Epsilon Energy Ltd.

What they do

Epsilon produces natural gas from non-operated wells in the Appalachian Basin in Pennsylvania and produces natural gas, natural gas liquids and oil from operated and non-operated wells in the Powder River Basin in Wyoming, the Permian Basin in Texas and New Mexico, and the Western Canadian Sedimentary Basin in Alberta. In Pennsylvania it holds a 35% interest in the Auburn Gas Gathering System, operated by a Williams Partners subsidiary, which gathers and treats its production. At December 31, 2025 it reported total estimated net proved reserves of 86.4 Bcf of natural gas, 9.3 MMBbls of oil and 2.4 MMBbls of NGLs, with leasehold rights to approximately 101,265 gross (54,044 net) acres.

Revenue drivers

• Pennsylvania natural gas and gathering — The largest reported segment: 2025 natural gas revenue was $28.0 million on 9,402 MMcf at $2.98/Mcf, plus $6.7 million of gathering system revenue net of elimination, for total PA revenues of $34.7 million.
• Permian Basin oil, NGL and gas — 2025 total Permian revenues were $10.4 million, led by oil and condensate revenue of $9.6 million on 149.1 MBbl at $64.50/Bbl, with NGL revenue of $0.7 million and natural gas revenue of $0.1 million.
• Powder River Basin (Wyoming) — Added via the November 14, 2025 Peak acquisition of 284 gross (60 net) wells and 60,945 gross (39,566 net) acres in Campbell, Converse and Johnson Counties; in Q2 2026 net revenue interest production was 158.4 Mboe at $61.28/Boe (75% liquids).
• Oklahoma (divested) — Included natural gas, NGL and oil revenue in 2025 prior to the December 11, 2025 divestiture of Dewey Energy Holdings, which removed approximately 964 Mcfe/d (60% natural gas) of production and about 6,400 net deep and 2,200 net shallow acres in Dewey County, Oklahoma.

Recent performance

Full-year 2025 revenue rose 64% to $51.6 million from $31.5 million in 2024, but Epsilon reported a net loss of $5.8 million versus 2024 net income of $1.9 million, including a $19.3 million Q4 2025 loss on the sale of Anadarko Basin assets in Oklahoma. Pennsylvania 2025 natural gas revenue rose to $28.0 million on 9,402 MMcf at $2.98/Mcf, up from $10.2 million on 5,699 MMcf at $1.80/Mcf in 2024. Operating cash flow was $20.6 million in 2025. In Q2 2026, Pennsylvania net revenue interest natural gas production fell 32% year over year to 1.8 Bcf at a realized price of $2.01/Mcf, though six-month 2026 realized price was $4.06/Mcf, up 26%. At June 30, 2026, total assets were $236.4 million, total liabilities $106.5 million, shareholder equity $129.9 million and cash $11.2 million.

Strategy

Management states it is committed to disciplined capital allocation, which could include shareholder returns in the form of dividends and/or share buybacks, and to maintaining a strong balance sheet and liquidity position. It plans to invest opportunistically in existing project areas and potential new projects, citing substantial remaining drillable location inventory in Pennsylvania, Wyoming and Texas. The November 14, 2025 Peak acquisition for total consideration of $88.5 million moved the company into operated Powder River Basin acreage and added 17 full-time employees. Epsilon also divested non-core assets, selling Dewey Energy Holdings on December 11, 2025 and overriding royalty interests in Susquehanna County, Pennsylvania for $3.9 million on May 4, 2026.

Risks

• Commodity price exposure — The 10-K states revenues, profitability, liquidity, ability to access capital and growth prospects are highly dependent on oil and natural gas prices, which are volatile and need not move in tandem.
• Reserve writedowns — The 10-K warns that substantial and extended declines in oil and natural gas prices may result in impairments of proved properties or undeveloped acreage.
• Production and price declines — Q2 2026 Pennsylvania net revenue interest natural gas production fell 32% year over year to 1.8 Bcf and the realized price fell 21% to $2.01/Mcf, showing concentration in Appalachian gas.
• Acquisition integration — The Peak acquisition added 284 gross (60 net) wells, 39,566 net acres and 17 employees, and contributed to an 86% increase in total estimated net proved reserves, requiring integration of new operated operations.

Outlook

Management says it intends to maintain a strong balance sheet and liquidity position and to allocate capital in a disciplined manner, potentially returning cash to shareholders through dividends and/or buybacks. It points to substantial drillable inventory in Pennsylvania, Wyoming and Texas for future investment, alongside opportunistic new projects. The company's reported standardized measure of discounted future net cash flows was $156.1 million at December 31, 2025, up from $50.7 million at year-end 2024, a measure that excludes future cash flows from its gathering system assets.