Welcome!

News Feed Item

Epsilon Reports Second Quarter 2014 Results

HOUSTON, TEXAS -- (Marketwired) -- 07/30/14 -- Epsilon Energy Ltd. ("Epsilon" or the "Company") (TSX: EPS) today reported second quarter 2014 financial and operating results. Highlights for the second quarter and material subsequent events following the end of the quarter through the date of this release include:


--  Pre-tax income of $8.6 million and adjusted EBITDA of $11.0 million for
    the quarter; $12.5 million and $22.4 million, respectively, year to
    date.
--  Upstream EBITDA of $8.4 million and Midstream EBITDA of $2.6 million for
    the quarter; $17.1 million and $5.3 million, respectively, year to date.
--  Marcellus working interest (WI) gas production averaged 52 MMcf/d for
    the second quarter and for the six months ended June 30, 2014.
--  Gathered and delivered 29 Bcfe gross (10.2 Bcfe net to Epsilon's
    interest) during the quarter, or 319 MMcfe gross per day with the Auburn
    Gas Gathering system.
--  Repurchased 406,600 common shares at an average price (Cdn) $3.97during
    the quarter. As of the date of this release 1,281,710 common shares at
    an average price of (Cdn) $3.72 have been repurchased under the current
    Normal Course Issuer's Bid resulting in a current share count of
    49,475,700 issued and outstanding.

Financial and Operating Results
-------------------------------------

                                            Three months    Six months ended
                                          ended June 30,            June 30,
                                          2014      2013      2014      2013
                                     ---------------------------------------
Revenue by product - total period
 ($000)

Natural gas revenue ($000)            $ 11,748  $  8,054  $ 25,850  $ 19,316
  Volume (MMcfe)                         4,109     2,501     8,205     5,699
  Avg. Price ($/Mcfe)                 $   2.86  $   3.22  $   3.15  $   3.39
  Exit Rate (MMcfepd)                     48.5      33.3      48.5      33.3

Oil revenue ($000)                    $      -  $    367  $    196  $    499
  Volume (MBOE)                              -         4         2         6
  Avg. Price ($/Bbl)                  $      -  $  84.41  $  80.66  $  82.62

Midstream gathering system revenue
 ($000)                               $  3,298  $    869  $  6,625  $  3,447
                                     ---------------------------------------

Total                                 $ 15,046  $  9,290  $ 32,671  $ 23,262
                                     ---------------------------------------
                                     ---------------------------------------

Management Comments

Mr. Michael Raleigh, Chief Executive Officer, commented, "We are pleased with the significant free cash flow generation for the quarter, despite the challenging gas price environment in northeastern Pennsylvania. Managing our G&A and operating costs lower in anticipation of the current commodity price has been very beneficial to our shareholders. Our upstream production volumes were relatively flat quarter over quarter, despite only turning 2 gross (0.14 net) wells into the gathering system.

Epsilon's Midstream asset continues to perform well, operating at approximately 90% of capacity for the entire quarter and generating $2.6 million in EBITDA. We continue our planning discussions with our upstream and midstream partners, and anticipate strengthening these relationships in the future in an effort to optimize the contribution of both segments.

Overall, we continued to execute on our stated goals - minimize expenses, maximize cash generation from both segments and efficiently return capital to shareholders through our share repurchase program".

Capital Expenditures

Epsilon's total capital expenditures were $1.2 million for the three months ended June 30, 2014. $0.2 million was allocated to drilling ($0.1 million) and completing ($0.1 million) Marcellus wells, and $1.0 million was allocated to the ongoing expansion of Auburn Gas Gathering system.

There was, however, a working interest revision from the upstream operator that reduced segment capital spending by $0.6 million for the quarter.

Epsilon's 2014 capital forecast for the remainder of the year is $13.8 million. The majority of this capital ($12.5 million) is allocated to the ongoing expansion of the Auburn Gas Gathering system. This capital forecast for the remainder of the year could be reduced significantly if the Auburn compression facility expansion does not commence during the third quarter.

Marcellus Operational Guidance

During the second quarter, Epsilon turned 2 gross (0.14 net) new wells in line. The table below details Epsilon's well development status at June 30, 2014:


                                        March 31, 2014      June 30, 2014
                                     ---------------------------------------
                                         Gross       Net     Gross       Net
                                     ---------------------------------------
Producing                                   78     23.70        76     23.13
Shut-in for adjacent frac                    -         -         4      0.60
Waiting on pipeline                          2      0.14         -         -
Waiting on completion                       10      0.32        11      0.33
Drilling                                     1      0.01         1      0.04

Subsequent to June 30th, Epsilon received and elected to participate in 2 wells (.04 net) which will spud during the third quarter.

Second Quarter Results

Epsilon generated revenues of $15.0 million for the three months ended June 30, 2014 compared to $9.3 million for the three months ended June 30, 2013. The Company's Upstream Marcellus working interest production was 4.7 Bcfe net in the second quarter.

Realized natural gas prices averaged $2.86 per Mcf in the second quarter of 2014. Although differentials narrowed temporarily at the beginning of the second quarter, realized natural gas prices continue to be negatively impacted by a significant differential to NYMEX. Operating expenses for Marcellus Upstream operations in the second quarter were $0.7 million.

The Midstream system delivered 29 Bcfe gross of natural gas during the quarter as compared to 28 Bcfe during the first quarter of 2014. Both primary gathering volumes and imported cross- flow volumes increased slightly quarter over quarter to 17.6 Bcfe and 11.4 Bcfe, respectively. Epsilon reported net after tax income of $5.3 million attributable to common shareholders or $0.11 per basic and diluted common shares outstanding for the three months ended June 30, 2014, compared to a net loss of $0.3 million, or $0.01 per basic and diluted common shares outstanding for the three months ended June 30, 2013.

For the three months ended June 30, 2014, Epsilon's Adjusted Earnings Before Interest, Income Taxes, Depreciation, Amortization ("Adjusted EBITDA") was $11.0 million as compared to $4.5 million for the three months ended June 30, 2013. The increase in Adjusted EBITDA was primarily due to increased production, increased cross-flow gas and decreased general and administrative costs.

Adjusted EBITDA

Epsilon defines Adjusted EBITDA as earnings before (1) net interest expense, (2) depreciation, depletion and amortization expense, (3) recovery of prior impairments of oil and gas properties, (4) non-cash stock compensation expense, (5) unrealized gain on derivatives and (6) other income. Adjusted EBITDA is not a measure of net income or cash flows as determined by IFRS.

Management believes these non-IFRS financial measures facilitate evaluation of the Company's business on a "normalized" or recurring basis and without giving effect to certain non-cash expenses and other items, thereby providing management, investors and analysts with comparative information for evaluating the Company in relation to other oil and gas companies providing corresponding non-IFRS financial measures. These non-IFRS financial measures should be considered in addition to, but not as a substitute for, measures for financial performance prepared in accordance with IFRS, and that the reconciliations to the closest corresponding IFRS measure should be reviewed carefully.

About Epsilon

Epsilon Energy Ltd. is a North American onshore exploration and production company with a current focus on the Marcellus Shale of Pennsylvania.

Forward-Looking Statements

Certain statements contained in this news release constitute forward looking statements. The use of any of the words "anticipate", "continue", "estimate", "expect", 'may", "will", "project", "should", 'believe", and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements are based on reasonable assumption but no assurance can be given that these expectations will prove to be correct and the forward-looking statements included in this news release should not be unduly relied upon.

The reserves and associated future net revenue information set forth in this news release are estimates only. In general, estimates of oil and natural gas reserves and the future net revenue therefrom are based upon a number of variable factors and assumptions, such as production rates, ultimate reserves recovery, timing and amount of capital expenditures, ability to transport production, marketability of oil and natural gas, royalty rates, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary materially from actual results. For those reasons, estimates of the oil and natural gas reserves attributable to any particular group of properties, as well as the classification of such reserves and estimates of future net revenues associated with such reserves prepared by different engineers (or by the same engineers at different times) may vary. The actual reserves of the Company may be greater or less than those calculated. In addition, the Company's actual production, revenues, development and operating expenditures will vary from estimates thereof and such variations could be material.

Statements relating to "reserves" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in the future. There is no assurance that forecast price and cost assumptions will be attained and variances could be material.

Proved reserves are those reserves which are most certain to be recovered. There is at least a 90% probability that the quantities actually recovered will equal or exceed the estimated proved reserves. Undeveloped reserves are those reserves expected to be recovered from known accumulations where a significant expenditure (for example, when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves classification (proved, probable) to which they are assigned. Proved undeveloped reserves are those reserves that can be estimated with a high degree of certainty and are expected to be recovered from known accumulations where a significant expenditure is required to render them capable of production.

The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties due to the effects of aggregation. The estimated future net revenues contained in this news release do not necessarily represent the fair market value of the Company's reserves.

Special note for news distribution in the United States

The securities described in the news release have not been registered under the United Stated Securities Act of 1933, as amended, (the "1933 Act") or state securities laws. Any holder of these securities, by purchasing such securities, agrees for the benefit of Epsilon Energy Ltd. (the "Corporation") that such securities may not be offered, sold, or otherwise transferred only (A) to the Corporation or its affiliates; (B) outside the United States in accordance with applicable state laws and either (1) Rule 144(as) under the 1933 Act or (2) Rule 144 under the 1933 Act, if applicable.


                            EPSILON ENERGY LTD.
     Interim Unaudited Condensed Consolidated Statements of Operations
                        (All amounts stated in US$)

                    Three months ended June 30,   Six months ended June 30,
                             2014          2013          2014          2013
                   ---------------------------------------------------------

Revenues:
  Oil & gas revenue  $ 11,748,130  $  8,420,872  $ 26,046,196  $ 19,814,630
  Gas gathering &
   compression
   revenue              3,298,092       869,140     6,625,171     3,447,072
                   ---------------------------------------------------------

    Total revenue      15,046,222     9,290,012    32,671,367    23,261,702
                   ---------------------------------------------------------

Operating costs and
 expenses:
  Project operating
   costs                2,743,874     2,038,331     5,972,748     5,344,042
  Depletion,
   depreciation,
   amortization and
   decomissioning
   accretion            3,969,922     3,397,030     8,401,436     6,674,231
  Impairment
   recovery                     -             -      (420,634)     (384,068)
  Stock based
   compensation          (941,635)       48,385      (918,747)      104,440
  General and
   administrative         571,579     2,389,754       990,935     3,270,649
                   ---------------------------------------------------------

    Total operating
     costs and
     expenses           6,343,740     7,873,500    14,025,738    15,009,294
                   ---------------------------------------------------------

Operating income        8,702,482     1,416,512    18,645,629     8,252,408
                   ---------------------------------------------------------

Other income and
 expense:
  Interest income           2,636         2,034        12,045         2,099
  Finance expense        (989,334)   (1,071,263)   (2,234,120)   (2,160,850)
  Realized (loss)
   gain on
   commodity
   contracts           (1,622,450)     (402,615)   (4,206,580)      613,290
  Net change in
   unrealized loss
   on commodity
   contracts            1,609,796     2,107,035      (597,110)     (805,805)
Gain on sale of
 fixed assets             659,654             -       659,194             -
  Other income            228,645         9,624       224,746         9,624
                   ---------------------------------------------------------

    Net other
     expense             (111,053)      644,815    (6,141,825)   (2,341,642)
                   ---------------------------------------------------------

Income tax recovery
 - current                      -     1,978,331             -     4,294,256
Income tax expense
 - deferred             3,286,433       382,148     5,198,290       239,232
                   ---------------------------------------------------------
NET INCOME           $  5,304,996  $   (299,152) $  7,305,514  $  1,377,278
                   ---------------------------------------------------------
                   ---------------------------------------------------------

Net income per
 share, basic               $0.11        ($0.01)        $0.15         $0.03
Net income per
 share, diluted             $0.11        ($0.01)        $0.15         $0.03
Weighted average
 number of shares
 outstanding, basic    50,058,959    50,217,493    50,130,582    50,202,810
Weighted average
 number of shares
 outstanding,
 diluted               50,128,767    50,617,365    50,193,574    50,651,706

                            EPSILON ENERGY LTD.
 Interim Unaudited Condensed Consolidated Statements of Financial Position
                        (All amounts stated in US$)

                                                    June 30,   December 31,
                                                        2014           2013
                                              ------------------------------
ASSETS
Current assets
Cash and cash equivalents                      $  13,270,503  $   3,624,398
Accounts receivable                                7,092,703      6,638,379
Restricted cash - current                            163,418        163,505
Other current assets                                  41,385        122,136
                                              ------------------------------
  Total current assets                            20,568,009     10,548,418
                                              ------------------------------
Non-current assets
Oil and gas interests:
  Intangible exploration and evaluation assets         1,894        300,000
  Net property and equipment                     158,109,137    161,207,478
                                              ------------------------------
    Total oil and gas interests                  158,111,031    161,507,478
                                              ------------------------------
Other assets:
  Deposits                                            46,077         15,374
                                              ------------------------------
  Total other assets                                  46,077         15,374
                                              ------------------------------
    Total non-current assets                     158,157,108    161,522,852
                                              ------------------------------
Total assets                                   $ 178,725,117  $ 172,071,270
                                              ------------------------------

EQUITY AND LIABILITIES
Current liabilities
Accounts payable and accrued liabilities       $   7,432,848  $  11,142,277
Commodity contracts                                2,167,098      1,569,988
Revolving line of credit                           7,000,000      9,000,000
                                              ------------------------------
  Total current liabilities                       16,599,946     21,712,265
                                              ------------------------------
Non-current liabilities
  Convertible debentures                          33,592,198     33,070,745
  Decommissioning liabilities                      2,615,042      1,905,546
  Deferred tax liability                          27,880,461     22,685,171
                                              ------------------------------
    Total non-current liabilities                 64,087,701     57,661,462
                                              ------------------------------
Total liabilities                                 80,687,647     79,373,727
                                              ------------------------------
Equity
  Share capital                                  136,048,765    136,726,805
  Equity component of convertible debentures       5,028,761      5,028,761
  Contributed surplus                              5,790,892      7,205,445
  Deficit                                        (51,747,515)   (59,053,029)
  Accumulated other comprehensive income           2,916,567      2,789,561
                                              ------------------------------
    Total equity                                  98,037,470     92,697,543
                                              ------------------------------
Total liabilities and shareholders' equity     $ 178,725,117  $ 172,071,270
                                              ------------------------------
                                              ------------------------------

                            EPSILON ENERGY LTD.
     Interim Unaudited Condensed Consolidated Statements of Cash Flows
                        (All amounts stated in US$)

                                                  Six months ended June 30,
                                                        2014           2013
                                              ------------------------------

Cash flows from operating activities:
Net income (loss)                              $   7,305,514  $   1,377,278
Adjustments for:
  Depletion, depreciation, amortization and
   decomissioning accretion                        8,401,436      6,674,231
  Debenture accretion and fee amortization           627,219        631,871
  Impairment recovery                               (420,634)      (384,068)
  Net change in unrealized (loss) on commodity
   contracts                                         597,110        805,805
  Stock-based compensation expense                  (918,747)       104,440
  Deferred income tax expense                      5,198,290        239,232
  Income taxes paid                                   (3,000)      (426,000)
  Gain on sale of assets                            (659,194)             -
Changes in non-cash balances related to
 operations                                       (3,224,283)     7,665,581
                                              ------------------------------
Net cash provided by operating activities         16,903,711     16,688,370
                                              ------------------------------
                                              ------------------------------
Cash flows from investing activities:
Additions to oil and natural gas properties -
 E&E                                                  (5,598)      (300,582)
Additions to oil and natural gas properties -
 P&E                                              (5,355,654)   (22,537,620)
Change in working capital related to capital
 asset additions                                    (401,841)     6,215,667
Additions to other property and equipment                  -         (2,529)
Proceeds from assets sold                          1,658,006              -
Changes in restricted cash - current                       -          1,218
                                              ------------------------------
Net cash (used in) investing activities           (4,105,087)   (16,623,846)
                                              ------------------------------
                                              ------------------------------
Cash flows from financing activities:
Proceeds from exercise of options                    548,963              -
Buyback of common shares                          (1,722,808)      (157,357)
Repayment of draw on revolving line of credit     (2,000,000)             -
                                              ------------------------------
Net cash (used in) financing activities           (3,173,845)      (157,357)
                                              ------------------------------
                                              ------------------------------

Effect of currency rates on cash and cash
 equivalents                                          21,326        123,597
                                              ------------------------------
Increase in cash and cash equivalents              9,646,105         30,764
Cash and cash equivalents, beginning of period     3,624,398      7,579,172
                                              ------------------------------
Cash and cash equivalents, end of period       $  13,270,503  $   7,609,936
                                              ------------------------------
                                              ------------------------------

Cash and cash equivalents consist of:
Cash                                           $   9,311,840  $   6,439,847
Money market funds                                 3,958,663      1,170,089
                                              ------------------------------
Cash and cash equivalents                      $  13,270,503  $   7,609,936
                                              ------------------------------
                                              ------------------------------

                            EPSILON ENERGY LTD.
                       Adjusted EBITDA Reconciliation
                        (All amounts stated in US$)

                                         Three months      Six months ended
                                        ended June 30,         June 30,
                                         2014      2013      2014      2013
                                    ----------------------------------------

Net income                           $  5,304  $   (299) $  7,305  $  1,377
Add Back:
  Net interest expense                    987     1,069     2,222     2,159
  Deferred income tax provision         3,286     2,360     5,198     4,533
  Depreciation, depletion,
   amortization, and accretion          3,970     3,397     8,402     6,674
  Stock based compensation expense       (942)       48      (919)      104
  Net change in unrealized loss on
   commodity contracts                 (1,610)   (2,107)      597       806
  Impairment recovery                       -         -      (421)     (384)
  Other loss                               (6)       (9)       (1)       (9)
                                    ----------------------------------------
Adjusted EBITDA                      $ 10,989  $  4,459  $ 22,383  $ 15,260
                                    ----------------------------------------
                                    ----------------------------------------

Contacts:
Epsilon Energy Ltd.
Michael Raleigh
Chief Executive Officer
281-670-0002
Michael.Raleigh@EpsilonEnergyLTD.com

More Stories By Marketwired .

Copyright © 2009 Marketwired. All rights reserved. All the news releases provided by Marketwired are copyrighted. Any forms of copying other than an individual user's personal reference without express written permission is prohibited. Further distribution of these materials is strictly forbidden, including but not limited to, posting, emailing, faxing, archiving in a public database, redistributing via a computer network or in a printed form.

Latest Stories
Today we can collect lots and lots of performance data. We build beautiful dashboards and even have fancy query languages to access and transform the data. Still performance data is a secret language only a couple of people understand. The more business becomes digital the more stakeholders are interested in this data including how it relates to business. Some of these people have never used a monitoring tool before. They have a question on their mind like “How is my application doing” but no id...
Join us at Cloud Expo June 6-8 to find out how to securely connect your cloud app to any cloud or on-premises data source – without complex firewall changes. More users are demanding access to on-premises data from their cloud applications. It’s no longer a “nice-to-have” but an important differentiator that drives competitive advantages. It’s the new “must have” in the hybrid era. Users want capabilities that give them a unified view of the data to get closer to customers and grow business. The...
The current age of digital transformation means that IT organizations must adapt their toolset to cover all digital experiences, beyond just the end users’. Today’s businesses can no longer focus solely on the digital interactions they manage with employees or customers; they must now contend with non-traditional factors. Whether it's the power of brand to make or break a company, the need to monitor across all locations 24/7, or the ability to proactively resolve issues, companies must adapt to...
IoT solutions exploit operational data generated by Internet-connected smart “things” for the purpose of gaining operational insight and producing “better outcomes” (for example, create new business models, eliminate unscheduled maintenance, etc.). The explosive proliferation of IoT solutions will result in an exponential growth in the volume of IoT data, precipitating significant Information Governance issues: who owns the IoT data, what are the rights/duties of IoT solutions adopters towards t...
It is ironic, but perhaps not unexpected, that many organizations who want the benefits of using an Agile approach to deliver software use a waterfall approach to adopting Agile practices: they form plans, they set milestones, and they measure progress by how many teams they have engaged. Old habits die hard, but like most waterfall software projects, most waterfall-style Agile adoption efforts fail to produce the results desired. The problem is that to get the results they want, they have to ch...
With the introduction of IoT and Smart Living in every aspect of our lives, one question has become relevant: What are the security implications? To answer this, first we have to look and explore the security models of the technologies that IoT is founded upon. In his session at @ThingsExpo, Nevi Kaja, a Research Engineer at Ford Motor Company, discussed some of the security challenges of the IoT infrastructure and related how these aspects impact Smart Living. The material was delivered interac...
Wooed by the promise of faster innovation, lower TCO, and greater agility, businesses of every shape and size have embraced the cloud at every layer of the IT stack – from apps to file sharing to infrastructure. The typical organization currently uses more than a dozen sanctioned cloud apps and will shift more than half of all workloads to the cloud by 2018. Such cloud investments have delivered measurable benefits. But they’ve also resulted in some unintended side-effects: complexity and risk. ...
The taxi industry never saw Uber coming. Startups are a threat to incumbents like never before, and a major enabler for startups is that they are instantly “cloud ready.” If innovation moves at the pace of IT, then your company is in trouble. Why? Because your data center will not keep up with frenetic pace AWS, Microsoft and Google are rolling out new capabilities. In his session at 20th Cloud Expo, Don Browning, VP of Cloud Architecture at Turner, posited that disruption is inevitable for comp...
In 2014, Amazon announced a new form of compute called Lambda. We didn't know it at the time, but this represented a fundamental shift in what we expect from cloud computing. Now, all of the major cloud computing vendors want to take part in this disruptive technology. In his session at 20th Cloud Expo, Doug Vanderweide, an instructor at Linux Academy, discussed why major players like AWS, Microsoft Azure, IBM Bluemix, and Google Cloud Platform are all trying to sidestep VMs and containers wit...
While DevOps most critically and famously fosters collaboration, communication, and integration through cultural change, culture is more of an output than an input. In order to actively drive cultural evolution, organizations must make substantial organizational and process changes, and adopt new technologies, to encourage a DevOps culture. Moderated by Andi Mann, panelists discussed how to balance these three pillars of DevOps, where to focus attention (and resources), where organizations might...
With major technology companies and startups seriously embracing Cloud strategies, now is the perfect time to attend 21st Cloud Expo October 31 - November 2, 2017, at the Santa Clara Convention Center, CA, and June 12-14, 2018, at the Javits Center in New York City, NY, and learn what is going on, contribute to the discussions, and ensure that your enterprise is on the right path to Digital Transformation.
No hype cycles or predictions of zillions of things here. IoT is big. You get it. You know your business and have great ideas for a business transformation strategy. What comes next? Time to make it happen. In his session at @ThingsExpo, Jay Mason, Associate Partner at M&S Consulting, presented a step-by-step plan to develop your technology implementation strategy. He discussed the evaluation of communication standards and IoT messaging protocols, data analytics considerations, edge-to-cloud tec...
New competitors, disruptive technologies, and growing expectations are pushing every business to both adopt and deliver new digital services. This ‘Digital Transformation’ demands rapid delivery and continuous iteration of new competitive services via multiple channels, which in turn demands new service delivery techniques – including DevOps. In this power panel at @DevOpsSummit 20th Cloud Expo, moderated by DevOps Conference Co-Chair Andi Mann, panelists examined how DevOps helps to meet the de...
When growing capacity and power in the data center, the architectural trade-offs between server scale-up vs. scale-out continue to be debated. Both approaches are valid: scale-out adds multiple, smaller servers running in a distributed computing model, while scale-up adds fewer, more powerful servers that are capable of running larger workloads. It’s worth noting that there are additional, unique advantages that scale-up architectures offer. One big advantage is large memory and compute capacity...
Cloud applications are seeing a deluge of requests to support the exploding advanced analytics market. “Open analytics” is the emerging strategy to deliver that data through an open data access layer, in the cloud, to be directly consumed by external analytics tools and popular programming languages. An increasing number of data engineers and data scientists use a variety of platforms and advanced analytics languages such as SAS, R, Python and Java, as well as frameworks such as Hadoop and Spark...