Epsilon Energy Ltd.

For the period ended Jun 30, 2026. Filed Aug 12, 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.

Jun 30, 2026 · Filed Aug 12, 2026

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

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Contents

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 six months ended June 30, 2026 and 2025 is as follows:


· · Upstream · · Gas Gathering · · Total
As of and for the six months ended June 30, 2026
Operating revenue
Natural gas	$17,170,019	$—	$17,170,019
Natural gas liquids	2,460,190	—	2,460,190
Oil and condensate	21,232,717	—	21,232,717
Gathering and compression fees	—	2,994,517	2,994,517
Intersegment gathering and compression fees	—	807,521	807,521
	40,862,926	3,802,038	44,664,964

Reconciliation of operating revenue
Elimination of intersegment revenues			(807,521)
Total consolidated operating revenue(1)(3)			43,857,443

Operating costs and expenses
Gathering, transportation, and compression	5,100,696	—	5,100,696
Other lease operating expense	8,424,810	—	8,424,810
Gathering system operating expenses	—	1,102,921	1,102,921
Intersegment other lease operating expense	807,521	—	807,521
Gain on sale of oil and gas properties	(4,174,368)	—	(4,174,368)
Depletion, depreciation, amortization and accretion	5,424,422	382,024	5,806,446
Segment operating income	$25,279,845	$2,317,093	$26,789,417

Reconciliation of segment operating income
Salary expense			(4,967,377)
Stock based compensation			(1,095,054)
Transaction costs			(273,952)
Other general and administrative			(2,075,579)
Elimination of intersegment other lease operating expenses			807,521
Interest income			70,327
Interest expense			(1,818,848)
Gain on derivative contracts			(6,684,358)
Other income			(192,230)
Net income before income tax expense			$10,559,867

Capital expenditures (2)	$13,480,492	$(111,600)	$13,368,892
Segment assets (3)	$190,167,069	$5,579,113	$195,746,182

Total segment assets reconciled to consolidated amounts are as follows:
Total segment assets			$195,746,182
Current assets, net			33,798,287
Fair value of derivatives, long term			33,114
Other property and equipment			5,268,203
Operating lease right-of-use asset			371,181
Credit facility fees			673,754
Restricted cash			553,000
Total assets			$236,443,721


· · Upstream · · Gas Gathering · · Total
As of and for the six months ended June 30, 2025
Operating revenue
Natural gas	$17,523,917	$—	$17,523,917
Natural gas liquids	532,270	—	532,270
Oil and condensate	5,994,331	—	5,994,331
Gathering and compression fees	—	3,737,355	3,737,355
Intersegment gathering and compression fees	—	1,064,223	1,064,223
	24,050,518	4,801,578	28,852,096

Reconciliation of operating revenue
Elimination of intersegment revenues			(1,064,223)
Total consolidated operating revenue(1)(3)			27,787,873

Operating costs and expenses
Gathering, transportation, and compression	3,978,175	—	3,978,175
Other lease operating expense	1,240,508	—	1,240,508
Gathering system operating expenses	—	1,166,446	1,166,446
Intersegment other lease operating expense	1,064,223	—	1,064,223
Impairment	2,676,669	—	2,676,669
Depletion, depreciation, amortization and accretion	6,065,544	611,967	6,677,511
Segment operating income	$9,025,399	$3,023,165	$10,984,341

Reconciliation of segment operating income
Salary expense			(1,789,792)
Stock based compensation			(771,676)
Other general and administrative			(1,490,504)
Elimination of intersegment other lease operating expenses			1,064,223
Interest income			32,546
Interest expense			(32,117)
Loss on derivative contracts			1,111,693
Other income			(33,338)
Net income before income tax expense			$9,075,376

Capital expenditures (2)	$11,142,744	$228,327	$11,371,071
Segment assets (3)	$99,073,244	$6,358,460	$105,431,704

Total segment assets reconciled to consolidated amounts are as follows:
Total segment assets			$105,431,704
Current assets, net			16,533,328
Other property and equipment			883,319
Operating lease right-of-use asset			295,317
Restricted cash			470,000
Total assets			$123,613,668

(1)

Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the six months ended June 30, 2026 and 2025 have been eliminated upon consolidation. For the six months ended June 30, 2026, two purchasers each accounted for 10% or more of our total revenue: HF Sinclair (23%) and Firebird Energy (13%). For the six months ended June 30, 2025, three purchasers each accounted for 10% or more of our total revenue: Expand Energy Marketing (19%) and Ares Energy (18%) from the upstream segment and Williams (17%) 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 six months ended June 30, 2026 of $0.3 million and $7.0 million, respectively. Our upstream segment includes Canadian revenue and assets for the six months ended June 30, 2025 of $0.6 million and $7.9 million, respectively.


· · Upstream · · Gas Gathering · · Total
As of and for the three months ended June 30, 2026
Operating revenue
Natural gas	$3,767,497	$—	$3,767,497
Natural gas liquids	1,386,889	—	1,386,889
Oil and condensate	11,770,530	—	11,770,530
Gathering and compression fees	—	1,336,740	1,336,740
Intersegment gathering and compression fees	—	369,019	369,019
	16,924,916	1,705,759	18,630,675

Reconciliation of operating revenue
Elimination of intersegment revenues			(369,019)
Total consolidated operating revenue(1)(3)			18,261,656

Operating costs and expenses
Gathering, transportation, and compression	2,354,275	—	2,354,275
Other lease operating expense	3,975,918	—	3,975,918
Gathering system operating expenses	—	508,475	508,475
Intersegment other lease operating expense	369,019	—	369,019
Gain on sale of oil and gas properties	(4,174,368)	—	(4,174,368)
Depletion, depreciation, amortization and accretion	2,633,029	171,078	2,804,107
Segment operating income	$11,767,043	$1,026,206	$12,424,230

Reconciliation of segment operating income
Salary expense			(2,667,754)
Stock based compensation			(547,527)
Transaction costs			(202,532)
Other general and administrative			(997,060)
Elimination of intersegment other lease operating expenses			369,019
Interest income			24,785
Interest expense			(877,267)
Gain on derivative contracts			2,245,470
Other expense			(208,658)
Net income before income tax expense			$9,562,706

Capital expenditures (2)	$8,648,197	$(164,581)	$8,483,616


· · Upstream · · Gas Gathering · · Total
As of and for the three months ended June 30, 2025
Operating revenue
Natural gas	$6,910,344	$—	$6,910,344
Natural gas liquids	145,020	—	145,020
Oil and condensate	2,724,364	—	2,724,364
Gathering and compression fees	—	1,845,005	1,845,005
Intersegment gathering and compression fees	—	507,365	507,365
	9,779,728	2,352,370	12,132,098

Reconciliation of operating revenue
Elimination of intersegment revenues			(507,365)
Total consolidated operating revenue(1)(3)			11,624,733

Operating costs and expenses
Gathering, transportation, and compression	1,522,390	—	1,522,390
Other lease operating expense	940,395	—	940,395
Gathering system operating expenses	—	613,795	613,795
Intersegment other lease operating expense	507,365	—	507,365
Impairment	2,670,000	—	2,670,000
Depletion, depreciation, amortization and accretion	2,872,103	329,551	3,201,654
Segment operating income	$1,267,475	$1,409,024	$2,169,134

Reconciliation of segment operating income
Salary expense			(1,079,670)
Stock based compensation			(385,838)
Other general and administrative			(382,208)
Elimination of intersegment other lease operating expenses			507,365
Interest income			17,247
Interest expense			(19,906)
Gain on derivative contracts			2,573,863
Other expense			(10,839)
Net income before income tax expense			$3,389,148

Capital expenditures (2)	$3,502,977	$124,052	$3,627,029

(1)

Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the three months ended June 30, 2026 and 2025 have been eliminated upon consolidation. For the three months ended June 30, 2026, five purchasers each accounted for 10% or more of our total revenue: HF Sinclair (21%), Firebird Energy (18%), Wyoming Refining Company (16%), Western Gas (12%), from the upstream segment and Williams (10%) from the gas gathering segment. For the three months ended June 30, 2025, three purchasers each accounted for 10% or more of our total revenue: Expand Energy Marketing (23%) and Ares Energy (17%) from the upstream segment and Williams (19%) 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 for the three months ended June 30, 2026 of $0.2 million. Our upstream segment includes Canadian revenue for the three months ended June 30, 2025 of $0.5 million.

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