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Oilfield housing firm’s stumble may herald more oil industry pain

WILLISTON, N.D., Dec 31 – A nasty profit warning and deep job cuts. A gutted capital budget, a suspended dividend and shares tumbling by more than half on a single day.

The retrenchment at Civeo Corp, which provides temporary housing for oilfield workers and miners, is the most-severe symptom of pain inflicted on the oil service industry by the slide in crude prices, and may presage similar steps by peers.

It also exposes the transient nature of the “man camp” business of dormitory-style temporary housing the company helped pioneer.

Drilling, a barometer of oilfield activity, has been slowing for weeks as producers slashed spending plans by 20 to 40 percent. Baker Hughes reported last week the U.S. land rig count fell by 35 to 1,770 and hundreds more rigs will be idled, hitting scores of services companies from ones renting trailers to those repairing pumps.

The pain will spread unevenly. Companies with weaker finances or older equipment are set to be hit sooner and harder by the more-than 50 percent drop in crude prices since June.

Analysts and investors say Civeo’s problem is that it has spread itself geographically too thin, with not enough cash to quickly respond to customers’ needs.

The company, spun off in May from equipment maker Oil States International Inc, has seen demand drop in Canada’s oil sands regions and in Australia, where it houses coal miners, leaving it with little cash to expand in North Dakota’s oil counties, where it has only two facilities.

Civeo shares are down over 80 percent this year after tumbling 53 percent on Tuesday, compared with Oil States’s 15 percent slide and a roughly 13 percent gain in the S&P 500 index.

Several firms serving Australia’s mining sector, Civeo’s key market, have also been hit hard by the retreat in commodity and energy prices.

Related: Oilfield ‘man camp’ operator Civeo cuts jobs amid oil slump

For example, Alliance Aviation Services Ltd <AQZ.AX, which flies miners to and from remote camp sites, this month cut its earnings forecast, dropped an interim dividend and reduced its aircraft fleet.

Businesses providing services to the camps are smarting too.

“I took a massive plunge right along with the drop in coal prices,” said Fiona Berridge, who runs Scrubz Pro Clean, a linen and cleaning service for miners in the coal town of Moranbah in Australia’s Bowen Basin.

“I used to have 35 people working here, now I have eight.”

Stronger companies have proven more resilient, at least for now.

Target Logistics, the top temporary housing operator in North Dakota and one of the largest in the world, says it is finishing 2014 with “high utilization” at its facilities. The privately-held company declined to be more specific, but said it did not expect a decline in 2015 occupancy.

Analysts say the company has been able to land long-term contracts with companies like Halliburton Co and EOG Resources Inc, by offering them the size and scale Civeo cannot match. In North Dakota alone, Target Logistics has 10 camps and touts its ability to quickly add housing wherever needed.

To save cash, oil producers have already started to ask drilling and well completion services firms to cut their prices by 10 to 30 percent, said PacWest, an energy consultancy in Houston.

That is hurting the most so-called pressure pumpers, often small privately-held firms, that run fleets of diesel engines used to generate power for hydraulic fracturing jobs.

“We expect cash flow and solvency challenges and more consolidation in the industry,” PacWest said earlier this month.

Kirby Corp, which moves crude and other fuels by barge, issued a profit warning in December as its business overhauling diesel engines in onshore fields was hit harder by the oil slide than earlier anticipated.

The largest services companies, Halliburton and Schlumberger , have said they will reduce headcount, while BP Plc announced a $1 billion restructuring.

In the offshore drilling market, Hercules Offshore has cut 15 percent of its staff, while Transocean Ltd has said it will scrap seven older offshore rigs as softer demand means only the newest rigs can win contracts.


(Reporting by Ernest Scheyder in Williston, Anna Driver and Kristen Hays in Houston and Jim Regan in Sydney; Editing by Terry Wade and Tomasz Janowski)

This article was from Reuters and was legally licensed through the NewsCred publisher network.