Epsilon Energy Ltd.

For the period ended Mar 31, 2026. Filed May 13, 2026.

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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.

Mar 31, 2026 · Filed May 13, 2026

EPSN$5.20+0.6%Stored close · as of Nov 9, 2026

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13. 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 three months ended March 31, 2026 and 2025 is as follows:


· · Upstream · · Gas Gathering · · Total
As of and for the three months ended March 31, 2026
Operating revenue
Natural gas	$13,402,522	$—	$13,402,522
Natural gas liquids	1,073,301	—	1,073,301
Oil and condensate	9,462,187	—	9,462,187
Gathering and compression fees	—	1,657,777	1,657,777
Intersegment gathering and compression fees	—	438,502	438,502
	23,938,010	2,096,279	26,034,289

Reconciliation of operating revenue
Elimination of intersegment revenues			(438,502)
Total consolidated operating revenue(1)(3)			25,595,787

Operating costs
Gathering, transportation, and compression	2,746,419	—	2,746,419
Other lease operating expense	4,448,894	—	4,448,894
Gathering system operating expenses	—	594,446	594,446
Intersegment other lease operating expense	438,502	—	438,502
Depletion, depreciation, amortization and accretion	2,791,393	210,946	3,002,339
Segment operating income	$13,512,802	$1,290,887	$14,365,187

Reconciliation of segment operating income
Salary expense			(2,299,623)
Stock based compensation			(547,527)
Transaction costs			(71,420)
Other general and administrative			(1,078,519)
Elimination of intersegment other lease operating expenses			438,502
Interest income			45,543
Interest expense			(941,581)
Gain on derivative contracts			(8,929,829)
Other income			16,428
Net income before income tax expense			$997,161

Capital expenditures (2)	$4,212,340	$50,583	$4,262,923
Segment assets (3)	$183,523,427	$5,912,666	$189,436,093

Total segment assets reconciled to consolidated amounts are as follows:
Total segment assets			$189,436,093
Current assets, net			29,781,580
Fair value of derivatives, long term			185,056
Other property and equipment			5,309,128
Operating lease right-of-use asset			429,923
Credit facility fees			724,263
Restricted Cash			553,000
Total assets			$226,419,043


· · Upstream · · Gas Gathering · · Total
As of and for the three months ended March 31, 2025
Operating revenue
Natural gas	$10,613,573	$—	$10,613,573
Natural gas liquids	387,250	—	387,250
Oil and condensate	3,269,967	—	3,269,967
Gathering and compression fees	—	1,892,350	1,892,350
Intersegment gathering and compression fees	—	556,858	556,858
	14,270,790	2,449,208	16,719,998

Reconciliation of operating revenue
Elimination of intersegment revenues			(556,858)
Total consolidated operating revenue(1)(3)			16,163,140

Operating costs
Gathering, transportation, and compression	2,053,715	—	2,053,715
Other lease operating expense	702,183	—	702,183
Gathering system operating expenses	—	552,651	552,651
Intersegment other lease operating expense	556,858	—	556,858
Impairment	6,669	—	6,669
Depletion, depreciation, amortization and accretion	3,146,306	329,551	3,475,857
Segment operating income	$7,805,059	$1,567,006	$8,815,207

Reconciliation of segment operating income
Salary expense			(1,079,670)
Stock based compensation			(385,838)
Other general and administrative			(738,748)
Elimination of intersegment other lease operating expenses			556,858
Interest income			15,299
Interest expense			(12,211)
Loss on derivative contracts			(1,462,170)
Other income			(22,499)
Net income before income tax expense			$5,686,228

Capital expenditures (2)	$7,639,767	$104,275	$7,744,042
Segment assets (3)	$101,889,212	$6,399,266	$108,288,478

Total segment assets reconciled to consolidated amounts are as follows:
Total segment assets			$108,288,478
Current assets, net			15,543,547
Other property and equipment			884,658
Operating lease right-of-use asset			318,604
Restricted cash			470,000
Total assets			$125,505,287

(1)

Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the three months ended March 31, 2026 and 2025 have been eliminated upon consolidation. For the three months ended March 31, 2026, one purchaser each accounted for 10% or more of our total revenue: HF Sinclair (27%). For the three months ended March 31, 2025, three purchasers each accounted for 10% or more of our total revenue: Expand Energy Marketing (15%) and Ares Energy (18%) from the upstream segment and Williams (15%) from the gas gathering segment.

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

(3)	Our upstream segment includes Canadian revenue and assets for the three months ended March 31, 2026 of $0.2 million and $7.2 million, respectively. Our upstream segment includes Canadian revenue and assets for the three months ended March 31, 2025 of $0.1 million and $10.3 million, respectively.

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