Epsilon Energy Ltd. (EPSN) came out with quarterly earnings of $0.04 per share, missing the Zacks Consensus Estimate of $0.05 per share. This compares to earnings of $0.12 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of -20%. A quarter ago, it was expected that this company would post earnings of $0.04 per share when it actually produced earnings of $0.02, delivering a surprise of -50%.Over the last four quarters, the company ...

Core Insights - Epsilon Energy Ltd. reported its financial results for Q4 and the full year 2024, highlighting a challenging natural gas environment and a significant increase in oil production [1][5][9]. Financial Performance - Total revenues for 2024 were $31.5 million, a 3% increase from $30.7 million in 2023 [22]. - Net income for 2024 was $1.9 million, down from $6.9 million in 2023, with net income per share at $0.09 [23][22]. - Adjusted EBITDA for 2024 was $17.6 million, a decrease from $18.8 million in 2023 [30][31]. Production and Sales - Total production in 2024 was 7,676 MMcfe, a 14% decrease year-over-year, with natural gas production down 26% [2][3]. - Oil production increased significantly by 186% year-over-year, totaling 187 Mbbl in 2024 [2][3]. - The average realized price for gas was $1.76 per Mcf, down 1% from 2023, while oil prices averaged $73.61 per Bbl, a 6% decrease [2][3]. Capital Expenditures and Investments - Capital expenditures for 2024 were $34.9 million, a 58% increase from $22 million in 2023, with Texas accounting for approximately 70% of the total [10][9]. - The company returned $7.3 million to shareholders through dividends and share repurchases [4][9]. Reserves and Future Outlook - Proved reserves increased by 20% year-over-year to 70,262 Mmcfe, while probable reserves decreased by 12% [13][14]. - The company is positioned for growth in 2025, with expectations of increased production and cash flows, supported by a strong liquidity position of over $50 million [9][5]. Operational Highlights - The Auburn Gas Gathering System delivered 36.9 Bcf of natural gas volumes in 2024, averaging 101 MMcf/d [11]. - A joint venture was established in Alberta, covering over 30,000 gross acres, with promising well economics [8][9].

Reserves and Production - As of December 31, 2024, Epsilon Energy Ltd. reported total estimated net proved reserves of 84,097 MMcfe, a 20% increase from December 31, 2023[211]. - The company estimates proved natural gas and oil reserves, which directly impact financial accounting estimates such as depreciation and impairments[262]. - Significant uncertainties exist in estimating proved reserves, including geological and engineering data interpretation, which may lead to material revisions in reserve estimates over time[262]. Financial Performance - Revenues for the year ended December 31, 2024, increased by $0.8 million, or 3%, to $31.5 million compared to $30.7 million in 2023[215]. - Net income for the year ended December 31, 2024, was $1,927,800, a decrease of $5,017,353, or 72%, from $6,945,153 in 2023[239]. - Adjusted EBITDA for the year ended December 31, 2024, was $17,578,000, a decrease of $1,249,512, or 7%, from $18,827,512 in 2023[239]. - Cash flow from operating activities provided $16.8 million in 2024, compared to $18.2 million in 2023, reflecting a decrease of $1.4 million, or 7%[245]. Revenue Sources - Upstream oil and condensate revenue for the year ended December 31, 2024, increased by $8.6 million, or 170%, over 2023, primarily due to increased production from new wells in the Permian Basin[219]. - The Auburn Gas Gathering System, located in the Marcellus Shale, is expected to maintain revenue levels despite short-term low commodity prices due to historically high recoverable reserves[275]. Expenses and Costs - General and administrative expenses for the year ended December 31, 2024, decreased by $0.3 million, or 5%, compared to the same period in 2023, primarily due to a reduction in legal expenses[231]. - Operating costs for the year ended December 31, 2024, increased by $0.9 million, or 13.4%, from the same period in 2023, primarily due to acquired and developed wells in the Permian Basin[222]. - Interest income for the year ended December 31, 2024, decreased by $1.2 million, or 71%, from the same period in 2023, primarily due to a reduction in the balance of cash and short-term investments[232]. - Interest expense decreased by $0.03 million, or 42%, during the year ended December 31, 2024, compared to 2023, due to higher fees in 2023 associated with a new credit facility[233]. - Income tax expense decreased by $1.6 million, or 49%, to $1,629,093 for the year ended December 31, 2024, primarily due to a decrease in taxable income from losses on derivative contracts[238]. Capital Expenditures and Investments - Total capital expenditures (net to Epsilon) through year-end 2024 in the Ector County, Texas project amounted to $38.6 million[206]. - The company used $16.7 million for investing activities in 2024, a decrease of $21.7 million, or 57%, from $38.4 million in 2023[246]. - Capital commitments as of December 31, 2024, were $7.8 million, related to the first two wells of a joint venture in Alberta[260]. Impairments and Asset Management - Epsilon recorded an impairment of $1.45 million for the year ended December 31, 2024, related to the Killam project in Alberta, Canada[229]. - The company reviews the carrying value of oil and natural gas properties for impairment based on expected future cash flows, which may result in reductions to fair value if cash flows are lower than carrying values[265]. - Asset retirement obligations (ARO) are recognized at fair value, requiring management to make assumptions about future costs and timing related to the retirement of long-lived assets[268]. Financing and Credit Facilities - The company closed a senior secured revolving credit facility with a current borrowing base of $45 million, maturing on June 28, 2027[248]. - The company repurchased 125,000 common shares for $627,500 at an average price of $5.00 per share during the year ended December 31, 2024[251]. Risk Management - Changes in commodity prices significantly affect the company's earnings and cash flow, with potential impacts on asset values and exploration activities[274]. - The company employs a hedging strategy to manage risks associated with commodity price fluctuations, stabilizing cash flows and supporting capital spending[276].

Core Viewpoint - The sustainability of a trend is crucial for successful short-term investing, and confirming the fundamentals behind a stock's momentum is essential for profitability [1][2]. Group 1: Trend Analysis - Timing entries into a trend significantly impacts investment success, as trends can reverse unexpectedly, leading to potential losses [1][2]. - A predefined "Recent Price Strength" screen can help identify stocks that are currently trending upward, supported by strong fundamentals and trading near their 52-week high [3]. Group 2: Company Spotlight - Epsilon Energy Ltd. (EPSN) - Epsilon Energy Ltd. has shown a solid price increase of 21.4% over the past 12 weeks, indicating strong investor interest [4]. - The stock has also increased by 11.3% in the last four weeks, suggesting that the upward trend is still intact [5]. - Currently, EPSN is trading at 95.4% of its 52-week high-low range, indicating a potential breakout [5]. Group 3: Fundamental Strength - EPSN holds a Zacks Rank 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimate revisions and EPS surprises [6]. - The stock has an Average Broker Recommendation of 1 (Strong Buy), reflecting high optimism from the brokerage community regarding its near-term performance [7]. - The Zacks Rank system has a strong historical performance, with Zacks Rank 1 stocks averaging a +25% annual return since 1988 [7]. Group 4: Investment Strategy - In addition to EPSN, there are other stocks that meet the criteria of the "Recent Price Strength" screen, providing additional investment opportunities [8]. - The effectiveness of stock-picking strategies can be backtested using tools like the Zacks Research Wizard, which offers insights into successful strategies [9].

Core Viewpoint - Epsilon Energy Ltd. (EPSN) has been upgraded to a Zacks Rank 2 (Buy), indicating a positive outlook driven by an upward trend in earnings estimates [1][3]. Earnings Estimates and Stock Price Movement - The Zacks rating system emphasizes the importance of changing earnings estimates as a key factor influencing stock prices, making it a valuable tool for investors [2][4]. - The correlation between earnings estimate revisions and stock price movements is strong, with institutional investors playing a significant role in this relationship [4]. Company Performance and Outlook - The recent upgrade for Epsilon Energy reflects an improvement in the company's underlying business, suggesting that investors may respond positively by driving the stock price higher [5]. - For the fiscal year ending December 2024, Epsilon Energy is expected to earn $0.18 per share, which represents a decrease of 41.9% from the previous year [8]. - Despite the expected decline in earnings per share, analysts have raised their estimates for Epsilon Energy, with the Zacks Consensus Estimate increasing by 18.9% over the past three months [8]. Zacks Rank System - The Zacks Rank system classifies stocks based on earnings estimates and has a proven track record, with Zacks Rank 1 stocks averaging a +25% annual return since 1988 [7]. - Epsilon Energy's upgrade to Zacks Rank 2 places it in the top 20% of Zacks-covered stocks, indicating strong potential for market-beating returns in the near term [10].

Group 1 - Epsilon Energy Ltd. has terminated its previous normal course issuer bid program and approved a new one-year share repurchase program, allowing the repurchase of up to 2,200,876 common shares for a total price not exceeding US $13.0 million [1][2] - The new share repurchase program commenced on February 12, 2025, and will conclude on February 11, 2026, unless the maximum number of shares is repurchased earlier or the company provides notice of termination [1] - The company believes the market price of its common shares does not reflect their underlying value, and the repurchase initiative is seen as a way to create shareholder value [2] Group 2 - Share repurchases will be conducted through the NASDAQ Global Market at the prevailing market price, and the company plans to fund the purchases using available cash without incurring debt [3] - Epsilon Energy has undergone a borrowing base redetermination for its senior secured reserve-based lending revolving credit facility, with the new borrowing base set at $45 million effective February 10, 2025 [4] - Epsilon Energy Ltd. operates as a North American onshore natural gas and oil production and gathering company with assets located in Pennsylvania, Texas, Alberta, New Mexico, and Oklahoma [5]

Industry Analysis - The oil and gas industry is described as a boom-bust, cyclical industry, requiring patience and experience to navigate effectively [2] - The industry has experienced low natural gas prices in some basins, leading to challenging conditions for operators [2] Company Analysis: Epsilon Energy (EPSN) - Epsilon Energy (EPSN) now derives most of its earnings from oil and liquids, which has positively impacted its results amid low natural gas prices [2] - The company's financials, competitive position, and development prospects are key areas of focus for analysis [1] Research Service - The Oil & Gas Value Research service provides in-depth analysis of undervalued oil and gas companies, including balance sheets, competitive positions, and development prospects [1] - Members of the service receive exclusive analysis on certain companies that is not published on the free site [1]

Financial Data and Key Metrics Changes - The company reported a quarter-over-quarter oil production growth of 19% in the Permian region, driven by the seventh Ector well coming online [4] - Realized prices in Pennsylvania were $1.54 per Mcf, with operating costs increasing by approximately 40% due to plugging and abandonment activities [9] - Adjusted EBITDA from the Permian contributed approximately $8.5 million year-to-date, accounting for 70% of the total company figure [10] Business Line Data and Key Metrics Changes - In Pennsylvania, three of the seven previously announced deferred TILs were put on production, with expectations for quarter-over-quarter growth in natural gas volumes in the fourth quarter [5][6] - The company invested approximately $40 million in the Permian starting in Q2 2023, with cash flows of approximately $12 million received by the end of Q3 [10] Market Data and Key Metrics Changes - Wellhead prices in Pennsylvania remained low heading into winter, impacting production and pricing [5] - The company has added to its hedge book for 2025, locking in prices above the current strip [13] Company Strategy and Development Direction - The company announced its entry into Alberta, Canada, through two joint ventures, focusing on the Garrington area for initial development [7][12] - The company plans to continue paying dividends and monitor opportunities to reduce share count at attractive prices [8] Management's Comments on Operating Environment and Future Outlook - Management indicated that the current quarter was the trough for the Pennsylvania business, with expectations for recovery as curtailments are lifted and better pricing is anticipated [9] - The company expects to be active in Texas in 2025 and resume growth, with drilling activity scheduled to start in Alberta [11] Other Important Information - The company is currently evaluating opportunities for additional investments, particularly in Canada, due to favorable cost structures and royalty regimes [12] - Liquidity remains strong with available revolver capacity at $45 million, positioning the company well for future opportunities [13] Q&A Session Summary Question: What is the net production from the three wells put on flowback? - The net production is approximately 8 million a day, reflecting a little over 13% net revenue interest in that pad [20] Question: Will the increase in realized gas price spur the 3 million to 4 million a day coming back online? - Management believes that curtailed volumes will come back online as prices dictate, although visibility on the exact schedule remains unclear [21]

Financial Performance - The company reported a net operating revenue of $29,000,000 for the quarter, with an adjusted EBITDA of $10,000,000, indicating a margin of approximately 34.5%[15]. - Total revenue for the three months ended September 30, 2023, was $7,287,941, an increase from $6,310,527 in the same period last year, representing a growth of approximately 15.4%[18]. - Net income for the three months ended September 30, 2023, was $366,021, compared to $388,775 in the prior year, reflecting a decrease of about 5.8%[18]. - Operating income decreased to $240,618 for the three months ended September 30, 2023, down from $746,802 in the same period last year, a decline of approximately 67.8%[18]. - Total operating costs and expenses increased to $7,047,323 for the three months ended September 30, 2023, compared to $5,563,725 in the prior year, marking an increase of about 26.6%[18]. - The company reported a net comprehensive income of $405,866 for the three months ended September 30, 2023, compared to $412,570 in the prior year, a slight decrease of about 1.7%[18]. - Net income for the nine months ended September 30, 2023, was $2,688,577, compared to $4,349,191 for the same period in 2022[33]. - The company reported a net income of $3,570,041 for the nine months ended September 30, 2024, compared to $6,632,419 in the same period of 2023, reflecting a decrease of approximately 46.3%[117]. Asset and Equity Changes - Cash and cash equivalents decreased from $13,403,628 on December 31, 2023, to $8,304,971 on September 30, 2024, representing a decline of approximately 38.5%[15]. - Total current assets decreased significantly from $41,128,796 to $14,811,129, a reduction of about 64.0%[15]. - Shareholders' equity decreased from $100,612,965 to $98,358,664, a decline of approximately 2.2%[15]. - As of September 30, 2023, total shareholders' equity was $99,456,110, a decrease from $105,172,300 at March 31, 2023[21]. - The balance of cash, cash equivalents, and restricted cash at the end of the period was $8,774,971, down from $12,993,051 at the beginning of the period[33]. - Total oil and gas properties, net, increased to $98,473,841 as of September 30, 2024, from $72,060,174 as of December 31, 2023, reflecting an increase of approximately 36.7%[46]. - The total property and equipment, net, increased to $106,147,464 as of September 30, 2024, from $80,188,022 as of December 31, 2023, indicating an increase of approximately 32.4%[46]. Revenue and Production Insights - Gas, oil, NGL, and condensate revenue for the three months ended September 30, 2023, was $6,203,953, up from $3,241,531 in the same period last year, indicating a growth of approximately 91.5%[18]. - Natural gas sales revenue for the nine months ended September 30, 2024, was $6,828,155, compared to $11,351,618 for the same period in 2023, indicating a decrease of about 39.5%[108]. - Total revenues for the nine months ended September 30, 2024, increased by $0.4 million, or 2%, to $22.6 million from $22.2 million in the same period of 2023[167]. - Upstream oil and condensate revenue increased by 310% to $7.7 million for the nine months ended September 30, 2024, compared to the same period in 2023, driven by additional sales volumes from new wells in the Permian Basin[169]. - Total net revenue interest production in the Permian Basin increased by 428% to 73.3 Mboe for Q3 2024 compared to 13.9 Mboe in Q3 2023, and a 565% increase for the nine months ended September 30, 2024, totaling 191.4 Mboe compared to 28.8 Mboe in the same period of 2023[163]. Cost and Expense Management - Interest income for the three months ended September 30, 2023, was $96,220, a decrease from $384,732 in the same period last year, representing a decline of approximately 75.0%[18]. - Total operating costs for the nine months ended September 30, 2024, were $12,641,773, compared to $13,668,534 in 2023, reflecting a decrease of approximately 7.5%[117]. - Operating costs increased by 25% to $1.1 million for the nine months ended September 30, 2024, primarily due to acquired and developed wells in the Permian Basin[170]. - Capital expenditures for the nine months ended September 30, 2024, totaled $32,911,026, up from $16,024,631 in the same period of 2023, representing an increase of approximately 105.5%[117]. Strategic Initiatives and Future Outlook - The company plans to expand its market presence through strategic partnerships and new product launches in the upcoming quarters[12]. - Management anticipates a gradual recovery in commodity prices, which could positively impact revenue in the next fiscal year[12]. - The company is actively pursuing opportunities for acquisitions to enhance its asset portfolio and market share[12]. - The company formed a joint venture in October 2024, earning a 25% working interest across approximately 160,000 gross acres in Alberta, Canada, with a carried interest commitment of $7.3 million[128]. - The company executed a new Anchor Shipper Gas Gathering Agreement in May 2024, establishing fixed rates for gathering services, with a new fixed rate of $0.475 per MMBtu for 2024[162]. Stock and Shareholder Activities - A new share repurchase program was authorized on March 20, 2024, allowing for the repurchase of up to 2,191,320 common shares for an aggregate purchase price of not more than $12 million[54]. - The company repurchased and retired 248,700 shares at an average price of $4.82 per share during the nine months ended September 30, 2024[55]. - The Company declared quarterly dividends of $0.0625 per common share, totaling approximately $4.1 million for the nine months ended September 30, 2024[82]. - The company repurchased 125,000 shares at a price of $5.00 per share under the new program[96]. Tax and Compliance - The effective tax rate for the nine months ended September 30, 2024 was higher than the statutory federal rate due to state income taxes, partially offset by a valuation allowance against the Canadian net operating loss[90]. - The company is currently assessing the potential effects of new accounting standards issued by the FASB, including ASU No. 2023-09, which requires enhanced income tax disclosures effective for fiscal years beginning after December 15, 2024[64].

Core Viewpoint - Epsilon Energy Ltd. reported its third quarter 2024 financial and operational results, highlighting a mixed performance with significant growth in oil production and revenue, while natural gas production and revenues declined. Financial Performance - NRI Production: - Gas production decreased to 1,304 MMcf, down 7% quarter-over-quarter (QoQ) and 29% year-over-year (YoY) [2] - Oil production increased to 53 Mbbl, up 19% QoQ and 317% YoY [2] - NGL production decreased to 17 Mbbl, down 11% QoQ and up 99% YoY [2] - Revenues: - Total gas revenue was $1,904 million, down 3% QoQ and 9% YoY [2] - Total oil revenue was $3,965 million, up 13% QoQ and 329% YoY [2] - Total NGL revenue was $335 million, down 14% QoQ and up 47% YoY [2] - Midstream revenue was $1,084 million, down 25% QoQ and 65% YoY [2] - Adjusted EBITDA was $3,744 million, down 4% QoQ and 5% YoY [2] - Cash and short-term investments totaled $8,775 million, down 7% QoQ and 72% YoY [2] - Capital expenditures (Capex) were $3,908 million, down 32% QoQ and 26% YoY [2] Operational Updates - Capital expenditures primarily related to the completion of one well in Texas and drilling two wells in Alberta, Canada [4] - Three of the seven Marcellus wells completed in Q1 2024 were put on flowback, producing approximately 60 MMcf per day gross [5] - The company anticipates increased production and cash flow in Q4 2024 and 2025 due to improving natural gas fundamentals [6] Strategic Developments - Epsilon's entry into Alberta, Canada is seen as an attractive opportunity for capital deployment starting in Q4 2024 [7] - The company returned $2 million to shareholders through dividends and share repurchases during the quarter [2] Hedge Book - The current hedge book includes various swaps for natural gas and crude oil, with notable contracts starting in 2025 [7]