Oil-Bust Contagion Hits Hedge Funds, Supplier Layoffs Begin

Wednesday, December 31, 2014
By Paul Martin

by Wolf Richter
December 30, 2014

Toxic mix of financial engineering and oil-price collapse.

It started a few weeks ago. I’d hear from guys here or there in the oil patch who’d just been laid off. That contrasts with the prior anecdotes of hiring binges. A trickle of anecdotal evidence that something has changed, but not enough to pin down credible trends. Then suddenly, something happens – and it turns out that the trends might be worse and might be developing faster than imagined.

Afterhours Monday, between the holidays during a shortened workweek when everyone was supposed be on vacation and when no one was supposed to pay attention, Civeo, which provides workforce accommodations for oil fields and mines in Canada, Australia, and the US announced its Initial 2015 Operating Guidance. And what it said about the oil industry was a doozie.

Civeo is one of the many peculiar creations of Wall Street’s financial engineering shops. When it was still a unit of Oil States International, David Einhorn’s hedge fund Greenlight Capital and Barry Rosenstein’s Jana Partners clamored vociferously for a spinoff, because spinoffs were the new hot thing to make a quick buck. So by early June, Civeo was spun off. It had over 4,000 employees and housed over 20,000 “guests,” as it said on its website. The price of oil was above $100 a barrel. It was the absolute peak of the junk-bond bubble, particularly the energy junk-bond and IPO bubble. Nothing could go wrong.

The shares surged from $22 to $28 by mid-June. Wall Street talked about a 50% upside. In August, when Einhorn let it be known that his hedge fund had acquired a stake, the stock jumped 11% afterhours. Now he was clamoring for the conversion of Civeo into a REIT. But the price of oil was already declining, and shares had backed off to the $25 range, when Civeo announced on September 29 that it would not convert to a REIT but instead move its headquarters to Canada. Over the next two days, its shares crashed 54% to $11.61.

The Rest…HERE

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