HOUSTON - Epsilon Energy Ltd. (NASDAQ: EPSN), an independent oil and gas exploration and production company, has announced the formation of a joint venture with an undisclosed Calgary-based private operator. The partnership, which was finalized earlier this week, grants Epsilon a 25% working interest in two key areas within the Western Canadian Sedimentary Basin in Alberta, Canada.
The agreement covers approximately 30,000 gross acres in the Garrington area and roughly 130,000 gross acres in the Harmattan area. These lands are targeted for horizontal development of the Glauconitic and Ellerslie formations in Garrington and the Upper Viking formation in Harmattan, both of which are liquids-focused.
Epsilon's investment in the joint venture is structured as a development carry, with up to $12 million CAD allocated for drilling and completion over a set period. The initial commitment involves at least four horizontal wells with 1.5-mile laterals to be drilled and completed from December 1, 2024. The operator retains the option to drill two additional wells starting December 1, 2025, maintaining a minimum 20% working interest throughout this period.
In addition to this new venture, Epsilon entered another joint venture in the Killam area of Alberta back in April 2024. That partnership, with a different Calgary-based operator, saw Epsilon acquire a 50% working interest in 14,000 gross acres. Two wells were drilled in August and September, resulting in one commercial discovery now in production and one prospect that encountered mechanical issues.
The company's CEO, Jason Stabell, expressed enthusiasm for the new project area, which aligns with Epsilon's strategy of investing in drill bit weighted opportunities with attractive returns and potential for further investment. The new venture is expected to more than double the company's leasehold and increase its exposure to liquids.
Epsilon, domiciled in Canada, notes several corporate advantages of establishing a Canadian business, including the ability to transfer funds from its US subsidiaries to the Canadian parent company without incurring US federal withholding taxes, as well as utilizing its large net operating loss position in Canada.
This news is based on a press release statement and provides investors with insights into Epsilon's strategic growth in the Canadian market. The company's primary operations are in the Marcellus basin in Northeast Pennsylvania and the Central Basin Platform in the Permian basin.
In other recent news, Epsilon Energy Ltd. reported mixed results for the second quarter of 2024. The company's Permian assets performed robustly, accounting for half of the quarter's revenue and three-quarters of its cash flow. Despite some wells being offline for a period, the Permian business is projected to experience a sequential increase in volumes for the sixth consecutive quarter. However, the Marcellus operations saw decreased revenues and volumes due to natural declines and continued curtailments.
Roth/MKM recently issued a Buy rating for Epsilon Energy, highlighting the company's consistent capital returns to shareholders. In the past few years, Epsilon Energy has repurchased significant shares and paid substantial dividends, resulting in a total shareholder return of $29.3 million from 2022 to the present.
Finally, Epsilon Energy is actively exploring new opportunities for capital deployment, particularly in Canada. These are the recent developments in the company's operations.
InvestingPro Insights
Epsilon Energy's recent joint venture announcements align well with its strong financial position and growth trajectory. According to InvestingPro data, the company boasts a market capitalization of $131.56 million USD, reflecting its solid standing in the oil and gas exploration sector.
InvestingPro Tips highlight Epsilon's financial strength, noting that it "holds more cash than debt on its balance sheet" and "liquid assets exceed short-term obligations." These factors provide the company with the financial flexibility to pursue growth opportunities like the recently announced joint ventures in Alberta.
The company's profitability is also noteworthy. With a P/E ratio of 24.27 and an adjusted P/E ratio of 26.86 for the last twelve months as of Q2 2024, Epsilon appears to be trading at a reasonable valuation considering its growth prospects. An InvestingPro Tip confirms that the company has been "profitable over the last twelve months," which bodes well for its ability to fund future exploration and development activities.
Investors may also be encouraged by Epsilon's stock performance. The company is "trading near its 52-week high" and has shown a "strong return over the last three months," as indicated by InvestingPro Tips. This positive momentum could reflect market confidence in Epsilon's strategic moves, including the new joint ventures.
For those interested in dividend income, Epsilon offers a dividend yield of 4.08%, which could be attractive to income-focused investors in the energy sector.
These insights from InvestingPro complement the article's focus on Epsilon's expansion in the Canadian market. InvestingPro offers 7 additional tips for Epsilon Energy, providing a more comprehensive analysis for investors looking to delve deeper into the company's prospects.
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