Resource World Magazine

F E B R U A R Y / M A R C H 2 0 1 5 www.resourceworld.com 63 I ndustry downturns aren't for the faint of heart. When things nosedive in the resource sectors – and we know they always will at some point – the faint of heart frequently react by cancelling projects, selling off equipment, cutting staff...even welching on their debts. But the strong per- severe, and it's in this group that tuscany energy ltd. [TUS-TSXV] finds itself. With oil prices below $50 a barrel for the first time since 2009 (a nearly 50% drop) at the time of this writing, the Calgary-based junior led by President and CEO, Robert Lamond, isn't turning turtle. It's moving forward and making plays that have a strong success-to-risk ratio. "We've seen crashes before," said Lamond, a veteran of the industry wars. "At times like this, we use cash flow from our well production and share issues, and grow internally." Tuscany, which operates primarily along the Evesham/Macklin corridor along the Saskatchewan border in the Lloydminster area and on to Morgan, Alberta, is com- ing off an excellent 2014. In the nine months ending September 30, 2014, the company's revenues increased to $12.9 mil- lion from $6.8 million in 2013, while cash flow increased to $6.2 million from 2013's $2.1 million and net earnings increased to $836,000 from a loss of $961,000. Production averaged 696 BOE/d, up from the 402 BOE/d reported in the prior year. The firm's net debt has been reduced by $1.5 million since mid-2013, leaving them with $5.5 million in debt at year's end. In July, Tuscany successfully raised approximately $3 million, drilling five successful Dina oil wells with the pro- ceeds, all of which were placed on stream during the quarter and four of which had initial production rates exceeding 100 barrels/day. As a result of these activities, the com- pany increased its production at the end of the quarter to average 748 BOE/d for the month of September and 950 BOE/d for October. Subsequent to the period end, Tuscany closed an additional flow-through share offering, issuing 2.7 million shares at a price of $0.44 per share for total con- sideration of $1.2 million. At November 27, the company had 48.8 million shares outstanding. "We got a very high premium," said Lamond. "We got $0.44, which is where it was before the crash. The year ended with the company's announcement that a step-out vertical well drilled for water disposal purposes, at Tuscany's 100%-owned Macklin property, encountered 9 metres of Dina oil play. That could establish up to 14 new locations for horizontal drilling in the Dina and expand the Macklin pool to the north, all on Tuscany-controlled, 100% working inter- est lands. The well was drilled to 1,011 metres as a potential Duperow water disposal well, and was located to also test a potential extension of the adjacent Dina oilfield that Tuscany currently is developing. Approximately 9 metres of 33% porous sand was encountered in the Dina, with log characteristics identical to currently producing wells in the field. Lamond acknowledged that others in the industry are cutting costs substantially "due to the huge volumes of oil being drilled horizontally in the US Bakken and Eagleford fields." The future will see a decline in US production and Saudi Arabian producers will tighten up their production, he predicted, but Tuscany will continue to focus on their existing plays, which offer more than 30 wells for drilling, and a new well drilled recently in Morgan, Alberta. The company has six or seven wells currently unconnected and another five or six that can be "opti- mized," Lamond explained, allowing the company to hold onto capital not already put into place. There are no plans to drill new wells in the immediate future, though drilling will resume once the price of oil rises, and new opportunities are always being sought. Tuscany, which focuses largely on heavy oil attained through horizontal drilling, has proven to be attractive to investors because it is seen as undervalued, with low debt leverage, an oil-focused firm showing an active development program with multiple projects, and a defined exit strategy. And, as Lamond notes, the company has reached its recent target of producing 1,000 BOE/d. Further to that, the company boasts that their oil wells can cost as little as $850,000 connected, and they use plot- ted liners so that cement or fracking it isn't required. The company has a number of gas prop- erties and assets in the US but their focus will remain on their Saskatchewan-area plays, said Lamond, where they're still actively looking at new projects. If plays in the Winter, SK area prove out, Tuscany could set up 10 drilling sites there. And in the nearby Macklin region's Sparky Zone, the company plans to use multiple fracs in a play that "looks very economic," he said. Also, they've picked up lands from Baytex – more than 20 locations to follow up on at a price of $1.5 million each. "I think our approach and what we have to offer investors make us very attrac- tive," Lamond said. n the oil patch report B r u c e L a n t z tuscany energy's cash flow triples – profit posted

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