Epsilon Energy issued its first-ever production guidance, projecting Q3 oil output up 27% sequentially and full-year 2026 oil production nearly triple last year's level.
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Epsilon Energy Ltd. (NASDAQ: EPSN) issued its first-ever production and capital expenditure guidance Tuesday, projecting third-quarter oil output growth of 27% from the second quarter at the midpoint. The company expects full-year 2026 oil production of 640-670 MBbl, roughly triple last year's level.
The guidance reflects wells coming online across three basins after a period of heavy investment. Epsilon spent $8.5 million in capex during the second quarter, completing wells in the Powder River Basin, Marcellus and Permian. The company said recent Niobrara DUCs in the Powder River Basin, put on production in July, are performing above expectations. A Permian well, the ninth in the Ector County project and the first 3-mile Barnett well, came online in June and is performing in line with expectations.
Marcellus production dropped 16% sequentially in the second quarter. The company attributed the decline to a planned suction pressure increase in the Auburn Gas Gathering System during May, which temporarily reduced flow, plus natural well declines. Epsilon owns 35% of the Auburn system, which gathered 7.7 Bcf of gas during the quarter, or 85 MMcf/d. The suction pressure lift is meant to increase the system's throughput capacity for future development.
Powder River Basin production fell 11% quarter over quarter on field optimization work and offset completions. Permian production was flat, with new well volumes offsetting declines.
The company sold certain overriding royalty interests on 940 gross acres in Susquehanna County, Pennsylvania in May for $3.9 million. The buyer, an undisclosed private party, paid roughly 6 times expected cash flow from the assets over the next twelve months. The properties represented about 1.5% of Epsilon's trailing twelve-month upstream revenue and 2% of its year-end 2025 proved developed producing reserves.
Epsilon also sold down a 24% interest in a three-well Parkman development in the Powder River Basin in July, receiving $1.1 million upfront. The company now holds 72% of those wells, which began drilling in June. Separately, Epsilon successfully drilled 3 gross (2.1 net) Parkman wells in July, with completions scheduled for the third quarter and production expected in the fourth.
On the balance sheet, Epsilon made a $5 million repayment on its credit facility in April, cutting the outstanding balance by $10 million from year-end 2025 to $40.5 million.
The quarter included $0.8 million of general and administrative costs tied to former Peak employees on transition services contracts. The full-year cost will be about $1.5 million, with $1.3 million incurred in the first half. Those costs will not carry into 2027, the company said.
Epsilon's full-year 2026 production guidance midpoint implies 18% year-over-year growth. The oil component, at a 640-670 MBbl midpoint, represents a 194% jump from 2025. The company said the ramp reflects recent investments beginning to contribute meaningfully to cash flow.
The company plans a conference call Thursday at 10 a.m. Central Time.
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