Epsilon Energy Ltd

For the period ended Sep 30, 2024. Filed Nov 6, 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.

Sep 30, 2024 · Filed Nov 6, 2024

EPSN$5.17-1.0%Stored close · as of Nov 6, 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 nine months ended September 30, 2024 and 2023 is as follows:


	Upstream		Gas Gathering		Corporate		Elimination		Consolidated
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		—		5,306,759		—		(842,625)		4,464,134
Total operating revenue (1)		18,118,368		5,306,759		—		(842,625)		22,582,502

Operating costs
Operating costs		6,360,455		1,692,862		5,431,081		(842,625)		12,641,773
Depletion, depreciation, amortization and accretion		6,440,741		686,900		—		—		7,127,641
Operating income (loss)		5,317,172		2,926,997		(5,431,081)		—		2,813,088

Other income (expense)
Interest income		—		—		471,435		—		471,435
Interest expense		(35,117)		—		(35,527)		—		(70,644)
Gain on derivative contracts		245,095		—		—		—		245,095
Other income (expense)		111,637		—		(570)		—		111,067
Other income, net		321,615		—		435,338		—		756,953
Net income (loss) before income tax expense		$5,638,787		$2,926,997		$(4,995,743)		$—		$3,570,041

Segment assets
Current assets, net		$—		$—		$15,281,129		$—		$15,281,129
Proved properties		70,181,520		—		—		—		70,181,520
Unproved properties		28,292,321		—		—		—		28,292,321
Gathering system		—		6,766,726		—		—		6,766,726
Other property and equipment		906,897		—		—		—		906,897
Operating lease right-of-use asset		—		—		368,564		—		368,564
Total segment assets		$99,380,738		$6,766,726		$15,649,693		$—		$121,797,157

Capital expenditures (2)		$32,661,208		$249,818		$—		$—		$32,911,026

As of and for the nine months ended September 30, 2023
Operating revenue
Natural gas		$11,351,618		$—		$—		$—		$11,351,618
Natural gas liquids		669,295		—		—		—		669,295
Oil and condensate		2,488,271		—		—		—		2,488,271
Gathering and compression fees		—		8,694,987		—		(1,037,232)		7,657,755
Total operating revenue (1)		14,509,184		8,694,987		—		(1,037,232)		22,166,939

Operating costs
Operating costs		6,891,860		1,854,030		5,959,876		(1,037,232)		13,668,534
Depletion, depreciation, amortization and accretion		4,034,760		746,006		—		—		4,780,766
Operating income (loss)		3,582,564		6,094,951		(5,959,876)		—		3,717,639

Other income (expense)
Interest income		—		—		1,308,695		—		1,308,695
Interest expense		(71,619)		—		—		—		(71,619)
Loss on derivative contracts		1,672,535		—		—		—		1,672,535
Other income		4,083		—		1,086		—		5,169
Other income, net		1,604,999		—		1,309,781		—		2,914,780
Net income (loss) before income tax expense		$5,187,563		$6,094,951		$(4,650,095)		$—		$6,632,419

Segment assets
Current assets, net		$—		$—		$38,786,814		$—		$38,786,814
Proved properties		43,047,938		—		—		—		43,047,938
Unproved properties		26,185,843		—		—		—		26,185,843
Gathering system		—		7,452,917		—		—		7,452,917
Other property and equipment		3,832,225		—		—		—		3,832,225
Operating lease right-of-use asset		—		—		468,833		—		468,833
Total segment assets		$73,066,006		7,452,917		39,255,647		—		119,774,570

Capital expenditures (2)		$15,969,121		55,510		—		—		16,024,631

(1)

Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the nine months ended September 30, 2024 and 2023 have been eliminated upon consolidation. For the nine months ended September 30, 2024, Epsilon sold natural gas to 30 unique customers. The two customers over 10% comprised 18% and 11% of total revenue. For the nine months ended September 30, 2023, Epsilon sold natural gas to 34 unique customers. The one customer over 10% comprised 20% 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, 2024 and 2023 is as follows:


	Upstream		Gas Gathering		Corporate		Elimination		Consolidated
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		—		1,334,706		—		(250,718)		1,083,988
Total operating revenue (1)		6,203,953		1,334,706		—		(250,718)		7,287,941

Operating costs
Operating costs		2,350,220		490,324		1,758,685		(250,718)		4,348,511
Depletion, depreciation, amortization and accretion		2,433,421		265,391		—		—		2,698,812
Operating income (loss)		1,420,312		578,991		(1,758,685)		—		240,618

Other income (expense)
Interest income		—		—		96,220		—		96,220
Interest expense		(17,598)		—		(35,527)		—		(53,125)
Loss on derivative contracts		440,712		—		—		—		440,712
Other income		9,994		—		—		—		9,994
Other income, net		433,108		—		60,693		—		493,801
Net income (loss) before income tax expense		$1,853,420		$578,991		$(1,697,992)		$—		$734,419

Capital expenditures (2)		$4,701,109		$133,720		$—		$—		$4,834,829

For the three months ended September 30, 2023
Operating revenue
Natural gas		$2,088,745		$—		$—		$—		$2,088,745
Natural gas liquids		228,012		—		—		—		228,012
Oil and condensate		924,774		—		—		—		924,774
Gathering and compression fees		—		3,366,370		—		(297,374)		3,068,996
Total operating revenue (1)		3,241,531		3,366,370		—		(297,374)		6,310,527

Operating costs
Operating costs		1,857,331		631,725		1,980,011		(297,374)		4,171,693
Depletion, depreciation, amortization and accretion		1,175,402		216,630		—		—		1,392,032
Operating (loss) income		208,798		2,518,015		(1,980,011)		—		746,802

Other income (expense)
Interest income		—		—		384,732		—		384,732
Interest expense		(8,760)		—		—		—		(8,760)
Loss on derivative contracts		(24,303)		—		—		—		(24,303)
Other income		369		—		99		—		468
Other (expense) income, net		(32,694)		—		384,831		—		352,137
Net income (loss) before income tax expense		$176,104		$2,518,015		$(1,595,180)		$—		$1,098,939

Capital expenditures (2)		$2,373,657		$21,006		$—		$—		$2,394,663

(1)

Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the three months ended September 30, 2024 and 2023 have been eliminated upon consolidation. For the three months ended September 30, 2024, Epsilon sold natural gas to 22 unique customers. The three customers over 10% comprised 34%, 14%,

and 11% of total revenue. For the three months ended September 30, 2023, Epsilon sold natural gas to 28 unique customers. The two customers over 10% comprised 36% and 24% 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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