Epsilon Energy Ltd. (NASDAQ:EPSN) Q4 2023 Earnings Call Transcript March 21, 2024

Epsilon Energy Ltd.  isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, everyone, and welcome to the Epsilon Energy Fourth Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After the today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note, today's event is being recorded. At this time, I'd like to turn the floor over to Andrew Williamson, Chief Financial Officer. Please go ahead.

Andrew Williamson: Thank you, operator. And on behalf of the management team, I'd like to welcome all of you to today's conference call to review Epsilon's full year and fourth quarter 2023 financial and operational results. Before we begin, I'd like to remind you that our comments may include forward-looking statements. It should be noted that a variety of factors could cause Epsilon's actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. Today's call may also contain certain non-GAAP financial measures. Please refer to the earnings release that we issued yesterday for disclosures on forward-looking statements and reconciliations of non-GAAP measures. With that, I'd like to turn the call over to Jason Stabell, our Chief Executive Officer.

Jason Stabell: Thank you, Andrew. Good morning, and thank you for participating in our 2023 year end conference call. Joining me today are Andrew Williamson, our CFO; and Henry Clanton, our COO. We will be available to answer questions later in the call. 2023 was a year of transition for Epsilon. Natural gas transitioned from the strongest market in recent memory in 2022 to an oversupplied market in 2023 that saw prices hit multiyear lows. Despite these headwinds, our business is in a strong position. Through two transactions closed in 2023, we added a new core area in the Permian Basin, giving us a multiyear investment runway and oil exposure. We also continued our track record of shareholder returns, all while maintaining a strong balance sheet.

The rewards of this strategy transition now sit largely in front of us. So what do we like about our business? We own high quality assets in two premier basins that produce strong operating cash flows and have runways for multiyear growth. Our forward revenues will be more diversified to provide our shareholders with exposure to both natural gas and oil alongside the fee-based income from our midstream position. The combination of these attributes is unique in the small-cap public energy space. Now I'd like to offer some comments on a few key areas. First, I would like to discuss our current view of the Marcelus assets. The North American natural gas markets remain oversupplied. The short-term fundamentals of natural gas have concerned us for the last 18 months and similar to 2023, we have taken defensive action for 2024 with our hedging program.

However, we are starting to see changes that set the stage for a recovery in the next 12 months. Recently announced production deferrals and reductions to 2024 CapEx by larger operators are positives. As I like to say, it is never the punch you see that knocks you out. So we don't know what surprises the future holds, but we do know we have production and inventory in one of the lowest cost gas basins in the world. At current production levels, our remaining reserve life is over 25 years. We are also partnered with one of the premier natural gas operators in North America. So we enjoy the benefits provided by their scaled business. Although, I can't provide precise timing, our belief in the long-term fundamentals of natural gas makes us feel confident that our Marcelus asset will be a major contributor for many years at levels meaningfully above our 2023 performance.

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