Cathedral Energy Services Ltd. reports results for 2009 Q4 and the year ended
December 31, 2009, updated 2010 capital budget and 2010 Q1 dividend

/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/

CALGARY, March 3 /CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral" / TSX: CET) is pleased to report its results for 2009 Q4 and the year-end December 31, 2009, updated 2010 capital budget and 2010 Q1 dividend. Dollars are in '000's except for day rates and per share amounts.

    
    FINANCIAL HIGHLIGHTS
                                    Three months ended           Years ended
                                           December 31           December 31
                                  --------------------- ---------------------
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Revenues                      $  26,695  $  50,506  $  94,520  $ 178,928

    Gross margin %(1)                   46%        42%        45%        45%

    EBITDAS(1)                    $   5,864  $  13,554  $  16,652  $  50,468
      Per share - diluted         $    0.16  $    0.43  $    0.48  $    1.57

    Income before taxes           $   1,096  $   9,086  $   2,001  $  34,594

    Net income                    $   2,236  $   9,737  $   5,281  $  30,139
      Per share - basic           $    0.06  $    0.30  $    0.15  $    0.94
      Per share - diluted         $    0.06  $    0.30  $    0.15  $    0.93

    Property and equipment
     additions                    $   1,614  $  21,054  $   8,923  $  47,618

    Weighted average shares
     outstanding:
      Basic ('000)                   36,238     32,582     34,841     32,215
      Diluted ('000)                 36,400     32,582     34,857     32,463
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                                                         December   December
                                                          31 2009    31 2008
    -------------------------------------------------------------------------
    Working capital                                     $  22,451  $  17,435

    Long-term debt excluding current portion               39,526     40,233

    Shareholders' equity                                   97,422     91,859
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) see "NON-GAAP 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: access to capital; projected capital expenditures and commitments and the financing thereof; financial results; activity levels; technology advances; 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;
    -   the ability of the Company to realize the benefit of its conversion
        from an income trust to a corporation;
    -   changes under governmental regulatory regimes and tax, environmental
        and other laws; 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-GAAP MEASUREMENTS

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.

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)  "Gross margin %" - calculated as gross margin divided by revenues is
         considered a primary indicator of operating performance (see tabular
         calculation under Results of Operations);

    iii) "EBITDAS" - defined as earnings before interest on long-term debt,
         taxes, depreciation, amortization, non-cash compensation expense and
         unrealized foreign exchange gain/loss; this measure 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. The
         definition of EBITDAS was changed in 2009 Q2 to adjust for
         unrealized foreign exchange gain/loss. Comparative amounts presented
         have been restated to the new calculation (see tabular calculation
         under EBITDAS);

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

OVERVIEW

Cathedral Energy Services Ltd. (the "Company" or "Cathedral") is incorporated under the Business Corporations Act (Alberta) (the "Act"). The Company was created as a result of the conversion of Cathedral Energy Services Income Trust (the "Trust") to a corporation pursuant to a Plan of Arrangement under the Act, entered into by various entities including the Trust, Cathedral Energy Services Ltd. ("CES") and SemBioSys Genetics Inc. ("SBS") (the "Reorganization").

Upon closing of the Reorganization on December 18, 2009, the Company became the operator of the business of the Trust and its subsidiaries and the existing management and board of directors of CES, plus one director of SBS, became the management and board of directors of the Company. The Reorganization resulted in the Unitholders of the Trust becoming shareholders of the Company with no changes to the underlying business operations. The Company did not acquire any additional business carried on by SBS. The former business of SBS is being carried on by a new entity named SemBioSys Genetics Inc. ("New SBS") which is owned by the former shareholders of SBS.

Prior to the closing of the Reorganization, the consolidated financial statements included the accounts of the Trust, its subsidiaries and partnerships, all of which were wholly owned. Subsequent to the Reorganization, the consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. The Company is considered a continuation of the Trust and these consolidated financial statements follow the continuity of interests method of accounting. Under the continuity of interests method of accounting the transfer of assets, liabilities and equity from the Trust to the Company are recorded at their net book values as at December 18, 2009.

As a result of the application of the continuity of interests method of accounting, certain terms such as shareholders'/unitholders' and share-based/unit-based may be used interchangeably throughout this news release.

UPDATED 2010 CAPITAL PROGRAM

For 2010, the Board of Directors of the Company has approved an updated capital budget of $20,650 including approximately $7,200 for maintenance capital and $3,800 allocated to the new head office and operations centre located in Calgary, which was purchased in 2008. The maintenance capital includes the retro-fit and upgrades to downhole tools. The balance of the 2010 capital program relates mainly to the purchase and integration of resistivity (logging while drilling "LWD") equipment and additional production testing equipment. 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. 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 2010 Q1 dividend in the amount of $0.06 per share which will have a date of record of March 31, 2010 and a payment date of April 15, 2010.

RESULTS OF OPERATIONS

Overview

The Company completed 2009 with revenues of $94,520 compared to 2008 at $178,928. The 2009 revenues were lead by the Company's directional drilling division which represented 69% (2008 - 76%) of total revenues with the remainder composed of production testing division at 18% (2008 - 10%) and wireline division at 13% (2008 - 14%) of total revenues. The decline in drilling in the oil and gas sector due to low commodity prices and the overall decline in the economy have resulted in a significant decline in revenues as compared to 2008.

2009 EBITDAS was $16,652 ($0.48 per share - diluted) which represents a $33,816 or 67% decrease from $50,468 ($1.55 per share - diluted) in 2008. 2009 EBITDAS is net of one-time charges in the amount of $1,130 of which $453 related to its restructuring of electric line ("E-Line") division and $677 related to the conversion to a corporation.

    
    Revenues and operating expenses
    -------------------------------------------------------------------------
                                       2009       2008     Change          %
    -------------------------------------------------------------------------
    Revenues                      $  94,520  $ 178,928  $ (84,408)       (47)
    Operating expenses               52,128     98,614    (46,486)       (47)
    -------------------------------------------------------------------------
    Gross margin - $              $  42,392  $  80,314  $ (37,922)       (47)
    -------------------------------------------------------------------------
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    Gross margin - %                    45%        45%         0%
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    -------------------------------------------------------------------------
    Revenues                                    Year ended December 31, 2009
    -------------------------------------------------------------------------
                                Directional  Production
                                   drilling    testing   Wireline      Total
    -------------------------------------------------------------------------
    Canada                        $  40,596  $   8,806  $   6,524  $  55,926
    United States                    24,161      8,536      5,897     38,594
    -------------------------------------------------------------------------
                                  $  64,757  $  17,342  $  12,421  $  94,520
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    -------------------------------------------------------------------------
    Revenues                                    Year ended December 31, 2008
    -------------------------------------------------------------------------
                                Directional  Production
                                   drilling    testing   Wireline      Total
    -------------------------------------------------------------------------
    Canada                        $  71,886  $  13,348  $  18,356  $ 103,590
    United States                    64,113      3,773      7,452     75,338
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                                  $ 135,999  $  17,121  $  25,808  $ 178,928
    -------------------------------------------------------------------------
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2009 revenues were $94,520 which represented a decrease of $84,408 or 47% from 2008 revenues of $178,928. The decline is primarily attributed to the decline in oil and natural gas activity in 2009 which has been caused by low commodity prices and the global recession. However, during 2009 commodity prices for both oil and natural gas rose, which resulted in higher activity levels as the year progressed.

The directional drilling division revenues have decreased from $135,999 in 2008 to $64,757 in 2009; a 52% decrease. This decrease is the net result of: i) the 54% decrease in activity days from 14,766 in 2008 to 6,836 in 2009; and ii) the increase in the average day rate from $9,022 in 2008 to $9,275 in 2009, which were caused in large part to the increase in U.S. day rates due to the change in foreign exchange rate for the Canadian dollar relative to the U.S. dollar. Canadian activity days decreased from 7,843 to 4,595 and U.S. activity days decreased from 6,923 to 2,241.

The directional drilling division started the year with 59 Measurement-While-Drilling ("MWD") systems in Canada, 35 in the United States and 4 for international operations. It ended 2009 with 62 MWD systems in Canada, 30 in the United States and 4 for international operations. The Company continuously reviews the demand for its services and shifts equipment among its markets accordingly.

Expansion to the U.S. resulted in increased revenues for the Company's production testing division. The Company's production testing division contributed $17,342 in revenues during 2009 which is a 1% increase over 2008 revenues of $17,121. The division began the year with 21 units in Canada and 8 units in the U.S. and ended with 21 units in Canada and 14 in the U.S.

The wireline division generated revenues of $12,421 for 2009 compared to $25,808 for 2008 which represents a 52% decrease. In mid-June 2009, the Company re-organized its wireline operations to focus its Canadian operations on providing slickline services and to concentrate its electric line ("E-Line") services in the U.S. The division began the year with 23 units in Canada and 5 units in the U.S. It ended 2009 with 14 units in Canada and 10 units in the U.S.

The gross margin for 2009 was 45% unchanged from 45% in 2008. There were no significant changes in direct costs as a percentage of revenue basis from 2008 to 2009. The Company undertook a detailed review of all operating costs and general and administrative expenditures and reduced costs to enhance profitability including layoff of staff and wage rollbacks. Included in operating expenses is $307 of costs associated with the restructuring of the Company's wireline operations.

General and administrative expenses

General and administrative expenses were $26,083 in 2009; a decrease of $4,980 compared with $31,063 in 2008. As a percentage of revenues, general and administrative expenses were 28% in 2009 and 17% in 2008. Recognizing the expected lower activity levels, the Company initiated several measures to improve operating results and further strengthen its balance sheet. As a result, the Company reduced costs to enhance profitability including the elimination of annual bonuses for 2009, laying off of staff and wage rollbacks. Included in the 2009 general and administrative expenses were $146 related to restructuring of the Company's wireline operations. In addition, $677 of fees related to the conversion to a corporation were included in general and administrative expenses for 2009.

Depreciation and amortization

Depreciation for 2009 was $15,343 which compared to $13,416 in 2008. This increase is due to the expansion of the equipment fleet since 2008 Q2. During 2009, approximately $2,809 (2008 - Nil) of property and equipment was temporarily removed from service and therefore no depreciation has been recorded on these assets. As a percentage of revenues, depreciation amounted to 16% for 2009 and 7% for 2008.

Interest expense

Interest expense related to long-term debt increased from $1,158 in 2008 to $1,258 in 2009 due to the combined net effect of: i) an increase in the average level of debt outstanding; and ii) a decrease in the effective interest rate on the related debt. Other interest expense decreased from $422 in 2008 to $290 in 2009 and relates mainly to interest charges on use by the Company of its bank indebtedness/line of credit facility.

Foreign exchange gain/loss

The Company's foreign exchange gain/loss has changed from a $94 loss in 2008 to a gain of $3,340 in 2009 due to the fluctuations in the Canadian dollar in comparison to the U.S. dollar. The Company's U.S. 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 operations. Included in the 2009 foreign currency gain are unrealized gains of $3,682 (2008 - $405) related to intercompany balances.

Share-based compensation expense

For 2009, the Company had share-based compensation expense of $1,732 compared to $1,705 for 2008. The value of the options is being amortized against income over the three-year vesting periods. In October 2009, insiders of the Company forfeited all of the outstanding 1,303,334 options, resulting in share based compensation expense of $794 (2008 - nil). On October 13, 2009, non-insider optionees with vested or unvested out-of-the-money options were invited to reduce the exercise price of their share options to $3.81, which equaled the Trust Unit price on the last trading day immediately before the date of the modification. In exchange for this reduction in the exercise price, longer vesting terms were established with due consideration of the original expiry date which did not change. A total of 1,034,003 options were re-priced. The unrecognized compensation costs from the original grant are recognized over the remainder of the original requisite service period and the incremental compensation costs for the modified share options are recognized over the new requisite service period.

Gain on disposal of property and equipment

During 2009 the Company had a gain on disposal of property and equipment of $975 compared to $2,138 in 2008. For 2008, the Company's gains were 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. For 2009, the gains are mainly due to the disposal of E-Line wireline equipment that was not transferred to the United States as part of the re-organization of its wireline operations.

Taxes

For 2009, the Company had a tax recovery of $3,280 compared to tax expense of $4,455 in 2008. A significant portion of the current income taxes for 2008 relates to U.S. operations. As profitability of these operations has fallen dramatically, so has the current income tax expense. Included in the 2009 net tax recovery is $958 net tax expense related to tax on an internal reorganization related to ownership of assets. At the beginning of 2009 Q1 the Company's U.S. subsidiary sold the majority of its operating assets to the Company's Canadian operating entity, as part of an internal reorganization related to ownership of operating assets within the Company. This transaction created a one-time current tax expense in the amount of $4,168 (current taxable income was created mainly due to U.S. recaptured tax depreciation) and a recovery of future taxes in the amount of $3,210; for a net tax cost of $958. Subsequent to this transaction, the Company's U.S. subsidiary leases the majority of its operating equipment from its Canadian parent company. The future tax recovery for 2009 relates to reversal of timing differences on U.S. taxes (see comments above) and the remaining future tax recovery is attributable to adjustments related to the future taxation of SIFT income in Canada (prior to conversion to a corporation) and a tax benefit recognized on the conversion from a trust to a corporation.

Other comprehensive income/loss

The Company incurred a loss of $5,293 compared to a gain of $3,326 in 2008. Other comprehensive income (loss) is comprised entirely of the foreign currency translation of the Company's U.S. self-sustaining subsidiary and reflects the changing value of the Canadian dollar compared to the U.S. dollar. During 2009, the U.S. dollar weakened against the Canadian dollar.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary 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 December 31, 2009, the Company had a demand operating line of credit with a major Canadian bank in the amount of $20,000 (December 31, 2008 - $20,000) of which $2,181 (December 31, 2008 - $15,406) was drawn. In addition, the Company has a non-reducing revolving term loan facility in the amount of $45,000 (December 31, 2008 - $45,000) of which $39,500 (December 31, 2008 - $40,000) was drawn as at December 31, 2009. In addition, at December 31, 2009, the Company had other long-term debt of $234 (December 31, 2008 - $440). Effective June 30, 2009 the Company renewed its credit facility with a major Canadian bank and the new maturity date is June 30, 2010.

Operating activities

Cash provided by operating activities for 2009 was $18,564 compared to $36,143 in 2008. Funds from operations (see Non-GAAP Measurements) for 2009 were $12,268 compared to $40,824 in 2008. This decrease was caused mainly by a reduction in earnings due to reduced activity levels. The Company has a working capital position at December 31, 2009 at $22,451 compared to $17,435 at December 31, 2008.

Investing activities

Cash used in investing activities for 2009 amounted to $12,020 compared to $40,134 in 2008. During 2009 the Company invested $8,923 (2008 - $47,618) in property and equipment with the main additions being for 8 production testing units. As well in 2009, the Company made cash expenditures related to the Plan of Arrangement in the amount of $3,597.

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

    
    -------------------------------------------------------------------------
                                                           As at December 31
                                                             2009       2008
    -------------------------------------------------------------------------
    Directional drilling equipment -
      MWD systems                                              96         98
      Drilling mud motors                                     468        496
    Production testing units                                   35         29
    Wireline units                                             24         28
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Proceeds on disposal of property and equipment amounted to $4,219 (2008 - $3,761). For 2008 this amount was mainly related to recovery of downhole equipment costs that were lost-in-hole. For 2009, this amount includes recovery of downhole equipment costs that were lost-in-hole, but is mainly due to the sale of E-Line wireline equipment.

Financing activities

Cash provided by (used in) financing activities for 2009 amounted to ($13,194) compared to $9,618 in 2008. For 2009 the Company repaid other long-term debt in the amount of $5,206 (2008 - $341). During 2009 Q2 the Company issued 3,615,600 Trust Units at $4.15 for proceeds net of issuance costs of $13,820. These proceeds were added to working capital and used to repay $5,000 of the revolving term loan. The Company received $34 (2008 - $4,904) on the exercise of share options. Advances under long-term debt for 2009 were $4,500 (2008 - $23,047) and with respect to bank indebtedness/line of credit there were repayments of $13,225 (2008 - ($9,376)). As at December 31, 2009, the Company was in compliance with all covenants under its credit facility.

Distributions paid in 2009 totaled $13,117 (2008 - $27,368). Cash distributions paid have been financed from cash flow from operations. For 2008, the Company paid monthly cash distributions of $0.07 per Trust Unit. In 2009, this was reduced to $0.04 per Trust Unit in February and as part of the announcement to convert to a growth oriented corporation, the Company ceased paying distributions effective August 2009.

Contractual obligations

In the normal course of business, the Company incurs contractual obligations. The following is a summary of the Company's contractual obligations:

    
    -------------------------------------------------------------------------
                                                                       There-
                       Total    2010    2011    2012    2013    2014   after
    -------------------------------------------------------------------------
    Property and
     equipment
     additions       $ 5,910 $ 5,910 $     - $     - $     - $     - $     -
    Operating lease
     obligations      12,481   2,876   2,107   1,858   1,719   1,579   2,342
    Long-term debt
     repayments(1)    39,734     208   6,607  13,169  13,167   6,583       -
    -------------------------------------------------------------------------
                     $58,125 $ 8,994 $ 8,714 $15,027 $14,886 $ 8,162 $ 2,342
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    (1) Minimum principal amounts to be paid under long-term debt assumes the
        Company elects prior to the maturity date of the revolving term loan
        to repay the loan over 36 months with interest only payable for the
        first 12 months.
    

The 2010 contractual obligations are expected to be financed by way of cash flow from operations and the Company's credit facility.

    
    EBITDAS

    EBITDAS (refer to Non-GAAP Measurements) is calculated as follows:
    -------------------------------------------------------------------------
                                                     Years ended December 31
                                               2009 Q4       2009       2008
    -------------------------------------------------------------------------
    Net income                               $   2,236  $   5,281  $  30,139
    Add (deduct):
      Depreciation and amortization              4,001     15,343     13,416
      Interest - long-term debt                    279      1,258      1,158
      Share-based compensation                     992      1,732      1,705
      Unrealized foreign exchange gain            (504)    (3,682)      (405)
      Taxes                                     (1,140)    (3,280)     4,455
    -------------------------------------------------------------------------
    EBITDAS                                  $   5,864  $  16,652  $  50,468
    -------------------------------------------------------------------------
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RELATED PARTY TRANSACTIONS

A director of the Company is a partner in a law firm and, through that law firm, is involved in providing and managing the legal services provided to the Company at market rates. The total amount paid for these legal services in 2009 was $635 (2008 - $136).

StoneBridge Merchant Capital Corp. ("StoneBridge") acted as a special advisor to the Company in respect to the Plan of Arrangement and was paid a fee of $572. A director of the Company is an officer of StoneBridge

DISTRIBUTIONS

Distributions declared for 2009 were $10,836 as compared with $27,432 in 2008. The monthly distribution per Trust Unit was $0.07 for all of 2008. In February 2009, this was reduced to $0.04 per Trust Unit and once the Trust announced its intention to convert to a corporation the distribution was suspended in August 2009. All distributions were paid from income from operations and are not considered a return of capital.

    
    FOURTH QUARTER RESULTS

    Revenues and operating expenses
    -------------------------------------------------------------------------
                                    2009 Q4    2008 Q4     Change          %
    -------------------------------------------------------------------------
    Revenues                      $  26,695  $  50,506  $ (23,811)       (47)
    Operating expenses               14,391     29,350    (14,959)       (51)
    -------------------------------------------------------------------------
    Gross margin - $              $  12,304  $  21,156  $  (8,852)       (42)
    -------------------------------------------------------------------------
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    Gross margin - %                    46%        42%         4%
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    -------------------------------------------------------------------------
    Revenues                                 Quarter ended December 31, 2009
    -------------------------------------------------------------------------
                                Directional  Production
                                   drilling    testing   Wireline      Total
    -------------------------------------------------------------------------
    Canada                        $  14,595  $   3,276  $     619  $  18,490
    United States                     4,448      2,421      1,336      8,205
    -------------------------------------------------------------------------
                                  $  19,043  $   5,697  $   1,955  $   26,695
    -------------------------------------------------------------------------
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    -------------------------------------------------------------------------
    Revenues                                 Quarter ended December 31, 2008
    -------------------------------------------------------------------------
                                Directional  Production
                                   drilling    testing   Wireline      Total
    -------------------------------------------------------------------------
    Canada                        $  16,551  $   4,347  $   4,267  $  25,165
    United States                    19,668      2,948      2,725     25,341
    -------------------------------------------------------------------------
                                  $ 36,219   $   7,295  $   6,992  $  50,506
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Revenues in Q4 have decreased to $26,695 in 2009 from $50,506 in 2008, a decrease of $23,811 or 47%. The declines for all divisions were primarily due to the decline in oil and natural gas activity in 2009 which has been caused by low commodity prices and the global recession.

Directional drilling related revenues decreased $17,176 from $36,219 in 2008 Q4 to $19,043 in 2009 Q4 due to a 39% decrease in activity days (2009 Q4 - 2,200 vs. 2008 Q4 - 3,575) and a 14% decrease in the average day rate (2009 Q4 - $8,517 vs. 2008 Q4 - $9,939). Canadian revenues were down 12% from $16,551 in 2008 Q4 to $14,595 in 2009 Q4. This was the result of a 3% decline in drilling days falling to 1,741 in 2009 Q4 from 1,801 in 2008 Q4 and a 8% decline in the Canadian average day rate. In the U.S., revenues have decreased 77% to $4,448 in 2009 Q4 from $19,668 in 2008 Q4. U.S. drilling days decreased to 460 in 2009 Q4 from 1,774 in 2008 Q4, a decrease of 74%. The average day rate for the U.S. decreased 13%.

Production testing revenues for 2009 Q4 decreased to $5,697 from $7,295 in 2008 Q4; a decrease of 22%. The Canadian division's revenues have decreased 25% to $3,276 in 2009 Q4 from $4,347 in 2008 Q4. The U.S. revenues decreased 18% to $2,421 in 2009 Q4 from $2,948 in 2008 Q4.

Wireline revenues decreased from $6,992 in 2008 Q4 to $1,955 in 2009 Q4. The Canadian wireline division's revenues fell 85% to $619 in 2009 Q4 from $4,267 in 2008 Q4. The U.S. wireline revenues decreased 51% to $1,336 in 2009 Q4 from $2,725 in 2008 Q4.

The consolidated gross margin increased 4% to 46% for 2009 Q4 from 42% in 2008 Q4. The increase in gross margin was primarily due to decreases in labour charges in all divisions due to efforts to control costs and a reduction in the repair costs for the drilling division.

General and administrative charges decreased 20% from $8,098 in 2008 Q4 to $6,474 in 2009 Q4. The decrease was primarily due to decreases in wages and salaries due to staff reductions and salary roll-back plan as well as reductions in numerous expenses as a result of the Company's various cost reduction initiatives. The Company instituted wage rollbacks in May 2009 and the first level of rollbacks was re-instated effective November 1, 2009. As a percentage of revenues, general and administrative expenses were 24% in 2009 Q4 compared to 16% in 2008 Q4.

For 2009 Q4, the Company recorded a tax recovery of $1,140 compared to the 2008 Q4 recovery of $651.

Net income for 2009 Q4 was $2,236 ($0.06 per share - diluted) compared to $9,737 ($0.30 per share - diluted) 2008 Q4.

    
    SUMMARY OF QUARTERLY RESULTS

    -------------------------------------------------------------------------
                                       Dec         Sep        Jun        Mar
                                      2009        2009       2009       2009
    -------------------------------------------------------------------------
    Revenues                      $ 26,695   $  23,544  $  12,913  $  31,368
    EBITDAS                          5,864       5,724     (1,721)     6,785
    Net income (loss)                2,236       3,125     (1,484)     1,404
    Net income (loss) per share
      - basic and diluted             0.06        0.09      (0.04)      0.04
    Cash distributions declared
     per share                           -        0.04       0.12       0.15
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                       Dec         Sep        Jun        Mar
                                      2008        2008       2008       2008
    -------------------------------------------------------------------------
    Revenues                      $ 50,506   $  52,686  $  29,483  $  46,253
    EBITDAS                         13,554      16,887      4,632     15,395
    Net income (loss)                9,737      10,296        189      9,917
    Net income (loss) per share
    - basic and diluted               0.30        0.32       0.01       0.31
    Cash distributions declared
     per share                        0.21        0.21       0.21       0.21
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

OUTLOOK

Going into 2010, the market outlook for Cathedral's services is much stronger than experienced in 2009. The rig count in both Canada and the U.S. has experienced significant increases, which in turn has increased the demand for the Company's services. All of the new conventional and unconventional resource plays are utilizing horizontal drilling and multi-frac completion techniques. This change in completion technology has increased the percentage of wells being drilled horizontally into the 60% range.

Since the third quarter 2009, the Company has experienced, on a quarter-over-quarter basis, a sequential improvement in operating activities across all of its service areas in both Canada and the U.S. In Canada, the market has improved as we are seeing old areas being redeveloped (i.e. Cardium) and new zones being discovered (i.e. Duvernay) which are predominately employing the use of horizontal, multi-stage fracturing technology and this work is beneficial to both the directional drilling and production testing divisions of the Company. Based upon customer feedback we are expecting to see increased activity levels in Canada to continue through 2010 Q2 to Q4.

In the U.S., the Company continues its push into the northeast U.S. region (Marcellus) where an operations facility has been opened in Washington, Pennsylvania. This facility is expected to be fully operational with motor re-building capabilities by the end of 2010 Q1. The Company currently has a 10 job capacity in the U.S. northeast region. In addition, the Company is seeing a significant improvement in drilling activity in the U.S. Rocky Mountain region, which was hit hard by the reduction in drilling activity in early 2009. Cathedral continues to focus on growth of the U.S. production testing market where the Company is moving its 15th unit into the Rocky Mountain region before the end of March 2010. As well, Cathedral is currently reviewing opportunities to expand the production testing division into other U.S. markets.

In 2009, the Company recognized that despite the downturn in the market, research and development was going to be the cornerstone of its future; the development of new innovative products was going to expand the Company's markets and differentiate Cathedral from its competitors. In 2010 Q1, the Company will add "resistivity" to its Logging-While-Drilling ("LWD") capabilities. This technology will primarily be used in expanding Cathedral's international marketing efforts. The Company will commence the manufacture of its next generation EM/MWD tool which provides for improved packaging of components within the EM/MWD tool, which will improve the durability in high shock and vibration environments. The Company has numerous other development projects in process that are expected to allow the Company to continue to be a significant player in the directional drilling market.

    
    CONSOLIDATED BALANCE SHEETS

    December 31, 2009 and 2008
    Dollars in '000s
    (Unaudited)
    -------------------------------------------------------------------------
                                                             2009       2008
    -------------------------------------------------------------------------

    Assets

    Current assets:
      Cash and cash equivalents                         $     491  $   7,551
      Accounts receivable                                  27,727     43,629
      Income taxes recoverable                              2,550        688
      Inventory                                             6,129      8,963
      Prepaid expenses and deposits                         1,629      1,538
    -------------------------------------------------------------------------
                                                           38,526     62,369
    Property and equipment                                 91,452    101,287
    Future income taxes                                    23,491          -
    Intangibles, net of accumulated amortization
     of $637 (2008 - $489)                                    293        441
    Goodwill                                               19,775     19,775

    -------------------------------------------------------------------------
                                                        $ 173,537  $ 183,872
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity

    Current liabilities:
      Bank indebtedness                                 $   2,181  $  15,406
      Accounts payable and accrued liabilities             13,686     27,040
      Distributions payable to Unitholders                      -      2,281
      Current portion of long-term debt                       208        207
    -------------------------------------------------------------------------
                                                           16,075     44,934

    Long-term debt                                         39,526     40,233
    Future income taxes                                         -      6,846
    Deferred credit                                        20,514          -

    -------------------------------------------------------------------------
                                                           76,115     92,013
    -------------------------------------------------------------------------

    Shareholders' equity:
      Share capital                                        68,995          -
      Unitholders' capital                                      -     54,311
      Contributed surplus                                   4,390      2,663
      Retained earnings                                    26,004     31,559
      Accumulated other comprehensive income (loss)        (1,967)     3,326
    -------------------------------------------------------------------------
                                                           97,422     91,859
    -------------------------------------------------------------------------
                                                        $ 173,537  $ 183,872
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

    Dollars in 000's except per share amounts
    (Unaudited)

                                    Three months ended           Years ended
                                           December 31           December 31
                                  --------------------- ---------------------
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Revenues                      $  26,695  $  50,506  $  94,520  $ 178,928
    -------------------------------------------------------------------------
    Expenses:
      Operating                      14,391     29,349     52,128     98,614
      General and administrative      6,474      8,098     26,083     31,063
      Depreciation and
       amortization                   4,001      4,135     15,343     13,416
      Share-based compensation          992        338      1,732      1,705
      Interest - long-term debt         279        373      1,258      1,158
      Interest - other                   76        132        290        422
      Foreign exchange
       (gain) loss                     (502)        74     (3,340)        94

    -------------------------------------------------------------------------
                                     25,711     42,499     93,494    146,472
    -------------------------------------------------------------------------
                                        984      8,007      1,026     32,456
    Gain on disposal of
     property and equipment             112      1,079        975      2,138
    -------------------------------------------------------------------------
    Income before taxes               1,096      9,086      2,001     34,594
    -------------------------------------------------------------------------
    Taxes:
      Current                        (1,406)     1,217      2,151      6,348
      Future (recovery)                 266     (1,868)    (5,431)    (1,893)
    -------------------------------------------------------------------------
                                     (1,140)      (651)     3,280      4,455
    -------------------------------------------------------------------------
    Net income                        2,236      9,737      5,281     30,139
    Retained earnings, beginning
     of period                       23,679     29,002     31,559     28,852
    Less: distributions
     to Unitholders                      89     (7,180)   (10,836)   (27,432)
    -------------------------------------------------------------------------
    Retained earnings,
     end of period                $  26,004  $  31,599  $  26,004  $  31,559
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net income per share:
      Basic                       $    0.06  $    0.30  $    0.15  $    0.94
      Diluted                     $    0.06  $    0.30  $    0.15  $    0.93
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED
    OTHER COMPREHENSIVE INCOME (LOSS)

    Dollars in 000's
    (Unaudited)

                                    Three months ended           Years ended
                                           December 31           December 31
                                  --------------------- ---------------------
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Net income                    $   2,236  $   9,737  $   5,281  $  30,139
    Other comprehensive
     income (loss):
      Unrealized foreign
       exchange gain (loss)
       on translation of
       self-sustaining foreign
       operations                      (692)     1,933     (5,293)     3,326
    -------------------------------------------------------------------------
    Comprehensive income (loss)   $   1,544  $  11,670  $     (12) $  33,465
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other
     comprehensive income (loss),
     beginning of period          $  (1,275) $    (501) $   3,326  $       -
      Adjustment for change in
       foreign currency
       translation method                 -          -          -     (1,894)
      Other comprehensive
       income (loss)                   (692)     3,827     (5,293)     5,220
    -------------------------------------------------------------------------
     Accumulated other
     comprehensive income (loss),
     end of period                $  (1,967) $   3,326  $  (1,967) $   3,326
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CASH FLOWS

    Dollars in 000's
    (Unaudited)

                                    Three months ended           Years ended
                                           December 31           December 31
                                  --------------------- ---------------------
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Cash provided by (used in):

    Operating activities:
      Net income                  $   2,236  $   9,737  $   5,281  $  30,139
      Items not involving cash:
        Depreciation and
         amortization                 4,001      4,135     15,343     13,416
        Future income tax recovery      266     (1,868)    (5,431)    (1,893)
        Unrealized foreign
         exchange gain                 (504)      (339)    (3,682)      (405)
        Share-based compensation        992        338      1,732      1,705
        Gain on disposal of
         property and equipment        (112)    (1,079)      (975)    (2,138)
    -------------------------------------------------------------------------
                                      6,879     10,924     12,268     40,824
      Changes in non-cash
       operating working capital     (4,704)     1,168      6,296     (4,681)
    -------------------------------------------------------------------------
                                      2,175     12,092     18,564     36,143
    -------------------------------------------------------------------------
    Investing activities:
      Property and equipment
       additions                     (1,614)   (21,054)    (8,923)   (47,618)
      Transaction with SemBioSys
       Genetics Inc.                 (3,597)         -     (3,597)         -
      Proceeds on disposal of
       property and equipment         1,793      1,912      4,219      3,761
      Changes in non-cash
       investing working capital      1,018     (4,567)    (3,719)     3,723
    -------------------------------------------------------------------------
                                     (2,400)   (23,709)   (12,020)   (40,134)
    -------------------------------------------------------------------------
    Financing activities:
      Advances under
       long-term debt                 3,000     13,000      4,500     23,047
      Repayment of long-term debt       (52)      (109)    (5,206)      (341)
      Distributions paid to
       Unitholders                       89     (7,180)   (13,117)   (27,368)
      Trust Units issued for cash,
       net of issuance costs              -          -     13,820          -
      Proceeds on exercise of
       Trust Unit options                34          -         34      4,904
      Changes in bank indebtedness   (3,524)     8,283    (13,225)     9,376
    -------------------------------------------------------------------------
                                       (453)    13,994    (13,194)     9,618
    -------------------------------------------------------------------------
    Effect of exchange rate on
     changes in cash and cash
     equivalents                        (27)       618       (410)       618
    -------------------------------------------------------------------------
    Change in cash and
     cash equivalents                  (705)     2,995     (7,060)     6,245

    Cash and cash equivalents,
     beginning of period              1,196      4,556      7,551      1,306
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                $     491  $   7,551  $     491  $   7,551
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

%SEDAR: 00000484E

For further information: 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


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