Epsilon Energy Ltd.
TSX : EPS

Epsilon Energy Ltd.

March 30, 2012 08:33 ET

Epsilon Energy Ltd. Releases 2011 Results

CONCORD, ONTARIO--(Marketwire - March 30, 2012) - Epsilon Energy Ltd. ("Epsilon") (TSX:EPS) is pleased to announce its 2011 year-end results. Epsilon will file its annual audited consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the years ended December 31, 2011 and 2010 and its Annual Information Form, which includes disclosures and reports relating to reserves data and other oil and gas information pursuant to National Instrument 51-101 "Standards of Disclosure for Oil and Gas Activities of the Canadian Securities Administrators" by March 30, 2012. Copies of these documents will be available on Sedar at www.sedar.com or on Epsilon's website at www.epsilonenergyltd.com.

EPSILON ENERGY LTD. HIGHLIGHTS ($'000)

2011 2010
Revenues $ 9,849 $ 14,753
Gain on farmout agreement 49,027 -
Cost of operations 11,111 11,443
Gain (loss) on sale of assets (114 ) (35 )
Other income (loss) 50 88
Asset impairments 42,785 296
Income tax recovery 14,287 -
Net income (loss) $ 19,202 $ 3,067
Net assets $ 107,969 $ 83,910,179
Net income (loss) per share, basic $ 0.39 $ 0.06

NET INCOME COMPARED TO OPERATING INCOME ($'000)

2011 2010
Net income $ 19,202 $ 3,067
Add (deduct) non-operating items
Gain on farmout agreement (49,027 ) -
Loss on sale of assets 114 35
Impairment of property, plant and equipment 42,785 296
Operating Income $ 13,074 $ 3,398
Operating Income - per share $ 0.26 $ 0.07

Operating income is not a recognized performance measure under GAAP and does not have a standardized meaning prescribed by GAAP. The term "operating income" is defined as net income excluding the impact of gain on the sale of assets, farmout agreement, impairment on property, plant and equipment and losses. Epsilon believes that adjusting net income for these non-operating items presents a better measure of financial performance that is more comparable between years.

For the year ended December 31, 2011, Epsilon generated net income from continuing operations of $13.1 million, and EBITDA of $9.8 million. Net production in 2011 totaled 8.0 BCFE, an increase of 166% from 3.01 BCFE in 2010.

Epsilon made tremendous progress in 2011 towards the development of its Marcellus Shale assets in Pennsylvania. Drilling and completion activity increased significantly throughout the year. Chesapeake, as operator, drilled 51 gross wells (13.7 net) and brought 14 gross (3.1 net) wells online. As of December 31, 2011, the Corporation had participated in the drilling of 76 wells. This figure includes the eight wells and one well drilled by Epsilon and Chesapeake, respectively, prior to the Farmout Agreement. At year end December 31, 2011, 14.1 gross JV wells, (3.1 net) produced at a combined gross exit rate of 82.0 Mmcf per day (17.5 net Mmcf per day).

By a press release dated January 23, 2012, Epsilon announced that net production in Pennsylvania had reached 28.0 Mmcf per day. Subsequent to the press release, Chesapeake brought online an additional 7 gross (1.1 net) JV wells. As of March 28, 2012, Epsilon is producing 34.0 Mmcf per day from 29 gross (6.5 net) JV wells.

Epsilon intends to bring additional wells online in 2012 that have already been frac'd. However, the pace of any additional drilling and frac'ing of wells in Pennsylvania will be predicated upon the market price for natural gas and the discretion of the managements of both Epsilon and Chesapeake.

In regards to the Auburn gas gathering system ("Auburn GGS") of which Epsilon owns 35%, Epsilon is pleased to announce that gas began free flowing through the Auburn compressor station to TGP on March 14, 2012. Gross JV production within the gathering area is approximately 159.1 Mmcf per day as of March 28, 2012; however, system throughput will be limited to 100 Mmcf per day until additional dehydration units are installed. Production in excess of the current Auburn GGS capacity will be transported to market via the adjacent Rome gas gathering system until the additional dehydration units are operational.

With respect to reserves, a year over year comparison is as follows:

EPSILON'S NET REMAINING RESERVES AS OF DECEMBER 31, 2011

2011 2010
Proved (BCFE) 72.5 86.6
Probable (BCFE) 17.0 14.1
Total Proved + Probable (BCFE) 89.5 100.7

At December 31, 2011, 99% of total proved and probable reserves are attributable to Epsilon's Marcellus Shale project in Susquehanna County.

In 2011, Epsilon continued its oil exploration program in Canada with partner Spartan Oil Corporation. On the leasehold near Torquay, the Corporation drilled a vertical well, the 16-19-03-11W2M, targeting the Midale dolomite, which tested at an initial rate of 262 BOPD and is currently on production. On April 11, 2011, the Corporation further acquired prospective Bakken oil play interests in approximately 5,760 gross (2,880 net) acres for $.72 million jointly with Spartan Oil Corporation via a competitive bid at the Saskatchewan crown lease sale. In late 2011, the Corporation commenced a 6 well program of vertical and horizontal wells at Torquay targeting the Midale dolomite.

On the leasehold near Ceylon, the Corporation conducted a 3D seismic survey in 2011 which revealed multiple Bakken shale and Midale dolomite structures with closure. The Corporation drilled its second well, a horizontal offset to the original vertical discovery well, in late 2011. This well, the 3-31-6-18W2M, also targeted the Bakken formation. Epsilon plans to drill three additional wells in Ceylon in 2012.

Epsilon continues to solicit industry partners to assist with the stimulation of the 27-3H well targeting the Brown Dense Formation in Mississippi and to participate in the subsequent development of this asset. Epsilon is encouraged by the level of interest and will provide an update when an arrangement is finalized.

Zoran Arandjelovic, Epsilon's Executive Chairman, CEO and President stated: "2011 was a crucial year for Epsilon. We exited the year with record gas production and a substantial ownership position in a very valuable midstream system. In early 2012, our production continued to build to 34 Mmcf per day net to Epsilon. We are actively seeking a JV partner for our Mississippi project and have been pleasantly surprised with the high level of interest that we have generated among E&P companies for this project. In Saskatchewan, we have accumulated a lot of data points from our drilling program. We are in the process of consolidating this information and, together with our partner, determining the best way forward. We strongly believe that we will see substantially higher natural gas prices in the future which will have a dramatic effect on our cash flow. The best days for Epsilon are clearly ahead of us."

Epsilon Energy Ltd. is engaged in the exploration and production of natural gas reserves. The Corporation also has participating interests and production sharing agreements in other natural gas and oil plays within North America and Africa. Established in 2005, the Corporation has been a producer of natural gas and oil since 2006. Epsilon's ongoing business strategy involves focused targeting of lower risk natural gas properties within the Marcellus Shale and other parts of Canada and the United States, as well as the high potential oil & gas properties in Africa.

Forward-Looking Statements

Certain statements contained in this news release constitute forward looking statements. The use of any of the words "anticipate", "continue", "estimate", "expect", 'may", "will", "project", "should", 'believe", and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements are based on reasonable assumption but no assurance can be given that these expectations will prove to be correct and the forward-looking statements included in this news release should not be unduly relied upon.

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 Energy Ltd. (the "Corporation") that such securities may not be offered, sold, or otherwise transferred only (A) to the Corporation 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.

Contact Information