Upcoming OIS's Spin-Off Of Civeo Corp. To Unlock Substantial Value

| About: Oil States (OIS)


From a bird's eye view, OIS seems to be fairly valued..

Post spin-off market capitals should add up to $10 billion..

Shares have been relatively flat, options cheap, catalysts coming.

Oil States International (NYSE:OIS) is a diversified oilfield services company which currently operates in 3 business segments: accommodations, recently named Civeo Corp. (51% EBITDA Contribution), offshore products (20%) and well site services (29%). The Accommodations segment mainly includes lodging for natural resource companies operating in far regions of the world. Revenue contributors for accommodations business include: Canadian oil sands (67%), Australia (24%) and US (9%). The offshore and well site services business segments are focused on delivering technology and solutions to the growing deep-water capital equipment and North American shale play markets.

This time last year, OIS was much the talk as Greenlight Capital and Jana Partners took a large stake in the company. Greenlight has presented the compelling value of an OIS spin-off at last year's IRA Sohn conference and since then, the price of the stock has increased from $77 to $96 today. I feel that there is much more upside and less risk as the value creation becomes more of a reality in the near future.


The hidden value of OIS comes from a spin-off of Civeo Corp. later to be transformed into a REIT. According to Investopedia, a REIT is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate. According to OIS's March 24th investor presentation, the spin-off is expected to occur by end of 2Q 2014. Shortly thereafter, the process of converting the spin-off to a REIT will begin.

The accommodations business is a high return on capital business that has grown EBITDA from $53 million in 2005 to $433 in 2013. I expect the accommodations business to have a relatively fair year as the decline of met coal prices would affect revenue from Australian villages while projects underway in the Canadian oil sand can help offset this.

The grid below shows how REITs in the Vanguard REIT Index ETF (NYSEARCA:VNQ) have been trading recently:

Company Symbol Price P/E Yield Price/Sales EBITDA Multiple
Simon Property Group, Inc. SPG $169.86 40.06 3.00 10.31 14.1
Public Storage PSA $172.28 35.23 3.30 14.52 21.0
Equity Residential EQR $57.5 9.83 3.50 8.84 13.9
ProLogis, Inc. PLD $41.29 64.41 3.30 11.06 19.6
Ventas, Inc. VTR $65.13 42.29 4.60 6.86 12.4
Vornado Realty Trust VNO $100.52 44.44 3.00 7.31 14.3
HCP, Inc. Common Stock HCP $40.53 19.03 5.40 8.94 10.8
Boston Properties, Inc. BXP $117.43 24.16 2.30 8.09 13.6
Health Care REIT, Inc. HCN $61.94 218.10 5.10 6.32 11.8
AvalonBay Communities, Inc. AVB $133.64 48.09 3.40 12.05 19.2

Average REIT EBITDA multiple = 15.1

Oil State's accommodations business doesn't operate in similar industries as the companies above. Comparing the OIS accommodations business is valid, however, as certain investors or mutual funds will particularly trade around REITs due to their unique tax structure. I believe Oil State's Accommodations business could be interesting to some investors who would appreciate a chance for higher growth and something that is tied to the natural resource industry (this of course might not be interesting to some REIT investors).

According to Oil State's March 24th investor presentation, the accommodations business' 2013 EBITDA was $433 million. You can decide which EBITDA multiple OIS's Accommodations deserves, but assigning the average REIT EBITDA multiple to this yields a company with market capitalization of $6.6 billion. This is more than the market capital of OIS as a whole today! So what about the remaining OIS business segments?

Oil Services Business

The remaining half of OIS will continue operating under 2 business segments: offshore products and well site services. EBITDA from these segments has grown from $124 million in 2005 to $419 in 2013. For comparison of industry peers, please find the grid below that shows how the iShares US Oil Equipment & Services (NYSEARCA:IEZ) has been trading recently.

Company Symbol Price P/E Yield Price/Sales EBITDA Multiple
Schlumberger Limited SLB $99.91 19.79 1.60 2.92 10.9
Halliburton Company HAL $60.9 25.90 1.00 1.75 8.6
National Oilwell Varco, Inc. NOV $82.37 15.14 1.30 1.52 8.4
Baker Hughes Incorporated BHI $68.33 27.66 0.90 1.3 8.2
Transocean Ltd. RIG 40.58 10.48 5.70 1.54 4.2
Weatherford International Ltd. WFT $18.21 - - 0.92 6.8
Cameron International Corporation CAM $63.58 22.15 - 1.39 9.4
FMC Technologies, Inc. FTI 54.8 26.10 - 1.81 13.1
Helmerich & Payne, Inc. HP $110.84 16.07 2.40 3.43 8.3

Average oil services EBITDA multiple = 8.7

According to Oil State's March 24th investor presentation, the well site services and offshore products segments' 2013 EBITDA was $419 million. Assigning the industries' average EBITDA yields a company with market capitalization of $3.6 billion.

When you add both of these post-split companies together, the market capital comes to about $10 billion / share price of $188 / 93% return from today's price.


  • Upcoming earnings on May 1st. Halliburton, operating in very similar industries as OIS, reported great Q1 numbers today while predicting profit growth on improved margin in North America for the remainder of the year.
  • More chatter about the spin-off, which management indicated would occur later in Q2 this year.


With catalysts quickly approaching, I believe dabbling into the OIS call options could provide the most upside without taking on too much risk. Since the spin-off is set to occur by the end of Q2, May or June calls are particularly cheap.

Disclosure: I am long OIS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.