Epsilon Reports Third Quarter 2023 Results
November 09 2023 - 4:05PM
Epsilon Energy Ltd. (“
Epsilon” or the
“
Company”) (NASDAQ: EPSN) today reported third
quarter 2023 financial and operating results.
Third Quarter Financial
Highlights:
- Reported net revenue interest (NRI)
production of 2.0 Bcfe (21.5 MMcfe per day) for the quarter ended
September 30, 2023, a decrease of 14% compared to the prior
quarter.
- As previously disclosed in our
August operational update, the quarter over quarter decrease was
caused in part by seven wells brought offline for 52 days during
the quarter in Pennsylvania to accommodate a workover operation
(cumulative NRI production rate for the wells before shut-in was
3.5 MMcf per day). These wells are now back online.
- Realized average price of $2.32 per
Mcfe including hedges ($1.64 per Mcfe excluding hedges) for the
quarter ended September 30, 2023, a decrease of 5% compared to the
prior quarter.
- Reported total revenues of $6.3
million for the quarter ended September 30, 2023, a decrease of 3%
compared to the prior quarter.
- $3.2 million from natural gas, oil,
and NGL sales, a decrease of 25% compared to the prior quarter
- $3.1 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), an increase of 39% compared to the prior quarter.
This included $1.0 million of revenue received from a backward
looking fee adjustment as a result of an internal audit by the
system operator.
- Reported Adjusted EBITDA of $3.9
million for the quarter ended September 30, 2023.
- Cash, cash equivalents (including
restricted cash), and short term investments totaled $31.9 million
at September 30, 2023.
- Returned $4.0 million to
shareholders during the quarter ended September 30, 2023.
- $2.6 million through the repurchase
of 525,000 shares at $5.00 per share, over a 2% reduction of shares
outstanding
- $1.4 million through the quarterly
dividend
- 1.4 million shares remain under the
approved buyback program (expires in March 2024)
- Realized gains of $1.3 million on
Henry Hub (HH) and TGP Z4 basis swaps totaling 455,000 MMBTU.
- Placed Henry Hub (HHUB) and TGP Z4
basis swaps for November 2023 through March 2024 (at a net realized
price of $2.59 per MMBTU, for 380,000 MMBTU) and April 2024 through
October 2024 (at a net realized price of $2.05 per MMBTU, for
1,070,000 MMBTU).
- After quarter-end, we placed
additional Henry Hub (HHUB) and TGP Z4 basis swaps for November
2023 through March 2024 (at a net realized price of $2.65 per
MMBTU, for 380,000 MMBTU) and April 2024 through October 2024 (at a
net realized price of $2.09 per MMBTU, for 535,000 MMBTU).
Third Quarter Operating
Results:
Epsilon’s capital expenditures were $5.5 million
for the quarter ended September 30, 2023, including certain
pre-paid well costs. This capital was primarily related to the
drilling of one gross (0.25 net) well and the completion of two
gross (0.5 net) wells in Ector Co. Texas ($4.8 million).
During the quarter, we received well proposals
from our operating partner in Pennsylvania for the drilling and
completion of seven gross wells (0.74 net). The first three wells
have been drilled, and drilling is expected to commence on the
fourth this month. All seven wells are expected to be drilled by
year end with completions expected in the first half of 2024.
In addition, initial investment plans for 2024
on our position in Ector Co. Texas call for the drilling and
completion of up to four gross (1.0 net) wells, starting in the
first quarter. The two gross (0.5 net) wells drilled in 2023 are
now completed and on flowback. Initial results are encouraging and
in-line with our pre-drill projections.
Jason Stabell, Epsilon's Chief Executive
Officer, commented, "Our announced investments and ongoing
activities in Pennsylvania and Texas position the company for per
share volume and cash flow growth next year, and represent the next
step in our objective to deliver sustainable and attractive returns
across a more diversified portfolio. These investments will be
comfortably funded from cash flow and cash on hand while allowing
us to pursue additional opportunities on existing assets and in new
areas, to pay our annual dividend and to repurchase our shares
opportunistically.”
Earning’s Call:
The Company will host a conference call to
discuss its results on Friday, November 10, 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 Third
Quarter 2023 Earnings Conference Call.”
A webcast can be viewed at:
https://event.choruscall.com/mediaframe/webcast.html?webcastid=TKIiaI4y.
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, New Mexico, and Oklahoma.
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 September 30, |
|
Nine months ended September 30, |
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Revenues from contracts with customers: |
|
|
|
|
|
|
|
|
|
|
|
|
Gas, oil, NGL, and condensate revenue |
|
$ |
3,241,531 |
|
|
$ |
19,171,121 |
|
|
$ |
14,509,184 |
|
|
$ |
48,566,282 |
|
Gas gathering and compression revenue |
|
|
3,068,996 |
|
|
|
2,072,806 |
|
|
|
7,657,755 |
|
|
|
6,180,747 |
|
Total revenue |
|
|
6,310,527 |
|
|
|
21,243,927 |
|
|
|
22,166,939 |
|
|
|
54,747,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
1,559,957 |
|
|
|
2,024,229 |
|
|
|
4,404,757 |
|
|
|
5,681,736 |
|
Gathering system operating expenses |
|
|
631,725 |
|
|
|
600,672 |
|
|
|
1,854,000 |
|
|
|
1,666,275 |
|
Development geological and geophysical expenses |
|
|
- |
|
|
|
2,387 |
|
|
|
- |
|
|
|
7,159 |
|
Depletion, depreciation, amortization, and accretion |
|
|
1,392,032 |
|
|
|
1,706,030 |
|
|
|
4,780,766 |
|
|
|
4,898,988 |
|
Loss (gain) on sale of oil and gas properties |
|
|
- |
|
|
|
- |
|
|
|
1,449,871 |
|
|
|
(221,642 |
) |
General and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense |
|
|
439,653 |
|
|
|
500,597 |
|
|
|
799,149 |
|
|
|
836,949 |
|
Other general and administrative expenses |
|
|
1,540,358 |
|
|
|
2,015,272 |
|
|
|
5,160,757 |
|
|
|
4,651,547 |
|
Total operating costs and expenses |
|
|
5,563,725 |
|
|
|
6,849,187 |
|
|
|
18,449,300 |
|
|
|
17,521,012 |
|
Operating income |
|
|
746,802 |
|
|
|
14,394,740 |
|
|
|
3,717,639 |
|
|
|
37,226,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
384,732 |
|
|
|
89,638 |
|
|
|
1,308,695 |
|
|
|
126,804 |
|
Interest expense |
|
|
(8,760 |
) |
|
|
(17,501 |
) |
|
|
(71,619 |
) |
|
|
(33,565 |
) |
(Loss) gain on derivative contracts |
|
|
(24,303 |
) |
|
|
(929,637 |
) |
|
|
1,672,535 |
|
|
|
(1,124,547 |
) |
Other income (expense), net |
|
|
468 |
|
|
|
(32,777 |
) |
|
|
5,169 |
|
|
|
(99,896 |
) |
Other income (expense), net |
|
|
352,137 |
|
|
|
(890,277 |
) |
|
|
2,914,780 |
|
|
|
(1,131,204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income before income tax expense |
|
|
1,098,939 |
|
|
|
13,504,463 |
|
|
|
6,632,419 |
|
|
|
36,094,813 |
|
Income tax expense |
|
|
710,164 |
|
|
|
3,896,010 |
|
|
|
2,283,228 |
|
|
|
10,097,484 |
|
NET
INCOME |
|
$ |
388,775 |
|
|
$ |
9,608,453 |
|
|
$ |
4,349,191 |
|
|
$ |
25,997,329 |
|
Currency translation adjustments |
|
|
(846 |
) |
|
|
(34,524 |
) |
|
|
(2,317 |
) |
|
|
(48,272 |
) |
Unrealized gain (loss) on securities |
|
|
24,641 |
|
|
|
- |
|
|
|
(22,365 |
) |
|
|
- |
|
NET
COMPREHENSIVE INCOME |
|
$ |
412,570 |
|
|
$ |
9,573,929 |
|
|
$ |
4,324,509 |
|
|
$ |
25,949,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share, basic |
|
$ |
0.02 |
|
|
$ |
0.42 |
|
|
$ |
0.19 |
|
|
$ |
1.11 |
|
Net
income per share, diluted |
|
$ |
0.02 |
|
|
$ |
0.41 |
|
|
$ |
0.19 |
|
|
$ |
1.11 |
|
Weighted average number of shares outstanding,
basic |
|
|
22,118,984 |
|
|
|
23,011,729 |
|
|
|
22,616,539 |
|
|
|
23,419,666 |
|
Weighted average number of shares outstanding,
diluted |
|
22,178,686 |
|
|
|
23,169,658 |
|
|
|
22,631,550 |
|
|
|
23,524,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPSILON ENERGY LTD. |
Unaudited Consolidated Balance Sheets |
(All
amounts stated in US$) |
|
|
|
|
|
|
|
|
|
September
30, |
|
December
31, |
|
|
2023 |
|
2022 |
ASSETS |
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
12,498,051 |
|
|
$ |
45,236,584 |
|
Accounts receivable |
|
|
4,006,278 |
|
|
|
7,201,386 |
|
Short term investments |
|
|
18,870,468 |
|
|
|
- |
|
Fair value of derivatives |
|
|
- |
|
|
|
1,222,090 |
|
Prepaid income taxes |
|
|
1,954,788 |
|
|
|
1,140,094 |
|
Other current assets |
|
|
920,224 |
|
|
|
632,154 |
|
Operating lease right-of-use assets |
|
|
- |
|
|
|
31,383 |
|
Total current assets |
|
|
38,249,809 |
|
|
|
55,463,691 |
|
Non-current assets |
|
|
|
|
|
|
Property and equipment: |
|
|
|
|
|
|
Oil and gas properties, successful efforts method |
|
|
|
|
|
|
Proved properties |
|
|
154,190,226 |
|
|
|
148,326,265 |
|
Unproved properties |
|
|
26,185,843 |
|
|
|
18,169,157 |
|
Accumulated depletion, depreciation, amortization and
impairment |
|
|
(111,142,288 |
) |
|
|
(107,729,293 |
) |
Total oil and gas properties, net |
|
|
69,233,781 |
|
|
|
58,766,129 |
|
Gathering system |
|
|
42,694,512 |
|
|
|
42,639,001 |
|
Accumulated depletion, depreciation, amortization and
impairment |
|
|
(35,241,595 |
) |
|
|
(34,500,740 |
) |
Total gathering system, net |
|
|
7,452,917 |
|
|
|
8,138,261 |
|
Land |
|
|
637,764 |
|
|
|
637,764 |
|
Buildings and other property and equipment, net |
|
|
303,211 |
|
|
|
286,035 |
|
Total property and equipment, net |
|
|
77,627,673 |
|
|
|
67,828,189 |
|
Other assets: |
|
|
|
|
|
|
Operating lease right-of-use assets, long term |
|
|
468,833 |
|
|
|
- |
|
Restricted cash |
|
|
495,000 |
|
|
|
570,363 |
|
Fair value of derivatives, long term |
|
|
42,005 |
|
|
|
- |
|
Prepaid drilling costs |
|
|
2,891,250 |
|
|
|
- |
|
Total non-current assets |
|
|
81,524,761 |
|
|
|
68,398,552 |
|
Total assets |
|
$ |
119,774,570 |
|
|
$ |
123,862,243 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Accounts payable trade |
|
$ |
1,855,591 |
|
|
$ |
1,695,353 |
|
Gathering fees payable |
|
|
556,437 |
|
|
|
935,012 |
|
Royalties payable |
|
|
1,241,533 |
|
|
|
2,223,043 |
|
Accrued capital expenditures |
|
|
195,917 |
|
|
|
41,694 |
|
Accrued compensation |
|
|
631,646 |
|
|
|
598,351 |
|
Other accrued liabilities |
|
|
556,814 |
|
|
|
690,655 |
|
Fair value of derivatives |
|
|
126,508 |
|
|
|
- |
|
Operating lease liabilities |
|
|
55,656 |
|
|
|
35,299 |
|
Total current liabilities |
|
|
5,220,102 |
|
|
|
6,219,407 |
|
Non-current liabilities |
|
|
|
|
|
|
Asset retirement obligations |
|
|
2,794,743 |
|
|
|
2,780,237 |
|
Deferred income taxes |
|
|
11,805,453 |
|
|
|
10,617,394 |
|
Operating lease liabilities, long term |
|
|
498,155 |
|
|
|
- |
|
Total non-current liabilities |
|
|
15,098,351 |
|
|
|
13,397,631 |
|
Total liabilities |
|
|
20,318,453 |
|
|
|
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
22,126,800 shares issued and outstanding at September 30, 2023 and
23,117,144 issued and outstanding at December 31, 2022 |
|
|
118,209,690 |
|
|
|
123,904,965 |
|
Additional paid-in capital |
|
|
10,655,378 |
|
|
|
9,856,229 |
|
Accumulated deficit |
|
|
(39,158,820 |
) |
|
|
(39,290,540 |
) |
Accumulated other comprehensive income |
|
|
9,749,869 |
|
|
|
9,774,551 |
|
Total shareholders' equity |
|
|
99,456,117 |
|
|
|
104,245,205 |
|
Total liabilities and shareholders' equity |
|
$ |
119,774,570 |
|
|
$ |
123,862,243 |
|
|
|
|
|
|
|
|
EPSILON ENERGY LTD. |
Unaudited Consolidated Statements of Cash Flows |
(All amounts stated in US$) |
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
2023 |
|
2022 |
Cash
flows from operating activities: |
|
|
|
|
|
|
Net income |
|
$ |
4,349,191 |
|
|
$ |
25,997,329 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
Depletion, depreciation, amortization, and accretion |
|
|
4,780,766 |
|
|
|
4,898,988 |
|
Accretion of discount on available for sale securities |
|
|
(574,341 |
) |
|
|
- |
|
Gain on available for sale securities |
|
|
(60,494 |
) |
|
|
- |
|
Loss (gain) on sale of oil and gas properties |
|
|
1,449,871 |
|
|
|
(221,642 |
) |
(Gain) loss on derivative contracts |
|
|
(1,672,535 |
) |
|
|
1,124,547 |
|
Settlement received (paid) on derivative contracts |
|
|
2,979,128 |
|
|
|
(1,396,698 |
) |
Settlement of asset retirement obligation |
|
|
(3,482 |
) |
|
|
(118,259 |
) |
Stock-based compensation expense |
|
|
799,149 |
|
|
|
836,949 |
|
Deferred income tax expense (benefit) |
|
|
1,188,059 |
|
|
|
439,857 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
|
3,195,108 |
|
|
|
(5,472,585 |
) |
Prepaid income taxes |
|
|
(814,694 |
) |
|
|
- |
|
Other assets and liabilities |
|
|
(67,008 |
) |
|
|
(205,717 |
) |
Accounts payable, royalties payable and other accrued
liabilities |
|
|
(1,191,558 |
) |
|
|
1,511,652 |
|
Income taxes payable |
|
|
- |
|
|
|
2,021,246 |
|
Net
cash provided by operating activities |
|
|
14,357,160 |
|
|
|
29,415,667 |
|
Cash
flows from investing activities: |
|
|
|
|
|
|
Additions to unproved oil and gas properties |
|
|
(8,017,412 |
) |
|
|
(226,439 |
) |
Additions to proved oil and gas properties |
|
|
(7,860,073 |
) |
|
|
(5,528,037 |
) |
Additions to gathering system properties |
|
|
(52,069 |
) |
|
|
(129,985 |
) |
Additions to land, buildings and property and equipment |
|
|
(49,689 |
) |
|
|
(13,258 |
) |
Purchases of short term investments |
|
|
(32,812,974 |
) |
|
|
- |
|
Proceeds from short term investments |
|
|
14,554,976 |
|
|
|
- |
|
Proceeds from sale of oil and gas properties |
|
|
12,498 |
|
|
|
200,000 |
|
Prepaid drilling costs |
|
|
(2,891,250 |
) |
|
|
- |
|
Net
cash used in investing activities |
|
|
(37,115,993 |
) |
|
|
(5,697,719 |
) |
Cash
flows from financing activities: |
|
|
|
|
|
|
Buyback of common shares |
|
|
(5,695,275 |
) |
|
|
(6,234,879 |
) |
Exercise of stock options |
|
|
- |
|
|
|
747,112 |
|
Dividends paid |
|
|
(4,217,471 |
) |
|
|
(4,422,720 |
) |
Debt issuance costs |
|
|
(140,000 |
) |
|
|
- |
|
Net
cash used in financing activities |
|
|
(10,052,746 |
) |
|
|
(9,910,487 |
) |
Effect of currency rates on cash, cash equivalents, and restricted
cash |
|
|
(2,317 |
) |
|
|
(48,272 |
) |
(Decrease) increase in cash, cash equivalents, and restricted
cash |
|
|
(32,813,896 |
) |
|
|
13,759,189 |
|
Cash, cash equivalents, and restricted cash, beginning of
period |
|
|
45,806,947 |
|
|
|
27,065,423 |
|
Cash, cash equivalents, and restricted cash, end of
period |
|
$ |
12,993,051 |
|
|
$ |
40,824,612 |
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures: |
|
|
|
|
|
|
Income taxes paid |
|
$ |
1,442,304 |
|
|
$ |
7,626 |
|
Interest paid |
|
$ |
88,835 |
|
|
$ |
50,872 |
|
|
|
|
|
|
|
|
Non-cash investing activities: |
|
|
|
|
|
|
Change in
proved properties accrued in accounts payable and accrued
liabilities |
|
$ |
41,947 |
|
|
$ |
(194,391 |
) |
Change in
gathering system accrued in accounts payable and accrued
liabilities |
|
$ |
3,441 |
|
|
$ |
12,882 |
|
Asset
retirement obligation asset additions and adjustments |
|
$ |
4,640 |
|
|
$ |
10,821 |
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Net income |
|
$ |
388,775 |
|
|
$ |
9,608,453 |
|
|
$ |
4,349,191 |
|
|
$ |
25,997,329 |
|
Add Back: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest (income) expense, net |
|
|
(375,972 |
) |
|
|
(72,137 |
) |
|
|
(1,237,076 |
) |
|
|
(93,239 |
) |
Income tax expense |
|
|
710,164 |
|
|
|
3,896,010 |
|
|
|
2,283,228 |
|
|
|
10,097,484 |
|
Depreciation, depletion, amortization, and accretion |
|
1,392,032 |
|
|
|
1,706,030 |
|
|
|
4,780,766 |
|
|
|
4,898,988 |
|
Stock based compensation expense |
|
|
439,653 |
|
|
|
500,597 |
|
|
|
799,149 |
|
|
|
836,949 |
|
Loss (gain) on sale of assets |
|
|
- |
|
|
|
- |
|
|
|
1,449,871 |
|
|
|
(221,642 |
) |
Loss (gain) on derivative contracts net of cash received or paid on
settlement |
|
|
1,370,573 |
|
|
|
908,227 |
|
|
|
1,306,593 |
|
|
|
(272,151 |
) |
Foreign currency translation loss |
|
|
(98 |
) |
|
|
907 |
|
|
|
(1,086 |
) |
|
|
1,517 |
|
Adjusted EBITDA |
|
$ |
3,925,127 |
|
|
$ |
16,548,087 |
|
|
$ |
13,730,636 |
|
|
$ |
41,245,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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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