EPSILON ENERGY LIMITED
Houston, Texas - March 2, 2014 Epsilon Energy Ltd. ("Epsilon" or the "Company") (TSX: EPS) is pleased to provide the results of its December 31, 2014 independent reserve appraisal report, EBITDA forecast for 2014 as well as a capital budget forecast for 2015. Additionally, a new corporate presentation and a technical paper co-authored by the company will be posted to the website (www.epsilonenergyltd.com).
Dec 2014 Reserves Appraisal
- NI 51-101 Dec 2014 Proven and Probable (2P) reserves of 196.0 Bcf
- US Format Dec 2014 Proven and Probable (2P) reserves of 197.5 Bcf
- Full Year 2014 Net Production of 14.8 Bcf
- 13% Year over Year growth in reserves
- 250% Production Replacement
Upper Marcellus Evaluation
- Engineering analysis of Epsilon's leasehold suggests that the Upper Marcellus reservoir properties compare favorably to those in the Lower Marcellus.
Corporate capex guidance of up to $20 Million for 2015
- $8.6 million budgeted for ongoing development of midstream system
- $1.0 million allocated to completing 14 gross (.14 net) drilled wells
- Remaining capital considered discretionary budget to add additional wells.
Forecast 2014 EBITDA range of $36MM - $38MM
During the last quarter of 2014 Epsilon requested that the Company's independent reserve engineering firm perform an appraisal of the Estimated Ultimate Recoverable (EUR) gas volumes on a per well basis including proven and probable categories for producing wells. This was closely followed by an appraisal of Epsilon's natural gas reserves conducted pursuant to both US standards and to National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities and the Canadian Oil and Gas Evaluation Handbook reserves definitions.
December 31, 2014 Net(*) Reserves Summary
(*) "Net" means the Company's reserves net of royalties
December 31, 2014 Net Present Value Summary
The net present value of the Company's reserves in its Marcellus property includes a deduction of all relevant costs, fees and deducts including those associated with the Auburn Gas Gathering system. Epsilon holds a 35% working interest in the Auburn system including fees paid to Epsilon's wholly owned subsidiary, Epsilon Midstream, LLC.. The associated income for Epsilon Midstream, LLC is not accounted for in the independent engineering report.
Management Comment
Since assuming control of Epsilon in July 2013, the management team, employees and Board of Directors have accomplished many goals. First, we have narrowed our strategic focus to our core upstream and midstream assets in the Marcellus shale and have divested all non-core properties. Second, the organization has been downsized and high-graded with annual G&A costs declining from roughly $3.6 million to a current rate of $1.9 million. Third, and most importantly, our balance sheet and liquidity have improved significantly which is proving to be very constructive in today's environment. In mid-2013, the company had minimal cash, was free cash flow negative, had a negative working capital balance and had no access to a revolving line of credit. Epsilon now has $16 million in cash, generates significant free cash flow even under the current challenging price regime, and has $30 million available on its revolver (with the ability to increase the facility if management desires) - this is an impressive transformation and was accomplished concurrently with a stock repurchase program which retired $12.6 mm of our stock (3.5 mm shares). Fourth, we have implemented a number of initiatives operationally that have enhanced the value of core assets in the Marcellus. These initiatives include working with the operator of our upstream asset to encourage improvements in completion productivity. In addition, we have developed an active dialogue with our midstream partners with a view towards maximizing the long term value of our gathering assets.
With Epsilon now on much stronger footing, our future strategy will have two key tenets: maximize the value of our integrated Marcellus asset and return capital to shareholders. In the area of asset maximization, our most important initiative is the development of the upper Marcellus reservoir. We believe the upper Marcellus has the potential to meaningfully increase the company's current reserve value, and we are in the relatively early stages of exploring options to prove up this resource. Turning to the operating environment, it remains very challenging. The Marcellus Shale has proven to be the most attractive source of gas in the lower US. Over the last several years, productivity and wellhead deliverability have increased much faster than the required processing and takeaway infrastructure resulting in abnormally wide differentials to posted NYMEX Henry Hub gas prices. Our preference is to produce less rather than more gas in this environment given that our acreage is largely held by production. Fortunately, our operating partner shares this sentiment which will allow us to focus our capital
towards incremental resource development, primarily in the upper Marcellus. Our expectation is that production will decline over the course of the year but our reserve value and reserve
potential will increase.
Epsilon is engaged in the exploration and production of natural gas and oil reserves. Established in 2005, the Company has been a producer of natural gas and oil since 2006. Epsilon's ongoing business strategy involves a focused approach on low risk natural gas exploitation and gas gathering/compression within the Marcellus Shale in Pennsylvania
For further information please contact:
Michael Raleigh
Chief Executive Officer
(281) 670-0002
Email: IR@epsilonenergyltd.com
Website: www.epsilonenergyltd.com
Special note for news distribution in the United States
The securities described in the news release have not been registered under the United Stated Securities Act of 1933, as amended, (the "1933 Act") or state securities laws. Any holder of these securities, by purchasing such securities, agrees for the benefit of Epsilon that such securities may not be offered, sold, or otherwise transferred only (A) to the Company or its affiliates; (B) outside the United States in accordance with applicable state laws and either (1) Rule
144(as) under the 1933 Act or (2) Rule 144 under the 1933 Act, if applicable.
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