BlackWatch Energy Services Corp.
TSX : BWT

BlackWatch Energy Services Corp.

March 24, 2009 17:00 ET

BlackWatch Energy Services Corp. Announces Financial Results for the Year Ended December 31, 2008

CALGARY, ALBERTA--(Marketwire - March 24, 2009) - BlackWatch Energy Services Corp. ("BlackWatch" or the "Company") (TSX:BWT) announces its results for the year ended December 31, 2008. 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 year ended December 31, 2008. Our audited consolidated financial statements with notes and related MD&A for this period will be filed separately on SEDAR on March 24, 2009 (www.sedar.com). Please review that material in conjunction with this press release.



SUMMARY FINANCIAL INFORMATION

($ thousands, except per share unit amounts) Years ended December 31,
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2008 2007
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Revenue from continuing operations $ 46,231 $ 37,647

Gross margin from continuing operations(1) $ 7,097 $ 3,416

EBITDA (1) $ 2,980 $ (1,016)

Loss from continuing operations $ (17,152) $ (33,483)
Per share unit - basic and diluted $ (0.50) $ (1.22)

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


($ thousands) As at December 31,
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2008 2007
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Total assets $ 64,437 $ 81,894

Debt and future capital obligations:
Current $ 42,907 $ 43,726
Long-term $ 189 $ 475

Shareholders' Equity $ 15,038 $ 33,650


In the year ended December 31, 2008 the Company increased revenues and showed a lower loss and improved cash flow compared to 2007. The increase in revenues reflects higher utilization in our drilling division somewhat offset by lower utilization in our downhole and production services divisions. The drilling division increased its utilization from 17% in 2007 to 30% in 2008 whereas the industry activity levels in the same period remained flat, with average industry drilling rig utilization of approximately 40% in 2008, compared to 39% in 2007. The improvement in gross margin from 9% to 15%, combined with lower administrative costs led to a significant improvement in EBITDA for year ended December 31, 2008. The improved gross margin, which related primarily to the drilling division, was achieved through increased utilization throughout the year and reduced operating costs.

Natural gas and oil prices weakened significantly during the year and these weaker prices are having a negative effect on oil and gas industry activity in western Canada in 2009. Falling commodity prices coupled with decreasing global demand for oil and gas have caused many producers to scale back their 2009 capital budgets. This will reduce the demand for oilfield services.

In September 2008 BlackWatch completed the construction of a telescopic double pad rig ("Rig #11") and the rig began working under a take-or-pay contract with an intermediate oil and gas producer. The agreement provides for a commitment of 200 days per year for two years. In March and October 2008 BlackWatch received payments of $1.375 million under the take-or-pay contract, which were used to partially fund the completion of Rig #11. The rig commenced operations on September 28, 2008 and as of December 31, 2008 had worked for 85 days. In 2009 Rig #11 has worked steadily and is scheduled to work through spring break up.

In October 2008 the Company made the decision to shut down its remaining coil tubing operations and has expanded the program to dispose of the assets related to this business unit. In 2008 BlackWatch sold three electric-wireline units, two swabbing units, five coil tubing units and various other assets for net proceeds of $4.9 million. BlackWatch plans to continue to dispose of underutilized assets and use the proceeds from these asset sales to pay down the senior debt.

At December 31, 2008 the Company performed an impairment test of its property, plant and equipment, resulting in a non-cash impairment charge of $10 million (2007 - $10.4 million). The impairment charge of $7 million was recorded for the production services and rentals divisions and $3 million for the coil tubing assets which are not operating and recorded as held for sale on the balance sheet.

Effective March 18, 2009 BlackWatch discontinued the operations of its transportation division. Management has entered into an agreement to sell the transportation assets in April 2009. Proceeds from the disposition of the assets will be used to reduce the senior debt. Previous initiatives to sell the division as a going concern were unsuccessful. The truck fleet is aging and the financial results do not justify the significant maintenance capital investment necessary to continue the business unit. Gross margin contributed by this division in 2008 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 North American oil and natural gas prices. The year ended December 31, 2008 saw a significant decline in crude oil and natural gas prices and industry sources have become less optimistic about oilfield activity improving in 2009. A significant number of oil and gas producers are reducing their capital budgets and planned activities, which will reduce overall industry utilization rates and revenues.

BlackWatch has undertaken several initiatives designed to provide service differentiation, to help it compete for work and diversify to a broader range of industry activity. For example, in the first quarter of 2008 BlackWatch added significant drilling activity through oilsands related drilling and coring work, allowing us to participate in the market for oilsands development. In September 2008 BlackWatch completed its telescopic double Rig #11 which has begun working under a take-or-pay contract with an intermediate oil and gas producer. That contract provides for a commitment of 200 days per year for two years. This newly constructed rig has the capability of working in many diverse areas such as oilsands, coal bed methane, shale gas and conventional reservoirs. In March 2008 BlackWatch acquired 148 flow-back tanks and related equipment which, when combined with its existing production services, completes its offering of fluid support services used for the completion, stimulation and production of oil and gas wells.

BlackWatch has tested and employed the capability to drill wells with casing which, in certain applications, eliminates the need for drill pipe and reduces drilling time. Casing drilling can increase drilling efficiency significantly and has the potential to reduce formation damage associated with fluid exposure and pressure surges. A number of BlackWatch's rigs are also well-suited to safely drill with air, as an alternative to conventional drilling using fluids. The design of our rigs allows this to be done without the addition of major equipment or service interfaces, resulting in very cost effective service versus typical air drilling operations. Drilling with air substantially increases drilling efficiency and imparts minimal formation damage, a critical issue in coal bed methane and shallow gas developments. We completed several well programs for a number of senior exploration and production companies with casing drilling methods. This technique resulted in significant improvements to drilling efficiency. In addition BlackWatch has also completed several wells using casing combined with air drilling which improves efficiencies further. These service differentiations and the Company's continued focus on reducing drilling costs for our clients will allow BlackWatch to pursue additional drilling programs and may have a positive effect on asset utilization.

In 2009, BlackWatch should continue to benefit from two new completion services that were added in late 2007: 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.

We believe that progressive actions such as these will improve the Company's performance.

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.

Working capital - This term is defined as current assets less current liabilities excluding the current portion of long-term debt and lease and finance contract obligations.

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
    (403) 225-3879
    (403) 366-2066 (FAX)
    Website: www.blackwatchenergy.ca