Tuscany International Drilling Inc.
TSX : TID
COLOMBIA : TIDC

Tuscany International Drilling Inc.

August 09, 2012 08:16 ET

Tuscany International Drilling Inc. Announces Second Quarter 2012 Results

CALGARY, ALBERTA--(Marketwire - Aug. 9, 2012) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S. SECURITIES LAWS.

Tuscany International Drilling Inc. ("Tuscany" or the "Company") (TSX:TID)(BVC:TIDC) is pleased to announce second quarter 2012 results. The condensed interim consolidated financial statements of the Company for the second quarter ended June 30, 2012 and the related management's discussion and analysis will be filed under the Company's profile on the SEDAR website at www.sedar.com. The financial information described below should be read in conjunction therewith. Unless otherwise stated, the financial information included herein has been presented in thousands of United States dollars.

Q2 2012 Highlights

  • Net income was $1.3 million during the second quarter compared to a loss of $3.1 million during the same period in 2011, an increase of 141%. Net income during the first quarter 2012 was $275 thousand.
  • Funds from operations1 were $11.6 million during the second quarter compared to funds from operations of $0.9 million during the same period in 2011, an increase of 1,198%. Funds from operations during the first quarter 2012 were $13.7 million.
  • The Company recorded revenue of $85.2 million during the second quarter compared to $29.8 million during the same period last year, an increase of 185%. Revenue during the first quarter 2012 was $94.3 million.
  • Adjusted EBITDA1 was $17.0 million during the second quarter compared to adjusted EBITDA of $5.1 million during the same period in 2011, increasing 236%. Adjusted EBITDA for the first quarter 2012 was $20.2 million.
  • Gross margin1 was $26.1 million during the second quarter compared to $9.4 million during the same period last year, an increase of 177%. Gross margin was $31.3 million during the first quarter 2012.
  • General and administrative expenses were $10.1 million (11.8% of revenue) during the second quarter compared to $5.7 million (19.1% of revenue) during the same period in 2011. General and administrative expenses were $12.3 million (13.0% of revenue) in the first quarter of 2012.
  • Utilization of the Company's fleet was 78.7% during the second quarter as compared to 67.4% during the same period in 2011. Utilization was 89.6% for the first quarter of 2012.
  • A letter of intent has been signed with a major oil company to drill in Uganda. A rig is currently being mobilized from the Republic of Congo to Uganda to service this contract.
  • In Trinidad, Tuscany's client has suspended drilling operations in that jurisdiction. Tuscany has two rigs in Trinidad. As a result, the Company plans to suspend its office and operations in Trinidad indefinitely. As per the original contracts, there will be compensation provided to Tuscany from the client to move these rigs from Trinidad. A letter of intent has been entered into with respect to one of the rigs for drilling in Brazil. The rig is scheduled to be shipped to Brazil in August 2012. The other rig is currently being tendered.
  • On June 15, 2012, HRT provided notice of early termination of a services agreement with Tuscany Perfurações Brasil Ltda. ("TPB") (a subsidiary of the Company) entered into on October 27, 2010 and a rental agreement with Tuscany Rig Leasing S.A. ("TRL") (also a subsidiary of the Company) entered into on May 11, 2011, both related to Rig 115. Subsequently, on July 23, 2012, HRT provided notice of early termination of a services agreement with TPB entered into on October 27, 2010 and a rental agreement with TRL entered into on May 11, 2011, both related to Rig 116. The subject contracts had an original term of approximately four years. HRT has claimed such early termination for cause due to breaches alleged to have been committed by the Tuscany counterparties, including unsatisfactory safety and performance rates. Tuscany strongly denies the allegations and has challenged HRT's termination, in that it failed to provide details of the alleged breaches or provide Tuscany with the required curative period to remedy any alleged breach. On August 1, 2012, Tuscany invited HRT to engage in good faith negotiations within 15 days, in an effort to reach an amicable solution in respect to the termination of the contracts. HRT accepted the proposal and the first meeting is scheduled to occur on August 14, 2012. If no settlement is reached, arbitration will be available to Tuscany pursuant to which Tuscany may seek to enforce its remedies related to early termination without cause, including: (i) a $10 million fee per rental contract (total of two) if new rental contracts for the relevant rigs are not secured within 60 days as from the respective termination dates, (ii) demobilization fees in the amount of $650,000 per rig (total of two), and (iii) DTM (Demobilization, Transportation and Mobilization) rates applicable during the required 60 day prior notice period. Both rigs are currently being moved by HRT from their last drilling locations to Manaus, Brazil and are being actively marketed to a number of oil companies.

(1) Refer to "Non-IFRS Measures"

FINANCIAL AND OPERATING HIGHLIGHTS
Three months ended
June 30, 2012
Six months ended
June 30, 2012
$ thousands, except per share data and operating information 2012 2011 % change 2012 2011 % change
Revenue 85,197 29,843 185 % 179,511 49,113 266 %
Gross margin1 26,128 9,426 177 % 57,498 16,124 257 %
Adjusted EBITDA1 17,037 5,066 236 % 37,197 8,588 333 %
Adjusted EBITDA per share (basic and diluted) $0.05 $0.02 $0.11 $0.04
Net income (loss) for the period 1,269 (3,072 ) 141 % 1,544 (6,892 ) 122 %
Net income (loss) per share (basic and diluted) $0.00 $(0.02 ) $0.00 $(0.03 )
Funds from operations1 11,593 893 1,198 % 25,333 1,478 1,614 %
Funds from operations per share (basic and diluted) $0.03 $0.00 $0.07 $0.01
Cash from (used in) operating activities 2,722 (266 ) 1,123 % (2,619 ) (8,543 ) 69 %
Cash from (used in) operating activities per share (basic and diluted) $0.01 $0.00 $(0.01 ) $(0.04 )
General and administrative expenses 10,072 5,689 77 % 22,395 9,778 129 %
General and administrative expenses as a % of revenue 11.8 % 19.1 % 12.5 % 19.9 %
Total assets 648,179 385,646 68 % 648,179 385,646 68 %
Total long-term liabilities 171,970 61,149 181 % 171,970 61,149 181 %
Operating Information
Number of available rigs 37² 19 95 % 37² 19 95 %
Revenue days 2,612 1,104 249 % 5,630 1,852 204 %
Utilization 78.7 % 67.4 % 84.2 % 64.9 %

(1) Refer to "Non-IFRS Measures"

(2) Total fleet is 41 rigs at June 30, 2012 of which four are undergoing refurbishment.

Non-IFRS Measures

This press release contains references to adjusted EBITDA, adjusted EBITDA per share, funds from operations, funds from operations per share, and gross margin.

Adjusted EBITDA is defined as "income before income taxes, net finance costs, equity income/loss, foreign exchange gain/loss, depreciation, stock-based compensation expense and acquisition costs". Management believes that in addition to net income, adjusted EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Company's principal business activities prior to the consideration of how these activities are financed, how the results are taxed in various jurisdictions and how the results are impacted by accounting standards associated with the Company's share-based compensation plan and corporate development activities. Per share amounts are calculated using the weighted average number of outstanding shares for the period under review.

Three months ended
June 30
Six months ended
June 30
$ thousands 2012 2011 2012 2011
Net income (loss) before income taxes 2,418 (534 ) 4,535 (3,324 )
Net finance costs 6,515 1,928 13,813 4,083
Foreign exchange contracts 480 - 502 -
Equity income (627 ) (814 ) (1,301 ) (176 )
Foreign exchange loss (gain) (239 ) 99 277 505
Acquisition costs - 564 - 564
Depreciation 7,495 2,494 17,263 4,694
Gain on sale of property and equipment (44 ) - (44 ) -
Loss on sale of investment 58 - 58 -
Stock-based compensation 981 1,329 2,094 2,242
Adjusted EBITDA 17,037 5,066 37,197 8,588

Funds from operations is defined as "cash flow provided by/used in operating activities before the change in non-cash working capital". Funds from operations is a measure that provides shareholders and potential investors additional information regarding the Company's liquidity and its ability to generate funds to finance its operations. Management will use this measure to assess the Company's ability to finance operating activities, capital expenditures and corporate development initiatives. Per share amounts are calculated using the weighted average number of outstanding shares for the period under review.

Three months ended
June 30
Six months ended
June 30
$ thousands 2012 2011 2012 2011
Cash flow provided by (used) in operating activities 2,722 (266 ) (2,619 ) (8,543 )
Changes in non-cash working capital 8,871 1,159 27,952 10,021
Funds from operations 11,593 893 25,333 1,478

Gross margin is defined as "oilfield services revenue less oilfield services expenses". Gross margin is a measure that provides shareholders and potential investors additional information regarding the profitability of the Company's rig operations and is used by management to help assess operational performance.

Three months ended
June 30
Six months ended
June 30
$ thousands 2012 2011 2012 2011
Oilfield services revenue 85,197 29,843 179,511 49,113
Oilfield services expenses (59,069 ) (20,417 ) (122,013 ) (32,989 )
Gross margin 26,128 9,426 57,498 16,124

Adjusted EBITDA, adjusted EBITDA per share, funds from operations, funds from operations per share, and gross margin are not measures that have any standard meaning prescribed by IFRS and accordingly, may not be comparable to similar measures used by other companies.

Overview

During the three months ended June 30, 2012, the Company recorded net income of $1,269 ($0.00 per common share) compared to a net loss of $3,072 ($0.02 per common share) for the three months ended June 30, 2011. During the six months ended June 30, 2012, the Company recorded net income of $1,544 ($0.00 per common share) compared to a net loss of $6,892 ($0.03 per common share) for the six months ended June 30, 2011. During the three months ended June 30, 2012, the Company recorded oilfield services revenue of $85,197, adjusted EBITDA1 of $17,037 and gross margin1 from rig operations of $26,128 compared to revenue of $29,843, adjusted EBITDA of $5,066 and gross margin from rig operations of $9,426 during the three months ended June 30, 2011. During the six months ended June 30, 2012, the Company recorded oilfield services revenue of $179,511, adjusted EBITDA of $37,197 and gross margin from rig operations of $57,498 compared to revenue of $49,113, adjusted EBITDA of $8,588 and gross margin from rig operations of $16,124 during the six months ended June 30, 2011.

The increases in revenue, adjusted EBITDA and gross margin for the second quarter of 2012 compared to the second quarter of 2011 reflect the increase in rig count and operating activity during the three months ended June 30, 2012 compared to the three months ended June 30, 2011. During the second quarter of 2011 the Company acquired Perfurações do Brasil Ltda ("Drillfor"), a Brazilian drilling and workover company, together with eight drilling and workover rigs. Four of these rigs were contracted during the second quarter of 2012. During the third quarter of 2011, the Company completed the acquisition of Caroil SAS ("Caroil"), a Paris based drilling and workover company with operations in Colombia and Central Africa, and a fleet of fourteen drilling and workover rigs and one workover rig which is managed for a third party. Twelve of these rigs, including the managed rig, were operational during the second quarter of 2012. These two acquisitions increased the Company's fleet by 22 rigs (of which 18 are now available for use) in the second and third quarters of 2011, and is the primary reason for the significant increases in revenue, adjusted EBITDA1 and gross margin1 for the second quarter of 2012 compared to the second quarter of 2011. For the three months ended June 30, 2012, the Company had 2,612 revenue days from rig operations compared to 1,104 revenue days from rig operations during the three months ended June 30, 2011. Gross margin1 for the three months ended June 30, 2012, was offset by general and administrative expenses of $10,072 (2011 - $5,689), net finance costs of $6,515 (2011 - $1,928), foreign exchange contract expense of $480 (2011 - $Nil) and depreciation of $7,495 (2011 - $2,494). For the three months ended June 30, 2012, the Company also recorded current income tax expense of $1,781 (2011 - $2,538), deferred income tax recovery of $632 (2011 - $Nil), foreign exchange gain of $239 (2011 - $(99)) and equity income of $627 (2011 - $814). The large increases in depreciation expense and general and administrative expense during the three months ended June 30, 2012 compared to the three months ended June 30, 2011, reflect the significant increases in the Company's rig fleet, operating days and administrative staff associated with the two corporate acquisitions undertaken by the Company during 2011.

The increases in revenue, adjusted EBITDA1 and gross margin for the six months ended June 30, 2012 compared to the six months ended June 30, 2011, also reflects the increase in rig count and operating activity during the six months ended June 30, 2012 compared to the six months end June 30, 2011. For the six months ended June 30, 2012, the Company had 5,630 revenue days from rig operations compared to 1,852 revenue days from rig operations during the six months ended June 30, 2011. Gross margin for the six months ended June 30, 2012, was offset by general and administrative expenses of $22,395 (2011 - $9,778), net finance costs of $13,813 (2011 - $4,083), foreign exchange contract expense of $502 (2011 - $Nil) and depreciation of $17,263 (2011 - $4,694). For the six months ended June 30, 2012, the Company also recorded current income tax expense of $4,653 (2011 - $3,568), deferred income tax recovery of $1,662 (2011 - $Nil), foreign exchange losses of $277 (2011 - $505) and equity income of $1,301 (2011 - $176). The large increases in depreciation expense and general and administrative expense during the six months ended June 30, 2012 compared to the six months ended June 30, 2012, reflect the significant increases in the Company's rig fleet, operating days and administrative staff associated with the two corporate acquisitions undertaken by the Company during 2011.

During the six months ended June 30, 2012, Tuscany spent $8,993 on investing activities, which includes $10,807 of capital expenditures comprised primarily of rig refurbishment activity, offset by proceeds from sale of property and equipment of $588 and a $1,226 reduction in restricted cash. During the six months ended June 30, 2012, Tuscany received net proceeds of $14,048 from the issuance of debt.

(1) Refer to "Non-IFRS Measures"

Review of Interim Condensed Consolidated Statement of Financial Position
($ thousands)

Change ($)(1 ) Explanation
Cash and cash equivalents 2,436 See consolidated statement of cash flows.
Restricted cash (1,226 ) Restricted cash results from the requirement to maintain a debt service reserve account pursuant to the Company's credit facility. In June 2012, debt interest was paid from this reserve account, bringing the balance of the account to $Nil. Subsequent to the interest payment, deposits of $274 were made.
Accounts receivable 8,548 Increase is a result of an increase in operating activity during the first and second quarters of 2012 as well as an increase in the aging of accounts receivable balances.
Prepaid expenses and deposits 3,223 Increase is due to prepaid expenses, primarily insurance, for the calendar year incurred in the first and second quarters of 2012 as well as an increase in advances to suppliers.
Inventory (1,818 ) Decrease is due to usage of existing inventories partially offset by purchases.
Foreign VAT recoverable (current and non-current) (1,801 ) Decrease is due to the recovery of amounts paid on the importation of rigs into South America during the period.
Long-term investments 28 Increase is due to equity income of Warrior Rig Ltd. ("Warrior") for the period, offset by a foreign exchange loss resulting from the translation of this investment and the sale of 6.13% of this investment.
Property and equipment (7,000 ) Decrease is due to depreciation expense partially offset by costs capitalized related to the refurbishment of rigs.
Accounts payable and accrued liabilities (20,058 ) Decrease reflects the decrease in the aging of accounts payable balances and a decrease in activity in Q2, 2012.
Income taxes payable 863 Increase due to the increases in taxable income and taxable net assets in 2012.
Long-term debt (current and long-term) 16,216 Increase is due to the Company renegotiating and increasing the amount of its credit facility, as well as the amortization of financing costs included in long-term debt.
Derivative contracts 3,609 Increase is due to the change in fair value of hedging contracts entered into during the first quarter of 2012.
Net deferred taxes 1,663 Increase is due to revaluation of tax assets due to the change in foreign exchange rates.
Contributed surplus 2,094 Increase relates to stock-based compensation expense recorded during the first two quarters of 2012.

(1) Reflects the movement in accounts from December 31, 2011 to June 30, 2012.

Review of Interim Condensed Consolidated Statement of Comprehensive Income and Loss
($ thousands)

Three months ended
June 30
Six months ended
June 30
2012 2011 % Change 2012 2011 % Change
Oilfield services revenue 85,197 29,843 185 % 179,511 49,113 266 %
Oilfield services expenses (59,069 ) (20,417 ) 189 % (122,013 ) (32,989 ) 270 %
Gross margin(1) 26,128 9,426 57,498 16,124
Gross margin % 30.7 % 31.6 % 32.0 % 32.8 %

(1) Refer to "Non-IFRS Measures"

Oilfield services revenue was $85,197 for the three months ended June 30, 2012, compared to $29,843 for the three months ended June 30, 2011, an increase of 185%. The increase in revenue is a result of a significantly increased fleet size in the second quarter of 2012 compared to the second quarter of 2011, and the associated increases in the number of revenue days and average revenue per day in the three months ended June 30, 2012, compared to the three months ended June 30, 2011. During the three months ended June 30, 2012, the Company had 2,612 revenue days compared to 1,104 revenue days in the three months ended June 30, 2011. Revenue days increased in the three months ended June 30, 2012, as a result of additional rigs acquired through the Company's 2011 corporate acquisitions being contracted during the second quarter of 2012 compared to the second quarter of 2011. For the three months ended June 30, 2012, average revenue per day increased to $32.62 from $27.03 for the three months ended June 30, 2011. Average revenue per day increased in the first quarter of 2012 compared to the first quarter of 2011 primarily as a result of higher rates for the Caroil rigs, which are larger horsepower rigs and therefore command higher day rates. 35 of the Company's 37 available drilling and heavy-duty workover rigs earned revenue from drilling operations during the three months ended June 31, 2012. During the three months ended June 30, 2011, the Company earned revenues from 15 rigs.

Oilfield services revenue was $179,511 for the six months ended June 30, 2012, compared with $49,113 for the six months ended June 30, 2011, an increase of 266%. The increase in revenue is a result of a significantly increased fleet size in the first six months of 2012 compared to the first six months of 2011 and the associated increases in the number of revenue days and average revenue per day in the six months ended June 30, 2012, compared to the six months ended June 30, 2011. During the six months ended June 30, 2012, the Company had 5,630 revenue days compared to 1,852 revenue days in the six months ended June 30, 2011. Revenue days increased in the six months ended June 30, 2012, as a result of additional rigs acquired through the Company's 2011 corporate acquisitions being contracted during the first half of 2012 compared to the first half of 2011. For the six months ended June 30, 2012, average revenue per day increased to $31.89 from $26.52 for the six months ended June 30, 2011. Average revenue per day increased in the first half of 2012 compared to the first half of 2011 primarily as a result of higher rates for the Caroil rigs, which are larger horsepower rigs and therefore command higher day rates. 35 of the Company's 37 available drilling and heavy-duty workover rigs earned revenue from drilling operations during the six months ended June 30, 2012. During the six months ended June 30, 2011, the Company earned revenues from 15 rigs.

For the three months ended June 30, 2012, gross margin was $26,128, or 30.7%, compared with a gross margin of $9,426, or 31.6%, for the three months ended June 30, 2011. For the six months ended June 30, 2012, gross margin was $57,498, or 32.0%, compared with a gross margin of $16,124 or 32.8%, for the three months ended June 30, 2011. The slight decrease in gross margin percentage for the three and six months ended June 30, 2012, compared to the gross margin percentage for the three and six months ended June 30, 2011, reflects a higher gross margin earned by the Company's two 1500 HP rigs that were mobilized into Brazil during the first and second quarters of 2011. During the lengthy mobilization of these rigs the Company had reduced operating costs in comparison to drilling activities.

Three months ended
June 30
Six months ended
June 30
2012 2011 % Change 2012 2011 % Change
Depreciation 7,495 2,494 201 % 17,263 4,694 268 %

Depreciation expense totaled $7,495 for the three months ended June 30, 2012, compared with $2,494 for the three months ended June 30, 2011. Depreciation expense totaled $17,263 for the six months ended June 30, 2012, compared with $4,694 for the six months ended June 30, 2011. Under the Company's depreciation policy, depreciation of rigs and related equipment is based on the number of days in operation. The significant increase in depreciation expense for the three and six months ended June 30, 2012, compared to the three and six months ended June 30, 2011, is a result of a significant increase in the size of the Company's fleet and related operating days in the three and six months ended June 30, 2012, compared to the corresponding periods of 2011. During the six months ended June 30, 2012, the Company recorded depreciation on 35 rigs.

Three months ended
June 30
Six months ended
June 30
2012 2011 % Change 2012 2011 % Change
General and administrative 10,072 5,689 77 % 22,395 9,778 129 %

General and administrative expense was $10,072 (11.8% of revenue) for the three months ended June 30, 2012, compared to $5,689 (19.1% of revenue) for the three months ended June 30, 2011. General and administrative expense was $22,395 (12.5% of revenue) for the six months ended June 30, 2012, compared to $9,778 (19.9% of revenue) for the six months ended June 30, 2011. During the second quarter of 2011 the Company acquired Drillfor, and during the third quarter of 2011 the Company acquired Caroil, which added to the Company's general and administrative expenses for the three and six months ended June 30, 2012 compared to the three and six months ended June 30, 2011. As a percentage of revenue, general and administrative expense decreased from 19.1% and 19.9% for the three and six months ended June 30, 2011 respectively, to 11.8% and 12.5% for the three and six months ended June 30, 2012, and reflects the critical mass and larger revenue base associated with increasing the Company's operations in Brazil and Colombia subsequent to the first half of 2011, and management's efforts to realize efficiencies associated with these acquisitions.

Included in general and administrative expense for the three and six months ended June 30, 2012, is $981 and $2,094, respectively, of stock-based compensation compared to $1,329 and $2,242, respectively, for the three months and six months ended June 30, 2011. Stock-based compensation expense represents the value, calculated using the Black-Scholes option pricing model, related to the granting of stock options.

Three months ended
June 30
Six months ended
June 30
2012 2011 % Change 2012 2011 % Change
Net finance costs 6,515 1,928 238 % 13,813 4,083 238 %

For the three and six months ended June 30, 2012, net finance costs includes interest and amortization of costs associated with the Company's credit facility and the change in value on the Company's interest rate hedges, net of interest income. For the three and six months ended June 30, 2011, net finance costs include interest and amortization of costs associated with the Company's credit facility, interest on short term advances from shareholders and interest related to the Company's convertible debenture, net of interest income. Net finance costs increased to $6,515 for the three months ended June 30, 2012, from $1,928 for the three months ended June 30, 2011. Net finance costs increased to $13,813 for the six months ended June 30, 2012, from $4,083 for the six months ended June 30, 2011.

In August 2010, the Company entered into a $125,000 credit facility. During the third quarter of 2011 this credit facility was amended. The amendment consisted primarily of an increase in the credit facility to $220,000, including a $25,000 revolving line of credit, and was negotiated in conjunction with the Company's acquisition of Caroil. Fees associated with the credit facility have been presented as a direct reduction to the face value of the long-term debt. The effective interest rate method has been applied and results in the amortization of the debt discount over the life of the loan. As a result, amortization of financing fees related to the credit facility of $1,087 and $2,168 have been included in net finance costs for the three months and six months ended June 30, 2012, respectively, compared to $662 and $1,316 for the three and six months ended June 30, 2011. In addition to the financing fees associated with this facility, the Company incurs interest expense on the amount drawn under the credit facility at three-month LIBOR plus 6.5% per annum. During the three and six months ended June 30, 2012, the Company recorded $4,119 and $8,086, respectively, of interest related to the credit facility compared to $1,387 and $2,733, respectively, for the three and six months ended June 30, 2011.

During 2010, the Company received $5,875 of short-term advances from Perfco Investments Ltd, a corporation owned by the Company's Executive Chairman. The short-term advances incurred interest at 10% per annum and were settled in April 2011. During the three and six months ended June 30, 2011, the Company recorded $38 and $197 respectively, of interest expense related to these advances.

During the period ended June 30, 2012, the Company entered into two separate agreements to hedge the interest rate on a total of $100,000 of the $195,000 term loan. The Company has entered into floating for fixed swap agreements on three-month LIBOR to maturity of the term loan under the Company's credit facility. The fair value of these interest rate contract liabilities increased by $954 and $3,107 for the three and six months ended June 30, 2012, respectively (2011 - $Nil).

The above finance costs incurred are partially offset by interest earned of $65 and $77 in the three months ended June 30, 2012, respectively, and interest earned of $160 and $163 in the three and six months ended June 30, 2011, respectively.

Three months ended
June 30
Six months ended
June 30
2012 2011 % Change 2012 2011 % Change
Foreign exchange contracts 480 - N/A 502 - N/A

During the six month period ended June 30, 2012, the Company entered into a Euro/United States dollar cross costless collar on a total of 19,200 Euro. The contract consists of 24 contracts with notional amounts of 800 Euro per contract. The contract has a two year term and the fair value of this foreign exchange contract liability increased $479 and $502 in the three and six months ended June 30, 2012, respectively (2011 - $Nil).

Three months ended
June 30
Six months ended
June 30
2012 2011 % Change 2012 2011 % Change
Foreign exchange (loss) gain 239 (99 ) 341 % (277 ) (505 ) 45 %

In addition to incurring operating expenses and capital expenditures in the Company's functional currency (United States dollars), the Company also incurs operating expenses and capital expenditures in Colombian pesos (COP), Canadian dollars (CDN $), Brazilian real (BRL), African francs (CFA), Trinidad and Tobago dollars (TTD), Euro and Guyanese Dollars (GYD). Foreign exchange gains and losses arise primarily on the settlement of accounts payable invoices that are denominated in currencies other than the United States dollar.

Three months ended
June 30
Six months ended
June 30
2012 2011 % Change 2012 2011 % Change
Equity income 627 814 (23 )% 1,301 176 639 %

In the second quarter of 2010, the Company closed a transaction in which it acquired a 40% interest in Warrior, a private oilfield services company involved in the development and manufacture of oilfield services equipment. The carrying value of this investment is adjusted to include the pro-rata share of the investee's earnings, less dividends received. Equity income totaled $627 for the three months ended June 30, 2012, compared with an equity income of $814 for the three months ended June 30, 2011. Equity income totaled $1,301 for the six months ended June 30, 2012, compared with an equity income of $176 for the six months ended June 30, 2011. Equity income for the six months ended June 30, 2012, has increased as a result of increased activity in Warrior in the first two quarters of 2012 compared to the first two quarters of 2011. In June of 2012, the Company reduced its investment in Warrior from 40% to 33.87%.

Three months ended
June 30
Six months ended
June 30
2012 2011 % Change 2012 2011 % Change
Acquisition costs - 564 0 % - 564 0 %

In the second quarter of 2011, the Company acquired all of the issued shares of Drillfor, together with seven drilling rigs and one work-over rig. The acquisition costs in the three months ended June 30, 2011, represent the costs incurred to acquire Drillfor and its related equipment.

Three months ended
June 30
Six months ended
June 30
2012 2011 % Change 2012 2011 % Change
Current income taxes 1,781 2,538 (30 )% 4,653 3,568 30 %

For the six months ended June 30, 2012, Tuscany recorded current income tax expense of $4,653. For the six months ended June 30, 2012, current income taxes are $988 in Ecuador, $1,749 in Colombia, $188 in Congo and $1,728 in Gabon. The Company is currently taxable on an earnings basis in all jurisdictions with the exception of Canada, France and Colombia. Canada, France and the United States are without a revenue stream at this time. For the six months ended June 30, 2012, the Company's current income tax provision exceeds the pre-tax income as a result of the non-tax effected losses in Canada, France and the United States. In Colombia, the Company is not yet taxable on an earnings basis, but is currently taxable on a "net worth" basis.

Three months ended
June 30
Six months ended
June 30
2012 2011 % Change 2012 2011 % Change
Deferred income taxes (recovery) (632 ) - N/A (1,662 ) - N/A

During the six months ended June 30, 2012, the Company's deferred tax assets in Colombia were revalued for changes in foreign exchange rates and a future tax asset was recorded for tax loss carry forwards expected to be utilized, resulting in a recovery of deferred income taxes of $4,357. This recovery was partially offset by deferred income taxes of $46 in Ecuador, $1,580 in Brazil, $727 in Trinidad, and $342 in Tanzania.

Tuscany International Drilling Inc.
Condensed Interim Consolidated Statement of Financial Position (Unaudited)
(expressed in thousands of US dollars)
June 30 December 31
2012 2011
Assets
Current Assets
Cash and cash equivalents 15,592 13,156
Restricted cash 274 1,500
Accounts receivable 93,380 84,832
Prepaid expenses and deposits 4,867 1,644
Inventory 13,490 15,308
Foreign VAT recoverable 1,069 2,994
128,672 119,434
Foreign VAT recoverable 10,064 9,940
Deferred tax asset 8,708 5,225
Long-term investment 5,848 5,820
Property and equipment 494,887 501,887
648,179 642,306
Liabilities
Current Liabilities
Bank indebtedness 20,000 20,000
Accounts payable and accrued liabilities 43,333 63,391
Current portion of long-term debt 37,333 10,000
Income taxes payable 10,333 9,470
Due to shareholders 876 876
111,875 103,737
Long-term debt 161,876 172,993
Derivative contracts 3,609 -
Deferred tax liability 6,485 4,665
283,845 281,395
Shareholders' Equity
Share capital 366,300 366,300
Contributed surplus 20,200 18,106
Warrants 25,704 25,704
Accumulated other comprehensive loss (466 ) (251 )
Deficit (47,404 ) (48,948 )
364,334 360,911
648,179 642,306
Tuscany International Drilling Inc.
Condensed Interim Consolidated Statement of Comprehensive Income and Loss (Unaudited)
For the three and six months ended June 30, 2012 and 2011
(expressed in thousands of US dollars, except per share data)
Three months ended Six months ended
June 30 June 30 June 30 June 30
2012 2011 2012 2011
Revenue
Oilfield services 85,197 29,843 179,511 49,113
Expenses
Oilfield services 59,069 20,417 122,013 32,989
Depreciation 7,495 2,494 17,263 4,694
General and administrative 10,072 5,689 22,395 9,778
Foreign exchange (gain) loss (239 ) 99 277 505
Equity (income) loss (627 ) (814 ) (1,301 ) (176 )
Acquisition costs - 564 - 564
75,770 28,449 160,647 48,354
Net finance costs 6,515 1,928 13,813 4,083
Gain on sale of property & equipment (44 ) - (44 ) -
Loss on sale of investment 58 - 58 -
Foreign exchange contract 480 - 502 -
Income (loss) before income taxes 2,418 (534 ) 4,535 (3,324 )
Current income taxes 1,781 2,538 4,653 3,568
Deferred income taxes (632 ) - (1,662 ) -
Net income (loss) for the period 1,269 (3,072 ) 1,544 (6,892 )
Other comprehensive loss
Foreign currency translation (58 ) (256 ) (215 ) (197 )
Total comprehensive income (loss) 1,211 (3,328 ) 1,329 (7,089 )
Net income (loss) per share, basic and diluted
0.00

(0.01
)
0.00

(0.03
)
Tuscany International Drilling Inc.
Condensed Interim Consolidated Statement of Changes in Equity (Unaudited)
(expressed in thousands of US dollars)
Attributable to equity owners of the Company
Share Capital Contributed surplus Warrants Accumulated other comprehensive income (loss ) Deficit Total equity
Balance - January 1, 2012 366,300 18,106 25,704 (251 ) (48,948 ) 360,911
Net income for the period - - - - 1,544 1,544
Cumulative foreign currency translation adjustment
-

-

-

(215
)
-

(215
)
Comprehensive income (loss) for the period - - - (215 ) 1,544 1,329
Stock-based compensation - 2,094 - - - 2,094
Balance - June 30, 2012 366,300 20,200 25,704 (466 ) (47,404 ) 364,334
Balance - January 1, 2011 190,701 2,707 14,392 294 (22,831 ) 185,263
Net loss for the period - - - - (6,892 ) (6,892 )
Cumulative foreign currency translation adjustment
-

-

-

(197
)
-

(197
)
Comprehensive income (loss) for the period - - - (197 ) (6,892 ) (7,089 )
Employee share options - 2,242 - - - 2,242
Loan conversion 6,168 - - - - 6,168
Subscription receipt issuance 102,321 - - - - 102,321
Stock-based compensation - - - - - -
Issuance of shares 3,299 - - - - 3,299
Share issuance costs (5,737 ) (5,737 )
Exercise of warrants 1,026 - (1,026 ) - - -
Expiration of warrants - 24 (24 ) - - -
Balance - June 30, 2011 297,778 4,973 13,342 97 (29,723 ) 286,467
Tuscany International Drilling Inc.
Interim Condensed Consolidated Statement of Cash Flows (Unaudited)
For the three and six months ended June 30, 2012 and 2011
(expressed in thousands of US dollars)
Three months ended Six months ended
June 30 June 30 June 30 June 30
2012 2011 2012 2011
Cash flow provided by (used in):
Operating Activities
Net income (loss) for the period 1,269 (3,072 ) 1,544 (6,892 )
Items not affecting cash
Depreciation 7,495 2,494 17,263 4,694
Unrealized foreign exchange (gain) loss
-

294

-

294
Gain on sale of property and equipment
(44
)
-

(44
)
-
Equity income (627 ) (814 ) (1,301 ) (176 )
Amortization of financing fees 1,087 662 2,168 1,316
Change in fair value of derivative contracts 1,432 - 3,609 -
Stock based compensation 981 1,329 2,094 2,242
Changes in non-cash working capital (8,871 ) (1,159 ) (27,952 ) (10,021 )
2,722 (266 ) (2,619 ) (8,543 )
Investing Activities
Acquisition of property and equipment (7,571 ) (20,409 ) (10,807 ) (52,461 )
Proceeds from sale of property and equipment
588

-

588

-
Acquisition of Drillfor - (55,945 ) - (55,945 )
Restricted cash (274 ) 1,926 1,226 1,944
(7,257 ) (74,428 ) (8,993 ) (106,462 )
Financing Activities
Proceeds from issuance of share capital, net - 96,353 - 99,652
Proceeds from long term debt, net 14,048 - 14,048 -
14,048 96,353 14,048 99,652
Increase (decrease) in cash and cash equivalents 9,513 21,659 2,436 (15,353 )
Cash and cash equivalents, beginning of period 6,079 10,953 13,156 47,965
Cash and cash equivalents, end of period 15,592 32,612 15,592 32,612
Cash Flow Supplementary Information
Interest received 65 160 77 163
Interest paid 4,071 1,377 8,063 2,755
Income taxes paid 3,789 956 3,789 1,046

READER ADVISORY

Statements in this press release contain forward-looking information. 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, as 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: the timely construction and deployment of drillings rigs, the successful negotiation of drilling contracts, 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 rig construction and deployment, plans, 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 listing of Tuscany's common shares on the Colombian Stock Exchange does not imply a certification by the BVC of the value or the solvency of Tuscany.

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
    Executive Chairman
    (403) 265-8258

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

    Tuscany International Drilling Inc.
    Matt Moorman
    CFO
    (403) 265-8258

    Tuscany International Drilling Inc.
    1950, 140-4th Avenue S.W.,
    Calgary, Alberta
    (403) 265-8258
    (403) 265-8793 (FAX)

    Tuscany International Drilling Inc.
    Sara Echavarria
    Investor Relations Director
    (571) 3561002 Ext: 3140
    www.tuscanydrilling.com