Epsilon Energy Ltd.

For the period ended Jun 30, 2025. Filed Aug 13, 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.

Jun 30, 2025 · Filed Aug 13, 2025

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

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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 six months ended June 30, 2025 and 2024 is as follows:


	Upstream		Gas Gathering		Consolidated
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)						27,787,873

Operating costs
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)
Total consolidated operating income						7,996,592

Other income (expense)
Interest income						32,546
Interest expense						(32,117)
Loss on derivative contracts						1,111,693
Other expense						(33,338)
Other expense, net						1,078,784
Net income before income tax expense						$9,075,376

Capital expenditures (2)		$11,142,744		$228,327		$11,371,071
Segment assets		$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
						$123,613,668


	Upstream		Gas Gathering		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		—		3,380,146		3,380,146
Intersegment gathering and compression fees		—		591,907		591,907
		11,914,415		3,972,053		15,886,468

Reconciliation of operating revenue
Elimination of intersegment revenues						(591,907)
Total consolidated operating revenue(1)						15,294,561

Operating costs
Gathering, transportation, and compression		2,602,378		—		2,602,378
Other lease operating expense		815,951		—		815,951
Gathering system operating expenses		—		1,202,537		1,202,537
Intersegment other lease operating expense		591,907		—		591,907
Depletion, depreciation, amortization and accretion		4,007,320		421,509		4,428,829
Segment operating income		$3,896,859		$2,348,007		$5,652,959

Reconciliation of segment operating income
Salary expense						1,461,549
Stock based compensation						635,158
Other general and administrative						1,575,689
Elimination of intersegment other lease operating expenses						(591,907)
Total consolidated operating income						2,572,470

Other income (expense)
Interest income						375,215
Interest expense						(17,519)
Gain on derivative contracts						(195,617)
Other expense						101,073
Other income, net						263,152
Net income before income tax expense						$2,835,622

Capital expenditures (2)		$29,432,084		$70,236		$29,502,320
Segment assets		$97,059,040		$6,896,509		$103,955,549

Total segment assets reconciled to consolidated amounts are as follows:
Total segment assets						$103,955,549
Current assets, net						14,977,407
Other property and equipment						919,208
Operating lease right-of-use asset						392,792
Restricted cash						900,000
						$121,144,956

(1)

Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the six months ended June 30, 2025 and 2024 have been eliminated upon consolidation. For the six months ended June 30, 2025, Epsilon sold natural gas to 34 unique customers. The one customer over 10% comprised 34% of total revenue. 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.

(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, 2025 and 2024 is as follows:


· · Upstream · Gas Gathering · Consolidated
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)			11,624,733

Operating costs
Gathering, transportation, and compression	1,924,460	—	1,924,460
Other lease operating expense	538,325	—	538,325
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	2,919,238	282,416	3,201,654
Segment operating income	$1,220,340	$1,456,159	$2,169,134

Reconciliation of segment operating income
Salary expense			710,122
Stock based compensation			385,838
Other general and administrative			751,756
Elimination of intersegment other lease operating expenses			(507,365)
Total consolidated operating income			828,783

Other income (expense)
Interest income			17,247
Interest expense			(19,906)
Gain on derivative contracts			2,573,863
Other expense			(10,839)
Other expense, net			2,560,365
Net income before income tax expense			$3,389,148

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


	Upstream		Gas Gathering		Consolidated
As of and 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		—		1,444,448		1,444,448
Intersegment gathering and compression fees		—		277,509		277,509
		5,863,370		1,721,957		7,585,327

Reconciliation of operating revenue
Elimination of intersegment revenues						(277,509)
Total consolidated operating revenue(1)						7,307,818

Operating costs
Gathering, transportation, and compression		1,231,981		—		1,231,981
Other lease operating expense		417,886		—		417,886
Gathering system operating expenses		—		649,967		649,967
Intersegment other lease operating expense		277,509		—		277,509
Depletion, depreciation, amortization and accretion		1,877,611		170,792		2,048,403
Segment operating income		$2,058,383		$901,198		$2,682,072

Reconciliation of segment operating income
Salary expense						15,838
Stock based compensation						313,589
Other general and administrative						1,462,377
Elimination of intersegment other lease operating expenses						(277,509)
Total consolidated operating income						1,167,777

Other income (expense)
Interest income						108,943
Interest expense						(8,759)
Gain on derivative contracts						(94,891)
Other expense						101,606
Other income, net						106,899
Net income before income tax expense						$1,274,676

Capital expenditures (2)		$9,109,756		$47,586		$9,157,342

(3)

Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the three months ended June 30, 2025 and 2024 have been eliminated upon consolidation. For the three months ended June 30, 2025, Epsilon sold natural gas to 31 unique customers. The two customers over 10% comprised 44% and 14% of total revenue. 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.

(4)	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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