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CATHEDRAL ENERGY SERVICES LTD. REPORTS RESULTS FOR 2011 Q1 AND 2011 Q2 DIVIDEND

May 10, 2011
6:03pm

/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/

CALGARY, May 10 /CNW/ - Effective January 1, 2011, Cathedral Energy Services Ltd. ("the Company" / "Cathedral") began reporting its financial results in accordance with International Financial Reporting Standards ("IFRS").  Prior year comparatives have been restated from amounts issued under the previous Canadian Generally Accepted Accounting Principles ("CGAAP") to reflect results as if the Company had always prepared its financial statements using IFRS including the reclassification of costs previously classified as general and administrative expenses under CGAAP to cost of sales under IFRS.  Please see additional information regarding IFRS entitled "Adoption of IFRS - 2010 Quarterly Results" and Note 15 ("Explanation of transition to IFRS") in the notes to the condensed consolidated interim financial statements which will be filed on SEDAR.com.

FINANCIAL HIGHLIGHTS

Dollars in 000's except per share amounts

   

Three months ended March 31
  2011      2010
Revenues $ 54,849 $ 39,281
         
Adjusted gross margin % (1)   33%   37%
         
EBITDAS from continuing operations (1) $ 14,525 $ 12,005
  Diluted per share $ 0.38 $ 0.33
           
EBITDAS (1) $ 14,808 $ 10,966
  Diluted per share $ 0.39 $ 0.30
           
Funds from continuing operations (1) $ 13,933 $ 11,490
  Diluted per share $ 0.37 $ 0.31
           
Earnings from continuing operations before income taxes $ 10,691 $ 9,406
         
Net earnings $ 8,117 $ 5,366
  Basic per share $ 0.22 $ 0.15
  Diluted per share $ 0.21 $ 0.15
           
Dividends declared per share $ 0.06 $ 0.06
         
Property and equipment additions $ 12,858 $ 7,714
         
Weighted average shares outstanding        
  Basic (000s)   36,834   36,400
  Diluted (000s)   38,080   36,842
           
  March 31
2011
December 31
2010
     
Working capital $ 26,294 $ 19,516
         
Loans and borrowings excluding current portion $ 40,319 $ 35,435
         
Total shareholders' equity $ 119,494 $ 112,191
(1) Refer to "NON-FRS MEASUREMENTS"        

FORWARD LOOKING STATEMENTS

This news release contains certain forward-looking statements and forward-looking information (collectively referred to herein as "forward-looking statements") within the meaning of applicable Canadian securities laws.  All statements other than statements of present or historical fact are forward-looking statements.  Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "achieve", "believe", "plan", "intend", "objective", "continuous", "ongoing", "estimate", "outlook", "expect", "may", "will", "project", "should" or similar words suggesting future outcomes. In particular, this news release contains forward-looking statements relating to, among other things, : access to capital; projected capital expenditures and commitments and the financing thereof; equipment delivery and deployment dates; rental versus purchase decision; natural gas prices; future declines in natural gas drilling will be redirected to oil and liquid-rich natural gas plays; customer commitments; financial results; activity levels; commencement of Venezuela operations; expected effect of an extended breakup period and dividends.  The Company believes the expectations reflected in such forward-looking statements are reasonable as of the date hereof but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon.

Various material factors and assumptions are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking statements.  Those material factors and assumptions are based on information currently available to the Company, including information obtained from third party industry analysts and other third party sources.  In some instances, material assumptions and material factors are presented elsewhere in this news release in connection with the forward-looking statements.  You are cautioned that the following list of material factors and assumptions is not exhaustive.  Specific material factors and assumptions include, but are not limited to:

  • the performance of the Company's businesses, including current business and economic trends;
  • oil and natural gas commodity prices and production levels;
  • capital expenditure programs and other expenditures by the Company and its customers;
  • the ability of the Company to retain and hire qualified personnel;
  • the ability of the Company to obtain parts, consumables, equipment, technology, and supplies in a timely manner to carry out its activities;
  • the ability of the Company to maintain good working relationships with key suppliers;
  • the ability of the Company to market its services successfully to existing and new customers;
  • the ability of the Company to obtain timely financing on acceptable terms;
  • currency exchange and interest rates;
  • risks associated with foreign operations including Venezuela;
  • the ability of the Company to realize the benefit of its conversion from an income trust to a corporation;
  • risks associated with the formation of Cathedral's joint venture company in Venezuela which is required prior to commencement of Venezuela operations, some of which are out of the control of Cathedral;
  • risks associated with Venezuela joint venture company being awarded work by the Venezuela state run oil and natural gas corporation;
  • changes under governmental regulatory regimes and tax, environmental and other laws in Canada, United States ("U.S.") and Venezuela; and
  • a stable competitive environment.

Forward-looking statements are not a guarantee of future performance and involve a number of risks and uncertainties some of which are described herein.  Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause the Company's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements.  These risks and uncertainties include, but are not limited to, the risks identified in this news release and in the Company's Annual Information Form under the heading "Risk Factors".  Any forward-looking statements are made as of the date hereof and, except as required by law, the Company assumes no obligation to publicly update or revise such statements to reflect new information, subsequent or otherwise.

All forward-looking statements contained in this news release are expressly qualified by this cautionary statement. Further information about the factors affecting forward-looking statements is available in the Company's current Annual Information Form and Annual Report which have been filed with Canadian provincial securities commissions and are available on www.sedar.com.

NON-IFRS MEASUREMENTS

This news release refers to certain non-IFRS measurements that do not have any standardized meaning within IFRS and therefore may not be comparable to similar measures provided by other companies.  Management utilizes these non-IFRS measurements to evaluate Cathedral's performance.

The specific measures being referred to include the following:

i) "Adjusted gross margin" - calculated as gross margin plus non-cash items (depreciation and share-based compensation); is considered a primary indicator of operating performance (see tabular calculation on the following page);

ii) "Adjusted gross margin %" - calculated as adjusted gross margin divided by revenues; is considered a primary indicator of operating performance (see tabular calculation on the following page);

iii) "EBITDAS" - defined as earnings before finance costs, unrealized foreign exchange on intercompany balances, unrealized foreign exchange due to hyper-inflation accounting, taxes, depreciation and share-based compensation; is considered an indicator of the Company'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 on the following page);

iv)  "EBITDAS from continuing operations" - defined as earnings before finance costs, unrealized foreign exchange on intercompany balances, unrealized foreign exchange due to hyper-inflation accounting, taxes, depreciation and share-based compensation excluding the portion due from discontinued operations in each component of the calculation; is considered an ongoing indicator of the Company'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 on the following page);

v)  "EBITDAS from discontinued operations" - defined as earnings before finance costs, unrealized foreign exchange on intercompany balances, unrealized foreign exchange due to hyper-inflation accounting, taxes, depreciation and share-based compensation from discontinued operations of the Company's former wireline division in each component of the calculation;

vi) "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

vii) "Funds from continuing operations" - calculated as cash provided by operating activities before changes in non-cash working capital, cash flow from discontinued operations and income taxes paid less current tax expense is considered an indicator of the Company's ability to generate funds flow from operations on an after tax basis but excluding changes in non-cash working capital which is financed using the Company's operating loan (see tabular calculation on the following page).

The following tables provide reconciliations from IFRS measurements to non-IFRS measurements referred to in this news release:

Adjusted gross margin

   
  Three months ended March 31
    2011   2010
Gross margin $ 14,899 $ 12,310
Add non-cash items included in cost of sales:        
  Depreciation   3,379   2,303
  Share-based compensation   64   78
           
Adjusted gross margin $ 18,342 $ 14,691
         
Adjusted gross margin %   33%   37%

EBITDAS

   
  Three months ended March 31
    2011   2010
Earnings from continuing operations before income taxes $ 10,691 $ 9,406
Add (deduct):        
  Depreciation included in cost of sales   3,379   2,303
  Depreciation included in selling, general and administrative expenses   49   80
  Share-based compensation included in cost of sales   64   78
  Share-based compensation included in selling, general and administrative expenses   378   661
   Unrealized foreign exchange gain on intercompany balances   (471)   (463)
  Unrealized foreign exchange gain due to hyper-inflation accounting   -   (510)
  Finance costs   435   450
EBITDAS from continuing operations   14,525   12,005
EBITDAS from discontinued operations   283   (1,039)
EBITDAS $ 14,808 $ 10,966

Funds from continuing operations

           
  Three months ended March 31
    2011   2010
Cash flow from operating activities $ 7,545 $ 2,532
Add (deduct):        
  Cash flow from discontinued operations   -   1,060
   Changes in non-cash operating working capital   5,728   7,564
  Income taxes paid   321   3
  Current tax (expense) recovery   339   331
Funds from continuing operations $ 13,933 $ 11,490

OVERVIEW

The Company completed the first quarter of 2011 with revenues of $54,849 compared to 2010 Q1 at $39,281.  The 2011 Q1 revenues were comprised of 76% (2010 Q1 - 79%) from the directional drilling division and 24% (2010 Q1 - 21%) from the production testing division.

2011 Q1 EBITDAS was $14,808 ($0.39 per share - diluted) which represents a $3,842 or 35% increase from $10,966 ($0.30 per share - diluted) in 2010 Q1.  2011 Q1 EBITDAS from continuing operations was $14,525 ($0.38 per share - diluted) an increase of $2,520 or 21% from $12,005 ($0.33 per share - diluted) in 2010 Q1.  The Company's net earnings for 2011 Q1 was $8,117 (2010 - $5,366) or $0.21 (2010 - $0.15) per share - diluted.

RESULTS OF OPERATIONS

                           
  Three months ended March 31, 2011   Three months ended March 31, 2010
Revenues   Directional
drilling
Production
testing 
Total   Directional
drilling
Production
testing
Total
                 
Canada $ 31,003 $ 8,769 $ 39,772   $ 21,800 $ 5,226 $ 27,026
                           
United States   10,570   4,507   15,077     9,202   3,053   12,255
                           
                           
Total $ 41,573 $ 13,276 $ 54,849   $ 31,002 $ 8,279 $ 39,281

Revenues and gross margin

2011 Q1 revenues were $54,849 which represented an increase of $15,568 or 40% from 2010 Q1 revenues of $39,281.  The increase was primarily attributed to the focus on horizontal, multi-stage fracturing technology to complete conventional and unconventional resource plays in both Canada and the U.S. which has allowed for continued strength in activity levels for the oilfield services sector.   Demand for Cathedral's services has also been driven by both oil and liquids-rich natural gas plays.

The directional drilling division revenues have increased from $31,002 in 2010 to $41,573 in 2011.  This increase is the result of: i) a 23% increase in activity days from 3,261 in 2010 to 4,026 in 2011; and ii) an increase in the average day rate from $9,350 in 2010 Q1 to $10,221 in 2011 Q1 - 9% increase.  For 2010 Q4, the average day rate was $10,100.  On year-over-year basis, Canadian day rates have increased 14% and this increase is attributable to a combination of passing on increased field labour rates to customers and general rate increases.  U.S. day rates have increased slightly in U.S. dollars but declined 3% when converted to Canadian dollars.  The day rates disclosed in this news release reflect revenue as classified under IFRS - see notes to financial statements for explanation of changes in revenue classifications.  Canadian activity days increased from 2,303 to 2,888 and U.S. activity days increased from 958 to 1,138.

The Company's production testing division contributed $13,276 in revenues during 2011 Q1 which is a 60% increase over 2010 revenues of $8,279.  This increase is attributable to the overall increase in testing units from 35 at the end of 2010 Q1 to 56 at the end of 2011 Q1, plus an increase in oilfield service activities on a year-over-year basis.

The gross margin for 2011 Q1 was 27% compared to 31% in 2010 Q1.  Under IFRS, cost of sales includes the non-cash expenses for a portion of depreciation and share-based compensation.  As shown above, these non-cash expenses total $3,443 for 2011 Q1 and $2,381 for 2010 Q1.  Adjusted gross margin for 2011 Q1 is $18,342 (33%) compared to $14,691 (37%) for 2010 Q1.

The decline in adjusted gross margin of 4% is attributed to the combined effects of:

i) increase in labour costs.  Field labour rates have increased and such increases have not been fully compensated for by revenue increases.  Startup costs have been incurred with respect to Houston operations facility and training of field staff for future Venezuela operations.  Additional operating administrative staff positions were added to accommodate growth;
ii) increase in repairs and maintenance costs due to timing of repairs as there was a backlog of repair work from 2010 that were completed in 2011 Q1; and
iii) an increase in specialized equipment rentals. These rentals related to specialized equipment needs of certain clients in both divisions.  The Company regularly reviews the equipment being rented and if there is a broad base demand will purchase equipment.  If the demand for the equipment is not supported for purchase, it will continue to rent as needed.

Depreciation allocated to cost of sales increased from $2,303 in 2010 Q1 to $3,379 in 2011 Q1 due to capital additions in the period from 2010 Q2 to 2011 Q1.  Depreciation included in cost of sales as a percentage of revenue was 6% in both quarters.

For 2011 Q1 the Company had share-based compensation included in cost of sales of $64 compared to $78 recognized in 2010 Q1.  The value of the options is being amortized against income over the three-year vesting periods.

Selling, general and administrative expenses ("SG&A")    

SG&A were $5,192 in 2011 Q1; an increase of $718 compared with $4,474 in 2010 Q1.  As a percentage of revenue, these costs were 9% in 2011 Q1 and 11% in 2010 Q1.  Under IFRS, SG&A includes the non-cash expenses for a portion of depreciation and share-based compensation.  These non-cash expenses total $427 for 2011 Q1 and $741 for 2010 Q1.  SG&A net of these non-cash items were 2011 Q1 $4,765 and 2010 Q1 $3,733, an increase of $1,032.  Staffing costs increased $954; this increase was primarily related to staff additions for research and development department, staff positions added to accommodate growth, wage increases for existing staff as well as changes in variable compensation.  The staffing costs included in SG&A relate to executives, sales, accounting, human resources, payroll, safety, research and development and related support staff.  The remaining increase of $78 relates to several items, none of which was significant individually.

Depreciation allocated to SG&A decreased slightly from $80 in 2010 Q1 to $49 in 2011 Q1 due to aging assets and less depreciation under the declining balance method of depreciation.

For 2011 Q1 the Company had share-based compensation included in SG&A of $378 compared to $661 recognized in 2010 Q1.  The value of the options is being amortized against income over the three-year vesting periods.

Gain on disposal of property and equipment    

During 2011 Q1 the Company had a gain on disposal of property and equipment of $931 which compares to $846 in 2010 Q1.  The Company's gains are mainly due to recoveries of lost-in-hole equipment costs including previously expensed depreciation on the related assets.  The timing of lost-in-hole recoveries is not in the control of the Company and therefore can fluctuate significantly from quarter-to-quarter.

Foreign exchange gain    

The Company's foreign exchange gain has decreased from a $1,174 in 2010 Q1 to $488 in 2011 Q1 due to the fluctuations in the Canadian dollar compared to U.S. dollars and Venezuelan bolivars.  Upon consolidation the Company's foreign operations are considered to be self-sustaining and therefore gains and losses due to fluctuations in the foreign currency exchange rates are recorded in other comprehensive income ("OCI") on the balance sheet as a component of equity.  However, gains and losses in the Canadian entity on U.S. denominated intercompany balances continue to be recognized in the statement of income.  Included in the 2011 Q1 foreign currency gain are unrealized gains of $471 (2010 Q1 - $463) related to intercompany balances.

Finance costs    

Finance costs consist of interest expenses on operating loan, loans and borrowings and bank charges of $435 for 2011 Q1 and $450 for 2010 Q1.  Interest expense related to revolving term loan decreased from $307 in 2010 Q1 to $249 in 2011 Q1 due to the decrease in the average level of debt outstanding.  Interest on operating loan, which increased marginally on a year-over-year basis from $112 in 2010 Q1 to $145 in 2011 Q1, due to increased average balance outstanding on the operating loan on a year-over-year basis.  Interest on finance lease liabilities was $23 in 2011 Q1 compared to $22 in 2010 Q1.  Other interest which consists of bank charges, non-deductible interest and other minor interest charges was $18 in 2011 Q1 compared to $9 in 2010 Q1.

Taxes    

For 2011 Q1, the Company had a tax expense of $2,779 as compared to $2,845 in 2010 Q1.  The effective tax rate for 2011 Q1 is 26% compared to 30% in 2010 Q1.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal source of liquidity is cash generated from operations.  The Company also has the ability to fund liquidity requirements through its credit facility and the issuance of debt and/or equity.  At March 31, 2011, the Company had an operating loan with a major Canadian bank in the amount of $20,000 (December 31, 2010 - $20,000) of which $3,585 (December 31, 2010 - $8,765) was drawn.  In addition, the Company has a non-reducing revolving term loan facility in the amount of $45,000 (December 31, 2010 - $45,000) of which $39,500 was drawn as at March 31, 2011 (December 31, 2010 - $34,500.)  In addition, at March 31, 2011, the Company had finance lease liabilities of $1,428 (December 31, 2010 - $1,580) and other long-term debt of $19 (December 31, 2010 - $29).

Operating activities    

Cash flow from operating activities increased from $2,532 in 2010 Q1 to $7,545 in 2011 Q1, an increase of $5,013 or 198%.  Funds from continuing operations (see Non-IFRS Measurements) for 2011 Q1 were $13,933 compared to $11,490 for 2010 Q1 an increase of $2,443.  This increase was caused mainly by the increase on earnings due to increased activity levels.  The Company has a working capital position at March 31, 2011 at $26,294 which compares to $19,516 at December 31, 2010.

Investing activities    

Cash used in investing activities for the three months ended March 31, 2011 amounted to $7,495 compared to $5,420 for 2010 Q1.  During 2011 Q1 the Company invested an additional $12,858 (2010 Q1 - $7,714) in property and equipment.  The main additions were three positive pulse MWD systems, $2,518 in maintenance capital for retro-fit, upgrades and replacement of downhole tools, progress payments for the Calgary operations facility which is currently under construction, deposits for six high pressure production testing units and related auxiliary production testing equipment.  The Company received proceeds on disposal of property and equipment of $4,048 in 2011 Q1 (2010 Q1 - $1,262).  In 2011 Q1 Cathedral had a source of funds by way of non-cash investing working capital in the amount of $1,315 (2010 - $1,032); 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 payment for property and equipment are made.

The following is a summary of major equipment owned by the Company:

       
  March 31
2011
December 31
2010
March 31
2010
Directional drilling - MWD systems 105 102 96
Production testing units 56 56 35

 

Financing activities    

Cash used in financing activities for 2011 Q1 amounted to $1,400 as compared to cash provided by financing activities of $1,940 in 2010 Q1.  During 2011 Q1, the Company made interest payments of $535 compared to $457 in 2010.   Advances on operating loan for 2011 Q1 were $5,197 (2010 - repayments of $2,535).  The Company received advances of long-term debt in the amount of $5,000 (2010 - $nil), the proceeds of which were used to finance property and equipment additions.  Cathedral made payments on loans and borrowings of $138 (2010 Q1 - $138).  The Company made payments of dividends of $2,204 in 2011 Q1 (2010 - $nil).  The Company received proceeds on the exercise of share options of $1,674 (2010 - $nil).  As at March 31, 2011, the Company was in compliance with all covenants under its credit facility.  At May 10, 2011, the Company has 37,056,151 common shares and 3,099,444 share options outstanding.

Contractual obligations    

In the normal course of business, the Company incurs contractual obligations and those obligations are disclosed in the Company's Management's Discussion and Analysis for the year ended December 31, 2010.  As at March 31, 2011, the Company has a commitment to purchase approximately $9,015 of property and equipment.  Cathedral anticipates expending these funds in 2011 Q2.

2011 CAPITAL PROGRAM

Cathedral's 2011 capital budget remains at $35,500. In summary, the major items within the 2011 capital budget are: i) twenty-seven MWD systems (including 7 carried forward from the 2010 capital budget) and related mud motors and collars to complement the increased job capability; ii) LWD (resistivity) equipment; iii) six high pressure production testing units and auxiliary production testing equipment to complement the overall fleet; iv) $5,000 allocated to the new head office and operations facility in Calgary; and v) $3,778 of maintenance capital.  The maintenance capital includes the retro-fit, upgrades and replacement of downhole tools. These capital expenditures are expected to be financed by way of cash flow from operations and the Company's credit facility.

DIVIDENDS

It is the intent of the Company to pay quarterly dividends to shareholders.  The Board of Directors will review the amount of dividends on a quarterly basis with due consideration to current performance, historical and future trends in the business, the expected sustainability of those trends and enacted tax legislation which will affect future taxes payable as well as required long-term debt repayments, maintenance capital expenditures required to sustain performance and future growth capital expenditures.  The Directors have approved a 2011 Q2 dividend in the amount of $0.06 per share which will have a date of record of June 30, 2011 and a payment date of July 15, 2011.

NEW ACCOUNTING POLICIES

Certain new standards, interpretations, amendments and improvements to existing standards were issued by the IASB or International Financial Reporting Interpretations Committee ("IFRIC") that are mandatory for accounting periods beginning after January 1, 2010. The Company has reviewed these and determined that the following may have an impact on the Company:

As of January 1, 2013, Cathedral will be required to adopt IFRS 9, "Financial Instruments", which is the result of the first phase of the IASB's project to replace IAS 39, "Financial Instruments: Recognition and Measurement". The new standard replaces the current multiple classification and measurement models for financial assets and liabilities with a single model that has only two classification categories: amortized cost and fair value. Cathedral is in the process of determining the impact of this Standard.

ADOPTION OF IFRS - 2010 QUARTERLY RESTATEMENT

In February 2008, the Canadian Institute of Charted Accountants confirmed that the use of International Financial Reporting Standards ("IFRS") will be required in Canada for publicly accountable profit oriented enterprises for fiscal years beginning on or after January 1, 2011.  As a result of applying IFRS, the following table outlines Cathedral's operations for the quarters of 2010 that will be presented as comparative figures in its 2011 financial statements.

                     
      Q1   Q2   Q3   Q4 2010 Total
Revenue   $ 39,281 $ 25,417 $ 42,022 $ 46,364 $ 153,084
Cost of sales     (26,971)   (21,396)   (30,323)   (32,393)   (111,083)
Gross margin     12,310   4,021   11,699   13,971   42,001
Selling, general and administrative expenses     (4,474)   (4,723)   (5,045)   (5,006)   (19,248)
Gain on disposal of property and equipment     846   366   1,397   152   2,761
Earnings from operating activities     8,682   (336)   8,051   9,117   25,514
Foreign exchange gain (loss)     1,174   (1,109)   772   890   1,727
Finance costs     (450)   (359)   (475)   (471)   (1,755)
Earnings from continuing operations before income taxes   9,406   (1,804)   8,348   9,536   25,486
Income tax recovery (expense)     (2,845)   437   (2,277)   (2,755)   (7,440)
Net earnings from continuing operations     6,561   (1,367)   6,071   6,781   18,046
Net earnings from discontinued operations     (1,195)   (525)   11   (10)   (1,719)
Net earnings     5,366   (1,892)   6,082   6,771   16,327
Other comprehensive income (loss):                      
Foreign currency translation differences for foreign operations   (2,013)   1,344   (894)   (1,251)   (2,814)
Total comprehensive income (loss) $ 3,353 $   (548) $ 5,188 $ 5,520 $ 13,513
Net earnings per share - basic $ 0.15 $ (0.05) $ 0.17 $ 0.19 $ 0.45
Net earnings per share - diluted $ 0.15 $ (0.05) $ 0.17 $ 0.18 $ 0.44
 


                   
                     
Revenue     Q1   Q2   Q3   Q4 2010 Total
Canadian directional drilling $ 21,800 $ 8,864 $ 22,256 $ 23,667 $ 76,587
Canadian production testing   5,226   2,511   4,075   6,757   18,569
United States directional drilling   9,202   10,301   11,051   11,387   41,941
United States production testing   3,053   3,741   4,640   4,553   15,987
Revenue $ 39,281 $ 25,417 $ 42,022 $ 46,364 $ 153,084
 


                   
                     
EBITDAS     Q1   Q2   Q3   Q4 2010 Total
Earnings from continuing operations before income taxes $ 9,406 $  (1,804) $ 8,348 $ 9,536 $ 25,486
Add (deduct):                    
   Depreciation included in cost of sales   2,303   2,559   3,043   3,310   11,215
  Depreciation included in selling, general and administrative expenses   80   83   85   66   314
  Share-based compensation included in cost of sales   78   75   79   118   350
  Share-based compensation included in selling, general and administrative expenses   661   600   640   404   2,305
  Unrealized foreign exchange (gain) loss on intercompany balances   (463)   695   (463)   (499)   (730)
  Unrealized foreign exchange gain due to hyper-inflation accounting   (510)   -   -   -   (510)
  Finance costs   450   359   475   471   1,755
EBITDAS from continuing operations   12,005   2,567   12,207   13,406   40,185
EBITDAS from discontinued operations   (1,039)   (741)   9   (15)   (1,786)
EBITDAS $ 10,966 $  1,826 $ 12,216 $ 13,391 $ 38,399
EBITDAS per share - diluted $ 0.30 $ 0.05 $ 0.34 $ 0.36 $ 1.03


SUMMARY OF QUARTERLY RESULTS

                                                               
      Presented under IFRS       Presented under CGAAP
      Mar       Dec       Sep       Jun       Mar       Dec       Sep       Jun
Three month periods ended     2011       2010       2010       2010       2010       2009       2009       2009
Revenue $   54,849   $   46,364   $   42,022   $   25,417   $   39,281   $   24,741   $   20,176   $   10,654
EBITDAS(1)     14,808       13,391       12,216       1,826       10,966       5,864       5,724       (1,721)
Net earnings     8,117       6,771       6,082       (1,892)       5,366       2,236       3,125       (1,484)
Net earnings per share - basic $   0.22   $   0.19   $   0.17   $   (0.05)   $   0.15   $   0.06   $   0.09   $   (0.04)
Net earnings per share - diluted $   0.21   $   0.18   $   0.17   $   (0.05)   $   0.15   $   0.06   $   0.09   $   (0.04)
Dividends declared per share $   0.06   $   0.06   $   0.06   $   0.06   $   0.06   $   -   $   0.04   $   0.12

(1) Refer to "NON-IFRS MEASUREMENTS"

OUTLOOK

The outlook for Cathedral and the energy services sector in general has not changed significantly since we reported results for the year ended December 31, 2010. Demand continues to be driven by both oil and liquids-rich natural gas plays.  Natural gas prices are expected to remain weak in the near term despite natural gas storage levels being below its five year average.  If natural gas prices continue to be low it is expected that any further decline in natural gas drilling will be redirected to oil and liquids-rich natural gas plays.  The focus on horizontal, multi-stage fracturing to complete conventional and unconventional resource plays across North America continues to be a tremendous boost for the services provided by Cathedral.   Directional drilling and production testing flow back operations are considered key services in applying this new completion technology.  After completing 2011 Q1 with strong demand for all of Cathedral's services, the outlook post breakup is expected to remain robust as evidenced by customer's commitments to projects that are longer term in nature.  With above average snow pack in certain regions within the Canadian market, as well as the late arrival of spring, potential exists for an extended breakup period which may impact 2011 Q2 revenues.  Any extension in the breakup period is expected to increase the backlog of work going into the remainder of 2011.

To accommodate the expected increase in activity levels, Cathedral continues its program to add new equipment and to train field personnel.  In 2011 Cathedral expects to add 27 MWD systems and related mud motors and drill collars to complement the increased job capability.  In 2011 Q1, 3 MWD systems were added to the fleet.  The Production Testing division has ordered 6 high pressure units and auxiliary equipment to complement its overall fleet. The 6 high pressure units are expected to be operational in late 2011 Q2/early 2011 Q3.

Cathedral continues to work towards providing directional drilling services in Venezuela with its joint venture partner, PDVSA, the state-owned oil and natural gas corporation of the Bolivarian Republic of Venezuela.  Upon completion of the incorporation/registration process for the joint venture, Cathedral and PDVSA will work towards a start-up date for the joint venture's operations.



CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
March 31, 2011, December 31, 2010 and January 1, 2010
Dollars in '000s
(unaudited)

                                         
                        March 31       December 31       January 1
                        2011       2010       2010
Assets                                        
Current assets:                                        
  Cash and cash equivalents                   $   315   $   1,740   $   491
  Trade receivables                       45,657       37,794       27,727
  Current tax assets                       597       -       2,550
  Prepaid expenses                       1,730       1,980       1,651
  Inventories                       8,999       7,663       5,315
  Assets held for sale                       1,123       3,344       15,860
Total current assets                       58,421       52,521       53,594
Property and equipment                       111,196       102,546       76,964
Intangible assets                       331       387       884
Deferred tax assets                       16,636       19,499       24,295
Goodwill                       5,848       5,848       5,848
Total non-current assets                       134,011       128,280       107,991
Total assets                   $   192,432   $   180,801   $   161,585
                                         
Liabilities and Shareholders' Equity                                        
Current liabilities:                                        
  Operating loan                   $   3,585   $   8,765   $   2,181
  Trade and other payables                       25,692       21,309       13,686
  Dividends payable                       2,222       2,204       -
  Loans and borrowings                       628       674       701
  Current taxes payable                       -       53       -
Total current liabilities                       32,127       33,005       16,568
Loans and borrowings                       40,319       35,435       40,948
Deferred tax liabilities                       492       170       631
Total non-current liabilities                       40,811       35,605       41,579
                                           
Shareholders' equity:                                        
  Share capital                       72,889       70,753       68,995
  Contributed surplus                       6,755       6,775       4,532
  Accumulated other comprehensive loss                       (3,522)       (2,814)       -
  Retained earnings                       43,372       37,477       29,911
Total shareholders' equity                       119,494       112,191       103,438
Total liabilities and shareholders' equity                   $   192,432   $   180,801   $   161,585
                                           
                                         

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three months ended March 31, 2011 and 2010
Dollars in '000s except per share amounts
(unaudited)

                         
                March 31       March 31
                2011       2010
Revenues           $   54,849   $   39,281
Cost of sales               (39,950)       (26,971)
Gross margin               14,899       12,310
Selling, general and administrative expenses               (5,192)       (4,474)
Gain on disposal of property and equipment               931       846
Earnings from operating activities               10,638       8,682
Foreign exchange gain               488       1,174
Finance costs               (435)       (450)
Earnings from continuing operations before income taxes               10,691       9,406
Income tax expense               (2,779)       (2,845)
Net earnings from continuing operations               7,912       6,561
Net earnings from discontinued operations               205       (1,195)
Net earnings               8,117       5,366
Other comprehensive loss:                        
  Foreign currency translation differences for foreign operations               (708)       (2,013)
Total comprehensive income           $   7,409   $   3,353
                         
Net earnings from continuing operations per share                        
  Basic and diluted           $   0.21   $   0.18
Net earnings from discontinued operations per share                        
  Basic and diluted           $   0.01   $   (0.03)
Net earnings                        
  Basic           $   0.22   $   0.15
  Diluted           $   0.21   $   0.15
                           

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Periods ended March 31, 2011 and 2010
Dollars in '000s except per share amounts
(unaudited)

                                         
                      Accumulated                  
                      other                  
                Contributed     comprehensive         Retained        
          Share capital     surplus     income (loss)         earnings       Total equity
Balance at January 1, 2010       $ 68,996   $ 4,532   $ -   $     29,911   $   103,438
Total comprehensive income for three months ended
March 31, 2010
        -     -     (2,013)         5,366       3,353
Transactions with shareholders, recorded directly in equity
contributions by and distributions to shareholders for
three months ended March 31, 2010:
                                       
  Issue of common shares         -     -               -       -
  Dividends to equity holders         -     -               (2,184)       (2,184)
  Share-based compensation         -     739               -       739
  Share options exercised         -     -               -       -
Total contributions by and distributions to shareholders         -     739     -         (2,184)       (1,445)
Balance at March 31, 2010       $ 68,996   $ 5,271   $ (2,013)   $     33,093   $   105,346
Balance at December 31, 2010       $ 70,753   $ 6,775   $ (2,814)   $     37,477   $   112,191
Total comprehensive income for three months ended
March 31, 2011
        -     -     (708)         8,117       7,409
Transactions with shareholders, recorded directly in equity
contributions by and distributions to shareholders for
three months ended March 31, 2011:
                                       
  Issue of common shares         -     -     -         -       -
  Dvidends to equity holders         -     -     -         (2,222)       (2,222)
  Share-based compensation         -     442     -         -       442
  Share options exercised         2,136     (462)     -         -       1,674
Total contributions by and distributions to shareholders         2,136     (20)     -         (2,222)       (106)
Balance at March 31, 2011       $ 72,889   $ 6,755   $ (3,522)   $     43,372   $   119,494
                                         
                                         

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three months ended March 31, 2011 and 2010
Dollars in '000s except per share amounts
(unaudited)

                               
                  2011           2010
Cash provided by (used in):                              
                               
Operating activities:                              
  Net earnings from continuing operations           $     7,912     $     6,561
  Items not involving cash                              
    Depreciation                 3,428           2,383
    Income tax expense                 2,779           2,845
    Unrealized foreign exchange gain on intercompany balances                 (471)           (463)
    Unrealized foreign exchange gain due to hyper-inflation accounting                 -           (510)
    Finance costs                 435           450
    Share-based compensation                 442           739
    Gain on disposal of properly and equipment                 (931)           (846)
  Cash flow from continuing operations                 13,594           11,159
  Cash flow from discontinuing operations                 -           (1,060)
  Changes in non-cash operating working capital                 (5,728)           (7,564)
  Income taxes paid                 (321)           (3)
Cash flow from operating activities                 7,545           2,532
Investing activities:                              
  Properly and equipment additions                 (12,858)           (7,714)
  Proceeds on disposal of properly and equipment                 1,542           1,248
  Proceeds on disposal of properly and equipment held for sale                 2,506           14
  Changes in non-cash investing working capital                 1,315           1,032
Cash flow from investing activities                 (7,495)           (5,420)
Financing activities:                              
  Change in operating loan                 (5,197)           2,535
  Interest paid                 (535)           (457)
  Advances of loans and borrowings                 5,000           -
  Repayments on loans and borrowings                 (138)           (138)
  Proceeds on exercise of share options                 1,674           -
  Dividends paid                 (2,204)           -
Cash flow from financing activities                 (1,400)           1,940
Effect of exchange rate on changes in cash and cash equivalents                 (75)           (19)
Change in cash and cash equivalents                 (1,425)           (967)
Cash and cash equivalents, beginning of period                 1,740           491
Cash and cash equivalents, end of period           $     315     $     (476)

Cathedral Energy Services Ltd. (the "Company"/"Cathedral") and its wholly owned subsidiary, Cathedral Energy Services Inc., are engaged in the business of providing selected oilfield services to oil and natural gas companies in western Canada and selected oil and natural gas basins in the United States.  The Company is in the process of establishing operations in Venezuela for providing directional drilling services through its wholly owned subsidiaries Directional Plus International Ltd. and Directional Plus de Venezuela, C.A.  The Company's operating activities are divided into directional drilling and production testing business units.  The Company's shares trade on the TSX under the symbol: CET.  For more information, visit www.cathedralenergyservices.com.

 

 

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.