Epsilon Energy Ltd. SEC 10-K Report

Epsilon Energy Ltd., a company engaged in the exploration and production of oil and natural gas, has released its 2024 10-K report. The report provides a comprehensive overview of the company's financial performance, business operations, strategic initiatives, and the challenges and risks it faces in the highly competitive energy sector.

Financial Highlights

Epsilon Energy Ltd. reported the following key financial metrics for 2024:

• Total Revenue: $31.5 million, increased by 3% from $30.7 million in 2023.
• Operating Income: $3.4 million, decreased from $5.4 million in 2023.
• Net Income: $1.9 million, decreased from $6.9 million in 2023.
• Net Income Per Share, basic: $0.09, compared to $0.31 in 2023.
• Net Income Per Share, diluted: $0.09, compared to $0.31 in 2023.

Business Highlights

The company's business performance in 2024 was marked by significant geographical and operational shifts:

• Geographical Performance: Approximately 50% of Epsilon's revenue was derived from natural gas production and gathering system revenues in Pennsylvania, while 40% came from oil, natural gas, and natural gas liquids revenues in Texas. This marks a significant shift from 2023, where 77% of revenue was from Pennsylvania and only 6% from Texas.
• Sales Units - Marcellus Shale, Pennsylvania: Total natural gas sales decreased by 28% to 5.7 Bcf in 2024 from 7.9 Bcf in 2023, primarily due to curtailed production volumes.
• Sales Units - Permian Basin, Texas and New Mexico: Total sales, including oil, natural gas, and other liquids, increased by 242% to 259 MBOE in 2024 from 75.7 MBOE in 2023.
• Sales Units - Anadarko, NW STACK Trend, Oklahoma: Total sales, including natural gas, oil, and other liquids, decreased by 32% to 0.41 Bcfe in 2024 from 0.60 Bcfe in 2023.
• Sales Units - Western Canadian Sedimentary Basin, Alberta, Canada: Total oil sales were 2.5 MBbl in 2024.
• New Production Launches - Marcellus Shale, Pennsylvania: Epsilon participated in the drilling of 3 gross (0.04 net) wells and the completion of 10 gross (0.82 net) wells in 2024, with three wells going into production in October 2024.
• New Production Launches - Permian Basin, Texas: Epsilon acquired a 25% working interest in three producing wells and 3,246 gross undeveloped acres in Ector County, Texas, and participated in the drilling and completion of 2 gross (0.5 net) wells, which went into production in May and July 2024.
• New Production Launches - Western Canadian Sedimentary Basin, Alberta, Canada: Epsilon participated in the drilling of 4 gross (1.5 net) wells, with one well going into production in September 2024.
• Future Outlook: Epsilon plans to maintain a strong balance sheet and liquidity position to opportunistically invest in existing project areas and potential new projects. The company is also exploring new opportunities in various North American natural gas and oil basins.

Strategic Initiatives

Epsilon Energy Ltd. has undertaken several strategic initiatives to enhance its production capabilities and diversify its geographic presence:

• Asset Expansion: The company focused on expanding its asset base through strategic acquisitions, including a 25% interest in three producing wells and undeveloped acres in Texas, and a 50% working interest in undeveloped acres in Alberta, Canada. Additionally, the company formed a joint venture in Alberta, Canada, to further develop its asset portfolio.
• Capital Management: Epsilon maintained a disciplined approach to capital management by repurchasing 373,700 shares for $1.83 million under two consecutive share repurchase programs. The company also distributed dividends totaling $5.49 million in 2024. Epsilon closed a senior secured reserve-based revolving credit facility with a $45 million borrowing base, ensuring liquidity for future investments.
• Future Outlook: Epsilon plans to continue evaluating new opportunities in North American natural gas and oil basins, with a focus on maintaining a strong balance sheet and liquidity position. The company aims to opportunistically invest in existing and potential new projects, while adhering to financial covenants under its credit facility. A new share repurchase program was authorized in February 2025, allowing for the repurchase of up to 2,200,876 common shares, reflecting the company's commitment to returning value to shareholders.

Challenges and Risks

Epsilon Energy Ltd. faces several challenges and risks in the competitive oil and natural gas industry:

• Operational Challenges: The company faces shortages of drilling and completion rigs, equipment, and personnel, which can lead to delays and increased costs. Epsilon's significant operations in Pennsylvania and Texas make it vulnerable to regional supply and demand factors, regulatory changes, and weather events that could disrupt production.
• Market Risks: Epsilon's business is highly dependent on volatile oil and natural gas prices, which can significantly impact revenues, profitability, and the ability to finance operations.
• Regulatory Risks: Potential changes in laws related to hydraulic fracturing and environmental protection could increase costs and operational restrictions.
• Cybersecurity Risks: The company is exposed to cybersecurity risks, which could lead to operational disruptions and financial losses.
• Reserve Estimates: Inaccurate reserve estimates may affect future cash flows and the ability to replace reserves.
• Management Strategies: Management highlights the importance of maintaining a strong balance sheet and liquidity to navigate market volatility and invest opportunistically. The company is focused on disciplined capital allocation, including potential shareholder returns through dividends and share buybacks. Epsilon's strategy includes seeking opportunities in other North American basins to diversify and mitigate geographic concentration risks.

SEC Filing: Epsilon Energy Ltd. [ EPSN ] - 10-K - Mar. 19, 2025