Epsilon Energy Reserves Jump 150 Percent

Epsilon Energy(NASDAQ:EPSN) reported second quarter 2025 earnings on August 13, 2025, and simultaneously announced the acquisition of Peak Companies, a substantial strategic move that boosts 2024 year-end reserves by over 150%, according to third-party reports from both companies, and liquids production rose by over 200%. Cash flows for the second quarter declined roughly 30% quarter over quarter due to lower realized commodity pricing; the company remains committed to its dividend and outlined a path to diversified future growth across multiple U.S. basins.

Peak acquisition transforms EPSN asset base

The addition of Powder River Basin (PRB) acreage via the Peak Companies deal introduces a new oil-weighted core area, providing a diversified operated inventory across multiple productive benches. Epsilon Energy previously focused on the Marcellus, Permian, and Anadarko, but the Peak assets increase its inventory of premium development locations by over 600%, based on two-mile net locations underwritten at 25% returns using $65 West Texas Intermediate (WTI), and $4 Henry Hub assumptions, as disclosed on the earnings call.

"Today, along with our earnings release, we announced the acquisition of the Peak Companies with assets in the Powder River Basin (PRB). The deal adds a new core area to the company at an attractive price. The acquisition includes key members of the Peak team that bring over fifteen years of in-basin operating experience. It adds oil-weighted production and a massive operated inventory of locations across multiple benches. Importantly, the position is approximately 75% held by production, allowing for returns-driven capital allocation over time as commodity prices dictate. We think this PRB platform provides the opportunity for both organic and inorganic growth."
-- Jason Stabell, Chief Executive Officer

This acquisition positions Epsilon Energy for increased flexibility in capital allocation and enhances its competitive profile in the small-cap energy sector by supporting diversified growth.

EPSN increases reserves and production while maintaining conservative leverage

Pro forma for the transaction, Epsilon Energy's year-end 2024 reserves increase by over 150%, and liquids output rises by over 200% pro forma for the Peak Companies acquisition, as discussed on the earnings call, while leverage remains around one time net debt to adjusted EBITDA (pro forma) with a $95 million borrowing base at closing. Peak shareholders' equity share will range from approximately 21% to as much as 28%, depending on contingent share issuance tied to regulatory access in Converse County, Wyoming.

"At closing, the Peak shareholders will represent approximately 21% of the equity, which can increase to as much as 28% if the maximum contingent shares are issued. In exchange, our year-end '24 reserves increased by over 150% based on Epsilon and Peak's third-party reports, which are subject to change at year-end '25 based on development assumptions and SEC pricing. Liquids production increased by over 200%, and our priority or premium inventory count increases by over 600%. We define priority inventory as two-mile net locations that underwrite returns over 25% at $65 WTI and $4 Henry Hub flat price assumptions. Our underwriting has 40% of the acquired PRB inventory here exceeding that threshold. This includes the Parkman and some of the Niobrara. Given we plan to issue over 20% of our pre-deal shares outstanding, closing will be subject to a shareholder vote planned for the fourth quarter."
-- Andrew Williamson, Chief Financial Officer

This structure allows Epsilon Energy to maintain a conservative balance sheet while significantly expanding its asset base and development opportunities.

Operational update highlights disciplined growth trajectory

Near-term activity will focus on completing two Niobrara drilled but uncompleted wells (DUCs) in the PRB, scheduled for completion in the fourth quarter, and, subject to closing, commencing three high working interest Parkman wells in Q1 2026. The PRB assets add approximately 2,200 net barrels of oil equivalent per day (56% oil), and production is sourced from a base with a forecasted annual decline rate of approximately 15%. In the Marcellus, drilling activity will recommence in 2026 with seven gross (1.2 net) wells, while Permian Barnett partners have added an eighth well and have preliminary development plans for at least two additional gross wells (0.5 net) next year.

"Currently, the company has two two-mile Niobrara ducts, 0.7 net in inventory, that are scheduled for completion in Q4. Initial plans for next year call for the development of three high working interest Parkman wells, approximately 96% working interest in the first quarter, subject to the closing timeline of the transactions. This acquisition adds approximately 2,200 net barrels oil equivalent of daily production, 56% oil, with greater than 90% of the PDP value held within the operated wells. This production base has good value diversity, spread across 168 wellbores in five intervals. The producing wells are relatively early life, the majority of them less than ten years old, and a forecasted base annual decline rate of approximately 15%."
-- Henry Clanton, Chief Operating Officer

These developments indicate a ramp-up of high-working-interest organic projects that underpin a stable production base and offer operational visibility into 2026 and beyond.

Looking Ahead

Management expects to maintain its current per-share dividend and plans to execute a multi-basin development program spanning the Marcellus, Permian, and PRB beginning next year. The company will refinance Peak's term loan with an expanded revolving credit facility and anticipates a fourth-quarter shareholder vote to approve the Peak acquisition. Specific quantitative guidance for production, capex, or cash flow in 2026 was not disclosed in the transcript.

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