Epsilon Energy Ltd. (EPSN) Q1 2025 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to the Epsilon Energy First Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] At this time, I'd like to turn the floor over to Andrew Williamson, Chief Financial Officer. Sir please go ahead.

Thank you, operator. And on behalf of the management team, I would like to welcome all of you to today's conference call to review Epsilon's first quarter 2025 financial and operational results. Before we begin, I would 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 call over to Jason Stabell, our Chief Executive Officer.

Thank you, Andrew. Good morning, and thank you for participating in our 2025 first quarter 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. Company delivered strong results this quarter, primarily attributed to the performance of our Pennsylvania business. Marcellus upstream cash flows were up sequentially over 200% due to a 58% increase in production and a 70% increase in realized pricing. In addition, midstream cash flows increased 140% sequentially on higher throughput volumes. In light of the current oil price volatility, we have been working with our operators to minimize near-term activity. Based on these discussions, we are planning 0.5 net wells in both Texas and Alberta for total capital expenditures of $9 million to $12 million over the balance of this year, including a $1.5 million drilling carry in favor of our operator in Alberta. We don't expect additional investments this year in Pennsylvania. Our diversified portfolio has performed well in the current volatile environment. Our strong balance sheet and projected cash flows leave us well positioned to capitalize on attractive opportunities while maintaining our dividend. I will now pass the call to Andrew and Henry for further details on our finances and operations.

Thanks, Jason. The performance in the Marcellus this quarter demonstrates our assets leverage to incremental development there and a strong pricing environment, both on the upstream and midstream side of the business. As Jason mentioned, we don't expect incremental development there this year, but we have substantial remaining undeveloped inventory, roughly 500,000 completed lateral length feed gross, which we expect to be developed starting late next year or early in 2027. I'll caveat that by saying the operator stated plans are, of course, subject to change based on gas market conditions and other factors. In Texas, our Barnett type curve is economic, and then it delivers above a 15% rate of return down to $55 WTI. We are aligned with the operator in limiting capital spending there to our leasehold obligations, which includes two gross wells over the remainder of the year. Incremental activity will warrant sustained oil prices above $65 WTI. On the hedge book, we're approximately 45% hedged on forecasted PDP oil production for the remainder of the year from May at just over $71 WTI. For gas, we're approximately 30% hedged on forecasted PDP production for the same period at $3.33 in NYMEX. We will look to add to gas hedges, assuming attractive prices for this winter and summer of 2026, keeping a 30% to 40% of PDP production target in this environment. Of course, that target can change with market conditions, capital plans and other factors. Now, to Henry.

Thank you, Jason and Andrew. To add further to Jason's comments regarding development this year, in Texas, the current plan calls for two wells to be drilled to satisfy the lose development obligations. Both of these wells are expected to be 2-mile laterals or longer. The first well is planned to spud in late May with the completion planned for the third quarter. In Canada, our first two horizontal Mannville wells in the Garrington area were completed in the first quarter. The initial well was completed as a 1-mile lateral and the second well was completed as a 1.5 mile lateral. Both wells are currently on production with sales commencing in April. Efforts to optimize production with artificial lift are in progress. Additionally, we continue to work with the operator about the location and timing of the next two wells in the project, which are planned for this year. Thank you. Now, back to Jason.

Thanks, guys. Operator, we can now open the lines for questions.

[Operator Instructions] And our first question today comes from John White from Roth Capital. Please go ahead with your question.

Good morning, and congratulations on the very strong production results at your Marcellus facet. I'm sure you're glad to get these curtailments behind you that you had to endure for most of the last year. You said there's not going to be any more development drilling in Marcellus this year. Do you want to offer any additional details on the first two wells in Alberta and how those are doing?

Hey, John, it's Jason. Thanks for the question. A little early to offer too much there. Other than to say we've got oil and gas started flowing that to sales in early April. So, we're kind of in that first 30 days. Working with the operator to get artificial lift installed and get some facilities tied down. So, I think probably the most helpful thing is, yeah, we're producing cash flow up there right now, but we're really going to have more definitive comments as we march through the second quarter into the third quarter. So, either -- if there's something meaningful on an interim basis, obviously, we'll communicate that with the market, but certainly, I expect a fulsome update on that for our next quarterly reward.

Okay. Given the timing, that's understandable. And thanks for taking my question. I'll turn it back to the operator.

Great. Next?

Thanks, John.

[Operator Instructions] And at this time, I'm showing no additional questions. I'd like to turn the floor back over to management for any closing remarks.

Thank you, operator. I appreciate everybody's continued interest and support of Epsilon. As always, we're here to answer questions if any come to you after we conclude this meeting. And everybody, have a great day, and look forward to speaking to you in the future. Thank you.

And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.