General and Administrative (“G&A”)
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| | Three months ended March 31, |
| | 2023 | | 2022 |
General and administrative | | $ | 2,203,521 | | $ | 1,313,434 |
G&A expenses consist of general corporate expenses such as compensation, legal, accounting and professional fees, consulting services, travel and other related corporate costs such as stock options granted and restricted shares of stock granted and the related non-cash compensation.
G&A expenses increased by $0.9 million, or 68%, during the three months ended March 31, 2023 from 2022. This was primarily due to $0.4 million in compensation associated with management transition, $0.1 million in legal fees related to the complaint filed against Chesapeake, $0.2 million in other service fees, and $0.2 million in other miscellaneous G&A.
Loss on Derivative Contracts
| | | | | | |
| | Three months ended March 31, |
| | 2023 | | 2022 |
Gain (loss) on derivative contracts | | $ | 1,068,660 | | $ | (971,904) |
For the three months ended March 31, 2023 and 2022, Epsilon was entered into NYMEX Henry Hub (“HH”) Natural Gas Futures swaps and Tennessee basis swap derivative contracts for the purpose of hedging its physical natural gas sales revenue. During the three months ended March 31, 2023, we received net cash settlements of $363,300. During the three months ended March 31, 2022, we paid net cash settlements of $1,211,728.
For the three months ended March 31, 2023, realized gains on derivative contracts increased as the NYMEX Henry Hub Natural Gas Futures prices decreased further from the prices at which the Company sold the Henry Hub swaps. As of March 31, 2023, the Company had no derivative contracts beyond December 31, 2023.
Capital Resources and Liquidity
Cash Flow
The primary source of cash for Epsilon during the three months ended March 31, 2023 and 2022 was funds generated from operations. The primary uses of cash for the three months ended March 31, 2023 were development of natural gas properties, investment in U.S. Treasury Notes, the repurchase of shares of common stock, and the distribution of dividends. The primary uses of cash for the three months ended March 31, 2022 were development of natural gas properties and the distribution of dividends.
At March 31, 2023, we had a working capital surplus of $50.8 million, an increase of $1.6 million over the $49.2 million surplus at December 31, 2022. The Company anticipates its current cash balance, cash flows from operations, and available sources of liquidity to be sufficient to meet its cash requirements for the next twelve months and beyond.
Three months ended March 31, 2023 compared to 2022
During the three months ended March 31, 2023, $7.6 million was provided by the Company’s operating activities, compared to $7.7 million provided during the same period in 2022, a $0.1 million, and 2% decrease.
The Company used $30.9 million and $2.9 million of cash for investing activities during the three months ended March 31, 2023 and 2022, respectively. The Company invested $30,1 million in U.S Treasury Notes and $0.8 million on leasehold and development costs targeting increasing production in Pennsylvania and Oklahoma.