Epsilon Reports Third Quarter 2024 Results

About this update from Epsilon Energy Ltd.

HOUSTON , Nov. 06, 2024 (GLOBE NEWSWIRE) -- 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 Stabell Chief Executive Officer [email protected] Andrew Williamson Chief Financial Officer [email protected] 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. Source: Epsilon Energy Ltd.

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