Epsilon Announces and Closes an Acquisition in the Permian Basin
- Epsilon Energy Ltd. closed an additional investment in Ector County, Texas to increase crude oil production.
- The company acquired a 25% working interest in 3 producing wells and 3,246 gross undeveloped acres.
- The total consideration paid for the transaction is $15 million, funded from cash on-hand.
- Plans are in place to drill and complete at least two additional wells in the first half of 2024.
- Epsilon's CEO, Jason Stabell, expressed excitement about the acquisition, noting the positive impact on production mix and cash flows.
- None.
Insights
The recent acquisition by Epsilon Energy Ltd. in the Permian Basin is a strategic move that enhances the company's crude oil production capabilities. Given that the Permian Basin is one of the most prolific oil-producing regions in the United States, this expansion could significantly impact Epsilon's operational output and financial performance. The addition of 25% working interest in producing wells and undeveloped acres indicates a potential for increased reserves and future production growth. The transaction's timing suggests a well-calculated strategy to capitalize on the current market conditions.
The investment of $15 million, funded from cash on-hand, demonstrates Epsilon's strong financial position and commitment to growth without incurring additional debt. This is particularly important as it maintains the company's leverage at manageable levels, which is a positive signal to investors. The expected funding of net capital expenditures for 2024 from project cash-flows also indicates confidence in the project's profitability and cash generating ability.
It's important to note that the current net production from Pradera post-acquisition is over 600 BOEPD (75% oil), which not only diversifies the company's production mix towards liquids but also provides a more favorable revenue stream due to the typically higher market price of oil compared to gas. The successful drilling outcomes from Q4 2023 may be indicative of the asset quality and operational efficiency, which could lead to upward revisions in production forecasts and asset valuations.
From a financial perspective, Epsilon's acquisition in Ector County is significant due to the attractive rate of return on the acquired producing wells and the strategic value of the undeveloped acreage. The deal structure, which leverages existing cash reserves, avoids diluting shareholder value through equity financing or increasing financial risk via additional debt. This approach is commendable as it reflects prudent financial management.
The immediate addition of meaningful liquids to Epsilon's production mix is likely to be well-received by the market, as liquids generally yield higher margins than natural gas. The focus on oil-rich assets could be a response to market demand and pricing forecasts, positioning Epsilon to benefit from favorable commodity pricing trends.
Investors will be interested in the company's forward-looking statements regarding the drilling of at least two additional wells in the first half of 2024. The projected capital expenditures and associated production increases will be key factors in evaluating the long-term value creation of this transaction. The company's ability to execute on these plans without compromising its balance sheet will be crucial for maintaining investor confidence.
The acquisition's implications extend beyond Epsilon's immediate financial and operational metrics. It reflects broader industry trends where companies are consolidating assets within key plays to achieve operational synergies and scale benefits. Epsilon's alignment with its operating partner over an area of over 16,000 gross acres could lead to cost efficiencies and enhanced bargaining power with service providers.
Furthermore, the company's increased presence in the Permian Basin may provide competitive advantages in terms of regional expertise and stakeholder relationships. The strategic positioning within the Central Basin Platform of the Permian Basin is noteworthy, as this area is known for its established infrastructure and stable regulatory environment, which can facilitate expedited development and reduce project risk.
From a market perspective, Epsilon's announcement could signal confidence to the market about the company's growth trajectory and operational capabilities. This may have a positive effect on investor sentiment and the company's stock valuation, provided that the subsequent operational results meet or exceed the initial projections and industry benchmarks.
HOUSTON, Feb. 27, 2024 (GLOBE NEWSWIRE) -- Epsilon Energy Ltd. (“Epsilon” or the “Company”) (NASDAQ: EPSN) today reported and closed an additional investment in Ector County, Texas adding to crude oil production and near-term development.
Epsilon is pleased to announce the closing of a third transaction in the Permian Basin over the last twelve months, and the second with a Midland-based private operator focused on Mississippian development in Ector County, Texas on the Central Basin Platform.
The acquired assets are a
The three producing wells were drilled from Q1 2022 through Q3 2023 and are collectively producing over 1,500 BOEPD gross.
Drilling operations have commenced on a fourth well on the acquired position, a 2.5 mile lateral, offsetting the best performing producing well. Plans are in place to drill and complete at least two additional wells in Pradera in the first half of 2024 (1 of which is partially on the acquired undeveloped acreage).
The effective date for the transaction is March 1, 2024 and the total consideration paid is
The Company expects Pradera net capital expenditures in 2024 (estimated at
Pro forma the acquisition, the Company has current net production of over 600 BOEPD (
Jason Stabell, Epsilon’s Chief Executive Officer, commented, “We are excited to announce this bolt-on acquisition to our existing assets in the Permian Basin. This investment will immediately add meaningful liquids to our production mix and cash-flows through well-established PDP acquired at an attractive rate of return. The deal also has us participating in additional Barnett development in the first half of 2024. The results from the two wells drilled in Q4 2023 on our offset position (acquired in May 2023) have been encouraging, outperforming our initial expectations. We are now fully aligned with our operating partner, with a consistent interest across the project area of over 16,000 gross acres.”
About Epsilon
Epsilon Energy Ltd. is a North American onshore focused independent exploration and production company engaged in the acquisition, development, gathering and production of oil and gas reserves. Our primary areas of operation are the Marcellus basin in Northeast Pennsylvania and the Central Basin Platform in the Permian basin. For more information, please visit www.epsilonenergyltd.com, where we routinely post announcements, updates, events, investor information, presentations, and recent news releases.
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. Forward-looking statements are based on reasonable assumptions, 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.
Contact Information:
281-670-0002
Jason Stabell
Chief Executive Officer
Jason.Stabell@EpsilonEnergyLTD.com
Andrew Williamson
Chief Financial Officer
Andrew.Williamson@EpsilonEnergyLTD.com
FAQ
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