ACT Energy Technologies Ltd. press release

CATHEDRAL ENERGY SERVICES LTD. REPORTS RESULTS FOR 2010 Q3 AND 2010 Q4 DIVIDEND

2010-11-03

TSX - Toronto Stock Exchange · Canada

Nov. 3, 2010 (Canada NewsWire Group) --

/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/

CALGARY, Nov. 3 /CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral" / TSX: CET) is pleased to report its results for 2010 Q3 and 2010 Q4 dividend. Dollars are in '000's except for day rates and per share amounts.

<< FINANCIAL HIGHLIGHTS $ in 000's except per share amounts

Three months ended Nine months ended September 30 September 30 2010 2009 2010 2009 Revenues (excluding discontinued operations 2010 YTD - $2,359; 2009 YTD - $10,465) $ 38,864 $ 20,176 $ 98,519 $ 57,359

Gross margin %(1) 47% 51% 46% 49%

EBITDAS from continuing operations(1) $ 11,775 $ 5,586 $ 25,999 $ 13,408 Per share - diluted $ 0.32 $ 0.15 $ 0.71 $ 0.39

EBITDAS (1) $ 11,967 $ 5,724 $ 24,861 $ 10,788 Per share - diluted $ 0.33 $ 0.16 $ 0.68 $ 0.31

Income before taxes and discontinued operations $ 8,459 $ 3,992 $ 15,811 $ 6,361

Net income $ 7,056 $ 3,125 $ 10,353 $ 3,045 Basic per share and diluted $ 0.19 $ 0.09 $ 0.28 $ 0.09

Dividends declared per share $ 0.06 $ 0.04 $ 0.18 $ 0.31

Property and equipment additions $ 8,701 $ 1,333 $ 24,929 $ 7,309

Weighted average shares outstanding: Basic ('000) 36,423 36,198 36,411 34,370 Diluted ('000) 36,578 36,198 36,741 34,370

September December 30 2010 31 2009

Working capital $ 15,717 $ 22,451

Long-term debt excluding current portion $ 34,508 $ 39,526

Shareholders' equity $103,012 $ 97,422 (1) Refer to MD&A; see "NON-GAAP MEASUREMENTS" >>

MANAGEMENT'S DISCUSSION & ANALYSIS

This Management's Discussion & Analysis ("MD&A") for the three and nine months ended September 30, 2010 should be read in conjunction with the annual audited consolidated financial statements and notes thereto for the year ended December 31, 2009, as well as the MD&A in the 2009 Annual Report of Cathedral Energy Services Ltd. (the "Company" / "Cathedral"). This MD&A has been prepared as of November 2, 2010. Dollar amounts are in '000's except for day rates and per share amounts.

FORWARD LOOKING STATEMENTS

This MD&A 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 MD&A contains forward-looking statements relating to: access to capital; projected capital expenditures and commitments and the financing thereof; equipment delivery and deployment dates; establishment of new operating bases; customer commitments; financial results; activity levels; technology advances; IFRS adjustments; commencement of Venezuela operations and dividends. 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 MD&A 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:

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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 MD&A 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 MD&A 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 MD&A refers to certain financial measurements that do not have any standardized meaning within Canadian Generally Accepted Accounting Principles ("GAAP") and therefore may not be comparable to similar measures provided by other companies.

The specific measures being referred to include the following:

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OVERVIEW

The Company is incorporated under the Business Corporations Act (Alberta) (the "Act"). The Company was created as a result of the conversion of Cathedral Energy Services Income Trust (the "Trust") to a corporation pursuant to a Plan of Arrangement under the Act, entered into by various entities including the Trust, Cathedral Energy Services Ltd. and SemBioSys Genetics Inc. (the "Reorganization"). The Reorganization was completed on December 18, 2009 (see 2009 Annual Report for further details). As a result of the application of the continuity of interests method of accounting, certain terms such as shareholders'/unitholders', dividends/distributions and share-based/unit-based may be used interchangeably throughout this MD&A.

In 2010 Q1, the Company made the decision to discontinue its operations of the wireline division. On March 31, 2010, it closed its Canadian slickline operations and on April 20, 2010 completed the sale of its U.S. wireline operations. As such, for the three and nine months ended September 30, 2010 the revenues and expenses for the wireline business have been included in the statements of operations and retained earnings and statements of cash flows as discontinued operations and the related assets are classified as held for sale in the balance sheet. The 2009 figures have been reclassified to be consistent with this presentation.

On April 20, 2010, the Company closed the sale of its U.S. based electric wireline business to Pure Energy Services Ltd. ("Pure") in exchange for the operating assets of Pure's Motorworks division and $2,112 cash. The Motorworks division includes 58 drilling motors, 23 drilling jars, spare mud motor power sections and shop equipment valued at $4,980. The assets of the Motorworks operations are being utilized in Cathedral's directional drilling business, and the net sale proceeds were used to reduce bank indebtedness.

The Company completed 2010 Q3 with quarterly revenues of $38,864 and year-to-date revenues of $98,519 compared to 2009 Q3 revenues of $20,176 and 2009 year-to-date revenues of $57,359. Year-to-date revenues have increased 72% from 2009. The 2010 Q3 revenues were comprised of 78% (2009 Q3 - 83%) from the directional drilling division and 22% (2009 Q3 - 17%) from the production testing division.

2010 Q3 EBITDAS was $11,967 ($0.33 per share diluted) which represents a $6,243 or 109% increase from 2009 Q3 EBITDAS of $5,724 ($0.16 per share diluted). For the three months ended September 30, 2010, the Company's net income was $7,056 ($0.19 per share diluted) as compared to a $3,125 ($0.09 per share diluted) in 2009.

2010 year-to-date EBITDAS was $24,861 ($0.68 per share diluted) which represents a $14,073 or 130% increase from $10,788 ($0.31 per share diluted) in 2009. On a 2010 year-to-date basis, the Company's net income was $10,353 ($0.28 per share diluted) as compared to a $3,045 ($0.09 per share diluted) in 2009.

<< RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2010 Revenues and operating expenses

2010 Q3 2009 Q3 Change % Revenues $ 38,864 $ 20,176 $ 18,688 93 Operating expenses 20,605 9,864 10,741 109

Gross margin - $ $ 18,259 $ 10,312 $ 7,947 77 Gross margin - % 47% 51% (4%)

Three months ended Three months ended September 30, 2010 September 30, 2009 Direct- Produc- Direct- Produc- ional tion ional tion Revenues drilling testing Total drilling testing Total

Canada $ 19,314 $ 4,075 $ 23,389 $ 11,836 $ 1,495 $ 13,331 United States 10,835 4,640 15,475 4,863 1,982 6,845

$ 30,149 $ 8,715 $ 38,864 $ 16,699 $ 3,477 $ 20,176 >>

2010 Q3 revenues were $38,864 which represented an increase of $18,688 or 93% from 2009 Q3 revenues of $20,176. The increase is 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.

The directional drilling division revenues have increased from $16,699 in 2009 to $30,149 in 2010. This increase is mainly the result of: i) a 78% increase in activity days from 1,874 in 2009 to 3,339 in 2010; and ii) a slight increase in the average day rate from $8,754 in 2009 to $8,897 in 2010. Canadian activity days increase from 1,372 to 2,179 and U.S. activity days increased from 502 to 1,160.

The Company's production testing division contributed $8,715 in revenues during 2010 Q3 which is a 151% increase over 2009 revenues of $3,477. This increase is attributable in part to the year-over-year increase in production testing units from 35 in 2009 Q3 to 51 in 2010 Q3 and to the overall increase in oilfield service activities on a year-over-year basis.

The gross margin for 2010 Q3 was 47% compared to 51% in 2009 Q3. The decrease is attributed to a number of factors including increases in labour rates net of reductions in repair expenses.

General and administrative General and administrative expenses were $7,935 in 2010 Q3, an increase of $3,395 compared with $4,540 in 2009. The increase was primarily related to increases in payroll related expenses and facility rental costs as well as other general increases due to increased activity levels. As a percentage of revenues, general and administrative expenses were 20% in 2010 Q3 and 23% in 2009 Q3.

Depreciation Depreciation for 2010 Q3 was $2,894 as compared to $2,622 in 2009 Q3. This increase is due to additions to property and equipment. In addition, the Company reviewed its estimate of useful lives of assets as at January 1, 2010 and adjusted its declining balance depreciation rates accordingly (refer to note 1 to the interim financial statements for the three and nine months ended September 30, 2010). As a percentage of revenues, depreciation amounted to 7% for 2010 and 13% for 2009.

Interest Interest expense related to long-term debt increased from $297 in 2009 Q3 to $350 in 2010 Q3 due to a slight increase in effective interest rates. Other interest expense increased from $51 in 2009 Q3 to $122 in 2010 Q3; this relates mainly to interest charges on use by the Company of its bank indebtedness/line of credit facility.

Foreign exchange gain/loss The Company's foreign exchange gain was $1,404 in 2009 Q3 compared to $778 in 2010 Q3 due to the fluctuations in the Canadian dollar in comparison to the U.S. dollar. Upon consolidation, the Company's foreign operations are considered to be self-sustaining and therefore 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 operations. Included in the 2010 Q3 foreign currency gains are unrealized losses of $603 related to intercompany balances as compared to unrealized losses of $1,525 in the same period in 2009.

Share-based compensation For 2010 Q3 the Company had share-based compensation expense of $675 as compared to $200 for 2009 Q3. The increase is mainly due to options issued during 2010, which are amortized against income over three-year vesting periods.

Gain on disposal of property and equipment During 2010 Q3 the Company had a gain on disposal of property and equipment of $1,398, compared to a loss of $14 in 2009 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.

Taxes For 2010 Q3, the Company had a tax expense of $1,319 as compared to $275 in 2009 Q3. All of the Company's current taxes are due to taxable income of its U.S. operations. All of the Company's Canadian taxable income was reduced to $nil due to the utilization of tax pools and tax loss carry-forwards. The Company's future tax provision for the utilization of these pools was offset by a $1,062 decrease in the Company's deferred credit.

<< RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2010 Revenues and operating expenses

2010 YTD 2009 YTD Change %

Revenues $ 98,519 $ 57,359 $ 41,160 72 Operating expenses 52,820 29,043 23,777 82

Gross margin - $ $ 45,699 $ 28,316 $ 17,383 61 Gross margin - % 46% 49% (3%)

Nine months ended Nine months ended September 30, 2010 September 30, 2009 Direct- Produc- Direct- Produc- ional tion ional tion Revenues drilling testing Total drilling testing Total

Canada $ 45,416 $ 11,812 $ 57,228 $ 26,001 $ 5,530 $ 31,531 United States 29,812 11,434 41,246 19,713 6,115 25,828 International 45 - 45 - - -

$ 75,273 $ 23,246 $ 98,519 $ 45,714 $ 11,645 $ 57,359 >>

2010 revenues were $98,519 which represented an increase of $41,160 or 72% from 2009 revenues of $57,359. The increase is 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.

The directional drilling division revenues have increased from $45,714 in 2009 to $75,273 in 2010 or 65%. This increase is mainly the net result of: i) an 85% increase in activity days from 4,636 in 2009 to 8,555 in 2010; and ii) a decrease in the average day rate from $9,634 in 2009 to $8,635 in 2010, which was due in large part to the strength of the Canadian dollar in 2010 compared with 2009. Overall day rates have declined on a year-over-year basis due to market pressures. Canadian activity days increased from 2,855 to 5,359 and U.S. activity days increased from 1,781 to 3,196.

The Company's production testing division contributed $23,246 in revenues during 2010 which is a 100% increase over 2009 revenues of $11,645. This increase is attributable in part to the year-over-year increase in production testing units from 35 in 2009 Q3 to 51 in 2010 Q3 and to the overall increase in oilfield service activities on a year-over-year basis.

The gross margin for 2010 was 46% compared to 49% in 2009. The decrease is attributed to a number of factors including increases in labour and rental expense for auxiliary and specialty equipment.

General and administrative General and administrative expenses were $22,062 in 2010, an increase of $6,945 compared with $15,117 in 2009. The increase was primarily related to increases in payroll related expenses and facility rental costs as well as other general increases due to increased activity levels. As a percentage of revenues, general and administrative expenses were 22% in 2010 and 26% in 2009.

Depreciation Depreciation for 2010 was $7,488 as compared to $8,523 in 2009. This decrease is due to in part the declining balance depreciation method used by the Company and is expected as its assets get older. In addition, the Company reviewed its estimate of useful lives of assets as at January 1, 2010 and adjusted its declining balance depreciation rates accordingly (refer to note 1 to the interim financial statements for the three and nine months ended September 30, 2010). Despite additional capital expenditures in the year the previous factors resulted in a decrease in depreciation. As a percentage of revenues, depreciation amounted to 8% for 2010 and 15% for 2009.

Interest Interest expense related to long-term debt increased from $962 in 2009 to $964 in 2010 due to a slight increase in interest rates. Other interest expense increased from $214 in 2009 to $306 in 2010; this relates mainly to interest charges on use by the Company of its bank indebtedness/line of credit facility.

Foreign exchange gain/loss The Company's foreign exchange gain was $2,838 in 2009 compared to $346 in 2010 due to the fluctuations in the Canadian dollar in comparison to the U.S. dollar. Upon consolidation, the Company's foreign operations are considered to be self-sustaining and therefore gains and losses due to fluctuations in the foreign currency exchange rates are recorded in 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 operations. Included in the 2010 foreign currency gain are unrealized losses of $284 related to intercompany balances as compared to unrealized gains of $3,178 in the same period in 2009.

Share-based compensation expense For 2010, the Company had share-based compensation expense of $2,020 as compared to $740 for 2009. The increase is mainly due to options issued during 2010, which are amortized against income over three-year vesting periods.

Gain on disposal of property and equipment During 2010 the Company had a gain on disposal of property and equipment of $2,606, as compared to $763 in 2009. 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.

Taxes For 2010, the Company had a tax expense of $2,790 as compared to tax recovery of $502 in 2009. All of the 2010 year-to-date current income tax provision of $978 (2009 - $5,195) relates to the Company's U.S. operations. All of the Company's Canadian taxable income was reduced to $nil due to the utilization of tax pools and tax loss carry-forwards. The Company's future tax provision for the utilization of these pools was offset by a $1,617 decrease in the Company's deferred credit.

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, 2010, the Company had an operating line of credit with a major Canadian bank in the amount of $20,000 (December 31, 2009 - $20,000) of which $14,273 (December 31, 2009 - $2,181) was drawn. In addition, the Company has a non-reducing revolving term loan facility in the amount of $45,000 (December 31, 2009 - $45,000) of which $34,500 was drawn as at September 30, 2010 (December 31, 2009 - $39,500). In addition, at September 30, 2010, the Company had other long-term debt of $50 (December 31, 2009 - $234).

Operating activities Cash flow from (used in) operating activities for the three and nine months ended September 30, 2010 was $2,463 and $14,118 as compared to ($5,085) and $16,389 in the same periods in 2009. Funds from continuing operations (see Non-GAAP Measurements) for 2010 were $9,783 and $21,451 as compared to $4,979 and $6,488 in 2009. This increase was caused mainly by an increase in earnings due to increased activity levels. The Company has a working capital position at September 30, 2010 of $15,717 as compared to $22,451 at December 31, 2009. During 2010 Q2, the Company used excess cash/working capital to reduce its term loan by $5,000.