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Press release from CNW Group

Cathedral Energy Services Ltd. Reports Results for 2011 Q4 and the Year Ended December 31, 2011 and a 25% Increase in its Quarterly Dividend

Tuesday, March 06, 2012

Cathedral Energy Services Ltd. Reports Results for 2011 Q4 and the Year Ended December 31, 2011 and a 25% Increase in its Quarterly Dividend16:32 EST Tuesday, March 06, 2012/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/CALGARY, March 6, 2012 /CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral") (TSX: CET) is pleased to report its results for 2011 Q4 and the year-end December 31, 2011 and 2012 Q1 dividend.  Dollars are in '000's except for day rates and per share amountsFINANCIAL HIGHLIGHTS            Three months ended December 31 Year ended December 31  2011 2010  2011 2010Revenues$70,359$46,365 $220,363$153,085Adjusted gross margin % (1) 35% 38%  33% 35%EBITDAS from continuing operations (1)$20,969$13,407 $55,637$40,184 Diluted per share$0.56$0.36 $1.46$1.08EBITDAS (1)$20,969$13,392 $56,085$38,398 Diluted per share$0.56$0.36 $1.47$1.03Funds from continuing operations (1)$17,814$12,730 $50,011$35,921 Diluted per share$0.47$0.34 $1.31$0.97Earnings from continuing operations before         income taxes$16,656$9,536 $37,102$25,486Net earnings$12,551$6,771 $27,634$16,327 Basic per share$0.34$0.19 $0.75$0.45 Diluted per share$0.33$0.18 $0.73$0.44Dividends declared per share$0.06$0.06 $0.24$0.24Property and equipment additions (2)$7,072$10,226 $44,413$35,155Weighted average shares outstanding          Basic (000s) 37,220 36,580  37,062 36,453 Diluted (000s) 37,631 37,703  38,047 37,170             December 312011December 312010Working capital     $40,052$19,516Total assets     $231,923$180,801Loans and borrowings excluding current portion     $50,694$35,435Total shareholders' equity     $136,107$112,191(1) Refer to "NON-IFRS MEASUREMENTS"(2) Property and equipment additions exclude non-cash additions.Effective January 1, 2011, Cathedral Energy Services Ltd. ("the Company" / "Cathedral") began reporting its financial results in accordance with International Financial Reporting Standards ("IFRS") which is now the basis for Canadian Generally Accepted Accounting Principles ("GAAP").  Prior year comparatives have been restated from amounts issued under the previous Canadian Generally Accepted Accounting Principles ("previous 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 previous CGAAP to cost of sales under 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; areas of further growth; financial results; activity levels; proprietary mud motor build out; types and timing of introduction of technological advancements; new equipment delivery dates and areas of deployment; U.S. expansion; additions to U.S. sales staff; Venezuelan operations; and expected 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 finalizing ancillary joint venture agreements that are required prior to the commencement of operations of the Venezuela joint venture;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 which will be filed with Canadian provincial securities commissions and available on www.sedar.com.NON-IFRS MEASUREMENTSCathedral uses certain performance measures throughout this document that are not defined under IFRS. Management believes that these measures provide supplemental financial information that is useful in the evaluation of Cathedral's operations and are commonly used by other oil and gas service companies. Investors should be cautioned, however, that these measures should not be construed as alternatives to measures determined in accordance with IFRS as an indicator of Cathedral's performance. Cathedral's method of calculating these measures may differ from that of other organizations, and accordingly, may not be comparable.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 below);ii) "Adjusted gross margin %" - calculated as adjusted gross margin divided by revenues; is considered a primary indicator of operating performance (see tabular calculation below);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 below);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 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 below);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 below).The following tables provide reconciliations from IFRS measurements to non-IFRS measurements referred to in this news release:Adjusted gross margin             Three months ended Year ended December 31 December 31 2011 2010 2011 2010Gross margin $20,812 $13,972 $56,409 $42,002Add non-cash items included in cost of sales:             Depreciation  3,712  3,310  14,884  11,215 Share-based compensation  136  118  381  350Adjusted gross margin $24,660 $17,400 $71,674 $53,567EBITDAS              Three months ended Year ended  December 31 December 31   2011  2010  2011  2010Earnings from continuing operations before income taxes $16,656 $9,536 $37,102 $25,486Add (deduct):             Depreciation included in cost of sales  3,712  3,310  14,884  11,215 Depreciation included in selling, general and administrative expenses  56  66  174  314 Share-based compensation included in cost of sales  136  118  381  350 Share-based compensation included in selling, general             and administrative expenses  335  404  1,440  2,305 Unrealized foreign exchange gain on intercompany balances  (515)  (499)  (221)  (730) Unrealized foreign exchange gain due to hyper-inflation accounting  -  -  -  (510) Finance costs  589  472  1,877  1,754EBITDAS from continuing operations  20,969  13,407  55,637  40,184EBITDAS from discontinued operations  -  (15)  448  (1,786)EBITDAS $20,969 $13,392 $56,085 $38,398Funds from continuing operations                              2011      2010Cash flow from operating activities       $  28,139  $  29,323Add (deduct):                  Cash flow from discontinued operations          -     1,733 Changes in non-cash operating working capital          21,857     6,731 Income taxes paid          1,377     (364) Current tax expense          (1,362)     (1,502)Funds from continuing operations       $  50,011  $  35,921RESULTS OF OPERATIONS - 2011 COMPARED TO 2010OverviewThe Company completed 2011 with record revenues of $220,363 compared to 2010 revenues of $153,085 an increase of 44% from 2010.  The 2011 revenues were comprised of 74% (2010 - 77%) from the directional drilling division and 26% (2010 - 23%) from the production testing division.2011 EBITDAS reached record levels of $56,085 ($1.47 per share diluted) which represents a $17,687 or 46% increase from $38,398 ($1.03 per share diluted) in 2010.  In 2011 the Company's net earnings were $27,634 ($0.73 per share diluted) as compared to $16,327 ($0.44 per share diluted) in 2010.  The increase in revenues and EBITDAS to record levels was a result of a combination of increased activity associated with the use of horizontal, multi-stage fracturing technology to complete conventional and unconventional resource plays in both Canada and the U.S., pricing increases and additional capacity due to equipment purchases.                                   Year ended December 31, 2011   Year ended December 31, 2010       Directional   Production       Directional   Production    Revenues      drilling   testing   Total   drilling   testing   TotalCanada     $111,684  $31,515  $143,199  $76,588  $18,570  $95,158United States      52,442   24,722   77,164   41,939   15,988   57,927Total     $164,126  $56,237  $220,363  $118,527  $34,558  $153,085Revenues and gross margin    2011 revenues were $220,363 which represented an increase of $67,278 or 44% from 2010 revenues of $153,085. 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 allowed for continued strength in activity levels for both of the Company's divisions. 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 $118,527 in 2010 to $164,126 in 2011. This increase was the result of: i) a 27% increase in activity days from 11,968 in 2010 to 15,208 in 2011; and ii) an 9% increase in the average day rate from $9,900 in 2010 to $10,792 in 2011. Canadian day rates have increased 12% and this increase was attributable to a rate increases related to increases in the Company's operating costs, primarily labour. U.S. day rates have increased 4% when converted to Canadian dollars. The U.S. day rates have increased 8% 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. Canadian activity days increased from 7,568 to 9,894 and U.S. activity days increased from 4,400 to 5,314.The Company's production testing division contributed $56,237 in revenues during 2011 which was a 63% increase over 2010 revenues of $34,558. This increase was attributable to the overall increase in testing units from 35 at the start of 2010 to 62 at the end of 2011, plus an increase in oilfield service activities on a year-over-year basis.The gross margin for 2011 was 26% compared to 27% 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 $15,265 for 2011 and $11,565 for 2010. Adjusted gross margin for 2011 was $71,674 (33%) compared to $53,567 (35%) for 2010.There was a decline in adjusted gross margin of 2%. There was no single significant increase in operating expenses in the year, but there were several items that had slight increases including higher repair costs, increases in health care benefits, costs for accommodation of field staff and field consumables for the U.S. production testing division.Depreciation allocated to cost of sales increased from $11,215 in 2010 to $14,884 in 2011 due to capital additions in 2011.  Depreciation included in cost of sales as a percentage of revenue was 7% for both 2011 and 2010.For 2011 the Company had share-based compensation included in cost of sales of $381 compared to $350 recognized in 2010.  The fair value of the options is being amortized against income over the three-year vesting periods.Selling, general and administrative expenses    SG&A expenses were $21,338 in 2011; an increase of $2,090 compared with $19,248 in 2010.  As a percentage of revenue, these costs were 10% in 2011 and 13% in 2010.  Under IFRS, SG&A includes the non-cash expenses for a portion of depreciation and share-based compensation. These non-cash expenses totaled $1,614 in 2011 and $2,619 in 2010.  SG&A net of these non-cash items were $19,724 for 2011 and $16,629 for 2010, an increase of $3,095.  Staffing costs increased $2,907; 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 consulting services of $304 primarily related exploring various business opportunities. The remaining decrease of $116 relates to several items, none of which were significant individually.Depreciation allocated to SG&A decreased from $314 in 2010 to $174 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 $1,440 compared to $2,305 recognized in 2010.  The fair 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 $4,264 which compares to $2,761 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 year-to-year.Foreign exchange gain (loss)    The Company's foreign exchange gain/loss was a gain of $1,725 in 2010 compared with a loss of $356 in 2011 due to the fluctuations in the Canadian dollar compared to U.S. dollars and Venezuelan bolivars.  The Company's foreign operations have a functional currency other than the Canadian dollar and therefore gains and losses due to fluctuations in the foreign currency exchange rates are recorded in 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/loss are unrealized gains of $221 (2010 - $730) related to intercompany balances and $nil (2010 - $510) due to hyper-inflation accounting of the Company's Venezuelan subsidiary.  The Canadian dollar weakened from the December 31, 2010 spot rate to the December 31, 2011 spot rate.Finance costs    Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $1,877 for 2011 and $1,754 for 2010.  The increase in this expense was primarily due to the increases in the Company's borrowings on a year-to-year basis.Income tax    The Company recorded a 2011 income tax expense of $9,797 as compared to $7,440 in 2010.  The 2011 provision consists of current tax expense of $1,362 (2010 - $1,502) and a deferred tax expense of $8,435 (2010 - $5,938).  The effective tax rate for 2011 is 26% compared to 29% in 2010.  The majority of the Company's tax expense is deferred in nature due to the use of the Company's Canadian tax pools to shelter otherwise taxable income.  Most of the Company's current tax expense relates to its U.S. subsidiary.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 December 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 $12,797 (December 31, 2010 - $8,765) was drawn.  In addition, the Company has a non-reducing revolving term loan facility in the amount of $55,000 (December 31, 2010 - $45,000) of which $50,000 was drawn as at December 31, 2011 (December 31, 2010 - $34,500.)  In addition, at December 31, 2011, the Company had finance lease liabilities of $1,492 (December 31, 2010 - $1,580) and other long-term debt of $5 (December 31, 2010 - $29).Operating activities    For the year ended December 31, 2011, cash flows from operating activities were $28,139 as compared to $29,323 for the comparative 2010 period, which was a decrease of $1,184 or 4%.  Cash flow from operating activities for the year ended December 31, 2011 net of a $21,857 (2010 - $6,731) use of funds related to increase in non-cash working capital was a result of increased activities levels.  The Company had a working capital position at December 31, 2011 of $40,052 compared to $19,516 at December 31, 2010.  The significant increase in working capital position is mainly due to increase in trade receivables from increased revenues and increase in inventories related to anticipated increases in activity levels and to compensate for potential delays in receiving inventory from suppliers.Funds from continuing operations (see Non-IFRS Measurements) for the year ended December 31, 2011 were $50,011 compared to $35,921 for the same period in 2010, which were an increase of $14,090.  This increase was a result of the increase in earnings (excluding non-cash items) due to increased activity levels.Investing activities    Cash used in investing activities for the year ended December 31, 2011 amounted to $37,715 compared to $21,483 for the 2010 comparative period.  During 2011 the Company invested an additional $44,413 (2010 - $35,234) in property and equipment and intangible assets.  The main 2011 additions were 33 MWD systems, $3,978 in maintenance capital for retro-fit, upgrades and replacement of downhole tools, progress payments for the Calgary operations facility which was completed in November 2011, six 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 $10,331 during the year ended December 31, 2011 (2010 - $10,313).  For the year ended December 31, 2011 Cathedral had a use of funds by way of non-cash investing working capital in the amount of $3,633 (2010 - source of funds of $3,438); 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:     December 31December 31January 1 201120102010Directional drilling - MWD systems (1)12510296Production testing units625635(1) December 31, 2011 MWD systems are net of 10 systems that are removed from service.   Financing activities    Cash provided by financing activities for the year ended December 31, 2011 amounted to $11,310 as compared to a use of cash of $6,078 during the 2010 comparative period.  During the year ended December 31, 2011 the Company made interest payments of $2,063 compared to $2,187 in 2010.   Advances on operating loans for the same period in 2011 were $4,609 (2010 - $7,069).  The Company received advances of long-term debt in the amount of $15,500 (2010 - $nil), the proceeds of which were used to finance property and equipment additions and working capital increases.  Cathedral made payments on loans and borrowings of $598 during the year ended December 31, 2011 (2010 - $5,715).  The Company made dividend payments of $8,882 for the year ended December 31, 2011 (2010 - $6,556).  The increase in dividends paid relates to the timing of the payment of dividends as the Company declared dividends of $0.24 per share in both 2011 and 2010.  During the same period the Company received proceeds on the exercise of share options of $2,744 (2010 - $1,311).  As at December 31, 2011, the Company was in compliance with all covenants under its credit facility.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, 2011.  As at December 31, 2011, the Company had a commitment to purchase approximately $3,808 of property and equipment.  Cathedral anticipates expending these funds in 2012 Q1 and Q2.2012 CAPITAL PROGRAMCathedral's 2012 capital budget is $28,000. In summary, the major items within the 2012 capital budget are: i) 14 MWD and related mud motors and collars to complement the increased job capability; ii) LWD (resistivity) equipment; iii) 7 frac-flowback production testing units and auxiliary production testing equipment to complement the overall fleet; and iv) $5,000 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 2012 Q1 dividend in the amount of $0.075 per share which will have a date of record March 31, 2012 and a payment date of April 16, 2012. This is an increase of 25% from the previous dividend level.FOURTH QUARTER RESULTSRevenues and operating expenses        2011 Q4 2010 Q4  $ Change % ChangeRevenues70,35946,36523,99452%Cost of sales (49,547)(32,393)(17,154)53%Gross margin - $ 20,81213,9726,84049%Gross margin - % 30%30%0% Adjusted gross margin - $ 24,66017,4007,26042%Adjusted gross margin - % 35%38%-3%                 Three months ended December 31, 2011 Three months ended December 31, 2010  Directional Production    Directional Production  Revenues drilling testing Total  drilling testing TotalCanada $35,890 $10,223 $46,113  $23,667 $6,758 $30,425United States 16,808 7,438 24,246  11,387 4,553 15,940              Total $52,698 $17,661 $70,359  $35,054 $11,311 $46,365Revenues in Q4 have increased to $70,359 in 2011 from $46,365 in 2010, an increase of $23,994 or 52%.  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 $35,054 in 2010 Q4 to $52,698 in 2011 Q4; a 50% increase.  This increase was the result of: i) a 36% increase in activity days from 3,413 in 2010 Q4 to 4,656 in 2011 Q4; and ii) an increase in the average day rate from $10,270 in 2010 Q4 to $11,319 in 2011 Q4, which was attributable to a rate increases related to increases in the Company's operating costs, primarily labour.  Canadian activity days increased from 2,209 to 3,014 and U.S. activity days increased from 1,204 to 1,642.The Company's production testing division contributed $17,661 in revenues during 2011 Q4 which was a 56% increase over 2010 revenues of $11,311.  The division ended 2010 Q4 with 34 units in Canada and 22 units in the U.S. and ended 2011 Q4 with 38 units in Canada and 24 in the U.S.  The increase in revenues was in part attributable to this increase in units plus the overall increase in oilfield service activities on a year-over-year basis.The gross margin for 2010 Q4 was 30% unchanged from 2011 Q4 at 30%.  There was a decline in adjusted gross margin of 3%.  There was no single significant increase in operating expenses in the year, but there were several items that had slight increases including higher repair costs, costs for accommodation of field staff and field consumables for the U.S. production testing division.Selling, general and administrative expenses were $5,176 in 2011 Q4; an increase of $170 compared with $5,006 in 2010 Q4.  The increase was primarily related to increases in payroll related expenses, net of declines in travel expenses, office rent and certain professional and other fees incurred in 2010 Q4 related to the conversion to IFRS.  As a percentage of revenues, selling, general and administrative expenses were 7% in 2011 Q4 and 11% in 2010 Q4.For 2011 Q4, the Company recorded a tax expense of $4,105 ($1,211 current and $2,894 deferred) compared to the 2010 Q4 of $2,755 ($525 current and $2,230 deferred).  In 2011 Q4, the effective tax rate on continuing operations was 25% as compared to 29% in 2010 Q4.  The majority of the Company's tax expense is deferred in nature due to the use of the Company's Canadian tax pools to shelter otherwise taxable income.  Most of the Company's current tax expense relates to its U.S. subsidiary.Net income for 2011 Q4 was $12,551 ($0.33 per share - diluted) compared to $6,771 ($0.18 per share - diluted) in 2010 Q4.OUTLOOK The near term, demand for Cathedral's services in North America will continue to be driven by the development of oil and liquids-rich natural gas plays.  Until natural gas prices recover, dry natural gas development is not expected to be a meaningful driver in demand for oilfield services.  The focus on horizontal, multi-stage fracturing to complete conventional and unconventional resource plays across North America has been a tremendous boost for the services provided by Cathedral. Cathedral's services, directional drilling and production testing frac flowback operations, are considered key services in applying this completion technology.In December 2011, Cathedral announced that extensive testing of its proprietary mud motor design had been completed and initial capital build out had commenced.  The first mud motors from the initial build out are expected to be received in 2012 Q1.  This represents another step by Cathedral in its vertical integration model and desire to control the majority of its required directional drilling equipment. Vertical integration will assist movement towards Cathedral's goal of controlling costs and supply chain management.  In 2012, Cathedral expects to replace 40-50% of its mud motor fleet with its proprietary mud motor. Cathedral will continue its focus on MWD research and development and bringing new products to the market.  Several new enhancements are expected in the second quarter including a new rotary pulser and several upgrades to the EM transmission mode.  Both are significant enhancements to the Fusion MWD system.  As well Cathedral expects to introduce in 2012 new technologies including, at-bit-inclination ("ABI") and a high temperature MWD system suitable for higher temperature regions such as the Bakken, Haynesville and Eagleford where down hole temperatures can be extreme.Expansion of both product lines in the U.S. market remains a goal for Cathedral.  Recently Cathedral moved an additional 2 frac flowback units into the North Dakota region and 2 more units scheduled to move into the region in the first quarter. The Company's Houston operations base is starting to gain traction in the directional drilling market and will expand its effort with the addition of additional sales staff. Cathedral continues to make progress toward commencing operations in Venezuela.  Auxiliary agreements related to the lease of MWD equipment and supply of personal, repair parts and repair services need to be negotiated and executed prior to commencing operations.  Significant progress has been made on the negotiation of these agreements but history has shown there have been significant delays in the execution of such agreements and accordingly Cathedral is uncertain when operations in Venezuela will commence.CONSOLIDATED STATEMENT OF FINANCIAL POSITIONDecember 31, 2011 and 2010Dollars in '000s         December 31  December 31  January 1    2011   2010  2010 Assets       Current assets:            Cash and cash equivalents  $2,902   $1,740   $491     Trade receivables  65,568 37,794 27,727     Current tax assets  - - 2,550     Prepaid expenses  2,217 1,980 1,651     Inventories  13,278 7,663 5,315     Assets held for sale  - 3,344 15,860Total current assets  83,965 52,521 53,594Property and equipment  129,929 102,546 76,964Intangible assets  230 387 884Deferred tax assets  11,951 19,499 24,295Goodwill  5,848 5,848 5,848Total non-current assets  147,958 128,280 107,991Total assets  $231,923 $180,801 $161,585       Liabilities and Shareholders' Equity       Current liabilities:            Operating loans  $12,797 $8,765 $2,181     Trade and other payables  28,046 21,309 13,686     Dividends payable  2,238 2,204 -     Current taxes payable  29 53 -     Loans and borrowings  803 674 701Total current liabilities  43,913 33,005 16,568Loans and borrowings  50,694 35,435 40,948Deferred tax liabilities  1,209 170 631Total non-current liabilities  51,903 35,605 41,579       Shareholders' equity:            Share capital  74,208 70,753 68,995     Contributed surplus  7,845 6,775 4,532     Accumulated other comprehensive loss  (2,141) (2,814) -     Retained earnings  56,195 37,477 29,911Total shareholders' equity  136,107 112,191 103,438Total liabilities and shareholders' equity  $231,923 $180,801 $161,585 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEThree and twelve months ended December 31, 2011 and 2010Dollars in '000s except per share amounts            Three months ended December 31  Year ended December 31   2011 2010 2011 2010Revenues  $70,359 $46,365    $220,363    $153,085Cost of sales:              Direct costs  (45,699) (28,965) (148,689) (99,518)     Depreciation  (3,712) (3,310) (14,884) (11,215)     Share-based compensation  (136) (118) (381) (350)Total cost of sales  (49,547) (32,393) (163,954) (111,083)Gross margin  20,812 13,972 56,409 42,002Selling, general and administrative expenses:              Direct costs  (4,785) (4,536) (19,724) (16,629)     Depreciation  (56) (66) (174) (314)     Share-based compensation  (335) (404) (1,440) (2,305)Total selling, general and administrative expenses  (5,176) (5,006) (21,338) (19,248)  15,636 8,966 35,071 22,754Gain on disposal of property and equipment  1,944 152 4,264 2,761Earnings from operating activities  17,580 9,118 39,335 25,515Foreign exchange gain (loss)  (335) 890 (356) 1,725Finance costs  (589) (472) (1,877) (1,754)Earnings from continuing operations before income taxes  16,656 9,536 37,102 25,486Income tax expense:              Current  (1,211) (525) (1,362) (1,502)     Deferred  (2,894) (2,230) (8,435) (5,938)Total income tax expense  (4,105) (2,755) (9,797) (7,440)Net earnings from continuing operations  12,551 6,781 27,305 18,046Net earnings (loss) from discontinued operations  - (10) 329 (1,719)Net earnings  12,551 6,771 27,634 16,327Other comprehensive income (loss):              Foreign currency translation differences for foreign               operations  (254) (1,252) 673 (2,814)Total comprehensive income  $12,297 $5,519 $28,307 $13,513         Net earnings from continuing operations per share              Basic  $0.34 $0.19 $0.74 $0.50     Diluted  $0.33 $0.18 $0.72 $0.49Net earnings (loss) from discontinued operations per share              Basic and diluted  $- $- $0.01 $(0.05)Net earnings              Basic  $0.34 $0.19 $0.75 $0.45     Diluted  $0.33 $0.18 $0.73 $0.44 CONSOLIDATED STATEMENT OF CASH FLOWSYears ended December 31, 2011 and 2010Dollars in '000s except per share amounts        2011   2010 Cash provided by (used in):     Operating activities:          Net earnings from continuing operations  $27,305   $18,046     Items not involving cash             Depreciation  15,058 11,529        Income tax expense  9,797 7,440        Unrealized foreign exchange gain on intercompany balances  (221) (730)        Unrealized foreign exchange gain due to hyper-inflation accounting  - (510)        Finance costs  1,877 1,754        Share-based compensation  1,821 2,655        Gain on disposal of property and equipment  (4,264) (2,761)     Cash flow from continuing operations  51,373 37,423     Cash flow from discontinuing operations  - (1,733)     Changes in non-cash operating working capital  (21,857) (6,731)     Income taxes paid  (1,377) 364Cash flow from operating activities  28,139 29,323Investing activities:          Property and equipment additions on continuing operations  (44,413) (34,984)     Property and equipment additions on discontinued operations  - (171)     Intangible asset additions  - (79)     Proceeds on disposal of property and equipment from continuing operations  6,538 4,005     Proceeds on disposal of property and equipment from discontinued operations  3,793 6,308     Changes in non-cash investing working capital  (3,633) 3,438Cash flow from investing activities  (37,715) (21,483)Financing activities:          Change in operating loan  4,609 7,069     Interest paid  (2,063) (2,187)     Advances of loans and borrowings  15,500 -     Repayments on loans and borrowings  (598) (5,715)     Proceeds on exercise of share options  2,744 1,311     Dividends paid  (8,882) (6,556)Cash flow from financing activities  11,310 (6,078)Effect of exchange rate on changes in cash and cash equivalents  (572) (513)Change in cash and cash equivalents  1,162 1,249Cash and cash equivalents, beginning of year  1,740 491Cash and cash equivalents, end of year  $2,902 $1,740Cathedral Energy Services Ltd. (the "Company" or "Cathedral") is incorporated under the Business Corporations Act (Alberta) (the "Act").  The Company is publicly traded on the Toronto Stock Exchange under the symbol "CET".  The Company together with its wholly owned subsidiary, Cathedral Energy Services Inc., is 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 U.S.  The Company is in the process of establishing operations in Venezuela for providing directional drilling services through a joint venture with Petroleos de Venezuela, S.A. ("PDVSA"), the state owned oil and gas corporation of the Bolivarian Republic of Venezuela.  The Company strives to provide its clients with value added technologies and solutions to meet their drilling and production testing requirements.  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., 6030 3 Street S.E., Calgary, Alberta T2H 1K2Telephone:  403.265.2560 Fax:  403.262.4682   www.cathedralenergyservices.com