Epsilon Energy Ltd. 10-K

ITEM 1. BUSINESS. Summary Epsilon Energy Ltd. (the “Company” or “Epsilon” or “we”) was incorporated under the laws of the Province of Alberta, Canada March 14, 2005, pursuant to the ABCA. The Company is extra-provincially registered in Ontario pursuant to the Business Corporations Act (Ontario). 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. Our primary area of operation is Pennsylvania. Our assets are concentrated in areas with known hydrocarbon resources, which are conducive to multi-well, repeatable drilling programs. On October 24, 2007, the Company became a publicly traded entity trading on the Toronto Stock Exchange (“TSX”) in Canada. 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.” Effective as of the close of trading on March 15, 2019, Epsilon voluntarily delisted its common shares from the TSX. At December 31, 2020, Epsilon’s total estimated net proved reserves were 88,658 million cubic feet (MMcf) of natural gas reserves and 371,343 barrels (Bbl) of oil and other liquids. Epsilon holds leasehold rights to approximately 78,298 gross (13,285 net) acres. The Company has natural gas production in the Marcellus in Pennsylvania and oil, natural gas liquids and natural gas production in the Anadarko Basin in Oklahoma. We conduct operations in the United States through our wholly owned subsidiaries Epsilon Energy USA Inc., an Ohio corporation, or Epsilon Energy USA; Epsilon Midstream, LLC, a Pennsylvania limited liability company, or Epsilon Midstream; Epsilon Operating, LLC, a Delaware limited liability company, Dewey Energy GP LLC, a Delaware limited liability company, Dewey Energy Holdings LLC, a Delaware limited liability company, and Altolisa Holdings, LLC, a Delaware limited liability company. Substantially all of the production from our Pennsylvania acreage (3,979 net) is dedicated to the Auburn Gas Gathering System, or the Auburn GGS, located in Susquehanna County, Pennsylvania for a 15-year term expiring in 2026 under an operating agreement whereby the Auburn GGS owners receive a fixed percentage rate of return on the total capital invested in the construction and maintenance of the system. We own a 35% interest in the Auburn GGS which is operated by a subsidiary of Williams Partners, LP. In 2020, we paid $1.8 million to the Auburn GGS to gather and treat our 11.0 Bcf of natural gas production in Pennsylvania ($1.2 million was paid to the Auburn GGS to gather and treat our 7.6 Bcf in 2019). Our principal executive office is located at 16945 Northchase Drive, Suite 1610, Houston, Texas 77060, and our telephone number at that address is (281) 670-0002. Our registered office in Alberta, Canada is located at 14505 Bannister Road SE, Suite 300, Calgary, AB, Canada T2X 3J3. Business highlights of 2020 Operational Highlights Marcellus Shale—Pennsylvania ● During the year ended December 31, 2020, Epsilon’s realized natural gas price was $1.36 per Mcf, a 38% decrease from $2.18 for the year ended December 31, 2019. ● Total year ended December 31, 2020 natural gas production was 11.0 Bcf, as compared to 7.6 Bcf during 2019. ● Gathered and delivered 69.5 Bcf gross (24.3 Bcf net to Epsilon’s interest) during the year, or 190 MMcf/d through the Auburn Gas Gathering System. ● We participated in the drilling and completion of 8 gross (0.19 net) Marcellus wells in 2020. These wells went into production at various times beginning in May and going through December. A ninth (0.025 net) well was also drilled and was turned to production in January 2021. ​ 5 ​ ​ ​ Anadarko, NW STACK Trend—Oklahoma ● During 2020, Epsilon’s realized price for all Oklahoma production was $2.36 per Mcfe, a 22% decrease from 2019. ● Total production for 2020 included natural gas, oil, and other liquids and was 0.31 Bcfe, as compared to 0.29 Bcfe during 2019. ● We did not drill or complete any wells during 2020. ​ Business highlights of 2019 Operational Highlights Marcellus Shale—Pennsylvania ● During the year ended December 31, 2019, Epsilon’s realized natural gas price was $2.18 per Mcf, a 13% decrease from the year ended, December 31, 2018. ● Total year ended December 31, 2019, production was 7.6 Bcf of natural gas net to our revenue interest in Pennsylvania, as compared to 7.3 Bcf in 2018. ● We participated in the drilling and completion of 4 gross (1.07 net) lower Marcellus wells in 2019. These wells went into production in October. In addition, 5 wells (0.39 net) which were spud in Q4 2018 were completed and 4 were turned to production in February 2019, and the 5 th was turned to production in June. Two of these wells targeted the Upper Marcellus. ● Gathered and delivered 87.8 Bcf gross (30.7 Bcf net to Epsilon’s interest) during the year, or 241 MMcf/d through the Auburn Gas Gathering System which represents approximately 73% of designed throughput capacity. ​ Anadarko, NW STACK Trend—Oklahoma ● During 2019, Epsilon’s realized price for all production was $3.01 per Mcfe. ● Total production for 2019 included natural gas, oil, and other liquids and was 0.29 Bcfe. ● We participated in the drilling of 2 gross (0.79 net) wells during 2019. One well (0.10 net to Epsilon) was completed and turned to production in December. Completion operations for the second well were postponed due to a significant decrease in NGL and oil prices. The well will be considered for completion when commodity prices have recovered enough to generate an attractive return on the incremental capital required for the completion operation. ​ Properties As of December 31, 2020, Epsilon’s 78,298 gross (13,285 net) acres are all located in the United States and include 270 gross (57.81 net) wells. ​ ​ ​ ​ ​ ​ Gross (1) Net (2) Producing Wells Oil 10 2.02 Gas 151 30.73 Oil & Gas 61 13.36 Total Producing Wells 222 46.11 Non-producing Wells 48 11.70 Total Wells 270 57.81 ​ 6 ​ ​ ​ Acreage As of December 31, 2020, our leasehold inventory consisted of the following acreage amounts, rounded to the nearest acre: ​ ​ ​ ​ ​ ​ Gross (1) Net (2) (3) Developed Acres Pennsylvania 7,958 3,979 Oklahoma 8,530 2,185 Mississippi 627 376 ​ 17,116 6,540 Undeveloped Acres Pennsylvania 336 336 Oklahoma 60,847 6,409 Mississippi — — ​ 61,182 6,745 Total Acres Pennsylvania 8,294 4,315 Oklahoma 69,377 8,594 Mississippi 627 376 Total acres 78,298 13,285 (1) “Gross” means one-hundred percent of the working interest ownership in each leasehold tract of land. (2) “Net” means the Company’s fractional working interest share in each leasehold tract of land on which productive wells have been drilled. (3) “Net Undeveloped” means the Company’s fractional working interest share in each leasehold tract of land where productive wells have yet to be drilled. All of Epsilon’s Oklahoma undeveloped properties are deep rights acreage which is held by production of developed properties. Business Segments Our operations are conducted by three operating segments for which information is provided in our consolidated financial statements for the years ended December 31, 2020 and 2019. The three segments are as follows: Upstream: Activities include acquisition, exploration, development and production of oil and natural gas reserves on properties within the United States. Gathering System: We partner with two other companies to operate a natural gas gathering system. Corporate: Activities include our corporate and governance functions. For information about our segment’s revenues, profits and losses, total assets, and total liabilities, see Note 12 Operating Segments in the Notes to Consolidated Financial Statements. Oil and Natural Gas Production and Revenues and Gathering System Revenues A summary of our net oil and natural gas production, average oil and natural gas prices and related revenues and our gathering system revenues for the years ended December 31, 2020 and 2019, respectively, follows: 7 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ December 31, Revenues 2020 2019 Natural gas revenue ​ $ 15,207,227 ​ $ 16,945,302 Volume (MMcf) ​ 11,204 ​ 7,757 Avg. Price ($/Mcf) ​ $ 1.36 ​ $ 2.18 PA Exit Rate (MMcfpd) ​ 32.8 ​ 30.5 Oil and other liquids revenue ​ $ 338,325 ​ $ 424,661 Volume (MBO) ​ 14.9 ​ 14.5 Avg. Price ($/Bbl) ​ $ 22.66 ​ $ 29.24 Gathering system revenue ​ $ 8,879,728 ​ $ 9,320,373 Total Revenues ​ $ 24,425,280 ​ $ 26,690,336 ​ Gathering System Operations Epsilon Energy USA is the 100% owner of Epsilon Midstream, which owns a 35% undivided interest in the Auburn Gas Gathering System, or the Auburn GGS, located in Susquehanna County, Pennsylvania, with partners Appalachia Midstream Services, LLC (43.875%) and Equinor Pipelines, LLC (21.125%). The Anchor Shippers, Epsilon Energy, Equinor USA Onshore Properties, Inc., and Chesapeake Energy Corporation dedicated approximately 18,000 mineral acres to the Auburn GGS for an initial term of 15 years under an operating agreement whereby the Auburn GGS owners receive a fixed percentage rate of return on the total capital invested in the construction of the system. The gathering rate of the Auburn gas gathering system (“Auburn GGS”) is determined by a cost of service model whereby the Anchor Shippers in the system dedicate acreage and reserves to the gas gathering system in exchange for the Auburn GGS owners agreeing to an 18% contractual rate of return on invested capital. The term of this arrangement is 15 years commencing January 1, 2012 and expiring December 31, 2026. Each year, the Auburn GGS historical and forecast throughput, revenue, operating expenses and capital expenditures are entered into the cost of service model. The model then computes the new gathering rate that will yield the contractual rate of return to the Auburn GGS owners. In 2026, prior to the end of the initial period on December 31, a new agreement governing rates will be negotiated between the Anchor Shippers and the gathering system owner. The Auburn GGS consists of approximately 44 miles of gathering pipelines, a small auxiliary compression facility and a main compression facility with three dehydration units and three Caterpillar 3612 compression units. Design capacity of the Auburn compression facility, or the Auburn CF, is approximately 330,000 Mcf per day. The Auburn CF delivers processed natural gas into the Tennessee Gas Pipeline at the Shoemaker Dehy receipt meter. The Auburn GGS is connected with the adjacent Rome GGS, which allows for the receipt of additional natural gas to maximize utilization of the Auburn CF and Tennessee Gas Pipeline meter capacity. Revenues from the Auburn GGS are earned primarily from Anchor Shippers, Epsilon Energy USA, Equinor USA Onshore Properties, Inc. and Chesapeake Energy Corporation. Additional but less significant revenues are earned from Chief Oil & Gas LLC. Revenues derived from Epsilon’s production which have been eliminated from gathering system revenues amounted to $1.8 million and $1.2 million, respectively, for the years ended December 31, 2020 and 2019. During the years ended December 31, 2020 and 2019, the Auburn GGS delivered 69.5 Bcf and 87.8 Bcf respectively, of natural gas, or 190 and 241 MMcf per day. Proved Reserves Per our reserve report prepared by independent petroleum consultants, DeGolyer and MacNaughton, our estimated proved reserves as of December 31, 2020, are summarized in the table below. See Risk Factors for information relating to the uncertainties surrounding these reserve categories. 8 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Natural Gas ​ Oil and other ​ MMcf Liquids MBbl Pennsylvania-Marcellus Shale Proved developed producing 63,468.5 — Proved undeveloped 15,914.6 — Total Pennsylvania proved reserves 79,383.1 — Oklahoma-Anadarko Basin Proved developed producing 320.1 18.7 Proved undeveloped 8,954.9 352.6 Total Oklahoma proved reserves 9,275.0 371.3 Total proved reserves at December 31, 2020 88,658.1 371.3 ​ We have not engaged in any exploration capital spending in 2020 or 2019. At this time, the Company is on track to develop our proved undeveloped properties within 5 years. Our development capital spending to convert proved undeveloped reserves to proved developed reserves for the periods indicated is as follows: ● In 2020 in Pennsylvania, 8 gross (0.19 net) wells were drilled and completed. (Net development capital $1.5 million). Reserves of 4.1 Bcf for the 8 wells were reclassified as proved developed producing as these wells were turned online at various times beginning in May and going through December of 2020. Additionally, 1 gross (0.025 net) well was drilled in 2020, but not completed (Development capital $0.2 million). It was turned to production in January 2021. This well will add another 1.0 Bcf of reserves. ● In 2020 no wells were drilled in Oklahoma. One well drilled in 2019 is still waiting on completion. Internal Controls Over Reserves Estimation Process and Qualifications of Technical Persons with Oversight for The Company’s Overall Reserve Estimation Process Our policies regarding internal controls over reserve estimates require reserves to be prepared by an independent engineering firm under the supervision of our Chief Executive Officer, and to be in compliance with generally accepted geologic, petroleum engineering and evaluation principles and definitions and guidelines established by the SEC. The corporate staff interacts with our internal petroleum engineers and geoscience professionals in each of our operating areas and with operating, accounting and marketing employees to obtain the necessary data for the reserves estimation process. We provide our engineering firm with property interests, production, capital budgets, current operating costs, current production prices and other information. This information is reviewed by our Chief Executive Officer and our Chief Operating Officer to ensure accuracy and completeness of the data prior to submission to our independent engineering firm. Reserves are reviewed and approved internally by our Chief Executive Officer on a semi-annual basis. Our Chief Executive Officer holds a Bachelor of Science degree in Chemical Engineering has studied Petroleum Engineering courses on a Masters Level and completed a Masters in Business Administration. He has over 37 years of experience in various positions in the global natural gas and oil business, primarily holding positions in the areas of reservoir development strategy, property valuations, completions and production optimization. He has also been managing the allocation of capital in natural gas and oil investments and appraising the values of those assets on a quarterly basis with Domain Energy Advisors since January 2005. The reserve information in this report is based on estimates prepared by DeGolyer and MacNaughton, our independent engineering firm. The person responsible for preparing the reserve report, Gregory Graves, is a Registered Professional Engineer (No.70734) in the State of Texas and a Senior Vice President of the firm. Mr. Graves graduated from the University of Texas at Austin with a degree in Petroleum Engineering, and is a member of the Society of Petroleum Engineers and the Society of Petroleum Evaluation Engineers, and has prepared estimates of natural gas and oil reserves since joining DeGolyer and MacNaughton in 2006. Marketing and Major Customers Natural gas marketing is extremely competitive in northeast Pennsylvania because of the limited interstate transportation capacity and ample natural gas supply. We do not currently own any firm transportation on interstate pipelines that would enable us to diversify our natural gas sales to downstream customers. As a result, all of our Pennsylvania gas sales occur in Zone 4 of the Tennessee Gas Pipeline at the Shoemaker Dehy meter, which is the receipt point from the Auburn Compression Facility. 9 ​ ​ ​ Epsilon uses a third-party service, ARM Energy Management LLC (“ARM”) for its natural gas marketing. In this capacity, ARM is responsible for carrying out marketing activities such as submission of nominations, receipt of payments, submission of invoices and negotiation of contracts. For the year ended December 31, 2020, we sold natural gas through ARM to 29 unique customers. Alta Energy Marketing LLC, EQT Energy LLC, South Jersey Resources Group LLC, and Spotlight Energy LLC each accounted for 10% or more of our total revenue. For the year ended December 31, 2019, we sold natural gas to 29 unique customers. EQT Energy LLC, and Spotlight Energy LLC each accounted for 10% or more of our total revenue. Geographic Locations of Operations Approximately 97% and 96% of our production during fiscal 2020 and 2019, respectively was derived from natural gas production and gathering system revenues in the state of Pennsylvania. Our asset in Pennsylvania has not yet reached the mature stage, but at some point we may need to acquire and develop other producing assets to maintain our current level or to grow. To this end, we have begun to acquire leases and to expand our holdings in Pennsylvania. 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 Competition In the Marcellus Basin, we operate in a competitive environment for acquiring leases, developing reserves and marketing production. In most instances, we are a substantially smaller organization than our competitors both in terms of our personnel as well as our financial capability. This size differential relative to our competitors could disadvantage us, particularly in regard to accessing capital markets, acquiring technical expertise, and attracting and retaining talented personnel. It is not uncommon in the oil and natural gas industry to experience shortages of drilling and completion rigs, equipment, pipe, services and personnel, which can cause both delays in development drilling activities and significant cost increases. We are exposed to the risk of industry competition for drilling rigs, completion rigs and availability of related equipment and services, among other goods and services required in our business. In our gas gathering activity in the Marcellus, the competition for customer shippers on our Auburn GGS is significant. Although the Auburn GGS has three dedicated shippers (of which we are one), there is non-dedicated acreage within the footprint of the gathering system. However, the Auburn GGS currently serves only one non-anchor shipper, and there is no guarantee that we will be able to attract other customers to the system. Our Status as an Emerging Growth Company We are an “emerging growth company,” as defined in the JOBS Act. Certain specified reduced reporting and other regulatory requirements are available to public companies that are emerging growth companies. These provisions include: ● an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting required by Section 404 of the Sarbanes—Oxley Act of 2002; ● an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies; ● an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about our audit and our 10 ​ ​ ​ financial statements; and ● reduced disclosure about our executive compensation arrangements. We have elected to take advantage of the exemption from the adoption of new or revised financial accounting standards until they would apply to private companies. We will continue to be an emerging growth company until the earliest of: ● the last day of our fiscal year in which we have total annual gross revenues of $1.07 billion (as such amount is indexed for inflation every five years by the SEC to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest $1 million) or more; ● the last day of our fiscal year following the fifth anniversary of the date of our first sale of common equity securities under an effective Securities Act registration statement; ● the date on which we have, during the prior three-year period, issued more than $1 billion in non-convertible debt; or ● the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission, or SEC, which means the market value of our common shares that is held by non-affiliates (or public float) exceeds $700 million as of the last day of our second fiscal quarter in our prior fiscal year. Employees As of December 31, 2020, we had nine full-time employees (including executive officers) in Houston, Texas. None of our employees are subject to a collective bargaining agreement or represented by a union. The foundation of our Company is our employees and our success begins with a values-driven culture and commitment to developing a skilled, agile, diverse and engaged workforce where every employee understands that they can and do make a difference. Advancing a safe, ethical, inclusive and diverse culture creates an environment that attracts and retains the high-performing workforce needed to successfully execute our strategy. To build a better tomorrow for everyone, we continue to foster a culture that embraces inclusion and diversity and encourages collaboration. Our core values include inclusion and diversity, and we believe in equity and the value and voice of every employee. Legal Proceedings At December 31, 2020, we did not have any legal proceedings to which we were a party. However, please see Note 15, Subsequent Events, for current litigation. Regulation Environmental Regulation Epsilon is subject to various federal, state and local laws and regulations governing the handling, management, disposal and discharge of materials into the environment or otherwise relating to the protection of human health, safety and the environment. Numerous governmental agencies, such as the U.S. Environmental Protection Agency, or the EPA, issue regulations to implement and enforce such laws, which often require difficult and costly compliance measures that carry substantial administrative, civil and criminal penalties or that may result in injunctive relief for failure to comply. These laws and regulations may: 11 ​ ​ ​ ● require the acquisition of various permits before drilling commences; ● restrict the types, quantities and concentrations of various substances, including water and waste, that can be released into the environment; ● limit or prohibit activities on lands lying within wilderness, wetlands and other protected areas; and ● require remedial measures to mitigate pollution from former and ongoing operations, such as requirements to close pits and plug abandoned wells. Compliance with environmental laws and regulations increases Epsilon’s overall cost of business, but has not had, to date, a material adverse effect on Epsilon’s operations, financial condition or results of operations. In addition, it is not anticipated, based on current laws and regulations, that Epsilon will be required in the near future to expend amounts (whether for environmental control facilities or otherwise) that are material in relation to its total exploration and development expenditure program in order to comply with such laws and regulations. However, given that such laws and regulations are subject to change, Epsilon is unable to predict the ultimate cost of compliance or the ultimate effect on Epsilon’s operations, financial condition and results of operations. Climate Change There is consensus in the international scientific community that increasing concentrations of greenhouse gas emissions (“GHG”) in the atmosphere will produce changes to global, as well as local, climate. Scientists project that increased concentrations of GHGs will cause more frequent, and more powerful storms, droughts, floods and other climatic events. If such effects were to occur, our development and production operations, as well as operations of our third party providers and customers, could be adversely affected. To date, we have not developed a comprehensive plan to address potential impacts of climate change on our operations and there can be no assurance that any such impacts would not have an adverse effect on our financial condition and results of operations. Attempts to address GHGs, as well as climate change more generally, have taken the form of local, state, national and international proposals. Broadly speaking, examples include cap-and-trade programs, carbon tax proposals, GHG reporting and tracking programs, and regulations that directly limit GHGs from certain sources. In the United States, federal proposals are rooted in the EPA’s “endangerment finding,” that was upheld by the Supreme Court. Simply, EPA has concluded that emissions of carbon dioxide, methane and other GHGs present an endangerment to public health and the environment. For example, EPA adopted regulations that require Prevention of Significant Deterioration (“PSD”) construction under Title V operating permit reviews for GHG emissions from certain large stationary sources that constitute major sources of emissions. Facilities required to obtain PSD permits for their GHG emissions also will be required to meet “best available control technology” standards. Rules requiring the monitoring and reporting of GHG emissions from designated sources in the United States on an annual basis, including, oil and natural gas production facilities and processing, transmission, storage and distribution facilities, which include certain of our operations, have been adopted. The EPA has expanded the GHG reporting requirements to all segments of the oil and natural gas industry, including gathering and boosting facilities. Federal agencies also have begun directly regulating emissions of methane from natural gas operations. In 2016, the EPA published New Source Performance Standards (“NSPS”), known as Subpart OOOOa, that require certain facilities to reduce methane gas and volatile organic compound emissions. EPA published amendments to those regulations effective September 15, 2020. However, on January 20, 2021, President Biden issued an Executive Order directing EPA to consider suspending, revising or rescinding the September 15, 2020 amendments and also to consider proposing new regulations governing methane and volatile organic compound emissions from existing oil and gas sector operations. In November 2016, the Bureau of Land Management (“BLM”) published a final rule to reduce methane emissions by regulating venting, flaring, and leaking from oil and natural gas operations on public lands. A federal district court vacated much of that rule in October 2020 and that decision is now subject to an appeal. 12 ​ ​ ​ Internationally, in April 2016, the United States joined other countries in entering into a non-binding agreement in France for nations to limit their GHG emissions through country-determined reduction goals every five years beginning in 2020 (the “Paris Agreement”). Although the Trump Administration subsequently announced plans to withdraw from the Paris Agreement, on January 20, 2021 President Biden issued an Executive Order providing that he was accepting the Paris Agreement on behalf of the United States. In addition, recent activism directed at shifting funding away from companies with energy-related assets could result in limitations on certain sources of funding for the energy sector. Ultimately, this could make it more difficult to secure funding for exploration and production or midstream activities. Epsilon is unable to predict the timing, scope and effect of any currently proposed or future, laws, regulations or treaties regarding climate change and GHG emissions. Any limits on GHG emissions, however, could adversely affect demand for the oil and natural gas that production operators produce, some of whom are our customers, which could thereby reduce demand for our gas gathering services. We are currently unable to calculate or predict the direct and indirect costs of GHG or climate change related laws, regulations and treaties, and accordingly, we cannot assure you that any such efforts will not have a material impact on our operations, financial condition and results. Hydraulic Fracturing Hydraulic fracturing is an important and common practice that is used to stimulate production of hydrocarbons. The process involves the injection of water, sand and chemicals under pressure into formations to fracture the surrounding rock and stimulate production. The process is typically regulated by state oil and natural gas commissions. However, the EPA has asserted federal regulatory authority over certain hydraulic fracturing practices and has finalized a study of the potential environmental impacts of hydraulic fracturing activities. In 2014, the EPA issued an advanced notice of proposed rulemaking under the Toxic Substances Control Act of 1976 requesting comments related to disclosure for hydraulic fracturing chemicals. The Department of the Interior had released final regulations governing hydraulic fracturing on federal and Native American oil and natural gas leases which require lessees to file for approval of well stimulation work before commencement of operations and require well operators to disclose the trade names and purposes of additives used in the fracturing fluids. However, in December 2017, the Bureau of Land Management published a final rule rescinding the March 26, 2015 rule (“BLM 2015 Rule”), entitled “Natural gas and oil; Hydraulic Fracturing on Federal and Indian Lands.” The primary purposes of the BLM 2015 Rule were to ensure that wells were constructed so as to protect water supplies, to ensure environmentally responsible management of fluids displaced by fracturing, and to provide public disclosure of chemicals used in fracturing operations. The net effect of the December 2017 rule making is to return the affected sections of the Code of Federal Regulations to the language that existed before the BLM’s 2015 Rule. In addition, legislation has from time to time been introduced, but not adopted, in Congress to provide for additional federal regulation of hydraulic fracturing and to require additional disclosure of the chemicals used in the fracturing process. In addition, some states have adopted, and other states are considering adopting, regulations that could restrict hydraulic fracturing in certain circumstances. Epsilon is unable to predict the timing, scope and effect of any currently proposed or future laws or regulations regarding hydraulic fracturing in the United States, but there can be no assurance that the direct and indirect costs of such laws and regulations (if enacted) would not materially and adversely affect Epsilon’s operations, financial condition and results of operations. Gathering System Regulation Regulation of gathering facilities may affect certain aspects of Epsilon’s business and the market for Epsilon’s services. Historically, the transportation and sale for resale of natural gas in interstate commerce have been regulated by agencies of the U.S. federal government, primarily the Federal Energy Regulatory Commission, or the FERC. The FERC regulates interstate natural gas transportation rates, terms and conditions of service, which affects the marketing of natural gas produced by Epsilon, as well as the revenues received for sales of Epsilon’s natural gas. The transportation and sale for resale of natural gas in interstate commerce is regulated primarily under the Natural Gas Act, or the NGA, and by regulations and orders promulgated under the NGA by the FERC. In certain limited circumstances, intrastate transportation, gathering, and wholesale sales of natural gas may also be affected directly or 13 ​ ​ ​ indirectly by laws enacted by the U.S. Congress and by FERC regulations. Market for Our Common Equity and Related Stockholder Matters Market Information. Commencing on February 19, 2019, the common shares of the Company trade on the NASDAQ Global Market with the ticker symbol ‘‘EPSN.’’ Effective as of the close of trading on March 15, 2019, Epsilon voluntarily delisted its common shares from the Toronto Stock Exchange. The last reported sales price of our common shares on the NASDAQ Global Market on March 24, 2021 was $3.90 per share. Shareholders. We had approximately 800 shareholders of record as of December 31, 2020. Dividends. We have not declared or paid any cash or stock dividends on our common shares since our inception and do not anticipate declaring or paying any cash or stock dividends in the foreseeable future. Securities Authorized for Issuance under Equity Incentive Plans. At December 31, 2020, we were authorized to issue equity securities as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of Shares to be ​ ​ Weighted Average ​ ​ ​ ​ Issued Upon Exercise or ​ ​ Exercise or Vesting Price ​ Number of Shares Remaining ​ ​ Vesting of Outstanding ​ ​ of Outstanding Options ​ Available for Future Issuance Plan Category ​ Options or Shares ​ ​ or Shares ​ Under Equity Compensation Plans Equity share options under Amended and Restated 2017 Stock Option Plan 245,000 $ 5.27 — Common shares under Amended and Restated 2017 Stock Option Plan 178,170 $ 3.52 — Common shares under 2020 Equity Incentive Plan 305,067 ​ $ 3.75 1,674,100 ​ The following table sets out the number of common shares to be issued upon exercise of outstanding options issued pursuant to our equity compensation plans and the weighted average exercise price of outstanding options for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ ​ December 31, 2020 ​ December 31, 2019 ​ ​ ​ Weighted ​ Weighted ​ ​ Number of ​ Average ​ Number of ​ Average ​ ​ Options ​ Exercise ​ Options ​ Exercise ​ Outstanding Price Outstanding Price Balance at beginning of period 245,000 ​ $ 5.27 290,750 ​ $ 5.02 Exercised — ​ ​ — (25,000) ​ 2.17 Expired/Forfeited — ​ $ — (20,750) ​ 5.37 Balance at period-end 245,000 ​ $ 5.27 245,000 ​ $ 5.27 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Exercisable at period-end 245,000 ​ $ 5.27 206,670 ​ $ 5.32 ​ As of December 31, 2020, we had no warrants or other common share-related rights outstanding. At December 31, 2020, under the 2020 Equity Incentive Plan (the “2020 Plan”) (See Note 6 Shareholders’ Equity of the Notes to the Consolidated Financial Statements), we are authorized to issue 2,000,000 Common Shares to employees and directors of the Company. As of that date, we had 325,900 common shares granted under the 2020 Plan. We also had, as of December 31, 2020, 178,170 unvested shares outstanding under the predecessor plan, the 2017 Stock Compensation Plan. No more shares are authorized to be issued under this plan. The following table sets out the number of time restricted common shares to be issued upon vesting over the next 14 ​ ​ ​ three years pursuant to our share compensation plans and the weighted average market price at date of issue for outstanding shares for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ ​ December 31, 2020 ​ December 31, 2019 ​ ​ ​ Weighted ​ Weighted ​ ​ Number of ​ Average ​ Number of ​ Average ​ ​ Shares ​ Grant Date ​ Shares ​ Grant Date ​ Outstanding Market Price Outstanding Market Price Balance non-vested Restricted Stock at beginning of period 346,499 ​ $ 3.76 282,833 ​ $ 4.53 Granted 111,900 ​ ​ 3.71 ​ 184,500 ​ ​ 3.30 Vested (168,329) ​ ​ 3.65 (106,834) ​ 4.54 Forfeited — ​ ​ — (14,000) ​ 4.43 Balance non-vested Restricted Stock at end of period ​ 290,070 ​ $ 3.41 346,499 ​ $ 3.76 ​ The following table sets out the number of performance-based common shares to be issued upon vesting over the next three years pursuant to our share compensation plans and the weighted average market price at date of issue for outstanding shares for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ ​ December 31, 2020 ​ December 31, 2019 ​ ​ ​ Weighted ​ Weighted ​ ​ Number of ​ Average ​ Number of ​ Average ​ ​ Shares ​ Grant Date ​ Shares ​ Grant Date ​ Outstanding Market Price Outstanding Market Price Balance non-vested Restricted Stock at beginning of period — ​ $ — — ​ $ — Granted 214,000 ​ ​ 3.42 ​ — ​ ​ — Vested (20,833) ​ ​ 3.22 — ​ — Forfeited — ​ ​ — — ​ — Balance non-vested Restricted Stock at end of period ​ 193,167 ​ $ 3.45 — ​ $ — ​ ​ Recent Developments The significant demand declines caused by the global response to the coronavirus 2019 pandemic (“COVID-19”) as well as the actions taken by a number of global oil producers contributed to steep declines in the demand and pricing for oil, natural gas and NGLs, negatively impacting U.S. producers in 2020. While Epsilon did not incur significant disruptions to operations during the year ended December 31, 2020 as a result of the COVID-19 pandemic, the Company did need to recognize an impairment on its legacy Oklahoma producing assets due to the historically low commodity prices. The full impact of the COVID-19 pandemic continues to evolve as of the date of this report. As such, the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations is uncertain. Management is actively monitoring the impact of the COVID-19 pandemic on the Company's financial condition, liquidity, operations, suppliers, industry and ability to obtain financing in future reporting periods. Given the daily evolution of the COVID-19 pandemic and the global responses to curb its spread, the Company is currently not able to estimate the effects of the COVID-19 pandemic on its results of operations, financial condition, or liquidity for the future. The federal government has passed a series of relief and stimulus packages, including the CARES Act, for the country, but Epsilon has not and does not anticipate that it will apply for assistance under such programs. Accordingly, these programs have no effect on Epsilon’s financial statements. ​ On June 28, 2020, Chesapeake Energy Corporation (“CHK”) filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code (“Petition”). Chesapeake Energy Marketing, Inc., a subsidiary of CHK, is one of the Anchor Shippers under the Anchor Ship Gas Gathering Agreement (“ASGGA”) for the Auburn GGS with a 43.8750% voting percentage. The Williams Companies Inc. (“Williams”), including its subsidiary Appalachia Midstream Services, L.L.C. (“AMS”), is listed in the petition as a top 30 creditor of CHK, with an amount due by CHK under the ASGGA. On June 28, 2020 unpaid fees attributable to CHK for the ASGGA for May and June 2020 gathering fees were $1.1 million 15 ​ ​ ​ and $1.3 million respectively. ​ On December 15, 2020, a global resolution between Williams and CHK was approved by the United States Bankruptcy Court. As a part of the agreement, CHK affirmed the ASGGA for the Auburn GGS and agreed to pay all pre-petition and past due receivables related to midstream expenses, per the existing contracts. We received our share of the pre-petition amounts and as such, reversed our $0.8 million allowance for doubtful accounts. As of December 31, 2020, all cash has been received and revenue is included in the financial statements. ​ On March 10, 2021, Epsilon filed a complaint against Chesapeake Appalachia, LLC (“Chesapeake”) in the United States District Court for the Middle District of Pennsylvania, Scranton, Pennsylvania. Epsilon claims that Chesapeake has breached a settlement agreement and several operating agreements (“JOAs”) to which Epsilon and Chesapeake are parties. Epsilon asserts that Chesapeake has failed to cooperate with Epsilon’s efforts to develop resources in the Auburn Development, located in North-Central Pennsylvania, as required under both the settlement agreement and JOAs. Epsilon has requested a preliminary injunction, among other requests for relief. Accordingly, a hearing on that request is expected to be heard in Spring 2021. ​ ​ ​ ​ ​