UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2025

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-38770

EPSILON ENERGY LTD.

(Exact name of registrant as specified in its charter)


Alberta, Canada		98-1476367
(State or other jurisdiction of incorporation or organization)		(I.R.S Employer Identification No.)

500 Dallas Street, Suite 1250

Houston, Texas 77002

(281) 670-0002

(Address of principal executive offices including zip code and

telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Shares, no par value	EPSN	NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer ◻	Accelerated filer ◻	Non-accelerated filer ⌧	Smaller reporting company ☒	Emerging growth company ◻

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Yes ☐ No ⌧

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ⌧

As of ~~August~~November 124, 2025, there were 22,~~058~~067,~~574~~213 Common Shares outstanding.

Table of Contents


Contents

FORWARD-LOOKING STATEMENTS		4
PART I-FINANCIAL INFORMATION		5
ITEM 1. FINANCIAL STATEMENTS		5
Unaudited Condensed Consolidated Balance Sheets		5
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income		6
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity		7
Unaudited Condensed Consolidated Statements of Cash Flows		89
Notes to the Unaudited Condensed Consolidated Financial Statements
1.	Description of Business	910
2.	Basis of Preparation	910
	Interim Financial Statements	910
	Principles of Consolidation	910
	Use of Estimates	910
	Recently Issued Accounting Standards	911
3.	Cash, Cash Equivalents, and Restricted Cash	1011
4.	Short Term Investments	1012
5.	Property and Equipment	1112
	Property Impairment	1113
6.	Revolving Line of Credit	1213
7.	Shareholders’ Equity	1214
8.	Revenue Recognition	1315
9.	Accumulated Other Comprehensive Income	1517
10.	Income Taxes	1517
11.	Commitments and Contingencies	1618
12.	Leases	1618
13.	Net Income Per Share	1719
14.	Operating Segments	1719
15.	Commodity Risk Management Activities	2123
	Commodity Price Risks	2123
	Commodity Derivative Contracts	2224
16.	Asset Retirement Obligations	2325
17.	Fair Value Measurements	2325
18.	Subsequent Events	24
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		27
	Overview	27
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		25
	Business Strategy	27
	~~Overview~~Operational Highlights	2528
	~~Business~~Non-GAAP ~~Strategy~~Financial Measures-Adjusted EBITDA	2529
	~~Operational~~Net ~~Highlights~~Operating Revenues	2631
	~~Non-GAAP~~Operating ~~Financial Measures-Adjusted EBITDA~~Costs	2732
	~~Net~~Depletion, ~~Operating~~Depreciation, ~~Revenues~~Amortization and Accretion	2833
	~~Operating~~General ~~Costs~~and Administrative	2933
	~~Depletion,~~Interest ~~Depreciation, Amortization and Accretion~~Income	3034
	~~General~~Interest ~~and Administrative~~Expense	3034
	Gain (Loss) on Derivative Contracts	34

Table of Contents

	~~Interest~~Capital ~~Income~~Resources and Liquidity	3134
	~~Interest~~Cash ~~Expense~~Flow	3134
	~~Gain~~Credit ~~(Loss) on Derivative Contracts~~Agreement	3135
	~~Capital~~Repurchase ~~Resources and Liquidity~~Transactions	3136
	~~Cash~~Derivative ~~Flow~~Transactions	3136
	~~Credit~~Contractual ~~Agreement~~Obligations	3237
	Repurchase Transactions	32
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		37
	~~Derivative~~Gathering ~~Transactions~~System Revenue Risk	3337
	~~Contractual~~Interest ~~Obligations~~Rate Risk	3337
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		33
	Derivative Contracts	38
	Gathering System Revenue Risk	34
ITEM 4. CONTROLS AND PROCEDURES		38
	~~Interest~~Disclosure ~~Rate~~Controls ~~Risk~~and Procedures	3438
	~~Derivative~~Changes ~~Contracts~~in Internal Control Over Financial Reporting	3438
ITEM 4. CONTROLS AND PROCEDURES		34
	Inherent Limitations on Effectiveness of Controls	38
	Disclosure Controls and Procedures	34
PART II OTHER INFORMATION		38
	Changes in Internal Control Over Financial Reporting	34
ITEM 1. LEGAL PROCEEDINGS		38
	Inherent Limitations on Effectiveness of Controls	34
ITEM 1A. RISK FACTORS		38
PART II OTHER INFORMATION		35
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS		39
ITEM 1. LEGAL PROCEEDINGS		35
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		39
ITEM 1A. RISK FACTORS		35
ITEM 4. MINE SAFETY DISCLOSURES		39
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS		35
ITEM 5. OTHER INFORMATION		39
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		35
ITEM 6. EXHIBITS		40
ITEM 4. MINE SAFETY DISCLOSURES		35
SIGNATURES		41
ITEM 5. OTHER INFORMATION		35
ITEM 6. EXHIBITS		36
SIGNATURES		37

Table of Contents

FORWARD-LOOKING STATEMENTS

Certain statements contained in this report constitute forward-looking statements. The use of any of the words ‘‘anticipate,’’ ‘‘continue,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘may,’’ ‘‘will,’’ ‘‘project,’’ ‘‘should,’’ ‘‘believe,’’ and similar expressions and statements relating to matters that are not historical facts constitute ‘‘forward looking information’’ within the meaning of applicable securities laws. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated. Such forward-looking statements are based on reasonable assumptions, but no assurance can be given that these expectations will prove to be correct and the forward-looking statements included in this report should not be unduly relied upon. These statements are made only as of the date of this report. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to natural gas and oil production rates, commodity prices for crude oil or natural gas, supply and demand for natural gas and oil; the estimated quantity of natural gas and oil reserves, including reserve life; future development and production costs, and statements expressing general views about future operating results — are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in our Annual Report on Form 10-K for the year ended December 31, 2024, and those described from time to time in our future reports filed with the Securities and Exchange Commission. You should consider carefully the statements under Item 1A. Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2024. Our Annual Report on Form 10-K for the year ended December 31, 2024 is available on our website at www.epsilonenergyltd.com.

Table of Contents

PART I-FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EPSILON ENERGY LTD.

Unaudited Condensed Consolidated Balance Sheets


	~~June~~September 30,		December 31,
	2025		2024
ASSETS
Current assets
Cash and cash equivalents	$	912,~~907~~766,~~653~~167	$	6,519,793
Accounts receivable		54,~~496~~515,~~883~~199		5,843,722
Fair value of derivatives		~~732~~889,~~528~~187		—
Prepaid income taxes		—		975,963
Other current assets		~~396~~965,~~264~~970		792,041
Total current assets		1619,~~533~~136,~~328~~523		14,131,519
Non-current assets
Property and equipment:
Oil and gas properties, successful efforts method
Proved properties		~~197~~200,~~197~~066,~~902~~005		191,879,210
Unproved properties		33,~~496~~396,~~835~~744		28,364,186
Accumulated depletion, depreciation, amortization and impairment		(~~131~~134,~~899~~181,~~045~~378)		(123,281,395)
Total oil and gas properties, net		9899,~~795~~281,~~692~~371		96,962,001
Gathering system		43,~~416~~540,~~065~~301		43,116,371
Accumulated depletion, depreciation, amortization and impairment		(37,~~057~~271,~~605~~826)		(36,449,511)
Total gathering system, net		6,~~358~~268,~~460~~475		6,666,860
Land		637,764		637,764
Buildings and other property and equipment, net		~~245~~221,~~555~~901		259,335
Total property and equipment, net		106,~~037~~409,~~471~~511		104,525,960
Other assets:
Operating lease right-of-use assets, long term		~~295~~272,~~317~~298		344,589
Restricted cash		470,000		470,000
Prepaid drilling costs		~~277~~4,~~552~~673		982,717
Total non-current assets		107,~~080~~156,~~340~~482		106,323,266
Total assets	$	~~123~~126,~~613~~293,~~668~~005	$	120,454,785

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable trade	$	2,~~018~~963,~~533~~805	$	2,334,732
Gathering fees payable		1978,~~139,057~~890		997,016
Royalties payable		1,~~553~~481,~~262~~520		1,400,976
Income taxes payable		1,~~596~~556,~~958~~724		—
Accrued capital expenditures		~~225~~1,~~923~~605,705		572,079
Accrued compensation		~~465~~726,~~055~~213		695,018
Other accrued liabilities		~~283~~490,~~540~~970		371,503
Fair value of derivatives		—		487,548
Operating lease liabilities		~~121~~120,~~057~~799		121,135
Total current liabilities		79,~~403~~924,~~385~~626		6,980,007
Non-current liabilities
Asset retirement obligations		3,~~764~~822,~~816~~030		3,652,296
Deferred income taxes		1112,~~958~~062,~~901~~053		12,738,577
Operating lease liabilities, long term		~~296~~266,~~250~~263		355,776
Total non-current liabilities		16,~~019~~150,~~967~~346		16,746,649
Total liabilities		2326,~~423~~074,~~352~~972		23,726,656
Commitments and contingencies (Note 11)
Shareholders' equity
Preferred shares, no par value, unlimited shares authorized, none issued or outstanding		—		—
Common shares, no par value, unlimited shares authorized and 22,017,405 shares issued and outstanding at June 30, 2025 and 22,008,766 issued and outstanding at December 31, 2024		116,081,031		116,081,031
Common shares, no par value, unlimited shares authorized and 22,058,574 shares issued and outstanding at September 30, 2025 and 22,008,766 issued and outstanding at December 31, 2024		116,081,031		116,081,031
Additional paid-in capital		1213,~~890~~267,~~583~~196		12,118,907
Accumulated deficit		(38,~~688~~995,~~953~~173)		(41,505,076)
Accumulated other comprehensive income		9,~~907~~864,~~655~~979		10,033,267
Total shareholders' equity		100,~~190~~218,~~316~~033		96,728,129
Total liabilities and shareholders' equity	$	~~123~~126,~~613~~293,~~668~~005	$	120,454,785

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements

Table of Contents

EPSILON ENERGY LTD.

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income

Three months ended ~~June~~September 30,

~~Six~~Nine months ended ~~June~~September 30,

2025

2024

2025

2024

Revenues from contracts with customers:

Gas, oil, NGL, and condensate revenue

97,~~779~~536,~~728~~248

56,~~863~~203,~~370~~953

2431,~~050~~586,~~518~~766

1118,~~914~~118,~~415~~368

Gas gathering and compression revenue

1,~~845~~445,~~005~~211

1,~~444~~083,~~448~~988

35,~~737~~182,~~355~~566

34,~~380~~464,~~146~~134

Total revenue

118,~~624~~981,~~733~~459

7,~~307~~287,~~818~~941

2736,~~787~~769,~~873~~332

1522,~~294~~582,~~561~~502

Operating costs and expenses:

Lease operating expenses

2,~~462~~397,~~785~~052

12,~~649~~099,~~867~~501

57,~~218~~615,~~683~~735

35,~~418~~517,~~329~~830

Gathering system operating expenses

~~613~~563,~~795~~542

~~649~~490,~~967~~325

1,~~166~~729,~~446~~988

1,~~202~~692,~~537~~862

Depletion, depreciation, amortization, and accretion

32,~~201~~570,~~654~~462

2,~~048~~698,~~403~~812

69,~~677~~247,~~511~~973

47,~~428~~127,~~829~~641

Impairment expense

~~2,670,000~~—

—

2,676,669

—

General and administrative expenses:

Stock based compensation expense

~~385~~376,~~838~~613

~~313~~309,~~589~~109

~~771~~1,~~676~~148,289

~~635~~944,~~158~~267

Other general and administrative expenses

12,~~461~~467,~~878~~785

1,~~478~~449,~~215~~576

35,~~280~~748,~~296~~081

34,~~037~~486,~~238~~814

Total operating costs and expenses

108,~~795~~375,~~950~~454

67,~~140~~047,~~041~~323

1928,~~791~~166,~~281~~735

1219,~~722~~769,~~091~~414

Operating income

~~828~~606,~~783~~005

1240,~~167,777~~618

78,~~996~~602,~~592~~597

2,~~572~~813,~~470~~088

Other income (expense):

Interest income

1784,~~247~~894

~~108~~60,~~943~~693

32117,~~546~~440

~~375~~435,~~215~~908

Interest expense

(1911,~~906~~666)

(817,~~759~~598)

(3243,~~117~~783)

(1735,~~519~~117)

Gain (loss) on derivative contracts

2,573,863

(94,891)

1,111,693

(195,617)

Gain on derivative contracts, net

964,307

440,712

2,076,000

245,095

Other (expense) income

(10,839)

101,606

(33,338)

101,073

Other income (expense), net

5,252

9,994

(28,086)

111,067

Other income, net

21,~~560~~042,~~365~~787

~~106~~493,~~899~~801

12,~~078~~121,~~784~~571

~~263~~756,~~152~~953

Net income before income tax expense

31,~~389~~648,~~148~~792

1734,~~274,676~~419

910,~~075~~724,~~376~~168

23,~~835~~570,~~622~~041

Income tax expense

1576,~~837,687~~497

~~459~~368,~~016~~398

34,~~507~~084,~~881~~378

~~513~~881,~~066~~464

NET INCOME

1,~~551~~072,~~461~~295

~~815~~366,~~660~~021

56,~~567~~639,~~495~~790

2,~~322~~688,~~556~~577

Currency translation adjustments

(7542,~~496~~676)

2239,~~229~~845

(~~125~~168,~~612~~288)

2262,~~593~~438

Unrealized gain (loss) on securities

—

3,011

—

(1,598)

Unrealized loss on securities

—

(1,598)

NET COMPREHENSIVE INCOME

1,~~475~~029,~~965~~619

~~840~~405,~~900~~866

56,~~441~~471,~~883~~502

2,~~343~~749,~~551~~417

Net income per share, basic

0.0705

0.0402

0.2530

0.1112

Net income per share, diluted

0.0705

0.0402

0.2530

0.1112

Weighted average number of shares outstanding, basic

22,017,310

21,~~921~~948,~~752~~519

22,~~013~~028,~~062~~248

21,~~957~~954,~~980~~803

Weighted average number of shares outstanding, diluted

22,~~202~~159,~~315~~532

22,~~029~~155,~~475~~292

22,~~155~~170,~~629~~223

2122,~~987~~000,~~142~~881

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements

Table of Contents

EPSILON ENERGY LTD.

Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity


									Accumulated
									Other				Total
	Common Shares Issued			Treasury Shares			Additional		Comprehensive		Accumulated		Shareholders'
	Shares	Amount		Shares	Amount		paid-in Capital		Income (Loss)		Deficit		Equity
Balance at January 1, 2025	22,008,766	$	116,081,031	—	$	—	$	12,118,907	$	10,033,267	$	(41,505,076)	$	96,728,129
Net income	—		—	—		—		—		—		4,016,034		4,016,034
Dividends paid	—		—	—		—		—		—		(1,375,612)		(1,375,612)
Stock-based compensation expense	—		—	—		—		385,838		—		—		385,838
Other comprehensive loss	—		—	—		—		—		(50,116)		—		(50,116)
Balance at March 31, 2025	22,008,766	$	116,081,031	—	$	—	$	12,504,745	$	9,983,151	$	(38,864,654)	$	99,704,273
Net income	—		—	—		—		—		—		1,551,461		1,551,461
Dividends paid	—		—	—		—		—		—		(1,375,760)		(1,375,760)
Stock-based compensation expense	—		—	—		—		385,838		—		—		385,838
Vesting of shares of restricted stock	8,639		—	—		—		—		—		—		—
Other comprehensive loss	—		—	—		—		—		(75,496)		—		(75,496)
Balance at June 30, 2025	22,017,405	$	116,081,031	—	$	—	$	12,890,583	$	9,907,655	$	(38,688,953)	$	100,190,316
Net income	—		—	—		—		—		—		1,072,295		1,072,295
Dividends paid	—		—	—		—		—		—		(1,378,515)		(1,378,515)
Stock-based compensation expense	—		—	—		—		376,613		—		—		376,613
Vesting of shares of restricted stock	41,169		—	—		—		—		—		—		—
Other comprehensive loss	—		—	—		—		—		(42,676)		—		(42,676)
Balance at September 30, 2025	22,058,574	$	116,081,031	—	$	—	$	13,267,196	$	9,864,979	$	(38,995,173)	$	100,218,033


									Accumulated
									Other				Total
	Common Shares Issued			Treasury Shares			Additional		Comprehensive		Accumulated		Shareholders'
	Shares	Amount		Shares	Amount		paid-in Capital		Income		Deficit		Equity
Balance at January 1, 2024	22,222,722	$	118,272,565	(70,874)	$	(360,326)	$	10,874,491	$	9,772,277	$	(37,946,042)	$	100,612,965
Net income	—		—	—		—		—		—		1,506,896		1,506,896
Dividends paid	—		—	—		—		—		—		(1,370,409)		(1,370,409)
Stock-based compensation expense	—		—	—		—		321,569		—		—		321,569
Buyback of common shares	—		—	(248,700)		(1,203,708)		—		—		—		(1,203,708)
Retirement of treasury shares	(319,574)		(1,564,034)	319,574		1,564,034		—		—		—		—
Vesting of shares of restricted stock	10,054		—	—		—		—		—		—		—
Other comprehensive income	—		—	—		—		—		(4,245)		—		(4,245)
Balance at March 31, 2024	21,913,202	$	116,708,531	—	$	—	$	11,196,060	$	9,768,032	$	(37,809,555)	$	99,863,068
Net income	—		—	—		—		—		—		815,660		815,660
Dividends paid	—		—	—		—		—		—		(1,371,940)		(1,371,940)
Stock-based compensation expense	—		—	—		—		313,589		—		—		313,589
Vesting of shares of restricted stock	8,648		—	—		—		—		—		—		—
Other comprehensive income	—		—	—		—		—		25,240		—		25,240
Balance at June 30, 2024	21,921,850	$	116,708,531	—	$	—	$	11,509,649	$	9,793,272	$	(38,365,835)	$	99,645,617

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements

Table of Contents


									Accumulated
									Other				Total
	Common Shares Issued			Treasury Shares			Additional		Comprehensive		Accumulated		Shareholders'
	Shares	Amount		Shares	Amount		paid-in Capital		Income (Loss)		Deficit		Equity
Balance at January 1, 2024	22,222,722	$	118,272,565	(70,874)	$	(360,326)	$	10,874,491	$	9,772,277	$	(37,946,042)	$	100,612,965
Net income	—		—	—		—		—		—		1,506,896		1,506,896
Dividends paid	—		—	—		—		—		—		(1,370,409)		(1,370,409)
Stock-based compensation expense	—		—	—		—		321,569		—		—		321,569
Buyback of common shares	—		—	(248,700)		(1,203,708)		—		—		—		(1,203,708)
Retirement of treasury shares	(319,574)		(1,564,034)	319,574		1,564,034		—		—		—		—
Vesting of shares of restricted stock	10,054		—	—		—		—		—		—		—
Other comprehensive loss	—		—	—		—		—		(4,245)		—		(4,245)
Balance at March 31, 2024	21,913,202	$	116,708,531	—	$	—	$	11,196,060	$	9,768,032	$	(37,809,555)	$	99,863,068
Net income	—		—	—		—		—		—		815,660		815,660
Dividends paid	—		—	—		—		—		—		(1,371,940)		(1,371,940)
Stock-based compensation expense	—		—	—		—		313,589		—		—		313,589
Vesting of shares of restricted stock	8,648		—	—		—		—		—		—		—
Other comprehensive income	—		—	—		—		—		25,240		—		25,240
Balance at June 30, 2024	21,921,850	$	116,708,531	—	$	—	$	11,509,649	$	9,793,272	$	(38,365,835)	$	99,645,617
Net income	—		—	—		—		—		—		366,021		366,021
Dividends paid	—		—	—		—		—		—		(1,374,428)		(1,374,428)
Stock-based compensation expense	—		—	—		—		309,109		—		—		309,109
Buyback of common shares	—		—	(125,000)		(627,500)		—		—		—		(627,500)
Vesting of shares of restricted stock	51,837		—	—		—		—		—		—		—
Other comprehensive income	—		—	—		—		—		39,845		—		39,845
Balance at September 30, 2024	21,973,687	$	116,708,531	(125,000)	$	(627,500)	$	11,818,758	$	9,833,117	$	(39,374,242)	$	98,358,664

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements

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EPSILON ENERGY LTD.

Unaudited Condensed Consolidated Statements of Cash Flows


	~~Six~~Nine months ended ~~June~~September 30,
	2025		2024
Cash flows from operating activities:
Net income	$	56,~~567~~639,~~495~~790	$	2,~~322~~688,~~556~~577
Adjustments to reconcile net income to net cash provided by operating activities:
Depletion, depreciation, amortization, and accretion		69,~~677~~247,~~511~~973		47,~~428~~127,~~829~~641
Impairment expense		2,676,669		—
Accretion of discount on available for sale securities		—		(297,637)
(Gain) loss on derivative contracts		(1,111,693)		195,617
Gain on derivative contracts		(2,076,000)		(245,095)
Settlement (paid) received on derivative contracts		(108,383)		760,542
Settlement received on derivative contracts		699,265		1,245,931
Settlement of asset retirement obligation		(1,600)		(8788,~~284~~992)
Stock-based compensation expense		~~771~~1,~~676~~148,289		~~635~~944,~~158~~267
Deferred income tax benefit		(779,676)		(54,736)
Deferred income tax (benefit) expense		(676,523)		584,088
Changes in assets and liabilities:
Accounts receivable		~~346~~1,~~839~~328,523		1,~~070~~545,~~784~~431
Prepaid income taxes		—		~~319~~(67,~~770~~878)
Other assets and liabilities		~~385~~(191,~~445~~487)		~~354~~(94,~~014~~360)
Accounts payable, royalties payable, gathering fees payable, and other accrued liabilities		(66430,~~454~~885)		(~~572~~1,~~099~~520,707)
Income taxes payable		2,~~572~~532,~~921~~686		—
Net cash provided by operating activities		1620,~~930~~896,~~750~~700		911,~~075~~821,~~514~~266
Cash flows from investing activities:
Additions to unproved oil and gas properties		(5,~~132~~032,~~649~~558)		(23,~~993~~100,~~155~~294)
Additions to proved oil and gas properties		(5,~~997~~901,~~993~~411)		(2628,~~425~~728,~~017~~498)
Additions to gathering system properties		(~~228~~384,~~327~~124)		(7076,~~236~~625)
Additions to land, buildings and property and equipment		(12,102)		(13,912)
Purchases of short term investments - available for sale		—		(4,045,785)
Proceeds from short term investments - held to maturity		—		23,116,930
Prepaid drilling costs		~~705~~978,~~165~~044		~~886~~1,~~981~~813,808
Net cash used in investing activities		(10,~~665~~352,~~906~~151)		(911,~~544~~034,~~194~~376)
Cash flows from financing activities:
Buyback of common shares		—		(1,~~203~~831,~~708~~208)
Dividends paid		(24,~~751~~129,~~372~~887)		(24,~~742~~116,~~349~~777)
Net cash used in financing activities		(24,~~751~~129,~~372~~887)		(35,~~946~~947,~~057~~985)
Effect of currency rates on cash, cash equivalents, and restricted cash		(~~125~~168,~~612~~288)		2262,~~593~~438
Decrease in cash, cash equivalents, and restricted cash		3,387,860		(4,392,144)
Increase (decrease) in cash, cash equivalents, and restricted cash		6,246,374		(5,098,657)
Cash, cash equivalents, and restricted cash, beginning of period		6,989,793		13,873,628
Cash, cash equivalents, and restricted cash, end of period	$	1013,~~377~~236,~~653~~167	$	98,~~481~~774,~~484~~971

Supplemental cash flow disclosures:
Income tax paid - federal	$	1,~~325~~417,~~000~~860	$	~~140,000~~—
Income tax paid - state (PA)	$	~~355~~755,138	$	—
Income tax paid (refund) - state (other)	$	1,710	$	(8,608)
Income tax paid - state (other)	$	26,710	$	4,000
Interest paid	$	9,~~552~~935	$	—16,832

Non-cash investing activities:
Change in proved properties accrued in accounts payable	$	~~(690~~2,~~866)~~266,859	$	(1818,~~471,985)~~504
Change in gathering system accrued in accounts payable	$	7139,~~366~~805	$	45173,~~862~~193
Asset retirement obligation asset additions and adjustments	$	1825,~~235~~196	$	2139,~~831~~597

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements

1. Description of Business

Epsilon Energy Ltd. (the “Company” or “Epsilon” or “we”) was incorporated under the laws of the Province of Alberta, Canada on March 14, 2005, pursuant to the Alberta Business Corporations Act. On February 14, 2019, Epsilon’s registration statement on Form 10 was declared effective by the United States Securities and Exchange Commission and on February 19, 2019, we began trading in the United States on the NASDAQ Global Market under the trading symbol “EPSN.” Epsilon is a North American on-shore focused independent natural gas and oil company engaged in the acquisition, development, gathering and production of natural gas and oil reserves.

On August 11, 2025, Epsilon signed definitive agreements to acquire two entities (Peak Exploration and Production LLC and Peak BLM Lease LLC, together “Peak”) majority owned by funds of Yorktown Energy Partners LLC. Combined consideration due at closing is the issuance of 6 million Epsilon common shares and the assumption of an estimated $51.2 million of debt. Additional contingent consideration of up to 2.5 million Epsilon common shares could be due subject to the ability to access acreage currently affected by a drilling permit moratorium in Converse County, Wyoming. The assets to be acquired include an operated position of 40,500 net acres producing 2.2 MBoepd in the Powder River Basin in Campbell and Converse County, Wyoming. The transactions are expected to close in Q4 2025, subject to obtaining the requisite Epsilon shareholder approval.

2. Basis of Preparation

Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the appropriate rules and regulations of the SEC. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. All adjustments which are, in the opinion of management, necessary for a fair statement of the financial position and results of operations for the interim periods presented have been included. The interim financial information and notes hereto should be read in conjunction with the Company’s consolidated financial statements as of and for the year ended December 31, 2024. The results of operations for interim periods are not necessarily indicative of results to be expected for a full fiscal year.

Principles of Consolidation

The Company’s unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Epsilon Energy USA, Inc. and its wholly owned subsidiaries, Epsilon Midstream, LLC, Dewey Energy GP, LLC, Dewey Energy Holdings, LLC, Epsilon Operating, LLC, and Altolisa Holdings, LLC. With regard to the gathering system, in which Epsilon owns an undivided interest in the asset, proportionate consolidation accounting is used. All inter-company transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates pertain to proved natural gas and oil reserves and related cash flow estimates used in impairment tests of natural gas and oil, and gathering system properties, asset retirement obligations, accrued natural gas and oil revenues and operating expenses, accrued gathering system revenues and operating expenses, as well as the valuation of commodity derivative instruments. Actual results could differ from those estimates.

Reclassification

The consolidated financial statements for the prior periods include certain reclassifications that were made to conform to the current period presentation. Such reclassifications have no impact on previously reported consolidated financial position, results of operations or cash flows.

~~Recently Issued Accounting Standards~~10

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to disclose disaggregated information about a reporting entity’s effective tax rate reconciliation, using both percentages and reporting currency amounts for specific standardized categories, as well as disclosure of income taxes paid disaggregated by jurisdiction. The amendments will be effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the impact of

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements

~~this~~Recently ~~new~~Issued ~~standard~~Accounting ~~and believes that the adoption will result in additional disclosures, but will not have any other impact on its consolidated financial statements.~~ Standards

In March 2024, the FASB issued ASU No. 2024-01, Compensation – Stock Compensation (Topic 718): Scope Applications of Profits Interest and Similar Awards (“ASU 2024-01”). The amendments in ASU 2024-01 improve its overall clarity and operability without changing the guidance and adding illustrative examples to determine whether profits interest award should be accounted for in accordance with Topic 718. The Company has adopted ASU No. 2024-01 as of January 1, 2025. There was no impact as a result of the adoption of this ASU.

In November 2024, the FASB issued ASU 2024-3 "Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures." The ASU will improve the decision usefulness for investors by requiring public business entities to disclose more detailed information about their expenses such as (a) inventory and manufacturing expense, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, etc. The amendments will be effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The amendments will be applied prospectively with an option for a retrospective application. The Company is evaluating the impact of this new standard and believes that the adoption will result in additional disclosures, but will not have any other impact on its consolidated financial statements.

In July 2025, the FASB issued ASU 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit losses for Accounts Receivable and Contract Assets. The amendments in this update provide (1) all entities with a practical expedient to assume that current conditions as of the balance sheet date do not change for the remaining life of the assets and (2) entities other than public business entities with an accounting policy election to consider collection activity after the balance sheet date when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. The amendments will be effective for fiscal years beginning after December 15, 2025, with early adoption permitted. The Company is evaluating the impact of this new standard and believes that the adoption may result in additional disclosures, but will not have any ~~other~~material impact on its consolidated financial statements.

3. Cash, Cash Equivalents, and Restricted Cash

Cash and cash equivalents include cash on hand and short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Restricted cash consists of amounts deposited to back bonds or letters of credit for potential well liabilities. The Company presents restricted cash with cash and cash equivalents in the Consolidated Statements of Cash Flows.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the Consolidated Balance Sheets to the total of the amounts in the Consolidated Statements of Cash Flows as of ~~June~~September 30, 2025 and December 31, 2024:


	June 30,		December 31,
	2025		2024
Cash and cash equivalents	$	9,907,653	$	6,519,793
Restricted cash included in other assets		470,000		470,000
Cash, cash equivalents, and restricted cash in the statement of cash flows	$	10,377,653	$	6,989,793


	September 30,		December 31,
	2025		2024
Cash and cash equivalents	$	12,766,167	$	6,519,793
Restricted cash included in other assets		470,000		470,000
Cash, cash equivalents, and restricted cash in the statement of cash flows	$	13,236,167	$	6,989,793

~~4. Short Term Investments~~11

Short term investments are highly liquid investments with original maturities between three and twelve months. The Company’s short term investments consist of US Treasury Bills. These investments are classified as available-for-sale. Available-for-sale short term investments are reported at fair value in the Consolidated Balance Sheets. Unrealized gains and losses are excluded from earnings and are reported in Accumulated other comprehensive income in the Consolidated Statements of Operations and Comprehensive Income.

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements

As of June 30, 2025 and December 31, 2024, the Company had no short term investments.

~~During~~4. Short ~~the~~Term ~~six months ended June 30, 2024, the Company sold securities with a carrying amount of $14,989,595~~Investments

~~for~~Short ~~total~~term ~~proceeds~~investments ofare ~~$15,336,930.~~highly ~~The~~liquid ~~realized~~investments ~~gains on these sales were $347,335. An additional $7,780,000 of securities reached maturity~~ with ~~total~~original ~~realized~~maturities ~~gains~~between ofthree ~~$234,248.~~and ~~During~~twelve ~~the three~~ months. ~~ended~~The ~~June 30, 2024, the~~ Company’s ~~sold~~short ~~securities~~term ~~with~~investments aconsist ~~carrying amount~~ of ~~$7,986,472~~US ~~for~~Treasury ~~total~~Bills. ~~proceeds~~These ofinvestments ~~$8,177,645.~~are ~~The~~classified ~~realized~~as ~~gains~~available-for-sale. onAvailable-for-sale ~~these~~short ~~sales~~term ~~were~~investments ~~$191,173.~~are Anreported ~~additional~~at ~~$4,145,000~~fair ofvalue ~~securities~~in ~~reached~~the ~~maturity~~Consolidated ~~with~~Balance ~~total~~Sheets. ~~realized~~Unrealized gains ofand ~~$99,215.~~losses ~~The~~are ~~realized~~excluded ~~gains~~from earnings and are ~~included~~reported in Accumulated other comprehensive income in the ~~consolidated~~Consolidated Statements of Operations and Comprehensive Income.

As of September 30, 2025 and December 31, 2024, the Company had no short term investments.

During the nine months ended September 30, 2024, the Company sold securities with a carrying amount of $14,989,595 for total proceeds of $15,336,930. The realized gains on these sales were $347,335. An additional $7,780,000 of securities reached maturity with total realized gains of $234,248. During the three months ended September 30, 2024, the Company did not acquire or sell any securities. The realized gains are included in other income in the consolidated Statements of Operations and Comprehensive Income.

5. Property and Equipment

The following table summarizes the Company’s property and equipment as of ~~June~~September 30, 2025 and December 31, 2024:


	June 30,		December 31,
	2025		2024
Property and equipment:
Oil and gas properties, successful efforts method
Proved properties	$	197,197,902	$	191,879,210
Unproved properties		33,496,835		28,364,186
Accumulated depletion, depreciation, amortization and impairment		(131,899,045)		(123,281,395)
Total oil and gas properties, net		98,795,692		96,962,001
Gathering system		43,416,065		43,116,371
Accumulated depletion, depreciation, amortization and impairment		(37,057,605)		(36,449,511)
Total gathering system, net		6,358,460		6,666,860
Land		637,764		637,764
Buildings and other property and equipment, net		245,555		259,335
Total property and equipment, net	$	106,037,471	$	104,525,960


	September 30,		December 31,
	2025		2024
Property and equipment:
Oil and gas properties, successful efforts method
Proved properties	$	200,066,005	$	191,879,210
Unproved properties		33,396,744		28,364,186
Accumulated depletion, depreciation, amortization and impairment		(134,181,378)		(123,281,395)
Total oil and gas properties, net		99,281,371		96,962,001
Gathering system		43,540,301		43,116,371
Accumulated depletion, depreciation, amortization and impairment		(37,271,826)		(36,449,511)
Total gathering system, net		6,268,475		6,666,860
Land		637,764		637,764
Buildings and other property and equipment, net		221,901		259,335
Total property and equipment, net	$	106,409,511	$	104,525,960

Asset Acquisitions

During the ~~six~~nine months ended ~~June~~September 30, 2025, Epsilon had no asset acquisitions.

During the ~~six~~nine months ended ~~June~~September 30, 2024, Epsilon acquired assets that included the following:

●

a 25% working interest in three producing wells located in Ector County, Texas.

●

a 25% working interest in an additional 3,620 gross undeveloped acres in Ector County, Texas.

●

a 50% working interest in 14,243 gross undeveloped acres in Alberta, Canada.

Management determined that substantially all the fair value of the assets acquired was concentrated in a group of similar identifiable assets. Based on this determination, the acquisition was accounted for as an asset acquisition.

~~Property Impairment~~12

We perform a quantitative impairment test whenever events or changes in circumstances indicate that an asset group's carrying amount may not be recoverable, over proved properties using the published NYMEX forward prices, basis differentials, timing, methods and other assumptions consistent with historical periods. When indicators of impairment are present, GAAP requires that the Company first compare expected future undiscounted cash flows by asset group to their respective carrying values. If the carrying amount exceeds the estimated undiscounted future cash flows, a reduction of the carrying amount of the properties to their estimated fair value is required. Additionally, if an exploratory well is determined not to have found proved reserves, the costs incurred, net of any salvage value, should be charged to expense.

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements

~~During~~Property the three and six months ended June 30, 2025, Epsilon recorded an impairment of $2.7 million for two wells drilled in Alberta, Canada. The impairment was a result of a decrease in estimated reserves due to early production coming in below expectations, cost overruns and lower forward commodity prices. Impairment

During the nine months ended September 30, 2025, Epsilon recorded an impairment of $2.7 million for two wells drilled in Alberta, Canada. The impairment was a result of a decrease in estimated reserves due to early production coming in below expectations, cost overruns and lower forward commodity prices. During the three months ended September 30, 2025, no impairment was recorded.

During the three and ~~six~~nine months ended ~~June~~September 30, 2024, no impairment was recorded. For the year ended December 31, 2024, the Company had $0.53 million of impairment reflected in proved properties on the Consolidated Balance Sheets. To be consistent with the current presentation, the prior year impairment has been reclassed to accumulated depletion, depreciation, amortization and impairment on the Consolidated Balance Sheets.

6. Revolving Line of Credit

The Company closed a senior secured reserve based revolving credit facility on June 28, 2023, with Frost Bank as issuing bank and sole lender. The ~~current~~ borrowing base isat September 30, 2025 was $45 million (redetermined as of February 10, 2025), supported by the Company’s upstream assets in Pennsylvania and subject to semi-annual redeterminations with a maturity date of June 28, 2027. Interest will be charged at the Daily Simple SOFR rate plus a margin of 3.25%. The facility is secured by the assets of the Company’s Epsilon Energy USA subsidiary (Borrower). There are currently no borrowings under the facility.

Under the terms of the facility, the Company must adhere to the following financial covenants:

●

Current ratio of 1.0 to 1.0 (current assets / current liabilities)

●

Leverage ratio of less than 2.5 to 1.0 (total debt / income adjusted for interest, taxes and non-cash amounts)

Additionally, if the Leverage ratio is greater than 1.0 to 1.0, or the borrowing base utilization is greater than 50%, the Company is required to hedge 50% of the anticipated production from PDP reserves for a rolling 24-month period.

WeOn ~~were~~October in8, ~~compliance~~2025, the Company closed a new senior secured reserve based revolving credit facility with Frost Bank as administrative agent and Frost Bank and Texas Capital Bank as lenders (replacing the ~~financial~~previous ~~covenants~~credit offacility). The borrowing base was initially set at $45 million, supported by the ~~agreement~~Company’s asupstream assets and subject to semi-annual redeterminations with a maturity date of ~~June~~October 308, ~~2025~~2029. Interest will be charged at the Daily Simple SOFR rate plus a margin of 3-4%. The facility is secured by the assets of the Company’s Epsilon Energy USA subsidiary (Borrower) and the Company was added as a co-borrower. There are currently no borrowings under the facility.


	Balance at		Balance at
	June 30,		December 31,		Current
	2025		2024		Borrowing Base		Interest Rate
Revolving line of credit	$	—	$	—	$	45,000,000		SOFR + 3.25%

Under the terms of the facility, the Company must adhere to the following financial covenants:

●

Current ratio of 1.0 to 1.0 (current assets / current liabilities)

●

Leverage ratio of less than 2.5 to 1.0 (total debt / income adjusted for interest, taxes and noncash amounts)

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements

Additionally, once the facility is drawn, the Company is required to hedge 50% of the anticipated production from PDP reserves for a rolling 18-month period (reduces to 25% on the last 6 months if the facility utilization is <50% of the borrowing base).

We were in compliance with the financial covenants of the agreement as of September 30, 2025.

Balance at

September 30,

December 31,

Current

2025

2024

Borrowing Base

Interest Rate

Revolving line of credit

—

45,000,000

SOFR + 3.25%

7. Shareholders’ Equity

(a)Authorized shares

The Company is authorized to issue an unlimited number of Common Shares with no par value and an unlimited number of Preferred Shares with no par value.

(b)Purchases of Equity Shares

Normal Course Issuer Bid

On February 12, 2025, Epsilon’s board of directors (the “Board”) authorized a new share repurchase program of up to 2,200,876 common shares, representing 10% of the current outstanding common shares of Epsilon, for an aggregate purchase price of not more than US $13.0 million. The program commenced on February 12, 2025 and ends on February 11, 2026, unless the maximum amount of common shares is purchased before then or the Board approves earlier termination.

The previous share repurchase program commenced on March 19, 2024. During the year ended December 31, 2024, we repurchased 125,000 common shares and spent $627,500 at an average price of $5.00 per share (excluding commissions) under the plan. On February 12, 2025, the Board terminated and revoked authority under the program.

12During the nine months ended September 30, 2025, no shares were repurchased under the new or previous program.

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements

During the six months ended June 30, 2025, no shares were repurchased under the new or previous program.

(c)Equity Incentive Plan

The Board adopted the 2020 Equity Incentive Plan (the “2020 Plan”) on July 22, 2020 subject to approval by Epsilon’s shareholders at Epsilon’s 2020 Annual General and Special Meeting of shareholders, which occurred on September 1, 2020 (the “Meeting”). Shareholders approved the 2020 Plan at the Meeting.

The 2020 Plan provides for incentive compensation in the form of stock options, stock appreciation rights, restricted stock and stock units, performance shares and units, other stock-based awards and cash-based awards. Under the 2020 Plan, Epsilon is authorized to issue up to 2,000,000 Common Shares.

Restricted Stock

For the ~~six~~nine months ended ~~June~~September 30, 2025, no restricted common shares were awarded to the Company’s board of directors and employees. For the year ended December 31, 2024, 300,052 restricted common shares with a weighted average grant date fair value of $5.97 were awarded to the Company’s management, employees, and board of directors. These shares vest over a three-year period, with an equal number of shares being issued per period on the anniversary of the award resolution. The vesting of the shares is contingent on the individuals’ continued employment or service. The Company determined the fair value of the granted Restricted Stock based on the market price of the common shares of the Company on the date of grant.

~~The following table summarizes restricted stock activity for the six months ended June 30, 2025, and the year ended December 31, 2024:~~14

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements

The following table summarizes restricted stock activity for the nine months ended September 30, 2025, and the year ended December 31, 2024:


	~~Six~~Nine months ended				Year ended
	~~June~~September 30, 2025				December 31, 2024
	Number of	Weighted	Weighted		Number of	Weighted	Weighted
	Restricted	Average	Average		Restricted	Average	Average
	Shares	Remaining Life	Grant Date		Shares	Remaining Life	Grant Date
	Outstanding	(years)	Fair Value		Outstanding	(years)	Fair Value
Balance non-vested Restricted Stock at beginning of period	560,970	1.61	$	5.77	491,536	1.74	$	5.59
Granted	—	—		-	300,052	1.92		5.97
Vested	(849,~~639~~808)	—		65.1572	(230,618)	—		5.65
Balance non-vested Restricted Stock at end of period	~~552~~511,~~331~~162	10.1195	$	5.7778	560,970	1.61	$	5.77

Stock compensation expense for the granted Restricted Stock is recognized over the vesting period. Stock compensation expense recognized during the three and ~~six~~nine months ended ~~June~~September 30, 2025 was $~~385~~376,~~838~~613 and $~~771~~1,~~676~~148,289, respectively (for the three and ~~six~~nine months ended ~~June~~September 30, 2024 was $~~313~~309,~~589~~109 and $ ~~635~~944,~~158~~267, respectively).

As of ~~June~~September 30, 2025, the Company had unrecognized stock-based compensation related to these shares of $2,~~426~~050,~~793~~180 to be recognized over a weighted average period of 1~~.14~~ ~~years~~year (at December 31, 2024: $3,198,469 over 1.30 years).

(d)Dividends

On February 26, 2025, ~~and~~ June 3, 2025, and September 2, 2025, the Board declared ~~quarterly~~ a quarterly dividend of $0.0625 per common share (annualized $0.25 per common share) totaling in aggregate an amount of approximately $24.81 million that has been paid during the ~~six~~nine months ended ~~June~~September 30, 2025.

8. Revenue Recognition

Revenues are comprised of sales of natural gas, oil and natural gas liquids (“NGLs”), along with the revenue generated from the Company’s ownership interest in the gas gathering system in the Auburn field in Northeastern Pennsylvania.

13Overall, product sales revenue generally is recorded in the month when contractual delivery obligations are satisfied, which occurs when control is transferred to the Company’s customers at delivery points based on contractual terms and conditions. In addition, gathering and compression revenue generally is recorded in the month when contractual service obligations are satisfied, which occurs as control of those services is transferred to the Company’s customers. Gathering System revenues derived from Epsilon’s production, which have been eliminated from total gathering system revenues (“elimination entry”), amounted to $0.4 million and $1.5 million, respectively, for the three and nine months ended September 30, 2025 ($0.3 million and $0.8 million, respectively, for the three and nine months ended September 30, 2024).

The following table details revenue for the three and nine months ended September 30, 2025 and 2024.


	Three months ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Operating revenue
Natural gas	$	4,758,578	$	1,903,946	$	22,282,495	$	6,828,155
Natural gas liquids		267,019		335,271		799,289		1,096,678
Oil and condensate		2,510,651		3,964,736		8,504,982		10,193,535
Gathering and compression fees⁽¹⁾		1,445,211		1,083,988		5,182,566		4,464,134
Total operating revenue	$	8,981,459	$	7,287,941	$	36,769,332	$	22,582,502

(1)

Net of the elimination entry

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements

Overall, product sales revenue generally is recorded in the month when contractual delivery obligations are satisfied, which occurs when control is transferred to the Company’s customers at delivery points based on contractual terms and conditions. In addition, gathering and compression revenue generally is recorded in the month when contractual service obligations are satisfied, which occurs as control of those services is transferred to the Company’s customers. Gathering System revenues derived from Epsilon’s production, which have been eliminated from total gathering system revenues (“elimination entry”), amounted to $0.5 million and $1.1 million, respectively, for the three and six months ended June 30, 2025 ($0.3 million and $0.6 million, respectively, for the three and six months ended June 30, 2024).

The following table details revenue for the three and six months ended June 30, 2025 and 2024.


	Three months ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Operating revenue
Natural gas	$	6,910,344	$	1,961,230	$	17,523,917	$	4,924,209
Natural gas liquids		145,020		388,423		532,270		761,407
Oil and condensate		2,724,364		3,513,717		5,994,331		6,228,799
Gathering and compression fees (1)		1,845,005		1,444,448		3,737,355		3,380,146
Total operating revenue	$	11,624,733	$	7,307,818	$	27,787,873	$	15,294,561

(1) Net of the elimination entry

Product Sales Revenue

The Company enters into contracts with third party purchasers to sell its natural gas, oil, NGLs and condensate production. Under these product sales arrangements, the sale of each unit of product represents a distinct performance obligation. Product sales revenue is recognized at the point in time that control of the product transfers to the purchaser based on contractual terms which reflect prevailing commodity market prices. To the extent that marketing costs are incurred by the Company prior to the transfer of control of the product, those costs are included in lease operating expenses on the Company’s Consolidated Statements of Operations and Comprehensive Income.

Settlement statements for product sales, and the related cash consideration, are generally received from the purchaser within 30 days. As a result, the Company must estimate the amount of production delivered to the customer and the consideration that will ultimately be received for sale of the natural gas, oil, NGLs, or condensate. Estimated revenue due to the Company is recorded within the receivables line item on the accompanying Consolidated Balance Sheets until payment is received.

Gas Gathering and Compression Revenue

The Company also provides natural gas gathering and compression services through its ownership interest in the Auburn gas gathering system in Pennsylvania. For the provision of gas gathering and compression services, the Company collects its share of the gathering and compression fees per unit of gas serviced and recognizes gathering revenue over time using an output method based on units of gas gathered.

The settlement statement from the operator of the Auburn GGS is received two months after transmission and compression has occurred. As a result, the Company must estimate the amount of production that was transmitted and compressed within the system. Estimated revenue due to the Company is recorded within the receivables line item on the accompanying Consolidated Balance Sheets until payment is received.

Current Expected Credit Losses

Under ASU 326, Financial Instruments – Credit Losses, estimated losses on financial assets are provided through an allowance for credit losses. The majority of our financial assets are held in cash and cash equivalents and accounts receivable. The accounts receivable are primarily from purchasers of oil and natural gas, counterparties to our financial instruments, and revenues earned for compression and gathering services. Our oil, gas, and natural gas liquids accounts receivable are generally collected within 30 days after the end of the month. Compression and gathering receivables are generally collected within 60 days after the end of the month. We assess collectability through various procedures, including review of our trade receivable balances by counterparty, assessing economic events and conditions, our historical experience with counterparties, the counterparty’s financial condition and the amount and age of past due accounts. As of September 30, 2025 and December 31, 2024, we determined that our allowance for credit loss was nil.

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements

including review of our trade receivable balances by counterparty, assessing economic events and conditions, our historical experience with counterparties, the counterparty’s financial condition and the amount and age of past due accounts. As of June 30, 2025 and December 31, 2024, we determined that our allowance for credit loss was nil.


	~~June~~September 30,		December 31,		December 31,
	2025		2024		2023
Accounts receivable
Natural gas and oil sales	$	3,~~946~~224,~~643~~441	$	4,888,294	$	4,327,886
Joint interest billing		—		—		17,476
Gathering and compression fees		1,~~434~~071,~~591~~634		918,471		1,543,239
Commodity contract		~~115~~219,~~649~~124		36,957		72,075
Interest		—		—		54,772
Total accounts receivable	$	54,~~496~~515,~~883~~199	$	5,843,722	$	6,015,448

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements

9. Accumulated Other Comprehensive Income

Accumulated other comprehensive income includes certain transactions that have generally been reported in the Consolidated Statements of Changes in Shareholders’ Equity. The activity in accumulated other comprehensive income during the three and ~~six~~nine months ended ~~June~~September 30, 2025 and 2024 consisted of the following:


	Three months ended ~~June~~September 30,				~~Six~~Nine Months Ended ~~June~~September 30,
	2025		2024		2025		2024
Balance at beginning of period	$	9,~~983~~907,~~151~~655	$	9,~~768~~793,~~032~~272	$	10,033,267	$	9,772,277
Translation (loss)/gain		(7542,~~496~~676)		2239,~~229~~845		(~~125~~168,~~612~~288)		2262,~~593~~438
Unrealized gain/(loss) on securities		—		~~3,011~~—		—		(1,598)
Balance at end of period	$	9,~~907~~864,~~655~~979	$	9,~~793~~833,~~272~~117	$	9,~~907~~864,~~655~~979	$	9,~~793~~833,~~272~~117

10. Income Taxes

Income tax provisions for the three and ~~six~~nine months ended ~~June~~September 30, 2025 and 2024 are as follows:

Three months ended ~~June~~September 30,

~~Six~~Nine months ended ~~June~~September 30,

2025

2024

2025

2024

Current:

Federal

1387,~~794,581~~475

~~401~~(198,~~042~~619)

3,~~358~~746,~~642~~118

~~467~~268,~~310~~691

State

~~501~~85,~~330~~869

89(71,~~717~~807)

~~928~~1,~~915~~014,783

~~100~~28,~~492~~685

Total current income tax expense

2473,~~295,911~~344

~~490~~(270,~~759~~426)

4,~~287~~760,~~557~~901

~~567~~297,~~802~~376

Deferred:

Federal

~~(413~~98,~~762)~~977

~~(23~~565,~~214)~~137

(~~704~~605,~~026~~049)

~~354~~919,~~385~~522

State

~~(44~~4,~~462)~~176

(873,~~529)~~687

(7571,~~650~~474)

(~~409~~335,~~121~~434)

Total deferred tax expense

~~(458~~103,~~224)~~153

~~(31~~638,~~743)~~824

(~~779,~~676,523)

~~(54~~584,~~736)~~088

Income tax expense

1576,~~837,687~~497

~~459~~368,~~016~~398

34,~~507~~084,~~881~~378

~~513~~881,~~066~~464

The Company files federal income tax returns in the United States and Canada, and various returns in state and local jurisdictions.

The Company believes it has appropriate support for the income tax positions taken and to be taken on our tax returns and that the accruals for tax liabilities are adequate for all open years based on our assessment of various factors including past experience and interpretations of tax law applied to the facts of each matter. The Company's tax returns are open to audit under the statute of limitations for the years ending December 31, 2021 through December 31, 2024. To the extent we utilize net operating losses generated in earlier years, such earlier years may also be subject to audit.

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements

open to audit under the statute of limitations for the years ending December 31, 2021 through December 31, 2024. To the extent we utilize net operating losses generated in earlier years, such earlier years may also be subject to audit.

Starting in 2023, distributions of Epsilon Energy USA Inc. earnings to Epsilon Energy Ltd. incur a 5% U.S. dividend withholding tax, provided the Company is eligible for benefits under the U.S. / Canada income treaty.

Our effective tax rate will typically differ from the statutory federal rate primarily as a result of state income taxes and the valuation allowance against the Canadian net operating loss. The effective tax rate for the ~~six~~nine months ended ~~June~~September 30, 2025 was higher than the statutory federal rate as a result of state income taxes ~~partially~~and ~~offset by~~ the valuation allowance against the Canadian net operating loss.

OnIn July 4, 2025, ~~Public Law No. 119-21, commonly referred to as~~ the One Big Beautiful Bill Act (~~the~~ “~~Act~~OBBBA”), was enacted, bywhich ~~the~~includes ~~U.S.~~a ~~government~~broad range of tax reform provisions affecting businesses. ~~While~~The ~~the~~OBBBA ~~enactment~~extends or makes permanent certain tax law changes enacted as part of the 2017 Tax Cuts and Jobs Act, ~~does~~as ~~not~~well ~~have~~as anmakes ~~impact~~other onchanges to the ~~historical~~current ~~financial~~tax ~~data,~~code. As ~~the~~a ~~Company’s~~result ~~future~~of ~~tax~~this ~~liabilities~~enactment, ~~may~~our bedeferred ~~impacted.~~tax ~~Among~~balances ~~other~~as ~~changes~~of September 30, 2025 reflect the ~~Act:~~provisions ~~(i)~~of ~~allows~~the ~~for~~new ~~100%~~law ~~expensing~~currently ofin effect, resulting in the ~~costs~~deferral of ~~certain~~a ~~qualified~~portion ~~property~~of ~~acquired~~current ~~after~~federal ~~January~~tax ~~19,~~over ~~2025;~~future ~~(ii)~~periods. ~~allows~~As ~~election~~our toincome ~~immediately~~tax ~~deduct~~provision ~~R&D~~includes ~~costs~~both ~~incurred;~~current and ~~(iii)~~deferred ~~modifies~~components, the ~~provision~~overall ~~related~~net impact is not significant. We are continuing to monitor additional provisions of the ~~limitations~~OBBBA onthat ~~deduction~~become ofeffective ~~interest~~through ~~expense~~2027 for potential future impact.

The Company expects to realize net benefits from U.S. tax reform, primarily driven by the accelerated depreciation of qualified assets for tax purposes. However, the Company continues to evaluate the impacts of the Act and further understand its implications, as well as the related, and yet to be issued, regulations and interpretations which could impact this outlook.

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements

11. Commitments and Contingencies

The Company enters into commitments for capital expenditures in advance of the expenditures being made. As of ~~June~~September 30, 2025, the Company had commitments of $10.92 million for capital expenditures.

From time to time, the Company may be involved in various legal matters. Management believes that as of September 30, 2025, there are no legal matters whose resolution could have a material adverse effect on the unaudited condensed consolidated financial statements.

12. Leases

Under ASC 842, Leases, the Company recognized an operating lease related to its corporate office as of ~~June~~September 30, 2025 and December 31, 2024 as summarized in the following table:


	~~June~~September 30,		December 31,
	2025		2024
Asset
Operating lease right-of-use assets, long term	$	~~295~~272,~~317~~298	$	344,589
Total operating lease right-of-use assets	$	~~295~~272,~~317~~298	$	344,589

Liabilities
Operating lease liabilities	$	~~121~~120,~~057~~799	$	121,135
Operating lease liabilities, long term		~~296~~266,~~250~~263		355,776
Total operating lease liabilities	$	~~417~~387,~~307~~062	$	476,911

Operating lease costs	$	~~120~~185,~~926~~368	$	236,044

Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	~~152~~224,~~709~~377	$	214,230
Weighted average remaining lease term (years) - operating lease		2.2915		2.50
Weighted average discount rate (annualized) - operating lease		8.25%		8.25%

On March 1, 2023, the Company commenced a new office lease with a 70 month lease term and future lease payments estimated to be approximately $0.85 million. There are no other pending leases, and no lease arrangements in which the Company is the lessor.

Lease expense for operating leases was $0.1219 million and $0.24 million for the ~~six~~nine months ended ~~June~~September 30, 2025 and the year ended December 31, 2024, respectively. This lease expense is presented in other general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income.

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements

the year ended December 31, 2024, respectively. This lease expense is presented in other general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income.

Future minimum lease payments as of ~~June~~September 30, 2025 are as follows:


	Operating Leases
2025	$	8643,~~775~~388
2026		177,021
2027		180,492
2028		183,963
Total minimum lease payments		~~628~~584,~~251~~864
Less: imputed interest		(~~210~~197,~~944~~802)
Present value of future minimum lease payments		~~417~~387,~~307~~062
Less: current obligations under leases		(~~121~~120,~~057~~799)
Long-term lease obligations	$	~~296~~266,~~250~~263

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements

13. Net Income Per Share

Basic net income per share is computed on the basis of the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed based upon the weighted-average number of common shares outstanding during the period plus the assumed issuance of common shares for all potentially dilutive securities.

The net income used in the calculation of basic and diluted net income per share is as follows:


	Three months ended ~~June~~September 30,				~~Six~~Nine months ended ~~June~~September 30,
	2025		2024		2025		2024
Net income	$	1,~~551~~072,~~461~~295	$	~~815~~366,~~660~~021	$	56,~~567~~639,~~495~~790	$	2,~~322~~688,~~556~~577

In calculating the net income per share, basic and diluted, the following weighted-average shares were used:


	Three months ended ~~June~~September 30,		~~Six~~Nine months ended ~~June~~September 30,
	2025	2024	2025	2024
Basic weighted-average number of shares outstanding	22,017,310	21,~~921~~948,~~752~~519	22,~~013~~028,~~062~~248	21,~~957~~954,~~980~~803
Unvested time-based restricted shares	~~185~~142,~~005~~222	~~107~~206,~~723~~773	~~142~~141,~~567~~975	2946,~~162~~078
Diluted weighted-average shares outstanding	22,~~202~~159,~~315~~532	22,~~029~~155,~~475~~292	22,~~155~~170,~~629~~223	2122,~~987~~000,~~142~~881

The Company excluded the following shares from the diluted EPS because their inclusion would have been anti-dilutive.


	Three months ended ~~June~~September 30,		~~Six~~Nine months ended ~~June~~September 30,
	2025	2024	2025	2024
Anti-dilutive unvested time-based restricted shares	~~367~~369,~~421~~387	~~492~~408,~~463~~816	~~411~~399,~~203~~441	~~512~~478,~~389~~005

14. Operating Segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (CODM). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as executive management consisting of the Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer. The CODM uses the Company’s consolidated financial results, including operating income or loss by segment, to make key operating decisions, assess performance, and to allocate resources. Segment performance is evaluated based on operating income or loss as shown in the table below. Interest income and income taxes are managed separately on a group basis.

17The Company’s two reportable segments are as follows:

The Upstream segment activities include acquisition, development and production of natural gas and oil reserves on properties within the United States and Canada; and

The Gas Gathering segment partners with two other companies to operate a natural gas gathering system.

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements

Segment ~~performance~~activity isfor ~~evaluated~~the ~~based~~nine onmonths ~~operating~~ended ~~income~~September or30, ~~loss~~2025 ~~as shown in the table below. Interest income~~ and ~~income~~2024 ~~taxes~~is ~~are~~as ~~managed separately on a group basis.~~ follows:

The Company’s reportable segments are as follows:

a. The Upstream segment activities include acquisition, development and production of natural gas and oil reserves on properties within the United States and Canada; and

b. The Gas Gathering segment partners with two other companies to operate a natural gas gathering system.

Segment activity for the six months ended June 30, 2025 and 2024 is as follows:


	Upstream		Gas Gathering		Total
As of and for the nine months ended September 30, 2025
Operating revenue
Natural gas	$	22,282,495	$	—	$	22,282,495
Natural gas liquids		799,289		—		799,289
Oil and condensate		8,504,982		—		8,504,982
Gathering and compression fees		—		5,182,566		5,182,566
Intersegment gathering and compression fees		—		1,465,548		1,465,548
		31,586,766		6,648,114		38,234,880

Reconciliation of operating revenue
Elimination of intersegment revenues						(1,465,548)
Total consolidated operating revenue⁽¹⁾						36,769,332

Operating costs
Gathering, transportation, and compression		5,705,765		—		5,705,765
Other lease operating expense		1,909,970		—		1,909,970
Gathering system operating expenses		—		1,729,988		1,729,988
Intersegment other lease operating expense		1,465,548		—		1,465,548
Impairment		2,676,669		—		2,676,669
Depletion, depreciation, amortization and accretion		8,419,766		828,207		9,247,973
Segment operating income	$	11,409,048	$	4,089,919	$	14,033,419

Reconciliation of segment operating income
Salary expense						2,622,769
Stock based compensation						1,148,289
Other general and administrative						3,125,312
Elimination of intersegment other lease operating expenses						(1,465,548)
Total consolidated operating income						8,602,597

Other income (expense)
Interest income						117,440
Interest expense						(43,783)
Gain on derivative contracts						2,076,000
Other expense						(28,086)
Other expense, net						2,121,571
Net income before income tax expense					$	10,724,168

Capital expenditures⁽²⁾	$	10,946,071	$	384,124	$	11,330,195
Segment assets	$	99,286,044	$	6,268,475	$	105,554,519

Total segment assets reconciled to consolidated amounts are as follows:
Total segment assets					$	105,554,519
Current assets, net						19,136,523
Other property and equipment						859,665
Operating lease right-of-use asset						272,298
Restricted cash						470,000
					$	126,293,005


	Upstream		Gas Gathering		Consolidated
As of and for the six months ended June 30, 2025
Operating revenue
Natural gas	$	17,523,917	$	—	$	17,523,917
Natural gas liquids		532,270		—		532,270
Oil and condensate		5,994,331		—		5,994,331
Gathering and compression fees		—		3,737,355		3,737,355
Intersegment gathering and compression fees		—		1,064,223		1,064,223
		24,050,518		4,801,578		28,852,096

Reconciliation of operating revenue
Elimination of intersegment revenues						(1,064,223)
Total consolidated operating revenue(1)						27,787,873

Operating costs
Gathering, transportation, and compression		3,978,175		—		3,978,175
Other lease operating expense		1,240,508		—		1,240,508
Gathering system operating expenses		—		1,166,446		1,166,446
Intersegment other lease operating expense		1,064,223		—		1,064,223
Impairment		2,676,669		—		2,676,669
Depletion, depreciation, amortization and accretion		6,065,544		611,967		6,677,511
Segment operating income	$	9,025,399	$	3,023,165	$	10,984,341

Reconciliation of segment operating income
Salary expense						1,789,792
Stock based compensation						771,676
Other general and administrative						1,490,504
Elimination of intersegment other lease operating expenses						(1,064,223)
Total consolidated operating income						7,996,592

Other income (expense)
Interest income						32,546
Interest expense						(32,117)
Loss on derivative contracts						1,111,693
Other expense						(33,338)
Other expense, net						1,078,784
Net income before income tax expense					$	9,075,376

Capital expenditures (2)	$	11,142,744	$	228,327	$	11,371,071
Segment assets	$	99,073,244	$	6,358,460	$	105,431,704

Total segment assets reconciled to consolidated amounts are as follows:
Total segment assets					$	105,431,704
Current assets, net						16,533,328
Other property and equipment						883,319
Operating lease right-of-use asset						295,317
Restricted cash						470,000
					$	123,613,668

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements


	Upstream		Gas Gathering		Total
As of and for the nine months ended September 30, 2024
Operating revenue
Natural gas	$	6,828,155	$	—	$	6,828,155
Natural gas liquids		1,096,678		—		1,096,678
Oil and condensate		10,193,535		—		10,193,535
Gathering and compression fees		—		4,464,134		4,464,134
Intersegment gathering and compression fees		—		842,625		842,625
		18,118,368		5,306,759		23,425,127

Reconciliation of operating revenue
Elimination of intersegment revenues						(842,625)
Total consolidated operating revenue⁽¹⁾						22,582,502

Operating costs
Gathering, transportation, and compression		3,759,752		—		3,759,752
Other lease operating expense		1,758,078		—		1,758,078
Gathering system operating expenses		—		1,692,862		1,692,862
Intersegment other lease operating expense		842,625		—		842,625
Depletion, depreciation, amortization and accretion		6,446,271		681,370		7,127,641
Segment operating income	$	5,311,642	$	2,932,527	$	7,401,544

Reconciliation of segment operating income
Salary expense						2,169,379
Stock based compensation						944,267
Other general and administrative						2,317,435
Elimination of intersegment other lease operating expenses						(842,625)
Total consolidated operating income						2,813,088

Other income (expense)
Interest income						435,908
Interest expense						(35,117)
Gain on derivative contracts						245,095
Other expense						111,067
Other income, net						756,953
Net income before income tax expense					$	3,570,041

Capital expenditures⁽²⁾	$	31,842,704	$	76,625	$	31,919,329
Segment assets	$	98,473,841	$	6,766,726	$	105,240,567

Total segment assets reconciled to consolidated amounts are as follows:
Total segment assets					$	105,240,567
Current assets, net						14,811,129
Other property and equipment						906,897
Operating lease right-of-use asset						368,564
Restricted cash						470,000
					$	121,797,157


	Upstream		Gas Gathering		Consolidated
As of and for the six months ended June 30, 2024
Operating revenue
Natural gas	$	4,924,209	$	—	$	4,924,209
Natural gas liquids		761,407		—		761,407
Oil and condensate		6,228,799		—		6,228,799
Gathering and compression fees		—		3,380,146		3,380,146
Intersegment gathering and compression fees		—		591,907		591,907
		11,914,415		3,972,053		15,886,468

Reconciliation of operating revenue
Elimination of intersegment revenues						(591,907)
Total consolidated operating revenue(1)						15,294,561

Operating costs
Gathering, transportation, and compression		2,602,378		—		2,602,378
Other lease operating expense		815,951		—		815,951
Gathering system operating expenses		—		1,202,537		1,202,537
Intersegment other lease operating expense		591,907		—		591,907
Depletion, depreciation, amortization and accretion		4,007,320		421,509		4,428,829
Segment operating income	$	3,896,859	$	2,348,007	$	5,652,959

Reconciliation of segment operating income
Salary expense						1,461,549
Stock based compensation						635,158
Other general and administrative						1,575,689
Elimination of intersegment other lease operating expenses						(591,907)
Total consolidated operating income						2,572,470

Other income (expense)
Interest income						375,215
Interest expense						(17,519)
Gain on derivative contracts						(195,617)
Other expense						101,073
Other income, net						263,152
Net income before income tax expense					$	2,835,622

Capital expenditures (2)	$	29,432,084	$	70,236	$	29,502,320
Segment assets	$	97,059,040	$	6,896,509	$	103,955,549

Total segment assets reconciled to consolidated amounts are as follows:
Total segment assets					$	103,955,549
Current assets, net						14,977,407
Other property and equipment						919,208
Operating lease right-of-use asset						392,792
Restricted cash						900,000
					$	121,144,956

(1)

Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the nine months ended September 30, 2025 and 2024 have been eliminated upon consolidation. For the nine months ended September 30, 2025, Epsilon sold natural gas to 34 unique customers. The one customer over 10% comprised 34% of total revenue. For the nine months ended September 30, 2024, Epsilon sold natural gas to 32 unique customers. The two customers over 10% comprised 18% and 11% of total revenue.

(1) Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the six months ended June 30, 2025 and 2024 have been eliminated upon consolidation. For the six months ended June 30, 2025, Epsilon sold natural gas to 34 unique customers. The one customer over 10% comprised 34% of total revenue. For the six months ended June 30, 2024, Epsilon sold natural gas to 29 unique customers. The three customers over 10% comprised 14%, 11%, and 10% of total revenue.

(2)

Capital expenditures for the Upstream segment consist primarily of the acquisition of properties, and the drilling and completing of wells while Gas Gathering consists of expenditures relating to the expansion, completion, and maintenance of the gathering and compression facility.

1921

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements

Segment activity for the three months ended ~~June~~September 30, 2025 and 2024 is as follows:


	Upstream		Gas Gathering		~~Consolidated~~Total
As of and for the three months ended June 30, 2025
As of and for the three months ended September 30, 2025
Operating revenue
Natural gas	$	64,~~910~~758,~~344~~578	$	—	$	64,~~910~~758,~~344~~578
Natural gas liquids		~~145~~267,~~020~~019		—		~~145~~267,~~020~~019
Oil and condensate		2,~~724~~510,~~364~~651		—		2,~~724~~510,~~364~~651
Gathering and compression fees		—		1,~~845~~445,~~005~~211		1,~~845~~445,~~005~~211
Intersegment gathering and compression fees		—		~~507~~401,~~365~~325		~~507~~401,~~365~~325
		97,~~779~~536,~~728~~248		21,~~352~~846,~~370~~536		129,~~132~~382,~~098~~784

Reconciliation of operating revenue
Elimination of intersegment revenues						(~~507~~401,~~365~~325)
Total consolidated operating revenue(1)						118,~~624~~981,~~733~~459

Operating costs
Gathering, transportation, and compression		1,~~924~~727,~~460~~590		—		1,~~924~~727,~~460~~590
Other lease operating expense		~~538~~669,~~325~~462		—		~~538~~669,~~325~~462
Gathering system operating expenses		—		~~613~~563,~~795~~542		~~613~~563,~~795~~542
Intersegment other lease operating expense		~~507~~401,~~365~~325		—		~~507~~401,~~365~~325
Impairment		~~2,670,000~~—		—		~~2,670,000~~—
Depletion, depreciation, amortization and accretion		2,~~919~~354,~~238~~222		~~282~~216,~~416~~240		32,~~201~~570,~~654~~462
Segment operating income	$	12,~~220~~383,~~340~~649	$	1,~~456~~066,~~159~~754	$	23,~~169~~049,~~134~~078

Reconciliation of segment operating income
Salary expense						~~710~~832,~~122~~977
Stock based compensation						~~385~~376,~~838~~613
Other general and administrative						~~751~~1,~~756~~634,808
Elimination of intersegment other lease operating expenses						(~~507~~401,~~365~~325)
Total consolidated operating income						~~828~~606,~~783~~005

Other income (expense)
Interest income						1784,~~247~~894
Interest expense						(1911,~~906~~666)
Gain on derivative contracts						2964,~~573,863~~307
Other expense						~~(10~~5,~~839)~~252
Other expense, net						21,~~560~~042,~~365~~787
Net income before income tax expense					$	31,~~389~~648,~~148~~792

Capital expenditures (2)	$	3(196,~~502,977~~673)	$	~~124~~155,~~052~~797	$	3(40,~~627,029~~876)

2022

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements


	Upstream		Gas Gathering		~~Consolidated~~Total
As of and for the three months ended June 30, 2024
As of and for the three months ended September 30, 2024
Operating revenue
Natural gas	$	1,~~961~~903,~~230~~946	$	—	$	1,~~961~~903,~~230~~946
Natural gas liquids		~~388~~335,~~423~~271		—		~~388~~335,~~423~~271
Oil and condensate		3,~~513~~964,~~717~~736		—		3,~~513~~964,~~717~~736
Gathering and compression fees		—		1,~~444~~083,~~448~~988		1,~~444~~083,~~448~~988
Intersegment gathering and compression fees		—		~~277~~250,~~509~~718		~~277~~250,~~509~~718
		56,~~863~~203,~~370~~953		1,~~721~~334,~~957~~706		7,~~585~~538,~~327~~659

Reconciliation of operating revenue
Elimination of intersegment revenues						(~~277~~250,~~509~~718)
Total consolidated operating revenue(1)						7,~~307~~287,~~818~~941

Operating costs
Gathering, transportation, and compression		1,~~231~~157,~~981~~373		—		1,~~231~~157,~~981~~373
Other lease operating expense		~~417~~942,~~886~~128		—		~~417~~942,~~886~~128
Gathering system operating expenses		—		~~649~~490,~~967~~325		~~649~~490,~~967~~325
Intersegment other lease operating expense		~~277~~250,~~509~~718		—		~~277~~250,~~509~~718
Depletion, depreciation, amortization and accretion		12,~~877~~435,~~611~~309		~~170~~263,~~792~~503		2,~~048~~698,~~403~~812
Segment operating income	$	21,~~058~~418,~~383~~425	$	~~901~~580,~~198~~878	$	21,~~682~~748,~~072~~585

Reconciliation of segment operating income
Salary expense						1529,~~838~~171
Stock based compensation						~~313~~309,~~589~~109
Other general and administrative						1,~~462~~420,~~377~~405
Elimination of intersegment other lease operating expenses						(~~277~~250,~~509~~718)
Total consolidated operating income						1240,~~167,777~~618

Other income (expense)
Interest income						~~108~~60,~~943~~693
Interest expense						(817,~~759~~598)
Gain on derivative contracts						~~(94~~440,~~891)~~712
Other expense						~~101~~9,~~606~~994
Other income, net						~~106~~493,~~899~~801
Net income before income tax expense					$	1734,~~274,676~~419

Capital expenditures (2)	$	92,~~109~~410,~~756~~620	$	476,~~586~~389	$	92,~~157~~417,~~342~~009

(31) Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the three months ended ~~June~~September 30, 2025 and 2024 have been eliminated upon consolidation. For the three months ended ~~June~~September 30, 2025, Epsilon sold natural gas to 3126 unique customers. The ~~two~~three customers over 10% comprised 4424.4%, 24.3% and 1411% of total revenue. For the three months ended ~~June~~September 30, 2024, Epsilon sold natural gas to 2624 unique customers. The three customers over 10% comprised 2034%, 1514% and 1411% of total revenue.

(42) Capital expenditures for the Upstream segment consist primarily of the acquisition of properties, and the drilling and completing of wells while Gas Gathering consists of expenditures relating to the expansion, completion, and maintenance of the gathering and compression facility.

15. Commodity Risk Management Activities

Commodity Price Risks

Epsilon engages in price risk management activities from time to time. These activities are intended to manage Epsilon’s exposure to fluctuations in commodity prices for natural gas and oil by securing derivative contracts for a portion of expected sales volumes.

Inherent in the Company’s fixed price contracts, are certain business risks, including market risk and credit risk. Market risk is the risk that the price of oil and natural gas will change, either favorably or unfavorably, in response to changing market conditions. Credit risk is the risk of loss from nonperformance by the Company’s counterparty to a contract. The Company does not currently require collateral from any of its counterparties nor do its counterparties currently require collateral from the Company.

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements

The Company enters into certain commodity derivative instruments to mitigate commodity price risk associated with a portion of its future natural gas and oil production and related cash flows. The natural gas and oil revenues and cash flows are affected by changes in commodity product prices, which are volatile and cannot be accurately predicted. The objective for holding these commodity derivatives is to protect the operating revenues and cash flows related to a portion of the future natural gas and oil sales from the risk of significant declines in commodity prices, which helps ensure the Company’s ability to fund the capital budget.

Epsilon has historically elected not to designate any of its financial commodity derivative contracts as accounting hedges and, accordingly, accounts for these financial commodity derivative contracts using the mark-to-market accounting method. Under this accounting method, changes in the fair value of outstanding financial instruments are recognized as gains or losses in the period of change and are recorded as Loss on derivative contracts on the condensed Consolidated Statements of Operations and Comprehensive Income. The related cash flow impact is reflected in cash flows from operating activities. During the three and ~~six~~nine months ended ~~June~~September 30, 2025, Epsilon recognized gains on commodity derivative contracts of $2964,~~573,863~~307 and $12,~~111~~076,~~693~~000, respectively. These amounts included cash received of $~~306~~807,~~660~~648 and ~~cash paid of~~ $~~108~~699,~~383 on settlements on these contracts~~265, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2024, Epsilon recognized ~~losses~~gains on commodity derivative contracts of $94440,~~891~~712 and $~~195~~245,~~617~~095, respectively. These amounts included cash received on settlements on these contracts of $~~272~~485,~~257~~389 and $~~760~~1,~~542~~245,931, respectively.

Commodity Derivative Contracts

At ~~June~~September 30, 2025, the Company had outstanding natural gas NYMEX Henry Hub (“HH”) swaps totaling 21.671 Bcf, natural gas ~~Tennessee Z4 basis swaps totaling 0.78 Bcf, natural gas~~ NYMEX HH options totaling 02.9319 Bcf, and crude oil NYMEX WTI CMA swaps totaling 4030.8 MBbls.


	Fair Value of Derivative Assets
	~~June~~September 30,		December 31,
	2025		2024
Current
Henry Hub Nymex Swap	$	~~322~~595,~~385~~521	$	151,274
Tennessee Z4 Basis swap		~~351,769~~—		195,211
Henry Hub Nymex Option - Put		~~181~~382,~~254~~243		—
Crude Oil NYMEX WTI CMA		~~263~~155,~~462~~529		56,547
Long-term
Henry Hub Nymex Swap		716,~~225~~244		—
Henry Hub Nymex Option - Put		~~222~~313,~~199~~137		—
	$	1,~~348~~462,~~294~~674	$	403,032


	Fair Value of Derivative Liabilities
	~~June~~September 30,		December 31,
	2025		2024
Current
Henry Hub Nymex Swap	$	~~(264,965)~~—	$	(448,852)
Tennessee Z4 Basis swap		—		(441,728)
Henry Hub Nymex Option - Call		(~~105~~204,~~437~~511)		—
Long-term
Henry Hub Nymex Swap		(51,406)		—
Henry Hub Nymex Option - Put		—		—
Henry Hub Nymex Option - Call		(~~193~~368,~~958~~976)		—
	$	(~~615~~573,~~766~~487)	$	(890,580)

Net Fair Value of Derivatives	$	~~732~~889,~~528~~187	$	(487,548)

Net Current	$	928,782	$	(487,548)
Net Long-term	$	(39,595)	$	—

2224

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements

The following table presents the changes in the fair value of Epsilon’s commodity derivatives for the periods indicated:


	Three months ended ~~June~~September 30,				~~Six~~Nine months ended ~~June~~September 30,
	2025		2024		2025		2024
Fair value of (liability) asset, beginning of the period	$	(1,534,675)	$	511,244	$	(487,548)	$	1,100,255
Fair value of asset (liability), beginning of the period	$	732,528	$	144,096	$	(487,548)	$	1,100,255
Gain/(loss) on derivative contracts included in earnings		2,573,863		(94,891)		1,111,693		(195,617)
Gain on derivative contracts included in earnings		964,307		440,712		2,076,000		245,095
Settlement of commodity derivative contracts		(~~306~~807,~~660~~648)		(~~272~~485,~~257~~389)		~~108~~(699,~~383~~265)		(~~760~~1,~~542~~245,931)
Fair value of asset, end of the period	$	~~732~~889,~~528~~187	$	~~144~~99,~~096~~419	$	~~732~~889,~~528~~187	$	~~144~~99,~~096~~419

16. Asset Retirement Obligations

Asset retirement obligations are estimated by management based on Epsilon’s net ownership interest in all wells and the gathering system, estimated costs to reclaim and abandon such assets and the estimated timing of the costs to be incurred in future periods, and the forecast risk free cost of capital. Each year we review, and to the extent necessary, revise our asset retirement obligations estimates in accordance with recent activity and current service costs.

The following tables summarize the changes in asset retirement obligations for the periods indicated:


	~~Six~~Nine Months Ended		Year ended
		~~June~~September 30,		December 31,
	2025		2024
Balance beginning of period	$	3,652,296	$	3,502,952
Liabilities acquired		1825,~~235~~196		48,207
Wells plugged and abandoned		(1,600)		(88,992)
Change in estimates		—		6,695
Accretion		95146,~~885~~138		183,434
Balance end of period	$	3,~~764~~822,~~816~~030	$	3,652,296

17. Fair Value Measurements

The methodologies used to determine the fair value of our financial assets and liabilities at ~~June~~September 30, 2025 were the same as those used at December 31, 2024.

Cash and cash equivalents, restricted cash, accounts receivable, and accounts payable are carried at cost, which approximates their fair value because of the short-term maturity of these instruments. The Company’s revolving line of credit has a recorded value that approximates its fair value since its variable interest rate is tied to current market rates and the applicable margins represent market rates. The revolving line of credit is classified within Level 2 of the fair value hierarchy.

Commodity derivative instruments consist of NYMEX HH swap, NYMEX HH option, and Tennessee Z4 basis swap contracts for natural gas, and NYMEX WTI CMA swap contracts for crude oil. The Company’s derivative contracts are valued based on a marked to market approach. These assumptions are observable in the marketplace throughout the full term of the contract, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace, and are therefore designated as Level 2 within the valuation hierarchy. The Company utilizes its counterparties’ valuations to assess the reasonableness of its own valuations.

~~June~~September 30, 2025

Level 1

Level 2

Level 3

Effect of Netting

Net Fair Value

Assets

Derivative contracts

—

1,~~348~~462,~~294~~674

—

(~~615~~573,~~766~~487)

~~732~~889,~~528~~187

Cash equivalents

~~261~~262,~~512~~894

—

~~261~~262,~~512~~894

Liabilities

Derivative contracts

—

~~615~~573,~~766~~487

—

(~~615~~573,~~766~~487)

—

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Epsilon Energy Ltd.

Notes to the Unaudited Condensed Consolidated Financial Statements


	December 31, 2024
	Level 1		Level 2		Level 3		Effect of Netting		Net Fair Value
Assets
Derivative contracts	$	—	$	403,032	$	—	$	(403,032)	$	—
Cash equivalents	$	298,767	$	—	$	—	$	—	$	298,767
Liabilities
Derivative contracts	$	—	$	890,580	$	—	$	(403,032)	$	487,548

Non-Recurring Fair Value Measurements

The Company performed an impairment test on our oil and gas properties and it was determined that the carrying amount of the Canada asset exceeded the estimated undiscounted future cash flows resulting in a reduction of the carrying amount of the properties to their estimated fair values by $2.7 million during the nine months ended September 30, 2025. This nonrecurring fair value measurement is classified within Level 3 of the fair value hierarchy. For the year ended December 31, 2024, there was an impairment of $1.45 million.

The table below summarizes the fair value of the impaired assets at June 30, 2025, the measurement date for the impairment.


			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	June 30,		Identical Assets		Inputs		Inputs
	2025		(Level 1)		(Level 2)		(Level 3)
Nonrecurring fair value measurement
Long-lived assets held and used	$	1,342,942	$	—	$	—	$	1,342,942
Long-lived assets held and used (1)	$	1,342,942	$	—	$	—	$	1,342,942
Total Nonrecurring fair value measurement	$	1,342,942	$	—	$	—	$	1,342,942

(1)

At June 30, 2025, long-lived assets held and used with a carrying amount of $4.0 million were written down to their fair value of $1.3 million, resulting in an impairment charge of $2.7 million.

The table below summarized the fair value of the impaired assets at December 31, 2024.

The table below summarizes the fair value of the impaired assets at December 31, 2024.


			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	December 31,		Identical Assets		Inputs		Inputs
	2024		(Level 1)		(Level 2)		(Level 3)
Nonrecurring fair value measurement
Long-lived assets held and used	$	492,253	$	—	$	—	$	492,253
Total Nonrecurring fair value measurement	$	492,253	$	—	$	—	$	492,253

18. Subsequent Events

On August 11, 2025, Epsilon signed definitive agreements to acquire two entities, Peak Exploration and Production LLC and Peak BLM Lease LLC (together, “Peak”). Consideration at closing is proposed as the issuance of 6 million Epsilon common shares and the assumption of approximately $49 million in debt. Additional consideration is proposed as the issuance of 1.5 - 2.5 million Epsilon common shares are contingent on the receipt of drilling permits on, and the ability to access, leasehold currently affected by a drilling moratorium in Converse County, Wyoming. If the conditions are not met by year-end 2027, Epsilon has a $6.5 million cash option to retain the affected undeveloped leasehold.

The acquired assets include an operated position of 40,500 net acres producing 2.2 MBoepd in the Powder River Basin in Campbell and Converse County, Wyoming.

The transaction is subject to a shareholder vote; the associated proxy process will run in the interim period between signing and closing. If approved, the transaction is expected to close in the fourth quarter of 2025.26

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to assist in the understanding of trends and significant changes in our results of operations and the financial condition of Epsilon Energy Ltd. and its subsidiaries for the periods presented. The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and notes thereto presented in this report, including the unaudited condensed consolidated financial statements as of ~~June~~September 30, 2025 and 2024 together with accompanying notes, as well as our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2024. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs, and expected performance. Actual results and the timing of events may differ materially from those contained in these forward- looking statements due to a number of factors. See “Part II. Item 1A. Risk Factors” and “Forward-Looking Statements.”

Overview

Epsilon Energy Ltd. (the “Company”) is a North American onshore focused independent natural gas and oil company engaged in the acquisition, development, gathering and production of natural gas and oil reserves. Our primary areas of operations are the Marcellus shale section of the Appalachian basin in Pennsylvania, the Permian Basin in Texas and New Mexico, the NW Anadarko Basin in Oklahoma, and the Western Canadian Sedimentary Basin in Alberta, Canada.

At ~~June~~September 30, 2025 we held leasehold rights to 2421,~~316~~490 net acres. We have natural gas production from our non-operated wells in Pennsylvania, and oil, natural gas liquids, and natural gas production from our non-operated wells in Texas, New Mexico, Oklahoma, and Alberta, Canada.

At December 31, 2024 our total estimated net proved reserves were 69,401 MMcf of natural gas, 876,808 Bbls of NGLs, and 1,572,465 Bbls of oil and condensate.

In Pennsylvania, the Company owns a 35% interest in the 45-mile Auburn Gas Gathering System (“Auburn GGS") which is operated by a subsidiary of Williams Partners, LP.

Our common shares trade on the NASDAQ Global Market under the ticker symbol “EPSN.”

Business Strategy

We are committed to disciplined capital allocation including shareholder returns in the form of dividends and share buybacks. We plan to maintain a strong balance sheet and liquidity position to allow us to opportunistically invest in both our existing project areas and potential new projects.

Historically, our investments have been focused on our position in the Marcellus unconventional reservoir in Pennsylvania (“PA”). Our PA assets are supported by our 35% ownership in the Auburn GGS and we have a substantial remaining drillable location inventory within our existing leaseholds.

More recently, our investments have been focused in the Permian Basin in Texas and the Western Canadian Sedimentary Basin in Alberta, Canada.

On February 26, 2024, Epsilon acquired a 25% interest in three producing wells and 3,620 gross undeveloped acres in Ector County, Texas from a private operator. The Company participated in the drilling and completion of 2 gross (0.5 net) wells during 2024 which were put on production in May 2024 and July 2024. Together with the transaction completed in 2023, the Company holds a 25% working interest in 16,~~592~~446 gross acres and 78 producing wells in Texas. Total capital expenditures (net to Epsilon) through ~~June~~September 30, 2025 in the project (including undeveloped leasehold) are $4042 million.

On April 11, 2024, Epsilon acquired a 50% working interest in 14,243 gross undeveloped acres in Alberta, Canada. The Company participated in the drilling and completion of 2 gross (0.5 net) wells. One well was put on production in September 2024. One well was deemed non-commercial. Total capital expenditures (net to Epsilon) through ~~June~~September 30, 2025 in the project (including undeveloped leasehold) are $3.5 million (pre-impairment).

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In October 2024, Epsilon formed a joint venture with a private operator covering approximately 130,000 gross acres in Garrington and Harmattan areas in Alberta, Canada. The Company provided a $7 million drilling carry in favor of the operator in exchange for a 25% working interest in the leasehold. To date, the Company participated in the drilling and completion of 2 gross (0.5 net) wells. Total capital expenditures (net to Epsilon) through ~~June~~September 30, 2025 are $8.9.0 million (~~pre-~~prior to $2.7 million of impairment during the nine months ended September 30, 2025).

WeOn ~~continue~~August 11, 2025, Epsilon signed definitive agreements to ~~evaluate~~acquire ~~new~~two ~~opportunities~~entities (Peak Exploration and Production LLC and Peak BLM Lease LLC, together “Peak”) majority owned by funds of Yorktown Energy Partners LLC. Combined consideration due at closing is the issuance of 6 million Epsilon common shares and the assumption of an estimated $51.2 million of debt. Additional contingent consideration of up to 2.5 million Epsilon common shares could be due subject to the ability to access acreage currently affected by a drilling permit moratorium in ~~numerous~~Converse ~~onshore~~County, ~~North~~Wyoming. ~~American~~The ~~basins~~assets to be acquired include an operated position of 40,500 net acres producing 2.2 MBoepd in the Powder River Basin in Campbell and Converse County, Wyoming. The transactions are expected to close in Q4 2025, subject to obtaining the requisite Epsilon shareholder approval.

Three and ~~six~~nine months ended ~~June~~September 30, 2025 Highlights

Operational Highlights

Marcellus Shale – Pennsylvania

● During the three months ended ~~June~~September 30, 2025, Epsilon's realized natural gas price was $2.5324 per Mcf, a 7646% increase over the three months ended ~~June~~September 30, 2024. During the ~~six~~nine months ended ~~June~~September 30, 2025, Epsilon's realized natural gas price was $32.2295 per Mcf, aan 9985% increase over the ~~six~~nine months ended ~~June~~September 30, 2024.

● During the three months ended ~~June~~September 30, 2025, Epsilon’s net revenue interest natural gas production was 2.70 Bcf, a ~~107~~67% increase over the three months ended ~~June~~September 30, 2024. During the ~~six~~nine months ended ~~June~~September 30, 2025, Epsilon’s net revenue interest natural gas production was 57.30 Bcf, an 8675% increase over the ~~six~~nine months ended ~~June~~September 30, 2024.

● Gathered and delivered 118.29 Bcf gross (3.91 net to Epsilon's interest) during the three months ended ~~June~~September 30, 2025, or ~~123~~96 MMcf/d through the Auburn Gas Gathering System. Gathered and delivered 2231.8 Bcf gross (811.01 net to Epsilon's interest) during the ~~six~~nine months ended ~~June~~Sept 30, 2025, or ~~126~~116 MMcf/d through the Auburn Gas Gathering System.

Permian Basin – Texas and New Mexico

● During the three months ended ~~June~~September 30, 2025, Epsilon's realized price for all Permian Basin production was $5150.7919 per Boe (8890% liquids), a 47% decrease over the three months ended ~~June~~September 30, 2024. During the ~~six~~nine months ended ~~June~~September 30, 2025, Epsilon's realized price for all Permian Basin production was $5352.4643 per Boe (8788% liquids), a 02.026% decrease over the ~~six~~nine months ended ~~June~~September 30, 2024.

● Total net revenue interest production for the three months ended ~~June~~September 30, 2025, which included oil, natural gas liquids, and natural gas, was 4247.98 Mboe compared to 6573.93 Mboe during the same period in 2024, ana 35% decrease. Total net revenue interest production for the ~~six~~nine months ended ~~June~~September 30, 2025, which included oil, natural gas liquids, and natural gas, was ~~104~~152.97 Mboe compared to ~~118~~191.24 Mboe during the same period in 2024, ana 1120% decrease.

● AtDuring ~~June~~the nine months ended September 30, 2025, the Company had 1 gross (.25 net) well drilled and ~~awaiting~~completed. ~~completion~~The well turned online in ~~Texas~~July 2025.

~~Anadarko, NW Stack Trend – Oklahoma~~28

● During the three months ended June 30, 2025, Epsilon's realized price for all Oklahoma production was $4.40 per Mcfe (60% natural gas), a 3% increase from the three months ended June 30, 2024. During the six months ended June 30, 2025, Epsilon's realized price for all Oklahoma production was $4.85 per Mcfe (60% natural gas), a 10% increase from the six months ended June 30, 2024.

● Total net revenue interest production for the three months ended June 30, 2025 included natural gas, oil and other liquids and was 0.09 Bcfe, a 22% decrease from the same period in 2024. Total net revenue interest production for the six months ended June 30, 2025 included natural gas, oil and other liquids and was 0.2 Bcfe, a 10% decrease from the same period in 2024.

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Anadarko, NW Stack Trend – Oklahoma

●

During the three months ended September 30, 2025, Epsilon's realized price for all Oklahoma production was $3.84 per Mcfe (57% natural gas), a 7% decrease from the three months ended September 30, 2024. During the nine months ended September 30, 2025, Epsilon's realized price for all Oklahoma production was $4.55 per Mcfe (60% natural gas), a 6% increase from the nine months ended September 30, 2024.

●

Total net revenue interest production for the three months ended September 30, 2025 included natural gas, oil and other liquids and was 0.07 Bcfe, a 23% decrease from the same period in 2024. Total net revenue interest production for the nine months ended September 30, 2025 included natural gas, oil and other liquids and was 0.2 Bcfe, a 22% decrease from the same period in 2024.

Western Canadian Sedimentary Basin—Alberta, Canada

● During the three months ended ~~June~~September 30, 2025, Epsilon's realized price for all Canada production was $4231.2354 per Boe (7563% liquids). During the ~~six~~nine months ended ~~June~~September 30, 2025, Epsilon's realized price for all Canada production was $4338.4889 per Boe (7873% liquids). The Company had no Canada production in 2024.

● Total net revenue interest production for the three months ended ~~June~~September 30, 2025, which included oil, natural gas liquids, and natural gas, was 118.32 Mboe. Total net revenue interest production for the ~~six~~nine months ended ~~June~~September 30, 2025, which included oil, natural gas liquids, and natural gas, was 1321.12 Mboe.

Non-GAAP Financial Measures-Adjusted EBITDA

Epsilon defines Adjusted EBITDA as earnings before (1) net interest expense, (2) taxes, (3) depreciation, depletion, amortization and accretion expense, (4) impairments of natural gas and oil properties, (5) non-cash stock compensation expense, (6) gain or loss on sale of assets, (7) gain or loss on derivative contracts net of cash received or paid on settlement, and (8) net other income (expense). Adjusted EBITDA is not a measure of financial performance as determined under U.S. GAAP and should not be considered in isolation from or as a substitute for net income or cash flow measures prepared in accordance with U.S. GAAP or as a measure of profitability or liquidity.

Additionally, Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. Epsilon has included Adjusted EBITDA as a supplemental disclosure because its management believes that Adjusted EBITDA provides useful information regarding its ability to service debt and to fund capital expenditures. It further provides investors a helpful measure for comparing operating performance on a normalized or recurring basis with the performance of other companies, without giving effect to certain non-cash expenses and other items. This provides management, investors and analysts with comparative information for evaluating the Company in relation to other natural gas and oil companies providing corresponding non-U.S. GAAP financial measures or that have different financing and capital structures or tax rates. These non-U.S. GAAP financial measures should be considered in addition to, but not as a substitute for, measures for financial performance prepared in accordance with U.S. GAAP.

The table below sets forth a reconciliation of net income to Adjusted EBITDA for the three and ~~six~~nine months ended ~~June~~September 30, 2025 and 2024, which is the most directly comparable measure of financial performance calculated under U.S. GAAP and should be reviewed carefully.


	Three months ended June 30,				Six months ended June 30,
	2025		2024		2025		2024
Net income	$	1,551,461	$	815,660	$	5,567,495	$	2,322,556
Add Back:
Interest expense (income), net		2,659		(100,184)		(429)		(357,696)
Income tax expense		1,837,687		459,016		3,507,881		513,066
Depreciation, depletion, amortization, and accretion		3,201,654		2,048,403		6,677,511		4,428,829
Impairment expense		2,670,000		—		2,676,669		—
Stock based compensation expense		385,838		313,589		771,676		635,158
(Gain) loss on derivative contracts net of cash received or paid on settlement		(2,267,203)		367,148		(1,220,076)		956,159
Foreign currency translation loss		14,021		—		24,310		570
Adjusted EBITDA	$	7,396,117	$	3,903,632	$	18,005,037	$	8,498,642

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	Three months ended September 30,				Nine months ended September 30,
	2025		2024		2025		2024
Net income	$	1,072,295	$	366,021	$	6,639,790	$	2,688,577
Add Back:
Interest income, net		(73,228)		(43,095)		(73,657)		(400,791)
Income tax expense		576,497		368,398		4,084,378		881,464
Depreciation, depletion, amortization, and accretion		2,570,462		2,698,812		9,247,973		7,127,641
Impairment expense		—		—		2,676,669		—
Stock based compensation expense		376,613		309,109		1,148,289		944,267
(Gain) loss on derivative contracts net of cash received or paid on settlement		(156,659)		44,677		(1,376,735)		1,000,836
Foreign currency translation loss		(710)		—		23,601		570
Adjusted EBITDA	$	4,365,270	$	3,743,922	$	22,370,308	$	12,242,564

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Results of Operations

Net Operating Revenues

For the ~~six~~nine months ended ~~June~~September 30, 2025 revenues increased $1214.52 million, or 8263%, to $2736.8 million from $1522.36 million during the same period of 2024.

Revenue and volume statistics for the three and ~~six~~nine months ended ~~June~~September 30, 2025 and 2024 were as follows:


	Three months ended				~~Six~~Nine months ended
	~~June~~September 30,				~~June~~September 30,
	2025		2024		2025		2024
Revenues
Pennsylvania
Natural gas revenue	$	64,~~702~~591,~~131~~423	$	1,~~843~~833,~~548~~371	$	1721,~~030~~621,~~025~~448	$	46,~~601~~435,~~656~~027
Volume (MMcf)		2,~~653~~045		1,~~285~~190		57,~~290~~336		24,~~841~~032
Avg. Price ($/Mcf)	$	2.5324	$	1.4454	$	32.2295	$	1.6260
Gathering system revenue (net of elimination)	$	1,~~845~~445,~~005~~211	$	1,~~444~~083,~~448~~988	$	35,~~737~~182,~~355~~566	$	34,~~380~~464,~~146~~134
Total PA Revenues	$	86,~~547~~036,~~136~~634	$	32,~~287~~917,~~996~~359	$	2026,~~767~~804,~~380~~014	$	710,~~981~~899,~~802~~161
Permian Basin
Natural gas revenue	$	1739,~~189~~312	$	(227,~~757~~499)	$	95134,~~528~~840	$	3811,~~821~~322
Volume (MMcf)		3028		5857		80108		~~101~~158
Avg. Price ($/Mcf)	$	01.5642	$	(0.0548)	$	1.1925	$	0.3807
Natural gas liquids revenue	$	41167,~~837~~132	$	~~281~~239,~~770~~262	$	~~326~~493,~~798~~930	$	~~541~~780,~~684~~946
Volume (MBOE)		39.2		1413.51		1524.35		2639.01
Avg. Price ($/Bbl)	$	1318.0621	$	1918.3831	$	2120.3618	$	2019.8599
Oil and condensate revenue	$	2,~~163~~193,~~481~~192	$	3,~~266~~757,~~693~~574	$	57,~~182~~376,~~976~~168	$	59,~~753~~510,~~206~~780
Volume (MBbl)		34.60		4150.7		76110.2		75126.41
Avg. Price ($/Bbl)	$	6264.4745	$	7874.3511	$	6866.0694	$	7675.3545
Total Permian Basin Revenues	$	2,~~222~~399,~~507~~636	$	3,~~545~~969,~~706~~337	$	58,~~605~~004,~~302~~938	$	610,~~333~~303,~~711~~048
Oklahoma
Natural gas revenue	$	~~166~~117,~~635~~000	$	~~120~~98,~~439~~074	$	~~373~~490,975	$	~~283~~381,~~732~~806
Volume (MMcf)		5245		6557		~~105~~150		~~131~~188
Avg. Price ($/Mcf)	$	32.2061	$	1.8672	$	3.5728	$	2.1704
Natural gas liquids revenue	$	7970,~~789~~337	$	~~106~~96,~~653~~009	$	~~182~~252,~~078~~415	$	~~219~~315,~~723~~732
Volume (MBOE)		3.74		4.71		710.48		913.34
Avg. Price ($/Bbl)	$	2120.6149	$	2223.7860	$	2423.6433	$	23.5255
Oil and condensate revenue	$	~~133~~100,~~446~~271	$	~~247~~207,~~024~~162	$	~~291~~391,~~383~~654	$	~~475~~682,~~593~~755
Volume (MBbl)		21.06		32.17		45.38		68.17
Avg. Price ($/Bbl)	$	6664.0061	$	7977.6633	$	6867.2931	$	78.3806
Total OK Revenues	$	~~379~~287,~~870~~608	$	~~474~~401,~~116~~245	$	~~847~~1,~~436~~135,044	$	~~979~~1,~~048~~380,293
Canada
Natural gas revenue	$	2410,~~389~~843	$	—	$	2435,~~389~~232	$	—
Volume (MMcf)		1718		—		1735		—
Avg. Price ($/Mcf)	$	10.4460	$	—	$	1.4401	$	—
Natural gas liquids revenue	$	2329,~~394~~550	$	—	$	2352,~~394~~944	$	—
Volume (MBOE)		01.94		—		02.93		—
Avg. Price ($/Bbl)	$	2421.9176	$	—	$	2423.9105	$	—
Oil and condensate revenue	$	~~427~~217,~~437~~188	$	—	$	~~519~~737,~~972~~160	$	—
Volume (MBbl)		73.58		—		913.31		—
Avg. Price ($/Bbl)	$	5756.1189	$	—	$	5556.9824	$	—
Total Canada Revenues	$	~~475~~257,~~220~~581	$	—	$	~~567~~825,~~755~~336	$	—
Total Revenues	$	118,~~624~~981,~~733~~459	$	7,~~307~~287,~~818~~941	$	2736,~~787~~769,~~873~~332	$	1522,~~294~~582,~~561~~502

Upstream natural gas revenue for the ~~six~~nine months ended ~~June~~September 30, 2025 increased by $1215.65 million, or ~~256~~226%, over the same period in 2024. An increase of $810.74 million was due to higher natural gas prices and an increase of $35.91 million was a result of previously delayed turn in line wells coming online in Pennsylvania and the end of operator-~~elected well~~

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elected well shut-ins in Pennsylvania. Upstream natural gas revenue for the three months ended ~~June~~September 30, 2025 increased by $52.08 million, or ~~252~~150%, over the same period in 2024. An increase of $3.1.6 million was due to higher natural gas prices and an increase of $1.92 million was a result of previously delayed turn in line wells coming online in Pennsylvania and the end of operator-elected well shut-ins in Pennsylvania.

Upstream natural gas liquids revenue for the ~~six~~nine months ended ~~June~~September 30, 2025 decreased by $0.23 million, or 3027%, over the same period in 2024. This decrease was mostly due to lower volumes in the Permian Basin as a result of processing disruptions at the Goldsmith plant in Texas as well as gas flaring due to negative residue gas pricing in the second and third quarter. Upstream natural gas liquids revenue for the three months ended ~~June~~September 30, 2025 decreased by $0.207 million, or 6320%, over the same period in 2024. This decrease was mostly due to lower volumes in the Permian Basin as a result of the aforementioned processing ~~disruption~~disruptions and negative residue gas pricing.

Upstream oil and condensate revenue for the ~~six~~nine months ended ~~June~~September 30, 2025 decreased by $01.27 million, or 417% over the same period in 2024. AnA ~~increase~~decrease of $01.63 million was due to ~~additional~~lower ~~sales~~oil ~~volumes~~prices ~~from new wells drilled~~ and ~~acquired in the Permian Basin and Canada partially offset by~~ a decrease of $0.94 million was due to lower ~~prices~~volumes from well shut-ins for adjacent completion operations and natural decline. Upstream oil and condensate revenue for the three months ended ~~June~~September 30, 2025 decreased by $01.85 million, or 2237% over the same period in 2024. A decrease of $~~0.05~~1 million was due to ~~constant~~lower ~~sales~~ volumes from the aforementioned well shut-ins and natural decline and a decrease of $0.754 million was due to lower prices.

Gathering system revenue for the ~~six~~nine months ended ~~June~~September 30, 2025 increased by $0.47 million, or 1116%, compared with the same period in 2024 as a result of slightly higher throughput, but more importantly, crossflow gas being displaced with Anchor Shipper gas which is charged a higher gathering fee. Gathering system revenue for the three months ended ~~June~~September 30, 2025 increased by $0.4 million, or 2833%, compared with the same period in 2024 due to higher volumes and a higher percentage of Anchor Shipper gas. Revenues derived from transporting and compressing our production, which have been eliminated from gathering system revenues amounted to $0.54 million and $1.15 million, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2025, and $0.3 million and $0.68 million, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2024.

Operating Costs

The following table presents total cost and cost per unit of production (Mcfe), including ad valorem, severance, and production taxes for the three and ~~six~~nine months ended ~~June~~September 30, 2025 and 2024:


	Three months ended ~~June~~September 30,				~~Six~~Nine months ended ~~June~~September 30,
	2025		2024		2025		2024
Lease operating costs (net of elimination)	$	2,~~462~~397,~~785~~052	$	12,~~649~~099,~~867~~501	$	57,~~218~~615,~~683~~735	$	35,~~418~~517,~~329~~830
Gathering system operating costs		~~613~~563,~~795~~542		~~649~~490,~~967~~325		1,~~166~~729,~~446~~988		1,~~202~~692,~~537~~862
	$	32,~~076~~960,~~580~~594	$	2,~~299~~589,~~834~~826	$	69,~~385~~345,~~129~~723	$	47,~~620~~210,~~866~~692

Upstream operating costs—Total $/Mcfe	$	0.8098	$	01.9222	$	0.8588	$	01.9100
Gathering system operating costs $/Mcf	$	0.1518	$	0.2019	$	0.1415	$	0.1416

Operating costs include the effects of elimination entries to remove the gathering fees paid to Epsilon’s ownership in the gathering system.

Upstream operating costs consist of lease operating expenses necessary to extract natural gas and oil, including gathering and treating the natural gas and oil toin ~~ready~~preparation it for sale. For the ~~six~~nine months ended ~~June~~September 30, 2025 these costs increased by $12.81 million, or 5338%, over the same period in 2024. The increase is primarily due to higher volumes. For the three months ended ~~June~~September 30, 2025 these costs increased by $0.83 million, or 4914%, over the same period in 2024. The increase is ~~primarily~~ due to ~~higher~~non-recurring ~~volumes~~plugging and abandonment expenses above previously estimated asset retirement obligations.

Gathering system operating costs consist primarily of rental payments for the natural gas fueled compression units and overhead fees due to the system’s operator. For the three and ~~six~~nine months ended ~~June~~September 30, 2025, gathering system operating costs were constant compared to the same period in 2024.

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Depletion, Depreciation, Amortization and Accretion (“DD&A”)


	Three months ended ~~June~~September 30,				~~Six~~Nine months ended ~~June~~September 30,
	2025		2024		2025		2024
Depletion, depreciation, amortization and accretion	$	32,~~201~~570,~~654~~462	$	2,~~048~~698,~~403~~812	$	69,~~677~~247,~~511~~973	$	47,~~428~~127,~~829~~641

Natural gas and oil and gathering system assets are depleted and depreciated using the units of production method aggregating properties on a field basis. For leasehold acquisition costs and the cost to acquire proved and unproved properties, the reserve base used to calculate depreciation and depletion is total proved reserves. For natural gas and oil development and gathering system costs, the reserve base used to calculate depletion and depreciation is proved developed reserves.

Depreciation expense includes amounts pertaining to our office furniture and fixtures, leasehold improvements, computer hardware. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, ranging from 3 to 7 years. Also included in depreciation expense is an amount pertaining to buildings owned by the Company. Depreciation for the buildings is calculated using the straight-line method over an estimated useful life of 30 years.

Accretion expense is related to the asset retirement costs.

DD&A expense for the ~~three~~nine ~~and six~~ months ended ~~June~~September 30, 2025 increased by $1.2 ~~million, or 56%, and $2~~.21 million, or 5130%, respectively, from the same period in 2024. This increase was a result of higher produced volumes in Pennsylvania. ~~and~~DD&A expense for the ~~Permian~~three ~~Basin~~months ended September 30, 2025 was constant from the same period in 2024.

Impairment


	Three months ended ~~June~~September 30,				~~Six~~Nine months ended ~~June~~September 30,
	2025		2024		2025		2024
Impairment	$	~~2,670,000~~—	$	—	$	2,676,669	$	—

We perform a quantitative impairment test whenever events or changes in circumstances indicate that an asset group's carrying amount may not be recoverable, over proved properties using the market forward prices, timing, methods and other assumptions consistent with historical periods. When indicators of impairment are present, GAAP requires that the Company first compare expected future undiscounted cash flows by asset group to their respective carrying values. If the carrying amount exceeds the estimated undiscounted future cash flows, a reduction of the carrying amount of the natural gas properties to their estimated fair value is required. Additionally, GAAP requires that if an exploratory well is determined not to have found proved reserves, the costs incurred, net of any salvage value, should be charged to expense.

For the ~~three~~nine ~~and six~~ months ended ~~June~~September 30, 2025, the Company recorded an impairment of $2.7 million for two wells drilled in Alberta, Canada. The impairment was a result of a decrease in estimated reserves due to early production coming in below expectations, cost overruns and lower forward commodity prices. For the three months ended September 30, 2025, there was no impairment. For the three and ~~six~~nine months ended ~~June~~September 30, 2024, there was no impairment.

General and Administrative (“G&A”)


	Three months ended ~~June~~September 30,				~~Six~~Nine months ended ~~June~~September 30,
	2025		2024		2025		2024
General and administrative	$	12,~~847~~844,~~716~~398	$	1,~~791~~758,~~804~~685	$	46,~~051~~896,~~972~~370	$	35,~~672~~431,~~396~~081

G&A expenses consist of general corporate expenses such as compensation, legal, accounting and professional fees, consulting services, travel and other related corporate costs such as restricted stock granted.

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G&A expenses for the ~~six~~three and nine months ended ~~June~~September 30, 2025 increased by $0 1.41 million, or 1062%, and $1.5 million, or 27%, respectively, from the same period in 2024. This was primarily due to ~~higher~~transaction ~~compensation~~ expenses. ~~G&A~~of ~~expenses~~$0.9 ~~for~~million ~~the~~related ~~three~~to ~~months ended June 30, 2025 was constant from~~ the ~~same~~pending ~~period~~Peak ~~in 2024~~acquisition.

Interest Income


	Three months ended ~~June~~September 30,				~~Six~~Nine months ended ~~June~~September 30,
	2025		2024		2025		2024
Interest income	$	1784,~~247~~894	$	~~108~~60,~~943~~693	$	32117,~~546~~440	$	~~375~~435,~~215~~908

Interest income for the three and ~~six~~nine months ended ~~June~~September 30, 2025 decreased by $0.101 million, or 8412%, and $0.34 million, or 9175%, respectively, from the same period in 2024. This was primarily due to a reduction in the balance of cash and short term investments.

Interest Expense


	Three months ended ~~June~~September 30,				~~Six~~Nine months ended ~~June~~September 30,
	2025		2024		2025		2024
Interest expense	$	1911,~~906~~666	$	817,~~759~~598	$	3243,~~117~~783	$	1735,~~519~~117

Interest expense is related to the fees paid on the revolving credit facility.

Interest expense during the three and ~~six~~nine months ended ~~June~~September 30, 2025 and 2024 was relatively flat.

Gain (Loss) on Derivative Contracts


	Three months ended ~~June~~September 30,				~~Six~~Nine months ended ~~June~~September 30,
	2025		2024		2025		2024
Gain (Loss) on derivative contracts	$	2,573,863	$	(94,891)	$	1,111,693	$	(195,617)
Gain on derivative contracts	$	964,307	$	440,712	$	2,076,000	$	245,095

For the ~~six~~nine months ended ~~June~~September 30, 2025, Epsilon had NYMEX HH Natural Gas futures swaps, Tennessee Gas Pipeline Zone 4 basis swaps, NYMEX HH options, and crude oil NYMEX WTI CMA swaps derivative contracts for the purpose of hedging a portion of its physical natural gas and oil sales revenue. The amounts recorded represent the fair value changes on our derivative instruments during the year.

During the three and nine months ended ~~June~~September 30, 2025, we received net cash settlements of $~~306~~807,~~660.~~648 ~~During~~and ~~the six months ended June 30~~$699, ~~2025~~265, ~~we paid net cash settlements of $108,383~~respectively. During the three and ~~six~~nine months ended ~~June~~September 30, 2024, we received net cash settlements of $~~272~~485,~~257~~389 and $~~760~~1,~~542~~245,931, respectively.

For the three and ~~six~~nine months ended ~~June~~September 30, 2025, realized gains on derivative contracts increased by $20.75 million and $1.38 million, respectively. This increase was primarily the result of a significant decrease in Henry Hub natural gas prices and WTI crude oil prices during the ~~quarter~~year.

Capital Resources and Liquidity

Cash Flow

The primary source of cash for Epsilon during the three and ~~six~~nine months ended ~~June~~September 30, 2025 and 2024 was funds generated from operations. The primary uses of cash for the three and ~~six~~nine months ended ~~June~~September 30, 2025 ~~were the development of upstream properties and the distribution of dividends. The primary uses of cash for the three months ended~~

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~~June~~were the development of upstream properties and the distribution of dividends. The primary uses of cash for the three and nine months ended September 30, 2024 were the development of upstream properties, investment in U.S. Treasury Bills, the repurchase of shares of common stock, and the distribution of dividends.

At ~~June~~September 30, 2025, we had a working capital surplus of $9.12 million, an increase of $12.90 million from the $7.2 million surplus at December 31, 2024. The Company anticipates its current cash balance, available borrowings, and cash flows from operations to be sufficient to meet its cash requirements for at least the next twelve months.

~~Six~~Nine months ended ~~June~~September 30, 2025 compared to 2024

During the ~~six~~nine months ended ~~June~~September 30, 2025, $1620.9 million was provided by the Company’s operating activities, compared to $911.18 million during the same period in 2024, representing an 8777% increase. The increase was primarily due to higher produced volumes and realized prices in Pennsylvania.

The Company used $10.74 million and $~~9.5~~11 million of cash for investing activities during the ~~six~~nine months ended ~~June~~September 30, 2025 and 2024, respectively. During the ~~six~~nine months ended ~~June~~September 30, 2025, the Company had net investments of $10.74 million primarily in well costs and leasehold in Pennsylvania, Texas, and Canada. During the ~~six~~nine months ended ~~June~~September 30, 2024, the Company had net investments of $2830.61 million in leasehold and well costs in Pennsylvania, Texas and ~~Texas~~Canada offset by net proceeds of $19.1 million in U.S. Treasury Bills.

The Company used $24.81 million and $35.9 million of cash for financing activities during the ~~six~~nine months ended ~~June~~September 30, 2025 and 2024, respectively. During the ~~six~~nine months ended ~~June~~September 30, 2025, this was spent on dividend payments. During the ~~six~~nine months ended ~~June~~September 30, 2024, this was spent on dividend payments and the repurchase of shares of common stock.

Credit Agreement

The Company closed a senior secured reserve based revolving credit facility on June 28, 2023 with Frost Bank as issuing bank and sole lender. The ~~current~~ borrowing base isat September 30, 2025 was $45 million (redetermined as of February 10, 2025), supported by the Company’s upstream assets in Pennsylvania and subject to semi-annual redeterminations with a maturity date of June 28, 2027. Interest will be charged at the Daily Simple SOFR rate plus a margin of 3.25%. The facility is secured by the assets of the Company’s Epsilon Energy USA subsidiary (Borrower). There are currently no borrowings under the facility.

Under the terms of the facility, the Company must adhere to the following financial covenants:

●

Current ratio of 1.0 to 1.0 (current assets / current liabilities)

●

Leverage ratio of less than 2.5 to 1.0 (total debt / income adjusted for interest, taxes and non-cash amounts)

On October 8, 2025, the Company closed a new senior secured reserve based revolving credit facility with Frost Bank as administrative agent and Frost Bank and Texas Capital Bank as lenders (replacing the previous credit facility). The borrowing base was initially set at $45 million, supported by the Company’s upstream assets and subject to semi-annual redeterminations with a maturity date of October 8, 2029. Interest will be charged at the Daily Simple SOFR rate plus a margin of 3-4%. The facility is secured by the assets of the Company’s Epsilon Energy USA subsidiary (Borrower) and the Company was added as a co-borrower. There are currently no borrowings under the facility.

Under the terms of the facility, the Company must adhere to the following financial covenants:

●

Current ratio of 1.0 to 1.0 (current assets / current liabilities)

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●

Leverage ratio of less than 2.5 to 1.0 (total debt / income adjusted for interest, taxes and noncash amounts)

Repurchase Transactions

32During the nine months ended September 30, 2025, no shares were repurchased under the new or previous program.

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During the six months ended June 30, 2025, no shares were repurchased under the new or previous program.

Derivative Transactions

The Company has entered into hedging arrangements to reduce the impact of commodity price volatility on operations. By reducing the price volatility from a portion of natural gas and crude oil production, the potential effects of changing prices on operating cash flows have been partially mitigated, but not eliminated. While mitigating the negative effects of falling commodity prices, these derivative contracts also limit the benefits we might otherwise receive from increases in commodity prices.

~~At June 30, 2025, Epsilon’s outstanding natural gas and crude oil commodity contracts consisted of the following:~~36

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At September 30, 2025, Epsilon’s outstanding natural gas and crude oil commodity contracts consisted of the following:


		Weighted Average Price ($/Mmbtu)
	Volume			Ceiling		Floor		Basis		Fair Value of Asset
Derivative Type	(MMbtu)	Swaps		Price		Price		Differential		~~June~~September 30, 2025
2025
Henry Hub Nymex Swap	1183,~~026,~~000	$	34.6566	$	—	$	—	$	—	$	~~(144~~193,~~265)~~937
Tennessee Z4 Basis swap	782,000	$	—	$	—	$	—	$	(0.95)	$	351,769
Henry Hub Nymex Option - Put	262,000	$	—	$	—	$	3.47	$	—	$	74,393
Henry Hub Nymex Option - Put	122,000	$	—	$	—	$	4.00	$	—	$	48,138
Henry Hub Nymex Option - Call	—	$	—	$	5.65	$	—	$	—	$	(9,659)
Henry Hub Nymex Option - Call	—	$	—	$	6.17	$	—	$	—	$	(15,996)
2026
Henry Hub Nymex Swap	1912,~~644,~~000	$	4.2427	$	—	$	—	$	—	$	~~157~~417,~~504~~827
Henry Hub Nymex Option - Put	~~623~~1,~~000~~345,300	$	—	$	—	$	43.7280	$	—	$	~~250~~411,~~131~~163
Henry Hub Nymex Option - Call	—	$	—	$	4.7986	$	—	$	—	$	(~~191~~338,~~398~~906)
2027
Henry Hub Nymex Option - Put	~~180~~579,~~000~~400	$	—	$	—	$	43.0030	$	—	$	~~105~~209,~~184~~824
Henry Hub Nymex Option - Call	—	$	—	$	65.1840	$	—	$	—	$	(92224,~~002~~921)
	43,~~377~~281,~~000~~700									$	~~469~~733,~~065~~658


				Fair Value
	Volume	Weighted Average		~~June~~September 30,
Derivative Type	(Bbl)	Price ($/Bbl)		2025
2025
Crude Oil NYMEX WTI CMA	3921,~~600~~800	$	6967.1966	$	~~263~~125,~~462~~226
	39,600			$	263,462
2026
Crude Oil NYMEX WTI CMA	9,000	$	67.12	$	30,303
	30,800			$	155,529

Contractual Obligations

The Company enters into commitments for capital expenditures in advance of the expenditures being made. As of ~~June~~September 30, 2025, the Company has commitments of $10.92 million for capital expenditures and has undiscounted long term commitments of $15.78 million for asset retirement obligations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our earnings and cash flow are significantly affected by changes in the market price of commodities. The prices of natural gas and oil can fluctuate widely and are influenced by numerous factors such as demand, production levels, world political and economic events, and the strength of the US dollar relative to other currencies. Should the price of natural gas and oil decline substantially, the value of our assets could fall dramatically, impacting our future operations and exploration and development activities, along with our gas gathering system revenues. In addition, our operations are exposed to market risks in the ordinary course of our business, including interest rate and certain exposure as well as risks relating to changes in the general economic conditions in the United States.

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Gathering System Revenue Risk

The Auburn Gas Gathering System lies within the Marcellus Basin with historically high levels of recoverable reserves and low cost of production. We believe that a short-term low commodity price environment will not significantly impact the reserves produced and thus the revenue of our gas gathering system.

Interest Rate Risk

Market risk is estimated as the change in fair value resulting from a hypothetical 100 basis point change in the interest rate on the outstanding balance under our credit agreement. The credit agreement allows us to fix the interest rate.

~~At June 30, 2025 and 2024, the outstanding principal balance under the credit agreement was nil.~~37

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At September 30, 2025 and 2024, the outstanding principal balance under the credit agreement was nil.

Derivative Contracts

The Company’s financial results and condition depend on the prices received for production. Natural gas, natural gas liquids, and crude oil prices have fluctuated widely and are determined by economic and political factors. Supply and demand factors, including weather, general economic conditions, the ability to transport to other regions, as well as conditions in other regions, impact prices. Epsilon has established a hedging strategy and may manage the risk associated with changes in commodity prices by entering into various derivative financial instrument agreements and physical contracts. Although these commodity price risk management activities could expose Epsilon to losses or gains, entering into these contracts helps to stabilize cash flows and support the Company’s capital spending program.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Our chief executive officer and chief financial officer have concluded that our current disclosure controls and procedures were effective as of ~~June~~September 30, 2025 at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

No changes in our internal control over financial reporting occurred during the quarter ended ~~June~~September 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that of limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, the risk.

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PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2024.

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ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

For the ~~six~~nine months ended ~~June~~September 30, 2025, no shares had been repurchased.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. —EXHIBITS


Exhibit No.		Description of Exhibit

31.1		Sarbanes-Oxley Section 302 certification of Principal Executive Officer.

31.2		Sarbanes-Oxley Section 302 certification of Principal Financial Officer.

32.1		Sarbanes-Oxley Section 906 certification of Principal Executive Officer.

32.2		Sarbanes-Oxley Section 906 certification of Principal Financial Officer.

101.INS		Inline XBRL Instance Document.

101.SCH		Inline XBRL Schema Document.

101.CAL		Inline XBRL Calculation Linkbase Document.

101.DEF		Inline XBRL Definition Linkbase Document.

101.LAB		Inline XBRL Labels Linkbase Document.

101.PRE		Inline XBRL Presentation Linkbase Document.

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Epsilon Energy Ltd.
(Registrant)

Date: August 13, 2025	By:	/s/ J. Andrew Williamson
Date: November 5, 2025	By:	/s/ J. Andrew Williamson
		J. Andrew Williamson
		Chief Financial Officer

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