Epsilon Energy Ltd
NASDAQ:EPSN
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
4.71
6.16
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Earnings Call Analysis
Summary
Q2-2024
Epsilon Energy reported a solid Q2 2024, driven by its Permian assets, contributing 50% of quarterly revenue and 75% of cash flow despite some downtime. The company anticipates increased volumes in the Permian for the sixth consecutive quarter. Challenges in Pennsylvania led to decreased revenues due to natural declines and curtailments, but Epsilon is well-positioned to benefit from a rebound in natural gas prices. Looking toward 2025, the company expects significant volume and cash flow growth, supported by strategic asset sales and new business opportunities. An updated borrowing base of $45 million reflects optimism despite short-term challenges.
You don't have any saved screeners yet
Good day, and welcome to the Epsilon Energy Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.
I would now like to turn the conference over to our Chief Financial Officer, Mr. Andrew Williamson. Please go ahead, sir.
Thank you, operator. And on behalf of the management team, I would like to welcome all of you to today's conference call to review Epsilon's Second Quarter 2024 Financial and Operational Results.
Before we begin, I'd like to remind you that our comments may include forward-looking statements. It should be noted that a variety of factors could cause Epsilon's actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements.
Today's call may also contain certain non-GAAP financial measures. Please refer to the earnings release that we issued yesterday for disclosures on forward-looking statements and reconciliations of non-GAAP measures.
With that, I'd like to turn the call over to Jason Stabell, our Chief Executive Officer.
Thank you, Andrew. Good morning, and thank you for participating in our second quarter 2024 conference call. Joining me today are Andrew Williamson, our CFO; and Henry Clanton, our COO. We will be available to answer questions later in the call.
Our Permian business remains a bright spot. These assets contributed approximately 50% of our quarterly revenue and 75% of our cash flow, despite the fact that several wells were off-line for more than 2 weeks during the quarter due to offset completion activities. In the third quarter, we expect volumes in the Permian to increase sequentially for the sixth consecutive quarter.
In Pennsylvania, natural declines and continued curtailments resulted in decreased revenues and volumes for the quarter. We remain extremely leveraged to a rebound in natural gas prices, with our combination of curtailed volumes and deferred TILs representing the potential for an initial uplift of more than 100% of current net production.
The 12-month natural gas strip has continued to deteriorate over the summer, so we support the proactive approach of our operator to remove and defer volumes in an oversupplied gas market.
Overall, the company remains well positioned to deliver meaningful volume and cash flow growth in 2025, with several potential interim value catalysts. The first of which is the ongoing sale process of our operator in Ector County, where we expect an update before year-end. The second potential catalyst is our ongoing business development efforts in new areas, matched with our strong liquidity position that will allow us to take advantage of attractive opportunities that become available.
Now I'd like to turn the call over to Andrew for additional comments.
Thanks, Jason. We are expecting upstream cash flow from the Marcellus to trough in Q2, Q3 this year based on the current forward strip and as our curtailed and pending volumes come online.
As I mentioned last quarter, we have a new rate regime for the gas gathering system, after executing a new gathering agreement in May that provides some clarity on the rate regime on the system going forward, which is a good thing as a system owner and shipper. That said, gathering revenues will continue to come down until curtailments are lifted and incremental new development volumes from the dedicated Auburn leaseholder put through the system.
As Jason mentioned, we feel very good about the long-term viability of the asset, and are comfortable that midstream earnings will continue to underwrite most of our dividend. However, we are leveraged to better gas prices on the midstream side as well.
We will see contribution and incremental volume growth from the recent development in the Permian in the third quarter, but we're uncertain on additional development there in the near term until the operator sale process is completed, which we expect will happen before year-end. We expect and are eager to participate in more development there once that happens.
We've been active looking at new opportunities, and we're excited about the potential of adding additional areas to deploy capital, which we can do comfortably with our liquidity position and improving cash flow profile. Our focus this year has been in Canada, where we see a number of potentially attractive opportunities. We will keep you updated as things progress.
As announced in June, our borrowing base was redetermined higher to $45 million, with lender commitments at the same amount, after adding in our Texas production and despite the temporary challenges in the Marcellus.
Now I'll turn it over to Henry for operations.
Thank you, Jason and Andrew. We continue to build meaningful value in the Permian Basin. Flowback operations began in July on the seventh horizontal well in the Pradera Fuego project. This is the southernmost well drilled to date, crossing into the greater than 11,000-acre undevelopment block.
Early productivity results are meeting predrill expectations and more importantly, are further confirming productivity of the interval in this significant development runway. Peak production of the well is expected during August, adding to the meaningful growth in production from the project.
Recent spacing test in the play by leading operators indicate initial pad development of up to 4 wells per section, minimizing potential parent-child risks, an increase over our spacing guidance last quarter. The undeveloped status of the acreage block to the south of the existing wells provides for a thoughtfully planned full field development, including water supply and disposal infrastructure that can meaningfully reduce development costs moving forward.
As reported previously, evaluation efforts continue on a second perspective interval, the Woodford. Analysis of the recent core taken within the acreage through the Woodford interval demonstrates high organic content and thermal maturity similar to the Barnett. The thickness of the interval, coupled with offset well performance, suggests prospectivity worthy of appraisal.
In the Marcellus, we continue to support the production curtailments and delayed TILs of the new drills during this current low price environment.
Now back to Jason.
Thanks, guys. Operator, we can now open the line for questions.
[Operator Instructions]
And this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Jason Stabell for any closing remarks. Please go ahead, sir.
Thank you, operator. I appreciate your interest in Epsilon and joining us today. And as always, if you have any questions, please contact us here in Houston. Thanks, and have a great day.
The conference has now concluded. Thank you for attending today's presentation.