By: Tomas Ronolski - AllPennyStocks.com News

Friday, May 17, 2013

We’ve said before that there could be an increase in merger and acquisition activity throughout 2013 and into 2014 as developmental metal and energy companies listed on the Toronto Venture Exchange look for ways to bolster valuations in a tough mining and drilling climate for junior firms. We also expect to see more companies partnering in exploration efforts to help shoulder expenses, whether for metals or energy material. Friday morning, Tuscany Energy Ltd. (TSX-Venture:TUS) and Diaz Resources Ltd. (TSX-Venture:DZR) announced that they have entered into a definitive agreement to combine operations whereby Tuscany will acquire all of Diaz’s issued and outstanding shares through a share exchange. Per the deal, which is still subject to customary approvals, shareholders of Diaz will receive 0.31 shares of Tuscany. Shares of Tuscany are then slated to be consolidated through an 8:1 reverse split.

This will leave Tuscany with about 18.6 million shares outstanding. 80.3 percent of those shares will be held by current Tuscany shareholders with the remainder being held by former Diaz shareholders.

The merged entity will have total proved plus probable reserves of approximately 2.5 million barrels of oil equivalent and 85,000 acres of undeveloped land.

In the fourth quarter of 2012, Diaz converted $15.09 million of debenture debt into common equity, lowering its net debt to $3.9 million and saving $1.58 million in annual interest payments. As part of the deal, Diaz performed a 25:1 reverse split. Much like other juniors, the company has been struggling to increase heavy oil production with its debt load and limited access to debt and equity financing, although production rose by 59 percent in 2012 compared to 2011 to 186 barrels per day. Meanwhile, gas production declined to 0.9 MMcfd as the company shut-in wells because of a 36-percent drop in gas prices.

For the year, Diaz recorded net oil and gas revenues of $5.3 million, down from $5.6 million in 2011.

Tuscany increased its heavy oil production in 2012 as well, resulting in revenues rising from $6.1 million in 2011 to $7.5 million in 2012. For the year, production improved to 354 barrels of oil equivalent per day from 247 BOEd in 2011. Higher operating costs, however, cut into cash flow from operations, which declined to $2.7 million in 2012 from $3.2 million the year prior.

In May, combined production levels of the companies totaled approximately 635 BOE per day (405 BOPd, 1.38 MMcfd).

Certain shareholders, including directors and executives of Tuscany and Diaz, representing about 39 percent of Tuscany shares and 75 percent of Diaz shares have indicated that they support the amalgamation. Upon all approvals, the deal is expected to be closed around July 15.

Shares of Tuscany are flat at 6.5 cents and Diaz are down 20 percent at 4 cents in early Friday trading, both on low volume levels.

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