Epsilon Energy .(US:EPSN)2023-03-23 16:00Financial Performance - Epsilon Energy Ltd. reported a net income of $35.4 million for 2022, a significant increase from $11.6 million in 2021[206]. - Total revenues for 2022 increased by $27.6 million, or 65%, reaching $70.0 million compared to $42.4 million in 2021, primarily due to higher prices[210]. - Net income for the year ended December 31, 2022, was $35,354,679, a significant increase from $11,627,517 in 2021, representing a growth of approximately 203%[234]. - Adjusted EBITDA for 2022 was $53,106,849, compared to $24,107,978 in 2021, reflecting a 120% increase[234]. - Cash provided by operating activities increased to $38.0 million in 2022, up $18.0 million or 90% from $20.0 million in 2021, primarily due to higher realized prices[239]. Revenue Sources - Natural gas revenue from Pennsylvania was $53.8 million in 2022, up from $29.9 million in 2021, with an average price increase from $3.04 to $5.96 per Mcf[212]. - The Auburn Gas Gathering System, located in the Marcellus Basin, is expected to maintain revenue despite short-term low commodity prices due to historically high recoverable reserves[277]. Costs and Expenses - Upstream operating costs increased by 13.1% to $9.4 million in 2022, attributed to extraordinary costs related to older wells[216]. - General and administrative expenses rose by $0.5 million, or 8%, to $7.3 million in 2022, driven by increased compensation costs[226]. - Total cash used for investing activities rose to $7.9 million in 2022, a $3.4 million or 77% increase from $4.4 million in 2021, mainly for upstream development costs[240]. Reserves and Cash Flows - Total estimated net proved reserves decreased by 20% to 94,254 MMcfe as of December 31, 2022, primarily due to a change in the development plan[207]. - The standardized measure of discounted future net cash flows increased to $145.8 million in 2022 from $77.7 million in 2021[208]. - The company had a working capital surplus of $51.0 million as of December 31, 2022, an increase of $26.9 million from $24.1 million in 2021, driven by increased realized prices[238]. Shareholder Actions - The company repurchased 982,500 common shares in 2022 at an average price of $6.32 per share, spending a total of $6,234,879[246]. - A new share repurchase program was authorized on March 9, 2023, allowing for the repurchase of up to 2,292,644 common shares for a total price not exceeding $15.0 million[249]. Financial Position and Liquidity - The company has a senior secured credit facility with a total commitment of up to $100 million, with an effective borrowing base of $30 million[242]. - As of December 31, 2022, the company had no off-balance sheet arrangements, ensuring transparency in financial obligations[255]. - The company anticipates that its current cash balance and cash flows will be sufficient to meet liquidity needs for the next 12 months and beyond[254]. Risk Management - Derivative financial instruments are utilized to hedge exposure to commodity price changes, with no contracts designated as cash flow hedges for accounting purposes[268]. - The company has a hedging strategy to manage risks associated with commodity price changes, stabilizing cash flows and supporting capital spending[280]. - The company believes credit risk related to counterparties in derivative contracts is minimal and does not anticipate nonperformance[269]. Regulatory and Market Factors - Changes in tax regulations and legislation in the U.S. and Canada may impact the company's income tax provision, which is computed using the asset-and-liability method[271]. - The company's earnings and cash flow are significantly affected by fluctuations in oil and natural gas prices, influenced by various market factors[276]. - The estimated fair value of derivative instruments requires substantial judgment and is based on various market factors, including option pricing models and futures prices[268].