Epsilon Energy Ltd. ((EPSN)) has held its Q4 earnings call. Read on for the main highlights of the call.
Epsilon Energy Ltd.’s recent earnings call conveyed a generally positive sentiment, highlighting substantial growth in oil production and new project developments. The company is optimistic about improved market conditions in the Marcellus region, although it faces challenges in the natural gas market and has deferred activity in the Marcellus, which presents some concerns.
Permian Production Increase
Epsilon Energy reported a remarkable 180% year-on-year increase in oil production in the Permian Basin. This surge has significantly bolstered the company’s financial performance, contributing more than 60% to its cash flows in 2024. This growth underscores the company’s strategic focus on enhancing production efficiency and capitalizing on favorable market conditions.
New Project in Alberta, Canada
The company has embarked on a new project in Alberta, Canada, through a joint venture. This initiative adds a multi-year economic inventory with a $7 million drilling carry. Currently, two wells are on flowback, indicating promising potential for future production and revenue generation.
Marcellus Market Recovery
Epsilon Energy has witnessed a significant recovery in the Marcellus market, with production increasing to approximately 30 million cubic feet per day, marking an 85% rise from the 2024 daily average. Additionally, wellhead pricing has improved by 100%, reflecting a more favorable market environment.
Reserves Growth
The company has achieved a 20% year-over-year growth in proved reserves, with additional reserves identified in both the Marcellus and Permian regions. This expansion of reserves positions Epsilon Energy well for sustained future growth.
Financial Liquidity
Epsilon Energy maintains a robust financial position with over $50 million in liquidity, including an undrawn credit facility. This financial strength provides the company with the flexibility to pursue future investments and navigate market fluctuations effectively.
Challenging Gas Market
Despite the positive developments, Epsilon Energy faces challenges in the natural gas market, which is currently oversupplied. This situation has resulted in sub $2 per Mcf net wellhead pricing and necessitated production curtailments of 20% to 25% in the Marcellus.
Deferred Activity in Marcellus
In light of the current market conditions, Epsilon Energy has decided to defer any incremental drilling activity in the Marcellus until 2026. This decision reflects a cautious approach despite the improved market conditions.
Forward-Looking Guidance
Looking ahead, Epsilon Energy has outlined several key metrics and guidance for the future. The company expects continued growth in oil production, with the Permian contributing significantly to cash flows. In Alberta, Canada, the company anticipates having four gross wells on production by the end of 2025. Despite production curtailments in the Marcellus, the company remains optimistic about the improved environment and is committed to maintaining its fixed dividend and exploring opportunities for share count reduction.
In summary, Epsilon Energy Ltd.’s earnings call reflects a positive outlook with significant growth in oil production and promising new projects. While challenges in the natural gas market and deferred activity in the Marcellus present hurdles, the company’s strong financial position and strategic initiatives position it well for future success.