Epsilon Energy's Q2 2025: Strategic Shifts Amid Contradictions in Production and Reserves

Acquisition and Expansion:
- The company announced the acquisition of Peak Companies, adding assets in the Powder River Basin (PRB) with key members of the Peak team bringing over 15 years of in-basin operating experience.
- The acquisition adds approximately 2,200 net barrels of oil equivalent of daily production, 56% oil, expanding Epsilon's asset base across the Marcellus, Permian, Barnett, and PRB.

PRB Potential and Inventory Growth:
- The acquisition includes a massive operated inventory of locations across multiple benches, with an estimated 14 net Parkman 2-mile laterals and 90 net 2-mile locations in the Niobrara and Mowry.
- These intervals offer a balance of oil and gas potential, although approximately 30% of the identified priority inventory is affected by a drilling permit moratorium in Converse County, Wyoming.

Financial Impact and Shareholder Structure:
- Consideration for the acquisition includes the issuance of 6 million Epsilon common shares and assumption of approximately $49 million of long-term debt, with additional contingent consideration of up to 2.5 million Epsilon common shares.
- Post-acquisition, Peak shareholders will represent approximately 21% of the equity, which can increase to 28% if the maximum contingent shares are issued.

Production and Pricing Trends:
- Epsilon's production was roughly flat, driven by new production in the Marcellus, while realized pricing was down meaningfully for gas and oil, leading to a 30% decline in cash flows quarter-over-quarter.
- The decrease in realized pricing is attributed to market conditions, impacting overall cash flows.

Dividend and Debt Management:
- Epsilon plans to maintain its per share dividend post-acquisition, supported by a forecasted net debt to adjusted EBITDA ratio of approximately 1x, which is considered conservatively leveraged pro forma.
- The company aims to drive growth through a development plan covering the Marcellus, Permian, and PRB starting next year, with a robust balance sheet to support these initiatives.