Epsilon Reports First Quarter 2024 Results
HOUSTON, May 08, 2024 (GLOBE NEWSWIRE) -- Epsilon Energy Ltd. (“Epsilon” or the “Company”) (NASDAQ: EPSN) today reported first quarter 2024 financial and operating results.
Epsilon’s highlights for first quarter 2024 include:
- Net revenue interest (NRI) total production of 2.0 Bcfe (21.8 MMcfe per day, 16% liquids) for the quarter ended March 31, 2024, a decrease of 11% compared to the prior quarter.
- 1.7 Bcf net revenue interest (NRI) natural gas production, a decrease of 16% compared to the prior quarter
- 44% of the decrease (0.2 Bcf) is attributed to production curtailments in Pennsylvania in response to realized prices
- 36.6 MBbls net revenue interest (NRI) oil production, an increase of 15% compared to the prior quarter
- 16.1 MBbls net revenue interest (NRI) natural gas liquids production, an increase of 25% compared to the prior quarter
- 1.7 Bcf net revenue interest (NRI) natural gas production, a decrease of 16% compared to the prior quarter
- Realized average price of $3.05 per Mcfe excluding hedges ($3.30 per Mcfe including hedges) for the quarter ended March 31, 2024, an increase of 7% (11% including hedges) compared to the prior quarter (driven by higher liquids share, offset by lower liquids realized pricing).
- Average realized price of $1.78 per Mcf for natural gas excluding hedges ($2.10 including hedges), an increase of 1% (11% including hedges) compared to the prior quarter
- Average realized price of $74.13 per Bbl for oil excluding hedges ($72.86 including hedges), a decrease of 9% compared to the prior quarter
- Average realized price of $23.16 per Bbl for natural gas liquids, a decrease of 5% compared to the prior quarter
- Average realized price of $1.78 per Mcf for natural gas excluding hedges ($2.10 including hedges), an increase of 1% (11% including hedges) compared to the prior quarter
- Reported total revenues of $8.0 million for the quarter ended March 31, 2024, a decrease of 7% compared to the prior quarter.
- $6.1 million from natural gas, oil, and NGL sales (excluding hedges), a decrease of 6% compared to the prior quarter
- $1.9 million from gathering and compression fees through our ownership in the Auburn Gas Gathering System, after eliminating revenue earned from Epsilon production ($0.3 million), a decrease of 9% compared to the prior quarter (driven by lower throughput volumes in Auburn)
- $6.1 million from natural gas, oil, and NGL sales (excluding hedges), a decrease of 6% compared to the prior quarter
- Reported Adjusted EBITDA of $4.6 million for the quarter ended March 31, 2024, a decrease of 10% compared to the prior quarter.
- Cash, cash equivalents (including restricted cash), and short term investments totaled $15.4 million at March 31, 2024, a 53% decrease from the prior quarter driven by the February acquisition and increased capital spending.
- Returned $2.6 million to shareholders during the quarter ended March 31, 2024.
- $1.2 million through the repurchase of 248,700 shares at $4.82 per share
- $1.4 million through the quarterly dividend
- A new repurchase program for up to 2,191,320 shares was effective on March 27, 2024 with a one year term
- $1.2 million through the repurchase of 248,700 shares at $4.82 per share
- Realized gains of $0.5 million on Henry Hub (HH) and TGP Z4 basis swaps totaling 525,000 MMBTU, and losses of $0.05 million on WTI CMA swaps totaling 8 MBbls.
Current Hedge Book:
| Hedge Book - as of 05/08/2024 | ||||||||
| Trade Date | Product | Structure | Ref | Contract Start | Contract End | Price/Strike | Outstanding | Metric |
| 4/30/2024 | Natural Gas | Swaps | Tenn Z4 300L Basis | 1/1/2025 | 3/31/2025 | $ (0.75) | 225,000 | MMBtu |
| 4/30/2024 | Natural Gas | Swaps | NYMEX Henry Hub (LD) | 1/1/2025 | 3/31/2025 | $ 3.54 | 225,000 | MMBtu |
| 3/28/2024 | Natural Gas | Swaps | NYMEX Henry Hub (LD) | 11/1/2024 | 12/31/2024 | $ 3.15 | 152,500 | MMBtu |
| 3/5/2024 | Natural Gas | Swaps | Tenn Z4 300L Basis | 11/1/2024 | 12/31/2024 | $ (1.04) | 305,000 | MMBtu |
| 3/5/2024 | Natural Gas | Swaps | NYMEX Henry Hub (LD) | 11/1/2024 | 12/31/2024 | $ 3.28 | 305,000 | MMBtu |
| 2/26/2024 | Crude Oil | Swaps | NYMEX WTI CMA | 3/1/2024 | 3/31/2025 | $ 74.34 | 58,023 | BBL |
| 10/18/2023 | Natural Gas | Swaps | NYMEX Henry Hub (LD) | 4/1/2024 | 10/31/2024 | $ 3.29 | 382,500 | MMBtu |
| 10/18/2023 | Natural Gas | Swaps | Tenn Z4 300L Basis | 4/1/2024 | 10/31/2024 | $ (1.20) | 382,500 | MMBtu |
| 9/29/2023 | Natural Gas | Swaps | NYMEX Henry Hub (LD) | 4/1/2024 | 10/31/2024 | $ 3.20 | 765,000 | MMBtu |
| 9/29/2023 | Natural Gas | Swaps | Tenn Z4 300L Basis | 4/1/2024 | 10/31/2024 | $ (1.15) | 765,000 | MMBtu |
Operations Update:
Epsilon’s capital expenditures were $21.4 million for the quarter ended March 31, 2024. This was primarily related to the Ector Co., Texas acquisition announced on February 27, 2024, the drilling of one gross (0.25 net) well in Ector Co., Texas, and the completion of 7 gross (0.7 net) wells in Susquehanna Co., Pennsylvania.
The recently completed Marcellus wells (7 gross) are not yet turned in line, awaiting better realized natural gas prices. In addition, our operating partner in PA curtailed production in response to low realized gas prices in the first quarter (quantified above). These curtailments continue, and we estimate 4.5 MMcf per day of NRI production is currently offline.
The Company has five producing wells in Ector Co. Texas, effective March 1, following the announced acquisition. A sixth well was recently drilled (in March) and completion operations are underway. A seventh well is currently drilling. The sixth and seventh wells are expected to be on production in late Q2 / early Q3 2024. Two of the producing wells are currently shut-in during the ongoing completion of the sixth well and we estimate they will be offline for 3-4 weeks during the second quarter of 2024 (estimated 200 BOEPD of NRI production).
Jason Stabell, Epsilon's Chief Executive Officer, commented, “Our Permian business continues to perform well. This summer, we expect to have 7 gross wells on production, where we had only 2 on production until March 1. The exciting potential of this business will become clear with the contribution from our continued development activity over the course of this year.
An over-supplied North American natural gas market has continued to weigh on our realized gas pricing. In PA, we support the actions of our operating partner to defer TILs for wells completed during the quarter and selectively curtail production. We expect continued headwinds for natural gas this year. The good news is that the deferred TILs represent an estimated initial 15 MMcf per day of incremental NRI production ready to come on when pricing improves, representing over a 100% increase to our current production levels (which are curtailed by 4-5 MMcf per day). Our hedge position will act as a partial shock absorber in this interim period, with approximately 50% of our forecasted PA natural gas production hedged at ~$2.10 per MMBTU (net realized) through the end of the year, roughly 20% above the forward strip.
Lower PA upstream volumes will also impact our midstream cash flows this year, but at current levels we expect them to continue to support our current dividend payout.
Over the last twelve months we have invested approximately $42 million of our shareholder’s capital (~80% Permian / ~20% PA). Of these expenditures, $29 million either just started to contribute ($12 million for acquired PDP wells, effective March 1) or is not yet contributing to results (undeveloped leasehold, wells in progress or pending TIL). We will see contributions show up and ramp over the next twelve months. Our Permian investments will continue to meaningfully add oil-weighted volumes and cash flows this year while our PA investments stand ready to initially double our natural gas production when prices improve. Importantly, these activities will provide our shareholders attractive rates of return on the invested capital. All of this has been accomplished while maintaining our dividend, repurchasing shares opportunistically and preserving our debt-free balance sheet."
Earning’s Call:
The Company will host a conference call to discuss its results on Thursday, May 9, 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 First Quarter 2024 Earnings Conference Call.”
A webcast can be viewed at: . A webcast replay will be available on the Company’s website () 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
Andrew Williamson
Chief Financial Officer
| EPSILON ENERGY LTD. Unaudited Consolidated Statements of Operations (All amounts stated in US$) | ||||||
| Three months ended March 31, | ||||||
| 2024 | 2023 | |||||
| Revenues from contracts with customers: | ||||||
| Gas, oil, NGL, and condensate revenue | $ | 6,051,045 | $ | 6,969,581 | ||
| Gas gathering and compression revenue | 1,935,698 | 2,386,695 | ||||
| Total revenue | 7,986,743 | 9,356,276 | ||||
| Operating costs and expenses: | ||||||
| Lease operating expenses | 1,768,462 | 1,404,279 | ||||
| Gathering system operating expenses | 552,570 | 651,341 | ||||
| Depletion, depreciation, amortization, and accretion | 2,380,426 | 1,773,006 | ||||
| General and administrative expenses: | ||||||
| Stock based compensation expense | 321,569 | 179,748 | ||||
| Other general and administrative expenses | 1,559,023 | 2,023,773 | ||||
| Total operating costs and expenses | 6,582,050 | 6,032,147 | ||||
| Operating income | 1,404,693 | 3,324,129 | ||||
| Other income (expense): | ||||||
| Interest income | 266,272 | 490,762 | ||||
| Interest expense | (8,760) | (28,437) | ||||
| (Loss) gain on derivative contracts | (100,726) | 1,068,660 | ||||
| Other income (expense), net | (533) | 1,635 | ||||
| Other income, net | 156,253 | 1,532,620 | ||||
| Net income before income tax expense | 1,560,946 | 4,856,749 | ||||
| Income tax expense | 54,050 | 1,326,922 | ||||
| NET INCOME | $ | 1,506,896 | $ | 3,529,827 | ||
| Currency translation adjustments | 364 | (2,600) | ||||
| Unrealized loss on securities | (4,609) | — | ||||
| NET COMPREHENSIVE INCOME | $ | 1,502,651 | $ | 3,527,227 | ||
| Net income per share, basic | $ | 0.07 | $ | 0.15 | ||
| Net income per share, diluted | $ | 0.07 | $ | 0.15 | ||
| Weighted average number of shares outstanding, basic | 21,994,207 | 22,990,893 | ||||
| Weighted average number of shares outstanding, diluted | 21,994,207 | 23,027,684 | ||||
| EPSILON ENERGY LTD. Unaudited Consolidated Balance Sheets (All amounts stated in US$) | ||||||
| March 31, | December 31, | |||||
| 2024 | 2023 | |||||
| ASSETS | ||||||
| Current assets | ||||||
| Cash and cash equivalents | $ | 2,308,633 | $ | 13,403,628 | ||
| Accounts receivable | 5,061,734 | 6,015,448 | ||||
| Short term investments | 12,238,177 | 18,775,106 | ||||
| Fair value of derivatives | 1,347,512 | 1,219,025 | ||||
| Prepaid income taxes | 1,020,702 | 952,301 | ||||
| Other current assets | 619,542 | 763,288 | ||||
| Total current assets | 22,596,300 | 41,128,796 | ||||
| Non-current assets | ||||||
| Property and equipment: | ||||||
| Oil and gas properties, successful efforts method | ||||||
| Proved properties | 180,452,860 | 160,263,511 | ||||
| Unproved properties | 28,593,071 | 25,504,873 | ||||
| Accumulated depletion, depreciation, amortization and impairment | (115,782,946) | (113,708,210) | ||||
| Total oil and gas properties, net | 93,262,985 | 72,060,174 | ||||
| Gathering system | 42,757,299 | 42,738,273 | ||||
| Accumulated depletion, depreciation, amortization and impairment | (35,788,907) | (35,539,996) | ||||
| Total gathering system, net | 6,968,392 | 7,198,277 | ||||
| Land | 637,764 | 637,764 | ||||
| Buildings and other property and equipment, net | 287,524 | 291,807 | ||||
| Total property and equipment, net | 101,156,665 | 80,188,022 | ||||
| Other assets: | ||||||
| Operating lease right-of-use assets, long term | 417,268 | 441,987 | ||||
| Restricted cash | 900,000 | 470,000 | ||||
| Prepaid drilling costs | — | 1,813,808 | ||||
| Total non-current assets | 102,473,933 | 82,913,817 | ||||
| Total assets | $ | 125,070,233 | $ | 124,042,613 | ||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
| Current liabilities | ||||||
| Accounts payable trade | $ | 3,215,137 | $ | 3,236,871 | ||
| Gathering fees payable | 667,014 | 1,136,237 | ||||
| Royalties payable | 1,201,478 | 1,422,898 | ||||
| Accrued capital expenditures | 2,706,951 | 696,761 | ||||
| Accrued compensation | 212,892 | 636,295 | ||||
| Other accrued liabilities | 732,593 | 561,537 | ||||
| Fair value of derivatives | 836,268 | 118,770 | ||||
| Operating lease liabilities | 95,170 | 86,473 | ||||
| Total current liabilities | 9,667,503 | 7,895,842 | ||||
| Non-current liabilities | ||||||
| Asset retirement obligations | 3,562,486 | 3,502,952 | ||||
| Deferred income taxes | 11,530,950 | 11,553,943 | ||||
| Operating lease liabilities, long term | 446,226 | 476,911 | ||||
| Total non-current liabilities | 15,539,662 | 15,533,806 | ||||
| Total liabilities | 25,207,165 | 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 21,913,202 shares issued and outstanding at March 31, 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 March 31, 2024 and 70,874 at December 31, 2023 | — | (360,326) | ||||
| Additional paid-in capital | 11,196,060 | 10,874,491 | ||||
| Accumulated deficit | (37,809,555) | (37,946,042) | ||||
| Accumulated other comprehensive income | 9,768,032 | 9,772,277 | ||||
| Total shareholders' equity | 99,863,068 | 100,612,965 | ||||
| Total liabilities and shareholders' equity | $ | 125,070,233 | $ | 124,042,613 | ||
| EPSILON ENERGY LTD. Unaudited Consolidated Statements of Cash Flows (All amounts stated in US$) | ||||||
| Three months ended March 31, | ||||||
| 2024 | 2023 | |||||
| Cash flows from operating activities: | ||||||
| Net income | $ | 1,506,896 | $ | 3,529,827 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Depletion, depreciation, amortization, and accretion | 2,380,426 | 1,773,006 | ||||
| Accretion of discount on available for sale securities | (216,180) | — | ||||
| Loss (gain) on derivative contracts | 100,726 | (1,068,660) | ||||
| Settlement received on derivative contracts | 488,285 | 363,300 | ||||
| Settlement of asset retirement obligation | (1,653) | — | ||||
| Stock-based compensation expense | 321,569 | 179,748 | ||||
| Deferred income tax expense (benefit) | (22,993) | (12,108) | ||||
| Changes in assets and liabilities: | ||||||
| Accounts receivable | 953,714 | 2,396,066 | ||||
| Prepaid income taxes | (68,401) | — | ||||
| Other assets and liabilities | 146,477 | 143,646 | ||||
| Accounts payable, royalties payable and other accrued liabilities | (1,897,438) | (1,062,898) | ||||
| Income taxes payable | — | 1,336,225 | ||||
| Net cash provided by operating activities | 3,691,428 | 7,578,152 | ||||
| Cash flows from investing activities: | ||||||
| Additions to unproved oil and gas properties | (3,088,198) | (106,069) | ||||
| Additions to proved oil and gas properties | (17,226,449) | (621,132) | ||||
| Additions to gathering system properties | (22,650) | (12,423) | ||||
| Additions to land, buildings and property and equipment | (7,681) | (42,703) | ||||
| Purchases of short term investments - available for sale | (4,045,785) | (30,138,743) | ||||
| Proceeds from sales and maturities of short term investments | 10,794,285 | — | ||||
| Prepaid drilling costs | 1,813,808 | — | ||||
| Net cash used in investing activities | (11,782,670) | (30,921,070) | ||||
| Cash flows from financing activities: | ||||||
| Buyback of common shares | (1,203,708) | (1,367,425) | ||||
| Dividends paid | (1,370,409) | (1,412,455) | ||||
| Net cash used in financing activities | (2,574,117) | (2,779,880) | ||||
| Effect of currency rates on cash, cash equivalents, and restricted cash | 364 | (2,600) | ||||
| (Decrease) increase in cash, cash equivalents, and restricted cash | (10,664,995) | (26,125,398) | ||||
| Cash, cash equivalents, and restricted cash, beginning of period | 13,873,628 | 45,806,947 | ||||
| Cash, cash equivalents, and restricted cash, end of period | $ | 3,208,633 | $ | 19,681,549 | ||
| Supplemental cash flow disclosures: | ||||||
| Interest paid | $ | — | $ | 17,216 | ||
| Non-cash investing activities: | ||||||
| Change in proved properties accrued in accounts payable and accrued liabilities | $ | 2,946,528 | $ | 375,242 | ||
| Change in gathering system accrued in accounts payable and accrued liabilities | $ | (3,624) | $ | 9,201 | ||
| Asset retirement obligation asset additions and adjustments | $ | 16,372 | $ | 736 | ||
| Three months ended March 31, | ||||||
| 2024 | 2023 | |||||
| Net income | $ | 1,506,896 | $ | 3,529,827 | ||
| Add Back: | ||||||
| Interest (income) expense, net | (257,512) | (462,325) | ||||
| Income tax expense | 54,050 | 1,326,922 | ||||
| Depreciation, depletion, amortization, and accretion | 2,380,426 | 1,773,006 | ||||
| Stock based compensation expense | 321,569 | 179,748 | ||||
| Gain (loss) on sale of assets | — | — | ||||
| Loss (gain) on derivative contracts net of cash received or paid on settlement | 589,011 | (705,360) | ||||
| Foreign currency translation loss | 570 | (983) | ||||
| Adjusted EBITDA | $ | 4,595,010 | $ | 5,640,835 | ||
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.
