BlackWatch Energy Services Corp.
TSX : BWT

BlackWatch Energy Services Corp.

May 12, 2009 16:57 ET

BlackWatch Energy Services Corp. Announces Financial Results for the Three Months Ended March 31, 2009

CALGARY, ALBERTA--(Marketwire - May 12, 2009) - BlackWatch Energy Services Corp. ("BlackWatch" or the "Company") (TSX:BWT) announces its results for the three months ended March 31, 2009. All figures are reported in Canadian dollars unless otherwise stated.

FINANCIAL & OPERATING SUMMARY

The table below provides a summary of BlackWatch's financial and operating results for the three months ended March 31, 2009. Our unaudited consolidated financial statements with notes and related MD&A for this period will be filed separately on SEDAR on May 12, 2009 (www.sedar.com). Please review that material in conjunction with this press release.

SUMMARY FINANCIAL INFORMATION



($ thousands, except per share unit amounts) Three months ended March 31,
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2009 2008
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Revenue from continuing operations $ 13,807 $ 16,741

Gross margin(1) from continuing operations $ 4,010 $ 5,321

EBITDA(1) $ 3,195 $ 4,363

Income from continuing operations $ 284 $ 1,312

Per common share - basic and diluted $ 0.01 $ 0.04


(1) See definition within the Non-GAAP Measures section.


As at As at
($ thousands) March 31, December 31,
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2009 2008
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Total assets $ 62,480 $ 64,437

Debt and capital lease obligations:
Current $ 43,861 $ 42,907
Long-term $ 154 $ 189

Shareholders' equity $ 13,831 $ 15,038


In the three months ended March 31, 2009 the Company had lower revenues and gross margin compared to 2008. The decrease in revenues reflects lower revenue in our drilling, downhole and rentals divisions somewhat offset by higher revenue in our production services division. The drilling division utilization decreased from 63% in 2008 to 47% in 2009. Industry drilling activity levels also decreased from 56% in 2008 to 37% in 2009. The lower gross margin led to a decrease in EBITDA for the three months ended March 31, 2009.

Natural gas and crude oil prices remained low during the three months ended March 31, 2009. Low commodity prices coupled with decreasing global demand for oil and gas have caused many producers to scale back their 2009 capital budgets. This has had a negative effect on oil and gas industry activity in western Canada, reducing the demand for oilfield services.

Effective March 18, 2009 BlackWatch discontinued the operations of its transportation division. The asset sale was completed on April 30, 2009 and the Company will realize net proceeds of approximately $3.2 million, which will be used to reduce senior debt. The truck fleet was aging and the financial results did not justify the significant maintenance capital investment necessary to continue operating the business unit. Gross margin contributed by this division in 2008 and in the first quarter of 2009 was negative and the discontinuance of operations is not expected to have a material negative effect on future cash flow from operations.

OUTLOOK

The outlook for the western Canadian energy services sector for 2009 and beyond is largely dependant on capital spending by oil and natural gas explorers and producers which are in turn heavily influenced by world crude oil and North American natural gas prices. The global economic recession continues to negatively impact energy demand and natural gas storage levels in North America are currently near a five year high and 35% higher then storage levels a year ago. These factors have contributed to downward pressure on oil and natural gas prices. This lower pricing environment has reduced the economic value of oil and gas exploration and development plays within western Canada which has led to a significant number of oil and gas producers reducing their capital budgets and planned activities. As a result overall oil and gas service industry utilization rates have substantially decreased in the first quarter of 2009 compared to 2008. Decreasing utilization rates create competitive pricing pressures on all of BlackWatch's services which may negatively affect the Company's margins. This downward pricing pressure is expected to continue into the second quarter and potentially longer depending on activity levels. BlackWatch anticipates that the reduction in drilling activity in North America will reduce natural gas supply as production levels decline. This could improve commodity prices, which is required to support a recovery in drilling activity.

Despite record low drilling activity levels, BlackWatch has one rig under contract which it expects to continue working throughout the second quarter of 2009 and has successfully completed several drilling projects using casing drilling technology. Casing drilling continues to prove itself as one of the most cost-effective methods to drill certain types of shallow gas wells. This is reflected in the growing number of clients that have selected casing drilling over other drilling methods and equipment for shallow gas drilling.

Late last year the downhole services division participated in a borehole acoustic acquisition project with a third party technology provider. This project was designed to provide the client with borehole acoustic for a horizontal, multi-stage completion operation. This project is part of BlackWatch's strategy to increase its activity and revenue in the growing market for horizontal well technology and services. In addition, the Company continues to focus on growing two of its specialized downhole services 1) proprietary propellant technology to enhance perforation performance for little incremental cost, using licensed technologies; and 2) pipe recovery equipment and expertise for both open-hole and cased-hole applications.

In March 2009 the Alberta government announced a new incentive program for the oil and gas industry in Alberta, consisting of: 1) a royalty credit of $200 per metre drilled for new conventional oil and natural gas wells; 2) lower royalty rates for the first year on production from new oil or gas wells; and, 3) a $30 million fund to encourage clean up of inactive oil and gas wells. These changes may have a positive effect on industry activity levels in Alberta and BlackWatch's utilization in 2009.

In April 2009 Fred Meyer joined BlackWatch as VP of Sales and Marketing. Fred has reorganized the marketing group and developed a more focused plan to build on the Company's first quarter drilling success and emphasizing our diverse product offerings. In addition BlackWatch is continuing to focus on cost minimization initiatives and will implement further reductions to labour costs. This will be accomplished by a global salary and wage reduction of between 5% and 7%, a reduction in other employee benefits and lower employee headcount. These changes were made to reflect competitive conditions in the oilfield service industry, matching labour cost reductions of our competitors and adjusting our total workforce to lower expected industry activity levels.

BlackWatch recognizes that significant challenges remain, and we are taking a systematic approach to addressing them. We continue to take steps to stabilize the business financially and are addressing the opportunities available to us to position BlackWatch for success. Our goal is to create an entity that is viable during periods of low economic activity but which is able to take full advantage of a future recovery in industry activity levels. Management continues to believe in the long term viability of the western Canadian sedimentary basin.

ABOUT BLACKWATCH ENERGY SERVICES CORP.

BlackWatch Energy Services Corp is a diversified energy services company that provides a range of services to its customers operating in the western Canadian sedimentary basin including drilling, wireline services, rig transportation and other oilfield hauling, production services, and oilfield equipment rentals. The shares of BlackWatch trade on the Toronto Stock Exchange under the symbol "BWT".

This press release may contain forward-looking statements subject to various risk factors and uncertainties, which may cause the actual results, performance or achievements of BlackWatch to be materially different from results, performance or achievements expressed or implied by forward-looking statements. Such factors include, but are not limited to fluctuations in the market for oil and gas and related products and services, political and economic conditions, the demand for BlackWatch's services, competition and BlackWatch's ability to attract and retain customers and employees.

NON GAAP MEASURES

The following measures are used within this release, but not recognized under GAAP. As a result, the method of calculation may not be comparable with other companies. These measures should not be considered alternatives to net earnings and net earnings per unit as calculated in accordance with GAAP:

Gross margin - This measure is considered a primary indicator of operating performance and is calculated as revenue less operating expenses.

EBITDA (Earnings before interest, income taxes, depreciation and amortization, impairment of goodwill and intangibles and unit compensation) - This measure is considered an indicator of the Companies ability to generate funds in order to meet ongoing operating commitments, servicing of debt, funding for capital programs.

The TSX has not reviewed and does not accept responsibility for the adequacy or accuracy of this news release.

Contact Information

  • BlackWatch Energy Services Corp.
    Travis Robertson
    President and Chief Executive Officer
    (403) 225-3879
    (403) 366-2066 (FAX)
    or
    BlackWatch Energy Services Corp.
    Wiley Auch
    Vice President, Finance & CFO
    (403) 225-3879
    (403) 366-2066 (FAX)
    or
    BlackWatch Energy Services Corp.
    300, 855 - 8 Avenue SW
    Calgary, Alberta T2P 3P1
    Website: www.blackwatchenergy.ca