HOUSTON, Nov. 14, 2025 (GLOBE NEWSWIRE) -- Epsilon Energy Ltd. (“Epsilon” or the “Company”) (NASDAQ: EPSN) today reported the consummation of the previously announced acquisitions of Peak Exploration and Production LLC and Peak BLM Lease LLC (together, the “Peak Companies”) (the “Closing”). The Closing followed a special meeting of the Company’s shareholders held on November 12, 2025, where the Company’s shareholders approved the issuance of common shares in connection with the acquisitions. As consideratio ...

Financial Data and Key Metrics Changes - The company reported year-to-date adjusted earnings of $0.45 per share, which included adjustments for a Canadian impairment and transaction expenses related to the Peak acquisition [9][10] - The pro forma leverage is described as very manageable, allowing the company to execute on capital investment and shareholder return plans over the next few years [9] Business Line Data and Key Metrics Changes - In the Permian, the company participated in the drilling and completion of the eighth well, which commenced production late in the quarter, contributing to strong performance [3][4] - The Marcellus region experienced sub-$2 net gas pricing due to shoulder season inventory builds, leading to operator-elected production curtailments, but pricing improved with a colder start to November [4][6] Market Data and Key Metrics Changes - The company has hedged approximately 60% of PDP oil volumes for 2026 at a weighted average WTI strike price of $63.30 per barrel, and about 50% of gas volumes with a weighted average floor above $3.30 and ceiling above $5.00 [8] Company Strategy and Development Direction - The acquisition of Peak Companies in the Powder River Basin is seen as a major strategic milestone, expected to enhance the company's position for success and outperformance in the medium and long term [3][5] - The company plans to focus on production optimization and the highly economic conventional Parkman inventory post-acquisition [5][6] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the integration of the Peak team and the potential for transformational results in 2027 under favorable market conditions [7][32] - The company anticipates increased investment in the Marcellus position over the next several years as the operator shifts focus towards the Auburn area, which holds over 15 gross un-drilled locations [6][15] Other Important Information - The company has executed definitive agreements to acquire Peak Companies, which includes the issuance of up to 8.5 million shares, subject to shareholder approval [5] - The company is in the early stages of exploring a sale of non-core midstream assets in Oklahoma [16] Q&A Session Summary Question: Clarity on BLM permits and development timeline for Parkman wells - Management confirmed that BLM has started reissuing permits in Converse, allowing for initial infrastructure investments, with a focus on development expected to kick off in late 2026 or early 2027 [22][23] Question: Expected activity for 2026 - Preliminary plans indicate approximately $20 million of CapEx in Peak assets, with $6 million allocated for two wells in the Permian and $13 million for Marcellus, though some CapEx may slide into 2027 [27][28] Question: Integration of the Peak team and non-drilling investments - Management expressed confidence in a smooth integration process, having done significant front-end work to ensure the right team is in place post-close [32] Question: Activity of offset operators in Campbell County and Converse - Management noted that most offset operators have drilled up the Parkman due to its economic viability, with ongoing activity in Niobrara and Mowry, and an expectation of increased rig counts in the Powder River Basin [35][36]

Financial Performance - Total revenue for Q3 2025 reached $8,981,459, a 23.3% increase from $7,287,941 in Q3 2024[19] - Net income for Q3 2025 was $1,072,295, compared to $366,021 in Q3 2024, representing a 194.5% increase[19] - Operating income for the nine months ended September 30, 2025, was $8,602,597, significantly higher than $2,813,088 for the same period in 2024[19] - Net income for the nine months ended September 30, 2025, was $6,639,790, compared to $2,688,577 for the same period in 2024, representing a significant increase[24] - Total operating revenue for the nine months ended September 30, 2025, was $36,769,332, a 62.7% increase compared to $22,582,502 for the same period in 2024[72] - The net income for the three months ended September 30, 2025, was $1,072,295, compared to $366,021 for the same period in 2024, indicating a significant increase of 194%[92] - For the nine months ended September 30, 2025, net income reached $6,639,790, up from $2,688,577 in 2024, reflecting a growth of 147%[92] Cash and Assets - Cash and cash equivalents increased to $12,766,167 as of September 30, 2025, up from $6,519,793 at December 31, 2024[17] - Total assets grew to $126,293,005 as of September 30, 2025, compared to $120,454,785 at December 31, 2024[17] - Total cash, cash equivalents, and restricted cash at the end of the period was $13,236,167, up from $8,774,971 at the end of the same period in 2024[24] - The company had a working capital surplus of $9.2 million as of September 30, 2025, up from $7.2 million at the end of 2024[171] Liabilities and Equity - Total current liabilities increased to $9,924,626 as of September 30, 2025, compared to $6,980,007 at December 31, 2024[17] - The accumulated deficit decreased to $(38,995,173) as of September 30, 2025, from $(41,505,076) at December 31, 2024[21] - Operating lease liabilities totaled $387,062 as of September 30, 2025, down from $476,911 at the end of 2024, a reduction of approximately 18.8%[88] - The company had commitments of $0.2 million for capital expenditures as of September 30, 2025[86] Revenue Breakdown - Gas, oil, NGL, and condensate revenue for Q3 2025 was $7,536,248, up from $6,203,953 in Q3 2024, marking a 21.5% increase[19] - Natural gas revenue for the three months ended September 30, 2025, was $4,758,578, up 150.5% from $1,903,946 in the same period of 2024[72] - Upstream natural gas revenue for the nine months ended September 30, 2025, increased by $15.5 million, or 226%, compared to the same period in 2024[148] - Upstream oil and condensate revenue for the nine months ended September 30, 2025, decreased by $1.7 million, or 17%, compared to the same period in 2024[150] Expenses and Impairments - Stock-based compensation expense for the nine months ended September 30, 2025, was $1,148,289, compared to $944,267 in 2024, reflecting increased compensation costs[24] - The company experienced an impairment expense of $2,676,669 in 2025, which was not present in 2024, indicating potential challenges in asset valuation[24] - The company recorded an impairment of $2.7 million for two wells in Alberta, Canada, due to lower than expected production and cost overruns[48] - General and administrative expenses for the three months ended September 30, 2025, increased by $1.1 million, or 62%, compared to the same period in 2024, primarily due to transaction expenses related to the pending Peak acquisition[162] Acquisitions and Investments - The company plans to acquire Peak Exploration and Production LLC and Peak BLM Lease LLC for a total consideration of 6 million common shares and the assumption of approximately $51.2 million in debt, expected to close in Q4 2025[28] - The acquisition will include 40,500 net acres producing 2.2 MBoepd in the Powder River Basin, enhancing the company's asset base[28] - Epsilon acquired a 25% interest in three producing wells and 3,620 gross undeveloped acres in Ector County, Texas, with total capital expenditures of $42 million through September 30, 2025[131] Derivative Contracts and Risk Management - The company engaged in price risk management activities to mitigate exposure to fluctuations in commodity prices for natural gas and oil through derivative contracts[102] - Epsilon Energy Ltd. recognized gains on commodity derivative contracts of $964,307 and $2,076,000 for the three and nine months ended September 30, 2025, respectively, compared to $440,712 and $245,095 for the same periods in 2024[106] - The net fair value of derivatives at September 30, 2025, was $889,187, an increase from a net liability of $487,548 at December 31, 2024[108] Tax and Compliance - The Company reported total current income tax expense of $473,344 for the three months ended September 30, 2025, compared to a tax benefit of $(270,426) in 2024[81] - The effective tax rate for the nine months ended September 30, 2025, was higher than the statutory federal rate due to state income taxes and valuation allowances against Canadian net operating losses[84] - Epsilon Energy Ltd. filed certifications under Sarbanes-Oxley Section 302 for both the Principal Executive Officer and Principal Financial Officer[204] Future Outlook - The company has focused recent investments in the Permian Basin in Texas and the Western Canadian Sedimentary Basin in Alberta, Canada[130] - Epsilon's business strategy includes disciplined capital allocation and maintaining a strong balance sheet to invest in existing and potential new projects[129]

HOUSTON, Nov. 05, 2025 (GLOBE NEWSWIRE) -- Epsilon Energy Ltd. (“Epsilon” or the “Company”) (NASDAQ: EPSN) today reported third quarter 2025 financial and operating results. Third Quarter 2025 Highlights: Epsilon - Q3 2025 Q3 2025Q2 2025Q3 2024QoQ%YoY%YTD 2025<td style="border-left: solid black 1pt ; text-align: left ; v ...

Core Viewpoint - Epsilon Energy Ltd. is set to release its third quarter 2025 earnings on November 5, 2025, and will host a conference call on November 6, 2025, to discuss the results [1] Company Information - Epsilon Energy Ltd. operates as a North American onshore natural gas and oil production and gathering company with assets located in Pennsylvania, Texas, New Mexico, Oklahoma, and Alberta, Canada [3]

Core Points - Epsilon Energy Ltd. has closed a new senior secured reserve-based revolving credit facility with Frost Bank and Texas Capital Bank, replacing the previous credit facility [1][2] - The new credit facility will initially fund alongside the acquisition of Peak companies, with proceeds allocated to repay Peak's existing term loan of approximately $49.6 million [1][2] - The credit facility has an initial borrowing base of $47.5 million, supported by existing US upstream assets, and will be redetermined after the acquisition [4] Financial Details - The new credit facility has a four-year term, maturing on October 8, 2029 [4] - Interest on drawdowns will be charged at the 3-Month Term SOFR rate plus a margin of 3-4%, depending on facility utilization, with payments due quarterly [4] - The facility allows for semi-annual redeterminations, enhancing the company's liquidity and balance sheet strength [2][4]

Financial Data and Key Metrics Changes - The company reported a cash flow decrease of approximately 30% quarter over quarter due to significantly lower realized pricing for gas and oil [13] - Proved reserves increased by over 150% based on third-party reports, with liquids production rising by over 200% and priority inventory count increasing by over 600% [12] Business Line Data and Key Metrics Changes - The acquisition of the Peak Companies adds approximately 2,200 net barrels of oil equivalent daily production, with 56% being oil [15] - The company plans to develop three high working interest Parkman wells in the first quarter of the following year, subject to the closing timeline of the transactions [15] Market Data and Key Metrics Changes - Approximately 30% of the identified priority inventory is currently affected by a drilling permit moratorium in Converse County, Wyoming, but the company is optimistic about the moratorium being lifted soon [7] Company Strategy and Development Direction - The acquisition of the Peak Companies is seen as a strategic move to enhance the company's asset base and operational control, providing opportunities for both organic and inorganic growth [5] - The company aims to maintain its existing per share dividend while having sufficient discretionary cash flow to drive growth through a development plan covering multiple regions starting next year [11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding the regulatory environment and the potential lifting of the drilling permit moratorium, which would allow access to additional inventory [7] - The company anticipates that the addition of the Peak asset base will enhance capabilities and control to add per share value [7] Other Important Information - The transaction consideration includes the issuance of 6,000,000 Epsilon common shares and the assumption of approximately $49 million of long-term debt [9] - The company plans to file a proxy statement in the fall with additional details on the transaction and financial position of the pro forma business [12] Q&A Session Summary - No specific questions or answers were documented in the provided content, indicating that the Q&A session was brief or not detailed in the records [20]

Group 1: Earnings Performance - Epsilon Energy Ltd. reported quarterly earnings of $0.07 per share, missing the Zacks Consensus Estimate of $0.08 per share, representing an earnings surprise of -12.50% [1] - The company posted revenues of $11.63 million for the quarter ended June 2025, missing the Zacks Consensus Estimate by 1.9%, compared to year-ago revenues of $7.31 million [2] - Over the last four quarters, Epsilon Energy has surpassed consensus EPS estimates just once and topped consensus revenue estimates two times [2] Group 2: Stock Performance and Outlook - Epsilon Energy shares have added about 2.4% since the beginning of the year, underperforming the S&P 500's gain of 9.6% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the coming quarter is $0.03 on $11.5 million in revenues, and $0.34 on $50.87 million in revenues for the current fiscal year [7] Group 3: Industry Context - The Zacks Industry Rank for Oil and Gas - Integrated - United States is currently in the bottom 17% of over 250 Zacks industries, indicating potential challenges for stock performance [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact investor decisions [5] - The estimate revisions trend for Epsilon Energy was unfavorable ahead of the earnings release, resulting in a Zacks Rank 4 (Sell) for the stock, suggesting expected underperformance in the near future [6]

[Membership Interest Purchase Agreement Overview](index=1&type=section&id=Membership%20Interest%20Purchase%20Agreement) This agreement outlines the sale of PEAK EXPLORATION & PRODUCTION, LLC's membership interests to EPSILON ENERGY USA, INC. [Parties to the Agreement](index=1&type=section&id=Parties%20to%20the%20Agreement) This section identifies the key parties to the agreement, including Sellers, Purchaser, and their respective parent entities - The agreement details the sale of **all issued and outstanding interests** of PEAK EXPLORATION & PRODUCTION, LLC[14](index=14&type=chunk) Key Parties in the Transaction | Role | Entity Name | | :--- | :--- | | **Sellers** | Various entities and individuals listed in Annex I | | **Company Being Sold** | PEAK EXPLORATION & PRODUCTION, LLC | | **Purchaser** | EPSILON ENERGY USA, INC. | | **Purchaser Parent** | EPSILON ENERGY LTD. | | **Sellers' Representative** | YORKTOWN ENERGY PARTNERS XI, L.P. | [ARTICLE 1: DEFINITIONS AND INTERPRETATION](index=8&type=section&id=ARTICLE%201%20DEFINITIONS%20AND%20INTERPRETATION) This article establishes the definitions for capitalized terms and provides rules for agreement interpretation [Section 1.1: Defined Terms](index=8&type=section&id=Section%201.1%20Defined%20Terms) This section specifies that capitalized terms are **primarily defined in Appendix A** and apply consistently throughout the document - Capitalized terms used in the agreement are **primarily defined in Appendix A**[17](index=17&type=chunk) [Section 1.2: References and Rules of Construction](index=8&type=section&id=Section%201.2%20References%20and%20Rules%20of%20Construction) This section provides guidelines for interpreting the agreement, covering references, common terms, and accounting principles - All references to Exhibits, Annexes, Schedules, and Appendices are incorporated into the agreement[19](index=19&type=chunk) - The term "made available to Purchaser" means documents were posted to the Data Room **at least two business days before the Execution Date**[19](index=19&type=chunk) [ARTICLE 2: PURCHASE AND SALE](index=9&type=section&id=ARTICLE%202%20PURCHASE%20AND%20SALE) This article details the core transaction of selling Company Interests and establishes the financial effective time [Section 2.1: Purchase and Sale](index=9&type=section&id=Section%202.1%20Purchase%20and%20Sale) This section outlines the core transaction where Sellers transfer Company Interests to Purchaser **free and clear of encumbrances** - Sellers agree to sell the Company Interests to the Purchaser, and the Purchaser agrees to buy them at Closing[21](index=21&type=chunk) [Section 2.2: Effective Time](index=9&type=section&id=Section%202.2%20Effective%20Time) This section establishes the financial effective time for asset transfer as **12:01 a.m., Mountain Time, on January 1, 2025** - The financial effective time of the transaction is set for **12:01 a.m., Mountain Time, on January 1, 2025**[22](index=22&type=chunk) [ARTICLE 3: PURCHASE PRICE](index=9&type=section&id=ARTICLE%203%20PURCHASE%20PRICE) This article defines the purchase price, its allocation for tax purposes, and various adjustments [Section 3.1: Purchase Price](index=9&type=section&id=Section%203.1%20Purchase%20Price) The purchase price is **5,800,000 common shares** of Purchaser Parent, subject to **proportionate adjustment** Unadjusted Purchase Price | Consideration Type | Amount | | :--- | :--- | | Purchaser Parent Common Stock | 5,800,000 shares | - The number of shares is subject to **proportionate adjustment** for events like stock splits, dividends, or mergers involving Purchaser Parent stock before closing[24](index=24&type=chunk)[25](index=25&type=chunk) [Section 3.2: Allocation of Purchase Price](index=10&type=section&id=Section%203.2%20Allocation%20of%20Purchase%20Price) This section details the purchase price allocation for tax purposes, based on the **60-day volume-weighted average price (VWAP)** of Purchaser Parent stock - The purchase price will be allocated among the assets according to the methodologies in Schedule 3.2 and **IRS Code Section 1060**[26](index=26&type=chunk) - For tax purposes, the Purchaser Parent Common Stock will be valued using the **60-day volume-weighted average price (VWAP)** prior to the Closing Date[26](index=26&type=chunk) [Section 3.3: Adjustments to Purchase Price](index=10&type=section&id=Section%203.3%20Adjustments%20to%20Purchase%20Price) This section outlines upward and downward adjustments to the purchase price, converted into Purchaser Parent shares - The Unadjusted Purchase Price will be adjusted upward for the **appraised value of the Durango Building**[29](index=29&type=chunk) - Downward adjustments include reductions for title/environmental defects, suspense funds, leakage, company transaction expenses exceeding the Fee Cap, and the value of Purchaser's non-oil and gas real estate in Pennsylvania[29](index=29&type=chunk) - All dollar-based adjustments will be converted to an equivalent number of Purchaser Parent shares using the **60-day VWAP** prior to closing[28](index=28&type=chunk) [Section 3.4: Allocated Values](index=11&type=section&id=Section%203.4%20Allocated%20Values) This section specifies "Allocated Values" for assets, used for defect thresholds but not for purchase price adjustments - Allocated Values for assets are listed in Schedule 3.4 and are used to determine if the **Individual Defect Threshold** and **Aggregate Defect Deductible** are met[30](index=30&type=chunk)[31](index=31&type=chunk) - Sellers do not represent or warrant the accuracy of the Allocated Values[31](index=31&type=chunk) [ARTICLE 4: TITLE AND ENVIRONMENTAL MATTERS](index=12&type=section&id=ARTICLE%204%20TITLE%20AND%20ENVIRONMENTAL%20MATTERS) This article outlines the processes for identifying, notifying, and adjusting for title and environmental defects [Section 4.1: Sellers' and the Company Group's Title](index=12&type=section&id=Section%204.1%20Sellers'%20and%20the%20Company%20Group's%20Title) This section disclaims Sellers' title warranties, limiting Purchaser's **sole remedy** to the adjustment process or special warranty - Sellers expressly disclaim any representation or warranty regarding title to the assets, except for the special warranty in Section 6.25[32](index=32&type=chunk) - Purchaser's **sole remedy** for title defects is the adjustment process defined in this Article 4 before the Claim Date, and the special warranty thereafter[32](index=32&type=chunk) [Section 4.2: Notice of Title Defects; Title Defect Adjustments](index=13&type=section&id=Section%204.2%20Notice%20of%20Title%20Defects%3B%20Title%20Defect%20Adjustments) This section details the procedure for Purchaser to claim Title Defects, including notice, cure rights, and adjustment - Purchaser must deliver a Title Defect Notice to Sellers' Representative no later than **5:00 p.m. Mountain Time, 45 days after the Execution Date (the "Claim Date")**[35](index=35&type=chunk) - Sellers have a "**Cure Period**" ending **two business days before the Closing Date** to attempt to cure any asserted Title Defects at their own expense[36](index=36&type=chunk) - The "**Title Defect Amount**" is calculated based on specific methodologies, such as the cost to remove a lien or a formula based on the reduction in Net Revenue Interest or Net Mineral Acres[42](index=42&type=chunk)[43](index=43&type=chunk) [Section 4.3: Title Benefits](index=15&type=section&id=Section%204.3%20Title%20Benefits) This section allows Sellers to assert Title Benefits, which offset downward purchase price adjustments from Title Defects - Sellers can assert **Title Benefits** by delivering a **Title Benefit Notice** on or before the Claim Date[44](index=44&type=chunk) - Title Benefit Amounts are used only as an **offset against Title Defect Amounts** and do not result in an upward adjustment to the Unadjusted Purchase Price[46](index=46&type=chunk) [Section 4.4: Notice of Environmental Defects; Environmental Defect Adjustments](index=17&type=section&id=Section%204.4%20Notice%20of%20Environmental%20Defects%3B%20Environmental%20Defect%20Adjustments) This section outlines the process for addressing Environmental Defects, including notice, cure rights, and Purchaser's disclaimers - Purchaser must deliver an **Environmental Defect Notice** by the Claim Date, detailing the alleged defect, affected assets, and a calculation of the **Remediation Amount**[50](index=50&type=chunk) - The remedy for an uncured Environmental Defect is a reduction in the Unadjusted Purchase Price by the **Remediation Amount**, subject to applicable thresholds[56](index=56&type=chunk) - Purchaser acknowledges the assets have been used for **oil and gas operations** and may contain hazardous substances like **NORM and asbestos**, waiving claims except as provided in this article[59](index=59&type=chunk) [Section 4.5: Limitations on Applicability](index=20&type=section&id=Section%204.5%20Limitations%20on%20Applicability) This section establishes financial thresholds for Title and Environmental Defect claims, including **individual and aggregate deductibles** Defect Claim Thresholds | Threshold Type | Amount | Description | | :--- | :--- | :--- | | **Individual Defect Threshold** | **$75,000** | No adjustment for any single Title or Environmental Defect below this amount | | **Aggregate Defect Deductible** | **$1,000,000** | No adjustments unless the total of all qualifying defects exceeds this amount. Purchaser is then entitled to adjustments only for the amount in excess of the deductible | [Section 4.6: Title and Environmental Disputes](index=20&type=section&id=Section%204.6%20Title%20and%20Environmental%20Disputes) This section provides an **exclusive dispute resolution mechanism** for title and environmental disagreements via a **neutral Consultant** - Disputes over title or environmental matters that cannot be resolved by the parties before Closing will be submitted to a **neutral Consultant** for a final and binding resolution[64](index=64&type=chunk) - The Consultant will be an experienced attorney for title disputes or an environmental attorney for environmental disputes[66](index=66&type=chunk) - The dispute resolution process is **not intended to delay the Closing**; adjustments for disputed matters will be made post-Closing based on the Consultant's decision[72](index=72&type=chunk) [Section 4.7: Casualty or Condemnation Loss](index=22&type=section&id=Section%204.7%20Casualty%20or%20Condemnation%20Loss) This section addresses **Casualty Losses**, requiring Purchaser to close without price reduction and receive related **insurance proceeds and condemnation awards** - If a **Casualty Loss** occurs before Closing, the Purchaser must still close the transaction with **no reduction to the purchase price**[73](index=73&type=chunk) - Upon Closing, Purchaser becomes entitled to all **insurance proceeds and condemnation awards** related to the **Casualty Loss**[73](index=73&type=chunk) [ARTICLE 5: REPRESENTATIONS AND WARRANTIES OF SELLERS](index=22&type=section&id=ARTICLE%205%20REPRESENTATIONS%20AND%20WARRANTIES%20OF%20SELLERS) This article contains the Sellers' fundamental representations and warranties regarding their legal standing and the transaction [Sections 5.2-5.5: Existence, Power, Authorization, and Conflicts](index=23&type=section&id=Section%205.2%20-%205.5) These sections contain Sellers' representations that they are **duly formed and validly existing entities**, authorized, and the transaction has no conflicts - Each Seller warrants it is a **duly formed and validly existing entity**[76](index=76&type=chunk) - Sellers confirm they have the necessary power and authority to execute the agreement and that it is a **legally enforceable obligation**[77](index=77&type=chunk)[78](index=78&type=chunk) - The execution of the agreement will not conflict with Sellers' organizational documents, material contracts, or laws, except as disclosed in Schedule 5.5[79](index=79&type=chunk) [Section 5.6: Capitalization](index=24&type=section&id=Section%205.6%20Capitalization) Each Seller represents ownership of Company Interests **free of encumbrances**, transferring **good and valid title** to Purchaser at Closing - Each Seller warrants ownership of the Company Interests as detailed in Schedule 5.6, **free of encumbrances**[80](index=80&type=chunk) - At Closing, Purchaser will receive **good and valid title** to the Company Interests[81](index=81&type=chunk) [Sections 5.7-5.10: Brokers' Fees, Litigation, Bankruptcy, and Credit Support](index=24&type=section&id=Section%205.7%20-%205.10) These sections provide Sellers' warranties regarding brokerage fees, absence of litigation or bankruptcy, and credit support - Sellers are **responsible for their own brokerage or finder's fees**[82](index=82&type=chunk) - There are **no pending or threatened bankruptcy proceedings** against any Seller[83](index=83&type=chunk) - Schedule 5.10 provides a **complete list of all credit support** (bonds, letters of credit, etc.) posted by Sellers or their Affiliates for the Company Group[84](index=84&type=chunk) [ARTICLE 6: REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY GROUP AND THE ASSETS](index=24&type=section&id=ARTICLE%206%20REPRESENTATIONS%20AND%20WARRANTIES%20REGARDING%20THE%20COMPANY%20GROUP%20AND%20THE%20ASSETS) This article details the Company Group's representations and warranties concerning its operations, assets, and financial condition [Sections 6.2-6.5: Company Existence, Power, Authorization, and Conflicts](index=25&type=section&id=Section%206.2%20-%206.5) The Company represents its **validly existing LLC in good standing under Delaware law**, power, proper authorization, and absence of conflicts with its obligations - The Company is a **validly existing LLC in good standing under Delaware law**[86](index=86&type=chunk) - The agreement is a **valid and binding obligation of the Company**, duly authorized by all necessary company action[88](index=88&type=chunk) [Section 6.6: Capitalization](index=26&type=section&id=Section%206.6%20Capitalization) This section details the Company's capital structure, confirming **Sellers own all issued and outstanding Interests of the Company** Company Interests as of Execution Date | Interest Type | Amount | | :--- | :--- | | Common Units | **2,325,510** | | Preferred Units | **958,864** | | Tier I Profits Units | **0 outstanding** | | Tier II Profits Units | **0 outstanding** | - **Sellers own all issued and outstanding Interests of the Company**[91](index=91&type=chunk) - Except as listed in Schedule 6.6(c), there are **no outstanding options, warrants, or other rights** to acquire Company Interests[92](index=92&type=chunk) [Section 6.9: Taxes and Assessments](index=27&type=section&id=Section%206.9%20Taxes%20and%20Assessments) The Company represents **all material Tax Returns** are filed and paid, with **no pending or threatened tax audits or deficiencies** - **All material Tax Returns** for the Company Group have been **timely filed and are accurate, and all material Taxes have been paid**[98](index=98&type=chunk) - There are **no pending or threatened tax audits or deficiencies** against the Company Group, except as disclosed in Schedule 6.9[101](index=101&type=chunk)[102](index=102&type=chunk) - The Company has always been **classified as a partnership for federal income tax purposes**, and its **subsidiaries as disregarded entities**[106](index=106&type=chunk) [Section 6.12: Material Contracts](index=29&type=section&id=Section%206.12%20Material%20Contracts) This section defines and lists the Company's **Material Contracts**, warranting their validity and absence of default - Schedule 6.12 lists all **Material Contracts**, which include those with payments or revenues over **$100,000/year**, hydrocarbon sales agreements, and joint operating agreements[117](index=117&type=chunk)[118](index=118&type=chunk) - The Company warrants that there are **no material defaults under any Material Contract** by the Company Group or, to its knowledge, any other party[120](index=120&type=chunk) [Section 6.17: Environmental Matters](index=32&type=section&id=Section%206.17%20Environmental%20Matters) The Company represents **material compliance with Environmental Laws** and absence of **material Environmental Claims** - The Company Group and its assets are in **compliance with Environmental Laws in all material respects**[125](index=125&type=chunk) - There are **no pending or, to the Company's knowledge, threatened material Environmental Claims** against the Company Group or its assets[125](index=125&type=chunk) [Section 6.28: Employment Matters](index=35&type=section&id=Section%206.28%20Employment%20Matters) This section provides representations regarding Company employees, labor law compliance, and absence of labor agreements - Schedule 6.28(a)(i) **lists all Employees**, and Schedule 6.28(a)(ii) **lists all Contingent Workers**[138](index=138&type=chunk) - **No Employees are represented by a labor union**, and there are **no labor agreements in place**[139](index=139&type=chunk)[140](index=140&type=chunk) - The Company Group is in **material compliance with all applicable labor and employment laws**[141](index=141&type=chunk) [Section 6.39: Financial Statements](index=41&type=section&id=Section%206.39%20Financial%20Statements) The Company represents its financial statements are true, complete, **prepared in accordance with GAAP and fairly present the Company Group's financial condition** - Schedule 6.39 contains the Company Group's **audited annual financial statements for 2022, 2023, and 2024**, and **unaudited interim statements as of June 30, 2025**[169](index=169&type=chunk) - The financial statements were **prepared in accordance with GAAP and fairly present the Company Group's financial condition**[169](index=169&type=chunk) [ARTICLE 7: REPRESENTATIONS AND WARRANTIES OF PURCHASER](index=41&type=section&id=ARTICLE%207%20REPRESENTATIONS%20AND%20WARRANTIES%20OF%20PURCHASER) This article outlines the Purchaser's representations and warranties regarding its legal standing, financial capacity, and independent evaluation [Sections 7.2-7.5: Existence, Power, Authorization, and Conflicts](index=41&type=section&id=Section%207.2%20-%207.5) Purchaser and Purchaser Parent represent they are **validly existing corporations in good standing**, power, authorization, and absence of conflicts - Purchaser and Purchaser Parent are **validly existing corporations in good standing**[172](index=172&type=chunk)[173](index=173&type=chunk) - The agreement has been duly authorized and is a **valid and binding obligation of the Purchaser and Purchaser Parent**[175](index=175&type=chunk) [Section 7.8: Independent Evaluation](index=43&type=section&id=Section%207.8%20Independent%20Evaluation) Purchaser acknowledges **independent due diligence** and relies **solely on express representations** in Articles 5 and 6 - Purchaser acknowledges it is a **sophisticated party capable of evaluating the assets** and has **relied solely on its own independent due diligence**[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) - Purchaser **explicitly disclaims reliance on any representation or statement other than those expressly contained in Articles 5 and 6** of the agreement[182](index=182&type=chunk) [Section 7.12: Capitalization](index=44&type=section&id=Section%207.12%20Capitalization) Purchaser Parent represents its capital structure and warrants that shares issued as purchase price will be **validly issued, fully paid, and nonassessable** Purchaser Parent Capitalization | Security Type | Amount Issued & Outstanding | | :--- | :--- | | Common Shares | **22,058,574** | | Preferred Shares | **0** | - The shares issued to Sellers as part of the purchase price will be **validly issued, fully paid, and nonassessable**[191](index=191&type=chunk) [Section 7.14: SEC Documents; Financial Statements; No Liabilities](index=46&type=section&id=Section%207.14%20SEC%20Documents%3B%20Financial%20Statements%3B%20No%20Liabilities) Purchaser Parent warrants **timely filed all required SEC documents since December 31, 2024**, compliance, and **GAAP-compliant financial statements fairly presenting its financial condition** - Purchaser Parent has **timely filed all required SEC documents since December 31, 2024**, which **complied with applicable regulations**[200](index=200&type=chunk) - The Purchaser Parent's financial statements were **prepared according to GAAP and fairly present its financial condition**[200](index=200&type=chunk) [ARTICLE 8: COVENANTS OF THE PARTIES](index=47&type=section&id=ARTICLE%208%20COVENANTS%20OF%20THE%20PARTIES) This article details the ongoing obligations and restrictions on the parties between signing and closing [Section 8.1: Access](index=47&type=section&id=Section%208.1%20Access) This section grants Purchaser **reasonable access to assets and records for due diligence**, prohibits **invasive environmental testing** without consent, and requires **Purchaser indemnification** - Sellers will provide Purchaser with **reasonable access to assets and records for due diligence** before closing[206](index=206&type=chunk) - **Invasive environmental testing (e.g., soil or water sampling) is not permitted without Sellers' consent**[207](index=207&type=chunk) - Purchaser must **indemnify and hold harmless the Sellers Group from any damages arising from its due diligence activities**[216](index=216&type=chunk) [Section 8.2: Operation of Business](index=49&type=section&id=Section%208.2%20Operation%20of%20Business) This section requires the Company Group to operate in the **Ordinary Course of Business** and restricts certain actions without consent - From signing to closing, the Company must conduct its business in the **Ordinary Course of Business**[217](index=217&type=chunk) - The Company is restricted from taking certain actions without Purchaser's consent, including: **proposing new capital expenditures over $50,000**, **entering into new material contracts**, **selling assets, or issuing any new interests**[218](index=218&type=chunk)[219](index=219&type=chunk) [Section 8.6: R&W Insurance Policy](index=53&type=section&id=Section%208.6%20R%26W%20Insurance%20Policy) This section confirms Purchaser's **R&W Insurance Policy**, requiring a **waiver of subrogation** and prohibiting **materially adverse amendments** - Purchaser has **procured a conditional binder for an R&W Insurance Policy**, attached as Exhibit E[227](index=227&type=chunk) - The **R&W Insurance Policy** must contain a **waiver of subrogation** against the Sellers Group, except in cases of **Fraud**[228](index=228&type=chunk) - Purchaser covenants **not to amend, modify, or terminate the policy in a manner that is materially adverse to the Sellers Group**[228](index=228&type=chunk)[229](index=229&type=chunk) [Section 8.7: Directors and Officers](index=54&type=section&id=Section%208.7%20Directors%20and%20Officers) This section ensures **All existing rights to indemnification and exculpation** for D&O for **at least six years** post-closing and requires a **six-year "D&O Tail Policy"** - **All existing rights to indemnification and exculpation** for the Company Group's directors and officers will **survive the Closing for at least six years**[231](index=231&type=chunk) - Prior to Closing, the Company Group must obtain and pay for a **six-year "D&O Tail Policy"** to cover claims arising from pre-closing events[235](index=235&type=chunk) [Section 8.13: Board Representation at Purchaser Parent](index=58&type=section&id=Section%208.13%20Board%20Representation%20at%20Purchaser%20Parent) This section grants Sellers the right to **appoint two designees to the Purchaser Parent's Board of Directors** at Closing - At Closing, Sellers will **appoint two designees to the Purchaser Parent's Board of Directors**[249](index=249&type=chunk) - These designees will be **nominated for re-election at the 2026 annual stockholders' meeting**[250](index=250&type=chunk) [ARTICLE 9: CONDITIONS TO CLOSING](index=60&type=section&id=ARTICLE%209%20CONDITIONS%20TO%20CLOSING) This article specifies the conditions that must be satisfied or waived by each party for the transaction to close [Section 9.1: Sellers' Conditions to Closing](index=60&type=section&id=Section%209.1%20Sellers'%20Conditions%20to%20Closing) This section lists Sellers' closing conditions, including **Purchaser's representations and warranties must be true and correct**, covenants, and **20% of the Unadjusted Purchase Price** impairment thresholds - **Purchaser's representations and warranties must be true and correct**[260](index=260&type=chunk) - **Purchaser must have performed its covenants in all material respects**[260](index=260&type=chunk) - The **total value of impairments (Title/Environmental Defects and Casualty Losses) must not exceed 20% of the Unadjusted Purchase Price**[261](index=261&type=chunk) - **Purchaser Parent must have received shareholder consent for the transaction**[261](index=261&type=chunk) [Section 9.2: Purchaser's Conditions to Closing](index=62&type=section&id=Section%209.2%20Purchaser's%20Conditions%20to%20Closing) This section lists Purchaser's closing conditions, mirroring Sellers' regarding **Sellers' and Company's representations and warranties must be true and correct**, covenants, and **20% of the Unadjusted Purchase Price** impairment thresholds - **Sellers' and Company's representations and warranties must be true and correct**[263](index=263&type=chunk) - **Sellers must have performed their covenants in all material respects**[263](index=263&type=chunk) - The **total value of impairments (Title/Environmental Defects and Casualty Losses) must not exceed 20% of the Unadjusted Purchase Price**[263](index=263&type=chunk) [ARTICLE 10: CLOSING](index=63&type=section&id=ARTICLE%2010%20CLOSING) This article outlines the procedures, deliverables, and settlement process for the transaction's closing [Section 10.1: Time and Place of Closing](index=63&type=section&id=Section%2010.1%20Time%20and%20Place%20of%20Closing) This section sets the time and place for the electronic closing of the transaction, contingent on condition fulfillment - The Closing will take place on the **later of October 27, 2025, or two business days after all conditions in Article 9 are satisfied or waived**[267](index=267&type=chunk) [Section 10.2: Obligations of Sellers' Representative at Closing](index=63&type=section&id=Section%2010.2%20Obligations%20of%20Sellers'%20Representative%20at%20Closing) This section lists the documents and actions Sellers' Representative must deliver at Closing, including agreements and certificates - **Deliver executed Assignment Agreements and Registration Rights Agreement**[267](index=267&type=chunk)[268](index=268&type=chunk) - **Provide a certificate confirming that Sellers' representations are true and covenants have been performed**[267](index=267&type=chunk) - **Deliver written resignations of officers and directors listed in Schedule 10.2(e)**[267](index=267&type=chunk) [Section 10.3: Obligations of Purchaser at Closing](index=64&type=section&id=Section%2010.3%20Obligations%20of%20Purchaser%20at%20Closing) This section lists Purchaser's obligations at Closing, primarily **Deliver the Adjusted Purchase Price via issuance of the Purchaser Parent Common Stock to Sellers** and confirming conditions - **Deliver the Adjusted Purchase Price via issuance of the Purchaser Parent Common Stock to Sellers**[269](index=269&type=chunk) - **Provide evidence that the Company's Existing Secured Credit Facility has been paid off**[269](index=269&type=chunk) - **Deliver a certificate confirming that Purchaser's representations are true and covenants have been performed**[269](index=269&type=chunk) [Section 10.4: Settlement Statement](index=65&type=section&id=Section%2010.4%20Settlement%20Statement) This section describes the process for finalizing purchase price adjustments via a Settlement Statement and dispute resolution - **Sellers' Representative will prepare a draft Settlement Statement calculating the Adjusted Purchase Price five business days before Closing**[272](index=272&type=chunk) - **If there are disputes over the adjustments, they will be submitted to an Independent Accountant for a binding resolution**[273](index=273&type=chunk) [ARTICLE 11: TERMINATION](index=66&type=section&id=ARTICLE%2011%20TERMINATION) This article defines the conditions under which the agreement can be terminated and the consequences of such termination [Section 11.1: Termination](index=66&type=section&id=Section%2011.1%20Termination) This section outlines conditions for agreement termination, including **mutual written consent of the parties**, legal prohibition, **material, uncured breach by the other party**, or **Outside Date** - The agreement can be terminated by **mutual written consent of the parties**[278](index=278&type=chunk) - Either party can terminate if there is a **material, uncured breach by the other party**[278](index=278&type=chunk) - Any party can terminate if the Closing does not occur by the **Outside Date, which is 180 days after the Execution Date**[278](index=278&type=chunk) [Section 11.2: Effect of Termination](index=67&type=section&id=Section%2011.2%20Effect%20of%20Termination) This section details termination consequences, specifying **exclusive remedies** for breach and a **Termination Fee of $750,000** for lack of consent - Upon termination, the **agreement becomes void, except for certain specified surviving sections**[280](index=280&type=chunk) - In the event of a failure to close due to a breach, the **non-breaching party's exclusive remedies are to either seek specific performance or terminate the agreement**[281](index=281&type=chunk)[282](index=282&type=chunk) - If Sellers' Representative terminates because Purchaser Parent fails to get shareholder approval, **Sellers' sole remedy is to receive a Termination Fee of $750,000**[283](index=283&type=chunk)[491](index=491&type=chunk) [ARTICLE 12: INDEMNIFICATION](index=68&type=section&id=ARTICLE%2012%20INDEMNIFICATION) This article establishes the post-closing indemnification obligations and procedures for claims between the parties [Section 12.1: Indemnification](index=68&type=section&id=Section%2012.1%20Indemnification) This section establishes post-closing indemnification, with the **R&W Insurance Policy** as the primary remedy, except for **Fraud** - **Purchaser indemnifies Sellers for breaches of Purchaser's covenants and warranties**[287](index=287&type=chunk) - **Sellers indemnify Purchaser for breaches of Sellers' covenants**[288](index=288&type=chunk) - This article provides the **sole and exclusive remedy for the parties post-closing, except for claims of Fraud and rights under the R&W Insurance Policy**[288](index=288&type=chunk) [Section 12.2: Indemnification Actions](index=69&type=section&id=Section%2012.2%20Indemnification%20Actions) This section sets forth procedures for making and resolving indemnification claims, including **Claim Notice** and defense control - An indemnification claim is initiated by the Indemnified Person sending a **Claim Notice** to the Indemnifying Person[292](index=292&type=chunk) - For third-party claims, the **Indemnifying Person has the right to control the defense if it admits its obligation to indemnify**[294](index=294&type=chunk) [Section 12.3: Limitations on Actions](index=71&type=section&id=Section%2012.3%20Limitations%20on%20Actions) This section establishes survival periods for representations and covenants, limiting Purchaser's recourse post-closing - **Sellers' and Company's representations and warranties terminate at the Closing Date**; **Purchaser's recourse is through the R&W Insurance Policy**[299](index=299&type=chunk) - **Purchaser's representations and warranties survive for twelve months following the Closing Date**[299](index=299&type=chunk) - **Purchaser explicitly waives all rights and claims against Sellers relating to the subject matter of the agreement, except for Fraud and indemnification for covenant breaches**[301](index=301&type=chunk) [ARTICLE 13: TAX MATTERS](index=74&type=section&id=ARTICLE%2013%20TAX%20MATTERS) This article addresses tax filing responsibilities and the agreed-upon tax treatment of the transaction [Section 13.1: Tax Filings](index=74&type=section&id=Section%2013.1%20Tax%20Filings) This section designates **Sellers' Representative will prepare all Pass-Through Tax Returns for pre-closing periods that are filed after Closing** and allocates **Deal-Generated Deductions** - **Sellers' Representative will prepare all Pass-Through Tax Returns for pre-closing periods that are filed after Closing**[313](index=313&type=chunk) - **Deal-Generated Deductions are to be allocated to the Pre-Closing Tax Period to the extent permitted by law**[313](index=313&type=chunk) [Section 13.5: Tax Treatment](index=75&type=section&id=Section%2013.5%20Tax%20Treatment) The parties agree on the U.S. federal income tax treatment, consistent with **IRS Revenue Ruling 99-6, Situation 2** - The transaction will be treated in a manner consistent with **IRS Revenue Ruling 99-6, Situation 2**[317](index=317&type=chunk) - For Sellers, the **transaction is a taxable sale of their Company Interests**[317](index=317&type=chunk) - For Purchaser, the **transaction is a purchase of all of the Company's Assets**[317](index=317&type=chunk) [ARTICLE 14: MISCELLANEOUS](index=76&type=section&id=ARTICLE%2014%20MISCELLANEOUS) This article covers general legal provisions, including governing law, dispute resolution, and limitations on damages [Section 14.4: Governing Law; Jurisdiction](index=77&type=section&id=Section%2014.4%20Governing%20Law%3B%20Jurisdiction) This section establishes **Texas law**, grants exclusive jurisdiction to **Harris County, Texas** courts, and includes a **trial by jury** waiver - The agreement is governed by the laws of the **State of Texas**[325](index=325&type=chunk) - Exclusive jurisdiction for disputes is granted to the federal or state courts in **Harris County, Texas**[326](index=326&type=chunk) - All parties waive their right to a **trial by jury** for any disputes related to the agreement[328](index=328&type=chunk) [Section 14.11: Limitation on Damages](index=79&type=section&id=Section%2014.11%20Limitation%20on%20Damages) This section limits damages, excluding **consequential, special, indirect, punitive, or exemplary damages**, with waivers - **Parties are not entitled to consequential, special, indirect, punitive, or exemplary damages from each other in connection with this agreement**[336](index=336&type=chunk) [Section 14.16: Specific Performance](index=80&type=section&id=Section%2014.16%20Specific%20Performance) This section grants **specific performance** rights, but **Sellers explicitly waive any right to specific performance to compel the Purchaser to close the transaction** - Parties are entitled to seek **specific performance** and injunctive relief for breaches of the agreement, as **monetary damages are considered inadequate**[341](index=341&type=chunk) - **Sellers explicitly waive any right to specific performance to compel the Purchaser to close the transaction**[341](index=341&type=chunk) [Section 14.20: Sellers' Representative](index=82&type=section&id=Section%2014.20%20Sellers'%20Representative) This section appoints **Yorktown Energy Partners XI, L.P.** as Sellers' Representative with **full authority to act on behalf of all Sellers**, which is **irrevocable** - **Yorktown Energy Partners XI, L.P.** is appointed as the Sellers' Representative with **full authority to act on behalf of all Sellers**[347](index=347&type=chunk)[348](index=348&type=chunk) - The **Representative's authority is irrevocable** and includes negotiating claims, executing amendments, and giving/receiving notices[348](index=348&type=chunk)[351](index=351&type=chunk) - **Purchaser is entitled to rely on all actions taken by the Sellers' Representative as binding on all Sellers**[350](index=350&type=chunk) [Appendices, Annexes, Exhibits, and Schedules](index=6&type=section&id=Appendices%2C%20Annexes%2C%20Exhibits%2C%20and%20Schedules) This section describes the supplementary documents providing detailed information and forms for the agreement [Ancillary Documents](index=6&type=section&id=Ancillary%20Documents) The agreement is supplemented by appendices, annexes, exhibits, and schedules providing detailed information and forms - **Appendix A contains the definitions** for capitalized terms used throughout the agreement[7](index=7&type=chunk) - **Annex I provides a complete schedule of all entities and individuals defined as "Sellers"**[7](index=7&type=chunk) - **Exhibits provide forms for critical legal documents**, including the Assignment Agreement (Exhibit B), Lock-Up Agreement (Exhibit C), and Registration Rights Agreement (Exhibit D)[9](index=9&type=chunk) - **Numerous Schedules provide detailed disclosures qualifying the representations and warranties** made in Articles 5, 6, and 7[9](index=9&type=chunk)[10](index=10&type=chunk)

PART I-FINANCIAL INFORMATION [Financial Statements](index=5&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) Epsilon Energy reported significant financial growth for the six months ended June 30, 2025, with total revenues rising 82% to $27.8 million and net income increasing 140% to $5.6 million [Unaudited Condensed Consolidated Balance Sheets](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets increased to $123.6 million, with shareholders' equity rising to $100.2 million from $96.7 million at year-end 2024 Consolidated Balance Sheet Highlights (in thousands USD) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $9,907.7 | $6,519.8 | | Total current assets | $16,533.3 | $14,131.5 | | Total property and equipment, net | $106,037.5 | $104,526.0 | | **Total assets** | **$123,613.7** | **$120,454.8** | | **Liabilities & Equity** | | | | Total current liabilities | $7,403.4 | $6,980.0 | | Total liabilities | $23,423.4 | $23,726.7 | | Total shareholders' equity | $100,190.3 | $96,728.1 | | **Total liabilities and shareholders' equity** | **$123,613.7** | **$120,454.8** | [Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) For Q2 2025, revenue increased 59% to $11.6 million and net income nearly doubled to $1.6 million, while six-month revenue surged 82% to $27.8 million and net income jumped 140% to $5.6 million Statement of Operations Summary (in thousands USD) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $11,624.7 | $7,307.8 | $27,787.9 | $15,294.6 | | Operating Income | $828.8 | $1,167.8 | $7,996.6 | $2,572.5 | | Net Income | $1,551.5 | $815.7 | $5,567.5 | $2,322.6 | | Diluted EPS | $0.07 | $0.04 | $0.25 | $0.11 | - A notable event in Q2 2025 was a **$2.7 million impairment expense**, which impacted operating income for the quarter, however, a **$2.6 million gain on derivative contracts** offset this, contributing to strong net income[19](index=19&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the first six months of 2025, net cash from operating activities increased 87% to $16.9 million, while cash used in investing and financing activities totaled $10.7 million and $2.8 million respectively Cash Flow Summary (Six Months Ended June 30, in thousands USD) | Cash Flow Category | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $16,930.8 | $9,075.5 | | Net cash used in investing activities | ($10,665.9) | ($9,544.2) | | Net cash used in financing activities | ($2,751.4) | ($3,946.1) | | **Increase (Decrease) in cash** | **$3,387.9** | **($4,392.1)** | [Notes to the Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, a **$2.7 million** impairment, the undrawn **$45 million** credit facility, shareholder equity activities, and the subsequent acquisition of Peak Exploration and Production LLC - During Q2 2025, Epsilon recorded a **$2.7 million impairment charge** for two wells in Alberta, Canada, due to lower than expected production, cost overruns, and lower forward commodity prices[45](index=45&type=chunk) - The company maintains a senior secured revolving credit facility with a borrowing base of **$45 million**, which remained undrawn as of June 30, 2025[47](index=47&type=chunk)[50](index=50&type=chunk) - The Board declared quarterly dividends of **$0.0625 per share**, totaling approximately **$2.8 million** paid during the first six months of 2025[62](index=62&type=chunk) - Subsequent to the quarter end, on August 11, 2025, Epsilon signed a definitive agreement to acquire Peak Exploration and Production LLC, with consideration including **6 million Epsilon common shares** and the assumption of approximately **$49 million in debt**[119](index=119&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management attributes the 82% revenue growth to increased natural gas revenue, with Adjusted EBITDA more than doubling to **$18.0 million**, supported by strong liquidity and disciplined capital allocation - The company's business strategy is focused on disciplined capital allocation, shareholder returns (dividends and buybacks), and maintaining a strong balance sheet to fund investments in existing areas (Marcellus) and new projects (Permian, Canada)[125](index=125&type=chunk)[126](index=126&type=chunk) Adjusted EBITDA Reconciliation (in thousands USD) | Metric | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | | Net Income | $5,567.5 | $2,322.6 | | Adjustments | $12,437.5 | $6,176.0 | | **Adjusted EBITDA** | **$18,005.0** | **$8,498.6** | - For the six months ended June 30, 2025, revenues increased **82%** to **$27.8 million**, primarily due to a **$12.6 million (256%)** increase in upstream natural gas revenue from higher prices and volumes[140](index=140&type=chunk)[141](index=141&type=chunk) - The company's liquidity is strong, with a working capital surplus of **$9.1 million** as of June 30, 2025, and an undrawn **$45 million** revolving credit facility[164](index=164&type=chunk)[168](index=168&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company faces significant commodity price risk for natural gas and oil, which it mitigates using derivative contracts, and also has exposure to interest rate risk - The company's primary market risk is the fluctuation in commodity prices for natural gas and oil[178](index=178&type=chunk) - Epsilon utilizes a hedging strategy with derivative financial instruments to manage commodity price risk and stabilize cash flows[182](index=182&type=chunk) [Controls and Procedures](index=34&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[183](index=183&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[184](index=184&type=chunk) PART II OTHER INFORMATION [Legal Proceedings](index=35&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company reported no legal proceedings during the period - None[187](index=187&type=chunk) [Risk Factors](index=35&type=section&id=ITEM%201A.%20RISK%20FACTORS) No material changes occurred to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[188](index=188&type=chunk) [Unregistered Sale of Equity Securities and Use of Proceeds](index=35&type=section&id=ITEM%202.%20UNREGISTERED%20SALE%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) The company did not repurchase any of its equity securities during the six months ended June 30, 2025 - For the six months ended June 30, 2025, no shares were repurchased[190](index=190&type=chunk) [Defaults Upon Senior Securities](index=35&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) Not applicable [Mine Safety Disclosures](index=35&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) Not applicable [Other Information](index=35&type=section&id=ITEM%205.%20OTHER%20INFORMATION) Not applicable [Exhibits](index=36&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the report, including Sarbanes-Oxley certifications and Inline XBRL data files