Epsilon Energy Ltd. reported second quarter 2021 financial and operating results and material subsequent events following the end of the quarter through the date of this release.
Net cash provided by operations of $2.4 million and $8.0 million for the three and six months ended June 30, 2021, with free cash flow (FCF) of $1.2 million and $6.3 million for the same periods.
Realized gas prices of $1.97/Mcf including hedges ($2.00/Mcf excluding hedges), for the three months ended June 30, 2021.
Through June 30, 2021 the company returned a total of $1.1 million to shareholders through share repurchases of 264,215 representing a reduction of 1.1% of outstanding shares from December 31, 2020.
Marcellus net revenue interest (NRI) gas production averaged 27.6 MMcf/d (Working Interest of 31.7 MMcf/d) for the second quarter. Working interest exit rate for the second quarter was 33.7 MMcf/d.
Auburn System gathered and delivered 15.0 Bcf gross (5.3 Bcf net to Epsilon’s interest) during the three months ended June 30, 2021 through the Auburn GGS which represents approximately 75% of maximum throughput as currently configured.
- Total revenues of $7.1 million and EBITDA of $3.0 million for the quarter.
- Cash at quarter end of $18.5 million ($19.1 million including restricted cash).
- Net loss before tax of $0.7 million for the quarter. Includes estimated non-cash unrealized losses on derivative contracts in the amount of $1.7 million.
- Operating expenses including SG&A was $1.58/Mcfe.
After June 30th, 2021, we completed a well under our Meramec appraisal program in Oklahoma. The IP30 (Initial 30 day production period) resulted in flowing approximately 640 bbls/d of oil and 7.0 MMcf/d of wet gas prior to stripping the NGLs which are estimated at 77 bbls per MMcf of wet gas, or total liquids production of approximately 1,100 barrels of liquids per day.
Michael Raleigh, CEO, commented, “As we expected, the decline in drilling activity in 2020 has led natural gas production in both Appalachia and the US to remain relatively flat while demand levels for LNG over 10 Bcf/d and exports to Mexico in excess of 7 Bcf/d have created a supply shortfall. This imbalance supported a 40% rally in Henry Hub futures contract prices for natural gas during the quarter. The price for natural gas is well supported as exporters compete with US utilities and local distribution companies who must build sufficient inventories in storage prior to the upcoming winter. Despite the increases in price, natural gas storage levels for the US and in the East remain 6.4% and 7.8% below their five-year average levels, respectively.
Epsilon resumed its Meramec appraisal program in Oklahoma with the completion in July 2021 of the 50% WI horizontal well that was previously drilled. We have now gathered sufficient data over the initial 30 day period to assess the expected performance against the pre-drill type curve used to forecast the economics. We are very excited by the initial performance of this well as the gas rate is 2x the expected pre-drill rate and 2.5x the expected pre-drill oil rate. We developed a completion program that optimized on the historical designs and are evaluating the degree to which this is providing the observed uplift in productivity. At current commodity prices, we anticipate drilling and completing additional wells over the several sections we have interests within this area that our subsurface team estimates are analogous.”
Capital Expenditures
Epsilon’s capital expenditures were $0.5 million for the three months ended June 30, 2021. This capital was mainly related to the completion of one gross (0.22 net to EPSN) well during the second quarter of 2021, as well as expenditures for the Auburn Gas Gathering system.
Operational Guidance
During the second quarter of 2021, the operator completed and turned in line one gross (0.22 net to EPSN) well in Marcellus. Additionally, the operator completed one gross (0.50 net to EPSN) well in Oklahoma that was turned to production in early July.
Second Quarter Results
Epsilon generated revenues of $7.1 million for the three months ended June 30, 2021 compared to $6.3 million for the three months ended June 30, 2020.
Realized natural gas prices averaged $1.95/Mcf (excluding hedges) for Marcellus Upstream operations in the second quarter of 2021. Operating expenses for Marcellus Upstream operations in the second quarter were $1.6 million.
Auburn System gathered and delivered 15.0 Bcf gross of natural gas during the quarter as compared to 17.5 Bcfe during the first quarter of 2021. Primary gathering volumes declined 2.0% quarter over quarter to 12.3 Bcfe. Imported cross-flow volumes decreased 42.1% to 3.0 Bcfe.
Epsilon reported a net after tax loss of $0.5 million attributable to common shareholders or $0.02 per basic and diluted common share outstanding for the three months ended June 30, 2021, compared to net loss of $0.6 million, and $0.02 per basic and diluted common share outstanding for the three months ended June 30, 2020.
For the three months ended June 30, 2021, Epsilon's Adjusted Earnings Before Interest, Taxes, Depreciation, Amortization ("Adjusted EBITDA") was $3 million as compared to $3.1 million for the three months ended June 30, 2020.
