Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2022 | Nov. 10, 2022 | |
Document and Entity Information | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Document Period End Date | Sep. 30, 2022 | |
Document Fiscal Year Focus | 2022 | |
Entity File Number | 001-38770 | |
Entity Registrant Name | EPSILON ENERGY LTD. | |
Entity Incorporation, State or Country Code | CA | |
Entity Tax Identification Number | 98-1476367 | |
Entity Address, Address Line One | 16945 Northchase Drive | |
Entity Address, Address Line Two | Suite 1610 | |
Entity Address, City or Town | Houston | |
Entity Address, State or Province | TX | |
Entity Address, Postal Zip Code | 77060 | |
City Area Code | 281 | |
Local Phone Number | 670-0002 | |
Title of 12(b) Security | Common Shares, no par value | |
Trading Symbol | EPSN | |
Security Exchange Name | NASDAQ | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | true | |
Entity Ex Transition Period | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 23,027,441 | |
Entity Central Index Key | 0001726126 | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) | Sep. 30, 2022 | Dec. 31, 2021 |
Current assets | ||
Cash and cash equivalents | $ 40,254,729 | $ 26,497,305 |
Accounts receivable | 10,069,516 | 4,596,931 |
Fair value of derivatives | 32,326 | 0 |
Other current assets | 775,587 | 569,870 |
Total current assets | 51,132,158 | 31,664,106 |
Oil and gas properties, successful efforts method | ||
Proved properties | 147,196,218 | 138,032,413 |
Unproved properties | 18,085,385 | 21,700,926 |
Accumulated depletion, depreciation, amortization and impairment | (106,457,257) | (102,480,972) |
Total oil and gas properties, net | 58,824,346 | 57,252,367 |
Gathering system | 42,617,954 | 42,475,086 |
Accumulated depletion, depreciation, amortization and impairment | (34,262,838) | (33,443,949) |
Total gathering system, net | 8,355,116 | 9,031,137 |
Land | 637,764 | 637,764 |
Buildings and other property and equipment, net | 295,446 | 309,102 |
Total property and equipment, net | 68,112,672 | 67,230,370 |
Other assets: | ||
Lease right-of-use-asset | 0 | |
Restricted cash | 569,883 | 568,118 |
Total non-current assets | 68,682,555 | 67,798,488 |
Total assets | 119,814,713 | 99,462,594 |
Current liabilities | ||
Accounts payable trade | 2,203,443 | 1,189,905 |
Gathering fees payable | 1,020,921 | 963,546 |
Royalties payable | 2,827,880 | 1,853,508 |
Income taxes payable | 3,119,671 | 1,098,425 |
Accrued capital expenditures | 398,026 | 1,016,830 |
Other accrued liabilities | 1,001,792 | 1,098,127 |
Fair value of derivatives | 0 | 239,824 |
Asset retirement obligations | 0 | 85,207 |
Total current liabilities | 10,571,733 | 7,545,372 |
Non-current liabilities | ||
Asset retirement obligations | 2,758,831 | 2,748,449 |
Deferred income taxes | 10,345,297 | 9,905,440 |
Total non-current liabilities | 13,104,128 | 12,653,889 |
Total liabilities | 23,675,861 | 20,199,261 |
Commitments and contingencies (Note 9) | ||
Shareholders' equity | ||
Common shares, no par value, unlimited shares authorized and 23,571,108 issued and 23,011,608 outstanding at September 30, 2022 and 24,202,218 issued and 23,668,203 shares outstanding at December 31, 2021 | 127,231,845 | 131,815,739 |
Treasury shares, 559,500 at September 30, 2022 and 534,015 at December 31, 2021 | (3,326,880) | (2,423,007) |
Additional paid-in capital | 9,672,152 | 8,835,203 |
Accumulated deficit | (47,208,598) | (68,783,207) |
Accumulated other comprehensive income | 9,770,333 | 9,818,605 |
Total shareholders' equity | 96,138,852 | 79,263,333 |
Total liabilities and shareholders' equity | $ 119,814,713 | $ 99,462,594 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
Condensed Consolidated Balance Sheets | ||
Par value | $ 0 | $ 0 |
Common shares authorized | Unlimited | Unlimited |
Common shares issued | 23,571,108 | 24,202,218 |
Common shares outstanding | 23,011,608 | 23,668,203 |
Treasury shares | 559,500 | 534,015 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
Revenues from contracts with customers: | ||||
Total revenue | $ 21,243,927 | $ 13,101,059 | $ 54,747,029 | $ 28,632,220 |
Operating costs and expenses: | ||||
Lease operating expenses | 2,399,092 | 2,240,259 | 6,791,496 | 5,618,585 |
Gathering system operating expenses | 225,809 | 138,887 | 556,515 | 503,381 |
Development geological and geophysical expenses | 2,387 | 11,583 | 7,159 | 34,573 |
Depletion, depreciation, amortization, and accretion | 1,706,030 | 1,846,911 | 4,898,988 | 5,175,865 |
Gain on sale of oil and gas properties | 0 | 0 | (221,642) | 0 |
General and administrative expenses: | ||||
Stock based compensation expense | 500,597 | 300,249 | 836,949 | 738,789 |
Other general and administrative expenses | 2,015,272 | 1,461,703 | 4,651,547 | 4,837,164 |
Total operating costs and expenses | 6,849,187 | 5,999,592 | 17,521,012 | 16,908,357 |
Operating income | 14,394,740 | 7,101,467 | 37,226,017 | 11,723,863 |
Other income (expense): | ||||
Interest income | 89,638 | 11,070 | 126,804 | 27,786 |
Interest expense | (17,501) | (16,962) | (33,565) | (66,380) |
Gain (loss) on derivative contracts | (929,637) | (5,055,130) | (1,124,547) | (6,417,123) |
Other (expense) income | (32,777) | (907) | (99,896) | 756 |
Other income (expense), net | (890,277) | (5,061,929) | (1,131,204) | (6,454,961) |
Net income (loss) before income tax expense | 13,504,463 | 2,039,538 | 36,094,813 | 5,268,902 |
Income tax expense (benefit) | 3,896,010 | 643,072 | 10,097,484 | 1,621,894 |
NET INCOME(LOSS) | 9,608,453 | 1,396,466 | 25,997,329 | 3,647,008 |
Currency translation adjustments | (34,524) | (15) | (48,272) | (1,256) |
NET COMPREHENSIVE INCOME (LOSS) | $ 9,573,929 | $ 1,396,451 | $ 25,949,057 | $ 3,645,751 |
Net income (loss) per share, basic (in dollars per share) | $ 0.42 | $ 0.06 | $ 1.11 | $ 0.15 |
Net income (loss) per share, diluted (in dollars per share) | $ 0.41 | $ 0.06 | $ 1.11 | $ 0.15 |
Weighted average number of shares outstanding, basic (in shares) | 23,011,729 | 23,564,288 | 23,419,666 | 23,757,895 |
Weighted average number of shares outstanding, diluted (in shares) | 23,169,658 | 23,772,943 | 23,524,574 | 23,871,495 |
Gas, oil, NGL and condensate revenue | ||||
Revenues from contracts with customers: | ||||
Total revenue | $ 19,171,121 | $ 11,062,443 | $ 48,566,282 | $ 22,740,352 |
Gas gathering and compression revenue | ||||
Revenues from contracts with customers: | ||||
Total revenue | $ 2,072,806 | $ 2,038,616 | $ 6,180,747 | $ 5,891,868 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Changes in Shareholders' Equity - USD ($) | Common stock | Treasury Shares | Additional paid-in Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total |
Balance at Dec. 31, 2020 | $ 131,730,401 | $ 7,879,119 | $ 9,820,647 | $ (80,410,724) | $ 69,019,443 | |
Balance (in shares) at Dec. 31, 2020 | 23,985,799 | |||||
Increase (Decrease) in Stockholders' Equity | ||||||
Net income | 2,735,567 | 2,735,567 | ||||
Stock-based compensation expenses | 202,499 | 202,499 | ||||
Buyback of common shares | $ (492,479) | (492,479) | ||||
Buyback of common shares (in shares) | (123,200) | |||||
Other comprehensive income | 242 | 242 | ||||
Balance at Mar. 31, 2021 | $ 131,730,401 | $ (492,479) | 8,081,618 | 9,820,889 | (77,675,157) | 71,465,272 |
Balance (in shares) at Mar. 31, 2021 | 23,985,799 | (123,200) | ||||
Balance at Dec. 31, 2020 | $ 131,730,401 | 7,879,119 | 9,820,647 | (80,410,724) | 69,019,443 | |
Balance (in shares) at Dec. 31, 2020 | 23,985,799 | |||||
Balance at Dec. 31, 2021 | $ 131,815,739 | $ (2,423,007) | 8,835,203 | 9,818,605 | (68,783,207) | 79,263,333 |
Balance (in shares) at Dec. 31, 2021 | 24,202,218 | (534,015) | ||||
Balance at Mar. 31, 2021 | $ 131,730,401 | $ (492,479) | 8,081,618 | 9,820,889 | (77,675,157) | 71,465,272 |
Balance (in shares) at Mar. 31, 2021 | 23,985,799 | (123,200) | ||||
Increase (Decrease) in Stockholders' Equity | ||||||
Net income | (485,025) | (485,025) | ||||
Stock-based compensation expenses | 236,041 | 236,041 | ||||
Buyback of common shares | $ (568,989) | (568,989) | ||||
Buyback of common shares (in shares) | (141,015) | |||||
Other comprehensive income | (1,484) | (1,484) | ||||
Balance at Jun. 30, 2021 | $ 131,730,401 | $ (1,061,468) | 8,317,659 | 9,819,405 | (78,160,182) | 70,645,816 |
Balance (in shares) at Jun. 30, 2021 | 23,985,799 | (264,215) | ||||
Increase (Decrease) in Stockholders' Equity | ||||||
Net income | 1,396,466 | 1,396,466 | ||||
Stock-based compensation expenses | 300,249 | 300,249 | ||||
Buyback of common shares | $ (1,315,713) | (1,315,713) | ||||
Buyback of common shares (in shares) | (261,400) | |||||
Vesting of shares of restricted stock | 20,834 | |||||
Other comprehensive income | (15) | (15) | ||||
Balance at Sep. 30, 2021 | $ 131,730,401 | $ (2,377,181) | 8,617,908 | 9,819,391 | (76,763,716) | 71,026,803 |
Balance (in shares) at Sep. 30, 2021 | 24,006,633 | (525,615) | ||||
Balance at Dec. 31, 2021 | $ 131,815,739 | $ (2,423,007) | 8,835,203 | 9,818,605 | (68,783,207) | 79,263,333 |
Balance (in shares) at Dec. 31, 2021 | 24,202,218 | (534,015) | ||||
Increase (Decrease) in Stockholders' Equity | ||||||
Net income | 5,805,888 | 5,805,888 | ||||
Dividends | (1,483,027) | (1,483,027) | ||||
Stock-based compensation expenses | 142,302 | 142,302 | ||||
Exercise of stock options | $ 209,312 | 209,312 | ||||
Exercise of stock options (in shares) | 38,750 | |||||
Retirement of treasury shares | $ (2,423,007) | $ 2,423,007 | ||||
Retirement of treasury shares (in shares) | (534,015) | 534,015 | ||||
Other comprehensive income | 5,402 | 5,402 | ||||
Balance at Mar. 31, 2022 | $ 129,602,044 | 8,977,505 | 9,824,007 | (64,460,346) | 83,943,210 | |
Balance (in shares) at Mar. 31, 2022 | 23,706,953 | |||||
Balance at Dec. 31, 2021 | $ 131,815,739 | $ (2,423,007) | 8,835,203 | 9,818,605 | (68,783,207) | $ 79,263,333 |
Balance (in shares) at Dec. 31, 2021 | 24,202,218 | (534,015) | ||||
Increase (Decrease) in Stockholders' Equity | ||||||
Purchase of treasury shares (shares) | (982,500) | |||||
Balance at Sep. 30, 2022 | $ 127,231,845 | $ (3,326,880) | 9,672,152 | 9,770,333 | (47,208,598) | $ 96,138,852 |
Balance (in shares) at Sep. 30, 2022 | 23,571,108 | (559,500) | ||||
Balance at Mar. 31, 2022 | $ 129,602,044 | 8,977,505 | 9,824,007 | (64,460,346) | 83,943,210 | |
Balance (in shares) at Mar. 31, 2022 | 23,706,953 | |||||
Increase (Decrease) in Stockholders' Equity | ||||||
Net income | 10,582,988 | 10,582,988 | ||||
Dividends | (1,486,650) | (1,486,650) | ||||
Stock-based compensation expenses | 194,050 | 194,050 | ||||
Exercise of stock options | $ 399,475 | 399,475 | ||||
Exercise of stock options (in shares) | 72,500 | |||||
Retirement of treasury shares | $ (2,907,999) | $ 2,907,999 | ||||
Retirement of treasury shares (in shares) | (423,000) | 423,000 | ||||
Buyback of common shares | $ (4,554,822) | (4,554,822) | ||||
Buyback of common shares (in shares) | (697,100) | |||||
Other comprehensive income | (19,150) | (19,150) | ||||
Balance at Jun. 30, 2022 | $ 127,093,520 | $ (1,646,823) | 9,171,555 | 9,804,857 | (55,364,008) | 89,059,101 |
Balance (in shares) at Jun. 30, 2022 | 23,356,453 | (274,100) | ||||
Increase (Decrease) in Stockholders' Equity | ||||||
Net income | 9,608,453 | 9,608,453 | ||||
Dividends | (1,453,043) | (1,453,043) | ||||
Stock-based compensation expenses | 500,597 | $ 500,597 | ||||
Purchase of treasury shares (shares) | (285,400) | |||||
Exercise of stock options | $ 138,325 | $ 138,325 | ||||
Exercise of stock options (in shares) | 27,500 | |||||
Buyback of common shares | $ (1,680,057) | (1,680,057) | ||||
Buyback of common shares (in shares) | (285,400) | |||||
Vesting of shares of restricted stock | 187,155 | |||||
Other comprehensive income | (34,524) | (34,524) | ||||
Balance at Sep. 30, 2022 | $ 127,231,845 | $ (3,326,880) | $ 9,672,152 | $ 9,770,333 | $ (47,208,598) | $ 96,138,852 |
Balance (in shares) at Sep. 30, 2022 | 23,571,108 | (559,500) |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Cash Flows - USD ($) | 9 Months Ended | |
Sep. 30, 2022 | Sep. 30, 2021 | |
Cash flows from operating activities: | ||
Net income | $ 25,997,329 | $ 3,647,008 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depletion, depreciation, amortization, and accretion | 4,898,988 | 5,175,865 |
Loss on derivative contracts | 1,124,547 | 6,417,123 |
Gain on sale of oil and gas properties | (221,642) | 0 |
Settlement paid on derivative contracts | (1,396,697) | (2,488,702) |
Settlement of asset retirement obligation | (118,260) | 0 |
Stock-based compensation expense | 836,949 | 738,789 |
Deferred income tax expense (benefit) | 439,857 | (651,606) |
Changes in assets and liabilities: | ||
Accounts receivable | (5,472,585) | (3,558,519) |
Prepaid income taxes and other current assets | (205,717) | (6,920) |
Accounts payable, royalties payable and other accrued liabilities | 1,511,652 | 3,237,559 |
Income taxes payable | 2,021,246 | 1,016,153 |
Net cash provided by operating activities | 29,415,667 | 13,526,750 |
Cash flows from investing activities: | ||
Additions to unproved oil and gas properties | (226,439) | (140,498) |
Additions to proved oil and gas properties | (5,528,037) | (3,479,386) |
Additions to gathering system properties | (129,985) | (199,801) |
Additions to land, buildings and property and equipment | (13,258) | (5,745) |
Proceeds from sale of oil and gas properties | 200,000 | 0 |
Prepaid drilling costs | 0 | 379 |
Net cash used in investing activities | (5,697,719) | (3,825,051) |
Cash flows from financing activities: | ||
Buyback of common shares | (6,234,879) | (2,377,181) |
Exercise of stock options | 747,112 | 0 |
Dividends | (4,422,720) | 0 |
Net cash used in financing activities | (9,910,487) | (2,377,181) |
Effect of currency rates on cash, cash equivalents and restricted cash (Deprecated 2022) | (48,272) | (1,257) |
Increase in cash, cash equivalents and restricted cash | 13,759,189 | 7,323,261 |
Cash, cash equivalents and restricted cash, beginning of period | 27,065,423 | 13,836,771 |
Cash, cash equivalents and restricted cash, end of period | 40,824,612 | 21,160,032 |
Supplemental cash flow disclosures: | ||
Income taxes paid | 7,626,000 | 1,164,025 |
Interest paid | 50,872 | 78,980 |
Non-cash investing and financing activities: | ||
Change in unproved properties accrued in accounts payable and accrued liabilities | 0 | (65,000) |
Change in proved properties accrued in accounts payable and accrued liabilities | (194,391) | (18,150) |
Change in gathering system accrued in accounts payable and accrued liabilities | 12,882 | 16,225 |
Asset retirement obligation asset additions and adjustments | $ 10,821 | $ (29,853) |
Description of Business
Description of Business | 9 Months Ended |
Sep. 30, 2022 | |
Description of Business | |
Description of Business | 1. Description of Business Epsilon Energy Ltd. (the “Company” or “Epsilon” or “we”) was incorporated under the laws of the Province of Alberta, Canada on March 14, 2005. On October 24, 2007, the Company became a publicly traded entity trading on the Toronto Stock Exchange (“TSX”) in Canada. On February 14, 2019, Epsilon’s registration statement on Form 10 was declared effective by the United States Securities and Exchange Commission and on February 19, 2019, the Company began trading in the United States on the NASDAQ Global Market under the trading symbol “EPSN.” The Company is engaged in the acquisition, development, gathering and production of primarily natural gas reserves in the United States. |
Basis of Preparation
Basis of Preparation | 9 Months Ended |
Sep. 30, 2022 | |
Basis of Preparation | |
Basis of Preparation | 2. Basis of Preparation Interim Financial Statements The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the appropriate rules and regulations of the SEC. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. All adjustments which are, in the opinion of management, necessary for a fair statement of the financial position and results of operations for the interim periods presented have been included. The interim financial information and notes hereto should be read in conjunction with the Company’s consolidated financial statements as of and for the year ended December 31, 2021. The results of operations for interim periods are not necessarily indicative of results to be expected for a full fiscal year. Principles of Consolidation The Company’s unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Epsilon Energy USA, Inc. and its wholly owned subsidiaries, Epsilon Midstream, LLC, Dewey Energy GP, LLC, Dewey Energy Holdings, LLC, Epsilon Operating, LLC, and Altolisa Holdings, LLC. With regard to the gathering system, in which Epsilon owns an undivided interest in the asset, proportionate consolidation accounting is used. All inter-company transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates pertain to proved natural gas and oil reserves and related cash flow estimates used in impairment tests of natural gas and oil, and gathering system properties, asset retirement obligations, accrued natural gas and oil revenues and operating expenses, accrued gathering system revenues and operating expenses, as well as the valuation of commodity derivative instruments. Actual results could differ from those estimates. Recently Issued Accounting Standards The Company, an emerging growth company (“EGC”), has elected to take advantage of the benefits of the extended transition period provided for in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards which allows the Company to defer adoption of certain accounting standards until those standards would otherwise apply to private companies. In March 2020, the FASB issued ASU No. 2020-04 - Reference Rate Reform (Topic 848), codified as ASC 848 (“ASC 848”). This was followed by ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), issued in January 2021. The purpose of ASC 848 is to provide optional guidance to ease the potential effects on financial reporting of the market-wide migration away from Interbank Offered Rates (“IBORs”) to alternative reference rates. ASC 848 applies only to contracts, hedging relationships, and other transactions that reference a reference rate expected to be discontinued because of reference rate reform. The guidance may be applied upon issuance of ASC 848 through December 31, 2022. We do not expect a material impact from the adoption of this ASU. In June 2016 the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under current U.S. GAAP, companies generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will remove all recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the Company expects to collect over the instrument’s contractual life. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, and must be applied retrospectively. Early adoption is permitted. Epsilon will adopt ASU 2016-13 as of January 1, 2023. We do not expect a material impact from the adoption of this ASU. In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which will require lessees to recognize a right of use asset and a lease liability on their balance sheet for all leases, including operating leases, with a term of greater than 12 months. In July 2018, the FASB issued ASU 2018-11, which adds a transition option permitting entities to apply the provisions of the new standard at its adoption date instead of the earliest comparative period presented in the consolidated financial statements. Under this transition option, comparative reporting would not be required, and the provisions of the standard would be applied prospectively to leases in effect at the date of adoption. The Company has determined its portfolio of leased assets and is completing its review of all related contracts to determine the impact the adoption will have on its consolidated financial statements and related disclosures. Upon adoption, the Company will recognize a right of use asset and lease liability for certain commitments related to office space that will be accounted for as an operating lease. To track these lease arrangements and facilitate compliance with this ASU, the Company is in the process of designing processes and internal controls. The adoption of this ASU will increase asset and liability balances on the consolidated balance sheets due to the required recognition of a right of use asset and corresponding lease liabilities. The Company plans to elect the available package practical expedients provided in the standard and adopt Topic 842 as of January 1, 2022 at December 31, 2022 on its Form 10-K for the year ending December 31, 2022, using the optional transition method provided by ASU 2018-11 and continues to assess potential effects of the standard. |
Cash, Cash Equivalents, and Res
Cash, Cash Equivalents, and Restricted Cash | 9 Months Ended |
Sep. 30, 2022 | |
Cash, Cash Equivalents, and Restricted Cash | |
Cash, Cash Equivalents, and Restricted Cash | 3. Cash, Cash Equivalents, and Restricted Cash Cash and cash equivalents include cash on hand and short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Restricted cash consists of amounts deposited to back bonds or letters of credit for potential well liabilities. The Company presents restricted cash with cash and cash equivalents in the Consolidated Statements of Cash Flows. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Consolidated Balance Sheets to the total of the amounts in the Consolidated Statements of Cash Flows as of September 30, 2022 and December, 31 2021: September 30, December 31, 2022 2021 Cash and cash equivalents $ 40,254,729 $ 26,497,305 Restricted cash included in other assets 569,883 568,118 Cash, cash equivalents and restricted cash in the statement of cash flows $ 40,824,612 $ 27,065,423 |
Property and Equipment
Property and Equipment | 9 Months Ended |
Sep. 30, 2022 | |
Property and Equipment | |
Property and Equipment | 4. Property and Equipment The following table summarizes the Company’s property and equipment as of September 30, 2022 and December 31, 2021: September 30, December 31, 2022 2021 Property and equipment: Oil and gas properties, successful efforts method Proved properties $ 147,196,218 $ 138,032,413 Unproved properties 18,085,385 21,700,926 Accumulated depletion, depreciation, amortization and impairment (106,457,257) (102,480,972) Total oil and gas properties, net 58,824,346 57,252,367 Gathering system 42,617,954 42,475,086 Accumulated depletion, depreciation, amortization and impairment (34,262,838) (33,443,949) Total gathering system, net 8,355,116 9,031,137 Land 637,764 637,764 Buildings and other property and equipment, net 295,446 309,102 Total property and equipment, net $ 68,112,672 $ 67,230,370 Property Impairment Epsilon uses the successful efforts method of accounting for crude oil and natural gas producing activities. Under this method, exploration costs, such as exploratory geological and geophysical costs, expiration of unproved leasehold, delay rentals and exploration overhead are expensed as incurred. All costs related to production, general corporate overhead and similar activities are also expensed as incurred. All property acquisition costs and development costs are capitalized when incurred. Epsilon performs a quantitative impairment test quarterly or whenever events or changes in circumstances indicate that an asset group's carrying amount may not be recoverable, over proved properties using the published NYMEX forward prices, timing, methods and other assumptions consistent with historical periods. When indicators of impairment are present, GAAP requires that the Company first compares expected future undiscounted cash flows by asset group to their respective carrying values. If the carrying amount exceeds the estimated undiscounted future cash flows, a reduction of the carrying amount of the oil and natural gas properties to their estimated fair values is required, which is determined based on discounted cash flow techniques using significant assumptions including projected revenues, future commodity prices, and a market-specific weighted average cost of capital which are affected by expectations about future market and economic conditions. During the three and nine months ended September 30, 2022 and 2021, no impairment was required. |
Revolving Line of Credit
Revolving Line of Credit | 9 Months Ended |
Sep. 30, 2022 | |
Revolving Line of Credit | |
Revolving Line of Credit | 5 . Revolving Line of Credit The Company has a senior secured revolving credit facility (“Facility”) which includes a total commitment of up to $100 million. The current borrowing base is $14 million, which is subject to semi-annual redetermination. There are currently no borrowings under the Facility. If Epsilon decided to access the Facility, depending on the level of borrowing, the Company might need to increase its hedging activity. Borrowings from the Facility may be used for the acquisition and development of oil and gas properties, investments in cash flow generating assets complimentary to the production of oil and gas, and for letters of credit and other general corporate purposes. Upon each advance, interest is charged at the highest of a) rate of LIBOR plus an applicable margin (2.75%-3.75% based on the percent of the line of credit utilized), b) the Prime Rate, or c) the sum of the Federal Funds Rate plus 0.5%. Effective April 6, 2021, the agreement was amended to extend the maturity date to March 1, 2024. In addition, the agreement was amended to include a Benchmark Replacement On August 2, 2022, the borrowing base of $14 million was reaffirmed until the next periodic redetermination of the borrowing base. The lender under the Credit Facility has a first priority security interest in the tangible and intangible assets, including the gathering system, of Epsilon Energy USA, Inc. to secure any outstanding amounts under the agreement. Under the terms of the agreement, the Company must maintain the following covenants: ● ● ● The Company was in compliance with the financial covenants of the Credit Facility as of September 30, 2022 and expects to be in compliance with the financial covenants for the next 12 months. An annual commitment fee of 0.50% is assessed and paid quarterly on the daily average unused borrowing base on the Credit Facility. Balance at Balance at September 30, December 31, Current Interest Rate 2022 2021 Borrowing Base 3 mo. Revolving line of credit $ — $ — $ 14,000,000 LIBOR + 3.25% (1) (1) At September 30, 2022, the interest rate was 6.394% . |
Shareholders Equity
Shareholders Equity | 9 Months Ended |
Sep. 30, 2022 | |
Shareholders' Equity | |
Shareholders' Equity | 6. Shareholders’ Equity (a) The Company is authorized to issue an unlimited number of Common Shares with no par value and an unlimited number of Preferred Shares with no par value. (b) Normal Course Issuer Bid Commencing on March 8, 2022, the Company conducted a normal course issuer bid (“NCIB”) to repurchase our issued and outstanding common shares, when doing so was accretive to management’s estimates of intrinsic value per share. The NCIB ends on March 7, 2023. The Company uses discretionary cash to fund these repurchases. During the three and nine months ended September 30, 2022, Epsilon repurchased 285,400 common shares and 982,500 common shares, respectively, of the authorized 1,183,410 purchase amount and spent $1,680,057 and $6,234,879, respectively, under the NCIB. The repurchased stock had an average price of $6.32 per share (excluding commissions). During the three and nine months ended September 30, 2022, the Company cancelled zero and 423,000 common shares, respectively. Commencing on January 1, 2021, Epsilon conducted a normal course issuer bid (“NCIB”) to repurchase our issued and outstanding common shares, when doing so was accretive to management's estimates of intrinsic value per share. The NCIB ended on December 31, 2021. The Company used discretionary cash to fund these repurchases. During the year ended December 31, 2021, Epsilon repurchased 534,015 common shares of the authorized 1,193,000 purchase amount and spent $2,423,007 under the NCIB. The repurchased stock had an average price of $4.51 per share (excluding commissions) and were subsequently cancelled during the three months ended March 31, 2022. Repurchases may be made at management’s discretion from time to time through the facilities of the NASDAQ Global Market. The price paid for the common shares will be, subject to applicable securities laws, the prevailing market price of such common shares on the NASDAQ Global Market at the time of such purchase. The Company intends to fund the purchase out of available cash and does not expect to incur debt to fund the share repurchase program. The shares are accounted for as treasury shares until such a time as they are cancelled. The following table contains activity relating to our acquisition of equity securities during the nine months ended September 30, 2022: Maximum number of shares that may yet be Total number Average price purchased under of shares paid per the plans or purchased share programs Beginning of normal-course issuer bid, March 8, 2022 1,183,410 March 2022 (1) — $ — April 2022 (1) 23,700 $ 6.63 May 2022 (1) 254,500 $ 6.99 June 2022 (1) 418,900 $ 6.21 July 2022 (1) 249,800 $ 5.83 August 2022 (1) 33,200 $ 6.09 September 2022 (1) 2,400 $ 6.00 Total as of September 30, 2022 982,500 $ 6.32 200,910 (1) Epsilon repurchased these shares under its share repurchase program that commenced on March 8, 2022, as described above. (c) Epsilon’s board of directors (the “Board”) adopted the 2020 Equity Incentive Plan (the “2020 Plan”) on July 22, 2020 subject to approval by Epsilon’s shareholders at Epsilon’s 2020 Annual General and Special Meeting of Shareholders, which occurred on September 1, 2020 (the “Meeting”). Shareholders approved the 2020 Plan at the Meeting. Following Epsilon’s listing on the NASDAQ Global Market, the Board determined that it is in the best interest of the shareholders to approve a new incentive plan that is compliant with U.S. public company equity plan rules and practices that would replace Epsilon’s Amended and Restated 2017 Stock Option Plan (including its predecessors) and the Share Compensation Plan (collectively referred to as the “Predecessor Plans”). No further awards will be granted under the Predecessor Plans. The 2020 Plan provides for incentive compensation in the form of stock options, stock appreciation rights, restricted stock and stock units, performance shares and units, other stock-based awards and cash-based awards. Under the 2020 Plan, Epsilon will be authorized to issue up to 2,000,000 Common Shares. As of December 31, 2021, the Company granted, after the Compensation Committee approved the terms, target formulas, and peer group applicable to the performance incentive awards, 20,834 common shares and 48,000 time-based restricted shares to the CEO and the board of directors. Restricted Stock Awards For the nine months ended September 30, 2022, 246,135 shares of Restricted Stock with a weighted average market price at the grant date of $6.22 were awarded to the Company’s board of directors and employees. For the year ended December 31, 2021, 48,000 common shares of Restricted Stock with a weighted average market price at the grant date of $5.04 were awarded to the Company’s board of directors. These shares vest over a three-year period, with one The following table summarizes Restricted Stock activity for the nine months ended September 30, 2022, and the year ended December 31, 2021: Nine months ended Year ended September 30, 2022 December 31, 2021 Number of Weighted Number of Weighted Restricted Average Restricted Average Shares Remaining Life Shares Remaining Life Outstanding (years) Outstanding (years) Balance non-vested Restricted Stock at beginning of period 166,002 1.38 290,070 1.60 Granted 246,135 1.91 48,000 3.00 Vested (83,155) — (137,668) — Forfeited — — (34,400) — Balance non-vested Restricted Stock at end of period 328,982 1.59 166,002 1.38 Stock compensation expense for the granted Restricted Stock is recognized over the vesting period. Stock compensation expense recognized during the three and nine months ended September 30, 2022 was $366,763 and $608,735, respectively (for the three and nine months ended September 30, 2021, $127,834 and $402,247, respectively). At September 30, 2022, the Company had unrecognized stock-based compensation related to these shares of $1,551,041 to be recognized over a weighted average period of 1.62 years (at December 31, 2021: $696,833 over 1.11 years). Performance Share Unit Awards (“PSU”) For the nine months ended September 30, 2022, 104,000 PSUs vested and were issued. For the year ended December 31, 2021, a total of 62,501 common shares vested and were issued, of which 20,834 of the common shares were granted as a result of the Company exceeding its 2020 TSR performance target. The Company grants PSUs, which are paid in stock, to certain key employees. PSUs are based on a three-year performance period with performance being measured each year at December 31. The PSUs will vest on the last day of the performance period. The number of PSUs that will ultimately vest is based on two performance targets as follows: ● The targets for the PSUs are based on (i) the relative total stockholder return (“TSR”) percentile ranking and (ii) the relative cash flow per debt adjusted share – growth (“CFDAS Growth”) percentile ranking of the Company, each as compared to the Company’s Performance Peer Group during the applicable one-year performance period ending on December 31. ● Cash Flow per Debt Adjusted Share (“CFDAS”) is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) divided by the sum of the 1) the total debt plus the value of preferred stock minus cash and the amount of dividends paid for the year divided by the share price at the end of the year; and 2) the actual share count at year end. ● The vesting of each PSU Award will be based 50% on TSR performance and 50% based on CFDAS Growth performance. ● The recipient of the award must be employed with the Company at the time of vesting. The number of shares ultimately issued under these awards can range from zero to 200% of target award amounts at the discretion of the Compensation Committee of the Board of Directors. The PSUs are accounted for as equity awards. The fair value of the 50% for performance based on CFDAS Growth was determined as the market price of the common shares of the Company on the date of grant. Weighted average fair value of CFDAS PSUs granted during the year ended December 31, 2021 was $3.41 per unit. The fair value of the 50% for performance based on TSR was determined on the grant date by the application of a Monte Carlo simulation model. For the year ended December 31, 2021, the Compensation Committee did not approve the issuance of any new PSU’s. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the performance stock awards, to calculate the fair value of the awards. Expected volatilities in the model were estimated using a historical period consistent with the expected term for each annual performance period of the awards. The risk-free interest rate was based on the United States Treasury rate measured over a term commensurate with the expected term for each annual performance period of the awards. The expected term is based on the time between the valuation date and the end of each annual performance period of the awards. The valuation model assumes dividends are immediately reinvested. The following table summarizes PSUs for the nine months ended September 30, 2022 and the year ended December 31, 2021: Nine months ended Year ended September 30, 2022 December 31, 2021 Number of Weighted Number of Weighted Performance Average Performance Average Shares Remaining Life Shares Remaining Life Outstanding (years) Outstanding (years) Balance non-vested PSUs at beginning of period 151,500 0.75 193,167 1.60 Granted — — 20,834 — Vested (104,000) — (62,501) — Balance non-vested PSUs at end of period 47,500 0.67 151,500 0.75 Stock compensation expense for the granted PSUs is recognized over the vesting period. Stock compensation expense recognized during the three and nine months ended September 30, 2022 related to PSUs was $133,834 and $228,214, respectively (for the three and nine months ended September 30, 2021, $172,415 and $336,542, respectively. At September 30, 2022, the Company had unrecognized stock-based compensation related to these shares of $79,202 to be recognized over a weighted average period of 0.75 years (at December 31, 2021: $310,790 over 1.01 years). Stock Options As of September 30, 2022, the Company had outstanding stock options covering 70,000 Common Shares at an overall average exercise price of $5.03 per Common Share to directors, officers, and employees of the Company and its subsidiaries. These 70,000 options have a weighted average expected remaining term of approximately 1.30 years. The following table summarizes stock option activity for the nine months ended September 30, 2022 and the year ended December 31, 2021: Nine months ended Year ended September 30, 2022 December 31, 2021 Weighted Weighted Number of Average Number of Average Options Exercise Options Exercise Exercise price in US$ Outstanding Price Outstanding Price (1) Balance at beginning of period 218,750 $ 5.28 245,000 $ 5.27 Exercised (138,750) $ 5.38 (16,250) $ 5.25 Expired/Forfeited (10,000) $ 5.51 (10,000) $ 5.50 Balance at period-end 70,000 $ 5.03 218,750 $ 5.28 Exercisable at period-end 70,000 $ 5.03 218,750 $ 5.28 At September 30, 2022, using the Black Scholes model, the Company had unrecognized stock-based compensation, related to these options, of nil (at December 31, 2021: nil). The aggregate intrinsic value at September 30, 2022 was $90,300 (at December 31, 2021: nil). During the nine months ended September 30, 2022 and the year ended December 31, 2021, the Company awarded no stock options. (d) Dividends On February 25, 2022, May 26, 2022, and August 16, 2022, the Board declared quarterly dividends of $0.0625 per common share (annualized $0.25 per common share) totaling in aggregate an amount of approximately $4.4 |
Revenue Recognition
Revenue Recognition | 9 Months Ended |
Sep. 30, 2022 | |
Revenue Recognition | |
Revenue Recognition | 7. Revenue Recognition Revenues are comprised primarily of sales of natural gas along with the revenue generated from the Company’s ownership interest in the Auburn gas gathering system in Northeastern Pennsylvania. Also included are natural gas, crude oil and NGL revenues from Oklahoma. Overall, product sales revenue generally is recorded in the month when contractual delivery obligations are satisfied, which occurs when control is transferred to the Company’s customers at delivery based on contractual terms and conditions. In addition, gathering and compression revenue generally is recorded in the month when contractual service obligations are satisfied, which occurs as control of those services is transferred to the Company’s customers. The following table details revenue for the three and nine months ended September 30, 2022 and 2021. Three months ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Operating revenue Natural gas $ 17,893,822 $ 9,511,357 $ 44,581,254 $ 20,950,378 Natural gas liquids 497,843 490,535 1,500,668 588,685 Oil and condensate 779,456 1,060,551 2,484,360 1,201,289 Gathering and compression fees 2,072,806 2,038,616 6,180,747 5,891,868 Total operating revenue $ 21,243,927 $ 13,101,059 $ 54,747,029 $ 28,632,220 Product Sales Revenue The Company enters into contracts with third party purchasers to sell its natural gas, oil, NGLs and condensate production. Under these product sales arrangements, the sale of each unit of product represents a distinct performance obligation. Product sales revenue is recognized at the point in time that control of the product transfers to the purchaser based on contractual terms which reflect prevailing commodity market prices. To the extent that marketing costs are incurred by the Company prior to the transfer of control of the product, those costs are included in lease operating expenses on the Company’s consolidated statements of operations. Settlement statements for product sales, and the related cash consideration, are received from the purchaser within 30 days. As a result, the Company must estimate the amount of production delivered to the customer and the consideration that will ultimately be received for sale of the natural gas, oil, NGLs, or condensate. Estimated revenue due to the Company is recorded within the receivables line item on the accompanying consolidated balance sheets until payment is received. Gas Gathering and Compression Revenue The Company also provides natural gas gathering and compression services through its ownership interest in the Auburn gas gathering system. For the provision of gas gathering and compression services, the Company collects its share of the gathering and compression fees per unit of gas serviced and recognizes gathering revenue over time using an output method based on units of gas gathered. The settlement statement from the operator of the Auburn Gas Gathering System is received two months after transmission and compression has occurred. As a result, the Company must estimate the amount of production that was transmitted and compressed within the system. Estimated revenue due to the Company is recorded within the receivables line item on the accompanying consolidated balance sheets until payment is received. Allowance for Doubtful Accounts The Company records an allowance for doubtful accounts on a case-by-case basis once there is evidence that collection is not probable. For the three and nine months ended September 30, 2022, there were no accounts for which collection was not probable. The following table details accounts receivable as of September 30, 2022 and December 31, 2021. September 30, December 31, 2022 2021 Accounts receivable Natural gas and oil sales $ 8,241,664 $ 2,996,344 Joint interest billing 20,328 60,134 Gathering and compression fees 1,613,597 1,539,976 Other 193,927 477 Total accounts receivable $ 10,069,516 $ 4,596,931 |
Income Taxes
Income Taxes | 9 Months Ended |
Sep. 30, 2022 | |
Income Taxes | |
Income Taxes | 8. Income Taxes Income tax provisions for the three and nine months ended September 30, 2022 and 2021 are as follows: Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Current: Federal $ 2,566,416 $ 1,016,953 $ 6,564,117 $ 1,491,880 State 1,209,063 508,588 3,093,510 781,620 Total current income tax expense 3,775,479 1,525,541 9,657,627 2,273,500 Deferred: Federal 98,367 (679,361) 353,980 (467,203) State 22,164 (203,108) 85,877 (184,403) Total deferred tax expense 120,531 (882,469) 439,857 (651,606) Income tax expense $ 3,896,010 $ 643,072 $ 10,097,484 $ 1,621,894 The Company files federal income tax returns in the United States and Canada, and various returns in state and local jurisdictions. The Company believes it has appropriate support for the income tax positions taken and to be taken on our tax returns and that the accruals for tax liabilities are adequate for all open years based on our assessment of various factors including past experience and interpretations of tax law applied to the facts of each matter. The Company's tax returns are open to audit under the statute of limitations for the years ending December 31, 2018 through December 31, 2021. To the extent we utilize net operating losses generated in earlier years, such earlier years may also be subject to audit. Our effective tax rate will typically differ from the statutory federal rate primarily as a result of state income taxes and the valuation allowance against the Canadian net operating loss. The effective tax rate for the three and nine months ended September 30, 2022 was higher than the statutory federal rate as a result of the state income taxes, excess officer compensation, and the valuation allowance against the Canadian net operating loss. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2022 | |
Commitments and Contingencies | |
Commitments and Contingencies | 9. Commitments and Contingencies The Company’s future minimum lease commitments as of September 30, 2022 are summarized in the following table: Year ended December 31, Payments 2022 $ 46,833 2023 62,444 $ 109,277 The Company enters into commitments for capital expenditures in advance of the expenditures being made. As of September 30, 2022, the Company had commitments of $0.4 million for capital expenditures. Litigation On March 10, 2021, Epsilon filed a complaint against Chesapeake Appalachia, LLC (“Chesapeake”) in the United States District Court for the Middle District of Pennsylvania, Scranton, Pennsylvania (“Middle District”). Epsilon claims that Chesapeake has breached a settlement agreement and several operating agreements (“JOAs”) to which Epsilon and Chesapeake are parties. Epsilon asserts that Chesapeake has failed to cooperate with Epsilon’s efforts to develop resources in the Auburn Development, located in North-Central Pennsylvania, as required under both the settlement agreement and JOAs. Epsilon requested a preliminary injunction but was unsuccessful in obtaining that injunction. Epsilon filed a motion to amend its original Complaint. Chesapeake opposed. The Court ruled in Epsilon’s favor and allowed Epsilon’s amendment. Chesapeake moved to dismiss the amended Complaint. The Court granted the motion to dismiss without prejudice to Epsilon’s right to file a new lawsuit based on new proposals made after the Court’s decision. Epsilon filed a motion for reconsideration of that decision, but the court denied the motion for reconsideration on January 18, 2022. Epsilon filed a notice of appeal on February 15, 2022 challenging both the motion to dismiss and motion for reconsideration decisions. Chesapeake filed a cross-appeal on March 1, 2022. A briefing schedule was set and briefing closed October 14, 2022. A decision on the appeal is not expected until early to mid-2023. Epsilon re-filed a complaint against Chesapeake in the Middle District on May 9, 2022. Epsilon generally asserts similar claims as in the previous suit, pursuing declaratory judgment claims regarding Chesapeake’s obligation to Epsilon to cooperate with Epsilon’s efforts in the Auburn Development and regarding Chesapeake’s obstruction of Epsilon’s efforts with the Pennsylvania Department of Environmental Protection permitting process but not based on specific well proposals. Chesapeake filed a motion to stay pending a decision on the Third Circuit appeal, which was granted. The matter is stayed pending a decision from the Third Circuit. |
Net Income Per Share
Net Income Per Share | 9 Months Ended |
Sep. 30, 2022 | |
Net Income Per Share | |
Net Income Per Share | 10. Net Income Per Share Basic net income per share is computed on the basis of the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed based upon the weighted-average number of common shares outstanding during the period plus the assumed issuance of common shares for all potentially dilutive securities. The net income used in the calculation of basic and diluted net income per share is as follows: Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Net income available to shareholders $ 9,608,453 $ 1,396,466 $ 25,997,329 $ 3,647,008 In calculating the net income per share, basic and diluted, the following weighted-average shares were used: Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Basic weighted-average number of shares outstanding 23,011,729 23,564,288 23,419,666 23,757,895 Dilutive stock options 15,914 — 14,725 — Unvested time-based restricted shares 104,525 144,473 — 85,395 Unvested performance-based restricted shares 37,490 64,182 90,183 28,205 Diluted weighted average shares outstanding 23,169,658 23,772,943 23,524,574 23,871,495 The Company excluded the following shares from the diluted EPS because their inclusion would have been anti-dilutive. Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Anti-dilutive options 54,086 245,000 55,275 245,000 Anti-dilutive unvested time-based restricted shares 240,526 159,197 254,665 218,275 Anti-dilutive unvested performance-based restricted shares 22,445 87,318 30,347 123,295 Total Anti-dilutive shares 317,057 491,515 340,287 586,570 |
Operating Segments
Operating Segments | 9 Months Ended |
Sep. 30, 2022 | |
Operating Segments. | |
Operating Segments | 11. 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 the United States; 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 as of, and for the nine months ended September 30, 2022 and 2021 is as follows: Upstream Gas Gathering Corporate Elimination Consolidated As of and for the nine months ended September 30, 2022 Operating revenue Natural gas $ 44,581,254 $ — $ — $ — $ 44,581,254 Natural gas liquids 1,500,668 — — — 1,500,668 Oil and condensate 2,484,360 — — — 2,484,360 Gathering and compression fees — 7,290,507 — (1,109,760) 6,180,747 Total operating revenue (1) 48,566,282 7,290,507 — (1,109,760) 54,747,029 Operating costs 15,624,207 2,489,981 516,585 (1,109,760) 17,521,012 Operating income 32,942,075 4,800,526 (516,585) — 37,226,017 Other income (expense) Interest income 125,311 — 1,494 — 126,804 Interest expense (33,565) — — — (33,565) Gain (loss) on derivative contracts (1,124,547) — — — (1,124,547) Other (expense) income (100,315) — 419 — (99,896) Other income (expense), net (1,133,116) — 1,913 — (1,131,204) Net income before income tax expense $ 31,808,959 $ 4,800,526 $ (514,672) $ — $ 36,094,813 Segment assets $ 108,223,413 $ 10,813,847 $ 777,453 $ — $ 119,814,713 Capital expenditures (2) 5,573,343 142,867 — — 5,716,210 Proved properties 40,738,961 — — — 40,738,961 Unproved properties 18,085,385 — — — 18,085,385 Gathering system — 8,355,116 — — 8,355,116 Lease right-of-use-asset — — — — — Other property and equipment 933,210 — — — 933,210 As of and for the nine months ended September 30, 2021 Operating revenue Natural gas $ 20,950,378 $ — $ — $ — $ 20,950,378 Natural gas liquids 588,685 — — — 588,685 Oil and condensate 1,201,289 — — — 1,201,289 Gathering and compression fees — 7,088,836 — (1,196,968) 5,891,868 Total operating revenue (1) 22,740,352 7,088,836 — (1,196,968) 28,632,220 Operating costs 14,905,645 2,754,927 444,753 (1,196,968) 16,908,357 Operating income 7,834,707 4,333,909 (444,753) — 11,723,863 Other income (expense) Interest income 27,786 — — — 27,786 Interest expense (66,380) — — — (66,380) Gain (loss) on derivative contracts (6,417,123) — — — (6,417,123) Other (expense) income 2,273 — (1,517) — 756 Other income (expense), net (6,453,444) — (1,517) — (6,454,961) Net income before income tax expense $ 1,381,263 $ 4,333,909 $ (446,270) $ — $ 5,268,902 Segment assets Capital expenditures (2) $ 84,089,117 $ 12,029,451 $ 73,611 $ — $ 96,192,179 Proved properties 3,542,479 216,026 — — 3,758,505 Unproved properties 35,109,368 — — — 35,109,368 Gathering system 21,627,561 — — — 21,627,561 Lease right-of-use-asset — 9,266,971 — — 9,266,971 Other property and equipment 955,650 — — — 955,650 (1) Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the nine months ended September 30, 2022 and 2021 have been eliminated upon consolidation. For the nine months ended September 30, 2022, Epsilon sold natural gas to 23 unique customers. The two customers over 10% comprised 19.67% , and 12.20% of total revenue. For the nine months ended September 30, 2021, Epsilon sold natural gas to 26 unique customers. The two customers over 10% comprised 34% 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 and completion of the gathering and compression facility. Segment activity for the three months ended September 30, 2022 and 2021 is as follows: Upstream Gas Gathering Corporate Elimination Consolidated For the three months ended September 30, 2022 Operating revenue Natural gas $ 17,893,822 $ — $ — $ — $ 17,893,822 Natural gas liquids 497,843 — — — 497,843 Oil and condensate 779,456 — — — 779,456 Gathering and compression fees — 2,447,669 — (374,863) 2,072,806 Total operating revenue (1) 19,171,121 2,447,669 — (374,863) 21,243,927 Operating costs 6,175,538 869,833 178,679 (374,863) 6,849,187 Operating income 12,995,583 1,577,836 (178,679) — 14,394,740 Other income (expense) Interest income 88,145 — 1,494 — 89,638 Interest expense (17,501) — — — (17,501) Gain (loss) on derivative contracts (929,637) — — — (929,637) Other (expense) income (37,527) — 4,750 — (32,777) Other income (expense), net (896,520) — 6,244 — (890,277) Net income before income tax expense $ 12,099,063 $ 1,577,836 $ (172,436) $ — $ 13,504,463 Capital expenditures (2) 1,571,541 51,459 — — 1,623,000 For the three months ended September 30, 2021 Operating revenue Natural gas $ 9,511,357 $ — $ — $ — $ 9,511,357 Natural gas liquids 490,535 — — — 490,535 Oil and condensate 1,060,551 — — — 1,060,551 Gathering and compression fees — 2,465,288 — (426,672) 2,038,616 Total operating revenue (1) 11,062,443 2,465,288 — (426,672) 13,101,059 Operating costs 5,395,064 883,239 147,961 (426,672) 5,999,592 Operating income 5,667,379 1,582,049 (147,961) — 7,101,467 Other income (expense) Interest income 11,070 — — — 11,070 Interest expense (16,962) — — — (16,962) Gain (loss) on derivative contracts (5,055,130) — — — (5,055,130) Other (expense) income — — (907) — (907) Other income (expense), net (5,061,022) — (907) — (5,061,929) Net income before income tax expense $ 606,357 $ 1,582,049 $ (148,868) $ — $ 2,039,538 Capital expenditures (2) 1,164,881 145,521 — — 1,310,402 (1) Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the three months ended September 30, 2022 and 2021 have been eliminated upon consolidation. For the three months ended September 30, 2022, Epsilon sold natural gas to 17 unique customers. The seven customers over 10% comprised 13.5% , 13.29% , 13.27% , 11.04% , 10.84% , 10.51% , and 10.25% of total revenue. For the three months ended September 30, 2021, Epsilon sold natural gas to 17 unique customers. The three customers over 10% comprised 25% , 22% , and 21% 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 and completion of the gathering and compression facility. |
Commodity Risk Management Activ
Commodity Risk Management Activities | 9 Months Ended |
Sep. 30, 2022 | |
Commodity Risk Management Activities | |
Commodity Risk Management Activities | 12. Commodity Risk Management Activities Commodity Price Risks Epsilon engages in price risk management activities from time to time. These activities are intended to manage Epsilon’s exposure to fluctuations in commodity prices for natural gas by securing derivative contracts for a portion of expected sales volumes. Inherent in the Company’s hedging program, are certain business risks, including market risk and credit risk. Market risk is the risk that the price of natural gas and oil will change, either favorably or unfavorably, in response to changing market conditions. Credit risk is the risk of loss from nonperformance by the Company’s counterparty to a contract. Additionally, there is a risk that gas prices could fall to a level low enough to affect the volumes flowing through the gathering system. The Company enters into certain commodity derivative instruments to mitigate commodity price risk associated with a portion of its future natural gas production and related cash flows. The natural gas revenues and cash flows are affected by changes in commodity product prices, which are volatile and cannot be accurately predicted. The objective for holding these commodity derivatives is to protect the operating revenues and cash flows related to a portion of the future natural gas sales from the risk of significant declines in commodity prices, which helps ensure the Company’s ability to fund the capital budget. Epsilon has historically elected not to designate any of its financial commodity derivative contracts as accounting hedges and, accordingly, accounts for these financial commodity derivative contracts using the mark-to-market accounting method. Under this accounting method, changes in the fair value of outstanding financial instruments are recognized as gains or losses in the period of change and are recorded as loss (gain) on derivative contracts Commodity Derivative Contracts Presented below is a summary of Epsilon’s natural gas commodity basis swap and two-way costless collar contracts as of September 30, 2022. Fair Value Volume Ceiling Floor Basis September 30, Derivative Type (MMbtu) Price Price Differential 2022 2022 Basis swap 305,000 $ (1.15) (4,837) Two-way costless collar 305,000 $ 8.20 $ 6.50 37,163 $ 32,326 As of September 30, 2022, all of the Company’s economic derivative hedge positions were with large financial institutions, which are not known to the Company to be in default on their derivative positions. The Company is exposed to credit risk to the extent of non-performance by the counterparties in the derivative contracts discussed above; however, the Company does not anticipate non-performance by such counterparties. None of the Company’s derivative instruments contains credit-risk related contingent features. Derivatives are net on the balance sheet as they are subject to the right to offset the liabilities with the assets. The following tables summarize the gross fair values of our derivative instruments, presenting the impact of offsetting the derivative assets and liabilities on our condensed consolidated balance sheets as of the dates indicated below: Fair Value of Derivative Assets September 30, December 31, 2022 2021 Current Basis swap $ 22,287 $ — Two-way costless collar $ 203,518 $ 13,312 $ 225,805 $ 13,312 Fair Value of Derivative Liabilities September 30, December 31, 2022 2021 Current Basis swap $ (27,124) $ — Two-way costless collar $ (166,355) $ (253,136) $ (193,478) $ (253,136) Net Fair Value of Derivatives $ 32,326 $ (239,824) The following table presents the changes in the fair value of Epsilon’s commodity derivatives for the periods indicated: Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Fair value of asset (liability), beginning of the period $ 940,553 $ (1,334,533) $ (239,824) $ — Losses on derivative contracts included in earnings (929,637) (5,055,130) (1,124,547) (6,417,123) Settlement of commodity derivative contracts 21,410 2,461,242 1,396,697 2,488,702 Fair value of asset (liability), end of the period $ 32,326 $ (3,928,421) $ 32,326 $ (3,928,421) |
Asset Retirement Obligations
Asset Retirement Obligations | 9 Months Ended |
Sep. 30, 2022 | |
Asset Retirement Obligations | |
Asset Retirement Obligations | 13. Asset Retirement Obligations Asset retirement obligations were estimated by management based on Epsilon’s net ownership interest in all wells and the gathering system, estimated costs to reclaim and abandon such assets and the estimated timing of the costs to be incurred in future periods. The following tables summarize the changes in asset retirement obligations for the periods indicated: Nine Months Ended Year ended September 30, December 31, 2022 2021 Balance beginning of period $ 2,833,656 $ 3,150,243 Liabilities acquired 9,840 7,009 Liabilities disposed of (24,854) (381,346) Wells plugged and abandoned (118,260) (31,945) Change in estimates — (8,299) Accretion 58,449 97,994 Balance end of period $ 2,758,831 $ 2,833,656 |
Fair Value Measurements
Fair Value Measurements | 9 Months Ended |
Sep. 30, 2022 | |
Fair Value Measurements | |
Fair Value Measurements | 14. Fair Value Measurements The methodologies used to determine the fair value of our financial assets and liabilities at September 30, 2022 were the same as those used at December 31, 2021. Cash and cash equivalents, restricted cash, accounts receivable, and accounts payable are carried at cost, which approximates their fair value because of the short-term maturity of these instruments. The Company’s revolving line of credit has a recorded value that approximates its fair value since its variable interest rate is tied to current market rates and the applicable margins represent market rates. Commodity derivative instruments consist of two-way costless collar and basis swap contracts for natural gas. The Company’s derivative contracts are valued based on a marked to market approach. These assumptions are observable in the marketplace throughout the full term of the contract, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace, and are therefore designated as Level 2 within the valuation hierarchy. The Company utilizes its counterparties’ valuations to assess the reasonableness of its own valuations. |
Basis of Preparation (Policies)
Basis of Preparation (Policies) | 9 Months Ended |
Sep. 30, 2022 | |
Basis of Preparation | |
Interim Financial Statements | Interim Financial Statements The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the appropriate rules and regulations of the SEC. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. All adjustments which are, in the opinion of management, necessary for a fair statement of the financial position and results of operations for the interim periods presented have been included. The interim financial information and notes hereto should be read in conjunction with the Company’s consolidated financial statements as of and for the year ended December 31, 2021. The results of operations for interim periods are not necessarily indicative of results to be expected for a full fiscal year. |
Principles of Consolidation | Principles of Consolidation The Company’s unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Epsilon Energy USA, Inc. and its wholly owned subsidiaries, Epsilon Midstream, LLC, Dewey Energy GP, LLC, Dewey Energy Holdings, LLC, Epsilon Operating, LLC, and Altolisa Holdings, LLC. With regard to the gathering system, in which Epsilon owns an undivided interest in the asset, proportionate consolidation accounting is used. All inter-company transactions have been eliminated. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates pertain to proved natural gas and oil reserves and related cash flow estimates used in impairment tests of natural gas and oil, and gathering system properties, asset retirement obligations, accrued natural gas and oil revenues and operating expenses, accrued gathering system revenues and operating expenses, as well as the valuation of commodity derivative instruments. Actual results could differ from those estimates. |
Recently Issued Accounting Standards | Recently Issued Accounting Standards The Company, an emerging growth company (“EGC”), has elected to take advantage of the benefits of the extended transition period provided for in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards which allows the Company to defer adoption of certain accounting standards until those standards would otherwise apply to private companies. In March 2020, the FASB issued ASU No. 2020-04 - Reference Rate Reform (Topic 848), codified as ASC 848 (“ASC 848”). This was followed by ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), issued in January 2021. The purpose of ASC 848 is to provide optional guidance to ease the potential effects on financial reporting of the market-wide migration away from Interbank Offered Rates (“IBORs”) to alternative reference rates. ASC 848 applies only to contracts, hedging relationships, and other transactions that reference a reference rate expected to be discontinued because of reference rate reform. The guidance may be applied upon issuance of ASC 848 through December 31, 2022. We do not expect a material impact from the adoption of this ASU. In June 2016 the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under current U.S. GAAP, companies generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will remove all recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the Company expects to collect over the instrument’s contractual life. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, and must be applied retrospectively. Early adoption is permitted. Epsilon will adopt ASU 2016-13 as of January 1, 2023. We do not expect a material impact from the adoption of this ASU. In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which will require lessees to recognize a right of use asset and a lease liability on their balance sheet for all leases, including operating leases, with a term of greater than 12 months. In July 2018, the FASB issued ASU 2018-11, which adds a transition option permitting entities to apply the provisions of the new standard at its adoption date instead of the earliest comparative period presented in the consolidated financial statements. Under this transition option, comparative reporting would not be required, and the provisions of the standard would be applied prospectively to leases in effect at the date of adoption. The Company has determined its portfolio of leased assets and is completing its review of all related contracts to determine the impact the adoption will have on its consolidated financial statements and related disclosures. Upon adoption, the Company will recognize a right of use asset and lease liability for certain commitments related to office space that will be accounted for as an operating lease. To track these lease arrangements and facilitate compliance with this ASU, the Company is in the process of designing processes and internal controls. The adoption of this ASU will increase asset and liability balances on the consolidated balance sheets due to the required recognition of a right of use asset and corresponding lease liabilities. The Company plans to elect the available package practical expedients provided in the standard and adopt Topic 842 as of January 1, 2022 at December 31, 2022 on its Form 10-K for the year ending December 31, 2022, using the optional transition method provided by ASU 2018-11 and continues to assess potential effects of the standard. |
Cash, Cash Equivalents, and R_2
Cash, Cash Equivalents, and Restricted Cash (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
Cash, Cash Equivalents, and Restricted Cash | |
Schedule of cash, cash equivalents and restricted cash | September 30, December 31, 2022 2021 Cash and cash equivalents $ 40,254,729 $ 26,497,305 Restricted cash included in other assets 569,883 568,118 Cash, cash equivalents and restricted cash in the statement of cash flows $ 40,824,612 $ 27,065,423 |
Property and Equipment (Tables)
Property and Equipment (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
Property and Equipment | |
Schedule of property and equipment | September 30, December 31, 2022 2021 Property and equipment: Oil and gas properties, successful efforts method Proved properties $ 147,196,218 $ 138,032,413 Unproved properties 18,085,385 21,700,926 Accumulated depletion, depreciation, amortization and impairment (106,457,257) (102,480,972) Total oil and gas properties, net 58,824,346 57,252,367 Gathering system 42,617,954 42,475,086 Accumulated depletion, depreciation, amortization and impairment (34,262,838) (33,443,949) Total gathering system, net 8,355,116 9,031,137 Land 637,764 637,764 Buildings and other property and equipment, net 295,446 309,102 Total property and equipment, net $ 68,112,672 $ 67,230,370 |
Revolving Line of Credit (Table
Revolving Line of Credit (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
Revolving Line of Credit | |
Schedule of revolving line of credit | Balance at Balance at September 30, December 31, Current Interest Rate 2022 2021 Borrowing Base 3 mo. Revolving line of credit $ — $ — $ 14,000,000 LIBOR + 3.25% (1) (1) At September 30, 2022, the interest rate was 6.394% . |
Shareholders Equity (Tables)
Shareholders Equity (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
Shareholders' Equity | |
Schedule of purchases of equity Shares | |
Schedule of restricted stock activity | Nine months ended Year ended September 30, 2022 December 31, 2021 Number of Weighted Number of Weighted Restricted Average Restricted Average Shares Remaining Life Shares Remaining Life Outstanding (years) Outstanding (years) Balance non-vested Restricted Stock at beginning of period 166,002 1.38 290,070 1.60 Granted 246,135 1.91 48,000 3.00 Vested (83,155) — (137,668) — Forfeited — — (34,400) — Balance non-vested Restricted Stock at end of period 328,982 1.59 166,002 1.38 |
Schedule of PSU activity | Nine months ended Year ended September 30, 2022 December 31, 2021 Number of Weighted Number of Weighted Performance Average Performance Average Shares Remaining Life Shares Remaining Life Outstanding (years) Outstanding (years) Balance non-vested PSUs at beginning of period 151,500 0.75 193,167 1.60 Granted — — 20,834 — Vested (104,000) — (62,501) — Balance non-vested PSUs at end of period 47,500 0.67 151,500 0.75 |
Summary of stock option activity | Nine months ended Year ended September 30, 2022 December 31, 2021 Weighted Weighted Number of Average Number of Average Options Exercise Options Exercise Exercise price in US$ Outstanding Price Outstanding Price (1) Balance at beginning of period 218,750 $ 5.28 245,000 $ 5.27 Exercised (138,750) $ 5.38 (16,250) $ 5.25 Expired/Forfeited (10,000) $ 5.51 (10,000) $ 5.50 Balance at period-end 70,000 $ 5.03 218,750 $ 5.28 Exercisable at period-end 70,000 $ 5.03 218,750 $ 5.28 |
Revenue Recognition (Tables)
Revenue Recognition (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
Revenue Recognition | |
Summary of revenue | Three months ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Operating revenue Natural gas $ 17,893,822 $ 9,511,357 $ 44,581,254 $ 20,950,378 Natural gas liquids 497,843 490,535 1,500,668 588,685 Oil and condensate 779,456 1,060,551 2,484,360 1,201,289 Gathering and compression fees 2,072,806 2,038,616 6,180,747 5,891,868 Total operating revenue $ 21,243,927 $ 13,101,059 $ 54,747,029 $ 28,632,220 |
Schedule of accounts receivable net of allowance for doubtful accounts | September 30, December 31, 2022 2021 Accounts receivable Natural gas and oil sales $ 8,241,664 $ 2,996,344 Joint interest billing 20,328 60,134 Gathering and compression fees 1,613,597 1,539,976 Other 193,927 477 Total accounts receivable $ 10,069,516 $ 4,596,931 |
Income Taxes (Tables)
Income Taxes (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
Income Taxes | |
Schedule of current and deferred tax expense (benefit) | Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Current: Federal $ 2,566,416 $ 1,016,953 $ 6,564,117 $ 1,491,880 State 1,209,063 508,588 3,093,510 781,620 Total current income tax expense 3,775,479 1,525,541 9,657,627 2,273,500 Deferred: Federal 98,367 (679,361) 353,980 (467,203) State 22,164 (203,108) 85,877 (184,403) Total deferred tax expense 120,531 (882,469) 439,857 (651,606) Income tax expense $ 3,896,010 $ 643,072 $ 10,097,484 $ 1,621,894 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
Commitments and Contingencies | |
Schedule of future minimum lease commitments | Year ended December 31, Payments 2022 $ 46,833 2023 62,444 $ 109,277 |
Net Income Per Share (Tables)
Net Income Per Share (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
Net Income Per Share | |
Schedule of net income used in the calculation of basic and diluted net income per share | Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Net income available to shareholders $ 9,608,453 $ 1,396,466 $ 25,997,329 $ 3,647,008 |
Schedule of weighted-average shares used in calculation of net income per share | Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Basic weighted-average number of shares outstanding 23,011,729 23,564,288 23,419,666 23,757,895 Dilutive stock options 15,914 — 14,725 — Unvested time-based restricted shares 104,525 144,473 — 85,395 Unvested performance-based restricted shares 37,490 64,182 90,183 28,205 Diluted weighted average shares outstanding 23,169,658 23,772,943 23,524,574 23,871,495 |
Schedule of anti-dilutive shares | Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Anti-dilutive options 54,086 245,000 55,275 245,000 Anti-dilutive unvested time-based restricted shares 240,526 159,197 254,665 218,275 Anti-dilutive unvested performance-based restricted shares 22,445 87,318 30,347 123,295 Total Anti-dilutive shares 317,057 491,515 340,287 586,570 |
Operating Segments (Tables)
Operating Segments (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
Operating Segments. | |
Schedule of segment financial information | Upstream Gas Gathering Corporate Elimination Consolidated As of and for the nine months ended September 30, 2022 Operating revenue Natural gas $ 44,581,254 $ — $ — $ — $ 44,581,254 Natural gas liquids 1,500,668 — — — 1,500,668 Oil and condensate 2,484,360 — — — 2,484,360 Gathering and compression fees — 7,290,507 — (1,109,760) 6,180,747 Total operating revenue (1) 48,566,282 7,290,507 — (1,109,760) 54,747,029 Operating costs 15,624,207 2,489,981 516,585 (1,109,760) 17,521,012 Operating income 32,942,075 4,800,526 (516,585) — 37,226,017 Other income (expense) Interest income 125,311 — 1,494 — 126,804 Interest expense (33,565) — — — (33,565) Gain (loss) on derivative contracts (1,124,547) — — — (1,124,547) Other (expense) income (100,315) — 419 — (99,896) Other income (expense), net (1,133,116) — 1,913 — (1,131,204) Net income before income tax expense $ 31,808,959 $ 4,800,526 $ (514,672) $ — $ 36,094,813 Segment assets $ 108,223,413 $ 10,813,847 $ 777,453 $ — $ 119,814,713 Capital expenditures (2) 5,573,343 142,867 — — 5,716,210 Proved properties 40,738,961 — — — 40,738,961 Unproved properties 18,085,385 — — — 18,085,385 Gathering system — 8,355,116 — — 8,355,116 Lease right-of-use-asset — — — — — Other property and equipment 933,210 — — — 933,210 As of and for the nine months ended September 30, 2021 Operating revenue Natural gas $ 20,950,378 $ — $ — $ — $ 20,950,378 Natural gas liquids 588,685 — — — 588,685 Oil and condensate 1,201,289 — — — 1,201,289 Gathering and compression fees — 7,088,836 — (1,196,968) 5,891,868 Total operating revenue (1) 22,740,352 7,088,836 — (1,196,968) 28,632,220 Operating costs 14,905,645 2,754,927 444,753 (1,196,968) 16,908,357 Operating income 7,834,707 4,333,909 (444,753) — 11,723,863 Other income (expense) Interest income 27,786 — — — 27,786 Interest expense (66,380) — — — (66,380) Gain (loss) on derivative contracts (6,417,123) — — — (6,417,123) Other (expense) income 2,273 — (1,517) — 756 Other income (expense), net (6,453,444) — (1,517) — (6,454,961) Net income before income tax expense $ 1,381,263 $ 4,333,909 $ (446,270) $ — $ 5,268,902 Segment assets Capital expenditures (2) $ 84,089,117 $ 12,029,451 $ 73,611 $ — $ 96,192,179 Proved properties 3,542,479 216,026 — — 3,758,505 Unproved properties 35,109,368 — — — 35,109,368 Gathering system 21,627,561 — — — 21,627,561 Lease right-of-use-asset — 9,266,971 — — 9,266,971 Other property and equipment 955,650 — — — 955,650 (1) Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the nine months ended September 30, 2022 and 2021 have been eliminated upon consolidation. For the nine months ended September 30, 2022, Epsilon sold natural gas to 23 unique customers. The two customers over 10% comprised 19.67% , and 12.20% of total revenue. For the nine months ended September 30, 2021, Epsilon sold natural gas to 26 unique customers. The two customers over 10% comprised 34% 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 and completion of the gathering and compression facility. Segment activity for the three months ended September 30, 2022 and 2021 is as follows: |
Commodity Risk Management Act_2
Commodity Risk Management Activities (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
Commodity Risk Management Activities | |
Schedule of fair value of derivatives | Fair Value of Derivative Assets September 30, December 31, 2022 2021 Current Basis swap $ 22,287 $ — Two-way costless collar $ 203,518 $ 13,312 $ 225,805 $ 13,312 Fair Value of Derivative Liabilities September 30, December 31, 2022 2021 Current Basis swap $ (27,124) $ — Two-way costless collar $ (166,355) $ (253,136) $ (193,478) $ (253,136) Net Fair Value of Derivatives $ 32,326 $ (239,824) |
Schedule of fair value of derivatives rollforward | Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Fair value of asset (liability), beginning of the period $ 940,553 $ (1,334,533) $ (239,824) $ — Losses on derivative contracts included in earnings (929,637) (5,055,130) (1,124,547) (6,417,123) Settlement of commodity derivative contracts 21,410 2,461,242 1,396,697 2,488,702 Fair value of asset (liability), end of the period $ 32,326 $ (3,928,421) $ 32,326 $ (3,928,421) |
Asset Retirement Obligations (T
Asset Retirement Obligations (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
Asset Retirement Obligations | |
Schedule of activity in asset retirement obligations | Nine Months Ended Year ended September 30, December 31, 2022 2021 Balance beginning of period $ 2,833,656 $ 3,150,243 Liabilities acquired 9,840 7,009 Liabilities disposed of (24,854) (381,346) Wells plugged and abandoned (118,260) (31,945) Change in estimates — (8,299) Accretion 58,449 97,994 Balance end of period $ 2,758,831 $ 2,833,656 |
Cash, Cash Equivalents, and R_3
Cash, Cash Equivalents, and Restricted Cash - Reconciliation of Cash (Details) - USD ($) | Sep. 30, 2022 | Dec. 31, 2021 | Sep. 30, 2021 | Dec. 31, 2020 |
Summary of Significant Accounting Policies | ||||
Cash and cash equivalents | $ 40,254,729 | $ 26,497,305 | ||
Restricted cash included in other assets | 569,883 | 568,118 | ||
Cash, cash equivalents and restricted cash in the statement of cash flows | $ 40,824,612 | $ 27,065,423 | $ 21,160,032 | $ 13,836,771 |
Property and Equipment (Details
Property and Equipment (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | |
Oil and gas properties, successful efforts method | |||||
Proved properties | $ 147,196,218 | $ 147,196,218 | $ 138,032,413 | ||
Unproved properties | 18,085,385 | $ 35,109,368 | 18,085,385 | $ 35,109,368 | 21,700,926 |
Accumulated depletion, depreciation, amortization and impairment | (106,457,257) | (106,457,257) | (102,480,972) | ||
Total oil and gas properties, net | 58,824,346 | 58,824,346 | 57,252,367 | ||
Gathering system | 42,617,954 | 42,617,954 | 42,475,086 | ||
Accumulated depletion, depreciation, amortization and impairment | (34,262,838) | (34,262,838) | (33,443,949) | ||
Total gathering system, net | 8,355,116 | 21,627,561 | 8,355,116 | 21,627,561 | 9,031,137 |
Land | 637,764 | 637,764 | 637,764 | ||
Buildings and other property and equipment, net | 295,446 | 295,446 | 309,102 | ||
Total property and equipment, net | 68,112,672 | 68,112,672 | $ 67,230,370 | ||
Impairment | $ 0 | $ 0 | $ 0 | $ 0 |
Revolving Line of Credit (Detai
Revolving Line of Credit (Details) - Revolving Credit Facility - USD ($) | 9 Months Ended | |
Sep. 30, 2022 | Nov. 23, 2021 | |
Revolving Credit Facility | ||
Total commitments | $ 100,000,000 | |
Current borrowing base | $ 14,000,000 | $ 14,000,000 |
Minimum | ||
Revolving Credit Facility | ||
Leverage ratio | 3 | |
LIBOR | ||
Revolving Credit Facility | ||
Margin added to variable interest rate | 3.25% | |
LIBOR | Minimum | ||
Revolving Credit Facility | ||
Margin added to variable interest rate | 2.75% | |
LIBOR | Maximum | ||
Revolving Credit Facility | ||
Margin added to variable interest rate | 3.75% | |
Federal Funds Rate | ||
Revolving Credit Facility | ||
Margin added to variable interest rate | 0.50% |
Revolving Line of Credit - Rati
Revolving Line of Credit - Ratios (Details) - Revolving Credit Facility | 9 Months Ended | ||
Sep. 30, 2022 USD ($) | Dec. 31, 2021 USD ($) | Nov. 23, 2021 USD ($) | |
Revolving Credit Facility | |||
Interest coverage ratio | 3 | ||
Current ratio | 1 | ||
Commitment fee assessed quarterly on the daily average unused commitments | 0.50% | ||
Line of credit | $ 0 | $ 0 | |
Current borrowing base | $ 14,000,000 | $ 14,000,000 | |
Interest rate during the period | 6.394% | ||
LIBOR | |||
Revolving Credit Facility | |||
Margin added to variable interest rate | 3.25% |
Shareholders Equity - Share Cap
Shareholders Equity - Share Capital (Details) - $ / shares | Sep. 30, 2022 | Dec. 31, 2021 |
Components of share capital: | ||
Common Stock, No Par Value | $ 0 | $ 0 |
Preferred Stock, No Par Value | $ 0 | $ 0 |
Shareholders Equity - Purchases
Shareholders Equity - Purchases of Equity Shares (Details) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||||||
Sep. 30, 2022 | Aug. 31, 2022 | Jul. 31, 2022 | Jun. 30, 2022 | May 31, 2022 | Apr. 30, 2022 | Mar. 31, 2022 | Sep. 30, 2022 | Sep. 30, 2022 | Dec. 31, 2021 | Mar. 08, 2022 | |
Shareholders' Equity | |||||||||||
Authorized shares to be repurchased | 200,910 | 200,910 | 200,910 | 1,193,000 | 1,183,410 | ||||||
Number of shares purchased | 2,400 | 33,200 | 249,800 | 418,900 | 254,500 | 23,700 | 0 | 285,400 | 982,500 | ||
Shares purchased | 0 | 423,000 | 534,015 | ||||||||
Consideration for shares repurchased | $ 1,680,057 | $ 6,234,879 | $ 2,423,007 | ||||||||
Average price paid per share | $ 6 | $ 6.09 | $ 5.83 | $ 6.21 | $ 6.99 | $ 6.63 | $ 0 | $ 6.32 | $ 4.51 |
Shareholders Equity - Equity In
Shareholders Equity - Equity Incentive Plan (Details) - shares | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Number of shares authorized to be issued | 2,000,000 | |
Performance stock units | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Granted (in shares) | 104,000 | 20,834 |
Time-based restricted shares | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Granted (in shares) | 48,000 |
Shareholders Equity - Restricte
Shareholders Equity - Restricted Stock (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | Dec. 31, 2020 | |
Share Compensation Plan | ||||||
Weighted average market price at grant date (in dollars per share) | $ 6.22 | |||||
Restricted stock awards | ||||||
Share Compensation Plan | ||||||
Grant date fair value (in dollars per share) | $ 5.04 | |||||
Vesting period | 3 years | |||||
Vesting percentage | 33.33% | |||||
Stock based compensation expense | $ 366,763 | $ 127,834 | $ 608,735 | $ 402,247 | ||
Compensation cost not yet recognized | $ 1,551,041 | $ 1,551,041 | $ 696,833 | |||
Weighted average period for recognition | 1 year 7 months 13 days | 1 year 1 month 9 days | ||||
Number outstanding | ||||||
Balance non-vested Restricted Stock at beginning of period (in shares) | 166,002 | 290,070 | 290,070 | |||
Granted (in shares) | 246,135 | 48,000 | ||||
Vested (in shares) | (83,155) | (137,668) | ||||
Forfeited (in shares) | 0 | (34,400) | ||||
Balance non-vested Restricted Stock at end of period (in shares) | 328,982 | 328,982 | 166,002 | 290,070 | ||
Weighted Average Remaining Life | ||||||
Granted (in years) | 1 year 10 months 28 days | 3 years | ||||
Balance non-vested Restricted Stock at end of period (in years) | 1 year 7 months 2 days | 1 year 4 months 17 days | 1 year 7 months 6 days |
Shareholders Equity - Performan
Shareholders Equity - Performance Stock Units Assumptions (Details) - Performance stock units | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 item shares | Dec. 31, 2021 $ / shares shares | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Number of performance targets | item | 2 | |
Performance period | 3 years | |
Vesting percentage | 50% | |
Vested (in shares) | 104,000 | 62,501 |
Granted (in shares) | 104,000 | 20,834 |
CFDAS | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Weighted average grant-date fair value per PSU | $ / shares | $ 3.41 | |
Vesting percentage | 50% | 50% |
TSR performance | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Performance period | 1 year | |
Vesting percentage | 50% | |
Minimum | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Percentage of number of shares issued on target award amounts | 0% | |
Maximum | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Percentage of number of shares issued on target award amounts | 200% |
Shareholders Equity - Perform_2
Shareholders Equity - Performance Stock Units (Details) - Performance stock units - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | Dec. 31, 2020 | |
Share Compensation Plan | ||||||
Stock based compensation expense | $ 133,834 | $ 172,415 | $ 228,214 | $ 336,542 | ||
Compensation cost not yet recognized | $ 79,202 | $ 79,202 | $ 310,790 | |||
Weighted average period for recognition | 9 months | 1 year 3 days | ||||
Number outstanding | ||||||
Balance non-vested Restricted Stock at beginning of period (in shares) | 151,500 | 193,167 | 193,167 | |||
Granted (in shares) | 104,000 | 20,834 | ||||
Vested (in shares) | (104,000) | (62,501) | ||||
Balance non-vested Restricted Stock at end of period (in shares) | 47,500 | 47,500 | 151,500 | 193,167 | ||
Weighted Average Remaining Life | ||||||
Balance non-vested Restricted Stock at end of period (in years) | 8 months 1 day | 9 months | 1 year 7 months 6 days |
Shareholders Equity - Stock Opt
Shareholders Equity - Stock Option Activity (Details) - Stock option - $ / shares | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
Number of Options Outstanding | ||
Balance at beginning of period (in shares) | 218,750 | 245,000 |
Exercised (in shares) | (138,750) | (16,250) |
Expired/Forfeited (in shares) | (10,000) | (10,000) |
Balance at period-end (in shares) | 70,000 | 218,750 |
Exercisable at period-end (in shares) | 70,000 | 218,750 |
Weighted average exercise price | ||
Balance at beginning of period (in dollars per share) | $ 5.28 | $ 5.27 |
Exercised (in dollars per share) | 5.38 | 5.25 |
Expired/Forfeited (in dollars per share) | 5.51 | 5.50 |
Balance at period-end (in dollars per share) | 5.03 | 5.28 |
Exercisable at period-end (in dollars per share) | $ 5.03 | $ 5.28 |
Additional disclosures | ||
Weighted average expected remaining term | 1 year 3 months 18 days |
Shareholders Equity - Stock O_2
Shareholders Equity - Stock Option Activity, Narrative (Details) - Stock option - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
Share Compensation Plan | ||
Unrecognized stock based compensation to be recognized over a period | $ 0 | $ 0 |
Aggregate intrinsic value of options outstanding | $ 90,300 | $ 0 |
Granted (in shares) | 0 | 0 |
Shareholders' Equity - Dividend
Shareholders' Equity - Dividends (Details) - USD ($) | 9 Months Ended | ||
Feb. 25, 2022 | Sep. 30, 2022 | Sep. 30, 2021 | |
Shareholders' Equity | |||
Cash dividend of common stock (in dollars per share) | $ 0.0625 | ||
Annual dividend (in dollars per share) | $ 0.25 | ||
Payment of aggregate amount of dividend | $ 4,422,720 | $ 0 |
Revenue Recognition - Summary o
Revenue Recognition - Summary of revenue (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
Revenue recognition | ||||
Total operating revenue | $ 21,243,927 | $ 13,101,059 | $ 54,747,029 | $ 28,632,220 |
Natural gas | ||||
Revenue recognition | ||||
Total operating revenue | 17,893,822 | 9,511,357 | 44,581,254 | 20,950,378 |
Natural gas liquids | ||||
Revenue recognition | ||||
Total operating revenue | 497,843 | 490,535 | 1,500,668 | 588,685 |
Oil and condensate | ||||
Revenue recognition | ||||
Total operating revenue | 779,456 | 1,060,551 | 2,484,360 | 1,201,289 |
Gas gathering and compression revenue | ||||
Revenue recognition | ||||
Total operating revenue | $ 2,072,806 | $ 2,038,616 | $ 6,180,747 | $ 5,891,868 |
Revenue Recognition - Additiona
Revenue Recognition - Additional Information (Details) - USD ($) | 3 Months Ended | 9 Months Ended |
Sep. 30, 2022 | Sep. 30, 2022 | |
Revenue recognition | ||
Bad debt expense | $ 0 | $ 0 |
Gas, oil, NGL and condensate revenue | ||
Revenue recognition | ||
Period settlement statement received | 30 days | |
Gas gathering and compression revenue | Auburn Gas Gathering System | ||
Revenue recognition | ||
Period settlement statement received | 2 months |
Revenue Recognition - Accounts
Revenue Recognition - Accounts receivable (Details) - USD ($) | Sep. 30, 2022 | Dec. 31, 2021 |
Disaggregation of Revenue [Line Items] | ||
Accounts receivable | $ 10,069,516 | $ 4,596,931 |
Natural gas and oil sales | ||
Disaggregation of Revenue [Line Items] | ||
Accounts receivable | 8,241,664 | 2,996,344 |
Joint interest billing | ||
Disaggregation of Revenue [Line Items] | ||
Accounts receivable | 20,328 | 60,134 |
Gas gathering and compression revenue | ||
Disaggregation of Revenue [Line Items] | ||
Accounts receivable | 1,613,597 | 1,539,976 |
Other | ||
Disaggregation of Revenue [Line Items] | ||
Accounts receivable | $ 193,927 | $ 477 |
Income Taxes - Current and Defe
Income Taxes - Current and Deferred Tax Expense (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
Current: | ||||
Federal | $ 2,566,416 | $ 1,016,953 | $ 6,564,117 | $ 1,491,880 |
State | 1,209,063 | 508,588 | 3,093,510 | 781,620 |
Total current income tax expense | 3,775,479 | 1,525,541 | 9,657,627 | 2,273,500 |
Deferred: | ||||
Federal | 98,367 | (679,361) | 353,980 | (467,203) |
State | 22,164 | (203,108) | 85,877 | (184,403) |
Total deferred tax expense | 120,531 | (882,469) | 439,857 | (651,606) |
Income tax expense | $ 3,896,010 | $ 643,072 | $ 10,097,484 | $ 1,621,894 |
Commitments and Contingencies_2
Commitments and Contingencies (Details) - USD ($) | Sep. 30, 2022 | Sep. 30, 2021 |
Leases | ||
Lease right-of-use-asset | $ 0 | $ 9,266,971 |
Commitments for capital expenditures | $ 400,000 |
Commitments and Contingencies -
Commitments and Contingencies - Future Minimum Lease Commitments (Details) $ in Thousands | Sep. 30, 2022 USD ($) |
Future Minimum Lease Commitments | |
2022 | $ 46,833 |
2023 | 62,444 |
Total | $ 109,277 |
Net Income Per Share (Details)
Net Income Per Share (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Net income available to shareholders | $ 9,608,453 | $ 1,396,466 | $ 25,997,329 | $ 3,647,008 |
Weighted average number of shares - basic and diluted | ||||
Basic weighted-average number of shares outstanding | 23,011,729 | 23,564,288 | 23,419,666 | 23,757,895 |
Diluted weighted average shares outstanding | 23,169,658 | 23,772,943 | 23,524,574 | 23,871,495 |
Total Anti-dilutive shares | 317,057 | 491,515 | 340,287 | 586,570 |
Stock option | ||||
Weighted average number of shares - basic and diluted | ||||
Incremental common shares | 15,914 | 0 | 14,725 | 0 |
Total Anti-dilutive shares | 54,086 | 245,000 | 55,275 | 245,000 |
Time-based restricted shares | ||||
Weighted average number of shares - basic and diluted | ||||
Incremental common shares | 104,525 | 144,473 | 0 | 85,395 |
Total Anti-dilutive shares | 240,526 | 159,197 | 254,665 | 218,275 |
Performance stock units | ||||
Weighted average number of shares - basic and diluted | ||||
Incremental common shares | 37,490 | 64,182 | 90,183 | 28,205 |
Total Anti-dilutive shares | 22,445 | 87,318 | 30,347 | 123,295 |
Operating Segments - Segments (
Operating Segments - Segments (Details) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2022 USD ($) | Sep. 30, 2021 USD ($) | Sep. 30, 2022 USD ($) segment | Sep. 30, 2021 USD ($) | Dec. 31, 2021 USD ($) | |
Segment information | |||||
Total operating revenue | $ 21,243,927 | $ 13,101,059 | $ 54,747,029 | $ 28,632,220 | |
Net earnings (loss) for the period | 9,608,453 | 1,396,466 | 25,997,329 | 3,647,008 | |
Operating costs | 6,849,187 | 5,999,592 | 17,521,012 | 16,908,357 | |
Operating income | 14,394,740 | 7,101,467 | 37,226,017 | 11,723,863 | |
Interest income | 89,638 | 11,070 | 126,804 | 27,786 | |
Interest Expense | 17,501 | 16,962 | 33,565 | 66,380 | |
Gain (loss) on derivative contracts | (929,637) | (5,055,130) | (1,124,547) | (6,417,123) | |
Other (expense) income | (32,777) | (907) | (99,896) | 756 | |
Other income (expense), net | (890,277) | (5,061,929) | (1,131,204) | (6,454,961) | |
Net income (loss) before income tax expense | 13,504,463 | 2,039,538 | 36,094,813 | 5,268,902 | |
Development geological and geophysical expenses | 2,387 | 11,583 | 7,159 | 34,573 | |
Depletion, depreciation, amortization, and accretion | 1,706,030 | 1,846,911 | 4,898,988 | 5,175,865 | |
Bad debt expense | 0 | 0 | |||
Segment assets | 119,814,713 | 119,814,713 | |||
Capital expenditures | 1,623,000 | 1,310,402 | 5,716,210 | 96,192,179 | |
Proved properties (net) | 40,738,961 | 3,758,505 | 40,738,961 | 3,758,505 | |
Unproved properties (net) | 18,085,385 | 35,109,368 | 18,085,385 | 35,109,368 | $ 21,700,926 |
Gathering system (net) | 8,355,116 | 21,627,561 | 8,355,116 | 21,627,561 | $ 9,031,137 |
Lease right-of-use-asset | 0 | 9,266,971 | 0 | 9,266,971 | |
Other property and equipment (net) | 933,210 | 955,650 | 933,210 | 955,650 | |
Corporate | |||||
Segment information | |||||
Total operating revenue | 0 | 0 | 0 | 0 | |
Operating costs | 178,679 | 147,961 | 516,585 | 444,753 | |
Operating income | (178,679) | (147,961) | (516,585) | (444,753) | |
Interest income | 1,494 | 0 | 1,494 | 0 | |
Interest Expense | 0 | 0 | 0 | 0 | |
Gain (loss) on derivative contracts | 0 | 0 | 0 | 0 | |
Other (expense) income | 4,750 | (907) | 419 | (1,517) | |
Other income (expense), net | 6,244 | (907) | 1,913 | (1,517) | |
Net income (loss) before income tax expense | (172,436) | (148,868) | (514,672) | (446,270) | |
Segment assets | 777,453 | 777,453 | |||
Capital expenditures | 0 | 0 | 0 | 73,611 | |
Proved properties (net) | 0 | 0 | 0 | 0 | |
Unproved properties (net) | 0 | 0 | 0 | 0 | |
Gathering system (net) | 0 | 0 | 0 | 0 | |
Lease right-of-use-asset | 0 | 0 | 0 | 0 | |
Other property and equipment (net) | 0 | 0 | 0 | 0 | |
Elimination | |||||
Segment information | |||||
Total operating revenue | (374,863) | (426,672) | (1,109,760) | (1,196,968) | |
Operating costs | (374,863) | (426,672) | (1,109,760) | (1,196,968) | |
Operating income | 0 | 0 | 0 | 0 | |
Interest income | 0 | 0 | 0 | 0 | |
Interest Expense | 0 | 0 | 0 | 0 | |
Gain (loss) on derivative contracts | 0 | 0 | 0 | 0 | |
Other (expense) income | 0 | 0 | 0 | 0 | |
Other income (expense), net | 0 | 0 | 0 | 0 | |
Net income (loss) before income tax expense | 0 | 0 | 0 | 0 | |
Segment assets | 0 | 0 | |||
Capital expenditures | 0 | 0 | 0 | 0 | |
Proved properties (net) | 0 | 0 | 0 | 0 | |
Unproved properties (net) | 0 | 0 | 0 | 0 | |
Gathering system (net) | 0 | 0 | 0 | 0 | |
Lease right-of-use-asset | 0 | 0 | 0 | 0 | |
Other property and equipment (net) | 0 | 0 | 0 | 0 | |
Natural gas | |||||
Segment information | |||||
Total operating revenue | 17,893,822 | 9,511,357 | 44,581,254 | 20,950,378 | |
Natural gas | Corporate | |||||
Segment information | |||||
Total operating revenue | 0 | 0 | 0 | 0 | |
Natural gas | Elimination | |||||
Segment information | |||||
Total operating revenue | 0 | 0 | 0 | 0 | |
Natural gas liquids | |||||
Segment information | |||||
Total operating revenue | 497,843 | 490,535 | 1,500,668 | 588,685 | |
Natural gas liquids | Corporate | |||||
Segment information | |||||
Total operating revenue | 0 | 0 | 0 | 0 | |
Natural gas liquids | Elimination | |||||
Segment information | |||||
Total operating revenue | 0 | 0 | 0 | 0 | |
Oil and condensate | |||||
Segment information | |||||
Total operating revenue | 779,456 | 1,060,551 | 2,484,360 | 1,201,289 | |
Oil and condensate | Corporate | |||||
Segment information | |||||
Total operating revenue | 0 | 0 | 0 | 0 | |
Oil and condensate | Elimination | |||||
Segment information | |||||
Total operating revenue | 0 | 0 | 0 | 0 | |
Gas gathering and compression revenue | |||||
Segment information | |||||
Total operating revenue | 2,072,806 | 2,038,616 | 6,180,747 | 5,891,868 | |
Gas gathering and compression revenue | Corporate | |||||
Segment information | |||||
Total operating revenue | 0 | 0 | 0 | 0 | |
Gas gathering and compression revenue | Elimination | |||||
Segment information | |||||
Total operating revenue | (374,863) | (426,672) | (1,109,760) | (1,196,968) | |
Upstream | Operating Segments | |||||
Segment information | |||||
Total operating revenue | 19,171,121 | 11,062,443 | 48,566,282 | 22,740,352 | |
Operating costs | 6,175,538 | 5,395,064 | 15,624,207 | 14,905,645 | |
Operating income | 12,995,583 | 5,667,379 | 32,942,075 | 7,834,707 | |
Interest income | 88,145 | 11,070 | 125,311 | 27,786 | |
Interest Expense | 17,501 | 16,962 | 33,565 | 66,380 | |
Gain (loss) on derivative contracts | (929,637) | (5,055,130) | (1,124,547) | (6,417,123) | |
Other (expense) income | (37,527) | 0 | (100,315) | 2,273 | |
Other income (expense), net | (896,520) | (5,061,022) | (1,133,116) | (6,453,444) | |
Net income (loss) before income tax expense | 12,099,063 | 606,357 | 31,808,959 | 1,381,263 | |
Segment assets | 108,223,413 | 108,223,413 | |||
Capital expenditures | 1,571,541 | 1,164,881 | 5,573,343 | 84,089,117 | |
Proved properties (net) | 40,738,961 | 3,542,479 | 40,738,961 | 3,542,479 | |
Unproved properties (net) | 18,085,385 | 35,109,368 | 18,085,385 | 35,109,368 | |
Gathering system (net) | 0 | 21,627,561 | 0 | 21,627,561 | |
Lease right-of-use-asset | 0 | 0 | 0 | 0 | |
Other property and equipment (net) | 933,210 | 955,650 | 933,210 | 955,650 | |
Upstream | Natural gas | Operating Segments | |||||
Segment information | |||||
Total operating revenue | 17,893,822 | 9,511,357 | 44,581,254 | 20,950,378 | |
Upstream | Natural gas liquids | Operating Segments | |||||
Segment information | |||||
Total operating revenue | 497,843 | 490,535 | 1,500,668 | 588,685 | |
Upstream | Oil and condensate | Operating Segments | |||||
Segment information | |||||
Total operating revenue | 779,456 | 1,060,551 | 2,484,360 | 1,201,289 | |
Upstream | Gas gathering and compression revenue | Operating Segments | |||||
Segment information | |||||
Total operating revenue | 0 | 0 | $ 0 | 0 | |
Gas Gathering | Operating Segments | |||||
Operating Segments | |||||
Number of companies partnered to operate natural gas gathering system | segment | 2 | ||||
Segment information | |||||
Total operating revenue | 2,447,669 | 2,465,288 | $ 7,290,507 | 7,088,836 | |
Operating costs | 869,833 | 883,239 | 2,489,981 | 2,754,927 | |
Operating income | 1,577,836 | 1,582,049 | 4,800,526 | 4,333,909 | |
Interest income | 0 | 0 | 0 | 0 | |
Interest Expense | 0 | 0 | 0 | 0 | |
Gain (loss) on derivative contracts | 0 | 0 | 0 | 0 | |
Other (expense) income | 0 | 0 | 0 | 0 | |
Other income (expense), net | 0 | 0 | 0 | 0 | |
Net income (loss) before income tax expense | 1,577,836 | 1,582,049 | 4,800,526 | 4,333,909 | |
Segment assets | 10,813,847 | 10,813,847 | |||
Capital expenditures | 51,459 | 145,521 | 142,867 | 12,029,451 | |
Proved properties (net) | 0 | 216,026 | 0 | 216,026 | |
Unproved properties (net) | 0 | 0 | 0 | 0 | |
Gathering system (net) | 8,355,116 | 0 | 8,355,116 | 0 | |
Lease right-of-use-asset | 0 | 9,266,971 | 0 | 9,266,971 | |
Other property and equipment (net) | 0 | 0 | 0 | 0 | |
Gas Gathering | Natural gas | Operating Segments | |||||
Segment information | |||||
Total operating revenue | 0 | 0 | 0 | 0 | |
Gas Gathering | Natural gas liquids | Operating Segments | |||||
Segment information | |||||
Total operating revenue | 0 | 0 | 0 | 0 | |
Gas Gathering | Oil and condensate | Operating Segments | |||||
Segment information | |||||
Total operating revenue | 0 | 0 | 0 | 0 | |
Gas Gathering | Gas gathering and compression revenue | Operating Segments | |||||
Segment information | |||||
Total operating revenue | $ 2,447,669 | $ 2,465,288 | $ 7,290,507 | $ 7,088,836 |
Operating Segments - Customers
Operating Segments - Customers (Details) - customer | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
Concentration risk | ||||
Number of customers | 17 | 17 | 23 | 26 |
Customer Concentration risk | ||||
Concentration risk | ||||
Number of customers | 7 | 3 | 2 | 2 |
Threshold concentration risk for reporting (as a percent) | 10% | 10% | 10% | 10% |
Total Revenue | Customer Concentration risk | Customer One | ||||
Concentration risk | ||||
Concentration risk (as a percent) | 13.50% | 25% | 19.67% | 34% |
Total Revenue | Customer Concentration risk | Customer Two | ||||
Concentration risk | ||||
Concentration risk (as a percent) | 13.29% | 22% | 12.20% | 12% |
Total Revenue | Customer Concentration risk | Customer Three | ||||
Concentration risk | ||||
Concentration risk (as a percent) | 13.27% | 21% | ||
Total Revenue | Customer Concentration risk | Customer Four | ||||
Concentration risk | ||||
Concentration risk (as a percent) | 11.04% | |||
Total Revenue | Customer Concentration risk | Customer Five | ||||
Concentration risk | ||||
Concentration risk (as a percent) | 10.84% | |||
Total Revenue | Customer Concentration risk | Customer Six | ||||
Concentration risk | ||||
Concentration risk (as a percent) | 10.51% | |||
Total Revenue | Customer Concentration risk | Customer Seven | ||||
Concentration risk | ||||
Concentration risk (as a percent) | 10.25% |
Commodity Risk Management Act_3
Commodity Risk Management Activities - Commodity Price Risks (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
Commodity Risk Management Activities | ||||
Recognized gains (losses) on financial commodity derivative contracts | $ (929,637) | $ (5,055,130) | $ (1,124,547) | $ (6,417,123) |
Cash (paid) received from settlements of derivative contracts | $ (21,410) | $ (2,461,242) | $ (1,396,697) | $ (2,488,702) |
Commodity Risk Management Act_4
Commodity Risk Management Activities - Commodity Derivative Contracts (Details) | 9 Months Ended | |
Sep. 30, 2022 USD ($) MMBTU $ / MMBTU | Dec. 31, 2021 USD ($) | |
Risk Management Activities | ||
Fair Value | $ | $ 32,326 | $ (239,824) |
2022 Contracts | ||
Risk Management Activities | ||
Basis Differential | $ / MMBTU | (1.15) | |
2022 Contracts | Basis swap | ||
Risk Management Activities | ||
Volume (Mmbtu) | MMBTU | 305,000 | |
Fair Value | $ | $ (4,837) | |
2022 Contracts | Two-way costless collar | ||
Risk Management Activities | ||
Volume (Mmbtu) | MMBTU | 305,000 | |
Ceiling Price | $ / MMBTU | 8.20 | |
Floor Price | $ / MMBTU | 6.50 | |
Fair Value | $ | $ 37,163 |
Commodity Risk Management Act_5
Commodity Risk Management Activities - Fair Value of Derivative Instruments (Details) - USD ($) | Sep. 30, 2022 | Dec. 31, 2021 |
Risk Management Activities | ||
Fair Value of Derivative Assets | $ 225,805 | $ 13,312 |
Fair Value of Derivative Liabilities | (193,478) | (253,136) |
Net Fair Value of Derivatives | 32,326 | (239,824) |
Basis swap | ||
Risk Management Activities | ||
Fair Value of Derivative Assets | 22,287 | 0 |
Fair Value of Derivative Liabilities | (27,124) | 0 |
Two-way costless collar | ||
Risk Management Activities | ||
Fair Value of Derivative Assets | 203,518 | 13,312 |
Fair Value of Derivative Liabilities | $ (166,355) | $ (253,136) |
Commodity Risk Management Act_6
Commodity Risk Management Activities - Fair value of asset (liability) (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
Commodity Risk Management Activities | ||||
Fair value of asset (liability), beginning of the period | $ 940,553 | $ (1,334,533) | $ (239,824) | $ 0 |
Gains (losses) on derivative contracts included in earnings | (929,637) | (5,055,130) | (1,124,547) | (6,417,123) |
Settlement of commodity derivative contracts | 21,410 | 2,461,242 | 1,396,697 | 2,488,702 |
Fair value of asset, end of the period | $ 32,326 | $ (3,928,421) | $ 32,326 | $ (3,928,421) |
Asset Retirement Obligations (D
Asset Retirement Obligations (Details) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
Reconciliation of provision for asset retirement obligations | ||
Balance beginning of period | $ 2,833,656 | $ 3,150,243 |
Liabilities acquired (disposed of) | 9,840 | 7,009 |
Liabilities acquired (disposed of) | (24,854) | (381,346) |
Wells plugged and abandoned | (118,260) | (31,945) |
Change in estimates | 0 | (8,299) |
Accretion | 58,449 | 97,994 |
Balance end of period | $ 2,758,831 | $ 2,833,656 |