Epsilon Energy Ltd. Announces Full Year 2021 Results
HOUSTON, March 23, 2022 (GLOBE NEWSWIRE) -- Epsilon Energy Ltd. (“Epsilon” or the “Company”) (NASDAQ: EPSN) today reported its financial results for the fourth quarter and full-year ended December 31, 2021.
Epsilon’s highlights for 2021 and material subsequent events following year end through the date of this release include:
Total Revenues of $42.4 million for the year as compared to $24.4 million for the same period of 2020.
Net after tax income of $11.6 million ($0.49 per share) for the year as compared to $0.9 million ($0.03 per share) for the same period of 2020.
Adjusted EBITDA of $24.1 million for the year as compared to $15.7 million for the same period of 2020.
Average net natural gas prices of $2.68/Mcf including hedges ($3.10/Mcf excluding hedges) for the year as compared to $1.78/Mcf including hedges ($1.36/Mcf excluding hedges) for the same period in 2020. Realized natural gas prices averaged $3.65/Mcf including hedges ($4.36/Mcf excluding hedges) in the fourth quarter of 2021. Hedges total 0.9 Bcf for Q1 2022 and nil thereafter
Cash and cash equivalents at the end of 2021 were $27.1 million (net of $2.4 MM of share repurchases in 2021) as compared to $13.8 million at the end of 2020.
Total estimated proved natural gas reserves of 111.0 Bcf as of December 31, 2021 after 2021 production of 10.2 Bcf, and 1.1 MMbbl of proved oil and other liquid reserves after 2021 production of 54.4 Mbbl. This compares with 88.7 Bcf of gas reserves and 0.37 MMbbls of oil reserves at the end of 2020.
Gathered and delivered 63.2 Bcf gross (22.1 Bcf net to Epsilon’s interest) during the year, or 173 MMcf/d through the Auburn Gas Gathering System.
Marcellus net gas production averaged 26.9 MMcf/d for the year as compared to 30.0 MMcf/d net gas production in 2020. Net gas production as of this release is approximately 22.3 MMcf/d (or 25.7 MMcf/d of working interest gas production) Epsilon has 14 gross (2.29 Net) wells offline for adjacent completion operations and pad compression installations. The shut-in wells (2.29 Net) were producing, in aggregate, slightly more than 4.0 MMcf/d net (or 4.6 MMcf/d working interest gas production) prior to shut-in.
Michael Raleigh, CEO, commented, “During the past year, the Company performed exceptionally well with EBITDA and free cash flow rising significantly year over year. Our cash balance grew roughly 100% to $27 MM, even with our share repurchases of $2.4 MM, and the company remains debt free. We expect to benefit in this more constructive price environment throughout the remainder of the 2022 calendar year as consolidation coupled with capital discipline provides support for constructive commodity prices. The E&P industry has committed to capital spending restraint and generating free cash flow rather than simply expanding production. The new paradigm is flat or slight (5% or less) y-o-y production growth, and living within cash flow.
We continued our measured appraisal program on our Meramec acreage in Oklahoma in early 2022. The Company will complete 2 gross (.55 net) wells during early April 2022. The timing of these completion operations coincides with our expectation for very constructive prices for oil and natural gas liquids. Our evaluation of these two wells will inform our decision regarding further appraisal and development in 2022.
After evaluating our capital expenditures, strong balance sheet, and outlook for 2022, we expect another solid year of cash generation. The Board of Directors elected to expand our commitment to returning capital to shareholders through additional share repurchases and the initiation of a quarterly dividend. All dividends paid by the Company are “eligible dividends” as defined in subsection 89(1) of the Income Tax Act (Canada), unless indicated otherwise.”
Financial and Operating Results
Year ended | ||||||||
December 31, | ||||||||
2021 | 2020 | |||||||
Revenues | ||||||||
Natural gas revenue | $ | 31,708,185 | $ | 15,207,227 | ||||
Volume (MMcf) | 10,233 | 11,204 | ||||||
Avg. Price ($/Mcf) | $ | 3.10 | $ | 1.36 | ||||
PA Exit Rate (MMcfpd) | 29.3 | 32.8 | ||||||
Oil and other liquids revenue | $ | 2,829,982 | $ | 338,325 | ||||
Volume (MBO) | 54.4 | 14.9 | ||||||
Avg. Price ($/Bbl) | $ | 52.02 | $ | 22.66 | ||||
Gathering system revenue | $ | 7,865,825 | $ | 8,879,728 | ||||
Total Revenues | $ | 42,403,992 | $ | 24,425,280 | ||||
Capital Expenditures
Epsilon’s development capital expenditures were $5.4 million for the year ended December 31, 2021. This capital was mainly related to the drilling of three gross (0.42 net) and completion of three gross (0.09 net) Marcellus wells and the drilling of four gross (0.75 net) and completion of two gross (0.6 net) wells in Oklahoma.
The Company has one gross (0.18 net) Marcellus well and two gross (0.55 net) Oklahoma wells that were drilled in 2021 and are scheduled to be completed in April 2022.
Fourth Quarter Results
Epsilon generated revenues of $13.8 million for the three months ended December 31, 2021 compared to $5.9 million for the three months ended December 31, 2020. The Company’s net revenue interest production was 2.60 Bcf in the fourth quarter primarily in Pennsylvania.
Realized natural gas prices averaged $3.65/Mcf including hedges ($4.36/Mcf excluding hedges) in the fourth quarter of 2021. Operating expenses for Marcellus Upstream operations in the fourth quarter were $1.6 million.
The Auburn Gas Gathering system delivered 16.6 Bcf of natural gas during the quarter as compared to 15.3 Bcf during the fourth quarter of 2020. Primary gathering volumes decreased 11.1% quarter over quarter from 13.3 Bcf to 11.8 Bcf. Imported cross-flow volumes decreased 138% from 2.0 Bcf to 4.8 Bcf.
Epsilon reported a net after tax income of $8.0 million attributable to shareholders or $0.34 per basic and $0.33 per diluted shares outstanding for the three months ended December 31, 2021, compared to net income of $1.4 million, and $0.06 per basic and diluted shares outstanding for the three months ended December 31, 2020.
For the three months ended December 31, 2021, Epsilon's Adjusted Earnings Before Interest, Income Taxes, Depreciation, Amortization ("Adjusted EBITDA") was $9.0 million as compared to $4.0 million for the three months ended December 31, 2020. The increase in Adjusted EBITDA was primarily due to the increase in upstream revenue due to the higher prices and increased production due to the completion of six new wells during the year.
Adjusted EBITDA
Epsilon defines Adjusted EBITDA as earnings before (1) net interest expense, (2) taxes, (3) depreciation, depletion, amortization and accretion expense, (4) impairments of natural gas and oil properties, (5) non-cash stock compensation expense, (6) gain or loss on derivative contracts net of cash received or paid on settlement, and (7) other income. Adjusted EBITDA is not a measure of financial performance as determined under U.S. GAAP and should not be considered in isolation from or as a substitute for net income or cash flow measures prepared in accordance with U.S. GAAP 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 natural gas and oil companies providing corresponding non-U.S. GAAP financial measures or that have different financing and capital structures or tax rates. These non-U.S. GAAP financial measures should be considered in addition to, but not as a substitute for, measures for financial performance prepared in accordance with U.S. GAAP.
About Epsilon
Epsilon Energy Ltd. is a North American on-shore focused independent exploration and production company engaged in the acquisition, development, gathering and production of oil and gas reserves. Our primary area of operation is the Marcellus basin in northeast Pennsylvania. Our assets are concentrated in areas with known hydrocarbon resources, which are conducive to multi-well, repeatable drilling programs. For more information, please visit www.epsilonenergyltd.com, where we routinely post announcements, updates, events, investor information, presentations and recent news releases.
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.
Contact Information:
281-670-0002
Michael Raleigh
Chief Executive Officer
Michael.Raleigh@EpsilonEnergyLTD.com
EPSILON ENERGY LTD. | ||||||||
Year ended December 31, | ||||||||
2021 | 2020 | |||||||
Revenues from contracts with customers: | ||||||||
Gas, oil, NGL, and condensate revenue | $ | 34,538,167 | $ | 15,545,552 | ||||
Gas gathering and compression revenue | 7,865,825 | 8,879,728 | ||||||
Total revenue | 42,403,992 | 24,425,280 | ||||||
Operating costs and expenses: | ||||||||
Lease operating expenses | 7,897,738 | 8,052,471 | ||||||
Gathering system operating expenses | 726,646 | 429,749 | ||||||
Development geological and geophysical expenses | 40,299 | 12,910 | ||||||
Depletion, depreciation, amortization, and accretion | 6,627,016 | 9,557,891 | ||||||
Impairment expense | 153,058 | 1,760,000 | ||||||
Gain on sale of oil and gas properties | (484,902 | ) | — | |||||
General and administrative expenses: | ||||||||
Stock based compensation expense | 956,084 | 849,631 | ||||||
Other general and administrative expenses | 5,875,732 | 4,740,332 | ||||||
Total operating costs and expenses | 21,791,671 | 25,402,984 | ||||||
Operating income (loss) | 20,612,321 | (977,704 | ) | |||||
Other income (expense): | ||||||||
Interest income | 38,865 | 43,540 | ||||||
Interest expense | (101,382 | ) | (114,515 | ) | ||||
(Loss) gain on derivative contracts | (4,482,909 | ) | 2,503,655 | |||||
Other income (expense) | 1,130 | (4,385 | ) | |||||
Other (expense) income, net | (4,544,296 | ) | 2,428,295 | |||||
Net income before income tax expense | 16,068,025 | 1,450,591 | ||||||
Income tax expense | 4,440,508 | 575,420 | ||||||
NET INCOME | $ | 11,627,517 | $ | 875,171 | ||||
Currency translation adjustments | (2,042 | ) | 10,169 | |||||
NET COMPREHENSIVE INCOME | $ | 11,625,475 | $ | 885,340 | ||||
Net income per share, basic | $ | 0.49 | $ | 0.03 | ||||
Net income per share, diluted | $ | 0.49 | $ | 0.03 | ||||
Weighted average number of shares outstanding, basic | 23,705,193 | 25,122,501 | ||||||
Weighted average number of shares outstanding, diluted | 23,857,102 | 25,122,501 | ||||||
EPSILON ENERGY LTD. | ||||||||
December 31, | December 31, | |||||||
2021 | 2020 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 26,497,305 | $ | 13,270,913 | ||||
Accounts receivable | 4,596,931 | 3,917,288 | ||||||
Prepaid income taxes | — | 89,285 | ||||||
Other current assets | 569,870 | 500,583 | ||||||
Total current assets | 31,664,106 | 17,778,069 | ||||||
Non-current assets | ||||||||
Property and equipment: | ||||||||
Oil and gas properties, successful efforts method | ||||||||
Proved properties | 138,032,413 | 133,902,723 | ||||||
Unproved properties | 21,700,926 | 21,552,063 | ||||||
Accumulated depletion, depreciation, amortization and impairment | (102,480,972 | ) | (98,200,111 | ) | ||||
Total oil and gas properties, net | 57,252,367 | 57,254,675 | ||||||
Gathering system | 42,475,086 | 42,202,644 | ||||||
Accumulated depletion, depreciation, amortization and impairment | (33,443,949 | ) | (32,101,624 | ) | ||||
Total gathering system, net | 9,031,137 | 10,101,020 | ||||||
Land | 637,764 | 637,764 | ||||||
Buildings and other property and equipment, net | 309,102 | 338,419 | ||||||
Total property and equipment, net | 67,230,370 | 68,331,878 | ||||||
Other assets: | ||||||||
Restricted cash | 568,118 | 565,858 | ||||||
Prepaid drilling costs | — | 379 | ||||||
Total non-current assets | 67,798,488 | 68,898,115 | ||||||
Total assets | $ | 99,462,594 | $ | 86,676,184 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable trade | $ | 1,189,905 | $ | 1,592,451 | ||||
Gathering fees payable | 963,546 | 512,796 | ||||||
Royalties payable | 1,853,508 | 1,155,698 | ||||||
Income taxes payable | 1,098,425 | — | ||||||
Accrued capital expenditures | 1,016,830 | 139,766 | ||||||
Other accrued liabilities | 1,098,127 | 1,002,935 | ||||||
Fair value of derivatives | 239,824 | — | ||||||
Asset retirement obligations | 85,207 | 106,734 | ||||||
Total current liabilities | 7,545,372 | 4,510,380 | ||||||
Non-current liabilities | ||||||||
Asset retirement obligations | 2,748,449 | 3,043,509 | ||||||
Deferred income taxes | 9,905,440 | 10,102,852 | ||||||
Total non-current liabilities | 12,653,889 | 13,146,361 | ||||||
Total liabilities | 20,199,261 | 17,656,741 | ||||||
Commitments and contingencies (Note 10) | ||||||||
Shareholders' equity | ||||||||
Common shares, no par value, unlimited shares authorized and 24,202,218 issued and 23,668,203 outstanding at December 31, 2021, and 23,985,799 shares issued and outstanding at December 31, 2020. | 131,815,739 | 131,730,401 | ||||||
Treasury shares, 534,015 at December 31, 2021 | (2,423,007 | ) | — | |||||
Additional paid-in capital | 8,835,203 | 7,879,119 | ||||||
Accumulated deficit | (68,783,207 | ) | (80,410,724 | ) | ||||
Accumulated other comprehensive income | 9,818,605 | 9,820,647 | ||||||
Total shareholders' equity | 79,263,333 | 69,019,443 | ||||||
Total liabilities and shareholders' equity | $ | 99,462,594 | $ | 86,676,184 | ||||
EPSILON ENERGY LTD. | ||||||||
Year ended December 31, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 11,627,517 | $ | 875,171 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depletion, depreciation, amortization, and accretion | 6,627,016 | 9,557,891 | ||||||
Impairment expense | 153,058 | 1,760,000 | ||||||
Loss (gain) on derivative contracts | 4,482,909 | (2,503,655 | ) | |||||
Gain on sale of oil and gas properties | (484,902 | ) | — | |||||
Settlement of derivative contracts | (4,243,085 | ) | 4,503,457 | |||||
Settlement of asset retirement obligation | — | (79 | ) | |||||
Stock-based compensation expense | 956,084 | 849,631 | ||||||
Deferred income tax benefit | (197,412 | ) | (2,298,612 | ) | ||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (679,643 | ) | 379,629 | |||||
Prepaid income taxes and other current assets | 20,000 | 1,485,320 | ||||||
Accounts payable, royalties payable and other accrued liabilities | 646,410 | 207,613 | ||||||
Income taxes payable | 1,098,425 | — | ||||||
Net cash provided by operating activities | 20,006,377 | 14,816,366 | ||||||
Cash flows from investing activities: | ||||||||
Additions to unproved oil and gas properties | (148,862 | ) | (504,551 | ) | ||||
Additions to proved oil and gas properties | (4,435,945 | ) | (4,870,976 | ) | ||||
Additions to gathering system properties | (297,841 | ) | (731,046 | ) | ||||
Additions to land, buildings and property and equipment | (5,745 | ) | (419,125 | ) | ||||
Proceeds from sale of oil and gas properties | 450,000 | — | ||||||
Prepaid drilling costs | 379 | 745 | ||||||
Net cash used in investing activities | (4,438,014 | ) | (6,524,953 | ) | ||||
Cash flows from financing activities: | ||||||||
Buyback of common shares | (2,423,007 | ) | (9,078,522 | ) | ||||
Exercise of stock options | 85,338 | — | ||||||
Net cash used in financing activities | (2,337,669 | ) | (9,078,522 | ) | ||||
Effect of currency rates on cash, cash equivalents and restricted cash | (2,042 | ) | 10,169 | |||||
Increase in cash, cash equivalents and restricted cash | 13,228,652 | (776,940 | ) | |||||
Cash, cash equivalents and restricted cash, beginning of period | 13,836,771 | 14,613,711 | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | 27,065,423 | $ | 13,836,771 | ||||
Supplemental cash flow disclosures: | ||||||||
Income taxes paid | $ | 3,444,025 | $ | 1,320,000 | ||||
Interest paid | $ | 95,942 | $ | 114,515 | ||||
Non-cash investing activities: | ||||||||
Change in unproved properties accrued in accounts payable and accrued liabilities | $ | (65,000 | ) | $ | — | |||
Change in proved properties accrued in accounts payable and accrued liabilities | $ | (1,097,257 | ) | $ | (1,825,230 | ) | ||
Change in gathering system accrued in accounts payable and accrued liabilities | $ | (25,399 | ) | $ | 26,373 | |||
Asset retirement obligation asset additions and adjustments | $ | 33,234 | $ | 37,722 | ||||
EPSILON ENERGY LTD. | ||||||||
Year ended December 31, | ||||||||
2021 | 2020 | |||||||
Net income | $ | 11,627,517 | $ | 875,171 | ||||
Add Back: | ||||||||
Net interest expense | 62,517 | 70,975 | ||||||
Income tax expense | 4,440,508 | 575,420 | ||||||
Depreciation, depletion, amortization, and accretion | 6,627,016 | 9,557,891 | ||||||
Impairment expense | 153,058 | 1,760,000 | ||||||
Stock based compensation expense | 956,084 | 849,631 | ||||||
Loss on derivative contracts net of cash received or paid on settlement | 239,824 | 1,999,802 | ||||||
Foreign currency translation loss | 1,454 | 2,065 | ||||||
Adjusted EBITDA | $ | 24,107,978 | $ | 15,690,955 | ||||
