Epsilon Energy Ltd. Q3 FY2024 earnings call

• In the Permian, the seventh Ector well came online in Q3, driving 19% QoQ oil production growth. - In Pennsylvania, curtailments continued during the quarter with low realized prices, but some curtailed volumes came back online and deferred TIL wells were put on production. - Entered Alberta, Canada through two joint ventures, with initial development focus on Garrington area, planning 4 gross wells in 2025 starting Q4 2024. - Permian's PA business was the trough, impacted by curtailments and plugging/abandonment activities increasing costs. - Strategic alternatives review process ongoing for Permian operated interest, no additional development anticipated during this process. - In Canada's smaller JV, results of two wells were mixed with ongoing technical reviews. - In Northeast PA, operator commenced initial flowback on three deferred TIL wells.

In the Permian, the seventh Ector well was brought online in the third quarter, driving 19% quarter-over-quarter oil production growth. The Permian contributed approximately $8.5 million of adjusted EBITDA year-to-date, which is 70% of the total company figure. In Pennsylvania, wellhead prices remained low heading into winter with realized gas prices at $1.54 per Mcf. Production curtailments continued through the quarter, but in October, some curtailed volumes came back online and three of the seven deferred TILs were put on production, expecting quarter-over-quarter growth in natural gas volumes in the fourth quarter.

• The Company remains well positioned to deliver volume and cash flow growth in 2025. - Currently, no forecast for incremental drilling in Pennsylvania in 2025, but will update after Q4 discussions. - Expect approximately $10 million of CapEx in Canada's Garrington JV over 12 months from Dec. - Continue to pay dividend and monitor opportunities to reduce share count at attractive prices.

• Strategic alternatives review process for Permian operated interest may impact development plans. - Results of wells in smaller Canada JV have been mixed with ongoing technical reviews.

Q: And congratulations on a nice quarter. You said in the press release, three of the seven wells were put on flowback during the last week of October, producing 60 million a day. What is the net production from that?

A: That's the 8 million a day that I reported in the call there. We have about a 13% -- a little over 13% net revenue interest in that pad. So it equates to about 8 million a day.

Q: On the 3 million to 4 million a day that was offline during the quarter, you had -- in the third quarter, you had a negative natural gas differential of $0.65 with your realized gas price at $1.46. Looking at 4Q, if we use Henry Hub at $2.75 and a negative differential of $0.91 to get $1.84 realized gas price. So that's a nice increase. Do you think that will spur the 3 million to 4 million a day coming back online?

A: John, yes, I think from what we understand from the operator, they're going to be bringing back that -- those curtailed volumes as price dictated as you mentioned, the forward curve would suggest those volumes come on. We don't have a clear visibility. Actually, if we look at it day to day, they're still turning some wells on, on certain days and some off. But the way that we think about it is that will clear out by the beginning of the first quarter. So we're still not terribly clear on the schedule for those curtailed volumes to come back. But we do see some of them already coming back as we've indicated.