background on Hank from Bwt boardHANK SWARTOUT AND BLACKWATCH ENERGY SERVICES CORP.
BWT-TSX
Mr. Swartout, in one sense, has the same starting story of many multi-millionaire
entrepreneurs. He mortgaged his house in the early 1980s to get his drilling business going,
and just made it work.
He grew the firm – initially called Cypress Drilling - steadily through acquisition, consolidating
company after company from 1998 – 2001. I counted 27 acquisitions but some media reports
said over 30. It eventually morphed into Precision Drilling. He grew the business to where, in
2006, it was Canada’s largest oil well drilling contractor, with one-third of Canada's available oil
well drilling rig fleet and one-quarter of the country's oil well service rigs. It had a market
capitalization of roughly $7 billion.
Swartout retired in 2007 at age 56, revealing that he was battling multiple sclerosis. Maybe
that’s why he sold all his stock at $40 in 2006. Maybe it was co-incidence. Regardless, it was a
smart move. The stock now trades for under $7 (PD.UN-TSX). He is not only a good
businessman he’s shrewd with stock.
Swartout is now back in the oilfield services sector with Blackwatch Energy Services Corp.
(BWT-TSX).
Trading Symbols: BWT-TSX
Share Price $1.10
2009 Jan-Jun revenue $17.386 million
2009 EPS $(0.13)
Shares Outstanding: 151,315,021 (after most recent acquisition)
Market Cap: $211,841,029
Net Debt: $5,000,000
Insider Ownership: 81%
Blackwatch was an existing drilling company that had accumulated a lot of debt, and would
have declared bankruptcy at the end of June 2009 when about $43 million in debt came due.
Swartout and a couple of his old Precision management bought 66.7 million shares at 15 cents,
and got the lenders to convert $24 million of the debt into equity at 65 cents. So management
has a
significant equity position in the company. They then raised $86.25 million at $1/share
with a syndicate of securities firms.
When BWT first came to trade, its assets – the 11 old rigs that it owns – hardly warranted any
real valuation – and nothing close to what it trades at today. But Swartout grew one business,
and now the market is betting he can do it again.
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The market didn’t have to wait long. 100 days after re-capitalizing, the new Blackwatch
announced a US$86 million purchase of six almost new rigs in Mexico – that already had long
term contracts - and a team of directional drillers to go with it. (One of Swartout’s good friends
is Mexican billionaire Carlos Slim, one of the Top 5 richest men on earth; I’m not sure if Slim
was part of this transaction.)
So Swartout and his team have quickly started “backfilling” the value gap between the business
and the stock price. They bought the assets for less than 4x cash flow, and analysts are willing
to give BWT a 6-8x cash flow.
Analysts expect this to be the first of many international acquisitions. With an old fleet, geared
towards shallow gas when the trend towards deeper horizontal drilling is in full swing, investors
need to believe this is true.