Tuscany International Drilling Inc.
TSX : TID

Tuscany International Drilling Inc.

August 12, 2011 10:06 ET

Tuscany International Drilling Inc. Provides Operational Update and Reports Second Quarter 2011 Results

CALGARY, ALBERTA--(Marketwire - Aug. 12, 2011) -

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Tuscany International Drilling Inc. ("Tuscany" or the "Company") (TSX:TID) is pleased to provide an operational update and announce second quarter 2011 results. The complete condensed interim consolidated financial statements of the Company for the six months ended June 30, 2011 and the related management's discussion and analysis can be found under the Company's profile on the SEDAR website at www.sedar.com and the financial information described below should be read in conjunction therewith.

Operational Update

Tuscany is pleased to announce that it recently entered into letters of intent to contract six of its drilling rigs. Once these rigs are contracted, all but two of Tuscany's original fleet of 19 rigs will be contracted.

Tuscany has entered into a letter of intent with respect to contracting Rig 111 and Rig 112, both previously un-contracted 650 horsepower rigs, and Rig 114, an 850 horsepower rig complete with walking system. The initial term of the contracts will be for the drilling of approximately 12 wells in Colombia, with substantial further work likely depending on well results. It is anticipated that these rigs will commence operations in late August and early September 2011.

Tuscany also entered into two letters of intent with an existing customer to contract Rig 110, an AC electric 1500 horsepower rig that is in the process of mobilizing from Guyana and Rig 120, a newly built 800 horsepower rig complete with walking system. Rig 120 will be shipped directly from the manufacturer once completed which is anticipated in late August 2011. It is estimated that these rigs will commence operations in early Q4, 2011.

An additional letter of intent has been entered into with an existing customer to contract Rig 108, a 650 horsepower heliportable rig, previously deployed in Peru, for 4 years in Brazil. It is anticipated operations will commence in November 2011 with mobilization to occur in October.

In addition, an existing one year contract has been renewed for an additional year on Rig D-2. This rig and contract are part of the recent acquisition in Brazil. As previously announced, Tuscany purchased a private drilling company in Brazil and nine rigs (net eight as one rig was decommissioned) of which three of the rigs were, and remain under contract. Two of the contracts are with Petrobras, which are at the mid-way point of eight year contracts. The third contract is the aforementioned recently renewed contract. As per the announcement when this acquisition was completed, two rigs have begun a repair and maintenance program and are anticipated to return to service before the end of 2011. The remaining three rigs acquired from this acquisition will undergo major refurbishment so as to return to service in 2012. The repair, maintenance and refurbishment programs are all progressing as expected.

Tuscany also anticipates closing the recently announced acquisition of Caroil SAS during the third quarter of 2011. Once completed, this acquisition will provide 13 wholly-owned land based drilling rigs, one wholly-owned workover rig plus one workover rig operated under a management contract, and, on closing, will increase the Tuscany fleet to 41 rigs. The Caroil acquisition substantially expands Tuscany's presence in Colombia, includes high utilization rates and is significantly accretive from a cash flow and EBITDA1 standpoint.

Second Quarter Highlights

FINANCIAL AND OPERATING HIGHLIGHTS


$ thousands, except per share data and operating information
June 30
2011
March 31 2011 December 31 2010
Number of available rigs * 21 17 17
Revenue 29,843 19,270 8,653
Revenue days 1,104 748 463
Rig utilization (%) 63.8% 48.9% 29.6%
Revenue per day $27.03 $25.76 $18.69
Gross margin 9,426 6,698 766
Gross margin (%) 31.6% 34.8% 8.8%
EBITDA(1) 5,066 3,522 (5,379)
EBITDA per share (basic and diluted) $0.02 $0.02 $(0.03)
General and administrative expenses 5,689 4,089 1,553
General and administrative expenses (% of revenue) 19.1% 21.2% 17.9%
Cash and cash equivalents 32,612 10,953 47,965
Working capital 34,272 8,599 41,505
Property, plant & equipment 305,390 235,477 205,625
Capital expenditures 72,409 32,052 155,763

* Total fleet is 26 rigs at June 30, 2011; three which are under refurbishment and two which are undergoing repair and maintenance.

(1) Refer to Non-IFRS measures

Non-IFRS Measures

EBITDA is defined as "income before income taxes, net financing costs, equity income/loss, foreign exchange gain/loss, depreciation, stock-based compensation expense and acquisition costs". Management believes that in addition to net income, 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.

Funds from operations is defined as "cash provided by 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 and capital expenditures.

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 rigs and is used by management to help assess rig performance.

EBITDA, funds from operations 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, 2011, the Company recorded a net loss of $3,072 ($0.01 per common share) compared to a net loss of $1,698 ($0.01 per common share) for the three months ended June 30, 2010. During the six months ended June 30, 2011, the Company recorded a net loss of $6,892 ($0.03 per common share) compared to a net loss of $3,913 ($0.03 per common share) for the six months ended June 30, 2010. During the three months ended June 30, 2011, the Company recorded oilfield services revenue of $29,843, EBITDA(2) of $5,066 and gross margin2 from rig operations of $9,426 compared to revenue of $1,755, EBITDA of negative $1,194 and gross margin from rig operations of $482 during the three months ended June 30, 2010, and revenue of $19,270, EBITDA of $3,522 and gross margin from rig operations of $6,698 during the first quarter of 2011. During the six months ended June 30, 2011, the Company recorded oilfield services revenue of $49,113, EBITDA of $8,588 and gross margin from rig operations of $16,124 compared to revenue of $5,135, EBITDA of negative $1,275 and gross margin from rig operations of 1,954 during the six months ended June 30, 2010.

(2) Refer to Non-IFRS Measures

The increases in revenue, EBITDA and gross margin for the second quarter of 2011 compared to the second quarter of 2010 and the first quarter of 2011 reflects the increase in operating activity during the second quarter of 2011 compared to the second quarter of 2010 and first quarter of 2011. During the second quarter of 2011 the Company acquired a Brazilian drilling and work-over company, together with seven drilling rigs and two work-over rigs. Three of these rigs were operational in the second quarter of 2011 which also contributed to the increases in revenue, EBITDA and gross margin for the second quarter of 2011 compared to the second quarter of 2010 and the first quarter of 2011. For the three months ended June 30, 2011, the Company had 1,104 revenue days from rig operations compared to 191 revenue days from rig operations during the three months ended June 30, 2010, and 748 revenue days from rig operations during the first quarter of 2011. Gross margin for the three months ended June 30, 2011, was offset by general and administrative expenses of $5,689, net finance costs of $1,928, depreciation of $2,494 and acquisition costs of $564. For the three months ended June 30, 2011, the Company also recorded current income tax expense of $2,538, foreign exchange losses of $99 and equity income of $814. Compared to the three months ended June 30, 2010, general and administrative expense reflects significant additions to the Company's management teams, both in the Company's head office in Calgary, Canada, and in its operating centres in South America, and additional expenses from the acquired Brazilian company. For the three months ended June 30, 2010, the Company was operating with a minimum of staff and was still in a "start-up" phase with minimal operating activity.

The increases in revenue, EBITDA and gross margin for the six months ended June 30, 2011 compared to the six months ended June 30, 2010 also reflects the increase in operating activity during the six months ended June 30, 2011 compared to the six months ended June 30, 2010. For the six months ended June 30, 2011, the Company had 1,852 revenue days from rig operations compared to 447 revenue days from rig operations during the six months ended June 30, 2010. Gross margin for the six months ended June 30, 2011, was offset by general and administrative expenses of $9,778, net finance costs of $4,083, depreciation of $4,694 and acquisition costs of $564. For the six months ended June 30, 2011, the Company also recorded current income tax expense of $3,568, foreign exchange losses of $505 and equity income of $176. Compared to the six months ended June 30, 2010, general and administrative expense reflects significant additions to the Company's management teams, both in the Company's head office in Calgary, Canada, and in its operating centres in South America, and additional expenses from the acquired Brazilian company. For the six months ended June 30, 2010, the Company was operating with a minimum of staff and was still in a "start-up" phase with minimal operating activity.

During the six months ended June 30, 2011, Tuscany received $99,652 from financing activities, which arose from the Company's bought deal subscription receipt financing and the exercise of warrants. The Company also invested $55,945 in acquiring a private Brazilian company and related equipment, and incurred $52,461 of capital expenditures during the six months ended June 30, 2011. The majority of capital expenditures were incurred to complete the construction of the two 1500 HP heli-portable drilling rigs for Brazil and on construction of one 2000 HP drilling rig and one 850 HP pad drilling rig, both scheduled for deployment to Colombia.

Review of Consolidated Statement of Financial Position

($ thousands)

Change ($)(3) Explanation
Cash and cash equivalents (15,353) See consolidated statement of cash flows.
Restricted cash (1,944) Decrease due to the release of funds no longer required as security for a letter of credit to Peruvian tax authorities.
Accounts receivable 19,970 Increase due to increased operating activity levels in the second quarter of 2011 compared with the fourth quarter of 2010 and additional receivables as a result of the acquisition of the Brazilian company and related equipment.
Prepaid expenses and deposits 4,678 Increase due to deposits relating to potential future acquisitions and increased deposits on equipment partially offset by a reduction in the deposit for the purchase of drill pipe.
Inventory 2,108 Increase due to increased operating activity resulting in the establishment of inventory to supply operations and additional inventory as a result of the acquisition of the Brazilian company.
Foreign VAT recoverable (current and non-current) (524) Decrease due primarily to the recovery of VAT paid on the importation of drilling equipment into Ecuador.
Long-term investments (21) Decrease due to a foreign exchange loss resulting from the translation of this investment partially offset by equity income of Warrior Rig Ltd. for the period.
Property and equipment 99,765 Increase due to the construction and purchase of rigs and related equipment, net of depreciation expense, and additional property and equipment acquired as a result of the acquisition of the Brazilian company and related equipment.
Accounts payable and accrued liabilities 9,548 Increase due to increased operating activity levels and increased capital expenditures in the second quarter of 2011 compared to the fourth quarter of 2010 as well as additional accounts payable as a result of the acquisition of the Brazilian company.
Income taxes payable 2,521 Increase due to increased revenue and taxable income in the first six months of 2011 compared to the fourth quarter of 2010.
Due to shareholders (5,678) Decrease due to settlement of short-term advances received from a related party.
Long-term debt
(current and non-current)
1,084 Increase due to the amortization of financing fees on the long-term debt.
Share capital 107,077 Increase due primarily to the bought deal financing in the second quarter of 2011 as well as the exercise of warrants during the first quarter of 2011.
Contributed surplus 2,266 Increase due primarily to stock based compensation being recorded during the period.
Warrants (1,050) Decrease due to the exercise and expiry of warrants during the period.

(3) Reflects the movement in accounts from December 31, 2010 to June 30, 2011.

Review of Consolidated Statement of Comprehensive Loss

($ thousands)

Three Months Ended June 30 Six Months Ended June 30
2011 2010 % Change 2011 2010 % Change
Oilfield services revenue 29,843 1,755 1,600% 49,113 5,135 856%
Oilfield services expenses (20,417) (1,273) 1,504% (32,989) (3,181) 937%
Gross margin1 9,426 482 16,124 1,954
Gross margin % 31.6% 27.5% 32.8% 38.0%

Oilfield services revenue was $29,843 for the three months ended June 30, 2011, compared with $1,755 for the three months ended June 30, 2010, an increase of 1,600%. Compared to the three months ended March 31, 2011, revenue for the three months ended June 30, 2011 increased $10,572 or 55%. The increase in revenue is a result of an increase in the number of revenue days and revenue per day in the three months ended June 30, 2011, compared to the three months ended June 30, 2010 and the three months ended March 31, 2011. During the second quarter of 2011, the Company acquired a Brazilian drilling and work-over company, together with seven drilling rigs and two work-over rigs. Three of these rigs were operational in the second quarter of 2011 which also contributed to the increase in revenue. During the three months ended June 30, 2011, the Company had 1,104 revenue days compared to 191 revenue days in the second quarter of 2010 and 748 revenue days during the first quarter of 2011. Revenue days increased in the three months ended June 30, 2011, as a result of additional rigs being contracted during the second quarter of 2011 compared to the second quarter of 2010 and first quarter of 2011. For the three months ended June 30, 2011, average revenue per day increased to $27.0 from $9.1 for the three months ended June 30, 2010, and $25.8 for the three months ended March 31, 2011. During the three months ended June 30, 2010, the Company was leasing two rigs to a third party contractor, which reduced the average revenue per day. Fifteen of the Company's 26 drilling and heavy-duty workover rigs deployed into South America earned revenue from drilling operations during the second quarter of 2011. During the second quarter of 2010 the Company earned revenues from four rigs and during the first quarter of 2011 the Company earned revenue from twelve rigs.

Oilfield services revenue was $49,113 for the six months ended June 30, 2011, compared with $5,135 for the six months ended June 30, 2010, an increase of 856%. The increase in revenue is a result of an increase in the number of revenue days and revenue per day in the six months ended June 30, 2011, compared to the six months ended June 30, 2010. During the six months ended June 30, 2011, the Company had 1,852 revenue days compared to 447 revenue days in six months ended June 30, 2010. Revenue days increased in the six months ended June 30, 2011 as a result of additional rigs being contracted during the first six months of 2011 compared to the first six months of 2010. For the six months ended June 30, 2011, average revenue per day increased to $26.5 from $11.5 for the six months ended June 30, 2010. During the six months ended June 30, 2010, the Company was leasing two rigs to a third party contractor, which reduced the average revenue per day. Fifteen of the Company's twenty-six drilling and heavy-duty workover rigs deployed into South America earned revenue from drilling operations during the first half of 2011. During the six months ended June 30, 2010 the Company earned revenues from five rigs.

For the three months ended June 30, 2011, gross margin was $9,426, or 31.6%, compared with a gross margin of $482, or 27.5%, for the three months ended June 30, 2010. For the six months ended June 30, 2011, gross margin was $16,124 or 32.8%, compared with a gross margin of $1,954 or 38.0%, for the six months ended June 30, 2010. The decrease in gross margin percentage in the six months ended June 30, 2011 compared to the gross margin percentage in the six months ended June 30, 2010 reflects costs associated with initial start-up of several rigs and unbudgeted camp rental costs.

Three Months Ended June 30 Six Months Ended June 30
2011 2010 % Change 2011 2010 % Change
Depreciation 2,494 468 433% 4,694 996 371%

Depreciation expense totaled $2,494 for the second quarter of 2011 compared with $468 for the second quarter of 2010. Depreciation expense increased to $4,694 for the six months ended June 30, 2011 compared with $996 for the six months ended June 30, 2010. 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, 2011 compared to the three and six months ended June 30, 2010 is a result of increased operating days in the three and six month periods ended June 30, 2011 compared to the corresponding periods of 2010. During the second quarter of 2011, the Company recorded depreciation on thirteen rigs compared to four rigs during the second quarter of 2010.

Three Months Ended June 30 Six Months Ended June 30
2011 2010 % Change 2011 2010 % Change
General and administrative 5,689 1,683 237% 9,778 3,236 202%

General and administrative expense increased to $5,689 for the three months ended June 30, 2011, from $1,683 for the three months ended June 30, 2010. General and administrative expense increased to $9,778 for the six months ended June 30, 2011, from $3,236 for the six months ended June 30, 2010. Compared to the three and six months ended June 30, 2010, the Company has added administrative and operating management and staff in Canada, Colombia and Ecuador, resulting in a substantial increase in salaries and wages. During the second half of 2010, Tuscany added three new operating centers, two in Brazil and one in Peru; resulting in higher general and administrative expense during the first six months of 2011 compared to the corresponding period of 2010. In addition, during the second quarter of 2011 the Company acquired a Brazilian company which added to the Company's general and administrative expenses for the six months ended June 30, 2011.

Included in general and administrative expense for the three and six months ended June 30, 2011, is $1,329 and $2,242, respectively, of stock-based compensation compared to $7 and $7 for the three and six months ended June 30, 2010. 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
2011 2010 % Change 2011 2010 % Change
Net finance costs 1,928 125 1,442% 4,083 1,795 127%

Net finance costs increased to $1,928 for the three months ended June 30, 2011, compared with $125 for the three months ended June 30, 2010. Net finance costs increased to $4,083 for the six months ended June 30, 2011, compared with $1,795 for the six months ended June 30, 2010. Net finance costs are comprised of 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.

In August 2010, the Company entered into a $125,000 credit facility. The fees associated with obtaining this 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 of $662 and $1,316 has been included in net finance costs for the three and six months ended June 30, 2011, respectively. 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, 2011, the Company recorded $1,387 and $2,733, respectively, of interest expense related to this credit facility. Interest expense and amortization of financing fees were not recorded during the first six months of 2010 as the credit facility was not in existence until the third quarter of 2010.

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 incur interest at 10% per annum. The advances were settled in April 2011. During the three and six months ended June 30, 2011, the Company has recorded $38 and $197, respectively, of interest expense related to these advances compared to $128 and $207, respectively, for the three and six months ended June 30, 2010.

For the three and six months ended June 30, 2010, net finance costs included interest expense on the Company's convertible debenture. In February 2010, the Company borrowed the remaining $5,000 available under its convertible debenture. During the three months ended March 31, 2010, the Company recorded $1,596 of interest expense on this borrowing, comprised of $24 of calculated interest as per the terms of the convertible debenture, and $1,572 of interest accretion. Pursuant to the terms of the convertible debenture, the $5,000 principal and $24 of calculated interest were converted to common shares in March 2010.

The above finance costs incurred are partially offset by interest earned of $160 and $163 in the three and six months ended June 30, 2011, respectively, and interest earned of $3 and $8 in the three and six months ended June 30, 2011, respectively. The Company earned interest income of $148 while the funds received from the second quarter bought deal financing were being held in escrow.

Three Months Ended June 30 Six Months Ended June 30
2011 2010 % Change 2011 2010 % Change
Foreign exchange gain (loss) (99) 86 215% (505) (72) 601%

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 Guyanese dollars, Colombian pesos, Canadian dollars and Brazilian real. Foreign exchange gains and losses arise on the settlement of accounts payable invoices and the collection of accounts receivable invoices denominated in currencies other than the United States dollar. The foreign exchange loss in the first six months of 2011 arises primarily as a result of the settlement of Canadian dollar accounts payable invoices.

Three Months Ended June 30 Six Months Ended June 30
2011 2010 % Change 2011 2010 % Change
Derivative gain (loss) - (41) N/A - 308 N/A

The conversion feature in the Company's convertible debenture is recorded at fair value each period with the changes in fair value included in earnings. For the three months ended June 30, 2010, the Company recorded a loss in the fair value of the convertible debenture of $41. For the six months ended June 30, 2010 the Company recorded a gain of $308.

Three Months Ended June 30 Six Months Ended June 30
2011 2010 % Change 2011 2010 % Change
Equity income (loss) 814 (40) 2,135% 176 (40) (540)%

In the second quarter of 2010, the Company closed a transaction in which it acquired a 40% interest in Warrior Rig Ltd. ("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 $814 for the second quarter of 2011 compared with an equity loss of $40 for the second quarter of 2010. Equity income totaled $176 for the six months ended June 30 compared with an equity loss of $40 for the six months ended June 30, 2010.

Three Months Ended June 30 Six Months Ended June 30
2011 2010 % Change 2011 2010 % Change
Acquisition costs (564) - N/A (564) - N/A

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

Three Months Ended June 30 Six Months Ended June 30
2011 2010 % Change 2011 2010 % Change
Current income taxes 2,538 (91) 2,889% 3,568 36 9,811%

Although the Company had a net loss before income tax of $3,324 for the six months ended June 30, 2011, current income tax expense of $3,568 has been recorded. The current income tax expense for the six months ended June 30, 2011, relates to the Company's operations in Canada, Ecuador, Colombia, Guyana and Brazil. During 2010, the Company's operations in Ecuador became taxable on a current basis and the Company has recorded current income tax expense of $349 for the six months ended June 30, 2011. The Company's operations in Colombia are not currently taxable based on earnings, but are subject to an alternative minimum tax based on the net worth of the Company's Colombia branch. The Company has recorded current income tax expense of $1,008 for the six months ended June 30, 2011, related to the net worth of its operations in Colombia. For the six months ended June 30, 2011, the Company has recorded current income tax expense of $900 related to its operations in Guyana and $1,311 related to its operations in Brazil.

Working Capital, Funds from Operations(4) and Liquidity

At June 30, 2011, Tuscany had working capital of $34,278 compared to $41,505 of working capital at December 31, 2010. In the fourth quarter of 2010, the Company received $42,341 in proceeds from the issuance of common shares. Proceeds from the issuance of shares were partially used in the first quarter of 2011 to fund the Company's rig building program and to support operations. In the second quarter of 2011, the Company received $96,585 of net proceeds from a bought deal subscription receipts financing. Of the funds received from this financing, $55,945 (including working capital) was used to acquire a private drilling contractor located in Brazil. Also during the period ended June 30, 2011, the Company obtained access to $1,930 of cash that was previously restricted. At August 11, 2011, Tuscany had approximately $25,000 of cash to settle its current liabilities, use in operations and fund future corporate development initiatives. In addition, the Company currently has a $125,000 credit facility of which $80,000 has been drawn. Access to the remaining $45,000 is subject to certain conditions, including additional approval by the lenders.

(4) Refer to Non-IFRS measures

For the three months ended June 30, 2011, cash used in operating activities totaled $266. After removing the impact of the change in non-cash working capital, funds generated by operations totaled $893 and reflect the increase in rig operations during the period.

For the six months ended June 30, 2011, cash used in operating activities totaled $8,543. After removing the impact of the change in non-cash working capital, funds generated by operations totaled $1,478 and reflect the increase in rig operations during the period.

The significant factors that may impact the Company's ability to generate funds from operations(5) in future periods are outlined in the "Risks and Uncertainties" section of this MD&A.

(5) Refer to Non-IFRS measures

Investing Activities

During the three months ended June 30, 2011, the Company spent $74,428 on investing activities, including $55,945 of cash relating to the acquisition of a private Brazilian company and related equipment, $20,409 of cash related to the purchase, construction and deployment of drilling equipment to South America, partially offset by a change of $1,926 in restricted cash released to the Company.

During the six months ended June 30, 2011, the Company spent $106,462 on investing activities, including $55,945 of cash relating to the acquisition of a private Brazilian company, $52,461 of cash related to the purchase, construction and deployment of drilling equipment to South America, partially offset by $1,944 of restricted cash released to the Company.

Financing Activities

During the three months ended June 30, 2011, the Company received $96,585 from financing activities from the proceeds of the bought deal subscription receipts financing and incurred $232 of costs relating to the long-term debt.

During the six months ended June 30, 2011, Tuscany received $99,652 from financing activities. Proceeds of $96,585 were received from the bought deal subscription receipts financing, $3,299 of proceeds were received from the exercise of issued warrants and costs of $232 were incurred relating to the long-term debt.

Outlook

To date, 2011 has been a period of significant growth and operational development for Tuscany. In May 2011, Tuscany added eight drilling rigs to its Brazil fleet through its acquisition of Drillfor Perfuracoes do Brasil Ltda ("Drillfor"), the acquired private Brazilian drilling and work-over company. In June 2011, Tuscany announced the acquisition of Caroil S.A.S., a 15 drilling rig contractor based in Paris, France. The Caroil acquisition was approved by Shareholders on April 9, 2011; closing is expected to occur in the third quarter of 2011. The addition of Caroil will expand Tuscany's geographical footprint into central Africa with seven drilling rigs and one workover rig, and further expands Tuscany's presence in Colombia with the addition of six drilling rigs. In addition, the acquisition brings one workover rig which Caroil manages for a third party. With the addition of Drillfor, Caroil and the two drilling rigs constructed during the first seven months of 2011, Tuscany has expanded its fleet to 41 drilling and heavy-duty workover rigs from six drilling and heavy duty workover rigs in January 2010.

Of Tuscany's original fleet of 19 drilling and heavy-duty workover rigs (including the two new drilling rigs constructed during the first six months of 2011), 11 are currently working under contract and six are under letters of intent and expected to be under contract later in the third quarter of 2011. Marketing efforts continue with respect to the final two rigs and management is hopeful these two rigs will be under contract prior to the end of the year. Of the eight drilling rigs acquired in the Drillfor acquisition, three are currently working and contracts for two additional rigs are being negotiated, with rig operations for these two rigs expected to commence prior to the end of the year. The remaining three Drillfor rigs will be refurbished when marketing efforts secure work for the rigs. On closing of the acquisition, all 15 of Caroil's rigs are expected to be on contract (including the rig being managed by Caroil). The addition of the Drillfor and Caroil drilling equipment coupled with the successful contracting of previously idle rigs provides strong support for the Company's expectation of increased activity for the remainder of 2011 and into 2012.

Consolidated Statement of Financial Position (Unaudited)

(expressed in thousands of US dollars)

June 30 December 31 January 1
2011 2010 2010
Assets
Current Assets
Cash and cash equivalents 32,612 47,965 1,840
Restricted cash 1,384 3,328 -
Term deposits - - 436
Share subscription receivable - - 100
Accounts receivable 27,318 7,348 1,936
Prepaid expenses and deposits 6,244 1,566 510
Inventory 2,969 861 -
Foreign VAT recoverable 1,781 1,410 1,618
72,308 62,478 6,440
Foreign VAT recoverable 2,915 3,810 750
Long-term investment 5,033 5,054 -
Property and equipment 305,390 205,625 49,422
385,646 276,967 56,612
Liabilities
Current Liabilities
Accounts payable and accrued liabilities
23,878

14,330

5,259
Income taxes payable 2,610 89 -
Due to shareholders 876 6,554 548
Current portion of long-term debt 10,666 - -
38,030 20,973 5,807
Convertible debenture - - 204
Long-term debt 61,149 70,731 -
99,179 91,704 6,011
Shareholders' Equity
Share capital 297,778 190,701 42,810
Contributed surplus 4,973 2,707 -
Warrants 13,342 14,392 10,332
Accumulated other comprehensive income
97

294

-
Deficit (29,723) (22,831) (2,541)
286,467 185,263 50,601
385,646 276,967 56,612

Consolidated Statement of Comprehensive Loss

For the three and six months ended June 30, 2011 and 2010 (unaudited)

(expressed in thousands of US dollars)

Three months ended Six months ended
June 30 June 30 June 30 June 30
2011 2010 2011 2010
Revenue
Oilfield services 29,843 1,755 49,113 5,135
Expenses
Oilfield services (20,417) (1,273) (32,989) (3,181)
Depreciation (2,494) (468) (4,694) (996)
General and administrative (5,689) (1,683) (9,778) (3,236)
Foreign exchange loss (99) 86 (505) (72)
Derivative gain - (41) - 308
Equity income (loss) 814 (40) 176 (40)
Acquisition costs (564) - (564) -
(28,449) (3,419) (48,354) (7,217)
Finance income 160 3 163 8
Finance expenses (2,088) (128) (4,246) (1,803)
Net finance costs (1,928) (125) (4,083) (1,795)
Loss before income taxes for the period
(534)

(1,789)

(3,324)

(3,877)
Current income taxes 2,538 (91) 3,568 36
Net Loss for the period (3,072) (1,698) (6,892) (3,913)
Other comprehensive loss
Loss on translating equity portion of investment
(256)

-

(197)

-
Total comprehensive loss (3,328) (1,698) (7,089) (3,913)
Net Loss per share, basic and diluted
(0.01)

(0.01)

(0.03)

(0.03)

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 Deficit Total equity
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 translation adjustment
-

-

-

(197)

-

(197)
Comprehensive loss for the period - - - (197) (6,892) (7,089)
Stock-based compensation - 2,242 - - - 2,242
Loan conversion 6,168 - - - - 6,168
Subscription receipt issuance 102,321 - - - - 102,321
Issuance of shares 3,299 - - - - 3,299
Share issuance costs (5,737) - - - - (5,737)
Expiration of warrants - 24 (24) - - -
Exercise of warrants 1,026 - (1,026) - - -
Balance – June 30, 2011 297,778 4,973 13,342 97 (29,723) 286,467
Balance – January 1, 2010 42,810 - 10,332 - (2,541) 50,601
Net loss for the period - - - - (3,913) (3,913)
Comprehensive loss for the period - - - - (3,913) (3,913)
Issuance of shares 107,605 - - - - 107,605
Share issuance costs (99) - - - - (99)
Convertible debenture 1,222 57 - - - 1,279
Stock-based compensation - 7 - - - 7
Issuance of warrants (15,499) - 15,499 - - -
Exercise of warrants 12,092 - (12,092) - - -
Expiry of warrants - 1,493 (1,493) - - -
Special warrant issue - - - - - -
Transaction costs (220) - - - (105) (325)
Balance – June 30, 2010 147,911 1,557 12,246 - (6,559) 155,155
Three months ended Six months ended
June 30 June 30 June 30 June 30
2011 2010 2011 2010
Cash flow provided by (used in):
Operating Activities
Net Loss for the period (3,072) (1,698) (6,892) (3,913)
Items not affecting cash
Depreciation 2,494 468 4,694 996
Interest expense on convertible debenture
-

-

-

1,596
Derivative gain - 41 - (308)
Unrealized foreign exchange loss
294

-

294

-
Equity gain (814) - (176) -
Amortization of financing fees 662 - 1,316 -
Stock based compensation 1,329 7 2,242 7
Changes in non-cash working capital (1,159) 11,446 (10,021) 15,613
(266) 10,264 (8,543) 13,991
Investing Activities
Acquisition of property and equipment (20,409) (38,597) (52,461) (112,209)
Acquisition of Drillfor (55,945) - (55,945) -
Restricted cash 1,926 - 1,944 -
Long-term investment - (1,975) - (1,975)
Term deposits - - - 436
(74,428) (40,572) (106,462) (113,748)
Financing Activities
Advances (repayment) from (to) shareholders
-

(106)

-

4,841
Proceeds from convertible debenture financing
-

-

-

5,000
Costs of issuance of long term debt (232) - (232) -
Proceeds from issuance of share capital, net
96,585

7,548

99,884

32,499
Proceeds from issuance of special warrants, net
-

-

-

59,475
96,353 7,442 99,652 101,815
Increase (decrease) in cash and cash equivalents
21,659

(22,866)

(15,353)

2,058
Cash and cash equivalents, beginning of period
10,953

26,764

47,965

1,840
Cash and cash equivalents, end of period
32,612

3,898

32,612

3,898
Cash Flow Supplementary Information
Interest received 160 3 163 8
Interest paid 1,377 - 2,755 -
Income taxes paid 956 - 1,046 -

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. The Company is currently focused on providing services to oil and natural gas operators in South America. Tuscany has operating centers in Colombia, Ecuador and Brazil.

Tuscany trades on the Toronto Stock Exchange under the symbol TID.

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 risks associated with satisfying all conditions to closing the Caroil acquisition, 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 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
    (403) 265-8793 (FAX)

    Tuscany International Drilling Inc.
    Reg Greenslade
    President & CEO
    (403) 265-8258
    (403) 265-8793 (FAX)

    Tuscany International Drilling Inc.
    Matt Moorman
    CFO
    (403) 265-8258
    (403) 265-8793 (FAX)

    Tuscany International Drilling Inc.
    1950, 140-4th Avenue S.W.
    Calgary, Alberta
    www.tuscanydrilling.com