Operational Updates | Quarterly / Earnings Reports | Second Quarter (2Q) Update | Financial Results | Capital Markets | Midstream - Gas Gathering | Capital Expenditure

Epsilon Sees Drilling Slowdown in 2Q; Marcellus Wells Shut-In

Email    |    Print    |    Bookmark

You Need to login first

   |    Thursday,July 23,2015

Epsilon Energy Ltd. reported second quarter 2015 financial and operating results.

Mr. Michael Raleigh, Chief Executive Officer, commented, "Despite the challenging macro energy environment, the company has continued to generate positive cash and at the end of Q2 had over $19MM in cash.

"As in Q1 we voluntarily imposed production ceilings during the quarter. We are, as other operators in the area, attempting to balance local and regional demand with the very robust productivity of the basin.

"We continue to develop our industry relationships in anticipation of better markets for our gas production and appraise and develop our considerable inventory of high productivity gas resources in the Lower and Upper Marcellus. We are pleased with the contribution of our Midstream assets to the positive cash flow position the company has established."

Highlights:

• Upstream EBITDA of $1.1 million and Midstream EBITDA of $3.0 million for the quarter.
• Marcellus working interest (WI) gas production averaged 35 MMcf/d for the second quarter of 2015. Working interest gas production as of this release is approximately 30 MMcf/d in order to voluntarily manage production ceilings.
• Gathered and delivered 30 Bcfe gross (10.5 Bcfe net to Epsilon's interest) during the quarter, or 329 MMcfe/d through the Auburn System which represents approximately 91% of maximum throughput. Current system throughput is averaging 267 MMcfe/d.
• Auburn Gas gathering and compression services included third party gas of 4.1 Bcfe during the quarter or approximately 45 MMcf/d.

Marcellus Operational Guidance

During the second quarter, Epsilon turned 4 (.12 net) new wells in line; however, the Operator continued to periodically shut-in various combinations of producing wells throughout the second quarter in response to poor natural gas prices. At quarter end, 15 (2.63 net) wells remained shut-in.

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, 2015:

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

Capital Expenditures

Epsilon's total capital expenditures were $1.8 million for the three months ended June 30, 2015. $0.5 million was allocated to completing Marcellus wells, and $1.3 million was allocated to the Auburn Gas Gathering system.

Epsilon's 2015 capital forecast for the remainder of the year is revised to $10 million. Approximately $3.4 million is allocated to the Auburn Gas Gathering system. The remaining $6.6 million upstream budget remains discretionary and will be driven by natural gas pricing in the basin and management's elected pace of proving Upper Marcellus resource on Epsilon's leasehold.

Second Quarter Results

Epsilon generated revenues of $7.2 million for the three months ended June 30, 2015 compared to $15.0 million for the three months ended June 30, 2014. The Company's Marcellus net revenue interest production was 2.8 Bcfe in the second quarter.

Realized natural gas prices averaged $1.25 per Mcf in the second quarter of 2015. Realized natural gas prices in Northeast Pennsylvania continue to be negatively impacted by a significant differential to depressed NYMEX Henry Hub prices. Operating expenses for Marcellus Upstream operations in the second quarter were $2.3 million.

The Auburn Gas Gathering system delivered 30 Bcfe of natural gas during the quarter as compared to 30 Bcfe during the first quarter of 2015. Primary gathering volumes increased 4.6% quarter over quarter to 16.1 Bcfe primarily as a result of improved well performance after the installation of a pressure regulating station at the interconnect of the Rome GGS and Auburn GGS. The regulating station reduces the pressure of the imported crossflow gas, thereby reducing the back pressure on the Auburn system wells. Imported cross-flow volumes increased 28.0% to 13.8 Bcfe.

Epsilon reported net after tax loss of $1.6 million attributable to common shareholders or ($0.03) per basic and diluted common shares outstanding for the three months ended June 30, 2015, compared to net income of $2.7 million, and $0.05 per basic and diluted common shares outstanding for the three months ended June 30, 2014.

For the three months ended June 30, 2015, Epsilon's Adjusted Earnings Before Interest, Income Taxes, Depreciation, Amortization was $4.1 million as compared to $11.0 million for the three months ended June 30, 2014. The decrease in Adjusted EBITDA was primarily due to decreased production and lower natural gas prices.