Epsilon Energy Ltd.

Good morning and welcome to the Epsilon Energy third quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Andrew Williamson, Chief Financial Officer. Please go ahead.

Thank you, operator, and on behalf of the management team, I would like to welcome all of you to today's conference call to review Epsilon's third 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.

Thank you, Andrew. Good morning to everyone, and thank you for participating in the Epsilon Energy Third Quarter 2023 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. Our press release and 10Q posted yesterday provide details on our business results. Today I'd like to discuss several key highlights since our last quarterly release in August. First, and most importantly, we are excited about our recent and planned near-term development investments in Pennsylvania and Texas. Alongside our operating partners, we're planning a more robust CapEx budget for the next 12 months relative to the last few years, which will add significant volume growth in both liquids and natural gas. We are already underway in Pennsylvania, having recently elected to participate in seven wells. Henry can add more detail here. In Texas, we've recently completed our first two wells, and activity will continue in 2024 on our large contiguous leasehold position that we acquired earlier this year. This approximately 11,000-acre gross position, where we hold a 25% interest, sits in close proximity to the two recently drilled and completed wells. Our 2024 plans will begin to unlock the value potential of this large asset. We have hedged a portion of our natural gas production for the next 12 months and will monitor the oil market to potentially do the same with a portion of the crude volumes coming on in the Permian. Finally, we continue to prioritize shareholder returns through our well-supported dividend and opportunistic share purchases. These returns totaled over $4 million for the quarter, including a $525,000 share purchase at $5 per share in July and our $1.4 million quarterly dividend paid in September. Now, I'd like to turn the call over to Andrew and Henry for some more detailed comments on our finances and operations.

Thanks, Jason. As Jason just mentioned, we put on some gas hedges over the last 45 days, swaps for NIMEX Henry Hub and our basis at Tennessee Gas Pipeline Zone 4. Details are included in the press release posted yesterday. We wanted to take some risk off based on potential downside we see to the forward curve and looking ahead to the capital program over the next 12 months. Approximately 25% of our forecasted volumes through October 2024 are hedged. With our balance sheet, we're comfortable with that exposure level at current forward prices. With our first two wells online in Ector County, we would look at hedging a portion of our crude volumes this quarter, depending on forward prices. We're excited about our recent and upcoming drill bit investments. It's shaping up to be one of the most active periods for the company in the last several years. I'll let Henry talk about the operations aspect but the plan is for 15 to 20 million in capex from the fourth quarter of this year through the first half of next year, depending on the pace of development in Ector County. That spend is roughly split evenly between PA and the Permian. All of this will be comfortably funded from our existing cash on hand and cash flow. We expect the associated incremental cash flows to make a meaningful impact starting in the fourth quarter with the first two wells on line in the Permian. We continue to spend a big part of our time on business development, looking for investment opportunities outside of our existing asset base. We would like to add another area to deploy capital but remain disciplined in our evaluation process. Hopefully we will have something to report there next year. Now to Henry for comments on the operations.

Thank you, Andrew. As Jason mentioned earlier, the company is pleased to report our election to participate in seven wells in Pennsylvania over the next nine months. These wells are representative of our inventory and are expected to provide meaningful volume contribution by mid-year. The first three wells have been drilled and are waiting for completion scheduled for Q1 of 2024. The remaining four wells are expected to be drilled by year-end with a completion schedule for the first half of 2024 as well. In our Permian Basin project, the first two appraisal wells have been completed and flowback operations began in mid-October. Preliminary results are encouraging as both wells have achieved peak rates consistent with our type curve expectation in less than 30 days. Plans are now being finalized to drill up to four additional Fraser wells next year. As Jason mentioned, this project has significant runway. We estimate 20 to 30 gross locations and is expected to add meaningfully to the company's liquids mix and cash flows going forward. And finally, All wells that were shut in during the third quarter on the Crumlin pad for medial well work have been returned to production late September. Now back to Jason.

Thanks, guys. Operator, we can now open the line for questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Again, if you have a question, please press star, then 1. Showing no questions, this concludes our question and answer session. I would like to turn the conference back over to Jason Stabell for any closing remarks.

Thank you, Gary, and I want to thank everyone for joining us today for the third quarter call. We look forward to updating you on the progress on these plans, and we hope you have a great Friday and a nice weekend. Thank you. The conference is now concluded.

Thank you for attending today's presentation. You may now disconnect.