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Cathedral Energy Services reports results for the three months ended March 31, 2007

May 3, 2007
6:19pm

    /NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/

    CALGARY, May 3 /CNW/ - Cathedral Energy Services Income Trust (TSX:
CET.UN) is pleased to report its record results for the three months ended
March 31, 2007.

    FINANCIAL HIGHLIGHTS
    $ in 000's except per Trust Unit amounts
                                                          Three months ended
                                                                    March 31
                                                           2007         2006
    -------------------------------------------------------------------------
    Revenues                                        $    42,712  $    38,682

    EBITDA(1)                                       $    14,412  $    15,367
      Per Trust Unit - diluted                      $      0.46  $      0.49

    Income before taxes                             $    11,033  $    12,402

    Net income                                      $     9,787  $    10,862
      Per Trust Unit - basic                        $      0.32  $      0.36
      Per Trust Unit - diluted                      $      0.31  $      0.35

    Cash distributions declared per Trust Unit      $      0.21  $      0.16

    Distributable income(2)                         $    13,071  $    14,221

    Cash distributions declared                     $     6,530  $     4,838

    Payout ratio(3)                                         50%          34%

    Property and equipment additions
     and corporate acquisitions:
      Paid or payable in cash                       $     5,805  $     8,783
      Paid or payable in Trust Units                          -        1,500
                                                    ------------ ------------
                                                    $     5,805  $    10,283
                                                    ------------ ------------
    Weighted average Trust Units outstanding:
      Basic ('000)                                       31,030       30,147
      Diluted ('000)                                     31,591       31,193
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                                                       March 31  December 31
                                                           2007         2006
    -------------------------------------------------------------------------
    Working capital                                 $    17,327  $    15,051

    Long-term debt and capital lease obligations
     excluding current portion                      $    15,616  $    15,552

    Unitholders' equity                             $    81,174  $    76,223
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) EBITDA is defined as earnings before interest on long-term debt and
        capital lease obligations, taxes, non-cash compensation expense and
        depreciation and amortization and is provided to assist investors in
        determining the ability of the Trust to generate cash from
        operations. EBITDA 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.

    (2) Distributable income is defined as funds from operations 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 income does not have
        any standardized meaning within Canadian Generally Accepted
        Accounting Policies and therefore may not be comparable to similar
        measures presented by other trusts. Distributable income is a main
        performance measurement used by management and investors to evaluate
        the performance of the Trust.

    (3) Cash distributions declared as a percentage of distributable income.

    MANAGEMENT'S DISCUSSION & ANALYSIS

    This Management's Discussion & Analysis ("MD&A") for the three months
ended March 31, 2007 should be read in conjunction with the annual audited
consolidated financial statements and notes thereto for the year ended
December 31, 2006, as well as the MD&A in the Trust's 2006 Annual Report. This
MD&A has been prepared as of May 3, 2007. 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 2006 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. These measures are provided to assist investors
in determining the Trust's ability to generate cash from operations and to
provide additional information regarding the use of its cash resources. The
specific measures being referred to include the following i) "EBITDA" -
defined as earnings before interest on long-term debt and capital lease
obligations, taxes, non-cash compensation expense and depreciation and
amortization; ii) "distributable income" - defined as cash flow from
operations before changes in non-cash operating working capital less required
principal repayments on long-term debt and capital lease obligations and
maintenance capital expenditures; iii) "gross margin" - calculated as revenues
less operating expenses; 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; and v) "payout ratio" - calculated as cash
distributions declared divided by distributable income.

    OVERVIEW

    The first quarter of 2007 reflected the continued growth of the Trust. In
contrast to the general decline in oilfield activity experienced throughout
the industry as result of reduced oil and gas prices and unfavourable weather
conditions in Western Canada; the Trust completed 2007 Q1 with record
revenues. Revenues in the first quarter increased $4,030 from $38,682 in 2006
to $42,712 in 2007. 2007 Q1 EBITDA was $14,412 which represents a $955 or 6.2%
decrease from $15,367 in 2006. The Trust's net income for 2007 Q1 was $9,787
(2006 - $10,862) or $0.31 (2006 - $0.35) per diluted Trust Unit.

    RESULTS OF OPERATIONS

    Revenues - 2007 Q1 record revenues of $42,712 were the result of
increased growth in the directional drilling portion of the Trust's
operations. Directional drilling activity days increased 11.4% or 340 to
3,323. In addition, the average day rate received for providing directional
drilling services increased 10.6% on a quarter-over-quarter basis to $9,116
(2006 - $8,239). The increase in the average day rate is the result of day
rate increases as well as a shift towards providing premium services such as
underbalanced and Steam-Assisted Gravity Drainage ("SAGD") drilling services.
In the Canadian market the Trust's 2007 Q1 activity levels approximated that
of the comparable period in 2006. Despite the decline in natural gas drilling
in Western Canada, the Trust was able to maintain prior year activity levels
due to the continuing strength of the Trust's client base and involvement in
multi-well programs. The Rocky Mountain region of the United States remains a
very active area and the Trust's U.S. operations have now been expanded into
North Dakota. The Trust's revenues from the U.S. were $10,725 in 2007 Q1,
which represents an increase of $3,865 or 56% on a quarter-over-quarter basis.
Due to demand in the U.S. market, 5 Measurement-While-Drilling ("MWD") systems
were transferred to the U.S. at the end of Q1 and the Trust now has 23 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.
    The effect of reduced 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 $4,466 in revenues during 2007 Q1 which is a 13.3% decline
from 2006 Q1 revenues. Advance Wireline and Xtreme Wireline combined to
generate revenues of $7,066 for 2007 Q1 compared to $8,191 for 2006 Q1, a
13.7% quarter-over-quarter decline.

    Gross margin - The gross margin for 2007 Q1 was 50.3% which compares to
53.5% in 2006 Q1. The decrease is attributed to 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 the continuation of the
Trust's build out of its wireline fleet and related field staff that will
enable the Trust to take advantage of increased activity levels; iv) increased
MWD rental costs in the U.S.; v) increased motor repair costs related to an
upgrade to a component to meet specific drilling requirements in the U.S; vi)
commencement of general equipment repairs earlier in the year due to the early
spring breakup; and vii) offsetting the previous items was an increase in the
average day rate for directional drilling services.

    General and administrative expenses - General and administrative expenses
increased from $5,262 in 2006 Q1 to $6,932 in 2007 Q1 - an increase of $1,670.
The increase was primarily related to increased personnel and office/shop
rental costs as well as an overall increase in activity levels. As a
percentage of revenues, general and administrative expenses were 16.2% in
2007 Q1 and 13.6% in 2006 Q1.

    Depreciation and amortization - Depreciation for 2007 Q1 was $2,756 which
compares to $2,329 in 2006 Q1. This increase is related to expansion of the
Trust's depreciable asset base over the past 12 months. As a percentage of
revenues, depreciation amounted to 6.5% for 2007 and 6.0% for 2006.

    Interest expense - Interest expense related to long-term debt and capital
leases increased from $210 in 2006 Q1 to $263 in Q1 2007 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.

    Foreign exchange gain/loss - The Trust's foreign exchange gain/loss
decreased from an $8 gain in 2006 Q1 to a loss of $47 in 2007 Q1. Despite the
fact the Canadian/United States exchange rate at the start of 2007 Q1 and the
end of 2007 Q1 remained approximately equal there were fluctuations during the
quarter that contributed to the $47 loss experienced in 2007 Q1.

    Non-cash compensation expense - For 2007 Q1 the Trust had non-cash
compensation expense of $360 which compares to $426 for the comparable quarter
in 2006. The value of the options is being amortized against income over the
three-year vesting period.

    Gain on disposal of property and equipment - There were no disposals of
property and equipment in 2006 Q1 while in 2007 Q1 the Trust had a $3 loss on
disposal of miscellaneous equipment.

    Taxes - For Q1 2007, the Trust had a tax expense of $1,246 (effective tax
rate of 11.3%) which compares to $1,540 (effective tax rate of 12.4%) in
Q1 2006. The decline in the effective tax rate is due to a higher portion of
the Trust's pre-tax income being allocated to unitholders.

    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, 2007, the Trust had an operating line of credit with a major
Canadian bank in the amount of $12,500 (December 31, 2006 - $12,500) of which
$6,265 (December 31, 2006 - $6,460) was drawn. In addition, the Trust has a
non-reducing revolving term loan facility in the amount of $25,000 (December
31, 2006 - $25,000) of which $15,000 (December 31, 2006 - $15,000) was drawn
as at March 31, 2007. In addition, at March 31, 2007, the Trust had
obligations under capital leases in the amount of $600 (December 31, 2006 -
$664) and other long-term debt of $298 (December 31, 2006 - $171).

    Operating activities - Cash flow from operating activities for the three
months ended March 31, 2007 was $9,775 (2006 - $8,137) a increase of $1,638 or
20.1%. The Trust has a strong working capital position at March 31, 2007 at
$17,327 which compares to $15,051 at December 31, 2006.

    Investing activities - Cash used in investing activities for the three
months ended March 31, 2007 amounted to $3,026 compared to $7,650 for the same
period in 2006. During 2007 Q1 the Trust invested an additional $5,805 (2006 -
$8,783) in property and equipment with the main additions being 4 wireline
units, 2 explosive loading magazines, auxiliary wireline equipment, expansion
of mud motor and drill collar fleet in the U.S., auxiliary production testing
equipment for critical sour gas work and MWD components which will be used to
build systems for the Canadian market and thereby replacing those transferred
to the U.S. At March 31, 2007, the Trust's operating entities had 68 MWD
systems, 19 production testing units and 25 wireline units. 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.

    Financing activities - Cash used in financing activities for the three
months ended March 31, 2007 amounted to $6,829 which compares to $1,971 in
Q1 2006. Distributions paid to Unitholders for 2007 Q1 totaled to $8,056 (2006
- $4,512). The quarter-over-quarter increase in distributions paid are related
to a combination of: i) increases in the per Trust Unit "regular" distribution
level; ii) the payment of a "special" $0.05 per Trust Unit cash distribution
declared in December 2006 ($1,549); and iii) an increase in the number of
Trust Units outstanding. Since January 2006 the Trust has increased its per
Trust Unit distribution level from $0.06 per Trust Unit to $0.07 per Trust
Unit for March 2007 - a 16.7% increase. 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, 2007 financing cash inflows
resulted from: i) $1,359 (2006 - $1,526) cash received on the exercise of
Trust Unit options, and ii) an $173 increase in new long-term debt. Offsetting
these inflows were cash outflows of: i) a $195 reduction in bank indebtedness
(2006 - cash provided by bank indebtedness was $1,195); and ii) a $110 (2006 -
$180) repayment of long-term debt and capital lease obligations. At May 3,
2007, the Trust had 31,375,022 Trust Units and 2,540,001 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, 2006. As at March 31, 2007, the
Trust has a commitment to purchase approximately $3,689 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
2007.

    CHANGES IN ACCOUNTING POLICIES

    Effective January 1, 2007, The Trust adopted the Canadian Institute of
Chartered Accountants ("CICA") section 3855, "Financial Instruments -
Recognition and Measurement", section 3865, "Hedges", and section 1530,
"Comprehensive Income". These standards have been adopted prospectively. For
the 3 months ended March 31, 2007, the adoption of these standards did not
have an effect on the Trust's consolidated financial statements. A general
summary of these accounting standards were included in the Trust's 2006 annual
MD&A.

    BUSINESS RISKS

    The MD&A for the year ended December 31, 2006, which is included in the
Trust's 2006 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, 2007.

    TAXATION OF TRUSTS IN CANADA

    On October 31, 2006, the Federal Government of Canada announced proposed
tax changes that, if enacted, will result in the taxation of existing income
and royalty trusts, other than real estate investment trusts, at effective
rates similar to Canadian corporations commencing in 2011. If the legislation
and tax rates are enacted in their current draft form, we expect to begin
recording future tax assets and liabilities related to temporary differences
that are expected to reverse after 2010. Our preliminary estimate of the
unrecognized temporary differences outstanding as of March 31, 2007 is
approximately $12,000, the tax-effected value of which would be approximately
$3,800 assuming an effective tax rate of about 32%. Recording the tax
liabilities related to these temporary differences based on this estimate
would result in the Trust recording a charge to future income tax expense and
an increase in long-term future tax liabilities of approximately $3,800.

    DISTRIBUTABLE INCOME

    Distributable income is calculated as follows:

                                                          Three months ended
                                                                    March 31
                                                    -------------------------
                                                           2007         2006
    -------------------------------------------------------------------------
    Cash flows from operating activities            $     9,775  $     8,137
    Add:   - changes in non-cash operating
              working capital(1)                          3,389        6,379
    Less:  - required principal repayments
              on long-term debt and capital
              lease obligations                             (93)        (180)
           - maintenance capital expenditures                 -         (115)
    -------------------------------------------------------------------------
    Distributable income                            $    13,071  $    14,221
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash distributions declared                     $     6,530  $     4,838
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Payout ratio                                            50%          34%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Changes in non-cash operating working capital have been added back as
        such changes are financed using the Trust's bank indebtedness/line of
        credit facility. In addition, if changes in non-cash operating
        capital were excluded it would introduce cash flow variability and
        affect underlying cash flow from operating activities.

    Cathedral'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. It is the Trust's policy to pay consistent distributions throughout
the year despite the seasonality of a portion of Cathedral's business.
    As a result of the Trust's equipment being relatively new and the
extensive maintenance program for its equipment (such repairs and maintenance
cost are expensed in operating expenses), expenditures for maintenance capital
are currently minimal. Current maintenance capital expenditure levels may not
be indicative of future maintenance capital expenditure levels.
    The Administrator of the Trust (Cathedral Energy Services Ltd.) reviews
the level and nature of distributions on an on-going basis giving
consideration to current performance, historical and future trends in the
business and the expected sustainability of those trends as well as required
long-term debt repayments, maintenance capital expenditures required to
sustain performance and future growth capital expenditures. Currently cash
distributions declared are less than distributable income as the Trustees, on
the recommendation of management of the Administrator, have decided to retain
a portion of distributable income to finance capital expenditures and debt
repayment. It is not management's intent to distribute 100% of distributable
income. Distributable income is not a standardized measure under Canadian GAAP
and distributable income cannot be assured. The Trust's calculation of
distributable income may differ from similarly titled measures used by other
trusts. Distributable income is a main performance measurement used by
management and investors to evaluate the performance of the Trust.

    EBITDA:

    EBITDA is calculated as follows:

                                                          Three months ended
                                                                    March 31
                                                    -------------------------
                                                           2007         2006
    -------------------------------------------------------------------------
    EBITDA                                          $    14,412  $    15,367

    Deduct:  - depreciation and amortization              2,756        2,329
             - interest - long term debt and
                capital lease obligations                   263          210
             - non-cash compensation expense                360          426
             - provision for taxes                        1,246        1,540
    -------------------------------------------------------------------------
    Net income for the period                       $     9,787  $    10,862
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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
     ended        Mar     Dec     Sep     Jun     Mar     Dec     Sep     Jun
                 2007    2006    2006    2006    2006    2005    2005    2005
    -------------------------------------------------------------------------
    Revenues  $42,712 $35,327 $38,041 $26,204 $38,682 $32,101 $22,826 $14,617
    EBITDA     14,412  13,046  16,010   8,370  15,367  12,090   9,026   4,201
    Net income  9,787   8,127  11,396   4,963  10,862   7,762   6,179   4,008
    Net income
     per Trust
     Unit
     - basic     0.32    0.26    0.37    0.16    0.36    0.26    0.21    0.14
    Net Income
     per Trust
     Unit
     - diluted   0.31    0.26    0.36    0.16    0.35    0.25    0.21    0.14
    Cash
     distributions
     declared
     per Trust
     Unit        0.21    0.26    0.20   0.185    0.16  0.1375  0.0925    0.08
    -------------------------------------------------------------------------

    OUTLOOK

    Recently spot natural gas prices have strengthened and this is
encouraging for activity levels going forward. Oil prices still remain strong
by historical standards. Industry experts continue to forecast strong oil and
natural gas prices for the balance of 2007 and into 2008 but not at the record
prices that were attained for oil in 2006 and natural gas in 2005.
    After spring breakup, we are expecting directional drilling demand to
remain strong and in particular in the southeast Saskatchewan and U.S.
regions. In the Canadian market we continue to expand our customer base. At
the end of 2007 Q1, five MWD systems were transferred to the U.S. to meet
demand and this will reduce U.S. MWD rental costs going forward. Expansion in
the U.S. market continues and we are now breaking into the horizontal market
within North Dakota's Bakken resource play. During Q2 the Trust expects to add
5 MWD systems to its Canadian fleet to replace the systems transferred to the
U.S. On the technology forefront we continue to push forward the development
of our 2nd generation Electro-Magnetic ("EM") MWD system and initial field
testing is expected in 2007 Q2. The 2nd generation EM-MWD system will increase
the tools capabilities by allowing it to operate at deeper levels and at lower
operating costs.
    The Trust's wireline divisions have continued their equipment build out
plans and by the end of 2007 the divisions will have 30 units. With the build
out of equipment and related staffing, we are in a position to take advantage
of an upward movement in wireline activity levels. In 2007 Q2, the Trust
expects to commence providing electric line wireline services in the U.S. Two
wireline units will be transferred to the U.S. operations in 2007 Q2 and they
will be based out of an operations facility in Casper, Wyoming. To date,
senior operational and sales staff has been hired for the U.S. wireline
operations. On the production testing side of the Trust's business, we
continue to expand into the high-end testing market including critical sour
service work.
    The Board of Trustees has approved an $8,400 increase in the 2007 capital
expenditure budget to $20,000. The $8,400 increase will provide for the
acquisition of: i) a new mud motor repair facility in Nisku, Alberta; ii)
replacement of low pressure production testing units with higher pressure
units; and iii) the addition of 10 MWD systems as well as additions to the mud
motor and drill collar fleet to complement the increase in directional
drilling job capacity. In response to gas flaring issues, government
regulations are requiring more gas wells to be in-line tested. The Trust is
being proactive by upgrading its fleet of low pressure units with higher
pressure units that are required to perform in-line testing and with the
upgrade all of our production testing units will met this standard. With the
increased capital budget the Trust expects to close fiscal 2007 with 78 MWD
systems, 30 wireline units and 19 production testing units.
    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

    $ in '000's                                        March 31  December 31
    (unaudited)                                            2007         2006
    -------------------------------------------------------------------------

    ASSETS
    Current assets:
      Cash and cash equivalents                     $     1,474  $     1,554
      Accounts receivable                                40,359       37,693
      Inventory                                           3,326        3,050
      Prepaid expenses and deposits                         775          892
    -------------------------------------------------------------------------
                                                         45,934       43,189

    Property and equipment                               64,547       61,488

    Intangibles                                             699          736

    Goodwill                                             19,775       19,775

    Other asset                                               8           33
    -------------------------------------------------------------------------
                                                    $   130,963  $   125,221
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY

    Current liabilities:
      Bank Indebtedness                             $     6,265  $     6,460
      Accounts payable and accrued liabilities           19,032       16,446
      Distribution payable to Unitholders                 2,190        3,717
      Taxes payable                                         838        1,232
      Current portion of capital lease obligations          195          212
      Current portion of long-term debt                      87           71
    -------------------------------------------------------------------------
                                                         28,607       28,138

    Capital lease obligations                               405          452

    Long-term debt                                       15,211       15,100

    Future income taxes                                   5,566        5,308
    -------------------------------------------------------------------------
                                                         49,789       48,998
    -------------------------------------------------------------------------

    Unitholders' equity:
      Unitholders' capital                               46,026       44,667
      Contributed surplus                                 1,497        1,162
      Retained earnings                                  33,651       30,394
    -------------------------------------------------------------------------
                                                         81,174       76,223
    -------------------------------------------------------------------------
                                                    $   130,963  $   125,221
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
    $ in '000's except per Trust Unit amounts
    (unaudited)                                           Three months ended
                                                                    March 31
                                                           2007         2006
    -------------------------------------------------------------------------
    Revenues                                        $    42,712  $    38,682
    Expenses:
      Operating                                          21,222       17,978
      General and administrative                          6,932        5,262
      Depreciation and amortization                       2,756        2,329
      Interest - long-term debt and capital lease
       obligations                                          263          210
      Interest - other                                       96           83
      Foreign exchange loss (gain)                           47           (8)
      Non-cash compensation expense                         360          426
    -------------------------------------------------------------------------
                                                         31,676       26,280
    -------------------------------------------------------------------------
    Operating income                                     11,036       12,402

    Loss on disposal of property and equipment               (3)           -
    -------------------------------------------------------------------------
    Income before taxes                                  11,033       12,402

    Taxes:
      Current                                               988          635
      Future                                                258          905
    -------------------------------------------------------------------------
                                                          1,246        1,540
    -------------------------------------------------------------------------

    Net income for the period                             9,787       10,862

    Retained earnings, beginning of period               30,394       21,765

    Less: Distributions declared                         (6,530)      (4,838)
    -------------------------------------------------------------------------
    Retained earnings, end of period                $    33,651  $    27,789
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net income per Trust Unit:
      Basic                                         $      0.32  $      0.36
      Diluted                                       $      0.31  $      0.35
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    $ in '000's
    (unaudited)                                           Three months ended
                                                                    March 31
                                                           2007         2006
    -------------------------------------------------------------------------
    Cash provided by (used in):
    Operating activities:
    Net income for the period                       $     9,787  $    10,862
    Items not involving cash:
      Depreciation and amortization                       2,756        2,329
      Future taxes                                          258          905
      Unrealized foreign exchange gain                        -           (6)
      Non-cash compensation expense                         360          426
      Loss on disposal of property and equipment              3            -
    -------------------------------------------------------------------------
                                                         13,164       14,516
    Changes in non-cash operating working capital        (3,389)      (6,379)
    -------------------------------------------------------------------------
                                                          9,775        8,137
    -------------------------------------------------------------------------

    Investing activities:
    Property and equipment additions                     (5,805)      (8,783)
    Proceeds on disposal of property and equipment           24            -
    Changes in non-cash investing working capital         2,755        1,133
    -------------------------------------------------------------------------
                                                         (3,026)      (7,650)
    -------------------------------------------------------------------------

    Financing activities:
    Distributions paid to Unitholders                    (8,056)      (4,512)
    Advances under long-term debt                           173            -
    Repayment of long-term debt                             (46)        (103)
    Repayment of capital lease obligations                  (64)         (77)
    Proceeds on exercise of Trust Unit options            1,359        1,526
    Increase (decrease) in bank indebtedness               (195)       1,195
    -------------------------------------------------------------------------
                                                         (6,829)      (1,971)
    -------------------------------------------------------------------------
    Change in cash and cash equivalents                     (80)      (1,484)

    Cash and cash equivalents, beginning of period        1,554        2,091
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period        $     1,474  $       607
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Certain statements in this news release including (i) statements that may
contain words such as "anticipate", "could", "expect", "seek", "may" "intend",
"will", "believe", "should", "project", "forecast", "plan" and similar
expressions, including the negatives thereof, (ii) statements that are based
on current expectations and estimates about the markets in which the
Trust/Cathedral operates and (iii) statements of belief, intentions and
expectations about developments, results and events that will or may occur in
the future, constitute "forward-looking statements" and are based on certain
assumptions and analysis made by the Trust/Cathedral. Forward-looking
statements in this news release include, but are not limited to, statements
with respect to future capital expenditures, including the amount, nature and
timing thereof; oil and natural gas prices and demand; other development
trends within the oil and natural gas industry; business strategy; expansion
and growth of the Trust's/Cathedral's business and operations and other such
matters. Such forward-looking statements are subject to important risks and
uncertainties, which are difficult to predict and that may affect the
Trust's/Cathedral's operations, including, but are not limited to: the impact
of general economic conditions; industry conditions; government and regulatory
developments; oil and natural gas product supply and demand; competition; and
the Trust's/Cathedral's ability to attract and retain qualified personnel. The
Trust's/Cathedral's actual results, performance or achievements could differ
materially from those expressed in, or implied by, these forward-looking
statements and, accordingly, no assurance can be given that any of the events
anticipated by the forward-looking statements will transpire or occur, or if
any of them do transpire or occur, what benefits the Trust/Cathedral will
derive therefrom. Subject to applicable law, the Trust disclaims any intention
or obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or 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 Annual Report which have been filed with Canadian
provincial securities commissions and are available on www.sedar.com.

    %SEDAR: 00018316E
For further information: Requests for further information should be
directed to: Mark L. Bentsen, President and Chief Executive Officer, or P.
Scott MacFarlane, Chief Financial Officer, Cathedral Energy Services Ltd.,
1700, 715 - 5th Avenue S.W., Calgary, Alberta, T2P 2X6, Telephone: (403)
265-2560, Fax: (403) 262-4682, www.cathedralenergyservices.com

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