Epsilon Energy Ltd.

For the period ended Mar 31, 2025. Filed May 14, 2025.

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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, 2025 · Filed May 14, 2025

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

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Contents

14. 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’s 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, 2025 is as follows:


· · Upstream · Gas Gathering · Consolidated
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)			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)
Total consolidated operating income			7,167,809

Other income (expense)
Interest income			15,299
Interest expense			(12,211)
Gain on derivative contracts			(1,462,170)
Other expense			(22,499)
Other expense, net			(1,481,581)
Net income before income tax expense			$5,686,228

Capital expenditures (2)	$7,639,767	$104,275	$7,744,042
Segment assets	$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
			$125,505,287

Segment activity for the three months ended March 31, 2024 is as follows:


	Upstream		Gas Gathering		Consolidated
As of and for the three months ended March 31, 2024
Operating revenue
Natural gas		$2,962,979		$—		$2,962,979
Natural gas liquids		372,984		—		372,984
Oil and condensate		2,715,082		—		2,715,082
Gathering and compression fees		—		1,935,698		1,935,698
Intersegment gathering and compression fees		—		314,398		314,398
		6,051,045		2,250,096		8,301,141

Reconciliation of operating revenue
Elimination of intersegment revenues						(314,398)
Total consolidated operating revenue(1)						7,986,743

Operating costs
Gathering, transportation, and compression		1,370,398		—		1,370,398
Other lease operating expense		398,064		—		398,064
Gathering system operating expenses		—		552,570		552,570
Intersegment other lease operating expense		314,398		—		314,398
Depletion, depreciation, amortization and accretion		2,129,709		250,717		2,380,426
Segment operating income		$1,838,476		$1,446,809		$2,970,887

Reconciliation of segment operating income
Salary expense						800,395
Stock based compensation						321,569
Other general and administrative						758,628
Elimination of intersegment other lease operating expenses						(314,398)
Total consolidated operating income						1,404,693

Other income (expense)
Interest income						266,272
Interest expense						(8,760)
Gain on derivative contracts						(100,726)
Other expense						(533)
Other income, net						156,253
Net income before income tax expense						$1,560,946

Capital expenditures (2)		$20,322,328		$22,650		$20,344,978
Segment assets		$93,262,985		$6,968,392		$100,231,377

Total segment assets reconciled to consolidated amounts are as follows:
Total segment assets						$100,231,377
Current assets, net						22,596,300
Other property and equipment						925,288
Operating lease right-of-use asset						417,268
Restricted Cash						900,000
						$125,070,233

(1)

Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the three months ended March 31, 2025 and 2024 have been eliminated upon consolidation. For the three months ended March 31, 2025, Epsilon sold natural gas to 38 unique customers. The one customer over 10% comprised 25% of total revenue. For the three months ended March 31, 2024, Epsilon sold natural gas to 23 unique customers. The two customers over 10% comprised 25% and 12% 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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