Epsilon Energy Q1 Earnings Call Highlights
Epsilon Energy (NASDAQ:EPSN) said it remains on track with its 2026 development plan after a first quarter marked by stronger gas pricing, a full-quarter contribution from newly acquired Powder River Basin assets and continued investment in oil-weighted projects.
Chief Executive Officer Jason Stabell told investors the company is “in execution mode” and expects to deliver “meaningful production growth year-over-year,” with an oil-weighted ramp in the Permian and Powder River basins beginning in the second quarter and increasing through the second half of the year.
Stabell said the company’s ninth well in its Permian project, its first 3-plus-mile Barnett well, is expected to come online in the second quarter. In the Powder River Basin, two Niobrara drilled-but-uncompleted wells acquired in last year’s transaction are scheduled to be completed in June and turned to sales in the third quarter. A three-well Parkman development is expected to follow in the fourth quarter.
First-quarter results affected by hedge losses
Chief Financial Officer Andrew Williamson said Epsilon spent just under $5 million in capital expenditures through March, primarily tied to participation in drilling the 3-mile Barnett well in Ector County and facilities work ahead of Parkman drilling in Campbell County, Wyoming.
Williamson said the company expects to invest at a higher pace over the remaining three quarters of the year to support the oil-weighted growth outlined by management. He said the full-year investment plan is designed to maintain Epsilon’s target leverage profile of 1.0x to 1.5x net debt to adjusted EBITDA.
The quarter’s earnings were “materially impacted” by unrealized, non-cash hedge losses driven by a sharp move in oil prices, Williamson said. He added that the revenue benefit from higher pricing is expected to fall primarily in later quarters, creating what he described as “a bit of a mismatch on the P” Adjusting for that item, Williamson said Epsilon earned $0.29 per share in the quarter.
Since closing the Powder River Basin acquisition in November, Epsilon has reduced its outstanding debt balance by $10 million to $40.5 million, Williamson said.
Asset sales support balance sheet and capital plan
Management said Epsilon has taken steps to strengthen the balance sheet and help fund its investment plans through non-core asset sales.
Williamson said the company sold an overriding royalty interest package in Pennsylvania earlier this month for $3.9 million to a private buyer. The sale price represented approximately six times expected next-12-month cash flow from those assets, he said. The overrides accounted for about 1.5% of Epsilon’s upstream revenue over the past four quarters.
Epsilon also has the office building it acquired from Peak under contract for $3 million, with closing expected within 30 days, Williamson said.
Powder River Basin activity accelerates
Chief Operating Officer Henry Clanton said Epsilon is continuing to integrate its newly acquired operating assets in Wyoming and has several capital projects and optimization programs underway.
Clanton said completion work is underway on two 2-mile Niobrara laterals, with pressure pumping services scheduled for the first week of next month. Facility construction has been completed and is ready for service following flowback operations. Epsilon has a combined 0.7 net revenue interest in the two wells, with a type curve-based pre-completion peak net production rate estimated at 475 barrels of oil equivalent per day in July. Total net capital expenditures for the completions are expected to be $6.8 million.
For the Parkman formation, Clanton said the first development program will consist of three wells in Campbell County with high working interest. Planning has been completed, and the company is engaging drilling rig and service providers ahead of an expected August spud. During the question-and-answer session, Stabell and Clanton clarified that the $23 million capital estimate reflects Epsilon’s current ownership in the three-well development, while a previously cited 1,060 BOE-per-day peak rate assumed a potential sell-down of roughly one-third of the working interest. If Epsilon retains its full interest, the forecasted peak rate is estimated at 1,600 BOE per day.
Clanton also said Epsilon is preparing for 2027 development of Parkman inventory in the Einot unit in Converse County. The company is finalizing facility design and beginning construction planning for a multi-well water supply facility. The planned $3.5 million facility is intended to support a six-well development next year and future programs.
On operational improvements, Clanton said Epsilon has identified more than 10 wells where rental gas lift compressors can be downsized, creating expected monthly savings of approximately 35% without affecting current productivity. The company has also identified gas-lifted wells for conversion to rod pump, which early pilot results suggest could increase daily production rates by more than 10% per well while lowering lifting costs. Epsilon is also optimizing production chemical programs, with lower per-unit treatment costs expected to begin next month.
Permian and Marcellus plans continue
In the Permian Basin Barnett project, Clanton said the new operator has confirmed a transition from 2-mile to 3-mile laterals and four-well pad development. He said Epsilon is aligned with the program changes and expects “significant capital efficiencies” as a result.
The recently drilled 3-plus-mile Barnett lateral is expected to begin drill-out operations within days, followed by flowback. Net forecasted production from the well is 226 BOE per day, Clanton said. Two additional 3-mile laterals offsetting the well are planned for later this year, with similar initial production rates forecasted.
Clanton said the operator has also proposed appraisal of a second interval in the Woodford Shale, with a test well expected to spud this month. Epsilon elected to sell only its wellbore interest in the proposal but remains willing to invest in future wells after the formation is better delineated. Stabell said during the Q that Epsilon would likely want to see at least 180 days of production to assess productivity before participating in a follow-up well.
In the Marcellus, Clanton said the operator has completed drilling five scheduled wells, representing 0.4 net wells to Epsilon. Completion operations are planned for the second half of the year, with first production expected in December. The development is forecasted to add 6.5 million cubic feet per day. Four of the new wells will gather through the Auburn system and are expected to increase midstream throughput by approximately 86 million cubic feet per day upon initial completion.
Management weighs growth opportunities
In response to an analyst question about whether Epsilon could increase activity amid stronger oil prices, Stabell said the Powder River Basin appears to be “coming alive” and that the company has had preliminary discussions with offset operators. He said potential opportunities could include drill-to-earn arrangements or partnerships on acreage not currently scheduled for development until later in Epsilon’s five-year plan.
Stabell said no such opportunity appears imminent, but management is evaluating ways to add incremental upside to its base capital plan. He also said the company may opportunistically sell down small pieces of working interest in future programs if market appetite is attractive.
Williamson said unit operating costs are expected to decline as incremental volumes come online and integration costs from last year’s Peak acquisition roll off. He said Powder River Basin operating expenses, currently elevated because production is largely from existing developed wells without recent new volumes, are expected to move from the high teens to low $20s per BOE into the mid-teens as new production is added.
About Epsilon Energy (NASDAQ:EPSN)
Epsilon Energy (NASDAQ: EPSN) is an independent exploration and production company specializing in the acquisition, development and production of unconventional and conventional oil and natural gas properties. Originally founded as Brewster Energy in 2002 and rebranded to Epsilon Energy in 2011, the company pursues a disciplined approach to resource development, leveraging its technical expertise to optimize well performance and manage operational costs.
The company's core asset base is concentrated in the Appalachian Basin, where it holds acreage in key shale formations across Pennsylvania, West Virginia and Ohio.
This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected].
Where Should You Invest $1,000 Right Now?
Before you make your next trade, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis.
Our team has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and none of the big name stocks were on the list.
They believe these five stocks are the five best companies for investors to buy now...
Source MarketBeat
