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, L.L.C. 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, manager 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, L.L.C. ("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. At purchase, the Westwego Terminal had an approximate leasable capacity of 752,000 barrels.

As of September 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, 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 barge 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 September 30, 2009 we had leased approximately 540,000 barrels of storage, for a storage utilization rate of approximately 72%. The products currently stored at the storage terminal are lubricating oils, 50% grade caustic and sulfuric acid. Our utilization rate is expected to increase to over 85% by the end of December 2009 due to recently signed agreements for additional long-term storage. This expected utilization rate of approximately 85% is considering the increase in storage tank capacity of approximately 100,000 barrels currently under construction.

Safeland Storage Investment and Redemption. On September 4, 2009, the Company completed the redemption of its seven percent (7%) interest in Safeland Storage, L.L.C ("Safeland"), represented by 70,000 Class A units of Safeland membership interest.

The Company received $325,000 for its 7% interest in Safeland, resulting in a loss of $82,400 for the three months ended September 30, 2009. Previously, in its Annual Report on Form 10-K, for the fiscal year ended March 31, 2009, the Company recorded an impairment charge of $1,092,600 based on an independent third party appraisal.

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 continue to increase the utilization rate 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. In September 2009, we updated these plans from 120,000 barrels to 150,000 barrels based on signing a five-year storage contract. Current construction plans call for two of the 50,000 barrel steel tanks to be erected and ready for leasing by the end of December 2009 and the third 50,000 barrel steel tank to be erected and ready for leasing by the end of April 2010. We are also in the permitting and engineering stage of constructing a new Mississippi River ship dock, with scheduled completion by the end of April 2010. The addition of the Mississippi River ship dock to our Westwego Terminal facilities will greatly increase our potential for servicing a larger range and number of customers and their products.

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 and Six-Month Periods Ended September 30, 2009 and September 30, 2008.

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

Revenues-Revenues from storage terminal facilities are derived from two mains areas of operation: recurring contractual storage tank lease fees and monthly ancillary services. The following is a discussion about each.

Revenues-Storage Leases. The Company's storage tank revenues for the three-month period ended September 30, 2009 totaled approximately $907,000; averaging approximately $302,000 per month. This is a 29% increase from the previous three-month period average of approximately $233,500. This rise is due mainly to an increase in the number of customers with lease contracts during the last quarter. The Company's storage tank revenues for the three-month period ended September 2009 is approximately 77% higher than the predecessor's storage tank revenues for the three-month period ended September 2008.

During the three-month period ended September 30, 2008 the predecessor's storage tank revenues totaled approximately $513,000, averaging approximately $171,000 per month.

The Company's storage tank revenues for the six-month period ended September 30, 2009 totaled approximately $1,608,000; averaging approximately $268,000 per month. This is approximately a 15% increase from the previous three-month period average of approximately $233,500. This rise is due mainly to an increase in the number of customers with lease contracts. The successor's storage tank revenues for the six-month period ended September 2009 is approximately 53% higher than the predecessor's storage tank revenues for the six-month period ended September 2008.

During the six-month period ended September 30, 2008 the predecessor's storage tank revenues totaled approximately $1,050,000, averaging approximately $175,000 per month.

Management monitors the utilization rate of the leasable storage tanks at the Westwego Terminal each month. At the commencement of the Company's operations at the Westwego Terminal in December 2008, the storage tank utilization rate was 38%. As of September 30, 2009, the storage tank utilization rate was approximately 72%. See the table below for the month-to-month utilization percentage. Management attributes this approximate 90% increase in the utilization rate to aggressive marketing of the terminal location, services, and capacity and to management's industry associations.

Sep 2009 = 71.8% Aug 2009 = 71.8% Jul 2009 = 65.6% Jun 2009 = 56.4% May 209 = 55.9% Apr 2009 = 56.9% Mar 2009 = 57.8% Feb 2009 = 57.8% Jan 2009 = 57.8% Dec 2008 = 38.0%

Revenues-Ancillary Services. Ancillary revenues are earned based on a customer's particular needs; and, therefore, by their nature fluctuate from month to month. The Company's ancillary revenues for the three-month period ended September 30, 2009 totaled approximately $110,000 or approximately 47% more than the predecessor's ancillary revenues. The predecessor's ancillary revenues during the three-month period ended September 30, 2008 totaled approximately $75,000.

The Company's ancillary revenues for the six-month period ended September 30, 2009 totaled approximately $162,000 or approximately 43% more than the predecessor's ancillary revenues. The predecessor's ancillary revenues during the six-month period ended September 30, 2008 totaled approximately $113,000.

Cost of Revenues. The Company's cost of revenues for the three-month period ended September 30, 2009 totaled approximately $276,000 or 27% of revenues; which is consistent with our previous operating periods. The predecessor's costs of revenues for the three-month period ended September 30, 2008 were approximately $380,000 or 65% of revenues. The variance between our cost of revenues and the predecessor's cost of revenues is primarily attributable to one-time repair and maintenance charges by the predecessor and differences in the method of classifying some labor related costs. The predecessor classified all storage terminal managerial cost to cost of revenues; whereas, the Company distinguishes managerial labor costs between cost of revenues and administrative expenses.

The Company's gross profit for the three-month period ended September 30, 2009 was approximately $741,000 or 73% of revenues as compared to the predecessor's three-month period ended September 30, 2008 of approximately $208,000 or 35% of revenues.

The Company's cost of revenues for the six-month period ended September 30, 2009 totaled approximately $531,000 or 30% of revenues. The predecessor's costs of revenues for the six-month period ended September 30, 2008 were approximately $807,000 or 69% of revenues.

The Company's gross profit for the six-month period ended September 30, 2009 was approximately $1,239,000 or 70% of revenues as compared to the predecessor's six-month period ended September 30, 2008 of approximately $357,000 or 31% of revenues.

Selling, General and Administration Expenses (SG&A). The Company's consolidated SG&A expenses of approximately $1,102,000 for the three-month period ended September 30, 2009 and the expenses of approximately $2,484,000 for the six-month period ended September 30, 2009 were significantly higher, by approximately $1,023,000 and $2,323,000, respectively, than those SG&A expenses reported for the predecessor for the three-month period ended September 30, 2008 of approximately $79,000 and expenses for the six-month period ended September 30, 2008 of approximately $161,000.

The Company's 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, impairment on investments and other expenses that were not allocated or expensed by the predecessor's parent company to the terminal's operations. The table below outlines these differences.

                                                            For the Three-Month Period    For the Six-Month Period
                                                               Ended September 30,          Ended September 30,
                                                                    Successor                    Successor
                                                                       2009                         2009
Selling, General & Administrative Expenses:
Management Salaries                                        $              247,968         $           495,937

Management, Director & Services Share-based Compensation                  262,141                     959,557

Professional Fees                                                         300,070                     517,374

Insurance-Business                                                         82,320                     164,138

Other SG&A Expenses                                                       209,959                     347,417

Total SG&A Expenses                                        $            1,102,458         $         2,484,423

The Company's average monthly SG&A expenses, for both the three-month and six-month periods ended September 2009, were relatively unchanged for each category, when excluding one-time and/or non-monthly recurring expenses.

† Management salaries (including payroll burden) averaged approximately $83,000 per month.

† Management, director and services non-cash, share-based compensation, excluding $435,274 for director options expensed in the 1st quarter, averaged approximately $87,000 per month.

† Professional fees, excluding $100,000 for annual director fees expensed in August 2009, averaged approximately $68,000 per month.

† Business insurance for both periods averaged approximately $27,000 per month.

† Other SG&A expenses, excluding an investment impairment expense in September 2009 of $82,400, averaged approximately $43,000 per month.

In summary, the Company's average SG&A expenses have been and are currently averaging approximately $308,000 per month. This is compared to the predecessor's average SG&A expenses of approximately $26,500 per month.

The Company's non-cash SG&A expense for management, director and services share-based compensation was $262,141 for the three-month period ended September 30, 2009, and totaled $959,557 for the six-month period ended September 30, 2009. During the period ended June 30, 2009, the Company expensed the 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.

Depreciation. Our consolidated depreciation expense for the three-month period and the six month ended September 30, 2009 were approximately $85,000 and $166,000; respectively. This was approximately three times higher than the predecessor's depreciation expense of approximately $27,000 for the three-month period ended September 30, 2008 and approximately $55,000 for the six-month period ended September 30, 2008. This was due to a step-up in the value of the property, plant and equipment assets, and changes in Management's assessment of the estimated life of the assets, in connection with the acquisition of the Westwego Terminal.

Interest Expense. We incurred approximately $42,000 in interest for the three-month period ended September 30, 2009 and approximately $80,000 in interest for the six-month period ended September 2009; whereas the predecessor did not record any interest for either of these periods. The majority, approximately $28,000 for the three-month period and approximately $61,000 for the six-month period, of our consolidated interest was related to our loan agreement with JPMorgan Chase Bank associated with our acquisition of the Westwego Terminal. The remainder relates to our related party loans.

During the three-month period ended September 30, 2009, we allocated approximately $14,000 of interest to our Construction-in-Progress capital projects.

Gain and Loss on Disposal of Asset. Pertaining to the tank leak incident at the Westwego, LA terminal in February 2009, we have recorded the amounts due from our insurance carriers and the expenses we have incurred as of September 30, 2009 in the consolidated statement of operations.

During the three-month period ended September 30, 2009, we collected $61,842 in pollution insurance expense reimbursements from our pollution insurance carrier and recorded a receivable of $250,000, as per a property insurance settlement, due from our property insurance carrier. The $250,000 was collected in October 2009. During the three-month period ended September 30, 2009, we recorded additional expenses incurred of approximately $55,882 and we recorded $181,348 for the six-month period ended September 2009. During the three-month and six-month period ended September 30, 2008, the predecessor had no such activities. The table below summarizes amounts related to this incident.

We are continuing to work closely with our pollution insurance carrier 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 September 30, 2009.

                                                 Successor           Successor         Predecessor
                                                  For the
                                                 six-month
                                                  Period          For the period      For the period
                                                Ended Sept.
                                                    30,           Ended March 31,    Ended Sept. 30,
                                                   2009                2009                2008
Pollution & Property Insurance: Clean up &
mitigation reimbursement less deductible of
$250,000                                       $     311,842     $       181,585     $             --
Pollution: Clean up & mitigation expenses           (181,348 )        (1,000,668 )                 --
Property: Tank disposal                                   --             (83,678 )                 --
Gain (Loss) on Disposal of Asset               $     130,494     $      (902,761 )   $             --

LIQUIDITY AND CAPITAL RESOURCES

As shown in the accompanying consolidated financial statements for the three-month and six-month periods ended September 30, 2009, we have incurred a net loss of approximately $222,000 and approximately $1,347,000, respectively; and have an accumulated deficit of approximately $6,894,000 as of September 30, 2009

We have negative working capital of approximately $1,172,000 as of September 30, 2009. This is an improvement when compared to our negative working capital of $2,657,166 as of June 30, 2009 and negative working capital of $1,963,635 as of March 31, 2009. This improvement is attributable to proceeds received from the convertible debt subscriptions, increase utilization and revenues at the Westwego terminal, and collection and receivables of the February 2009 insurance claim related funds.

Our operation at the newly acquired terminal in Westwego, LA continues to expand with increasing capacity and revenues and is generating industry accepted gross margins. However, management is aware that our corporate and administrative overhead is designed and structured to accommodate and manage multiple storage terminals.

The Company generated positive cash flow of approximately $33,000 from its operations for the six-month period ended September 30, 2009. This included an increase of approximately $740,000 from prepaid storage lease fees invoiced and collected as of September 30, 2009. The predecessor, for the six-month period ended September 30, 2008, generated positive cash flows from operations of approximately $195,000, which was returned to its parent corporation.

As of September 30, 2009, our total assets were approximately $8,805,000. For the six-month period ended September 30, 2009 our total assets increased approximately $2,250,000 as we collected $1,660,000 in convertible debt subscriptions as of September 30, 2009, recorded an insurance receivable of $250,000, and redeemed our investment in Safeland Storage, LLC for cash of $325,000 but recorded a related impairment loss on investments of $82,400 for the period.

As of September 30, 2009 our total current liabilities were approximately $3,829,000; while our long-term liabilities were approximately $3,410,000. This is a net increase in total liabilities of approximately $2,427,000 for the six-month period ended September 30, 2009. Our total current liabilities increased by approximately $1,081,000 due to an increase of accounts payable and deferred revenue; as one of our major customers prepaid a year of storage lease fees. Our total long-term liabilities increased by approximately $1,346,000 due to the addition of convertible debt subscriptions and to a pay-down of principal on our bank loan and related party loans.

At September 30, 2009, we had cash totaling approximately $1,972,000, of which approximately $1,660,000, attributable to the convertible debt raise, was classified as restricted cash, and $250,754 was restricted as per our agreement with JPMorgan Chase. As of March 31, 2009 our cash totaled approximately $513,000; of which $500,260 was restricted as per our agreement with JPMorgan Chase.

On September 4, 2009, the Company completed the redemption of its seven percent (7%) interest in Safeland, represented by 70,000 Class A units of Safeland membership interest. The Company received $325,000 for its 7% interest in Safeland, resulting in a loss of $82,400 for the three months ended September 30, 2009. Previously, in its Annual Report on form 10-K, for the fiscal year ended March 31, 2009, the Company recorded an impairment charge of $1,092,600 based on an independent third party appraisal.

The Company made a private offering of $2,250,000 of convertible debt of the Company. As of September 30, 2009, the Company received Subscription Agreements and collected funds in the amount $1,660,000. As of November 12, 2009, the Company has received Subscription Agreements and collected funds in the amount of $3,001,033. As a result of the oversubscription to the September 2009 Offering, the Company has elected to increase the amount of the Offering to $3,001,033, and accept all subscriptions received by the Company.