BlackWatch Energy Services Corp.
TSX : BWT

BlackWatch Energy Services Corp.

June 11, 2009 14:28 ET

BlackWatch Energy Services Corp. Announces Recapitalization and New Management Team

CALGARY, ALBERTA--(Marketwire - June 11, 2009) - BlackWatch Energy Services Corp. ("BlackWatch" or the "Company") (TSX:BWT) is pleased to announce a series of steps that will position the Company to take advantage of opportunities available in the service industry. The Company has agreed to issue 66.7 million shares at a price of $0.15 per share for gross proceeds of $10 million, agreed to convert its existing subordinated debt of approximately $24.2 million at $0.65 per share into 37.2 million shares, appointed a new management team which will be led by John King as President and Chief Executive Officer, added Hank Swartout as Chairman to the Board of Directors, and developed a strategy which will capitalize on the experience and skill set of the new management team as well as the opportunities available in the current environment.

The Board of Directors of BlackWatch will be comprised of Hank Swartout as Chairman, M. Bruce Chernoff, Howard Crone, John A. Brussa and David Rain.

Capital Restructuring

The new management team, including certain members of the existing management group, have committed to invest $10 million by way of a private placement of 66.7 million shares at a price of $0.15 per share (the "Private Placement"). M. Bruce Chernoff, a director of the Company, has agreed to invest up to $1.5 million in the Private Placement for a total of 10 million shares. This investment may also be taken up by David J. Rain, a director of the Company and other management insiders. Current insiders of the Company hold directly or indirectly, an aggregate of approximately, 13.5 million shares of the Company (approximately 34.7% of the issued and outstanding shares prior to the transactions announced today).

The Private Placement will be completed at a price that is a 50% premium to the 10 day weighted average closing price of the Company's shares on the TSX ("Trading Price") prior to this announcement. In addition, and as a condition of the completion of the Private Placement, the holder of the subordinated debt, which is an entity substantially owned by M. Bruce Chernoff ("Chernoffco"), has agreed to convert its existing subordinated debt of approximately $24.2 million at $0.65 per share into 37.2 million shares of the Company (the "Sub Debt Conversion"). The subordinated debt is being converted at a 550% premium to the Trading Price. Mr. Chernoff is the holder, directly or indirectly, of 9,535,884 shares of the Company (approximately 24.8% of the issued and outstanding shares of the Company prior to the transactions announced today). Pursuant to the Sub Debt Conversion, Chernoffco will receive approximately 37.2 million shares. Pursuant to an existing agreement, Chernoffco will transfer approximately 16.5 million of these shares to a third party. After giving effect to the Sub Debt Conversion and assuming that Mr. Chernoff is the only insider that participates in the Private Placement, Mr. Chernoff will hold, directly or indirectly, approximately 28% of the issued and outstanding shares of the Company.

The Company will issue a total of 103.9 million shares pursuant to the Private Placement and the Sub Debt Conversion ((collectively, the "Capital Restructuring"), which represents 270% of the currently issued and outstanding shares of the Company. Following the Capital Restructuring, there will be approximately 142 million shares outstanding and the current insiders of the Company, including Mr. Chernoff, will hold approximately 44.2 million shares or 31.1% of the issued and outstanding shares of the Company.

The proceeds from the Private Placement will be used initially to partially repay the Company's senior bank facility and for general corporate purposes. Following completion of the Capital Restructuring, the Company's only debt will be bank debt of approximately $4 million. The Company intends to pursue a new credit facility following completion of the Capital Restructuring to facilitate the implementation of its growth plans.

New Management Team

Mr. King and Mr. Swartout have had extensive successful careers in the oilfield service industry in western Canada and internationally.

Mr. King was the President of the Evaluation, Drilling & Intervention Division of Weatherford International Ltd., an international oilfield services company from 2005 to 2007. Prior to that, Mr. King served in an executive management position at Precision Drilling Ltd. as Senior Vice President in charge of Precision's Energy Services division. For the period from 1985 through 2006 on his retirement, Mr. Swartout held the position of Chairman and Chief Executive Officer of Precision Drilling Ltd., Canada's largest independent drilling rig and service company.

Mr. Swartout commented "I am pleased to be able to re-engage with John at BlackWatch and direct my energies to take the Company in a new direction. I strongly believe that an opportunity exists to build a new business and provide a different value proposition to customers that will allow BlackWatch to be successful and participate in the evolving competitive landscape of the oilfield services industry."

Mr. Travis Robertson will continue on in a senior management role with BlackWatch, utilizing his extensive industry knowledge and experience. Mr. Chernoff noted "The Board of Directors wishes to thank Travis for all of his hard work and dedication to BlackWatch which has allowed us to streamline the Company and bring us to this important juncture."

Corporate Strategy

The Company intends to continue to evaluate its business lines and rationalize where appropriate, with an emphasis on attracting business from customers engaged in unconventional resource development.

Mr. King stated, "I look forward to assuming a leadership role at BlackWatch and working with Hank to create a leading oilfield services business. We both have domestic as well as international industry experience and are clearly not limiting our sights on any one market or service line. Although BlackWatch's drilling business is relatively small, we see it as having a solid footing in the marketplace with a unique set of assets that have not yet been utilized to their full potential. The recapitalization of the balance sheet gives us a fresh start and I anticipate the new Company capitalizing on both consolidation as well as growth opportunities apparent in the industry today."

Board Approval and Regulatory Requirements

The Sub Debt Conversion constitutes a related party transaction under Multilateral Instrument 61-101 because such transaction is with, or securities are being issued to, directly or indirectly, M. Bruce Chernoff, a director of the Company. Unless an exemption is applicable, the related party rules require a formal valuation and minority approval in respect of a related party transaction.

The TSX also requires shareholder approval, unless an exemption is applicable, as a condition of acceptance of the Private Placement and the Sub Debt Conversion since the Capital Restructuring may have a material effect on control of the Company and that the Sub Debt Conversion would provide consideration to an insider in aggregate of 10% or greater of the market capitalization of the Company.

Both Multilateral Instrument 61-101 and the rules of the TSX contain an exemption from the requirement to obtain shareholder approval if a committee of independent board members of the Company, free from any interest in the transactions and unrelated to the parties involved in the transactions, has recommended the transactions, and the independent members of the board of directors have resolved that the Company is in serious financial difficulty, the transactions are designed to improve the Company's financial condition, and the transactions are reasonable for the Company in the circumstances.

The Company is applying to the TSX for an exemption from the requirement to seek shareholder approval on the basis of the Company's financial hardship. As a consequence of relying upon the financial hardship exemption, the TSX has informed the Company that it will, in the ordinary course, commence a de-listing review to confirm that the Company continues to meet TSX continued listing requirements. The Company believes that, upon completion of the Capital Restructuring, it will be in compliance with TSX listing requirements.

The Company's board of directors established a committee consisting of John Brussa and Howard Crone, the two independent directors of the Company. This committee was formed to consider the financial condition of the Company and to consider the Capital Restructuring. The independent committee concluded that the Company is in serious financial difficulty, the proposed Capital Restructuring is designed to improve the Company's financial condition, and the Capital Restructuring is reasonable for the Company in the circumstances.

BlackWatch entered into the Capital Restructuring due to the amount of the Company's outstanding senior and subordinated debt and the near term maturity of each loan, being June 30, 2009. The Company has been unsuccessful to date in finding a replacement for the existing senior credit facility and the subordinated debt facility. Despite the Company's best efforts, the current financial environment has made it difficult to refinance its debt obligations and/or sell underutilized assets to significantly reduce outstanding debt.

The independent committee determined that at present, and without the Capital Restructuring, the Company is in serious financial difficulty such that the completion of the Capital Restructuring will considerably improve the Company's financial situation.

As a result of these factors and considering the current financial environment, the independent committee of the Board of Directors of the Company has approved the Capital Restructuring.

The above transactions are subject to regulatory approval, including that of the Toronto Stock Exchange.

ABOUT BLACKWATCH ENERGY SERVICES CORP.

BlackWatch is a public energy services corporation operating in Western Canada and which trades on the Toronto Stock Exchange (TSX) under the symbol "BWT".

Note Regarding Forward Looking Statements

This news release contains forward-looking statements relating to the completion of the Capital Restructuring, expectations regarding the Company's ability to capitalize on the experience and skill set of the new management team and the opportunities available in the current environment, the Company's plans to pursue a new credit facility, the Company's growth and business plans and business opportunities. Forward-looking statements typically use words such as "anticipate", "believe", "project", "expect", "plan", "intend" or similar words suggesting future outcomes, statements that actions, events or conditions "may", "would", "could" or "will" be taken or occur in the future.

These statements are based on certain factors and assumptions regarding the receipt of necessary regulatory approvals, expected growth, results of operations, performance, business prospects and opportunities. While we consider these assumptions to be reasonable based on information currently available to us, they may prove to be incorrect.

By their nature, forward-looking statements involve numerous risk and uncertainties and other factors that contribute to the possibility that the predicted outcome will not occur, including, without limitation, risks associated with a failure to obtain the necessary approvals to complete the Capital Restructuring, the ongoing participation of the Company's current lenders, the failure to replace the Company's existing credit facility, capital spending in the oil and gas sector, loss of markets, volatility of commodity prices, currency fluctuations, the demand for the Company's services, environmental risks, competition, inability to retain personnel and customers, incorrect assessment of the value of acquisitions, failure to realize the anticipated benefits of acquisitions, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources. Readers are cautioned that the foregoing list of factors is not exhaustive.

Although BlackWatch believes that the expectations represented in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements and you should not unduly rely on forward-looking statements. The forward-looking statements contained in this news release are made as the date of this new release and the company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

Contact Information

  • BlackWatch Energy Services Corp.
    John R. King
    President and Chief Executive Officer
    (403) 225-3879
    (403) 366-2066 (FAX)
    or
    BlackWatch Energy Services Corp.
    300, 855 - 8 Avenue SW
    Calgary, Alberta T2P 3P1