Epsilon Posts Adjusted Q2 Loss, Issues First Oil Guidance Pointing to 194% Output Jump

Epsilon Energy Ltd. (NASDAQ: EPSN) reported an adjusted net loss for the second quarter after correcting an earlier release, then issued its first-ever production and capital guidance that targets a near-tripling of oil output this year.

The correction moved adjusted net income to negative $815,000, or minus 3 cents a share, from the previously stated positive $1.6 million, or 5 cents. The company said the change came from reclassifying asset-sale proceeds out of other income and into gain on asset sales, to match the definition of adjusted net income. Reported earnings under GAAP were unaffected.

Operational momentum built through the first half gave management enough confidence to lay out a full-year plan. At the midpoint, Epsilon expects oil production of roughly 1,800 barrels a day in 2026, with third-quarter oil output rising more than 25% sequentially. The ramp reflects recent investments in the Powder River Basin and the Permian that are just starting to contribute.

Third-quarter total production is seen at 3,270 to 3,510 million cubic feet equivalent, a 10% sequential increase at the midpoint. Oil volumes alone should hit 155,000 to 165,000 barrels, up 27% from the second quarter. For the full year, Epsilon targets 13.74 to 14.28 Bcfe total production, an 18% gain year over year, and 640,000 to 670,000 barrels of oil, the 194% surge.

The capital program for the second half centers on completing drilled but uncompleted wells in the Niobrara and finishing a three-well Parkman development in the Powder River Basin, plus participation in Marcellus completions scheduled for the fourth quarter. Epsilon spent $8.5 million in the second quarter.

In the Powder River Basin, Epsilon completed two gross (0.7 net) Niobrara DUCs in early July. The wells came on line and are performing above expectations, the company said. Separately, three gross (2.1 net) Parkman wells were drilled in July, with completions planned for the third quarter and production starting in the fourth quarter.

Marcellus production fell 16% quarter over quarter, partly because of a planned suction pressure increase in the Auburn Gas Gathering System in May that temporarily lowered throughput. Epsilon owns 35% of the system, which gathered 7.7 Bcf gross during the quarter, or 85 MMcf a day. The pressure uplift should increase capacity for future development. The company also participated in drilling five gross (0.4 net) Marcellus wells in April, expected to be completed in the fourth quarter with production online in December.

Permian production was flat quarter over quarter. Epsilon completed one gross (0.25 net) well in the Ector County project, the first three-mile Barnett well, which came on line in June and is performing as expected.

In May, Epsilon closed the sale of certain overriding royalty interests in Susquehanna County, Pennsylvania, for $3.9 million to an undisclosed private buyer. The assets covered 940 gross acres and 90 producing Marcellus wells with an average net revenue interest of 0.25% per well. The consideration represented about six times expected cash flow from the assets over the next 12 months, and the assets accounted for roughly 1.5% of trailing twelve-month upstream revenue and 2% of year-end 2025 proved developed producing reserves.

In July, the company sold down a 24% interest in the three-well Parkman development in exchange for a $1.1 million upfront payment, reducing its third-quarter capital outlay. Epsilon now holds a 72% interest in those wells.

Epsilon also made a $5 million repayment on its credit facility in April, bringing the balance down to $40.5 million from $50.5 million at year-end 2025.

One-time costs tied to former Peak employees on transition services contracts totaled $0.8 million in the quarter, with $1.3 million incurred in the first half. The full-year cost will be roughly $1.5 million and will not carry into 2027.

Epsilon's production growth trajectory mirrors a broader trend among small- and mid-cap E&P companies that are reinvesting cash flow into high-return oil projects, particularly in the Powder River Basin and Permian. Diamondback Energy recently raised its 2026 output view by 4% and flagged a power project, a sign that operators with quality inventory are willing to spend on development. Epsilon's guidance implies a capital efficiency that could attract attention from investors scanning for growth stories in the energy space.

The company will hold a conference call Thursday at 10 a.m. Central Time to discuss the results and outlook.