Epsilon Energy Ltd

For the period ended Jun 30, 2024. Filed Aug 13, 2024.

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.

Jun 30, 2024 · Filed Aug 13, 2024

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. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as executive management. Segment performance is evaluated based on operating income (loss) as shown in the table below. Interest income and expense, and income taxes are managed separately on a group basis.

The Company’s reportable segments are as follows:

a.	The Upstream segment activities include acquisition, development and production of oil, natural gas, and other liquid reserves on properties within North America;

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

c.	The Corporate segment activities include corporate listing and governance functions of the Company.

Segment activity for the six months ended June 30, 2024 and 2023 is as follows:


	Upstream		Gas Gathering		Corporate		Elimination		Consolidated
As of and for the six months ended June 30, 2024
Operating revenue
Natural gas		$4,924,209		$—		$—		$—		$4,924,209
Natural gas liquids		761,407		—		—		—		761,407
Oil and condensate		6,228,799		—		—		—		6,228,799
Gathering and compression fees		—		3,972,053		—		(591,907)		3,380,146
Total operating revenue (1)		11,914,415		3,972,053		—		(591,907)		15,294,561

Operating costs
Operating costs		4,010,236		1,202,537		3,672,396		(591,907)		8,293,262
Depletion, depreciation, amortization and accretion		4,007,320		421,509		—		—		4,428,829
Operating income (loss)		3,896,859		2,348,007		(3,672,396)		—		2,572,470

Other income (expense)
Interest income		—		—		375,215		—		375,215
Interest expense		(17,519)		—		—		—		(17,519)
Gain on derivative contracts		(195,617)		—		—		—		(195,617)
Other income		101,643		—		(570)		—		101,073
Other (expense) income, net		(111,493)		—		374,645		—		263,152
Net income (loss) before income tax expense		$3,785,366		$2,348,007		$(3,297,751)		$—		$2,835,622

Segment assets
Current assets, net		$—		$—		$15,877,407		$—		$15,877,407
Proved properties		67,634,185		—		—		—		67,634,185
Unproved properties		28,498,028		—		—		—		28,498,028
Gathering system		—		6,896,509		—		—		6,896,509
Other property and equipment		1,846,035		—		—		—		1,846,035
Operating lease right-of-use asset		—		—		392,792		—		392,792
Total segment assets		$97,978,248		$6,896,509		$16,270,199		$—		$121,144,956

Capital expenditures (2)		$26,915,782		$116,098		$1,044,317		$—		$28,076,197

As of and for the six months ended June 30, 2023
Operating revenue
Natural gas		$9,262,873		$—		$—		$—		$9,262,873
Natural gas liquids		441,283		—		—		—		441,283
Oil and condensate		1,563,497		—		—		—		1,563,497
Gathering and compression fees		—		5,328,617		—		(739,858)		4,588,759
Total operating revenue (1)		11,267,653		5,328,617		—		(739,858)		15,856,412

Operating costs
Operating costs		5,034,529		1,222,305		3,979,865		(739,858)		9,496,841
Depletion, depreciation, amortization and accretion		2,859,358		529,376		—		—		3,388,734
Operating income (loss)		3,373,766		3,576,936		(3,979,865)		—		2,970,837

Other income (expense)
Interest income		—		—		923,963		—		923,963
Interest expense		(62,859)		—		—		—		(62,859)
Loss on derivative contracts		1,696,838		—		—		—		1,696,838
Other (expense) income		3,714		—		987		—		4,701
Other income, net		1,637,693		—		924,950		—		2,562,643
Net income (loss) before income tax expense		$5,011,459		$3,576,936		$(3,054,915)		$—		$5,533,480

Segment assets
Current assets, net		$—		$—		$44,053,398		$—		$44,053,398
Proved properties		42,017,615		—		—		—		42,017,615
Unproved properties		25,989,679		—		—		—		25,989,679
Gathering system		—		7,646,776		—		—		7,646,776
Other property and equipment		950,594		—		—		—		950,594
Operating lease right-of-use asset		—		—		495,842		—		495,842
Total segment assets		$68,957,888		7,646,776		44,549,240		—		121,153,904

Capital expenditures (2)		$13,595,464		34,504		—		—		13,629,968

(1)

Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the six months ended June 30, 2024 and 2023 have been eliminated upon consolidation. For the six months ended June 30, 2024, Epsilon sold natural gas to 29 unique customers. The three customers over 10% comprised 14%, 11%, and 10% of total revenue. For the six months ended June 30, 2023, Epsilon sold natural gas to 30 unique customers. The two customers over 10% comprised 15% and 10% 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 June 30, 2024 and 2023 is as follows:


	Upstream		Gas Gathering		Corporate		Elimination		Consolidated
For the three months ended June 30, 2024
Operating revenue
Natural gas		$1,961,230		$—		$—		$—		$1,961,230
Natural gas liquids		388,423		—		—		—		388,423
Oil and condensate		3,513,717		—		—		—		3,513,717
Gathering and compression fees		—		1,721,957		—		(277,509)		1,444,448
Total operating revenue (1)		5,863,370		1,721,957		—		(277,509)		7,307,818

Operating costs
Operating costs		1,927,376		649,967		1,791,804		(277,509)		4,091,638
Depletion, depreciation, amortization and accretion		1,877,611		170,792		—		—		2,048,403
Operating income (loss)		2,058,383		901,198		(1,791,804)		—		1,167,777

Other income (expense)
Interest income		—		—		108,943		—		108,943
Interest expense		(8,759)		—		—		—		(8,759)
Loss on derivative contracts		(94,891)		—		—		—		(94,891)
Other income		101,606		—		—		—		101,606
Other (expense) income, net		(2,044)		—		108,943		—		106,899
Net income (loss) before income tax expense		$2,056,339		$901,198		$(1,682,861)		$—		$1,274,676

Capital expenditures (2)		$3,654,972		$97,072		$1,036,271		$—		$4,788,315

For the three months ended June 30, 2023
Operating revenue
Natural gas		$3,006,695		$—		$—		$—		$3,006,695
Natural gas liquids		244,988		—		—		—		244,988
Oil and condensate		1,046,389		—		—		—		1,046,389
Gathering and compression fees		—		2,578,114		—		(376,050)		2,202,064
Total operating revenue (1)		4,298,072		2,578,114		—		(376,050)		6,500,136

Operating costs
Operating costs		3,266,442		570,934		1,776,374		(376,050)		5,237,700
Depletion, depreciation, amortization and accretion		1,365,603		250,125		—		—		1,615,728
Operating (loss) income		(333,973)		1,757,055		(1,776,374)		—		(353,292)

Other income (expense)
Interest income		—		—		433,201		—		433,201
Interest expense		(34,422)		—		—		—		(34,422)
Loss on derivative contracts		628,178		—		—		—		628,178
Other income		3,062		—		4		—		3,066
Other income, net		596,818		—		433,205		—		1,030,023
Net income (loss) before income tax expense		$262,845		$1,757,055		$(1,343,169)		$—		$676,731

Capital expenditures (2)		$12,450,319		$12,880		$—		$—		$12,463,199

(1)

Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the three months ended June 30, 2024 and 2023 have been eliminated upon consolidation. For the three months ended June 30, 2024, Epsilon sold natural gas to 26 unique customers. The three customers over 10% comprised 20%, 15%, and 14% of total

revenue. For the three months ended June 30, 2023, Epsilon sold natural gas to 21 unique customers. The three customers over 10% comprised 25%, 14%, and 13% 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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