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    EPSN
    Earnings call· Jun 2026(Q2 FY26)

    Epsilon Energy Q2 FY26 earnings call EPSN

    Aug 13, 2026 Source

    Executive summary

    Epsilon Energy Q2 FY26 — Strong Execution Drives H2 Production Growth & First-Time Guidance

    Epsilon Energy delivered strong operational execution in Q2 FY26, progressing major development initiatives ahead of schedule and on budget, particularly in the Powder River Basin. This performance enabled the company to issue its first production guidance, forecasting meaningful crude volume growth through H2 FY26. The integration of the Peak acquisition is largely complete, allowing continued focus on capital-efficient growth while maintaining a strong balance sheet.

    Highlights

    5

    • Major operational initiatives progressed on schedule and on budget, particularly in the Powder River Basin.

    • Two Niobrara DUC completions exceeded type curve expectations, achieving peak daily rates in excess of 900 barrels of oil a day from each well.

    • Drilling operations on the 3-well Parkman pad were completed approximately 1 month ahead of plan.

    • The first 3-mile Barnett well in the Permian Basin is performing in line with its pre-drill type curve.

    • Debt balance was paid down by $10 million during the first half of FY26.

    Concerns

    3

    • Q2 FY26 was a trough quarter for production.

    • Marcellus production was impacted by planned temporary curtailments due to operating pressure adjustments.

    • The previously disclosed potential sale of the Durango office building did not close.

    Guidance & targets

    7
    CategoryTargetConfidence
    Production growth
    high teens year-over-year growth in total production
    high materiality
    High
    Oil volume growth
    almost 200% year-over-year growth in oil volumes
    high materiality
    High
    Production growth
    meaningful quarter-over-quarter production growth
    high materiality
    High
    Development activity
    in excess of 2026 expected
    medium materiality
    Medium
    Leverage level
    1.5x EBITDA
    medium materiality
    High
    Marcellus new wells production
    6.5 million cubic foot a day net
    medium materiality
    High
    Marcellus midstream throughput increase
    80 to 90 million cubic foot a day
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Powder River Basin
    Strong execution on acquired operated assets, with Niobrara DUCs exceeding type curve expectations. Parkman pad drilling completed ahead of schedule, representing the biggest contributor to anticipated growth.
    Niobrara DUC completions: 2Niobrara DUCs peak daily rates: >900 bbl/d eachParkman pad wells: 3Parkman pad drilling completion: 1 month ahead of planParkman initial production: Q4 2026 expected
    		————
    Permian Basin
    Successful execution of the first 3-mile Barnett well. Operator has moved up the drilling schedule for two additional Barnett wells. Woodford appraisal well results could expand future drilling inventory.
    Barnett 3-mile lateral wells: 1 placed on flowbackBarnett 3-mile lateral performance: in line with pre-drill type curveAdditional Barnett wells: 2 expected to be drilled H2 2026Additional Barnett wells completion: Q1 2027 scheduledWoodford appraisal well: drilled, completion scheduled later this month
    		————
    Marcellus
    Production impacted by operating pressure adjustments and curtailments. New wells are expected to come online in Q4 2026, adding significant net production and increasing midstream throughput.
    Production impact: planned temporary curtailmentsNew wells drilled: 5 (0.4 net)New wells completion: H2 2026 plannedNew wells first production: December 2026 scheduledNew wells net production: 6.5 MMcf/dAuburn system throughput increase: 80-90 MMcf/d
    		————

    Operational metrics

    5
    Debt balance paid down
    $10 million
    H1 FY26

    Debt reduction during the first half of the year.

    Parkman development working interest
    over 70%down from mid-90s
    Q2 FY26

    Working interest after a sell-down, used as a risk mitigant and capital management tool.

    Compressor downsizing program savings
    $65,000
    Q2 FY26

    Current operating expense savings from compressor downsizing. Total savings expected to exceed $100,000/month by year-end.

    Hedging target
    50%
    Next 18 months

    Target for hedging Proved Developed Producing (PDP) volumes, also a covenant on the credit facility.

    Rig count
    13
    Q2 FY26

    Stable activity in the Powder River Basin area.

    Industry KPIs

    4
    MetricValueDetails
    D c efficiency rig activity1 month ahead of plan
    Pipeline throughput storage80 to 90MMcf/d
    Realized price differential$1.80USD
    Basin level production volume>900bbl/d

    Deals & partnerships

    3
    UndisclosedSale of non-core Marcellus overriding royalty interest

    A non-core Marcellus overriding royalty interest was sold to help fund investments.

    UndisclosedInterest sell-down in Parkman development

    An interest sell-down in the Parkman development reduced Epsilon's working interest from mid-90s to over 70%, providing capital and mitigating risk for the first drilling operation in the basin.

    Larger operatorsDiscussions for shale inventory development partnerships

    Discussions are underway with larger operators in the Powder River Basin to pull forward shale inventory development through acreage swaps or participation in existing infrastructure for cost efficiency. More definitive details are expected next quarter.

    Capital programs

    2
    Converse County Water Supply and Impoundment Facilityunderway
    Start: Q3 2026

    Benefit: 1 million barrel water supply

    Construction expected to begin in Q3. Original design modified to allow for intake and recycling of produced water in the future, reducing water sourcing and processing costs.

    Compressor Downsizing Programunderway
    Spent to date: 16 units replaced

    Benefit: >$100,000/month operating expense savings

    16 compression units replaced to date, currently saving $65,000/month. Total savings expected to exceed $100,000/month by year-end with no decrease to existing production.

    Risks & headwinds

    4
    Q2 production troughQ2 FY26

    Q2 was a trough for production this year

    Mitigation: Anticipate growth from Q3 onwards with new development activity contributing.

    Marcellus production curtailmentsQ2 FY26

    Production impacted by planned temporary curtailments

    Mitigation: Strategic decision to curtail during low-price periods to maximize production in high-demand seasons; new wells coming online in Q4 2026.

    Durango office building sale failureQ2 FY26

    Previously disclosed potential sale of Durango office building did not close

    Mitigation: Expect to reevaluate a potential sale later this year.

    Potential warmer winter (El Niño)Upcoming winter

    Biased warmer based on prior analog years

    Mitigation: Hedging strategy targets 50% of PDP over 18 months using collars for gas; no plans to add protection in excess of this mandate.

    What to watch in Q3 FY26

    5

    H2 2026 Production Growth

    Next quarter (Q3 FY26 results)
    CurrentQ2 FY26 was a production trough
    TargetMeaningful quarter-over-quarter growth, primarily crude volumes from Powder River Basin

    Why it matters

    Verifies the company's ability to execute on its first production guidance and drive anticipated growth.

    We expect to deliver meaningful quarter-over-quarter production growth through the remainder of 2026, primarily driven by crude volumes in the Powder River Basin.

    Q&A highlights

    6

    How should investors think about Epsilon's approach to production guidance for 2027 and beyond, given this is the first time guidance has been provided?

    Management plans to issue full-year 2027 guidance in Q1 2027, before year-end 2026 results, and will refine it throughout the year quarterly.

    “I think the next piece that we'll come out with will be full year '27. And we'll do that, targeting to do that in the first quarter of next year before we post year-end '26 results.”

    asked by Anthony Perala · answered by J. Williamson

    2 min read6 chapters

    Detailed Narrative

    01

    Operational Execution & Integration Success

    Epsilon Energy reported strong execution on its major operational initiatives, progressing on schedule and on budget. The integration of personnel, systems, and field operations following the Peak acquisition is largely complete, allowing the team to remain focused on execution and identifying efficiency improvements. This successful integration has been a key factor in the company's ability to provide production guidance for the second half of 2026.

    02

    Powder River Basin Development Highlights

    In the Powder River Basin, two Niobrara DUC completions were brought online in July, with early production results exceeding type curve expectations, achieving peak daily rates over 900 barrels of oil a day from each well. Drilling operations for the 3-well Parkman pad were completed approximately one month ahead of schedule, with initial production anticipated in the fourth quarter. These Parkman wells are expected to be the biggest contributor to the company's anticipated growth profile.

    03

    Permian Basin Progress and Future Plans

    The first 3-mile Barnett well in the Permian Basin was placed on flowback in June and is performing in line with pre-drill type curve expectations. The operator has accelerated the drilling schedule for two additional Barnett wells, which are now expected to be spudded later this month with completion in Q1 2027. Additionally, a Woodford appraisal well, in which Epsilon did not participate, has been drilled and is scheduled for completion later this month, potentially expanding future drilling inventory.

    04

    Marcellus Operations and Outlook

    Marcellus assets experienced planned temporary curtailments in Q2 due to operating pressure adjustments on the gathering system, impacting production. However, new wells are scheduled to turn in line late in Q4 2026, forecasted to add 6.5 million cubic feet a day net production and increase throughput in the Auburn midstream system by 80 to 90 million cubic feet a day. The company strategically curtails production during low-price periods to maximize output in high-demand seasons.

    05

    Capital Allocation and Balance Sheet Strength

    Epsilon paid down $10 million in debt during the first half of 2026. The company plans to significantly increase capital spending in Q3, utilizing its revolver to partially fund investments like the high-interest Parkman development and Permian drilling. Management expressed confidence in executing these plans while maintaining a target leverage level of 1.5x EBITDA, with over half of the full-year capital spending contributing to results in Q4 and over a third starting next year.

    06

    Strategic Growth and Partnership Discussions

    Looking to FY27, Epsilon plans increased development activity across all three primary areas, with a focus on the Powder River Basin Parkman. The company is actively discussing partnerships with larger operators in the Powder River Basin to cost-efficiently develop shale inventory, potentially through acreage swaps to extend lateral lengths or participation in existing infrastructure. More definitive details on these partnerships are expected in the next quarter.

    AI-generated summary of the company’s earnings call. Not investment advice.