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Press release from CNW Group

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

Tuesday, May 10, 2011

CATHEDRAL ENERGY SERVICES LTD. REPORTS RESULTS FOR 2011 Q1 AND 2011 Q2 DIVIDEND18:03 EDT Tuesday, May 10, 2011/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/CALGARY, May 10 /CNW/ - Effective January 1, 2011, Cathedral Energy Services Ltd. ("the Company" / "Cathedral") began reporting its financial results in accordance with International Financial Reporting Standards ("IFRS").  Prior year comparatives have been restated from amounts issued under the previous Canadian Generally Accepted Accounting Principles ("CGAAP") to reflect results as if the Company had always prepared its financial statements using IFRS including the reclassification of costs previously classified as general and administrative expenses under CGAAP to cost of sales under IFRS.  Please see additional information regarding IFRS entitled "Adoption of IFRS - 2010 Quarterly Results" and Note 15 ("Explanation of transition to IFRS") in the notes to the condensed consolidated interim financial statements which will be filed on SEDAR.com.FINANCIAL HIGHLIGHTSDollars in 000's except per share amounts  Three months ended March 31 2011     2010Revenues$54,849$39,281     Adjusted gross margin % (1) 33% 37%     EBITDAS from continuing operations (1)$14,525$12,005 Diluted per share$0.38$0.33      EBITDAS (1)$14,808$10,966 Diluted per share$0.39$0.30      Funds from continuing operations (1)$13,933$11,490 Diluted per share$0.37$0.31      Earnings from continuing operations before income taxes$10,691$9,406     Net earnings$8,117$5,366 Basic per share$0.22$0.15 Diluted per share$0.21$0.15      Dividends declared per share$0.06$0.06     Property and equipment additions$12,858$7,714     Weighted average shares outstanding     Basic (000s) 36,834 36,400 Diluted (000s) 38,080 36,842       March 312011December 312010   Working capital$26,294$19,516     Loans and borrowings excluding current portion$40,319$35,435     Total shareholders' equity$119,494$112,191(1) Refer to "NON-FRS MEASUREMENTS"    FORWARD LOOKING STATEMENTSThis news release contains certain forward-looking statements and forward-looking information (collectively referred to herein as "forward-looking statements") within the meaning of applicable Canadian securities laws.  All statements other than statements of present or historical fact are forward-looking statements.  Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "achieve", "believe", "plan", "intend", "objective", "continuous", "ongoing", "estimate", "outlook", "expect", "may", "will", "project", "should" or similar words suggesting future outcomes. In particular, this news release contains forward-looking statements relating to, among other things, : access to capital; projected capital expenditures and commitments and the financing thereof; equipment delivery and deployment dates; rental versus purchase decision; natural gas prices; future declines in natural gas drilling will be redirected to oil and liquid-rich natural gas plays; customer commitments; financial results; activity levels; commencement of Venezuela operations; expected effect of an extended breakup period and dividends.  The Company believes the expectations reflected in such forward-looking statements are reasonable as of the date hereof but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon.Various material factors and assumptions are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking statements.  Those material factors and assumptions are based on information currently available to the Company, including information obtained from third party industry analysts and other third party sources.  In some instances, material assumptions and material factors are presented elsewhere in this news release in connection with the forward-looking statements.  You are cautioned that the following list of material factors and assumptions is not exhaustive.  Specific material factors and assumptions include, but are not limited to:the performance of the Company's businesses, including current business and economic trends;oil and natural gas commodity prices and production levels;capital expenditure programs and other expenditures by the Company and its customers;the ability of the Company to retain and hire qualified personnel;the ability of the Company to obtain parts, consumables, equipment, technology, and supplies in a timely manner to carry out its activities;the ability of the Company to maintain good working relationships with key suppliers;the ability of the Company to market its services successfully to existing and new customers;the ability of the Company to obtain timely financing on acceptable terms;currency exchange and interest rates;risks associated with foreign operations including Venezuela;the ability of the Company to realize the benefit of its conversion from an income trust to a corporation;risks associated with the formation of Cathedral's joint venture company in Venezuela which is required prior to commencement of Venezuela operations, some of which are out of the control of Cathedral;risks associated with Venezuela joint venture company being awarded work by the Venezuela state run oil and natural gas corporation;changes under governmental regulatory regimes and tax, environmental and other laws in Canada, United States ("U.S.") and Venezuela; anda stable competitive environment.Forward-looking statements are not a guarantee of future performance and involve a number of risks and uncertainties some of which are described herein.  Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause the Company's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements.  These risks and uncertainties include, but are not limited to, the risks identified in this news release and in the Company's Annual Information Form under the heading "Risk Factors".  Any forward-looking statements are made as of the date hereof and, except as required by law, the Company assumes no obligation to publicly update or revise such statements to reflect new information, subsequent or otherwise.All forward-looking statements contained in this news release are expressly qualified by this cautionary statement. Further information about the factors affecting forward-looking statements is available in the Company's current Annual Information Form and Annual Report which have been filed with Canadian provincial securities commissions and are available on www.sedar.com.NON-IFRS MEASUREMENTSThis news release refers to certain non-IFRS measurements that do not have any standardized meaning within IFRS and therefore may not be comparable to similar measures provided by other companies.  Management utilizes these non-IFRS measurements to evaluate Cathedral's performance.The specific measures being referred to include the following:i) "Adjusted gross margin" - calculated as gross margin plus non-cash items (depreciation and share-based compensation); is considered a primary indicator of operating performance (see tabular calculation on the following page);ii) "Adjusted gross margin %" - calculated as adjusted gross margin divided by revenues; is considered a primary indicator of operating performance (see tabular calculation on the following page);iii) "EBITDAS" - defined as earnings before finance costs, unrealized foreign exchange on intercompany balances, unrealized foreign exchange due to hyper-inflation accounting, taxes, depreciation and share-based compensation; is considered an indicator of the Company's ability to generate funds flow from operations prior to consideration of how activities are financed, how the results are taxed and measured and non-cash expenses (see tabular calculation on the following page);iv)  "EBITDAS from continuing operations" - defined as earnings before finance costs, unrealized foreign exchange on intercompany balances, unrealized foreign exchange due to hyper-inflation accounting, taxes, depreciation and share-based compensation excluding the portion due from discontinued operations in each component of the calculation; is considered an ongoing indicator of the Company's ability to generate funds flow from operations prior to consideration of how activities are financed, how the results are taxed and measured and non-cash expenses (see tabular calculation on the following page);v)  "EBITDAS from discontinued operations" - defined as earnings before finance costs, unrealized foreign exchange on intercompany balances, unrealized foreign exchange due to hyper-inflation accounting, taxes, depreciation and share-based compensation from discontinued operations of the Company's former wireline division in each component of the calculation;vi) "Maintenance capital expenditures" - refers to capital expenditures required to maintain existing levels of service but excludes replacement cost of lost-in-hole equipment to the extent the replacement equipment is financed from the proceeds on disposal of the equipment lost-in-hole; andvii) "Funds from continuing operations" - calculated as cash provided by operating activities before changes in non-cash working capital, cash flow from discontinued operations and income taxes paid less current tax expense is considered an indicator of the Company's ability to generate funds flow from operations on an after tax basis but excluding changes in non-cash working capital which is financed using the Company's operating loan (see tabular calculation on the following page).The following tables provide reconciliations from IFRS measurements to non-IFRS measurements referred to in this news release:Adjusted gross margin    Three months ended March 31  2011 2010Gross margin$14,899$12,310Add non-cash items included in cost of sales:     Depreciation 3,379 2,303 Share-based compensation 64 78      Adjusted gross margin$18,342$14,691     Adjusted gross margin % 33% 37%EBITDAS   Three months ended March 31  2011 2010Earnings from continuing operations before income taxes$10,691$9,406Add (deduct):     Depreciation included in cost of sales 3,379 2,303 Depreciation included in selling, general and administrative expenses 49 80 Share-based compensation included in cost of sales 64 78 Share-based compensation included in selling, general and administrative expenses 378 661  Unrealized foreign exchange gain on intercompany balances (471) (463) Unrealized foreign exchange gain due to hyper-inflation accounting - (510) Finance costs 435 450EBITDAS from continuing operations 14,525 12,005EBITDAS from discontinued operations 283 (1,039)EBITDAS$14,808$10,966Funds from continuing operations        Three months ended March 31  2011 2010Cash flow from operating activities$7,545$2,532Add (deduct):     Cash flow from discontinued operations - 1,060  Changes in non-cash operating working capital 5,728 7,564 Income taxes paid 321 3 Current tax (expense) recovery 339 331Funds from continuing operations$13,933$11,490OVERVIEWThe Company completed the first quarter of 2011 with revenues of $54,849 compared to 2010 Q1 at $39,281.  The 2011 Q1 revenues were comprised of 76% (2010 Q1 - 79%) from the directional drilling division and 24% (2010 Q1 - 21%) from the production testing division.2011 Q1 EBITDAS was $14,808 ($0.39 per share - diluted) which represents a $3,842 or 35% increase from $10,966 ($0.30 per share - diluted) in 2010 Q1.  2011 Q1 EBITDAS from continuing operations was $14,525 ($0.38 per share - diluted) an increase of $2,520 or 21% from $12,005 ($0.33 per share - diluted) in 2010 Q1.  The Company's net earnings for 2011 Q1 was $8,117 (2010 - $5,366) or $0.21 (2010 - $0.15) per share - diluted.RESULTS OF OPERATIONS                Three months ended March 31, 2011 Three months ended March 31, 2010Revenues DirectionaldrillingProductiontesting Total DirectionaldrillingProductiontestingTotal         Canada$31,003$8,769$39,772 $21,800$5,226$27,026              United States 10,570 4,507 15,077  9,202 3,053 12,255                            Total$41,573$13,276$54,849 $31,002$8,279$39,281Revenues and gross margin 2011 Q1 revenues were $54,849 which represented an increase of $15,568 or 40% from 2010 Q1 revenues of $39,281.  The increase was primarily attributed to the focus on horizontal, multi-stage fracturing technology to complete conventional and unconventional resource plays in both Canada and the U.S. which has allowed for continued strength in activity levels for the oilfield services sector.   Demand for Cathedral's services has also been driven by both oil and liquids-rich natural gas plays.The directional drilling division revenues have increased from $31,002 in 2010 to $41,573 in 2011.  This increase is the result of: i) a 23% increase in activity days from 3,261 in 2010 to 4,026 in 2011; and ii) an increase in the average day rate from $9,350 in 2010 Q1 to $10,221 in 2011 Q1 - 9% increase.  For 2010 Q4, the average day rate was $10,100.  On year-over-year basis, Canadian day rates have increased 14% and this increase is attributable to a combination of passing on increased field labour rates to customers and general rate increases.  U.S. day rates have increased slightly in U.S. dollars but declined 3% when converted to Canadian dollars.  The day rates disclosed in this news release reflect revenue as classified under IFRS - see notes to financial statements for explanation of changes in revenue classifications.  Canadian activity days increased from 2,303 to 2,888 and U.S. activity days increased from 958 to 1,138.The Company's production testing division contributed $13,276 in revenues during 2011 Q1 which is a 60% increase over 2010 revenues of $8,279.  This increase is attributable to the overall increase in testing units from 35 at the end of 2010 Q1 to 56 at the end of 2011 Q1, plus an increase in oilfield service activities on a year-over-year basis.The gross margin for 2011 Q1 was 27% compared to 31% in 2010 Q1.  Under IFRS, cost of sales includes the non-cash expenses for a portion of depreciation and share-based compensation.  As shown above, these non-cash expenses total $3,443 for 2011 Q1 and $2,381 for 2010 Q1.  Adjusted gross margin for 2011 Q1 is $18,342 (33%) compared to $14,691 (37%) for 2010 Q1.The decline in adjusted gross margin of 4% is attributed to the combined effects of:i)increase in labour costs.  Field labour rates have increased and such increases have not been fully compensated for by revenue increases.  Startup costs have been incurred with respect to Houston operations facility and training of field staff for future Venezuela operations.  Additional operating administrative staff positions were added to accommodate growth;ii)increase in repairs and maintenance costs due to timing of repairs as there was a backlog of repair work from 2010 that were completed in 2011 Q1; andiii)an increase in specialized equipment rentals. These rentals related to specialized equipment needs of certain clients in both divisions.  The Company regularly reviews the equipment being rented and if there is a broad base demand will purchase equipment.  If the demand for the equipment is not supported for purchase, it will continue to rent as needed.Depreciation allocated to cost of sales increased from $2,303 in 2010 Q1 to $3,379 in 2011 Q1 due to capital additions in the period from 2010 Q2 to 2011 Q1.  Depreciation included in cost of sales as a percentage of revenue was 6% in both quarters.For 2011 Q1 the Company had share-based compensation included in cost of sales of $64 compared to $78 recognized in 2010 Q1.  The value of the options is being amortized against income over the three-year vesting periods.Selling, general and administrative expenses ("SG&A")    SG&A were $5,192 in 2011 Q1; an increase of $718 compared with $4,474 in 2010 Q1.  As a percentage of revenue, these costs were 9% in 2011 Q1 and 11% in 2010 Q1.  Under IFRS, SG&A includes the non-cash expenses for a portion of depreciation and share-based compensation.  These non-cash expenses total $427 for 2011 Q1 and $741 for 2010 Q1.  SG&A net of these non-cash items were 2011 Q1 $4,765 and 2010 Q1 $3,733, an increase of $1,032.  Staffing costs increased $954; this increase was primarily related to staff additions for research and development department, staff positions added to accommodate growth, wage increases for existing staff as well as changes in variable compensation.  The staffing costs included in SG&A relate to executives, sales, accounting, human resources, payroll, safety, research and development and related support staff.  The remaining increase of $78 relates to several items, none of which was significant individually.Depreciation allocated to SG&A decreased slightly from $80 in 2010 Q1 to $49 in 2011 Q1 due to aging assets and less depreciation under the declining balance method of depreciation.For 2011 Q1 the Company had share-based compensation included in SG&A of $378 compared to $661 recognized in 2010 Q1.  The value of the options is being amortized against income over the three-year vesting periods.Gain on disposal of property and equipment    During 2011 Q1 the Company had a gain on disposal of property and equipment of $931 which compares to $846 in 2010 Q1.  The Company's gains are mainly due to recoveries of lost-in-hole equipment costs including previously expensed depreciation on the related assets.  The timing of lost-in-hole recoveries is not in the control of the Company and therefore can fluctuate significantly from quarter-to-quarter.Foreign exchange gain    The Company's foreign exchange gain has decreased from a $1,174 in 2010 Q1 to $488 in 2011 Q1 due to the fluctuations in the Canadian dollar compared to U.S. dollars and Venezuelan bolivars.  Upon consolidation the Company's foreign operations are considered to be self-sustaining and therefore gains and losses due to fluctuations in the foreign currency exchange rates are recorded in other comprehensive income ("OCI") on the balance sheet as a component of equity.  However, gains and losses in the Canadian entity on U.S. denominated intercompany balances continue to be recognized in the statement of income.  Included in the 2011 Q1 foreign currency gain are unrealized gains of $471 (2010 Q1 - $463) related to intercompany balances.Finance costs    Finance costs consist of interest expenses on operating loan, loans and borrowings and bank charges of $435 for 2011 Q1 and $450 for 2010 Q1.  Interest expense related to revolving term loan decreased from $307 in 2010 Q1 to $249 in 2011 Q1 due to the decrease in the average level of debt outstanding.  Interest on operating loan, which increased marginally on a year-over-year basis from $112 in 2010 Q1 to $145 in 2011 Q1, due to increased average balance outstanding on the operating loan on a year-over-year basis.  Interest on finance lease liabilities was $23 in 2011 Q1 compared to $22 in 2010 Q1.  Other interest which consists of bank charges, non-deductible interest and other minor interest charges was $18 in 2011 Q1 compared to $9 in 2010 Q1.Taxes    For 2011 Q1, the Company had a tax expense of $2,779 as compared to $2,845 in 2010 Q1.  The effective tax rate for 2011 Q1 is 26% compared to 30% in 2010 Q1.LIQUIDITY AND CAPITAL RESOURCES The Company's principal source of liquidity is cash generated from operations.  The Company also has the ability to fund liquidity requirements through its credit facility and the issuance of debt and/or equity.  At March 31, 2011, the Company had an operating loan with a major Canadian bank in the amount of $20,000 (December 31, 2010 - $20,000) of which $3,585 (December 31, 2010 - $8,765) was drawn.  In addition, the Company has a non-reducing revolving term loan facility in the amount of $45,000 (December 31, 2010 - $45,000) of which $39,500 was drawn as at March 31, 2011 (December 31, 2010 - $34,500.)  In addition, at March 31, 2011, the Company had finance lease liabilities of $1,428 (December 31, 2010 - $1,580) and other long-term debt of $19 (December 31, 2010 - $29).Operating activities    Cash flow from operating activities increased from $2,532 in 2010 Q1 to $7,545 in 2011 Q1, an increase of $5,013 or 198%.  Funds from continuing operations (see Non-IFRS Measurements) for 2011 Q1 were $13,933 compared to $11,490 for 2010 Q1 an increase of $2,443.  This increase was caused mainly by the increase on earnings due to increased activity levels.  The Company has a working capital position at March 31, 2011 at $26,294 which compares to $19,516 at December 31, 2010.Investing activities    Cash used in investing activities for the three months ended March 31, 2011 amounted to $7,495 compared to $5,420 for 2010 Q1.  During 2011 Q1 the Company invested an additional $12,858 (2010 Q1 - $7,714) in property and equipment.  The main additions were three positive pulse MWD systems, $2,518 in maintenance capital for retro-fit, upgrades and replacement of downhole tools, progress payments for the Calgary operations facility which is currently under construction, deposits for six high pressure production testing units and related auxiliary production testing equipment.  The Company received proceeds on disposal of property and equipment of $4,048 in 2011 Q1 (2010 Q1 - $1,262).  In 2011 Q1 Cathedral had a source of funds by way of non-cash investing working capital in the amount of $1,315 (2010 - $1,032); fluctuations in non-cash working capital related to investing activities are a function of when proceeds on disposal of property and equipment are received and when payment for property and equipment are made.The following is a summary of major equipment owned by the Company:     March 312011December 312010March 312010Directional drilling - MWD systems10510296Production testing units565635 Financing activities    Cash used in financing activities for 2011 Q1 amounted to $1,400 as compared to cash provided by financing activities of $1,940 in 2010 Q1.  During 2011 Q1, the Company made interest payments of $535 compared to $457 in 2010.   Advances on operating loan for 2011 Q1 were $5,197 (2010 - repayments of $2,535).  The Company received advances of long-term debt in the amount of $5,000 (2010 - $nil), the proceeds of which were used to finance property and equipment additions.  Cathedral made payments on loans and borrowings of $138 (2010 Q1 - $138).  The Company made payments of dividends of $2,204 in 2011 Q1 (2010 - $nil).  The Company received proceeds on the exercise of share options of $1,674 (2010 - $nil).  As at March 31, 2011, the Company was in compliance with all covenants under its credit facility.  At May 10, 2011, the Company has 37,056,151 common shares and 3,099,444 share options outstanding.Contractual obligations    In the normal course of business, the Company incurs contractual obligations and those obligations are disclosed in the Company's Management's Discussion and Analysis for the year ended December 31, 2010.  As at March 31, 2011, the Company has a commitment to purchase approximately $9,015 of property and equipment.  Cathedral anticipates expending these funds in 2011 Q2.2011 CAPITAL PROGRAMCathedral's 2011 capital budget remains at $35,500. In summary, the major items within the 2011 capital budget are: i) twenty-seven MWD systems (including 7 carried forward from the 2010 capital budget) and related mud motors and collars to complement the increased job capability; ii) LWD (resistivity) equipment; iii) six high pressure production testing units and auxiliary production testing equipment to complement the overall fleet; iv) $5,000 allocated to the new head office and operations facility in Calgary; and v) $3,778 of maintenance capital.  The maintenance capital includes the retro-fit, upgrades and replacement of downhole tools. These capital expenditures are expected to be financed by way of cash flow from operations and the Company's credit facility.DIVIDENDSIt is the intent of the Company to pay quarterly dividends to shareholders.  The Board of Directors will review the amount of dividends on a quarterly basis with due consideration to current performance, historical and future trends in the business, the expected sustainability of those trends and enacted tax legislation which will affect future taxes payable as well as required long-term debt repayments, maintenance capital expenditures required to sustain performance and future growth capital expenditures.  The Directors have approved a 2011 Q2 dividend in the amount of $0.06 per share which will have a date of record of June 30, 2011 and a payment date of July 15, 2011.NEW ACCOUNTING POLICIESCertain new standards, interpretations, amendments and improvements to existing standards were issued by the IASB or International Financial Reporting Interpretations Committee ("IFRIC") that are mandatory for accounting periods beginning after January 1, 2010. The Company has reviewed these and determined that the following may have an impact on the Company:As of January 1, 2013, Cathedral will be required to adopt IFRS 9, "Financial Instruments", which is the result of the first phase of the IASB's project to replace IAS 39, "Financial Instruments: Recognition and Measurement". The new standard replaces the current multiple classification and measurement models for financial assets and liabilities with a single model that has only two classification categories: amortized cost and fair value. Cathedral is in the process of determining the impact of this Standard.ADOPTION OF IFRS - 2010 QUARTERLY RESTATEMENTIn February 2008, the Canadian Institute of Charted Accountants confirmed that the use of International Financial Reporting Standards ("IFRS") will be required in Canada for publicly accountable profit oriented enterprises for fiscal years beginning on or after January 1, 2011.  As a result of applying IFRS, the following table outlines Cathedral's operations for the quarters of 2010 that will be presented as comparative figures in its 2011 financial statements.               Q1 Q2 Q3 Q42010 TotalRevenue  $39,281$25,417$42,022$46,364$153,084Cost of sales   (26,971) (21,396) (30,323) (32,393) (111,083)Gross margin   12,310 4,021 11,699 13,971 42,001Selling, general and administrative expenses   (4,474) (4,723) (5,045) (5,006) (19,248)Gain on disposal of property and equipment   846 366 1,397 152 2,761Earnings from operating activities   8,682 (336) 8,051 9,117 25,514Foreign exchange gain (loss)   1,174 (1,109) 772 890 1,727Finance costs   (450) (359) (475) (471) (1,755)Earnings from continuing operations before income taxes 9,406 (1,804) 8,348 9,536 25,486Income tax recovery (expense)   (2,845) 437 (2,277) (2,755) (7,440)Net earnings from continuing operations   6,561 (1,367) 6,071 6,781 18,046Net earnings from discontinued operations   (1,195) (525) 11 (10) (1,719)Net earnings   5,366 (1,892) 6,082 6,771 16,327Other comprehensive income (loss):            Foreign currency translation differences for foreign operations (2,013) 1,344 (894) (1,251) (2,814)Total comprehensive income (loss)$3,353$  (548)$5,188$5,520$13,513Net earnings per share - basic$0.15$(0.05)$0.17$0.19$0.45Net earnings per share - diluted$0.15$(0.05)$0.17$0.18$0.44                      Revenue   Q1 Q2 Q3 Q42010 TotalCanadian directional drilling$21,800$8,864$22,256$23,667$76,587Canadian production testing 5,226 2,511 4,075 6,757 18,569United States directional drilling 9,202 10,301 11,051 11,387 41,941United States production testing 3,053 3,741 4,640 4,553 15,987Revenue$39,281$25,417$42,022$46,364$153,084                      EBITDAS   Q1 Q2 Q3 Q42010 TotalEarnings from continuing operations before income taxes$9,406$ (1,804)$8,348$9,536$25,486Add (deduct):            Depreciation included in cost of sales 2,303 2,559 3,043 3,310 11,215 Depreciation included in selling, general and administrative expenses 80 83 85 66 314 Share-based compensation included in cost of sales 78 75 79 118 350 Share-based compensation included in selling, general and administrative expenses 661 600 640 404 2,305 Unrealized foreign exchange (gain) loss on intercompany balances (463) 695 (463) (499) (730) Unrealized foreign exchange gain due to hyper-inflation accounting (510) - - - (510) Finance costs 450 359 475 471 1,755EBITDAS from continuing operations 12,005 2,567 12,207 13,406 40,185EBITDAS from discontinued operations (1,039) (741) 9 (15) (1,786)EBITDAS$10,966$ 1,826$12,216$13,391$38,399EBITDAS per share - diluted$0.30$0.05$0.34$0.36$1.03SUMMARY OF QUARTERLY RESULTS                                    Presented under IFRS   Presented under CGAAP   Mar   Dec   Sep   Jun   Mar   Dec   Sep   JunThree month periods ended  2011   2010   2010   2010   2010   2009   2009   2009Revenue$ 54,849 $ 46,364 $ 42,022 $ 25,417 $ 39,281 $ 24,741 $ 20,176 $ 10,654EBITDAS(1)  14,808   13,391   12,216   1,826   10,966   5,864   5,724   (1,721)Net earnings  8,117   6,771   6,082   (1,892)   5,366   2,236   3,125   (1,484)Net earnings per share - basic$ 0.22 $ 0.19 $ 0.17 $ (0.05) $ 0.15 $ 0.06 $ 0.09 $ (0.04)Net earnings per share - diluted$ 0.21 $ 0.18 $ 0.17 $ (0.05) $ 0.15 $ 0.06 $ 0.09 $ (0.04)Dividends declared per share$ 0.06 $ 0.06 $ 0.06 $ 0.06 $ 0.06 $ - $ 0.04 $ 0.12(1) Refer to "NON-IFRS MEASUREMENTS"OUTLOOKThe outlook for Cathedral and the energy services sector in general has not changed significantly since we reported results for the year ended December 31, 2010. Demand continues to be driven by both oil and liquids-rich natural gas plays.  Natural gas prices are expected to remain weak in the near term despite natural gas storage levels being below its five year average.  If natural gas prices continue to be low it is expected that any further decline in natural gas drilling will be redirected to oil and liquids-rich natural gas plays.  The focus on horizontal, multi-stage fracturing to complete conventional and unconventional resource plays across North America continues to be a tremendous boost for the services provided by Cathedral.   Directional drilling and production testing flow back operations are considered key services in applying this new completion technology.  After completing 2011 Q1 with strong demand for all of Cathedral's services, the outlook post breakup is expected to remain robust as evidenced by customer's commitments to projects that are longer term in nature.  With above average snow pack in certain regions within the Canadian market, as well as the late arrival of spring, potential exists for an extended breakup period which may impact 2011 Q2 revenues.  Any extension in the breakup period is expected to increase the backlog of work going into the remainder of 2011.To accommodate the expected increase in activity levels, Cathedral continues its program to add new equipment and to train field personnel.  In 2011 Cathedral expects to add 27 MWD systems and related mud motors and drill collars to complement the increased job capability.  In 2011 Q1, 3 MWD systems were added to the fleet.  The Production Testing division has ordered 6 high pressure units and auxiliary equipment to complement its overall fleet. The 6 high pressure units are expected to be operational in late 2011 Q2/early 2011 Q3.Cathedral continues to work towards providing directional drilling services in Venezuela with its joint venture partner, PDVSA, the state-owned oil and natural gas corporation of the Bolivarian Republic of Venezuela.  Upon completion of the incorporation/registration process for the joint venture, Cathedral and PDVSA will work towards a start-up date for the joint venture's operations.CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITIONMarch 31, 2011, December 31, 2010 and January 1, 2010Dollars in '000s(unaudited)                                 March 31   December 31   January 1            2011   2010   2010Assets                    Current assets:                     Cash and cash equivalents         $ 315 $ 1,740 $ 491 Trade receivables           45,657   37,794   27,727 Current tax assets           597   -   2,550 Prepaid expenses           1,730   1,980   1,651 Inventories           8,999   7,663   5,315 Assets held for sale           1,123   3,344   15,860Total current assets           58,421   52,521   53,594Property and equipment           111,196   102,546   76,964Intangible assets           331   387   884Deferred tax assets           16,636   19,499   24,295Goodwill           5,848   5,848   5,848Total non-current assets           134,011   128,280   107,991Total assets         $ 192,432 $ 180,801 $ 161,585                     Liabilities and Shareholders' Equity                    Current liabilities:                     Operating loan         $ 3,585 $ 8,765 $ 2,181 Trade and other payables           25,692   21,309   13,686 Dividends payable           2,222   2,204   - Loans and borrowings           628   674   701 Current taxes payable           -   53   -Total current liabilities           32,127   33,005   16,568Loans and borrowings           40,319   35,435   40,948Deferred tax liabilities           492   170   631Total non-current liabilities           40,811   35,605   41,579                      Shareholders' equity:                     Share capital           72,889   70,753   68,995 Contributed surplus           6,755   6,775   4,532 Accumulated other comprehensive loss           (3,522)   (2,814)   - Retained earnings           43,372   37,477   29,911Total shareholders' equity           119,494   112,191   103,438Total liabilities and shareholders' equity         $ 192,432 $ 180,801 $ 161,585                                           CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEThree months ended March 31, 2011 and 2010Dollars in '000s except per share amounts(unaudited)                     March 31   March 31        2011   2010Revenues     $ 54,849 $ 39,281Cost of sales       (39,950)   (26,971)Gross margin       14,899   12,310Selling, general and administrative expenses       (5,192)   (4,474)Gain on disposal of property and equipment       931   846Earnings from operating activities       10,638   8,682Foreign exchange gain       488   1,174Finance costs       (435)   (450)Earnings from continuing operations before income taxes       10,691   9,406Income tax expense       (2,779)   (2,845)Net earnings from continuing operations       7,912   6,561Net earnings from discontinued operations       205   (1,195)Net earnings       8,117   5,366Other comprehensive loss:             Foreign currency translation differences for foreign operations       (708)   (2,013)Total comprehensive income     $ 7,409 $ 3,353             Net earnings from continuing operations per share             Basic and diluted     $ 0.21 $ 0.18Net earnings from discontinued operations per share             Basic and diluted     $ 0.01 $ (0.03)Net earnings             Basic     $ 0.22 $ 0.15 Diluted     $ 0.21 $ 0.15              CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITYPeriods ended March 31, 2011 and 2010Dollars in '000s except per share amounts(unaudited)                                Accumulated                    other                 Contributed  comprehensive    Retained         Share capital  surplus  income (loss)    earnings   Total equityBalance at January 1, 2010   $68,996 $4,532 $- $  29,911 $ 103,438Total comprehensive income for three months endedMarch 31, 2010    -  -  (2,013)    5,366   3,353Transactions with shareholders, recorded directly in equitycontributions by and distributions to shareholders forthree months ended March 31, 2010:                     Issue of common shares    -  -       -   - Dividends to equity holders    -  -       (2,184)   (2,184) Share-based compensation    -  739       -   739 Share options exercised    -  -       -   -Total contributions by and distributions to shareholders    -  739  -    (2,184)   (1,445)Balance at March 31, 2010   $68,996 $5,271 $(2,013) $  33,093 $ 105,346Balance at December 31, 2010   $70,753 $6,775 $(2,814) $  37,477 $ 112,191Total comprehensive income for three months endedMarch 31, 2011    -  -  (708)    8,117   7,409Transactions with shareholders, recorded directly in equitycontributions by and distributions to shareholders forthree months ended March 31, 2011:                     Issue of common shares    -  -  -    -   - Dvidends to equity holders    -  -  -    (2,222)   (2,222) Share-based compensation    -  442  -    -   442 Share options exercised    2,136  (462)  -    -   1,674Total contributions by and distributions to shareholders    2,136  (20)  -    (2,222)   (106)Balance at March 31, 2011   $72,889 $6,755 $(3,522) $  43,372 $ 119,494                                          CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSThree months ended March 31, 2011 and 2010Dollars in '000s except per share amounts(unaudited)                         2011     2010Cash provided by (used in):                               Operating activities:                Net earnings from continuing operations     $  7,912  $  6,561 Items not involving cash                 Depreciation        3,428     2,383  Income tax expense        2,779     2,845  Unrealized foreign exchange gain on intercompany balances        (471)     (463)  Unrealized foreign exchange gain due to hyper-inflation accounting        -     (510)  Finance costs        435     450  Share-based compensation        442     739  Gain on disposal of properly and equipment        (931)     (846) Cash flow from continuing operations        13,594     11,159 Cash flow from discontinuing operations        -     (1,060) Changes in non-cash operating working capital        (5,728)     (7,564) Income taxes paid        (321)     (3)Cash flow from operating activities        7,545     2,532Investing activities:                Properly and equipment additions        (12,858)     (7,714) Proceeds on disposal of properly and equipment        1,542     1,248 Proceeds on disposal of properly and equipment held for sale        2,506     14 Changes in non-cash investing working capital        1,315     1,032Cash flow from investing activities        (7,495)     (5,420)Financing activities:                Change in operating loan        (5,197)     2,535 Interest paid        (535)     (457) Advances of loans and borrowings        5,000     - Repayments on loans and borrowings        (138)     (138) Proceeds on exercise of share options        1,674     - Dividends paid        (2,204)     -Cash flow from financing activities        (1,400)     1,940Effect of exchange rate on changes in cash and cash equivalents        (75)     (19)Change in cash and cash equivalents        (1,425)     (967)Cash and cash equivalents, beginning of period        1,740     491Cash and cash equivalents, end of period     $  315  $  (476)Cathedral Energy Services Ltd. (the "Company"/"Cathedral") and its wholly owned subsidiary, Cathedral Energy Services Inc., are engaged in the business of providing selected oilfield services to oil and natural gas companies in western Canada and selected oil and natural gas basins in the United States.  The Company is in the process of establishing operations in Venezuela for providing directional drilling services through its wholly owned subsidiaries Directional Plus International Ltd. and Directional Plus de Venezuela, C.A.  The Company's operating activities are divided into directional drilling and production testing business units.  The Company's shares trade on the TSX under the symbol: CET.  For more information, visit www.cathedralenergyservices.com.   For further information: Requests for further information should be directed to:Mark L. Bentsen, President and Chief Executive Officer or P. Scott MacFarlane, Chief Financial OfficerCathedral Energy Services Ltd., 1700, 715 - 5th Avenue S.W., Calgary, Alberta T2P 2X6Telephone:  403.265.2560    Fax:  403.262.4682   www.cathedralenergyservices.com