Epsilon Energy Ltd. (“Epsilon” or the “Company”) (NASDAQ: EPSN) today reported third quarter 2024 financial and operating results.

Third Quarter 2024 Highlights:

Epsilon - Q3 2024          
    Q3 2024 Q2 2024 Q3 2023 QoQ % YoY %
NRI Production            
Gas MMcf 1,304 1,407 1,848 -7 % -29 %
Oil Mbbl 53 45 13 19 % 317 %
NGL Mbbl 17 19 9 -11 % 99 %
             
Revenues            
Gas $M 1,904 1,961 2,089 -3 % -9 %
Oil $M 3,965 3,514 925 13 % 329 %
NGL $M 335 388 228 -14 % 47 %
Midstream1 $M 1,084 1,444 3,069 -25 % -65 %
             
Realized Prices2            
Gas $/Mcf 1.46 1.39 1.13 5 % 29 %
Oil $/Bbl 74.27 78.44 72.27 -5 % 3 %
NGL $/Bbl 19.56 20.21 26.50 -3 % -26 %
             
Adj. EBITDA $M 3,744 3,904 3,925 -4 % -5 %
             
Cash + STI3 $M 8,775 9,481 31,864 -7 % -72 %
             
Capex $M 3,908 5,709 5,284 -32 % -26 %
             
1) Does not include elimination entry for fees paid by Epsilon    
2) Excludes impact of hedge realizations        
3) Includes restricted cash balance        
  • Returned $2.0 million to shareholders through the quarterly dividend and the repurchase of 125,000 shares during the quarter.
  • Realized gains of $0.5 million on Henry Hub (HH) and TGP Z4 basis swaps totaling 690,000 MMBTU, and losses of $0.02 million on WTI CMA swaps totaling 17 MBbls.

Operations Update:

Epsilon’s capital expenditures were $3.9 million for the quarter ended September 30, 2024. These were primarily related to the completion of one gross (0.25 net) well in Ector Co., Texas and the drilling of two gross (1 net) wells in Alberta, Canada.

The Marcellus wells (7 gross) completed in Q1 2024 were not turned in line during the quarter. Three of the seven wells were put on flowback during the last week of October and are now producing approximately 60 MMcf per day gross. Our operating partner in PA has maintained production curtailments. We estimate that 3-4 MMcf per day of NRI production was offline during the quarter.

Jason Stabell, Epsilon's Chief Executive Officer, commented, “We delivered our fourth consecutive quarter of liquids volume, revenue and cash flow growth from our Permian assets continuing to fill the gap while we wait for an improved natural gas pricing environment. In Pennsylvania, we are expecting increased production and cash flow in the fourth quarter and next year aided by improving natural gas fundamentals. Our diversified and growing asset portfolio is well positioned to produce volume and cash flow growth in 2025.

The recently announced entry into Alberta, Canada provides an attractive new area to deploy capital starting in in the fourth quarter. We will provide an update on our 2025 Canadian investment plans once finalized with our operating partner.

Finally, our diversified assets, strong balance sheet and liquidity continue to differentiate us in the small cap energy space.”

Current Hedge Book:

Hedge Book                
Trade Date Product Structure Ref Contract Start Contract End Price / Strike Outstanding Metric
10/07/2024 Crude Oil Swaps NYMEX WTI CMA 04/01/2025 06/30/2025 $ 72.00   7,500 BBL
10/02/2024 Natural Gas Swaps NYMEX Henry Hub (LD) 04/01/2025 10/31/2025 $ 3.23   535,000 MMBtu
10/02/2024 Natural Gas Swaps Tenn Z4 300L Basis 04/01/2025 10/31/2025 $ (1.04 ) 535,000 MMBtu
08/28/2024 Natural Gas Swaps NYMEX Henry Hub (LD) 01/01/2025 03/31/2025 $ 3.18   225,000 MMBtu
08/28/2024 Natural Gas Swaps Tenn Z4 300L Basis 01/01/2025 03/31/2025 $ (0.68 ) 225,000 MMBtu
06/07/2024 Natural Gas Swaps NYMEX Henry Hub (LD) 01/01/2025 03/31/2025 $ 3.70   225,000 MMBtu
06/07/2024 Natural Gas Swaps Tenn Z4 300L Basis 01/01/2025 03/31/2025 $ (0.80 ) 225,000 MMBtu
04/30/2024 Natural Gas Swaps NYMEX Henry Hub (LD) 01/01/2025 03/31/2025 $ 3.54   225,000 MMBtu
04/30/2024 Natural Gas Swaps Tenn Z4 300L Basis 01/01/2025 03/31/2025 $ (0.75 ) 225,000 MMBtu
03/28/2024 Natural Gas Swaps NYMEX Henry Hub (LD) 11/01/2024 12/31/2024 $ 3.15   77,500 MMBtu
03/05/2024 Natural Gas Swaps NYMEX Henry Hub (LD) 11/01/2024 12/31/2024 $ 3.28   155,000 MMBtu
03/05/2024 Natural Gas Swaps Tenn Z4 300L Basis 11/01/2024 12/31/2024 $ (1.04 ) 155,000 MMBtu
02/26/2024 Crude Oil Swaps NYMEX WTI CMA 03/01/2024 03/31/2025 $ 74.34   22,898 BBL
                 

Earning’s Call:

The Company will host a conference call to discuss its results on Thursday, November 7, 2024 at 2:00 p.m. Central Time (3:00 p.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 Third Quarter 2024 Earnings Conference Call.”

A webcast can be viewed at: https://event.choruscall.com/mediaframe/webcast.html?webcastid=S0pmngFY. 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, Alberta CA, 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 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 September 30,   Nine months ended September 30,
    2024     2023     2024     2023  
Revenues from contracts with customers:                        
Gas, oil, NGL, and condensate revenue   $ 6,203,953     $ 3,241,531     $ 18,118,368     $ 14,509,184  
Gas gathering and compression revenue     1,083,988       3,068,996       4,464,134       7,657,755  
Total revenue     7,287,941       6,310,527       22,582,502       22,166,939  
                         
Operating costs and expenses:                        
Lease operating expenses     2,099,501       1,559,957       5,517,830       4,404,757  
Gathering system operating expenses     490,325       631,725       1,692,862       1,854,000  
Depletion, depreciation, amortization, and accretion     2,698,812       1,392,032       7,127,641       4,780,766  
Loss on sale of oil and gas properties     —       —       —       1,449,871  
General and administrative expenses:                        
Stock based compensation expense     309,109       439,653       944,267       799,149  
Other general and administrative expenses     1,449,576       1,540,358       4,486,814       5,160,757  
Total operating costs and expenses     7,047,323       5,563,725       19,769,414       18,449,300  
Operating income     240,618       746,802       2,813,088       3,717,639  
                         
Other income (expense):                        
Interest income     96,220       384,732       471,435       1,308,695  
Interest expense     (53,125 )     (8,760 )     (70,644 )     (71,619 )
Gain (loss) on derivative contracts     440,712       (24,303 )     245,095       1,672,535  
Other income, net     9,994       468       111,067       5,169  
Other income, net     493,801       352,137       756,953       2,914,780  
                         
Net income before income tax expense     734,419       1,098,939       3,570,041       6,632,419  
Income tax expense     368,398       710,164       881,464       2,283,228  
NET INCOME   $ 366,021     $ 388,775     $ 2,688,577     $ 4,349,191  
Currency translation adjustments     39,845       (846 )     62,438       (2,317 )
Unrealized gain (loss) on securities     —       24,641       (1,598 )     (22,365 )
NET COMPREHENSIVE INCOME   $ 405,866     $ 412,570     $ 2,749,417     $ 4,324,509  
                         
Net income per share, basic   $ 0.02     $ 0.02     $ 0.12     $ 0.19  
Net income per share, diluted   $ 0.02     $ 0.02     $ 0.12     $ 0.19  
Weighted average number of shares outstanding, basic     21,948,519       22,118,984       21,954,803       22,616,539  
Weighted average number of shares outstanding, diluted     22,155,292       22,178,686       22,000,881       22,631,550  
                         
EPSILON ENERGY LTD.Unaudited Consolidated Balance Sheets(All amounts stated in US$)
             
    September 30,   December31,
    2024   2023
ASSETS            
Current assets            
Cash and cash equivalents   $ 8,304,971     $ 13,403,628  
Accounts receivable     4,470,017       6,015,448  
Short term investments     —       18,775,106  
Fair value of derivatives     150,121       1,219,025  
Prepaid income taxes     1,020,179       952,301  
Other current assets     865,841       763,288  
Total current assets     14,811,129       41,128,796  
Non-current assets            
Property and equipment:            
Oil and gas properties, successful efforts method            
Proved properties     190,162,954       160,263,511  
Unproved properties     28,292,321       25,504,873  
Accumulated depletion, depreciation, amortization and impairment     (119,981,434 )     (113,708,210 )
Total oil and gas properties, net     98,473,841       72,060,174  
Gathering system     42,988,092       42,738,273  
Accumulated depletion, depreciation, amortization and impairment     (36,221,366 )     (35,539,996 )
Total gathering system, net     6,766,726       7,198,277  
Land     637,764       637,764  
Buildings and other property and equipment, net     269,133       291,807  
Total property and equipment, net     106,147,464       80,188,022  
Other assets:            
Operating lease right-of-use assets, long term     368,564       441,987  
Restricted cash     470,000       470,000  
Prepaid drilling costs     —       1,813,808  
Total non-current assets     106,986,028       82,913,817  
Total assets   $ 121,797,157     $ 124,042,613  
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
Current liabilities            
Accounts payable trade   $ 2,220,394     $ 3,236,871  
Gathering fees payable     844,163       1,136,237  
Royalties payable     1,149,330       1,422,898  
Accrued capital expenditures     1,758,133       696,761  
Accrued compensation     589,620       636,295  
Other accrued liabilities     599,949       561,537  
Fair value of derivatives     50,702       118,770  
Operating lease liabilities     112,502       86,473  
Total current liabilities     7,324,793       7,895,842  
Non-current liabilities            
Asset retirement obligations     3,590,017       3,502,952  
Deferred income taxes     12,138,030       11,553,943  
Operating lease liabilities, long term     385,653       476,911  
Total non-current liabilities     16,113,700       15,533,806  
Total liabilities     23,438,493       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 21,973,687 shares issued and 21,848,687 shares outstanding at September 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, 125,000 at September 30, 2024 and 70,874 at December 31, 2023     (627,500 )     (360,326 )
Additional paid-in capital     11,818,758       10,874,491  
Accumulated deficit     (39,374,242 )     (37,946,042 )
Accumulated other comprehensive income     9,833,117       9,772,277  
Total shareholders' equity     98,358,664       100,612,965  
Total liabilities and shareholders' equity   $ 121,797,157     $ 124,042,613  
             
EPSILON ENERGY LTD.Unaudited Consolidated Statements of Cash Flows(All amounts stated in US$)
             
    Nine months ended September 30,
    2024   2023
Cash flows from operating activities:            
Net income   $ 2,688,577     $ 4,349,191  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depletion, depreciation, amortization, and accretion     7,127,641       4,780,766  
Accretion of discount on available for sale securities     (297,637 )     (574,341 )
Gain on available for sale securities     —       (60,494 )
Loss on sale of oil and gas properties     —       1,449,871  
Gain on derivative contracts     (245,095 )     (1,672,535 )
Settlement received on derivative contracts     1,245,931       2,979,128  
Settlement of asset retirement obligation     (88,992 )     (3,482 )
Stock-based compensation expense     944,267       799,149  
Deferred income tax (benefit) expense     584,088       1,188,059  
Changes in assets and liabilities:            
Accounts receivable     1,545,431       3,195,108  
Prepaid income taxes     (67,878 )     (814,694 )
Other assets and liabilities     (94,360 )     (67,008 )
Accounts payable, royalties payable and other accrued liabilities     (1,520,707 )     (1,191,558 )
Net cash provided by operating activities     11,821,266       14,357,160  
Cash flows from investing activities:            
Additions to unproved oil and gas properties     (2,787,448 )     (8,017,412 )
Additions to proved oil and gas properties     (29,041,344 )     (7,860,073 )
Additions to gathering system properties     (76,625 )     (52,069 )
Additions to land, buildings and property and equipment     (13,912 )     (49,689 )
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       14,554,976  
Proceeds from sale of oil and gas properties     —       12,498  
Prepaid drilling costs     1,813,808       (2,891,250 )
Net cash used in investing activities     (11,034,376 )     (37,115,993 )
Cash flows from financing activities:            
Buyback of common shares     (1,831,208 )     (5,695,275 )
Dividends paid     (4,116,777 )     (4,217,471 )
Debt issuance costs     —       (140,000 )
Net cash used in financing activities     (5,947,985 )     (10,052,746 )
Effect of currency rates on cash, cash equivalents, and restricted cash     62,438       (2,317 )
Decrease in cash, cash equivalents, and restricted cash     (5,098,657 )     (32,813,896 )
Cash, cash equivalents, and restricted cash, beginning of period     13,873,628       45,806,947  
Cash, cash equivalents, and restricted cash, end of period   $ 8,774,971     $ 12,993,051  
             
Supplemental cash flow disclosures:            
Income taxes paid   $ 4,000     $ 1,442,304  
Interest paid   $ 16,832     $ 88,835  
             
Non-cash investing activities:            
Change in proved properties accrued in accounts payable and accrued liabilities   $ 818,504     $ 41,947  
Change in gathering system accrued in accounts payable and accrued liabilities   $ 173,193     $ 3,441  
Asset retirement obligation asset additions and adjustments   $ 39,597     $ 4,640  
             
    Three months ended September 30,   Nine months ended September 30,
    2024   2023   2024   2023
Net income   $ 366,021     $ 388,775     $ 2,688,577     $ 4,349,191  
Add Back:                        
Interest income, net     (43,095 )     (375,972 )     (400,791 )     (1,237,076 )
Income tax expense     368,398       710,164       881,464       2,283,228  
Depreciation, depletion, amortization, and accretion     2,698,812       1,392,032       7,127,641       4,780,766  
Stock based compensation expense     309,109       439,653       944,267       799,149  
Loss on sale of assets     —       —       —       1,449,871  
Loss on derivative contracts net of cash received or paid on settlement     44,677       1,370,573       1,000,836       1,306,593  
Foreign currency translation loss     —       (98 )     570       (1,086 )
Adjusted EBITDA   $ 3,743,922     $ 3,925,127     $ 12,242,564     $ 13,730,636  
                         

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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