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



    /NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/

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

    FINANCIAL HIGHLIGHTS

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

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

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

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

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

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

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

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

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

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


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

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

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

    FORWARD-LOOKING INFORMATION

    Certain statements in this news release including (i) statements that may
contain words such as "anticipate", "could", "expect", "seek", "may" "intend",
"will", "believe", "should", "project", "forecast", "plan" and similar
expressions, including the negatives thereof, (ii) statements that are based
on current expectations and estimates about the markets in which the
Trust/Cathedral operates and (iii) statements of belief, intentions and
expectations about developments, results and events that will or may occur in
the future, constitute "forward-looking statements" and are based on certain
assumptions and analysis made by the Trust/Cathedral. Forward-looking
statements in this MD&A include, but are not limited to, statements with
respect to future capital expenditures, including the amount, nature and
timing thereof; oil and natural gas prices and demand; other development
trends within the oil and natural gas industry; business strategy; expansion
and growth of the Trust's/Cathedral's business and operations including the
Trust/Cathedral's market share and position in the oilfield service market;
and other such matters. Such forward-looking statements are subject to
important risks and uncertainties, which are difficult to predict and that may
affect the Trust's/Cathedral's operations, including, but not limited to: the
impact of general economic conditions in Canada and the United States;
industry conditions, including the adoption of new environmental, safety and
other laws and regulations and changes in how they are interpreted and
enforced; volatility of oil and natural gas prices; oil and natural gas
product supply and demand; risks inherent in the Trust's/Cathedral's ability
to generate sufficient cash flow from operations to meet its current and
future obligations; increased competition; the lack of availability of
qualified personnel or labor unrest; fluctuation in foreign exchange or
interest rates; stock market volatility; opportunities available to or pursued
by the Trust/Cathedral and other factors, many of which are beyond the control
of the Trust/Cathedral. The Trust's/Cathedral's actual results, performance or
achievements could differ materially from those expressed in, or implied by,
these forward-looking statements and, accordingly, no assurance can be given
that any of the events anticipated by the forward-looking statements will
transpire or occur, or if any of them do transpire or occur, what benefits the
Trust/Cathedral will derive therefrom. Subject to applicable law, the Trust
disclaims any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
    All forward-looking statements contained in this document are expressly
qualified by this cautionary statement. Further information about the factors
affecting forward-looking statements is available in the Trust's current
Annual Information Form which has been filed with the applicable Canadian
provincial securities commissions and are available on www.sedar.com.

    NON-GAAP MEASURES

    This news release refers to certain financial measurements that do not
have any standardized meaning within Canadian Generally Accepted Accounting
Principles ("GAAP") and therefore may not be comparable to similar measures
provided by other companies and/or trusts.

    The specific measures being referred to include the following:

    
    i)   "Gross margin" - calculated as revenues less operating expenses is
         considered a primary indicator of operating performance (see tabular
         calculation under Results of Operations);

    ii)  "EBITDAS" - defined as earnings before interest on long-term debt
         and capital lease obligations, taxes, depreciation, amortization and
         non-cash compensation expense; this measure is considered an
         indicator of the Trust's ability to generate funds flow from
         operations prior to consideration of how activities are financed,
         how the results are taxed and measured and non-cash expenses (see
         tabular calculation under EBITDAS); during 2007 the Trust re-named
         "EBITDA" to "EBITDAS" but the formula used to calculate both terms
         are the same;

    iii) "Distributable cash" - defined as cash flow from operating
         activities before changes in non-cash operating working capital less
         required principal repayments on long-term debt and capital lease
         obligations and maintenance capital expenditures; distributable cash
         is a key performance measurement used by management, analysts and
         investors to evaluate the financial performance of the Trust (see
         tabular calculation under Distributions); during 2007 the Trust re-
         named "distributable income" to "distributable cash" but the formula
         used to calculate both terms are the same;

    iv)  "Maintenance capital expenditures" - refers to capital expenditures
         required to maintain existing levels of service but excludes
         replacement cost of lost-in-hole equipment to the extent the
         replacement equipment is financed from the proceeds on disposal of
         the equipment lost-in-hole;

    v)   "Payout ratio" - calculated as cash distributions declared divided
         by distributable cash, is an indicator of the Trust's ability to
         fund its distributions from the Trust's ongoing operations excluding
         changes in non-cash working capital (see tabular calculation under
         Distributions) (see distributable cash definition above); and

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

    OVERVIEW

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

    RESULTS OF OPERATIONS - 2007 COMPARED TO 2006

    
    Revenues and operating expenses

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

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

    
    General and administrative expenses

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

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

    
    Depreciation and amortization

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

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

    
    Interest

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

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

    Foreign exchange loss (gain)

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

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

    
    Non-cash compensation expense

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

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

    Gain on disposal of property and equipment

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

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

    Taxes

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

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

    LIQUIDITY AND CAPITAL RE

SOURCES The Trust's principal source of liquidity is cash generated from operations and also has the ability to fund liquidity requirements through its credit facility and the issuance of debt and/or equity. At December 31, 2007, the Trust had an operating line of credit with a major Canadian bank in the amount of $12,500 (2006 - $12,500) of which $6,030 (2006 - $6,460) was drawn. The Trust has a non-reducing revolving term loan facility in the amount of $25,000 (2006 - $25,000) of which $17,000 (2006 - $15,000) was drawn as at December 31, 2007. In addition, at December 31, 2007, the Trust had obligations under capital leases in the amount of $451 (2006 - $664) and other long-term debt of $283 (2006 - $171). Operating activities Cash flow from operating activities decreased from $39,929 in 2006 to $39,729 - a decrease of $200 or 0.5%. Funds from operations (see Non-GAAP Measures) for 2007 was $39,693 which compares to $46,831 for 2006; the decline of $7,138 is attributable to a decline in operating profits due to compression of the gross margin realized in 2007 and an increase in general and administrative expenses. The Trust has a strong working capital position at December 31, 2007 at $16,947 which compares to $15,051 at the end of 2006. Investing activities Cash used in investing activities for the year ended December 31, 2007 amounted to $16,607 compared to $24,366 in 2006. During 2007 the Trust invested an additional $19,857 (2006 - $26,436) in property and equipment. For 2007 the significant property and equipment additions included progress payments on construction of a new mud motor repair facility in Nisku, Alberta, 10 MWD systems along with the expansion of the mud motor and drilling collar fleet to complement the increase in directional drilling job capacity, upgrade of low pressure production testing units to higher pressure units and the purchase of 7 wireline units (one older wireline unit was sold in 2007) and auxiliary wireline equipment. With the exception of the $2,000 draw on non-reducing revolving term loan facility which was used to finance the construction of the Nisku mud motor repair facility, and the $228 of 0% financing for automotive equipment additions, all of the 2007 additions to property and equipment have been financed from cash flow from operations. Fluctuations in non-cash working capital related to investing activities are a function of when proceeds on disposal of property and equipment are received and when payments for property and equipment purchases are made. Proceeds on disposal of property and equipment amounted to $3,575 (2006 - $3,277) and is mainly related to recovery of downhole equipment costs that were lost-in-hole in 2007 as well as previously expensed depreciation. In late 2007 the Trust competed field testing and put the 2nd generation ("G2") of its Electro-Magnetic MWD ("EM-MWD") tool into commercial use. The G2 EM-MWD tool enhancements will allow the tool to be operated at deeper levels with increased efficiency and power management. The G2 EM-MWD system includes bi-directional (talk down) communication which allows for surface control of the tool to change data rates, power levels and data formats. The result is increased efficiency and power management, which by default, allows for greater depth capability. The following is a summary of major equipment owned by Cathedral: ------------------------------------------------------------------------- As at December 31 2007 2006 ------------------------------------------------------------------------- Directional drilling equipment - MWD systems 78 68 Drilling mud motors 349 299 Production testing units 19 19 Wireline units 27 21 ------------------------------------------------------------------------- ------------------------------------------------------------------------- For 2008, the Board of Directors of the Administrator of the Trust has approved a capital budget of $12,300 including approximately $400 for maintenance capital. The 2008 capital budget is targeted for expanding the current fleet of directional drilling equipment including at least 10 G2 EM-MWD systems to meet the Trust's additional demand as well as 5 production testing units which will be deployed in the U.S. market. The Trust will also be adding to its mud motor and drill collar fleet to complement the expanded directional drilling job capacity. Three of these MWD systems will be allocated to the U.S. operations. These capital expenditures are expected to be financed by way of cash flow from operations. Financing activities Cash used in financing activities for the year ended December 31, 2007 amounted to $23,370 which compares to $16,100 in 2006 - a change of $7,270. During 2007, the Trust received advances of long-term debt in the amount of $2,228 (2006 - $3,109) of which $2,000 (2006 - $3,000) related to an advance on the Trust's non-reducing revolving term loan facility. Repayments of long-term debt and capital lease obligations in 2007 amounted to $330 (2006 - $626). As at December 31, 2007, the Trust was in compliance with all covenants under its credit facility. During 2007 the Trust received cash inflows of $3,065 (2006 - $2,734) on the exercise of Trust Unit options. The capital asset additions in 2007 were financed by way of a combination of cash flow from operations, working capital, proceeds from the disposal of property and equipment, proceeds on exercise of Trust Unit options and $2,228 of long-term debt. Distributions declared for 2007 amounted to $26,405 (2006 - $26,719). All of the 2007 distributions declared were cash in nature while the 2006 distributions included a non-cash in-kind distribution of $2,038. Pursuant to the Trust's Declaration of Trust, the Trust is required to allocate all of its taxable income to Unitholders and in order to allocate all of its taxable income to Unitholders a non-cash in-kind distribution in the form of additional Trust Units was allocated to Unitholders of record on December 31, 2006. The December 31, 2006, non-cash in-kind distribution was $0.06582 per Trust Unit for a total of $2,038. The Declaration of Trust also requires there is an immediate consolidation of the Trust Units issued such that each Unitholder has the same number of Trust Units after the consolidation as they had prior to the non-cash in-kind distribution. Based upon a December 31, 2006 Trust Unit price of $9.96 per Trust Unit the 2006 in-kind distribution represented the issuance of 204,667 Trust Units which were immediately consolidated. For the year-ended December 31, 2007 the Trust did not have a non-cash in-kind distribution. Distributions paid to Unitholders for 2007 amounted to $27,903 (2006 - $22,467). The increase in distributions paid is related to a combination of: i) increases in the per Trust Unit "regular" distribution level during 2006; ii) the payment of a "special" $0.05 per Trust Unit cash distribution declared in December 2006 ($1,549) and paid on January 15, 2007; and iii) an increase in the number of Trust Units outstanding. Since January 2006 the Trust has increased its per month Trust Unit distribution level from $0.05 per Trust Unit to $0.07 per Trust Unit for December 2007 (increased to $0.07 level in September 2006) - a 40% increase. Cash distributions paid have been financed from funds from operations and management currently expects future cash distributions will also be financed by way of funds from operations. The following is a summary of distributions declared in 2007 and 2006: ------------------------------------------------------------------------- 2007 2006 Change % ------------------------------------------------------------------------- Declared Cash $ 26,405 $ 24,681 $ 1,724 7 In-kind - 2,038 (2,038) (100) ------------------------------------------------------------------------- Total $ 26,405 $ 26,719 $ (314) (1) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Declared per Trust Unit: Cash $ 0.84000 $ 0.80500 $ 0.03500 4 In-kind - 0.06582 (0.06582) (100) ------------------------------------------------------------------------- Total $ 0.84000 $ 0.87082 $(0.03082) 4 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Contractual obligations In the normal course of business, the Trust's operating entities incur contractual obligations. The following is a summary of the Trust's contractual obligations as at December 31, 2007 for the following items: ------------------------------------------------------------------------- There- Total 2008 2009 2010 2011 2012 after ------------------------------------------------------------------------- Capital asset additions $ 2,802 $ 2,802 $ - $ - $ - $ - $ - Operating lease obligations 9,962 2,594 1,945 1,576 899 567 2,381 Long-term debt and capital lease obliga- tions(1) 17,734 293 3,049 5,866 5,693 2,833 - ------------------------------------------------------------------------- $30,498 $ 5,689 $ 4,994 $ 7,442 $ 6,592 $ 3,400 $ 2,381 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) - Minimum principal amounts to be paid under long-term debt assumes the Trust elects prior to the maturity date of the revolving term loan to repay the loan over 36 months. The 2008 contractual obligations are expected to be financed by way of cash flow from operations. DISTRIBUTIONS The Administrator of the Trust reviews the level and nature of distributions (cash, in-kind or a combination of cash and in-kind) on an on-going basis giving consideration to current performance, historical and future trends in the business, the expected sustainability of those trends and enacted tax legislation which will affect future taxes payable and as well as required long-term debt repayments, maintenance capital expenditures required to sustain performance and future growth capital expenditures. Despite the seasonality of the Trust's business, it is the Trust's policy to pay consistent distributions throughout the year. The Trust's operations in western Canada are subject to seasonality as activity levels in the oilfield services industry are generally lower during "spring breakup" which normally commences in late March and continues through to May (mainly in the 2nd quarter of the fiscal year). The net result of the Trust's policy to pay consistent distributions throughout the year despite the seasonality of its operations is that in Q2 cash distributions declared may exceed net income, cash flow from operating activities and/or distributable cash for the quarter. Distributable cash is a supplemental non-GAAP measurement that management considers a key measure in demonstrating the Trust's ability to generate the cash necessary to pay distributions, fund future capital investments and the repayment of long-term debt and capital lease obligations. Distributable cash as presented is not intended to represent operating profit for the period nor should it be viewed as an alternative to operating profit, net income or other measures of financial performance calculated in accordance with Canadian GAAP. Distributable cash does not have any standardized meaning within Canadian GAAP and therefore may not be comparable to similar measures presented by other trusts (refer to Non-GAAP Measures). The Trust intends to pay cash distributions to unitholders but the payment of cash distributions cannot be guaranteed. The following is a comparison of cash distributions declared and certain defined amounts: ------------------------------------------------------------------------- Years ended December 31 ----------------------------------- 2007 Q4 2007 2006 2005 ------------------------------------------------------------------------- Cash flow from operating activities $ 12,501 $ 39,729 $ 39,929 $ 21,609 ------------------------------------------------------------------------- Net income for the period $ 10,365 $ 24,863 $ 35,348 $ 21,807 ------------------------------------------------------------------------- Distributable cash $ 12,043 $ 38,993 $ 45,972 $ 27,551 ------------------------------------------------------------------------- Cash distributions declared $ 6,649 $ 26,405 $ 24,681 $ 11,162 ------------------------------------------------------------------------- Excess of cash flow from operating activities over cash distributions declared $ 5,852 $ 13,324 $ 15,248 $ 10,447 ------------------------------------------------------------------------- Excess (short-fall) of net income over cash distributions declared $ 3,716 $ (1,542) $ 10,667 $ 10,645 ------------------------------------------------------------------------- Excess of distributable cash over cash distributions declared $ 5,394 $ 12,588 $ 21,291 $ 16,389 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net income exceeded cash distributions declared by $5,852 for the three months ended December 31, 2007 and cash distributions declared exceeded net income by $1,542 for the year ended December 31, 2007. Net income includes significant non-cash charges which for the three months ended December 31, 2007 were $2,544 and for the year ended December 31, 2007 were $16,607 that do not impact cash flow. Included in these non-cash charges is a provision for depreciation that is not a reasonable proxy for the cost of maintaining existing levels of service (i.e. maintenance capital expenditures). Therefore, in certain periods cash distributions declared may exceed net income. Management does not consider the excess of cash distributions declared over net income for the year ended December 31, 2007 to be an economic return of capital. Instead the excess is considered a function of the timing of cash flows versus accounting income. Currently cash distributions declared are less than distributable cash as the Trustees, on the recommendation of management of the Administrator, have decided to retain a portion of distributable cash to finance capital expenditures and debt repayment. It is not management's intent to distribute 100% of distributable cash. Distributable cash (refer to Non-GAAP Measures) is calculated as follows: ------------------------------------------------------------------------- Three months ended Years ended December 31 December 31 2007 2006 2007 2006 ------------------------------------------------------------------------- Cash flow from operating activities $ 12,501 $ 14,003 $ 39,729 $ 39,929 Add (deduct): - changes in non-cash operating working capital(1) (212) (2,461) (36) 6,902 Less: - required principal repayments on long- term debt and capital lease obligations (70) (156) (313) (549) - maintenance capital expenditures (176) (103) (387) (310) ------------------------------------------------------------------------- Distributable cash $ 12,043 $ 11,283 $ 38,993 $ 45,972 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash distributions declared $ 6,649 $ 8,026 $ 26,405 $ 24,681 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Payout ratio 55% 71%(2) 68% 54%(2) ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Changes in non-cash operating working capital have been added back (deducted) as such changes are financed using the Trust's bank indebtedness/line of credit facility. In addition, if changes in non-cash operating working capital were not excluded from the calculation of distributable cash it would introduce cash flow variability and affect underlying cash flow from operating activities. (2) Payout ratio is 57% for 2006 Q4 and 50% for the year ended December 31, 2006 if the December 2006 "special" cash distribution of $0.05 per Trust Unit is excluded. EBITDAS EBITDAS (refer to Non-GAAP Measures) is calculated as follows: ------------------------------------------------------------------------- Three months ended Years ended December 31 December 31 2007 2006 2007 2006 ------------------------------------------------------------------------- EBITDAS as reported $ 13,707 $ 13,046 $ 46,731 $ 52,793 Add (deduct): - depreciation and amortization (3,245) (2,937) (12,054) (10,692) - interest - long-term debt and capital lease obligations (292) (264) (1,084) (936) - non-cash compensation expense (398) (272) (1,603) (1,486) - recovery of (provision for) taxes 593 (1,446) (7,127) (4,331) ------------------------------------------------------------------------- Net income $ 10,365 $ 8,127 $ 24,863 $ 35,348 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FOURTH QUARTER RESULTS The 10.6% or $3,727 increase in revenues from $35,327 in 2006 Q4 to $39,054 in 2007 Q4 is the net result of increased revenues from the Trust's directional drilling division in Canada and the U.S. and revenue declines for the production testing and wireline divisions. Directional related revenues increased due to a 27.9% increase in activity days (2007 Q4 - 3,470 vs. 2006 Q4 - 2,713) which was offset by a 2.6% decrease in the average day rate (2007 Q4 - $8,596 vs. 2006 Q4 - $8,825). Revenue for 2007 Q4 by division is as follows: directional drilling $30,551 (2006 - $24,616); wireline $5,133 (2006 - $6,702) and production testing $3,370 (2006 - $4,009). The decreases realized in production testing and wireline revenues are a direct result of the decline in drilling activity in western Canada due to low natural gas prices. The consolidated gross margin compressed 2.8% to 49.5% for 2007 Q4 from 52.3% in 2006 Q4. The decrease in quarter-over-quarter gross margin was primarily due to increased labour charges in the wireline division as a portion of the field labour charges are fixed in nature and did not decrease the same percentage as sales decreased and higher directional drilling field labour costs due to market pressures. General and administrative charges increased 5.8% from $5,886 in 2006 Q4 to $6,227 in 2007 Q4 due to an increase in bad debt write-offs, facility rental costs and costs associated with exploring international business opportunities which were offset by a decrease in employee related incentive expenses. As a percentage of revenues, general and administrative expenses were 15.9% in 2007 Q4 compared to 16.7% in 2006 Q4. Quarter-over-quarter EBITDAS increased $661 or 5.1% from $13,046 in 2006 to $13,707 in 2007. The payout ratio for Q4 of 2007 was 55% (2006 Q4 - 71%) while the ratio for the year ended December 31, 2007 was 68% (2006 - 54%). The payout ratio for Q4 of 2006 includes the $0.05 per Trust Unit "special" cash distribution declared in December 2006. If this "special" cash distribution was excluded from the payout ratio calculation then the ratio for 2006 Q4 and 2006 would have been 57% and 50%, respectively. For 2007 Q4, the Trust recorded a tax recovery of $593 which compares to a tax expense of $1,446 in 2006. The 2007 Q4 recovery was primarily the result of Federal income tax rate reductions that were substantively enacted in December 2007 as well as a reduction in the cumulative non-cash adjustment related to the substantive enactment of the previously announced changes to the taxation of income and royalty trusts, other than real estate investment trusts to reflect changes in timing differences that are expected to exist as at December 31, 2010. Net income for 2007 Q4 was $10,365 ($0.33 per diluted Trust Unit) which compares to $8,127 ($0.26 per diluted Trust Unit) 2006 Q4. SUMMARY OF QUARTERLY RESULTS ------------------------------------------------------------------------- 2007 2006 -------------------------------- -------------------------------- Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ------------------------------------------------------------------------- Revenues $42,712 $24,985 $38,355 $39,054 $38,682 $26,204 $38,041 $35,327 EBITDAS 14,412 4,837 13,775 13,707 15,367 8,370 16,010 13,046 Net income (loss) 9,787 (2,415) 7,126 10,365 10,862 4,963 11,396 8,127 Net income (loss) per Trust Unit Basic 0.32 (0.08) 0.23 0.33 0.36 0.16 0.37 0.26 Diluted 0.31 (0.08) 0.22 0.33 0.35 0.16 0.36 0.26 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The majority of Cathedral's operations are carried on in western Canada where activity levels in the oilfield services industry are subject to a degree of seasonality. Operating activities in western Canada are generally lower during "spring breakup" which normally commences in late March and continues through to May. Operating activities generally increase in the fall and peak in the winter months from December till late March. Activity levels in the Rocky Mountain and Williston Basin regions of the U.S. are not subject to the seasonality to the extent that it occurs in the western Canada region. OUTLOOK Going forward management is expecting the Trust's directional drilling division, which accounted for 77% of 2007 consolidated revenues, to continue to show strong financial results and as natural gas prices improve, the financial results of the wireline and production testing divisions should improve accordingly. During 2007 the Trust expanded its wireline division to the Rocky Mountain region of the U.S. with 2 wireline units transferred from the western Canada operations. In early 2008 our U.S. wireline expansion moved into the Williston Basin region with the establishment of an operating facility in North Dakota and an additional wireline unit was transferred to the U.S. operations. As demand in the U.S. market increases we will consider transferring additional units to this area or building new units. As previously announced the Trust's current 2008 capital budget is at $12,300 and includes at least 10 G2 EM-MWD systems along with the expansion of the mud motor and drill collar fleet to complement the expanded directional drilling job capacity and 5 production testing units. Three of these MWD systems will be allocated to the U.S. operations. The 5 production testing units will be deployed in the Rocky Mountain region of the U.S. and will be the Trust's first expansion of its production testing division to the U.S. Cathedral is pursuing directional drilling business opportunities in South America and in the near term expects to provide guidance on the status thereof. In 2007 significant technology enhancements were made to the Trust's EM-MWD system and this resulted in the commercialization of its G2 version. As part of the Trust's continuing drive to provide state-of-art technology to its customers we are currently working on further enhancements to the overall EM-MWD platform. The Trust continues to actively pursue opportunities to offer an expanded range of services to its customers, increase its market share, enter new geographic territories and make strategic acquisitions. CONSOLIDATED BALANCE SHEETS December 31, 2007 and 2006 Dollars in '000's ------------------------------------------------------------------------- 2007 2006 ------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 1,306 $ 1,554 Accounts receivable 37,359 37,693 Inventory 3,584 3,050 Prepaid expenses and deposits 781 892 ----------------------------------------------------------------------- 43,030 43,189 Property and equipment 67,639 61,488 Intangibles, net of accumulated amortization of $342 (2006 - $194) 588 736 Goodwill 19,775 19,775 Other asset - 33 ------------------------------------------------------------------------- $ 131,032 $ 125,221 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and Unitholders' Equity Current liabilities: Bank indebtedness $ 6,030 $ 6,460 Accounts payable and accrued liabilities 17,203 16,446 Distributions payable to Unitholders 2,216 3,717 Taxes payable 341 1,232 Current portion of capital lease obligations 194 212 Current portion of long-term debt 99 71 ----------------------------------------------------------------------- 26,083 28,138 Capital lease obligations 257 452 Long-term debt 17,184 15,100 Future income taxes 8,258 5,308 Unitholders' equity: Unitholders' capital 48,193 44,667 Contributed surplus 2,205 1,162 Retained earnings 28,852 30,394 ----------------------------------------------------------------------- 79,250 76,223 ------------------------------------------------------------------------- $ 131,032 $ 125,221 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS Dollars in 000's except per Trust Unit amounts Three months ended Years ended December 31 December 31 ---------------------- ---------------------- 2007 2006 2007 2006 ------------------------------------------------------------------------- Revenues $ 39,054 $ 35,327 $ 145,106 $ 138,254 Expenses : Operating 19,712 16,831 73,482 64,886 General and administrative 6,227 5,886 25,774 22,066 Depreciation and amortization 3,245 2,937 12,054 10,692 Interest - long-term debt and capital lease obligations 292 264 1,084 936 Interest - other 122 124 404 482 Foreign exchange loss (gain) (94) (84) 492 (27) Non-cash compensation expense 398 272 1,603 1,486 ------------------------------------------------------------------------- 29,902 26,230 114,893 100,521 ------------------------------------------------------------------------- 9,152 9,097 30,213 37,733 Gain on disposal of property and equipment 620 476 1,777 1,946 ------------------------------------------------------------------------- Income before taxes 9,772 9,573 31,990 39,679 Taxes: Current 506 810 3,982 3,093 Future (reduction) (1,099) 636 3,145 1,238 ------------------------------------------------------------------------- (593) 1,446 7,127 4,331 ------------------------------------------------------------------------- Net income for the period 10,365 8,127 24,863 35,348 Retained earnings, beginning of period 25,136 32,331 30,394 21,765 Less: Distributions declared (6,649) (10,064) (26,405) (26,719) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Retained earnings, end of period $ 28,852 $ 30,394 $ 28,852 $ 30,394 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net income per Trust Unit: Basic $ 0.33 $ 0.26 $ 0.79 $ 1.16 Diluted $ 0.33 $ 0.26 $ 0.78 $ 1.12 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS Dollars in 000's Three months ended Years ended December 31 December 31 ---------------------- ---------------------- 2007 2006 2007 2006 ------------------------------------------------------------------------- Cash provided by (used in): Operating activities: Net income for the period $ 10,365 $ 8,127 $ 24,863 $ 35,348 Items not involving cash: Depreciation and amortization 3,245 2,937 12,054 10,692 Future taxes (reduction) (1,099) 636 3,145 1,238 Unrealized foreign exchange gain - 46 (195) 13 Non-cash compensation expense 398 272 1,603 1,486 Gain on disposal of property and equipment (620) (476) (1,777) (1,946) ------------------------------------------------------------------------- 12,289 11,542 39,693 46,831 Changes in non-cash operating working capital 212 2,461 36 (6,902) ------------------------------------------------------------------------- 12,501 14,003 39,729 39,929 ------------------------------------------------------------------------- Investing activities: Property and equipment additions (5,205) (4,448) (19,857) (26,436) Proceeds on disposal of property and equipment 1,475 905 3,575 3,277 Changes in non-cash investing working capital 2,377 80 (325) (1,207) ------------------------------------------------------------------------- (1,353) (3,463) (16,607) (24,366) ------------------------------------------------------------------------- Financing activities: Advances under long-term debt 55 109 2,228 3,109 Repayment of long-term debt (22) (84) (116) (321) Repayment of capital lease obligations (48) (72) (214) (305) Distributions paid to Unitholders (6,646) (6,463) (27,903) (22,467) Proceeds on exercise of Trust Unit options 149 19 3,065 2,734 Increase (decrease) in bank indebtedness (3,975) (3,310) (430) 1,150 ------------------------------------------------------------------------- (10,487) (9,801) (23,370) (16,100) ------------------------------------------------------------------------- Change in cash and cash equivalents 661 739 (248) (537) Cash and cash equivalents, beginning of period 645 815 1,554 2,091 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 1,306 $ 1,554 $ 1,306 $ 1,554 ------------------------------------------------------------------------- ------------------------------------------------------------------------- %SEDAR: 00018316E

For further information:

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


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890