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Press release from Marketwire

Tuscany International Drilling Inc. Announces First Quarter 2013 Financial Results

Monday, May 13, 2013

Tuscany International Drilling Inc. Announces First Quarter 2013 Financial Results

09:00 EDT Monday, May 13, 2013

CALGARY, ALBERTA--(Marketwired - May 13, 2013) - Tuscany International Drilling Inc. ("Tuscany" or the "Company") (TSX:TID) (COLOMBIA:TIDC) is pleased to announce first quarter 2013 results. The condensed interim consolidated financial statements of the Company for the first quarter ended March 31, 2013 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.

Q1 2013 Highlights

  • The Company recorded revenue of $59,100 during the first quarter compared to $94,300 during the same period last year, a decline of 37%. This decline in revenue reflects a drop in revenue days from 3,018 in Q1 2012 to 2,252 in Q1 2013.

  • Gross margin(1) was $16,400 during the first quarter compared to $31,400 during the same period last year, a decline of 48%.

  • Adjusted EBITDA1 was $9,400 during the first quarter compared to adjusted EBITDA of $20,100 during the same period in 2012, a decline of 53%.

  • Cash generated from operations was $1,200 during the first quarter of 2013 compared to cash used by operations of $5,300 during the same period in 2012.

  • Net loss was $7,100 during the first quarter compared to a break-even net income during the same period in 2012.

  • General and administrative expenses were $7,200 (including stock-based compensation of $840), or 12.1% of revenue during the first quarter compared to $12,300 (including stock-based compensation of $755), or 13.1% of revenue during the same period in 2012.

  • Utilization of the Company's fleet was 65% during the first quarter of 2013 as compared to 90% during the same period in 2012. The following is a brief table illustrating the status of our fleet as at May 13, 2013.

(1) Refer to Non-GAAP Measures

Country Working/Mobilizing Not Working Out of Service for Refurbishment Total
Colombia 11 3* - 14
Brazil 4 5 - 9
Ecuador 5 - - 5
Gabon 5 - - 5
Tanzania 1 1 - 2
Uganda 1 - - 1
Republic of Congo 1 - - 1
28 9 - 37
* 2 of the 3 non-working rigs in Colombia have received Letters of Intent for long term contract commitments to commence in Q2 2013.
OPERATIONAL HIGHLIGHTS
Three months ended March 31
$ thousands, except per share data and operating information 2013 2012 % change
Revenue 59,091 94,314 (37 )%
Gross margin(2) 16,355 31,370 (48 )%
Gross margin percentage 27.7 % 33.3 % (17 )%
Adjusted EBITDA1 9,367 20,160 (54 )%
Adjusted EBITDA per share (basic and diluted) $0.03 $0.06 (50 )%
Net income (loss) for the period (7,079 ) 275 (2,674 )%
Net income (loss) per share (basic and diluted) $(0.02 ) $0.00 N/A
Funds from operations1 2,141 13,738 (84 )%
Funds from operations per share (basic and diluted) $0.01 $0.04 (75 )%
Cash from (used in) operating activities 1,221 (5,341 ) 123 %
Cash from (used in) operating activities per share (basic and diluted) $0.00 $(0.02 ) 100 %
General and administrative expenses 7,224 12,323 (41 )%
General and administrative expenses as a % of revenue 12.2 % 13.1 % (7 )%
Total assets 642,813 656,969 (2 )%
Total long-term liabilities 178,157 170,054 5 %
Operating information
Number of available rigs 37 36 3 %
Revenue days 2,195 3,018 (27 )%
Utilization 65.9 % 89.6 % (26 )%
(1) Refer to "Non-IFRS Measures"

Non-IFRS Measures

This MD&A 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 "Oilfield services revenue less oilfield services expenses less general and administrative expenses (excluding stock-based compensation expense)". 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 March 31
$ thousands 2013 2012
Oilfield services revenue 59,091 94,314
Oilfield services expenses (42,736 ) (62,944 )
General and administrative expenses (7,224 ) (12,323 )
Stock-based compensation expense 236 1,113
Adjusted EBITDA 9,367 20,160

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 March 31
$ thousands 2013 2012
Cash flow provided by operating activities 1,221 (5,341 )
Changes in non-cash working capital 920 19,079
Funds from operations 2,141 13,738

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 operational performance.

Three months ended March 31
$ thousands 2013 2012
Oilfield services revenue 59,091 94,314
Oilfield services expenses (42,736 ) (62,944 )
Gross margin 16,355 31,370
Percentage 27.7 % 33.3 %

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 March 31, 2013, the Company recorded a net loss of $7,079 ($0.02 per common share) compared to a net income of $275 ($0.00 per common share) for the three months ended March 31, 2012. During the three months ended March 31, 2013, the Company recorded oilfield services revenue of $59,091, adjusted EBITDA1 of $9,367 and gross margin(3) from rig operations of $16,355 compared to revenue of $94,314, adjusted EBITDA of $20,160 and gross margin from rig operations of $31,370 during the three months ended March 31, 2012.

The decreases in revenue, adjusted EBITDA and gross margin for the first quarter of 2013 compared to the first quarter of 2012 reflect a decrease in operating activity during the three months ended March 31, 2013, compared to the three months ended March 31, 2012, as a result of rigs coming off contract in 2012. For the three months ended March 31, 2013, the Company had 2,195 revenue days from rig operations compared to 3,018 revenue days from rig operations during the three months ended March 31, 2012. Gross margin for the three months ended March 31, 2013, was offset by general and administrative expenses of $7,224, net finance costs of $5,702, foreign exchange contract expense of $78 and depreciation of $5,559. For the three months ended March 31, 2013, the Company also recorded current income tax expense of $1,940, deferred income tax expense of $3,368, foreign exchange gains of $763 and equity losses of $326. The large decrease in depreciation expense reflects the decrease in revenue days during the three months ended March 31, 2013 compared to the three months ended March 31, 2012. The decrease in general and administrative expense from the three months ended March 31, 2013 compared to the three months ended March 31, 2012, reflects management's efforts to realize efficiencies associated with the 2011 corporate acquisitions.

During the three months ended March 31, 2013, Tuscany spent $4,829 on investing activities, which includes $3,020 of capital expenditures comprised primarily of rig refurbishment activity, and a $1,809 increase in restricted cash. During the three months ended March 31, 2013, Tuscany drew an additional $5,000 on its credit facility and increased its bank indebtedness and operating lines by 5,021.

(1) Refer to "Non-IFRS Measures"
Review of Condensed Interim Consolidated Statement of Financial Position
($ thousands)
Change ($)(1) Explanation
Cash and cash equivalents 6,326 See consolidated statement of cash flows.
Restricted cash 1,809 Restricted cash results from the requirement to maintain a debt service reserve account pursuant to the Company's credit facility. In March 2013, debt interest was paid from this reserve account, bringing the balance of the account to $nil. Subsequent to the interest payment, deposits of $2,082 were made.
Accounts receivable (4,579 ) Decrease results primarily from a 2.5% decrease in revenue days in Q1, 2013 compared to Q4, 2012.
Prepaid expenses and deposits (1,147 ) Decrease due to amortization of prepaid expenses during the first quarter of 2012.
Inventory 1,627 Increase due to purchases partially offset by the usage of inventory on hand at December 31, 2012.
Foreign VAT recoverable (current and non-current) 951 Increase due to delays in recovery of VAT from Gabon.
Long-term investments (445 ) Decrease due to losses incurred by Warrior Rig Ltd. ("Warrior") for the period and a foreign exchange loss resulting from the translation of this investment.
Property and equipment (2,539 ) Decrease due to depreciation expense partially offset by costs capitalized related to the refurbishment of rigs.
Bank overdraft 5,021 Increase due to draw on Company's overdraft facilities
Lines of credit 5,000 Increase due to draw on the Company's revolving line of credit.
Accounts payable and accrued liabilities (5,747 ) Decrease reflects the decrease in activity in Q1, 2013 compared to Q4, 2012.
Income taxes payable 151 Increase is due to the increases in taxable income offset by income tax installments paid.
Long-term debt (current and long-term) 1,284 Increase due to the amortization of financing costs included in long-term debt.
Derivative contracts (112 ) Decrease due to the change in fair value of hedging contracts entered into during the first quarter of 2012.
Net deferred taxes (3,368 ) Decrease is due to revaluation of tax assets due to the change in foreign exchange rates.
Share capital 23,128 Increase is due to the exercise of warrants during the first quarter of 2013.
(1) Reflects the movement in accounts from December 31, 2012 to March 31, 2013.
Change ($)(5) Explanation
Contributed surplus 1,548 Increase relates to the expiry of warrants and stock-based compensation expense recorded during the first quarter of 2013.
Warrants (24,440 ) Decrease is due to the exercise and expiry of warrants during the first quarter of 2013.
Review of Condensed Interim Consolidated Statement of Comprehensive Income and Loss
($ thousands)
Three months ended March 31
2013 2012 % Change
Oilfield services revenue 59,091 94,314 (37 )%
Oilfield services expenses (42,736 ) (62,944 ) (32 )%
Gross margin(2) 16,355 31,370 (48 )%
Gross margin % 27.7 % 33.3 % (17 )%

Oilfield services revenue was $59,091 for the three months ended March 31, 2013, compared with $94,314 for the three months ended March 31, 2012, a decrease of 37%. The decrease in revenue is a result of decreases in the number of revenue days and average revenue per day in the three months ended March 31, 2013, compared to the three months ended March 31, 2012. During the three months ended March 31, 2013, the Company had 2,195 revenue days (65.9% utilization) compared to 3,018 revenue days (89.6% utilization) in the three months ended March 31, 2012, a decrease of 27%. Revenue days decreased in the three months ended March 31, 2013, primarily as a result of rigs coming off contract during 2012. For the three months ended March 31, 2013, average revenue per day decreased to $26.9 from $31.2 for the three months ended March 31, 2012. Average revenue per day decreased in the first quarter of 2013 compared to the first quarter of 2012 due to larger rigs coming off contract during 2012 and three rigs in Colombia being contracted at lower day rates compared to rigs of similar capacity. These lower day rates are more than offset by the fact that the majority of the operating costs are borne by the customer. Twenty-six of the Company's 37 available drilling and heavy-duty workover rigs earned revenue from drilling operations during the three months ended March 31, 2012. During the three months ended March 31, 2012, the Company earned revenues from 34 rigs.

For the three months ended March 31, 2013, gross margin was $16,355, or 27.7%, compared with a gross margin of $31,370, or 33.3%, for the three months ended March 31, 2012. The decrease in gross margin percentage for the three months ended March 31, 2013, compared to the gross margin percentage for the three months ended March 31, 2012, is primarily due to continuing costs associated with rigs that have come off contract.

(1) Reflects the movement in accounts from December 31, 2012 to March 31, 2013.

(2) Refer to "Non-IFRS Measures"

Three months ended March 31
2013 2012 % Change
Depreciation 5,559 9,768 (43 )%

Depreciation expense totaled $5,559 for the three months ended March 31, 2013, compared with $9,768 for the three months ended March 31, 2012. Under the Company's depreciation policy, depreciation of rigs and related equipment is based on the number of days in operation. The significant decrease in depreciation expense for the three months ended March 31, 2013, compared to the three months ended March 31, 2012, is a result of a decrease in the operating days in the three months ended March 31, 2013, compared to the corresponding period of 2012. During the three months ended March 31, 2013, the Company recorded depreciation on twenty-six rigs compared to thirty-four rigs during the three months ended March 31, 2012.

Three months ended March 31
2013 2012 % Change
General and administrative 7,224 12,323 (41 )%

General and administrative expense was $7,224 (12.23% of revenue) for the three months ended March 31, 2013, compared to $12,323 (13.07% of revenue) for the three months ended March 31, 2012. The decrease in general and administrative expense and the decrease in general and administrative expense as a percentage of revenue (even after the impact of a 37% decrease in revenue compared to the corresponding period of 2012) from the three months ended March 31, 2013 compared to the three months ended March 31, 2012, reflects management's efforts to realize efficiencies associated with the 2011 acquisitions.

Included in general and administrative expense for the three months ended March 31, 2013, is $236 of stock-based compensation compared to $1,113 for three months ended March 31, 2012. 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 March 31
2013 2012 % Change
Net finance costs 5,702 7,298 (22 )%

For the three months ended March 31, 2013, net finance costs includes interest and amortization of costs associated with the Company's credit facility, the change in value on the Company's interest rate hedges and interest on amounts payable to Brazilian tax authorities and other smaller interest charges in various countries, net of interest income. Net finance costs decreased to $5,702 for the three months ended March 31, 2013, from $7,298 for the three months ended March 31, 2012.

The Company currently has a $255,000 credit facility comprised of a $210,000 term loan and a $45,000 revolving line of credit. 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 $1,370 have been included in net finance costs for the three months ended March 31, 2013, compared to $1,081 for the three months ended March 31, 2012. 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 months ended March 31, 2013, the Company recorded $4,145 of interest related to the credit facility compared to $3,972 for the three months ended March 31, 2012.

During the year ended December 31, 2012, the Company entered into two separate agreements to hedge the interest rate on a total of $100,000 of the $210,000 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 $22 for the three months ended March 31, 2013, compared to an increase of $2,153 for the three months ended March 31, 2012.

The Company is being charged interest on amounts owing to the Brazilian tax authority. Interest on amounts owing to the Brazilian tax authority was $94 for the three months ended March 31, 2013 (2012 - $92). Interest of $70 was incurred in various countries for the three months ended March 31, 2013 (2012 - $Nil).

Three months ended March 31
2013 2012 % Change
Foreign exchange contracts 78 22 255 %

During the period ended March 31, 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 $78 in the three months ended March 31, 2013 (2012 - $22).

Three months ended March 31
2013 2012 % Change
Foreign exchange loss (gain) (763 ) 516 (248 )%

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) and Euros. 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 March 31
2013 2012 % Change
Equity income (loss) (326 ) 674 (148 )%

The Company has a 33.87% ownership 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 losses totaled $326 for the three months ended March 31, 2013, compared with equity income of $674 for the three months ended March 31, 2012. Equity income has decreased as a result of decreased activity in Warrior in the first quarter of 2013 compared to the first quarter of 2012.

Three months ended March 31
2013 2012 % Change
Current income taxes 1,940 2,872 (32 )%

For the three months ended March 31, 2013, Tuscany's total current income tax expense of $1,940 is comprised of current income primarily of income tax expenses in Colombia and Gabon.

Three months ended March 31
2013 2012 % Change
Deferred income taxes (recovery) 3,368 (1,030 ) 427 %

For the three months ended March 31, 2013, Tuscany's total deferred income tax expense is $3,368. For the three months ended March 31, 2013, deferred income tax expenses of $4,276 in Colombia, $331 in Uganda and $42 in Ecuador were offset by deferred income tax recoveries of $864 in Brazil and $417 in Tanzania.

Tuscany International Drilling Inc.
Condensed Interim Consolidated Statement of Financial Position (Unaudited)
(expressed in thousands of US dollars)
March 31 December 31
2013 2012
Assets
Current Assets
Cash and cash equivalents 12,629 6,303
Restricted cash 2,082 273
Accounts receivable 102,383 106,962
Prepaid expenses and deposits 4,937 6,084
Inventory 20,293 18,666
Foreign VAT recoverable 4,700 4,219
147,024 142,507
Foreign VAT recoverable 5,925 5,455
Deferred tax asset 11,587 15,772
Long-term investment 5,967 6,412
Property and equipment 472,310 474,849
642,813 644,995
Liabilities
Current Liabilities
Bank indebtedness 9,516 4,495
Lines of credit 36,469 31,469
Accounts payable and accrued liabilities 57,622 63,369
Current portion of long-term debt 29,750 16,875
Income taxes payable 8,998 8,847
142,355 125,055
Long-term debt 167,962 179,553
Derivative contracts 3,825 3,937
Deferred tax liability 6,370 7,187
320,512 315,732
Shareholders' Equity
Share capital 389,428 366,300
Contributed surplus 23,208 21,660
Warrants 1,264 25,704
Accumulated other comprehensive loss (508 ) (389 )
Deficit (91,091 ) (84,012 )
322,301 329,263
642,813 644,995
Tuscany International Drilling Inc.
Condensed Interim Consolidated Statement of Comprehensive Income and Loss (Unaudited)
For the three months ended March 31, 2013 and 2012
(expressed in thousands of US dollars, except per share data)
2013 2012
Revenue
Oilfield services 59,091 94,314
Expenses
Oilfield services 42,736 62,944
Depreciation 5,559 9,768
General and administrative 7,224 12,323
Foreign exchange (gain) loss (763 ) 516
Equity (income) loss 326 (674 )
55,082 84,877
Net finance costs 5,702 7,298
Foreign exchange contracts 78 22
60,862 92,197
Income (loss) before income taxes for the period (1,771 ) 2,117
Current income taxes 1,940 2,872
Deferred income taxes 3,368 (1,030 )
Net income (loss) for the period (7,079 ) 275
Other comprehensive loss
Items that may be subsequently reclassified to income and loss:
Foreign currency translation (119 ) (157 )
Total comprehensive income (loss) for the period (7,198 ) 118
Net income (loss) per share, basic and diluted (0.02 ) 0.00
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, 2013 366,300 21,660 25,704 (389 ) (84,012 ) 329,263
Net loss for the period - - - - (7,079 ) (7,079 )
Cumulative foreign currency translation adjustment
-

-

-

(119
)
-

(119
)
Comprehensive loss for the period - - - (119 ) (7,079 ) (7,198 )
Stock-based compensation - 236 - - - 236
Exercise of warrants 23,128 - (23,128 ) - - -
Expiration of warrants - 1,312 (1,312 ) - - -
Balance - March 31, 2013 389,428 23,208 1,264 (508 ) (91,091 ) 322,301
Balance - January 1, 2012 366,300 18,106 25,704 (251 ) (48,948 ) 360,911
Net income for the period
-

-

-

-

275

275
Cumulative foreign currency translation adjustment
-

-

-

(157
)
-

(157
)
Comprehensive income (loss) for the period - - - (157 ) 275 118
Stock-based compensation - 1,113 - - - 1,113
Balance - March 31, 2012 366,300 19,219 25,704 (408 ) (48,673 ) 362,142
Tuscany International Drilling Inc.
Condensed Interim Consolidated Statement of Cash Flows (Unaudited)
For the three months ended March 31, 2013 and 2012
(expressed in thousands of US dollars)
2013 2012
Cash flow provided by (used in):
Operating Activities
Net income (loss) for the period (7,079 ) 275
Items not affecting cash
Depreciation 5,559 9,768
Equity loss (income) 326 (674 )
Amortization of financing fees 1,371 1,081
Change in fair value of derivative contracts (112 ) 2,175
Stock based compensation 236 1,113
Changes in non-cash working capital 920 (19,079 )
1,221 (5,341 )
Investing Activities
Purchase of property and equipment (3,020 ) (3,236 )
Change in restricted cash (1,809 ) 1,500
(4,829 ) (1,736 )
Financing Activities
Proceeds from bank indebtedness 5,021 -
Proceeds from lines of credit 5,000 -
Payment of financing fees (87 ) -
9,934 -
Increase (decrease) in cash and cash equivalents 6,326 (7,077 )
Cash and cash equivalents, beginning of period 6,303 13,156
Cash and cash equivalents, end of period 12,629 6,079
Cash Flow Supplementary Information
Interest received 88 12
Interest paid 4,356 3,992
Income taxes paid 1,788 -

FOR FURTHER INFORMATION PLEASE CONTACT:

Contact Information:
Tuscany International Drilling Inc.
Walter Dawson
President and 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

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