Tuscany International Drilling Inc.

Tuscany International Drilling Inc.

June 21, 2011 02:01 ET

Tuscany International Drilling Inc. Announces Agreement to Acquire Caroil SAS Creating a Leading Emerging Market Drilling Company Active in Latin America and Africa

CALGARY, ALBERTA--(Marketwire - June 21, 2011) -


Tuscany International Drilling Inc. ("Tuscany" or the "Company") (TSX:TID) and Établissements Maurel & Prom ("M&P") (MAU:FP), a French exploration and production company, today announced the entering into of a definitive agreement whereby Tuscany's wholly-owned subsidiary Tuscany Rig Leasing S.A. (the "Buyer") will acquire all of the issued and outstanding shares of Caroil SAS ("Caroil"), the drilling and work-over subsidiary of M&P (the "Acquisition").

All figures contained herein are in USD$ unless otherwise noted. Canadian currency has been converted at CAD$1.02:USD$1.00.

The purchase price will be paid by Tuscany, on behalf of the Buyer, by the delivery of $120 million in cash, 82.5 million common shares of Tuscany ("Tuscany Shares") and 27.5 million zero cost, non-transferable, non-voting common share purchase warrants which are further described below (the "Warrants"). The purchase price for the Acquisition was negotiated based on an agreed upon share price of CAD$1.53 per Tuscany share to be issued to M&P which was not subject to increase or decrease as a result of the market price of the Tuscany Shares during the course of negotiations with M&P. The current enterprise value of Caroil based on the closing price for Tuscany Shares on the Toronto Stock Exchange on Monday, June 20, 2011 is approximately $202 million (prior to transaction costs). At closing of the Acquisition, Caroil will be required to have $37 million in working capital and will have no third party debt.

Acquisition Highlights

  • Acquisition at approximately 4.2 x EV/EBITDA on a current run rate without growth
  • Acquisition is anticipated to be over 30% accretive to cash flow per share
  • Acquisition is anticipated to be over 15% accretive on EV/EBITDA
  • Doubles Tuscany's revenue and EBITDA on current run rate
  • Accretive to average day and utilization rates
  • Expansion of Tuscany's fleet in its existing core area of Colombia
  • Expansion into new core areas with established operations and long term contracts
  • Established management in new core area and strengthening of existing team
  • Well established relationships with investment grade customers
  • Abundant growth opportunities in Africa

"This acquisition expands our existing operation in South America and adds an up and running African component establishing Tuscany as a leading emerging market drilling contractor," stated Walter Dawson, Chairman and Chief Executive Officer of Tuscany. "Upon closing this acquisition, there will be a focus on attaining operational excellence optimizing our margins and utilization within the entire fleet," added Reg Greenslade, President of Tuscany.

Senior Credit Facility

Tuscany has concurrently entered into a commitment letter with Credit Suisse relating to a $220 million senior secured guaranteed term loan and revolving credit facility (the "New Facility"). The New Facility will refinance an existing term loan facility with Credit Suisse (and a group of other lenders), under which $80 million is currently drawn, and will extend the term by one year to 2016. Credit Suisse's commitment to fund the New Facility is subject to customary terms and conditions including the entering into of definitive documents.

About Caroil

Caroil is a land based oil and gas drilling contractor focused on Colombia and Africa, with a fleet of 13 wholly-owned land based drilling rigs, one wholly-owned workover rig plus one workover rig operated under a management contract. Caroil's rigs and operations are currently located in Colombia (5 rigs), Congo (4 rigs plus 1 operated), Gabon (3 rigs) and one rig in each of Cameroon and Tanzania.

Key management and employees of Caroil's Colombia, Paris and Africa operations are anticipated to be retained by Tuscany and will form an integral part of the combined entity.

The Caroil rig fleet is summarized in the table below:

RigOwned /Drilling /
7OwnedDrillingGardner Denver19821500MechanicalCongo
12OwnedDrillingNational 110 Dreco1982/2007*1500ElectricalColombia
14OwnedDrillingNational Oilwell1978/2007*2000ElectricalCameroon

* Indicates year of major refurbishment

Caroil has a strong history of financial performance and high utilization rates. Currently 11 Caroil rigs are under contract earning revenue, two are under letter of intent and two are under negotiations with existing customers. In 2009, Caroil generated EBITDA of $63 million on revenue of $194 million with 90% average utilization. In 2010, Caroil generated EBITDA of $58 million on revenue of $188 million with 94% average utilization. During 2010, as long term contracts ended, a number of Caroil's rigs were repaired and upgraded in preparation for new contracts. Without factoring in any potential growth opportunities, Tuscany anticipates the Caroil fleet can generate an annualized EBITDA of $48 million on revenue of approximately $175 million based on an average utilization of 90% and non-direct general and administrative costs of $8 million.

Pro Forma Information

Post closing of the Acquisition, Tuscany will have approximately 376 million Tuscany Shares outstanding (including shares issuable pursuant to the Warrants), approximately 10 million options outstanding with a weighted average exercise price of CAD$1.45 and approximately 30 million share purchase warrants outstanding (excluding the Warrants issued as part of the Acquisition) with a weighted average exercise price of US$1.70. Pro-forma net debt including the assumption of Caroil's working capital surplus of $37 million and estimated transaction costs is forecast to be approximately $130 million.

On completion of the Acquisition, Tuscany's fleet of drilling and work-over rigs will increase by 14 rigs to 41 (not including the Caroil operated service rig) of which 3 from the Brazil acquisition are being refurbished for operations into 2012. This rig count is comprised of 17 rigs from Tuscany's original build program, 2 newly built rigs (one currently under construction and one which has recently completed construction and is currently in transit), 14 Caroil rigs and 8 rigs from Tuscany's previously announced Brazilian acquisition which closed on May 19, 2011.

Based on the combined 38 rigs expected to be in operation by the end of 2011, plus the one operated service rig, no additional growth from cash flow and an estimated average utilization rate of 85%, Tuscany anticipates generating run rate revenues of approximately $350 million and operating margins of approximately 34% with annual general and administrative costs of approximately $21 million.

The Share Purchase Agreement and Other Arrangements Between the Parties

Complete details of the terms of the Acquisition are set out in the share purchase agreement (the "SPA"), which will be filed by Tuscany on SEDAR and will be available for viewing under Tuscany's profile on www.sedar.com.

The closing of the transaction is subject to customary conditions, including, among other things Tuscany shareholder and TSX approvals, Tanzanian competition approval, and there not having occurred a material adverse change with respect to either of Tuscany or Caroil. On signing the SPA, Tuscany is obligated to deliver a $3 million deposit to M&P, which is non-refundable if the transaction does not close by September 30, 2011 other than in circumstances where there has occurred a material adverse change with respect to Caroil which was caused by M&P or Caroil, as set out in the SPA. Further, the parties have agreed to a reciprocal $7 million termination payment payable to the other side which must be paid if a party determines to terminate the SPA following a material adverse change with respect to the other party, other than in specified circumstances set out in the SPA. Credit Suisse's commitment to fund the New Facility contains a material adverse change clause with respect to Caroil that is identical to the SPA.

The SPA contains customary warranties with respect to each of Caroil and Tuscany. In the event that Tuscany successfully brings any claim against M&P within one year of closing with respect to a breach of a warranty given by M&P regarding Caroil in the SPA, M&P may elect to settle all or a portion of such claim by the surrender and cancellation of Warrants issued to M&P in the Acquisition at $1.53 per Warrant.

At the closing of the Acquisition, the relevant parties will also enter into the following agreements:

  • Tuscany and M&P will enter into a shareholder rights agreement (the "SRA"), pursuant to which M&P will be entitled to (i) nominate two nominees to the Tuscany Board of Directors (subject to maintaining certain ownership thresholds) (ii) require Tuscany to assist with "prospectus demand" rights with respect to future distributions of the Tuscany Shares that M&P owns; and (iii) an M&P approval requirement for any Tuscany transaction in the 12 months following closing pursuant to which Tuscany may issue 15% or more of its then issued and outstanding Tuscany Shares;
  • Caroil and M&P will enter into a "Drilling Services Framework Agreement" pursuant to which Caroil shall agree to perform ongoing services to M&P and M&P shall extend certain drilling contracts between Caroil and M&P with an enhanced payment structure in favour of Caroil;
  • Caroil and M&P will enter into a transitional services agreement, pursuant to which M&P will provide certain services to Caroil in Paris while arrangements are made to incorporate Caroil into the Tuscany group of companies; and
  • Caroil and M&P will enter into subleases with respect to certain office space in Paris and Tanzania currently used by Caroil.

Closing is expected to occur in the third quarter of 2011 and is subject to Tuscany shareholder and regulatory approvals. On the completion of the Acquisition, it is expected that M&P will own approximately 29% of the issued and outstanding Tuscany Shares (assuming exercise of all of the Warrants). As the issuance of up to 110 million Tuscany Shares (including the shares issuable on exercise of the Warrants) to acquire Caroil represents more than 25% of the currently issued and outstanding Tuscany Shares, under the rules of the Toronto Stock Exchange, Tuscany will be required to obtain the approval of a simple majority of its shareholders for the issuance of Tuscany Shares and Warrants to M&P pursuant to the Acquisition. It is anticipated that a management information circular in respect of the special meeting of shareholders to approve the Acquisition will be mailed to Tuscany shareholders by mid-July 2011, which will contain detailed information about the Acquisition, Caroil and its operations, and the combined pro forma operations of Tuscany and Caroil. The Acquisition is not subject to the approval of M&P shareholders.

The Board of Directors of Tuscany has unanimously approved the Acquisition, as well as the SPA and the SRA, and unanimously resolved to recommend that holders of Tuscany Shares vote in favour of the Acquisition. Senior management and the Board of Directors of Tuscany, holding approximately 47 million or 17.6% of the issued and outstanding Tuscany Shares, have entered into support agreements to vote their Tuscany Shares in favour of the Acquisition at the special meeting.

Financial Advisors

Jennings Capital Inc. is acting as Tuscany's financial advisor in regards to the Acquisition and recommended approval of the Acquisition by the Tuscany Board of Directors.

AM | Capital is acting as M&P's sole financial advisor in regards to the Acquisition.

About Tuscany

Tuscany, a corporation headquartered in Calgary, Alberta, is engaged in the business of providing contract drilling and work‐over services along with equipment rentals to the oil and gas industry. Tuscany is currently focused on providing services to oil and natural gas operators in South America. Tuscany has operating centers in Colombia, Ecuador, Brazil, Guyana and Peru.


Statements in this press release contain forward-looking information including, without limitation, forward-looking information pertaining to funding and closing the Acquisition, pro forma projections, such as post-Acquisition EBITDA, revenue, cash flow, earnings per share, debt levels, combined general and administrative cost and other pro forma projections, rig deployment and rig deployment timing (on a pro forma and stand-alone basis), contract negotiations, rig utilization, capital expenditures, components of cash flow, Caroil working capital and earnings. Readers are cautioned that assumptions used in the preparation of such information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted, a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of Tuscany. These risks include, but are not limited to, risks associated with the non-completion of the Acquisition (including failure to obtain the requisite shareholder and regulatory approvals and obtain the funding under the New Facility);the operations of Caroil and Tuscany in the jurisdictions in which they operate, including the political stability and legislative regimes therein; the integration of Caroil into Tuscany's operations; retention and reliance on key personnel at Caroil in Colombia and Africa; reliance on M&P for various transitional services; reliance on Caroil relationships with existing counter-parties to material contracts; the risks associated with the oil and gas industry, commodity prices and exchange rate changes, regulatory changes, successful exploitation and integration of technology, customer acceptance of technology, changes in drilling activity and general global economic, political and business conditions. Industry related risks could include, but are not limited to: operational risks, delays or changes in plans, delays in rig construction and deployment, health and safety risks and the uncertainty of estimates and projections of costs and expenses and access to capital. The risks outlined above should not be construed as exhaustive. The reader is cautioned not to place undue reliance on this forward-looking information. Tuscany does not undertake any obligation to update or revise any forward-looking statements except as expressly required by applicable securities laws.

The Toronto Stock Exchange has not reviewed, nor does it accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Tuscany International Drilling Inc.
    Walter Dawson
    Chairman and Chief Executive Officer
    (403) 265-8258

    Tuscany International Drilling Inc.
    Reg Greenslade
    (403) 265-8258

    Tuscany International Drilling Inc.
    Matt Moorman
    Chief Financial Officer
    (403) 265-8258

    Tuscany International Drilling Inc.
    1950, 140-4th Avenue S.W.
    Calgary, Alberta
    (403) 265-8793 (FAX)