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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-03-01 · 183 added, 315 removed, 336 unchanged (60% of the section changed)

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“Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are based on management’s current expectations, estimates and projections about our business operations.

Please read “Cautionary Statement Regarding Forward Looking Statements.” Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of numerous factors, including the known material factors set forth in Item 1A.

Read “Cautionary Statement Regarding Forward Looking Statements.” Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of numerous factors, including the known material factors set forth in Item 1A.

“Risk Factors” of this annual report.

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This section of this annual report generally discusses key operating and financial data as of and for the years ended 2023 and 2022 and provides year-over-year comparisons for such periods.

For a similar discussion and year-over-year comparisons to our 2020 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, 2021, filed with the SEC on February 28, 2022.

For a similar discussion and year-over-year comparisons to our 2021 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, 2022, filed with the Securities and Exchange Commission on March 1, 2023.

Description of the Business

We provide hospitality services to the natural resources industry in Canada, Australia and the United States (U.S.) We provide a full suite of 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 our day-to-day operations of these facilities, such as laundry, facility management and maintenance, water and wastewater treatment, power generation, communication systems, security and logistics.

We provide a suite of hospitality services for our guests in the natural resources industry, 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 these facilities, such as laundry, facility management and maintenance, water and wastewater treatment, power generation, communication systems, security and logistics.

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

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

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

We primarily operate in some of the world’s most active oil, metallurgical (met) coal, liquefied natural gas (LNG) and iron ore producing regions, where, in many cases, traditional accommodations and related infrastructure often are not accessible, sufficient or cost effective.

Our customers include major and independent oil companies, mining companies, engineering companies and oilfield and mining service companies.

We operate in two principal reportable business segments – Canada and Australia.

Basis of Presentation

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(i) all references in these consolidated financial statements to “Civeo,” “us,” “our” or “we” refer to Civeo Corporation and its consolidated subsidiaries;

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

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

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, met coal, LNG and iron ore, and the resultant impact of these commodity price expectations on customers’ spending.

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

Our business is predominantly located in northern Alberta, Canada;

British Columbia, Canada;

Queensland, Australia;

and Western Australia.

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

Approximately 62% of our revenue is generated by our lodges in Canada and our villages in Australia.

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

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

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.

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

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 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.

We continue to monitor the COVID-19 pandemic to help ensure the health and well-being of our employees, guests and contractors.

Most of our previously implemented measures have been revised to reflect improved conditions, and are currently being integrated into a more comprehensive communicable illness plan.

In part due to the impact of COVID-19 on the global economy and governmental responses thereto, increasing inflationary pressures and supply chain disruptions 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.

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.

Since this trough in early 2020, global oil prices increased later in 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 have been 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.

Several governments, including the U.S.

government under the Biden administration, have released oil from the government controlled strategic reserves in an effort to stem high oil prices and the related impacts on higher heating fuels and gasoline.

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.

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.

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, COVID-19, flooding along certain sections of the pipeline corridor and seasonal wildfires.

As a result, the TMX pipeline construction has been delayed, and there is a risk that there could be future delays.

Recent legal issues between 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 2022 averaged $54.72 per barrel compared to an average of $60.84 in the fourth quarter of 2021.

The WCS Differential increased from $14.12 per barrel at the end of the fourth quarter of 2021 to $27.62 at the end of the fourth quarter of 2022.

As of February 24, 2023, the WTI price was $76.32 and the WCS price was $60.10, resulting in a WCS Differential of $16.22.

Together with the initial spread of COVID-19, depressed oil 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 restoring production in the fourth quarter of 2020, reaching pre-pandemic levels in 2022.

Although oil prices reached multi-year highs in the first half of 2022 and fluctuated in the second half of 2022, there is continued uncertainty around commodity price levels, including the impact of COVID-19, 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 currently expires in June 2023, to support our customer’s intent to mine the land where the lodge is currently located, ten years earlier than originally expected.

In addition, our hospitality services contract at McClelland Lake Lodge expires in June 2023.

Based on ongoing discussion with customers in the region, our current assessment is there are no commercially viable opportunities that support the reinstalling 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.

During such time, these assets will be stored in part or in whole at a nearby location.

Based on our knowledge and understanding of the marketplace, we believe there is demand for these assets for sale or redeployment.

However, should our marketing efforts fail to identify an economic alternative, other options will be considered.

Revenues associated with the 2022 room commitments at our McClelland Lake Lodge were approximately C$60 million.

We expect to have further clarity on potential sales or redeployment opportunities of 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 continued to grow despite COVID-19, 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 several designated portions of the related pipeline construction activity.

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 COVID-19.

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

Any new delays in facility or pipeline construction may result in extensions to these dates.

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.

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 at our Sitka Lodge in the second half of 2021 and into 2022.

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 4.3% during 2022 compared to 2021.

The decrease was the result of weakness in the Chinese residential sector and slowing global growth due to inflationary pressures.

As of February 24, 2023, met coal spot prices were $360 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.

The Chinese placed an embargo on several Australian products, including coal, in the fall of 2020.

During the embargo, Australian met coal producers found new markets, including India and Europe, for their premium product.

This led to a rebalancing of the market globally, with China relying on domestic production along with increased met coal imports from the U.S., Canada and Mongolia.

With the backdrop of continuing strong steel demand and met coal supply constraints, the spot price for met coal surged to record highs through the second half of 2021 into early 2022.

The embargo was recently lifted during the first quarter of 2023.

Since the historic highs in early 2022, prices have stabilized with weather-related supply interruptions in Australia offset by weakening steel demand.

Analysts forecast met coal prices to face downward pressure in early 2023 but to moderate during the year with supply improvement and weaker demand impacting prices.

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.

Through the second half of 2021, with forced cuts in Chinese steel production, prices retreated from the peaks experienced in mid-2021.

Iron ore prices remained stable through early 2022 and fluctuated in the second half of 2022, with prices recovering from a low of $78 per tonne to over $100 per tonne with renewed support in the Chinese property sector.

With stronger supply and a slow recovery in Chinese construction, downside pressure on current prices remains.

As of February 24, 2023, iron ore

spot prices were $119.17 per tonne.

Analysts anticipate that infrastructure-led construction activity in China and other large world economies will continue to stabilize prices at current levels, though residential activity in China remains subdued.

Analysts forecast pricing through 2023 to remain between $90 and $110.

In the last half of 2022, we sold both our wellsite services and our offshore businesses.

Our remaining U.S.

business supports completion activity in the Bakken and construction and turnaround work in the Louisiana industrial area.

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.

In general, industry capital spending programs are based on the outlook for commodity prices, production costs, economic growth, global commodity supply/demand, estimates of resource production and the expectations of our customers' shareholders.

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, availability of capital to the natural resource industry and regulatory changes in Canada, Australia and other markets, including governmental measures introduced to fight climate change.

Commodity Prices

There is continued uncertainty around commodity price levels, including the impact of inflationary pressures, actions taken by Organization of the Petroleum Exporting Countries Plus (OPEC+) to adjust production levels, geopolitical events such as the ongoing Russia/Ukraine and Israel/Hamas conflicts and rising geopolitical risks in the Middle East, U.S.

oil production levels and regulatory implications on such prices.

In particular, these items 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.

Recent Commodity Prices

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

Recent West Texas Intermediate (WTI) crude, Western Canadian Select (WCS) crude, met coal and iron ore pricing trends are as follows:

Average Price (1)

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WTI crude prices are from U.S.

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

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

After reaching historic lows in early 2020 during the start of the COVID-19 pandemic, global oil prices increased to above $100 per barrel in the second quarter 2022.

In the second half of 2022 and throughout 2023, oil prices declined due to (i) rising fears of a recession resulting from severe inflation and rising interest rates, (ii) resulting lower demand for oil and (iii) increasing U.S.

oil production.

In an effort to support the price of oil amidst demand concerns, OPEC+ countries announced additional oil production cuts through the end of 2023.

These production cuts, coupled with the rising geopolitical risks in the Middle East, resulted in increased oil prices in the third quarter and early part of the fourth quarter of 2023, before reducing in the latter part of the fourth quarter back to levels consistent with the first six months of 2023.

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

Pricing for WCS is driven by several factors, including the underlying price for WTI crude, the availability of transportation infrastructure (consisting of pipelines and crude by railcar), refinery blending requirements and governmental regulation.

The WCS Differential has varied depending on the extent of transportation capacity availability.

The Enbridge Line 3 replacement project was completed at the end of 2021 and the Trans Mountain Pipeline is approximately 98% complete, with mechanical completion expected to occur in the first quarter 2024, commercial service expected to begin in April 2024 and volumes expected to ramp up to full capacity by year end 2024.

WCS prices in the fourth quarter of 2023 averaged $55.31 per barrel compared to an average of $54.72 in the fourth quarter of 2022.

The WCS Differential decreased from $27.39 per barrel at the end of the fourth quarter of 2022 to $19.35 at the end of the fourth quarter of 2023.

As of February 23, 2024, the WTI price was $77.54 and the WCS price was $58.60, resulting in a WCS Differential of $18.94.

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 2023 compared to 2022.

The decrease year-over-year was the result of weaker production in December 2023 from China, offset by stronger production throughout 2023 from both Europe and Russia.

As of February 23, 2024, met coal spot prices were $311.40 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.

Met coal prices remained over $200 per tonne during 2023, which supported existing producers, and also assisted new and expansion projects.

In the last quarter of 2023, met coal prices averaged over $330 per tonne which continues to provide a positive short-term outlook for producing projects, though future investment could be impacted by the increase in the Queensland royalty scheme introduced in 2022.

Analysts forecast prices to remain elevated in the near term but to fall below $300 per tonne in 2024 as supply side pressures are expected to ease and Chinese met coal imports fall following high restocking levels.

Iron ore prices remained consistently above $100 per tonne throughout 2023 and averaged over $130 per tonne in late December 2023, following a sustained period of high prices.

Analysts are forecasting 2024 prices to remain over $100 per tonne on average.

Inflationary Pressures.

During 2022 and 2023, inflationary pressures and supply chain disruptions have been, and continue to be, 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.

Labor Shortages.

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.

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

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 and Israel/Hamas 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.

The Kitimat LNG Facility is nearing completion and expected to be operational in 2024.

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 were contracted to serve several designated portions of the related pipeline construction activity.

The majority of our contracted commitments associated with the Coastal GasLink Pipeline, the pipeline constructed to transport natural gas feedstock to LNGC, were completed in the fourth quarter of 2023.

McClelland Lake Lodge .

We did not renew an expiring land lease associated with our McClelland Lake Lodge in Alberta, Canada, which expired in June 2023, in order to support our customer’s intent to mine the land where the lodge was located.

In addition, the accompanying hospitality services contract at McClelland Lake Lodge expired in July 2023;

however, we continued to provide hospitality services to the customer at our other owned lodges through January 31, 2024 under a short-term take-or-pay commitment.

Subsequent to this date, we have continued to provide such services at our other lodges;

however, not pursuant to a take-or-pay commitment.

Our assets were demobilized and completely removed from the existing site in January 2024.

During the third quarter of 2023, we entered into a definitive agreement to sell our McClelland Lake Lodge assets to a U.S.-based mining project for approximately C$49 million, or US$36 million.

The transaction was completed in January 2024.

During the third and fourth quarters of 2023, we recognized $14.2 million in demobilization costs and received $28.2 million in cash proceeds associated with the sale.

We expect to recognize the remaining demobilization costs and the proceeds of the sale in the first quarter of 2024.

In the first quarter of 2023, we sold our accommodation assets in Louisiana.

In addition, in the second half of 2022, we sold both our U.S.

wellsite services and offshore businesses.

Our remaining U.S.

business supports completion

activity in the Bakken.

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.

Foreign Currency Exchange Rates.

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dollar reported financial results.

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

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

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

dollars for U.S.

generally accepted accounting principles (U.S.

GAAP) financial reporting purposes.

generally accepted accounting principles financial reporting purposes.

The following tables summarize the fluctuations in the exchange rates between the U.S.

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Capital Expenditures.

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

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 2024 capital expenditures will be in the range of approximately $30 million to $35 million, compared to 2023 capital expenditures of $31.6 million.

Our 2023 capital expenditures included approximately $10 million related to village enhancements in Australia, for which our customer has reimbursed us, resulting in a net negligible cash flow impact in 2023 for these expenditures.

We may adjust our capital expenditure plans in the future as we continue to monitor customer activity.

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Australia 336,763 278,252 58,511

22,803 22,011 792

Other 11,247 22,803 (11,556)

Total revenues 700,805 697,052 3,753

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Australia 243,011 200,944 42,067

22,543 21,901 642

Other 10,209 22,543 (12,334)

Total cost of sales and services 530,287 517,063 13,224

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Impairment expense 1,395 5,721 (4,326)

Gain on sale of McClelland Lake Lodge assets, net (18,590) — (18,590)

Other operating expense 479 74 405

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Net income 29,730 6,330 23,400

Net income attributable to noncontrolling interest 2,333 1,147 1,186

Net income (expense) attributable to noncontrolling interest (427) 2,333 (2,760)

Net income attributable to Civeo Corporation 30,157 3,997 26,160

Dividends attributable to Class A preferred shares — 1,771 (1,771)

Net income (loss) attributable to Civeo common shareholders $ 2,226 $ (575) $ 2,801

Net income attributable to Civeo common shareholders $ 30,157 $ 2,226 $ 27,931

We reported net income attributable to Civeo for 2023 of $30.2 million, or $2.01 per diluted share.

As further discussed below, net income included (i) $28.3 million of net gains associated with the sale of the McClelland Lake Lodge in Canada and (ii) a $1.4 million pre-tax loss resulting from the impairment of fixed assets included in Impairment expense.

We reported net income attributable to Civeo for 2022 of $2.2 million, or $0.21 loss per diluted share.

As further discussed below, net income included a $5.7 million pre-tax loss resulting from the impairment of fixed assets included in Impairment expense.

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 a $7.9 million pre-tax loss resulting from the impairment of fixed assets included in Impairment expense.

Consolidated revenues increased $3.8 million, or 1%, in 2023 compared to 2022.

This increase was primarily driven by (i) higher billed rooms at our Canadian lodges as occupancy in 2021 was negatively impacted by COVID-19, (ii) increased mobile asset activity from pipeline projects in Canada, (iii) increased activity at our Australian Civeo owned villages in the Bowen and Gunnedah Basins and (iv) increased activity at our integrated services villages in Western Australia.

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

This increase was primarily due to (i) increased occupancy at our Civeo owned villages in the Australian Bowen Basin and Gunnedah Basin and (ii) increased activity at our integrated services villages in Western Australia.

These items were partially offset by (i) decreased mobile asset activity from pipeline projects in Canada, (ii) lower billed rooms at our Canadian lodges, (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 2023 compared to 2022.

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Our consolidated cost of sales and services increased $13.2 million, or 3%, in 2023 compared to 2022.

This increase was primarily due to (i) higher billed rooms at our Canadian lodges, (ii) increased mobile asset activity from pipeline projects in Canada, (iii) increased activity at our Australian Civeo owned villages in the Bowen and Gunnedah Basins (iv) increased activity at our integrated services villages in Western Australia and (v) increased costs due to inflationary pressures in both Canada and Australia.

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

This increase was primarily due to (i) increased occupancy at our Civeo owned villages in the Australian

Bowen Basin and Gunnedah Basin, (ii) increased activity at our integrated services villages in Western Australia and (iii) increased operating costs due to inflationary pressures in 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, (ii) lower costs related to reduced mobile asset activity in Canada, (iii) lower billed rooms at our Canadian lodges and (iv) a weaker Australian and Canadian dollar relative to the U.S.

dollar in 2023 compared to 2022.

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SG&A expense increased $2.6 million, or 4%, in 2023 compared to 2022.

This increase was primarily due to higher share-based compensation expense, travel and entertainment expense, compensation expense and information technology expense.

The increase in share-based compensation expense was due to a relative increase in our stock price during 2022 compared to 2021.

The increase in information technology expense was related to ongoing investment in our human capital management (HCM) system and set-up costs incurred in a cloud computing arrangement for our newly implemented HCM system, which are being amortized through SG&A expense instead of depreciation and amortization expense.

The increase in travel and entertainment expenses was largely a result of a return to more normalized travel expenses with the lifting of travel restrictions associated with COVID-19.

This increase was primarily due to higher compensation expense of $2.4 million, higher information technology expense of $2.3 million and higher incentive compensation costs of $2.0 million.

The increase in compensation expense was primarily due to increased staff and recruitment costs.

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

dollar in 2022 compared to 2021.

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 of $3.9 million and a weaker Australian and Canadian dollar relative to the U.S.

dollar in 2023 compared to 2022 resulted in a $2.1 million decrease in SG&A expense.

The decrease in share-based compensation expense was due to a relative decrease in our share price during 2023 compared to 2022.

Depreciation and Amortization Expense.

Depreciation and amortization expense increased $4.1 million, or 5%, in 2022 compared to 2021.

The increase was primarily due to shortening the lives on certain assets in Canada, including the McClelland Lake Lodge, partially offset by assets in Canada becoming fully depreciated during 2021 and the disposal of our West Permian Lodge in the U.S.

Depreciation and amortization expense was also lower due to a weaker Australian and Canadian dollar relative to the U.S.

Depreciation and amortization expense decreased $12.1 million, or 14%, in 2023 compared to 2022.

The decrease was primarily due to (i) the sale of our wellsite and offshore businesses in the U.S.

in the second half of 2022, (ii) certain assets becoming fully depreciated in Canada in the second quarter of 2023 and (iii) lower depreciation and amortization expense due to a weaker Australian and Canadian dollar relative to the U.S.

dollar in 2023 compared to 2022.

This was partially offset by the shortening of the useful lives on certain assets in Canada, including the McClelland Lake Lodge.

Impairment Expense.

We reported pre-tax impairment expense of $5.7 million in 2022 associated with long-lived assets in our U.S.

and Australian reporting units.

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

We recorded pre-tax impairment expense of $1.4 million in 2023 associated with long-lived assets in the U.S.

We recorded pre-tax impairment expense of $5.7 million in 2022 associated with long-lived assets in the U.S.

and our Australian reporting unit.

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

Gain on Sale of McClelland Lake Lodge Assets, net.

We recorded $18.6 million in 2023 related to net gains associated with the sale of the McClelland Lake Lodge.

The remaining net gains related to the sale of the McClelland Lake Lodge will be recognized in the first quarter of 2024.

Operating Income.

Operating income increased $11.0 million, or 181%, in 2022 compared to 2021 primarily due to higher activity levels in Canada and Australia in 2022 compared to 2021, partially offset by higher SG&A expense in 2022 compared to 2021.

Interest (Expense) and Income, net.

Net interest expense decreased $1.9 million, or 15%, in 2022 compared to 2021 primarily related to lower average debt levels on credit facility borrowings during 2022 compared to 2021, partially offset by higher interest rates on credit facility borrowings.

Operating income increased $22.5 million, or 132%, in 2023 compared to 2022 primarily due to a net gain on sale of McClelland Lake Lodge assets, higher activity levels in Australia and lower depreciation and amortization and impairment expenses in 2023 compared to 2022.

These items were partially offset by reduced mobile asset activity in Canada and increased operating costs due to inflationary pressures in 2023 compared to 2022.

Interest (Expense) Income, net.

Net interest expense increased $1.6 million, or 14%, in 2023 compared to 2022 primarily related to higher interest rates on credit facility borrowings during 2023 compared to 2022, partially offset by lower average debt levels.

Other Income.

Other income decreased $8.1 million, or 61%, in 2022 compared to 2021.

Consolidated other income increased $8.7 million, or 170%, in 2023 compared to 2022.

Other income in 2023 included $9.7 million in reimbursements associated with the dismantlement of the McClelland Lake Lodge.

In addition, 2023 included gains related to the sale of our Acadian Acres accommodation assets in the U.S.

and a gain on the settlement of an ARO in Canada.

Other income in 2022 included $4.7 million in gains on the sale of assets primarily related to our Kambalda village and undeveloped land holdings in Australia, our wellsite and offshore businesses in the U.S.

and various mobile assets across Canada, Australia and the U.S.

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.

Income Tax (Expense) Benefit.

Our income tax expense for 2022 totaled $4.4 million, or 41.0% of pretax income, compared to an expense of $3.4 million, or 57.5% of pretax loss for 2021.

Our effective tax rate for 2022 was higher than the Canadian federal statutory rate of 15%, primarily due to pre-tax income in Australia being taxed at the higher Australian income tax rate of 30%.

Additionally, due to the 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 $0.6 million and the tax benefit in the U.S.

was offset by an increase to the valuation allowance of $1.0 million.

Our effective tax rate for 2021 was higher than the Canadian federal statutory rate of 15%, primarily due to pre-tax income in Australia being taxed at 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

Additionally, due to the 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.

Our income tax expense for 2023 totaled $10.6 million, or 26.3% of pretax income, compared to an expense of $4.4 million, or 41.0% of pretax income for 2022.

Our effective tax rate for 2023 and 2022 was higher than the Canadian federal statutory rate of 15%, primarily due to pre-tax income in Australia being taxed at the higher Australian income tax rate of 30%.

Additionally, due to the 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 the U.S.

In 2023, tax expense in Canada and the U.S.

was offset by a valuation allowance release of $1.7 million and $0.8 million, respectively.

In 2022, tax expense in Canada

was offset by a valuation allowance release of $0.6 million and the tax benefit in the U.S.

was offset by an increase to the valuation allowance of $1.0 million.

Other Comprehensive Income (Loss).

Other comprehensive loss increased $10.6 million in 2022 compared to 2021 primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S.

Other comprehensive income increased $28.0 million in 2023 compared to 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.

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

dollar decreased 6.4% in 2022 compared to remaining relative consistent in 2021.

dollar increased 2.4% in 2023 compared to a 6.4% decrease in 2022.

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

dollar decreased 6.5% in 2022 compared to a 6.1% decrease in 2021.

dollar increased 0.2% in 2023 compared to a 6.5% decrease in 2022.

Segment Results of Operations – Canadian Segment

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

Our Canadian segment reported revenues in 2022 that were $74.6 million, or 23%, higher than 2021.

Our Canadian segment reported revenues in 2023 that were $43.2 million, or 11%, lower than 2022.

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

dollar by 3.6% in 2023 compared to 2022 resulted in a $13.9 million period-over-period decrease in revenues.

Excluding the impact of the weaker Canadian exchange rate, the revenue increase was driven by (i) higher billed rooms at our lodges as occupancy in 2021 was negatively impacted by COVID-19 and (ii) increased mobile asset activity from pipeline projects.

Our Canadian segment cost of sales and services increased $58.2 million, or 25%, in 2022 compared to 2021.

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) lower billed rooms at our lodges.

Our Canadian segment cost of sales and services decreased $16.5 million, or 6%, in 2023 compared to 2022.

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

dollar by 3.6% in 2023 compared to 2022 resulted in a $10.8 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 increased occupancy at our lodges, increased operating costs due to inflationary pressures and increased mobile asset activity from pipeline projects.

Excluding the impact of the weaker Canadian exchange rate, the decrease in cost of sales and services was driven by lower costs related to the reduced mobile asset activity and reduced activity at certain lodges.

Our Canadian segment gross margin as a percentage of revenues decreased from 25.9% in 2022 to 21.5% in 2023.

This was primarily driven by a reduced margin at our lodges as cost increases due to inflationary pressures more than offset the higher average daily rate.

This decrease was primarily driven by 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 mobile camp activity winding down.

In addition, mobile camp demobilization costs of approximately $6.5 million were incurred in the second half of 2023.

Segment Results of Operations – Australian Segment

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dollar by 4.3% in the 2023 compared to 2022 resulted in a $14.9 million period-over-period decrease in revenues.

Excluding the impact of the weaker Australian exchange rate, the increase in the Australian segment was driven by increased activity at our Civeo owned villages in the Bowen and Gunnedah Basins and our integrated services villages in Western Australia.

Excluding the impact of the weaker Australian exchange rate, the increase in the Australian segment was driven by increased activity at our Civeo owned villages in the Bowen Basin and Gunnedah Basin and our integrated services villages in Western Australia.

Our Australian segment cost of sales and services increased $42.1 million, or 21%, in 2023 compared to 2022.

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dollar by 4.3% in 2023 compared to 2022 resulted in a $10.8 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 activity at our Civeo owned villages in the Bowen and Gunnedah Basins and our integrated services villages in Western Australia and increased operating costs due to inflationary pressures.

Our Australian segment gross margin as a percentage of revenues decreased to 28% in 2022 from 29% in 2021.

This was primarily driven by 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, partially offset by improved margins at Civeo owned villages in the Bowen and Gunnedah Basins as a result of increased activity.

Segment Results of Operations – U.S.

2022 2021 Change

Revenues ($ in thousands) $ 22,803 $ 22,011 $ 792

Cost of sales ($ in thousands) $ 22,543 $ 21,901 $ 642

Gross margin as a % of revenues 1.1 % 0.5 % 0.6 %

segment reported revenues in 2022 that were $0.8 million, or 4%, higher than 2021.

This increase was due to (i) greater U.S.

drilling activity positively impacting our wellsite business that was sold on September 1, 2022 and (ii) increased activity from our Killdeer Lodge.

These items were partially offset by (i) reduced revenue from our former offshore fabrication business that was sold on November 1, 2022, (ii) reduced revenue from our Acadian Acres Lodge and (iii) reduced revenue from our former West Permian Lodge, which operated in the first nine months of 2021 and was sold in the fourth quarter of 2021.

segment cost of sales and services increased $0.6 million, or 3%, in 2022 compared to 2021.

This increase in cost of sales and services was due to (i) greater U.S.

drilling activity impacting our wellsite business that was sold on September 1, 2022 and (ii) increased activity from our Killdeer Lodge.

These items were partially offset by (i) reduced costs from our former offshore fabrication business that was sold on November 1, 2022, (ii) reduced costs from our Acadian Acres Lodge and (iii) reduced costs from our West Permian Lodge, which operated in the first nine months of 2021 and was sold in the fourth quarter of 2021.

segment gross margin as a percentage of revenues increased from 0.5% in 2021 to 1.1% in 2022, primarily due to improved margins in our wellsite business due to operating efficiencies at higher activity levels in the first eight months of 2022, partially offset by our former West Permian Lodge, which operated in the first nine months of 2021 and was sold in the fourth quarter of 2021.

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 Civeo owned villages in the Bowen Basin and Gunnedah Basin and our integrated services villages in Western Australia and increased operating costs due to inflationary pressures.

Our Australian segment gross margin as a percentage of revenues remained constant at 27.8% in both 2023 and 2022.

The increased revenue contribution in 2023 from our integrated services business, which has a service only-business model and therefore generates lower overall margins than our accommodation business, had a negative impact on margins in 2023.

This negative impact was offset by improved margins at Civeo owned villages in the Bowen Basin and Gunnedah Basin as a result of increased activity and improved margins in the integrated services business due to reduced costs realized from our inflation mitigation plan in the year.

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 and preferred shares and fund strategic business acquisitions.

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 and purchasing or leasing land, to pay dividends, to repurchase common shares and for general working capital needs.

In addition, capital has been used to repay debt 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 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.

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 summarizes our material future cash requirements at December 31, 2023, and the effect such obligations are expected to have on our liquidity and cash flow over the next five years (in thousands):

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Purchase obligations 11,064 11,064 — — —

Non-cancelable operating lease obligations 19,546 4,771 7,739 5,285 1,751

Non-cancelable lease obligations 15,713 4,563 6,531 4,065 554

Asset retirement obligations – expected cash payments 68,645 2,576 2,066 2,365 61,638

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

based on an interest rate of 7.8% for Canadian term loan borrowings, 7.8% for Canadian revolver borrowings and 6.1% for Australian revolver borrowings.

based on an interest rate of 9.2% for Canadian revolver borrowings.

Our debt obligations at December 31, 2023 are reflected in our consolidated balance sheet, which is a part of our consolidated financial statements in Item 8 of this annual report.

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Cash totaling $96.6 million was provided by operations during 2023 compared to $91.8 million provided by operations during 2022.

During 2022 and 2021, net cash used by working capital was $13.9 million and $8.8 million, respectively.

The increase in cash used in working capital in 2022 compared to 2021 is largely due to the timing of customer payments and revenue recognition as it relates to mobile asset activity in Canada during 2022 compared to 2021.

Cash was used in investing activities during 2022 of $8.9 million compared to cash used in investing activities of $0.7 million during 2021.

During 2023 and 2022, net cash used for working capital was $1.6 million and $13.9 million, respectively.

The decrease in cash used for working capital in 2023 compared to 2022 is largely due to payments received from a customer for village enhancements in Australia and other working capital changes driven by timing of receipts and payments during 2023 compared to 2022.

Cash used in investing activities during 2023 totaled $14.5 million compared to cash used in investing activities during 2022 of $8.9 million.

The increase in cash used in investing activities was primarily due to higher capital expenditures.

Capital expenditures totaled $31.6 million and $25.4 million during 2023 and 2022, respectively.

Capital expenditures in both periods were primarily maintenance related.

Offsetting these capital expenditures, we received proceeds from the sale of property, plant and equipment of $16.3 million during 2022 primarily related to the sale of our Kambalda village and undeveloped land holdings in Australia, unused corporate office space and various mobile assets in Canada and our wellsite and offshore businesses in the U.S., compared to $14.3 million during 2021 primarily related to the sale of our West Permian Lodge in the U.S.

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

Capital expenditures in both periods were primarily related to maintenance.

In addition, our 2023 capital expenditures included approximately $10 million related to customer-funded infrastructure upgrades in Australia.

We received net proceeds from the sale of property, plant and equipment of $16.7 million during 2023 primarily related to the sale of our McClelland Lake Lodge accommodation assets in Canada and Acadian Acres accommodation assets in the U.S., compared to $16.3 million during 2022 primarily related to the sale of our Kambalda village and undeveloped land holdings in Australia, unused corporate office space and various mobile assets in Canada and our wellsite and offshore businesses in the U.S.

We expect our capital expenditures for 2024 to be in the range of $30 million to $35 million, which excludes any unannounced and uncommitted projects, the spending for which is contingent on obtaining customer contracts or commitments.

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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.

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

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Total $ 16.5 $ 15.1 $ 31.6 $ 2.2 $ 23.2 $ 25.4

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

Expansion lodge and village spending in 2023 was largely related to customer-funded infrastructure upgrades at three Australian villages.

Maintenance lodge and village spending in 2023 and 2022 was primarily associated with routine maintenance projects at our major properties.

Mobile asset spending in 2022 was primary related to routine maintenance of our mobile assets in the U.S.

Mobile asset spending in 2023 was primarily related to an asset storage yard purchased in Canada.

Mobile asset spending in 2022 was primarily related to routine maintenance of our mobile assets in the U.S.

and Canadian markets.

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

Other maintenance and expansion spending in 2022 was primarily related to mobilization of new sites at our integrated services business in Western Australia, 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.

Other maintenance and expansion spending in 2021 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 $79.7 million was used in financing activities during 2022 primarily due to (i) repayments of term loan borrowings of $30.4 million, (ii) repurchases of our preferred shares and our common shares of $30.6 million and $14.2 million, respectively, (iii) net repayments under our revolving credit facilities of $3.4 million, (iv) settlement of tax obligations on vested shares under our share-based compensation plans of $1.0 million and (v) a cash dividend paid on our preferred shares in connection with the repurchase of $0.1 million.

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, settlement of tax obligations on vested shares under our share-based compensation plans of $1.1 million, debt issuance costs of $4.4 million related to our Credit Agreement and repurchases of our common shares of $4.6 million, partially offset by net borrowings under our revolving credit facilities of $49.2 million.

Other maintenance and expansion spending in 2023 was primarily related to miscellaneous equipment and supplies to support the day-to-day operations at our accommodation and laundry facilities and information technology infrastructure to support our business.

Other maintenance and expansion spending in 2022 was primarily associated with mobilization of new sites at our integrated services business in Western Australia, 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.

Cash used in financing activities during 2023 of $86.8 million was primarily due to (i) net repayments under our revolving credit facilities of $37.8 million, (ii) repayments of term loan borrowings of $29.9 million, (iii) repurchases of our common shares of $11.6 million and (iv) dividend payments of $7.4 million.

Cash used in financing activities during 2022 of $79.7 million was primarily due to (i) repayments of term loan borrowings of $30.4 million, (ii) repurchases of our preferred shares and our common shares of $30.6 million and $14.2 million, respectively, (iii) net repayments under our revolving credit facilities of $3.4 million, (iv) settlement of tax obligations on vested shares under our share-based compensation plans of $1.0 million and (v) a cash dividend paid on our preferred shares in connection with the repurchase of $0.1 million.

The following table summarizes the changes in debt outstanding during 2023 (in thousands):

Canada Australia U.S.

Canada Australia Total

Balance as of December 31, 2022 $ 130,679 $ 1,358 $ 132,037

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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 the impact of COVID-19 or changes in price of and demand for oil, or are inaccurate, or if we make acquisitions, we may need to raise additional capital.

If our plans or assumptions change, including as a result of 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.

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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.

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 of Directors 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 17 – Common Share Repurchases to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.

In August 2023, 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 742,134 common shares, over a twelve month period.

In addition, our Board declared quarterly dividends of $0.25 per common share to shareholders of record as of close of business on September 15, 2023 and November 27, 2023.

Dividend payments of $3.7 million were made on both September 29, 2023 and December 18, 2023.

The dividends are eligible dividends pursuant to the Income Tax Act (Canada).

See Note 17 – Share Repurchase Programs and Dividends to the notes to the consolidated financial statements included in Item 8 of this annual report for further discussion.

Credit Agreement

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(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.

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, which was fully repaid on December 31, 2023, in favor of Civeo.

As of December 31, 2023, we had outstanding letters of credit of $0.3 million under the U.S.

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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 Credit Agreement.

We intend to pay regular quarterly dividends on our common shares, with all future dividend payments subject to quarterly review and approval by our Board.

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

Quarterly dividends were paid in-kind beginning June 30, 2018 through December 12, 2022, thereby increasing the liquidation preference to $10,982 per share as of December 12, 2022.

We repurchased 40% of the outstanding preferred shares on October 30, 2022, which included accrued cash dividends for the month of October 2022 of under $0.1 million.

On December 13, 2022, the holders of the preferred shares converted all outstanding preferred shares into approximately 1.5 million common shares.

Following such conversion, no further dividends are required to be paid.

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.

There can be no assurance that we will continue to pay a dividend in the future.

Critical Accounting Policies

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We describe our significant accounting policies more fully in Note 2 - Summary of Significant Accounting Policies to the notes to consolidated financial statements in Item 8 of this annual report.

Accounting for Contingencies

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

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

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

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

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 insurance claims, litigation, warranty claims, contract claims and obligations.

Impairment of Tangible and Intangible Assets, including Goodwill

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

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

A reporting unit is the operating segment, or a business one level below that operating segment (the “component” level) if discrete

financial information is prepared and regularly reviewed by management at the component level.

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

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.

See Note 4 – Impairment Charges to the notes to consolidated financial statements in Item 8 of this annual report for further discussion of goodwill impairment recorded in the year ended December 31, 2020.

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

We compare each reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit.

If the carrying amount of the reporting unit exceeds its fair value, goodwill is impaired.

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

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

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

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

When performing our annual assessment on November 30, 2022, we performed the qualitative assessment related to our Australia reporting unit.

All of our goodwill resides in our Australia reporting unit as of November 30, 2022.

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

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

Based on the interim quantitative testing performed as of March 31, 2020, the fair value of the Australia reporting unit exceeded its carrying value by more than 125%.

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

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

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

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

We also use acquisition multiples analyses in certain circumstances.

The relative weighting of each approach reflects current industry and market conditions.

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

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

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

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

These assumptions can vary by each reporting unit depending on market conditions.

In addition, a terminal value is estimated, using a Gordon Growth methodology with a long-term growth rate of 2%.

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

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

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

Our estimate of fair value requires us to use significant unobservable inputs, representative of Level 3 fair value measurements, including numerous assumptions with respect to future circumstances, such as industry and/or local market conditions that might directly impact each reporting unit’s operations in the future.

We selected these valuation approaches because we believe the combination of these approaches and our best judgment regarding underlying assumptions and estimates provides us with the best estimate of fair value for each of our reporting units.

We believe these valuation approaches are proven valuation techniques and methodologies for our industry and widely accepted by investors.

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

The following assumptions are significant to our evaluation process:

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

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

These projections are developed using our internal business plans

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

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

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

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

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

Definite-Lived Tangible and Intangible Assets.

Impairment of Definite-Lived Tangible and Intangible Assets

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

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◦ Hudson and Borealis Lodges – North Athabasca

• McClelland Lake Lodge – North Athabasca

• Wapasu Creek Lodge – North Athabasca

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

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

single asset group.

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

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• Karratha – Pilbara Region, Western Australia

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

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

• Gunnedah Basin

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

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

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

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

consists of a lodge, land and a wastewater treatment plant (WWTP).

These properties are grouped in the following asset groups:

• Killdeer Lodge – North Dakota

• Acadian Acres Lodge – Louisiana

• Acadian Acres land – Louisiana

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

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

The estimates are consistent with those used for purposes of our goodwill impairment test.

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

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

The discount rates used during the 2021 Canadian and U.S.

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

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, 2023, 2022 and 2021.

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A limited portion of our revenue is recognized at a point in time when control transfers to the customer related to small modular construction and manufacturing contracts, minor food service arrangements and optional purchases our customers make for incidental services offered at our accommodation and mobile facilities.

For significant projects, manufacturing revenues are recognized over time with progress towards completion measured using the cost based input method as the basis to recognize revenue and an estimated profit.

Billings on such contracts in excess of costs incurred and estimated profits are classified as deferred revenue.

Costs incurred and estimated profits in excess of billings on these contracts are recognized as unbilled receivables.

Management believes this input method is the most appropriate measure of progress to the satisfaction of a performance obligation on larger modular construction and manufacturing contracts.

Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.

Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to projected costs and revenue and are recognized in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated.

Factors that may affect future project costs and margins include weather, production efficiencies, availability and costs of labor, materials and subcomponents.

These factors can significantly impact the accuracy of our estimates and materially impact our future reported earnings.

Because of control transferring over time, the majority of our revenue is recognized based on the extent of progress towards completion of the performance obligation.

At contract inception, we assess the goods and services promised in our contracts with customers and identify a performance obligation for each promise to transfer our customers a good or service (or bundle of goods or services) that is distinct.

Our customers typically contract for hospitality services under take-or-pay contracts with terms that most often range from several months to three years.

Our customers typically contract for hospitality services under take-or-pay contracts with terms that range from several months to multiple years.

Our contract terms generally provide for a rental rate for a reserved room and an occupied room rate that compensates us for services provided.

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Selling, general and administrative costs are charged to expense as incurred.

Estimation of Useful Lives

The selection of the useful lives of many of our assets requires the judgments of our operating personnel as to the length of these useful lives.

Our judgment in this area is influenced by our historical experience in operating our assets, technological developments and expectations of future demand for the assets.

Should our estimates be too long or short, we might eventually report a disproportionate number of losses or gains upon disposition or retirement of our long-lived assets.

We reevaluate the remaining useful lives and salvage values of our assets when certain events occur that directly impact the useful lives and salvage values, including changes in operating condition, functional capability, impairment assessment and market and economic factors.

We believe our estimates of useful lives are appropriate.

Share-Based Compensation

Our historic share-based compensation is based on participating in Civeo’s 2014 Equity Participation Plan (the Plan).

Our disclosures reflect only our employees’ participation in the Plans.

We are required to estimate the fair value of share compensation made pursuant to awards under the Plans.

An initial estimate of the fair value of each option award, restricted share award or deferred share award determines the amount of share compensation expense we will recognize in the future.

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

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

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

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.

All of these assumptions affect the amount and timing of future share-based compensation expense recognition.

We have not made any option awards subsequent to May 30, 2014, but, in the event that we make future awards, we expect to utilize a similar valuation methodology.

We will continually monitor our actual experience and change assumptions for future awards as we consider appropriate.

We also grant performance share awards under the Plan.

Awards granted in 2022 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 TSR rank among a peer group that includes 17 other companies and (2) the payout percentage associated with Civeo's cumulative operating cash flow over the performance period relative to a preset target.

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 fair value of the operating 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.

We follow the liability method of accounting for income taxes in accordance with current accounting standards regarding the accounting for income taxes.

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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 current and historical operating results and other potential sources of future taxable income.

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.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis