Epsilon Energy Ltd.

TSX : EPS


Epsilon Energy Ltd.

February 04, 2014 18:24 ET

Epsilon Announces Year End 2013 Reserves

HOUSTON, TEXAS--(Marketwired - Feb. 4, 2014) - Epsilon Energy Ltd. ("Epsilon" or the "Company") (TSX:EPS) is pleased to provide the results of its December 31, 2013 independent reserves report, engineering study results as well as a current operational update.

Highlights

  • Dec 2013 Lower Marcellus Well EUR/Reserves Appraisal
    • Dec 2013 Proven and Probable (2P) reserves of 175.3 Bcf
    • Dec 2012 Proven and Probable (2P) reserves of 167.5 Bcf
    • Full Year 2013 Net Production of 13 Bcf
    • 166% Reserve Replacement
    • Average 2P EUR for producing wells estimated at 8.2 Bcf

  • Completed Engineering Study
    • Expect recent completion methods could provide up to a 50% increase in expected EUR/well for the remaining undeveloped (PUD) locations
    • Current 2P PUD reserve appraisal of 84 Bcf based on older completion methods

  • Jan 2014 Upstream and Midstream Snapshot
    • Average Working Interest production of 51+ MMcf/d
    • Average Net Revenue Interest production of 45+ MMcf/d
    • 6 Gross/1.5 Net Wells shut-in to be brought on line in Feb 2014
    • Auburn Midstream Facility averaged approximately 320 MMcf/d

  • Jan 2014 Monthly Revenues of $6.3 MM
    • Sales Gas revenue of $5.4 MM
    • Midstream revenue of $0.9 MM

  • Hedged 30,000 MMBtu/day for 2014 at an average $4.02/MMBtu
    • NYMEX Jan 2014 contract closed at $4.41/MBtu
    • Average Price Realized $3.24/MBtu
    • Effective Jan 2014 basis differential of $1.17/MBtu

  • 2014 Corporate capex guidance of approximately $20 Million
    • Received AFE for expansion of Compression Facilities to 550 MMcf/d, however, construction not yet approved.

Reserves

During the last quarter of 2013 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 National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities and the Canadian Oil and Gas Evaluation Handbook reserves definitions.

The determination of the EUR per well resulted in the following distribution on a per well basis and indicates an average proven plus probable (2P) EUR of approximately 8.2 Bcf per well on existing drilled wells with sufficient historical data to analyze:

2P Gross
Gas EUR/Well
(Bcf)
AVERAGE 8.2
MEDIAN 7.6
MAXIMUM 15.1
MINIMUM 3.2
NUMBER OF WELLS 66

December 31, 2013 Net(*) Reserves Summary

2012 & 2013 Proven (1P) Reserve Comparison
Reserve Category Dec 31, 2012
Reserve Report
Net Gas
(Bcf)
Jan 1 to Dec 31, 2013
Net Gas Sold
(Bcf)
Dec 31, 2013
Reserve Revisions
Net Gas
(Bcf)
Dec 31, 2013
Reserve Report
Net Gas
(Bcf)
Proved 146 -13 +15 148
Probable 21.6 +5.6 27.2
Total 167.5 -13 +21.6 175.2

(*) "Net" means the Company's reserves net of royalties

December 31, 2013 Net Present Value(**) Summary and Comparison to Dec 31, 2012

2013 Reserve Report Summary 2012
Reserve Category (P+P) Locations
(Gross)
Locations
(Net)
Net Gas
(Bcf)
NPV 10
($ MM)
NPV 10
($ MM)
NPV 10
($ MM)
5yr Strip Price
Includes Basis Diffs
$ 3.76
5yr Strip Price
without Basis Diffs
$ 4.27 $ 4.04
Prod (P+P) 73 23 88 $ 133 $ 154 $ 96
Dev (Clean-up) 4 1 4 $ 8 $ 9 $ 13
Undev(P+P) 116 24 84 $ 41 $ 56 $ 82
Total 193 48 176 $ 182 $ 219 $ 191

(**) Forecast pricing based on NYMEX strip pricing as at December 31, 2013

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

We are pleased with the progress that has been made within the company on a number of fronts. First, as discussed in prior releases, our operating cost structure has been substantially reduced. We anticipate that the company's G&A costs will be less than $1.9 MM in 2014, versus a normalized (before extraordinary items) $3.6 MM in 2013. Second, we have devoted significant efforts to the evaluation of the company's proven reserves and reserve potential. Our operating partner is now implementing a completion design which should materially enhance recovery from all of our PUD locations. Accordingly, we anticipate that the company's true reserve potential for its lower Marcellus assets will become more apparent in 2015 and should meaningfully exceed our current bookings assuming gas prices remain constructive. Third, we are very pleased with the growth potential in our Midstream Asset. We are currently in discussions with our operating partners to meaningfully expand the gathering system capacity from current levels of 330 MMcf/d to 550 MMcf/d, in response to demand for incremental gathering services in our operating area.

During the month of January, 2014 the Company accepted the resignation of Ramik Arandjelovic from the Board.

About Epsilon Energy Ltd.

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

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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