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Press release from CNW Group

/C O R R E C T I O N from Source -- Cathedral Energy Services Ltd./

Tuesday, August 09, 2011

/C O R R E C T I O N from Source -- Cathedral Energy Services Ltd./16:15 EDT Tuesday, August 09, 2011In c2633 transmitted at 16:15e today, a typographical error occurred in the Condensed Consolidated Statement of Comprehensive Income. Total income tax recovery (expense) was deducted twice in arriving at Net earnings (loss) from continuing operations. This error also carried forward into the amounts for Net earnings (loss) and Total comprehensive income (loss). This error was isolated to the Condensed Consolidated Statement of Comprehensive Income and amounts listed elsewhere in the news release were correct. Corrected copy follows:Cathedral Energy Services Ltd. reports results for 2011 Q2 and 2011 Q3 dividend/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/CALGARY, Aug. 9, 2011 /CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral") (TSX: CET) is pleased to report its results for 2011 Q2 and 2011 Q3 dividend. Dollars are in '000's except for day rates and per share amountsFINANCIAL HIGHLIGHTSDollars in 000's except per share amounts                           Three months ended June 30   Six months ended June 30      2011   2010   2011   2010Revenues   $  31,746 $  25,417 $ 86,595  $64,698Adjusted gross margin % (1)     21%   26%   29%   33%EBITDAS from continuing operations (1)   $ 2,477 $ 2,566 $ 17,002  $14,571 Diluted per share   $ 0.07 $ 0.07 $ 0.45  $0.40EBITDAS (1)   $ 2,643 $ 1,824 $ 17,451  $12,790 Diluted per share   $ 0.07 $ 0.05 $ 0.46  $0.35Funds from continuing operations (1)   $ 1,563 $ 1,135 $ 15,496  $12,625Diluted per share   $ 0.04 $ 0.03 $ 0.41  $0.34Earnings (loss) from continuing operations before income taxes   $  (1,986) $ (1,805) $ 8,705  $7,601Net earnings (loss)   $ (1,609) $ (1,894) $ 6,508  $3,472 Basic per share   $ (0.04) $ (0.05) $ 0.18  $0.10 Diluted per share   $ (0.04) $ (0.05) $ 0.17  $0.09Dividends declared per share   $ 0.06 $ 0.06 $ 0.12  $0.12Property and equipment additions   $ 12,709 $ 8,458 $ 25,567  $16,172Weighted average shares outstanding                   Basic (000s)     37,071   36,408   36,953   36,404 Diluted (000s)     38,011   36,773   38,085   36,834                                    June 302011   December 312010Working capital           $ 14,985  $19,516Loans and borrowings excluding current portion           $ 40,533  $35,435Total shareholders' equity           $  116,049  $112,191(1) Refer to news release see "NON-IFRS MEASUREMENTS"Effective January 1, 2011, Cathedral began reporting its results in accordance with International Financial Reporting Standards ("IFRS)".  Prior year comparative amounts have been restated to reflect results as if the Company had always prepared its financial results using IFRS.  This news release for the three and six months ended June 30, 2011 should be read in conjunction with the disclosures made in the March 31, 2011 Management's Discussion and Analysis related to the transition to IFRS and notes 3, 4 and 15 for the three months ended March 31, 2011 which discuss the transition to IFRS.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; area of further growth; customer commitments; financial results; activity levels; U.S. expansion; expected increased utilization 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 June 30     Six months ended June 30           2011   2010     2011    2010Gross margin        $ 2,752  $4,021   $ 17,651  $  16,331Add non-cash items included in cost of sales:                           Depreciation          3,688   2,559     7,067    4,862 Share-based compensation          99   75     163    153                           Adjusted gross margin        $ 6,539  $6,655   $ 24,881  $ 21,346                           Adjusted gross margin %          21%   26%     29%    33%EBITDAS                              Three months ended June 30     Six months ended June 30      2011   2010     2011    2010Earnings (loss) from continuing operations before incometaxes   $ (1,986)  $(1,805)   $ 8,705  $ 7,601Add (deduct):                      Depreciation included in cost of sales     3,688   2,559     7,067    4,862 Depreciation included in selling, general and administrativeexpenses     28   83     77    163 Share-based compensation included in cost of sales     99   75     163    153 Share-based compensation included in selling, general andadministrative expenses     370   600     748    1,261 Unrealized foreign exchange gain on intercompany balances     (103)   696     (574)    233 Unrealized foreign exchange gain due to hyper-inflationaccounting     -   -     -    (510) Finance costs     381   358     816    808                      EBITDAS from continuing operations     2,477   2,566     17,002    14,571EBITDAS from discontinued operations     166   (742)     449    (1,781)                      EBITDAS   $ 2,643  $1,824   $ 17,451  $ 12,790Funds from continuing operations                                                  Six months ended June 30                     2011     2010Cash flow from operating activities                  $ 20,766   $ 12,821Add (deduct):                            Cash flow from discontinued operations                    -     1,719 Changes in non-cash operating working capital                    (6,043)     (882) Income taxes paid                    671     (299) Current tax recovery (expense)                    102     (734)                            Funds from continuing operations                  $ 15,496   $ 12,625OVERVIEWThe Company completed 2011 Q2 with quarterly revenues of $31,746 and year-to-date revenues of $86,595 compared to 2010 Q2 revenues of $25,417 and 2010 year-to-date revenues of $64,698.  Year-to-date revenues have increased 34% from 2010.  The 2011 Q2 revenues were comprised of 69% (2010 Q2 - 75%) from the directional drilling division and 31% (2010 Q2 - 25%) from the production testing division.2011 Q2 EBITDAS was $2,643 ($0.07 per share diluted) which represents an $819 increase from 2010 Q2 EBITDAS of $1,824 ($0.05 per share diluted).  For the three months ended June 30, 2011, the Company's loss was $1,609 (($0.04) per share diluted) as compared to a $1,894 loss (($0.05) per share diluted) in 2010.2011 year-to-date EBITDAS was $17,451 ($0.46 per share diluted) which represents a $4,661 or 36% increase from $12,790 ($0.35 per share diluted) in 2009.  On a 2011 year-to-date basis, the Company's net income was $6,508 ($0.17 per share diluted) as compared to a $3,472 ($0.09 per share diluted) in 2010.RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2011                                           Three months ended June 30, 2011      Three months ended June 30, 2010         Directional   Production         Directional   Production     Revenues        drilling   testing    Total    drilling   testing    Total                                 Canada       $10,059  $ 3,685  $ 13,744   $8,864  $2,511  $ 11,375                                 United States        11,940   6,062    18,002    10,300   3,742    14,042                                 Total       $21,999  $9,747  $ 31,746   $19,164  $6,253  $ 25,417Revenues and gross margin      2011 Q2 revenues were $31,746 which represented an increase of $6,329 or 25% from 2010 Q2 revenues of $25,417.  The extended spring breakup and significant rainfall limited growth of Canadian revenues on a year-over-year basis.  Most of the Q2 increases relate to the U.S. production testing division and is primarily due to the increase in number of units in the U.S., the expansion into new markets and greater overall utilization of the existing units.The directional drilling division revenues have increased from $19,164 in 2010 Q2 to $21,999 in 2011 Q2.  This increase is the result of: i) a 7% increase in activity days from 1,955 in 2010 to 2,084 in 2011; and ii) an 8% increase in the average day rate from $9,574 in 2010 Q2 to $10,348 in 2011 Q2.  For 2011 Q1, the average day rate was $10,221.  On year-over-year basis, Canadian day rates have increased 12% 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 6% and are attributed to the types of directional services provided in the current year.  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 877 to 893 and U.S. activity days increased from 1,078 to 1,191.The Company's production testing division contributed $9,747 in revenues during 2011 Q2 which is a 56% increase over 2010 revenues of $6,253.  This increase is attributable to the overall increase in testing units from 39 at the end of 2010 Q2 to 59 at the end of 2011 Q2, plus an increase in oilfield service activities on a year-over-year basis.The gross margin for 2011 Q2 was 9% compared to 16% in 2010 Q2.  Under IFRS, cost of sales includes the non-cash expenses for a portion of depreciation and share-based compensation and these non-cash expenses total $3,787 for 2011 Q2 and $2,634 for 2010 Q2.  Adjusted gross margin for 2011 Q2 is $6,539 (21%) compared to $6,655 (26%) for 2010 Q2.The decline in adjusted gross margin of 5% 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 field supplies and consumables due to the increase in the number of production testing units and the timing of these purchases;iii)  an increase in accommodation costs for field employees as in the prior year much of the U.S. testing division's work was performed at locations with camps to house the employees.  In the current quarter, more jobs were added outside of camp locations; andiv)  net of a decrease in repairs and maintenance.  These declines were due to a number of factors including the introduction of certain new drilling equipment and operation in less demanding operating environments than in 2010 Q2.Depreciation allocated to cost of sales increased from $2,559 in 2010 Q2 to $3,688 in 2011 Q2 due to capital additions in the period from 2010 Q3 to 2011 Q2.  Depreciation included in cost of sales as a percentage of revenue was 12% in 2011 Q2 and 10% in 2010 Q2.For 2011 Q2 the Company had share-based compensation included in cost of sales of $99 compared to $75 recognized in 2010 Q2.  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 $5,180 in 2011 Q2; an increase of $457 compared with $4,723 in 2010 Q2.  As a percentage of revenue, these costs were 16% in 2011 Q2 and 19% in 2010 Q2.  Under IFRS, SG&A includes the non-cash expenses for a portion of depreciation and share-based compensation.  These non-cash expenses total $398 for 2011 Q2 and $683 for 2010 Q1.  SG&A net of these non-cash items were 2011 Q1 $4,782 and 2010 Q1 $4,040, an increase of $742.  Staffing costs increased $469; 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 $273 relates to several items, none of which was significant individually.Depreciation allocated to SG&A decreased slightly from $83 in 2010 Q2 to $28 in 2011 Q2 due to aging assets and less depreciation under the declining balance method of depreciation.For 2011 Q2 the Company had share-based compensation included in SG&A of $370 compared to $600 recognized in 2010 Q2.  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 Q2 the Company had a gain on disposal of property and equipment of $677 which compares to $366 in 2010 Q2.  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 (loss)    The Company's foreign exchange has changed from a loss of $1,111 in 2010 Q2 to a gain of $146 in 2011 Q2 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 Q2 foreign currency gain are unrealized gains of $103 (2010 Q2 - $696 loss) related to intercompany balances.Finance costs     Finance costs consist of interest expenses on operating loan, loans and borrowings and bank charges of $381 for 2011 Q2 and $358 for 2010 Q2.  As expected there was no significant changes in these expenses.Income tax     For 2011 Q2, the Company had an income tax recovery of $258 as compared to $437 in 2010 Q1.  The 2011 Q2 provision consists of current tax expense of $237 (2010 - $1,065) and a deferred tax recovery of $495 (2010 - $1,502).  The effective tax rate for 2011 Q2 is 13% compared to 24% in 2010 Q2.RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2011                                           Six months ended June 30, 2011      Six months ended June 30, 2010         Directional   Production         Directional   Production     Revenues        drilling   testing    Total    drilling   testing    Total                                 Canada       $41,062  $12,454  $ 53,516   $30,664  $7,737  $ 38,401                                 United States        22,510   10,569    33,079    19,502   6,795    26,297                                 Total       $63,572  $23,023  $ 86,595   $50,166  $14,532  $ 64,698Revenues and gross margin      2011 revenues were $86,595 which represented an increase of $21,897 or 34% from 2010 revenues of $64,698.  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 $50,166 in 2010 to $63,572 in 2011.  This increase is the result of: i) a 17% increase in activity days from 5,216 in 2010 to 6,110 in 2011; and ii) an 9% increase in the average day rate from $9,434 in 2010 to $10,264 in 2011.  On year-over-year basis, Canadian day rates have increased 13% 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 2% when converted to Canadian dollars.   The U.S. day rates have increased 7% in U.S. dollars, mainly due to the change in types of drilling work performed in 2011.  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 3,180 to 3,781 and U.S. activity days increased from 2,036 to 2,329.The Company's production testing division contributed $23,023 in revenues during 2011 which is a 58% increase over 2010 revenues of $14,532.  This increase is attributable to the overall increase in testing units from 35 at the start of 2010 to 62 at the end of 2011 Q2, plus an increase in oilfield service activities on a year-over-year basis.The gross margin for 2011 was 20% compared to 25% in 2010.  Under IFRS, cost of sales includes the non-cash expenses for a portion of depreciation and share-based compensation and these non-cash expenses total $7,230 for 2011 and $5,015 for 2010.  Adjusted gross margin for 2011 is $24,881 (29%) compared to $21,346 (33%) for 2010.The decline in adjusted gross margin of 4% is primarily attributed to an increase in labour costs including variable compensation.  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.  In addition there has been a slight increase in accommodation costs for field employees as in the prior year much of the U.S. testing division's work was performed at locations with camps to house the employees.  In the current period, more jobs were added outside of camp locations.Depreciation allocated to cost of sales increased from $4,862 in 2010 to $7,067 in 2011 due to capital additions in the period from 2010 Q3 to 2011 Q2.  Depreciation included in cost of sales as a percentage of revenue was 8% in both 2011 and 2010.For 2011 the Company had share-based compensation included in cost of sales of $163 compared to $153 recognized in 2010.  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 $10,372 in 2011; an increase of $1,175 compared with $9,197 in 2010.  As a percentage of revenue, these costs were 12% in 2011 and 14% in 2010.  Under IFRS, SG&A includes the non-cash expenses for a portion of depreciation and share-based compensation.  These non-cash expenses total $825 for 2011 and $1,424 for 2010.  SG&A net of these non-cash items were $9,547 for 2011 and $7,773 for 2010, an increase of $1,774.  Staffing costs increased $1,451; 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.  There was an increase in audit and accounting services of $132 primarily related to audit of IFRS balances.  The remaining increase of $191 relates to several items, none of which was significant individually.Depreciation allocated to SG&A decreased slightly from $163 in 2010 to $77 in 2011 due to aging assets and less depreciation under the declining balance method of depreciation.For 2011 the Company had share-based compensation included in SG&A of $748 compared to $1,261 recognized in 2010.  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 the Company had a gain on disposal of property and equipment of $1,608 which compares to $1,212 in 2010.  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 (loss)     The Company's foreign exchange gain was $63 in 2010 and $634 in 2011 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 foreign currency gain are unrealized gains of $574 (2010 - $233 loss) related to intercompany balances.Finance costs     Finance costs consist of interest expenses on operating loan, loans and borrowings and bank charges of $816 for 2011 and $808 for 2010. As expected there was no significant changes in these expenses.Income tax     For 2011, the Company had an income tax expense of $2,521 as compared to $2,408 in 2010.  The 2011 provision consists of current tax recovery of $102 (2010 - expense of $734) and a deferred tax expense of $2,623 (2010 - $1,674).  The effective tax rate for 2011 is 29% compared to 32% in 2010.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 June 30, 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 $6,405 (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 June 30, 2011 (December 31, 2010 - $34,500.)  In addition, at June 30, 2011, the Company had finance lease liabilities of $1,664 (December 31, 2010 - $1,580) and other long-term debt of $10 (December 31, 2010 - $29).Operating activities     Cash flow from operating activities increased from $12,821 in 2010 to $20,766 in 2011, an increase of $7,945 or 62%.  Funds from continuing operations (see Non-IFRS Measurements) for 2011 were $15,496 compared to $12,625 for 2010 an increase of $2,871.  This increase was caused mainly by the increase in earnings (excluding non-cash items) due to increased activity levels.  The Company has a working capital position at June 30, 2011 of $14,985 compared to $19,516 at December 31, 2010.Investing activities     Cash used in investing activities for the six months ended June 30, 2011 amounted to $20,654 compared to $8,367 for the 2010 comparative period.  During 2011 the Company invested an additional $25,567 (2010 - $16,227) in property and equipment and intangibles.  The main additions were 25 MWD systems, $2,929 in maintenance capital for retro-fit, upgrades and replacement of downhole tools, progress payments for the Calgary operations facility which is currently under construction, three high pressure production testing units and deposits for a further three high pressure production testing units and related auxiliary production testing equipment.  The Company received proceeds on disposal of property and equipment and assets held for sale of $6,349 in 2011 (2010 - $6,435).  In 2011 Cathedral had a use of funds by way of non-cash investing working capital in the amount of $1,436 (2010 - source of funds of $1,425); 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 are made.The following is a summary of major equipment owned by the Company:                              June 30    December 31     June 30         2011    2010     2010Directional drilling - MWD systems (1)        117    102     96Production testing units        62    56     39(1) June 30, 2011 MWD systems are net of 10 systems that are held for sale.                    During 2011 Q2 Cathedral reclassified 10 third-party supplied negative pulse MWD systems from property and equipment to assets held for sale.  These MWD systems are not considered core technology and were not being utilized.Financing activities     Cash used in financing activities for 2011 amounted to $805 as compared to $3,303 in 2010.  During 2011, the Company made interest payments of $663 compared to $901 in 2010.   Repayments on operating loan for 2011 were $2,420 (2010 - advances of $5,159).  The Company received advances of long-term debt in the amount of $5,000 (2010 - payments $5,000), the proceeds of which were used to finance property and equipment additions.  Cathedral made payments on loans and borrowings of $287 (2010 Q1 - $423).  The Company made payments of dividends of $4,426 in 2011 (2010 - $2,184).  The Company received proceeds on the exercise of share options of $1,991 (2010 - $46).  As at June 30, 2011, the Company was in compliance with all covenants under its credit facility.  At August 9, 2011, the Company has 37,109,484 common shares and 3,105,443 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 news release for the year ended December 31, 2010.  As at June 30, 2011, the Company has a commitment to purchase approximately $6,813 of property and equipment.  Cathedral anticipates expending these funds in 2011 Q3.2011 CAPITAL PROGRAMCathedral's 2011 capital budget increased from $35,500 to $40,000.  The increase mainly relates to amounts for lost-in-hole tool replacements, two MWD kits and production testing auxiliary equipment.  In summary, the major items within the 2011 capital budget are: twenty-nine MWD systems (including seven carried forward from the 2010 capital budget) and related mud motors and collars to complement the increased job capability, LWD (resistivity) equipment, six high pressure production testing units and auxiliary production testing equipment to complement the overall fleet, $5,100 allocated to the new head office and operations facility in Calgary and $3,800 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, the Company's credit facility and proceeds from disposition of capital assets.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 Q3 dividend in the amount of $0.06 per share which will have a date of record of September 30, 2011 and a payment date of October 17, 2011.OUTLOOKAfter experiencing an extended spring breakup and an extremely wet spring, Canadian activity levels continue to increase.   Activity levels are expected to continue to increase in the foreseeable future as a record amount of horizontal drilling activity is forecasted in all operating jurisdictions that the company currently operates.Canadian directional drilling activity levels continue to grow and based upon activity levels experienced in July and August management is expecting operating days to be at record levels in 2011 Q3.  Cathedral's customers continue to add additional wells to their programs which will ultimately increase the number of active jobs to be serviced by the Company.In the U.S., to date the 2011 Q3 directional drilling activity levels have increased over 2011 Q2 levels in all of Cathedral's U.S. operating areas.  Cathedral currently has 41 measurement-while-drilling ("MWD") systems in the U.S. market.  The Company has been successful in adding key personnel to its operations base in the Gulf Coast region.  We expect that this will accelerate the growth from this area.  Cathedral considers the U.S. market for directional drilling and production testing services to be areas for further growth.  The Company is expecting to increase utilization of existing directional drilling equipment in the U.S. market.Cathedral continues to make progress 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.Canadian production testing units are currently fully booked and as wellsite locations dry up activity levels will accelerate to full capacity.  Of the six high pressure production testing units that were included in the 2011 capital budget four have been received to date - one for U.S. and three for Canada.  The remaining two units are expected to be delivered in late August 2011 and will be utilized in the Canadian market.Two production testing units (one of the high pressure unit noted above and one transfer from the Canadian fleet) have been added to the U.S. fleet to bring the total to 24 units and with those additional units the Company is experiencing record activity levels in that market.As Cathedral experiences increased customer demands the Company will consider expanding its fleet of directional drilling and production testing equipment.In May 2011, Cathedral announced the launch of its Fusion MWD system.  The Fusion MWD system is designed to be fully customizable with the choice of electro-magnetic ("EM") transmission, positive pulse transmission or dual telemetry transmission.  The operator has the option of telemetry type that best suits their drilling requirements and offers the most economic alternative.  In the EM transmission mode the Fusion MWD system provides for increased power capabilities and enhanced filtering over previous designs, resulting in a more efficient signal and thereby allowing for successful data transmission at greater drilling depths. The Fusion MWD system has been working exceptionally well and is meeting management's expectations.  Cathedral currently has 10 Fusion MWD systems.The Company has been successful in the vertical integration of the design and manufacture of MWD systems and is expecting to expand this vertical integration to further elements of its operations thereby gaining increased control of the Company's needs and reducing its cost structure.CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITIONJune 30, 2011 and December 31, 2010Dollars in '000s(unaudited)                                                            June 30      December 31                           2011      2010Assets                                 Current assets:                                  Cash and cash equivalents                        $ 1,027    $1,740 Trade receivables                          29,180     37,794 Current tax assets                          710     - Prepaid expenses                          3,103     1,980 Inventories                          10,457     7,663 Assets held for sale                          1,475     3,344Total current assets                          45,952     52,521Property and equipment                          118,856     102,546Intangible assets                          297     387Deferred tax assets                          17,422     19,499Goodwill                          5,848     5,848Total non-current assets                          142,423     128,280Total assets                        $ 188,375    $180,801                                 Liabilities and Shareholders' Equity                                 Current liabilities:                                  Operating loan                        $ 6,405    $8,765 Trade and other payables                          21,694     21,309 Dividends payable                          2,227     2,204 Loans and borrowings                          641     674 Current taxes payable                          -     53Total current liabilities                          30,967     33,005Loans and borrowings                          40,533     35,435Deferred tax liabilities                          826     170Total non-current liabilities                          41,359     35,605                                  Shareholders' equity:                                  Share capital                          73,288     70,753 Contributed surplus                          7,142     6,775 Accumulated other comprehensive loss                          (3,917)     (2,814) Retained earnings                          39,536     37,477Total shareholders' equity                          116,049     112,191Total liabilities and shareholders' equity                        $ 188,375    $180,801                                 CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Three and six months ended June 30, 2011 and 2010Dollars in '000s except per share amounts(unaudited)                                 Three months ended June 30     Six months ended June 30         2011    2010     2011     2010                      Revenues      $31,746  $25,417  $  86,595  $ 64,698Cost of sales:                       Direct costs       (25,207)   (18,762)    (61,714)    (43,352) Depreciation       (3,688)   (2,559)    (7,067)    (4,862) Share-based compensation       (99)   (75)    (163)    (153)Total cost of sales       (28,994)   (21,396)    (68,944)    (48,367)Gross margin       2,752   4,021    17,651    16,331Selling, general and administrative expenses:                       Direct costs       (4,782)   (4,040)    (9,547)    (7,773) Depreciation       (28)   (83)    (77)    (163) Share-based compensation       (370)   (600)    (748)    (1,261)Total selling, general and administrative expenses       (5,180)   (4,723)    (10,372)    (9,197)       (2,428)   (702)    7,279    7,134Gain on disposal of property and equipment       677   366    1,608    1,212Earnings (loss) from operating activities       (1,751)   (336)    8,887    8,346Foreign exchange gain (loss)       146   (1,111)    634    63Finance costs      (381)   (358)    (816)    (808)Earnings (loss) from continuing operations before income taxes       (1,986)   (1,805)    8,705    7,601Income tax recovery (expense):                       Current       (237)   (1,065)    102    (734) Deferred       495   1,502    (2,623)    (1,674)Total income tax recovery (expense)       258   437    (2,521)    (2,408)Net earnings (loss) from continuing operations       (1,728)   (1,368)    6,184    5,193Net earnings (loss) from discontinued operations       119   (526)    324    (1,721)Net earnings (loss)       (1,609)   (1,894)    6,508    3,472Other comprehensive income (loss):                       Foreign currency translation differences for foreign operations       (395)   1,345    (1,103)    (668)Total comprehensive income (loss)      $(2,004)  $(549)  $ 5,405  $ 2,804                      Net earnings (loss) from continuing operations per share                       Basic      $(0.04)  $(0.03)  $ 0.10  $ 0.08 Diluted      $(0.04)  $(0.03)  $ 0.10  $ 0.08Net earnings (loss) from discontinued operations per share                       Basic and diluted      $0.00  $(0.01)  $ 0.01  $ (0.05)Net earnings (loss)                       Basic      $(0.04)  $(0.04)  $ 0.11  $ 0.03 Diluted      $(0.04)  $(0.04)  $ 0.10  $ 0.03                       CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Six months ended June 30, 2011 and 2010Dollars in '000s(unaudited)                                2011      2010Cash provided by (used in):                                    Operating activities:                   Net earnings (loss) from continuing operations         $ 6,184   $ 5,193 Items not involving cash:                    Depreciation           7,144     5,025  Total income tax expense           2,521     2,408  Unrealized foreign exchange (gain) loss on intercompany balances           (574)     233  Unrealized foreign exchange gain due to hyper-inflation accounting           -     (510)  Finance costs           816     808  Share-based compensation           911     1,414  Gain on disposal of property and equipment           (1,608)     (1,212) Cash flow from continuing operations           15,394     13,359 Cash flow from discontinuing operations           -     (1,719) Changes in non-cash operating working capital           6,043     882 Income taxes recovered (paid)           (671)     299Cash flow from operating activities           20,766     12,821Investing activities:                   Property and equipment additions           (25,567)     (16,172) Intangible asset additions           -     (55) Proceeds on disposal of property and equipment           2,556     1,746 Proceeds on disposal of assets held for sale           3,793     4,689 Changes in non-cash investing working capital           (1,436)     1,425Cash flow from investing activities           (20,654)     (8,367)Financing activities:                   Change in operating loan           (2,420)     5,159 Interest paid           (663)     (901) Advances of loans and borrowings           5,000     - Repayments on loans and borrowings           (287)     (5,423) Proceeds on exercise of share options           1,991     46 Dividends paid           (4,426)     (2,184)Cash flow from financing activities           (805)     (3,303)Effect of exchange rate on changes in cash and cash equivalents           (20)     215Change in cash and cash equivalents           (713)     1,366Cash and cash equivalents, beginning of period           1,740     491Cash and cash equivalents, end of period         $ 1,027   $ 1,857Cathedral 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: 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