Q3 2022 Epsilon Energy Ltd Earnings Call

November 11, 2022

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Epsilon Energy third quarter 2022 conference calls. During today's call, all parties will be in a listen-only mode. Following the company's prepared remarks, the call will be opened for questions and answers. During the question and answer session, we ask that you limit your questions to one and a follow up. You can always rejoin the queue. This conference is being recorded and a replay will be made available on the company's website following the call. I'd now like to turn the conference over to Andrew Williamson, Epsilon's Chief Financial Officer.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Epsilon Energy Q3 2022 Conference Call. During today's call, all parties will be in a listen-only mode. Following the company's prepared remarks, the call will be open for questions and answers. During the question and answer session, we ask that you limit your questions to one and a follow-up. You can always rejoin the queue. This conference is being recorded, and a replay will be made available on the company's website following the call. I would now like to turn the conference over to Andrew Williamson, Epsilon's Chief Financial Officer.

During today's call, all parties will be in a listen-only mode. Following the company's prepared remarks, the call will be opened for questions and answers. During the question and answer session, we ask that you limit your questions to one and a follow up. You can always rejoin the queue. This conference is being recorded and a replay will be made available on the company's website following the call.

Following the company the company's prepared remarks, the call will be opened for questions and answers during.

During the question and answer session. We ask that you limit your questions to one and a follow up you can always rejoin the queue.

This conference is being recorded and a replay will be made available on the company's website following the call.

I'd now like to turn the conference over to Andrew Williamson, Epsilon's Chief Financial Officer.

Andrew Williamson: Thank you operator. And on behalf of the management team, I'd like to welcome all of you to today's conference call to review Epsilon's third quarter 2022 financial and operating results.

Andrew Williamson: Thank you, operator. On behalf of the management team, I'd like to welcome all of you to today's conference call to review Epsilon's Q3 2022 financial and operating 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.

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.

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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.

Jason Stabell: Thank you Andrew. Good day to everyone and thank you for joining us for our third quarter 2022 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.

Jason Stabell: Thank you, Andrew. Good day to everyone, and thank you for joining us for our Q3 2022 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. I am pleased to report that we delivered record financial results in the Q3 2022 and expect a strong finish to the year. In short, the company is in a good position as we enter 2023. Here are some key highlights from the third quarter. We maintain net revenue interest production quarter on quarter at 27.6 MMcfe per day. We generated net income of $9.6 million or $0.41 per diluted share, and adjusted EBITDA grew 6% quarter over quarter to $16.5 million.

Joining me today are Andrew Williamson, our CFO, and Henry Clanton, our COO. We will be available to answer questions later in the call.

We will be available to answer questions later in the call.

I am pleased to report that we delivered record financial results in the third quarter of 2022 and expect a strong finish to the year. In short, the company is in a good position as we enter 2023. Here are some key highlights from the third quarter.

Here are some key highlights from the third quarter.

We maintained net revenue interest production quarter-on-quarter at 27.6 MMCFE per day. We generated net income of $9.6 million or 41 cents per diluted share and adjusted EBITDA grew 6% quarter-over-quarter to $16.5 million. We continued to produce meaningful free cash flow with $11.2 million in the quarter.

We generated net income of $9 6 million or <unk> 41 cents per diluted share and adjusted EBITDA grew 6% quarter over quarter to $16 5 million. We continued to produce meaningful free cash flow was $11 2 million in the quarter.

Jason Stabell: We continued to produce meaningful free cash flow with $11.2 million in the quarter. Both adjusted EBITDA and free cash flow have grown considerably in 2022. Year to date, we have totaled $41.5 million in adjusted EBITDA, up 173% from the same period last year, and $26 million in free cash flow, up 189% over the same period last year. We increased cash at quarter end to $40.8 million, up 32% from the prior quarter, representing almost $1.80 per share. We have a debt-free balance sheet with a growing cash position, which has allowed us to return $3.1 million to shareholders in Q3 and $10.7 million year to date through quarterly dividends and share repurchases.

Both adjusted EBITDA and free cash flow have grown considerably in 2022. Year to date, we have totaled 41.5 million in adjusted EBITDA, up 173% from the same period last year, and 26 million in free cash, flow up 189% over the same period last year.

For the same period last year.

We increased cash at quarter end to 40.8 million, up 32% from the prior quarter, representing almost $1.80 per share. We have a debt-free balance sheet with a growing cash position, which has allowed us to return $3.1 million to shareholders in the third quarter and 10.7 million year to date through quarterly dividends and share repurchases.

7 million year to date through quarterly dividends and share repurchases.

We have maintained our positive momentum in no small part due to the ability of our technical and finance teams to execute at a high level. They have welcomed Andrew and me to the team and we thank them for all their efforts.

Jason Stabell: We have maintained our positive momentum in no small part due to the ability of our technical and finance teams to execute at a high level. They have welcomed Andrew and me to the team, and we thank them for all their efforts. As a reminder, we are largely unhedged and have been able to fully capitalize on the higher commodity pricing we have seen throughout 2022. In Q3, our average realized price was $7.54 per Mcfe. Our Q3 production of 27.6 MMcf per day was up slightly from the prior quarter. The combination of sustained production and continued strong pricing contributed to our outstanding results.

They have welcomed Andrew and meet the team and we thank them for all their efforts.

As a reminder, we are largely unhedged and have been able to fully capitalize on the higher commodity pricing we have seen throughout 2022.

In the third quarter, our average realized price was $7.54 per MCFE. Our third quarter production of 27.6 MMCFE per day was up slightly from the prior quarter. The combination of sustained production and continued strong pricing contributed to our outstanding results.

Water production of 27.6 M. M. C. F E per day was up slightly from the prior quarter the COO.

Combination of sustained production and continued strong pricing contributed to our outstanding results.

Through the first nine months of the year, we have generated more adjusted EBITDA 41.5 million than the full years of 2020 and 2021 combined which was 39.8 million.

Jason Stabell: Through the first nine months of the year, we have generated more adjusted EBITDA, $41.5 million, than the full years of 2020 and 2021 combined, which was $39.8 million. During the same period, our free cash flow of $26 million was almost three times greater than the free cash flow generated in the first nine months of 2021. We are clearly in a much stronger financial position today, and we remain focused on delivering solid results. Moving on to our assets. In mid-August, the Crowland 107 HC well came online. The well has produced above our pre-drill estimates with cumulative gross production of over 3.9 Bcf in less than three months. We have an approximate 16% net revenue interest in the well.

During the same period, our free cash flow of 26 million was almost three times greater than the free cash flow generated in the first nine months of 2021. We are clearly in a much stronger financial position today, and we remain focused on delivering solid results.

We are clearly in a much stronger financial position today, and we remain focused on delivering solid results.

Moving on to our assets. In mid-August, the Cromwell 107HC well came online. The well has produced above our pre-drill estimates with cumulative gross production of over 3.9 Bcf in less than three months. We have an approximate 16% net revenue interest in the well. The Cromwell is a long lateral, nearly 14000 feet, completed in the lower Marcellus, and demonstrates the potential of our Auburn area drilling inventory.

The well has produced above our pre drill estimates with cumulative gross production of over 3.9 Bcf in less than three months.

We have an approximate 16% net revenue interest in the well the.

Jason Stabell: The Crowland is a long lateral, nearly 14,000 feet, completed in the Lower Marcellus and demonstrates the potential of our Auburn area drilling inventory. In Q3, we incurred $1.6 million in capital expenditures. We are not forecasting any material capital expenditures in Q4. While we do not operate, we will continue to try to work with the operator to drill the highly economic inventory in our portfolio. In addition to our upstream assets, we also have an interest in the Auburn Gas Gathering System. This important strategic asset provides us with a steady stream of revenue and cash flow that underpins our dividend to shareholders. In Q3, the Auburn Gas Gathering System delivered 16 Bcf gross of natural gas.

The Cromwell is a long lateral nearly 14000 feet completed in the lower Marcellus and demonstrates the potential of our Auburn area drilling inventory.

In the third quarter, we incurred $1.6 million in capital expenditures. We are not forecasting any material capital expenditures in the fourth quarter. While we do not operate, we will continue to try to work with the operator to drill the highly economic inventory in our portfolio.

In addition to our upstream assets, we also have an interest in the Auburn gas gathering system. This important strategic asset provides us with a steady stream of revenue and cash flow that underpins our dividend to shareholders.

In the third quarter, the Auburn gas gathering system delivered 16 Bcf gross of natural gas. This was down slightly compared to the prior quarter. But the mix between primary and cross-flow volume shifted, which resulted in marginally higher revenue for the quarter despite the lower overall throughput. Supported by our strong balance sheet, we are evaluating potential opportunities outside of our existing asset base.

Jason Stabell: This was down slightly compared to the prior quarter, but the mix between primary and cross-flow volume shifted, which resulted in marginally higher revenue for the quarter despite the lower overall throughput. Supported by our strong balance sheet, we are evaluating potential opportunities outside of our existing asset base. As of 30 September 2022, we had available liquidity of approximately $55 million, comprised of $41 million in cash and $14 million of undrawn borrowing availability under our revolving credit facility that has a total commitment of up to $100 million. As we look ahead to 2023, we are positioned for continued success in a variety of commodity price environments and expect to continue to generate free cash flows from our existing assets. Our cash and liquidity position provide meaningful flexibility to pursue attractive acquisitions in our current area of focus in Appalachia.

This was down slightly compared to the prior quarter.

But the mix between primary and cross flow volume shifted which resulted in marginally higher revenue for the quarter. Despite the lower overall throughput.

Supported by our strong balance sheet, we are evaluating potential opportunities outside of our existing asset base.

As of September 30, 2022, we had available liquidity of approximately 55 million comprised of $41 million in cash and $14 million of undrawn borrowing availability under our revolving credit facility that has a total commitment of up to $100 million.

As we look ahead to 2023, we are positioned for continued success in a variety of commodity price environments and expect to continue to generate free cash flows from our existing assets.

Our cash and liquidity position provide meaningful flexibility to pursue attractive acquisitions in our current area of focus in Appalachia. Our deep knowledge and long history in the basin, coupled with our strong balance sheet, distinguish us from many small to mid-sized companies.

Jason Stabell: Our deep knowledge and long history in the basin, coupled with our strong balance sheet, distinguish us from many small to mid-sized companies. We are poised to execute on attractive opportunities, and we believe that our ability to quickly evaluate and execute within our focus area is a key pillar to our future success. We are excited about the future and remain focused on creating value for our shareholders. These efforts include continued shareholder returns through dividends, pursuing organic and inorganic opportunities, and better highlighting the attractive value proposition of our shares to the investment community. Operator, we can now open the line for questions.

Our deep knowledge and long history in the basin, coupled with our strong balance sheet distinguish us for many small to midsized companies.

We are poised to execute on attractive opportunities and we believe that our ability to quickly evaluate and execute within our focus area is a key pillar to our future success. We are excited about the future and remain focused on creating value for our shareholders.

We are excited about the future and remain focused on creating value for our shareholders. These.

These efforts include continued shareholder returns through dividends, pursuing organic and inorganic opportunities, and better highlighting the attractive value proposition of our shares to the investment community.

Operator, we can now open the line for questions.

Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Please limit your questions to one and a single follow up. If you have additional questions, you may rejoin the queue. At this time, we will pause momentarily to assemble our roster.

Operator: We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Please limit your questions to one and a single follow-up. If you have additional questions, you may rejoin the queue. At this time, we will pause momentarily to assemble our roster. The first question is from Tom McIntyre with MFS. Please go ahead.

To ask a question you May press Star then one on your telephone keypad.

If you were using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

These limit your questions to one and a single follow up if you have additional questions you may rejoin the queue.

At this time, we will pause momentarily to assemble our roster.

The first question is from Tom McIntyre with MSS. Please go ahead.

Tom McIntyre: Good morning, Thanks for having the call. I think that's a nice sign to investors that are with the new management team, so I appreciate it. A simple question-the press release made reference to disclosing or talking about material subsequent matters, but I don't really see any of those things in the press release or really mentioned this morning. So what were you getting at when you put that kind of language into the press release? I thought it might be either capital allocation goals or plans or something but I didn't really see anything there.

Tom McIntyre: Yes, good morning. Thanks for having the call. I think that's a nice sign to investors that with the new management team, so I appreciate it. A simple question. The press release made reference to disclosing or talking about material subsequent matters, but I don't really see any of those things in the press release or really mentioned this morning. What were you getting at when you put that kind of language into the press release? I thought it might be either capital allocation goals or plans or something, but I didn't really see anything there.

Material subsequent matters, but I don't really see any of those things in the press release are really mentioned this morning, So what where you're getting at when you put that kind of language into the press release I thought it might be either.

Capital allocation goals or plans or something but I didn't really see anything there.

Jason Stabell: Tom, thank you. This is Jason Stabell. Thanks for taking the time to join for the call. That would just be normal disclosure language. We don't have any material subsequent news to report.

Jason Stabell: Tom, thank you. This is Jason Stabell. Thanks for taking the time to join for the call. That would just be normal, the disclosure language. We don't have any material subsequent news to report, so.

That would just be normal disclosure language, we don't have any material subsequent.

Tom McIntyre: No, that was my impression too. I read it three times, I said I must be missing-- Usually people don't say, they're reporting on something and then don't say anything about it but anyway. So with that aside, do you have anything to say about because with the cash building, and it seems like it's going to build some more in the fourth quarter or at least as much as built in the third quarter, maybe not, I don't know. There was nothing mentioned either about replenishing the buyback or anything being done with the dividend. What are your thoughts on that as that becomes--you're debt free, you are not a bank, so what are your thoughts on that?

Tom McIntyre: Yeah, no, that was my impression too.

Alright, Brian read it three times I said I must be missing it usually people don't say, they're reporting on something and then.

Jason Stabell: Sorry for any-

Tom McIntyre: I read it three times. I said I must be missing. Well, usually people don't say they're reporting on something and then don't say anything about it. Anyway, so with that aside, do you have anything to say about 'cause with the cash building and seems like it's gonna build some more in Q4, or at least as much as it built in Q3, maybe not, I don't know. There was nothing mentioned either about replenishing the buyback or anything being done with the dividend. What are your thoughts on that as that becomes? You're debt free, so you know, you're not a bank. What are your thoughts on that?

Don't say anything about it but anyway.

So with that aside do you have anything to say about because with the cash building.

And it seems like it's going to build some more in the fourth quarter.

Or at least as much as a built in the third quarter, maybe not I don't know there was nothing mentioned either about replenishing the buyback or anything.

And I think being done with the dividend and what are your thoughts on that as that becomes your debt free. So you know you are not a bank. So what what are your thoughts on that.

Jason Stabell: Well, thanks for the question. We will continue each quarter to evaluate the dividend. We've put in place a dividend that we think is sustainable, so I wouldn't suspect big changes there. In terms of buybacks, we still have authority under our existing buyback program with several hundred thousand shares. My personal view on that is we will use the buyback opportunistically. I think it's a lever for us. In some ways, it can work against what we're trying to accomplish which has increased the liquidity of our stock. However, as you've seen in the second and third quarters, we are willing to step in and make purchases of our stock at attractive points.

Jason Stabell: Well, thanks for the question. We will continue each quarter to evaluate the dividend. We put in place a dividend that we think is sustainable. I wouldn't suspect big changes there. In terms of buybacks, we still have authority under our existing buyback program of several hundred thousand shares. My personal view on that is we will use the buyback opportunistically. I think it's a lever for us. In some ways, it can work against what we're trying to accomplish, which is increase the liquidity of our stock. However, as you've seen in Q2 and Q3, we are willing to step in and make purchases of our stock at attractive points.

We will continue each quarter to evaluate the dividend we've put in place a dividend that we think is sustainable.

So I wouldnt suspect big changes there.

In terms of buybacks, we still have authority under our existing buyback program with several hundred thousand shares.

My my personal view on that is we will use the buyback opportunistically.

A lever for us and in some ways.

It can work against what we're trying to accomplish which has increased the liquidity of our stock. However, as you've seen in the second and third quarters, we are willing to step in and make purchases of our stock at attractive points.

Jason Stabell: The third, I think when we look at our opportunity set, one of the great advantages that I think we can create over time is building cash. In an environment where cash and the cost of capital is increasing, we like putting the cash on our balance sheet and being a credible counterparty for opportunities that may come and present themselves here over the near to medium term.

And then the third, I think when we look about our opportunity set, one of the great advantages that I think we can create over time is building cash. In an environment where cash and the cost of capital is increasing, we like putting the cash on our balance sheet and being a credible counterparty for opportunities that may come and present themselves here over the near to medium term.

Our opportunity set one of the great advantages that I think we can create over time is building cash in an environment, where cash and the cost of capital is increasing we like putting the cash on our balance sheet and being a credible counterparty for opportunities that are that may come and present them.

Shelves here over the over the near to medium term.

Tom McIntyre: Yeah. I can't argue with where that has served you well in the past, so I'm not gonna argue about that today. I just was wondering if there's usually you've had a long history of buying back shares, and then you replenish it, and there was no mention, and you said several hundred thousand. I don't know what the exact authorization is still like in dollar amounts. I don't know that.

Tom McIntyre: Well, I can't argue with where that has served you well in the past, so I'm not going to argue about that today. I just was wondering usually you've had a long history of buying back shares and then you replenish it and there was no mention and you said several hundred thousand. I don't know what is the exact dollar amounts, what is the exact authorization is still, like I don't know that.

This authorization is still like I don't know that.

Multiple speakers: [Jason Stabell] 219,000 shares. [Tom McIntyre] So about a million and a half dollars. Seven times.

Jason Stabell: 219,000 shares.

Tom McIntyre: about $1.5 million or 7 times. Use 7.

Tom McIntyre: About $1.5 million or 7 times. Use 7.

Seven times.

Jason Stabell: Right.

Jason Stabell: That's right.

Tom McIntyre: Yeah. Okay. You mentioned thinking about the Marcellus Utica. I guess the question is, would you have? I mean, you're small, so it's not probably a big issue, but and you would think you would address it before you did anything. Take out pipeline getting it out of the region, is that an issue for that one as opposed to? I was expecting more of an update, perhaps on your Oklahoma drilling and thoughts down there, but you guys know your business, not me.

Tom McIntyre: Okay, yeah. And you mentioned thinking about the Marcellus Utica. I guess the question is, you're small so it's probably not a big issue but you would think you would address it before you did anything but take out the pipeline, getting it out of the region, is that an issue for that one as opposed to--I was expecting more of an update perhaps on your Oklahoma drilling and thoughts down there but you guys know your business, not me.

Or about the Marcellus Utica.

I guess the question is.

Would you have on your small small cell side, probably a big issue but.

And you would think you would address it before you did anything but.

Take out.

Pipeline getting it out of the region is it I mean is that an issue for that one as opposed to I was expecting more of an update perhaps on your Oklahoma drilling and thoughts down there but.

Do you guys know your business not me.

Jason Stabell: Sure. Just so I understand the question, are you asking about takeaway?

Jason Stabell: Sure. Just so I understand the question, are you asking about takeaway concerns?

Tom McIntyre: Yeah, that's been the bugaboo about the Marcellus. This is like the first time in several quarters there's been no reference to the drilling results or plans, even though there's been some hints in the past about your Oklahoma venture. You know, if you're gonna be weighing where to put money, I would think you'd be weighing the two different basins there.

That's the bugaboo about the Marcellus and then this is like the first time in several quarters where there's been no reference to the drilling results or plans, even though there's been some hints in the past about your Oklahoma adventure. If you're gonna be weighing where to put money, I would think you'd be weighing the two different basins there.

adventure. If you're gonna be weighing where to put money, I would think you'd be weighing the two different basins there.

If you're gonna be Wang.

Where to put money I would think you'd be weighing the two different basins there.

Jason Stabell: Sure. Oklahoma is in the portfolio, so it's certainly something that we're considering for capital allocation. It is sensitive to cost inflation on the service side, and it is price sensitive. We're working with our partner there, which is a private entity named Comanche, to evaluate what inventory we will be addressing in 2023. Those plans haven't yet been finalized. And when and if they are, we'll certainly report them to the market. On the takeaway issue, it has been well publicized in the Marcellus that there are takeaway constraints. We do have the advantage of being a smaller player, so our volumes, we do take them in kind and market them. We have not had an issue.

Is in the portfolio. So it's certainly something that we're considering for capital allocation.

It is sensitive to cost inflation on the service side and it is price sensitive. So we're working with our partner there which is private at any named Comanche.

To evaluate what it what inventory we will be addressing in a in 2023 and those plants haven't yet been finalized.

And when and if they are we'll certainly report them to the market.

On the takeaway issue, it has been well publicized in the Marcellus that there are takeaway constraints. We do have the advantage of being a smaller player. So our volumes, we do take them in kind and market them and we have not had an issue. We're a price taker but we try to optimize our realized prices through our marketing efforts. Our actual ownership in Auburn, it's a gathering system that feeds ultimately into the Tennessee pipeline system. So our gathering system, we have adequate capacity for any additional activity. And in Tennessee, it's a seasonal issue in terms of takeaway capacity as we get into winter and in basin demand and north eastern demand kick in, you're going to see a lot more draw there. In October and November obviously, we're in the shoulder seasons, where you can have issues. We saw them in Oaxaca, as well with maintenance where lines do get backed up because of the demand reductions, so the weather was going to drive things here in the next couple of weeks coming out of the basin. Hopefully that answers your question.

We do have the advantage of being a smaller.

Player. So our volumes, we do take them in kind and market them in <unk>.

We have not had an issue we're a price taker.

Jason Stabell: We're a price taker, but we try to optimize our realized prices through our marketing efforts. Our actual ownership in Auburn is. It's a gathering system that feeds ultimately into the Tennessee Gas Pipeline. Our gathering system, we have adequate capacity for any additional activity. In Tennessee, it's a seasonal issue in terms of takeaway capacity. As we get into winter and in-basin demand and Northeastern demand kick in, you're gonna see a lot more draw there. In October and November, obviously, we're in the shoulder seasons where you can have issues. We saw them in Waha as well with maintenance where lines do get backed up because of demand reductions. Weather was gonna drive things here in the next couple weeks coming out of the basin. Hopefully, that answers your question.

But we try to optimize our realized prices.

Through our marketing efforts.

Our actual ownership in Auburn is it's a gathering system that feeds ultimately into the Tennessee pipeline system. So our gathering system, we have adequate capacity for any additional activity.

And in Tennessee, its a seasonal issue.

Well in terms of takeaway capacity as we get into winter and in basin demand in north eastern demand kick in.

Youre going to see a lot more draw there.

October and November obviously, we're in the shoulder seasons, where you can have issues.

We saw them in Oaxaca, as well with maintenance where.

Lines do get backed up because of the demand reductions so.

Multiple speakers: [Tom McIntyre] Yes, it does and I appreciate the time. And like I said, I am glad to see you communicating with the shareholders a little bit here starting with the new management team. Good luck with your efforts. [Jason Stabell] Thank you, Tom. I appreciate it.

Tom McIntyre: Yes, it does, and I appreciate the time. Like I said, I am glad to see you communicating with the shareholders a little bit here, starting with the new management team. Good luck. Good luck with your efforts.

Jason Stabell: Thank you, Tom. Appreciate it.

Operator: Again, if you have a question, please press star then one. The next question is from Nat Stewart with NAS Capital. Please go ahead.

The next question is from Nat Stewart with N. A S capital. Please go ahead.

Nat Stewart: Hey, Jason. I just have a few questions for you. I thought that was great news about the Cromwell Well on being above expectations. I think it really highlights the quality of your position there. I was just curious, have you gotten a real feel for what the prospects are for working with the operator, perhaps improving the relationship there perhaps if not increase, do more to maintain production there? Obviously, that seems like you have a great inventory that could generate a lot of cash.

Nat Stewart: Hey, Jason. I just had a few questions for you. I thought that was great news about the Koromlan well being above expectations. I think it really highlights the quality of your position there. I was just curious, what are the... Have you gotten a real feel for what the prospects are for working with the operator, perhaps improving the relationship there, perhaps to you know, if not increased, do more to maintain production there? Obviously, that seems like you have a great inventory that could generate a lot of cash.

Crown Manuel on being above expectations, I think it really highlights the quality.

Of your position there.

I was just curious what are the what are there have you gotten a real feel for what the prospects are for.

Working with the operator, perhaps improving their relationship there perhaps to.

If not increase due more to to maintain production. There obviously that seems like you have a great inventory.

They could generate a lot of cash.

Jason Stabell: Nat, thanks for joining, and thanks for the question. Yes, we are excited about the Cromwell results, and you're right, they do speak to the quality of our inventory. As far as our discussions with the operator, as you know we've been of the position that we'd love to increase the investment. We are not the operator there so we're afforded the opportunity to reach out and communicate to them our views on capital allocation. They have a larger portfolio over which they're making decisions. So what I'll say on that is we're a new management team, we are trying to improve and reset the communication there, and our hope is that we'll have some success. I think it's too early yet to know what fruit will be born there.

Matt Thanks for thanks for joining and thanks for the question, Yes, we are.

Jason Stabell: Nat, thanks for joining, and thanks for the question. Yes, we're excited about the Koromlan results. You're right, they do speak to the quality of our inventory. As far as our discussions with the operator, as you know, we've been of the position that we'd love to increase the investment. We are not the operator there, so we're afforded the opportunity to reach out and communicate to them our views on capital allocation. They have a larger portfolio over which they're making decisions. What I'll say on that is, we're a new management team. We're trying to improve and reset the communication there. Our hope is that we'll have some success. I think it's too early yet to know what fruit will be born there.

We are excited about the Cromwell and results and Youre right. They do speak to the quality of our inventory as far as our discussions with the operator as you know we've.

We've been of the position that we'd love to increase the investment we are not the operator there so.

Ah, we're afforded the opportunity to to reach out and communicate to them our views on capital allocation. They have a larger portfolio over which they're making decisions. So what I'll say on that is.

Were a new management team, we are trying to do.

To improve and reset the communication, there and and our hope is that we'll have some success I think it's too early.

Yet to know what what fruit will be born there.

Nat Stewart: Great. Now, in terms of just a follow-up question about the opportunities you're looking at. When I look and I think many investors look at natural gas type oriented companies today that are publicly traded, it seemed pretty cheap even at substantially lower gas prices. Have you been able to get a feel for how the private market might be pricing for potential deals or acquisitions? Is it at this type of discount as well and have you been able to assess that environment in terms of how favorable it is right now relative to say the public market or whatnot?

Nat Stewart: Great. Now in terms of just a follow-up question about the opportunities you're looking at, when I look and I think many investors look at natural gas type-oriented companies today that are publicly traded, the shares seem pretty cheap, even at substantially lower gas prices. Have you been able to get a feel for how the private market might be pricing potential deals or acquisitions? Is it at this type of discount as well? You know, have you been able to assess that environment in terms of how favorable it is right now relative to, say, you know, the public market or whatnot?

Natural gas type oriented.

Companies today that are publicly traded this chairs.

It seemed pretty cheap.

Even at substantially lower gas prices.

Are you or have you been able to get a feel for how the private market might be pricing.

For potential deals or acquisitions is it at this type of discount as well and.

You know have you been able to assess that environment.

In terms of how favorable that is right now relative to say Oh, you know the public market or whatnot.

Jason Stabell: Good question. We're just really kicking off our BD efforts in that regard so what should I say on that? When you have an environment where prices have moved as dramatically as they have on the gas side, I think that can create less financial stress or maybe more uncertainty around bid ask spread in transactions so we're a little bit wait and see. I do think there are some opportunities in our focus area in the northeast. When you think about that area, there have been some very large consolidators. We know the names, three or four very large public companies. Our view is that sitting below those there are a number of opportunities that sit in private hands that I think we could have a decent chance to pursue transactions with so I'm not sure if that gives you enough detail but let me know if you need any--

Good question Jeff.

Jason Stabell: Good question. We're just really kicking off our BD efforts in that regard. What should I say on that? When you have an environment where prices have moved as dramatically as they have on the gas side, I think that can create less financial stress or maybe more uncertainty around a bid-ask spread in transactions. We're a little bit wait and see. I do think there's some opportunities in our focus area in the Northeast. When you think about that area, there have been some very large consolidators. We know the names, three or four very large public companies. Our view is that sitting below those, there are a number of opportunities that sit in private hands, that I think we could have a decent chance to pursue transactions with.

Yes.

Really kicking off our BD efforts in that regard so.

What should I say on that when you have an environment where prices have moved as dramatically as they have on the gas side I think that Ken.

Create.

Less financial stress or or maybe more uncertainty around.

Bid ask spread and transactions so.

We're a little bit wait and see I do think there's some opportunities in our focus area in the northeast when you think about that area. There have been some very large consolidators, we know the names three or four very large.

Public companies, our view is that sitting below those there are a number of opportunities that sit in private hands.

That I think we.

We could have a decent chance to pursue transactions with so.

Jason Stabell: I'm not sure if that gives you enough detail, but let me know if you need any.

<unk>.

I'm not sure if that gives you enough detail but.

Jason Stabell: I'm not sure if that gives you enough detail, but let me know if you need any.

Nat Stewart: Sure, yeah. That's good. If I interpreted it correctly and I could be wrong, it seems like perhaps the focus is really in the northeast at least for now. Is Oklahoma something you'd consider divesting or has that not been considered or is that just it seems like you're content with kind of what's going on there?

Nat Stewart: Sure. Yeah. No, that's good. Now, if I interpreted it correctly, and I could be wrong, it seems like perhaps the focus is really in the Northeast, at least for now. Is Oklahoma something you'd consider divesting, or has that not been considered, or is that just, it seems like you're content with kind of the, what's going on there?

It does no if I interpreted it correctly and I could be wrong it seems like perhaps.

The focus is really in.

In the northeast at least for now is Oklahoma, something you'd consider divesting or has that not been considered or is that just it seems like youre content with with the kind of the what's going on there.

Jason Stabell: So with any new management team, you come in and you try to get your arms around the portfolio. I think the Oklahoma portfolio is one where we've allocated some capital. As I mentioned in the previous question, it is a bit more sensitive to cost and commodity. So it's something that I think we'd evaluate further investment there. I think we would also evaluate the potential divestment. It's something as we think about our portfolio is going to depend on the opportunities that we identify in the northeast and whether Oklahoma continues to make sense for us or not. At this point, I'm not in a position to say yes, or no on that Nat.

Jason Stabell: With any new management team, you come in and you try to get your arms around the portfolio. I think the Oklahoma portfolio is one where we've allocated some capital. As I mentioned in the previous question, it is a bit more sensitive to cost and commodity. It's something that I think we'd evaluate further investment there. I think we'd also evaluate potential divestment. It's something as we think about our portfolio is gonna depend on the opportunities that we identify in the Northeast and whether Oklahoma continues to make sense for us or not. At this point, I'm not in a position to say yes or no on that, Nat.

Portfolio is one where we've allocated some capital as I mentioned in the previous question. It is a bit more sensitive to cost and commodity.

Uh huh.

So it's something that I think we'd evaluate further investment there I think we would also evaluate the potential divestment. It's it's something as we think about our portfolio is going to depend on the opportunities that we identify in the northeast and weather, Oklahoma continues to make sense for us or not at this point I'm not in a position to to sue.

Yes, or no on that Matt.

Nat Stewart: Sure. Okay. Well, that sounds great, guys, and good luck. I'm real excited about the future here.

Nat Stewart: Okay, well that sounds great guys and good luck and I'm really excited about the future here.

Jason Stabell: I appreciate the question thanks, and your interest.

Jason Stabell: Appreciate the question. Thanks, and your interest.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Jason Stabell for any closing remarks.

Jason Stabell: Thank you Gary. I would also like to thank all of those joining us today for their interest in Epsilon and our board and team members for their support and hard work. Again, I hope it's clear from my remarks today that we are excited about the prospects for the company and believe that Epsilon is well-positioned to create meaningful value for our shareholders.

Jason Stabell: Thank you, Gary. I would also like to thank all those joining today for their interest in Epsilon and our board and team members for their support and hard work. Again, I hope it's clear from our remarks today that we are excited about the prospects for the company and believe that Epsilon is well-positioned to create meaningful value for our shareholders. Finally, let me reiterate that we believe Epsilon is differentiated by the combination of its strong debt-free balance sheet, unhedged commodity exposure, and regional focus. We look forward to updating you on our progress in the coming quarters as we implement our plans and raise investor awareness. Hope you all have a great weekend. Thank you.

I would also like to thank all of those joining us today for their interest in Epsilon and our board and team members for their support and hard work.

Again, I hope it's clear from my remarks today that we are excited about the prospects for the company and believe that Epsilon is well positioned to create meaningful value for our shareholders.

Finally, let me reiterate that we believe Epsilon is differentiated by the combination of its strong debt free balance sheet, unhedged commodity exposure in regional focus. We look forward to updating you on our progress in the coming quarters as we implement our plans and raise investor awareness. Hope you all have a great weekend. Thank you.

Hedged commodity exposure in regional focus we.

We look forward to updating you on our progress in the coming quarters as we implement our plans and raised investor awareness.

Hope you all have a great weekend. Thank you.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

[music].

Q3 2022 Epsilon Energy Ltd Earnings Call

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