Epsilon Energy Ltd. (NASDAQ:EPSN) Q1 2023 Earnings Call Transcript
Epsilon Energy Ltd. (NASDAQ:EPSN) Q1 2023 Earnings Call Transcript May 11, 2023
Operator: Good day, and welcome to the Epsilon Energy First Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Andrew Williamson, Chief Financial Officer. Please go ahead, sir.
Andrew Williamson: Thank you, operator. And on behalf of the management team, I'd like to welcome all of you to today's conference call to review Epsilon's first quarter 2023 financial and operational results. Before we begin, I'd like to remind you that our comments may include forward-looking statements. It should be noted that a variety of factors could cause Epsilon's actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. Today's call may also contain certain non-GAAP financial measures. Please refer to the earnings release that we issued yesterday for disclosures on forward-looking statements and reconciliations of non-GAAP measures. With that, I'd like to turn the call over to Jason Stabell, our Chief Executive Officer.
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Jason Stabell: Thank you, Andrew. Good morning to everyone, and thank you for participating in our first quarter 2023 conference call. Joining me today are Andrew Williamson, our CFO; and Henry Clanton, our COO. We will be available to answer questions later in the call. I am pleased to report that we delivered a good first quarter in a challenging natural gas market and the company remains in a very solid position. Unlike our recent earnings calls today, I will not rehash the information contained in our press release and 10-Q filing. Instead, I'd like to focus on what we see as the key elements of the company's value proposition and spend some time discussing the small investment announced in yesterday's release. At present, we see four key attributes to the Epsilon story.
One, our strong legacy asset base; two, our robust balance sheet and liquidity position; three, our commitment to shareholder returns; and four, our ongoing business development activities focused to achieve accretive growth. Let me go into each of these four attributes in more detail. One, our legacy asset base. Our mix of assets provides a diversified revenue stream. The midstream assets provide fee-based, steady and predictable cash flow in a variety of commodity price environments. While our upstream position provides our shareholders exposure to low-cost natural gas. The power of this combination was on display in our 2022 results, where we saw explosive year-over-year growth and upstream cash flows in a rising natural gas price environment.
The first quarter 2023 results demonstrate our resiliency in a depressed natural gas market as we were able to build cash and return money to our shareholders. In the first quarter, 28% of our revenue was generated by our midstream asset as compared to only 12% in full year 2022. Number two, balance sheet and liquidity. Our strong financial position and zero debt allow us to manage commodity exposure opportunistically as demonstrated by the hedge position we put on for 2023. It also allows for our flexible and opportunistic capital allocation approach including acquisitions. Number three, shareholder returns. We are committed to the return of capital to our shareholders. Our regular dividend offers an annual yield of 5% at the current stock price.
Our Board reviews the policy quarterly, but remains very comfortable with the current payout, given it can be funded from the steady midstream cash flow. Also, our liquidity position allows us to opportunistically repurchase shares. This is evidenced by our approved annual buyback program for up to 10% of shares outstanding. Over the last three years, shares outstanding have been reduced by 15%. And four, business development. Yesterday, we announced a small investment in a new project area in Eddy County, New Mexico. This investment delivers immediate cash flow at attractive rates of return and establishes a relationship with a high quality basin focused operator. This is a first step in our effort to diversify our commodity, basin, and operator mix.
This deal can serve as a blueprint for our continued business development efforts, attractive unlevered rates of return, operator alignment, with an opportunity for expanded partnership, all without stressing our balance sheet and liquidity. We believe the combination of these attributes makes our equity an attractive investment at a compelling valuation. We currently have over $2 per share in cash, a diversified revenue stream, a commitment to shareholder returns and an active, but disciplined business development effort across multiple basins. The company is well positioned to capitalize on attractive opportunities in a variety of environments. This all makes us excited about our future. Operator, we can now open the line for questions.
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