Resource Equity Partners Sends Open Letter to Shareholders of Cathedral Energy Services Ltd. Detailing Need for Substantial Change

• Resource Equity highlights Cathedral's long trend of underperforming share price and value erosion associated with a lack of leadership and vision; a refreshed Board of Directors and business strategy is required for Cathedral to reach its full potential
• Resource Equity outlines clear, actionable path to share price improvement with proper governance, capital allocation and business strategy
• Actionable path to $2.50+ per share
• Opportunity to build a leading pure play drilling technology business in North America

CALGARY, AB / ACCESSWIRE / April 11, 2023 / Resource Equity Partners ("Resource Equity"), a shareholder of Cathedral Energy Services Ltd. (CET) ("Cathedral" or the "Company") has published a letter highlighting concerns and outlining a path forward to significant value creation for all Cathedral shareholders.

All figures in this news release are expressed in Canadian dollars.

The full text of the letter is set out below.

April 11, 2023

Dear Fellow Shareholders,

Resource Equity Partners ("Resource Equity") is a shareholder of Cathedral Energy Services Ltd. (CET) ("Cathedral" or the "Company") that represents concerned stakeholders holding approximately 8% of Cathedral's issued and outstanding shares.

We believe it is time to share critical information with you relating to our collective investment in Cathedral and believe the board of directors (the "Board") and executive management team ("Executive Team") of Cathedral are withholding information from all of us. After over 10 years of poor share price and financial underperformance, it is time for renewed leadership and a transformational strategy in order for Cathedral to achieve its full potential.

We have attempted to meaningfully engage with the Board and Executive Team on multiple occasions over the past four months around governance and other significant issues relating to the business of Cathedral, but have been met with extreme resistance and have seen no action taken to address our concerns. Cathedral's decision to avoid engagement with a shareholder demonstrates that the Board and Executive Team lack the skills required to drive significant performance improvement and are focused on protecting the status quo. Rather than seeking the expertise required for Cathedral's long-term success, the Board and Executive Team have appeared more focused on job preservation than accepting reality, reinforcing why new stewardship is needed immediately.

IMPORTANT INFORMATION AND TIMELINE

Before we outline a clear and actionable pathway to value creation, it is important to recall key facts and events (all from Cathedral's public disclosure) that have led to value erosion at Cathedral:

Timeline of Key Facts and Events

• October 10, 2013: Cathedral announces the departure of its President and CEO, Mark Bentsen, who is leaving to pursue other opportunities. Share Price: $5.42 / share
• December 19, 2013: Cathedral's announces that its CFO, Scott MacFarlane, will assume the CEO role and he will hold the "Interim CFO" role "until a permanent replacement is selected". Share Price: $5.10 / share
• Q1 2014: Cathedral discontinues Venezuelan operation and records a write-down in the amount of $13.1 million. This is disclosed as a subsequent event in the 2013 annual report. Cathedral announces the complete exit from Venezuela on February 29, 2016, and sells its wholly-owned Venezuelan subsidiary for $0. Share Price: $4.34 / share
• July 7, 2015: Cathedral enters into an agreement with the Canada Revenue Agency regarding its conversion transaction from an income trust back to a corporation, which results in non-cash charge of $10.5 million. Share Price: $1.92 / share
• August 9, 2016: Cathedral announces settlement of United States collective action lawsuits. The settlement amounts were estimated to be in the U.S.$2.9 million range. Share Price: $0.69 / share
• August 29, 2016: Cathedral announces initiation of a strategic alternatives process and in Q4 of 2016 sells its flowback and production testing assets taking a $6.5 million loss. Share Price: $0.40 / share
• October 13, 2020: Cathedral announces the retirement of CEO and "Interim CFO", Scott MacFarlane. Share Price: $0.12 / share
• From 2015 to 2021, the cumulative net income loss is over $100 million.
• Noteworthy, is the erosion of Cathedral's revenue in the U.S. from 2018 to 2021. For comparison purposes we have included the comparative U.S. revenue of Cathedral's nearest competitor PHX Energy Services Corp. ("PHX"). It is unclear from the public disclosure as to the reasons behind Cathedral's U.S. division's revenue degradation.

Cathedral Stock Price Performance (Q1-2011 to Q1-2023)

Key Governance Issues and Board Entrenchment

• Average Board tenure is 13 years. Average Board tenure of the five legacy directors (i.e., the directors elected before 2021) is 18 years. Five of the seven Board members have served for a total of 88 years: Rod Maxwell (23 years), Randy Pustanyk (23 years), Scott Serjeant (20 years), Ian Brown (14 years), and Dale Tremblay (8 years). Three board members are accountants (Maxwell, Brown and Tremblay). Maxwell and Pustanyk also hold Executive Team positions with Cathedral: Executive Chairman and Executive Vice President, respectively. Further, both Maxwell and Pustanyk are highly paid individuals who appear to influence all Board decisions. Tom Connors, President and CEO of Cathedral, is the third member of the Executive Team who is also a member of the Board. As per criteria set out by leading proxy advisory firms, directors who have served for more than 12 years are deemed "stale" and "non-independent". While Institutional Shareholder Services ("ISS"), arguably the world's most influential proxy advisory firm, does not currently have a voting policy relating to director tenure, it has expressed its views on the topic through its QuickScore governance rating system, which states that "limiting director tenure allows new directors to the board to bring fresh perspectives. A tenure of more than nine years is considered to potentially compromise a director's independence and as such QuickScore will consider tenure > 9 years excessive."
• To our knowledge, the Board has made no attempts, and is reluctant, to add female representation to its Board. Never in Cathedral's history has a woman served on the Board. For almost a decade, Cathedral's management information circular has published a "Gender Equality Policy" that has not been executed upon, suggesting the policy is merely "window dressing". Cathedral has not adopted the recommendations on board gender diversity of leading proxy advisory firms, including ISS, that S&P/TSX Composite companies should have at least 30% women board members, or a written gender diversity policy with a commitment to achieve at least 30% women board representation over a reasonable timeframe. ISS will generally recommend withholding votes for the chair of a nominating committee that fails to adopt the foregoing recommendations. Cathedral does not have a nominating committee; however, its Governance Committee is comprised of Scott Sarjeant (Chair) and Ian Brown. Additionally, we direct the Board's attention to the Canadian Coalition for Good Governance's handbook on Building High Performance Boards, and call for a review of the committee charter for the Governance Committee, to ensure compensation and nomination is properly reflected based on modern-day best practices.
• The Board has never appointed or promoted a woman to a Named Executive Officer role, even though we believe highly qualified internal (and external) female candidates are ready for, and should be assuming, key leadership positions at Cathedral.
• Cathedral appears to have no environmental, social, and governance ("ESG") strategy. The Board and CEO are not supportive of issuing an ESG / Sustainability report or any disclosure relating to ESG initiatives and are reluctant to pursue opportunities around energy transition or other opportunities that would reduce carbon and methane emissions. Most public oilfield services companies, including Cathedral's main competitor, PHX, issue ESG reports and disclosure and have a strategy around ESG that is broadly communicated to their shareholders.
• As of April 11, 2023, public disclosure indicates the Board and Executive Team own less than 10% of the issued and outstanding shares of Cathedral, suggesting weak alignment with shareholders.
• Cathedral has had three CFOs over the past 10 months.
• Former CEO, Scott MacFarlane, returned as "Interim CFO" in January 2023, suggesting the Board's desire to keep "legacy people" close.
• On October 26, 2022, the 23-year Chairman of the Board, Rod Maxwell, is appointed to Executive Chairman of Cathedral. This appointment creates a duplication of the lead role within the Executive Team and creates a conflict of interest at the Board level. One of the primary roles of any Board is in the hiring, managing and firing, if necessary, of the CEO which becomes difficult if the Executive Chairman and CEO are aligned in roles and responsibilities. This move also puts into question the competence, skills and capabilities of the CEO as well as undermines the CEO's role within the business.
• According to its public disclosure, Cathedral has made seven acquisitions over the past 21 months. We are concerned that Cathedral lacks both the qualified and knowledgeable people and robust processes and systems to effectively integrate the acquired businesses, as highlighted by its failure to file 2022 audited financial statements before the regulatory deadline established by securities regulators; an embarrassing misstep for a TSX-listed issuer, such as Cathedral.

We are concerned that the poor leadership and governance will persist unless intervention and changes are made immediately. A transformational change at both the Board and Executive Team level is required to drive significant future value for all shareholders and will be in focus at the 2023 annual meeting of shareholders (the "2023 Shareholder Meeting") in order for Cathedral to achieve its full potential.

RESOURCE EQUITY OUTLINES CLEAR AND ACTIONABLE PATHWAY TO VALUE CREATION

Resource Equity highlights why Cathedral is undervalued and why the growth opportunities are ahead with the right plan, combined with enhanced governance and strategic oversight:

1. Board Governance: The Board lacks independence. The five legacy directors should step down immediately and be replaced with qualified individuals who bring the requisite, knowledge, skills and industry experience to execute on a strategic plan that will position Cathedral on a path to long-term value creation for shareholders. We are concerned that the Executive Team will continue to propose nominees who do not represent the best interests of shareholders, due to complacency and a desire for job security. New independent candidates should be nominated for election to the Board with input from key shareholders, and such additions should be based on a detailed skills matrix, highlighting both skills and gaps in the skill set of the Board. Currently we would suggest the Board be designed with the intention of focusing on the business in the U.S., on anticipating institutional shareholder demands for an increased focus on ESG initiatives and with more U.S. public market experience. It is recommended for several of the new Canadian directors to hold their Institute of Corporate Directors Designation (ICD.D) to allow for best practices to be implemented around mitigating risk exposure and ESG initiatives. We would welcome new directors who are capable of working with Cathedral towards achieving this future vision and would encourage the U.S. based Executive Team to lead the process of nominating qualified individuals for Board consideration.
2. Focus on Business Integration; Hold Off on Acquisitions and Dilutive Financings; Continue to Pay Down Long-Term Debt: Over the past 21 months, Cathedral has made 5 acquisitions in Canada and 2 in the U.S., including the transformative acquisition of Altitude Energy Partners, LLC ("Altitude") in July 2022. Cathedral's stated vision to the market is "to pursue increased size and scale early in the cycle". We believe layering acquisitions on top of acquisitions is not a sound strategy. We believe the current focus should be on business integration and operational stability. Further, we believe shareholders do not want to see any dilutive issuances of equity at the current valuations, as most analyst research reports currently target year end value of Cathedral at $2.50 per share, without any further acquisitions or financings. We would also suggest Cathedral continuing to focus on paying down long-term debt (estimated to be around $100 million, including lease liabilities at December 31, 2022) and reducing its overall risk exposure.
3. Focus on Growth of U.S. Operations; Capital Allocation Highly Weighted Towards U.S.: In Cathedral's most recent disclosure, Cathedral mentions it is currently at "28% market share in Canada and 6% market share in the U.S.". Achieving 28% market share in Canada is a noteworthy achievement as it highlights the tremendous quantity of equipment Cathedral has at its disposal in Canada to meet this demand; however, most of this market share is outside of the high margin Montney play, which is the key operational and growth area in Canada, focused on the expansion of Liquified Natural Gas ("LNG"). Additionally, 28% market share is most likely capped due to competitive market forces. Investors should be reminded that Cathedral's growth in profit in Canada will only come from Cathedral growing in the Rotary Steerable System ("RSS") market with a proven RSS and an experienced team. Cathedral currently has neither a proven RSS tool nor an experienced team to exploit this opportunity in Canada making this initiative a high-risk endeavour of capital with a low probability of positive returns. Conversely, in the U.S., Altitude dominates the U.S. market and in particular the Permian basin in Texas with 16 Schlumberger Orbit RSS systems, with significant opportunity to grow its extremely profitable RSS market share. Additionally, margins and returns are also higher in the U.S., the market is 4 times larger and capital return economics are also stronger. We believe over 90% of capital should be allocated towards growth and maintenance of Cathedral's U.S. business.
4. ESG Report: We believe it is in the best interest of shareholders, for the Board to develop a list of ESG priorities and share this plan with shareholders in 2023 and publish its progress against pre-established objectives in 2024. We expect Cathedral to pay attention to the guidance published by leading proxy advisory firms to help Cathedral identify ESG trends, and the Board should proactively address these matters in its public disclosure. Adding Board members with relevant ESG experience is imperative to ensure the business is proactive in positioning Cathedral for the best opportunity to attract the best people, opportunities and capital in both the short and long term.
5. New Corporate Brand and Pursuit of a U.S. Listing: Cathedral's brand is outdated in the marketplace and, based on feedback we have received, most investors associate the Cathedral brand as one which has lost them money, not one that has acted as a fiduciary of their capital. We believe, Altitude is the premium brand, offering the premium service in the premium basin and best possible market. Similar to what Encana Corporation embarked on years ago when it moved from Canada and headquartered its business in Houston, Texas, and changed its name to "Ovintiv", Cathedral should do something similar and adopt "Altitude Energy Partners" as the new operating brand for the combined businesses. Further, we would suggest Cathedral evaluate the merits of obtaining a U.S. listing as a means to further differentiate itself from PHX and to access to much larger market of capital.
6. A Bold New Strategy: We believe Cathedral has a unique opportunity to work towards a vision of being the leading pure play drilling technology business in North America. Instead of Cathedral continuing to focus on how it is to emerge from the shadow of PHX, a competitor to which it has and continues to trade at a discount, Cathedral has an opportunity to set a new strategy for the future and distance itself from the discounted multiple they are plagued with. To do this, Cathedral needs to adapt and evolve in response to the market and needs to position the business around the greatest customer margins and opportunities. This means Cathedral needs to embark on a new strategy to refresh the Board and governance, shift its operations and head office to the United States and focus growth capital exclusively on the U.S. market where the business is able to make the best returns. We believe headquartering the business in Houston, Texas will position Cathedral for better growth opportunities, will position the business under the strongest leaders (being the leadership of Altitude) and will lead to ensuring Cathedral does not degrade and lose their U.S. business due to leadership issues as they did between 2019 and 2021. We believe Cathedral making this move will lead to greater share price appreciation over the short and long term and should immediately if executed on lead to the $2.50 per share target being achieved.
   We believe the Altitude business is the premium business that Cathedral has acquired. Altitude generates 55% to 60% of the cash flow and operates in the best segment of the market (i.e., providing RSS services to the Permian Basin). Altitude also generates the highest revenue and highest margins of any of Cathedral's business segments and has the greatest cash flow opportunity if the Company can backfill what it rents with owned equipment. Further, Altitude's leadership has grown its business from grassroots into one of the largest directional drilling businesses in the U.S. and has one of the best leadership teams the U.S. market has to offer under Lee Harns (U.S. President and CEO) and Tyler Clark (COO). We believe the best path forward is for the Altitude leadership team to be appointed to the leadership of the combined businesses and for Altitude to lead the combined businesses going forward. Hiring a Chief Financial Officer located in Houston, is also recommended, after evaluating the Company's needs and consideration is made for a dual listing in the U.S. It should be noted that the other U.S. business acquired, Discovery Downhole Services Inc., generates the greatest margin percentage through its motor rental business to customers throughout the U.S., and generates 10% to 15% of the cash flow, further warranting a capital and returns focus to the U.S. market. We would also welcome more disclosure around equipment utilization across the business segments as to ensure capital is being allocated to the highest return opportunities.
7. Shareholder Engagement: At every turn, the current Board's approach has been to effectively ignore and consistently refuse meaningful engagement with shareholders. Clear and consistent messaging to shareholders that is transparent, timely and not misleading is a priority. Additionally, we believe a proper investor relations strategy is required and quarterly investor calls should commence immediately. Particularly in a challenging overall market environment, we believe it is imperative to create visibility and proactively engage with the investment community.

Cathedral Misses Regulatory Deadline to File 2022 Annual Financial Statements

Last week Cathedral announced a delay in issuing its 2022 annual financial statements. This is alarming given the potential regulatory implications, inexplicable given Cathedral has three accountants serving on the Board, but unsurprising given the Company has cycled through three CFOs in less than a year. The lack of robust processes and systems across the acquired entities has undoubtedly contributed to this delay.

We believe Cathedral has a significant opportunity to realize its full value potential under the right leadership and we call on the Board to prioritize the best interests of Cathedral's shareholders and other stakeholders.

Resource Equity remains open and available to discussing our concerns in an effort to create the best path forward for all stakeholders.

Sincerely,

Chad Robinson

President, Resource Equity Partners

About Resource Equity Partners

Based in Calgary, Alberta, Resource Equity is a private equity firm founded in 2012 by a team of successful entrepreneurs and executives with a passion for building great teams and companies. We have first-hand industry experience building, operating and monetizing successful energy companies. Our strength is working with entrepreneurs and owners to evolve and expand their businesses with the right strategy, financing and people required to execute the growth plan. We are focused on the energy transition and specifically invest in technology, product and service companies whose attributes are focused on a substantial reduction (and in some cases a complete elimination) of CO₂ and NO_x emissions around the processes of energy extraction.

In March 2023, our shareholder filed a statement of claim against Cathedral for constructive dismissal centered around the addressing of Cathedral's governance issues. Shortly thereafter, a second shareholder resigned from the business in addressing the same governance issues. We reject Cathedral's suggestions that our sustained and repeated attempts to increase shareholder value at Cathedral are motivated by personal grievances related to the shareholder's legal action.

This news release in no way constitutes the solicitation of proxies by Resource Equity or its shareholder for the 2023 Shareholder Meeting.

Contacts:

Chad Robinson
President, Resource Equity Partners
crobinson@resource-ep.com

Alyssa Barry
Media Relations at irlabs
alyssa@irlabs.ca

Cautionary Statement Regarding Forward-Looking Statements

This press release may contain forward-looking information within the meaning of applicable securities laws. In general, forward-looking information refers to disclosure about future conditions, courses of action, and events. All statements contained in this press release that are not clearly historical in nature or that necessarily depend on future events are forward‐looking, and the use of any of the words "anticipates", "believes", "expects", "intends", "plans", "will", "would", and similar expressions are intended to identify forward-looking statements. These statements are based on current expectations of the Resource Equity and currently available information. Forward-looking statements are not guarantees of future performance, involve certain risks and uncertainties that are difficult to predict, and are based upon assumptions as to future events that may not prove to be accurate. Resource Equity undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable securities legislation.

SOURCE: Resource Equity Partners