Q2 2024 Epsilon Energy Ltd Earnings Call
Speaker Change: Good day and welcome to the Epsilon Energy second quarter 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero.
Operator: Earnings Conference Call. All participants will be in a listen-only mode.
Operator: or Earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero.
Operator: Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask a question. To ask a question, you may press star then 1 on your touch-tone phone, and to withdraw your question, please press star then 2.
Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. And to withdraw your question, please press star, then two.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch-tone phone. And to withdraw your question, please press star then 2. 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.
Operator: Please note this event is being recorded.
Operator: 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.
Andrew Williamson: I would now like to turn the conference over to our Chief Financial Officer, Mr. Andrew Williamson. Please go ahead, sir.
Andrew Williamson: 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-
Andrew Williamson: Thank you, operator.
Andrew Williamson: 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 of 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.
Speaker Change: 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.
Speaker Change: 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.
Andrew Williamson: 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.
Andrew Williamson: Please refer to the earnings release that we issued yesterday for disclosures on forward-looking statements and reconciliation non-GAAP measures.
Speaker Change: 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.
Jason Stabell: 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 of 2024 conference call. Joining me today are Andrew Williamson, our CFO, and Henry Clinton, our COO. We will be available to answer questions later in the call.
Jason Stabell: 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 offline for more than two weeks during the quarter due to offset completion activity. 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.
Jason Stabell: Thank you, Andrew. Good morning, and thank you for participating in our second quarter 2024 conference call.
Speaker Change: 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: 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 offline for more than two 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.
Speaker Change: 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 offline for more than two weeks during the quarter due to offset completion activities.
Speaker Change: In the third quarter, we expect volumes in the Permian to increase sequentially for the sixth consecutive quarter.
Jason Stabell: In Pennsylvania, natural declines and continued curtailments resolve 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 tills 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.
Speaker Change: In Pennsylvania, natural declines and continued curtailments resulted in decreased revenues and volumes for the quarter.
Jason Stabell: We remain extremely leveraged to a rebound in natural gas prices with our combination of curtailed volumes and deferred tills 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 strip. Overall, the company remains well-positioned to deliver meaningful volume in cash flow growth in 2025 with several potential interim value catalysts.
Speaker Change: We remain extremely leveraged to a rebound in natural gas prices with our combination of curtailed volumes and deferred tills representing the potential for an initial uplift of more than 100% of current net production.
Speaker Change: 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.
Jason Stabell: 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.
Speaker Change: Overall, the company remains well-positioned to deliver meaningful volume in cash flow growth in 2025 with several potential interim value catalysts.
Jason Stabell: The first of these is the ongoing sale process for 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.
Speaker Change: the first of which is the ongoing sale process of our operator in Ector County where we expect an update before year-end.
Speaker Change: 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.
Andrew Williamson: Now, I'd like to turn the call over to Andrew for additional permits. 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 on line. 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 in incremental new development volumes from the dedicated Auburn leaseholder put through the system.
Speaker Change: Now, I'd like to turn the call over to Andrew for additional comments.
Andrew Williamson: 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 leasehold are put through the system.
Andrew Williamson: 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.
Andrew Williamson: 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.
Andrew Williamson: That said, gathering revenues will continue to come down until curtailments are lifted and incremental new development volumes from the dedicated Auburn leasehold are put through the system.
Andrew Williamson: 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 in incremental volume growth from the recent development and 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 a year-end. We expect and are eager to participate in more development there once that happens.
Andrew Williamson: As Jason mentioned, we feel very good about the long-term viability of the asset and are comfortable that mid-stream earnings will continue to underwrite most of our dividends. However, we are leveraged to higher 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 about additional development there in the near term until the operator sale process is completed, which we expect will happen before year end.
Andrew Williamson: 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.
Jason Stabell: However, we are leveraged to better gas prices on the midstream side as well.
Speaker Change: 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.
Andrew Williamson: 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.
Andrew Williamson: 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.
Jason Stabell: 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.
Jason Stabell: 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.
Henry Clanton: 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.
Andrew Williamson: After adding in our Texas production, and despite the temporary challenges in the Marcellus, now I'll turn it over to Henry for operations.
Henry Clanton: Now I will turn it over to Henry for operations. Thank you, Jason and Andrew. We continue to build meaningful value in the premium base. Flowback operations began in July on the 7th horizontal well in the Padero Fuego project.
Henry Clinton: Thank you, Jason and Andrew. We continue to build meaningful value in the Permian Basin. Flowback operations began in July on the 7th or is on to well in the Paderifuego project. This is the southernmost well-drill today, crossing into the greater than 11,000 acre undevelopment block. Early productivity results are meeting pre-drilled expectations, and more importantly, our 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 tests in the play by leading operators indicate initial pad development of up to four wells per section, minimizing potential parent-child risks, and increase over our spacing guidance last quarter.
Henry Clanton: Thank you, Jason and Andrew.
Henry Clanton: We continue to build meaningful value in the Permian Basin.
Henry Clanton: Flowback operations began in July on the seventh horizontal well in the Pedrero Fuego project.
Henry Clanton: This is the southernmost well drilled today crossing into the greater than 11,000 acre undeveloped block. Early productivity results are meeting pre-drill expectations and, more importantly, are further confirming the productivity of the interval in this significant development run. Peak production of the well is expected during August, adding to the meaningful growth in production from the project. Recent spacing tests in the play by leading operators indicate initial pad development of up to four wells per section, minimizing potential parent-child risks and an increase over our spacing guidance last quarter.
Henry Clanton: This is the southernmost well drilled to date, crossing into the greater than 11,000 acre undevelopment block.
Henry Clanton: Early productivity results are meeting pre-drill expectations and, more importantly, are further confirming productivity of the interval in this significant development runway.
Henry Clanton: Peak production of the well is expected during August , adding to the meaningful growth in production from the project.
Henry Clanton: Recent spacing tests in the play by leading operators indicate initial pad development of up to four wells per section, minimizing potential parent- child risks, an increase over our spacing guidance last quarter.
Henry Clinton: 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 Barnette. The thickness of the interval coupled with offset well performance suggests prospectivity worthy of appraisal. In the Marcellus, we continue to support the production cartelments and delayed TILs of the new drills during this current low price environment.
Henry Clanton: 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.
Henry Clanton: 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.
Henry Clanton: As reported previously, evaluation efforts continue on a second perspective interval, the Woodford.
Henry Clanton: Analysis of the recent core taken within the acreage through the Woodford interval demonstrates high organic content and thermal maturity similar to the Barnett.
Henry Clanton: The thickness of the interval, coupled with offset well performance, suggests prospectivity worthy of appraisal. In the Marcellus, we continue to support 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. Thank you. We will now begin the question and answer session. To ask a question, you may press any star than one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the key.
Henry Clanton: The thickness of the interval, coupled with offset weld performance, suggests prospectivity worthy of appraisal.
Henry Clanton: In the Marcellus, we continue to support the production curtailments and delayed TILs of the new drills during this current low-price environment.
Jason Stabell: Now back to Jason.
Jason Stabell: Thanks, guys.
Operator: Operator, we can now open the line for questions. Thank you.
Jason Stabell: Now back to Jason.
Jason Stabell: Thanks guys. 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 touch-tone phone.
Operator: Thank you. We will now begin the question and answer session.
Operator: To ask a question you may press star then one on your touchtone phone. If you're using a speakerphone please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question please press star then two and at this time we'll pause momentarily to assemble a roster.
Operator: If you're using a speaker phone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we'll pause momentarily to assemble a roster. Again, to ask a question is star then one.
Operator: If at any time your question has been addressed, and you would like to withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble a roster. Again, to ask a question is star than one.
Operator: [inaudible]
Operator: Hello, I'm Jason Stabell, and I'll be back with you in the next video.
Operator: And this will conclude our question-and-answer session.
Operator: Again, to ask a question is star then 1.
Operator: Thank you for watching, and I'll see you in the next video.
Jason Stabell: 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.
Jason Stabell: I would like to turn the conference back over to Mr. Jason Stabell for any closing remarks. Please go ahead, sir. Thank you, operator. 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.
Speaker Change: 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.
Jason Stabell: Thank you, operator. We 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 is now concluded. Thank you for attending today's presentation.
Speaker Change: Thank you operator. Appreciate your interest in Epsilon and joining us today and as always if you have any questions please contact us.
Operator: The conference is now concluded. Thank you for attending today's presentation.
Speaker Change: here in Houston. Thanks and have a great day.
Operator: or Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero.
Operator: After today's presentation, there will be an opportunity task questions. To ask a question, you may press star than one on your touch tone phone. And to withdraw your question, please press star than two.
Operator: Please note this event is being recorded.
Andrew Williamson: 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 of 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-gap financial measures.
Andrew Williamson: Please refer to the Earnings release that we issued yesterday for disclosures on forward-looking statements and reconciliation non-gap measures.
Jason Stabell: 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 of 2024 conference call. Joining me today are Andrew Williamson, our CFO, and Henry Clinton, our COO. We will be available to answer questions later in the call.
Jason Stabell: Our Permian business remains a bright spot. These assets contributed approximately 50% or a quarterly revenue, and 75% of our cash flow. Despite the fact that several wells were offline for more than two 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.
Jason Stabell: In Pennsylvania, natural declines and continued curtailments resolve 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 tills 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.
Jason Stabell: 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.
Andrew Williamson: Now, I'd like to turn the call over to Andrew for additional permits. 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 on line. 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.
Andrew Williamson: That said, gathering revenues will continue to come down until curtailments are lifted in 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 in incremental volume growth from the recent development and 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 a year end.
Andrew Williamson: 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.
Andrew Williamson: As announced in June, our borrowing base was redetermined higher to 45 million with lender commitments at the same amount.
Henry Clinton: 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 7th or is on to well in the Paderifuego project. This is the southern most well-drill today, crossing into the greater than 11,000 acre undevelopment block. Early productivity results are meeting pre-drilled expectations and more importantly, our further confirming productivity of the interval in this significant development runway.
Henry Clinton: Peak production of the well is expected during August, adding to the meaningful growth in production from the project. Recent spacing tests in the play by leading operators indicate initial pad development of up to four wells per section, minimizing potential parent child risks, and 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.
Henry Clinton: 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 Barnette. The thickness of the interval coupled with offset well performance suggests prospectivity worthy of appraisal.
Henry Clinton: In the Marcellus, we continue to support the production cartelments and delayed TILs of the new drills during this current low price environment.
Jason Stabell: Now back to Jason. Thanks guys.
Operator: Operator, we can now open the line for questions. Thank you.
Operator: We will now begin the question and answer session. To ask a question, you may press star than one on your touch-tone phone. If you're using a speaker phone, please pick up your handset before pressing the key- if any time your question has been addressed and you would like to withdraw your question, please press star then two and at this time we'll pause momentarily to assemble a roster. Again, to ask a question is star then one.
Operator: And this will conclude our question and answer session.
Jason Stabell: I would like to turn the conference back over to Mr. Jason Stabell for any closing remarks. Please go ahead, sir. Thank you, operator. 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.
Operator: The conference is now concluded. Thank you for attending today's presentation.