% in the first quarter of 2023 from 29.9% in the first quarter of 2022. This was primarily driven by an increased relative revenue contribution from our integrated services business, which has a service-only business model, and therefore generates lower overall gross margins than our accommodation business and increased operating costs due to inflationary pressures, partially offset by improved margins at Civeo owned villages in the Bowen and Gunnedah Basins as a result of increased occupancy. Liquidity and Capital Resources Our primary liquidity needs are to fund capital expenditures, which in the past have included expanding and improving our hospitality services, developing new lodges and villages, purchasing or leasing land, and for general working capital needs. In addition, capital has been used to repay debt, repurchase our common shares and preferred shares and fund strategic business acquisitions. In the future, capital may be required to move lodges from one site to another. Historically, our primary sources of funds have been available cash, cash flow from operations, borrowings under our Credit Agreement and proceeds from equity 25 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 or refinance debt. The following table summarizes our consolidated liquidity position as of March 31, 2023 and December 31, 2022 (in thousands): March 31, 2023 December 31, 2022 Lender commitments $ 200,000 $ 200,000 Borrowings against revolving credit capacity (120,441) (102,505) Outstanding letters of credit (1,366) (1,365) Unused availability 78,193 96,130 Cash and cash equivalents 12,366 7,954 Total available liquidity $ 90,559 $ 104,084 Cash totaling $0.4 million was provided by operations during the three months ended March 31, 2023, compared to $2.0 million provided by operations during the three months ended March 31, 2022. During the three months ended March 31, 2023 and 2022, $15.6 million and $21.8 million was used in working capital, respectively. The year-over-over decrease in working capital outflows in 2023 compared to 2022 is largely due to a payment received from a customer for village enhancements in Australia, partially offset by the timing of payments during the three months ended March 31, 2023 compared to the three months ended March 31, 2022. Cash was used in investing activities during the three months ended March 31, 2023 in the amount of $2.5 million, compared to cash used in investing activities during the three months ended March 31, 2022 in the amount of $1.0 million. The increase in cash used in investing activities was primarily due to higher capital expenditures. Capital expenditures totaled $4.8 million and $3.6 million during the three months ended March 31, 2023 and 2022, respectively. Capital expenditures in both periods were primarily related to maintenance. We received proceeds from the sale of property, plant and equipment of $2.3 million during the three months ended March 31, 2023 primarily related to the sale of our Acadian Acres accommodation assets in the U.S., compared to $2.4 million during the three months ended March 31, 2022 primarily related to the sale of undeveloped land holdings in Australia and various mobile assets in Canada. We expect our capital expenditures for 2023 to be in the range of $45 million to $50 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 2023 depends on industry conditions, project approvals and schedules, customer room commitments and project and construction timing. We expect to fund these capital expenditures with available cash, cash flow from operations and revolving credit borrowings under our Credit Agreement. The foregoing capital expenditure forecast does not include any funds for strategic acquisitions, which we could pursue should the transaction economics be attractive enough to us compared to the current capital allocation priorities of debt reduction and return of capital to shareholders. We continue to monitor the global economy, commodity prices, demand for crude oil, met coal, LNG and iron ore, inflation and the resultant impact on the capital spending plans of our customers in order to plan our business activities, and we may adjust our capital expenditure plans in the future. Net cash of $6.6 million was provided by financing activities during the three months ended March 31, 2023 primarily due to net borrowings under our revolving credit facilities of $17.7 million, partially offset by term loan repayments of $7.4 million and repurchases of our common shares of $3.8 million. Net cash of $1.3 million was used in financing activities during the three months ended March 31, 2022 primarily due to term loan repayments of $8.0 million and $1.0 million used to settle tax obligations on vested shares under our share-based compensation plans, partially offset by net borrowings under our revolving credit facilities of $7.7 million. 26 The following table summarizes the changes in debt outstanding during the three months ended March 31, 2023 (in thousands): Balance at December 31, 2022 $ 132,037 Borrowings under revolving credit facilities 48,045 Repayments of borrowings under revolving credit facilities (30,315) Repayments of term loans (7,389) Translation 230 Balance at March 31, 2023 $ 142,608 We believe that cash on hand and cash flow from operations will be sufficient to meet our anticipated liquidity needs for the next 12 months. If our plans or assumptions change, including as a result of changes in our customers' capital spending or changes in the price of and demand for natural resources, or are inaccurate, or if we make acquisitions, we may need to raise additional capital. Acquisitions have been, and our management believes acquisitions will continue to be, an element of our long-term business strategy. The timing, size or success of any acquisition effort and the associated potential capital commitments are unpredictable and uncertain. We may seek to fund all or part of any such efforts with proceeds from debt and/or equity issuances or may issue equity directly to the sellers. Our ability to obtain capital for additional projects to implement our growth strategy over the longer term will depend on our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets and other factors, many of which are beyond our control. In addition, any additional debt service requirements we take on could be based on higher interest rates and shorter maturities and could impose a significant burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to shareholders. In August 2022, our Board authorized a common share repurchase program to repurchase up to 5.0% of our total common shares which are issued and outstanding, or 685,614 common shares, over a twelve month period. See Note 11 – Share Repurchase Programs to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion. Credit Agreement As of March 31, 2023, our Credit Agreement (as then amended to date, the Credit Agreement) provided for: (i) 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 C$100.0 million term loan facility scheduled to be fully repaid on December 31, 2023 in favor of Civeo. As of March 31, 2023, we had outstanding letters of credit of $0.3 million under the U.S. facility, zero under the Australian facility and $1.1 million under the Canadian facility. We also had outstanding bank guarantees of A$0.8 million under the Australian facility. See Note 7 – Debt to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion. 27 Dividends 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 deems relevant. In addition, our ability to pay cash dividends on common shares is limited by covenants in the Credit Agreement. Future agreements may also limit our ability to pay dividends, and we may incur incremental taxes if we are required to repatriate foreign earnings to pay such dividends. If we elect to pay dividends in the future, the amount per share of our dividend payments may be changed, or dividends may be suspended, without advance notice. The likelihood that dividends will be reduced or suspended is increased during periods of market weakness. There can be no assurance that we will pay a dividend in the future. The preferred shares we issued in the Noralta acquisition were 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. Following the repurchase and conversion of our outstanding preferred shares in the fourth quarter of 2022, no further dividends on the preferred shares will be paid. Critical Accounting Policies For a discussion of the critical accounting policies and estimates that we use in the preparation of our consolidated financial statements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022. These estimates require significant judgments, assumptions and estimates. We have discussed the development, selection and disclosure of these critical accounting policies and estimates with the audit committee of our Board. There have been no material changes to the judgments, assumptions and estimates upon which our critical accounting estimates are based. 28