Mr. Michael Raleigh reports
EPSILON REPORTS THIRD QUARTER 2017 RESULTS
Epsilon Energy Ltd. has released its third-quarter 2017 financial and operating results.
Highlights for the third quarter and material subsequent events following the end of the quarter through the date of this release include:
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Epsilon is continuing to add key personnel to its leadership team and is pleased to announce the hiring of Shannon Lemke as Vice President, Exploration. Shannon has over 17 years of experience in exploration and exploitation of oil and gas reserves while working for public and private equity backed companies. Of note, Shannon was recently a significant contributor to the success of Vitruvian I & II which sold to Gulfport earlier in the year. Shannon started her career at Newfield.
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Year-to-date, Epsilon has acquired varying interests in over 88 sections of land, all held by production from shallower intervals, including operations covering 21 sections in the NW STACK trend, of the Anadarko Basin in Oklahoma, with rights to the prospective and deeper Meramec, Osage and Woodford formations. This position covers a wide footprint encompassing oil, condensate and liquids rich gas prone areas in the over-pressured window of the Basin.
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Adjusted EBITDA of $4.0 million for the quarter and $14.8 million for the nine month period. Net Income per diluted share was $0.01 for the quarter and $0.07 for the nine month period.
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Marcellus working interest (WI) gas production averaged 25 MMcf/d and our Auburn System gathered and delivered 17 Bcfe gross (5.8 Bcfe net to Epsilon's interest) during the quarter which represents approximately 50% of the maximum throughput. Auburn Gas gathering and compression services included third party gas of 1.0 Bcfe during the quarter or approximately 11 MMcf/d.
Mr. Michael Raleigh, Chief Executive Officer, commented, "Epsilon is pleased to have Shannon Lemke join our talented team of professionals including Henry Clanton COO, Paul Atwood VP Financial Planning & Analysis, and Lane Bond, CFO. We are beginning the budgeting process for 2018, and will provide further details in regards to capital allocation to both the NW STACK project and the Marcellus project as that process concludes. Epsilon expects further natural gas price improvement in the NE during 2018 due to the anticipated commissioning of significant pipeline projects including Access South, Adair Southwest, Leach Xpress, Rover Phase II, and Atlantic Sunrise. These pipelines, coupled with the Cove Point LNG export facility, represent over 6 Bcf per day of incremental demand for Marcellus-Utica production."
Financial and Operating Results
Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Revenue by product - total period ($000)
Natural gas revenue ($000) $ 3,376 $ 3,294 $ 15,148 $ 10,216
Volume (MMcfe) 2,017 2,620 6,809 8,047
Avg. Price ($/Mcfe) $ 1.67 $ 1.26 $ 2.22 $ 1.27
Exit Rate (MMcfepd) 21.4 37.7 21.4 37.7
Oil revenue ($000) $ 18 $ - $ 20 $ -
Volume (MBOE) 0.41 - 0.46 -
Avg. Price ($/Bbl) $ 43.87 $ - $ 44.23 $ -
Midstream gathering system revenue ($000) $ 1,568 $ 2,624 $ 5,810 $ 7,563
Total $ 4,962 $ 5,918 $ 20,978 $ 17,779
Capital Expenditures
Epsilon's operational capital expenditures were $0.1 million for the three months ended September 30, 2017. Acquisition capital expenditures in the mid-continent totaled $11.4 million.
Epsilon expects to complete 6 gross (0.13 net) wells in the fourth quarter of 2017; however, the Marcellus capital forecast for 2017 remains unchanged at $1 million.
Marcellus Operational Guidance
The Operator turned 2 gross (.01 net) new wells on line during the third quarter.
The Operator did not drill or propose any new wells during the quarter. The table below details Epsilon's well development status at September 30, 2017:
June 30, 2017 September 30, 2017
Gross Net Gross Net
Producing 87 22.81 78 19.58
Shut-in 4 1.28 15 4.51
Waiting on pipeline - - - -
Waiting on completion 9 0.14 7 0.13
Drilling - - - -
Epsilon has not received any well proposals from the Operator subsequent to quarter end.
Third Quarter Results
Epsilon generated revenues of $5.0 million for the three months ended September 30, 2017 compared to $5.9 million for the three months ended September 30, 2016. The Company's Upstream Marcellus net revenue interest production was 2.0 Bcfe in the third quarter.
Realized natural gas prices averaged $1.67 per Mcf in the third quarter of 2017. Realized natural gas prices in Northeast Pennsylvania declined in response to mild weather coupled with increasing production in anticipation of interstate pipeline startups and the associated volume commitments to those projects. Operating expenses for Marcellus Upstream operations in the third quarter were $1.4 million.
The Auburn Gas Gathering system delivered 16.7 Bcfe of natural gas during the quarter as compared to 24.8 Bcfe during the second quarter of 2017. Primary gathering volumes decreased 16.7% quarter over quarter to 9.6 Bcfe. Imported cross-flow volumes decreased 33.7% to 7.0 Bcfe.
Epsilon reported net after tax income of $0.8 million attributable to common shareholders or $0.01 per basic and diluted common share outstanding for the three months ended September 30, 2017, compared to a net loss of $0.7 million, and ($0.01) per basic and diluted common share outstanding for the three months ended September 30, 2016.
For the three months ended September 30, 2017, Epsilon's Adjusted Earnings Before Interest, Taxes, Depreciation, Amortization ("Adjusted EBITDA") was $4.0 million as compared to $3.4 million for the three months ended September 30, 2016. The increase in Adjusted EBITDA was primarily due to higher natural gas prices.
About Epsilon
Epsilon Energy Ltd. is a North American onshore natural gas production and midstream company with a current focus on the Marcellus Shale of Pennsylvania and the Anadarko Basin in Oklahoma.
Interim Unaudited Condensed Consolidated Statements of Operations
(All amounts stated in US$)
Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Revenues:
Oil and gas revenue $ 3,393,732 $ 3,294,834 $ 15,168,159 $ 10,216,232
Gas gathering and compression revenue 1,568,257 2,623,575 5,809,782 7,562,700
Total revenue 4,961,989 5,918,409 20,977,941 17,778,932
Operating costs and expenses:
Project operating costs 1,854,151 2,044,354 5,538,548 6,677,897
Depletion, depreciation, amortization and
decommissioning accretion 2,009,068 2,902,950 6,789,550 8,912,214
Stock based compensation expense 54,749 32,091 197,268 179,266
General and administrative 677,715 483,665 2,604,369 1,489,515
Total operating costs and expenses 4,595,683 5,463,060 15,129,735 17,258,892
Operating income (loss) 366,306 455,349 5,848,206 520,040
Other income and (expense):
Interest income 336 27,980 26,092 44,270
Finance expense (46,485 ) (985,778 ) (1,122,179 ) (3,017,929)
Realized gain on commodity contracts 1,524,930 - 1,912,905 -
Net change in unrealized loss on
commodity contracts (474,338 ) - 306,249 -
Other expense 21,621 (45 ) 26,790 (96,580 )
Net other expense 1,026,064 (957,843 ) 1,149,857 (3,070,239)
Income tax expense - current - - - 23,800
Income tax expense (recovery) - deferred 620,986 153,041 3,403,487 261,234
NET INCOME (LOSS) $ 771,384 $ (655,535 ) $ 3,594,576 $ (2,835,233)
Net income (loss) per share, basic $ 0.01 $ (0.01 ) $ 0.07 $(0.06 )
Net income (loss) per share, diluted $ 0.01 $ (0.01 ) $ 0.07 $(0.06 )
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