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Cathedral Energy Services reports results for 2007 Q4 and the year ended December 31, 2007

Mar 6, 2008
3:30pm

    /NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/

    CALGARY, March 6 /CNW/ - Cathedral Energy Services Income Trust (the
"Trust" / TSX: CET.UN) is pleased to report its results for 2007 Q4 and the
year-end December 31, 2007. Dollars are in '000's except for day rates and per
Trust Unit amounts.

    FINANCIAL HIGHLIGHTS

                                  Three months ended             Years ended
                                         December 31             December 31
                              ----------------------- -----------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Revenues                   $  39,054   $  35,327   $ 145,106   $ 138,254

    EBITDAS(1)                 $  13,707   $  13,046   $  46,731   $  52,793
      Per Trust Unit - diluted $    0.43   $    0.42   $    1.47   $    1.68

    Income before taxes        $   9,772   $   9,573   $  31,990   $  39,679

    Net income                 $  10,365   $   8,127   $  24,863   $  35,348
      Per Trust Unit - basic   $    0.33   $    0.26   $    0.79   $    1.16
      Per Trust Unit - diluted $    0.33   $    0.26   $    0.78   $    1.12

    Cash distributions declared
     per Trust Unit            $    0.21   $    0.26   $    0.84   $   0.805

    Distributable cash(2)      $  12,043   $  11,283   $  38,993   $  45,972

    Cash distributions
     declared                  $   6,649   $   8,026   $  26,405   $  24,681

    Payout ratio(3)                   55%      71%(4)         68%      54%(4)

    Property and equipment
     additions and corporate
     acquisitions:
      Paid or payable in cash  $   5,205   $   4,448   $  19,857   $  26,436
      Paid or payable in
       Trust Units                     -         320           -       1,820
                              ----------- ----------- ----------- -----------
                               $   5,205   $   4,768   $  19,857   $  28,256
                              ----------- ----------- ----------- -----------

    Weighted average Trust
     Units outstanding:
      Basic ('000)                31,652      30,831      31,402      30,578
      Diluted ('000)              31,836      31,316      31,781      31,423
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                     December 31 December 31
                                                            2007        2006
    -------------------------------------------------------------------------
    Working capital                                    $  16,947   $  15,051

    Long-term debt and capital
     lease obligations excluding
     current portion                                   $  17,441   $  15,552

    Unitholders' equity                                $  79,250   $  76,223
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) EBITDAS, earnings before interest on long-term debt and capital lease
        obligations, taxes, depreciation, amortization and non-cash
        compensation expense is provided to assist investors in determining
        the ability of the Trust to generate cash from operations. EBITDAS
        does not have any standardized meaning within Canadian Generally
        Accepted Accounting Principles and therefore may not be comparable to
        similar measures presented by other companies and/or trusts. During
        2007 the Trust re-named "EBITDA" to "EBITDAS" but the formula used to
        calculate both terms are the same.
    (2) Distributable cash is 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 does not
        have any standardized meaning within Canadian Generally Accepted
        Accounting Principles and therefore may not be comparable to similar
        measures presented by other trusts. During 2007 the Trust re-named
        "distributable income" to "distributable cash" but the formula used
        to calculate both terms are the same.
    (3) Cash distributions declared as a percentage of distributable cash.
    (4) Payout ratio is 57% for 2006 Q4 and 50% for the year ended
        December 31, 2006 if the December 2006 "special" cash distribution of
        $0.05 per Trust Unit is excluded.

    FORWARD-LOOKING INFORMATION

    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 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 which has been filed with the applicable Canadian
provincial securities commissions and are available on www.sedar.com.

    NON-GAAP MEASURES

    This news release 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)  "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); during 2007 the Trust re-named
         "EBITDA" to "EBITDAS" but the formula used to calculate both terms
         are the same;

    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); during 2007 the Trust re-
         named "distributable income" to "distributable cash" but the formula
         used to calculate both terms are the same;

    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 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

    Cathedral Energy Services Income Trust is pleased to report results for
both the fourth quarter of 2007 and the year-ended December 31, 2007. Despite
a significant decrease in oilfield services activity in western Canada, the
Trust was able to achieve a quarter-over-quarter increase in revenues as well
as record annual revenues in 2007. Revenues for Q4 increased $3,727 or 10.6%
39,054 from $35,327 in the comparative period in 2006. On a year-over-year
basis, revenues increased $6,852 or 5.0% to $145,106 from $138,254 in 2006.
This increase was led by our directional drilling business in both Canada and
the U.S. 2007 Q4 EBITDAS was $13,707 which compares to $13,046 in 2006.
EBITDAS for the year ended December 31, 2007 was $46,731 while the comparative
figure for 2006 was $52,793.
    Net income for the three months ended December 31, 2007 was $10,365
($0.33 per diluted Trust Unit) which compares to $8,127 ($0.26 per diluted
Trust Unit) in the same quarter of 2006. For the year ended December 31, 2007,
net income was $24,863 ($0.78 per diluted Trust Unit) which compares to
$35,348 ($1.12 per diluted Trust Unit) for 2006. Considering the environment
in which the Trust operated in 2007, management is pleased with the operating
results for the year.

    RESULTS OF OPERATIONS - 2007 COMPARED TO 2006

    Revenues and operating expenses

                                    2007        2006      Change           %
    -------------------------------------------------------------------------
    Revenues                   $ 145,106   $ 138,254   $   6,852           5
    Operating expenses           (73,482)    (64,886)      8,596          13
    -------------------------------------------------------------------------
    Gross margin - $           $  71,624   $  73,368   $  (1,744)         (2)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Gross margin - %                49.4%       53.1%        3.7%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    For 2007 the Trust continued to generate record annual revenues of
$145,106 which represented an increase of 5.0% over 2006 revenues. The
increase was mainly a result of: i) a 4.6% increase in the average day rate
for directional drilling services to $8,857 per day (2006 - $8,470) and ii) a
11.1% increase in directional drilling activity days to 12,274 activity days
(2006 - 11,046 days). The largest portion of the increase in the average day
rate is related to a shift towards providing premium and specialized services
as opposed to an increase in the overall base day rate. In Canada the Trust's
2007 activity levels decreased by 2.5% which was significantly less than the
overall decline in drilling activity in the Canadian market. Despite the
decline in natural gas drilling in western Canada, the Trust was able to
minimize the market decline from prior year activity levels due to the
continuing strength of the Trust's client base, involvement in multi-well
programs and an increase in the percentage of wells drilled in western Canada
that are horizontal or directional versus vertical in nature. The Rocky
Mountain region of the United States is the Trust's main area of operations in
the U.S. and it remains a very active area. The Trust's U.S. operations have
now been expanded to provide directional drilling services in North Dakota and
Michigan. The Trust's directional revenues from the U.S. were $41,519 in 2007,
an $11,272 (37.3%) increase from 2006 revenues of $30,247. Due to demand in
the U.S. market, 5 Measurement-While-Drilling ("MWD") systems were transferred
to the U.S. in 2007 and an additional MWD system was transferred to the U.S.
in early 2008; the Trust now has 24 MWD systems in the U.S. market. The
Trust's geographic diversification, by way of providing directional drilling
services in southeast Saskatchewan and U.S., has been a significant factor in
its ability to organically grow its revenues within the directional drilling
division.
    In 2007, a competitor of the Trust purchased the ranging tool technology
used by the Trust in drilling SAGD wells. During 2007 Cathedral was allowed to
use this technology to complete projects it had in place but effective in 2008
this technology will not be available to Cathedral. In 2007 SAGD related
revenues were $1,863 (2006 - $nil). Cathedral is currently pursuing
alternative technologies to allow it to return to the SAGD market.
    The continued decline in natural gas drilling expenditures in the western
Canada market resulted in lower revenues for both of the Trust's production
testing and wireline divisions. The Trust's production testing division, Tier
One, contributed $12,051 in revenues during 2007 which is a 24.0% decline from
2006 revenues of $15,847. Advance Wireline and Xtreme Wireline combined to
generate total Canadian and U.S. revenues of $21,682 for 2007 compared to
$26,188 for 2006, a 17.2% decrease. Late in 2007 Q2, one wireline unit was
transferred from the Canadian operations to the newly formed U.S. division of
Advance Wireline but revenue generating operations did not commence until
2007 Q3. A second wireline unit was transferred to the U.S. in 2007 Q3 and in
early 2008 Q1 a third wireline unit was also transferred. As result of this
expansion the U.S. wireline division generated $790 in revenues for 2007.
    The gross margin for 2007 was 49.4%, which compares to 53.1% in 2006. The
decrease is attributed to a number of factors including: i) shift to providing
more horizontal drilling services (versus directional) which provide a lower
gross margin than from directional drilling; ii) increases in directional
field labour rates; iii) increase in wireline field labour costs as a
percentage of revenues due to of a portion of these labour charges being fixed
in nature; and iv) offsetting the previous items was an increase in the
average day rate for directional drilling services.

    General and administrative expenses

                                    2007        2006      Change           %
    -------------------------------------------------------------------------
    General and administrative
     expenses                  $  25,774   $  22,066   $   3,708          17
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    General and administrative expenses increased from $22,066 in 2006 to
$25,774 in 2007 - an increase of $3,708. The increase was mainly related to
the Trust's directional/horizontal drilling business and the contributing
factors to that increase were the result of increased personnel and facility
rental costs as well as an overall increase in directional drilling activity
level of the U.S. directional drilling operations. Other items contributing to
the overall increase were: i) a $630 increase in costs related to bad debt
write-offs; ii) costs related to the set-up of the U.S. wireline division in
2007; iii) approximately $300 of professional fees incurred in 2007 Q3 related
to an aborted corporate acquisition, and iv) costs associated with pursuing
international business opportunities. As a percentage of revenues, general and
administrative expenses were 17.8% in 2007 and 16.0% in 2006.

    Depreciation and amortization

                                    2007        2006      Change           %
    -------------------------------------------------------------------------
    Depreciation and
     amortization              $  12,054   $  10,692   $   1,362          13
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    This increase is related to the Trust's investment in property and
equipment over the past 12 months including 10 MWD systems along with the
expansion of the mud motor and drilling collar fleet to complement the
increase in directional drilling job capacity, upgrade of low pressure
production testing units to higher pressure units and the purchase of
7 wireline units (one older wireline unit was sold in 2007) and auxiliary
wireline equipment. As a percentage of revenues, depreciation and amortization
amounted to 8.3% for 2007 and 7.7% for 2006.

    Interest

                                    2007        2006      Change           %
    -------------------------------------------------------------------------
    Interest - long-term debt
     and capital lease
     obligations               $   1,084   $     936   $     148          16
    Interest - other           $     404   $     482   $     (78)        (16)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The main contributing factor to the increase in interest related to
long-term debt and capital lease obligations is an increase in the average
level of debt outstanding on a year-over-year basis. The $78 decrease in other
interest expense is related to the Trust's decreased utilization of its
operating line of credit.

    Foreign exchange loss (gain)

                                    2007        2006      Change           %
    -------------------------------------------------------------------------
    Foreign exchange loss
     (gain)                    $     492   $     (27)  $     519         n/a
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Trust derives revenues from the U.S. which are denominated in the
local currency and a significant portion of the U.S. operations costs are also
denominated in the same local currency. In addition, the Trust's Canadian
operations are subject to foreign currency exchange rate risk in that some
purchases for parts, supplies and components in the manufacture of equipment
are denominated in U.S. dollars. On a consolidated basis, the Trust has an
exposure to foreign currency fluctuations related to its net monetary
investment in its U.S. subsidiary. The 2007 foreign exchange loss is due
mainly to the U.S. dollar weakening significantly against the Canadian dollar
in 2007 versus 2006 and the Trust's net monetary investment in its U.S.
subsidiary.

    Non-cash compensation expense

                                    2007        2006      Change           %
    -------------------------------------------------------------------------
    Non-cash compensation
     expense                   $   1,603   $   1,486   $     117           8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Trust Unit options granted are valued using the Black-Scholes option
pricing model and such value is being amortized against income over their
three-year vesting period.

    Gain on disposal of property and equipment

                                    2007        2006      Change           %
    -------------------------------------------------------------------------
    Gain on disposal of
     property and equipment    $   1,777   $   1,946   $    (169)         (9)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The gain on disposal of property and equipment can vary significantly from
year-to-year as almost all of the disposals relate to downhole equipment
lost-in-hole. Cathedral recovers lost-in-hole equipment costs including
previously expensed depreciation on the related assets.

    Taxes

                                    2007        2006      Change           %
    -------------------------------------------------------------------------
    Taxes                      $   7,127   $   4,331   $   2,796          65
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    For 2007, the Trust had a tax expense of $7,127 (effective tax rate of
22.3%) which compares to $4,331 (effective tax rate of 10.9%) in 2006. The
2007 tax provision includes a cumulative non-cash adjustment of $2,754
($0.09 per diluted Trust Unit) related to the substantive enactment of the
previously announced changes to the taxation of income and royalty trusts,
other than real estate investment trusts. Removing the 2007 adjustment noted
above the effective tax rate for 2007 was 13.7%. The adjusted effective tax
rate has increased 10.9% in 2006 to 13.7% in 2007 due mainly to the continuing
growth in the U.S. operations which are taxed at a higher rate as well as some
expenses not being deductible for tax purposes.

    LIQUIDITY AND CAPITAL RESOURCES

    The Trust's principal source of liquidity is cash generated from
operations and also has the ability to fund liquidity requirements through its
credit facility and the issuance of debt and/or equity. At December 31, 2007,
the Trust had an operating line of credit with a major Canadian bank in the
amount of $12,500 (2006 - $12,500) of which $6,030 (2006 - $6,460) was drawn.
The Trust has a non-reducing revolving term loan facility in the amount of
$25,000 (2006 - $25,000) of which $17,000 (2006 - $15,000) was drawn as at
December 31, 2007. In addition, at December 31, 2007, the Trust had
obligations under capital leases in the amount of $451 (2006 - $664) and other
long-term debt of $283 (2006 - $171).

    Operating activities

    Cash flow from operating activities decreased from $39,929 in 2006 to
$39,729 - a decrease of $200 or 0.5%. Funds from operations (see Non-GAAP
Measures) for 2007 was $39,693 which compares to $46,831 for 2006; the decline
of $7,138 is attributable to a decline in operating profits due to compression
of the gross margin realized in 2007 and an increase in general and
administrative expenses. The Trust has a strong working capital position at
December 31, 2007 at $16,947 which compares to $15,051 at the end of 2006.

    Investing activities

    Cash used in investing activities for the year ended December 31, 2007
amounted to $16,607 compared to $24,366 in 2006. During 2007 the Trust
invested an additional $19,857 (2006 - $26,436) in property and equipment. For
2007 the significant property and equipment additions included progress
payments on construction of a new mud motor repair facility in Nisku, Alberta,
10 MWD systems along with the expansion of the mud motor and drilling collar
fleet to complement the increase in directional drilling job capacity, upgrade
of low pressure production testing units to higher pressure units and the
purchase of 7 wireline units (one older wireline unit was sold in 2007) and
auxiliary wireline equipment. With the exception of the $2,000 draw on
non-reducing revolving term loan facility which was used to finance the
construction of the Nisku mud motor repair facility, and the $228 of
0% financing for automotive equipment additions, all of the 2007 additions to
property and equipment have been financed from cash flow from operations.
Fluctuations in non-cash working capital related to investing activities are a
function of when proceeds on disposal of property and equipment are received
and when payments for property and equipment purchases are made.
    Proceeds on disposal of property and equipment amounted to $3,575 (2006 -
$3,277) and is mainly related to recovery of downhole equipment costs that
were lost-in-hole in 2007 as well as previously expensed depreciation.
    In late 2007 the Trust competed field testing and put the 2nd generation
("G2") of its Electro-Magnetic MWD ("EM-MWD") tool into commercial use. The
G2 EM-MWD tool enhancements will allow the tool to be operated at deeper
levels with increased efficiency and power management. The G2 EM-MWD system
includes bi-directional (talk down) communication which allows for surface
control of the tool to change data rates, power levels and data formats. The
result is increased efficiency and power management, which by default, allows
for greater depth capability.

    The following is a summary of major equipment owned by Cathedral:

    -------------------------------------------------------------------------
                                                           As at December 31
                                                            2007        2006
    -------------------------------------------------------------------------
    Directional drilling equipment -
      MWD systems                                             78          68
      Drilling mud motors                                    349         299

    Production testing units                                  19          19

    Wireline units                                            27          21
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    For 2008, the Board of Directors of the Administrator of the Trust has
approved a capital budget of $12,300 including approximately $400 for
maintenance capital. The 2008 capital budget is targeted for expanding the
current fleet of directional drilling equipment including at least 10 G2
EM-MWD systems to meet the Trust's additional demand as well as 5 production
testing units which will be deployed in the U.S. market. The Trust will also
be adding to its mud motor and drill collar fleet to complement the expanded
directional drilling job capacity. Three of these MWD systems will be
allocated to the U.S. operations. These capital expenditures are expected to
be financed by way of cash flow from operations.

    Financing activities

    Cash used in financing activities for the year ended December 31, 2007
amounted to $23,370 which compares to $16,100 in 2006 - a change of $7,270.
During 2007, the Trust received advances of long-term debt in the amount of
$2,228 (2006 - $3,109) of which $2,000 (2006 - $3,000) related to an advance
on the Trust's non-reducing revolving term loan facility. Repayments of
long-term debt and capital lease obligations in 2007 amounted to $330 (2006 -
$626). As at December 31, 2007, the Trust was in compliance with all covenants
under its credit facility. During 2007 the Trust received cash inflows of
$3,065 (2006 - $2,734) on the exercise of Trust Unit options.
    The capital asset additions in 2007 were financed by way of a combination
of cash flow from operations, working capital, proceeds from the disposal of
property and equipment, proceeds on exercise of Trust Unit options and $2,228
of long-term debt.
    Distributions declared for 2007 amounted to $26,405 (2006 - $26,719). All
of the 2007 distributions declared were cash in nature while the 2006
distributions included a non-cash in-kind distribution of $2,038. Pursuant to
the Trust's Declaration of Trust, the Trust is required to allocate all of its
taxable income to Unitholders and in order to allocate all of its taxable
income to Unitholders a non-cash in-kind distribution in the form of
additional Trust Units was allocated to Unitholders of record on December 31,
2006. The December 31, 2006, non-cash in-kind distribution was $0.06582 per
Trust Unit for a total of $2,038. The Declaration of Trust also requires there
is an immediate consolidation of the Trust Units issued such that each
Unitholder has the same number of Trust Units after the consolidation as they
had prior to the non-cash in-kind distribution. Based upon a December 31, 2006
Trust Unit price of $9.96 per Trust Unit the 2006 in-kind distribution
represented the issuance of 204,667 Trust Units which were immediately
consolidated. For the year-ended December 31, 2007 the Trust did not have a
non-cash in-kind distribution.
    Distributions paid to Unitholders for 2007 amounted to $27,903 (2006 -
$22,467). The increase in distributions paid is related to a combination of:
i) increases in the per Trust Unit "regular" distribution level during 2006;
ii) the payment of a "special" $0.05 per Trust Unit cash distribution declared
in December 2006 ($1,549) and paid on January 15, 2007; and iii) an increase
in the number of Trust Units outstanding. Since January 2006 the Trust has
increased its per month Trust Unit distribution level from $0.05 per Trust
Unit to $0.07 per Trust Unit for December 2007 (increased to $0.07 level in
September 2006) - a 40% increase. Cash distributions paid have been financed
from funds from operations and management currently expects future cash
distributions will also be financed by way of funds from operations.

    The following is a summary of distributions declared in 2007 and 2006:

    -------------------------------------------------------------------------
                                    2007        2006      Change           %
    -------------------------------------------------------------------------
    Declared
      Cash                     $  26,405   $  24,681   $   1,724           7
      In-kind                          -       2,038      (2,038)       (100)
    -------------------------------------------------------------------------
      Total                    $  26,405   $  26,719   $    (314)         (1)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Declared per Trust Unit:
      Cash                     $ 0.84000   $ 0.80500   $ 0.03500           4
      In-kind                          -     0.06582    (0.06582)       (100)
    -------------------------------------------------------------------------
      Total                    $ 0.84000   $ 0.87082   $(0.03082)          4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Contractual obligations

    In the normal course of business, the Trust's operating entities incur
contractual obligations. The following is a summary of the Trust's contractual
obligations as at December 31, 2007 for the following items:

    -------------------------------------------------------------------------
                                                                       There-
                 Total     2008     2009     2010     2011     2012    after
    -------------------------------------------------------------------------
    Capital
     asset
     additions $ 2,802  $ 2,802  $     -  $     -  $     -  $     -  $     -
    Operating
     lease
     obligations 9,962    2,594    1,945    1,576      899      567    2,381
    Long-term
     debt and
     capital
     lease
     obliga-
     tions(1)   17,734      293    3,049    5,866    5,693    2,833        -
    -------------------------------------------------------------------------
               $30,498  $ 5,689  $ 4,994  $ 7,442  $ 6,592  $ 3,400  $ 2,381
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) - Minimum principal amounts to be paid under long-term debt assumes
          the Trust elects prior to the maturity date of the revolving term
          loan to repay the loan over 36 months.

    The 2008 contractual obligations are expected to be financed by way of
cash flow from operations.

    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 and 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
2nd quarter 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 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 Measures).
    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:

    -------------------------------------------------------------------------
                                                     Years ended December 31
                                          -----------------------------------
                                 2007 Q4        2007        2006        2005
    -------------------------------------------------------------------------
    Cash flow from operating
     activities                $  12,501   $  39,729   $  39,929   $  21,609
    -------------------------------------------------------------------------
    Net income for the period  $  10,365   $  24,863   $  35,348   $  21,807
    -------------------------------------------------------------------------
    Distributable cash         $  12,043   $  38,993   $  45,972   $  27,551
    -------------------------------------------------------------------------
    Cash distributions
     declared                  $   6,649   $  26,405   $  24,681   $  11,162
    -------------------------------------------------------------------------
    Excess of cash flow from
     operating activities over
     cash distributions
     declared                  $   5,852   $  13,324   $  15,248   $  10,447
    -------------------------------------------------------------------------
    Excess (short-fall) of net
     income over cash
     distributions declared    $   3,716   $  (1,542)  $  10,667   $  10,645
    -------------------------------------------------------------------------
    Excess of distributable
     cash over cash
     distributions declared    $   5,394   $  12,588   $  21,291   $  16,389
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income exceeded cash distributions declared by $5,852 for the three
months ended December 31, 2007 and cash distributions declared exceeded net
income by $1,542 for the year ended December 31, 2007. Net income includes
significant non-cash charges which for the three months ended December 31,
2007 were $2,544 and for the year ended December 31, 2007 were $16,607 that 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 and debt repayment. It is not management's intent to distribute
100% of distributable cash.

    Distributable cash (refer to Non-GAAP Measures) is calculated as follows:
    -------------------------------------------------------------------------
                                  Three months ended             Years ended
                                         December 31             December 31
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    Cash flow from operating
     activities                $  12,501   $  14,003   $  39,729   $  39,929
    Add (deduct):  - changes in
                      non-cash
                      operating
                      working
                      capital(1)    (212)     (2,461)        (36)      6,902
    Less:          - required
                      principal
                      repayments
                      on long-
                      term debt
                      and capital
                      lease
                      obligations    (70)       (156)       (313)       (549)
                   - maintenance
                      capital
                      expenditures  (176)       (103)       (387)       (310)
    -------------------------------------------------------------------------
    Distributable cash         $  12,043   $  11,283   $  38,993   $  45,972
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash distributions
     declared                  $   6,649   $   8,026   $  26,405   $  24,681
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Payout ratio                      55%      71%(2)         68%      54%(2)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (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) Payout ratio is 57% for 2006 Q4 and 50% for the year ended
        December 31, 2006 if the December 2006 "special" cash distribution of
        $0.05 per Trust Unit is excluded.



    EBITDAS

    EBITDAS (refer to Non-GAAP Measures) is calculated as follows:
    -------------------------------------------------------------------------
                                  Three months ended             Years ended
                                         December 31             December 31
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    EBITDAS as reported        $  13,707   $  13,046   $  46,731   $  52,793
    Add (deduct):
        - depreciation and
           amortization           (3,245)     (2,937)    (12,054)    (10,692)
        - interest - long-term
           debt and capital
           lease obligations        (292)       (264)     (1,084)       (936)
        - non-cash compensation
           expense                  (398)       (272)     (1,603)     (1,486)
        - recovery of (provision
           for) taxes                593      (1,446)     (7,127)     (4,331)
    -------------------------------------------------------------------------
    Net income                 $  10,365   $   8,127   $  24,863   $  35,348
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    FOURTH QUARTER RESULTS

    The 10.6% or $3,727 increase in revenues from $35,327 in 2006 Q4 to
$39,054 in 2007 Q4 is the net result of increased revenues from the Trust's
directional drilling division in Canada and the U.S. and revenue declines for
the production testing and wireline divisions. Directional related revenues
increased due to a 27.9% increase in activity days (2007 Q4 - 3,470 vs.
2006 Q4 - 2,713) which was offset by a 2.6% decrease in the average day rate
(2007 Q4 - $8,596 vs. 2006 Q4 - $8,825). Revenue for 2007 Q4 by division is as
follows: directional drilling $30,551 (2006 - $24,616); wireline
$5,133 (2006 - $6,702) and production testing $3,370 (2006 - $4,009). The
decreases realized in production testing and wireline revenues are a direct
result of the decline in drilling activity in western Canada due to low
natural gas prices.
    The consolidated gross margin compressed 2.8% to 49.5% for 2007 Q4 from
52.3% in 2006 Q4. The decrease in quarter-over-quarter gross margin was
primarily due to increased labour charges in the wireline division as a
portion of the field labour charges are fixed in nature and did not decrease
the same percentage as sales decreased and higher directional drilling field
labour costs due to market pressures.
    General and administrative charges increased 5.8% from $5,886 in 2006 Q4
to $6,227 in 2007 Q4 due to an increase in bad debt write-offs, facility
rental costs and costs associated with exploring international business
opportunities which were offset by a decrease in employee related incentive
expenses. As a percentage of revenues, general and administrative expenses
were 15.9% in 2007 Q4 compared to 16.7% in 2006 Q4.
    Quarter-over-quarter EBITDAS increased $661 or 5.1% from $13,046 in 2006
to $13,707 in 2007.
    The payout ratio for Q4 of 2007 was 55% (2006 Q4 - 71%) while the ratio
for the year ended December 31, 2007 was 68% (2006 - 54%). The payout ratio
for Q4 of 2006 includes the $0.05 per Trust Unit "special" cash distribution
declared in December 2006. If this "special" cash distribution was excluded
from the payout ratio calculation then the ratio for 2006 Q4 and 2006 would
have been 57% and 50%, respectively.
    For 2007 Q4, the Trust recorded a tax recovery of $593 which compares to
a tax expense of $1,446 in 2006. The 2007 Q4 recovery was primarily the result
of Federal income tax rate reductions that were substantively enacted in
December 2007 as well as a reduction in the cumulative non-cash adjustment
related to the substantive enactment of the previously announced changes to
the taxation of income and royalty trusts, other than real estate investment
trusts to reflect changes in timing differences that are expected to exist as
at December 31, 2010.
    Net income for 2007 Q4 was $10,365 ($0.33 per diluted Trust Unit) which
compares to $8,127 ($0.26 per diluted Trust Unit) 2006 Q4.

    SUMMARY OF QUARTERLY RESULTS

    -------------------------------------------------------------------------
                             2007                            2006
            -------------------------------- --------------------------------
                  Q1      Q2      Q3      Q4      Q1      Q2      Q3      Q4
    -------------------------------------------------------------------------

    Revenues $42,712 $24,985 $38,355 $39,054 $38,682 $26,204 $38,041 $35,327

    EBITDAS   14,412   4,837  13,775  13,707  15,367   8,370  16,010  13,046

    Net income
     (loss)    9,787  (2,415)  7,126  10,365  10,862   4,963  11,396   8,127

    Net income
     (loss) per
     Trust Unit
      Basic     0.32   (0.08)   0.23    0.33    0.36    0.16    0.37    0.26
      Diluted   0.31   (0.08)   0.22    0.33    0.35    0.16    0.36    0.26
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The majority of Cathedral's operations are carried on in western Canada
where activity levels in the oilfield services industry are subject to a
degree of seasonality. Operating activities in western Canada are generally
lower during "spring breakup" which normally commences in late March and
continues through to May. Operating activities generally increase in the fall
and peak in the winter months from December till late March. Activity levels
in the Rocky Mountain and Williston Basin regions of the U.S. are not subject
to the seasonality to the extent that it occurs in the western Canada region.

    OUTLOOK

    Going forward management is expecting the Trust's directional drilling
division, which accounted for 77% of 2007 consolidated revenues, to continue
to show strong financial results and as natural gas prices improve, the
financial results of the wireline and production testing divisions should
improve accordingly. During 2007 the Trust expanded its wireline division to
the Rocky Mountain region of the U.S. with 2 wireline units transferred from
the western Canada operations. In early 2008 our U.S. wireline expansion moved
into the Williston Basin region with the establishment of an operating
facility in North Dakota and an additional wireline unit was transferred to
the U.S. operations. As demand in the U.S. market increases we will consider
transferring additional units to this area or building new units.
    As previously announced the Trust's current 2008 capital budget is at
$12,300 and includes at least 10 G2 EM-MWD systems along with the expansion of
the mud motor and drill collar fleet to complement the expanded directional
drilling job capacity and 5 production testing units. Three of these MWD
systems will be allocated to the U.S. operations. The 5 production testing
units will be deployed in the Rocky Mountain region of the U.S. and will be
the Trust's first expansion of its production testing division to the U.S.
Cathedral is pursuing directional drilling business opportunities in
South America and in the near term expects to provide guidance on the status
thereof.
    In 2007 significant technology enhancements were made to the Trust's
EM-MWD system and this resulted in the commercialization of its G2 version. As
part of the Trust's continuing drive to provide state-of-art technology to its
customers we are currently working on further enhancements to the overall
EM-MWD platform.
    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

    December 31, 2007 and 2006
    Dollars in '000's
    -------------------------------------------------------------------------
                                                            2007        2006
    -------------------------------------------------------------------------

    Assets

    Current assets:
      Cash and cash equivalents                        $   1,306   $   1,554
      Accounts receivable                                 37,359      37,693
      Inventory                                            3,584       3,050
      Prepaid expenses and deposits                          781         892
      -----------------------------------------------------------------------
                                                          43,030      43,189

    Property and equipment                                67,639      61,488

    Intangibles, net of accumulated amortization of
     $342 (2006 - $194)                                      588         736

    Goodwill                                              19,775      19,775

    Other asset                                                -          33

    -------------------------------------------------------------------------
                                                       $ 131,032   $ 125,221
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Unitholders' Equity

    Current liabilities:
      Bank indebtedness                                $   6,030   $   6,460
      Accounts payable and accrued liabilities            17,203      16,446
      Distributions payable to Unitholders                 2,216       3,717
      Taxes payable                                          341       1,232
      Current portion of capital lease obligations           194         212
      Current portion of long-term debt                       99          71
      -----------------------------------------------------------------------
                                                          26,083      28,138

    Capital lease obligations                                257         452

    Long-term debt                                        17,184      15,100

    Future income taxes                                    8,258       5,308

    Unitholders' equity:
      Unitholders' capital                                48,193      44,667
      Contributed surplus                                  2,205       1,162
      Retained earnings                                   28,852      30,394
      -----------------------------------------------------------------------
                                                          79,250      76,223

    -------------------------------------------------------------------------
                                                       $ 131,032   $ 125,221
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

    Dollars in 000's except per Trust Unit amounts

                                  Three months ended             Years ended
                                         December 31             December 31
                               ----------------------  ----------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    Revenues                   $  39,054   $  35,327   $ 145,106   $ 138,254
    Expenses :
      Operating                   19,712      16,831      73,482      64,886
      General and
       administrative              6,227       5,886      25,774      22,066
      Depreciation and
       amortization                3,245       2,937      12,054      10,692
      Interest - long-term
       debt and capital lease
       obligations                   292         264       1,084         936
      Interest - other               122         124         404         482
      Foreign exchange loss
       (gain)                        (94)        (84)        492         (27)
      Non-cash compensation
       expense                       398         272       1,603       1,486
    -------------------------------------------------------------------------
                                  29,902      26,230     114,893     100,521
    -------------------------------------------------------------------------
                                   9,152       9,097      30,213      37,733

    Gain on disposal of
     property and equipment          620         476       1,777       1,946
    -------------------------------------------------------------------------
    Income before taxes            9,772       9,573      31,990      39,679

    Taxes:
      Current                        506         810       3,982       3,093
      Future (reduction)          (1,099)        636       3,145       1,238
    -------------------------------------------------------------------------
                                    (593)      1,446       7,127       4,331
    -------------------------------------------------------------------------

    Net income for the period     10,365       8,127      24,863      35,348

    Retained earnings,
     beginning of period          25,136      32,331      30,394      21,765
    Less: Distributions
     declared                     (6,649)    (10,064)    (26,405)    (26,719)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Retained earnings, end of
     period                    $  28,852   $  30,394   $  28,852   $  30,394
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net income per Trust Unit:
    Basic                      $    0.33   $    0.26   $    0.79   $    1.16
    Diluted                    $    0.33   $    0.26   $    0.78   $    1.12
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CASH FLOWS

    Dollars in 000's
                                  Three months ended             Years ended
                                         December 31             December 31
                               ----------------------  ----------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    Cash provided by (used in):

    Operating activities:
    Net income for the period  $  10,365   $   8,127   $  24,863   $  35,348
    Items not involving cash:
      Depreciation and
       amortization                3,245       2,937      12,054      10,692
      Future taxes (reduction)    (1,099)        636       3,145       1,238
      Unrealized foreign
       exchange gain                   -          46        (195)         13
      Non-cash compensation
       expense                       398         272       1,603       1,486
      Gain on disposal of
       property and equipment       (620)       (476)     (1,777)     (1,946)
    -------------------------------------------------------------------------
                                  12,289      11,542      39,693      46,831
    Changes in non-cash
     operating working capital       212       2,461          36      (6,902)
    -------------------------------------------------------------------------
                                  12,501      14,003      39,729      39,929
    -------------------------------------------------------------------------

    Investing activities:
    Property and equipment
     additions                    (5,205)     (4,448)    (19,857)    (26,436)
    Proceeds on disposal of
     property and equipment        1,475         905       3,575       3,277
    Changes in non-cash
     investing working
     capital                       2,377          80        (325)     (1,207)
    -------------------------------------------------------------------------
                                  (1,353)     (3,463)    (16,607)    (24,366)
    -------------------------------------------------------------------------

    Financing activities:
    Advances under long-term
     debt                             55         109       2,228       3,109
    Repayment of long-term debt      (22)        (84)       (116)       (321)
    Repayment of capital lease
     obligations                     (48)        (72)       (214)       (305)
    Distributions paid to
     Unitholders                  (6,646)     (6,463)    (27,903)    (22,467)
    Proceeds on exercise of
     Trust Unit options              149          19       3,065       2,734
    Increase (decrease) in bank
     indebtedness                 (3,975)     (3,310)       (430)      1,150
    -------------------------------------------------------------------------
                                 (10,487)     (9,801)    (23,370)    (16,100)
    -------------------------------------------------------------------------

    Change in cash and cash
     equivalents                     661         739        (248)       (537)

    Cash and cash equivalents,
     beginning of period             645         815       1,554       2,091
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period             $   1,306   $   1,554   $   1,306   $   1,554
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    %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,
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.