Forward-looking Statements

THE FOLLOWING DISCUSSION OF THE RESULTS OF OUR OPERATIONS AND FINANCIAL CONDITION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.

This section of this report includes a number of forward-looking statements that reflect Blackwater Midstream Corp.'s (the "Company") current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: "believe," "expect," "estimate," "anticipate," "intend," "project" and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.

The following discussion provides an analysis of the results of our operations, an overview of our liquidity and capital resources and other items related to our business. The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and our audited financial statements and notes included in our Annual Report on Form 10-K as of and for the year ended March 31, 2009.

Overview of Company and its Operations

Successor company references herein are referring to consolidated information pertaining to Blackwater Midstream Corp. (formerly Laycor Ventures Corp.), the registrant, our wholly owned subsidiary Blackwater New Orleans, LLC and to Laycor Ventures Corp.

Predecessor company references herein are referring to NuStar Terminals Operations Partnership L.P. ("NuStar"), the former owner and manager of the storage terminal in Westwego, LA, and their operations at the storage terminal.

Commencing in May 2008, we hired new management and changed our business plan to become an independent developer and acquirer of bulk liquid fuel and chemical storage facilities. Prior to that time, we were engaged in the exploration of a single oil and gas property containing two claims relating to mineral rights in British Columbia, Canada.

General. We were incorporated in the State of Nevada on March 23, 2004. We changed our name from Laycor Ventures Corp. to Blackwater Midstream Corp. on March 18, 2008 and on March 21, 2008, a change in the ownership and management control of the Company occurred. At that time, we changed our business objective to become an independent developer and manager of third party fuel, agricultural and chemical bulk liquid storage terminals. Commencing in May 2008 we hired new management and appointed a new board of directors.

Westwego Terminal Operations. On September 9, 2008, we formed Blackwater New Orleans, LLC ("BNO"), a Louisiana limited liability company, as a wholly owned subsidiary of the Company, to acquire the Westwego Terminal.

The purchase price for the Westwego Terminal was $4,800,000, subject to certain adjustments for prepaid third-party fees, adjustment to inventory, and NuStar's transaction-related expenses. The Westwego Terminal has an approximate leasable capacity of 752,000 barrels.

As of June 30, 2009 our asset portfolio and operations consisted of the Westwego Terminal. The above-the-ground storage tanks at the Westwego Terminal range in size from approximately a 5,000 barrel capacity to tanks with over a 100,000 barrel capacity. Our operations support many different commercial customers including refiners and chemical manufacturers. The diversity of our customer base, lends to the potential diversity of the products customers may want stored in our terminal. The products will however generally fall into the three broad categories: petroleum, chemical and agricultural.

Our income is derived from tank leasing, operational charges associated with blending services, throughput charges for receipt and delivery options and other services requested by our customers. The terms of our storage leasing contracts range from month-to-month, to multiple years, with renewal options. Cash generated from the operations at the Westwego Terminal is our primary source of liquidity for funding debt service, maintenance, and small-scale potential capital expenditures. Based on long-term contracts, we would seek debt financing to fund larger-scale capital expenditures.

At the Westwego Terminal, we generally receive our customer's liquid product by river barge at our Mississippi River dock. The product is transferred from barges to the leased storage tank via the terminal's internal pipeline apparatus. The customer's product is removed from storage at our terminal by truck, railcar and/or by barge. The length of time that the customer's product is held in storage without transfer varies depending upon the customer's needs.

As of June 30, 2009 we had leased approximately 440,000 barrels of storage, for a storage utilization rate of over 58%. The products currently stored at the storage terminal are lubricating oils, crude naphthenic acid, 50% diaphragm grade caustic and sulfuric acid. Our utilization rate is expected to increase to approximately 72% in August 2009 due to recently signed agreements for additional long-term storage.

Growth of our Business. The importance of bulk terminal facilities in the refined product and chemical manufacturing segments has grown significantly over the past decade as the nation's product supply patterns have become increasingly more complex. Bulk liquid terminals allow producers to operate their refineries and manufacturing plants more efficiently by providing capacity to level out both increases and decreases in product demand. In addition, bulk liquid terminals provide a more efficient supply chain by storing the product either closer to the production or consumption locations.

Our current business model is to increase the utilization of the existing storage tanks at the Westwego Terminal and to construct additional storage tanks at the terminal site as needed. In July 2009, we announced our plans to add up to 120,000 barrels of new capacity on existing tank foundations.

Additionally, we plan to pursue the acquisition of other underachieving, underutilized storage terminals through asset purchases and management agreements. We believe the considerable experience of the Company's management team will be a key factor in transitioning underperforming terminals into viable profit centers. We expect these acquisitions to provide immediate accretive results to the Company's operations, and will also allow us to serve the specific storage needs of our customers at our various terminals.

Results of Operations

For the Three Month Period Ended June 30, 2009 and June 30, 2008.

We became an operational entity when we acquired the Westwego Terminal on December 23, 2008. For the period ended June 30, 2008, the Westwego Terminal was owned and operated by the predecessor company.

THE FOLLOWING TABLE SETS FORTH, FOR THE PERIODS INDICATED, CERTAIN OPERATING
INFORMATION EXPRESSED

                        THREE MONTHS ENDED JUNE 30, 2009
                  COMPARED TO THREE MONTHS ENDED JUNE 30, 2008

                                                   THREE MONTHS ENDED JUNE 30,
                                                     2009                 2008
                                                  Successor            Predecessor
  CONSOLIDATED STATEMENT OF OPERATIONS DATA:
  Revenue                                      $        752,648       $     575,547
  Costs and Expenses:
  Costs of revenue                                      254,808             426,854
  Selling, general and administrative                 1,381,965              81,858
  Depreciation                                           81,471              27,599
  Total costs and operating expenses                  1,718,244             536,311
  Profit (Loss) from operations                        (965,596 )            39,236
  Interest income                                           284                  --
  Interest expenses                                     (38,232 )                --
  Loss on disposal of asset                            (121,798 )                --
  Net Profit/(Loss) from Operations            $     (1,125,342 )     $      39,236

Revenues-Storage Leases. For the three month period ended June 30, 2009 storage tank revenues totaled approximately $701,000; averaging approximately $233,500 per month. This is a 14% increase from the previous three month period average of approximately $205,000. This increase is due to a mix of barrels leased, lease rates and number of customer lease contracts. During the three month predecessor period ended June 30, 2008 storage tank revenues totaled approximately $537,000, averaging approximately $179,000 per month.

Revenues-Ancillary Services. Ancillary revenues are earned based on a customer's particular needs; and, therefore, by their nature fluctuate from month to month. For the period ended June 30, 2009 ancillary revenues totaled approximately $52,000. During the three month predecessor period ended June 30, 2008 ancillary revenues totaled approximately $39,000.

Costs of Revenues. For the three month period ended June 30, 2009 the cost of revenues totaled approximately $255,000; which is consistent with our previous operating periods. For the three month predecessor period ended June 30, 2008 costs of revenues were approximately $427,000. The variance between our costs of revenues and the predecessor's costs of revenues is primarily attributable to one-time repair and maintenance charges by the predecessor and differences in the method of coding some labor related costs. The predecessor coded all terminal managerial costs to costs of revenues; whereas, we distinguish managerial labor costs between costs of revenues and administrative expenses.

Gross profit for the three month period ended June 30, 2009 was approximately $498,000 or 66% of revenues as compared to the predecessor's three month period ended June 30, 2008 of approximately $149,000 or 26% of revenues.

Selling, General and Administration Expenses (SG&A). Our consolidated SG&A expenses of approximately $1,382,000 for the three month period ended June 30, 2009 were significantly higher, by approximately $1,300,000, than those SG&A expenses reported for the predecessor for the three month period ended June 30, 2008 of approximately $82,000. Our SG&A expenses include expenses relate to owning, managing, and operating our corporate organization and the Westwego terminal; which includes executive management salaries, executive management non-cash compensation (restrictive stock grants), director non-cash compensation (stock option grants), expenses related to being a public company and other professional fees, insurance, and other expenses that were not allocated or expensed by the predecessor company to the terminal's operations. The table below outlines these differences.

                                                     Successor                              Predecessor
                                             For the Three Month Period
                                                       Ended                     For the Three Month Period Ended
                                                   June 30, 2009                           June 30, 2008
Selling, General & Administrative
Expenses:
Management Salaries                        $    247,969             18%       $             -                 0%

Management, Director & Services
Share-based Compensation                        697,417             50%                     -                0%

Professional Fees                               217,304             16%                     -                0%

Insurance-Business                               81,818              6%                10,740               13%

Other SG&A Expenses                             137,457             10%                71,118               87%

Total SG&A Expenses                        $  1,381,965            100%       $        81,858              100%

Three of our SG&A expense categories decreased for the three month period ended June 30, 2009; as compared to our previous three month period ended March 31, 2009. Management Salaries decreased approximately $61,000, or 20%, due to a reduction in staff. Insurance was approximately the same; and Other SG&A expenses decreased approximately $133,500, or 49%, due to a reduction in company set-up expenses and a reduction in travel expenses.

Our SG&A expense category for Management, Director and Services Share-based Compensation was $697,416 for the three month period ended June 30, 2009, and was $242,907 for our previous three month period ended March 31, 2009. This increase was primarily attributed to the expensing of August 2008 director stock option share-based compensation of $435,274; which the Company's Board of Directors approved in January 2009 as per the Company's 2008 Incentive Plan, effective during the period ended June 30, 2009.

Professional Fees increased approximately $13,000, or 6%, for the period ended June 30, 2009 as compared to the previous three month period ended March 31, 2009; due to an increase in audit and legal fees.

Depreciation. Our consolidated depreciation expense for the three month period ended June 30, 2009 was approximately $82,000; approximately 3 times higher than the predecessor's depreciation expense of approximately $28,000 for the three month period ended June 30, 2008. This was due to a step-up in the value of the property, plant and equipment assets, based on the amount we actually paid upon the acquisition of the Westwego Terminal and different values of the estimated life of the assets.

Interest Expense. We recorded approximately $38,000 in interest expense for the three month period ended June 30, 2009; whereas the predecessor did not record any interest expense. The majority, approximately $30,000, of our consolidated interest expense was related to our loan agreement with JPMorgan Chase Bank associated with our acquisition of the Westwego Terminal. The remainder of approximately $8,000 relates to our related party loans.

Loss on Disposal of Asset. Pertaining to the tank leak incident at the Westwego, LA terminal in February 2009, we have recorded the amount due from our insurance carrier and the expenses we have incurred as of March 31, 2009 in the consolidated statement of operations. During the period ended June 30, 2009, we collected the recorded amount due from our insurance carrier and we recorded additional expenses incurred of $122,544. During the period ended June 30, 2008, the predecessor did not have any such activities. The table below summarizes amounts related to this incident.

We are continuing to work closely with our insurance carriers and have retained legal advice to obtain reimbursement for expenses related to this incident. We have not recorded any contingent reimbursement income in our consolidated statement of operations for the period ended June 30, 2009.

                                                       Successor              Successor         Predecessor
                                                     For the period        For the period      For the period
                                                     Ended June 30,        Ended March 31,     Ended June 30,
                                                          2009                  2009                2008
Pollution Insurance: Clean up & mitigation
reimbursement less deductible of $250,000             $            --     $       181,585     $             --
Pollution: Clean up & mitigation expenses                    (122,544 )        (1,000,668 )                 --
Property: Tank disposal                                            --             (83,678 )                 --
Loss on Disposal of Asset                             $      (122,544 )   $      (902,761 )   $             --

LIQUIDITY AND CAPITAL RESOURCES

As shown in the accompanying consolidated financial statements for the three month period ended June 30, 2009, we have incurred a net loss; we have negative working capital, and an accumulated deficit. However, our operation at the newly acquired terminal in Westwego, LA continues to expand with increasing revenues and is generating industry accepted gross margins. Management is aware that our corporate and administrative overhead is designed and structured to accommodate and manage multiple storage terminals.

Our ability to continue as a going concern is dependent upon our ability to obtain financing for future terminal acquisitions, financing for general working capital requirements and upon future profitable operations from the operations of our storage terminal(s). Management will seek additional capital through debt financing, private placement, and public offerings of our common stock for future terminal acquisitions. These factors raise substantial doubt regarding our ability to continue as a going concern.

The predecessor, for the three month period ended June 30, 2008, did produce positive cash flow from operations of approximately $67,000, which was returned to its parent corporation.

As of June 30, 2009, our total assets were $6,421,573 and our total liabilities were $5,075,127. For the three month period ended June 30, 2009 our total assets decreased approximately $133,000; as we collected accounts receivable more effectively, but then used the cash to reduce debt and current liabilities, and invested in property, plant and equipment.

For the three month period June 30, 2009 our total current liabilities increased approximately $452,000; while our long-term debt decreased approximately $189,000, resulting in a net increase in total liabilities of approximately $263,000. Our total current liabilities increased due to increased accounts payables and accrued liabilities mostly associated with our insurance incident, an increase in the amount of advance collection of accounts receivable (deferred revenue), and an increase in the current portion of long-term debt. Our long-term debt decreased as we paid monthly installments on debt.

At June 30, 2009, we had negative working capital of $2,657,166; as compared to negative working capital of $1,963,635 as of March 31, 2009. This decrease in working capital is attributable to our use of existing cash to reduce debt, while our accounts payables, accrued liabilities and current portion of long-term debt increased.

At June 30, 2009, we had cash totaling approximately $509,000, of which approximately $376,000 was restricted as per our agreement with JPMorgan Chase. As of March 31, 2009 our cash totaled approximately $513,000.