ACT Energy Technologies Ltd. press release

CATHEDRAL ENERGY SERVICES LTD. REPORTS RESULTS FOR 2010 Q4 AND THE YEAR ENDED DECEMBER 31, 2010, UPDATED 2011 CAPITAL BUDGET AND 2011 Q1 DIVIDEND

2011-03-03

TSX - Toronto Stock Exchange · Canada

Mar. 2, 2011 (Canada NewsWire Group) --

/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/

CALGARY, March 2 /CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral") (TSX: CET) is pleased to report its results for 2010 Q4 and the year-end December 31, 2010, updated 2011 capital budget and 2011 Q1 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 | | | | | | | Yearended | | | | | | | | | | | | | | | | | | | | December 31 | | | | | | | December 31 | | | | | | | | | | | | | | | | | | | | 2010 | | | | | 2009 | | | | | | | 2010 | | | | | 2009 | | | Revenues (excluding discontinued operations 2010 YTD - $2,403; 2009 YTD - $12,420) | | | $ | | | | 42,877 | | | $ | | 24,741 | | | $ | | | | 141,396 | | | $ | | 82,100 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross margin %(1) | | | | | | | 49% | | | | | 48% | | | | | | | 47% | | | | | 49% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EBITDAS from continuing operations (1) | | | $ | | | | 12,900 | | | $ | | 6,423 | | | $ | | | | 38,899 | | | $ | | 19,831 | | | | Per share - diluted | | | $ | | | | 0.34 | | | $ | | 0.18 | | | $ | | | | 1.06 | | | $ | | 0.57 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EBITDAS (1) | | | $ | | | | 13,103 | | | $ | | 5,864 | | | $ | | | | 37,964 | | | $ | | 16,652 | | | | Per share - diluted | | | $ | | | | 0.35 | | | $ | | 0.16 | | | $ | | | | 1.03 | | | $ | | 0.48 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income from continuing operations | | | $ | | | | 7,508 | | | $ | | 3,409 | | | $ | | | | 20,529 | | | $ | | 10,272 | | | | Per share - diluted | | | $ | | | | 0.20 | | | $ | | 0.10 | | | $ | | | | 0.56 | | | $ | | 0.29 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | $ | | | | 7,662 | | | $ | | 2,236 | | | $ | | | | 18,015 | | | $ | | 5,281 | | | | Basic per share and diluted | | | $ | | | | 0.21 | | | $ | | 0.06 | | | | | | | 0.49 | | | $ | | 0.15 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends declared per share | | | $ | | | | 0.06 | | | $ | | - | | | $ | | | | 0.24 | | | $ | | 0.31 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Property and equipment additions | | | $ | | | | 10,304 | | | $ | | 1,614 | | | $ | | | | 35,233 | | | $ | | 8,923 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic ('000) Diluted ('000) | | | | | | | 36,580 37,394 | | | | | 36,238 36,400 | | | | | | | 36,453 36,791 | | | | | 34,841 34,857 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31 | | | | | | | | | | | | December 31 | | | | | | | | | | | | | | | 2010 | | | | | | | | | | | | 2009 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Working capital | | | | | | | | | | $ | | 18,536 | | | | | | | | | | $ | | 22,451 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Long-term debt excluding current portion | | | | | | | | | | $ | | 34,502 | | | | | | | | | | $ | | 39,526 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shareholders' equity | | | | | | | | | | $ | | 109,115 | | | | | | | | | | $ | | 97,422 | |

(1) see "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,: 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; tax rates; 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 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 the formation of Cathedral's joint venture company in Venezuela which is required prior to commencement of Venezuela operations, some of which are out of the control of Cathedral; 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 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:

i) "Gross margin" - calculated as revenues less operating expenses is considered a primary indicator of operating performance (see tabular calculation under Results of Operations);

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

iii) "EBITDAS" - defined as earnings before interest on long-term debt, taxes, depreciation, non-cash compensation expense and unrealized foreign exchange gain/loss; this measure 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. The definition of EBITDAS was changed in 2009 Q2 to adjust for unrealized foreign exchange gain/loss. Comparative amounts presented have been restated to the new calculation (see tabular calculation under EBITDAS);

iv) "EBITDAS from continuing operations" - defined as earnings before interest on long-term debt, taxes, depreciation, non-cash compensation expense and unrealized foreign exchange gain/loss excluding the portion due from discontinued operations in each component of the calculation;

v) "EBITDAS from discontinued operations" - defined as earnings before interest on long-term debt, taxes, depreciation, non-cash compensation expense and unrealized foreign exchange gain/loss from discontinued operations of the Company's former wireline division in each component of the calculation;

vi) "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

vii) "Funds from continuing operations" - calculated as cash provided by operating activities before changes in non-cash working capital and cash flow from discontinued operations is considered an indicator of the Company's ability to generate funds flow from operations but excluding changes in non-cash working capital which is financed using the Company's bank indebtedness/line of credit facility.

OVERVIEW

Cathedral Energy Services Ltd. (the "Company" or "Cathedral") 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 ("Plan of Arrangement") under the Act, entered into by various entities including the Trust, Cathedral Energy Services Ltd. ("CES") and SemBioSys Genetics Inc. ("SBS") (the "Reorganization").

Upon closing of the Reorganization on December 18, 2009, the Company became the operator of the business of the Trust and its subsidiaries and the existing management and board of directors of CES, plus one director of SBS, became the management and board of directors of the Company. The Reorganization resulted in the unitholders of the Trust becoming shareholders of the Company with no changes to the underlying business operations. The Company did not acquire any additional business carried on by SBS. The former business of SBS is being carried on by a new entity named SemBioSys Genetics Inc. ("New SBS") which is owned by the former shareholders of SBS.

Prior to the closing of the Reorganization, the consolidated financial statements included the accounts of the Trust, its subsidiaries and partnerships, all of which were wholly owned. Subsequent to the Reorganization, the consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. The Company is considered a continuation of the Trust and these consolidated financial statements follow the continuity of interests method of accounting. Under the continuity of interests method of accounting the transfer of assets, liabilities and equity from the Trust to the Company are recorded at their net book values as at December 18, 2009.

As a result of the application of the continuity of interests method of accounting, certain terms such as shareholders'/unitholders', shares/units, dividends/distributions and share-based/unit-based may be used interchangeably throughout this news release.

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 Petroleos 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.

UPDATED 2011 CAPITAL BUDGET

For 2011, the Board of Directors has approved an updated capital budget of $35,500; this is an increase of $10,647 from the previously announced 2011 capital budget. The increase is mainly attributed to the addition of 6 high pressure production testing units and LWD (resistivity) equipment. In summary, the major items within the updated 2011 capital budget are: i) 27 MWD systems (including 7 carried forward from the 2010 capital budget) and related mud motors and collars to complement the increased job capability; ii) LWD (resistivity) equipment; iii) 6 high pressure production testing units and auxiliary production testing equipment to complement the overall fleet; iv) $4,654 allocated to the new head office and operations facility in Calgary; and v) $4,165 of maintenance capital. The maintenance capital includes the retro-fit, upgrades and replacement of downhole tools. 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 2011 Q1 dividend in the amount of $0.06 per share which will have a date of record of March 31, 2011 and a payment date of April 15, 2011.

RESULTS OF OPERATIONS - 2010 COMPARED TO 2009

Overview

In 2010 Q1, the Company made the decision to discontinue the operations of its wireline division. On March 31, 2010, the Company closed its Canadian slickline operations and on April 20, 2010 completed the sale of its U.S. wireline operations. As such, the revenues and expenses for the wireline business are 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 comparative 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 assets of the Motorworks division included 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 with revenues of $141,396 compared to 2009 at $82,100. The 2010 revenues were lead by the Company's directional drilling division which represented 76% (2009 - 79%) of total revenues with the remainder composed of production testing division at 24% (2009 21%). In 2009, there was a significant decline in drilling in the oil and gas sector due to low commodity prices and the overall decline in the economy. Since those low activity levels, the Company experienced a significant increase in activities in all areas.

2010 EBITDAS was $37,964 ($1.03 per share - diluted) which represents a $21,312 or 128% increase from $16,652 ($0.48 per share - diluted) in 2009. 2009 EBITDAS is net of one-time charges in the amount of $1,130 of which $453 related to its restructuring of electric line ("E-Line") division and $677 related to the conversion to a corporation. 2010 EBITDAS from continuing operations was $38,899 ($1.06 per share - diluted) an increase of $19,068 or 96% from $19,831 ($0.57 per share - diluted) in 2009.

Revenues and operating expenses

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2010 | | | 2009 | | | $ Change | | | | | % | | Revenues | | | | | | | $ | | 141,396 | | $ | 82,100 | | $ | 59,296 | | | | | 72 | | Operating expenses | | | | | | | | | 74,585 | | | 41,835 | | | 32,750 | | | | | 78 | | Gross margin - $ | | | | | | | $ | | 66,811 | | $ | 40,265 | | $ | 26,546 | | | | | 66 | | Gross margin - % | | | | | | | | | 47% | | | 49% | | | (2)% | | | | | | | | | Year ended December 31, 2010 | | | Yearended December31,2009 | | | | | | | | | | | | | | | | | Revenues | | Directional drilling | | | Production testing | | | | Total | | | Directional drilling | | | Production testing | | | | | Total | | Canada | $ | 65,827 | | $ | 18,569 | | $ | | 84,396 | | $ | 40,597 | | $ | 8,806 | | $ | | | 49,403 | | United States | | 41,013 | | | 15,987 | | | | 57,000 | | | 24,161 | | | 8,536 | | | | | 32,697 | | | $ | 106,840 | | $ | 34,556 | | $ | | 141,396 | | $ | 64,758 | | $ | 17,342 | | $ | | | 82,100 |

2010 revenues were $141,396 which represented an increase of $59,296 or 72% from 2009 revenues of $82,100. The increase was primarily attributed to the focus on horizontal, multi-stage fracturing technology to complete conventional and unconventional resource plays in both Canada and the U.S. which has allowed for continued strength in activity levels for the oilfield services sector. Demand for Cathedral's services has also been driven by both oil and liquids-rich natural gas plays.

The directional drilling division revenues increased 65% from $64,758 in 2009 to $106,840 in 2010. This change was the net result of: i) a 75% increase in activity days from 6,836 in 2009 to 11,969 in 2010; and ii) a decrease in the average day rate from $9,275 in 2009 to $8,761 in 2010, which was caused in large part by a decrease in the Canadian dollar equivalent of U.S. day rates due to a strengthening of the Canadian dollar relative to the U.S. dollar. While the average day rates have declined on a year-over-year basis due to market pressures, in Canada rates for 2010 Q4 have increased compared to rates at 2009 Q4 and in the U.S., the total average rate have increased from 2009 Q4 to 2010 Q4 in U.S. dollars. The increases in the Canadian rates were primarily to offset increased field labour costs. Canadian activity days increased from 4,595 to 7,568 and U.S. activity days increased from 2,241 to 4,401.

The directional drilling division began the year with 62 Measurement-While-Drilling ("MWD") systems in Canada, 30 in the U.S. and 4 for international operations. It ended 2010 with 65 MWD systems in Canada, 33 in the U.S. and 4 for international operations. The Company continuously reviews the demand for its services and shifts equipment among its markets accordingly.