Epsilon Energy Ltd. (EPSN) Bundle
Understanding Epsilon Energy Ltd. (EPSN) Revenue Streams
Understanding Epsilon Energy Ltd.’s Revenue Streams
The revenue streams of Epsilon Energy Ltd. primarily consist of natural gas, oil, natural gas liquids (NGL), and gas gathering and compression services. For the three months ended September 30, 2024, the breakdown of revenues is as follows:
| Revenue Source | Q3 2024 Revenue | Q3 2023 Revenue | Percentage Change |
|---|---|---|---|
| Gas, Oil, NGL, and Condensate Revenue | $6,203,953 | $3,241,531 | 92% |
| Gas Gathering and Compression Revenue | $1,083,988 | $3,068,996 | (65.4%) |
| Total Revenue | $7,287,941 | $6,310,527 | 15.4% |
For the nine months ended September 30, 2024, the revenues were:
| Revenue Source | 9M 2024 Revenue | 9M 2023 Revenue | Percentage Change |
|---|---|---|---|
| Gas, Oil, NGL, and Condensate Revenue | $18,118,368 | $14,509,184 | 24.1% |
| Gas Gathering and Compression Revenue | $4,464,134 | $7,657,755 | (41.1%) |
| Total Revenue | $22,582,502 | $22,166,939 | 1.9% |
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate shows a significant increase in the revenue from gas, oil, and NGL, while gas gathering and compression revenue experienced a decline. The overall revenue growth rate for the third quarter of 2024 compared to the same quarter in 2023 was approximately 15.4%.
Contribution of Different Business Segments to Overall Revenue
In Q3 2024, the contributions to total revenue were:
- Gas, Oil, NGL, and Condensate Revenue: 85.1%
- Gas Gathering and Compression Revenue: 14.9%
For the nine-month period, the contributions were:
- Gas, Oil, NGL, and Condensate Revenue: 80.2%
- Gas Gathering and Compression Revenue: 19.8%
Significant Changes in Revenue Streams
During the nine months ended September 30, 2024, the company’s gas, oil, and NGL revenues increased by 24.1%, reflecting improved production rates and realized prices. Conversely, gas gathering and compression revenue decreased by 41.1% due to reduced activity levels and changes in customer contracts.
The realized prices for various segments were:
- Permian Basin: $54.19 per Boe (90% liquids), a 16% increase year-over-year.
- Oklahoma Production: $4.12 per Mcfe, a 16% decline year-over-year.
- Marcellus Shale: $1.54 per Mcf, a 44% increase year-over-year.
Overall, the revenue analysis indicates a robust performance in certain areas, while challenges remain in gas gathering and compression services, impacting total revenue growth.
A Deep Dive into Epsilon Energy Ltd. (EPSN) Profitability
A Deep Dive into Epsilon Energy Ltd.'s Profitability
Gross Profit Margin: For the nine months ended September 30, 2024, the gross profit was $12,235,000, compared to $18,100,000 for the same period in 2023. This represents a gross profit margin of approximately 40% for 2024, down from 45% in 2023.
Operating Profit Margin: The operating profit for the nine months ended September 30, 2024, was $5,100,000, resulting in an operating profit margin of about 16%. This is a decline from the 20% operating margin reported in the previous year.
Net Profit Margin: The net income for the nine months ended September 30, 2024, was $2,688,577, leading to a net profit margin of 8%, down from 10% for the same period in 2023.
| Metric | 2024 | 2023 | Change |
|---|---|---|---|
| Gross Profit | $12,235,000 | $18,100,000 | -32% |
| Operating Profit | $5,100,000 | $7,000,000 | -27% |
| Net Income | $2,688,577 | $4,349,191 | -38% |
Trends in Profitability: The profitability metrics indicate a downward trend in gross, operating, and net profit margins over the past year. The gross profit margin fell from 45% to 40%, and the operating margin decreased from 20% to 16%. The net profit margin also declined from 10% to 8%.
Comparison with Industry Averages: The average gross profit margin for the oil and gas industry is approximately 50%, while the average operating profit margin is around 20%. The net profit margin for the industry is roughly 10%. Epsilon's margins remain below these industry averages, suggesting room for improvement.
Operational Efficiency Analysis
Cost Management: General and administrative expenses decreased by 11% in 2024 compared to 2023, totaling $5,431,081 for the nine months ended September 30, 2024. This indicates effective cost management despite declining revenues.
Gross Margin Trends: The gross margin decreased due to higher operational costs and lower realized prices for natural gas. The realized natural gas price was $1.54 per Mcf for the three months ended September 30, 2024, compared to $1.07 per Mcf for the same period in 2023, reflecting a 44% increase, but overall production volumes decreased.
Operational Efficiency Metrics: The company’s operational efficiency can be gauged through its cost per barrel of oil equivalent (Boe). For the nine months ended September 30, 2024, the production cost per Boe was approximately $25.00, compared to $18.00 per Boe in 2023, reflecting a 39% increase.
| Efficiency Metric | 2024 | 2023 | Change |
|---|---|---|---|
| General and Administrative Expenses | $5,431,081 | $5,959,906 | -11% |
| Production Cost per Boe | $25.00 | $18.00 | +39% |
Debt vs. Equity: How Epsilon Energy Ltd. (EPSN) Finances Its Growth
Debt vs. Equity: How Epsilon Energy Ltd. Finances Its Growth
Overview of Debt Levels
As of September 30, 2024, Epsilon Energy Ltd. reported total liabilities amounting to $23,438,493. This includes both long-term and short-term debt. The company has no outstanding borrowings under its credit agreement, which has a current commitment and borrowing base of $45 million.
Debt-to-Equity Ratio
The debt-to-equity ratio for Epsilon Energy Ltd. stands at 0.238, calculated from total liabilities of $23.4 million and total shareholders' equity of $98.4 million as of September 30, 2024. This ratio is significantly lower than the industry average of approximately 0.5, indicating a conservative approach towards leveraging.
Recent Debt Issuances and Credit Ratings
There have been no recent debt issuances in 2024. Epsilon Energy Ltd. operates under a senior secured reserve-based revolving credit facility, which was closed on June 28, 2023. The facility has a maturity date of June 28, 2027, and interest is charged at a rate of Daily Simple SOFR plus a margin of 3.25%.
Balancing Debt Financing and Equity Funding
Epsilon Energy Ltd. emphasizes a balanced approach between debt and equity funding. The company has a working capital surplus of $7.5 million as of September 30, 2024, which reflects its liquidity position and ability to meet short-term obligations. The company also repurchased 248,700 shares at an average price of $4.82 during the nine months ended September 30, 2024, showcasing its commitment to returning value to shareholders.
| Financial Metric | Value |
|---|---|
| Total Liabilities | $23,438,493 |
| Total Shareholders' Equity | $98,358,664 |
| Debt-to-Equity Ratio | 0.238 |
| Current Commitment (Credit Facility) | $45,000,000 |
| Interest Rate on Credit Facility | SOFR + 3.25% |
| Working Capital Surplus | $7,500,000 |
| Shares Repurchased (2024) | 248,700 |
| Average Buyback Price | $4.82 |
Assessing Epsilon Energy Ltd. (EPSN) Liquidity
Assessing Epsilon Energy Ltd.'s Liquidity
Current and Quick Ratios
As of September 30, 2024, Epsilon Energy Ltd. reported a current ratio of 1.0. This indicates that the company has sufficient current assets to cover its current liabilities. The quick ratio, which excludes inventory from current assets, is also approximately 1.0, suggesting a stable liquidity position without dependence on inventory liquidation.
Analysis of Working Capital Trends
At September 30, 2024, Epsilon had a working capital surplus of $7.5 million, which reflects a decrease of $25.7 million from the $33.2 million surplus reported on December 31, 2023. This decline in working capital is significant and indicates a tightening liquidity situation, despite the company’s ability to meet its short-term obligations.
Cash Flow Statements Overview
The cash flow statements for the nine months ended September 30, 2024, reveal the following:
| Cash Flow Type | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Operating Activities | $11.8 | $14.4 |
| Investing Activities | ($11.0) | ($37.1) |
| Financing Activities | ($5.9) | ($10.1) |
The cash generated from operating activities decreased by 18% year-over-year, while cash used in investing activities saw a significant reduction, indicating improved capital efficiency. The cash outflow for financing activities, primarily for dividends and share repurchases, decreased as well.
Potential Liquidity Concerns or Strengths
Epsilon Energy’s liquidity position is currently supported by its cash balance, short-term investments, and cash flows from operations. The company anticipates that these resources will be sufficient to meet its cash requirements for at least the next twelve months. However, the substantial decrease in working capital and reliance on operating cash flow could pose a risk if market conditions worsen or if operational performance declines.
Is Epsilon Energy Ltd. (EPSN) Overvalued or Undervalued?
Valuation Analysis
The valuation analysis of Epsilon Energy Ltd. (EPSN) involves examining key financial ratios and metrics to determine whether the company is overvalued or undervalued in the current market environment.
Price-to-Earnings (P/E) Ratio
As of September 30, 2024, the P/E ratio for Epsilon Energy is calculated based on a net income of $2,688,577 for the nine months ended September 30, 2024, and a diluted weighted average share count of 22,000,881. This results in a diluted earnings per share (EPS) of:
EPS = $2,688,577 / 22,000,881 = $0.12
Assuming a current stock price of $5.00, the P/E ratio would be:
P/E Ratio = Stock Price / EPS = $5.00 / $0.12 = 41.67
Price-to-Book (P/B) Ratio
The book value of Epsilon Energy as of September 30, 2024, is $98,358,664, with 21,973,687 shares outstanding. Thus, the book value per share is:
Book Value per Share = $98,358,664 / 21,973,687 = $4.48
With a stock price of $5.00, the P/B ratio is:
P/B Ratio = Stock Price / Book Value per Share = $5.00 / $4.48 = 1.12
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value (EV) is calculated as follows:
- Market Capitalization: Stock Price × Shares Outstanding = $5.00 × 21,973,687 = $109,868,435
- Total Debt: $0 (no borrowings under the credit facility)
- Cash and Cash Equivalents: $7,500,000
Thus, the enterprise value is:
EV = Market Capitalization + Total Debt - Cash = $109,868,435 + $0 - $7,500,000 = $102,368,435
Adjusted EBITDA for the nine months ended September 30, 2024, is $12,242,564. Therefore, the EV/EBITDA ratio is:
EV/EBITDA = EV / Adjusted EBITDA = $102,368,435 / $12,242,564 = 8.36
Stock Price Trends
Over the last 12 months, the stock price of Epsilon Energy has fluctuated as follows:
- 12 months ago: $3.50
- 6 months ago: $4.00
- Current Price: $5.00
This indicates a price increase of approximately 42.86% over the year.
Dividend Yield and Payout Ratios
Epsilon Energy has declared dividends totaling $1,370,409 for the nine months ended September 30, 2024. With a current stock price of $5.00, the dividend yield is:
Dividend Yield = Annual Dividend / Stock Price = $1,370,409 / (21,973,687 × $5.00) = 0.0124 or 1.24%
The payout ratio based on the net income for the nine months is:
Payout Ratio = Dividends / Net Income = $1,370,409 / $2,688,577 = 0.51 or 51%
Analyst Consensus on Stock Valuation
As of the latest reports, analysts have provided the following consensus ratings for Epsilon Energy:
- Buy: 3 analysts
- Hold: 1 analyst
- Sell: 0 analysts
| Valuation Metric | Value |
|---|---|
| P/E Ratio | 41.67 |
| P/B Ratio | 1.12 |
| EV/EBITDA | 8.36 |
| Stock Price (Current) | $5.00 |
| Dividend Yield | 1.24% |
| Payout Ratio | 51% |
| Analyst Consensus (Buy/Hold/Sell) | 3/1/0 |
Key Risks Facing Epsilon Energy Ltd. (EPSN)
Key Risks Facing Epsilon Energy Ltd.
Overview of Internal and External Risks:
The financial health of Epsilon Energy Ltd. is influenced by various internal and external risk factors. Key risks include:
- Industry Competition: The energy sector is highly competitive, with numerous companies vying for market share, which can pressure pricing and margins.
- Regulatory Changes: Changes in environmental regulations and energy policies can impact operational costs and project viability.
- Market Conditions: Fluctuations in oil and gas prices directly affect revenue and profitability. For example, Epsilon’s realized natural gas price was $1.54 per Mcf in Q3 2024, a 44% increase year-over-year, yet a decrease of 8% for the nine months ended September 30, 2024 compared to the same period in 2023.
Operational, Financial, or Strategic Risks:
Recent earnings reports highlight several operational and financial risks:
- Production Decrease: Epsilon experienced a 32% decrease in natural gas production in Q3 2024, with a total of 1.2 Bcf compared to 1.7 Bcf in Q3 2023. For the nine months ended September 30, 2024, production decreased by 33%.
- Debt Obligations: The company closed a senior secured reserve-based revolving credit facility with a commitment of $45 million. The interest is charged at the Daily Simple SOFR rate plus a margin of 3.25%.
- Cash Flow Variability: The company generated $11.8 million from operating activities in the nine months ended September 30, 2024, a decrease of 18% from $14.4 million in the same period of 2023.
Mitigation Strategies:
To address these risks, Epsilon has implemented several strategies:
- Hedging Strategies: The company engages in derivative contracts to mitigate price fluctuations. For example, Epsilon recognized gains on commodity derivative contracts of $440,712 in Q3 2024.
- Operational Efficiency: Continuous evaluation of operational processes to enhance efficiency and reduce costs, especially in high-cost environments.
| Risk Factor | Description | Impact on Financials |
|---|---|---|
| Industry Competition | Numerous competitors in the energy sector | Pressure on pricing and profit margins |
| Regulatory Changes | Changes in environmental regulations | Potential increase in operational costs |
| Market Conditions | Fluctuations in oil and gas prices | Direct impact on revenue and profitability |
| Production Decrease | 32% decrease in natural gas production | Lower revenue generation |
| Debt Obligations | Secured credit facility of $45 million | Interest obligations could strain cash flow |
| Cash Flow Variability | Decrease in cash generated from operations | Potential liquidity issues |
Future Growth Prospects for Epsilon Energy Ltd. (EPSN)
Future Growth Prospects for Epsilon Energy Ltd.
Analysis of Key Growth Drivers
The company is focusing on key growth drivers such as strategic acquisitions and market expansions. In February 2024, Epsilon Energy Ltd. acquired a 25% working interest in three producing wells and 3,246 gross undeveloped acres in Texas for a total purchase price of $14.8 million. Additionally, in April 2024, the company acquired a 50% working interest in 14,243 gross acres for $1.0 million. Furthermore, a joint venture in October 2024 with a private operator in the Western Canadian Sedimentary Basin will provide a 25% working interest across approximately 160,000 gross acres, contingent on a $7.3 million commitment.
Future Revenue Growth Projections and Earnings Estimates
For the nine months ending September 30, 2024, the company reported total revenues of $22.58 million, a slight increase from $22.16 million in the prior year. The realized natural gas price was $1.60 per Mcf, while the realized price for all production in the Permian Basin reached $53.82 per Boe, reflecting a 14% increase year-over-year. The company anticipates revenue growth driven by increased production and strategic investments in high-potential areas.
Strategic Initiatives or Partnerships That May Drive Future Growth
The new Anchor Shipper Gas Gathering Agreement, effective January 1, 2024, will establish fixed gathering and compression rates, enhancing revenue stability. This agreement includes annual adjustments based on the Consumer Price Index starting in 2025, which may further bolster cash flow. The ongoing exploration and evaluation of new opportunities in North American basins also positions the company for potential growth.
Competitive Advantages That Position the Company for Growth
Epsilon Energy Ltd. benefits from a strong balance sheet with a working capital surplus of $7.5 million as of September 30, 2024. The company's ownership in the Auburn Gas Gathering System, which has historically high levels of recoverable reserves, provides a significant competitive edge. Additionally, the company has a diverse portfolio across various regions, including the Marcellus Shale, Permian Basin, and Anadarko, which mitigates risks associated with market fluctuations.
| Metric | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Natural Gas Production (Bcf) | 1.2 | 1.7 | -32% |
| Total Revenue ($ million) | 7.29 | 6.31 | 15.5% |
| Net Income ($ million) | 0.37 | 0.39 | -5.1% |
| Realized Price for Natural Gas ($/Mcf) | 1.54 | 1.07 | 44% |
| Realized Price for Permian Production ($/Boe) | 54.19 | 46.67 | 16% |
Overall, the strategic initiatives, ongoing investments, and favorable market conditions position the company well for future growth and profitability.
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Resources:
- Epsilon Energy Ltd. (EPSN) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Epsilon Energy Ltd. (EPSN)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Epsilon Energy Ltd. (EPSN)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.