Epsilon Energy Ltd. (“
Epsilon” or the
“
Company”) (NASDAQ: EPSN) today reported first
quarter 2023 financial and operating results along with the
announcement of a new transaction.
First Quarter Financial
Highlights:
- Reported net revenue interest (NRI)
production of 2.5 Bcfe (27.3 MMcfe per day) for the quarter ended
March 31, 2023
- Realized average price of $2.98 per
Mcfe including hedges ($2.83 per Mcfe excluding hedges) for the
quarter ended March 31, 2023
- Delivered total revenues of $9.4 million for the quarter ended
March 31, 2023, a decrease of 39% compared to the prior quarter.
- $7.0 million from natural gas, oil,
and NGL sales;
- $2.4 million from gathering and
compression fees through our ownership in the Auburn Gas Gathering
System, after eliminating revenue earned from Epsilon production
($0.4 million);
- Reported Adjusted EBITDA of $5.6
million for the quarter ended March 31, 2023.
- Reported free cash flow (FCF)
before changes in working capital of $3.6 million for the quarter
ended March 31, 2023
- Cash, cash equivalents (including
restricted cash), and short term investments totaled $49.8 million
at March 31, 2023, an increase of 9% compared to December 31,
2022.
- Returned $2.8 million to
shareholders during the quarter ended March 31, 2023
- $1.4 million through the repurchase
of 237,920 shares (average price of $5.72 per share), representing
a 1% reduction of shares outstanding
- $1.4 million through dividends
- An additional 70,406 shares were
purchased after the quarter end (average price of $5.35 per
share)
- 2.2 million shares remain under the
approved buyback (expires March 2024)
- Realized gains of $0.4 million on
Henry Hub (HH) and TGP Z4 basis swaps totaling 150,000 MMBTU. The
current unrealized gain on the remaining hedge book for 2023 is
over $1.9 million at March 31, 2023.
First Quarter Operating
Results:
Epsilon’s capital expenditures were $1.2 million
for the quarter ended March 31, 2023. This capital was primarily
related to the completion of two gross (0.02 net) Marcellus wells
and the continuation of drilling one gross (0.11 net) well in
Oklahoma.
At March 31, 2023, the Company has one gross
(0.11 net) Oklahoma well waiting on completion.
Recent Transaction:
Epsilon is pleased to announce the closing of a
drilling focused transaction with a private operator in the Permian
Basin.
Epsilon acquired a 10% wellbore interest in two
wells recently drilled and completed by a Houston-based private
operator. The wells are located in Eddy County, New Mexico in the
Northern Delaware Basin and were completed in the Wolfcamp A and C
formations. The wells are currently on flow-back. Total capital
expenditures (net to Epsilon) are estimated at $2.1 million.
Jason Stabell, Epsilon’s Chief Executive
Officer, commented, “We delivered strong results in the first
quarter. In a challenging commodity price environment we grew our
cash balance 9% to $50 million while simultaneously returning $2.8
million to shareholders in dividends and buybacks.
We are excited to announce a development-focused
transaction in a new project area in the Permian Basin, partnered
with a basin-focused operator whose principals have a long
operating history. We see this as a first step toward our growth
objectives and a blueprint for future transactions.
Epsilon’s strong balance sheet, diversified
(upstream/midstream) revenue stream and large liquidity position,
keep us well positioned to create value for our shareholders in
this uncertain economic environment.”
Earning’s Call
The Company will host a conference call to
discuss its results on Thursday, May 11, 2023 at 10:00 a.m. Central
Time (11:00 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 First
Quarter 2023 Earnings Conference Call”
A webcast can be viewed at:
https://event.choruscall.com/mediaframe/webcast.html?webcastid=b7kL4WcF.
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 on-shore
focused independent exploration and production company engaged in
the acquisition, development, gathering and production of oil and
gas reserves. Our primary area of operation is the Marcellus basin
in Northeast Pennsylvania. For more information, please visit
www.epsilonenergyltd.com, where we routinely post announcements,
updates, events, investor information, presentations and recent
news releases.
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 StabellChief Executive
OfficerJason.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 March 31, |
|
|
2023 |
|
|
2022 |
|
Revenues from contracts with customers: |
|
|
|
|
|
|
Gas, oil, NGL, and condensate revenue |
|
$ |
6,969,581 |
|
|
$ |
11,479,325 |
|
Gas gathering and compression revenue |
|
|
2,386,695 |
|
|
|
2,120,773 |
|
Total revenue |
|
|
9,356,276 |
|
|
|
13,600,098 |
|
|
|
|
|
|
|
|
Operating costs and expenses: |
|
|
|
|
|
|
Lease operating expenses |
|
|
1,404,279 |
|
|
|
1,405,490 |
|
Gathering system operating expenses |
|
|
651,341 |
|
|
|
524,375 |
|
Development geological and geophysical expenses |
|
|
|
|
|
|
2,386 |
|
Depletion, depreciation, amortization, and accretion |
|
|
1,773,006 |
|
|
|
1,389,219 |
|
General and administrative expenses: |
|
|
- |
|
|
|
|
Stock based compensation expense |
|
|
179,748 |
|
|
|
142,302 |
|
Other general and administrative expenses |
|
|
2,023,773 |
|
|
|
1,171,132 |
|
Total operating costs and expenses |
|
|
6,032,147 |
|
|
|
4,634,904 |
|
Operating income |
|
|
3,324,129 |
|
|
|
8,965,194 |
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
Interest income |
|
|
490,762 |
|
|
|
15,221 |
|
Interest expense |
|
|
(28,437 |
) |
|
|
(15,319 |
) |
Gain (loss) on derivative contracts |
|
|
1,068,660 |
|
|
|
(971,904 |
) |
Other income (expense) |
|
|
1,635 |
|
|
|
(5,406 |
) |
Other income (expense), net |
|
|
1,532,620 |
|
|
|
(977,408 |
) |
|
|
|
|
|
|
|
Net
income before income tax expense |
|
|
4,856,749 |
|
|
|
7,987,786 |
|
Income tax expense |
|
|
1,326,922 |
|
|
|
2,181,898 |
|
NET
INCOME |
|
$ |
3,529,827 |
|
|
$ |
5,805,888 |
|
Currency translation adjustments |
|
|
(2,600 |
) |
|
|
5,402 |
|
NET
COMPREHENSIVE INCOME |
|
$ |
3,527,227 |
|
|
$ |
5,811,290 |
|
|
|
|
|
|
|
|
Net
income per share, basic |
|
$ |
0.15 |
|
|
$ |
0.25 |
|
Net
income per share, diluted |
|
$ |
0.15 |
|
|
$ |
0.24 |
|
Weighted average number of shares outstanding,
basic |
|
|
22,990,893 |
|
|
|
23,677,842 |
|
Weighted average number of shares outstanding,
diluted |
|
|
23,027,684 |
|
|
|
23,862,428 |
|
|
|
|
|
|
|
|
EPSILON ENERGY LTD.Unaudited
Consolidated Balance Sheets (All amounts stated in
US$)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, |
|
December
31, |
|
|
|
2023 |
|
|
2022 |
|
|
ASSETS |
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
19,110,225 |
|
|
$ |
45,236,584 |
|
|
Accounts receivable |
|
|
4,805,320 |
|
|
|
7,201,386 |
|
|
Short term investments |
|
|
30,138,743 |
|
|
|
- |
|
|
Fair value of derivatives |
|
|
1,927,450 |
|
|
|
1,222,090 |
|
|
Prepaid income taxes |
|
|
- |
|
|
|
1,140,094 |
|
|
Other current assets |
|
|
496,731 |
|
|
|
632,154 |
|
|
Operating lease right-of-use assets |
|
|
- |
|
|
31,383 |
|
|
Total current assets |
|
|
56,478,469 |
|
|
|
55,463,691 |
|
|
Non-current assets |
|
|
|
|
|
|
|
Property and equipment: |
|
|
|
|
|
|
|
Oil and gas properties, successful efforts method |
|
|
|
|
|
|
|
Proved properties |
|
|
149,323,372 |
|
|
|
148,326,265 |
|
|
Unproved properties |
|
|
18,275,226 |
|
|
|
18,169,157 |
|
|
Accumulated depletion, depreciation, amortization and
impairment |
|
|
(109,194,701 |
) |
|
|
(107,729,293 |
) |
|
Total oil and gas properties, net |
|
|
58,403,897 |
|
|
|
58,766,129 |
|
|
Gathering system |
|
|
42,660,626 |
|
|
|
42,639,001 |
|
|
Accumulated depletion, depreciation, amortization and
impairment |
|
|
(34,778,321 |
) |
|
|
(34,500,740 |
) |
|
Total gathering system, net |
|
|
7,882,305 |
|
|
|
8,138,261 |
|
|
Land |
|
|
637,764 |
|
|
|
637,764 |
|
|
Buildings and other property and equipment, net |
|
|
318,805 |
|
|
|
286,035 |
|
|
Total property and equipment, net |
|
|
67,242,771 |
|
|
|
67,828,189 |
|
|
Other assets: |
|
|
|
|
|
|
|
Operating lease right-of-use assets, long term |
|
|
532,013 |
|
|
|
- |
|
|
Restricted cash |
|
|
571,324 |
|
|
|
570,363 |
|
|
Total non-current assets |
|
|
68,346,108 |
|
|
|
68,398,552 |
|
|
Total assets |
|
$ |
124,824,577 |
|
|
$ |
123,862,243 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Accounts payable trade |
|
$ |
1,900,847 |
|
|
$ |
1,695,353 |
|
|
Gathering fees payable |
|
|
867,533 |
|
|
|
935,012 |
|
|
Royalties payable |
|
|
1,898,177 |
|
|
|
2,223,043 |
|
|
Income taxes payable |
|
|
196,131 |
|
|
|
- |
|
|
Accrued capital expenditures |
|
|
348,135 |
|
|
|
41,694 |
|
|
Accrued compensation |
|
|
233,172 |
|
|
|
598,351 |
|
|
Other accrued liabilities |
|
|
257,788 |
|
|
|
690,655 |
|
|
Operating lease liabilities |
|
|
2,756 |
|
|
|
35,299 |
|
|
Total current liabilities |
|
|
5,704,539 |
|
|
|
6,219,407 |
|
|
Non-current liabilities |
|
|
|
|
|
|
|
Asset retirement obligations |
|
|
2,801,056 |
|
|
|
2,780,237 |
|
|
Deferred income taxes |
|
|
10,605,286 |
|
|
|
10,617,394 |
|
|
Operating lease liabilities, long term |
|
|
541,396 |
|
|
|
- |
|
|
Total non-current liabilities |
|
|
13,947,738 |
|
|
|
13,397,631 |
|
|
Total liabilities |
|
|
19,652,277 |
|
|
|
19,617,038 |
|
|
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
22,926,444 shares issued and 22,879,224 shares outstanding at March
31, 2023 and 23,117,144 issued and outstanding at December 31,
2022 |
|
|
122,789,659 |
|
|
|
123,904,965 |
|
|
Treasury shares, at cost, 47,220 at March 31, 2023 and 0 at
December 31, 2022 |
|
|
(252,119 |
) |
|
|
- |
|
|
Additional paid-in capital |
|
|
10,035,977 |
|
|
|
9,856,229 |
|
|
Accumulated deficit |
|
|
(37,173,168 |
) |
|
|
(39,290,540 |
) |
|
Accumulated other comprehensive income |
|
|
9,771,951 |
|
|
|
9,774,551 |
|
|
Total shareholders' equity |
|
|
105,172,300 |
|
|
|
104,245,205 |
|
|
Total liabilities and shareholders' equity |
|
$ |
124,824,577 |
|
|
$ |
123,862,243 |
|
|
|
|
|
|
|
|
|
|
EPSILON ENERGY LTD.Unaudited
Consolidated Statements of Cash Flows (All amounts
stated in US$)
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
|
Cash
flows from operating activities: |
|
|
|
|
|
|
|
Net income |
|
$ |
3,529,827 |
|
|
$ |
5,805,888 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
Depletion, depreciation, amortization, and accretion |
|
|
1,773,006 |
|
|
|
1,389,219 |
|
|
(Gain) loss on derivative contracts |
|
|
(1,068,660 |
) |
|
|
971,904 |
|
|
Settlement received (paid) on derivative contracts |
|
|
363,300 |
|
|
|
(1,211,728 |
) |
|
Settlement of asset retirement obligation |
|
|
- |
|
|
|
(73,998 |
) |
|
Stock-based compensation expense |
|
|
179,748 |
|
|
|
142,302 |
|
|
Deferred income tax expense (benefit) |
|
|
(12,108 |
) |
|
|
22,686 |
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
|
2,396,066 |
|
|
|
(1,871,330 |
) |
|
Other assets and liabilities |
|
|
143,646 |
|
|
|
104,177 |
|
|
Accounts payable, royalties payable and other accrued
liabilities |
|
|
(1,062,898 |
) |
|
|
267,058 |
|
|
Income taxes payable |
|
|
1,336,225 |
|
|
|
2,157,292 |
|
|
Net
cash provided by operating activities |
|
|
7,578,152 |
|
|
|
7,703,470 |
|
|
Cash
flows from investing activities: |
|
|
|
|
|
|
|
Additions to unproved oil and gas properties |
|
|
(106,069 |
) |
|
|
(92,600 |
) |
|
Additions to proved oil and gas properties |
|
|
(621,132 |
) |
|
|
(2,771,925 |
) |
|
(Additions) disposals to gathering system properties |
|
|
(12,423 |
) |
|
|
3,612 |
|
|
Additions to land, buildings and property and equipment |
|
|
(42,703 |
) |
|
|
- |
|
|
Purchases of short term investments |
|
|
(30,138,743 |
) |
|
|
- |
|
|
Net
cash used in investing activities |
|
|
(30,921,070 |
) |
|
|
(2,860,913 |
) |
|
Cash
flows from financing activities: |
|
|
|
|
|
|
|
Buyback of common shares |
|
|
(1,367,425 |
) |
|
|
- |
|
|
Exercise of stock options |
|
|
- |
|
|
|
209,312 |
|
|
Dividends paid |
|
|
(1,412,455 |
) |
|
|
(1,483,027 |
) |
|
Net
cash used in financing activities |
|
|
(2,779,880 |
) |
|
|
(1,273,715 |
) |
|
Effect of currency rates on cash, cash equivalents, and restricted
cash |
|
|
(2,600 |
) |
|
|
5,402 |
|
|
(Decrease) increase in cash, cash equivalents, and restricted
cash |
|
|
(26,125,398 |
) |
|
|
3,574,244 |
|
|
Cash, cash equivalents, and restricted cash, beginning of
period |
|
|
45,806,947 |
|
|
|
27,065,423 |
|
|
Cash, cash equivalents, and restricted cash, end of
period |
|
$ |
19,681,549 |
|
|
$ |
30,639,667 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures: |
|
|
|
|
|
|
|
Interest paid |
|
$ |
17,216 |
|
|
$ |
17,501 |
|
|
|
|
|
|
|
|
|
|
Non-cash investing activities: |
|
|
|
|
|
|
|
Change in
proved properties accrued in accounts payable and accrued
liabilities |
|
$ |
375,242 |
|
|
$ |
(253,632 |
) |
|
Change in
gathering system accrued in accounts payable and accrued
liabilities |
|
$ |
9,201 |
|
|
$ |
19,005 |
|
|
Asset
retirement obligation asset additions and adjustments |
|
$ |
736 |
|
|
$ |
6,684 |
|
|
|
|
|
|
|
|
|
|
EPSILON ENERGY LTD.Adjusted
EBITDA Reconciliation (All amounts stated in
US$)
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
|
Net
income |
|
$ |
3,529,827 |
|
|
$ |
5,805,888 |
|
|
Add Back: |
|
|
|
|
|
|
|
Interest (income) expense, net |
|
|
(462,325 |
) |
|
|
98 |
|
|
Income tax expense |
|
|
1,326,922 |
|
|
|
2,181,898 |
|
|
Depreciation, depletion, amortization, and accretion |
|
|
1,773,006 |
|
|
|
1,389,219 |
|
|
Stock based compensation expense |
|
|
179,748 |
|
|
|
142,302 |
|
|
Gain on derivative contracts net of cash received or paid on
settlement |
|
|
(705,360 |
) |
|
|
(239,824 |
) |
|
Foreign currency translation loss |
|
|
(983 |
) |
|
|
5,402 |
|
|
Adjusted EBITDA |
|
$ |
5,640,835 |
|
|
$ |
9,284,983 |
|
|
|
|
|
|
|
|
|
|
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.
EPSILON ENERGY LTD.Free Cash
Flow Reconciliation (All amounts stated in
US$)
|
|
Three months ended March 31 |
|
|
2023 |
|
|
2022 |
|
Net cash
provided by operating activities |
|
$ |
7,578,152 |
|
|
$ |
7,703,470 |
|
Less: Net
cash used in investing activities (Capital Expenditures) |
|
|
(782,327 |
) |
|
|
(2,860,913 |
) |
Free cash flow |
|
$ |
6,795,825 |
|
|
$ |
4,842,557 |
|
Changes in
working capital |
|
|
(3,197,481 |
) |
|
|
4,839,153 |
|
Free cash flow before Changes in Working
Capital |
|
$ |
3,598,344 |
|
|
$ |
9,681,710 |
|
|
|
|
|
|
|
|
Epsilon defines Free Cash Flow (“FCF”) as net
cash provided by operating activities in the period minus payments
for property and equipment made in the period, adjusted to exclude
changes in working capital. FCF is considered a non-GAAP financial
measure under the SEC’s rules. Management believes, however, that
FCF is an important financial measure for use in evaluating the
Company’s financial performance, as it measures our ability to
generate additional cash from our business operations. FCF should
be considered in addition to, rather than as a substitute for, net
income as a measure of our performance or net cash provided by
operating activities as a measure of our liquidity. Additionally,
our definition of FCF is limited and does not represent residual
cash flows available for discretionary expenditures due to the fact
that the measure does not deduct the payments required for debt
service and other obligations, payments made for business
acquisitions, amounts spent to buy back shares, or pay dividends.
Therefore, we believe it is important to view FCF as supplemental
to our entire statement of cash flows
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