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Press release from CNW Group

Cathedral Energy Services Ltd. reports results for 2013 Q1 and 2013 Q2 dividend

Monday, May 06, 2013

Cathedral Energy Services Ltd. reports results for 2013 Q1 and 2013 Q2 dividend

16:15 EDT Monday, May 06, 2013

/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/

CALGARY, May 6, 2013 /CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral" / (TSX: CET)) announces its consolidated financial results for the three months ended March 31, 2013 and 2012.  Dollars in 000's except per share amounts.

This news release contains "forward-looking statements" within the meaning of applicable Canadian securities laws.  For a full disclosure of forward-looking statements and the risks to which they are subject, see "Forward-Looking Statements" later in this news release.

2013 Q1 KEY TAKEAWAYS

  • Canadian revenues decreased due to significant reductions in work for a couple of existing clients, other client specific reductions in activity levels and a competitive marketplace;
  • For Canadian drilling operations the Company has expanded its sales and marketing group and expects to see additional work secured.  We are focused on expanding our marketing efforts and to bring on specialty technologies to increase revenues once the spring break-up season has ended;
  • U.S. production testing services continue to expand and 2013 Q1 represents a record level for quarterly revenues; and
  • U.S. directional drilling services are expected to have increased activity levels going forward with additional traction in the Oklahoma and Texas markets

2013 Q1 FINANCIAL SUMMARY

         
        Three months ended March 31
      2013 2012
Revenues      $ 54,074  $ 67,829
Adjusted gross margin % (1)       24.7%   34.0%
EBITDAS (1)      $ 8,592  $ 21,956
  Diluted per share      $ 0.23  $ 0.58
EBITDAS (1) as % of revenues       16%   32%
Funds from operations (1)      $ 7,507  $ 17,497
  Diluted per share      $ 0.20  $ 0.46
Net earnings      $ 2,059  $ 12,628
  Basic per share      $ 0.06  $ 0.34
  Diluted per share      $ 0.06  $ 0.33
Dividends declared per share      $ 0.075  $ 0.075
Property and equipment additions      $ 6,698  $ 11,945
Weighted average shares outstanding            
  Basic (000s)       36,765   37,356
  Diluted (000s)       36,826   38,021
         
      March 31 December 31
      2013 2012
Working capital      $ 26,431  $ 29,173
Total assets      $ 237,604  $ 224,080
Loans and borrowings excluding current portion      $ 46,330  $ 46,151
Total shareholders' equity      $ 135,580  $ 137,932
         
(1) Refer to MD&A: see "NON-GAAP MEASUREMENTS"

OVERVIEW

The Company completed 2013 Q1 with quarterly revenues of $54,074 compared to 2012 Q1 revenues of $67,829.  Revenues have decreased 20% from 2012.  The 2013 Q1 revenues were comprised of 70% (2012 Q1 - 71%) from the directional drilling division and 30% (2012 Q1 - 29%) from the production testing division.

2013 Q1 EBITDAS were $8,592 ($0.23 per share diluted) which represents a $13,364 decrease from 2012 Q1 EBITDAS of $21,956 ($0.58 per share diluted).  For the three months ended March 31, 2013, the Company's net earnings were $2,059 ($0.06 per share diluted) as compared to $12,628 ($0.33 per share diluted) in 2012.  The decrease in revenues and EBITDAS was primarily attributed to declines sales in the Canadian operations as well as more moderate declines in the U.S. directional drilling operations, net of increases for U.S. production testing.

OUTLOOK

Over the last few quarters Cathedral has continued to invest in the U.S. by way of infrastructure and capital equipment.  This investment has now put the Company in a position to access and exploit all U.S, major plays including the Bakken, Niobrara, Marcellus, Eagleford, Permian, Piceance to name a few.  The Company recently completed the build out of 3 high pressure frac-flowback units.  These units have begun operations and along with 4 others from the U.S. fleet gives the Company 7 units now operating in Texas.  The Company continues to see opportunities to deploy additional "green completions"/ closed loop units and expects to continue to expand its completions activity in the U.S.

U.S. drilling services is seeing significant growth in several operating areas due to success in the deployment of industry leading technology including our "Fusion MWD (EM)" technology and Cathedral's "nDurance" motor.  The technologies are showing dramatic improvements in operational performance and have significantly reduced drilling times for our customers.  This is resulting in additional work being awarded. With bases now setup in both Houston, Texas and Oklahoma City, Oklahoma the Company is able to exploit the largest drilling market in the U.S.

A key take away from the quarter is the expected growth in the U.S. market on a quarter-over-quarter basis for the remainder of the year in both operating divisions.

Although activity was down for Cathedral's Canadian operations, the Company has broadened its customer base through the first quarter.  In order to build on these additions, the Company has expanded its sales and marketing group and expects to see additional work secured.  We are focused on expanding our marketing efforts and to bring on specialty technologies to increase revenues once the spring break-up season has ended.

2013 CAPITAL PROGRAM

During 2013 Q1 the Company invested an additional $6,698 (2012 Q1 - $11,945) in property and equipment.  To March 31, 2013 the main 2013 additions were upgrades and replacement of downhole tools, progress payments on 3 production testing units and auxiliary production testing equipment.  In 2013 Q1, $2,135 of the additions related to growth capital, with the remaining $4,563 for maintenance and replacement capital.

The following is a summary of major equipment owned by the Company:

       
  March 31 December 31 March 31
  2013 2012 2012
Directional drilling - MWD systems (1) 136 136 129
Production testing units 69 69 65
(1) Net of 10 systems that have been removed from service.      

Cathedral's 2013 capital budget remains at the previously announced amount of $22,000 which includes $10,000 of growth capital and $12,000 of maintenance capital.

The major items within the 2013 of growth capital are for the drilling division are addition of mud motors and drill collars for the expected expansion of Company's Houston and Oklahoma City operation bases and the commencement of the build-out of the Company's at-bit technology system.  In addition, the production testing division plans to add 3 frac flowback units and related ancillary equipment.  Delivery of the 3 frac blowback units occurred in April 2013.

The maintenance capital is expected to allow for: i) expanded rollout of the Company's enhanced Fusion MWD platform electronics; ii) addition of mud pulse transmitters to the fleet to allow for expanded Fusion MWD platform capabilities; iii) continued conversion to Cathedral's proprietary mud motor bearing section; and iv) expansion of mud motor power section fleet to accommodate the nature of oil bores being drilled.

These capital expenditures are expected to be financed by way of cash flow from operations, proceeds of disposal of property and equipment and the Company's credit facility.

NORMAL COURSE ISSUER BID

In 2013 Q1, the Company repurchased an additional 671,562 common shares (of which 594,247 were cancelled before quarter end) at a cost of $2,704 or an average cost of $4.03 per common share.  This along with repurchases in April 2013 brings the total number of common share repurchased under the Company's Normal Course Issuer Bid that expires on June 19, 2013 to 1,824,992 common shares at a cost of $8,343 or an average cost of $4.57 per common share.  At May 6, 2013, the Company has 35,837,960 common shares and 3,419,623 share options outstanding.

DIVIDENDS

It 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 2013 Q2 dividend in the amount of $0.075 per share which will have a date of record of June 30, 2013 and a payment date of July 15, 2013.

LIQUIDITY AND CAPITAL RESOURCES

On an annualized basis the Company's principal source of liquidity is cash generated from operations.    In addition, the Company has the ability to fund liquidity requirements through its credit facility and the issuance of debt and/or equity.  For the three months ended March 31, 2013, the Company had funds from operations of $7,507 (2012 - $17,497).  The decline in funds from operations is due to the Company's reduced levels of Canadian source revenues on a quarter-over-quarter basis.

At March 31, 2013 the Company had a working capital position of $26,431 (December 31, 2012 - $29,173) and a working capital ratio of 1.48 to 1 (December 31, 2012 - 1.74 to 1).

The following table outlines the current credit facility:

       
      March 31 December 31
      2013 2012
Available credit facility      $ 75,000  $ 75,000
Drawings on credit facility:            
  Operating loan     16,658   880
  Revolving term loan     45,000   45,000
Total drawn facility      $ 61,658  $ 45,880
Borrowing capacity (see NON-GAAP MEASUREMENTS)      $ 13,342  $ 29,120
Net debt (see NON-GAAP MEASUREMENTS):            
  Loans and borrowings, net of current portion      $ 46,330  $ 46,151
  Working capital:            
    Current assets      $ 81,124  $ 68,142
    Current liabilities     (54,693)   (38,969)
Working capital      $ 26,431  $ 29,173
Net debt      $ 19,899  $ 16,978

As at March 31, 2013, the Company is in compliance with all covenants under its credit facility.

RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31

               
  Three months ended March 31, 2013   Three months ended March 31, 2012
  Directional Production     Directional Production  
Revenues drilling testing Total   drilling testing Total
Canada  $ 23,594  $ 7,766  $ 31,360    $ 33,512  $ 12,385  $ 45,897
United States   14,509   8,205   22,714     14,907   7,025   21,932
                           
Total  $ 38,103  $ 15,971  $ 54,074    $ 48,419  $ 19,410  $ 67,829

Revenues     2013 Q1 revenues were $54,074 which represented a decrease of $13,755 or 20% from 2012 Q1 revenues of $67,829.  The decrease was mainly attributed to the Canadian operations.

Canadian directional drilling revenues decreased from $33,512 in 2012 Q1 to $23,594 in 2013 Q1; a 30% decrease.  This decrease was the result of: i) a 23% decrease in activity days from 2,713 in 2012 Q1 to 2,102 in 2013 Q1; and ii) a 9% decrease in the average day rate from $12,352 in 2012 Q1 to $11,224 in 2013 Q1.  The 2013 Q1 day rate is up from the rate in 2012 Q4, but did not reach the high levels seen in 2012 Q1.  Canadian activity days decreased from 2,713 to 2,102 due to a number of factors including a decline in work for a significant client, other client specific reduction in activity levels (including lack of access to equity markets and operating within reduced cash flow forecasts) and increased competition in the directional drilling market.  There were some new clients added, but these were not enough to offset the decreased work on existing clients.

U.S. directional drilling revenues decreased from $14,907 in 2012 Q1 to $14,509 in 2013 Q1; a 3% decrease.  This decrease was the result of: i) a 7% decrease in activity days from 1,422 in 2012 Q1 to 1,329 in 2013 Q1; and ii) a 4% increase in the average day rate from $10,483 in 2012 Q1 to $10,917 in 2013 Q1(when converted to Canadian dollars).  The decrease in U.S. activity days were due to reduced drilling in the Rocky Mountain and Pennsylvania areas within the existing client base, offset by increased days in the Texas market.  The increased average day rate is increase was mainly due to increases that were achieved in the Rocky Mountain region due to modest increases in demand for services.

Canadian production testing revenues decreased from $12,385 in 2012 Q1 to $7,766 in 2013 Q1; a 37% decrease.  The Canadian operations were affected by a decline in work for a significant client and other client specific delays in completion work in 2013 Q1 and by comparison the 2012 Q1 revenues were one of the highest ever for the division.

U.S. production testing revenues increased from $7,025 in 2012 Q1 to $8,205 in 2013 Q1; a 17% decrease.  This increase is attributable to having 3 additional units in 2013 Q1 versus 2012 Q1 and expansion into the Eagleford (Texas) market.

Gross margin and adjusted gross margin     The gross margin for 2013 Q1 was 15.9% compared to 27.6% in 2012 Q1.  Adjusted gross margin for 2013 Q1 was $13,358 (24.7%) compared to $23,064 (34.0%) for 2012 Q1.  The decline in adjusted gross margin of 9.3% was due in part to a 3.8% increase in field labour as a percentage of revenue.

In the Canadian market, there have been declines in the total per day revenue rates, but there were not corresponding decreases in the field labour rates.  In addition there were increases in costs for accommodation of field staff and increases in non-field wages.  The increase in non-field wages relates to the continued build out of personnel in the Houston, Texas facility and staff for the newly established facility in Oklahoma City, Oklahoma.  The Company is expecting increased levels of activity from the markets covered by these facilities.   Despite Cathedral's highly variable field cost structure, non-field salaries are of a fixed nature and therefore when the Company's revenue declines, such costs become a higher percentage of revenues.

Depreciation allocated to cost of sales increased from $4,264 in 2012 Q1 to $4,665 in 2013 Q1 due to capital additions in the period from 2012 Q1 to 2013 Q1.  Depreciation included in cost of sales as a percentage of revenue was 8.6% for 2013 Q1 and 6.3% in 2012 Q1.

Selling, general and administrative expenses ("SG&A")     SG&A expenses were $5,571 in 2013 Q1; an increase of $130 compared with $5,441 in 2012 Q1.  As a percentage of revenue, these costs were 10% in 2013 Q1 and 8% in 2012 Q1.  Non-cash expenses total $368 for 2013 Q1 and $424 for 2012 Q1.  SG&A net of these non-cash items were $5,203 in 2013 Q1 and $5,017 in 2012 Q1, an increase of $186.

In 2013 Q1, there was a recovery of international SG&A offset by one-time costs for severance.  The recovery of international SG&A was from the Company's joint venture partner in Vencana Servicios Petroleros, S.A. ("Vencana"), of which Cathedral owns 40%, for amounts previously expended by the Company on the start-up of Vencana.  These costs had been previously expensed by Cathedral.  The Company is currently in negotiations with its joint venture partner for the re-imbursement of additional costs.  If we remove these items from SG&A, net of non-cash items, 2013 Q1 adjusted SG&A was $5,804 compared to $5,017 in 2012 Q1, an increase of $787.

Wages increased $911; this increase was primarily related to staff additions for research and development department and staff positions added to accommodate expected U.S. growth; net of decreases 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 decrease of $124 relates to various changes none of which are individually significant.

Gain on disposal of property and equipment     During 2013 Q1 the Company had a gain on disposal of property and equipment of $505, compared to $3,704 in 2012 Q1.  Included in the 2012 Q1 gain of $3,704 was $2,034 related to the sale of property and equipment by Cathedral's subsidiaries to Vencana.  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 has changed from a gain of $261 in 2012 Q1 to a loss of $280 in 2013 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 2013 Q1 foreign currency loss are unrealized losses of $212 (2012 Q1 - $56 gains) related to intercompany balances.

Finance costs     Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $480 for 2013 Q1 versus $573 for 2012 Q1.  The decrease in finance costs mainly relate to the slight decrease in interest rates and a reduction in the outstanding balance for the secured revolving term loan in 2013 Q1.

Income tax     For 2013 Q1, the Company had an income tax expense of $728 compared to $4,021 in 2012 Q1.  The effective tax rate was 26% for 2013 Q1 and 24% 2012 Q1.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
March 31, 2013 and December 31, 2012
Dollars in '000s
(unaudited)

     
   March 31   December 31 
   2013   2012 
Assets      
Current assets:      
  Cash and cash equivalents  $ 7,199  $ 8,470
  Trade receivables   47,757   36,094
  Current taxes recoverable   -   153
  Prepaid expenses   8,777   10,419
  Inventories   17,391   13,006
Total current assets   81,124   68,142
Property and equipment    136,325   135,093
Intangible assets   642   719
Deferred tax assets   9,184   9,379
Investment in associate   4,481   4,899
Goodwill   5,848   5,848
Total non-current assets   156,480   155,938
Total assets  $ 237,604  $ 224,080
         
Liabilities and Shareholders' Equity         
Current liabilities:         
  Operating loan   $ 16,658  $ 880
  Trade and other payables    21,184   21,773
  Dividends payable    2,724   2,768
  Loans and borrowings    783   711
  Deferred revenue    13,105   12,837
  Current taxes payable    239   -
Total current liabilities    54,693   38,969
Loans and borrowings    46,330   46,151
Deferred tax liabilities    1,001   1,028
Total non-current liabilities    47,331   47,179
Total liabilities    102,024   86,148
         
Shareholders' equity:         
  Share capital    73,084   74,408
  Contributed surplus    9,145   8,863
  Accumulated other comprehensive loss    (1,974)   (2,679)
  Retained earnings    55,325   57,340
Total shareholders' equity    135,580   137,932
Total liabilities and shareholders' equity   $ 237,604  $ 224,080

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three months ended March 31, 2013 and 2012
Dollars in '000s except per share amounts
(unaudited)

         
         Three months ended March 31 
      2013 2012
             
Revenues       $ 54,074  $ 67,829
Cost of sales:             
  Direct costs        (40,716)   (44,765)
  Depreciation        (4,665)   (4,264)
  Share-based compensation        (76)   (102)
Total cost of sales        (45,457)   (49,131)
Gross margin        8,617   18,698
Selling, general and administrative expenses:             
  Direct costs        (5,203)   (5,017)
  Depreciation        (157)   (156)
  Share-based compensation        (211)   (268)
Total selling, general and administrative expenses        (5,571)   (5,441)
        3,046   13,257
Gain on disposal of property and equipment        505   3,704
Earnings from operating activities        3,551   16,961
Foreign exchange gain (loss)        (280)   261
 Finance costs        (480)   (573)
Share of loss of associate        (4)   -
Earnings before income taxes        2,787   16,649
Income tax expense:             
  Current        (580)   (755)
  Deferred        (148)   (3,266)
Total income tax expense        (728)   (4,021)
Net earnings        2,059   12,628
Other comprehensive income (loss):             
  Foreign currency translation differences for foreign operations      705   (647)
Total comprehensive income       $ 2,764  $ 11,981
             
Net earnings per share             
  Basic       $ 0.06  $ 0.34
  Diluted       $ 0.06  $ 0.33

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three months ended March 31, 2013 and 2012
Dollars in '000s
(unaudited)

     
  2013 2012
Cash provided by (used in):     
Operating activities:     
  Net earnings from continuing operations   $ 2,059  $ 12,628
  Items not involving cash:         
    Depreciation    4,822   4,420
    Total income tax expense    728   4,021
    Unrealized foreign exchange gain on intercompany balances    212   (56)
    Finance costs    480   573
    Share-based compensation    287   370
    Gain on disposal of property and equipment    (505)   (3,704)
    Share of loss from associate    4   -
  Cash flow from continuing operations    8,087   18,252
  Changes in non-cash operating working capital    (12,641)   3,115
  Income taxes paid    (187)   (318)
Cash flow from operating activities    (4,741)   21,049
Investing activities:         
  Property and equipment additions    (6,698)   (11,945)
  Intangible asset additions    -   (554)
  Proceeds on disposal of property and equipment    960   6,278
  Investment in associate    (377)   -
  Changes in non-cash investing working capital    (354)   (1,643)
Cash flow from investing activities   (6,469)   (7,864)
Financing activities:         
  Change in operating loan    15,796   (11,016)
  Interest paid    (579)   (434)
  Repayments on loans and borrowings    (133)   (126)
  Proceeds on exercise of share options    25   631
  Repurchase of common shares    (2,704)   -
  Dividends paid    (2,768)   (2,238)
Cash flow from financing activities    9,637   (13,183)
Effect of exchange rate on changes in cash and cash equivalents    302   124
Change in cash and cash equivalents    (1,271)   126
Cash and cash equivalents, beginning of period    8,470   2,902
Cash and cash equivalents, end of period   $ 7,199  $ 3,028

 

FORWARD-LOOKING STATEMENTS

This 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; development and deployment of new technologies; expected growth in the U.S. market on a quarter-over-quarter basis for the remainder of the year in both operating divisions; opportunities to deploy additional "green completions"/ closed loop production testing units and expansion of its completions activity in the U.S; components of expected 2013 capital budget and financing thereof; timing of payment of purchase commitments; expected activity levels; expected future recoveries of international expenditures; future expansion; commencement of operations in Venezuela; intent to pay quarterly dividends; sources to fund liquidity requirements; and that recent additions to its sales team in Cathedral's Canadian market is expected to result in an increase in activity levels in this region.  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; and
  • a 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 MEASUREMENTS

This 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.

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);

ii) "Adjusted gross margin %" - calculated as adjusted gross margin divided by revenues; is considered a primary indicator of operating performance (see tabular calculation);

iii) "EBITDAS" - defined as earnings before share of income/loss from associate, finance costs, unrealized foreign exchange on intercompany balances, unrealized foreign exchange due to hyper-inflation accounting, taxes, depreciation and share-based compensation plus dividends from associate; 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);

iv) "Funds from operations" - calculated as cash provided by operating activities before changes in non-cash working capital 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);

v) "Growth property and equipment additions" or "Growth capital" - is capital spending which is intended to result in incremental revenues.  Growth capital is considered to be a key measure as it represents the total expenditures on property and equipment expected to add incremental revenues and funds flow to the Company;

vi) "Maintenance property and equipment additions" or "Maintenance capital" - is capital spending incurred in order to refurbish or replace previously acquired other than "replacement property and equipment additions" described below. Such additions do not provide incremental revenues. Maintenance capital is a key component in understanding the sustainability of the Company's business as cash resources retained within Cathedral must be sufficient to meet maintenance capital needs to replenish the assets for future cash generation;

vii) "Replacement property and equipment additions" or "Replacement capital" - is capital spending incurred in order to replace equipment that is lost downhole.  Cathedral recovers lost-in-hole costs including previously expensed depreciation on the related assets form customers.  Such additions do not provide incremental revenues.  The identification of replacement property and equipment additions is considered important as such additions are financed by way of proceeds on disposal of property and equipment (see discussion within the news release on "gain on disposal of property and equipment);

viii) "Net property and equipment additions" - is property and equipment additions expenditures less proceeds on the disposal of property and equipment.  Cathedral uses net property and equipment additions to assess net cash flows related to the financing of Cathedral's property and equipment additions;

ix) "Borrowing capacity" - is total available credit facility less drawings on credit facilities;

xx) "Net debt" - is loans and borrowing less working capital.  Management uses net debt as a metric to shows the Company's overall debt level.

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
      2013   2012
Gross margin     $ 8,617   $ 18,698
Add non-cash items included in cost of sales:              
  Depreciation       4,665     4,264
  Share-based compensation       76     102
Adjusted gross margin     $ 13,358   $ 23,064
Adjusted gross margin %       24.7%     34.0%
               
               
EBITDAS      
        Three months ended March 31
      2013   2012
Earnings before income taxes     $ 2,787   $ 16,649
Add (deduct):              
  Depreciation included in cost of sales       4,665     4,264
  Depreciation included in selling, general and administrative expenses       157     156
  Share-based compensation included in cost of sales       76     102
  Share-based compensation included in selling, general and administrative expenses       211     268
  Unrealized foreign exchange gain on intercompany balances       212     (56)
  Finance costs       480     573
  Share of loss from associate       4     -
EBITDAS     $ 8,592   $ 21,956
               
Funds from operations              
      Three months ended March 31
      2013   2012
Cash flow from operating activities     $ (4,741)   $ 21,049
Add (deduct):              
  Changes in non-cash operating working capital       12,641     (3,115)
  Income taxes paid       187     318
  Current tax expense       (580)     (755)
Funds from operations     $ 7,507   $ 17,497

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 Officer

Cathedral Energy Services Ltd., 6030 3 Street S.E., Calgary, Alberta T2H 1K2

Telephone:  403.265.2560     Fax:  403.262.4682   www.cathedralenergyservices.com

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