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Cathedral Energy Services announces intent to convert to a corporation and provides operations update

Aug 19, 2009



    CALGARY, Aug. 19 /CNW/ - Cathedral Energy Services Income Trust (the
"Trust"/"Cathedral" - TSX: CET.UN) is pleased to announce its intention to
convert from an income trust to a growth-oriented corporation pursuant to a
statutory plan of arrangement (the "Conversion"). The Trust expects to
complete the Conversion prior to December 31, 2009.
    On October 31, 2006, the Minister of Finance (Canada) announced the
Specified Investment Flow-Through Trust income and distribution tax (the "SIFT
Tax") which effectively eliminates the public income trust structure effective
January 1, 2011. These new tax laws provide for a tax-free conversion if such
a conversion occurs before 2013. Over the past year the Trust has been
investigating and considering various restructuring alternatives available to
it and the Trust's strategic objectives which include ensuring the Trust has
the most appropriate structure for its long-term viability and sustainability.
With due regard to the SIFT Tax becoming effective in 2011, the Trust's
strategic objectives and the current industry environment, the Trust believes
that it is in its best interests to proceed with the Conversion at this time.

    Rationale and Benefits for the Conversion

    Management and the Trustees believe that the Conversion provides a number
of compelling and strategic benefits, including the expectation that the

    -   will result in paying a dividend to shareholders with a view to
        sustainability while at the same time delivering returns through
        capital appreciation;

    -   will result in Cathedral's financial and operational performance to
        be directly valued relative to its corporate peers;

    -   may result in greater access to capital and the removal of the
        "normal growth" and "undue expansion restrictions" in the SIFT Tax
        that potentially limited the Trust's ability to consider strategic

    -   will remove the Trust from the uncertainty that exists in the income
        trust marketplace regarding conversion to a corporation;

    -   will provide for a tax deferred rollover for unitholders of the Trust
        based upon the recently enacted rules for SIFT conversions who are
        resident in Canada;

    -   will result in Canadian taxable shareholders benefiting from lower
        income taxes paid on dividends, by way of dividend tax credit, as
        compared to taxes previously paid on the Trust's distributions as
        other income;

    -   will not be restricted in its efforts to broaden its investor base to
        include more non-resident shareholders as is presently the case under
        its current legal structure; and

    -   will lead to a simplified and more efficient corporate structure that
        will reduce overhead and administrative costs.

    Cathedral after Conversion to a Corporation

    After completion of the Conversion it is expected:

    -   Cathedral will become a dividend paying corporation;

    -   Canadian taxable shareholders should benefit from lower income taxes
        paid on dividends as compared to income taxes previously paid on
        Cathedral distributions; and

    -   Cathedral will continue to operate its existing businesses;

    Distributions and Dividends

    In light of the intention to convert to a corporation, the Trust will
discontinue distributions effective August 2009. Subsequent to the conversion
to a corporation, Cathedral expects to pay quarterly dividends in the amount
of $0.06 per share with the first dividend being for the fourth quarter of
2009 and payable in January 2010. Cathedral expects to use its free cash flow
to fund a combination of growth, debt repayment and dividends.

    Conversion Approvals

    The Board of Trustees has established an independent committee ("Special
Committee") to consider the Conversion and provide a recommendation to the
overall board. Blackmont Capital Inc. has been appointed financial advisor to
the Special Committee and to advise in respect of the Conversion. Based upon
the recommendation of the Special Committee, the Board of Trustees has
unanimously determined that the Conversion is in the best interests of the
Trust and its unitholders. The Conversion is subject to the approval of the
court and of 66 2/3% of the votes cast by unitholders of the Trust. The
Conversion is also subject to various commercial conditions, including lender
consent, the receipt of regulatory approvals which include the approval of The
Toronto Stock Exchange.

    Operations update

    The Trust has established an operations base in Clarksburg, West Virginia
to service the Marcellus basin in eastern U.S. Five Measurement-While-Drilling
("MWD") systems have been transferred to this region. Indications are that
there is potential for additional systems to be deployed to this region in the
near future.
    In addition, an operations base is in the process of being set-up in
McAlester, Oklahoma, which will house two electric wireline units. As well,
five MWD systems are being transferred to this region to service the growing
Fayetteville, Haynesville and Woodford shale plays.

    Certain statements in this news 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 news release include, but are not limited to, statements
with respect to expected benefits and results that will be achieved from the
conversion of the Trust to a corporation, including the nature and timing
thereof and expected dividend levels; 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's/Cathedral's business and
operations and other such matters. Such forward-looking statements are subject
to important risks and uncertainties, which are difficult to predict and that
may affect the Trust's/Cathedral's operations, including, but are not limited
to: the impact of general economic conditions; industry conditions; government
and regulatory developments; oil and natural gas product supply and demand;
competition; and the Trust's/Cathedral's ability to attract and retain
qualified personnel. 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
disclaims any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
    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's current
Annual Information Form and Annual Report which have been filed with Canadian
provincial securities commissions and are available on

    %SEDAR: 00018316E
For further information: 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,

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