HOUSTON, Nov. 14, 2017 (GLOBE NEWSWIRE) -- Epsilon Energy Ltd. (“Epsilon” or the “Company”) (TSX:EPS) today reported third quarter 2017 financial and operating results.
Highlights for the third quarter and material subsequent events following the end of the quarter through the date of this release include:
Epsilon is continuing to add key personnel to its leadership team and is pleased to announce the hiring of Shannon Lemke as Vice President, Exploration. Shannon has over 17 years of experience in exploration and exploitation of oil and gas reserves while working for public and private equity backed companies. Of note, Shannon was recently a significant contributor to the success of Vitruvian I & II which sold to Gulfport earlier in the year. Shannon started her career at Newfield.
Year-to-date, Epsilon has acquired varying interests in over 88 sections of land, all held by production from shallower intervals, including operations covering 21 sections in the NW STACK trend, of the Anadarko Basin in Oklahoma, with rights to the prospective and deeper Meramec, Osage and Woodford formations. This position covers a wide footprint encompassing oil, condensate and liquids rich gas prone areas in the over-pressured window of the Basin.
Adjusted EBITDA of $4.0 million for the quarter and $14.8 million for the nine month period. Net Income per diluted share was $0.01 for the quarter and $0.07 for the nine month period.
Marcellus working interest (WI) gas production averaged 25 MMcf/d and our Auburn System gathered and delivered 17 Bcfe gross (5.8 Bcfe net to Epsilon’s interest) during the quarter which represents approximately 50% of the maximum throughput. Auburn Gas gathering and compression services included third party gas of 1.0 Bcfe during the quarter or approximately 11 MMcf/d.
Mr. Michael Raleigh, Chief Executive Officer, commented, “Epsilon is pleased to have Shannon Lemke join our talented team of professionals including Henry Clanton COO, Paul Atwood VP Financial Planning & Analysis, and Lane Bond, CFO. We are beginning the budgeting process for 2018, and will provide further details in regards to capital allocation to both the NW STACK project and the Marcellus project as that process concludes. Epsilon expects further natural gas price improvement in the NE during 2018 due to the anticipated commissioning of significant pipeline projects including Access South, Adair Southwest, Leach Xpress, Rover Phase II, and Atlantic Sunrise. These pipelines, coupled with the Cove Point LNG export facility, represent over 6 Bcf per day of incremental demand for Marcellus-Utica production.”
Financial and Operating Results
Three months ended September 30,
Nine months ended September 30,
2017
2016
2017
2016
Revenue by product - total period ($000)
Natural gas revenue ($000)
$
3,376
$
3,294
$
15,148
$
10,216
Volume (MMcfe)
2,017
2,620
6,809
8,047
Avg. Price ($/Mcfe)
$
1.67
$
1.26
$
2.22
$
1.27
Exit Rate (MMcfepd)
21.4
37.7
21.4
37.7
Oil revenue ($000)
$
18
$
-
$
20
$
-
Volume (MBOE)
0.41
-
0.46
-
Avg. Price ($/Bbl)
$
43.87
$
-
$
44.23
$
-
Midstream gathering system revenue ($000)
$
1,568
$
2,624
$
5,810
$
7,563
Total
$
4,962
$
5,918
$
20,978
$
17,779
Capital Expenditures
Epsilon’s operational capital expenditures were $0.1 million for the three months ended September 30, 2017. Acquisition capital expenditures in the mid-continent totaled $11.4 million.
Epsilon expects to complete 6 gross (0.13 net) wells in the fourth quarter of 2017; however, the Marcellus capital forecast for 2017 remains unchanged at $1 million.
Marcellus Operational Guidance
The Operator turned 2 gross (.01 net) new wells on line during the third quarter.
The Operator did not drill or propose any new wells during the quarter. The table below details Epsilon’s well development status at September 30, 2017:
June 30, 2017
September 30, 2017
Gross
Net
Gross
Net
Producing
87
22.81
78
19.58
Shut-in
4
1.28
15
4.51
Waiting on pipeline
-
-
-
-
Waiting on completion
9
0.14
7
0.13
Drilling
-
-
-
-
Epsilon has not received any well proposals from the Operator subsequent to quarter end.
Third Quarter Results
Epsilon generated revenues of $5.0 million for the three months ended September 30, 2017 compared to $5.9 million for the three months ended September 30, 2016. The Company’s Upstream Marcellus net revenue interest production was 2.0 Bcfe in the third quarter.
Realized natural gas prices averaged $1.67 per Mcf in the third quarter of 2017. Realized natural gas prices in Northeast Pennsylvania declined in response to mild weather coupled with increasing production in anticipation of interstate pipeline startups and the associated volume commitments to those projects. Operating expenses for Marcellus Upstream operations in the third quarter were $1.4 million.
The Auburn Gas Gathering system delivered 16.7 Bcfe of natural gas during the quarter as compared to 24.8 Bcfe during the second quarter of 2017. Primary gathering volumes decreased 16.7% quarter over quarter to 9.6 Bcfe. Imported cross-flow volumes decreased 33.7% to 7.0 Bcfe.
Epsilon reported net after tax income of $0.8 million attributable to common shareholders or $0.01 per basic and diluted common share outstanding for the three months ended September 30, 2017, compared to a net loss of $0.7 million, and ($0.01) per basic and diluted common share outstanding for the three months ended September 30, 2016.
For the three months ended September 30, 2017, Epsilon's Adjusted Earnings Before Interest, Taxes, Depreciation, Amortization ("Adjusted EBITDA") was $4.0 million as compared to $3.4 million for the three months ended September 30, 2016. The increase in Adjusted EBITDA was primarily due to higher natural gas prices.
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 and the Anadarko Basin in 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.
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 September 30,
Nine months ended September 30,
2017
2016
2017
2016
Revenues:
Oil and gas revenue
$
3,393,732
$
3,294,834
$
15,168,159
$
10,216,232
Gas gathering and compression revenue
1,568,257
2,623,575
5,809,782
7,562,700
Total revenue
4,961,989
5,918,409
20,977,941
17,778,932
Operating costs and expenses:
Project operating costs
1,854,151
2,044,354
5,538,548
6,677,897
Depletion, depreciation, amortization and decommissioning accretion
2,009,068
2,902,950
6,789,550
8,912,214
Stock based compensation expense
54,749
32,091
197,268
179,266
General and administrative
677,715
483,665
2,604,369
1,489,515
Total operating costs and expenses
4,595,683
5,463,060
15,129,735
17,258,892
Operating income (loss)
366,306
455,349
5,848,206
520,040
Other income and (expense):
Interest income
336
27,980
26,092
44,270
Finance expense
(46,485
)
(985,778
)
(1,122,179
)
(3,017,929
)
Realized gain on commodity contracts
1,524,930
-
1,912,905
-
Net change in unrealized loss on commodity contracts
(474,338
)
-
306,249
-
Other expense
21,621
(45
)
26,790
(96,580
)
Net other expense
1,026,064
(957,843
)
1,149,857
(3,070,239
)
Income tax expense - current
-
-
-
23,800
Income tax expense (recovery) - deferred
620,986
153,041
3,403,487
261,234
NET INCOME (LOSS)
$
771,384
$
(655,535
)
$
3,594,576
$
(2,835,233
)
Net income (loss) per share, basic
$
0.01
$
(0.01
)
$
0.07
$
(0.06
)
Net income (loss) per share, diluted
$
0.01
$
(0.01
)
$
0.07
$
(0.06
)
Weighted average number of shares outstanding, basic
55,045,705
45,837,864
51,294,292
45,896,859
Weighted average number of shares outstanding, diluted
55,072,197
45,837,864
51,321,026
45,896,859
EPSILON ENERGY LTD. Interim Unaudited Condensed Consolidated Statements of Financial Position (All amounts stated in US$)
September 30,
December 31,
2017
2016
ASSETS
Current assets
Cash and cash equivalents
$
7,809,273
$
31,486,593
Accounts receivable
2,533,905
4,387,487
Deposits on acquisition
900,000
-
Restricted cash
555,871
530,538
Other current assets
191,844
139,991
Total current assets
11,990,893
36,544,609
Non-current assets
Oil and gas interests:
Intangible exploration and evaluation costs
15,499,296
-
Property and equipment (net)
85,908,965
90,716,131
Total non-current assets
101,408,261
90,716,131
Total assets
$
113,399,154
$
127,260,740
EQUITY AND LIABILITIES
Current liabilities
Accounts payable and accrued liabilities
$
3,518,562
$
5,003,737
Commodity contracts-liability
30,103
336,352
Revolving line of credit
2,900,000
12,460,000
Convertible debentures
-
28,388,210
Total current liabilities
6,448,665
46,188,299
Non-current liabilities
Decommissioning liabilities
2,583,218
2,442,935
Deferred tax liability
18,480,552
15,077,065
Total non-current liabilities
21,063,770
17,520,000
Total liabilities
27,512,435
63,708,299
Equity
Share capital
144,304,163
126,315,325
Equity component of convertible debentures
-
5,033,884
Contributed surplus
11,218,477
6,017,972
Deficit
(78,961,487
)
(82,556,063
)
Accumulated other comprehensive income
9,325,566
8,741,323
Total equity
85,886,719
63,552,441
Total liabilities and shareholders' equity
$
113,399,154
$
127,260,740
EPSILON ENERGY LTD. Interim Unaudited Condensed Consolidated Statements of Cash Flows (All amounts stated in US$)
Nine months ended September 30,
2017
2016
Cash flows from operating activities:
Net income (loss)
$
3,594,576
$
(2,835,233
)
Adjustments for:
Depletion, depreciation, amortization and decommissioning accretion
6,789,550
8,912,214
Debenture accretion and fee amortization
267,773
864,470
Net change in unrealized loss on commodity contracts
(306,249
)
-
Stock-based compensation expense
197,268
179,266
Income tax expense (recovery)
3,403,487
285,034
Income taxes paid
-
(23,800
)
Changes in non-cash balances related to operations
360,101
(411,184
)
Net cash provided by operating activities
14,306,506
6,970,767
Cash flows from investing activities:
Acquisition of oil and natural gas properties - E&E
(15,499,296
)
-
Acquisition of oil and natural gas properties - PP&E
(1,677,000
)
-
Additions to oil and natural gas properties - PP&E
(165,103
)
(254,756
)
Change in working capital related to capital asset additions
(43,547
)
(462,773
)
Change in investment
-
-
Deposits on acquisitions
(900,000
)
-
Changes in restricted cash
(25,333
)
(430,265
)
Net cash used in investing activities
(18,310,279
)
(1,147,794
)
Cash flows from financing activities:
Buyback of common shares
-
(780,340
)
Common stock issued through rights offering (net of issuance costs)
17,907,187
-
Purchase of convertible debentures
-
(357,842
)
Redemption of convertible debentures
(29,520,436
)
-
Exercise of stock options
50,243
-
Repayment of revolving line of credit
(9,560,000
)
(5,540,000
)
Net cash used in financing activities
(21,123,006
)
(6,678,182
)
Effect of currency rates on cash and cash equivalents
1,449,459
869,523
Increase (decrease) in cash and cash equivalents
(23,677,320
)
14,314
Cash and cash equivalents, beginning of period
31,486,593
16,954,664
Cash and cash equivalents, end of period
$
7,809,273
$
16,968,978
Cash and cash equivalents consist of:
Cash
$
7,809,273
$
16,968,978
Cash and cash equivalents
$
7,809,273
$
16,968,978
EPSILON ENERGY LTD. Adjusted EBITDA Reconciliation (All amounts stated in US $000)
Three months ended September 30,
Nine months ended September 30,
2017
2016
2017
2016
Net income (loss)
$
771
$
(655
)
$
3,594
$
(2,835
)
Add back:
Net interest expense
46
958
1,096
2,974
Deferred income tax provision
621
153
3,404
285
Depreciation, depletion, amortization, and accretion
2,009
2,903
6,790
8,912
Stock based compensation expense
55
32
197
179
Net change in unrealized (gain) loss on commodity contracts
474
-
(307
)
-
Foreign Currency Translation
2
(1
)
(3
)
90
Adjusted EBITDA
$
3,978
$
3,390
$
14,771
$
9,605
Epsilon defines Adjusted EBITDA as earnings before (1) net interest expense, (2) taxes, (3) depreciation, depletion, amortization and accretion expense, (4) impairments of oil and gas properties, (5) non-cash stock compensation expense, (6) unrealized gain on derivatives, and (7) other income. Adjusted EBITDA is not a measure of financial performance as determined under IFRS and should not be considered in isolation from or as a substitute for net income or cash flow measures prepared in accordance with IFRS 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 oil and gas companies providing corresponding non-IFRS financial measures or that have different financing and capital structures or tax rates. 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. The table above sets forth a reconciliation of Adjusted EBITDA to net income, which is the most directly comparable measure of financial performance calculated under IFRS and should be reviewed carefully.
