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Cathedral Energy Services reports results for the three and nine months endedSeptember 30, 2009

Nov 4, 2009
10:53pm

/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/

 

CALGARY, Nov. 4 /CNW/ - Cathedral Energy Services Income Trust (the "Trust"/TSX: CET.UN) is pleased to report its results for the three and nine months ended September 30, 2009. Dollars are in '000's except for day rates and per Trust Unit amounts.

 

 

    FINANCIAL HIGHLIGHTS

    $ in 000's except per
     Trust Unit amounts           Three months ended       Nine months ended
                                        September 30            September 30
                                 --------------------     -------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------

    Revenues                   $  23,544   $  52,686   $  67,825   $ 128,422

    Gross margin %(1)                49%         46%         44%         46%

    EBITDAS(1)                 $   5,724   $  16,887   $  10,788   $  36,875
      Diluted per Trust Unit   $    0.16   $    0.52   $    0.31   $    1.14

    Income before taxes        $   3,207   $  13,022   $     905   $  25,508

    Net income                 $   3,125   $  10,296   $   3,045   $  20,402
      Basic per Trust Unit     $    0.09   $    0.32   $    0.09   $    0.64
      Diluted per Trust Unit   $    0.09   $    0.32   $    0.09   $    0.63

    Cash distributions
     declared per Trust Unit   $    0.04   $    0.21   $    0.31   $    0.63

    Distributable cash(1),
     including one-time 2009
     Q1 current tax provision
     of $4,168 (refer to MD&A) $   5,093   $  13,844   $   4,915   $  28,996

    Adjusted distributable
     cash(3), excluding
     one-time 2009 Q1 current
     tax provision of $4,168
     (refer to MD&A)           $   5,093   $  13,844   $   9,083   $  28,996

    Cash distributions
     declared(2)               $   1,448   $   6,813   $  10,534   $  20,252

    Payout ratio(1), net of
     one-time 2009 Q1 current
     tax provision of $4,168         28%         49%        214%         70%

    Adjusted payout ratio(3),
     net of one-time 2009 Q1
     current tax provision of
     $4,168                          28%         49%        116%         70%

    Property and equipment
     additions                 $   1,333   $  15,129   $   7,309   $  26,564

    Weighted average Trust
     Units outstanding:
      Basic ('000)                36,198      32,384      34,370      32,091
      Diluted ('000)              36,198      32,522      34,370      32,318


                                                    September 30 December 31
                                                            2009        2008
    -------------------------------------------------------------------------

    Working capital                                    $  16,095   $  17,435

    Long-term excluding current portion                $  36,571   $  40,233

    Unitholders' equity                                $  93,938   $  91,859
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to MD&A; see "NON-GAAP MEASUREMENTS"
    (2) Excludes foreign taxes paid that have been allocated to Unitholders
    (3) Refer to MD&A; see "DISTRIBUTIONS"

 

 

MANAGEMENT'S DISCUSSION & ANALYSIS

 

This Management's Discussion & Analysis ("MD&A") for the three and nine months ended September 30, 2009 should be read in conjunction with the annual audited consolidated financial statements and notes thereto for the year ended December 31, 2008, as well as the MD&A in the Trust's 2008 Annual Report, and with the unaudited interim consolidated financial statements and notes thereto for the three and nine months ended September 30, 2009. This MD&A has been prepared as of November 4, 2009. Dollar amounts are in '000's except for day rates and per Trust Unit amounts.

 

FORWARD-LOOKING INFORMATION

 

Certain statements in this MD&A including (i) statements that may contain words such as "anticipate", "could", "expect", "seek", "may", "intend", "will", "believe", "should", "project", "forecast", "plan" and similar expressions, including the negatives thereof, (ii) statements that are based on current expectations and estimates about the markets in which the Trust/Cathedral operates and (iii) statements of belief, intentions and expectations about developments, results and events that will or may occur in the future, constitute "forward-looking statements" and are based on certain assumptions and analysis made by the Trust/Cathedral. Forward-looking statements in this MD&A specifically include, but are not limited to, statements with respect to future capital expenditures, including the amount, nature and timing thereof; oil and natural gas prices and demand; other development trends within the oil and natural gas industry; business strategy; expansion and growth of the Trust/Cathedral's business and operations including the Trust/Cathedral's market share and position in the oilfield service market; the arrangement (as herein discussed) and the expected benefits thereof; future financial position; results of operations; dividend policy; tax pools and the availability of such tax pools; taxes; plans and objectives; access to capital; liquidity and trading volumes; projected costs; business strategy and anticipated benefits of the arrangement; financial results; future cash flows; value and debt levels; future tax basis and the treatment of the Trust and the Trust Unitholders under tax laws and other such matters.

The forward-looking statements contained in this MD&A reflect several material factors, expectations and assumptions including, without limitation: (i) oil and natural gas production levels; (ii) commodity prices and interest rates; (iii) capital expenditure programs and other expenditures by the Trust/Cathedral and its customers; (iv) supply and demand for oil and natural gas; (v) expectations regarding the Trust's/Cathedral's ability to raise capital, generate cash flow and to increase its equipment fleets through acquisitions and manufacture; (vi) schedules and timing of certain projects and the Trust's/Cathedral's strategy for growth; (vii) the Trust's/Cathedral's future operating and financial results; (viii) the Trust's/Cathedral's ability to retain and hire qualified personnel; (ix) treatment under governmental regulatory regimes and tax, environmental and other laws; (ix) the completion of the arrangement; * the utilization of the tax basis by New Cathedral; and (xi) the timely receipt of required regulatory approvals.

Financial outlook information contained in this MD&A about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this MD&A and certain documents incorporated by reference into this MD&A should not be used for purposes other than for which it is disclosed herein.

Such forward-looking statements are subject to important risks and uncertainties, which are difficult to predict and that may affect the Trust/Cathedral's operations, including, but not limited to: the impact of general economic conditions in Canada, the United States and Internationally; industry conditions, including the adoption of new environmental, safety and other laws and regulations and changes in how they are interpreted and enforced; volatility of oil and natural gas prices; oil and natural gas product supply and demand; risks inherent in the Trust/Cathedral's ability to generate sufficient cash flow from operations to meet its current and future obligations; increased competition; the lack of availability of qualified personnel or labour unrest; fluctuation in foreign exchange or interest rates; foreign currency controls; stock market volatility; opportunities available to or pursued by the Trust/Cathedral, inability to obtain required consents, permits or approvals, including the Final Order of the Court approving the arrangement, approval of the Trust Unitholders or the SemBioSys Securityholders; the uncertainties associated with the availability and amount of the tax pools, third party credit risk relating to obligations of SemBioSys under the Indemnity Agreement, Assignment Agreements and the Divestiture Agreement and other factors, many of which are beyond the control of the Trust/Cathedral. The Trust's/Cathedral's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do transpire or occur, what benefits the Trust/Cathedral will derive therefrom. Subject to applicable law, the Trust/Cathedral disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

All forward-looking statements contained in this document are expressly qualified by this cautionary statement. Further information about the factors affecting forward-looking statements is available in the Trust/Cathedral's current Annual Information Form which has been filed with the applicable Canadian provincial securities commissions and is available on www.sedar.com.

 

NON-GAAP MEASUREMENTS

 

This MD&A refers to certain financial measurements that do not have any standardized meaning within Canadian Generally Accepted Accounting Principles ("GAAP") and therefore may not be comparable to similar measures provided by other companies and/or trusts.

The specific measures being referred to include the following:

 

    i)     "Gross margin" - calculated as revenues less operating expenses is
           considered a primary indicator of operating performance (see
           tabular calculation under Results of Operations);
    ii)    "Gross margin %" - calculated as gross margin divided by revenues
           is considered a primary indicator of operating performance (see
           tabular calculation under Results of Operations);
    iii)   "EBITDAS" - defined as earnings before interest on long-term debt,
           taxes, depreciation, amortization, unit-based compensation expense
           and foreign currency gain/loss on intercompany debt; this measure
           is considered an indicator of the Trust's ability to generate
           funds flow from operations prior to consideration of how
           activities are financed, how the results are taxed and measured
           and non-cash expenses (see tabular calculation under EBITDAS);
    iv)    "Distributable cash" - defined as cash flow from operating
           activities before changes in non-cash operating working capital
           less required principal repayments on long-term debt and
           maintenance capital expenditures; distributable cash is a key
           performance measurement used by management, analysts and investors
           to evaluate the financial performance of the Trust (see tabular
           calculation under Distributions);
    v)     "Maintenance capital expenditures" - refers to capital
           expenditures required to maintain existing levels of service but
           excludes replacement cost of lost-in-hole equipment to the extent
           the replacement equipment is financed from the proceeds on
           disposal of the equipment lost-in-hole;
    vi)    "Payout ratio" - calculated as cash distributions declared divided
           by distributable cash, is an indicator of the Trust's ability to
           fund its distributions from the Trust's ongoing operations
           excluding changes in non-cash working capital (see tabular
           calculation under Distributions) (see distributable cash
           definition above); and
    vii)   "Funds from operations" - calculated as cash flow from operating
           activities before changes in non-cash working capital is
           considered an indicator of the Trust's ability to generate funds
           flow from operations but excluding changes in non-cash working
           capital which is financed using the Trust's bank indebtedness/line
           of credit facility.

 

OVERVIEW

 

The Trust completed the third quarter of 2009 with quarterly revenues of $23,544 and year-to-date revenues of $67,825 compared to 2008 Q3 at $52,686 and 2008 year-to-date revenues of $128,422. The 2009 Q3 revenues were lead by the Trust's directional drilling division which represented 71% (2008 Q3 - 78%) of total revenues. The decline in drilling in the oil and gas sector due to low commodity prices and the overall decline in the economy have resulted in a significant decline in revenues as compared to 2008 Q3. In mid-June 2009, the Trust re-organized its wireline operations to focus its Canadian operations on providing slickline services and to concentrate its electric line ("E-Line") services in the U.S.

2009 year-to-date EBITDAS was $10,788 ($0.31 per diluted Trust Unit) which represents a $26,087 or 71% decrease from $36,875 ($1.14 per diluted Trust Unit) in 2008. On a 2009 year-to-date basis, the Trust's net income was $3,045 ($0.09 per diluted Trust Unit) which compares to $20,402 ($0.63 per diluted Trust Unit) in 2008.

 

    RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2009

    Revenues and operating expenses

                                 2009 Q3     2008 Q3      Change           %
    -------------------------------------------------------------------------
    Revenues                   $  23,544   $  52,686   $ (29,142)        (55)
    Operating expenses           (12,104)    (28,212)    (16,108)        (57)
    -------------------------------------------------------------------------
    Gross margin - $           $  11,440   $  24,474   $ (13,034)        (53)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Gross margin - %                 49%         46%          3%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                       Three months ended September 30, 2009
    -------------------------------------------------------------------------
                             Directional              Production
    Revenues                    drilling    Wireline     testing       Total
    -------------------------------------------------------------------------
    Canada                     $  11,836   $     996   $   1,495   $  14,327
    United States                  4,863       2,372       1,982       9,217
    -------------------------------------------------------------------------
                               $  16,699   $   3,368   $   3,477   $  23,544
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                       Three months ended September 30, 2008
    -------------------------------------------------------------------------
                               Directional            Production
    Revenues                    drilling    Wireline     testing       Total
    -------------------------------------------------------------------------
    Canada                     $  22,992   $   5,069   $   3,814   $  31,875
    United States                 17,917       2,068         826      20,811
    -------------------------------------------------------------------------
                               $  40,909   $   7,137   $   4,640   $  52,686
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

 

 

2009 Q3 revenues were $23,544 which represented a decrease of $29,142 or 55% from 2008 Q3 revenues of $52,686. The decline is primarily attributed to the decline in oil and natural gas activity in 2009 which has been caused by low commodity prices and the global recession.

The directional drilling division revenues have decreased from $40,909 in 2008 to $16,699 in 2009. This decrease is the result of: i) the 58% decrease in activity days from 4,409 in 2008 to 1,874 in 2009; and ii) the decrease in the average day rate from $9,098 in 2008 to $8,754 in 2009, which was largely due to competitive pressures and the overall decline in drilling activity. Canadian activity days decreased from 2,497 to 1,372 and the U.S. activity days decreased from 1,912 to 502.

The Trust's production testing division contributed $3,477 in revenues during 2009 Q3 which is a 25% decrease from 2008 revenues of $4,640. The wireline division has been affected significantly by the decline in oil and natural gas activity. The wireline division generated revenues of $3,368 for 2009 Q3 which compares to $7,137 for 2008 which represents a 53% decrease. In mid-June 2009, the Trust re-organized its wireline operations to focus its Canadian operations on providing slickline services and to concentrate its electric line ("E-Line") services in the U.S.

The gross margin for 2009 Q3 was 49% compared to 46% in 2008 Q3. The increase is attributed to cost reductions in a number of areas including: i) reductions in labour rates; ii) reductions in equipment rentals as a result in decreased activity levels; net of iii) increases in repair and maintenance costs.

 

General and administrative expenses

 

General and administrative expenses were $5,630 in 2009 Q3, a decrease of $2,313 compared with $7,943 in 2008. The decrease was primarily related to the elimination of the accrual for annual bonus in 2009 as well as reductions in salaries due to staffing reductions and wage rollbacks. As a percentage of revenues, general and administrative expenses were 24% in 2009 Q3 and 15% in 2008 Q3. Recognizing the expected lower activity levels, the Trust has taken several initiatives to improve operating results and further strengthen its balance sheet. The Trust's operating entities have undertaken a detailed review of all operating costs and general and administrative expenditures and have initiated cost reductions to enhance profitability including layoff of staff and wage rollbacks ranging from 4 - 12%.

 

Depreciation and amortization

 

Depreciation for 2009 Q3 was $3,539 which compares to $3,411 in 2008 Q3. During 2009 Q3, approximately $11,478 of property and equipment was temporarily removed from service and therefore no depreciation has been recorded on these assets. As a percentage of revenues, depreciation amounted to 15% for 2009 and 6% for 2008.

 

Interest expense

 

Interest expense related to long-term debt increased from $266 in 2008 Q3 to $303 in 2009 Q3 due to the combined net effect of: i) an increase in the average level of debt outstanding; and ii) a decrease in the effective interest rate on the related debt. Other interest expense decreased from $115 in 2008 Q3 to $51 in 2009 Q3, this relates mainly to interest charges on use by the Trust of its bank indebtedness/line of credit.

 

Foreign exchange gain/loss

 

The Trust's foreign exchange gain/loss has changed from a $21 loss in 2008 Q3 to a gain of $1,404 in 2009 Q3 due to the fluctuations in the Canadian dollar in comparison to the U.S. dollar. The Trust's U.S. operations are considered to be self-sustaining and therefore gains and losses due to fluctuations in the foreign currency exchange rates are recorded in other comprehensive income ("OCI") on the balance sheet as a component of equity. However, gains and losses in the Canadian entity on U.S. denominated intercompany balances continue to be recognized in the statement of operations. Included in the 2009 Q3 foreign currency gain are unrealized gains of $1,525 (2008 Q3 - $27) related to intercompany balances.

 

Unit-based compensation expense

 

For 2009 Q3 the Trust had unit-based compensation expense of $200 which compares to $215 for 2008 Q3. The value of the options is being amortized against income over the three-year vesting period.

 

Gain on disposal of property and equipment

 

During 2009 Q3 the Trust had a gain on disposal of property and equipment of $86, which compares to $519 in 2008 Q3. The gains for 2009 Q3 relate to the sale of wireline assets. The gains for 2008 Q3 are mainly due to recoveries of lost-in-hole equipment costs including previously expensed depreciation on the related assets. The timing of lost-in-hole recoveries is not in the control of the Trust and therefore can fluctuate significantly from quarter-to-quarter.

 

Taxes

 

For 2009 Q3, the Trust had a tax expense of $82 as compared to $2,726 in 2008 Q3. A significant portion of income tax expense for 2008 Q3 relates to U.S. operations. As profitability of these operations has fallen dramatically, so has the related income tax expense.

 

 

    RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2009

    Revenues and operating expenses

                                2009 YTD    2008 YTD      Change           %
    -------------------------------------------------------------------------
    Revenues                   $  67,825   $ 128,422   $ (60,597)        (47)
    Operating expenses           (37,737)    (69,265)    (31,528)        (46)
    -------------------------------------------------------------------------
    Gross margin - $           $  30,088   $  59,157   $ (29,069)        (49)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Gross margin - %                 44%         46%         (2%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                                        Nine months ended September 30, 2009
    -------------------------------------------------------------------------
                             Directional              Production
    Revenues                    drilling    Wireline     testing       Total
    -------------------------------------------------------------------------
    Canada                     $  26,001   $   5,905   $   5,530   $  37,436
    United States                 19,713       4,561       6,115      30,389
    -------------------------------------------------------------------------
                               $  45,714   $  10,466   $  11,645   $  67,825
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                                        Nine months ended September 30, 2008
    -------------------------------------------------------------------------
                             Directional              Production
    Revenues                    drilling    Wireline     testing       Total
    -------------------------------------------------------------------------
    Canada                     $  55,335   $  14,089   $   9,001   $  78,425
    United States                 44,444       4,727         826      49,997
    -------------------------------------------------------------------------
                               $  99,779   $  18,816   $   9,827   $ 128,422
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

 

2009 revenues were $67,825 which represented a decrease of $60,597 or 47% from 2008 revenues of $128,422. The decline is primarily attributed to the decline in oil and natural gas activity in 2009 which has been caused by low commodity prices and the global recession.

The directional drilling division revenues have decreased from $99,779 in 2008 to $45,714 in 2009; a 54% decrease. This decrease is the net result of: i) the 59% decrease in activity days from 11,191 in 2008 to 4,636 in 2009; and ii) the increase in the average day rate from $8,724 in 2008 to $9,634 in 2009, which were caused in large part to the increase in U.S. rates due to the decline in 2009 versus 2008 in the Canadian dollar relative to the U.S. dollar. Canadian activity days decreased from 6,042 to 2,855 and the U.S. activity days decreased from 5,149 to 1,781.

Expansion to the U.S. resulted in increased revenues for the Trust's production testing division. The Trust's production testing division contributed $11,645 in revenues during 2009 which is a 19% increase over 2008 revenues of $9,827. The wireline division generated revenues of $10,466 for 2009 which compares to $18,816 for 2008 which represents a 44% decrease. In mid-June 2009, the Trust re-organized its wireline operations to focus its Canadian operations on providing slickline services and to concentrate its electric line ("E-Line") services in the U.S.

The gross margin for 2009 was 44% compared to 46% in 2008. The decrease is attributed to a number of factors including: i) an increase in labour costs as percentage of revenue in the first six months of 2009; ii) greater impact of annual equipment repairs and maintenance costs (spread over less revenue); iii) an overall change in revenue mix as wireline and production testing revenues now make up a greater percentage of total revenues and these divisions have a lower gross margin; and iv) included in 2009 Q2 operating expenses were $307 of costs associated with the restructuring of the Trust's wireline operations.

 

General and administrative expenses

 

General and administrative expenses were $19,609 in 2009; a decrease of $3,356 compared with $22,965 in 2008. The decrease was primarily related to the elimination of the accrual for annual bonus in 2009. As a percentage of revenues, general and administrative expenses were 29% in 2009 and 18% in 2008. Recognizing the expected lower activity levels, the Trust has taken several initiatives to improve operating results and further strengthen its balance sheet. The Trust's operating entities have undertaken a detailed review of all operating costs and general and administrative expenditures and have initiated cost reductions to enhance profitability including layoff of staff and wage rollbacks ranging from 4 - 12%. Included in the 2009 Q2 general and administrative expenses were $146 related to restructuring of the Trust's wireline operations.

 

Depreciation and amortization

 

Depreciation for 2009 was $11,342 which compares to $9,281 in 2008. This increase is due to the expansion of the equipment fleet since 2008 Q2. During 2009 Q3, approximately $11,478 of property and equipment was temporarily removed from service and therefore no depreciation has been recorded on these assets. As a percentage of revenues, depreciation amounted to 17% for 2009 and 7% for 2008.

 

Interest expense

 

Interest expense related to long-term debt increased from $785 in 2008 to $979 in 2009 due to the combined net effect of: i) an increase in the average level of debt outstanding; and ii) a decrease in the effective interest rate on the related debt. Other interest expense decreased from $290 in 2008 to $214 in 2009, relates mainly to interest charges on use by the Trust of its bank indebtedness/line of credit facility.

 

Foreign exchange gain/loss

 

The Trust's foreign exchange gain/loss has changed from a $20 loss in 2008 to a gain of $2,838 in 2009 due to the fluctuations in the Canadian dollar in comparison to the U.S. dollar. The Trust's U.S. operations are considered to be self-sustaining and therefore gains and losses due to fluctuations in the foreign currency exchange rates are recorded in other comprehensive income ("OCI") on the balance sheet as a component of equity. However, gains and losses in the Canadian entity on U.S. denominated intercompany balances continue to be recognized in the statement of operations. Included in the 2009 foreign currency gain are unrealized gains of $3,178 (2008 - $66) related to intercompany balances.

 

Unit-based compensation expense

 

For 2009, the Trust had unit-based compensation expense of $740 which compares to $1,367 for 2008. The value of the options is being amortized against income over the three-year vesting period.

 

Gain on disposal of property and equipment

 

During 2009 the Trust had a gain on disposal of property and equipment of $863, which compares to $1,059 in 2008. The Trust's gains are mainly due to recoveries of lost-in-hole equipment costs including previously expensed depreciation on the related assets. The timing of lost-in-hole recoveries is not in the control of the Trust and therefore can fluctuate significantly from quarter-to-quarter.

 

Taxes

 

For 2009, the Trust had a tax recovery of $2,140 as compared to tax expense of $5,106 in 2008. A significant portion of the current income taxes for 2008 relates to U.S. operations. As profitability of these operations has fallen dramatically, so has the current income tax expense. Approximately one half of the future tax recovery for 2009 relates to reversal of timing differences on U.S. taxes (see comments below). The remaining future tax recovery is attributable to adjustments related to the deferral of partnership income and future taxation of SIFT income in Canada.

Included in the 2009 net tax recovery is $958 net tax expense related to tax on an internal reorganization related to ownership of assets. At the beginning of 2009 Q1 the Trust's U.S. subsidiary sold the majority of its operating assets to the Trust's Canadian operating entity, Cathedral Energy Services Limited Partnership, as part of an internal reorganization related to ownership of operating assets within the Trust. This transaction created a one-time current tax expense in the amount of $4,168 (current taxable income was created mainly due to U.S. recaptured tax depreciation) and a recovery of future taxes in the amount of $3,210; for a net tax cost of $958. Subsequent to this transaction, the Trust's U.S. subsidiary leases the majority of its operating equipment from Cathedral Energy Services Limited Partnership.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Trust's primary source of liquidity is cash generated from operations. The Trust also has the ability to fund liquidity requirements through its credit facility and the issuance of debt and/or equity. Effective June 30, 2009 the Trust renewed its credit facility with a major Canadian bank and the new maturity date is June 30, 2010. At September 30, 2009, the Trust had a demand operating line of credit with a major Canadian bank in the amount of $20,000 (December 31, 2008 - $20,000) of which $5,705 (December 31, 2008 - $15,406) was drawn. In addition, the Trust has a non-reducing revolving term loan facility in the amount of $45,000 (December 31, 2008 - $45,000) of which $36,500 (December 31, 2008 - $40,000) was drawn as at September 30, 2009. In addition, at September 30, 2009, the Trust had other long-term debt of $286 (December 31, 2008 - $440).

 

Operating activities

 

Cash provided by (used in) operating activities for the three and nine months ended September 30, 2009 was $(5,085) and $16,389 which compares to $(427) and $24,051 in the same periods in 2008. Funds from operations (see Non-GAAP Measurements) for 2009 were $5,204 and $5,389 which compares to $13,980 and $29,900 in 2008. This decrease was caused mainly by a reduction in earnings due to reduced activity levels. The Trust has a working capital position at September 30, 2009 at $16,095 which compares to $17,435 at December 31, 2008.

 

Investing activities

 

Cash used in investing activities for the three and nine months ended September 30, 2009 amounted to $1,382 and $9,620 which compares to $5,161 and $16,425 for the same periods in 2008. During 2009 Q3 the Trust invested an additional $1,333 (2008 - $15,129) in property and equipment with the main additions being for final payments on production testing units. The 2009 capital expenditure program is $8,400 including approximately $540 of maintenance capital. Management currently expects that property and equipment additions for 2009 (on an annualized basis) will be financed from a combination of cash flow from operations, May 2009 equity issuance proceeds and its debt facility. At September 30, 2009, the Trust's operating entities had 96 MWD systems, 35 production testing units and 27 wireline units.

 

Financing activities

 

Cash provided by (used in) financing activities for the three and nine months ended September 30, 2009 amounted to $2,754 and $(12,741) which compares to $5,994 and $(4,376) for the same periods in 2008. For the three and nine months ended September 30, 2009 the Trust repaid long-term debt in the amount of $48 and $5,154 (2008 - $78 and $232). During 2009 Q2 the Trust issued 3,615,600 trust units at $4.15 for proceeds net of issuance costs of $13,820. These proceeds were added to working capital and used to repay $5,000 of long-term debt. In 2008 Q3 the Trust received $776 on the exercise of Trust Unit options; there were no options exercised in 2009 Q3. Advances of bank indebtedness for 2009 Q3 were $5,705 (2008 - $2,093) and for 2009 to date there were repayments of $9,701 (2008 advances of $1,093). As at September 30, 2009, the Trust was in compliance with all covenants under its credit facility.

Distributions paid to Unitholders for the three and nine months ended September 30, 2009 totaled $2,903 and $13,206 (2008 - $6,797 and $20,188). Cash distributions paid have been financed from cash flow from operations and bank indebtedness. Management currently expects cash distributions for 2009 (on an annualized basis) will be financed from cash flow from operations. As part of the Trust's announcement to convert to a growth oriented corporation, the Trust ceased paying distributions effective August 2009.

At November 4, 2009, the Trust had 36,210,861 Trust Units and 1,988,338 Trust Unit options outstanding.

 

Contractual obligations

 

In the normal course of business, the Trust incurs contractual obligations and those obligations are disclosed in the Trust's MD&A for the year ended December 31, 2008. As at September 30, 2009, the Trust has a commitment to purchase approximately $110 of property and equipment.

On October 30, 2009, the Trust and SemBioSys Genetics Inc. ("SemBioSys") entered into an arrangement agreement under which the Trust will convert from an income trust to a growth-oriented corporation (the "Conversion"). The Conversion will occur pursuant to a statutory plan of arrangement under Section 193 of the Business Corporations Act (Alberta) (the "Plan of Arrangement") and is expected to become effective on or before December 21, 2009. The Conversion will result in a corporation ("New Cathedral") having estimated tax pools of $167 million. Under the Plan of Arrangement, the Trust's unitholders will receive one common share of New Cathedral in exchange for every Trust Unit of the Trust held on the effective date of the Conversion. Upon completion of the Conversion, New Cathedral will operate the existing businesses of the Trust and its subsidiaries and the existing trustees and management of the Trust will continue to act as the board and management of New Cathedral. As a consequence of the Conversion, New Cathedral will not be acquiring any additional business carried on by SemBioSys. The current business of SemBioSys will be carried on by a new entity, named SemBioSys Genetics Inc. ("New SemBioSys") which will be owned by the existing shareholders of SemBioSys. In accordance with the Plan of Arrangement, New SemBioSys will receive cash and common shares of New Cathedral of an aggregate value of approximately $3.3 million. Transaction costs associated with the Plan of Arrangement are estimated to be $1.1 million. StoneBridge Merchant Capital Corp. ("StoneBridge") acted as a special advisor to the Trust in respect to the Conversion and will be paid a fee which is included in the estimated transaction costs. A trustee of the Trust is an officer of Stonebridge. Additional details of the Conversion will be in an information circular expected to be mailed to the Trust's unitholders in November 2009.

 

CONTROLS AND PROCEDURES

 

Management is responsible for establishing and maintaining adequate disclosure controls and internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable, but not absolute, assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with GAAP. Internal control over financial reporting may not prevent or detect fraud or misstatements because of limitations inherent in any system of internal control. There were no significant changes in the design or effectiveness of the Trust's disclosure controls or internal controls over financial reporting in the third quarter of 2009.

 

NEW ACCOUNTING POLICIES

 

Effective January 1, 2009, the Trust adopted the Canadian Institute of Chartered Accountants ("CICA") section 3064, Goodwill and Intangible Assets and amendments to Section 1000, Financial Statement Concepts. These standards have been adopted prospectively. For the nine months ended September 30, 2009, the adoption of these standards did not have an effect on the Trust's results, financial position or cash flows.

 

BUSINESS RISKS

 

The MD&A for the year ended December 31, 2008, which is included in the Trust's 2008 Annual Report, includes an overview on business risks associated with the Trust and its operating entities. Those business risks remain in effect as at September 30, 2009.

 

 

    EBITDAS

    EBITDAS (refer to Non-GAAP Measurements) is calculated as follows:

                                  Three months ended       Nine months ended
                                        September 30            September 30
                               ----------------------  ----------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------

    Net income for the period  $   3,125   $  10,296   $   3,045   $  20,402
    Add (deduct):
      - depreciation and
         amortization              3,539       3,411      11,342       9,281
      - interest - long-term
         debt                        303         266         979         785
      - unit-based compensation
         expense                     200         215         740       1,367
      - unrealized foreign
         currency gain on
         inter-company debt       (1,525)        (27)     (3,178)        (66)
      - provision for taxes
         (recovery)                   82       2,726      (2,140)      5,106
    -------------------------------------------------------------------------
    EBITDAS                    $   5,724   $  16,887   $  10,788   $  36,875
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

 

DISTRIBUTIONS

 

The Administrator of the Trust reviewed the level and nature of distributions (cash, in-kind or a combination of cash and in-kind) on an on-going basis giving consideration to current performance, historical and future trends in the business, the expected sustainability of those trends and enacted tax legislation which affected future taxes payable as well as required long-term debt repayments, maintenance capital expenditures required to sustain performance and future growth capital expenditures. Despite the seasonality of the Trust's business, it was the Trust's policy to pay consistent distributions throughout the year. The Trust's operations in western Canada are subject to seasonality as activity levels in the oilfield services industry are generally lower during "spring breakup" which normally commences in late March and continues through to May (mainly in the Q2 of the fiscal year). The net result of the Trust's policy to pay consistent distributions throughout the year despite the seasonality of its operations is that in Q2 cash distributions declared at times exceed net income, cash flow from operating activities and/or distributable cash for the quarter.

Distributable cash is a supplemental non-GAAP measurement that management considers a key measure in demonstrating the Trust's ability to generate the cash necessary to pay distributions, fund future capital investments and the repayment of long-term debt. Distributable cash as presented is not intended to represent operating profit for the period nor should it be viewed as an alternative to operating profit, net income or other measures of financial performance calculated in accordance with Canadian GAAP. Distributable cash does not have any standardized meaning within Canadian GAAP and therefore may not be comparable to similar measures presented by other trusts (refer to Non-GAAP Measurements).

As part of the Trust's conversion to a growth oriented corporation, the Trust ceased paying distributions effective August 2009.

The following is a comparison of cash distributions declared and certain defined amounts:

 

                                                                 Fiscal year
                                                2009   ----------------------
                                 2009 Q3         YTD        2008        2007
    -------------------------------------------------------------------------
    Cash flow from operating
     activities                $  (5,085)  $  16,389   $  36,143   $  39,729
    Net income for the period  $   3,125   $   3,045   $  30,139   $  24,863
    Distributable cash         $   5,093   $   4,915   $  39,791   $  38,993
    Cash distributions
     declared                  $   1,448   $  10,534   $  27,094   $  26,405
    Excess (shortfall) of cash
     flow from operating
     activities over cash
     distributions declared    $  (6,533)  $   5,855   $   9,049   $  13,324
    Excess (short-fall) of net
     income over cash
     distributions declared    $   1,677   $  (7,489)  $   3,045   $  (1,542)
    Excess (short-fall) of
     distributable cash over
     cash distributions
     declared                  $   3,645   $  (5,619)  $  12,697   $  12,588
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

 

Net income includes significant non-cash items which for the three and nine months ended September 30, 2009 were $2,079 and $2,344 and for the years ended December 31, 2008 and 2007 were $12,823 and $16,607, respectively, which do not impact cash flow. Included in these non-cash charges is a provision for depreciation that is not a reasonable proxy for the cost of maintaining existing levels of service (i.e. maintenance capital expenditures). Therefore, in certain periods cash distributions declared may exceed net income. Management does not consider the excess of cash distributions declared over net income for the year ended December 31, 2007 or nine months ended September 30, 2009 to be an economic return of capital. Instead the excess is considered a function of the timing of cash flows versus accounting income.

The 2009 Q3 short-fall of cash flow from operating activities over cash distributions declared was mainly caused by the change in non-cash working capital. Traditionally this is negative in Q3 due to the increase in business after the traditional slow down of Q2. On an annualized basis, the change in non-cash working capital is positive. Management evaluates this criteria based upon the projected annualized amount.

With respect to the short-fall of distributable cash over cash distributions declared for 2009 Q3 year-to-date, if the calculation of distributable cash is adjusted for the one-time current tax provision ($4,168 as discussed under the Results of Operations, nine months ended September 30, 2009 - Taxes section of this MD&A and as follows with respect to comments on Distributable Cash) there would be a short-fall of distributable cash over cash distributions declared in the amount of $1,451. Management considers the exclusion of this one-time current tax provision to be reasonable in comparing distributable cash to cash distributions declared as this current tax provision is being incurred for the long-term benefit of Trust as opposed to being limited to 2009 Q1 when the taxes were incurred. On an annualized basis, management expects the adjusted distributable cash to exceed cash distributions declared and, therefore, short-falls during the year are a reflection on timing of cash flows. In addition, it is not management's intent to distribute 100% of distributable cash.

Distributable cash (refer to Non-GAAP Measurements) is calculated as follows:

 

 

                                  Three months ended       Nine months ended
                                        September 30            September 30
                               ----------------------  ----------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Cash flow from operating
     activities                $  (5,085)  $    (427)  $  16,389   $  24,051
    Add (Less):
      - changes in non-cash
         operating working
         capital(1)               10,289      14,407     (11,000)      5,849
      - required principal
         repayments on
         long-term debt              (48)        (78)       (154)       (232)
      - maintenance capital
         expenditures                (63)        (58)       (320)       (672)
    -------------------------------------------------------------------------
    Distributable cash         $   5,093   $  13,844   $   4,915   $  28,996
    Add: one-time 2009 Q1
     current tax provision (see
     comments below)                   -           -       4,168           -
    -------------------------------------------------------------------------
    Adjusted distributable
     cash                      $   5,093   $  13,844   $   9,083   $  28,996
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash distributions
     declared(2)               $   1,448   $   6,813   $  10,534   $  20,252
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Payout ratio, net of
     one-time 2009 Q1 current
     tax provision of $4,168          28%        49%        214%         70%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted payout ratio,
     excluding one-time 2009 Q1
     current tax provision of
     $4,168                           28%        49%        116%         70%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Changes in non-cash operating working capital have been added back
        (deducted) as such changes are financed using the Trust's bank
        indebtedness/line of credit facility. In addition, if changes in non-
        cash operating working capital were not excluded from the calculation
        of distributable cash it would introduce cash flow variability and
        affect underlying cash flow from operating activities.
    (2) Excludes foreign taxes paid that have been allocated to Unitholders

 

At the beginning of 2009 Q1 the Trust's U.S. subsidiary sold the majority of its operating assets to the Trust's Canadian operating entity, Cathedral Energy Services Limited Partnership, as part of an internal reorganization related to ownership of operating assets within the Trust. This transaction created a one-time current tax expense in the amount of $4,168 (this taxable income was created mainly due to recaptured U.S. tax depreciation).

 

DIVIDENDS

 

It is the intention of the Trust, once it converts to a growth-oriented corporation, to pay quarterly dividends. Trustees will review the amount of dividends on a quarterly basis with due consideration to current performance, historical and future trends in the business, the expected sustainability of those trends and enacted tax legislation which will affect future taxes payable as well as required long-term debt repayments, maintenance capital expenditures required to sustain performance and future growth capital expenditures.

As reported in the Trust's news release on October 30, 2009, in light of the method of conversion to a corporation including the cash requirements to complete the Conversion, the Trustees have, upon the recommendation of management, concluded to suspend the previously proposed dividend for the 4th quarter of 2009 and will review the proposed dividends for 2010 as part of its annual operating and capital budget process. The Trustees have now completed the review of the Trust's 2010 operating and capital budget and are intending to declare a 2010 Q1 dividend of $0.06 per share payable in April 2010. Thereafter, dividends will be reviewed and declared on a quarterly basis.

 

 

    SUMMARY OF QUARTERLY RESULTS

    -------------------------------------------------------------------------
    Three month period ended         Sep         Jun         Mar         Dec
                                    2009        2009        2009        2008
    -------------------------------------------------------------------------
    Revenues                   $  23,544   $  12,913   $  31,368   $  50,506
    EBITDAS                        5,724      (1,721)      6,237      13,932
    Net income (loss)              3,125      (1,484)      1,404       9,737
    Net income (loss) per Trust
     Unit - basic and diluted       0.09       (0.04)       0.04        0.30
    Cash distributions declared
     per Trust Unit                 0.04        0.12        0.15        0.21
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    Three month period ended         Sep         Jun         Mar         Dec
                                    2008        2008        2008        2007
    -------------------------------------------------------------------------
    Revenues                   $  52,686   $  29,483   $  46,253   $  39,054
    EBITDAS                       16,887       4,632      15,395      13,707
    Net income (loss)             10,296         189       9,917      10,365
    Net income (loss) per Trust
     Unit - basic and diluted       0.32        0.01        0.31        0.33
    Cash distributions declared
     per Trust Unit                 0.21        0.21        0.21        0.21
    -------------------------------------------------------------------------

 

OUTLOOK

 

As announced on October 30, 2009, the Trust and SemBioSys Genetics Inc. ("SemBioSys") entered into an arrangement agreement under which the Trust will convert from an income trust to a growth-oriented corporation. The conversion is expected to become effective on or before December 21, 2009 and is subject to approval by the Trust's unitholders and the holders of securities of SemBioSys. Assuming approvals are obtained (including those noted), the Trust will be able to enter 2010 with certainty as to its entity structure and will be able to focus on growth.

All of the Trust's operating units are experiencing an increase in activity levels in Q4 versus Q3. That improvement is expected to continue into Q1 of 2010 with an active winter drilling season. The increase in activity levels that is being experienced is mainly related to the unconventional gas and oil plays. The Trust continues its focus on unconventional plays and has expanded into various North American shale plays (including Montney, Bakken, Horn River, Utica, Marcellus and Fayetteville). These plays have employed the use of horizontal, multi-stage fracturing technology and as a result have contributed significantly to the overall increase in the number of horizontal wells drilled as a percentage of total wells drilled - both in Canada and the U.S.

The Trust will continue with technology as a focal point of its operations and further enhancements to its overall suite of directional drilling equipment is expected. The Trust has numerous development projects in process that are expected to allow the Trust to be a significant player in the directional drilling market.

Trustees have now completed the review of the Trust's 2010 operating and capital budget and are intending to declare a 2010 Q1 dividend of $0.06 per share, payable in April 2010. Thereafter, dividends will be reviewed and declared on a quarterly basis. In addition, Trustees have approved a 2010 capital budget in the amount of $13,155. The major components within the approved capital budget are: 1) additions to the mud motor fleet; 2) MWD systems and Logging-While-Drilling ("LWD") equipment for the international market; and 3) the build-out of the Calgary facility that was purchased in 2008. On an annualized basis, dividends and the 2010 capital budget are expected to be financed from cash flow from operations.

 

 

 

    CONSOLIDATED BALANCE SHEETS

    Dollars in 000's                                September 30 December 31
    (unaudited)                                             2009        2008
    -------------------------------------------------------------------------

    ASSETS

    Current assets:
      Cash and cash equivalents                        $   1,196   $   7,551
      Accounts receivable                                 21,299      43,629
      Taxes recoverable                                      641         688
      Inventory                                            6,342       8,963
      Prepaid expenses and deposits                        1,843       1,538
    -------------------------------------------------------------------------
                                                          31,321      62,369
    Property and equipment                                95,495     101,287
    Intangibles                                              330         441
    Goodwill                                              19,775      19,775
    -------------------------------------------------------------------------
                                                       $ 146,921   $ 183,872
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY

    Current liabilities:
      Bank indebtedness                                $   5,705   $  15,406
      Accounts payable and accrued liabilities             9,306      27,040
      Distribution payable to Unitholders                      -       2,281
      Current portion of long-term debt                      215         207
    -------------------------------------------------------------------------
                                                          15,226      44,934
    Long-term debt                                        36,571      40,233
    Future income taxes                                    1,186       6,846
    Unitholders' equity:
      Unitholders' capital                                68,131      54,311
      Contributed surplus                                  3,403       2,663
      Retained earnings                                   23,679      31,559
      Accumulated other comprehensive income (loss)       (1,275)      3,326
    -------------------------------------------------------------------------
                                                          93,938      91,859
    -------------------------------------------------------------------------
                                                       $ 146,921   $ 183,872
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

    Dollars in 000's except per
    Trust Unit amounts
    (unaudited)                   Three months ended       Nine months ended
                                        September 30            September 30
                               ----------------------  ----------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Revenues                   $  23,544   $  52,686   $  67,825   $ 128,422
    Expenses:
      Operating                   12,104      28,212      37,737      69,265
      General and administrative   5,630       7,943      19,609      22,965
      Depreciation and
       amortization                3,539       3,411      11,342       9,281
      Interest - long-term debt      303         266         979         785
      Interest - other                51         115         214         290
      Foreign exchange (gain)
       loss                       (1,404)         21      (2,838)         20
      Unit-based compensation
       expense                       200         215         740       1,367
    -------------------------------------------------------------------------
                                  20,423      40,183      67,783     103,973
    -------------------------------------------------------------------------
                                   3,121      12,503          42      24,449
    Gain on disposal of property
     and equipment                    86         519         863       1,059
    -------------------------------------------------------------------------
    Income before taxes            3,207      13,022         905      25,508
    Taxes:
      Current                        131       2,122       3,557       5,131
      Future (recovery)              (49)        604      (5,697)        (25)
    -------------------------------------------------------------------------
                                      82       2,726      (2,140)      5,106
    -------------------------------------------------------------------------
    Net income for the period      3,125      10,296       3,045      20,402
    Retained earnings, beginning
     of period                    22,010      25,519      31,559      28,852
    Less: distributions           (1,456)     (6,813)    (10,925)    (20,252)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Retained earnings, end of
     period                    $  23,679   $  29,002   $  23,679   $  29,002
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net income per Trust Unit:
      Basic                    $    0.09   $    0.32   $    0.09   $    0.64
      Diluted                  $    0.09   $    0.32   $    0.09   $    0.63
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED
    OTHER COMPREHENSIVE LOSS

    Dollars in 000's
    (unaudited)                   Three months ended       Nine months ended
                                        September 30            September 30
                               ----------------------  ----------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------

    Net income for the period  $   3,125   $  10,296   $   3,045   $  20,402

    Other comprehensive income
     (loss):
      Unrealized foreign
       exchange gain (loss) on
       translation of
       self-sustaining
       foreign operations         (2,485)        959      (4,601)      1,393
    -------------------------------------------------------------------------
    Comprehensive income (loss)
     for the period            $     640   $  11,255   $  (1,556)  $  21,795
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other
     comprehensive income (loss),
     beginning of period       $   1,210   $  (1,460)  $   3,326   $       -
      Adjustment for change in
       foreign currency
       translation method              -           -           -      (1,894)
      Other comprehensive
       income (loss)              (2,485)        959      (4,601)      1,393
    -------------------------------------------------------------------------
    Accumulated other
     comprehensive loss, end
     of period                 $  (1,275)  $    (501)  $  (1,275)  $    (501)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CASH FLOWS

    Dollars in 000's
    (unaudited)                   Three months ended       Nine months ended
                                        September 30            September 30
                               ----------------------  ----------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------

    Cash provided by (used in):

    Operating activities:
    Net income (loss) for the
     period                    $   3,125   $  10,296   $   3,045   $  20,402
    Items not involving cash:
      Depreciation and
       amortization                3,539       3,411      11,342       9,281
      Future taxes (recovery)        (49)        604      (5,697)        (25)
      Unrealized foreign
       exchange gain              (1,525)        (27)     (3,178)        (66)
      Unit-based compensation
       expense                       200         215         740       1,367
      Gain on disposal of
       property and equipment        (86)       (519)       (863)     (1,059)
    -------------------------------------------------------------------------
                                   5,204      13,980       5,389      29,900
    Changes in non-cash operating
     working capital             (10,289)    (14,407)     11,000      (5,849)
    -------------------------------------------------------------------------
                                  (5,085)       (427)     16,389      24,051
    -------------------------------------------------------------------------
    Investing activities:
    Property and equipment
     additions                    (1,333)    (15,129)     (7,309)    (26,564)
    Proceeds on disposal of
     property and equipment          800       1,047       2,426       1,849
    Changes in non-cash investing
     working capital                (849)      8,921      (4,737)      8,290
    -------------------------------------------------------------------------
                                  (1,382)     (5,161)     (9,620)    (16,425)
    -------------------------------------------------------------------------
    Financing activities:
    Proceeds on Trust Units
     issued for cash, net of
     issuance costs                    -           -      13,820           -
    Distributions paid to
     Unitholders                  (2,903)     (6,797)    (13,206)    (20,188)
    Repayment of long-term debt      (48)        (78)     (5,154)       (232)
    Advances under long-term debt      -      10,000       1,500      10,047
    Proceeds on exercise of Trust
     Unit options                      -         776           -       4,904
    Change in bank indebtedness    5,705       2,093      (9,701)      1,093
    -------------------------------------------------------------------------
                                   2,754       5,994     (12,741)     (4,376)
    -------------------------------------------------------------------------
    Effect of exchange rate on
     changes in cash and cash
     equivalents                     (384)         -        (383)          -
    -------------------------------------------------------------------------

    Change in cash and cash
     equivalents                   (4,097)       406      (6,355)      3,250

    Cash and cash equivalents,
     beginning of period            5,293      4,150       7,551       1,306
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period             $   1,196   $   4,556   $   1,196   $   4,556
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

 

 

Cathedral Energy Services Income Trust (the "Trust"/"Cathedral") is a limited purpose trust that is engaged, through its operating entities, in providing selected oilfield drilling and completion services to oil and natural gas industry in western Canada and selected basins in the United States. Cathedral is in the process of initiating operations in Venezuela for providing directional drilling services through its wholly owned subsidiaries Directional Plus International Ltd. and Directional Plus de Venezuela, C.A. The Trust's operating activities are divided into three business units: directional drilling, production testing and wireline. Cathedral strives to provide its clients with value added technologies and solutions to meet their drilling and completion requirements. Its mandate is to supply "Best in Class, Best in Service" equipment and personnel to its clients. The Trust's units trade on the TSX under the symbol: CET.UN. For more information, visit www.cathedralenergyservices.com

 

-------------------------------------------------------------------------

 

Certain statements in this press release including (i) statements that may contain words such as "anticipate", "could", "expect", "seek", "may" "intend", "will", "believe", "should", "project", "forecast", "plan" and similar expressions, including the negatives thereof, (ii) statements that are based on current expectations and estimates about the markets in which the Trust/Cathedral operates and (iii) statements of belief, intentions and expectations about developments, results and events that will or may occur in the future, constitute "forward-looking statements" and are based on certain assumptions and analysis made by the Trust/Cathedral. Forward-looking statements in this press release specifically include, but are not limited to, statements with respect to future capital expenditures, including the amount, nature and timing thereof; oil and natural gas prices and demand; other development trends within the oil and natural gas industry; business strategy; expansion and growth of the Trust/Cathedral's business and operations including the Trust/Cathedral's market share and position in the oilfield service market; the arrangement (as herein discussed) and the expected benefits thereof; future financial position; results of operations; dividend policy ; tax pools and the availability of such tax pools; taxes; plans and objectives; access to capital; liquidity and trading volumes; projected costs; business strategy and anticipated benefits of the arrangement; financial results; future cash flows; value and debt levels; future tax basis and the treatment of the Trust and the Trust Unitholders under tax laws and other such matters.

The forward-looking statements contained in this press release reflect several material factors, expectations and assumptions including, without limitation: (i) oil and natural gas production levels; (ii) commodity prices and interest rates; (iii) capital expenditure programs and other expenditures by the Trust/Cathedral and its customers; (iv) supply and demand for oil and natural gas; (v) expectations regarding the Trust's/Cathedral's ability to raise capital, generate cash flow and to increase its equipment fleets through acquisitions and manufacture; (vi) schedules and timing of certain projects and the Trust's/Cathedral's strategy for growth; (vii) the Trust's/Cathedral's future operating and financial results; (viii) the Trust's/Cathedral's ability to retain and hire qualified personnel; (ix) treatment under governmental regulatory regimes and tax, environmental and other laws; (ix) the completion of the arrangement; * the utilization of the tax basis by New Cathedral; and (xi) the timely receipt of required regulatory approvals.

Financial outlook information contained in this press release about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this press release and certain documents incorporated by reference into this press release should not be used for purposes other than for which it is disclosed herein.

Such forward-looking statements are subject to important risks and uncertainties, which are difficult to predict and that may affect the Trust/Cathedral's operations, including, but not limited to: the impact of general economic conditions in Canada, the United States and Internationally; industry conditions, including the adoption of new environmental, safety and other laws and regulations and changes in how they are interpreted and enforced; volatility of oil and natural gas prices; oil and natural gas product supply and demand; risks inherent in the Trust/Cathedral's ability to generate sufficient cash flow from operations to meet its current and future obligations; increased competition; the lack of availability of qualified personnel or labour unrest; fluctuation in foreign exchange or interest rates; foreign currency controls; stock market volatility; opportunities available to or pursued by the Trust/Cathedral, inability to obtain required consents, permits or approvals, including the Final Order of the Court approving the arrangement, approval of the Trust Unitholders or the SemBioSys Securityholders; the uncertainties associated with the availability and amount of the tax pools, third party credit risk relating to obligations of SemBioSys under the Indemnity Agreement, Assignment Agreements and the Divestiture Agreement and other factors, many of which are beyond the control of the Trust/Cathedral. The Trust's/Cathedral's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do transpire or occur, what benefits the Trust/Cathedral will derive therefrom. Subject to applicable law, the Trust/Cathedral disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

All forward-looking statements contained in this document are expressly qualified by this cautionary statement. Further information about the factors affecting forward-looking statements is available in the Trust/Cathedral's current Annual Information Form which has been filed with the applicable Canadian provincial securities commissions and is available on www.sedar.com.

 

%SEDAR: 00018316E

For further information: Requests for further information should be directed to: Mark L. Bentsen, President and Chief Executive Officer or P. Scott MacFarlane, Chief Financial Officer, Cathedral Energy Services Ltd., 1700, 715 - 5th Avenue S.W., Calgary, Alberta, T2P 2X6, Telephone: (403) 265-2560, Fax: (403) 262-4682, www.cathedralenergyservices.com


Cathedral opens a 36,000 square foot full service operation facility in Oklahoma City, Oklahoma and Estevan, Saskatchewan operations migrate to Emerald Park, Saskatchewan.