Financial Performance - Epsilon Energy Ltd. reported a net income of $5.8 million for the three months ended March 31, 2022, compared to $2.7 million for the same period in 2021, representing a 114.8% increase [117]. - The company's revenues increased by $5.2 million, or 61%, to $13.6 million for the three months ended March 31, 2022, compared to $8.4 million in the same period of 2021 [136]. - Adjusted EBITDA for the three months ended March 31, 2022, was $9.3 million, compared to $5.4 million for the same period in 2021, reflecting a 72.5% increase [134]. - Cash provided by operating activities increased by $2.1 million, or 38%, during the three months ended March 31, 2022, compared to the same period in 2021, driven by increased commodity prices [164]. Production and Pricing - Epsilon's realized natural gas price was $4.55 per Mcf, a 77% increase over the same period in 2021, while natural gas production remained flat at 2.4 Bcf [125]. - In Oklahoma, Epsilon's realized price for all production was $7.71 per Mcfe, a 117% increase over the same period in 2021, with total production of 0.17 Bcfe, a 141% increase [128]. - Upstream natural gas revenue increased by $4.4 million, or 69%, primarily due to higher natural gas prices, despite lower production volumes [138]. - Upstream oil and other liquids revenue surged by $0.7 million, or 625%, driven by increased production from new wells and higher prices [139]. Operating Costs - Operating costs for the three months ended March 31, 2022, totaled $1.93 million, with an upstream operating cost of $0.73 per Mcfe, compared to $1.78 million and $0.64 per Mcfe in the same period of 2021 [142]. - Upstream operating costs for the three months ended March 31, 2022 increased by $0.2 million, or 11%, compared to the same period in 2021, primarily due to rising service prices [143]. - Gathering system costs (net of intercompany elimination) for the three months ended March 31, 2022 decreased by $0.03 million, or 17%, compared to the same period in 2021, mainly due to a decrease in throughput volumes [146]. - DD&A expense decreased by $0.33 million, or 20%, for the three months ended March 31, 2022 compared to the same period in 2021, attributed to increased reserves and decreased production volumes [151]. - General and administrative expenses decreased by $0.2 million, or 14%, for the three months ended March 31, 2022, mainly due to reduced legal fees and stock-based compensation [155]. - Interest expense decreased by $0.01 million, or 43%, for the three months ended March 31, 2022, due to a reduction in the borrowing base on the line of credit [156]. Capital and Investment - The company had a working capital surplus of $27.6 million as of March 31, 2022, an increase of $3.5 million from December 31, 2021, due to cash generated from operations [163]. - The company used $2.9 million for investing activities during the three months ended March 31, 2022, primarily on leasehold and development costs [165]. - 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 [167]. Risk Management - The company hedged approximately 15% of its anticipated remaining 2022 production through NYMEX costless collars to mitigate price volatility [179]. - Natural gas prices are influenced by various economic and political factors, and the company has implemented a hedging strategy to manage commodity price risks [186]. Operational Strategy - The company aims to maintain or modestly grow production levels in 2022, contingent on sufficient natural gas prices and achieving internal return rates [122]. - The Auburn Gas Gathering System is located in the Marcellus Basin, known for high recoverable reserves and low production costs, indicating resilience against short-term low commodity prices [182]. - The company has a credit agreement that allows for fixing interest rates for up to three months, with no outstanding principal balance as of March 31, 2022 and 2021 [184].
Epsilon Energy .(EPSN) - 2022 Q1 - Quarterly Report