BlackWatch Energy Services Corp.
TSX : BWT

BlackWatch Energy Services Corp.

August 11, 2009 17:00 ET

BlackWatch Energy Services Corp. Announces Financial Results for the Three and Six Months Ended June 30, 2009

CALGARY, ALBERTA--(Marketwire - Aug. 11, 2009) - BlackWatch Energy Services Corp. ("BlackWatch" or the "Company") (TSX:BWT) announces its results for the three and six months ended June 30, 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 and six months ended June 30, 2009. Our unaudited consolidated financial statements with notes and related MD&A for this period will be filed separately on SEDAR on August 11, 2009 (www.sedar.com). Please review that material in conjunction with this press release.



SUMMARY FINANCIAL INFORMATION

($ thousands, except Three months Six months
per share unit amounts) ended June 30, ended June 30,
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2009 2008 2009 2008
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Revenue from continuing operations $ 3,569 $ 3,578 $ 17,376 $ 20,319

Gross margin(1) from continuing
operations $ (167) $ (1,175) $ 3,843 $ 4,148

EBITDA(1) $ (883) $ (2,147) $ 2,312 $ 2,218

Loss from continuing operations $ (3,234) $ (4,687) $ (2,959) $ (3,369)
Per common share - basic and
diluted $ (0.08) $ (0.14) $ (0.08) $ (0.10)

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


($ thousands) As at June 30, As at December 31,
----------------------------------------------------------------------------
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2009 2008
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Total assets $ 51,819 $ 64,437

Debt and capital lease obligations:
Current $ 5,545 $ 42,907
Long-term $ 119 $ 189

Shareholders' equity $ 44,039 $ 15,038


In the three months ended June 30, 2009 revenues were consistent with the same quarter in 2008 despite a significant decline in western Canadian oilfield service activity. Revenues were maintained through the addition of our new telescopic double pad rig which worked throughout the quarter under an existing contract. Consolidated revenues reflect lower revenue in our downhole, production and rentals divisions also caused by lower industry activity levels. BlackWatch increased its drilling rig utilization from 3% in the second quarter of 2008 to 9% in 2009 while industry drilling activity levels decreased from 19% in 2008 to 11% in 2009. Gross margin improved significantly from a year earlier despite consistent revenues, due to higher margins in our drilling business and reduced operating costs such as fuel and repairs and maintenance. EBITDA also improved substantially due to the improved gross margin and lower selling, general and administration costs. BlackWatch has placed a focus on reducing its costs over the last two years that has allowed it to be better prepared for the low industry activity levels and pricing which we are currently facing.

In the six months ended June 30, 2009 the Company had decreased revenues compared to 2008. Despite lower revenues the Company was able to improve gross margin and EBITDA as a percentage of revenue because of lower selling, general and administration costs and improved margins within the drilling division.

Natural gas prices remained low during the three months ended June 30, 2009. Low commodity prices have caused many producers to scale back their 2009 capital budgets despite announced government drilling incentives. We anticipate activity levels in western Canada to remain weak through the remainder of this year.

On June 11, 2009 the company announced a series of steps that have repositioned the Company financially and strategically to take advantage of opportunities available in the energy service industry. The Company has completed a common share offering for gross proceeds of $10 million and converted its existing subordinated debt of approximately $24.2 million into common shares. The Company's debt at June 30, 2009 was $5.7 million compared to $43.1 million at December 31, 2008. BlackWatch also added two members to its management team: John King as President and Chief Executive Officer and Hank Swartout as Chairman to the Board of Directors. This management team is developing a strategy to allow BlackWatch to capitalize on the experience and skills of these new members and explore the investment opportunities available in the current environment.

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 has reduced energy demand as well as natural gas and crude oil prices from 2008 levels. This lower commodity price 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 six months of 2009 compared to 2008. Ongoing reductions in utilization rates will continue to create competitive pricing pressures on all of BlackWatch's services, which will impact the Company's margins. This downward pricing pressure is expected to continue for the foreseeable future.

Despite record low drilling activity levels, BlackWatch has one rig under long term contract. This rig worked steadily until late in the second quarter. BlackWatch expects this rig to begin working again under its existing contract in the fourth quarter of 2009. BlackWatch is working to place this rig with another operator in the meantime but it is likely this rig will not generate as much operating margin in the third quarter as in the first half of the year. BlackWatch 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 seismic information 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 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; and 2) lower royalty rates for the first year on production from new oil or gas wells, which programs expire in March 2010. In addition, a $30 million fund to encourage clean up of inactive oil and gas wells was established. In June 2009 the Alberta government extended the royalty credit for meters drilled and lower royalty rate incentive programs for an additional year, and as a result these programs will now expire in March 2011. 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 Vice President 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. Fred has 25 years of domestic and international experience in various operational and business development roles at a large multi national oilfield service company, which includes assignments in Latin America and North Africa.

BlackWatch recognizes that significant challenges remain while the western Canadian oilfield market is experiencing such low activity levels. BlackWatch believes that ultimately, this market will recover. We have already taken steps to address the current challenges by trimming costs in an aggressive fashion and marketing new differentiated services to help improve the utilization of our existing equipment. However, we have not stopped there and are looking at other steps to grow profitable businesses both domestically and internationally while maintaining financial flexibility.

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 common shares of BlackWatch trade on the Toronto Stock Exchange under the symbol "BWT".

FORWARD LOOKING STATEMENTS

This news release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. More particularly, and without limitation, this news release contains forward-looking statements and information concerning anticipated activity levels in western Canada; BlackWatch's strategy to capitalize on the experience and skills of the new members of BlackWatch's management team and to explore the investment opportunities available in the current environment; the effect of ongoing reductions in utilization rates on pricing of BlackWatch's services and the Company's margins; timing of work of BlackWatch's rig under long-term contract; expected revenue from rigs in the third quarter; announcement of new incentive program by the Alberta government and its effect on industry activity levels in Alberta and BlackWatch's utilization in 2009; and BlackWatch's plans to grow profitable businesses both domestically and internationally while maintaining financial flexibility.

These forward-looking statements and information are based on certain key expectations and assumptions made by the Company regarding business prospects; strategies; conditions in general economic and financial markets; regulatory developments; competition; exchange rates; applicable royalty rates; the sufficiency of budgeted capital expenditures in carrying out planned activities; and the availability and cost of labour and services, which are subject to change based on market conditions. Although the Company believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward-looking statements and information because the Company can give no assurance that they will prove to be correct.

Since forward-looking statements and information address future events, by their nature, such statements and information involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks, including fluctuations in the market for oil and gas and related products and services; failure of counter-parties to perform on contracts; political and economic conditions; the demand for BlackWatch's services; competition; and BlackWatch's ability to attract and retain customers and employees. The Company has provided the forward-looking statements herein in reliance on certain assumptions that they believe are reasonable at this time. These forward-looking statements may change for a number of reasons. Accordingly, readers should not place undue reliance on the forward-looking statements and information contained in this news release concerning these times.

Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect the operations or financial results of the Company are included in reports on file with the applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). The forward-looking statements and information contained in this news release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless as required by applicable securities laws.

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 share 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 share compensation) - This measure is considered an indicator of the Company's ability to generate funds in order to meet ongoing operating commitments, servicing of debt and 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.
    John King
    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