Epsilon Energy Ltd.

For the period ended Sep 30, 2025. Filed Nov 5, 2025.

About this filing

A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.

Sep 30, 2025 · Filed Nov 5, 2025

EPSN$5.17-1.0%Stored close · as of Nov 6, 2026

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Contents

14. Operating Segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (CODM). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as executive management consisting of the Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer. The CODM uses the Company’s consolidated financial results, including operating income or loss by segment, to make key operating decisions, assess performance, and to allocate resources. Segment performance is evaluated based on operating income or loss as shown in the table below. Interest income and income taxes are managed separately on a group basis.

The Company’stwo reportable segments are as follows:

a.	The Upstream segment activities include acquisition, development and production of natural gas and oil reserves on properties within the United States and Canada; and

b.	The Gas Gathering segment partners with two other companies to operate a natural gas gathering system.

Segment activity for the nine months ended September 30, 2025 and 2024 is as follows:


	Upstream		Gas Gathering		Total
As of and for the nine months ended September 30, 2025
Operating revenue
Natural gas		$22,282,495		$—		$22,282,495
Natural gas liquids		799,289		—		799,289
Oil and condensate		8,504,982		—		8,504,982
Gathering and compression fees		—		5,182,566		5,182,566
Intersegment gathering and compression fees		—		1,465,548		1,465,548
		31,586,766		6,648,114		38,234,880

Reconciliation of operating revenue
Elimination of intersegment revenues						(1,465,548)
Total consolidated operating revenue(1)						36,769,332

Operating costs
Gathering, transportation, and compression		5,705,765		—		5,705,765
Other lease operating expense		1,909,970		—		1,909,970
Gathering system operating expenses		—		1,729,988		1,729,988
Intersegment other lease operating expense		1,465,548		—		1,465,548
Impairment		2,676,669		—		2,676,669
Depletion, depreciation, amortization and accretion		8,419,766		828,207		9,247,973
Segment operating income		$11,409,048		$4,089,919		$14,033,419

Reconciliation of segment operating income
Salary expense						2,622,769
Stock based compensation						1,148,289
Other general and administrative						3,125,312
Elimination of intersegment other lease operating expenses						(1,465,548)
Total consolidated operating income						8,602,597

Other income (expense)
Interest income						117,440
Interest expense						(43,783)
Gain on derivative contracts						2,076,000
Other expense						(28,086)
Other expense, net						2,121,571
Net income before income tax expense						$10,724,168

Capital expenditures (2)		$10,946,071		$384,124		$11,330,195
Segment assets		$99,286,044		$6,268,475		$105,554,519

Total segment assets reconciled to consolidated amounts are as follows:
Total segment assets						$105,554,519
Current assets, net						19,136,523
Other property and equipment						859,665
Operating lease right-of-use asset						272,298
Restricted cash						470,000
						$126,293,005


	Upstream		Gas Gathering		Total
As of and for the nine months ended September 30, 2024
Operating revenue
Natural gas		$6,828,155		$—		$6,828,155
Natural gas liquids		1,096,678		—		1,096,678
Oil and condensate		10,193,535		—		10,193,535
Gathering and compression fees		—		4,464,134		4,464,134
Intersegment gathering and compression fees		—		842,625		842,625
		18,118,368		5,306,759		23,425,127

Reconciliation of operating revenue
Elimination of intersegment revenues						(842,625)
Total consolidated operating revenue(1)						22,582,502

Operating costs
Gathering, transportation, and compression		3,759,752		—		3,759,752
Other lease operating expense		1,758,078		—		1,758,078
Gathering system operating expenses		—		1,692,862		1,692,862
Intersegment other lease operating expense		842,625		—		842,625
Depletion, depreciation, amortization and accretion		6,446,271		681,370		7,127,641
Segment operating income		$5,311,642		$2,932,527		$7,401,544

Reconciliation of segment operating income
Salary expense						2,169,379
Stock based compensation						944,267
Other general and administrative						2,317,435
Elimination of intersegment other lease operating expenses						(842,625)
Total consolidated operating income						2,813,088

Other income (expense)
Interest income						435,908
Interest expense						(35,117)
Gain on derivative contracts						245,095
Other expense						111,067
Other income, net						756,953
Net income before income tax expense						$3,570,041

Capital expenditures (2)		$31,842,704		$76,625		$31,919,329
Segment assets		$98,473,841		$6,766,726		$105,240,567

Total segment assets reconciled to consolidated amounts are as follows:
Total segment assets						$105,240,567
Current assets, net						14,811,129
Other property and equipment						906,897
Operating lease right-of-use asset						368,564
Restricted cash						470,000
						$121,797,157

(1)

Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the nine months ended September 30, 2025 and 2024 have been eliminated upon consolidation. For the nine months ended September 30, 2025, Epsilon sold natural gas to 34 unique customers. The one customer over 10% comprised 34% of total revenue. For the nine months ended September 30, 2024, Epsilon sold natural gas to 32 unique customers. The two customers over 10% comprised 18% and 11% of total revenue.

(2)	Capital expenditures for the Upstream segment consist primarily of the acquisition of properties, and the drilling and completing of wells while Gas Gathering consists of expenditures relating to the expansion, completion, and maintenance of the gathering and compression facility.

Segment activity for the three months ended September 30, 2025 and 2024 is as follows:


· · Upstream · Gas Gathering · Total
As of and for the three months ended September 30, 2025
Operating revenue
Natural gas	$4,758,578	$—	$4,758,578
Natural gas liquids	267,019	—	267,019
Oil and condensate	2,510,651	—	2,510,651
Gathering and compression fees	—	1,445,211	1,445,211
Intersegment gathering and compression fees	—	401,325	401,325
	7,536,248	1,846,536	9,382,784

Reconciliation of operating revenue
Elimination of intersegment revenues			(401,325)
Total consolidated operating revenue(1)			8,981,459

Operating costs
Gathering, transportation, and compression	1,727,590	—	1,727,590
Other lease operating expense	669,462	—	669,462
Gathering system operating expenses	—	563,542	563,542
Intersegment other lease operating expense	401,325	—	401,325
Impairment	—	—	—
Depletion, depreciation, amortization and accretion	2,354,222	216,240	2,570,462
Segment operating income	$2,383,649	$1,066,754	$3,049,078

Reconciliation of segment operating income
Salary expense			832,977
Stock based compensation			376,613
Other general and administrative			1,634,808
Elimination of intersegment other lease operating expenses			(401,325)
Total consolidated operating income			606,005

Other income (expense)
Interest income			84,894
Interest expense			(11,666)
Gain on derivative contracts			964,307
Other expense			5,252
Other expense, net			1,042,787
Net income before income tax expense			$1,648,792

Capital expenditures (2)	$(196,673)	$155,797	$(40,876)


	Upstream		Gas Gathering		Total
As of and for the three months ended September 30, 2024
Operating revenue
Natural gas		$1,903,946		$—		$1,903,946
Natural gas liquids		335,271		—		335,271
Oil and condensate		3,964,736		—		3,964,736
Gathering and compression fees		—		1,083,988		1,083,988
Intersegment gathering and compression fees		—		250,718		250,718
		6,203,953		1,334,706		7,538,659

Reconciliation of operating revenue
Elimination of intersegment revenues						(250,718)
Total consolidated operating revenue(1)						7,287,941

Operating costs
Gathering, transportation, and compression		1,157,373		—		1,157,373
Other lease operating expense		942,128		—		942,128
Gathering system operating expenses		—		490,325		490,325
Intersegment other lease operating expense		250,718		—		250,718
Depletion, depreciation, amortization and accretion		2,435,309		263,503		2,698,812
Segment operating income		$1,418,425		$580,878		$1,748,585

Reconciliation of segment operating income
Salary expense						29,171
Stock based compensation						309,109
Other general and administrative						1,420,405
Elimination of intersegment other lease operating expenses						(250,718)
Total consolidated operating income						240,618

Other income (expense)
Interest income						60,693
Interest expense						(17,598)
Gain on derivative contracts						440,712
Other expense						9,994
Other income, net						493,801
Net income before income tax expense						$734,419

Capital expenditures (2)		$2,410,620		$6,389		$2,417,009

(1)

Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the three months ended September 30, 2025 and 2024 have been eliminated upon consolidation. For the three months ended September 30, 2025, Epsilon sold natural gas to 26 unique customers. The three customers over 10% comprised 24.4%, 24.3% and 11% of total revenue. For the three months ended September 30, 2024, Epsilon sold natural gas to 24 unique customers. The three customers over 10% comprised 34%, 14% and 11% of total revenue.

(2)	Capital expenditures for the Upstream segment consist primarily of the acquisition of properties, and the drilling and completing of wells while Gas Gathering consists of expenditures relating to the expansion, completion, and maintenance of the gathering and compression facility.

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