Cathedral Energy Services Ltd. Reports Results for 2015 Q1 and 2015 Q2 Dividend

/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/

CALGARY, May 6, 2015 /CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral" / TSX: CET) announces its consolidated financial results for the three months ended March 31, 2015 and 2014.  Dollars in 000's except per share amounts.

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

2015 Q1 KEY TAKEAWAYS

Revenue in the quarter was $50,077 and EBITDAS was $5,786 consistent with management's expectations.

Positive impacts from our cost containment initiatives resulted in us maintaining adjusted gross margin percentage for the quarter compared to the prior year.

Reduction in bank debt by 38% to $35,000 at March 31, 2015 compared to $56,069 as at December 31, 2014.

Positive customer response to our product offering resulted in us maintaining customer work and securing new work in a challenging industry environment.

FINANCIAL HIGHLIGHTS
Dollars in 000's except per share amounts

OUTLOOK

During the first quarter, the Company experienced the impact of the rapid decline in industry activity levels as a consequence of energy companies reducing their capital spending programs due to low energy prices.  Revenues were impacted by a drop in activity days along with pricing pressure from the customers who were still active.  An early spring breakup in Canada had a further negative impact on activity levels toward the end of the quarter.  Despite the challenging business environment we were pleased with our first quarter results based on business Cathedral was able to secure and maintain and the progress made on our expense reduction initiatives.  However, the second quarter has historically been our most challenging due to lower activity levels in Canada and we are prepared for 2015 Q2 to be further challenging due to low commodity prices.

Although oil prices appear to have stabilized, there continues to be lack of visibility into activity levels in North America for the remainder of year.  Natural gas prices also continue to be soft.  Industry analysts are anticipating oil prices will firm up in the second half of 2015 with the implication there may be corresponding positive impact on energy company drilling and completion activity levels.

Going into this downturn, we focused on three priorities for our business:

1. Adjust our cost structure and financial obligations to reflect the decline in activity levels and protect our balance sheet;
2. Preserve our key employee base so when industry conditions improve we are able to ramp up quickly; and
3. Continue to pursue operational improvements and execute on our strategic objectives to position Cathedral to be a stronger company in the future.

Beginning in January, we significantly reduced our cost structure in order to match anticipated industry activity levels and manage our financial obligations.  Our workforce has been reduced by over 25% since December.  We have implemented salary and wage rollbacks at all levels in the company ranging from 5% to over 20%.  Our suppliers have supported us by providing cost reductions and we continue to review all expense categories looking for savings opportunities both short and long-term.  These expense reductions were partly reflected in our Q1 results as some savings were not fully realized until March.  We were pleased with our performance in the quarter from an expense management perspective and we are on track to achieve our targeted reduction in SG&A of 20% from 2014 levels. 

Given the uncertain industry outlook, we continue to monitor and optimize our capital expenditure program.  Going into the year we had a backlog of capital commitments which we were able to reduce. We believe we currently have sufficient equipment capacity to meet customer needs in the short term.  However, we are continuing to upgrade our fleet in anticipation of an eventual industry upturn to be able to exploit our competitive advantages.  In the quarter, we completed the sale and leaseback of our Oklahoma City facility and benefited from the lower Canadian dollar when repatriating the funds.  These actions along with lower working capital requirements and a focus on accounts receivable collections allowed us to reduce our bank debt from $56,069 at December 31, 2014 to $35,000 at March 31, 2015.

In the quarter we commenced discussions with our banking syndicate on getting additional room on our banking covenants should industry conditions deteriorate further or the current industry downturn is prolonged.  The banking syndicate has indicated they will work with us to allow financial covenant relaxation for an appropriate time period, if required.  As explained later in this news release, we have received a proposal letter from Canada Revenue Agency ("CRA") which challenges the tax pools we obtained as part of the conversion from an income trust to a corporation in late 2009.  We remain confident in the appropriateness of our tax-filing position and are reviewing our response to the CRA.

On a positive note, we have gained incremental business from customers in the U.S. and Canada as a result of our performance advantages.  We are renting our nDurance^TM series drilling motors on a stand-alone basis to major energy company customers and are receiving positive market feedback on their performance.  In the U.S., our Electro-Magnetic Measurement-While-Drilling ("EM-MWD") system is now being recognized for its performance advantages in difficult formations resulting in us securing new customer opportunities. We are also providing our EM-MWD on a standalone basis.  With customers now focused on cost reduction and drilling performance, our capabilities play well in this environment. As a service provider we are in a unique position from a cost impact perspective as our ability to reduce drilling days can result in significant cost savings for our customers.  During the quarter, we accomplished a number of records for drilling performance with customers in both Canada and the U.S. which reinforces our customer value proposition.  We continue to push forward and invest in our strategic improvement initiatives to set our company to be in a stronger position coming out of this downturn.

We remain confident that we will come out of this current downturn in a very strong position to deliver increased value to our customers and our shareholders.

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 2015 Q2 dividend in the amount of $0.04 per share which will have a date of record of June 30, 2015 and a payment date of July 15, 2015. 

2015 CAPITAL PROGRAM

During 2015 Q1 the Company invested $4,303 (2014 Q1 - $9,917) in property and equipment.  The following table details the current period's net property and equipment additions:

The major additions for growth capital were $2,231 for additional drilling motors and related equipment for specific job requirements and $987 for additional ancillary production testing equipment to reduce future rental costs.  Infrastructure capital relates to the construction of an operation facility in Oklahoma that was completed and subject to a sale and leaseback in 2015 Q1.  Maintenance capital included $159 related to MWD upgrades, $42 for production testing units and ancillary equipment and $66 related to office and computer equipment additions.

Cathedral's 2015 capital budget remains at $7,000 which includes $4,600 of growth capital, $1,775 of maintenance capital and $625 of infrastructure expenditures. 

Cathedral intends to finance its 2015 capital budget from cash flow from operations, proceeds of the Oklahoma City facility sale and leaseback, proceeds from redundant asset sales and if necessary, its existing credit facility.

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

RESULTS OF OPERATIONS – THREE MONTHS ENDED MARCH 31

Revenues    2015 Q1 revenues were $50,077 which represented a decrease of $17,943 or 26% from 2014 Q1 revenues of $68,020.  U.S. production testing had higher revenues than 2014 Q1.  However, all other areas experienced declines due mainly to overall decline in drilling activity as a result of decline in commodity prices. 

Canadian directional drilling revenues decreased to $15,044 in 2015 Q1 from $28,790 in 2014 Q1; a 48% decrease.  This decrease was the result of: i) a 47% decrease in activity days to 1,417 in 2015 Q1 from 2,649 in 2014 Q1; and ii) a 2% decrease in the average day rate to $10,617 in 2015 Q1 from $10,868 in 2014 Q1.  In 2015 Q1 there was an industry wide decline in activity due to declines in commodity prices and day rate declines directly relate to pricing concessions granted to customers due to market conditions.  In 2015 Q1, the Western Canada Sedimentary Basin ("WCSB") had a decline in non-vertical wells drilled of 45% compared to 2014 Q1.

U.S. directional drilling revenues decreased to $21,753 in 2015 Q1 from $23,672 in 2014 Q1; an 8% decrease.  This decrease was the result of: i) a 11% decrease in activity days to 1,667 in 2015 Q1 from 1,880 in 2014 Q1; net of ii) a 4% increase in the average day rate to $13,049 in 2015 Q1 from $12,591 in 2014 Q1 (when converted to Canadian dollars).  The decrease in U.S. activity days was primarily due to the decrease in operations in the Rocky Mountain region of the U.S. along with slight declines in the Company's operations in the Texas and Oklahoma markets.  These declines were partially offset by an increase in days in the Northeastern U.S. where the Company had a significant decline in operations in 2014.  The U.S. active land rig count was down 21% from 2014 Q1.  The U.S. average day rates in Canadian dollars increased due to the stronger U.S. dollar.  Rates in USD declined to $10,558 USD in 2015 Q1 from $11,412 USD in 2014 Q1, a 7% decline.  As with Canadian directional, there were pressures from clients to reduce pricing.  

Canadian production testing revenues decreased to $4,998 in 2015 Q1 from $8,578 in 2014 Q1; a 42% decrease.  In the prior year, 2014 Q1 had benefited from delays in completion jobs which were deferred into that quarter.  While day rates in 2015 remained consistent with 2014 Q1, there was a decline in operating days due to the industry downturn.  The number of wells completed in the WCSB declined by 36% in 2015 Q1 compared to 2014 Q1.

U.S. production testing revenues increased to $8,282 in 2015 Q1 from $6,980 in 2014 Q1, a 19% increase.  In 2014 Q1 the division was working to rebuild its client base after a significant customer had shifted work to a competitor in 2013 Q4.  In 2014 Q1, the division had lowered rates significantly to assist in gaining new customers.   In 2015 Q1 the activity levels were down consistent with other divisions, but day rates in USD increased to expected levels and these rates were higher when converted into CAD.

Gross margin and adjusted gross margin    Gross margin for 2015 Q1 was 10.0% compared to 13.8% in 2014 Q1.  Adjusted gross margin (see Non-GAAP Measurements) for 2015 Q1 was $10,120 (20.2%) compared to $13,925 (20.5%) for 2014 Q1.   

There were multiple reasons for the change in adjusted gross margin in the period.  The Company began a thorough review of all expenses in late 2014 that became the major point of emphasis in 2015 and obtained a number of cost reductions for external services and for field, support and office staff, including work force adjustments and wage rollbacks.  As a result, even though revenue day rates declined in most divisions, the Company was able to maintain its adjusted gross margin compared to 2014 Q1.

There were a number of factors that individually changed in the composition of cost of sales including a decline in field labour costs as a percentage of revenue year-over-year due to cuts in labor rates and reductions in usage of batteries in the period compared to prior year.  These reductions were offset by increase in repairs and fixed costs on a percentage of revenue basis. Overall costs were lower than in 2014 Q1, but higher as a percentage of revenue basis.  There was also a lag in certain repairs and costs in 2015 Q1 related to earlier operations.

Depreciation allocated to cost of sales increased to $5,091 in 2015 Q1 from $4,464 in 2014 Q1.  Depreciation included in cost of sales as a percentage of revenue was 10.2% for 2015 Q1 and 6.6% in 2014 Q1.

Selling, general and administrative expenses ("SG&A")     SG&A expenses were $5,593 in 2015 Q1; a decrease of $585 compared with $6,178 in 2014 Q1.  Excluding non-cash depreciation and share-based compensation, the sequentially SG&A was $5,522 in 2015 Q1 a reduction of 13% compared with 2014 Q4 at $6,377 and we believe we are on target to reduce the 2014 Q4 amount by a total of 20% in subsequent quarters.

Adjusted SG&A (see Non-GAAP Measurements) was $5,356 in 2015 Q1 compared to $5,964 in 2014 Q1, a decrease of $608.  As a percentage of revenue, adjusted SG&A was 11% in 2015 Q1 and 9% in 2014 Q1. Adjusted SG&A decreased primarily due to wages, benefits and variable compensation due to work force adjustments and wage rollbacks.  Staffing costs included in SG&A include executives, sales, accounting, human resources, payroll, safety, research and development and related support staff.

Gain on disposal of property and equipment     In 2015 Q1 the Company completed the previously discussed sale and leaseback of its Oklahoma City operating facility.  This resulted in a gain on sale of land and buildings of $508.  The Company has entered into a 15 year lease on the related assets.  During 2015 Q1, the Company had a gain on disposal of property and equipment of $1,169 compared to $734 in 2014 Q1.  These 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 loss     The Company had foreign exchange loss of $1,426 in 2015 Q1 compared to $497 in 2014 Q1 due to the fluctuations in the Canadian dollar relative to the U.S. dollar.  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 2015 Q1 foreign currency loss are unrealized losses of $1,276 (2014 Q1 - $454) related to intercompany balances.

Finance costs     Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $467 for 2015 Q1 versus $596 for 2014 Q1.  The decrease in finance costs relate mainly to a decreased utilization of the Company's credit facility and to a lesser extent decreases in interest rates.

Income tax     For 2015 Q1, the Company had net income tax recovery of $71 compared to expense of $427 in 2014 Q1.  The effective tax rate was 9% for 2015 Q1 and 15% for 2014 Q1.  Income tax expense is booked based upon expected annualized effective rates.  The current period tax rate is lower than anticipated due to losses in Canada recorded at effective rate of 23.25% and income in U.S. recorded at effective rate of 42.5%.

LIQUIDITY AND CAPITAL RESOURCES

Overview     On an annualized basis the Company's principal source of liquidity is cash generated from operations.    In addition, the Company has the ability to fund liquidity requirements through its credit facility and the issuance of debt and/or equity.   For the period ended March 31, 2015, the Company had funds from continuing operations (see Non-GAAP Measurements) of $3,965 (2014 - $8,120).  The decrease in funds from continuing operations is due to lower activity levels and reductions in revenue day rates.

Working capital     At March 31, 2015 the Company had working capital of $25,304 (December 31, 2014 - $38,135) and a working capital ratio of 1.7 to 1 (December 31, 2014 – 1.8 to 1).  The lower working capital level was directly related to the reduction in activity levels.

Credit facility     On August 8, 2014 the Company entered into a 3 year committed revolving credit facility in the amount of $85,000.  The credit facility includes a $25,000 accordion feature which is subject to approval of the syndicate of lenders.  The syndicate of lenders consists of The Bank of Nova Scotia and National Bank of Canada.

The facility bears interest at the bank's prime rate plus 0.50% to 2.00% or bankers' acceptance rate plus 1.75% to 3.25% with interest payable monthly.  Interest rate spreads for the credit facility depends on the level of funded debt to EBITDAS (earnings before interest on long-term debt, taxes, depreciation, amortization and non-cash compensation expense – as defined in the credit agreement).

The credit facility is secured by a general security agreement over all present and future personal property and is subject to certain covenants regarding the payment of dividends.  As at March 31, 2015 the Company is in compliance with all covenants under the credit facility including the following financial covenants:

The following table outlines the current credit facility:

Contractual obligations     In the normal course of business, the Company incurs contractual obligations and those obligations are disclosed in the Company's MD&A for the year ended December 31, 2014.  As at March 31, 2015, the Company had a commitment to purchase approximately $696 of equipment.  Cathedral anticipates expending these funds in 2015 Q2.

Share capital     At May 6, 2015, the Company has 36,295,380 common shares and 1,695,197 options outstanding with a weighted average exercise price of $4.49.

In 2015 Q1, the Company issued 729,000 stock options with an exercise price of $2.13 per share.

RISK FACTORS

The MD&A for the year ended December 31, 2014, which is included in the Company's 2014 Annual Report, includes an overview on risk factors associated with the Company and its operating entities. Those risk factors remain in effect as at March 31, 2015 except as noted below.

Tax related risks associated with conversion
On April 21, 2015, the Company received a proposal letter from the Canada Revenue Agency ("CRA") which discloses its intention to challenge the tax attributes obtained as part of the December 18, 2009 conversion from an income trust to a corporation; such a challenge is based on the general anti-avoidance rules of the Income Tax Act (Canada). Cathedral has 30 days to respond to the letter and believes that the CRA will then proceed with a Notice of Reassessment for the Company's 2010, 2011 and 2012 taxation years. Cathedral is currently reviewing the proposal with its external tax advisors.

If the Notice of Reassessment is received, to challenge the reassessment Cathedral will be required to make a payment of 50% of the taxes and interest CRA claims are owed for such years. Based on Cathedral's 2009 to 2012 taxation years, that 50% amount related to taxes is approximately $3,300. If the Company is ultimately successful in defending its position, such payments plus applicable interest, will be refunded to the Company. If the CRA is successful, the Company will be required to pay the balance of the taxes claimed plus applicable interest and penalties.

The Company's 2015 Q1 financial results do not include the impact of a potential reassessment.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
March 31, 2015 and December 31, 2014
Dollars in '000s
(unaudited)

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three months ended March 31, 2015 and 2014
Dollars in '000s except per share amounts
(unaudited)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three months ended March 31, 2015 and 2014
Dollars in '000s
(unaudited)

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: expecting 2015 Q2 to be further challenged by low commodity prices; oil prices appear to have stabilized; believe we currently have sufficient equipment capacity to meet customer needs in the short term; be able to exploit our competitive advantages with industry upturn; continue to push forward and invest in our strategic improvement initiatives to set our company to be in a stronger position coming out of this downturn; our lenders will work with us to allow financial covenant relaxation for an appropriate time period; we will come out of this current downturn in a very strong position to deliver increased value to our customers and our shareholders; activity levels and potential declines; adjusted cost structure; position to be a stronger company; preserve key employee base; offer performance advantages; projected capital expenditures and commitments and the financing thereof; timing of expenditures on purchase commitments; opportunity for Cathedral to demonstrate our technology and service capabilities in new areas as both existing and potential customers are more receptive to opportunities to gain efficiencies; and dividends.

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 Cathedral's businesses, including current business and economic trends;
• oil and natural gas commodity prices and production levels;
• capital expenditure programs and other expenditures by Cathedral and its customers:
• the ability of Cathedral to retain and hire qualified personnel;
• the ability of Cathedral to obtain parts, consumables, equipment, technology, and supplies in a timely manner to carry out its activities;
• the ability of Cathedral to maintain good working relationships with key suppliers;
• the ability of Cathedral to market its services successfully to existing and new customers and reliance on major customers;
• risks associated with technology development and intellectual property rights;
• the ability of Cathedral to maintain safety performance
• the ability of Cathedral to obtain timely financing on acceptable terms;
• the ability to obtain sufficient insurance coverage to mitigate operational risks;
• currency exchange and interest rates;
• risks associated with foreign operations;
• risks associated with acquisitions and business development efforts;
• environmental risks
• the ability of Cathedral to realize the benefits of its conversion from an income trust to a corporation;
• risks associated with winding up operations in Venezuela, including the ability to sell Cathedral's interest in the Venezuela joint venture;
• changes under governmental regulatory regimes and tax, environmental and other laws in Canada, United States ("U.S.") and Venezuela; and
• competitive risks.

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

Cathedral uses certain performance measures throughout this document that are not defined under GAAP. Management believes that these measures provide supplemental financial information that is useful in the evaluation of Cathedral's operations and are commonly used by other oil and gas service companies. Investors should be cautioned, however, that these measures should not be construed as alternatives to measures determined in accordance with GAAP as an indicator of Cathedral's performance. Cathedral's method of calculating these measures may differ from that of other organizations, and accordingly, may not be comparable.

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);

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

iii) "Adjusted selling, general and administrative expenses" ("Adjusted SG&A") – defined as selling, general and administrative expenses excluding non-cash depreciation and share-based compensation, non-recurring executive compensation (such as severance) and excluding expenses related to operations in Venezuela.

iv) "Adjusted EBITDAS" - defined as earnings before share of income/loss from associate, finance costs, unrealized foreign exchange on intercompany balances, unrealized foreign exchange due to hyper-inflation accounting, taxes, non-recurring gains and losses on disposal of property and equipment (see non-GAAP measurement), depreciation and share-based compensation plus dividends from associate; is considered an indicator of the Company's ability to generate funds flow from operations prior to consideration of how activities are financed, how the results are taxed and measured and non-cash expenses (see tabular calculation);

v) "Funds from continuing operations" - calculated as cash provided by operating activities before changes in non-cash working capital and income taxes paid less current tax expense; is considered an indicator of the Company's ability to generate funds flow from operations on an after tax basis but excluding changes in non-cash working capital which is financed using the Company's operating loan (see tabular calculation);

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

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

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

ix) "Infrastructure property and equipment additions" or "Infrastructure capital" – is capital spending incurred on land, buildings and leasehold improvements. Infrastructure capital is a component in understanding the sustainability of the Company's business as cash resources retained within Cathedral must be sufficient to meet maintenance capital needs;

x) "Non-recurring gains and losses on disposal of property and equipment" – are disposals of property and equipment that do not occur on a regular or periodic basis.  Unlike the lost-in-hole recoveries the proceeds from these gains are not used on equivalent replacement property.  These are often on non-field equipment such as land and buildings;

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

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

The following tables provide reconciliations from GAAP measurements to non-GAAP measurements referred to in this news release:

Cathedral Energy Services Ltd. (the "Company" or "Cathedral"), based in Calgary, Alberta is incorporated under the Business Corporations Act (Alberta) and operates in the U.S. under Cathedral Energy Services Inc.  The Company is publicly traded on the Toronto Stock Exchange under the symbol "CET".  Cathedral, is a trusted partner to North American energy companies requiring high performance directional drilling services and dependable flowback and production testing solutions. We work in partnership with our customers to tailor our equipment and expertise to meet their specific geographical and technical needs.  Our experience, technologies and responsive personnel enable our customers to achieve higher efficiencies and lower project costs.  For more information, visit www.cathedralenergyservices.com..

SOURCE Cathedral Energy Services Ltd.