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Item 1A. Risk Factors

2026-03-27 compared with 2025-03-19 · 61 added, 43 removed, 290 unchanged (26% of the section changed)

9 unchanged sentences

Declines in oil or natural gas prices would not only reduce revenue but could also reduce the amount of oil and natural gas that can be economically produced and therefore potentially lower natural gas and oil reserve quantities.

If the oil and natural gas industry continues to experience low prices, we may, among other things, be unable to meet all our financial obligations or make planned expenditures.

If the oil and natural gas industry experiences low prices, we may, among other things, be unable to meet all our financial obligations or make planned expenditures.

Substantial and extended declines in oil and natural gas prices may result in impairments of proved natural gas and oil properties or undeveloped acreage and may materially and adversely affect our future business, financial condition, cash flows, results of operations, liquidity or ability to finance planned capital expenditures.

4 unchanged sentences

Without the continual addition of new reserves, any existing reserves that we may have at any particular time and the production from those reserves will decline over time as those reserves are exploited.

A future increase in our reserves will depend not only on our ability to explore and develop any properties we may have from time to time, but also on our ability to select and acquire suitable producing properties or prospects.

We cannot assure you that we will be able to locate and continue to locate satisfactory properties for acquisition or participation.

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all of which may vary from actual results.

For those reasons, estimates of the economically recoverable oil and natural gas reserves attributable to any particular group of properties, classification of such reserves based on risk of recovery and estimates of future net revenues expected therefrom and prepared by different engineers, or by the same engineers at different times,

Our actual production, revenues, taxes and development and operating expenditures with respect to our reserves will vary from estimates thereof and such variations could be material.

In accordance with applicable securities laws, the technical report on our oil and natural gas reserves prepared by DeGolyer and MacNaughton, independent petroleum consultants, as of December 31, 2024 and 2023, or the DeGolyer Reserve Report, used SEC guideline prices and cost estimates in calculating net cash flows from oil and natural gas reserve quantities included within the report.

In accordance with applicable securities laws, the technical report on our oil and natural gas reserves prepared by DeGolyer and MacNaughton, independent petroleum consultants, as of December 31, 2025 and 2024 (“DeGolyer Reserve Report”), and the report by Cawley, Gillespie & Associates as of December 31, 2025 (“CGA Reserve Report”), used SEC guideline prices and cost estimates in calculating net cash flows from oil and natural gas reserve quantities included within the report.

Actual future net revenue will be affected by other factors such as actual commodity prices, production levels, supply and demand for oil and natural gas, curtailments or increases in consumption by oil and natural gas purchasers, changes in governmental regulation or taxation and the impact of inflation on costs.

Actual production and revenues derived therefrom will vary from the estimates contained in the DeGolyer Reserve Report, and such variations could be material.

The DeGolyer Reserve Report is based in part on the assumed success of activities that we intend to undertake in future years.

The oil and natural gas reserves and estimated cash flows to be derived therefrom contained in the DeGolyer Reserve Report will be reduced to the extent that such activities do not achieve the level of success assumed in the DeGolyer Reserve Report.

Actual production and revenues derived therefrom will vary from the estimates contained in the DeGolyer Reserve Report and CGA Reserve Report, and such variations could be material.

The DeGolyer Reserve Report and the CGA Reserve Report are based in part on the assumed success of activities that we intend to undertake in future years.

The oil and natural gas reserves and estimated cash flows to be derived therefrom contained in these reserve reports will be reduced to the extent that such activities do not achieve the level of success assumed in these reserve reports.

Our future oil and natural gas reserves, production, and derived cash flows are highly dependent on our successfully acquiring or discovering and developing new reserves.

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If there is a sustained economic downturn or recession in the United States or globally, natural gas and oil prices may fall and may become and remain depressed for a long period of time, which may adversely affect our results of operations.

We may be unable to obtain additional capital required to implement our business plan, which could restrict our ability to grow.

We may be unable to obtain additional capital required to implement our business plan, which could restrict our ability to sustain or grow our business.

Operations could also be adversely affected by general economic downturns or limitations on spending.

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Moreover, future activities may require us to alter our capitalization significantly.

Additional capital raised through the issuance of common shares or other securities convertible into common shares may result in a change of control of us and dilution to shareholders.

Additional capital raised through the issuance of common shares or other securities convertible into common shares may result in a change of control and dilution to shareholders.

Our inability to access sufficient capital for our operations could have a material adverse effect on our financial condition and results of operations.

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If our revenues from our reserves decrease as a result of lower oil and natural gas prices or otherwise, it will affect our ability to expend the necessary capital to replace our reserves or to maintain our production.

If our cash flow from operations is not sufficient to satisfy our capital expenditure requirements, there can be no assurance that additional debt, equity financing or the proceeds from the sale of

a portion or all of our interest in one or more projects will be available to meet these requirements or available on terms acceptable to us.

The borrowing base under our credit facility may be reduced in light of commodity price declines, which could limit us in the future.

Lower commodity volumes and prices may reduce the amount of our borrowing base under our credit agreement, which is determined at the discretion of our lenders based on the collateral value of our proved reserves that have been mortgaged to the lenders, and is subject to twice yearly redeterminations, as well as special redeterminations described in the credit agreement.

Upon a redetermination, if borrowings in excess of the revised borrowing capacity were outstanding, we could be forced to immediately repay a portion of the debt outstanding under our credit agreement.

In addition, we may be unable to access the equity or debt capital markets to meet our obligations, including any such debt repayment obligations.

If our cash flow from operations is not sufficient to satisfy our capital expenditure requirements, there can be no assurance that additional debt, equity financing or the proceeds from the sale of a portion or all of our interest in one or more projects will be available to meet these requirements or available on terms acceptable to us.

The borrowing base under our credit facility may be reduced in light of commodity price declines or reserve changes, which could limit us in the future.

Lower commodity volumes and prices may reduce the amount of our borrowing base under our credit agreement, which is determined at the discretion of our lenders primarily based on the collateral value of our Proved Developed Reserves that have been mortgaged to the lenders, and is subject to semiannual redeterminations.

Upon a redetermination, if borrowings in excess of the revised borrowing capacity were outstanding, we could be forced to immediately repay a portion of the debt outstanding.

The terms of our revolving credit facility may restrict our operations, particularly our ability to respond to changes or to take certain actions.

The contract that governs our revolving credit facility contains covenants that impose operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability, subject to satisfaction of certain conditions, to incur additional indebtedness, sell assets, enter into transactions with affiliates, and enter into or refrain from entering into hedging contracts.

The agreement that governs our revolving credit facility contains covenants that impose operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long term best interest, including restrictions on our ability, subject to satisfaction of certain conditions, to incur additional indebtedness, sell assets, enter into transactions with affiliates, and enter into or refrain from entering into hedging contracts.

In addition, the restrictive covenants in our revolving credit facility require us to maintain specified financial ratios and satisfy other financial condition tests.

1 unchanged sentence

A breach of the covenants or restrictions under the contract that governs our revolving credit facility could result in an event of default under the applicable indebtedness.

Such a default may allow the creditors to accelerate the related debt.

In the event our lenders accelerate the repayment of our borrowings, we may not have sufficient assets to repay that indebtedness.

Such a default may allow the creditors to accelerate the repayment of the outstanding indebtedness.

In the event our lenders accelerate the repayment of our borrowings, we may not have sufficient resources to repay that indebtedness.

Depending on forces outside our control, we may need to allocate our available capital in ways that we did not anticipate.

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Past industry conditions have led to periods of extreme shortages of drilling equipment in certain areas of the United States.

On the oil and natural gas properties that we do not operate, we will be dependent on such operators for the timing of activities related to such properties and may be largely unable to direct or control the activities of the operators.

On the oil and natural gas properties that we do not operate, we will be

dependent on such operators for the timing of activities related to such properties and may be largely unable to direct or control the activities of the operators.

Results of our drilling are uncertain, and we may not be able to generate high returns.

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federal income tax at the corporate income tax rates on capital gain distributions made by Epsilon Energy USA Inc.

Epsilon Energy Ltd.

to Epsilon Energy Ltd.

Distributions made out of earnings and profits are not expected to be subject to the FIRPTA tax but are subject to U.S.

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Approximately 19% and 40% of our revenue during fiscal years 2025 and 2024, respectively, was derived from oil, natural gas, and natural gas liquids revenues in the state of Texas.

Epsilon’s management expects to continue to seek opportunities in other North American basins to provide the Company the flexibility to respond to market conditions by allocating capital across multiple basins and commodities.

As a result of this geographic concentration, we may be disproportionately exposed to the effect of regional supply and demand factors, delays or interruptions of production from wells in this area caused by governmental regulation, processing or transportation capacity constraints, market limitations, weather events or interruption of the processing or transportation of crude oil or natural gas.

In November 2025, the Company completed the acquisition of oil and gas assets in the Powder River Basin, Wyoming which could provide the Company the enhanced flexibility to respond to market conditions by allocating capital across multiple basins and commodities.

However, the Company is still subject to geographic concentration and we may be disproportionately exposed to the effect of regional supply and demand factors, delays or interruptions of production from wells in these areas caused by

governmental regulation, processing or transportation capacity constraints, market limitations, weather events or interruption of the processing or transportation of crude oil or natural gas.

Delays in business operations may reduce cash flows and subject us to credit risks.

15 unchanged sentences

The failure of an operator of our wells to adequately perform operations, an operator’s breach of the applicable agreements or an operator’s failure to act in ways that are in our best interests could reduce our production and revenues from our assets or could increase costs or create liability for the operator’s failure to properly maintain the well and facilities and to adhere to applicable safety and environmental standards.

In addition to the operator, our success will depend in large measure on certain key personnel.

Our success will depend in large measure on certain key personnel.

The loss of the services of such key personnel could have a material adverse effect on us.

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Our properties are held in the form of leases and working interests in leases, collectively referred to as “ leasehold interests .” If we or our joint venture partner fails to meet the specific requirement(s) of a particular leasehold interest, the leasehold interest may terminate or expire.

There can be no assurance that any of the obligations required to maintain each leasehold interest will be met.

There can be no assurance that any of the obligations required to maintain each

leasehold interest will be met.

The termination or expiration of a particular leasehold interest may have a material adverse effect on our financial condition and results of operations.

5 unchanged sentences

We may not be insured against all of the operating risks to which we are exposed.

Our involvement in the exploration for and development of oil and natural gas properties may result in our becoming subject to liability for pollution, blow outs, property damage, personal injury or other hazards.

Our involvement in the exploration for and development of oil and natural gas properties may result in our becoming subject to liability for pollution, blowouts, property damage, personal injury or other hazards.

Although before drilling we plan to obtain insurance in accordance with industry standards to address certain of these risks, such insurance may not be available, be price prohibitive, or contain limitations on liability that may not be sufficient to cover the full extent of such liabilities.

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and the availability of alternative fuel sources.

Any substantial and extended decline in the price of oil and natural gas would have an adverse

effect on the carrying value of our proved reserves, borrowing capacity, revenues, profitability and cash flows from operations.

Any substantial and extended decline in the price of oil and natural gas would have an adverse effect on the carrying value of our proved reserves, borrowing capacity, revenues, profitability and cash flows from operations.

There can be no assurance that recent commodity prices can be sustained over the life of our operations.

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Additionally, we may, due to circumstances beyond our control, be put in a position of over hedging.

If this occurs, our revenue could be adversely affected due to the necessity of buying gas at the current market rate in order to fulfill hedging sales obligations.

If this occurs, our revenue could be adversely affected due to the necessity of buying oil and natural gas at the current market rate in order to fulfill hedging sales obligations.

Market conditions or operation impediments may hinder our access to natural gas and oil markets or delay our production.

The marketability and price of oil and natural gas that we may produce, acquire or discover will be affected by numerous factors beyond our control.

Our ability to market our natural gas may depend upon our ability to acquire space on pipelines that deliver crude oil and natural gas to commercial markets.

This risk is somewhat mitigated by our 35% ownership of a gathering system in the Marcellus Shale in Pennsylvania.

Our ability to market our oil and natural gas may depend upon our ability to acquire space on pipelines that deliver crude oil and natural gas to commercial markets.

This risk is somewhat mitigated in Pennsylvania by our 35% ownership of a gathering system in northeast Pennsylvania.

We may also be affected by extensive government regulation relating to price, taxes, royalties, land tenure, allowable production, and many other aspects of the oil and natural gas business.

We depend upon two significant purchasers for the sale of most of our oil and natural gas production in Wyoming.

The loss of one or more of these purchasers could, among other factors, limit our access to suitable markets for the oil and natural gas we produce.

For year ended December 31, 2025, HF Sinclair Refining & Marketing LLC and WGR Operating, LP accounted for approximately 68.4% and 27.3% of our total revenues in Wyoming, respectively, excluding the impact of our commodity derivatives.

No other purchaser accounted for more than 10% of our revenue during such periods.

We do not have long term contracts with our purchasers but rather we sell the substantial majority of our production under arm’s length contracts with terms of 12 months or less, potentially including on a month-to-month basis, to a relatively small number of purchasers.

We do not believe that the loss of a single purchaser would materially affect our business because there are numerous other potential purchasers in the area in which we sell our production.

However, the loss of any one of these significant purchasers, our ability to sell our production to other purchasers on terms we consider acceptable, the inability or failure of our significant purchasers to meet their obligations to us or their insolvency or liquidation could have a short term impact on our financial condition and results of operations.

We cannot assure you that any of our purchasers will continue to do business with us or that we will continue to have ready access to suitable markets for our future production.

Investor sentiment towards climate change, fossil fuels, and sustainability could adversely affect our business and our share price.

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It is not expected that any of these controls or regulations will affect our operations in a manner materially different than they would affect other oil and natural gas companies of similar size.

In Wyoming, we conduct oil and natural gas exploration, development and production activities on federal lands, including lands administered by the BLM and in some cases, United States Forest Service.

Operations on federal lands are frequently subject to permitting delays.

Operations on these lands are also subject to the National Environmental Policy Act ("NEPA”) which requires federal agencies, including the BLM, to evaluate major agency actions having the potential to significantly impact the environment.

In the course of such evaluations, an agency will prepare an Environmental Assessment that assesses the potential direct, indirect and cumulative impacts of a proposed project and, if necessary, will prepare a more detailed Environmental Impact Statement that may be made available for public review and comment.

While the Company currently has exploration, development and production activities on federal lands, our proposed exploration, development and production activities are expected to include federal mineral interests, which will require the acquisition of governmental permits or authorizations that are subject to the procedural requirements of NEPA.

This process has the potential to delay, limit, or increase the cost of the development of oil and natural gas projects.

Authorizations under NEPA are also subject to protest, appeal or litigation, any or all of which may delay or halt projects.

Moreover, depending on the mitigation strategies recommended in Environmental Assessments or Environmental Impact Statements, they could incur added costs, which may be substantial.

Environmental and health and safety risks may adversely affect our business.

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(v) increased insurance premiums;

(vi) reputational

damage that adversely affects customer or investor confidence;

(vi) reputational damage that adversely affects customer or investor confidence;

(vii) the loss, theft, corruption or unauthorized release of intellectual property, proprietary information, customer and vendor data or other critical data and (viii) damage to the Company’s competitiveness, stock price, and long term stockholder value.

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We are a “smaller reporting company” and as a result of the reduced disclosure requirement applicable to smaller reporting companies, our common shares may be less attractive to investors.

We are a “smaller reporting company” as defined under the Exchange Act, and we will remain a smaller reporting company until the fiscal year following the determination that our voting and non-voting common shares held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenue is more than $100 million during the most recently completed fiscal year and our voting and non-voting common shares held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter.

Smaller reporting companies are able to provide simplified executive compensation disclosure and have certain other reduced disclosure obligations, including, among other things, being required to provide only two years of audited financial statements and not being required to provide selected financial data, supplemental financial information or risk factors.

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Risks Related to Gathering System

Because of the natural decline in production from existing wells, our success depends on the Anchor Shippers’ economically developing the remaining Marcellus Shale reserves.

Because of the natural decline in production from existing wells, our success depends on the Anchor Shippers’ economically developing the remaining Marcellus Shale reserves in Pennsylvania.

Our natural gas gathering system is dependent upon the level of production from natural gas wells, from which production will naturally decline over time.

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The primary factors affecting our ability to obtain new supplies of natural gas is the level of successful drilling activity from the Anchor Shippers, of which Epsilon is one, as well as our ability to compete for volumes from successful new wells drilled by third parties proximate to our system.

have an adverse effect on our business, results of operations, financial position and cash flows.

Although gross throughput at the Auburn CF has declined from 2018-2024, the share of Anchor Shipper gas has increased.

Because of the large supply of gas, and limited availability of transportation out of the Marcellus Shale area, our gas is subject to a price differential.

If we are not able to obtain new supplies of natural gas to replace the natural decline in volumes from existing wells, throughput on our pipelines and the utilization rates of our compression facility would decline, which could have an adverse effect on our business, results of operations, financial position and cash flows.

Because of the large supply of gas, and limited availability of transportation out of Pennsylvania, our gas is subject to a price differential.

Differential is an energy industry term that refers to the discount or premium received for the sale of a petroleum product at a specific location relative to a nationally recognized sales hub.

In the Marcellus Shale, natural gas is significantly discounted to Henry Hub pricing and the size of the differential can be volatile.

In Pennsylvania, natural gas is significantly discounted to Henry Hub pricing and the size of the differential can be volatile.

Many factors influence the size and duration of differentials including local supply / demand imbalances, seasonal fluctuations in demand, transportation availability and cost, as well as the regulatory environment as it pertains to constructing new transportation pipelines.

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Further, during any such bankruptcy proceeding, prior to assumption, rejection or renegotiation of such contracts, the bankruptcy court may temporarily authorize the payment of value for our services less than contractually required, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

If we fail to adequately assess the creditworthiness of existing or future customers and counterparties or otherwise

do not take or are unable to take sufficient mitigating actions, including obtaining sufficient collateral, deterioration in their creditworthiness, and any resulting increase in nonpayment and/or nonperformance by them could cause us to write down or write off accounts receivable.

If we fail to adequately assess the creditworthiness of existing or future customers and counterparties or otherwise do not take or are unable to take sufficient mitigating actions, including obtaining sufficient collateral, deterioration in their creditworthiness, and any resulting increase in nonpayment and/or nonperformance by them could cause us to write down or write off accounts receivable.

Such write downs or write offs could negatively affect our operating results in the periods in which they occur, and, if significant, could have a material adverse effect on our business, results of operations, cash flows, and financial condition.

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Any of these risks could result in loss of human life, personal injuries, significant damage to property, environmental pollution, impairment of our operations and substantial financial losses to us.

In accordance with customary industry practice, we maintain insurance against some, but not all, of these risks and losses, and only at levels we believe

to be appropriate.

In accordance with customary industry practice, we maintain insurance against some, but not all, of these risks and losses, and only at levels we believe to be appropriate.

The location of certain segments of our facilities in or near populated areas, including residential areas, commercial business centers and industrial sites, could increase the level of damages resulting from these risks.

1 unchanged sentence

Accidents or other operating risks could further result in loss of service available to our customers.

Risks Related to Our Business Combination

We may be unable to successfully integrate acquired businesses, which could adversely affect our operations and financial results.

The success of the acquisition depends, in part, on our ability to realize anticipated synergies and integrate the acquired assets, personnel and systems with those of the Company.

Integration efforts may be complex, time-consuming, and costly, and may include consolidating systems, aligning accounting processes, retaining key personnel, and harmonizing corporate cultures.

We may encounter difficulties in integrating information technology systems, internal controls over financial reporting, and operational processes, which could result in delays, increased expenses, or disruptions to our business.

In addition, we may fail to retain key employees, customers, or suppliers of the acquired business.

If we are unable to successfully integrate acquired businesses or achieve expected synergies within anticipated timeframes, our financial condition, results of operations, and cash flows could be materially adversely affected.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors