Epsilon Energy this week reported an investment in Ector County, Texas with material follow-on development opportunities.

Epsilon is pleased to announce entering into a second drilling focused transaction in the Permian Basin. The acquired assets are a 25% working interest in 12,373 gross acres located in Ector County, Texas on the Central Basin Platform, operated by a Midland-based private operator.

The position is on an emerging Mississippian play proximal to several other active public and private operators. The Company will participate in the drilling and completion of 2 gross wells (0.5 net), both 10,000’ laterals, over the remainder of 2023 (the first well is already drilled, first production from both wells is estimated for the fourth quarter of 2023).

Epsilon signed definitive agreements to acquire a 25% working interest in a 1,297 acre unit and a 25% working interest in a 11,076 acre position, both in the same play alongside the same operator. Drilling activity is expected to commence on the 11,076 acreage position in 2024. Initial plans call for an additional 2-4 gross wells (0.5-1 net) in 2024 with plans expected to be finalized later this year. At an initial assumption of 2 wells per section spacing, this adds 20 gross (5 net) potential development locations to the Company’s inventory.

The 1,297 acre unit interest has already closed and the second 11,076 acre position interest is planned to close within 30 days.

Recent offset well results from multiple operators have been encouraging. Below is a summary of the Company’s estimated productivity of a Mississippian Barnett well:

Estimated productivity of a Mississippian Barnett well

The total consideration net to Epsilon for the transaction, including 2023 capital expenditures, is approximately $14 million.

This transaction, along with the recently announced participation in Eddy County, NM, have a combined 2023 cash outlay of approximately $16.5 million (approximately 20% of the Company’s cash, short term investments, and available borrowing capacity total at March 31, 2023, which excludes any cash flow contributions 2Q-4Q23).

The Company expects these investments will contribute to the Company’s production, revenue, and cash flow starting in the second half of 2023.

Jason Stabell, Epsilon’s Chief Executive Officer, commented, 
“We are excited to announce our second new development-focused transaction in the Permian Basin. These investments add liquids to our production mix and the potential for a significant future investment runway in the Ector County project with a well-aligned and basin focused operator.

The transactions allow us to invest a manageable portion of our liquidity at attractive rates of return, while preserving our strong balance sheet, and maintaining capital allocation flexibility for additional deals and continued shareholder returns.”

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