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As oilpatch reporting season begins, crude price drop top of mind

Lauren Krugel
October 20, 2014

CALGARY – The recent rout in oil prices will likely be top of mind for investors as Canada’s top oilpatch players release their third-quarter results over the next few weeks.

The steep drop in the key U.S. benchmark crude — to about US$80 a barrel from around US$95 just a month ago — won’t be evident in companies’ financial reports for the quarter ended Sept. 30.

But analysts and investors will be paying keen attention to the mood of top brass on quarterly conference calls and looking for signals about how oil market volatility may affect future plans, said Lanny Pendill, an analyst with Edward Jones in St. Louis, Mo.

Right now, oil and gas producers are hammering out their budgets for 2015.

“As a whole, we’re probably at the price point where I think many of the companies are going to approach the budget season with a little more caution,” he said.

“Just the tone and the overall impression that they leave with us … I think will be key. So we will certainly be focusing on the go-forward comments more than anything.”

Projects under construction in northern Alberta should be in good shape, but prospects are less certain for some that haven’t yet received a final board arrpoval, said Pendill. In recent months, Canadian units of France’s Total and Norway’s Statoil have opted not to proceed with their Joslyn and Corner oilsands projects, respectively.

Cenovus Energy Inc. (TSX:CVE), one of Canada’s top oilsands producers, will be reporting on Thursday. That company has developed a reputation as being one of the lowest-cost producers in the industry, and Pendill expects it to continue to thrive in the current oil price environment. Supply costs for its projects range between US$35 and US$65 a barrel, meaning even its most pricey projects can generate a decent profit.

Cenovus extracts bitumen using steam-assisted gravity drainage, or SAGD, technology. Steam is pumped underground through a well, where it softens the tarry bitumen enough that it can be drawn to the surface through a second pipe.

Steam-driven, or in-situ, projects are generally much more cost effective than the more traditional surface mining operations. Since most of the remaining oilsands resource in northern Alberta is too deep to be mined, most future projects will employ in-situ techniques.

Husky Energy Inc. (TSX:HSE), also on deck to report Thursday, is close to starting the first phase of its Sunrise SAGD project, part of a partnership with BP. The company has signalled that costs would be higher than its most recent estimate of C$2.7 billion, but hasn’t yet said by how much.

Oilsands producers learned some hard lessons during the financial crisis of 2008 and 2009, said Pendill. The oilpatch saw a spate of high-profile project deferrals as crude prices cratered to levels that were at times less than half of what they are today.

Those companies have since done a better job managing their debt. They’ve also become reluctant to undertake multibillion-dollar megaprojects. Instead, companies like Cenovus and Suncor Energy Inc. (TSX:SU) are building SAGD projects in bite-sized increments, essentially copying and pasting the design with each new phase. Miners, like Canadian Natural Resources Ltd. (TSX:CNQ) and Suncor, are boosting output through “debottlenecking” — squeezing more crude out of existing projects by tweaking equipment, rather than building something new from scratch.

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Petroamerica and Suroco Complete Plan of Arrangement

CALGARY, ALBERTA–(Marketwired – July 15, 2014) -

(NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA)

Petroamerica Oil Corp. (“Petroamerica“) (TSX VENTURE:PTA) and Suroco Energy Inc. (“Suroco“) are pleased to announce that the previously announced plan of arrangement under the provisions of the Business Corporations Act (Alberta) among Petroamerica, Suroco and the shareholders of Suroco (the “Arrangement“) was voted on and overwhelmingly approved by holders (“Suroco Shareholders“) of common shares of Suroco (“Suroco Shares“) at the reconvened Annual General and Special Meeting of Suroco Shareholders held on July 14, 2014 (the “Meeting“). Holders of over 78% of the outstanding Suroco Shares voted at the Meeting, with approximately 91.5% voting in favour of the Arrangement. The Arrangement also received approval from the Court of Queen’s Bench of Alberta on July 14, 2014. The Arrangement is more fully described in the management information circular and proxy statement of Suroco dated May 27, 2014, as amended pursuant to two supplements to the management information circular, all of which may be viewed at www.sedar.com. (All dollar amounts shown herein are in Canadian Dollars).

Under the Arrangement, holders of Suroco Shares were able to elect to receive one of the following for each Suroco Share held:

  1. 2.2161 common shares (“Petroamerica Shares“) of Petroamerica (the “Share Consideration“);
  2. a cash payment for a portion of the Suroco Shares tendered and Petroamerica Shares in consideration for the balance of the Suroco Shares tendered such that, for every 100 Suroco Shares, the electing Suroco shareholder would receive approximately 164.01 Petroamerica Shares in exchange for 74.01 of those Suroco Shares (being 2.2161 Petroamerica Shares per Suroco Share) and would receive approximately $20.79 in cash for the remaining 25.99 Suroco shares (being $0.80 per Suroco Share) (the “Cash and Share Consideration“); or
  3. $0.80 in cash (the “Cash Consideration“).

Effective immediately, trading in Suroco Shares has ceased and all Suroco Shareholders will be provided with the consideration described above, depending on the election made by such Suroco Shareholder. Of the 135,769,734 Suroco Shares issued and outstanding on the effective date of the Arrangement, approximately 13.6% (18,505,134 shares) requested the Cash Consideration, 7.8% (10,546,300 shares) requested the Cash and Share Consideration and approximately 78.6% (106,718,300 shares) will receive the Share Consideration. As a result, Petroamerica will be paying approximately $17 million dollars pursuant to the Arrangement and issuing 253,795,411 Petroamerica Shares to Suroco Shareholders. Following completion of the Arrangement, there are approximately 858 million Petroamerica Shares outstanding.

In connection with the Arrangement, Juan Szabo, a director of Suroco, was appointed as a director of Petroamerica. Mr. Szabo is a professional engineer with over 39 years’ experience in Oil & Gas industry. After starting his career as a Design Engineer for Baker Oil Tools in Houston, Texas, he began a long career in the Venezuelan Oil industry, initially with Creole Petroleum Corporation (Subsidiary of Exxon) and later with Lagoven S.A. Pequiven S. A. and Petróleos de Venezuela. Mr. Szabo has also served as a member of the Board of Directors of Pequiven, PDVSA Oil and Gas, Citgo Petroleum and several Joint Venture Companies. Since 2007, Mr. Szabo has served as advisor to private and public companies such as Inepetrol, CANTV, and P.T. Energi Mega Persada Tbk (Indonesia) and Alentar Holdings Inc., as well as for multilateral organizations such as the InterAmerican Development Bank (BID) and the Central Bank of Ecuador. Mr. Szabo holds B.S. and M.S. degrees in Mechanical Engineering with Petroleum Option from the University of Houston.

Pursuant to the letter of transmittal mailed to Suroco Shareholders as part of the materials in connection with the Meeting, in order to receive the Petroamerica Shares to which they are entitled, registered holders of Suroco Shares will be required to deposit their share certificate(s) representing Suroco Shares, together with the duly completed letter of transmittal, with Computershare Trust Company of Canada, Petroamerica’s and Suroco’s depositary under the Arrangement. Suroco Shareholders whose Suroco Shares are registered in the name of a broker, dealer, bank, trust company or other nominee must contact their nominee to deposit their Suroco Shares.

Over the next few weeks the combined company will take steps to consolidate its operations. The combined company will hold working interests in 11 blocks covering over 1 million gross (439 thousand net) acres in the Llanos and Putumayo Basins in Colombia. Petroamerica will also provide an operational update shortly, as well as provide updated capital spending and production estimates for the balance of fiscal 2014.

Black Spruce Merchant Capital Corp. acted as sole financial advisor to Petroamerica with respect to the Arrangement. GMP Securities L.P. and Canaccord Genuity Corp. acted as strategic advisors to Petroamerica in connection with the Arrangement.

Peters & Co. Limited acted as financial advisor to Suroco with respect to the Arrangement.

About Petroamerica

Petroamerica Oil Corp. is a Canadian oil and gas exploration and production company with activities in Colombia. Petroamerica’s shares are listed on the TSX Venture Exchange under the symbol “PTA”. A summary of the Company property holdings, including maps of the above noted acquisition, has been included in the current presentation located at www.PetroamericaOilCorp.com.

Forward Looking Statements:

This news release includes information that constitutes “forward-looking information” or “forward-looking statements”. More particularly, this news release contains statements concerning expectations regarding Petroamerica following completion of the Arrangement, including the business strategy, priorities and plans, the evaluation of certain prospects in which Petroamerica will hold an interest following the completion of the Arrangement and other statements, expectations, beliefs, goals, objectives assumptions and information about possible future events, conditions, results of operations or performance. Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, estimates, forecasts, projections and other forward-looking statements will not occur, which may cause actual performance and results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements.

Material risk factors include, but are not limited to: the inability to obtain regulatory approval for any operational activities, the risks of the oil and gas industry in general, such as operational risks in exploring for, developing and producing crude oil and natural gas, market demand and unpredictable shortages of equipment and/or labour; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; fluctuations in oil and gas prices, foreign currency exchange rates and interest rates, and reliance on industry partners and other factors, many of which are beyond the control of Petroamerica. You can find an additional discussion of those assumptions, risks and uncertainties in Petroamerica’s Canadian securities filings.

Neither Petroamerica nor any of its subsidiaries nor any of its officers, directors or employees guarantees that the assumptions underlying such forward-looking statements are free from errors nor do any of the foregoing accept any responsibility for the future accuracy of the opinions expressed in this document or the actual occurrence of the forecasted developments.

Readers should also note that even if the drilling program as proposed by Petroamerica is successful, there are many factors that could result in production levels being less than anticipated or targeted, including without limitation, greater than anticipated declines in existing production due to poor reservoir performance, mechanical failures or inability to access production facilities, among other factors.

The TSX Venture Exchange Inc. has in no way passed upon the merits of the Arrangement and has neither approved nor disapproved the contents of this press release.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

 

Petroamerica Oil Corp.
Nelson Navarrete
President and Chief Executive Officer

Petroamerica Oil Corp.
Colin Wagner
Chief Financial Officer

Petroamerica Oil Corp.
Ralph Gillcrist
Chief Operating Officer and Executive Vice President
Bogota, Colombia: +57-1-744-0644
Calgary, Canada: +1-403-237-8300
investorrelations@pta-oil.com / www.PetroamericaOilCorp.com

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Calgary plays host to another energy takeover deal

Transaction is tiny and tied to assets in Colombia, but is yet another example of hot pace of M&A in oil patch.

Petroamerica Oil Corp. on Monday announced an all­share deal with Suroco Energy Inc. Petroamerica will swap each Suroco share for 1.7627 of its own, with the exchange ratio representing a 36.4 ­per­cent premium over the last day Suroco shares changed hands.

Based on Calgary ­based Petroamerica’ s last closing price of about 33 cents, each Suroco share is worth about 57 cents, up from 42 cents on April 22. The stock was halted that day, at the request of the company and pending news, according to a press release issued by Investment Industry Regulatory Organization of Canada. In the week prior to the halt, the stock rallied 40 per cent.

Asked whether the takeover news may have leaked, one of the advisers on the deal said it is “tough to speculate.” “All of the Colombian stocks had started to move up and, really, the only two that hadn’ t were Petroamerica and Suroco,” Sonny Mottahed of Black Spruce Merchant Capital said. Both companies hold assets in the South American country.

“But I think as a preventative measure, thinking that maybe there was something like that in the marketplace, the board and management of Suroco took the initiative to place the stock on halt,” he said.

“We hate to think that there could have been because [they were] such a tight group, but it is easy to speculate that could have been the case,” Mr. Mottahed said. “When you’ re in the process of trying to do a transaction, you don’ t want to leave shareholders in the wings even if they are bidding it up too high.”
He added: “What’ s for sure is both stocks kind of lagged the run that the other producing group had had,” he said. “You could say they may have been due for a bit of a run.”

Mr. Mottahed cited Canacol Energy Ltd. as an example. It climbed 16 per cent between March 21 and April 22. The company is Calgary ­based and has development assets in Colombia and Ecuador.

Petroamerica will have a market capitalization of about $270 ­million, based on its closing price on Friday, if the Suroco deal is completed.

Black Spruce acted as the sole financial adviser to Petroamerica. GMP Securities LP and Canaccord Genuity Corp. provided strategic advice to the arrangement. GMP also provided a verbal fairness opinion to Petroamerica’ s board.

Peters & Co. Ltd. provided advice to Suroco.

Petroamerica shareholders do not have to approve the deal, but two­thirds of Suroco’ s investors must give it the nod. Both companies trade on the Toronto Venture exchange.

By Carrie Tait

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Petroamerica Signs Agreement with Suroco Energy Inc. to Acquire all of Suroco’s Issued and Outstanding Common Shares

CALGARY, April 28, 2014 /CNW/ – Petroamerica Oil Corp. (“Petroamerica“) (TSX-V:PTA) is pleased to announce that it has entered into an arrangement agreement (the “Arrangement Agreement“) with Suroco Energy Inc. (“Suroco“) (TSX-V:SRN) whereby Petroamerica has agreed to acquire all of the issued and outstanding common shares of Suroco (the “Suroco Shares“) by way of a statutory plan of arrangement under the Business Corporations Act (Alberta) (the “Arrangement“). Pursuant to the terms of the Arrangement Agreement, holders of Suroco Shares (“Suroco Shareholders“) will receive 1.7627 common shares of Petroamerica (“Petroamerica Shares“) for each Suroco Share held (the “Exchange Ratio“). (Note: all financial amounts are reported in United States Dollars unless otherwise indicated.)

Based on Petroamerica’s most recent closing price of CDN$0.325 per share on April 25, 2014, the Exchange Ratio reflects a value of CDN$0.573 per Suroco Share, representing a 36.4% premium over Suroco’s closing price on April 22, 2014 of CDN$0.42 and a 66.6% premium over Suroco’s 10-day volume weighted average trading price. The Arrangement is expected to close on or around June 30, 2014, provided all required Suroco Shareholder, court, stock exchange and regulatory approvals are obtained.

“This transaction provides the diversification and scale we have been searching for in Colombia and offers shareholders exposure to a potentially prolific new play trend developing in the Putumayo Basin. The size of the combined company and its production, reserves and cash flow are anticipated to facilitate easier access to capital and open up additional growth opportunities.” says Jeff Boyce, Executive Chairman of Petroamerica.

STRATEGIC RATIONALE:

  • Growth and Diversification – Significant first step towards expanding and diversifying Petroamerica’s portfolio by acquiring four blocks focused in the Putumayo Basin, one of the most productive basins in Colombia
  • Considerable Resource Upside – Suroco’s acreage provides significant exposure to the prolific N Sand oil play developing in the Putumayo Basin which is proved up in neighbouring Ecuador
  • Added Bench Strength –  Suroco’s technical team has a proven ability to identify N Sand play concepts and prospects and is actively negotiating additional farm-ins and licensing opportunities in the region
  • Bolsters High Netback Oil Focus – Suroco’s production is 100% medium oil weighted and averaged 2,461 barrels of oil per day (“bopd“) (net before royalty) for the month of March 2014
  • Enhances Reserves – Suroco’s 3.1 million barrels (“MMbbl“) of proved and probable (“2P“) reserves working interest (before royalty) builds upon Petroamerica’s reserve base and significantly extends Petroamerica’s reserve life index
  • Unbooked Reserves – Ability to add unbooked reserves in the near term with low risk appraisal and development drilling of Suroco’s recent Quinde West discovery
  • Operatorship – Suroco qualified as a restricted operator in the 2010 bid round

KEY ATTRIBUTES OF THE COMBINED COMPANY:

  • Interests in nine E&P contracts focused on high netback light and medium oil exploration and production in the Llanos and Putumayo Basins in Colombia
  • Exposure to the prolific N Sand oil play in the Putumayo Basin, which is expected to fuel the future growth of the company
  • Production will increase 38% to approximately 8,967 barrels of oil equivalent per day (net before royalty) (March 2014 average)
  • 2P reserves will increase 63% to 8.0 million barrels of oil equivalent net before royalty with before-tax net present value (discounted at 10%) of $284 million
  • Combined 2014 expected cash flow from operations of approximately $116 million funds the combined capital expenditure program of approximately $85 million, resulting in free cash flow of approximately $30 million
  • 2014 drilling program consisting of 12 additional wells this year; 6 targeting high impact exploration and 6 lower risk appraisal and development wells, providing a number of near term catalysts
  • A substantial inventory of exploration prospects and leads to be worked up for future drilling to support future production growth
  • A strong balance sheet – it is anticipated that the combined company will have a cash balance of approximately $62 million at closing, providing opportunity to grow and consolidate in the region
  • Total debt of only $31.5 million
  • A market capitalization of approximately CDN$270 million based on Petroamerica’s trading price of April 25, 2014 (assumes approximately 832 million Petroamerica shares outstanding upon completion of the Arrangement)
  • Suroco qualified as a restricted operator, and the combined company intends to apply to become an unrestricted operator

CONFERENCE CALL AND WEBCAST INFORMATION
Petroamerica will host a conference call and webcast to discuss this transaction on Tuesday, April 29, 2014 beginning at 9:00 am Mountain Time. The telephone number for the conference call is 866-906-1113 or 857-288-2559 (International). To participate in the webcast you must register at http://wsw.com/webcast/cc/pta.v.

THE ARRANGEMENT
Under the terms of the Arrangement, each Suroco Shareholder will receive consideration of 1.7627 Petroamerica Shares per Suroco Share.

It is anticipated that Petroamerica will issue an aggregate of 237 million Petroamerica Shares to Suroco Shareholders in connection with the Arrangement. On closing, Petroamerica intends to repay Suroco’s credit facility, of which not more than $21.5 million was drawn as at March 31, 2014. It is anticipated that Petroamerica will have a cash balance of approximately $62 million, total debt of $31.5 million and approximately 832 million basic Petroamerica Shares outstanding upon completion of the Arrangement.

Pursuant to the Arrangement Agreement, all of Suroco’s outstanding options will be exercised in accordance with their terms, paid out in cash based on the “in-the-money” amount or otherwise terminated prior to the closing of the Arrangement. In addition, under the terms of the Arrangement Agreement, all holders of Suroco warrants and contingent value rights will be entitled to receive Petroamerica Shares, adjusted for the Exchange Ratio, in lieu of the number of Suroco Shares otherwise issuable upon the exercise thereof.

Completion of the Arrangement is subject to customary closing conditions, including requisite Suroco Shareholder, court, government and regulatory approvals. The Arrangement will need to be approved by not less than two-thirds of the votes cast by Suroco Shareholders, and by a majority of votes cast by Suroco Shareholders after excluding the votes cast by shareholders who are excluded shareholders under applicable securities requirements, in person or by proxy at the annual and special meeting (the “Suroco Meeting“) of Suroco Shareholders to be held on or about June 25, 2014. The Arrangement also requires approval of the TSX Venture Exchange, and of the Court of Queen’s Bench of Alberta.

The Arrangement Agreement provides for, among other things, a non-solicitation obligation on the part of Suroco, with a customary “fiduciary out” provision that entitles Suroco to consider and accept a superior proposal, and a right in favour of Petroamerica to match any superior proposal. If the Arrangement Agreement is terminated in certain circumstances, including if Suroco enters into an agreement with respect to a superior proposal or if the board of directors of Suroco withdraws or modifies its recommendation with respect to the proposed Arrangement, Petroamerica is entitled to a termination payment in cash of CDN$4 million. Suroco is also entitled to a reciprocal termination payment in cash of CDN$4 million in certain circumstances. Upon completion of the Arrangement one additional director to be agreed upon between Suroco and Petroamerica is expected to join the Petroamerica board, subject to TSX Venture Exchange approval. A complete copy of the Arrangement Agreement will be available under the respective issuer profiles of Petroamerica and Suroco on SEDAR at www.sedar.com.

The Suroco board of directors has unanimously approved the Arrangement Agreement and, based on the verbal fairness opinion of its financial advisor, Peters & Co. Limited, determined that the consideration to be received by the Suroco Shareholders pursuant to the Arrangement is fair, from a financial point of view, to Suroco Shareholders, determined that the Arrangement is in the best interests of Suroco, and resolved to unanimously recommend that Suroco Shareholders vote their Suroco Shares in favour of the Arrangement. The directors and senior officers of Suroco and one Suroco Shareholder holding greater than 10% of the outstanding Suroco Shares, who collectively hold 19.18% of the issued and outstanding Suroco Shares, have entered into support agreements to vote their Suroco Shares in favour of the Arrangement at the Suroco Meeting.

The Petroamerica board of directors has unanimously approved the Arrangement Agreement.  Black Spruce Merchant Capital Corp. is acting as sole financial advisor to Petroamerica with respect to the Arrangement. GMP Securities L.P. and Canaccord Genuity Corp. are acting as strategic advisors to the Arrangement.  GMP Securities L.P. has provided a verbal fairness opinion with respect to the Arrangement to the board of directors of Petroamerica.  Approval of holders of Petroamerica shares is not required to complete the Arrangement.

Full details of the Arrangement will be included in an information circular of Suroco to be mailed to Suroco Shareholders in accordance with applicable securities laws. A copy of the aforementioned information circular and related documents will be filed under Suroco’s issuer profile on SEDAR at www.sedar.com at the applicable time.

For a complete description of Suroco’s assets, business and financial matters, please visit their website at www.suroco.com, and review their publicly disclosed information available on Suroco’s issuer profile at www.sedar.com.

Forward Looking Statements:
This news release includes information that constitutes “forward-looking information” or “forward-looking statements”. More particularly, this news release contains statements concerning expectations regarding the timing and successful completion of the Arrangement, cash flow, business strategy, priorities and plans, expected production, the evaluation of certain prospects in which Petroamerica will hold an interest following the completion of the Arrangement, estimated number of drilling locations, expected capital program (including its allocation), production growth, reserves growth, the receipt of and the timing of receipt of environmental licenses, the ability of Petroamerica to sell its crude volume and other statements, expectations, beliefs, goals, objectives assumptions and information about possible future events, conditions, results of operations or performance.  Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur.  By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, estimates, forecasts, projections and other forward-looking statements will not occur, which may cause actual performance and results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements.  Business priorities disclosed herein are objectives only and their achievement cannot be guaranteed.  Indicative capital estimates for 2014, which are provided herein, are subject to change.

Material risk factors include, but are not limited to: the inability to obtain regulatory approval for any operational activities, inability to get all necessary approvals for completion of the Arrangement, the risks of the oil and gas industry in general, such as operational risks in exploring for, developing and producing crude oil and natural gas, market demand and unpredictable shortages of equipment and/or labour; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; fluctuations in oil and gas prices, foreign currency exchange rates and interest rates, and reliance on industry partners and other factors, many of which are beyond the control of PetroamericaYou can find an additional discussion of those assumptions, risks and uncertainties in Petroamerica’s Canadian securities filings.

Neither Petroamerica nor any of its subsidiaries nor any of its officers, directors or employees guarantees that the assumptions underlying such forward-looking statements are free from errors nor do any of the foregoing accept any responsibility for the future accuracy of the opinions expressed in this document or the actual occurrence of the forecasted developments.

Readers should also note that even if the drilling program as proposed by Petroamerica is successful, there are many factors that could result in production levels being less than anticipated or targeted, including without limitation, greater than anticipated declines in existing production due to poor reservoir performance, mechanical failures or inability to access production facilities, among other factors.

Statements relating to “reserves” are deemed to be forward-looking statements or information, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described can be profitable in the future.  There are numerous uncertainties inherent in estimating quantities of proved reserves, including many factors beyond the control of Petroamerica.  The reserve data included herein represents estimates only.  In general, estimates of economically recoverable oil and natural gas reserves and the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary considerably from actual results.  All such estimates are to some degree speculative and classifications of reserves are only attempts to define the degree of speculation involved. 

The assumptions relating to reserves and resources are contained in the reports of GLJ Petroleum Consultants Ltd. for Petroamerica and Suroco each dated effective December 31, 2013.

The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed Arrangement and has neither approved nor disapproved the contents of this press release. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Use of ‘boe’
Throughout this press release, the calculation of barrels of oil equivalent (“boe”) is at a conversion rate of 6,000 cubic feet (“cf”) of natural gas for one barrel of oil and is based on an energy equivalence conversion method. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6,000 cf: 1 barrel is based on an energy equivalence conversion method primarily applicable at the burner tip and does not represent a value equivalence at the wellhead.

SOURCE Petroamerica Oil Corp.

For further information: Nelson Navarrete, President and CEO; Colin Wagner, CFO; Ralph Gillcrist, COO, Executive Vice President; Tel Bogota, Colombia: +57-1-744-0644; Tel Calgary, Canada: +1-403-237-8300; Email: investorrelations@pta-oil.com, Web Page: www.PetroamericaOilCorp.com

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Keystone XL: Waiting for the light bulb moment

It’s been almost three years since the administration of Barack Obama started stalling and eventually deferred approval of the Keystone XL pipeline – an unexpected setback that took a massive toll on the Canadian economy.

With the U.S. State Department in the final days of determining whether TransCanada Corp.’s Keystone XL – with a revised route – fits the U.S. national interest, and President Obama suggesting to U.S. state governors Feb. 24 that a Keystone XL decision would come in a couple of months, the market is preparing for a Keystone XL event.

The prevailing view: the project goes ahead, and a decision comes quickly.

A “yes” from the President “could well be like a light bulb moment” for investors, said Sonny Mottahed, CEO and managing partner of Black Spruce Merchant Capital in Calgary.

“The switch gets turned on and people start looking at ways to play the Keystone approval, or are willing to look at the Canadian market place again in a broader context, and that could be anything from oil producers to gas producers, service companies and the like,” he said.

“Overall, I think the sentiment in Calgary [Canada's energy capital] would improve fairly dramatically, … [it] would likely be a huge tailwind for Canadian producers in general.”

Momentum for a go-ahead ruling has been rising with State’s favourable final environmental impact statement, favourable opinion polls in the U.S., support of both Democratic and Republican legislators ahead of mid-term elections, suggestions that President Obama is pushing a climate change agenda that is bigger than Keystone XL.

The West’s showdown with Russia over Crimea bolsters the case for U.S. energy independence in partnership with Canada, and maybe even call for energy exports to Europe as a backup to Russian energy supplies.

Mr. Mottahed said the Keystone debacle has resulted in negative investor sentiment toward Canadian energy stocks, depressing their values relative to U.S. counterparts.

While other transportation alternatives have been developed, “The psychology of not having Keystone approved certainly is a black mark toward the Canadian oil patch in general,” he sad.

Keystone XL’s approval “would certainly take some of that overhang off, and a lot of the psychology, with investors saying: “Canada is in the game again,” he said.

There have been many other costs from Keystone XL’s delays.

Pipeline bottlenecks depressed the price of Canadian heavy oil, hammering corporate profits and government revenue; concerns about oil market access remain a major factor in the significant weakening of the Canadian currency; energy transactions slowed down.

Foreign investors, from Americans to the Japanese, have been watching closely the Keystone XL drama, said Charles St. Arnaud, economist and foreign exchange strategist at Nomura Securities International Inc. in New York.

A yes on Keystone XL would likely boost the value of the Canadian dollar and reflect positively across Canadian energy assets, he said.

“Almost every investor that has some medium term to long-term investment in Canada is interested in it,” he said.

Many investors feel that Keystone XL delays are constraining the development of the energy sector in Canada and that other transportation options would not kick in as quickly as the Alberta-to-Texas pipeline, he said.

“Any delays are viewed very negatively,” St. Arnaud said. “So if that roadblock is removed, it would be a big positive.”

Patricia Mohr, vice-president and commodities analyst at Scotiabank in Toronto, said uncertainty around Keystone XL contributed to the Canadian dollar’s dramatic depreciation in recent months against the U.S. dollar.

The Canadian economy is so dominated by energy exports — oil and refined petroleum products account for 25% of all exports, and energy exports overall accounts for 40% — international foreign exchange traders are making a direct link between the Canadian dollar and Canada’s ability to get its oil to market, she said.

A positive outcome for Keystone XL could bump up the Canadian currency by a cent or more, she said.

“The heavy oil producers — despite the fact that they will get their crude to the refineries in Houston one way or another — will more than likely welcome a positive decision on the KXL because a pipeline is a lot cheaper than rail, and it will improve the economics of getting their heavy oil down to the refineries that need it in the Houston area,” Ms. Mohr said.

Uncertainty over KXL has resulted in “an overhang on market access against Canadians” that has pushed capital to the U.S. energy industry, said Corey Bieber, chief financial officer at Canadian Natural Resources Ltd., a major oil sands developer that would like to ship on the pipeline.

That capital has started migrating back because there is more clarity about transportation, he said.

Terry Shaunessy, president and portfolio manager at Shaunessy Investment Counsel, a money management firm in Calgary, said the market is so used to Keystone XL delays that another one would not be a surprise.

A Keystone XL yes, on the other hand, could fuel a long-awaited “relief rally,” he said.

“I think a positive Keystone event would see the Canadian dollar come up a bit, and might see foreign equity flows back into Canadian energy, especially the CNQs and the Suncors which are so much part of the index,” he said, referring to Canadian Natural Resources and Suncor Energy Inc.

Foreign investors would be even more enthusiastic if the Northern Gateway pipeline from Alberta to the West Coast were to go ahead, because it would open the door to Canadian oil to Asian markets, he said.

Pipeline controversies have contributed to negative views about Canada as an energy producer, he said, adding to concerns about high costs, interprovincial and First Nations’ disputes.

“If you are on outsider looking in, your reaction is: ‘Do I really need this? There are plenty of other places’,” Mr. Shaunessy said.

Steve Laut, president of Canadian Natural Resources, said industry has been working on alternate transportation plans for a long time and a positive decision on Keystone XL won’t change his company’s oil sands strategy.

“Our plan is pretty disciplined and it’s pretty cost effective, so we won’t accelerate any additional product development with a Keystone approval, and we won’t slow down without Keystone approval,” he said.

For now, hedge funds appear to be staying on the sidelines rather than betting on a Keystone XL decision, citing the unpredictability of the Keystone approval process.

Chris Theal, president and CEO of Kootenay Capital Management, a Calgary-based energy hedge fund, said so many other transportation options have been developed that a Keystone XL approval would no longer make a big difference.

“When you look at market access, you saw a lot of improvement with rail alone, and we are pushing through an equivalent Keystone on various rail terminals and rail projects out of Canada,” he said.

“It will come when it comes. It’s just one more piece, one of the new options that have come to market in the last 12 months as an alternative to it.”

But Mr. Theal said Canada remains “massively underinvested” and market access, whether for its oil or natural gas, is a big reason.

by Claudia Cattaneo, National Post

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Energy industry keeps wary eye on Alberta political turmoil

(Reuters) – Alberta’s powerful oil and gas industry is keeping a close watch on the uncertainty sparked by Alison Redford’s abrupt resignation as leader of the Canadian province, even though no change is expected in energy policy for now.

Redford stepped down on Wednesday as premier of the ruling Progressive Conservative party following a controversy over her travel expenses and caucus infighting that left her party floundering in the polls.

Some observers fear the political instability risks deterring potential investors in the province’s vast oil sands, the world’s third-largest crude reserve behind Venezuela and Saudi Arabia.

After several lean years, energy deals are on the rise again in oil-rich Alberta, with a number of acquisitions announced since the start of the year.

Sonny Mottahed, chief executive officer at Black Spruce Merchant Capital Corp in Calgary, said Redford’s resignation could steal some of that momentum.

“Any sudden departure will stir some excitement and create some pause in short-term investment sentiment. The bigger question will be what is next? Who will be her replacement?,” he said, adding there could be a big opportunity for the right-wing Wildrose party, now the official opposition, to gain ground.

The Progressive Conservatives are one of North America’s most successful political dynasties, having run Alberta for more than four decades.

But they have changed premiers three times since 2006 with a fourth expected to be appointed within six months. Dave Hancock, Redford’s deputy, was chosen on Thursday to govern in the interim.

“This is the third premier in eight years. They seem to bring them in, chew them up and spit them out,” said Keith Brownsey, a politics professor at Mount Royal University.

“The party is in a great deal of trouble and business certainly needs political stability. Investors will look at this and say what kind of goofball is this? They are throwing a premier out every two or three years.”

Redford’s predecessor Ed Stelmach had attempted to raise energy royalties, but backed off in the face of fierce industry opposition and the impact of the global financial crisis.

The Progressive Conservatives have since been steadfast supporters of Alberta’s oil industry. The Wildrose party is also firmly business friendly.

Redford won plaudits from business leaders for promoting the oil sands industry in Ottawa and Washington, supporting TransCanada Corp’s controversial Keystone XL pipeline and setting up the Alberta Energy Regulator in a bid to streamline the approval process for new projects.

ENERGY POLICY

Despite the uncertainty, analysts said there was little chance of an abrupt switch in energy or fiscal policy. Alberta, the largest source of U.S. oil imports, is flush with cash from oil sands production in the northern part of the province.

“Redford’s resignation doesn’t really change Alberta’s near-term outlook, Warren Lovely, senior economist at CIBC World Markets. “The province can still be expected to lead the country in terms of economic growth in the year(s) ahead. Nor does her departure jeopardize the immediate fiscal outlook.”

Attention is now focused on who will succeed Redford, but none of the potential candidates, who include Finance Minister Doug Horner and Justice Minister Jonathan Denis, are expected to change direction.

“I have not heard about any of the potential candidates talking about any energy policy other than the status quo,” said Mike Dunn, an analyst at FirstEnergy Capital.

Interim premier Hancock, a long-serving member of the Progressive Conservative party, represents a constituency in Edmonton, the provincial capital, and was first elected in 1997. He has served as deputy premier since December. (Editing by Paul Simao, Jeffrey Hodgson and Diane Craft)

By Nia Williams and Scott Haggett

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Keystone delays seen keeping investment away from junior energy space

CALGARY – Uncertainty over the Keystone XL pipeline is a “black mark” that’s been keeping investors away from the Canadian junior energy space, says a Calgary investment banker.

The sentiment may not be entirely logical, with several other alternatives on the table to get oil to lucrative markets, such as rail and a host of other pipeline proposals.

But Sonny Mottahed, CEO and managing partner at Black Spruce Merchant Capital, said there’s a “big psychology component” at play.

“The psychology of this black mark against the Keystone pipeline has just kept a lot of investors away from looking at the Canadian story. On its own, just on an island, it doesn’t necessarily make all that much sense,” he said.

TransCanada Corp. (TSX:TRP) first applied to build the Keystone XL pipeline about five and a half years ago and has yet to receive the green light from the U.S. government. The $5.4-billion project has attracted enormous controversy, pitting environmental and landowner concerns against economic and national security benefits.

The project would enable 830,000 barrels of mostly Canadian crude per day to flow to Texas refineries — an attractive market for heavy crude, like that produced in the oilsands.

An approval could be the “light switch” that gives investors a reason to get into the Canadian market.

“We think that would attract a whole new set of capital,” said Mottahed, adding that Canadian juniors have generally been lagging their U.S. counterparts,

“We think that (an approval) would positively swing valuations… So, (it would be) very positive for sentiment, deal flow, capital flow into the Canadian market.”

Dirk Lever, managing director of institutional equity research at AltaCorp Capital, said junior producers have a lot fewer tools at their disposal than their larger counterparts when it comes to getting their crude to market.

Big players like Suncor Energy Inc. (TSX:SU), Canadian Natural Resources Ltd. (TSX:CNQ) and Cenovus Energy Inc. (TSX:CVE) have signed contracts to move their crude on multiple pipelines, whereas smaller ones would just take what they can get.

In December, Canadian Natural kept 10,500 barrels per day in the ground in anticipation of better market conditions ahead. But not all companies have that option.

“A junior has very little luxury when it comes to lower prices and shutting in. They all like to say they do, but unless they’re getting negative cash flows, they actually won’t.”

The Keystone XL uncertainty might have harmed investor sentiment a year ago, but that’s changed with the advent of crude by rail, said Lever.

“Certainly a (Keystone XL) approval would help certain stocks, but I think there’s a growing realization that if it doesn’t get approved, then there’ll be a workaround somehow,” he said.

Brian Pow, vice president of research at Acumen Capital Partners, said the outlook is bright for companies that provide temporary housing and other services to pipeline builders and oilsands producers — with or without Keystone XL.

“Hopefully we’ll get a decision that makes sense, but in the interim business moves forward.”

By Lauren Krugel, The Canadian Press, thecanadianpress.com

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Petronova, Pacific Rubiales Farm-In Worth Another Look: Black Spruce Merchant’s Sonny Mottahed

As posted on ceo.ca on March 2, 2014 by Tommy Humphreys

The $65 million market cap Petronova announced a farm-in deal with Pacific Rubiales that will see the tiny oil explorer carried for 4 wells in the largest untested prospect in Colombia, potentially worth as much as $4 billion (40% to Petronova), with drilling starting in this year’s second half. Plus: Petromanas, Petroamerica, Canacol and frontiers of interest in an interview with one of Calgary’s leading independent energy-investment bankers.

Petronova (TSXV:PNA) is poised to take off in 2014.

This from Calgary-based energy investment banker and investor Sonny Mottahed.

Mr. Mottahed in a telephone interview tells us about one company that impresses him a lot.

Colombian oil and gas explorer Petronova just announced a farm in-deal with Pacific Rubiales (TSX:PRE), Colombia’s largest non-state owned oil producer.

Pacific Rubiales can earn into 50% of Petronova’s Tinigua prospect by paying back-costs of U.S. $12.5 million and spending U.S. $33 million for drilling, completing and testing up to four wells. Petronova will keep 40% of the project.

Tinigua could be the largest untested target in Colombia, Mottahed believes, with unrisked potential of 159 million barrels of medium to heavy oil.

If proven successful, those barrels could be worth between $20 and $25 in the ground. Petronova’s 40% could be worth $1.27 billion to $1.6 billion, which is impressive considering the company’s market cap today is $65 million.

Our request for comment sent to Serafino Iacono, co-founder and co-chairman of Pacific Rubiales, was responded with two words, “Good grounds.”

The first exploratory well at Tinigua will start drilling in the second half of 2014.

Petronova has a second asset in Colombia, the PUT-2 block (75% working interest), which just drilled its first well; results are expected any day now. Success there could lead to an early production scenario.

“Management may not come across as the most promotional, but they are capable, focused and experienced,” Mr. Mottahed said. “If they are successful at PUT-2, watch out.”

[This is Sonny Mottahed’s first appearance in these CEO.ca blogs, and we are grateful to him for sharing his time and ideas with us.]

PNA Weekly Chart

CEO Technician: There is a big 2 year base here but PNA needs over $.40 to get the excitement going. (Stockcharts.com)

Mottahed owns other energy names in Colombia, including Petroamerica Oil Corp. (TSXV:PTA), a 6,000 barrels per day light-oil producer trading at 1.4 times cash flow. Mr. Mottahed says the company has a strong exploration track record and has been creative in its deal making, even as Petroamerica receives little recognition in the stock market. Petroamerica soon will show results from its sole risk La Guira 2 well. Barring success at La Guira 2, Mottahed expects the stock could see a tailwind of new buying interest after the expiry of 80 million $0.35 cent warrants on May 9, 2014.

PTA Weekly

CEO Technician: PTA has formed a very tight range around .28-.32; there is some evidence of quiet accumulation. A strong push above .35 would be very constructive and move towards a longer term breakout targeting .50+. (Stockcharts.com)

Canacol (TSX:CNE), having climbed 200% in recent months, is another Mottahed favourite.

“It’s had a huge run, but they have an incredible asset portfolio, and results from their Exxon well are imminent; so it’s very easy to be excited about Canacol.”

CNE Canacol

CEO Technician: Heavy accumulation within recent bullish consolidation – $10 is certainly achievable for CNE by June. (Stockcharts.com)

Petromanas Energy (TSXV:PMI) came up multiple times during our call. That company saw its share price rise to $0.205 from $0.14 last week after a report by Oil & Gas Investments Bulletin’s Keith Schaefer suggested Petromanas could deliver 20-fold returns to investors. Petromanas is developing its early stage onshore deep light-oil discovery in Albania with Royal Dutch Shell.

Mr. Mottahed says Petromanas Energy’s assets as they exist today could substantiate a share price of $0.70.

“These guys are onto something that looks like it is out of this world, enormous,” he says.

“Actually getting oil up and putting it into tanks and selling it will probably go a long ways in the eyes of any doubters of this discovery.”

Mottahed says the company’s second well, Molisht-1, probably will be cheaper and more efficient than its first well, Shpirag-2. Still, the banker warned that the play could take 2 to 3 years to mature, albeit with lots of milestones that could keep investors’ eyes on Petromanas.

PMI

CEO Technician: High volume breakout last week in PMI, needs to hold above $.25 to confirm and target $.40. (Stockcharts.com)

We discussed a few of Sonny Mottahed’s favourite frontiers in the international energy business in 2014.

He credited Peru for encouraging exploration investment and said that Gran Tierra (TSX:GTE) has drilled a “monster” discovery there.

GTE Weekly

CEO Technician: Big bearish engulfing candlestick on volume last week although GTE is in a very nice long term uptrend. Above $8.50 it’s no problem but it looks a little dangerous here in the short term. (Stockcharts.com)

Nigeria, where Mottahed once lived and worked and keeps close connections, is a tough place to do business but has a robust hydrocarbon system, the financier said.

“We think the onshore in Nigeria has a lot of low hanging fruit.”

Mottahed also is looking at early stage opportunities in Indonesia.

Junior energy companies have a very high risk of going bust. They are not suitable for most investors, he reminds us.

“No matter how good the science, geology or close-ology may be, you never know what Mother Nature is going to turn up until you turn the drill bit to the right far enough to figure it out.”

Sonny Mottahed, 41, was born in Los Angeles, the son of an oil executive with Exxon-Mobile. The family lived in ten cities during Mottahed’s childhood and after university, he joined the oil and gas business in Nigeria. He then relocated to London, and Houston, before settling in Calgary, Canada’s energy finance capital, in 2004.

In Calgary, Mottahed is growing Black Spruce Merchant Capital (BCMC) with two partners, Jeff Barber and Dave Cheadle. The three men have worked together for the past eight years at Canaccord, Raymond James and now BCMC. Collectively, they have executed more than 300 transactions, including financings and mergers-acquisitions, Mottahed said.

The six-person BCMC team invests in and advises early-stage energy businesses.

Some 70% of the firm’s business today comes from the international sector, while BCMC is also active in domestic Canadian energy names.

Jeff Boyce, Co-Founder and Former CEO of Vermillion Energy and Executive Chairman at Petroamerica Oil, does business with BCMC and told us what gives Sonny Mottahed his edge.

“Sonny is intuitive and creative in finding solutions to financial and business dealings. He also has one of the most extensive contact bases, along with being one of the more likeable and street-smart financial people I have dealt with in my 33-year career.”

Learn more about Black Spruce Merchant Capital by visiting their Web site and follow them on Twitter (@BlackSpruceMC) for updates from their portfolio and the oil and gas industry.

Disclaimer: Black Spruce has a business relationship or Sonny Mottahed is an investor in all of the companies mentioned in this article. Author has a financial interest in Petroamerica Oil Corp. and Petromanas Energy. Mr. Mottahed’s comments are his opinions solely and are in no way assurances of one outcome or another. Views expressed in this article are NOT to be considered individual investment or professional advice of any kind. All facts are to be verified by the reader. Always do your own due diligence. Thank you.

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The Surge of Creative Capital – Alberta Venture, February 2014

To keep Alberta’s economy growing, borrowers and lenders are creating financial layer cakes

Feb 18, 2014

by Tim Querengesser

Earlier this year, a pump-systems company based in Strathcona County was growing fast but had come upon a roadblock. The company’s founder had re-entered the industry after selling his first successful pumps business and waiting out a five-year non-compete clause. But when it came time to finance his new company, he faced an increasingly typical problem for small Alberta companies despite his successful track record: He couldn’t find the money to do it.

That’s where Kristi Miller, the vice-president of First West Capital, a boutique lending arm of First West Credit Union in B.C. that increasingly completes finance deals in Alberta, came into the picture. “The challenge is that this kind of business is fairly capital intensive,” Miller says. And this is a trend that she notes is happening throughout Alberta. “We’re seeing working capital in rapidly growing, capital-intensive industries as a real issue.”

To get around this challenge, First West and others are trying to help fuel continued growth in Alberta by offering more creative forms of lending. And as Miller and others in the corporate finance world point out, Alberta companies and their many lenders are using creativity and multiple layers of lending to find ways to keep growing the economy while other parts of Canada are to a much smaller degree.

“There’s been a lot of capital for equity, but it hasn’t been as robust in previous years so there’s been a need to get more creative.” – Sonny Mottahed, Black Spruce Merchant Capital

And so it is with that Strathcona-based company. First West is part of a three-layered capital structure that’s continuing to fuel the company’s growth. Royal Bank has extended the company’s credit limit to pay for operations and equipment purchases. The founder has invested what Miller describes as “significant” founder equity. And to this mix First West has added a layer of the increasingly common loan instrument of subordinated debt. “So you’ve got three fairly distinct strata within the capital structure, all of which work together to support growth,” Miller says.

But to put Alberta in perspective, it helps to have a look at the Canadian picture. Ted Mallett, chief economist with the CFIB, says the survey data show that about 61 per cent of its members use outside forms of financing, like a loan or a line of credit, while the rest are self-financing. “That hasn’t changed much over the past five years, since we started asking this question,” Mallett says. “In fact it’s even come down by a hair, by about a percentage point.” Of those that are seeking external funding, the organization also asks where they’re getting it. Again, following the trend of stability, the results haven’t changed much over time, Mallett says. Between 65 and 66 per cent of companies that seek external funding say they’re using chartered banks, while about 16 per cent are using credit unions. For companies not using banks or credit unions, the CFIB data shows that about two per cent find funding through family and friends, one per cent through vendor financing, a miniscule amount using specialty asset finance companies and between eight and nine per cent through government-backed institutions. “All of these trends are very stable over the past four years,” Mallett says. “So we’re not seeing any significant shakeup in those kinds of patterns.”

But then there’s the outlier of Alberta. Sonny Mottahed, CEO and managing partner with Black Spruce Merchant Capital, a boutique investment bank in Calgary that provides advisory services for companies on mergers and acquisitions, says the Canadian market for corporate financing has been equity-driven. “There’s been a lot of capital for equity, but it hasn’t been as robust in previous years so there’s been a need to get more creative,” Mottahed says of security for loans. “And what does that typically mean if equity is not available? Guys are trying to move further up the capital structure – more equity-linked type products, like convertible debentures. Or different types of debt.” As Mottahed says, corporate finance for Alberta’s nano, micro and small cap companies “doesn’t fit in any one box.”

That is certainly the case with Miller’s experience at First West Capital. Fully one-third of her deal flow is in Alberta, which for a B.C.-based lender exploring corporate financing for only the past three years, is telling in itself (indeed, Miller says she expects Alberta to form half her business in just a few more years). First West is rarely the sole provider of capital, Miller says, but is instead a layer in a lending cake. That layer is often either subordinated debt (which stands second in line on a default to a primary lender) or the increasingly common mezzanine debt, which is similar to sub-debt but usually an interim source of capital, as it comes with high interest rates. First Capital is deliberately targeting the mid-market business environment because it sees this as a relatively underserviced niche for financing, Miller says. “There’s a lot going on [there] and there’s a huge demand for capital in that space.”

The demand for capital has seen providers get creative. Perhaps that’s best illustrated by SeedUps Canada, a just-launched crowdfunding service for corporations and lenders in Alberta. Sandi Gilbert, the company’s founder, says SeedUps, based in Calgary, is a service for companies seeking between $250,000 and $2 million in financing. The company should be functioning, she says, but can be pre-revenue. On the investor side, SeedUps is targeted at those who want to put between $1,000 and $10,000 into a promising company (the average, Gilbert says, is expected to be about $4,000 per shareholder). But perhaps the most interesting thing about SeedUps and the idea of crowdfunding itself is how knowledgeable that crowd tends to be when talking about corporate finance.

“Let’s be clear – I don’t think a mining company’s going to be that successful raising capital on a crowdfunding platform,” Gilbert says. “Our first company we’ll be launching has a good consumer following … and people excited about the company that want to invest.” That passion, Gilbert says, brings value. “Often times 30 per cent of the raise [with crowdfunding finance deals] is done within their own network,” Gilbert says.

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Tuscany International Drilling Inc. Announces Sale of Two Colombian Rigs and Caroil Africa and Financial Results for the Third Quarter 2013

CALGARY, ALBERTA–(Marketwired – Nov. 14, 2013) – Tuscany International Drilling Inc. (“Tuscany” or the “Company”) (TSX:TID)(COLOMBIA:TIDC) is pleased to announce the execution of definitive agreements with Etablissements Maurel et Prom S.A. (“M&P”) pursuant to which:

   1. M&P will acquire Rigs 112 (Colombia) and C16 (Colombia) from Tuscany 
      (the "Rig Purchase"); and 

   2. through the acquisition of the issued and outstanding shares of Caroil 
      SAS ("Caroil"), a wholly-owned subsidiary of Tuscany (the "Caroil Sale"), 
      M&P will indirectly acquire Tuscany's business operations in Africa which 
      are primarily comprised of 9 drilling and workover rigs, associated 
      inventory and related drilling contracts and obligations in respect of 
      the French branch office of Caroil. Caroil's business operations in 
      Colombia, including 5 drilling and workover rigs, associated inventory 
      and related drilling contracts, will be transferred to a wholly-owned 
      subsidiary of Tuscany immediately prior to the completion of the Caroil 
      Sale (the "Caroil Colombia Transfer" and together with the Rig Purchase 
      and the Caroil Sale, the "Transaction").

The aggregate consideration payable by M&P to Tuscany pursuant to the Transaction is comprised of: (i) payment in cash in the aggregate amount of U.S. $23.0 million, of which U.S. $15.3 million has already been advanced by M&P to Tuscany, U.S. $0.7 million to be paid upon completion of the Rig Purchase and U.S. $7.0 million to be deposited into escrow upon completion of the Rig Purchase and released upon the satisfaction of certain conditions, including as to 50% upon completion of the Caroil Sale and as to the remaining 50% upon receipt of Tanzanian competition approval and the repayment to M&P of certain Colombian withholding taxes remitted by M&P in connection with the Transaction; (ii) the assumption by M&P of U.S. $50.0 million of debt under Tuscany’s syndicated credit facility; and (iii) subject to compliance with applicable laws, the transfer of the 109 million common shares of Tuscany (“Tuscany Shares”) owned by M&P to Tuscany for cancellation (or, in the alternative, a special purpose vehicle not controlled by M&P). Following the completion of the Transaction and the transfer of the Tuscany Shares, M&P will not hold any securities of Tuscany. Based on the average closing price of the Tuscany Shares between October 21, 2013 and October 25, 2013, the Tuscany Shares have a deemed value of $15.3 million.

The proceeds from the completion of the Transaction will be used by Tuscany to reduce its indebtedness under its credit facility and to fund operations.

Upon completion of the Transaction, Tuscany will refocus its operations to South America, including existing operations in Colombia, Brazil and Ecuador. Including the 5 rigs that will remain with Tuscany pursuant to the Caroil Colombia Transfer, Tuscany’s fleet will be comprised of 12 rigs in Colombia, 9 rigs in Brazil and 5 rigs in Ecuador.

The table below details the utilization of Tuscany’s fleet following the completion of the Transaction:

 
Country              Working/Mobilizing  Not Working  Total 
-------------------  ------------------  -----------  ----- 
Colombia                             11            1     12 
Brazil                                2            5      7 
Heli-rigs (Brazil)                    0            2      2 
Ecuador                               3            2      5 
                     ------------------  -----------  ----- 
                                     15           11     26 
                     ------------------  -----------  -----

Citigroup Global Markets Inc. (“Citigroup”) provided certain financial advisory services to Tuscany in connection with the Transaction. Black Spruce Merchant Capital Corp. also acted as financial advisor to Tuscany.

As the Transaction involves M&P, an insider of the Company by virtue of holding 29.05% of the issued and outstanding voting securities of the Company, being the 109 million of Tuscany Shares, Tuscany is required to obtain shareholder approval pursuant to the applicable policies of the Toronto Stock Exchange (“TSX”) including under subsection 501(c) with respect to transactions involving insiders or other related parties of a non-exempt issuer. Tuscany has applied to the TSX, pursuant to the provisions of subsection 604(e), the “financial hardship exemption”, of the TSX Company Manual, for an exemption (the “TSX Exemption”) from the requirement to obtain shareholder approval, in consideration of the serious financial circumstances of the Company.

The Company’s application to rely on the TSX Exemption was made upon the unanimous recommendation of a special committee (the “Special Committee”) of the board of directors (the “Board”) of the Company, comprised of Donald Wright, Herb Snowdon and William Dorson, all of whom are members of the Board and independent of any interest in M&P or the Transaction. The Special Committee was established for the purposes of pursuing and evaluating strategic alternatives available to the Company and for negotiating and approving the Transaction.

The Board, after consultation with management of the Company and its advisors, and relying in part on: (i) the fact that the Transaction is designed to improve the financial situation of the Company; (ii) the unanimous recommendation and determinations of the Special Committee; (iii) the fairness opinion received from Citigroup, based on and subject to the matters specified therein, as to the fairness, from a financial point of view and as of the date of such opinion, to Tuscany of the aggregate consideration to be received by Tuscany pursuant to the Transaction; and (iv) after having given due regard to the outcome of the Company’s ongoing strategic alternatives review process, which has not been successful in providing a solution for the Company and its shareholders, has concluded that the Company is in serious financial difficulty and the Transaction is reasonable and represents the only practicable solution available to the Company under the current circumstances.

Closing of the Transaction is conditional on receipt of approval by the TSX of the Transaction. The Transaction has not yet been granted conditional approval by the TSX. There can be no assurance that the TSX will grant approval or accept the application for the use of the TSX Exemption, in which case the Transaction may also be subject to the receipt of approval of Tuscany shareholders, excluding M&P. In the event that the TSX permits the Company to rely on the TSX Exemption, this will automatically result in the initiation of a continued listing review by the TSX, as is customary under such circumstances.

In addition, the Transaction is considered to be a “related party transaction” within the meaning of Multilateral Instrument 61-101 (“MI 61-101″). The Company has relied on the exemptions from the valuation and minority shareholder approval requirements in MI 61-101 contained in sections 5.5(g) and 5.7(1)(e) of MI 61-101 in respect of such requirements.

Tuscany’s lenders under its syndicated credit facility have provided Tuscany with a “no-objection” letter with respect to the Transaction.

The Company anticipates that the Rig Purchase will be completed within five business days of the Company receiving confirmation from the TSX that it has conditionally approved the Transaction, subject to customary conditions to receipt of final approval. The remainder of the Transaction is expected to be completed on or about December 31, 2013.

The closing of the Transaction is subject to the satisfaction or waiver of conditions customary for transactions of this nature, including, among other things, TSX approvals, regulatory approvals and third party consents.

Messrs. Perret and Canel, the M&P representatives on the board of directors of Tuscany, have tendered their resignations. The Board of Directors of Tuscany thanks Messrs. Perret and Canel for their valuable service to the Company and wish them much success in their future endeavours.

Third Quarter 2013 Financial Results

The unaudited condensed interim consolidated financial statements of the Company for the third quarter ended September 30, 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.

Q3 2013 Highlights

   -- On November 13, 2013, the Company entered into several agreements whereby 
      the Company effectively will sell all of the assets and liabilities 
      comprising the Company's African segment, as well as two rigs currently 
      located in Colombia to M&P. Total consideration for the sales is $23,000 
      in cash, the assumption by M&P of $50,000 of the Company's long term debt 
      and the return of 109,000,000 Common shares previously issued to M&P as 
      part of the Company's acquisition of Caroil SAS in September 2011. The 
      Company's September 30, 2013, unaudited condensed consolidated financial 
      statements treat the Company's African operations as discontinued and the 
      two rigs to be sold in conjunction with the sale of the African segment 
      as assets held for sale. 

   -- The Company has a scheduled principal and interest payment in December 
      2013 that it will not be able to make. Tuscany anticipates that it will 
      enter into a new credit agreement which will address the requirement to 
      make the December principal and interest payment. In addition, as of the 
      September 30, 2013, determination date, the Company was in breach of the 
      interest coverage ratio outlined in the credit agreement. Subsequent to
      September 30, 2013, Tuscany received a waiver of this covenant 
      breach. The full amount of long term debt has been classified as a 
      current liability as at September 30, 2013. In addition, during the third 
      quarter Tuscany amortized $11,080 of deferred financing fees relating to 
      the Company's credit facility. 

   -- In the third quarter of 2013, Tuscany recorded $14,898 of bad debt 
      provisions (in general and administration expense) relating to customers 
      whose accounts receivable were deemed to be uncollectible. Tuscany also 
      recorded $4,010 in other one-time items consisting of termination costs 
      associated with the closing of the Company's Houston office, costs 
      associated with the Company's failed bond financing and previously 
      deferred costs associated with the importation of rigs and equipment into 
      Brazil. 

   -- The Company recorded revenue from continuing operations of $43,278 during 
      the third quarter compared to $51,756 from continuing operations during 
      the same period last year. 

   -- Gross margin1 from continuing operations was $10,373 during the third 
      quarter compared to $15,876 from continuing operations during the same 
      period last year. 

   -- Adjusted EBITDA1 from continuing operations was $(11,885) during the 
      third quarter compared to adjusted EBITDA from continuing operations of 
      $9,207 during the same period in 2012, reflecting the bad debt provisions 
      and other one-time items noted above. 

   -- Cash generated by continuing operations was $16,228 during the third 
      quarter of 2013 compared to cash generated by continuing operations of 
      $14,760 during the same period in 2012. 

   -- Net loss from continuing operations was $33,848 during the third quarter 
      compared to net loss from continuing operations of $3,273 during the same 
      period in 2012. The net loss recorded in the third quarter of 2013 
      reflects the bad debt expense, other one-time costs and amortization of 
      deferred financing fees noted above. 

   -- General and administrative expenses from continuing operations were 
      $22,290, or 51.5% of revenue, during the third quarter compared to $7,509 
      of general and administrative expenses from continuing operations, or 
      14.5% of revenue, during the same period in 2012. Included in the $22,290 
      is $14,898 in bad debt expense written off during the third quarter of 
      2013. 

   -- Revenue utilization of the Company's continuing fleet was 62.9% during 
      the third quarter of 2013 as compared to 62.6% utilization from the 
      Company's continuing fleet during the same period in 2012.

Highlights from Continuing Operations

 
                       Three months ended September  Nine months ended September 
                                    30                            30 
                       ----------------------------  ---------------------------- 
$ thousands, except 
per share data and 
operating 
information              2013     2012    % change     2013     2012    % change 
---------------------  --------  -------  ---------  --------  -------  --------- 

Revenue                  43,278   51,756      (16)%   128,684  182,633      (30)% 
Gross margin(2)          10,373   15,876      (35)%    32,613   57,435      (43)% 
Gross margin 
 percentage               24.0%    30.7%      (22)%     25.3%    31.4%      (19)% 

Adjusted EBITDA(2)     (11,885)    9,207     (229)%     (449)   38,824     (101)% 
Adjusted EBITDA per 
 share (basic and 
 diluted)               $(0.03)    $0.03     (200)%   $(0.01)    $0.11      (91)% 

Net loss for the 
 period                (33,848)  (3,273)     (934)%  (59,350)  (4,575)   (1,197)% 
Net loss per share 
 (basic and diluted)    $(0.09)  $(0.01)     (800)%   $(0.16)  $(0.01)   (1,500)% 

Funds from (used in) 
 operations(2)          (2,498)    4,031     (162)%  (11,340)   24,656     (146)% 
Funds from (used in) 
 operations per share 
 (basic and diluted)     (0.01)     0.01     (200)%    (0.03)     0.07     (143)% 

Cash from (used in) 
 operating 
 activities              16,228   14,760        10%    11,052  (1,768)       725% 
Cash from (used in) 
 operating activities 
 per share (basic and 
 diluted)                  0.04     0.04       800%      0.03   (0.01)       400% 

General and 
 administrative 
 expenses                22,290    7,509       197%    33,726   21,545        57% 
General and 
 administrative 
 expenses as a % of 
 revenue                  51.5%    14.5%       255%     26.2%    11.8%       107% 

Total assets            480,766  660,691      (27)%   480,766  660,691      (27)% 
Total long term 
 liabilities              5,307  200,405      (97)%     5,307  200,405      (97)% 

Operating Information 
 Number of available 
  rigs                    28(3)       29       (3)%     28(3)       29       (3)% 
Revenue days              1,620    1,644       (1)%     5,002    6,253      (20)% 
Utilization               62.9%    62.6%         1%     65.4%    79.6%      (19)%

Highlights from Discontinued Operations

 
                       Three months ended September  Nine months ended September 
                                    30                           30 
                       ----------------------------  --------------------------- 
$ thousands, except 
per share data and 
operating 
information              2013     2012    % change     2013     2012   % change 
---------------------  --------  -------  ---------  --------  ------  --------- 

Revenue                  18,131   22,407      (19)%    63,587  71,041      (10)% 
Gross margin(4)           (939)    6,289     (115)%    16,238  22,228      (27)% 
Gross margin 
 percentage              (5.2)%    28.1%     (118)%     25.5%   31.3%      (18)% 

Adjusted EBITDA(4)      (4,532)    5,514     (182)%     7,539  13,094      (42)% 
Adjusted EBITDA per 
 share (basic and 
 diluted)               $(0.01)    $0.02     (133)%     $0.02   $0.04      (50)% 

Net income (loss) for 
 the period            (63,835)    2,593   (2,562)%  (55,155)   5,439   (1,114)% 
Net income (loss) per 
 share (basic and 
 diluted)               $(0.17)    $0.01   (1,800)%   $(0.15)   $0.02     (900)% 

Funds from (used in) 
 operations(4)          (7,754)    3,303     (335)%     2,437   8,011      (70)% 
Funds from (used in) 
 operations per share 
 (basic and diluted)     (0.02)     0.01     (300)%      0.01    0.02      (50)% 

Cash from (used in) 
 operating 
 activities             (3,504)  (6,069)      (42)%     1,650   7,840      (79)% 
Cash from (used in) 
 operating activities 
 per share (basic and 
 diluted)                (0.01)   (0.02)      (50)%      0.00    0.02     (100)% 

General and 
 administrative 
 expenses                 3,593      775       364%     8,699   9,134       (5)% 
General and 
 administrative 
 expenses as a % of 
 revenue                  19.8%     3.5%       460%     13.7%   12.9%         5% 

Operating Information 
 Number of available 
  rigs                        9        8        13%         9       8        13% 
 Revenue days               616      463        33%     1,772   1,484        19% 
 Utilization              74.4%    62.9%        18%     72.1%   67.7%         6%

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 “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.

Adjusted EBITDA – Continuing Operations

 
                 Three months ended September 
                              30                Nine months ended September 30 
                 -----------------------------  ------------------------------ 
$ thousands          2013            2012            2013            2012 
---------------  -------------  --------------  --------------  -------------- 
Oilfield 
 services 
 revenue                43,278          51,756         128,684         182,633 
Oilfield 
 services 
 expenses             (32,905)        (35,880)        (96,071)       (125,198) 
General and 
 administrative 
 expenses             (22,290)         (7,509)        (33,726)        (21,545) 
Stock-based 
 compensation 
 expense                    32             840             664           2,934 
---------------  -------------  --------------  --------------  -------------- 
Adjusted EBITDA       (11,885)           9,207           (449)          38,824

Adjusted EBITDA – Discontinued Operations

 
                 Three months ended September 
                              30                Nine months ended September 30 
                 -----------------------------  ------------------------------ 
$ thousands          2013            2012            2013            2012 
---------------  -------------  --------------  --------------  -------------- 
Oilfield 
 services 
 revenue                18,131          22,407          63,587          71,041 
Oilfield 
 services 
 expenses             (19,070)        (16,118)        (47,349)        (48,813) 
General and 
 administrative 
 expenses              (3,593)           (775)         (8,699)         (9,134) 
---------------  -------------  --------------  --------------  -------------- 
Adjusted EBITDA        (4,532)           5,514           7,539          13,094

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.

Funds from Operations – Continuing Operations

 
                 Three months ended September 
                              30                Nine months ended September 30 
                ------------------------------  ------------------------------ 
$ thousands          2013            2012            2013            2012 
--------------  --------------  --------------  --------------  -------------- 
Cash flow 
 provided by 
 (used in) 
 operating 
 activities             16,228          14,760          11,052         (1,768) 
Changes in 
 non-cash 
 working 
 capital              (18,726)        (10,729)        (22,392)          26,424 
--------------  --------------  --------------  --------------  -------------- 
Funds from 
 (used in) 
 operations            (2,498)           4,031        (11,340)          24,656

Funds from Operations – Discontinued Operations

 
                 Three months ended September 
                              30                Nine months ended September 30 
                ------------------------------  ------------------------------ 
$ thousands          2013            2012            2013            2012 
--------------  --------------  --------------  --------------  -------------- 
Cash flow 
 provided by 
 (used in) 
 operating 
 activities            (3,504)         (6,069)           1,650           7,840 
Changes in 
 non-cash 
 working 
 capital               (4,250)           9,372             787             171 
--------------  --------------  --------------  --------------  -------------- 
Funds from 
 (used in) 
 operations            (7,754)           3,303           2,437           8,011

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.

Gross Margin – Continuing Operations

 
                 Three months ended September 
                              30                Nine months ended September 30 
                ------------------------------  ------------------------------ 
$ thousands          2013            2012            2013            2012 
--------------  --------------  --------------  --------------  -------------- 
Oilfield 
 services 
 revenue                43,278          51,756         128,684         182,633 
Oilfield 
 services 
 expenses             (32,905)        (35,880)        (96,071)       (125,198) 
--------------  --------------  --------------  --------------  -------------- 
Gross margin            10,373          15,876          32,613          57,435

Gross Margin – Discontinued Operations

 
                 Three months ended September 
                              30                Nine months ended September 30 
                ------------------------------  ------------------------------ 
$ thousands          2013            2012            2013            2012 
--------------  --------------  --------------  --------------  -------------- 
Oilfield 
 services 
 revenue                18,131          22,407          63,587          71,041 
Oilfield 
 services 
 expenses             (19,070)        (16,118)        (47,349)        (48,813) 
--------------  --------------  --------------  --------------  -------------- 
Gross margin             (939)           6,289          16,238          22,228

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 of Continuing Operations

During the three months ended September 30, 2013, the Company recorded a net loss from continuing operations of $33,848 ($0.09 per common share) compared to net loss from continuing operations of $3,273 ($0.01 per common share) for the three months ended September 30, 2012. Of significance, the Company provided bad debt provisions during the third quarter of 2013 based on new information received during the quarter; CYA $4,000, Centurion $6,500, OGX $1,392, HRT $2,200 and SK Energy $751, for a total of $14,843. In addition, during the third quarter of 2013, Tuscany fully amortized the financing costs related to its existing credit facility. During the nine months ended September 30, 2013, the Company recorded a net loss from continuing operations of $59,350 ($0.16 per common share) compared to a net loss from continuing operations of $4,575 ($0.01 per common share) for the nine months ended September 30, 2012. During the three months ended September 30, 2013, the Company recorded oilfield services revenue of $43,278, adjusted EBITDA(5) of $(11,885) and gross margin(5) of $10,373 compared to revenue of $51,756, adjusted EBITDA of $9,207 and gross margin of $15,876 during the three months ended September 30, 2012. During the nine months ended September 30, 2013, the Company recorded oilfield services revenue of $128,684, adjusted EBITDA of $(449) and gross margin of $32,613 compared to revenue of $182,633, adjusted EBITDA of $38,824 and gross margin of $57,435 during the nine months ended September 30, 2012.

The decreases in revenue, adjusted EBITDA and gross margin for the third quarter of 2013 compared to the third quarter of 2012 reflect a 1% decrease in operating activity and a 12% decrease in average revenue per day resulting from high day rate rigs coming off contract during 2012, and three rigs in Colombia being contracted at lower day rates compared to rigs of similar capacity. For the three months ended September 30, 2013, the Company had 1,620 revenue days from continuing rig operations compared to 1,644 revenue days from continuing rig operations during the three months ended September 30, 2012. Gross margin for the three months ended September 30, 2013, was offset by general and administrative expenses of $22,290 (2012 – $7,509), net finance costs of $17,154 (2012 – $6,151), foreign exchange contract gain of $63 (2012 – $299) and depreciation of $5,261 (2012 – $4,922). For the three months ended September 30, 2013, the Company also recorded current income tax expense of $326 (2012 – $2,520), a deferred income tax recovery of $1,224 (2012 – $1,991), foreign exchange losses of $97 (2012 – $304) and equity income of $16 (2012 – loss of $33). The increase in general and administrative expense for the three months ended September 30, 2013, compared to the three months ended September 30, 2012, reflects a $14,898 bad debt provision relating to customers whose accounts receivable were deemed to be uncollectible.

The decreases in revenue, adjusted EBITDA and gross margin for the nine months ended September 30, 2013, compared to the nine months ended September 30, 2012, reflect a 20% decrease in operating activity and a 12% decrease in average revenue per day resulting from rigs coming off contract in the second half of 2012. For the nine months ended September 30, 2013, the Company had 5,002 revenue days from continuing rig operations compared to 6,253 revenue days from continuing rig operations during the nine months ended September 30, 2012. Gross margin for the nine months ended September 30, 2013, was offset by general and administrative expenses of $33,726 (2012 – $21,545), net finance costs of $29,498 (2012 – $19,482), foreign exchange contract gain of $50 (2012 – expense of $259) and depreciation of $17,192 (2012 – $20,294). For the nine months ended September 30, 2013, the Company also recorded current income tax expense of $2,391 (2012 – $5,257), deferred income tax expense of $6,424 (2012 – recovery of $3,996), foreign exchange loss of $91 (2012 – $423) and an equity loss of $567 (2012 – income of $1,268). The increase in general and administrative expense in the nine months ended September 30, 2013, compared to the nine months ended September 30, 2012, reflects a $ 16,770 bad debt provision relating to customers whose accounts receivable were deemed to be uncollectible.

During the nine months ended September 30, 2013, The Company spent $22,487 on investing activities from continuing operations, which includes $15,984 of capital expenditures comprised primarily of rig refurbishment activity, and a $6,503 increase in restricted cash. During the nine months ended September 30, 2013, The Company drew an additional $15,000 on its credit facility and repaid $2,000 of its long term debt.

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

                                 Change ($)(6)  Explanation 
                                 -------------  ------------------------------ 
Cash and cash equivalents              (2,822)  See consolidated statement of 
                                                cash flows. 
Restricted cash                          6,503  Restricted cash results from 
                                                the requirement to maintain a 
                                                debt service reserve account 
                                                pursuant to the Company's 
                                                credit facility. In September 
                                                2013, debt interest was paid 
                                                from this reserve account, 
                                                reducing the balance. 
                                                Subsequent to the interest 
                                                payment, deposits of $6,776 
                                                were made. 
Accounts receivable                   (33,628)  Decrease is due to 
                                                reclassification of accounts 
                                                receivable amounts related to 
                                                the Company's African segment 
                                                to assets of disposal group 
                                                held for sale and a bad debt 
                                                provision of $16,044. 
Prepaid expenses and deposits          (2,430)  Decrease is due to 
                                                reclassification of prepaid 
                                                expenses related to the 
                                                Company's African segment to 
                                                assets of disposal group held 
                                                for sale. 
Inventory                              (3,899)  Decrease is due to 
                                                reclassification of inventory 
                                                amounts related to the 
                                                Company's African segment to 
                                                assets of disposal group held 
                                                for sale. 
Assets held for sale                    17,721  Increase is due to two rigs 
                                                reclassified from property and 
                                                equipment. 
Assets of disposal group held           65,261  Increase is due to assets from 
for sale                                        the Africa operations being 
                                                revalued and reclassified. 
Foreign VAT recoverable               (12,249)  Decrease is due to 
(current and non-current)                       reclassification of foreign 
                                                VAT recoverable amounts 
                                                related to the Company's 
                                                African segment to assets of 
                                                disposal group held for sale. 
Long term investments                    (835)  Decrease is 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               (127,118)  Decrease is due to 
                                                reclassification of property 
                                                and equipment related to the 
                                                Company's African segment to 
                                                assets of disposal group held 
                                                for sale and the 
                                                reclassification of two rigs 
                                                to assets held for sale. 
Bank indebtedness                      (3,403)  Decrease is due to 
                                                reclassification of bank 
                                                indebtedness amounts related 
                                                to the Company's African 
                                                segment to assets of disposal 
                                                group held for sale. 
Lines of credit                         14,888  Increase due to draw on the 
                                                Company's revolving line of 
                                                credit. 
Accounts payable and accrued           (2,170)  Decrease is due to 
liabilities                                     reclassification of accounts 
                                                payable amounts related to the 
                                                Company's African segment to 
                                                assets of disposal group held 
                                                for sale offset by a deposit 
                                                of $15,300 related to the 
                                                pending sale of the two rigs 
                                                held for sale. 
Income taxes payable                   (2,829)  Decrease is due to 
                                                reclassification of income 
                                                taxes payable amounts related 
                                                to the Company's African 
                                                segment to assets of disposal 
                                                group held for sale. 
Long term debt (current and             11,572  Increase is due to 
long term)                                      amortization of all financing 
                                                costs associated with its 
                                                existing credit facility 
                                                (included in long term debt) 
                                                partially offset by repayment 
                                                of debt. 
Derivative contracts                     (880)  Decrease is due to the change 
                                                in fair value of hedging 
                                                contracts entered into during 
                                                the first three quarters of 
                                                2013. 
Net deferred taxes                     (3,435)  Decrease is due to 
                                                reclassification of deferred 
                                                income taxes payable amounts 
                                                related to the Company's 
                                                African segment to assets of 
                                                disposal group held for sale. 
Share capital                           23,128  Increase is due to the 
                                                exercise of warrants during 
                                                the first quarter of 2013. 
Contributed surplus                      3,240  Increase relates to the expiry 
                                                of warrants and stock-based 
                                                compensation expense recorded 
                                                during the first three 
                                                quarters of 2013. 
Warrants                              (25,704)  Decrease is due to the 
                                                exercise and expiry of 
                                                warrants during the first and 
                                                second quarters of 2013. 

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

            Three months ended September 30    Nine months ended September 30 
            --------------------------------  -------------------------------- 
              2013       2012      % Change      2013       2012     % Change 
            ---------  ---------  ----------  ----------  ---------  --------- 
Oilfield 
 services 
 revenue       43,278     51,756       (16)%     128,684    182,633      (30)% 
Oilfield 
 services 
 expenses    (32,905)   (35,880)        (8)%    (96,071)  (125,198)      (23)% 
Gross 
 margin(7)     10,373     15,876       (35)%      32,613     57,435      (43)% 
----------  ---------  ---------  ----------  ----------  ---------  --------- 
Gross 
 margin %      23.97%     30.67%       (13)%      25.34%     31.45%      (20)% 
----------  ---------  ---------  ----------  ----------  ---------  ---------

Oilfield services revenue was $43,278 for the three months ended September 30, 2013, compared to $51,756 for the three months ended September 30, 2012, a decrease of 16%. The decrease in revenue is a result of the decrease in the number of revenue days and average revenue per day in the three months ended September 30, 2013, compared to the three months ended September 30, 2012. During the three months ended September 30, 2013, the Company had 1,620 revenue days (62.9% utilization) compared to 1,644 revenue days (62.6% utilization) in the three months ended September 30, 2012. For the three months ended September 30, 2013, average revenue per day decreased to $27.79 from $31.49 for the three months ended September 30, 2012. Average revenue per day decreased in the third quarter of 2013 compared to the third quarter of 2012 due to larger, high day rate rigs coming off contract during the last nine months of 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 contract terms that provide that the majority of the operating costs are borne by the customer. Twenty-one of the Company’s 28 available drilling and heavy-duty workover rigs earned revenue from drilling operations during the three months ended September 30, 2013. During the three months ended September 30, 2012, the Company earned revenues from 25 rigs.

Oilfield services revenue was $128,684 for the nine months ended September 30, 2013, compared with $182,633 for the nine months ended September 30, 2012, a decrease of 30%. The decrease in revenue is a result of decrease in the number of revenue days and average revenue per day in the nine months ended September 30, 2013, compared to the nine months ended September 30, 2012. During the nine months ended September 30, 2013, the Company had 5,002 revenue days (65.4% utilization) compared to 6,253 revenue days (79.6% utilization) in the nine months ended September 30, 2012. Revenue days decreased in the nine months ended September 30, 2013, primarily as a result of rigs coming off contract during the second half of 2012. For the nine months ended September 30, 2013, average revenue per day decreased to $25.73 from $29.20 for the nine months ended September 30, 2012. Average revenue per day decreased in the first nine months of 2013 compared to the first nine months of 2012 due to larger, high day rate 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 contract terms that provide that the majority of the operating costs are borne by the customer. Twenty-three of the Company’s 28 available drilling and heavy-duty workover rigs earned revenue from drilling operations during the nine months ended September 30, 2013. During the nine months ended September 30, 2012, the Company earned revenues from 29 rigs.

For the three months ended September 30, 2013, gross margin was $10,373, or 23.97%, compared with a gross margin of $15,876, or 30.67%, for the three months ended September 30, 2012. For the nine months ended September 30, 2013, gross margin was $32,613, or 25.34%, compared with a gross margin of $57,435 or 31.45%, for the nine months ended September 30, 2012. The decrease in gross margin percentage for the three and nine months ended September 30, 2013, compared to the gross margin percentage for the three and nine months ended September 30, 2012, is primarily due to costs, primarily related to labour, incurred in 2013 associated with rigs that have come off contract during the latter part of 2012.

 
                Three months ended September 
                             30                Nine months ended September 30 
               ------------------------------  ------------------------------- 
                 2013      2012     % Change     2013       2012     % Change 
               --------  ---------  ---------  ---------  ---------  --------- 
Depreciation      5,261      4,922         7%     17,192     20,294      (15)%

Depreciation expense totaled $5,261 for the three months ended September 30, 2013, compared with $4,922 for the three months ended September 30, 2012. Depreciation expense totaled $17,192 for the nine months ended September 30, 2013, compared with $20,294 for the nine months ended September 30, 2012. Under the Company’s depreciation policy, depreciation of rigs and related equipment is based on the number of days in operation. Depreciation for the three months ended September 30, 2013, compared to the three months ended September 30, 2012, was consistent with the comparable number of revenue days in the three months ended September 30, 2013 compared with the three months ended September 30, 2012. The decrease in depreciation expense for the nine months ended September 30, 2013, compared to the nine months ended September 30, 2012, is a result of a decrease in the operating days in the nine months ended September 30, 2013, compared to the corresponding period in 2012. During the nine months ended September 30, 2013, the Company recorded depreciation on 28 rigs.

 
                 Three months ended September 
                              30                Nine months ended September 30 
                 -----------------------------  ------------------------------ 
                   2013      2012    % Change     2013      2012     % Change 
                 --------  --------  ---------  --------  ---------  --------- 
General and 
 administrative    22,290     7,509       197%    33,726     21,545        57%

General and administrative expense was $22,290 (51.5% of revenue) for the three months ended September 30, 2013, compared to $7,509 (14.5% of revenue) for the three months ended September 30, 2012. General and administrative expense was $33,726 (26.2% of revenue) for the nine months ended September 30, 2013, compared to $21,545 (11.8% of revenue) for the nine months ended September 30, 2012. Included in general and administrative expenses for the three and nine months ended September 30, 2013, is $14,898 and $16,045, respectively, of bad debt expense relating to customers whose accounts receivable were deemed to be uncollectible. The increase in general and administrative expense as a percentage of revenue from the three and nine months ended September 30, 2013, compared to the three and nine months ended September 30, 2012, is due to a 16% and 30% decrease, respectively, in revenue for the three and nine months ended September 30, 2013, respectively, compared to the corresponding periods of 2012.

Included in general and administrative expense for the three and nine months ended September 30, 2013, is $32 and $664, respectively, of stock-based compensation compared to $840 and $2,934, respectively, for the three months and nine months ended September 30, 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 September 30    Nine months ended September 30 
            --------------------------------  -------------------------------- 
               2013       2012     % Change     2013       2012      % Change 
            ----------  --------  ----------  ---------  ---------  ---------- 
Net 
 finance 
 costs          17,154     6,151        177%     29,498     19,482         51%

For the three and nine months ended September 30, 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 other smaller interest charges in various countries, net of interest income. Net finance costs increased to $17,154 for the three months ended September 30, 2013, from $6,151 for the three months ended September 30, 2012, and to $29,498 for the nine months ended September 30, 2013, from $19,482 for the nine months ended September 30, 2012, as a result of the increase in the amount drawn under the revolving credit line during the first nine months of 2013 and the amortization of the remainder of deferred financing fees associated with the Company’s existing credit facility.

The Company currently has a $253,000 credit facility comprised of a $208,000 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 noted above, during the third quarter of 2013 Tuscany has fully amortized the remainder of the deferred financing fees associated with its existing credit facility. Total amortization of financing fees are $11,080 and $13,828 for the three months and nine months ended September 30, 2013, respectively, compared to $1,112 and $3,280 for the three and nine months ended September 30, 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 and nine months ended September 30, 2013, the Company recorded $4,971 and $14,377, respectively, of interest related to the credit facility compared to $4,193 and $12,386, respectively, for the three and nine months ended September 30, 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 decreased by $400 for the three months ended September 30, 2013, compared to an increase of $696 for the three months ended September 30, 2012. The fair value of these interest rate contract liabilities increased by $38 for the nine months ended September 30, 2013, compared to an increase of $3,803 for the nine months ended September 30, 2012.

Interest of $703 and $1,256 was incurred in various countries for the three and nine months ended September 30, 2013, respectively, compared to $149 and $278 for the three and nine months ended September 30, 2012, respectively.

 
              Three months ended September 30   Nine months ended September 30 
              --------------------------------  ------------------------------ 
                2013      2012      % Change      2013     2012     % Change 
              --------  ---------  -----------  --------  -------  ----------- 
Foreign 
 exchange 
 contracts        (63)      (299)        (79)%      (50)      259       (102)%

During the six month period ended September 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 $63 (2012 – $299) in the three months ended September 30, 2013 and increased $50 in the nine months ended September 30, 2013 (2012 – decrease $259).

 
                                                  Nine months ended September 
                Three months ended September 30                30 
                --------------------------------  ---------------------------- 
                     2013       2012    % Change    2013     2012    % Change 
                ---------  ---------  ----------  --------  -------  --------- 
Change in fair 
 value of 
 contingent 
 refundable 
 consideration          -          -         N/A     1,728        -        N/A

These costs relate to the acquisition of Drillfor Perfurações do Brasil Ltda (“Drillfor”) in May 2011 which were identified during the second quarter of 2013. The costs would normally be included in the acquisition costs at the time of acquisition; however under IFRS standards there can be no changes to the purchase price allocation of an acquired company subsequent to the end of the measurement period, which is one year after the date of acquisition. Since the one year period has expired, these costs are recorded as an expense, as prescribed by IFRS standards.

 
              Three months ended September 30  Nine months ended September 30 
              -------------------------------  ------------------------------- 
                2013      2012     % Change      2013     2012      % Change 
              --------  --------  -----------  --------  -------  ------------ 
Foreign 
 exchange 
 loss               97       304        (68)%        91      423         (78)%

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 $)and Brazilian real (BRL). 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 September 30   Nine months ended September 30 
             -------------------------------  -------------------------------- 
               2013      2012     % Change      2013       2012     % Change 
             --------  --------  -----------  ---------  --------  ----------- 
Equity 
 income 
 (loss)            16      (33)         148%      (567)     1,268         145%

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 income totaled $16 for the three months ended September 30, 2013, compared with an equity loss of $33 for the three months ended September 30, 2012. Equity losses totaled $567 for the nine months ended September 30, 2013, compared with equity income of $1,268 for the nine months ended September 30, 2012. Equity income has decreased as a result of decreased activity in Warrior in the first three quarters of 2013 compared to the first three quarters of 2012.

 
             Three months ended September 30   Nine months ended September 30 
             -------------------------------  -------------------------------- 
               2013      2012      % Change     2013       2012     % Change 
             --------  ---------  ----------  ---------  --------  ----------- 
Current 
 income 
 taxes            326      2,520       (87)%      2,391     5,257        (55)%

For the three and nine months ended September 30, 2013, the Company’s total current income tax expense is $326 and $2,391, respectively. This is comprised primarily of income taxes calculated on equity in Colombia.

 
             Three months ended September 30   Nine months ended September 30 
             --------------------------------  ------------------------------- 
               2013        2012     % Change     2013       2012     % Change 
             ---------  ----------  ---------  --------  ----------  --------- 
Deferred 
 income 
 taxes 
 (recovery)    (1,224)     (1,991)        39%     6,424     (3,996)       261%

For the three months ended September 30, 2013, the Company recorded a deferred income tax recovery of $1,224 and for the nine months ended September 30, 2013, the Company recorded deferred income tax expense of $6,424, primarily as a result of the revaluation of the deferred tax assets in Colombia resulting from an eight percent strengthening of the Colombian peso compared to the United States dollar since December 31, 2012.

Review of Interim Condensed Consolidated Statement of Comprehensive Income and Loss from Discontinued Operations

 
                 Three months ended September 
                              30                Nine months ended September 30 
                 -----------------------------  ------------------------------ 
                   2013      2012    % Change     2013      2012     % Change 
                 --------  --------  ---------  --------  ---------  --------- 
Oilfield 
 services 
 revenue           18,131    22,407      (19)%    63,587     71,041      (10)% 
Oilfield 
 services 
 expenses          19,070    16,118        18%    47,349     48,813       (3)% 
Depreciation        1,258       710        77%     3,065      2,601        18% 
General and 
 administrative     3,593       775       364%     8,699      9,134       (5)% 
Other (income) 
 and expenses         344       552     (168)%     (504)      1,176     (143)% 
Current and 
 deferred 
 income tax 
 expense            3,798     1,659       129%     6,230      3,878        61% 
Loss recognized 
 on 
 re-measurement 
 of assets of 
 disposal group 
 (net of tax)      53,903         -        N/A    53,903          -        N/A 
Net income 
 (loss) from 
 discontinued 
 operations      (63,835)     2,593   (2,562)%  (55,155)      5,439   (1,114)%

Discontinued operations represent the Company’s African operations (including costs associated with its Paris head office). As noted previously, on November 13, 2013, the Company entered into several agreements whereby the Company’s African segment will be sold to M&P, the previous shareholders of the Company’s Caroil subsidiary. The above table shows the major components of the net income (loss) of this segment for the three and nine months ended September 30, 2013 and 2012.

 
Condensed Interim Consolidated Statement of Financial 
 Position (Unaudited) 
----------------------------------------------------- 
(expressed in thousands of U.S. dollars) 

                                         September 30, 2013  December 31, 2012 
                                         ------------------  ----------------- 
Assets 
Current Assets 
Cash and cash equivalents                             3,481              6,303 
Restricted cash                                       6,776                273 
Accounts receivable, net                             73,334            106,962 
Prepaid expenses and deposits                         3,654              6,084 
Inventory                                            14,767             18,666 
Foreign VAT recoverable                               1,062              4,219 
                                         ------------------  ----------------- 
                                                    103,074            142,507 
Assets held for sale                                 17,721                  - 
Assets of disposal group held for sale               99,497                  - 
                                         ------------------  ----------------- 
                                                    220,292            142,507 

Foreign VAT recoverable                                  11              5,455 
Deferred tax asset                                    6,652             15,772 
Long term investment                                  5,577              6,412 
Property and equipment                              347,731            474,849 
                                         ------------------  ----------------- 
                                                    580,263            644,995
                                         ------------------  ----------------- 

Liabilities 
Current Liabilities 
Bank indebtedness                                     1,092              4,495 
Lines of credit                                      46,357             31,469 
Accounts payable and accrued 
 liabilities                                         61,199             63,369 
Current portion of long term debt                   208,000             16,875 
Foreign VAT payable                                   3,648                  - 
Income taxes payable                                  6,018              8,847 
                                         ------------------  ----------------- 
                                                    326,314            125,055 
Liabilities of disposal group held for 
 sale                                                34,236                  - 
                                         ------------------  ----------------- 
                                                    360,550            125,055 

Long term debt                                            -            179,553 
Derivative contracts                                  3,057              3,937 
Deferred tax liability                                1,502              7,187 
                                         ------------------  ----------------- 
                                                    365,109            315,732 
                                         ------------------  ----------------- 

Shareholders' Equity 
Share capital                                       389,428            366,300 
Contributed surplus                                  24,900             21,660 
Warrants                                                  -             25,704 
Accumulated other comprehensive loss                  (657)              (389) 
Deficit                                           (198,517)           (84,012) 
                                         ------------------  ----------------- 
                                                    215,154            329,263 
                                         ------------------  ----------------- 
                                                    580,263            644,995 
                                         ------------------  ----------------- 

Condensed Interim Consolidated Statement of Comprehensive 
 Income and Loss (Unaudited) 
For the three and nine months ended September 30, 
 2013 and 2012 
--------------------------------------------------------- 
(expressed in thousands of U.S. dollars) 

                      Three months ended              Nine months ended 
                 -----------------------------  ------------------------------ 
                 September 30    September 30    September 30    September 30 
                     2013            2012            2013            2012 

Revenue 
Oilfield 
 services               43,278          51,756         128,684         182,633 

Expenses 
Oilfield 
 services               32,905          35,880          96,071         125,198 
Depreciation             5,261           4,922          17,192          20,294 
General and 
 administrative         22,290           7,509          33,726          21,545 
Foreign 
 exchange loss              97             304              91             423 
Equity (income) 
 loss                     (16)              33             567         (1,268) 
                 -------------  --------------  --------------  -------------- 
                      (17,259)           3,108        (18,963)          16,441 

Net finance 
 costs                  17,154           6,151          29,498          19,482 
Loss (gain) on 
 disposal of 
 property and 
 equipment                 396               -             396            (44) 
Loss on sale of 
 investment                  -               -               -              58 
Loss (gain) on 
 foreign 
 exchange 
 contract                 (63)           (299)            (50)             259 
Change in fair 
 value of 
 contingent 
 refundable 
 consideration               -               -           1,728               - 
                 -------------  --------------  --------------  -------------- 
Loss before 
 income taxes         (34,746)         (2,744)        (50,535)         (3,314) 

Current income 
 taxes                     326           2,520           2,391           5,257 
Deferred income 
 taxes                 (1,224)         (1,991)           6,424         (3,996) 
                 -------------  --------------  --------------  -------------- 

Net loss from 
 continuing 
 operations for 
 the period           (33,848)         (3,273)        (59,350)         (4,575) 
Net income 
 (loss) from 
 discontinued 
 operations for 
 the period, 
 net of tax           (63,835)           2,593        (55,155)           5,439 
                 -------------  --------------  --------------  -------------- 
Net income 
 (loss) for the 
 period               (97,683)           (680)       (114,505)             864 

Other 
comprehensive 
gain (loss) 
Items that may 
be subsequently 
reclassified to 
income and 
loss:                        -               -               -               - 
                 -------------  --------------  --------------  -------------- 
Foreign 
 currency 
 translation              (77)              69           (268)           (144) 
                 -------------  --------------  --------------  -------------- 
Total 
 comprehensive 
 income (loss)        (97,760)           (611)       (114,773)             720 
                 -------------  --------------  --------------  -------------- 

Net loss per 
 share from 
 continuing 
 operations, 
 basic and 
 diluted                (0.09)          (0.01)          (0.16)          (0.01) 
Net income 
 (loss) per 
 share from 
 discontinued 
 operations, 
 basic                  (0.17)            0.01          (0.15)            0.02 
Net income 
 (loss) per 
 share from 
 discontinued 
 operations, 
 diluted                (0.17)            0.01          (0.15)            0.01 
Net income 
 (loss) per 
 share, basic 
 and diluted            (0.26)            0.00          (0.31)            0.00 

Condensed Interim Consolidated Statement of Changes 
 in Equity (Unaudited) 
--------------------------------------------------- 
(expressed in thousands of U.S. dollars) 

                              Attributable to equity owners of the Company 
                ------------------------------------------------------------------------ 
                                                  Accum-ulated 
                                                     other 
                 Share   Contri-buted            compre-hensive 
                Capital    surplus     Warrants       loss        Deficit   Total equity 
                -------  ------------  --------  --------------  ---------  ------------ 
Balance - 
 January 1, 
 2013           366,300        21,660    25,704           (389)   (84,012)       329,263 
Net loss for 
 the period           -             -         -               -  (114,505)     (114,505) 
Cumulative 
 foreign 
 currency 
 translation 
 adjustment           -             -         -           (268)          -         (268) 
                -------  ------------  --------  --------------  ---------  ------------ 
Comprehensive 
 loss for the 
 period               -             -         -           (268)  (114,505)     (114,773) 
Stock-based 
 compensation         -           664         -               -          -           664 
Exercise of 
 warrants        23,128             -  (23,128)               -          -             - 
Expiration of 
 warrants             -         2,576   (2,576)               -          -             - 
                -------  ------------  --------  --------------  ---------  ------------ 
Balance - 
 September 30, 
 2013           389,428        24,900         -           (657)  (198,517)       215,154 
                -------  ------------  --------  --------------  ---------  ------------ 

Balance - 
 January 1, 
 2012           366,300        18,106    25,704           (251)   (48,948)       360,911 
Net income for 
 the period           -             -         -               -        864           864 
Cumulative 
 foreign 
 currency 
 translation 
 adjustment           -             -         -           (144)          -         (144) 
                -------  ------------  --------  --------------  ---------  ------------ 
Comprehensive 
 income (loss) 
 for the 
 period               -             -         -           (144)        864           720 
Stock-based 
 compensation         -         2,934         -               -          -         2,934 
                -------  ------------  --------  --------------  ---------  ------------ 
Balance - 
 September 30, 
 2012           366,300        21,040    25,704           (395)   (48,084)       364,565 
                -------  ------------  --------  --------------  ---------  ------------ 

Condensed Interim Consolidated Statement of Cash Flows 
 (Unaudited) 
For the three and nine months ended September 30, 
 2013 and 2012 
------------------------------------------------------ 
(expressed in thousands of U.S. dollars) 

                      Three months ended             Nine months ended 
                 ----------------------------  ----------------------------- 
                 September 30   September 30   September 30    September 30 
                     2013           2012           2013            2012 
Cash flow 
provided by 
(used in): 
Operating 
Activities 
Net income 
 (loss) for the 
 period               (97,683)          (680)      (114,505)             864 
Items not 
affecting 
cash: 
 Depreciation            6,519          5,632         20,356          22,895 
 Loss (gain) on 
  sale of 
  property and 
  equipment                396              -            396            (44) 
 Loss on 
  revaluation 
  of assets of
  disposal 
  group held 
  for sale              53,903              -         53,903               - 
 Equity 
  (income) 
  loss                    (16)             33            567         (1,267) 
 Expense of 
  deferred 
  financing 
  fees                  11,080          1,112         13,828           3,280 
 Change in fair 
  value of 
  derivative 
  contracts              (106)            397          (882)           4,005 
 Stock-based 
  compensation              32            840            664           2,934 
 Provisions for 
  doubtful 
  accounts              15,623              -         16,770 
Changes in 
 non-cash 
 working 
 capital                22,976          1,357         21,605        (26,595) 
                 -------------  -------------  -------------  -------------- 
                        12,724          8,691         12,702           6,072 
                 -------------  -------------  -------------  -------------- 

Investing 
Activities 
Acquisition of 
 property and 
 equipment             (8,175)       (12,938)       (21,854)        (23,745) 
Proceeds from 
 sale of 
 property and 
 equipment                   -              -              -             588 
Restricted cash        (6,756)        (1,003)        (6,503)             223 
                 -------------  -------------  -------------  -------------- 
                      (14,931)       (13,941)       (28,357)        (22,934) 
                 -------------  -------------  -------------  -------------- 

Financing 
Activities 
Proceeds 
 (repayment) of 
 bank 
 indebtedness            (541)              -          4,409               - 
Proceeds from 
 lines of 
 credit                      -              -         15,000               - 
Repayment of 
 long term 
 debt                        -              -        (2,000)               - 
Proceeds from 
 long term 
 debt                        -              -              -          15,000 
Payment of 
 financing 
 fees                      306        (5,114)          (257)         (6,066) 
Change in 
 non-cash 
 working 
 capital                     -          (599)              -           (599) 
                 -------------  -------------  -------------  -------------- 
                         (235)        (5,713)         17,152           8,335 
                 -------------  -------------  -------------  -------------- 

Increase 
 (decrease) in 
 cash and cash 
 equivalents           (2,442)       (10,963)          1,497         (8,527) 
Cash and cash 
 equivalents, 
 beginning of 
 period                 10,242         15,592          6,303          13,156 
                 -------------  -------------  -------------  -------------- 
Cash and cash 
 equivalents, 
 end of period           7,800          4,629          7,800           4,629 
                 -------------  -------------  -------------  -------------- 

Cash Flow 
Supplementary 
Information 
Interest 
 received                   76            188            296             265 
Interest paid            5,671          4,140         15,164          12,203 
Income taxes 
 paid                    1,195          1,805          6,706           5,594 
                 -------------  -------------  -------------  --------------

About Tuscany

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

Reader Advisories

Statements in this news release contain forward-looking information including, without limitation, statements with respect to the completion of each component of the Transaction, the receipt of the Exemption, and the future financial position of the Company. Readers are cautioned that assumptions used in the preparation of such information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted, a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of Tuscany. These risks include, but are not limited to: counterparty completion risks, regulatory approval risk, the risks associated with the oil and gas industry, commodity prices and exchange rate changes, regulatory changes, successful exploitation and integration of technology, customer acceptance of technology, changes in drilling activity and general global economic, political and business conditions. Industry related risks could include, but are not limited to; operational risks, delays or changes in plans, 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.

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.

(1) Refer to “Non-IFRS Measures”.

(2) Refer to “Non-IFRS Measures”.

(3) Includes two rigs held for sale.

(4) Refer to “Non-IFRS Measures”.

(5) Refer to “Non-IFRS Measures”.

(6) Reflects the movement in accounts from December 31, 2012, to September 30, 2013.

(7) Refer to “Non-IFRS Measures”.

Tuscany International Drilling Inc.

Walter Dawson

President and CEO

Tuscany International Drilling Inc.

Matt Moorman

CFO

(403) 265 8793

(403) 265 8258

www.tuscanydrilling.com

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