Oil States International - Accommodations Business Review

By Eric Fox | April 11, 2011 AAA

Oil States International (NYSE:OIS) is a diversified oil services company with leverage to many components of the cyclical upturn in the energy cycle. The company's largest business is providing accommodations and other services to operators involved in developing the Canadian oil sands and various resource plays in Australia.
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Accommodations
Oil States International provides accommodations used by operators to house workers during the development of major resource areas. These accommodations include long-term facilities used as lodges or base camps, as well as a short-term fleet of modular assets situated closer to the actual operations.

In Canada, Oil States International has five lodges clustered near various oil sands operations with a capacity of 7,483. The company plans to increase capacity to 10,530 by opening a sixth lodge in the third quarter of 2011, along with expansions at its existing facilities. All these expansions should be completed by the first part of 2012.

Expansions Supported by Long-Term Contracts
These expansions are supported by long-term contracts from major oil companies that are developing the oil sands. In 2009, Imperial Oil (NYSE:IMO) entered into a three-year contract for additional capacity at the Wapasu Creek facility to support its development operations at the Kearl project. Imperial Oil is a majority-owned subsidiary of ExxonMobil (NYSE:XOM).

Oil States International's lodges are situated near other operators that are developing oil sands projects in Alberta. These include Royal Dutch Shell (NYSE:RDS.A, RDS.B), Suncor (NYSE:SU) and Total (NYSE:TOT). The accommodations segment has been in growth mode for years due to the development of the oil sands deposits in Canada. This business comprised approximately half of the company's EBITDA in 2010.

Australian Acquistition
Oil States International expanded into the Australian market in 2010 by acquiring MAC Services Group Limited. This acquisition gives the company an entry into a country that is actively exploring and developing a range of commodities and minerals including gold, iron ore, natural gas, oil, copper and coal.

Oil States International has existing capacity of 5,210 in Australia, and it has various expansions under way that will increase capacity to 6,828 by the end of 2011.

Occupancy
Oil States International has decent visibility into revenue from the accommodations business due to the multi-year contracts that govern this business. In 2011, the company reported a 79% committed occupancy rate at its Canadian facilities and a 94% committed occupancy rate at the Australian operations. In 2012, these rates drop to 71% in Canada and 85% in Australia. These rates also include rooms set aside for internal use by the company.

The Bottom Line
Oil States International has seen steady growth in the company's accomodations business as the energy industry continues its long-term development of the oil sands in Canada. The company recently diversified and expanded into Australia by acquiring a leading player in that market. (For additional reading, see Vast Upside Potential For Petrobas.)

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