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Cathedral Energy Services reports results for the three months ended March 31, 2008 and increase in 2008 capital budget to $32.3 million

May 7, 2008
7:18pm

    /NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/

    CALGARY, May 7 /CNW/ - Cathedral Energy Services Income Trust (the
"Trust"/TSX: CET.UN) is pleased to report its results for 2008 Q1 and increase
in its 2008 capital budget. Dollars are in '000's except for day rates and per
Trust Unit amounts.

    FINANCIAL HIGHLIGHTS

    Dollars in 000's except per Trust Unit amounts


                                                 Three months ended March 31
                                                          2008          2007
    -------------------------------------------------------------------------
    Revenues                                          $ 46,253      $ 42,712
    EBITDAS(1)                                        $ 15,395      $ 14,412
      Per Trust Unit - diluted                        $   0.48      $   0.46
    Income before taxes                               $ 11,689      $ 11,033
    Net income                                        $  9,917      $  9,787
      Per Trust Unit - basic                          $   0.31      $   0.32
      Per Trust Unit - diluted                        $   0.31      $   0.31
    Cash distributions declared per Trust Unit        $   0.21      $   0.21
    Distributable cash(1)                             $ 13,113      $ 13,071
    Cash distributions declared                       $  6,669      $  6,530
    Payout ratio(1)                                         51%           50%
    Property and equipment additions                  $  3,960      $  5,805
    Weighted average Trust Units outstanding:
      Basic ('000)                                      31,707        31,030
      Diluted ('000)                                    32,054        31,591
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                      March 31   December 31
                                                          2008          2007
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Working capital                                   $ 21,455      $ 16,947
    Long-term debt and capital lease obligations
     excluding current portion                        $ 17,421      $ 17,441
    Unitholders' equity                               $ 82,882      $ 79,250
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Non-GAAP measure; see "NON-GAAP FINANCIAL MEARSURMENTS" within
        Management's Discussion & Analysis.

    MANAGEMENT'S DISCUSSION & ANALYSIS

    This Management's Discussion & Analysis ("MD&A") for the three months
ended March 31, 2008 should be read in conjunction with the annual audited
consolidated financial statements and notes thereto for the year ended
December 31, 2007, as well as the MD&A in the Trust's 2007 Annual Report. This
MD&A has been prepared as of May 7, 2008. 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 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's/Cathedral's business and operations including the Trust/Cathedral's
market share and position in the oilfield service market; 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 not limited to: the impact of
general economic conditions in Canada and the United States; 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's/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 labor unrest; fluctuation in foreign exchange or interest rates;
stock market volatility; opportunities available to or pursued by the
Trust/Cathedral 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
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's current
Annual Information Form and 2007 Annual Report which has been filed with
Canadian provincial securities commissions and are available on www.sedar.com.

    NON-GAAP FINANCIAL 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;

    ii)  "EBITDAS" - defined as earnings before interest on long-term debt
         and capital lease obligations, taxes, depreciation, amortization and
         non-cash compensation expense; 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);

    iii) "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 capital lease
         obligations 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);

    iv)  "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;

    v)   "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

    vi)  "Funds from operations" - calculated as cash flow from operating
         activities before changes in non-cash operating working capital is
         considered an indicator of the Trust's ability to generate funds
         flow from operations but excluding changes in non-cash operating
         working capital which is financed using the Trust's bank
         indebtedness/line of credit facility.

    OVERVIEW

    The Trust completed the first quarter of 2008 with record quarterly
revenues of $46,253. Prior to 2008 Q1 the quarter with the highest revenues
was 2007 Q1 at $42,712. The 2008 Q1 record revenues were lead by the Trust's
directional drilling division which represented 75% (2007 Q1 - 73%) of 2008 Q1
revenues. Within the oilfield service sector, the directional drilling
sub-sector has been very active area with a growing number of wells being
drilled directionally/horizontally. In resource plays such as the Bakken
(southeast Saskatchewan) and Montney (northeast B.C.), operators are using the
combination of horizontally drilled wells and multi-stage fracturing to
increase reservoir recoveries and it is expected that such completion
techniques will continue to expand the number of horizontal wells drilled. The
Trust's production testing and wireline divisions continue to be negatively
affected by the decline in natural gas drilling in western Canada.
    2008 Q1 EBITDAS was $15,395 ($0.48 per diluted Trust Unit) which
represents a $983 or 6.8% increase from $14,412 ($0.46 per diluted Trust Unit)
in 2007. The Trust's net income for 2008 Q1 was $9,917 (2007 - $9,787) or
$0.31 (2007 - $0.31) per diluted Trust Unit.

    RESULTS OF OPERATIONS

    Revenues - 2008 Q1 record revenues of $46,253 were the result of
increased growth in the directional drilling portion of the Trust's
operations. Directional drilling activity days increased 20.5% from 3,323 in
2007 Q1 to 4,005 in 2008 Q1. The average day rate received for providing
directional drilling services decreased 7.6% on a quarter-over-quarter basis
to $8,419 (2007 - $9,116). The decrease in the average day rate is mainly the
result of industry-wide Canadian day rate decreases due to market pressures.
Directional drilling activity days in the Canadian and U.S. markets were up
18.4% and 24.3%, respectively. On a quarter-over-quarter basis revenues from
the production testing division are down 7.1% (2008 - $4,150; 2007 - $4,466)
due mainly to pricing pressures but also a result of a decrease in demand. As
previously announced the Trust is in the process of expanding its production
testing business to the U.S. Rocky Mountain region with the build out of 5
production testing units. In early 2008 Q2 one production testing unit was
transferred to the U.S. operations and it is expected to start generating
revenues in 2008 Q2. The Trust's wireline division had a quarter-over-quarter
increase in revenues of 7.3% (2008 - $7,580; 2007 - $7,066) with the increase
being due to the start-up of a U.S. wireline division in 2007 Q3. In early
2008 the Trust established a second U.S. operations base for its wireline
division in Dickinson, North Dakota with one wireline unit that was
transferred from the Canadian operations.

    Gross margin - The gross margin for 2008 Q1 was 49.0% which compares to
50.3% in 2007 Q1. The decrease is attributed to a number of factors including:
i) increases in directional field labour rates; ii) increased equipment rental
charges due to demand and need for specialty equipment; and iii) a decrease in
the average day rate in providing directional drilling services.

    General and administrative expenses - General and administrative expenses
increased from $6,932 in 2007 Q1 to $7,431 in 2008 Q1 - an increase of $499.
The increase was primarily related to increased personnel and office/shop
rental costs as well as an overall increase in activity levels for the
directional drilling division and costs associated with pursuing international
business opportunities. As a percentage of revenues, general and
administrative expenses were 16.1% in 2008 Q1 and 16.2% in 2007 Q1.

    Depreciation and amortization - Depreciation for 2008 Q1 was $2,851 which
compares to $2,756 in 2007 Q1. Despite the amount of capital expenditures on
the Trust's depreciable asset base over the past 12 months depreciation on a
quarter-over-quarter did not increase significantly due to the change in
accounting method for foreign currency translation of the Trust's U.S.
operations. As a percentage of revenues, depreciation amounted to 6.2% for
2008 and 6.5% for 2007.

    Interest expense - Interest expense related to long-term debt and capital
leases increased from $263 in 2007 Q1 to $276 in Q1 2008 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, which increased marginally on a quarter-over-quarter basis
from $96 in 2007 Q1 to $99 in 2008 Q1, 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 $47 loss in 2007 Q1 to a $33 gain in 2008 Q1. Effective January
1, 2008, the Trust changed the classification of its U.S. operations to
self-sustaining (as opposed to fully integrated) resulting in the financial
statements being translated using the current rate method as opposed to the
temporal method.

    Non-cash compensation expense - For 2008 Q1 the Trust had non-cash
compensation expense of $579 which compares to $360 for 2007 Q1. The value of
the options is being amortized against income over the three-year vesting
period. The increased non-cash compensation expense reflects the increase in
the value attributed to the options.

    Gain on disposal of property and equipment - During 2008 Q1 the Trust had
a gain on disposal of property and equipment of $226, which compares to a loss
of $3 in 2007 Q1. 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 2008 Q1, the Trust had a tax expense of $1,772 (effective tax
rate of 15.2%) which compares to $1,246 (effective tax rate of 11.3%) in 2007
Q1. The increase in the effective tax rate is due to a lower portion of the
Trust's pre-tax income is being allocated to unitholders and therefore the
corporate entities within the Trust structure are incurring the related tax.

    LIQUIDITY AND CAPITAL RESOURCES

    The Trust's principal 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. At March
31, 2008, the Trust had an operating line of credit with a major Canadian bank
in the amount of $12,500 (December 31, 2007 - $12,500) of which $9,370
(December 31, 2007 - $6,030) was drawn. In addition, the Trust has a
non-reducing revolving term loan facility in the amount of $25,000 (December
31, 2007 - $25,000) of which $17,000 (December 31, 2007 - $17,000) was drawn
as at March 31, 2008. In addition, at March 31, 2008, the Trust had
obligations under capital leases in the amount of $402 (December 31, 2007 -
$451) and other long-term debt of $304 (December 31, 2007 - $283).

    Operating activities - Cash flow from operating activities for the three
months ended March 31, 2008 was $6,882 (2007 - $9,775) a decrease of $2,893.
Funds from operations (before changes in non-cash operating working capital)
increased from $13,164 in 2007 Q1 to $13,299 in 2008 Q1. On a
quarter-over-quarter basis the Trust's investment in non-cash operating
working capital increased $3,028 and this is the main contributing factor to
the decrease on cash flow from operations. The Trust has a strong working
capital position at March 31, 2008 at $21,455 which compares to $16,947 at
December 31, 2007.

    Investing activities - Cash used in investing activities for the three
months ended March 31, 2008 amounted to $3,510 which compares to $3,026 for
the same period in 2007. During 2008 Q1 the Trust invested an additional
$3,960 (2007 - $5,805) in property and equipment with the main additions being
expansion of the overall mud motor and drill collar fleet, MWD components
which will be used in the 2008 build out of 10 EM-MWD systems, and progress
payments on the construction of a mud motor facility in Nisku, Alberta. At
March 31, 2008, the Trust's operating entities had 78 MWD systems, 19
production testing units and 27 wireline units.

    Financing activities - Cash used in financing activities for the three
months ended March 31, 2008 amounted to $2,205 which compares to $6,829 in
2007 Q1. Distributions paid to Unitholders for 2008 Q1 totaled to $6,650 (2007
- $8,056). The quarter-over-quarter decrease is the net result of: i) the
payment of a "special" $0.05 per Trust Unit cash distribution declared in
December 2006 ($1,549) and paid in 2007 Q1 - there was no such "special" cash
distribution paid in 2008 Q1; and ii) an increase in the number of Trust Units
outstanding due to the exercise of Trust Unit options. The Trust's "regular"
monthly distribution has been at $0.07 per Trust Unit since September 2006.
Cash distributions paid have been financed from cash flow from operations and
management currently expects future cash distributions will also be financed
from cash flow from operations. For the three months ended March 31, 2008
financing cash inflows resulted from: i) $1,133 (2007 - $1,359) cash received
on the exercise of Trust Unit options, ii) a $47 (2007 - $173) increase in new
long-term debt; and iii) a $3,340 (2007 - $195 repayment) draw on the Trust
bank indebtedness/line of credit facility. Offsetting these inflows was a cash
outflow of $75 (2007 - $110) repayment of long-term debt and capital lease
obligations. At May 7, 2008, the Trust had 32,162,190 Trust Units and
2,208,196 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, 2007. As at March 31, 2008, the
Trust has a commitment to purchase approximately $5,681 of property and
equipment.

    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 first quarter of
2008.

    CHANGE IN FOREIGN CURRENCY TRANSLATION

    Previously, the Trust's U.S. operations were classified as integrated
operations and were translated using the temporal method with all translation
gains (losses) included in the determination of net income for the current
period. Effective January 1, 2008, the Trust changed the classification of its
U.S. operations to self-sustaining resulting in the financial statements being
translated using the current rate method as opposed to the temporal method.
Under the current rate method of translation, revenues and expenses of the
subsidiary are translated at the rates in effect at the time of the
transactions while assets and liabilities are translated at the current
exchange rate in effect at the balance sheet date. Upon consolidation of the
U.S. operations, gains and losses due to fluctuations in the foreign currency
exchange rates are deferred on the balance sheet as a separate component of
Other Comprehensive Income ("OCI"). Accumulated other comprehensive income
(loss) forms part of Unitholders' equity. This change in foreign currency
translation has been applied prospectively and resulted in a foreign exchange
loss of $1,894 being deferred and recorded as OCI as at January 1, 2008.

    NEW ACCOUNTING POLICIES

    Effective January 1, 2008, The Trust adopted the Canadian Institute of
Chartered Accountants ("CICA") section 3031, "Inventories", section 1535,
"Capital Disclosures", and section 3861, "Financial Instruments - Disclosure
and Presentation". These standards have been adopted prospectively. For the
three months ended March 31, 2008, the adoption of these standards did not
have an effect on the Trust's results, financial position or cash flows but
additional disclosures have been provided in the notes to the interim
financial statements.

    BUSINESS RISKS

    The MD&A for the year ended December 31, 2007, which is included in the
Trust's 2007 Annual Report, includes an overview on business risks associated
with the Trust and its operating entities. Those business risks remain in
effect as at March 31, 2008.

    DISTRIBUTIONS

    The Administrator of the Trust reviews 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 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. Despite the
seasonality of the Trust's business, it is 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 may exceed net income, cash flow from
operating activities and/or distributable cash for the quarter.
    Distributable cash is a supplemental non-GAAP financial 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 and capital lease obligations.
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 Financial Measurements).
    The Trust intends to pay cash distributions to Unitholders but the
payment of cash distributions cannot be guaranteed.
    The following is a comparison of cash distributions declared and certain
defined amounts:

    -------------------------------------------------------------------------
                                                                 Fiscal year
                                                        ---------------------
                                             2008 Q1        2007        2006
    -------------------------------------------------------------------------
    Cash flow from operating activities     $  6,882    $ 39,729    $ 39,929
    Net income for the period               $  9,917    $ 24,863    $ 35,348
    Distributable cash                      $ 13,113    $ 38,993    $ 45,972
    Cash distributions declared             $  6,669    $ 26,405    $ 24,681
    Excess of cash flow from operating
     activities over cash distributions
     declared                               $    213    $ 13,324    $ 15,248
    Excess (short-fall) of net income
     over cash distributions declared       $  3,248    $ (1,542)   $ 10,667
    Excess of distributable cash over
     cash distributions declared            $  6,444    $ 12,588    $ 21,291
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income includes significant non-cash charges which for the three
months ended March 31, 2008 were $3,608 and for the years ended December 31,
2007 and 2006 were $16,607 and $13,429, 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 to be an economic return of capital. Instead the
excess is considered a function of the timing of cash flows versus accounting
income.
    Currently cash distributions declared are less than distributable cash as
the Trustees, on the recommendation of management of the Administrator, have
decided to retain a portion of distributable cash to finance capital
expenditures, debt repayment and working capital. It is not management's
intent to distribute 100% of distributable cash.
    Distributable cash (refer to Non-GAAP Financial Measurements) is
calculated as follows:

    -------------------------------------------------------------------------
                                                          Three months ended
                                                                    March 31
                                                          2008          2007
    -------------------------------------------------------------------------

    Cash flow from operating activities               $  6,882      $  9,775
    Add (deduct): -  changes in non-cash operating
                      working capital(1)                 6,417         3,389
    Less:         -  required principal repayments
                      on long-term debt and capital
                      lease obligations                    (76)          (93)
                  -  maintenance capital
                      expenditures                        (110)            -
    -------------------------------------------------------------------------
    Distributable cash                                $ 13,113      $ 13,071
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash distributions declared                       $  6,669      $  6,530
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Payout ratio                                            51%           50%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (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.

    EBITDAS

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

    -------------------------------------------------------------------------
                                                          Three months ended
                                                                    March 31
                                                          2008          2007
    -------------------------------------------------------------------------
    EBITDAS as reported                               $ 15,395      $ 14,412
    Deduct: -  depreciation and amortization            (2,851)       (2,756)
            -  interest - long-term debt and
                capital lease obligations                 (276)         (263)
            -  non-cash compensation expense              (579)         (360)
            -  provision for taxes                      (1,772)       (1,246)
    -------------------------------------------------------------------------
    Net income                                        $  9,917      $  9,787
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    GOVERNANCE

    The Audit Committee of the Board of Trustees has reviewed this MD&A and
the related unaudited interim consolidated financial statements and
recommended they be approved to the Board of Trustees. Following a review by
the full Board, the MD&A and financial statements were approved.

    SUMMARY OF QUARTERLY RESULTS


    Three month
     period       Mar     Dec     Sep     Jun     Mar     Dec     Sep     Jun
     ended       2008    2007    2007    2007    2007    2006    2006    2006
    -------------------------------------------------------------------------
    Revenues  $46,253 $39,054 $38,355 $24,985 $42,712 $35,327 $38,041 $26,204
    EBITDAS    15,395  13,707  13,775   4,837  14,412  13,046  16,010   8,370
    Net income
     (loss)     9,917  10,365   7,126  (2,415)  9,787   8,127  11,396   4,963
    Net income
     (loss) per
     Trust Unit
     - basic     0.31    0.33    0.23   (0.08)   0.32    0.26    0.37    0.16
    Net Income
     (loss) per
     Trust Unit
     - diluted   0.31    0.33    0.22   (0.08)   0.31    0.26    0.36    0.16
    Cash distr-
     ibutions
     declared
     per Trust
     Unit        0.21    0.21    0.21    0.21    0.21    0.26    0.20   0.185
    -------------------------------------------------------------------------

    OUTLOOK

    The strengthening of natural gas prices in late 2007/early 2008 has
created an element of optimism in the oil and gas sector and this is expected
to translate, in due course, into increased capital expenditure budgets by oil
and natural gas producers for their Canadian operations. This in turn is
expected to increase demand for oilfield services, including those provided by
Cathedral's operating divisions. Management continues to expect that going
forward Cathedral's business lines will provide strong financial results. As a
result, the Board of Directors of the Trust's Administrator, Cathedral Energy
Services Ltd., have approved a further $20,000 increase in the 2008 capital
budget to bring the current 2008 capital budget to $32,300. The major
components within the $32,300 capital budget include: 1) 20 EM-MWD systems
along with the expansion of the mud motor and drill collar fleet to complete
the expanded directional drilling job capacity; ii) 10 production testing
units; iii) specialty wireline tools; and iv) facility costs associated with
the completion of the Nisku mud motor repair facility.
    Ten of the new EM-MWD systems and related mud motors and drill collars
will be allocated to the U.S. operations of which 5 EM-MWD systems were
transferred to the U.S. operations in 2008 Q2. The remaining 10 EM-MWD systems
and related mud motors and drill collars will be added to the Canadian fleet.
Of the ten production testing units being added, 5 will be deployed in the
Rocky Mountain region of the U.S. and the balance in the Canadian market. The
2008 capital budget will be financed by way of funds from operations and
credit facilities. The Trust is in discussions with its existing bank to
increase the limits to its current credit facility.
    To facilitate earlier commencement of providing production testing
services in the U.S. Rocky Mountain region, one production testing unit from
the Canadian fleet was re-located to the U.S. in 2008 Q2. This is the Trust's
first deployment towards having 5 production testing units in the U.S. market
with potential to add to these 5 units, subject to market demand. In early
2008 our U.S. wireline division expanded into the Williston Basin region with
the establishment of an operating facility in Dickinson, North Dakota with one
wireline unit. Management is currently addressing the need for additional
wireline units in the U.S. market.
    As part of the Trust's continuing drive to provide state-of-art
technology to its customers we continue to rollout our second generation
EM-MWD system. As well, several new advancements will be incorporated into a
third generation EM-MWD system which will create additional efficiency in the
operations of the system. A focus on the rollout of the Remote Drilling System
("RDS") will continue in both the Canadian and U.S. markets as this technology
will allow the Trust to reduce the number of field personnel required on a
job, thereby reducing the costs to both the Trust and its clients.
    Cathedral continues to pursue directional drilling business opportunities
in South America. A bid has been submitted and we expect to be advised as to
the results of the bidding process in the near term.
    The Trust continues to actively pursue opportunities to offer an expanded
range of services to its customers, increase its market share, enter new
geographic territories and make strategic acquisitions.

    CONSOLIDATED BALANCE SHEETS
    Dollars in '000's                                  March 31  December 31
    (unaudited)                                            2008         2007
    -------------------------------------------------------------------------
    ASSETS
    Current assets:
      Cash and cash equivalents                       $   2,473    $   1,306
      Accounts receivable                                46,091       37,359
      Inventory                                           3,756        3,584
      Prepaid expenses and deposits                         723          781
    -------------------------------------------------------------------------
                                                         53,043       43,030
    Property and equipment                               67,065       67,639

    Intangibles                                             551          588

    Goodwill                                             19,775       19,775
    -------------------------------------------------------------------------
                                                      $ 140,434    $ 131,032
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY

    Current liabilities:
      Bank Indebtedness                               $   9,370    $   6,030
      Accounts payable and accrued liabilities           18,571       17,203
      Distribution payable to Unitholders                 2,235        2,216
      Taxes payable                                       1,127          341
      Current portion of capital lease obligations          177          194
      Current portion of long-term debt                     108           99
    -------------------------------------------------------------------------
                                                         31,588       26,083

    Capital lease obligations                               225          257

    Long-term debt                                       17,196       17,184

    Future income taxes                                   8,543        8,258

    Unitholders' equity:
      Unitholders' capital                               49,578       48,193
      Contributed surplus                                 2,507        2,205
      Retained earnings                                  32,100       28,852
      Accumulated other comprehensive income (loss)      (1,303)           -
    -------------------------------------------------------------------------
                                                         82,882       79,250
    -------------------------------------------------------------------------
                                                      $ 140,434    $ 131,032
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
    Dollars in '000's except per
     Trust Unit amounts
    (unaudited)                                  Three months ended March 31
                                                           2008         2007
    -------------------------------------------------------------------------
    Revenues                                          $  46,253    $  42,712
    Expenses:
      Operating                                          23,587       21,222
      General and administrative                          7,431        6,932
      Depreciation and amortization                       2,851        2,756
      Interest - long-term debt and capital lease
       obligations                                          276          263
      Interest - other                                       99           96
      Foreign exchange loss (gain)                          (33)          47
      Non-cash compensation expense                         579          360
    -------------------------------------------------------------------------
                                                         34,790       31,676
    -------------------------------------------------------------------------

                                                         11,463       11,036

    Gain (loss) on disposal of property and equipment       226           (3)
    -------------------------------------------------------------------------

    Income before taxes                                  11,689       11,033

    Taxes:
      Current                                             1,542          988
      Future income taxes                                   230          258
    -------------------------------------------------------------------------
                                                          1,772        1,246
    -------------------------------------------------------------------------

    Net income for the period                             9,917        9,787

    Retained earnings, beginning of period               28,852       30,394
    Less: Distributions declared                         (6,669)      (6,530)
    -------------------------------------------------------------------------
    Retained earnings, end of period                  $  32,100    $  33,651
    -------------------------------------------------------------------------

    Net income per Trust Unit:
      Basic                                           $    0.31    $    0.32
      Diluted                                         $    0.31    $    0.31
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND ACCUMULATED OTHER
    COMPREHENSIVE LOSS

    Dollars in '000's
    (unaudited)                                  Three months ended March 31
                                                           2008         2007
    -------------------------------------------------------------------------

    Net Income for the period                         $   9,917    $   9,787

    Other comprehensive income:
      Unrealized foreign exchange gain on
       translation of self-sustaining foreign
       operations                                           591            -
    -------------------------------------------------------------------------
    Comprehensive income for the period               $  10,508    $   9,787
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other comprehensive income,
     beginning of period                              $       -    $       -
      Adjustment for change in foreign currency
       translation method                                (1,894)           -
      Other comprehensive income                            591            -
    -------------------------------------------------------------------------
    Accumulated other comprehensive loss, end of
     period                                           $  (1,303)   $       -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    Dollars in '000's
    (unaudited)                                  Three months ended March 31
                                                           2008         2007
    -------------------------------------------------------------------------
    Cash provided by (used in):

    Operating activities:
    Net income for the period                         $   9,917    $   9,787
    Items not involving cash:
      Depreciation and amortization                       2,851        2,756
      Future income taxes                                   230          258
      Unrealized foreign exchange gain                      (52)           -
      Non-cash compensation expense                         579          360
      Loss (gain) on disposal of property and
       equipment                                           (226)           3
    -------------------------------------------------------------------------
                                                         13,299       13,164
    Changes in non-cash operating working capital        (6,417)      (3,389)
    -------------------------------------------------------------------------
                                                          6,882        9,775
    -------------------------------------------------------------------------

    Investing activities:
    Property and equipment additions                     (3,960)      (5,805)
    Proceeds on disposal of property and equipment          461           24
    Changes in non-cash investing working capital           (11)       2,755
    -------------------------------------------------------------------------
                                                         (3,510)      (3,026)
    -------------------------------------------------------------------------

    Financing activities:
    Advances under long-term debt                            47          173
    Repayment of long-term debt                             (26)         (46)
    Repayment of capital lease obligations                  (49)         (64)
    Distributions paid to Unitholders                    (6,650)      (8,056)
    Proceeds on exercise of Trust Unit options            1,133        1,359
    Increase (decrease) in bank indebtedness              3,340         (195)
                                                         (2,205)      (6,829)
    -------------------------------------------------------------------------

    Change in cash and cash equivalents                   1,167          (80)

    Cash and cash equivalents, beginning of period        1,306        1,554

    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period          $   2,473    $   1,474
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    %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.