Q4 2024 Epsilon Energy Ltd Earnings Call

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Speaker Change: Good day, and welcome to the Epsilon Energy full year and fourth quarter 2024 earning conference call. All participants will be in a listen only mode. Should you need assistance please signal a conference specialist by pressing the start key followed by zero.

Speaker Change: After today's presentation, there will be an opportunity to ask questions.

Speaker Change: To ask a question, you may press star, then one, on a touchstone phone.

To withdraw your question, please press star, then two [inaudible]

Please note that so that is being recorded.

Speaker Change: I would now like to turn the conference over to Andrew Williamson, Chief Financial Officer. Please go ahead.

Speaker Change: Today's call might 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 or Chief Executive Officer.

Thank you, Andrew.

Jason Stabell: Good morning and thank you for participating in our 2024 year end 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: I am pleased to report that in 2024, we achieved our main strategic objectives to continue to develop our Permian business, add a new project area with meaningful upside potential and whether an oversupplied gas market.

Jason Stabell: In the Permian, we added additional production and undeveloped acreage through a bolt-on acquisition in the first quarter. That deal, followed by incremental investment in two gross wells during the year, led to our 180% year-on-year increase in oil production.

Jason Stabell: The Permian contributed more than 60% to our cash flows in 2024.

Jason Stabell: We also established a new project area in Alberta, Canada with the joint venture announced in October that we believe adds multi-year economic inventory for approximately a $7 million

Jason Stabell: The operator has committed to five gross wells on the position before the end of first quarter 2026.

Jason Stabell: The project is underway with two wells now on Flowback.

Jason Stabell: In 2025, we will further delineate this position with two gross wells, 0.5 net and expect to have four gross wells, one net on production in the Garington area by year end.

Jason Stabell: Finally, in the Marcellus, we survived a challenging natural gas market with sub $2 per MCF net well head pricing, production curtailments estimated at 20 to 25% of our net total in the basin and deferred turn in lines.

Jason Stabell: The environment started to change in the fourth quarter of last year and we are off to a great start to 2025 in the base. Andrew can elaborate further there.

Jason Stabell: Today, our business is more diversified with multiple avenues available for chapel allocation and organic growth across the commodity mix.

Speaker Change: I'll now turn it over to Andrew and then Henry to provide further details on our plans and activities, including an early comment on the strength of our first quarter 2025 performance.

Andrew Williamson: Thanks, Jason. As mentioned, the tides have shifted in the Marcellus, and we're off to a great start there in 2025. The remaining deferred till Wells came on in the second week of January , and we have now have essentially all of our previously curtailed production back online.

Henry Clanton: to put some details to it through the first two months of the quarter. Our net revenue interest production in PA is approximately 30 million cubic feet a day of 85% from our daily average during 2024.

Henry Clanton: Over the same period, we re-loss over $3.90 per MCF net to Wellhead, which is up 100% over the same two-month period last winter.

Henry Clanton: That pricing came in above the index as we market our own gas and we're able to take advantage of a strong cash market during some of the winter weather we've seen in the Northeast.

Henry Clanton: The curtailment lifting also benefits the gathering system where a current throughput is up over 50% from the average in the third quarter of 24. It's still early, but we expect 2025 upstream and midstream cash flows in the Marcellus to be up substantially year over year.

Henry Clanton: We built the Permian business up over 2024, investing 24 million between the February acquisition and the two wheels drilled in the second and third quarter.

Henry Clanton: Our expectation is to open a third major project area here for an attractive entry cost $7 million drilling carry which will be part of our capital allocation matrix going forward.

Henry Clanton: Finally, we have over $50 million of liquidity, including our Undrawn credit facility and strong free cash flows and our two primary project areas.

Henry Clanton: It puts us in a strong position to continue to invest for growth. While also returning cash to our shareholders.

Henry Clanton: Henry.

Henry Clanton: Thanks, Jason and Andrew.

Henry Clanton: I would like to add some comments on our year end reserves.

Henry Clanton: Against pricing headwinds the company grew proved reserves approximately 20% year over year.

Henry Clanton: In the Marcellus updated development scheduling provided by the operator has added approximately 10 Bcf proved undeveloped reserves with drilling set to commence in 2026.

Henry Clanton: We are also reporting that the Alba gas gathering system operating pressure has been lowered to 450 <unk> from 550.

Henry Clanton: While there was no impact to the end of year reserves. The company will benefit from improved production and throughput in 2025 from wells gathered on our system as a result.

Henry Clanton: We estimate a 15% uplift to Auburn PDP relative to production under the higher suction pressure.

Henry Clanton: In the Permian The company added 11, five Bcf equivalent to our proved reserves.

Henry Clanton: Additional interest were acquired in the <unk> born in play, which added both proved producing and undeveloped reserves.

Henry Clanton: Additionally, seasoning of the existing production has supported higher recovery projections.

Henry Clanton: The extensive development fairway and Barnett remains as previously reported.

Henry Clanton: Worthy to highlight.

Henry Clanton: The potential for multi well pad drilling and infrastructure build out offer scaled economies expected to drive future development costs down significantly.

Henry Clanton: Also while current development identified is for two mile laterals recent industry participants are extending lateral lengths to three miles and beyond indicating further economies had been targeted.

Henry Clanton: As previously reported we believe the Woodford potential remains worthy of appraisal.

Henry Clanton: Coupled with core results on our currently held acreage position recent analogous wells in the play are exhibiting good early life results.

Henry Clanton: Regarding our recently announced JV in Canada. The activity today was not included in the end of year reserves reporting due to timing.

Henry Clanton: That aside two horizontal <unk> wells 0.5, Nan had been drilled and completed to date and flowback operations have commenced.

Henry Clanton: Under the JV terms at least three additional horizontal wells <unk> 70.

Henry Clanton: 700, <unk> are scheduled to be developed over the next 12 months.

Henry Clanton: Thank you.

Jason Stabell: Now back to Jason.

Speaker Change: Thanks, guys operator, we can now open the lines for questions.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.

If you are using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: Is it any time your question has been addressed and you would like to withdraw your question. Please press Star then two.

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

Speaker Change: The first question today comes from John White with Roth Capital. Please go ahead.

John White: Good morning, gentlemen, and congratulations on the nice year.

Speaker Change: Thanks, Thanks, John.

Speaker Change: I think you've covered this but I missed it.

Speaker Change: In 2024 and regarding Alberta in 2024, how many wells were drilled and completed.

Speaker Change: Well to remind you we've got the small project, we call kill them, which we drilled two gross.

Speaker Change: Well one net.

Speaker Change: We announced in last quarter that we had one commercially successful well. These are small producers those wells cost about 700000 per well and we had one well that was.

Speaker Change: That was commercially unsuccessful and then following that we signed up the much larger.

Speaker Change: Project in Gehring, 10 area and we've drilled.

Speaker Change: And complete it now two gross wells there and are on flow back on those two wells and we have a quarter interest in those two wells.

Speaker Change: And how many oh.

Speaker Change: How many wells in a larger area will be drilled in 2025.

Speaker Change: Right now with our initial discussions we've got some planning meetings in April.

Speaker Change: With the operator, but what we understand is they'll they'll likely be another two wells drilled in that larger area over the remainder of 2025.

Speaker Change: Yeah.

Speaker Change: And that likely has is at earliest this summer where we're going to go into breakup soon in in that area in Canada. So most of the drilling operations start to slow down and come back to life in the in the early part of summer.

Speaker Change: Yes of course.

Speaker Change: Thanks for that additional detail and I'll turn it back to the operator.

John White: Thanks, John.

Speaker Change: As a reminder, if you would like to ask a question. Please press Star then one to be joined into the question queue.

Speaker Change: The next question comes from Anthony Perella with Punch <unk> Associates. Please go ahead.

Anthony Perella: Hey, guys. Thanks for taking my question this morning.

Speaker Change: Oh, yeah. Thank you could you could you gave I think henrietta alluded to it a little bit talking about the reserves, but could you just touch a little bit on discussions with the Marcellus operator, maybe what expectations are there into 2026 that's been.

Speaker Change: Included in the proved reserves that he alluded to.

Speaker Change: Sure comparing them to take that yes. Thank you for the question we have clarity now from the operator on there.

Speaker Change: A multiyear plan, which includes 2026 2027 and 2028, so that defined plan as well.

Speaker Change: What we have included in our reserve report and reflected as proved undeveloped.

Speaker Change: Alright.

Speaker Change: And that is no no.

Speaker Change: No incremental activity in 25 from what we currently understand from the operator in drilling to start again in 2026.

Speaker Change: Correct, Okay excellent and that's that's that's great to it seems like a great improvement in the relationship there versus a couple years ago.

Speaker Change: And then.

Speaker Change: If you have a sense of just how you feel about your hedged position for natural gas today kind of what percentage roughly at his of expected twenty-five production and if if you plan on being active on the hedge side kind of given the strength in the forward curve.

Andrew Williamson: Sure you want to take that Andrew Yeah. Thanks Anthony.

Andrew Williamson: And we're hedged through October of this year at roughly 30% of our gas production.

Andrew Williamson: Right.

Andrew Williamson: Yeah that that position is out of the money based on where the strip is now so.

Andrew Williamson: And we haven't added to that position I think we want to be aggressive in the winter months.

Andrew Williamson: We're contemplating putting on some more protection in summer of next year, but where we're fairly tactical about it.

Andrew Williamson: Now with with no debt and a Capex program that is well covered by cash flows.

Andrew Williamson: We're fairly tactical so you could see us add.

Andrew Williamson: Something marginal in 'twenty, six but right now our our protection rolls off in October of this year.

Andrew Williamson: That's great.

Andrew Williamson: And then just last one it nice to see that press release, a couple of weeks ago, an expanded share repurchase program. Just you may not be able to disclose but curious if you've been active year to date on the share repurchase side at all.

Andrew Williamson:

Andrew Williamson: We have not been active to date, we look at it is as another option for us in cap on the capital allocation framework as you kind of look at how we've handled that in the past Anthony we've been pretty opportunistic.

Andrew Williamson: Last year, we made two block purchases at what we thought were attractive prices for our shareholders and.

Andrew Williamson: We didn't ever to do the same if an opportunity presented itself again.

Andrew Williamson: Okay.

Speaker Change: That's great Yeah, that's it for me I'll pass it back to the operator I'm look forward to seeing the progress this year.

Speaker Change: Thanks Anthony.

Speaker Change: Once again, if you would like to ask a question. Please press Star then one to join the question queue.

Jason Stabell: There are no further questions at this time, which concludes our question and answer session I would like to turn the conference back over to Jason <unk> for any closing remarks.

Speaker Change: Thank you operator.

Speaker Change: Thank you everyone for joining us today and appreciate your interest and support in Epsilon and as I always say if you have any questions. Please reach out to us here via the phone or email.

But have a nice day. Thank you.

Speaker Change: Yeah.

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

Speaker Change: Okay.

Speaker Change: [music].