Epsilon Energy .(US:EPSN)2022-03-23 16:00Financial Performance - Epsilon Energy Ltd. reported a net income of $11.6 million for 2021, a significant increase from $0.9 million in 2020[199]. - Total revenues for the year ended December 31, 2021, increased by $18.0 million, or 73.6%, reaching $42.4 million compared to $24.4 million in 2020[201]. - Adjusted EBITDA increased to $24,107,978 for the year ended December 31, 2021, from $15,690,955 in 2020, reflecting improved operational performance[226]. - Cash flow from operating activities increased by $5.2 million, or 35%, to $20.0 million for the year ended December 31, 2021, compared to $14.8 million in 2020[231]. - The company had a working capital surplus of $24.1 million as of December 31, 2021, an increase of $10.8 million from $13.3 million at the end of 2020[229]. Revenue Breakdown - Natural gas revenue rose to $31.7 million in 2021, up 108% from $15.2 million in 2020, driven by higher prices despite a decrease in production volume[202][204]. - The average price of natural gas increased from $1.36 per Mcf in 2020 to $3.10 per Mcf in 2021[202]. - Upstream oil and other liquids revenue surged by $2.5 million, or 736%, in 2021, attributed to increased production from new wells and higher oil prices[204]. Costs and Expenses - Operating costs for upstream activities decreased by $0.2 million, or 2.1%, in 2021, primarily due to lower production volumes[207]. - Depletion, depreciation, amortization, and accretion (DD&A) expenses decreased by $2.9 million, or 31%, in 2021, due to increased reserves and lower production volumes[213]. - General and Administrative (G&A) expenses increased by $1.2 million, or 22%, to $6,831,815 for the year ended December 31, 2021, compared to $5,589,963 in 2020[219]. - Interest expense decreased by $0.01 million, or 11%, to $101,382 for the year ended December 31, 2021, from $114,515 in 2020, due to a reduction in the borrowing base on the line of credit[220]. Asset Management - Epsilon's total estimated net proved reserves of natural gas increased by 22,311 MMcf to 110,969 MMcf as of December 31, 2021[199]. - The company uses the successful efforts method of accounting for natural gas and oil operations, capitalizing costs associated with successful exploratory and development wells[249]. - Proved natural gas and oil reserves are estimated according to SEC regulations, impacting financial accounting estimates such as depreciation and depletion[251]. - Unproved properties consist of costs incurred to acquire unproved leases, which are capitalized until leases expire or are identified for reversion[253]. - The company evaluates impairment of proved and unproved properties based on expected future cash flows compared to carrying values, with potential material revisions to reserve estimates[259]. Strategic Outlook - The company aims to maintain or modestly grow production levels in 2022, contingent on sufficient natural gas prices and achieving internal return rates[196]. - Capital expenditures commitments amounted to approximately $3.8 million, expected to be incurred in 2022[244]. - The company expects that its estimated net cash generated from operations will be adequate to meet liquidity needs for the next 12 months and beyond[245]. Risk Management - The company has established a hedging strategy to manage risks associated with changes in commodity prices, stabilizing cash flows and supporting capital spending[272]. - Changes in market prices of commodities significantly affect the company's earnings and cash flow, with fluctuations influenced by various economic factors[268]. - The carrying value of assets is reviewed for impairment when indicators suggest recoverability issues, such as changes in business plans or commodity prices[257]. - The company recognizes asset retirement obligations at fair value, which includes estimated future costs for plugging and abandonment of wells[264]. Debt and Financing - As of December 31, 2021, the outstanding principal balance under the credit agreement was nil, indicating no current debt obligations[271]. - The company has a senior secured credit facility with a total commitment of up to $100 million, with a current effective borrowing base of $14 million[234]. Other Income - Epsilon recorded a gain on the sale of properties amounting to $484,902 in 2021, compared to no sales in 2020[216][217]. - Net loss on commodity contracts was $4,482,909 for the year ended December 31, 2021, compared to a gain of $2,503,655 in 2020, with net cash settlements of $4,243,085 paid in 2021[221].