Mr. Michael Raleigh reports
EPSILON REPORTS FIRST QUARTER 2017 RESULTS
Epsilon Energy Ltd. has released first quarter 2017 financial and operating results.
Michael Raleigh, chief executive officer, commented: "Marcellus gas prices continued to strengthen during the first quarter despite a relatively mild winter season, further demonstrating sustained underlying demand, local interstate pipeline capacity growth and limited gas supply growth. During the first quarter, Epsilon's upstream gas revenues were $5.9-million, an 85-per-cent increase from the first quarter of 2016. Both increasing gas price and a shrinking basis differential contributed to the revenue increase. Epsilon's effective basis differential on realized natural gas prices decreased by 38 per cent in the first quarter as compared to the first quarter of 2016. This means that even if the gas price remains flat, we would experience an improving net realized gas price. We expect this trend to continue. The ongoing development of major transportation additions and expansion in the northeast will continue to drive this constructive pricing trend.
"Epsilon recently announced the successful closing of our oversubscribed rights offering. The proceeds from the rights offering will enable us to continue building our land position in the Anadarko basin. We look forward to providing more information on the acquisitions in the near future."
Highlights for the first quarter and material subsequent events following the end of the quarter through the date of this release include:
- Upstream EBITDA (earnings before interest, taxes, depreciation and amortization) was $2.7-million, and mid-stream EBITDA was $2.6-million for the quarter.
- Marcellus working interest (WI) gas production averaged 31 million cubic feet per day for the first quarter of 2017. Working interest gas production as of this release is approximately 30 million cubic feet per day.
- The company gathered and delivered 25.8 billion cubic feet equivalent gross (9.0 billion cubic feet equivalent, net to Epsilon's interest) during the quarter, or 287 million cubic feet equivalent per day through the Auburn system, which represents approximately 80 per cent of design throughput. Current system throughput is averaging 220 million cubic feet equivalent per day.
- Auburn gas gathering and compression services included third party gas of 1.3 billion cubic feet equivalent during the quarter or approximately 14 million cubic feet per day.
FINANCIAL AND OPERATING RESULTS
Three months ended March 31,
2017 2016
Revenue by product -- total period ($000)
Natural gas revenue ($000) $ 5,892 $ 3,189
Volume (MMcfe) 2,410 2,762
Avg. price ($/Mcfe) $ 2.44 $ 1.15
Exit rate (MMcfepd) 30.0 38.1
Oil revenue ($000) $ - $ -
Volume (MBO) - -
Avg. price ($/bbl) $ - $ -
Mid-stream gathering system revenue ($000) $ 2,175 $ 2,427
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Total $ 8,067 $ 5,616
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Capital expenditures
Epsilon's total capital expenditures were $100,000 for the three months ended March 31, 2017. The majority of the capital was allocated to the continuing buildout and maintenance of the Auburn gas gathering system.
Epsilon's 2017 capital forecast for the Marcellus remains unchanged at $1-million for 2017. In regard to Epsilon's strategic entry into the Anadarko basin, the due diligence process for the first acquisition is continuing, and the transaction is still anticipated to close in the second quarter. Additional announcements, including an updated capital budget, will be provided following the completion of the transaction.
Marcellus operational guidance
The operator did not drill or propose any new wells during the quarter. The attached Marcellus well development status table details Epsilon's Marcellus well development status at March 31, 2017.
MARCELLUS WELL DEVELOPMENT STATUS
Dec. 31, 2016 March 31, 2017
Gross Net Gross Net
Producing 91 24.09 86 22.57
Shut-in - - 5 1.52
Waiting on pipeline - - - -
Waiting on completion 9 0.14 9 0.14
Drilling - -
Four wells were shut in at quarter-end due to continuing maintenance operations, and one well was shut in due to preparation for an adjacent completion operation.
Epsilon has not received any well proposals from the operator subsequent to quarter-end.
First quarter results
Epsilon generated revenues of $8.1-million for the three months ended March 31, 2017, compared with $5.6-million for the three months ended March 31, 2016. The company's upstream Marcellus net revenue interest production was 2.4 billion cubic feet equivalent in the first quarter.
Realized natural gas prices averaged $2.44 per thousand cubic feet in the first quarter of 2017. Realized natural gas prices in northeast Pennsylvania are rising in response to decelerating production growth, coupled with increasing transportation capacity. Operating expenses for Marcellus upstream operations in the first quarter were $1.4-million.
The Auburn gas gathering system delivered 25.8 billion cubic feet equivalent of natural gas during the quarter as compared with 22.7 billion cubic feet equivalent during the fourth quarter of 2016. Primary gathering volumes decreased 11.1 per cent quarter over quarter to 12.0 billion cubic feet equivalent primarily as a result of rotating well shut-ins for maintenance operations inside the Auburn system boundary. Imported cross-flow volumes increased 59.0 per cent to 13.9 billion cubic feet equivalent.
Epsilon reported net after tax income of $300,000 attributable to common shareholders, or one cent per basic and diluted common share outstanding, for the three months ended March 31, 2017, compared with a net loss of $1.3-million, and three cents per basic and diluted common share outstanding, for the three months ended March 31, 2016.
For the three months ended March 31, 2017, Epsilon's adjusted earnings before interest, income taxes, depreciation, amortization were $5.3-million as compared with $2.8-million for the three months ended March 31, 2016. The increase in adjusted EBITDA was primarily due to higher natural gas prices.
About Epsilon Energy Ltd.
Epsilon Energy is a North American onshore natural gas production and mid-stream company with a current focus on the Marcellus shale of Pennsylvania.
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(all amounts stated in U.S. dollars)
Three months ended March 31,
2017 2016
Revenues
Oil and gas revenue $ 5,892,398 $ 3,188,779
Gas gathering and compression revenue 2,174,902 2,427,153
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Total revenue 8,067,300 5,615,932
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Operating costs and expenses
Project operating costs 2,063,410 2,297,876
Depletion, depreciation, amortization and decommissioning accretion 2,403,467 3,058,139
Stock-based compensation expense 53,281 72,973
General and administrative 925,808 473,334
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Total operating costs and expenses 5,445,966 5,902,322
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Operating income (loss) 2,621,334 (286,390)
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Other income and (expense)
Interest income 25,423 1
Finance expense (994,707) (950,716)
Realized (loss) on commodity contracts 247,160 -
Net change in unrealized (loss) on commodity contracts (757,510) -
Other expense (44) (96,879)
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Net other expense (1,479,678) (1,047,594)
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Income tax expense -- current - 23,800
Income tax expense (recovery) -- deferred 865,509 (72,400)
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Net income (loss) $ 276,147 $ (1,285,384)
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Net income (loss) per share, basic $ 0.01 $ (0.03)
Net income (loss) per share, diluted $ 0.01 $ (0.03)
We seek Safe Harbor.
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