Civeo Corp., a Houston-based company that provides workplace accommodations in the Alberta oilsands, plans to move its headquarters to Canada after discovering it will gain a tax advantage.
The company had considered becoming a Real Estate Investment Trust in the U.S., but rejected that option because it can expect a tax rate of approximately 25-26 per cent in Canada, about four to five percentage points lower than the expected rate under the REIT structure.
Its stock dropped 49 per cent to $12.84 US today on the announcement it was abandoning plans for a REIT, which investors had hoped would boost shareholder value.
The Civeo board had spent the past two months reviewing options for the company with tax and legal specialists.
Civeo does more than half its business in Canada, mainly supplying lodgings for workers in the Alberta oilsands. It is doing what is called a "self-directed redomiciling," permitted by the U.S. tax code for companies that do most of their business in a foreign jurisdiction.
This is different from a tax inversion – where one company buys another in a foreign jurisdiction to take advantage of a lower tax rate there. Tax inversions, including Burger King’s merger with Tim Hortons, have come under fire in the U.S. by legislators who are seeking ways to block them.
There is fear the U.S. tax base is being eroded as large companies that grew in the U.S. shift their headquarters and their profits elsewhere.
Civeo was originally a Canadian company, formed in the Peace River area in 1977 as PTI Group to rent out mobile offices and dormitories. It later added catering and housekeeping services.
In 2001, PTI Group was acquired by Oil States International, Inc. of Houston, then this spring, Oil States spun off its accommodation business. Civeo was listed June 2 on the New York Stock Exchange under the symbol CVEO.
“A redomiciling of the company to Canada will improve operational alignment and expected shareholder returns." Bradley J. Dodson, Civeo's CEO, stated in a press release.
He said there were significant costs to converting to a REIT, but the conversion would not help the company save tax on its operations in Australia and Canada.
Civeo is facing pressure on its profitability by a slowdown in development in the oil business as the cost of oil drops and the Keystone pipeline, which was to serve the U.S., remains in limbo.
"The company anticipates that reduced customer room demand in Canada in the fourth quarter will negatively impact occupancy and rates at its Canadian lodges," the company said in an earnings outlook today.
Several anticipated large projects, including Total’s Joslyn and Statoil's Corner project, have been put on hold until oil prices recover.