Cathedral Energy Services Ltd. Reports Results for 2012 Q3 and 2012 Q4 Dividend

Cathedral Energy Services Ltd. Reports Results for 2012 Q3 and 2012 Q4 Dividend 
/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/ 
CALGARY, Nov. 6, 2012 /CNW/ - Cathedral Energy Services Ltd. (the "Company" or 
"Cathedral" / TSX: CET) is pleased to report its results for 2012 Q3 and 2012 
Q4 dividend. 
FINANCIAL HIGHLIGHTS 
Dollars in 000's except per share amounts 


                       Three months ended
                  September 30           Nine months ended September 30
                       2012       2011           2012              2011

Revenues           $ 49,830  $  63,409   $    158,358  $        150,004


Adjusted gross        28.0%             
margin % ((1))                   34.9%          28.3%             31.3% 
EBITDAS ((1))      $ 10,538  $  17,666   $     34,562  $         35,117 
Diluted per          0.28       0.47           0.91              0.92
  share            $        $            $             $ 
EBITDAS ((1) )as                        
% of revenues         21.1%      27.9%          21.8%             23.4% 
Funds from         $
continuing                   $           $             $
operations ((1))      8,039     16,701         26,684            32,197 
Diluted per          0.21       0.44           0.70              0.85
  share            $         $           $             $ 
Net earnings       $  3,813  $   8,575   $     13,219  $         15,083 
Basic per share  $   0.10  $    0.23   $       0.35  $           0.41 
Diluted per          0.10       0.23           0.35              0.40
  share            $         $           $             $ 
Dividends          $
declared per                 $           $             $
share                 0.075      0.060          0.225             0.180 
Property and       $
equipment                    $           $             $
additions             5,229     11,774         23,716            37,341 


                                                                       

Weighted average   
shares                                  
outstanding                                            

  Basic (000s)       37,455     37,119         37,432            37,009

  Diluted (000s)     37,721     37,877         37,861            38,073
                                                       
                                         September 30       December 31
                                                 2012              2011

Working capital                          $     35,546  $         40,052
    Total assets                             $    231,387  $        231,923

Loans and          
borrowings                              
excluding current
portion                                  $     45,986  $         50,694


Total                                         141,106
shareholders'                                          $
equity                                   $                      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; Cathedral expects 
to add 11 MWD systems and 7 production testing units in 2012; introduction of 
new technologies; significant increase in activity levels in Northeast, 
Houston and Oklahoma 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   Nine months ended September
                   September 30                                    30
                        2012       2011        2012              2011

Gross margin        $  9,299  $  17,946    $ 31,190  $         35,597

Add non-cash items                                                   
included in cost    
of sales:

  Depreciation         4,614      4,105      13,408            11,172

  Share-based             44         82         215               245
  compensation
                                                                     

Adjusted gross      $ 13,957  $  22,133    $ 44,813  $         47,014
margin
                                                                     

Adjusted gross         28.0%      34.9%       28.3%             31.3%
margin %
                                                                     



EBITDAS
                         Three months ended   Nine months ended September
                            September 30                            30
                         2012       2011        2012              2011

Earnings from       $   5,348  $  11,741    $ 18,347  $         20,446
continuing
operations before
income taxes

Add (deduct):                                                         

  Gain on dispoal           -          -           -               449
  of property and
  equipment from
  discontinued
  operations

  Depreciation          4,614      4,105      13,408            11,172
  included in cost
  of sales

  Depreciation            163         41         478               118
  included in
  selling, general
  and
  administrative
  expenses

  Share-based              44         82         215               245
  compensation
  included in cost
  of sales

  Share-based             256        357         770             1,105
  compensation
  included in
  selling, general
  and
  administrative
  expenses

  Unrealized            (378)        868       (233)               294
  foreign exchange
  (gain) loss on
  intercompany
  balances

  Finance costs           491        472       1,577             1,288
                                                                      

EBITDAS             $  10,538  $  17,666    $ 34,562  $         35,117
                                                                      

Funds from continuing operations
                        Three months ended    Nine months ended September
                   September 30                                     30
                         2012       2011        2012              2011

Cash flow from
operating           $ (2,512)  $ (2,596)   $  56,717  $         18,170
activities

Add (deduct):                                         

  Changes in
  non-cash             11,532     19,030    (30,418)            12,987
  operating
  working capital

  Income taxes          (214)        520       2,799             1,191
  paid

  Current tax           (767)      (253)     (2,414)             (151)
  expense
                                                      

Funds from
continuing          $   8,039  $  16,701    $ 26,684  $         32,197
operations



OVERVIEW

The Company completed 2012 Q3 with quarterly revenues of $49,830 and 
year-to-date revenues of $158,358 compared to 2011 Q3 revenues of $63,409 and 
2011 year-to-date revenues of $150,004. Year-to-date revenues have increased 
6% from 2011. The 2012 Q3 revenues were comprised of 72% (2011 Q3 - 75%) 
from the directional drilling division; 24% (2011 Q3 - 25%) from the 
production testing division; and 4% (2011 Q3 - 0%) from international resale 
and rentals.

2012 Q3 EBITDAS was $10,538 ($0.28 per share diluted) which represents a 
$7,128 decrease or 40% decrease from 2011 Q3 EBITDAS of $17,666 ($0.47 per 
share diluted). For the three months ended September 30, 2012, the Company's 
net earnings were $3,813 ($0.10 per share diluted) as compared to $8,575 
($0.23 per share diluted) in 2011.

2012 year-to-date EBITDAS was $34,562 ($0.91 per share diluted) which 
represents a $555 or 2% decrease from $35,117 ($0.92 per share diluted) in 
2011. On a 2012 year-to-date basis, the Company's net income was $13,219 
($0.35 per share diluted) as compared to a $15,083 ($0.40 per share diluted) 
in 2011.

RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2012
                                                             Three months ended September 30,
                  Three months ended September 30, 2012                               2011
                                       Resale            
              Directional Production      and             Directional Production          

Revenues         drilling    testing   rental     Total      drilling    testing     Total
                                                                                     

Canada         $   21,621  $   5,272  $     -  $ 26,893    $   34,732  $   8,837  $ 43,569
                                                  

United States      13,926      6,793        -    20,719        13,125      6,715    19,840
                                                  

International           -          -    2,218     2,218             -          -         -
                                                                                          
                                                                                     

Total          $   35,547  $  12,065  $ 2,218  $ 49,830    $   47,857  $  15,552  $ 63,409



Revenues and gross margin 2012 Q3 revenues were $49,830 which 
represented a decrease of $13,579 or 21% from 2011 Q3 revenues of $63,409. 
The decrease was primarily attributed to slow down of drilling and completions 
work in the Canadian market.

The directional drilling division revenues have decreased from $47,857 in 2011 
Q3 to $35,547 in 2012 Q3. This decrease was the result of a net: i) 28% 
decrease in activity days from 4,543 in 2011 Q3 to 3,255 in 2012 Q3; and ii) 
4% increase in the average day rate from $10,534 in 2011 Q3 to $10,921 in 2012 
Q3. On a year-over-year basis, Canadian day rates have increased 6% 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 4% when converted to Canadian dollars mainly due to the change in 
types of drilling work performed. Canadian activity days decreased from 
3,200 to 1,885 and U.S. activity days increased from 1,343 to 1,370. 
Canadian activity days were negatively affected by the annual "spring breakup" 
in 2012 which was extended due to wet weather into July, as well as lower rig 
counts and the reduction of drilling activity in 2012 Q3 after breakup. The 
U.S. activity days increased in the northeast and in Texas, but this was 
offset by modest declines in the Rocky Mountain region.

The Company's production testing division contributed $12,065 in revenues 
during 2012 Q3 which was a 22% decrease from 2011 revenues of $15,552. This 
decrease is attributable to the decline in the level of well completions in 
2012 Q3.

The gross margin for 2012 Q3 was 18.7% compared to 28.3% in 2011 Q3. Cost of 
sales includes the non-cash expenses for a portion of depreciation and 
share-based compensation and these non-cash expenses total $4,658 for 2012 Q3 
and $4,187 for 2011 Q3. The adjusted gross margin (which excludes non-cash 
expenses) was $13,957 (28.0%) for 2012 Q3 compared to $22,133 (34.9%) for 2011 
Q3. The gross margin for 2012 Q3 includes equipment purchased for resale in 
the international market and the margin on these goods was lower than for 
drilling and production testing services. The remaining decline in adjusted 
gross margin is mainly the result of costs for non-field staff that are fixed 
in nature, which combined with the decline in revenues results in a lower 
gross margin and adjusted gross margin. The Company expects operating levels 
to rebound in 2013 and therefore has maintained its non-field staff levels to 
meet those expected demands. These increases were offset by declines in 
variable compensation and rent.

Depreciation allocated to cost of sales increased from $4,105 in 2011 Q3 to 
$4,614 in 2012 Q3 due to capital additions in the period from 2011 Q3 to 2012 
Q3. Depreciation included in cost of sales as a percentage of revenue was 9% 
for 2012 Q3 and 6% for 2011 Q3.

For 2012 Q3 the Company had share-based compensation included in cost of sales 
of $75 compared to $82 recognized in 2011 Q3. The fair value of the related 
options is being amortized against income over the three-year vesting periods.

Selling, general and administrative expenses ("SG&A") SG&A expenses 
were $5,651 in 2012 Q3; a decrease of $139 compared with $5,790 in 2011 Q3. 
As a percentage of revenue, these costs were 11% in 2012 Q3 and 9% in 2011 
Q3. SG&A includes the non-cash expenses for a portion of depreciation and 
share-based compensation. These non-cash expenses total $419 for 2012 Q3 and 
$398 for 2011 Q3. SG&A net of these non-cash items were $5,232 in 2012 Q3 
and $5,392 in 2011 Q3, a decrease of $160. Staffing costs had a net decrease 
of $108; this net change was primarily related to decreases in variable 
compensation which was offset by staff positions added to accommodate growth 
that occurred in 2011 Q4 and 2012 Q1 and wage increases for existing staff. 
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 SG&A expenses resulted in a net decrease of $52 and 
relate to various net changes none of which are individually significant.

Depreciation allocated to SG&A increased from $41 in 2011 Q3 to $163 in 2012 
Q3 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 Q3 the Company had share-based compensation included in SG&A of $256 
compared to $357 recognized in 2011 Q3. The fair value of the related 
options is being amortized against income over the three-year vesting periods.

Gain on disposal of property and equipment During 2012 Q3 the Company 
had a gain on disposal of property and equipment of $1,732, compared to $712 
in 2011 Q3. 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 changed 
from a loss of $655 in 2011 Q3 to a gain of $459 in 2012 Q3 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 Q3 foreign currency gain are unrealized gains of $378 
(2011 Q3 - $868 loss) related to intercompany balances.

Finance costs  Finance costs consist of interest expenses on operating 
loans, loans and borrowings and bank charges of $491 for 2012 Q3 versus $472 
for 2011 Q3. 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 the Company's operating loans, due to a decline in utilization.

Income tax For 2012 Q3, the Company had an income tax expense of 
$1,535 compared to $3,171 in 2011 Q3. The 2012 Q3 provision consists of 
current tax expense of $767 (2011 Q3 - $253) and a deferred tax expense of 
$768 (2011 Q3 - $2,918). The effective tax rate was 29% for 2012 Q3 and 27% 
2011 Q3.

RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2012
                                                                Nine months ended September 30,
                    Nine months ended September 30, 2012                                2011
                                       Resale             
              Directional Production      and              Directional Production           

Revenues         drilling    testing   rental      Total      drilling    testing      Total
                                                                                            

Canada         $   65,655  $  24,025  $     -  $  89,680    $   75,794  $  21,291  $  97,085
                                                                                            

United States      44,821     21,639        -     66,460        35,635     17,284     52,919
                                                                                            

International           -          -    2,218      2,218             -          -          -
                                                                                            

Total          $  110,476  $  45,664  $ 2,218  $ 158,358    $  111,429  $  38,575  $ 150,004



Revenues and gross margin 2012 revenues were $158,358 which 
represented an increase of 8,354 or 6% from 2011 revenues of $150,004. The 
net increase was due to a number of factors including, the first international 
equipment sales, the robust drilling activity in 2012 Q1, expansion of 
operating bases in the U.S. and day rate pricing increases for all divisions.

The directional drilling division revenues have decreased from $111,429 in 
2011 to $110,476 in 2012. This decrease is the result of: i) a 9% decrease 
in activity days from 10,652 in 2011 to 9,685 in 2012; net of ii) an 9% 
increase in the average day rate from $10,461 in 2011 to $11,407 in 2012. On 
a year-over-year basis, Canadian day rates have increased 12% due to general 
rate increases. U.S. day rates have increased 8% when converted to Canadian 
dollars. The U.S. day rates have increased 5% in U.S. dollars, mainly due 
to the change in types of drilling work performed in 2012. Canadian activity 
days decreased from 6,980 in 2011 to 5,400 in 2012 and U.S. activity days 
increased from 3,672 in 2011 to 4,285 in 2012. Canadian activity days were 
negatively affected by the annual "spring breakup" in 2012 which started 
earlier than on average and was extended due to wet weather into July and the 
reduction of drilling activity in 2012 Q3 as customers reduced their capital 
programs. U.S. activity days were up in all of the Company's U.S. operating 
areas.

The Company's production testing division contributed $45,664 in revenues 
during 2012 which is an 18% increase over 2011 revenues of $38,575. This 
increase is attributable to the overall increase in testing units from an 
average of 57 in 2011 Q3 to 65 for 2012 Q3, increased equipment utilization, 
expansion of the customer base and further expansion into the North Dakota 
Bakken oil play.

The gross margin for 2012 was 19.7% compared to 23.7% 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 $13,623 for 2012 and $11,417 
for 2011. Adjusted gross margin for 2012 is $44,813 (28.3%) compared to 
$47,014 (31.3%) for 2011. The gross margin for 2012 includes equipment 
purchased for resale in the international market and the margin on these goods 
was lower than for drilling and production testing services. The remaining 
decline in adjusted gross margin is a result of higher costs for accommodation 
and non-field staff salaries. 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. These increases were offset by declines in variable compensation 
and rent.

Depreciation allocated to cost of sales increased from 11,172 in 2011 to 
$13,408 in 2012 due to capital additions. Depreciation included in cost of 
sales as a percentage of revenue was 8% in 2012 and 7% in 2011.

For 2012 the Company had share-based compensation included in cost of sales of 
$246 compared to $245 recognized in 2011. The value of the related options 
is being amortized against income over the three-year vesting periods.

Selling, general and administrative expenses ("SG&A") SG&A were 
$17,135 in 2012; an increase of $973 compared with $16,162 in 2011. As a 
percentage of revenue, these costs were 11% in both 2012 and 2011. SG&A 
includes the non-cash expenses for a portion of depreciation and share-based 
compensation. These non-cash expenses total $1,248 for 2012 and $1,223 for 
2011. SG&A net of these non-cash items were $15,887 for 2012 and $14,939 for 
2011, an increase of $948. Staffing costs increased $798; this increase was 
primarily related to staff positions added to accommodate growth that occur in 
2011 Q4 and 2012 Q1, wage increases for existing staff as well as 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. There was an increase in insurance of 
$190 primarily related to higher coverage levels compared to 2011. These 
increases were offset by a decrease in office rent of $230 due to the move of 
most of Calgary operations to the 6030 Campus and reductions in rents in other 
locations. The remaining increase of $190 relates to several items, none of 
which was significant individually.

Depreciation allocated to SG&A increased from $118 in 2011 to $478 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 $770 
compared to $1,105 recognized in 2011. The value of the related 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 $5,464 compared to $2,320 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 was a loss 
of $21 in 2011 compared to a gain of $405 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 gains of $233 (2011 
- $294 loss) related to intercompany balances.

Finance costs  Finance costs which consist of interest expenses on 
operating loan, loans and borrowings and bank charges were $1,577 for 2012 and 
$1,288 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 $5,128 
as compared to $5,692 in 2011. The 2012 provision consists of current tax 
expense of $2,414 (2011 - $151) and a deferred tax expense of $2,714 (2011 - 
$5,541). The effective tax rate is 28% for both 2012 and 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 
September 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 
$841 (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 $45,000 was drawn as at September 30, 2012 
(December 31, 2011 - $50,000). In addition, at September 30, 2012, the 
Company had finance lease liabilities of $1,676 (December 31, 2011 - $1,492) 
and other long-term debt of $nil (December 31, 2011 - $5).

Operating activities For the nine months ended September 30, 2012, 
cash flows from operating activities were $56,717 as compared to $18,170 for 
the comparative 2011 period, which was an increase of $38,547 or 212%. Cash 
flow from operating activities for the nine months ended September 30, 2012 
includes $30,418 source of funds (2011 - $12,987 use of funds) related to 
changes in non-cash working capital. The Company had a working capital 
position at September 30, 2012 of $35,546 compared to $40,052 at December 31, 
2011. Included in the $16,288 of cash and cash equivalents is $14,063 from 
international subsidiaries. The cash related to international subsidiaries 
relates mainly to cash received for international equipment purchases which is 
classified as deferred revenue.

Funds from continuing operations (see Non-GAAP Measurements) for the nine 
months ended September 30, 2012 were $26,684 compared to $32,197 for the same 
period in 2011, which was a decrease of $5,513. This decrease was caused 
mainly by the decrease in earnings (excluding non-cash items).

Investing activities Cash used in investing activities for the nine 
months ended September 30, 2012 amounted to $16,690 compared to $27,781 for 
the 2011 comparative period. During 2012 the Company invested an additional 
$24,393 (2011 - $37,341) in property and equipment and intangible assets. 
The main 2012 Q3 year-to-date additions were 7 MWD systems, replacement of 
downhole tools that were lost-in-hole, 7 production testing units, auxiliary 
production testing equipment and maintenance capital of $5,700. 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 $9,958 
during the nine months ended September 30, 2012 (2011 - $7,631 including 
proceeds on assets held for sale). The Company had a cash investment in an 
equity accounted investee of $2,472 for the nine months ended September 30, 
2012 (2011 - $nil). For the nine months ended September 30, 2012 Cathedral 
had a source of funds by way of non-cash investing working capital in the 
amount of $217 (2011 - $1,929); 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:
                                                           
                                                           
                                 September 30 December 31 September 30
                                         2012        2011         2011

Directional drilling - MWD
systems ((1))                             132         125          123

Production testing units                   69          62           62

((1) Net of 10 systems that have
been removed from service.)                                           



Financing activities Cash used by financing activities for the nine 
months ended September 30, 2012 amounted to $26,476 as compared to a source of 
funds of $9,285 during the 2011 comparative period. During the nine months 
ended September 30, 2012 the Company made interest payments of $1,601 compared 
to $1,559 in 2011. Repayments on operating loans for the same period in 
2012 were $12,128 (2011 - advances of $8,794). The Company received $nil 
advances of long-term debt (2011 - $7,000). Cathedral made payments on loans 
and borrowings of $5,376 during the nine months ended September 30, 2012 (2011 
- $446). The Company made payments of dividends of $7,861 for the nine 
months ended September 30, 2012 (2011 - $6,653). Increased dividend payments 
relate to the increase in the quarterly dividend from $0.06 per share to 
$0.075 per share effective 2012 Q1. During the same period the Company 
received proceeds on the exercise of share options of $1,074 (2011 - $2,149) 
and made repurchases of 107,115 (2011- nil) of its own shares under its normal 
course issuer bid of $584 (2011 - $nil). As at September 30, 2012, the 
Company was in compliance with all covenants under its credit facility. At 
November 6, 2012, the Company has 37,522,503 common shares and 3,096,736 share 
options outstanding.

Contractual obligations In the normal course of business, the Company 
incurs contractual obligations and those obligations are disclosed in the 
Company's news release for the year ended December 31, 2011. As at September 
30, 2012, the Company had a commitment to purchase approximately $4,063 of 
property and equipment and equipment for resale. Cathedral anticipates 
expending these funds in 2012 Q4 and 2013 Q1.

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) 11 MWD and related mud motors and collars to complement the increased 
job capability; ii) 7 frac-flowback production testing units and auxiliary 
production testing equipment to complement the overall fleet; and iii) $7,900 
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 September 30, 2012, Cathedral has 
spent or committed to spend approximately $24,000 of its capital budget. 
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 Q4 dividend in the amount of $0.075 per share which will 
have a date of record of December 31, 2012 and a payment date of January 15, 
2013.

OUTLOOK

The Canadian operations of oilfield service companies, including Cathedral, 
were affected by a weak third quarter. The reduction in Q3 Canadian activity 
levels can be attributed a "spring breakup" that extended in July due to wet 
weather and the June decline in commodity prices that resulted in producers 
suspending and/or cutting back their capital programs as they reviewed their 
cash flows and balance sheets. Despite recovering oil prices and, to a 
degree, natural gas prices, activity levels in the Canadian market have been 
significantly reduced from levels of 2011 Q3 and Q4. Producers remain 
focused on their balance sheets with many limiting capital expenditures to 
their cash flows. In addition, producers have had limited access to the 
capital markets to fund their capital programs.

The Company's U.S. activity levels have been less affected than those in 
Canada due to market share gains in the Marcellus region of the U.S. 
Cathedral has had success in growing this region due to the performance of its 
technologies. Cathedral is expecting Canadian activity levels to grow 
significantly in Q1 2013 over 2012 Q3 and Q4 levels as customers have 
replenished capital budgets. Cathedral has recently expanded its marketing 
teams in both Canada and U.S. and expects to see results of this to begin 
showing in 2013.

Cathedral has set up an operations base in Oklahoma City and to date we 
have hired sales and operating staff. Our first field activity in this area 
began in 2012 Q3 and is expected to grow in 2012 Q4. The Company continues 
to see significant upside in the U.S. market for both operating divisions; in 
particular in the Texas and Oklahoma regions.

The Company continues its rollout of its proprietary "CAT downhole mud 
motor". After over 150 runs on the proprietary motor design, the Company is 
extremely pleased as performance has exceeded expectations. Operating costs 
to date have been in line with expectations and should result in significant 
cost savings as the motor fleet is converted over to the in-house design.

The Company continues to move forward with the startup of its Venezuela 
operations. With the near completion of the final agreements and the 
movement of equipment into the country, Cathedral continues to focus on being 
prepared for its first field operations.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

September 30, 2012 and December 31, 2011
Dollars in '000s
(unaudited)
                                          September 30   December 31 
                                                  2012          2011 

 Assets                                                              
                                                                     

Current assets:                                                      

  Cash and cash equivalents               $      16,288  $      2,902

  Trade receivables                              40,263        65,568

  Prepaid expenses                                7,945          2,217

  Inventories                                    13,828        13,278

  Current taxes recoverable                         371             -

Total current assets                             78,695        83,965

Property and equipment                          133,133       129,929

Intangible assets                                   729           230

Deferred tax assets                               9,213        11,951

Investment in equity accounted investee           3,769             -

Goodwill                                          5,848         5,848

Total non-current assets                        152,692       147,958

Total assets                              $     231,387  $    231,923
                                                                     

Liabilities and shareholders' equity     

Current liabilities:     

  Operating loan                          $         841  $     12,797

  Trade and other payables                       23,823        28,046

  Dividends payable                               2,810         2,238

  Loans and borrowings                              690           803

  Deferred revenue                               14,985             -

  Current taxes payable                               -            29

Total current liabilities                        43,149        43,913

Loans and borrowings                             45,986        50,694

Deferred tax liabilities                          1,146         1,209

Total non-current liabilities                    47,132        51,903
                                                                     

Shareholders' equity:                                                

  Share capital                                  75,321        74,208

  Contributed surplus                             8,576         7,845

  Accumulated other comprehensive loss          (3,403)       (2,141)

  Retained earnings                              60,612        56,195

Total shareholders' equity                      141,106       136,107

Total liabilities and shareholders'       $     231,387  $    231,923
equity 



CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Three and nine months ended September 30, 2012 and 2011
Dollars in '000s except per share amounts
(unaudited)
                     Three months ended   Nine months ended September
                           September 30                            30
                       2012       2011         2012             2011 

Revenues            $ 49,830  $  63,409    $ 158,358  $       150,004

Cost of sales:                                                       

  Direct costs      (35,842)   (41,276)    (113,514)        (102,990)

  Depreciation       (4,614)    (4,105)     (13,408)         (11,172)

  Share-based
  compensation          (75)       (82)        (246)            (245)

Total cost of
sales               (40,531)   (45,463)    (127,168)        (114,407)

Gross margin           9,299     17,946       31,190           35,597

Selling, general
and administrative
expenses:                                                            

  Direct costs       (5,232)    (5,392)     (15,887)         (14,939)

  Depreciation         (163)       (41)        (478)            (118)

  Share-based
  compensation         (256)      (357)        (770)          (1,105)

Total selling,
general and
administrative
expenses             (5,651)    (5,790)     (17,135)         (16,162)
                       3,648     12,156       14,055           19,435

Gain on disposal
of property and
equipment              1,732        712        5,464            2,320

Earnings from
operating
activities             5,380     12,868       19,519           21,755

Foreign exchange
gain (loss)              459      (655)          405             (21)

Finance costs          (491)      (472)      (1,577)          (1,288)

Earnings from
continuing
operations before
income taxes           5,348     11,741       18,347           20,446

Income tax
expense:                                                             

  Current              (767)      (253)      (2,414)            (151)

  Deferred             (768)    (2,918)      (2,714)          (5,541)

Total income tax
expense              (1,535)    (3,171)      (5,128)          (5,692)

Net earnings from
continuing
operations             3,813      8,570       13,219           14,754

Net earnings from
discontinued
operations                 -          5            -              329

Net earnings           3,813      8,575       13,219           15,083

Other
comprehensive
income (loss):                                                       

  Foreign currency
  translation
  differences for
  foreign
  operations         (1,555)      2,030      (1,262)              927

Total
comprehensive
income              $  2,258  $  10,605    $  11,957  $        16,010
                                                                     

Net earnings from
continuing
operations per
share                                                                

  Basic             $   0.10  $    0.23    $    0.35  $          0.40

  Diluted           $   0.10  $    0.23    $    0.35  $          0.39

Net earnings from
discontinued
operations per
share                                                                

  Basic and
  diluted           $      -  $       -    $       -  $          0.01

Net earnings                                                         

  Basic             $   0.10  $    0.23    $    0.35  $          0.41

  Diluted           $   0.10  $    0.23    $    0.35  $          0.40



CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

Nine months ended September 30, 2012 and 2011
Dollars in '000s
(unaudited)
                                                        2012      2011 

Cash provided by (used in):                                            
                                                                       

Operating activities:                                                  

  Net earnings from continuing operations            $ 13,219  $ 14,754

  Items not involving cash:                                            
    Depreciation                                       13,886    11,290
    Total income tax expense                            5,128     5,692
    Unrealized foreign exchange (gain) loss on
    intercompany balances                               (233)       294
    Finance costs                                       1,577     1,288
    Share-based compensation                              985     1,350
    Gain on disposal of property and equipment        (5,464)   (2,320)

  Cash flow from continuing operations                 29,098    32,348

  Changes in non-cash operating working capital        30,418  (12,987)

  Income taxes paid                                   (2,799)   (1,191)

Cash flow from operating activities                    56,717    18,170
                                                                       

Investing activities:                                                  

  Property and equipment additions                   (23,716)  (37,341)

  Intangible asset additions                            (677)         -

  Proceeds on disposal of property and equipment        9,958     3,838

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

  Investment in equity accounted investee             (2,472)         -

  Changes in non-cash investing working capital           217     1,929

Cash flow from investing activities                  (16,690)  (27,781)
                                                                       

Financing activities:                                                  

  Change in operating loan                           (12,128)     8,794

  Interest paid                                       (1,601)   (1,559)

  Advances of loans and borrowings                          -     7,000

  Repayments on loans and borrowings                  (5,376)     (446)

  Proceeds on exercise of share options                 1,074     2,149

  Repurchase of common shares                           (584)         -

  Dividends paid                                      (7,861)   (6,653)

Cash flow from financing activities                  (26,476)     9,285

Effect of exchange rate on changes in cash and cash
equivalents                                             (165)       376

Change in cash and cash equivalents                    13,386        50

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

Cash and cash equivalents, end of period             $ 16,288  $  1,790
                                                   

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/November2012/06/c4952.html

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

-0- Nov/06/2012 21:15 GMT


 
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