Toreador Improves Operating Efficiencies, Implements Growth Strategy

Toreador has announced second quarter 2009 financial results. Craig McKenzie, President and CEO of Toreador, said "We are pleased to have made great progress in refocusing the Company's operations, reducing costs, and significantly reducing debt, despite the volatility in our industry. In April we repurchased $16.7 million principal amount of the Company's convertible notes in the open market for $12.7 million, plus accrued interest and prepaid loan fees, resulting in a gain of $3.4 million. For the first half of the year, we reduced G&A expense by 28%, excluding certain one-time charges, and reduced total debt by $46.7 million, improving our debt to equity ratio from 2.1 to 1.4. For the second half, we will continue to implement our strategy that emphasizes improving operations efficiency with further reductions in G&A expense, unlocking value from the existing asset portfolio, pursuing conventional growth in France that includes the La Garenne exploration well planned for the fourth quarter 2009, to expand production beyond the current 900 bopd, and bringing in partners for the exploitation of the high-impact Paris Basin Oil Shale."

SECOND QUARTER 2009 FINANCIAL RESULTS

Revenues for the second quarter 2009 were $4.5 million compared to $11.0 million in the same period last year, a decrease primarily due to the decline in global oil prices and a temporary decrease in oil production while planned well repairs and maintenance activities were conducted.

Operating expenses for the second quarter 2009 were $9.1 million compared to $14.9 million in the second quarter of 2008. The decrease is primarily due to a $3.7 million loss on oil and gas derivative contracts and an impairment of oil and gas properties of $2.3 million recorded in the second quarter of 2008. Operating expenses for the second quarter of 2009 include, in part, $1.6 million of costs associated with various administrative, relocation and severance expenses related to the relocation of our headquarters from Dallas, Texas, to Paris, France, and $1.9 million in stock compensation. Excluding these items from total general and administrative expenses, the overall general and administrative expenses for the second quarter decreased from $5.7 million to $2.2 million, a 27% decrease when compared to $3 million in the second quarter of 2008.

Lease operating expenses for the second quarter 2009 were $1.8 million, compared to $2.6 million in the comparable period in the prior year. This decrease is primarily due to the currency effect due to the strengthening of the U.S. Dollar compared to Euro and a reduction in the cost of services provided by third party vendors due to the current global economic climate.

Depreciation, depletion and amortization expense for the second quarter 2009 was $1.6 million compared to $1.2 million in the second quarter of 2008. This increase is due primarily to the reduction in proved reserves assigned to the French assets at December 31, 2008, as a result of the $34.72 per barrel year-end oil price used for the reserves evaluation.

In the second quarter of 2009 the Company recorded income from discontinued operations of $4.6 million as compared to a loss of $58.6 million for the comparable period of 2008. The primary reasons for the increase are 1) for the quarter ended June 30, 2008, we recorded depreciation, depletion and amortization expense of $11.9 million while in the comparable period in 2009 there was no depreciation, depletion and amortization expenses recorded since Turkey is accounted for as a discontinued operation; 2) for the quarter ended June 30, 2008, we recorded an impairment of oil and natural gas properties in Turkey of $53.5 million due to the decline in the fair market value of the Company’s interest in the South Akcakoca Sub-Basin assets; 3) in the second quarter of 2009 Toreador recorded $3.8 million in foreign currency exchange gain due to the strengthening of the United States Dollar compared to the Turkish Lira and 4) the Company recorded revenue less lease operating expense of $1.3 million in the second quarter of 2009 due to the sale to Petrol Ofisi of a 26.75% interest in the South Akcakoca Sub-Basin, as compared to $6.7 million in the comparable period of 2008.

In the second quarter of 2009, the Company recorded a gain on the early extinguishment of debt of $3.4 million, which was due to the repurchase of $16.7 million principal amount of the convertible notes on the open market and through privately negotiated transactions for $12.7 million plus accrued interest and prepaid loan fees of $650,000.

As a result of the above, for the three months ended June 30, 2009, the Company reported income available to common shares of $2.9 million, or $0.14 per diluted share, compared to a loss available to common shares of $65.8 million in the second quarter of 2008, or $3.33 per diluted share.

Diluted weighted average shares outstanding in the second quarter of 2009 were 20.4 million, compared to 19.7 million diluted weighted average shares outstanding in the second quarter of 2008.

SIX MONTHS ENDED JUNE 30, 2009 FINANCIAL RESULTS

Revenues for the six months ended June 30, 2009, were $7.9 million compared to $19.8 million in the same period last year, a decrease primarily due to the decline in global oil prices and a general decrease in oil production.

Operating expenses for the six months ended June 30, 2009, were $18.0 million compared to $23.1 million in the six months ended June 30, 2008, a decrease primarily due to a $4.2 million loss on oil and gas derivative contracts and an impairment of oil and gas properties of $2.3 million recorded in the second quarter of 2008. Operating expenses for the six months ended June 30, 2009, include, in part, $3.4 million of costs associated with various administrative, relocation and severance expenses related to the relocation of our headquarters from Dallas, Texas, to Paris, France, cost incurred due to the resignation of the former President and CEO of $0.8 million and $2.2 million in stock compensation.

Excluding these items from total general and administrative expenses, the overall general and administrative expenses for the second quarter decreased from $10.7 million to $4.3 million, a 28% decrease when compared to the adjusted $6 million for the six months ended June 30, 2008. Lease operating expenses for the six months ended June 30, 2009, were $3.6 million, compared to $4.5 million in the comparable period in the prior year. This decrease is primarily due to the currency effect due to the strengthening of the U.S. Dollar compared to Euro and a reduction in the cost of services provided by third party vendors due to the current global economic climate.

Depreciation, depletion and amortization expense for the six months ended June 30, 2009, was $3.2 million compared to $2.3 million in the six months ended June 30, 2008. This increase is due primarily to the reduction in proved reserves assigned to our French assets at December 31, 2008, as a result of the $34.72 per barrel year-end oil price used for the reserves evaluation.

In the six months ended June 30, 2009, the Company recorded a loss from discontinued operations of $0.1 million as compared to a loss of $61.9 million for the comparable period of 2008. The primary reasons for the increase are 1) for the six months ended June 30, 2008, we recorded depreciation, depletion and amortization expense of $17.6 million while in the comparable period in 2009 there was no depreciation, depletion and amortization expenses recorded since Turkey is accounted for as a discontinued operation; 2) for the six months ended June 30, 2008, we recorded an impairment of oil and natural gas properties in Turkey of $53.5 million due to the decline in the fair market value of the Company's interest in the South Akcakoca Sub-Basin assets as compared to an impairment of $5.3 million in the first six months of 2009; 3) in the six months ended June 30, 2009, Toreador recorded $3.3 million in foreign currency exchange gain due to the strengthening of the United States Dollar compared to the Turkish Lira and 4) the Company recorded revenue less lease operating expense of $2.4 million for the six months ended June 30, 2009, due to the sale to Petrol Ofisi of a 26.75% interest in the South Akcakoca Sub-Basin, as compared to $10.2 million in the comparable period of 2008.

In the six months ended June 30, 2009, we recorded a gain on the early extinguishment of debt of $3.4 million, which was due to the repurchase of $16.7 million principal amount of the convertible notes on the open market and through privately negotiated transactions for $12.7 million plus accrued interest and prepaid loan fees of $650,000.

As a result of the above, for the six months ended June 30, 2009, the Company reported a loss available to common shares of $8.0 million, or $0.39 per diluted share, compared to a loss available to common shares of $70.2 million in the comparable period of 2008, or $3.56 per diluted share.

Diluted weighted average shares outstanding for the six months ended June 30, 2009, were 20.3 million, compared to 19.7 million diluted weighted average shares outstanding in the comparable period of 2008.

FINANCIAL, OPERATIONAL AND STRATEGIC UPDATE

The Company has taken the following proactive steps in the first six months of 2009 in line with its 2009 strategy presented at the Annual Shareholders meeting held in June 2009:

  • The elimination of a significant portion of the Company’s debt through the repayment and retirement of the Company’s credit facility and the repurchase of a portion of its outstanding Convertible Senior Notes due 2025, both as described further below.
  • The completion of the sale of a 26.75% interest in the South Akcakoca Sub-Basin (SASB) project, located in the Black Sea offshore Turkey, to Petrol Ofisi for $55 million of which $50 million in proceeds from the sale was paid at closing and the remaining $5 million is payable by Petrol Ofisi on September 1, 2009. A portion of the net proceeds of the sale to Petrol Ofisi sale was used to fully repay and retire the credit facility with International Finance Corporation.
  • The repurchase in the open market of $16.7 million face value of our 5% Convertible Senior Notes due 2025 at a purchase price of $12.7 million. This repurchase resulted in a gain of $3.4 million on the early extinguishment of debt, which was recorded in the second quarter of 2009.
  • The retention of Stellar Energy Advisors, based in London, UK, to manage a process to monetize the Company’s wholly owned subsidiary, Toreador Turkey Limited, including its 10% interest in the SASB, in addition to the onshore production, and 2.2 million net acres in exploration licenses that are currently held. All revenues and expenses associated with Toreador’s Turkish operation for the three and six months ended June 30, 2009, have been included in discontinued operations and have been adjusted for 2008 to conform to the 2009 presentation.
  • As announced on April 14, 2009, the completion of the Cendere 22 development well, in the southeast of Turkey, which reached a total depth of 2,871 meters and is currently on production.
  • The announcement of administrative priorities including the relocation of the corporate headquarters from Dallas, Texas, to Paris, France, and the appointment of Craig M. McKenzie as President and Chief Executive Officer. As of June 30, 2009, the Company has completed the relocation to Paris, France.
  • In June 2009 the Company entered into a collar contract for approximately 18,000 Bbls per month of our French oil production for the months of July 2009 through December 2009. The floor price is $65.00 per bbl and the ceiling is $77.00 per bbl.
  • The Company unveiled its near and long-term strategy on June 4, 2009; the objectives are to improve operations efficiency with further reductions in G&A expense, unlock value from the existing asset portfolio, pursue conventional growth in France, and to exploit the high-impact Paris Basin Oil Shale where oil in place in excess of 30 billion barrels is believed to exist on Toreador’s acreage in France.
  • The Company announced in June 2009 that it had completed a review of its conventional growth opportunities in France and plans that the La Garenne well on the Rigny le Ferron permit will be drilled, scheduled to spud late this year pending regulatory approvals. The Company believes the well has low risk and is forecast to prove up to 30 mmbo of oil in place, which should expose the Company to a two-fold potential increase in net barrels of proved and probable reserves. The Company has 100% interest in the well, but is considering a partnership to reduce capital requirements.
  • Toreador, as Operator and on behalf of its partners, spud the Durusu-1 exploration well in the Black Sea. The Durusu-1 well will target both the Danisman and Osmancik formations with planned total depth of 2,500 meters subsea. Results are expected by late August.
  • The retention of Gaffney, Cline & Associates, an international oil and gas sector advisory firm, to manage all future reserves verifications.
  • The adoption of a share buyback program for the repurchase of up to one million common shares of Toreador that may be repurchased in the open market at any time over the next 12 months. As of June 30, 2009, no shares of Toreador common stock have been repurchased pursuant to the share buyback program.
     
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