Posted on 12/30/2014 10:09:16 AM PST by thackney
As 2014 winds down, many unanswered questions swirl in the industry. How deep and long will this downturn be? What companies will be most impacted? What will the ripple effects of lower oil prices look like?
Answers to these questions will become more clear next year, but today we got one new answer. Many man camps, the semi-permanent housing facilities supporting the influx of workers in busy oil plays, will be folding up and disbanding. The leading man camp company has announced that it will be closing lodges in Canada, evaluating US rooms in light of a lower occupancy outlook, and cutting expansion plans.
This is the first sign that the real estate bubbles formed in big oil basins over the past couple of years are about to burst. From the oil sands in Canada to the Bakken and on down to the Permian Basin and Eagle Ford, there are about to be a whole lot of rooms available. Today's news is firm evidence that the workforce designed for $100 oil is different than the one needed for $50 oil.
Man Camps Crumble; Leading Provider's Stock Cut In Half Today As It Closes Rooms
Civeo Corporation, the leading man camp company serving the oil and gas industry, announced that it is closing its Canadian Athabasca Lodge and Lakeside Lodge while assessing two locations in the US (we believe US closures are forthcoming). In addition, the company has reduced headcount in its Canadian and US operations by 30% and 45%, respectively. The company also cut its dividend, and appears to be going into all-out survival mode.
On the announcement, the company's stock is down 50% today, a massive move that suggests investors are rushing for the exits as they realize coming workforce reductions will eliminate the need for boom town housing arrangements.
Civeo IPO'ed in May this year, spun off from Oil States International. The IPO was very well received, moving up about 25% in the month after it launched to $28. This morning, Civeo shares are trading at $4 - a staggering 85% loss of value from its peak in June.
In terms of its manufacturing operations, the company closed its Australian manufacturing location due to projected limited demand for additional rooms over the next several years and is assessing the manufacturing capacity required to support the North American market.
In the video below, check out one of the largest man camps in North America, the fly-in / fly-out Kearl Oil sands facility where 5,000 workers are housed.
Hundreds Of Thousands Of Workers Live In Temporary Oilfield Housing
There is no better indication of a boom town than an explosion of temporary housing. Civeo houses more than 10,000 workers in its Canada lodges and over 6,000 in Australia. In the US, over 15,000 workers are understood to be housed in man camps set up in the Bakken, Eagle Ford, and Permian. And many more are living in alternative temporary housing.
We spent this Christmas visiting family in the Permian Basin. Driving between Midland and Odessa down I-20, we counted over a dozen mobile home parks, some with hundreds of trailers. These are new in the past three years. And they may soon be gone.
In addition, there are almost no vacancies in hotels in the Eagle Ford, Bakken, or Permian. Hundreds of new hotels have been built in these plays. Over the past couple years, E&P and service company sometimes signed deals to book out entire hotels a year in advance for their staff, often before the facility construction was even completed.
Midland and Odessa are currently littered with new hotel construction sites where ground is being broken. Pioneer just cut the ribbon on a new $76mm high-rise office in Midland, and all the big oil service companies have shiny new facilities along I-20 between the two cities.
Almost every rental home in Odessa and Midland is leased. Some rental homes accommodate several workers per room, stacked up in bunk beds. When you add up the man camps, the mobile homes, the hotels, and the rentals, its easy to estimate that hundreds of thousands of workers are living in "temporary" housing arrangements in the oilfields of North America.
The Oil Basin Real Estate Bubbles Are Poised To Burst
One of the ripple effect victims of the oil price collapse will surely be the real estate markets of the large oil plays. Just as the flood of workers supported real estate prices and rental rates, their exodus will surely crash it.
Man camps crumbling and local real estate bubbles bursting are an inevitable fall-out as E&P spending (which drives the whole oilfield) is curtailed.
A Worforce Designed For $100 Oil Is Different Than The Workforce Needed At $50 Oil
This is one of the first shoes to drop, but it is not an indication that activity is going to zero. Rather, it is evidence that the industry workforce optimized for $100 oil is not the same workforce needed at $50 oil. As activity adjusts lower, the upwards pressure on real estate prices and utilization will dissipate.
In the short-term, this will actually make the oil and gas industry much more efficient. The problem of 2013/2014 was hiring, housing, and supporting staff in busy oil plays. Logistics were complicated by the crowds chasing tight oil. This will no longer be a concern in 2015, but it will be replaced with the challenge of cutting costs and surviving in a lower oil price environment.
We can't help but think of the old saying: "Don't cry because its over, smile because it happened."
ping
My own sons aren't that patient, I'm afraid ... but I guess this screed is the result of having been in the blue collar force for 45 some years, and they just don't get it ... though THEY are blue collar themselves
If I was 27 again .....
Amen brother
The Saudis value market share more than profits. Sort of like Samsung vs. Apple.
Personally, I vote for Apple. I’d take the money first. Market share can wait.
The bottom line for the U.S.: A big plus for the economy. Obama is the undeserving winner - unfortunately. The oil industry is going to have a bit of a setback. But the economy as a whole will really benefit. But the jobs are going to be shuffled - unfortunately.
Right now we have a surplus, for awhile and maybe quite awhile, of hard working and skilled men and women in the oil industry who are going to be looking for a job. Someone needs to figure out how to put them to work. For a bit, they will come cheap. Not for long hopefully.
I’ve been 27.............more than twice...............
old too soon get we ... schmaht too late .. eh ?
yeahhhh ... me too
Yes i read that and saw from one of those star trek movies mcCoy talking to the backward talking alien
Not going to work in a world with $50 oil and similar gas prices.
There just isn’t going to be a lot of money to be made in the gas fields while prices are that low.
While I really like lower pump prices, there is a cost. That cost is the implosion of the boom in the shale areas. And quite possibly a slowdown if not a halt in our march towards full energy independence.
That doesn't burst the bubble, in fact closing an alternative form of housing maintains it.
Man camps in at least one of the counties in Western ND have been limited, both by the desire of government officials to increase the tax base, but also because of the problems of providing emergency services. RV parks have been similarly limited, again in an apparent effort to promote more permanent housing solutions.
In the '70s boom, at least two apartment buildings and a motel were constructed of modular units, and were dismantled and moved elsewhere when the boom ended.
The bubble won't burst until the workforce size and available permanent housing balance out, and closing man camps will only keep it inflated by removing an alternative. Keeping in mind that the alternative is for temporary housing, that means motels or company leased apartment blocks are most likely to pick up the slack.
Another lumber related industry that will go under is the access mat manufactures and rig mat manufacturers. This has affected the demand over the last few years for 2x8-8’ and 14’ KD & green Douglas Fir. There has been such a huge demand for these lengths from plants in BC & AB that sawmills have changed what they are cutting the log to.
However, a sawmill can adjust their cut just by changing the price in the computer that controls the optimizer.
I’m not sure Civeois the typical man camp provider. The size of the operation in the YouTube video above is larger than I saw on the Alaskan North Slope or in my Middle East work.
That ping above was meant for you.
Swing and a miss by me, but glad you found the discussion. I thought you would relate.
Won’t the liberals be offended by calling these settlements man camps? Isn’t it bigoted to assume that only men and not women work in the oil fields???
This is the reasoning used by liberals who will not call the Founding Fathers by that name, even though every single one of them was a man.
The ones here were generally limited in size (I think the largest was 300 people). So far, I haven’t heard of any shutting down for lack of occupancy.
Sometimes dropping prices spur refinery projects. Lots of debottlenecking to squeeze more money out of less money.
It is a big one, and definitely larger than the ones around here.
I know a guy I met 6 ot 7 years ago that was 37 or 38 at the time and he told me last year he filed for a quarter of a million (last year being, of course 7 or 8 yrs ago)
He was managing a drill re-con shop and not too concerned about his future because of what he had been able to do in the previous 4 or 5 years.
I was a truck driver at the time and kept his statement in mind as I I probed other men I met.
The price of oil has nothing to do with the men needed to get it out of the ground ... they will be paid well.
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