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Press release from CNW Group

Cathedral Energy Services Ltd. reports results for 2012 Q1 and 2012 Q2 dividend

Monday, May 07, 2012

Cathedral Energy Services Ltd. reports results for 2012 Q1 and 2012 Q2 dividend16:15 EDT Monday, May 07, 2012/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/CALGARY, May 7, 2012 /CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral" / TSX: CET) is pleased to report its results for 2012 Q1 and 2012 Q2 dividend.FINANCIAL HIGHLIGHTSDollars in 000's except per share amounts         Three months ended March 31   2012 2011Revenues  $67,829 $54,849Adjusted gross margin % (1)  34% 33%EBITDAS (1)  $21,956 $14,808 Diluted per share  $0.58 $0.39EBITDAS (1) as % of revenues  32% 27%Funds from continuing operations (1)  $17,497 $13,933 Diluted per share  $0.46 $0.37Net earnings  $12,628 $8,117 Basic per share  $0.34 $0.22 Diluted per share  $0.33 $0.21Dividends declared per share  $0.075 $0.060Property and equipment additions  $11,945 $12,858Weighted average shares outstanding      Basic (000s)  37,356 36,834 Diluted (000s)  38,021 38,080          March 31 December 31    2012 2011Working capital $48,232$40,052Total assets $231,651$231,923Loans and borrowings excluding current portion $50,718$50,694Total shareholders' equity $146,265$136,107(1) Refer to MD&A: see "NON-GAAP 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: capital expenditures are expected to be financed by way of cash flow from operations and the Company's credit facility; expectation that focus on horizontal, multi-stage fracturing to complete conventional and unconventional oil and liquids-rich natural gas plays across North America is expected to continue to drive Cathedral's operating results; expectation a larger percentage of Cathedral's year-over-year growth in revenues to be from the U.S. market; Cathedral expects to add nine production testing units in 2012; introduction of new technologies; the addition of key personnel and the recent additions to its sales team in Cathedral's Houston district is expected to result in a significant increase in activity levels in this region;  in 2012, Cathedral expects to replace 40-50% of its mud motor fleet with its proprietary mud motor; the new proprietary mud motor is expected to significantly reduce operating costs as well as increase durability; subsequent to spring breakup Cathedral's Canadian production testing division is expected to continue to operate at or near capacity; and management is expecting to make more timely progress toward the commencement of providing directional drilling services in its joint venture company, Vencana Servicios Petroleros, S.A.  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 and Annual Report which have been filed with Canadian provincial securities commissions and are available on www.sedar.com.NON-GAAP MEASUREMENTSThis news release refers to certain non-GAAP 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-GAAP 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 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) "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; andv) "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 GAAP measurements to non-GAAP measurements referred to in this news release:Adjusted gross margin             Three months ended March 31    2012 2011Gross margin   $18,698 $14,899Add non-cash items included in cost of sales:       Depreciation   4,264 3,379 Share-based compensation   102 64       Adjusted gross margin   $23,064 $18,342       Adjusted gross margin %   34% 33%       EBITDAS             Three months ended March 31    2012 2011Earnings from continuing operations before income taxes   $16,649 $10,691Add (deduct):       Gain on dispoal of property and equipment from discontinued operations   - 283 Depreciation included in cost of sales   4,264 3,379 Depreciation included in selling, general and administrative expenses   156 49 Share-based compensation included in cost of sales   102 64 Share-based compensation included in selling, general and administrative expenses   268 378 Unrealized foreign exchange gain on intercompany balances   (56) (471) Finance costs   573 435       EBITDAS   $21,956 $14,808                Funds from continuing operations    Three months ended March 31     2012 2011Cash flow from operating activities  $20,931$7,545Add (deduct):       Changes in non-cash operating working capital   (2,996) 5,728 Income taxes paid   317 321 Current tax recovery (expense)   (755) 339        Funds from continuing operations  $17,497 $13,933OVERVIEWThe Company completed 2012 Q1 with quarterly revenues of $67,829 compared to 2011 Q1 revenues of $54,849.  Revenues have increased 24% from 2011.  The 2012 Q1 revenues were comprised of 71% (2011 Q1 - 76%) from the directional drilling division and 29% (2011 Q1 - 24%) from the production testing division.2012 Q1 EBITDAS were $21,956 ($0.55 per share diluted) which represents a $7,148 increase from 2011 Q1 EBITDAS of $14,808 ($0.39 per share diluted).  For the three months ended March 31, 2012, the Company's net earnings were $12,628 ($0.33 per share diluted) as compared to a $8,117 ($0.21 per share diluted) in 2011.  The increase in revenues and EBITDAS 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, increased utilization and additional capacity due to equipment purchases.RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31                Three months ended March 31, 2012 Three months ended March 31, 2011 Revenues Directionaldrilling Productiontesting Total   Directionaldrilling Productiontesting TotalCanada $33,512 $12,385 $45,897  $31,003 $8,769 $39,772United States 14,907 7,025 21,932  10,570 4,507 15,077              Total $48,419 $19,410 $67,829  $41,573 $13,276 $54,849              Revenues and gross margin      2012 Q1 revenues were $67,829 which represented an increase of $12,980 or 24% from 2011 Q1 revenues of $54,849.  The increase was due to increased drilling activity, increased utilization, additions to major equipment in the last 12 months and day rate pricing increases.The directional drilling division revenues have increased from $41,573 in 2011 Q1 to $48,419 in 2012 Q1.  This increase was the result of: i) a 3% increase in activity days from 4,026 in 2011 Q1 to 4,136 in 2012 Q1; and ii) a 13% increase in the average day rate from $10,328 in 2011 Q1 to $11,707 in 2012 Q1.  For comparison, the 2011 Q4 average day rate was $11,319.  On year-over-year basis, Canadian day rates have increased 15% and this increase was attributable to rate increases related to increases in the Company's operating costs, primarily labour.  U.S. day rates have increased 13% when converted to Canadian dollars mainly due to the change in types of drilling work performed.   Canadian activity days decreased from 2,888 to 2,714 and U.S. activity days increased from 1,138 to 1,422.The Company's production testing division contributed $19,410 in revenues during 2012 Q1 which was a 46% increase over 2011 revenues of $13,276.  This increase is attributable to the overall increase in testing units from 56 at the end of 2011 Q1 to 65 at the end of 2012 Q1, plus an increase in oilfield service activities on a year-over-year basis.The gross margin for 2012 Q1 was 28% compared to 27% in 2011 Q1.  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 $4,366 for 2012 Q1 and $3,443 for 2011 Q1.  Adjusted gross margin for 2012 Q1 was $23,064 (34%) compared to $18,342 (33%) for 2011 Q1.  The slight increase in adjusted gross margin is a result of lower repair costs as a percentage of revenues in 2012 Q1 offset by various insignificant increases in certain cost none of which were individually significant.Depreciation allocated to cost of sales increased from $3,379 in 2011 Q1 to $4,264 in 2012 Q1 due to capital additions in the period from 2011 Q1 to 2012 Q1.  Depreciation included in cost of sales as a percentage of revenue was 6% for both 2012 and 2011 Q1.For 2012 Q1 the Company had share-based compensation included in cost of sales of $102 compared to $64 recognized in 2011 Q1.  The fair value of the options is being amortized against income over the three-year vesting periods.Selling, general and administrative expenses ("SG&A")     SG&A expenses were $5,441 in 2012 Q1; an increase of $249 compared with $5,192 in 2011 Q1.  As a percentage of revenue, these costs were 8% in 2012 Q1 and 9% in 2011 Q1.  Under IFRS, SG&A includes the non-cash expenses for a portion of depreciation and share-based compensation.  These non-cash expenses total $424 for 2012 Q1 and $427 for 2011 Q1.  SG&A net of these non-cash items were $5,017 in 2012 Q1 and $4,765 in 2011 Q1, an increase of $252.  Staffing costs increased $140; 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 net increase of $112 relates to various changes none of which are individually significant .Depreciation allocated to SG&A increased from $49 in 2011 Q1 to $156 in 2012 Q1 which has mainly increased due to the depreciation of the new head office location which was not depreciated until it was available-for-use in 2011 Q4.For 2012 Q1 the Company had share-based compensation included in SG&A of $268 compared to $378 recognized in 2011 Q1.  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 2012 Q1 the Company had a gain on disposal of property and equipment of $3,704, compared to $931 in 2011 Q1.  Included in the 2012 Q1 gain of $3,704 is $2,034 related to the sale of property and equipment by Cathedral's subsidiaries to Vencana Servicios Petroleros, S.A. ("Vencana") of which Cathedral owns 40%.  The Vencana related portion of the gain includes the portion of the gain related to the joint venture partner's share.  The Company's remaining 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 decreased from $488 in 2011 Q1 to $261 in 2012 Q1 due to the fluctuations in the Canadian dollar compared to U.S. dollars and Venezuelan bolivars.  The Company's foreign operations are denominated in a currency other than the Canadian dollar and therefore, upon consolidation 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 2012 Q1 foreign currency gain are unrealized gains of $56 (2011 Q1 - $471) related to intercompany balances.Finance costs     Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $573 for 2012 Q1 versus $435 for 2011 Q1.  The increase in finance costs mainly relate to the increase in the outstanding balance on the Company's secured revolving term loan.Income tax     For 2012 Q1, the Company had an income tax expense of $4,021 compared to $2,779 in 2011 Q1.  The 2012 Q1 provision consists of current tax expense of $755 (2011 Q1 - $339 recovery) and a deferred tax expense of $3,266 (2011 Q1 - $3,118).  The effective tax rate was 24% for 2012 Q1 and 26% 2011 Q1.  The current tax provision is lower than otherwise would be anticipated due to utilization of tax pools in Canada and because the gain on the sale of property to Vencana was offset by losses of prior periods.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, 2012, the Company had an operating loan with a major Canadian bank in the amount of $20,000 (December 31, 2011 - $20,000) of which $1,985 (December 31, 2011 - $12,797) was drawn.  In addition, the Company has a non-reducing revolving term loan facility in the amount of $55,000 (December 31, 2011 - $55,000) of which $50,000 was drawn as at March 31, 2012 (December 31, 2011 - $50,000).  In addition, at March 31, 2012, the Company had finance lease liabilities of $1,458 (December 31, 2011 - $1,492) and other short-term debt of $nil (December 31, 2011 - $5).Operating activities     For the three months ended March 31, 2012, cash flows from operating activities were $21,049 as compared to $7,545 for the comparative 2011 period, which was an increase of $13,504 or 179%.  Cash flow from operating activities for the three months ended March 31, 2012 includes $3,115 source of funds (2011 Q1 - $5,728 use of funds) related to changes in non-cash working capital.  The Company had a working capital position at March 31, 2012 of $48,232 compared to $40,052 at December 31, 2011.Funds from continuing operations (see Non-GAAP Measurements) for the three months ended March 31, 2012 were $17,497 compared to $13,933 for the same period in 2011, which was an increase of $3,564.  This increase was caused mainly by the increase in earnings (excluding non-cash items) due to increased activity levels.Investing activities     Cash used in investing activities for the three months ended March 31, 2012 amounted to $7,864 compared to $7,495 for the 2011 comparative period.  During 2012 Q1 the Company invested an additional $11,945 (2011 Q1 - $12,858) in property and equipment and intangible assets.  The main 2012 additions were 4 MWD systems, upgrades and replacement of downhole tools 3 production testing units and related auxiliary production testing equipment.  The Company received proceeds on disposal of property and equipment of $6,278 during the three months ended March 31, 2012 (2011 Q1 - $4,048 including proceeds on assets held for sale).  For the three months ended March 31, 2012 Cathedral had a use of funds by way of non-cash investing working capital in the amount of $1,643 (2011 Q1 - source of funds of $1,315); 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:     March 31December 31March 31 201220112011Directional drilling - MWD systems (1)129125105Production testing units656256(1) Net of 10 systems that have been removed from service.       Financing activities     Cash used by financing activities for the three months ended March 31, 2012 amounted to $13,183 as compared to $1,400 during the 2011 comparative period.  During the three months ended March 31, 2012 the Company made interest payments of $434 compared to $535 in 2011 Q1.   Repayments on operating loans for the same period in 2012 were $11,016 (2011 Q1 - $5,197).  The Company received $nil advances of long-term debt (2011 Q1 - $5,000).  Cathedral made payments on loans and borrowings of $126 during the three months ended March 31, 2012 (2011 Q1 - $138).  The Company made payments of dividends of $2,238 for the three months ended March 31, 2012 (2011 Q1 - $2,204).  During the same period the Company received proceeds on the exercise of share options of $631 (2011 Q1 - $1,674).  As at March 31, 2012, the Company was in compliance with all covenants under its credit facility.  At May 7, 2012, the Company has 37,480,651 common shares and 3,299,071 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, 2011.  As at March 31, 2012, the Company had a commitment to purchase approximately $803 of property and equipment.  Cathedral anticipates expending these funds in 2012 Q2.2012 CAPITAL PROGRAMCathedral's 2012 capital budget remains at the previously disclosed amount of $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 Q2 dividend in the amount of $0.075 per share which will have a date of record of June 30, 2012 and a payment date of July 16, 2012.OUTLOOKThe current focus on horizontal, multi-stage fracturing to complete conventional and unconventional oil and liquids-rich natural gas plays across North America is expected to continue to drive Cathedral's operating results. With natural gas pricing continuing to be weak, operators have been switching to increase liquids and oil based activity.Cathedral expects a larger percentage of its year-over-year growth in revenues to be from the U.S. market. The Company has focused its efforts on expanding into all U.S. regions where there is significant amount of drilling and completions activity.  This focus is beginning to take shape with market share gains in all districts.The U.S. "Eastern region" (Pennsylvania, Ohio, Michigan) continues to expand, despite being driven by natural gas activity, with current activity at record levels. The customers that Cathedral works for in this region have made significant changes to their natural gas focused activity, and despite their large reduction in overall rig count, Cathedral increased its activity levels.  Cathedral's equipment and technology is well suited for this region and performance has allowed the Company to gain market share.Cathedral opened an operations base in Houston in late 2010.  Although it has taken longer than expected to make an impact the Houston team is making significant progress in expanding operations and market share. With the addition of key personnel and the recent additions to its sales team Cathedral is expecting a significant increase in activity levels in this region.The U.S. Rockies region continues to remain strong with activity pickups in the North Dakota Bakken (oil) as well in the DJ Basin (liquids).The Canadian market is just beginning to come out of "spring breakup" and the signs are that the directional and horizontal market will remain strong.  Cathedral's current customers are expecting to remain as active as they have been in the last year with continued movement towards oil and liquids plays.  Subsequent to the end of the first quarter of 2012 Cathedral has had success in expanding its customer base.Cathedral's directional drilling division continues to make progress on the technology forefront.  During 2012 Q1, Cathedral's proprietary mud motor design was released to the market.  After extensive testing the motor was deemed commercially viable and the build program was initiated.  In 2012, Cathedral expects to replace 40-50% of its mud motor fleet with its proprietary mud motor.  The new motor is expected to significantly reduce operating costs as well as increase durability.Through Cathedral's continuous enhancement program, several new features will be added to the MWD Fusion platform. In 2012 Q2 a new rotary pulser and upgrades to the EM transmission mode will be introduced.  The MWD research and development group is also looking to introduce in 2012 new technologies such as at-bit-inclination, at-bit-gamma 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. With "at-bit" inclination and gamma, sensors are placed closer to the drill bit and this allows for improved geosteering and optimum well placement.Subsequent to spring breakup, Cathedral's Canadian production testing division is expected to continue to operate at or near capacity.  In 2012, Cathedral expects to add nine production testing units including seven new builds and two acquired in an acquisition of an existing production testing business that was completed in February 2012.  To date in 2012, Cathedral has added five testing units to its U.S. fleet - one new build and four transferred from the Canadian fleet.  These five units were deployed into the North Dakota Bakken oil play.  The onset of "spring breakup" in western Canada allowed Cathedral to move Canadian based units to the U.S. market.  The Canadian fleet will be replenished from the balance of the new build program.With the receipt of cash payments by Cathedral (approximately USD$15,000; USD $3,900 as proceeds on sale of certain assets located in Maturin, Venezuela and USD $11,100 as deposit on additional equipment purchases) from its Venezuela joint venture partner, a wholly-owned subsidiary of Petróleos de Venezuela S.A. ("PDVSA"), Cathedral's management is expecting to make more timely progress toward the commencement of providing directional drilling services in its joint venture company, Vencana Servicios Petroleros, S.A. ("Vencana").  Joint venture partners are currently working on the execution of ancillary agreements and the coordination of personnel and equipment.CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITIONMarch 31, 2012 and December 31, 2011Dollars in '000s(unaudited)        March 31 December 31   2012  2011 Assets           Current assets:      Cash and cash equivalents  $3,028 $2,902 Trade receivables  64,641 65,568  Prepaid expenses  2,544 2,217 Inventories  11,468 13,278      Total current assets  81,681 83,965 Property and equipment  133,332 129,929 Intangible assets  736 230 Deferred tax assets  8,715 11,951 Investment in equity accounted investee  1,339 - Goodwill  5,848 5,848      Total non-current assets  149,970 147,958 Total assets  $231,651 $231,923      Liabilities and Shareholders' Equity      Current liabilities:      Operating loan  $1,985 $12,797 Trade and other payables  27,452 28,046 Dividends payable  2,810 2,238 Loans and borrowings  740 803 Current taxes payable  462 29      Total current liabilities  33,449 43,913 Loans and borrowings  50,718 50,694 Deferred tax liabilities  1,219 1,209      Total non-current liabilities  51,937 51,903      Shareholders' equity:      Share capital  74,991 74,208 Contributed surplus  8,049 7,845 Accumulated other comprehensive loss  (2,788) (2,141) Retained earnings  66,013 56,195      Total shareholders' equity  146,265 136,107 Total liabilities and shareholders' equity  $231,651 $231,923 See accompanying notes to condensed consolidated interim financial statements.      CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEThree months ended March 31, 2012 and 2011Dollars in '000s except per share amounts(unaudited)             Three months ended March 31      2012   2011  Revenues    $67,829 $54,849 Cost of sales:        Direct costs    (44,765) (36,507) Depreciation    (4,264) (3,379) Share-based compensation    (102) (64) Total cost of sales    (49,131) (39,950) Gross margin    18,698 14,899 Selling, general and administrative expenses:        Direct costs    (5,017) (4,765) Depreciation    (156) (49) Share-based compensation    (268) (378) Total selling, general and administrative expenses    (5,441) (5,192)    13,257 9,707 Gain on disposal of property and equipment    3,704 931 Earnings from operating activities    16,961 10,638 Foreign exchange gain    261 488 Finance costs    (573) (435) Earnings from continuing operations before income taxes    16,649 10,691 Income tax recovery (expense):        Current recovery (expense)    (755) 339 Deferred    (3,266) (3,118) Total income tax expense    (4,021) (2,779) Net earnings from continuing operations    12,628 7,912 Net earnings from discontinued operations    - 205 Net earnings    12,628 8,117 Other comprehensive loss:        Foreign currency translation differences for foreign operations    (647) (708) Total comprehensive income    $11,981 $7,409        Net earnings from continuing operations per share        Basic    $0.34 $0.21 Diluted    $0.33 $0.21 Net earnings from discontinued operations per share        Basic and diluted    $- $0.01 Net earnings        Basic    $0.34 $0.22 Diluted    $0.33 $0.21       CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Three months ended March 31, 2012 and 2011Dollars in '000s(unaudited)              Share capital    Contributed  surplus  Accumulated  other  comprehensive  loss     Retained  earnings   Total  shareholders'  equity Balance at January 1, 2011  $70,753  $6,775  $(2,814) $37,477 $112,191 Total comprehensive income (loss) for three months ended March 31, 2011  - - (708) 8,117 7,409           Transactions with shareholders, recorded directly in equity contributions by and distributions to shareholders for three months ended March 31, 2011:            Dividends to equity holders - - - (2,222) (2,222) Share-based compensation - continuing operations  - 442 - - 442 Share options exercised  2,136 (462) - - 1,674           Total 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 Balance at December 31, 2011  $74,208  $7,845  $(2,141) $56,195 $136,107 Total comprehensive income (loss) for three months ended March 31, 2012  - - (647) 12,628 11,981           Transactions with shareholders, recorded directly in equity contributions by and distributions to shareholders for three months ended March 31, 2012:            Dividends to equity holders - - - (2,810) (2,810) Share-based compensation  - 356 - - 356 Share options exercised  783 (152) - - 631           Total contributions by and distributions to shareholders  783 204 - (2,810) (1,823)           Balance at March 31, 2012  $74,991  $8,049  $(2,788) $66,013 $146,265            CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSThree months ended March 31, 2012 and 2011Dollars in '000s(unaudited)       2012   2011  Cash provided by (used in):           Operating activities:      Net earnings from continuing operations  $12,628 $7,912  Items not involving cash:       Depreciation  4,420 3,428  Total income tax expense  4,021 2,779  Unrealized foreign exchange gain on intercompany balances  (56) (471)  Finance costs  573 435  Share-based compensation  370 442  Gain on disposal of property and equipment  (3,704) (931)      Cash flow from continuing operations  18,252 13,594 Changes in non-cash operating working capital  3,115 (5,728)  Income taxes paid  (318) (321)      Cash flow from operating activities  21,049 7,545      Investing activities:       Property and equipment additions  (11,945) (12,858)  Intangible asset additions  (554) -  Proceeds on disposal of property and equipment  6,278 1,542  Proceeds on disposal of assets held for sale  - 2,506  Changes in non-cash investing working capital  (1,643) 1,315      Cash flow from investing activities  (7,864) (7,495)      Financing activities:      Change in operating loan  (11,016) (5,197) Interest paid  (434) (535) Advances of loans and borrowings  - 5,000 Repayments on loans and borrowings  (126) (138) Proceeds on exercise of share options  631 1,674  Dividends paid  (2,238) (2,204)      Cash flow from financing activities  (13,183) (1,400) Effect of exchange rate on changes in cash and cash equivalents  124 (75) Change in cash and cash equivalents  126 (1,425) Cash and cash equivalents, beginning of period  2,902 1,740 Cash and cash equivalents, end of period  $3,028 $315     Cathedral 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