HOUSTON, Aug. 14, 2017 (GLOBE NEWSWIRE) -- Epsilon Energy Ltd. (“Epsilon” or the “Company”) (TSX:EPS) today reported second quarter 2017 financial and operating results.

Mr. Michael Raleigh, Chief Executive Officer, commented, “Epsilon’s average natural gas price of $2.47 during the quarter was the highest price realized since the second quarter of 2013. This is primarily attributable to a narrowing basis differential. Although Marcellus gas supply is growing, the pace of expansion today is subdued and more consistent with pipeline take away from the basin. Looking forward to 2018, we expect further netback improvement as NE Marcellus basis is likely to abate further with the commissioning of Rover and Atlantic Sunrise pipelines as well as the Cove Point LNG export facility.

Epsilon closed two Anadarko basin acquisitions in the second quarter, and due diligence is ongoing with two potential bolt-on acquisitions. We continue to make progress towards assembling a material position.”

Highlights for the second quarter and material subsequent events following the end of the quarter through the date of this release include:

• EBITDA of $5.5 million for the quarter of which Upstream contributed $4.0 million and Midstream contributed $1.5 million.
   
• Marcellus working interest (WI) gas production averaged 30 MMcf/d for the second quarter of 2017. 
   
• Gathered and delivered 25 Bcfe gross (8.8 Bcfe net to Epsilon’s interest) during the quarter through the Auburn System which represents approximately 76% of the maximum throughput. 
   
• Auburn Gas gathering and compression services included third party gas of 1.2 Bcfe during the quarter or approximately 13 MMcf/d.        

Financial and Operating Results

 

		Three months ended June 30,						Six months ended June 30,
			2017			2016			2017			2016
Revenue by product - total period ($000)
Natural gas revenue ($000)		$	5,882		$	3,733		$	11,774		$	6,922
Volume (MMcfe)			2,382			2,664			4,792			5,427
Avg. Price ($/Mcfe)		$	2.47		$	1.40		$	2.46		$	1.28
Exit Rate (MMcfepd)			30.0			35.4			30.0			35.4
Oil revenue ($000)		$	-		$	-		$	-		$	-
Volume (MBOE)			-			-			-			-
Avg. Price ($/Bbl)		$	-		$	-		$	-		$	-
Midstream gathering system revenue ($000)		$	2,067		$	2,512		$	4,242		$	4,939
Total		$	7,949		$	6,245		$	16,016		$	11,861

Capital Expenditures

Epsilon’s operational capital expenditures were $0.1 million for the three months ended June 30, 2017.  Acquisition capital expenditures in the mid-continent totaled $5.8 million.

Epsilon expects to complete its remaining inventory (8 gross; 0.13 net) of wells awaiting completion in the second half of 2017; however, the Marcellus capital forecast for 2017 remains unchanged at $1 million.

The due diligence process for subsequent Anadarko Basin acquisitions is ongoing.  Additional announcements, including an updated capital budget, will be provided following the completion of these transactions.  

Marcellus Operational Guidance

The Operator did not turn any new wells on line during the second quarter; however, subsequent to quarter end, completion operations commenced on 2 gross (.01 net) DUCs.

The Operator did not drill or propose any new wells during the quarter.  The table below details Epsilon’s well development status at June 30, 2017:

		March 31, 2017			June 30, 2017
		Gross	Net		Gross	Net
	Producing	86	22.57		87	22.81
	Shut-in	5	1.52		4	1.28
	Waiting on pipeline	-	-		-	-
	Waiting on completion	9	0.14		9	0.14
	Drilling	-	-		-	-

Epsilon has not received any well proposals from the Operator subsequent to quarter end.

Second Quarter Results

Epsilon generated revenues of $7.9 million for the three months ended June 30, 2017 compared to $6.2 million for the three months ended June 30, 2016.  The Company’s Upstream Marcellus net revenue interest production was 2.4 Bcfe in the second quarter.

Realized natural gas prices averaged $2.47 per Mcf in the second quarter of 2017, a slight improvement of 1% from the first quarter of 2017. Realized natural gas prices in Northeast Pennsylvania are rising in response to decelerating production growth coupled with increasing transportation capacity. Operating expenses for Marcellus Upstream operations in the second quarter were $1.2 million.

The Auburn Gas Gathering system delivered 24.8 Bcfe of natural gas during the quarter as compared to 25.8 Bcfe during the first quarter of 2017.  Primary gathering volumes decreased 5.4% quarter over quarter to 11.4 Bcfe.  Imported cross-flow volumes decreased 4.5% to 13.4 Bcfe.

Epsilon reported net after tax income of $2.5 million attributable to common shareholders or $0.05 per basic and diluted common share outstanding for the three months ended June 30, 2017, compared to a net loss of $0.9 million, and ($0.02) per basic and diluted common share outstanding for the three months ended June 30, 2016. 

For the three months ended June 30, 2017, Epsilon's Adjusted Earnings Before Interest, Income Taxes, Depreciation, Amortization ("Adjusted EBITDA") was $5.5 million as compared to $3.4 million for the three months ended June 30, 2016. The increase in Adjusted EBITDA was primarily due to higher natural gas prices.

Adjusted EBITDA

Epsilon defines Adjusted EBITDA as earnings before (1) net interest expense, (2) depreciation, depletion and amortization expense, (3) recovery of prior impairments of oil and gas properties, (4) non-cash stock compensation expense, (5) unrealized gain on derivatives and (6) other income.  Adjusted EBITDA is not a measure of net income or cash flows as determined by IFRS.

Management believes these non-IFRS financial measures facilitate evaluation of the Company's business on a "normalized" or recurring basis and without giving effect to certain non-cash expenses and other items, thereby providing management, investors and analysts with comparative information for evaluating the Company in relation to other oil and gas companies providing corresponding non-IFRS financial measures. These non-IFRS financial measures should be considered in addition to, but not as a substitute for, measures for financial performance prepared in accordance with IFRS, and that the reconciliations to the closest corresponding IFRS measure should be reviewed carefully.

About Epsilon

Epsilon Energy Ltd. is a North American onshore natural gas production and midstream company with a current focus on the Marcellus Shale of Pennsylvania.

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.

The reserves and associated future net revenue information set forth in this news release are estimates only. In general, estimates of oil and natural gas reserves and the future net revenue therefrom are based upon a number of variable factors and assumptions, such as production rates, ultimate reserves recovery, timing and amount of capital expenditures, ability to transport production, marketability of oil and natural gas, royalty rates, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary materially from actual results. For those reasons, estimates of the oil and natural gas reserves attributable to any particular group of properties, as well as the classification of such reserves and estimates of future net revenues associated with such reserves prepared by different engineers (or by the same engineers at different times) may vary. The actual reserves of the Company may be greater or less than those calculated. In addition, the Company's actual production, revenues, development and operating expenditures will vary from estimates thereof and such variations could be material.

Statements relating to "reserves" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in the future. There is no assurance that forecast price and cost assumptions will be attained and variances could be material.

Proved reserves are those reserves which are most certain to be recovered. There is at least a 90% probability that the quantities actually recovered will equal or exceed the estimated proved reserves.  Undeveloped reserves are those reserves expected to be recovered from known accumulations where a significant expenditure (for example, when compared to the cost of drilling a well) is required to render them capable of production.  They must fully meet the requirements of the reserves classification (proved, probable) to which they are assigned. Proved undeveloped reserves are those reserves that can be estimated with a high degree of certainty and are expected to be recovered from known accumulations where a significant expenditure is required to render them capable of production.

The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties due to the effects of aggregation. The estimated future net revenues contained in this news release do not necessarily represent the fair market value of the Company's reserves.

Special note for news distribution in the United States
The securities described in the news release have not been registered under the United Stated Securities Act of 1933, as amended, (the “1933 Act”) or state securities laws. Any holder of these securities, by purchasing such securities, agrees for the benefit of Epsilon Energy Ltd. (the “Corporation”) that such securities may not be offered, sold, or otherwise transferred only (A) to the Corporation or its affiliates; (B) outside the United States in accordance with applicable state laws and either (1) Rule 144(as) under the 1933 Act or (2) Rule 144 under the 1933 Act, if applicable.

EPSILON ENERGY LTD.
Interim Unaudited Condensed Consolidated Statements of Operations
(All amounts stated in US$)
	Three months ended June 30,								Six months ended June 30,
		2017				2016				2017				2016
Revenues:
Oil and gas revenue	$	5,882,030			$	3,732,620			$	11,774,427			$	6,921,399
Gas gathering and compression revenue		2,066,623				2,511,971				4,241,525				4,939,124
Total revenue		7,948,653				6,244,591				16,015,952				11,860,523
Operating costs and expenses:
Project operating costs		1,620,988				2,335,667				3,684,398				4,633,543
Depletion, depreciation, amortization and decommissioning accretion		2,377,016				2,951,125				4,780,482				6,009,264
Stock based compensation  expense		89,237				74,202				142,519				147,175
General and administrative		1,000,845				532,517				1,926,654				1,005,850
Total operating costs and expenses		5,088,086				5,893,511				10,534,053				11,795,832
Operating income (loss)		2,860,567				351,080				5,481,899				64,691
Other income and (expense):
Interest income		332				16,288				25,756				16,290
Finance expense		(80,987	)			(1,081,433	)			(1,075,694	)			(2,032,150	)
Realized gain on commodity contracts		140,815				-				387,975				-
Net change in unrealized loss on commodity contracts		1,538,097				-				780,587				-
Other expense		5,213				343				5,169				(96,536	)
Net other expense		1,603,470				(1,064,802	)			123,793				(2,112,396	)
Income tax expense - current		-				-				-				23,800
Income tax expense (recovery) - deferred		1,916,992				180,593				2,782,501				108,193
NET INCOME (LOSS)	$	2,547,045			$	(894,315	)		$	2,823,191			$	(2,179,698	)
Net income (loss) per share, basic	$	0.05			$	(0.02	)		$	0.06			$	(0.05	)
Net income (loss) per share, diluted	$	0.05			$	(0.02	)		$	0.06			$	(0.05	)
Weighted average number of shares outstanding, basic		52,898,013				45,837,864				49,387,496				45,926,680
Weighted average number of shares outstanding, diluted		52,924,015				45,837,864				49,414,352				45,926,680

 

EPSILON ENERGY LTD.
Interim Unaudited Condensed Consolidated Statements of Financial Position
(All amounts stated in US$)
		June 30,				December 31,
			2017				2016
ASSETS
Current assets
Cash and cash equivalents		$	14,800,811			$	31,486,593
Accounts receivable			3,703,077				4,387,487
Deposits on Acquisition			900,000				-
Restricted cash			555,871				530,538
Commodity contracts-asset			444,235				-
Other  current assets			62,411				139,991
Total current assets			20,466,405				36,544,609
Non-current assets
Oil and gas interests:
Intangible exploration and evaluation costs			4,699,951				-
Property and equipment (net)			87,223,604				90,716,131
Total non-current assets			91,923,555				90,716,131
Total assets		$	112,389,960			$	127,260,740
EQUITY AND LIABILITIES
Current liabilities
Accounts payable and accrued liabilities		$	4,030,001			$	5,003,737
Commodity contracts-liability			-				336,352
Revolving line of credit			2,900,000				12,460,000
Convertible debentures			-				28,388,210
Total current liabilities			6,930,001				46,188,299
Non-current liabilities
Decommissioning liabilities			2,551,683				2,442,935
Deferred tax liability			17,859,566				15,077,065
Total non-current liabilities			20,411,249				17,520,000
Total liabilities			27,341,250				63,708,299
Equity
Share capital			144,381,641				126,315,325
Equity component of convertible debentures			-				5,033,884
Contributed surplus			11,163,728				6,017,972
Deficit			(79,732,872	)			(82,556,063	)
Accumulated other comprehensive income			9,236,213				8,741,323
Total equity			85,048,710				63,552,441
Total liabilities and shareholders' equity		$	112,389,960			$	127,260,740

 

EPSILON ENERGY LTD.
Interim Unaudited Condensed Consolidated Statements of Cash Flows
(All amounts stated in US$)
		Six months ended June 30,
			2017				2016
Cash flows from operating activities:
Net income (loss)		$	2,823,191			$	(2,179,698	)
Adjustments for:
Depletion, depreciation, amortization and decommissioning accretion			4,780,482				6,009,264
Debenture accretion and fee amortization			267,773				574,078
Net change in unrealized loss on commodity contracts			(780,587	)			-
Stock-based compensation expense			142,519				147,175
Income tax expense (recovery)			2,782,501				108,193
Income taxes paid			-				-
Changes in non-cash balances related to operations			(160,409	)			34,721
Net cash provided by operating activities			9,855,470				4,693,733
Cash flows from investing activities:
Acquisition of oil and natural gas properties - E&E			(4,699,951	)			-
Acquisition of oil and natural gas properties - PP&E			(1,088,000	)			-
Additions to oil and natural gas properties - PP&E			(91,208	)			(143,147	)
Change in working capital related to capital asset additions			(51,337	)			(409,831	)
Change in investment			-				(11,318,934	)
Deposits on acquisitions			(900,000	)			-
Changes in restricted cash			(25,333	)			(430,000	)
Net cash used in investing activities			(6,855,829	)			(12,301,912	)
Cash flows from financing activities:
Buyback of common shares			-				(780,340	)
Common stock issued through rights offering			17,984,665				-
Purchase of convertible debentures			-				(357,842	)
Redemption of convertible debentures			(29,520,436	)			-
Exercise of stock options			50,243				-
Proceeds from  (payoff of) draw on revolving line of credit			(9,560,000	)			9,660,000
Net cash used in financing activities			(21,045,528	)			8,521,818
Effect of currency rates on cash and cash equivalents			1,360,105				982,691
Increase (decrease)  in cash and cash equivalents			(16,685,782	)			1,896,330
Cash and cash equivalents, beginning of period			31,486,593				16,954,664
Cash and cash equivalents, end of period		$	14,800,811			$	18,850,994
Cash and cash equivalents consist of:
Cash		$	14,800,811			$	18,850,994
Cash and cash equivalents		$	14,800,811			$	18,850,994

 

EPSILON ENERGY LTD.
Adjusted EBITDA Reconciliation
(All amounts stated in US $000)
		Three months ended June 30,								Six months ended June 30,
			2017				2016				2017				2016
Net loss		$	2,547			$	(895	)		$	2,823			$	(2,180	)
Add Back:
	Net interest expense		81				1,065				1,050				2,016
	Deferred income tax provision		1,917				181				2,783				132
	Depreciation, depletion, amortization, and accretion		2,377				2,951				4,781				6,009
	Stock based compensation expense		89				74				142				147
	Net change in unrealized (gain) loss on commodity contracts		(1,538	)			-				(781	)			-
	Other income		(5	)			-				(5	)			91
Adjusted EBITDA		$	5,468			$	3,376			$	10,793			$	6,215

 

 

Contact Information:

281-670-0002

Michael Raleigh
Chief Executive Officer
Michael.Raleigh@EpsilonEnergyLTD.com

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