Tuscany Energy Ltd.
TSX VENTURE : TUS

Tuscany Energy Ltd.

May 31, 2013 09:00 ET

Tuscany Announces Q1 2013 Results

CALGARY, ALBERTA--(Marketwired - May 31, 2013) - Tuscany Energy Ltd. (TSX VENTURE:TUS) ("Tuscany" or the "Company") announces that it has filed on SEDAR its Interim Financial Statements and MD&A for the three months ended March 31, 2013.

During the first quarter of 2013, low heavy oil prices resulted in Tuscany:

  • restricting drilling related capital expenditures
  • focusing on increasing water handling capacity at its existing oil pools
  • maintaining production by adding high capacity pumps
  • maintaining an excellent balance sheet with no debt

Operations

As a result of weak heavy oil prices in Q1 2013, Tuscany deferred further drilling operations until July 2013. During Q1 2013, Tuscany completed an additional water disposal well at its Evesham, Saskatchewan property. The additional water handling capacity will allow increased fluid production and ultimately an increase in oil production at a reduced cost.

To view the Graphs 1 & 2 associated with this press release, please visit the following link: http://media3.marketwire.com/docs/Graphs1%262_877390.pdf.

Financial

For Q1 2013, Tuscany's revenues decreased to $1.2 million compared with $2.2 million in Q1 2012 and cash flow from operations decreased to $297,000 from $1.1 million in Q1 2012. The decrease in revenue and cash flow resulted primarily from the combined effect of a decline in heavy oil prices from $72.36 per barrel in Q1 2012 to $50.65 per barrel and a decline in oil and gas production from 370 BOEd to 301 BOEd respectively.

To view the Graphs 3 & 4 associated with this press release, please visit the following link: http://media3.marketwire.com/docs/Graphs3%264_877390.pdf.

Tuscany incurred $770,000 of net capital expenditures during the quarter compared with $2.4 million in Q1 2012. Capital expenditures for the three month period ended March 31, 2013, were financed from cash flow from operations, and working capital.

At March 31, 2013, Tuscany had net debt of $150,000 compared with positive working capital of $380,000 at the beginning of the year. The Company also had access to an unused credit facility of $8.5 million.

Proposed Acquisition of Diaz Resources Ltd.

On May 17, 2013, Tuscany and Diaz Resources Ltd. ("Diaz") announced that they had entered into an agreement whereby, subject to certain conditions including obtaining shareholder, court and all necessary regulatory approvals, Tuscany will acquire all of the common shares of Diaz (the "Transaction"). After the acquisition of Diaz, Tuscany plans to reorganize its capital structure by the consolidation of its shares on the basis of 1 new share for every 8 shares outstanding.

It is anticipated that Tuscany will issue approximately 3.7 million post-consolidated common shares for the acquisition of Diaz. Following the Diaz acquisition it is expected that Tuscany will add:

  • Proved plus probable reserves of 1.0 million BOE (2.0 Bcf of natural Gas and 670.8 thousand barrels of oil), a 66% increase in Tuscany's reserves.
  • Net present value of future net revenue attributable to such additional reserves of approximately $12.1 million, using a 10% discount rate, a 42% increase to the net present value of the future net revenue attributable to Tuscany's current reserves.
  • 65.7 thousand acres of undeveloped land, a 320% increase in Tuscany's undeveloped land.
  • Based on Q1 2013 production rates, 382 BOEd (172 Bopd and 1.3 MMcf of natural gas production), a 127% increase in Tuscany's production.

The above reserve information and net present value is based on the independent reserves reports of Diaz prepared by McDaniel & Associates Consultants effective December 31, 2012 in accordance with National Instrument 51-101 and the COGE Handbook. It should not be assumed that the estimate of the net present value of the future net revenue attributable to Diaz's reserves represents the fair market value of the reserves. There can be no assurances that the assumptions contained in such estimate will be attained and variances could be material.

In accordance with the proposed Transaction Tuscany will effectively assume Diaz's net debt, approximately $4.2 million at March 31, 2013.

Tuscany and Diaz have operated together through a joint operating agreement since 2010 and therefore they have common working interests in some heavy oil properties, including the Macklin pool, one of the properties that is expected to be a focus of Tuscany's 2013 development operations.

Tuscany anticipates that the acquisition will result in reduced overhead expenses per BOE and increase management's efficiency and control over the timing of drilling operations.

The Transaction is expected to be completed by way of a Plan of Arrangement and closing is expected to occur by the end of July 2013, subject to satisfaction of certain conditions including standard stock exchange, court and regulatory approvals and the requisite two-thirds majority and majority of minority approval of Diaz's shareholders and majority of minority approval of Tuscany's shareholders. An information circular, prepared jointly by the parties, will be mailed to shareholders of both Tuscany and Diaz in connection with the shareholder meetings of each company expected to be held on July 15, 2013 to consider and approve the Transaction.

Outlook

Heavy oil prices realized in Q1 2013 of $50.65 per barrel have resulted in the delay of planned development drilling at Evesham and Macklin until July 2013. Heavy oil prices have recovered since Q1 2013 and Tuscany anticipates average prices for its heavy oil production to be in excess of $60 per barrel for the remainder of the year. At these prices the Company believes that its heavy oil projects will have the positive economics which will warrant continued development. In Q2 2013, Tuscany will remain focused on capital maintenance, reducing operating costs, sustaining production levels and completing the acquisition of Diaz.

The Company believes it can achieve satisfactory growth, with the higher heavy oil prices and increased efficiencies resulting from the Diaz acquisition, by continuing to develop its Dina oil properties at Macklin and Evesham, from working capital and operating cash flows, while minimizing the reliance on bank debt to finance future capital expenditures.

Please refer to Tuscany's website at www.tuscanyenergy.com for more information on the Company's Evesham and Macklin fields and other prospects in Alberta and Saskatchewan.

ADVISORY: Certain information regarding the Company in this News Release including management's assessment of future plans and operations, and the proposed Transaction with Diaz, may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, capital expenditure costs, including drilling, completion and facilities costs, unexpected decline rates in wells, wells not performing as expected, incorrect assessment of the value of acquisitions, failure to realize the anticipated benefits of acquisitions, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhausted. Additional information on these and other factors that could effect the Company's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) and at the Company's website (www.tuscanyenergy.com). Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

Where amounts are expressed on a barrel of oil equivalent (boe) basis, natural gas volumes have been converted to barrels of oil at six thousand cubic feet (mcf) per barrel (bbl). Boe figures may be misleading, particularly if used in isolation. A boe conversion of six thousand cubic feet per barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. References to oil in this discussion include crude oil and natural gas liquids (NGLs).

NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

Contact Information

  • TUSCANY ENERGY LTD.
    Robert W. Lamond
    President & CEO
    (403) 269-9889
    (403) 269-9890 (FAX)

    TUSCANY ENERGY LTD.
    Donald K. Clark
    Vice President Operations
    (403) 269-9889
    (403) 269-9890 (FAX)
    www.tuscanyenergy.com