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Press release from CNW Group

Cathedral Energy Services Ltd. Reports Results for 2012 Q2 and 2012 Q3 Dividend

Thursday, August 09, 2012

Cathedral Energy Services Ltd. Reports Results for 2012 Q2 and 2012 Q3 Dividend16:17 EDT Thursday, August 09, 2012/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/CALGARY, Aug. 9, 2012 /CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral" / TSX: CET) is pleased to report its results for 2012 Q2 and 2012 Q3 dividend.FINANCIAL HIGHLIGHTSDollars in 000's except per share amounts             Three months ended June 30Six months ended June 30  2012 2011 2012 2011Revenues$40,699 $31,746 $108,528 $86,595Adjusted gross margin % (1) 19.1% 20.6% 28.4% 28.7%EBITDAS (1)$2,068 $2,643 $24,024 $17,451 Diluted per share$0.05 $0.07 $0.63 $0.46EBITDAS (1) as % of revenues 5.1% 8.3% 22.1% 20.2%Funds from continuing operations (1)$1,148 $1,563 $18,645 $15,496 Diluted per share$0.03 $0.04 $0.49 $0.41Net earnings (loss)$(3,222) $(1,609) $9,406 $6,508 Basic per share$(0.09) $(0.04) $0.25 $0.18 Diluted per share$(0.09) $(0.04) $0.25 $0.17Dividends declared per share$0.075 $0.060 $0.150 $0.120Property and equipment additions$6,542 $12,709 $18,487 $25,567Weighted average shares outstanding         Basic (000s) 37,485 37,071 37,420 36,953 Diluted (000s) 37,744 38,011 37,911 38,085               June 30 December 31      2012 2011Working capital     $40,742 $40,052Total assets     $238,552 $231,923Loans and borrowings excluding current portion     $50,768 $50,694Total shareholders' equity     $141,596 $136,107         (1) Refer to "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 14 MWD systems and nine production testing units in 2012; introduction of new technologies; significant increase in activity levels in Northeast and Houston regions of the U.S.; the new proprietary mud motor is expected to significantly reduce operating costs as well as increase durability; and 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 June 30  Six months ended June 30  2012 2011 2012 2011Gross margin$3,193$2,752$21,891$17,651Add non-cash items included in cost of sales:         Depreciation 4,530 3,688 8,794 7,067 Share-based compensation 69 99 171 163         Adjusted gross margin$7,792$6,539$30,856$24,881         Adjusted gross margin % 19.1% 20.6% 28.4% 28.7% EBITDAS            Three months ended June 30  Six months ended June 30  2012 2011 2012 2011Earnings (loss) from continuing operations         before income taxes $(3,650) $(1,986) $12,999 $8,705Add (deduct):         Gain on dispoal of property and equipment from         discontinued operations - 166 - 449Depreciation included in cost of sales 4,530 3,688 8,794 7,067Depreciation included in selling, general         and administrative expenses 159 28 315 77Share-based compensation included in cost of sales 69 99 171 163Share-based compensation included in selling, general         and administrative expenses 246 370 514 748Unrealized foreign exchange (gain) loss         on intercompany balances 201 (103) 145 (574)Finance costs 513 381 1,086 816         EBITDAS $2,068 $2,643 $24,024 $17,451 Funds from continuing operations        Six months ended June 30  2012 2011Cash flow from operating activities $59,229 $20,766Add (deduct):      Changes in non-cash operating working capital (41,950) (6,043)  Income taxes paid 3,013 671  Current tax recovery (expense) (1,647) 102     Funds from continuing operations $18,645 $15,496 OVERVIEWThe Company completed 2012 Q2 with quarterly revenues of $40,699 and year-to-date revenues of $108,528 compared to 2011 Q2 revenues of $31,746 and 2011 year-to-date revenues of $86,595.  Year-to-date revenues have increased 25% from 2011.  The 2012 Q2 revenues were comprised of 65% (2011 Q2 - 69%) from the directional drilling division and 35% (2011 Q2 - 31%) from the production testing division.2012 Q2 EBITDAS was $2,068 ($0.05 per share diluted) which represents a $575 decrease from 2011 Q2 EBITDAS of $2,643 ($0.07 per share diluted).  For the three months ended June 30, 2012, the Company's loss was $3,222 (($0.09) per share diluted) as compared to a $1,609 loss (($0.04) per share diluted) in 2011.2012 year-to-date EBITDAS was $24,024 ($0.63 per share diluted) which represents a $6,573 or 38% increase from $17,451 ($0.46 per share diluted) in 2011.  On a 2012 year-to-date basis, the Company's net income was $9,406 ($0.25 per share diluted) as compared to a $6,508 ($0.17 per share diluted) in 2011.RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30                Three months ended June 30, 2012 Three months ended June 30, 2011  Directional Production    Directional Production  Revenues drilling testing Total  drilling testing TotalCanada $10,522 $6,368 $16,890  $10,059 $3,685 $13,744United States 15,988 7,821 23,809  11,940 6,062 18,002              Total $26,510 $14,189 $40,699  $21,999 $9,747 $31,746 Revenues and gross margin      2012 Q2 revenues were $40,699which represented an increase of $8,953or 28% from 2011 Q2 revenues of $31,746.  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.   In addition, the increase was due to increased utilization, additions to major equipment in the last 12 months and day rate pricing increases.The directional drilling division revenues have increased from $21,999 in 2011 Q2 to $26,510in 2012 Q2.  This increase was the result of: i) a 10% increase in activity days from 2,084 in 2011 Q2 to 2,294 in 2012 Q2; and ii) a 9% increase in the average day rate from $10,558 in 2011 Q2 to $11,557 in 2012 Q2.  For comparison, the 2012 Q1 average day rate was $11,707.  On year-over-year basis, Canadian day rates have increased 17% and this increase was attributable to rate adjustments related to increases in the Company's operating costs and general rate increases.  U.S. day rates have increased 7% when converted to Canadian dollars mainly due to the change in types of drilling work performed.   Canadian activity days decreased from 893 to 801 and U.S. activity days increased from 1,191 to 1,493.  Canadian activity days were negatively affected by a "spring breakup" period that was extended due to wet weather in June.  U.S. activity days were up in all of the Company's U.S. operating areas.The Company's production testing division contributed $14,189in revenues during 2012 Q2 which was a 46% increase over 2011 revenues of $9,747.  This increase is attributable to the overall increase in testing units from an average of 58 in 2011 Q2 to 66 for 2012 Q2, increased equipment utilization, expansion of the customer base and further expansion into the North Dakota Bakken oil play.The gross margin for 2012 Q2 was 7.8% compared to 8.7% in 2011 Q2.  Cost of sales includes the non-cash expenses for a portion of depreciation and share-based compensation and these non-cash expenses total $4,599for 2012 Q2 and $3,787 for 2011 Q2.  Adjusted gross margin (which excludes non-cash expenses) for 2012 Q2 was $7,792 (19.1%) compared to $6,539 (20.6%) for 2011 Q2.  The decrease in adjusted gross margin is a result of higher costs for accommodation, subsistence and field labour as a percentage of revenues in 2012 Q2.Depreciation allocated to cost of sales increased from $3,688in 2011 Q2 to $4,530in 2012 Q2 due to capital additions in the period from 2011 Q2 to 2012 Q2.  Depreciation included in cost of sales as a percentage of revenue was 11% for 2012 Q2 and 12% for 2011 Q2.For 2012 Q2 the Company had share-based compensation included in cost of sales of $69compared to $99 recognized in 2011 Q2.  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 $6,043in 2012 Q2; an increase of $863compared with $5,180 in 2011 Q2.  As a percentage of revenue, these costs were 15% in 2012 Q2 and 16% in 2011 Q2.  SG&A includes the non-cash expenses for a portion of depreciation and share-based compensation.  These non-cash expenses total $405for 2012 Q2 and $398 for 2011 Q2.  SG&A net of these non-cash items were $5,638in 2012 Q2 and $4,782 in 2011 Q2, an increase of $856.  Staffing costs increased $766; this increase was primarily related to 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 $90 relates to various net changes none of which are individually significant.Depreciation allocated to SG&A increased from $28 in 2011 Q2 to $159in 2012 Q2 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 Q2 the Company had share-based compensation included in SG&A of $246compared to $370 recognized in 2011 Q2.  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 Q2 the Company had a gain on disposal of property and equipment of $28, compared to $677 in 2011 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 decreased from a gain of $146 in 2011 Q2 to a loss $315in 2012 Q2 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 Q2 foreign currency gain are unrealized losses of $201(2011 Q2 - $103 gain) related to intercompany balances.Finance costs     Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $513for 2012 Q2 versus $381 for 2011 Q2.  The net increase in finance costs mainly relate to an increase in the outstanding balance for the secured revolving term loan and due to the capitalization of interest in 2011 related to the construction of the 6030 Campus.  These increases were partially offset by a decrease in the interest on outstanding balance on the Company's operating loans, the value of which were reduced to $nil at June 30, 2012.Income tax     For 2012 Q2, the Company had an income tax recovery of $428compared to $258 in 2011 Q2.  The 2012 Q2 provision consists of current tax expense of $892(2011 Q2 - $237) and a deferred tax recovery of $1,320(2011 Q2 - $495 recovery).  The effective tax rate was 11% for 2012 Q2 and 13% 2011 Q2.RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2012                Six months ended June 30, 2012 Six months ended June 30, 2011  Directional Production    Directional Production  Revenues drilling testing Total  drilling testing TotalCanada $44,034 $18,753 $62,787  $41,062 $12,454 $53,516United States 30,895 14,846 45,741  22,510 10,569 33,079              Total $74,929 $33,599 $108,528  $63,572 $23,023 $86,595Revenues and gross margin      2012 revenues were $108,528which represented an increase of $21,933or 25% from 2011 revenues of $86,595.  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.   In addition, the increase was due to increased utilization, additions to major equipment in the last 12 months and day rate pricing increases.The directional drilling division revenues have increased from $63,572 in 2011 to $74,929in 2012.  This increase is the result of: i) a 5% increase in activity days from 6,109 in 2011 to 6,430 in 2012; and ii) an 12% increase in the average day rate from $10,407 in 2011 to $11,653 in 2012.  On year-over-year basis, Canadian day rates have increased 15% and this increase is attributable to a combination of passing on increased field cost to customers and general rate increases.  U.S. day rates have increased 10% when converted to Canadian dollars.   The U.S. day rates have increased 6% in U.S. dollars, mainly due to the change in types of drilling work performed in 2012.  Canadian activity days decreased from 3,781 in 2011 to 3,515 in 2012 and U.S. activity days increased from 2,329 in 2011 to 2,915 in 2012.  Canadian activity days were negatively affected by a "spring breakup" in 2012 which started earlier than on average and was extended due to wet weather in June.  U.S. activity days were up in all of the Company's U.S. operating areas.The Company's production testing division contributed $33,599in revenues during 2012 which is a 46% increase over 2011 revenues of $23,023.  This increase is attributable to the overall increase in testing units from an average of 57 in 2011 Q2 to 65 for 2012 Q2, increased equipment utilization, expansion of the customer base and further expansion into the North Dakota Bakken oil play.The gross margin for 2012 was 20.2% compared to 20.4% in 2011.  Cost of sales includes the non-cash expenses for a portion of depreciation and share-based compensation and these non-cash expenses total $8,965for 2012 and $7,230 for 2011.  Adjusted gross margin for 2012 is $30,856(28.4%) compared to $24,881 (28.7%) for 2011 which is an insignificant change none of which are individually significant.Depreciation allocated to cost of sales increased from $7,067 in 2011 to $8,794in 2012 due to capital additions.  Depreciation included in cost of sales as a percentage of revenue was 8% in both 2012 and 2011.For 2012 the Company had share-based compensation included in cost of sales of $171compared to $163 recognized in 2011.  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 $11,484in 2012; an increase of $1,112compared with $10,372 in 2011.  As a percentage of revenue, these costs were 11% in 2012 and 12% in 2011.  SG&A includes the non-cash expenses for a portion of depreciation and share-based compensation.  These non-cash expenses total $829for 2012 and $825 for 2011.  SG&A net of these non-cash items were $10,655for 2012 and $9,547 for 2011, an increase of $1,108.  Staffing costs increased $906; 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 insurance of $140 primarily related to higher coverage levels compared to 2011.  The remaining increase of $62 relates to several items, none of which was significant individually.Depreciation allocated to SG&A increased from $77 in 2011 to $315 in 2012 mainly 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 the Company had share-based compensation included in SG&A of $514 compared to $748 recognized in 2011.  The value of the options is being amortized against income over the three-year vesting periods.Gain on disposal of property and equipment     During 2012 the Company had a gain on disposal of property and equipment of $3,732 compared to $1,608 in 2011.  Included in the 2012 gain 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 was $634 in 2011 compared to a loss of $54 in 2012 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 foreign currency gain are unrealized losses of $145 (2011 - $574 gain) related to intercompany balances.Finance costs     Finance costs which consist of interest expenses on operating loan, loans and borrowings and bank charges were $1,086 for 2012 and $816 for 2011. The increase in finance costs relate to the increase in the outstanding balance on the Company's secured revolving term loan and due to the capitalization of interest in 2011 related to the construction of the 6030 Campus.Income tax     For 2012, the Company had an income tax expense of $3,593 as compared to $2,521 in 2011.  The 2012 provision consists of current tax expense of $1,647 (2011 - recovery of $102) and a deferred tax expense of $1,946 (2011 - $2,623).  The effective tax rate for 2012 is 28% compared to 29% in 2011.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, 2012, the Company had an operating loan facility with a major Canadian bank in the amount of $20,000 (December 31, 2011 - $20,000) of which $Nil (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 June 30, 2012 (December 31, 2011 - $50,000).  In addition, at June 30, 2012, the Company had finance lease liabilities of $1,503 (December 31, 2011 - $1,492) and other long-term debt of $nil (December 31, 2011 - $5).Operating activities     For the six months ended June 30, 2012, cash flows from operating activities were $59,229 as compared to $20,766 for the comparative 2011 period, which was an increase of $38,463 or 185%.  Cash flow from operating activities for the six months ended June 30, 2012 includes $41,950 source of funds (2011 - $6,043) related to changes in non-cash working capital.  The Company had a working capital position at June 30, 2012 of $40,742 compared to $40,052 at December 31, 2011.  Included in the $31,457 of cash and cash equivalents is $21,456 from international subsidiaries.  This includes $18,064 of cash received for international equipment purchases which is classified as deferred revenue.Funds from continuing operations (see Non-GAAP Measurements) for the six months ended June 30, 2012 were $18,645 compared to $15,496 for the same period in 2011, which was an increase of $3,149.  This increase was caused mainly by the increase in earnings (excluding non-cash items).Investing activities     Cash used in investing activities for the six months ended June 30, 2012 amounted to $12,273 compared to $20,654 for the 2011 comparative period.  During 2012 the Company invested an additional $19,164 (2011 - $25,567) in property and equipment and intangible assets.  The main 2012 Q2 year-to-date additions were 4 MWD systems, replacement of downhole tools that were lost-in-hole, 5 production testing units, auxiliary production testing equipment and maintenance capital of $4,500.  Maintenance capital includes: i) costs incurred on conversion of the Company's mud motor fleet to its proprietary designed mud motor; ii) upgrading of EM-MWD systems to the Company's Fusion MWD platform; and iii) expansion of  mud motor power section fleet to meet customers' requests for specific configuration.   The Company received proceeds on disposal of property and equipment of $6,388 during the six months ended June 30, 2012 (2011 - $6,349 including proceeds on assets held for sale).  For the six months ended June 30, 2012 Cathedral had a source of funds by way of non-cash investing working capital in the amount of $503 (2011 - use of funds of $1,436); 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 30December 31June 30 201220112011Directional drilling - MWD systems (1)129125117Production testing units676259(1) Net of 10 systems that have been removed from service.    Financing activities     Cash used by financing activities for the six months ended June 30, 2012 amounted to $18,545 as compared to $805 during the 2011 comparative period.  During the six months ended June 30, 2012 the Company made interest payments of $1,094 compared to $663 in 2011.   Repayments on operating loans for the same period in 2012 were $12,888 (2011 - $2,420).  The Company received $nil advances of long-term debt (2011 - $5,000).  Cathedral made payments on loans and borrowings of $251 during the six months ended June 30, 2012 (2011 - $287).  The Company made payments of dividends of $5,048 for the six months ended June 30, 2012 (2011 - $4,426).  During the same period the Company received proceeds on the exercise of share options of $786 (2011 - $1,991) and made repurchases of 10,000 (2011- nil) of its own shares under its normal course issuer bid of $50 (2011 - $nil).  Since June 30, 2012 the Company has repurchased an additional 30,149 shares under its normal course issuer bid.  As at June 30, 2012, the Company was in compliance with all covenants under its credit facility.  At August 9, 2012, the Company has 37,465,134 common shares and 3,233,071 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 Management's Discussion & Analysis ("MD&A") for the year ended December 31, 2011.  As at June 30, 2012, the Company had a commitment to purchase approximately $1,425 of property and equipment.  Cathedral anticipates expending these funds in 2012 Q3.2012 CAPITAL PROGRAMCathedral's 2012 capital budget remains at the previously disclosed amount of $28,000.  In summary, the major items within the annual 2012 capital budget are: i) 14 MWD and related mud motors and collars to complement the increased job capability; ii) 9 frac-flowback production testing units and auxiliary production testing equipment to complement the overall fleet; and iii) $6,600 of maintenance capital.  Maintenance capital includes: i) costs incurred on conversion of the Company's mud motor fleet to its proprietary designed mud motor; ii) upgrading of EM-MWD systems to the Company's Fusion MWD platform; and iii) expansion of mud motor power section fleet to meet customers' requests for specific configuration.  To June 30, 2012, Cathedral has spent or committed to spend approximately $20,000 of its capital budget.  Cathedral expects to expend the entire $28,000, but is currently reviewing the uncommitted portion to ensure it is allocated to the areas that provide the most potential for growth or operating cost savings.  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 Q3 dividend in the amount of $0.075 per share which will have a date of record of September 30, 2012 and a payment date of October 15, 2012.OUTLOOKOverall Cathedral's operating divisions continue to benefit from the focus by operators on drilling horizontal wells and completing such wells with multi-stage fracturing.  The combination of continuing weak, but improving, natural gas prices and ongoing volatility in crude oil prices provides a backdrop for the back half of 2012 that is expected to see a North America wide reduction in drilling activity as operators cash flows are negatively impacted.   Under these circumstances, within the Canadian market Cathedral expects to maintain its current market share in terms of activity levels but with some reduction on directional drilling day rates. In response to this decrease in day rates, the Company has focused on initiatives to reduce its cost structure.  In the U.S. market Cathedral expects its market share to increase as it focuses its efforts on expanding into all U.S. regions where there is significant amount of drilling and completions activity including expansion in its operations in the Northeast.  Cathedral expects a larger percentage of its year-over-year growth in revenues to be from the U.S. market. Cathedral is seeing an increase in activity levels from its Northeast and Houston operations and is currently reviewing other operating areas for further expansion.In 2012 Q2, Cathedral saw the first significant deployment of the new proprietary mud motor design.  Management continues to be encouraged with the operating results of its mud motor.  Although it is early in the deployment of the motor, the Company is experiencing the expected significant reduction in operating costs as well as increased durability.Through Cathedral's continuous enhancement program, several new features will be added to the MWD Fusion platform. In 2012 Q2, Cathedral completed testing on its new rotary pulser and as a result commenced commercial production of this pulser in 2012 Q3.  Going forward, the MWD research and development group will commence testing of new technologies such as at-bit-inclination, at-bit-gamma and a high temperature MWD system.  With "at-bit" inclination and gamma, sensors are placed closer to the drill bit and this allows for improved geosteering and optimum well placement.  Cathedral continues to develop and introduce new technologies to allow us to lead the market with innovative products to enhance performance and customer satisfaction.Subsequent to the end of 2012 Q2, Cathedral has commenced shipments of equipment and parts to its Venezuela joint venture, Vencana Servicios Petroleros, S.A. ("Vencana").   Cathedral and its joint venture partner continue to work in the execution of ancillary agreements and the coordination of personnel and equipment.CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITIONJune 30, 2012 and December 31, 2011Dollars in '000s(unaudited)        June 30  December 31    2012   2011 Assets          Current assets:       Cash and cash equivalents  $31,457 $2,902  Trade receivables  38,048 65,568  Prepaid expenses  3,628 2,217  Inventories  12,412 13,278  Current taxes recoverable  173 -     Total current assets  85,718 83,965Property and equipment  134,794 129,929Intangible assets  796 230Deferred tax assets  10,006 11,951Investment in equity accounted investee  1,390 -Goodwill  5,848 5,848     Total non-current assets  152,834 147,958Total assets  $238,552 $231,923     Liabilities and shareholders' equity     Current liabilities:       Operating loan  $- $12,797  Trade and other payables  23,364 28,046  Dividends payable  2,813 2,238  Loans and borrowings  735 803  Deferred revenue  18,064 -  Current taxes payable  - 29     Total current liabilities  44,976 43,913Loans and borrowings  50,768 50,694Deferred tax liabilities  1,212 1,209     Total non-current liabilities  51,980 51,903     Shareholders' equity:       Share capital  75,160 74,208  Contributed surplus  8,335 7,845  Accumulated other comprehensive loss  (1,848) (2,141)  Retained earnings  59,949 56,195     Total shareholders' equity  141,596 136,107Total liabilities and shareholders' equity  $238,552 $231,923 CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEThree and six months ended June 30, 2012 and 2011Dollars in '000s except per share amounts(unaudited)             Three months ended June 30    Six months ended June 30    2012   2011   2012   2011 Revenues  $40,699 $31,746 $108,528 $86,595Cost of sales:          Direct costs  (32,907) (25,207) (77,672) (61,714) Depreciation  (4,530) (3,688) (8,794) (7,067) Share-based compensation  (69) (99) (171) (163)Total cost of sales  (37,506) (28,994) (86,637) (68,944)Gross margin  3,193 2,752 21,891 17,651Selling, general and administrative expenses:          Direct costs  (5,638) (4,782) (10,655) (9,547) Depreciation  (159) (28) (315) (77) Share-based compensation  (246) (370) (514) (748)Total selling, general and administrative expenses  (6,043) (5,180) (11,484) (10,372)  (2,850) (2,428) 10,407 7,279Gain on disposal of property and equipment  28 677 3,732 1,608Earnings (loss) from operating activities  (2,822) (1,751) 14,139 8,887Foreign exchange gain (loss)  (315) 146 (54) 634Finance costs  (513) (381) (1,086) (816)Earnings (loss) from continuing operations before income taxes  (3,650) (1,986) 12,999 8,705Income tax recovery (expense):          Current  (892) (237) (1,647) 102 Deferred  1,320 495 (1,946) (2,623)Total income tax recovery (expense)  428 258 (3,593) (2,521)Net earnings (loss) from continuing operations  (3,222) (1,728) 9,406 6,184Net earnings from discontinued operations  - 119 - 324Net earnings (loss)  (3,222) (1,609) 9,406 6,508Other comprehensive income (loss):          Foreign currency translation differences for foreign           operations  940 (395) 293 (1,103)Total comprehensive income (loss)  $(2,282) $(2,004) $9,699 $5,405         Net earnings (loss) from continuing operations per share          Basic  $(0.09) $(0.05) $0.25 $0.17 Diluted  $(0.09) $(0.05) $0.25 $0.16Net earnings from discontinued operations per share          Basic and diluted  $- $- $- $0.01Net earnings (loss)          Basic  $(0.09) $(0.04) $0.25 $0.18 Diluted  $(0.09) $(0.04) $0.25 $0.17 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSSix months ended June 30, 2012 and 2011Dollars in '000s(unaudited)        2012  2011Cash provided by (used in):          Operating activities:      Net earnings from continuing operations  $9,406 $6,184 Items not involving cash:       Depreciation  9,109 7,144  Total income tax expense  3,593 2,521  Unrealized foreign exchange (gain) loss on intercompany balances  145 (574)  Finance costs  1,086 816  Share-based compensation  685 911  Gain on disposal of property and equipment  (3,732) (1,608)      Cash flow from continuing operations  20,292 15,394 Changes in non-cash operating working capital  41,950 6,043 Income taxes paid  (3,013) (671)     Cash flow from operating activities  59,229 20,766     Investing activities:      Property and equipment additions  (18,487) (25,567) Intangible asset additions  (677) - Proceeds on disposal of property and equipment  6,388 2,556 Proceeds on disposal of assets held for sale  - 3,793 Changes in non-cash investing working capital  503 (1,436)     Cash flow from investing activities  (12,273) (20,654)     Financing activities:      Change in operating loan  (12,888) (2,420) Interest paid  (1,094) (663) Advances of loans and borrowings  - 5,000 Repayments on loans and borrowings  (251) (287) Proceeds on exercise of share options  786 1,991 Repurchase of common shares  (50) - Dividends paid  (5,048) (4,426)     Cash flow from financing activities  (18,545) (805)Effect of exchange rate on changes in cash and cash equivalents  144 (20)Change in cash and cash equivalents  28,555 (713)Cash and cash equivalents, beginning of period  2,902 1,740Cash and cash equivalents, end of period  $31,457 $1,027 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 Petroleros 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. SOURCE: Cathedral Energy Services Ltd.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