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Epsilon Energy First Quarter 2020 Results

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   |    Wednesday,May 13,2020

Epsilon Energy Ltd. reported first quarter 2020 financial and operating results.

Highlights:

  • Marcellus net revenue interest (NRI) gas production averaged 29.4 MMcf/d (Working Interest of 33.8 MM/d).
     
  • Auburn System gathered and delivered 23 Bcfe gross (8.1 Bcfe net to Epsilon’s interest) which represents approximately 77% of the designed throughput capacity. 
     
  • Total Revenues of $6.4 MM for the quarter
     
  • Generated EBITDA of $4.6 MM and free cash flow (FCF) of $2.9 MM for the quarter.
     
  • Net income before tax of $0.64 MM for the quarter following a $1.76 MM write down of the Oklahoma producing assets resulting from the recent drastic price deterioration due to global oversupply of oil and demand destruction due to the COVID-19 virus.
     
  • Returned $1.5 MM to shareholders through the purchase of 488,029 shares through March 31, 2020 for an average price of $3.07/share
     
  • Realized gas prices of $1.47/Mcfe, (excluding hedges) and $1.99/Mcfe (including hedges)
     
  • Operating expenses including SG&A of $1.18/Mcfe
     
  • Cash at quarter end of $15.4 MM

Michael Raleigh, CEO, commented, “During the first quarter, Epsilon participated in the drilling of four gross wells (0.16 Net) in the Marcellus. Two of the four wells are long reach (>12,000 feet) horizontals. These wells were completed in April and are currently in the process of initial flow back and testing. Given the early indication of productivities and the cost efficiencies of the extended laterals, we believe this group of wells will exhibit attractive rates of return on invested capital. The team has now turned its attention to development plan options for 2021. We look forward to updating our shareholders regarding these plans at the appropriate time.

“We expect the recent precipitous decline in oil prices and distress throughout the E&P industry will lead to much less capital deployed and result in declines to associated natural gas production. Recent winter 2020/2021 supply forecasts in Appalachia are estimated to be approximately 2 Bcf/d below winter 2019/2020 levels. The supply/demand forecasts suggest we could expect a constructive natural gas pricing environment during calendar 2021.”

Financial and Operating Results

  Three months ended
  March 31,
  2020    2019 
Revenues          
Natural gas revenue $   4,019,764   $   5,434,935
Volume (MMcf)   2,727     1,823
Avg. Price ($/Mcf) $ 1.47   $ 2.98
PA Exit Rate (MMcfpd)   33.1     24.6
Oil and other liquids revenue $   91,380   $   72,728
Volume (MBO)   3.1     3.1
Avg. Price ($/Bbl) $ 29.22   $ 23.81
Gathering system revenue $   2,316,702   $   2,438,351
Total Revenues $   6,427,846   $   7,946,014
           

Capital Expenditures

Epsilon’s capital expenditures were $1.4 million for the three months ended March 31, 2020.  This capital was mainly residual spending for the completion of four wells drilled in Q4 2019 in Pennsylvania as well as maintenance of the Auburn Gas Gathering system.

Marcellus Operational Guidance

The operator spud and finished drilling 4 gross (0.16 net to EPSN) new wells during the first quarter of 2020. Subsequent to quarter end, these four new wells were completed and prepared to turn to production. As of the date of this release, these wells are in the process of initial flow back and testing.

First Quarter Results

Epsilon generated revenues of $6.4 million for the three months ended March 31, 2020 compared to $7.9 million for the three months ended March 31, 2019.

Realized natural gas prices averaged $1.47/Mcf (excluding hedges) for Marcellus Upstream operations in the first quarter of 2020. Operating expenses for Marcellus Upstream operations in the first quarter were $1.8 million.

The Auburn Gas Gathering system delivered 23.3 Bcfe of natural gas during the quarter as compared to 22.7 Bcfe during the fourth quarter of 2019.  Primary gathering volumes increased 4.4% quarter over quarter to 15.1 Bcfe.  Imported cross-flow volumes increased 2.6% to 8.2 Bcfe.

Epsilon reported net after tax income of $0.3 million attributable to common shareholders or $0.01 per basic and diluted common share outstanding for the three months ended March 31, 2020, compared to net income of $1.4 million, and $0.05 per basic and diluted common share outstanding for the three months ended March 31, 2019. 

For the three months ended March 31, 2020, Epsilon's Adjusted Earnings Before Interest, Taxes, Depreciation, Amortization ("Adjusted EBITDA") was $4.6 million as compared to $4.4 million for the three months ended March 31, 2019.

Recent Developments

Epsilon is closely monitoring the current and potential impacts of the COVID-19 pandemic on all aspects of our business and geographies, including how it has impacted, and may in the future impact our operations, financial results, liquidity, contractors, customers, employees and vendors. Epsilon has also taken, and is continuing to take, proactive steps to manage any disruption in our business caused by COVID-19. For instance, the Company was an early adopter in employing a work-from-home system, even before any government mandate on non-essential businesses was enacted. Epsilon increased its technology platform, infrastructure and security to allow for a work-from-home environment ahead of the actual need, and therefore, once the hypothetical became a reality, we believe Epsilon was ahead of many companies in this respect. Epsilon has also deployed additional layered safety protocols at our office in order to keep our employees safe and to keep our operations running without material disruption.


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