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Epsilon Reports Second Quarter 2024 Results

HOUSTON, Aug. 13, 2024 (GLOBE NEWSWIRE) -- Epsilon Energy Ltd. (“Epsilon” or the “Company”) (NASDAQ: EPSN) today reported second quarter 2024 financial and operating results.

Second Quarter 2024 Highlights:

Epsilon - Q2 2024      
  Q2 2024Q1 2024Q2 2023QoQ %YoY % 
NRI Production       
GasMMcf1,4071,6662,118-16%-34% 
OilMbbl45371422%223% 
NGLMbbl19161119%69% 
        
Revenues       
Gas$M1,9612,9633,007-34%-35% 
Oil$M3,5142,7151,04629%236% 
NGL$M3883732454%59% 
Midstream1$M1,4441,9362,202-25%-34% 
Total$M7,3087,9876,500-9%12% 
        
Realized Prices2       
Gas$/Mcf1.391.781.42-22%-2% 
Oil$/Bbl78.4474.1375.386%4% 
NGL$/Bbl20.2123.1621.55-13%-6% 
        
Adj. EBITDA$M3,9044,5954,165-15%-6% 
        
Cash + STI3$M9,48115,44736,788-39%-74% 
        
Capex$M5,70921,46612,458-73%-54% 
        
1) Net of gathering fee revenue paid by Epsilon     
2) Excludes impact of hedge realizations      
3) Includes restricted cash balance     
  • Returned $1.4 million to shareholders through the quarterly dividend during the quarter.
  • Realized gains of $0.4 million on Henry Hub (HH) and TGP Z4 basis swaps totaling 690,000 MMBTU, and losses of $0.1 million on WTI CMA swaps totaling 20 MBbls.

Operations Update:

Epsilon’s capital expenditures were $5.7 million for the quarter ended June 30, 2024. This was primarily related to the completion of one gross (0.25 net) well and drilling of one gross (0.25 net) well in Ector Co., Texas.

The Marcellus wells (7 gross) completed in Q1 2024 are not yet turned in line, awaiting better realized natural gas prices. In addition, our operating partner in PA has maintained production curtailments. We estimate that 3.5-4 MMcf per day of NRI production was offline during the quarter.

The Company has six gross (1.5 net) producing wells in Ector Co. Texas. The sixth well was put on production for the last month of the quarter. A seventh well was completed in July and is currently on flowback. Two of the producing wells were offline for 2 weeks during the quarter during completion operations on the sixth well.

Jason Stabell, Epsilon's Chief Executive Officer, commented, “Our Permian assets continue to perform well with strong quarter over quarter increases in oil volumes and revenue, driven by a full quarter of contribution from our first quarter acquisition and one month of production from the sixth well in the Pradera Fuego project. We expect to see additional sequential oil growth in the third quarter with a full quarter of contribution from the sixth well and the seventh well now on flowback and producing over 700 bopd while still cleaning up.  

In PA, natural gas volumes and revenues were down quarter over quarter, as expected, due to continued curtailments and the deferred turn in line on the 7 gross (0.7 net) wells completed in the first quarter. Natural gas prices remain weak and the company has fixed price hedges on approximately 50% of current volumes through the end of the year. As previously disclosed, we executed an amended gathering agreement for the Auburn gas gathering system, further bolstering the asset’s long-term cash flow potential.

Finally, we continue to pursue additional investments in drill bit focused opportunities that meet our return thresholds.

Overall, our business remains well positioned for continued growth in the Permian coupled with material upside for our Marcellus assets next year in an improved natural gas environment. With our recently expanded and undrawn credit facility, cash-flows, and cash on hand we can comfortably continue to pay our dividend and pursue attractive new projects.”

Current Hedge Book:

Hedge Book - as of 8.7.24     
Trade DateProductStructureRefContract StartContract EndPrice / StrikeOutstandingMetric
06/07/24Natural GasSwapsNYMEX Henry Hub (LD)01/01/202503/31/2025$3.70 225,000MMBtu
06/07/24Natural GasSwapsTenn Z4 300L Basis01/01/202503/31/2025$(0.80)225,000MMBtu
04/30/24Natural GasSwapsTenn Z4 300L Basis01/01/202503/31/2025$(0.75)225,000MMBtu
04/30/24Natural GasSwapsNYMEX Henry Hub (LD)01/01/202503/31/2025$3.54 225,000MMBtu
03/28/24Natural GasSwapsNYMEX Henry Hub (LD)11/01/202412/31/2024$3.15 152,500MMBtu
03/05/24Natural GasSwapsTenn Z4 300L Basis11/01/202412/31/2024$(1.04)305,000MMBtu
03/05/24Natural GasSwapsNYMEX Henry Hub (LD)11/01/202412/31/2024$3.28 305,000MMBtu
02/26/24Crude OilSwapsNYMEX WTI CMA03/01/202403/31/2025$74.34 39,168BBL
10/18/23Natural GasSwapsNYMEX Henry Hub (LD)04/01/202410/31/2024$3.29 152,500MMBtu
10/18/23Natural GasSwapsTenn Z4 300L Basis04/01/202410/31/2024$(1.20)152,500MMBtu
09/29/23Natural GasSwapsNYMEX Henry Hub (LD)04/01/202410/31/2024$3.20 305,000MMBtu
09/29/23Natural GasSwapsTenn Z4 300L Basis04/01/202410/31/2024$(1.15)305,000MMBtu
         

Earning’s Call:

The Company will host a conference call to discuss its results on Wednesday, August 14, 2024 at 9:30 a.m. Central Time (10:30 a.m. Eastern Time).
  
Interested parties in the United States and Canada may participate toll-free by dialing (833) 816-1385. International parties may participate by dialing (412) 317-0478. Participants should ask to be joined to the “Epsilon Energy Second Quarter 2024 Earnings Conference Call.”

A webcast can be viewed at: https://event.choruscall.com/mediaframe/webcast.html?webcastid=wNyRpqMC. A webcast replay will be available on the Company’s website (www.epsilonenergyltd.com) following the call.

About Epsilon

Epsilon Energy Ltd. is a North American onshore natural gas and oil production and gathering company with assets in Pennsylvania, Texas, New Mexico, and Oklahoma.

Forward-Looking Statements

Certain statements contained in this news release constitute forward looking statements. The use of any of the words “anticipate”, “continue”, “estimate”, “expect”, ‘may”, “will”, “project”, “should”, ‘believe”, and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated. Forward-looking statements are based on reasonable assumptions, but no assurance can be given that these expectations will prove to be correct and the forward-looking statements included in this news release should not be unduly relied upon.

Contact Information:

281-670-0002

Jason Stabell
Chief Executive Officer
Jason.Stabell@EpsilonEnergyLTD.com

Andrew Williamson
Chief Financial Officer
Andrew.Williamson@EpsilonEnergyLTD.com



EPSILON ENERGY LTD.
Unaudited Consolidated Statements of Operations
(All amounts stated in US$)
             
  Three months ended June 30, Six months ended June 30,
  2024 2023 2024 2023
Revenues from contracts with customers:             
Gas, oil, NGL, and condensate revenue $5,863,370  $4,298,072  $11,914,415  $11,267,653 
Gas gathering and compression revenue  1,444,448   2,202,064   3,380,146   4,588,759 
Total revenue  7,307,818   6,500,136   15,294,561   15,856,412 
             
Operating costs and expenses:            
Lease operating expenses  1,649,867   1,440,521   3,418,329   2,844,800 
Gathering system operating expenses  649,967   570,934   1,202,537   1,222,275 
Depletion, depreciation, amortization, and accretion  2,048,403   1,615,728   4,428,829   3,388,734 
Loss (gain) on sale of oil and gas properties     1,449,871      1,449,871 
General and administrative expenses:            
Stock based compensation expense  313,589   179,748   635,158   359,496 
Other general and administrative expenses  1,478,215   1,596,626   3,037,238   3,620,399 
Total operating costs and expenses  6,140,041   6,853,428   12,722,091   12,885,575 
Operating income (loss)  1,167,777   (353,292)  2,572,470   2,970,837 
             
Other income (expense):            
Interest income  108,943   433,201   375,215   923,963 
Interest expense  (8,759)  (34,422)  (17,519)  (62,859)
(Loss) gain on derivative contracts  (94,891)  628,178   (195,617)  1,696,838 
Other income, net  101,606   3,066   101,073   4,701 
Other income, net  106,899   1,030,023   263,152   2,562,643 
             
Net income before income tax expense  1,274,676   676,731   2,835,622   5,533,480 
Income tax expense  459,016   246,142   513,066   1,573,064 
NET INCOME $815,660  $430,589  $2,322,556  $3,960,416 
Currency translation adjustments  22,229   1,129   22,593   (1,471)
Unrealized gain (loss) on securities  3,011   (47,006)  (1,598)  (47,006)
NET COMPREHENSIVE INCOME $840,900  $384,712  $2,343,551  $3,911,939 
             
Net income per share, basic $0.04  $0.02  $0.11  $0.17 
Net income per share, diluted $0.04  $0.02  $0.11  $0.17 
Weighted average number of shares outstanding, basic  21,921,752   22,749,322   21,957,980   22,869,440 
Weighted average number of shares outstanding, diluted  22,029,475   22,783,987   21,987,142   22,904,922 
             



 EPSILON ENERGY LTD.
Unaudited Consolidated Balance Sheets
(All amounts stated in US$)           
       
  June 30, December 31,
  2024  2023 
ASSETS      
Current assets      
Cash and cash equivalents $8,581,484  $13,403,628 
Accounts receivable  4,944,664   6,015,448 
Short term investments     18,775,106 
Fair value of derivatives  403,992   1,219,025 
Prepaid income taxes  632,531   952,301 
Other current assets  414,736   763,288 
Total current assets  14,977,407   41,128,796 
Non-current assets      
Property and equipment:      
Oil and gas properties, successful efforts method      
Proved properties  185,238,373   160,263,511 
Unproved properties  28,498,028   25,504,873 
Accumulated depletion, depreciation, amortization and impairment  (117,604,188)  (113,708,210)
Total oil and gas properties, net  96,132,213   72,060,174 
Gathering system  42,854,372   42,738,273 
Accumulated depletion, depreciation, amortization and impairment  (35,957,863)  (35,539,996)
Total gathering system, net  6,896,509   7,198,277 
Land  637,764   637,764 
Buildings and other property and equipment, net  281,444   291,807 
Total property and equipment, net  103,947,930   80,188,022 
Other assets:      
Operating lease right-of-use assets, long term  392,792   441,987 
Restricted cash  900,000   470,000 
Prepaid drilling costs  926,827   1,813,808 
Total non-current assets  106,167,549   82,913,817 
Total assets $121,144,956  $124,042,613 
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities      
Accounts payable trade $2,386,055  $3,236,871 
Gathering fees payable  971,599   1,136,237 
Royalties payable  1,196,239   1,422,898 
Accrued capital expenditures  108,216   696,761 
Accrued compensation  416,037   636,295 
Other accrued liabilities  614,231   561,537 
Fair value of derivatives  259,896   118,770 
Operating lease liabilities  103,846   86,473 
Total current liabilities  6,056,119   7,895,842 
Non-current liabilities      
Asset retirement obligations  3,528,208   3,502,952 
Deferred income taxes  11,499,207   11,553,943 
Operating lease liabilities, long term  415,805   476,911 
Total non-current liabilities  15,443,220   15,533,806 
Total liabilities  21,499,339   23,429,648 
Commitments and contingencies (Note 10)      
Shareholders' equity      
Preferred shares, no par value, unlimited shares authorized, none issued or outstanding      
Common shares, no par value, unlimited shares authorized and 21,921,850 shares issued and outstanding at June 30, 2024 and 22,222,722 issued and 22,151,848 shares outstanding at December 31, 2023  116,708,531   118,272,565 
Treasury shares, at cost, 0 at June 30, 2024 and 70,874 at December 31, 2023     (360,326)
Additional paid-in capital  11,509,649   10,874,491 
Accumulated deficit  (38,365,835)  (37,946,042)
Accumulated other comprehensive income  9,793,272   9,772,277 
Total shareholders' equity  99,645,617   100,612,965 
Total liabilities and shareholders' equity $121,144,956  $124,042,613 
       



EPSILON ENERGY LTD.
Unaudited Consolidated Statements of Cash Flows
 (All amounts stated in US$)
  Six months ended June 30, 
  2024 2023 
Cash flows from operating activities:       
Net income $2,322,556  $3,960,416  
Adjustments to reconcile net income to net cash provided by operating activities:       
Depletion, depreciation, amortization, and accretion  4,428,829   3,388,734  
Accretion of discount on available for sale securities  (297,637)  (343,328) 
Gain on available for sale securities     (47,659) 
Loss on sale of oil and gas properties     1,449,871  
Loss (gain) on derivative contracts  195,617   (1,696,838) 
Settlement received on derivative contracts  760,542   1,632,858  
Settlement of asset retirement obligation  (87,284)    
Stock-based compensation expense  635,158   359,496  
Deferred income tax (benefit) expense  (54,736)  230,327  
Changes in assets and liabilities:        
Accounts receivable  1,070,784   2,846,310  
Prepaid income taxes  319,770     
Other assets and liabilities  354,014   425,789  
Accounts payable, royalties payable and other accrued liabilities  (572,099)  (1,910,674) 
Income taxes payable     (93,575) 
Net cash provided by operating activities  9,075,514   10,201,727  
Cash flows from investing activities:       
Additions to unproved oil and gas properties  (2,993,155)  (7,821,248) 
Additions to proved oil and gas properties  (26,425,017)  (5,653,284) 
Additions to gathering system properties  (70,236)  (30,264) 
Additions to land, buildings and property and equipment  (13,912)  (47,933) 
Purchases of short term investments - held to maturity     (32,812,974) 
Purchases of short term investments - available for sale  (4,045,785)    
Proceeds from sales and maturities of short term investments  23,116,930   6,352,473  
Proceeds from sale of oil and gas properties     12,498  
Prepaid drilling costs  886,981     
Net cash used in investing activities  (9,544,194)  (40,000,732) 
Cash flows from financing activities:       
Buyback of common shares  (1,203,708)  (3,054,775) 
Dividends paid  (2,742,349)  (2,828,602) 
Debt issuance costs     (140,000) 
Net cash used in financing activities  (3,946,057)  (6,023,377) 
Effect of currency rates on cash, cash equivalents, and restricted cash  22,593   (1,471) 
Decrease in cash, cash equivalents, and restricted cash  (4,392,144)  (35,823,853) 
Cash, cash equivalents, and restricted cash, beginning of period  13,873,628   45,806,947  
Cash, cash equivalents, and restricted cash, end of period $9,481,484  $9,983,094  
        
Supplemental cash flow disclosures:       
Income taxes paid $131,392  $1,432,000  
Interest paid $  $80,075  
        
Non-cash investing activities:       
Change in proved properties accrued in accounts payable and accrued liabilities $(1,471,985) $72,999  
Change in gathering system accrued in accounts payable and accrued liabilities $45,862  $4,240  
Asset retirement obligation asset additions and adjustments $21,831  $4,640  
        



  Three months ended June 30, Six months ended June 30, 
  2024  2023  2024  2023  
Net income $815,660  $430,589  $2,322,556  $3,960,416  
Add Back:             
Interest income, net  (100,184)  (398,779)  (357,696)  (861,104) 
Income tax expense  459,016   246,142   513,066   1,573,064  
Depreciation, depletion, amortization, and accretion2,048,403   1,615,728   4,428,829   3,388,734  
Stock based compensation expense  313,589   179,748   635,158   359,496  
Gain on sale of assets     1,449,871      1,449,871  
Loss (gain) on derivative contracts net of cash received or paid on settlement  367,148   641,380   956,159   (63,980) 
Foreign currency translation loss     (5)  570   (987) 
Adjusted EBITDA $3,903,632  $4,164,674  $8,498,642  $9,805,510  
              

Epsilon defines Adjusted EBITDA as earnings before (1) net interest expense, (2) taxes, (3) depreciation, depletion, amortization and accretion expense, (4) impairments of natural gas and oil properties, (5) non-cash stock compensation expense, (6) gain or loss on derivative contracts net of cash received or paid on settlement, and (7) other income. Adjusted EBITDA is not a measure of financial performance as determined under U.S. GAAP and should not be considered in isolation from or as a substitute for net income or cash flow measures prepared in accordance with U.S. GAAP or as a measure of profitability or liquidity.

Additionally, Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. Epsilon has included Adjusted EBITDA as a supplemental disclosure because its management believes that EBITDA provides useful information regarding its ability to service debt and to fund capital expenditures. It further provides investors a helpful measure for comparing operating performance on a "normalized" or recurring basis with the performance of other companies, without giving effect to certain non-cash expenses and other items. This provides management, investors and analysts with comparative information for evaluating the Company in relation to other natural gas and oil companies providing corresponding non-U.S. GAAP financial measures or that have different financing and capital structures or tax rates. These non-U.S. GAAP financial measures should be considered in addition to, but not as a substitute for, measures for financial performance prepared in accordance with U.S. GAAP.


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