BlackWatch Energy Services Trust
TSX : BWT.UN

BlackWatch Energy Services Trust

February 19, 2007 16:30 ET

BlackWatch Energy Services Trust Announces Corporate Guidance and Distribution Information

CALGARY, ALBERTA--(CCNMatthews - Feb. 19, 2007) - BlackWatch Energy Services Trust (TSX:BWT.UN) ("BlackWatch" or the "Trust") announces corporate guidance and distribution information.

During the second half of 2006, the Western Canadian oil and gas industry was affected by depressed natural gas prices and falling oil prices that resulted in producer budget cutbacks and a slowdown in activity levels. During the fourth quarter, drilling rig utilization rates averaged only 49%, down dramatically from 71% during the same quarter of 2005. These conditions perpetuated reduced demand for oil and gas services and lower charge-out rates. BlackWatch's drilling utilization rates were additionally impacted by the suspension of shallow gas and CBM drilling and development activities by key customers of its Drilling and Transport Divisions. Although BlackWatch continues to solicit new customers to replace this work, the combination of these influences resulted in financial performance below expectations during the fourth quarter of 2006. BlackWatch is addressing these issues, as outlined in this press release.

BlackWatch has not yet finalized its year end 2006 financial statements, but believes it to be important to provide guidance for our unitholders. Readers are cautioned that the following financial information is preliminary and is still subject to audit and approval by BlackWatch's Audit Committee and Board of Directors, and as a result may change materially when final 2006 financial statements are released in late March 2007. For the fourth quarter of 2006 we anticipate revenue to be approximately $18 million, EBITDA to be nil and Net Debt (see definitions of EBITDA and Net Debt at the end of this release) as at December 31, 2006 to be approximately $32 million. We believe that the goodwill balance reported on our balance sheet at September 30, 2006 will be subject to a material write-down at year end. This balance relates to the acquisitions of the various businesses which comprise BlackWatch.

Industry activity during the first quarter of 2007 continues to be below 2006 levels. Following a weather-related delay during the first month of the service industry's traditionally busy first quarter, operational activities have improved. While BlackWatch's drilling rig utilization rate has averaged 60% to date in 2007, all other divisions are busy and averaging 70% to 80% utilization. Based on forecasted industry information currently available regarding activity levels expected in 2007, we anticipate full year revenues to be in the range of $80 to $85 million and EBITDA to be in the range of $20 to $22 million. Net debt at December 31, 2007 is expected to be in the range of $23 to $25 million.

During its initial operating period from August 4th until December 31st 2006, the Trust invested $19 million in new capital. The new assets include 6 electric wireline units, 3 coil tubing rigs, a new drilling rig and a number of new production service trucks and rental equipment, which are now in service. With its investment in new equipment during 2006, BlackWatch is well positioned to take advantage of market opportunities. We are proceeding with selected capital commitments including reconfiguring some of our coil tubing rigs to perform more complex, higher margin work. The Trust is continuing to upgrade several drilling rigs to increase operational flexibility and improve utilization rates. These capital expenditures are expected to total $7 to $8 million in 2007.

To improve our performance and enhance service to our customers, BlackWatch has reorganized its divisions and implemented a number of measures to streamline operations and reporting. These changes are designed to improve revenues, reduce costs and increase efficiency. The number of operating divisions has been reduced from six to four by bringing certain divisions into more focused service groups. They will be led by existing management reporting to Mr. Robert Copeland, who has been appointed to the position of Vice President and Chief Operating Officer. Mr. Copeland joined BlackWatch in October 2006 as Vice President of Operations.

BlackWatch is redeploying equipment and manpower to geographic regions that provide opportunities for higher margins and utilization, as we diversify away from shallow gas and CBM markets. We are establishing a presence in the busy northwest region of Alberta, including the Grande Prairie area, by re-deploying our new coil tubing rigs and e-line units.

We believe it is necessary to conserve our financial resources to retain financial flexibility and build our business during a period of uncertain industry demand. Accordingly, BlackWatch announces it is suspending monthly distributions to unit holders until further notice, effective immediately. These steps will preserve cash flow and allow for debt repayment. Management will continue to monitor industry activity and our financial results with a view to re-evaluating our 2007 capital spending program and distributions later in the year.

ABOUT BLACKWATCH ENERGY SERVICES TRUST

BlackWatch Energy Services Trust is a growth-oriented energy services trust that provides a range of services to its customers operating in the Western Canadian Sedimentary Basin including drilling, wireline services, rig transportation and hauling, coil tubing well servicing, oilfield equipment rental services and production services. The units of BlackWatch trade on the Toronto Stock Exchange under the symbol "BWT.UN".

This press release contains forward-looking statements including guidance for the fourth quarter of 2006 and the full year of 2007 that are 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. Accordingly, BlackWatch gives no assurance nor makes any representation or warranty that the expectations conveyed by the forward-looking statements will prove to be correct. 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. Additional risk factors applicable to BlackWatch's business are set forth on pages 107 to 112 of BlackWatch's prospectus dated July 27, 2006, as filed on SEDAR.

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 or Trusts. These measures should not be considered alternatives to net earnings and net earnings per unit as calculated in accordance with GAAP:

EBITDA (Earnings before interest, income taxes, depreciation and amortization) - This measure is used extensively in the Trust's financial covenants and is also considered an indicator of the Trust's ability to generate funds in order to meet distributions, ongoing operating commitments, servicing of debt and funding for capital programs.

Net Debt - This term is defined as debt less working capital.

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

Contact Information

  • BlackWatch Energy Services Trust
    Earl Connors
    President and Chief Executive Officer
    (403) 225-3879
    or
    BlackWatch Energy Services Trust
    Paul Partlo
    Vice President and Chief Financial Officer
    (403) 225-3879
    or
    BlackWatch Energy Services Trust
    #300, 855 8th Avenue SW
    Calgary, AB T2P 3P1
    (403) 225-3879
    (403) 366-2067 (FAX)
    Website: www.blackwatchenergy.ca