In the three months ended March 31, 2009 BlackWatch Energy Services had lower revenues and gross margin compared in the year-ago quarter. The decline in revenues reflects lower revenue in BlackWatch Energy Services’ drilling, downhole and rentals divisions somewhat offset by higher revenue in our production services division. The drilling division utilization lessened from 63% in 2008 to 47% in 2009. Industry drilling activity levels also decreased from 56% in 2008 to 37% in 2009. The lower gross margin led to a decrease in EBITDA for the three months ended March 31, 2009.
Natural gas and crude oil prices remained low during the first quarter of 2009. Low commodity prices coupled with decreasing global demand for oil and gas have caused many producers to scale back their 2009 capital budgets. This has had a negative effect on oil and gas industry activity in western Canada, decreasing the demand for oilfield services.
Effective March 18, 2009 BlackWatch Energy Services discontinued the operations of its transportation division. The asset sale was completed on April 30, 2009 and the company will realize net proceeds of about CAD3.2 million, which will be used to reduce senior debt. The truck fleet was aging and the financial results did not justify the major maintenance capital investment necessary to carry on operating the business unit. Gross margin contributed by this division in 2008 and in the first quarter of 2009 was negative and the discontinuance of operations is not anticipated to have a material negative effect on future cash flow from operations.
