Epsilon Energy Ltd. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Permian Development: Bolt-on acquisition in Q1 2024, incremental investment in two gross wells led to 180% y-o-y oil production increase. Has significant undeveloped acreage in Ector County with potential.
• Alberta JV Progress: Joint venture announced in Oct 2024, with $10 million CapEx planned in 2025 including $7 million drilling carry. Two wells on flowback, plan to drill two more in 2025.
• Marcellus Turnaround: Remaining deferred till wells came on in Jan 2025, production and pricing improved significantly in Q1 2025. Gathering system throughput increased.
• Reserves: Proved reserves grew ~20% y-o-y. Marcellus added ~10 Bcf proved undeveloped reserves with drilling scheduled in 2026. Auburn Gas Gathering System operating pressure lowered, expecting 15% uplift to production. Permian added 11.5 Bcf equivalent proved reserves, with additional interest in Barnett play.

Segment Performance

• Permian: In 2024, achieved 180% year-on-year increase in oil production through a bolt-on acquisition in Q1 and incremental investment in two gross wells. Contributed more than 60% to cash flows. Has 14,000 gross undeveloped acres and up to 40 remaining two mile barn locations in Ector County.
• Alberta (Canada JV): Joint venture announced in Oct 2024 with a 30,000 gross acre position in the Garrington area. Expect ~$10 million CapEx in 2025 including a $7 million drilling carry. Two wells are on flowback, with plan to drill two more wells in the area in 2025.
• Marcellus: Survived challenging gas market in 2024. In Q1 2025, remaining deferred till wells came on in Jan, net revenue interest production was ~30 million cubic feet a day (up 85% from 2024 daily average), and net to wellhead price was over $3.90 per Mcf (up 100% from same period last winter). Gathering system throughput up over 50% from Q3 2024.

Guidance

• Permian: Development to pick back up in Ector County in H2 2025, leveraging significant undeveloped acreage and potential locations.
• Alberta JV: Expect ~$10 million CapEx in 2025 including $7 million drilling carry, with plan to drill two more wells in Garrington area in 2025.
• Marcellus: Expect upstream and midstream cash flows in Marcellus to be up substantially y-o-y in 2025.

Risks

• Gas Market Volatility: Survived oversupplied gas market in 2024, but market conditions can still impact financial results.
• JV Execution Risks: Early stage of JV in Alberta, potential execution risks related to drilling and development timeline.
• Reserve Estimation Risks: Uncertainties in reserve estimation based on operator plans and market conditions.

Q: In 2024, how many wells were drilled and completed in Alberta?

A: Drilled 2 gross wells, 1 net; one commercially successful, one unsuccessful; then two gross wells in Garrington area on flowback.

Q: Discussions with Marcellus operator regarding 2026 reserves?

A: Operator's multi-year plan including 2026-2028 included in reserve report as proved undeveloped, drilling starts in 2026.

Q: Hedge position for natural gas in 2025?

A: Hedged ~30% of 2025 gas production through Oct 2025, out of the money, contemplating adding protection in summer 2026.

Q: Share repurchase activity in 2025?

A: Not active to date, opportunistic with past block purchases at attractive prices.