Epsilon Energy Ltd

Gain (Loss) on Derivative Contracts

For the three and nine months ended September 30, 2024, Epsilon had NYMEX HH Natural Gas futures swaps, Tennessee Gas Pipeline Zone 4 basis swaps, and crude oil NYMEX WTI CMA swaps derivative contracts for the purpose of hedging a portion of its physical natural gas and oil sales revenue. For the three and nine months ended September 30, 2023, Epsilon had NYMEX HH Natural Gas Futures swaps and Tennessee Gas Pipeline Zone 4 basis swap derivative contracts for the purpose of hedging a portion of its physical natural gas sales revenue.

During the three and nine months ended September 30, 2024, we received net cash settlements of $485,389 and $1,245,931, respectively. During the three and nine months ended September 30, 2023, we received net cash settlements of $1,346,270 and $2,979,128, respectively.

For the nine months ended September 30, 2024, net gains on derivative contracts decreased by $1.4 million. This decrease was primarily the result of NYMEX Henry Hub prices not declining as much relative to the strike price of the hedge in 2024 as compared to 2023. For the three months ended September 30, 2024, net gains on derivative contracts increased by $0.5 million. This increase was primarily a result of declining NYMEX Henry Hub and WTI CMA prices in 2024. There were minimal price fluctuations for the same period in 2023.