BlackWatch Energy Services Corp. Announces Extension and Increase of Financing Commitments



    CALGARY, Jan. 22 /CNW/ - BlackWatch Energy Services Corp. ("BlackWatch"
or the "Corporation") (TSX: BWT) is pleased to announce that the lenders under
BlackWatch's senior secured credit facility, comprised of a group of major
Canadian banks and led by the Bank of Nova Scotia, have agreed to extend the
maturity of its existing senior facility (the "Senior Facility") to June 1,
2009 and to increase the available facility by up to $5 million (the "Senior
Facility Increase") to $27.5 million.
    BlackWatch is pleased to also provide an update on the status of the
subordinated loan facility (the "Subordinated Facility") it entered into with
a related party entity (the "Subordinated Lender"). The original term of the
Subordinated Facility expired on December 31, 2008, with the facility being
extended to January 21, 2009 to allow BlackWatch additional time to further
its ongoing negotiations respecting a longer-term extension of both the
Subordinated Facility and the Senior Facility. BlackWatch is pleased to
announce that it has entered into an amending agreement with the Subordinated
Lender extending the term of the Subordinated Facility and making certain
other related amendments to the Subordinated Facility. The following is a
brief description of the amended terms of the Subordinated Facility:

    
    -   the new maturity date is June 1, 2009;

    -   interest on the Subordinated Facility will be payable quarterly at a
        rate of 15% per annum, which will be payable in cash (subject to
        approval of BlackWatch's senior secured lenders) or through the
        issuance of common shares of BlackWatch ("Common Shares") at the
        Subordinated Lender's option, to be issued at a 10% discount to the
        10 day weighted average trading price of the Common Shares on the
        Toronto Stock Exchange (the "TSX") (as calculated for the ten trading
        days immediately prior to the date of issuance). The issuance of
        Common Shares to meet interest obligations under the Subordinated
        Facility is subject to the approval of the TSX, including the
        requirement that the issuance of any such shares not take place until
        at least five business days from the date hereof. Accordingly, the
        issuance of Common Shares in payment of interest accrued up to and
        including December 31, 2008 is not scheduled to close until
        January 30, 2009;

    -   as consideration for extending the term of the Subordinated Facility
        and the support of the Senior Facility Increase by the Subordinated
        Lender on behalf of the Corporation (as described below), the
        Subordinated Lender is to be paid a fee of $100,000 (the "Amendment
        Fee"), payable through the issuance of Common Shares issuable at a
        10% discount to the 10 day weighted average trading price on the TSX
        (as calculated for the ten trading days immediately prior to the date
        of issuance). The issuance of Common Shares in payment of the
        Amendment Fee is subject to the approval of the TSX, including the
        requirement that the issuance of any such shares not close until at
        least five business days from the date hereof. Accordingly, the
        issuance of Common Shares in payment of the Amendment Fee is not
        scheduled to close until January 30, 2009;

    -   the Subordinated Lender has agreed with BlackWatch that the lowest
        10 day weighted average trading price to be used in determining the
        number of Common Shares which may be issued in settlement of interest
        during the extended term of the Subordinated Facility and in payment
        of the Amendment Fee will be $0.60/share. The actual 10 day weighted
        average trading price of the Common Shares will be used if it is
        higher than $0.60/share. Accordingly, the minimum price at which
        Common Shares may be issued in settlement of interest during the
        extended term of the Subordinated Facility and in payment of the
        Amendment Fee will be $0.54/share; and

    -   the Subordinated Lender will have the right to convert up to 15% of
        the outstanding loan balance to Common Shares at a conversion price
        of $0.80 per Common Share from time to time until the Subordinated
        Facility is repaid in full.
    

    In addition, the Subordinated Lender has agreed to support the Senior
Facility Increase on behalf of the Corporation through the issuance of a $4
million letter of credit from the Subordinated Lender in favour of the senior
secured lenders, with the Subordinated Lender being entitled to increase the
letter of credit to $5 million, as required. Accordingly, $4 million of the
Senior Facility Increase is currently available with the remaining $1 million
becoming available to BlackWatch upon the provision of the increased letter of
credit by the Subordinated Lender.
    BlackWatch has made an application to the TSX for approval of the listing
of the additional Common Shares issuable pursuant to the terms of the amended
Subordinated Facility, which were not previously approved by the TSX.
    Two of BlackWatch's directors, M. Bruce Chernoff and David Rain, are
indirect securityholders of the Subordinated Lender, with Mr. Chernoff owning
the substantial majority of the securities of the Subordinated Lender and Mr.
Rain serving as the President of the Subordinated Lender. Due to the
involvement of Mr. Chernoff and Mr. Rain in the Subordinated Lender, the
independent directors of BlackWatch Energy Services Corp. (being the directors
other than Messrs. Chernoff and Rain) have reviewed the proposal to amend the
terms of the Subordinated Facility. Such directors, being free from any
interest in the Subordinated Facility and unrelated to the Subordinated
Lender, have determined that the proposal to amend the Subordinated Facility
is a necessary step to facilitate the Corporation's strategic plan and such
directors have recommended proceeding with the amended Subordinated Facility.
    The independent directors have determined that at present and without the
amendment to the Subordinated Facility the Corporation is in serious financial
difficulty such that the provision of the amended Subordinated Facility will
considerably improve the Corporation's financial situation. As such the
independent directors believe that the amended terms of the Subordinated
Facility are reasonable in the circumstances and have recommended that the
Corporation enter into the amended Subordinated Facility. Further, the number
of Common Shares to be issued in payment of interest and the Amendment Fee
under the amended Subordinated Facility exceeds the number of securities
issuable without shareholder approval, pursuant to the rules of the TSX.
Specifically subsections 604(a) and 607(g) of the TSX Company Manual require
shareholder approval in respect of the issuance of Common Shares to insiders
in excess of 10% of the issued and outstanding Common Shares of the
Corporation. Accordingly, the Corporation has applied to the TSX for an
exemption from the requirement to secure shareholder approval in this regard
on the basis of the foregoing determination of the independent directors. In
addition, due to the participation of insiders in the Subordinated Facility,
the Subordinated Facility is a related party transaction for the purposes of
Multilateral Instrument 61-101 and the Corporation is relying on exemptions
from the formal valuation and minority approval requirements of Multilateral
Instrument 61-101 based on the foregoing determination of the independent
directors. A material change report respecting the closing of the Subordinated
Facility will be filed less than 21 days before the anticipated closing date,
with such shorter period being reasonable and necessary in the circumstances
to allow the Corporation to close the Subordinated Facility on a timely basis.
    Mr. Chernoff currently beneficially owns, directly or indirectly,
8,557,813 Common Shares and 1,666,667 warrants to purchase Common Shares, each
of such Warrants allowing the holder to purchase one Common Share at a price
of $1.68 per Common Share. Such Common Shares represent, in aggregate,
approximately 23% of the total outstanding Common Shares. As a result of the
amendments to the Subordinated Facility, Mr. Chernoff's percentage interest in
the outstanding Common Shares will be increased with the payment of the
Amendment Fee and in the event the interest payments due under the
Subordinated Facility continue to be paid in Common Shares or if the
Subordinated Lender chooses to convert 15% of the outstanding balance under
the Subordinated Facility to Common Shares. Assuming that the Subordinated
Lender does not convert 15% of the outstanding balance under the Subordinated
Facility to Common Shares, the warrants held by the Subordinated Lender are
not exercised and all interest on the Subordinated Facility is paid in Common
Shares, as at the maturity date Mr. Chernoff will hold 12,903,957 Common
Shares of the Corporation.

    Operational Update

    During the latter part of 2008 a number of operational initiatives were
undertaken which we believe will improve business performance. Our latest and
most technically advanced drilling rig was commissioned and began field
operations in September 2008. The telescoping double pad rig is designed to
provide industry-leading drilling performance and inter-well move efficiency.
In response to increasing industry activity levels in northeast B.C., a new
BlackWatch service facility was opened in Fort St. John. This facility will
support our wireline completion services and oilfield rental operations.
Assets will be relocated as required to meet customer demand in the region.
The casing drilling initiative begun in 2007 continues to provide significant
improvements to our drilling efficiency and reduced drilling costs for
clients. Going forward we anticipate that these initiatives will assist
BlackWatch to compete for business, in what we expect to be a challenging
market.

    
    ABOUT BLACKWATCH ENERGY SERVICES CORP.
    --------------------------------------
    
    BlackWatch is a corporation that provides a range of services to its
customers operating in the western Canadian sedimentary basin including
drilling, wireline services, rig transportation and hauling, production
services and oilfield equipment rentals.
    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.





For further information:

For further information: Travis Robertson, President and Chief Executive
Officer; Wiley Auch, Vice President, Finance & CFO; BlackWatch Energy Services
Corp., Phone: (403) 225-3879, Fax: (403) 366-2066, 300, 855 - 8 Avenue SW,
Calgary, Alberta, T2P 3P1, www.blackwatchenergy.ca

Organization Profile

BLACKWATCH ENERGY SERVICES CORP.

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