Exploration & Production | Quarterly / Earnings Reports | First Quarter (1Q) Update | Financial Results | Capital Markets
Epsilon Shuts In Wells in 1Q; Marks 29 Mmcf/d in Production
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Epsilon Energy Ltd. reported first quarter 2015 financial and operating results.
Mr. Michael Raleigh, Chief Executive Officer, commented, "Despite experiencing historically low realized natural gas prices and electing to plateau production at less than full potential, Epsilon generated $3.9 million of EBITDA during the quarter.
"In addition to adopting voluntary production ceilings during the quarter, our wells were subject to higher back pressures from newly completed wells and operations within interconnected systems. During the 4th quarter of 2014, we proposed and received partner approval to install a pressure control valve at the interconnection between the adjacent system and our Auburn Gas Gathering System. This control valve became operational in mid-April, 2015, and our field wide production is now much more controllable.
"As a result of previously implemented expense reductions and liquidity improvements, Epsilon remains uniquely positioned to capitalize on the current market conditions in northeast Pennsylvania. As long as realized prices remain weak, Epsilon will continue to rationalize its production, and seek to create value in additional ways such as proving the potential of the Upper Marcellus resource and using free cash flow to opportunistically return capital to our shareholders through our share repurchase program.
"We anticipate gradual improvement in natural gas price realizations as the anticipated 4+ Bcf/d of interstate pipeline projects commence service in our local area of the basin over the next few years. As prices improve, we expect to be able to significantly grow the Net Asset Value through realization of the Upper Marcellus potential."
Highlights for the first quarter and material subsequent events following the end of the quarter through the date of this release include:
- Upstream EBITDA of $1.1 million and Midstream EBITDA of $2.8 million for the quarter.
- Marcellus working interest (WI) gas production averaged 29 MMcf/d for the first quarter of 2015. Working interest gas production as of this release is approximately 35 MMcf/d.
- Gathered and delivered 26 Bcfe gross (9 Bcfe net to Epsilon's interest) during the quarter, or 290 MMcfe/d through the Auburn System which represents approximately 80% of the maximum throughput. Current system throughput is averaging 355 MMcfe/d.
- Auburn Gas gathering and compression services included third party gas of 4.9 Bcfe during the quarter or approximately 55 MMcf/d.
Capital Expenditures
Epsilon's total capital expenditures were $1.4 million for the three months ended March 31, 2015. $1.1 million was allocated to drilling and completing Marcellus wells, and $0.3 million was allocated to the ongoing build-out of the Auburn Gas Gathering system.
Epsilon's 2015 capital forecast for the remainder of the year is $15 million. Approximately $4.7 million is allocated to the Auburn Gas Gathering system which represents a $3.6 million reduction from the $8.6 million originally budgeted for 2015. This decrease in anticipated midstream capital expenditures is commensurate with the reduced pace of upstream drilling and completion activity by the operator given the current low price environment. The remaining $10.3 million upstream budget remains discretionary and will be driven by management's elected pace of proving Upper Marcellus resource on Epsilon's leasehold.
Marcellus Operational Guidance
During the first quarter, Epsilon turned 6 (.15 net) new wells in line. 1 well (.00 net) was returned to production, but 4 (0.06 net) wells were shut-in for adjacent fracing operations. Additionally, throughout the quarter, the Operator periodically shut-in various combinations of producing wells in response to poor natural gas prices. At quarter end, including wells shut in for adjacent fracing operations, 11 (.71 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 March 31, 2015:
First Quarter Results
Epsilon generated revenues of $6.6 million for the three months ended March 31, 2015 compared to $14.1 million for the three months ended March 31, 2014. The Company's Upstream Marcellus net revenue interest production was 2.3 Bcfe in the first quarter.
Realized natural gas prices averaged $1.40 per Mcf in the first 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 first quarter were $1.6 million.
The Auburn Gas Gathering system delivered 26 Bcfe of natural gas during the quarter as compared to 30 Bcfe during the fourth quarter of 2014. Primary gathering volumes increased 3.5% quarter over quarter to 15.3 Bcfe primarily as a result of the commencement of gathering services to the first third party pad in the system. Imported cross-flow volumes decreased 30.5% to 10.8 Bcfe primarily as a result of voluntary well shut-ins and production ceilings in adjacent systems as a response to natural gas prices.
Epsilon reported net after tax loss of $0.7 million attributable to common shareholders or ($0.01) per basic and diluted common shares outstanding for the three months ended March 31, 2015, compared to a net loss of $0.1 million, and $0.00 per basic and diluted common shares outstanding for the three months ended March 31, 2014.
For the three months ended March 31, 2015, Epsilon's Adjusted Earnings Before Interest, Income Taxes, Depreciation, Amortization ("Adjusted EBITDA") was $3.9 million as compared to $11.4 million for the three months ended March 31, 2014. The decrease in Adjusted EBITDA was primarily due to decreased production and lower natural gas prices.