Epsilon Energy Q2 Earnings Call Highlights

Epsilon Energy (NASDAQ:EPSN) said its second-quarter production marked a low point for 2026 as new development activity began contributing late in the period, and management expects output to increase sequentially through the remainder of the year.

President and CEO Jason Stabell said the company’s principal operational initiatives were progressing on schedule and within budget. Epsilon issued production guidance for the second half of 2026 for the first time, supported primarily by expected crude oil growth from its Powder River Basin operations.

Stabell also addressed a correction to the company’s earnings release issued the previous day. He said the revision was limited to the presentation of adjusted net income and adjusted earnings per share in a summary table, while the reconciliation elsewhere in the release was correct. The change had no effect on reported GAAP results, cash flows or the underlying economics of the business, he said.

Powder River Basin drives anticipated growth

Epsilon’s largest expected production contribution in the second half is set to come from its Parkman development in Wyoming’s Powder River Basin. The company completed drilling on a three-well Parkman pad about one month ahead of plan after securing available rig capacity, according to Chief Operating Officer Henry Clanton. The wells are scheduled for completion later in the third quarter and are expected to begin producing in the fourth quarter.

The company also completed two acquired two-mile Niobrara drilled-but-uncompleted wells in Campbell County during the quarter and brought them online in July. Clanton said both wells exceeded expectations during early production, with each recording peak daily oil rates above 900 barrels per day.

Chief Financial Officer Andrew Williamson said the midpoint of Epsilon’s full-year guidance implies high-teens year-over-year growth in total production and nearly 200% year-over-year growth in oil volumes. He said the fourth quarter is expected to provide the largest production impact this year as the first Parkman volumes begin contributing.

In Converse County, Wyoming, Epsilon finalized plans for a 1 million-barrel water supply and impoundment facility and was evaluating contractor bids. Construction is expected to start during the third quarter. The pond design was modified to support future produced-water intake and recycling, which management said should lower water sourcing and processing costs over time.

The company is also pursuing operating-cost reductions in the basin. Clanton said Epsilon had replaced 16 compression units, eliminating approximately $65,000 in monthly operating expenses. Additional compressor downsizing is planned before year-end, with expected monthly savings exceeding $100,000 and no anticipated reduction to existing production.

Permian and Marcellus developments advance

In the Permian Basin, Epsilon’s first three-mile Barnett well entered flowback in June and was performing in line with its pre-drill type curve, Stabell said. Clanton added that early flowback from the ninth well drilled on the acreage exceeded normalized type-curve expectations and showed productivity consistent with existing wells.

The operator has moved up plans for two offset Barnett wells, with drilling expected to begin later in August and completions planned in the first quarter of 2027. Meanwhile, a Woodford appraisal well in which Epsilon elected not to participate has been drilled and was scheduled for completion later in August. Stabell said a successful result could expand Epsilon’s future drilling inventory and opportunities beyond the Barnett formation.

In Pennsylvania, second-quarter Marcellus production was affected by planned temporary curtailments tied to operating-pressure adjustments on the gathering system. Stabell said the company and its operator have sought to maximize output during periods of stronger Appalachian gas prices while curtailing production during weaker pricing periods.

The gathering-system changes are intended to accommodate newly drilled wells expected to begin producing late in the fourth quarter. Clanton said completion operations on five previously drilled wells, representing 0.4 net wells to Epsilon, are planned for the second half of the year. First production is anticipated in December and is forecast to add 6.5 million cubic feet per day net. Four of the wells are expected to raise throughput on the Auburn system by roughly 80 million to 90 million cubic feet per day at initial completion.

Capital spending and balance-sheet plans

Williamson said Epsilon expects significantly higher capital spending in the third quarter, driven by the high-working-interest Parkman program, Permian drilling activity and facilities construction in Converse County. More than half of the company’s full-year capital spending is not expected to contribute to results until the fourth quarter, while more than one-third is expected to begin contributing next year.

To prepare for the investment increase, Epsilon sold a non-core Marcellus overriding royalty interest and reduced its interest in the Parkman development, while retaining more than a 70% interest in the project. Williamson said the company could use future interest sell-downs as a tool to manage its capital program, though it has no definitive plans to do so in 2027.

Epsilon reduced debt by $10 million during the first half of 2026. The company expects to use its revolving credit facility to partially fund the upcoming investment ramp but said it is comfortable maintaining its target leverage level of 1.5 times EBITDA.

Looking toward 2027, management said it expects development activity to exceed 2026 levels across the Powder River Basin, Permian Basin and Marcellus portfolio, subject in part to final plans from operating partners. Stabell said Epsilon expects to provide full-year 2027 guidance in the first quarter of next year before reporting year-end 2026 results.

About Epsilon Energy (NASDAQ:EPSN)

Epsilon Energy (NASDAQ: EPSN) is an independent exploration and production company specializing in the acquisition, development and production of unconventional and conventional oil and natural gas properties. Originally founded as Brewster Energy in 2002 and rebranded to Epsilon Energy in 2011, the company pursues a disciplined approach to resource development, leveraging its technical expertise to optimize well performance and manage operational costs.

The company's core asset base is concentrated in the Appalachian Basin, where it holds acreage in key shale formations across Pennsylvania, West Virginia and Ohio.

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