/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, Aug. 19 /CNW/ - Cathedral Energy Services Income Trust (the "Trust"/"Cathedral" - TSX: CET.UN) is pleased to announce its intention to convert from an income trust to a growth-oriented corporation pursuant to a statutory plan of arrangement (the "Conversion"). The Trust expects to complete the Conversion prior to December 31, 2009.
On October 31, 2006, the Minister of Finance (Canada) announced the Specified Investment Flow-Through Trust income and distribution tax (the "SIFT Tax") which effectively eliminates the public income trust structure effective January 1, 2011. These new tax laws provide for a tax-free conversion if such a conversion occurs before 2013. Over the past year the Trust has been investigating and considering various restructuring alternatives available to it and the Trust's strategic objectives which include ensuring the Trust has the most appropriate structure for its long-term viability and sustainability. With due regard to the SIFT Tax becoming effective in 2011, the Trust's strategic objectives and the current industry environment, the Trust believes that it is in its best interests to proceed with the Conversion at this time.
Rationale and Benefits for the Conversion
Management and the Trustees believe that the Conversion provides a number
of compelling and strategic benefits, including the expectation that the
Conversion:
- will result in paying a dividend to shareholders with a view to
sustainability while at the same time delivering returns through
capital appreciation;
- will result in Cathedral's financial and operational performance to
be directly valued relative to its corporate peers;
- may result in greater access to capital and the removal of the
"normal growth" and "undue expansion restrictions" in the SIFT Tax
that potentially limited the Trust's ability to consider strategic
acquisitions;
- will remove the Trust from the uncertainty that exists in the income
trust marketplace regarding conversion to a corporation;
- will provide for a tax deferred rollover for unitholders of the Trust
based upon the recently enacted rules for SIFT conversions who are
resident in Canada;
- will result in Canadian taxable shareholders benefiting from lower
income taxes paid on dividends, by way of dividend tax credit, as
compared to taxes previously paid on the Trust's distributions as
other income;
- will not be restricted in its efforts to broaden its investor base to
include more non-resident shareholders as is presently the case under
its current legal structure; and
- will lead to a simplified and more efficient corporate structure that
will reduce overhead and administrative costs.
Cathedral after Conversion to a Corporation
After completion of the Conversion it is expected:
- Cathedral will become a dividend paying corporation;
- Canadian taxable shareholders should benefit from lower income taxes
paid on dividends as compared to income taxes previously paid on
Cathedral distributions; and
- Cathedral will continue to operate its existing businesses;
Distributions and Dividends
In light of the intention to convert to a corporation, the Trust will discontinue distributions effective August 2009. Subsequent to the conversion to a corporation, Cathedral expects to pay quarterly dividends in the amount of $0.06 per share with the first dividend being for the fourth quarter of 2009 and payable in January 2010. Cathedral expects to use its free cash flow to fund a combination of growth, debt repayment and dividends.
Conversion Approvals
The Board of Trustees has established an independent committee ("Special Committee") to consider the Conversion and provide a recommendation to the overall board. Blackmont Capital Inc. has been appointed financial advisor to the Special Committee and to advise in respect of the Conversion. Based upon the recommendation of the Special Committee, the Board of Trustees has unanimously determined that the Conversion is in the best interests of the Trust and its unitholders. The Conversion is subject to the approval of the court and of 66 2/3% of the votes cast by unitholders of the Trust. The Conversion is also subject to various commercial conditions, including lender consent, the receipt of regulatory approvals which include the approval of The Toronto Stock Exchange.
Operations update
The Trust has established an operations base in Clarksburg, West Virginia to service the Marcellus basin in eastern U.S. Five Measurement-While-Drilling ("MWD") systems have been transferred to this region. Indications are that there is potential for additional systems to be deployed to this region in the near future.
In addition, an operations base is in the process of being set-up in McAlester, Oklahoma, which will house two electric wireline units. As well, five MWD systems are being transferred to this region to service the growing Fayetteville, Haynesville and Woodford shale plays.
Certain statements in this news release including (i) statements that may contain words such as "anticipate", "could", "expect", "seek", "may" "intend", "will", "believe", "should", "project", "forecast", "plan" and similar expressions, including the negatives thereof, (ii) statements that are based on current expectations and estimates about the markets in which the Trust/Cathedral operates and (iii) statements of belief, intentions and expectations about developments, results and events that will or may occur in the future, constitute "forward-looking statements" and are based on certain assumptions and analysis made by the Trust/Cathedral. Forward-looking statements in this news release include, but are not limited to, statements with respect to expected benefits and results that will be achieved from the conversion of the Trust to a corporation, including the nature and timing thereof and expected dividend levels; future capital expenditures including the amount, nature and timing thereof; oil and natural gas prices and demand; other development trends within the oil and natural gas industry; business strategy; expansion and growth of the Trust's/Cathedral's business and operations and other such matters. Such forward-looking statements are subject to important risks and uncertainties, which are difficult to predict and that may affect the Trust's/Cathedral's operations, including, but are not limited to: the impact of general economic conditions; industry conditions; government and regulatory developments; oil and natural gas product supply and demand; competition; and the Trust's/Cathedral's ability to attract and retain qualified personnel. The Trust's/Cathedral's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do transpire or occur, what benefits the Trust/Cathedral will derive therefrom. Subject to applicable law, the Trust disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
All forward-looking statements contained in this document are expressly qualified by this cautionary statement. Further information about the factors affecting forward-looking statements is available in the Trust's current Annual Information Form and Annual Report which have been filed with Canadian provincial securities commissions and are available on www.sedar.com.
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