BlackWatch Energy Services Trust
TSX : BWT.UN

BlackWatch Energy Services Trust

August 13, 2008 18:48 ET

BlackWatch Energy Services Trust Announces Financial Results for the Three and Six Months Ended June 30, 2008

CALGARY, ALBERTA--(Marketwire - Aug. 13, 2008) - BlackWatch Energy Services Trust ("BlackWatch" or the "Trust") (TSX:BWT.UN) announces its results for the three and six months ended June 30, 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 three and six months ended June 30, 2008. Our unaudited consolidated financial statements with notes and related MD&A for this period will be filed separately on SEDAR on August 13, 2008 (www.sedar.com). Please review that material in conjunction with this press release.



($ thousands, except per Trust unit Quarter Six Months
amounts) ended ended
June 30 June 30
------------------------------------------------------- --------------------
------------------------------------------------------- --------------------
2008 2007 2008 2007
------------------- --------------------
Revenue from continuing operations $ 4,279 $ 4,575 $ 25,100 $ 26,049
Gross margin from continuing
operations $(2,290) $ (4,096) $ 3,416 $ 186

Normalized EBITDAC $(3,230) $ (5,421) $ 1,518 $ (2,552)
Net income (loss) from continuing
operations $(6,644) $ (16,505) $ (5,894) $ (19,895)
Per Trust unit - basic and diluted $ (0.19) $ (0.67) $ (0.18) $ (0.80)

Funds from operations $(3,541) $ (6,431) $ 598 $ (4,742)
Per Trust unit - basic and diluted $ (0.10) $ (0.26) $ 0.02 $ (0.19)

Cash distributions declared per
Trust unit $ - $ - $ - $ 0.065


($ thousands) As at June 30, As at December 31,
2008 2007
------------------------------------------------------- --------------------
------------------------------------------------------- --------------------
Total assets $ 74,049 $ 81,894
Debt and future capital
obligations:
Current $ 40,081 $ 43,726
Long-term $ 311 $ 475

Unitholders' equity $ 30,254 $ 33,650


In the quarter ended June 30, 2008 the Trust showed a lower loss and reduced negative cash flow compared to the same period in 2007, on lower revenues. The reduction in revenues reflects lower pricing for services and very low industry drilling activity levels in the quarter, with average industry drilling rig utilization of approximately 19% in 2008 (2007 - 17%). The improvement in gross margin from negative 90% to negative 54%, combined with lower administrative costs and cash interest costs, led to a significant improvement in EBITDAC for the quarter. The improved gross margin related primarily to the drilling and downhole services divisions and has been achieved through improvements in cost control. Other divisions continued to experience lower demand for energy services, greater competition among energy service providers and lower prices. This has negatively affected the results of the transport, production services and rental divisions.

In the six months ended June 30, 2008 the Trust showed a lower loss and a reduced negative cash flow compared to the same period in 2007, on lower revenues. The reduction in revenues reflects lower pricing for services and constant industry activity levels in the period, with average industry drilling rig utilization of approximately 38% in 2008, compared to 39% in 2007. The improvement in gross margin from 1% to 14%, combined with lower administrative costs and cash interest costs, led to a significant improvement in EBITDAC for the six month period. The improved gross margin, which related primarily to the drilling division, was achieved through increased utilization in the first quarter of 2008 and improved cost control. Other divisions continued to experience lower demand for energy services and low prices.

Natural gas prices strengthened during the quarter with North American natural gas storage at June 30, 2008 below 2006 and 2007 levels and closer to historical averages. These stronger prices which combined with strong crude oil prices, may have a positive effect on oil and gas industry activity in western Canada in the remainder of 2008. In April the Alberta government indicated a willingness to address "unintended consequences" of its new royalty regime by announcing two new royalty programs to encourage development of deep oil and gas wells. These programs are positive indicators for the oil and gas industry in Alberta and may have a positive effect on a number of BlackWatch's businesses.

The Trust has instituted a program to dispose of underutilized assets in its downhole services group. As of August 8th BlackWatch has sold three electric-line units and five coil tubing units for net proceeds of $3.6 million. BlackWatch hopes to dispose of additional underutilized assets in the coming months. The Trust intends to use the proceeds from these asset sales to pay down the senior debt.

OUTLOOK

The outlook for the western Canadian energy services sector for 2008 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 natural gas prices. The first half of 2008 has seen some improvements in natural gas prices and industry sources are optimistic about oilfield activity for the remainder of the year. However, we are not yet seeing improvements in prices and gross margins for our services.

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 growing market for oilsands development. Also in the first quarter BlackWatch entered into an agreement with an intermediate oil and gas producer for the use of a telescopic double drilling rig that is currently under construction. The agreement provides for a commitment of 200 days per year for two years and a separate cash payment to BlackWatch. The rig is anticipated to be completed and operating in the third quarter. 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 have tested the combination of drilling with casing, using air rather than fluids, resulting in significantly higher penetration rates. This combines the drilling efficiencies and other benefits of each technique, and creates a unique way to differentiate our drilling services. We have begun to utilize those techniques as a means of marketing our services to new, larger customers.

In 2008 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; 2) pipe recovery equipment and expertise for both open-hole and cased-hole applications. By late 2008 we expect to add a down-hole camera technology that can investigate well equipment problems and assist in directly evaluating production performance.

We believe that progressive actions such as these will result in continued improvement in the Trust'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. Management believe that the long term viability of the western Canadian sedimentary basin is supported by both declining oil and gas well production rates and overall increases in the global demand for energy.

ABOUT BLACKWATCH ENERGY SERVICES TRUST

BlackWatch Energy Services Trust is a diversified income 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, production services, and oilfield equipment rentals. The units of BlackWatch trade on the Toronto Stock Exchange under the symbol "BWT.UN".

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.

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:

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

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

Funds from operations - This measure is an indicator of the Trust's ability to generate funds in order to fund ongoing operating commitments, service debt, fund capital programs, pay interest and income tax charges and make distributions. Funds from operations is defined as cash flow from operations before changes in non-cash working capital.

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