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

Cathedral Energy Services Ltd. Reports Results for 2012 Q2 and 2012 Q3 Dividend 
/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 HIGHLIGHTS
Dollars in 000's except per share amounts 


                                                             
                   Three months ended June 30  Six months ended June 30
                      2012               2011       2012           2011

Revenues         $  40,699  $          31,746  $ 108,528  $      86,595

Adjusted 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  $        0.46

EBITDAS ((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  $        0.41

Net 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  $        0.17

Dividends
declared per
share            $   0.075  $           0.060  $   0.150  $       0.120

Property and
equipment
additions        $   6,542  $          12,709  $  18,487  $      25,567

Weighted 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           2011

Working capital                                $  40,742  $      40,052

Total assets                                   $ 238,552  $     231,923

Loans and
borrowings
excluding
current portion                                $  50,768  $      50,694

Total
shareholders'
equity                                         $ 141,596  $     136,107
                                                                       

((1) Refer to
"NON-GAAP
MEASUREMENTS")                                                         



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; 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; 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.

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; and

v)"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              2011

Gross margin      $ 3,193 $            2,752 $ 21,891 $          17,651

Add non-cash                                                           
items included in
cost of sales:

  Depreciation      4,530              3,688    8,794             7,067

  Share-based          69                 99      171               163
  compensation
                                                                       

Adjusted gross    $ 7,792 $            6,539 $ 30,856 $          24,881
margin
                                                                       

Adjusted gross      19.1%              20.6%    28.4%             28.7%
margin %



EBITDAS
                                                                       
                  Three months ended June 30   Six months ended June 30
                        2012              2011      2012           2011

Earnings (loss)                                                        
from continuing
operations


before income   $ (3,650)  $        (1,986)  $ 12,999  $       8,705 
taxes 
Add (deduct):                                                           
Gain on dispoal                                                      
  of property and
  equipment from 
discontinued            -               166         -            449 
operations 
Depreciation           4,530             3,688     8,794          7,067
included in cost
of sales 
Depreciation                                                           
included in
selling, general 
and                   159                28       315             77 
administrative 
expenses 
Share-based               69                99       171            163
compensation
included in cost
of sales 
Share-based                                                            
compensation
included in
selling, general 
and                   246               370       514            748 
administrative 
expenses 
Unrealized                                                             
foreign exchange
(gain) loss 
on                    201             (103)       145          (574) 
intercompany 
balances 
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         2011

Cash flow from operating activities        $   59,229  $    20,766

Add (deduct):                                                     
    Changes in non-cash operating working    (41,950)      (6,043)
    capital
    Income taxes paid                           3,013          671
    Current tax recovery (expense)            (1,647)          102
                                                                  

Funds from continuing operations           $   18,645  $    15,496



OVERVIEW

The 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     Total

Canada    $      10,522  $      6,368  $ 16,890    $      10,059  $      3,685  $ 13,744

United           15,988         7,821    23,809           11,940         6,062    18,002
States
                                                                                        

Total     $      26,510  $     14,189  $ 40,699    $      21,999  $      9,747  $ 31,746



Revenues and gross margin 2012 Q2 revenues were $40,699 which 
represented an increase of $8,953 or 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 $26,510 in 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 $14,189 in 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 $4,599 for 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 $3,688 in 2011 Q2 to 
$4,530 in 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 $69 compared 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 $6,043 in 2012 Q2; an increase of $863 compared 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 $405 for 2012 Q2 and 
$398 for 2011 Q2. SG&A net of these non-cash items were $5,638 in 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 $159 in 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 $246 
compared 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 $315 in 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 $513 for 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 $428 
compared 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     Total

Canada    $      44,034  $     18,753  $  62,787    $      41,062  $     12,454  $ 53,516

United           30,895        14,846     45,741           22,510        10,569    33,079
States
                                                                                         

Total     $      74,929  $     33,599  $ 108,528    $      63,572  $     23,023  $ 86,595

Revenues and gross margin 2012 revenues were $108,528 which 
represented an increase of $21,933 or 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 $74,929 in 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 $33,599 in 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 $8,965 for 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 
$8,794 in 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 
$171 compared 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 
$11,484 in 2012; an increase of $1,112 compared 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 $829 for 2012 and $825 for 
2011. SG&A net of these non-cash items were $10,655 for 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 30 December 31 June 30
                                            2012        2011    2011

Directional drilling - MWD systems ((1))     129         125     117

Production testing units                      67          62      59

((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 PROGRAM

Cathedral'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.

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 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.

OUTLOOK

Overall 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 POSITION June 30, 2012 and 
December 31, 2011
Dollars 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          83,965

Property and equipment                         134,794         129,929

Intangible assets                                  796             230

Deferred tax assets                             10,006          11,951

Investment in equity accounted investee          1,390               -

Goodwill                                         5,848           5,848
                                                                      

Total non-current assets                       152,834         147,958

Total 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          43,913

Loans and borrowings                            50,768          50,694

Deferred 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         136,107

Total liabilities and shareholders'        $   238,552  $      231,923
equity 



CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three and six months ended June 30, 2012 and 2011
Dollars in '000s except per share amounts
(unaudited)
                                                                      
                  Three months ended June    Six months ended June 30 
                                      30 
                       2012         2011        2012             2011 

Revenues          $   40,699  $    31,746  $  108,528  $        86,595

Cost of sales:                                                        

  Direct costs      (32,907)     (25,207)    (77,672)         (61,714)

  Depreciation       (4,530)      (3,688)     (8,794)          (7,067)

  Share-based           (69)         (99)       (171)            (163)
  compensation 

Total cost of       (37,506)     (28,994)    (86,637)         (68,944)
sales 

Gross margin           3,193        2,752      21,891           17,651

Selling, general                                                      
and
administrative
expenses: 

  Direct costs       (5,638)      (4,782)    (10,655)          (9,547)

  Depreciation         (159)         (28)       (315)             (77)

  Share-based          (246)        (370)       (514)            (748)
  compensation 

Total selling,       (6,043)      (5,180)    (11,484)         (10,372)
general and
administrative
expenses 
                     (2,850)      (2,428)      10,407            7,279

Gain on disposal          28          677       3,732            1,608
of property and
equipment 

Earnings (loss)      (2,822)      (1,751)      14,139            8,887
from operating
activities 

Foreign exchange       (315)          146        (54)              634
gain (loss) 

Finance costs          (513)        (381)     (1,086)            (816)

Earnings (loss)      (3,650)      (1,986)      12,999            8,705
from continuing
operations
before income
taxes 

Income tax                                                            
recovery
(expense): 

  Current              (892)        (237)     (1,647)              102

  Deferred             1,320          495     (1,946)          (2,623)

Total income tax         428          258     (3,593)          (2,521)
recovery
(expense) 

Net earnings         (3,222)      (1,728)       9,406            6,184
(loss) from
continuing
operations 

Net earnings               -          119           -              324
from
discontinued
operations 

Net earnings         (3,222)      (1,609)       9,406            6,508
(loss) 

Other                                                                 
comprehensive
income (loss): 

  Foreign                                                             
  currency
  translation
  differences
  for foreign 
    operations           940        (395)         293          (1,103)

Total             $  (2,282)  $   (2,004)  $    9,699  $         5,405
comprehensive
income (loss) 
                                                                      

Net earnings                                                          
(loss) from
continuing
operations per
share 

  Basic           $   (0.09)  $    (0.05)  $     0.25  $          0.17

  Diluted         $   (0.09)  $    (0.05)  $     0.25  $          0.16

Net earnings                                                          
from
discontinued
operations per
share 

  Basic and       $        -  $         -  $        -  $          0.01
  diluted 

Net 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 FLOWS
Six months ended June 30, 2012 and 2011
Dollars in '000s
(unaudited)
                                                                
                                                       2012        2011

Cash 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          145       (574)
    intercompany balances 
    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              41,950       6,043
  capital 

  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                6,388       2,556
  equipment 

  Proceeds on disposal of assets held for sale            -       3,793

  Changes in non-cash investing working                 503     (1,436)
  capital 
                                                                       

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          144        (20)
cash equivalents 

Change in cash and cash equivalents                  28,555       (713)

Cash and cash equivalents, beginning of period        2,902       1,740

Cash 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.



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: 403.265.2560Fax: 
403.262.4682www.cathedralenergyservices.com

SOURCE: Cathedral Energy Services Ltd.

To view this news release in HTML formatting, please use the following URL: 
http://www.newswire.ca/en/releases/archive/August2012/09/c5913.html

CO: Cathedral Energy Services Ltd.
ST: Alberta
NI: OIL ERN DIV 

-0- Aug/09/2012 20:17 GMT


 
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