What changed in this filing

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Item 9A. Controls and Procedures

2022-03-24 compared with 2021-03-25 · 75 added, 60 removed, 505 unchanged (21% of the section changed)

9 unchanged sentences

With the participation of our management, we performed an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework).

Based on our evaluation under the 2013 Framework, we have concluded that the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020.

Based upon our evaluation under the 2013 Framework, we have concluded that as of December 31, 2021 our disclosure controls and procedures were effective.

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.

1 unchanged sentence

We were not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the rules of the Commission that permit us to provide only management’s report in this Annual Report.

Remediation of Material Weakness

As of September 30, 2021 our disclosure controls and procedures were not effective as of such date as a result of a material weakness in our internal control over financial reporting related to the reporting of hedge losses and the related review control as of September 30, 2021.

Our management implemented a remediation plan to address the operating effectiveness control deficiencies that led to the material weakness described above.

Management’s plan of remediation included incremental training with accounting software client support team, additional month end review utilizing various reporting tools, and increased communication with operations regarding monthly commodity activity.

We believe the remediation to be complete.

Changes in Internal Control Over Financial Reporting

No changes in our internal control over financial reporting occurred during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other than the remediation efforts discussed above, there have been no significant changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

32 unchanged sentences

Bond holds a Master of Business Administration from the University of Tulsa and a Bachelor of Science in Accounting from the University of Arkansas.

Clanton joined the Company as its Chief Operating Officer in January 2018.

Clanton has served as our chief operating officer since January 2018.

He has over 30 years of experience in the upstream E&P sector.

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Matthew Dougherty .

Dougherty has been a director since July 2013 and serves as the chair of the Compensation, Nominating and Governing Committee.

He has been the Managing Director of Advisory Research, Inc., an investment management firm since June 2003, where he oversees the firm’s investments in oil and natural gas producers.

Dougherty has been a director since July 2013 and serves as Chair of the Compensation, Nominating and Governing Committee.

He is a Managing Director and Partner at Advisory Research, Inc., an investment management firm, where he oversees the firm’s investments in the energy sector.

He has served as the Portfolio Manager of the Advisory Research Energy Fund, LP since 2005.

We believe that Mr.

Dougherty is qualified to serve as a member of our board of directors because of his background in natural gas and oil and finance industries.

Dougherty is qualified to serve as a member of our board of directors because of his background in the finance and the energy industry, including natural gas and oil producers.

Ryan Roebuck .

1 unchanged sentence

Jacob Roorda .

Roorda has been a director since March 2016.

Roorda has been a director of the Company since March 2016.

He has also been a member of our Audit Committee since March 2016, and the chair of our Conflicts Committee since February 2018.

Roorda is the President and CEO of PetroShale Inc., a Bakken focused oil and natural gas producer, and is the managing director and chief executive officer of Windward Capital Limited, a private company.

He was the Executive Vice President of Todd Energy International Ltd.

from November 2016 to July 2018, and the Chief Executive Officer of Todd Energy Canada Ltd.

Roorda has been a director of PetroShale Inc., a Bakken focused oil and natural gas producer, since 2012 and currently serves on the Reserves Committee of PetroShale Inc.

Roorda was the President and CEO of PetroShale Inc.

until February 2022.

He was the Chief Executive Officer of Todd Energy Canada Ltd.

from January 2015 to November 2016.

Roorda currently serves on the Audit, Compensation, and Reserves Committee of Petroshale Inc.

During the last five years, he also served on the boards of Wolf Minerals Limited and Northcliff Resources Ltd.

None of these positions are, or have ever been, with companies affiliated with the Company.

Roorda has also served on the board of Todd Energy Canada Ltd.

He has been certified as a Professional Engineer by the Association of Professional Engineers and Geoscientists of Alberta since 1981.

11 unchanged sentences

He resigned from the audit committee and became a member of the Compensation, Nominating and Corporate Governance Committee in January 2021.

Finlayson is the founder and, since 2003, Executive Chairman of Applied Manufacturing Technologies, an independent international consulting and project services company supporting operating companies in the downstream refining and chemicals industries.

We believe that Mr.

Finlayson is qualified to serve as a member of our board of directors as a result of his extensive experience in the natural gas and oil industry, including advanced control solutions in natural gas and oil production.

Finlayson founded and is currently Chairman of Applied Manufacturing Technologies (AMT), an independent international consulting and project services company.

Prior to founding AMT, Mr.

Finlayson headed Aspen Tech’s professional services organization serving global customers in the hydrocarbon industries.

Aspen Tech, a public company, trades under the symbol AZPN on the NASDAQ.

Finlayson, Aspen’s professional services organization delivered over 50% of company revenues.

With his extensive experience in the hydrocarbon industries both in public and private companies we believe that Mr.

Finlayson is qualified to serve as a member of our board of directors.

Jason Stankowski .

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Raleigh is our Chief Executive Officer and a member of JVL Advisors, LLC.

The Board held thirteen meetings during 2020 and six meetings during 2019.

The Board held seven meetings during 2021 and thirteen meetings during 2020.

All Board meetings were conducted with open and candid discussions.

105 unchanged sentences

All named executive officers have executed employment contracts with us.

Michael Raleigh’s employment contract calls for a base pay of $150,000 per year and an equity award in an amount having a value equal to one time his base pay.

Michael Raleigh’s employment contract calls for a base pay of $150,000 per year and an equity award in an amount having a value equal to at least one time his base pay.

The contract also contains provisions for severance payments equal to twelve months of current annual salary in the event that a change of control occurred.

21 unchanged sentences

Beginning in January 2021, Mr.

Raleigh’s base salary will be $150,000 along with an equity award in an amount having a value equal to one time his base pay.

Raleigh’s base salary is $150,000.

2021—PSU award of 20,834 common shares under the 2020 Plan valued at $5.04 per share, market price on the grant date, August 25, 2021, which vested immediately.

This award was based on the 2020 TSR Performance results meeting the 200% target award amount.

2020—Restricted stock award of 46,500 common shares under the 2020 Plan valued at $3.71 per share, market price on the grant date, December 31, 2020, which vest evenly over a three year period.

14 unchanged sentences

Raleigh is still employed.

2018— Share award of 62,500 common shares under the Share Compensation Plan valued at $4.49 per share, market price on the grant date, December 31, 2019, which vest evenly over a three year period.

Vested shares will be awarded on the anniversary date for each of the next three years, so long as Mr.

Raleigh is still employed.

Henry Clanton was hired as our chief operating officer in January 2018 with a base salary of US$250,000.

6 unchanged sentences

Clanton is still employed.

2018— Share award of 17,500 common shares under the Share Compensation Plan valued at $4.49 per share, market price on the grant date, December 31, 2019, which vest evenly over a three year period.

Vested shares will be awarded on the anniversary date for each of the next three years, so long as Mr.

Clanton is still employed.

Bond’s current base salary is $200,000.

The dollar amounts in column (e) reflect values derived from using the Trinomial Hull White option pricing to value option-based awards.

A summary of the options granted by year follows:

2019— Share award of 12,500 common shares under the Share Compensation Plan valued at $3.30 per share, market price on the grant date, December 31, 2020, which vest evenly over a three year period.

Vested shares will be awarded on the anniversary date for each of the next three years, so long as Mr.

Bond is still employed.

Lane Bond was hired as our chief financial officer in January 2012.

His current base salary is $200,000.

2019— Share award of 12,500 common shares under the Share Compensation Plan valued at $3.30 per share, market price on the grant date, December 31, 2020, which vest evenly over a three year period.

12 unchanged sentences

If an award holder resigns from the Company or is terminated by the Company (with or without cause), unvested shares will immediately be forfeited.

At December 31, 2021, 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

Under Equity Compensation Plans

Equity share options under Amended and Restated 2017 Stock Option Plan

Common shares under Amended and Restated 2017 Stock Option Plan

Common shares under 2020 Equity Incentive Plan

Incentive Plan Awards for Named Executive Officers

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All of our named executive officers have entered into employment contracts with us.

Michael Raleigh’s employment contract calls for a base pay of $150,000 per year and an equity award in an amount having a value equal to one time his base pay.

Michael Raleigh’s employment contract calls for a base pay of $150,000 per year and an equity award in an amount having a value equal to at least one time his base pay.

The contract also contains provisions for severance payments equal to twelve months of current annual salary in the event that a change of control occurred.

6 unchanged sentences

Option ‑ Based

Michael Raleigh*

Matthew Dougherty*

Tracy Stephens

Stephen Finlayson

* The two directors who are not independent, Messrs.

Lovoi and Raleigh, choose not to receive payment for their service as board members.

Dougherty also has chosen not to receive payment for his service.

Tracy Stephens

Jason Standowski

Lovoi, who is not independent, only receives share-based awards for his service as a board member.

Dougherty have chosen not to receive any payment for his service as a board member.

On a biannual basis, we compensate each director for services rendered (unless a director elects not to receive payment) and reimburse reasonable out-of-pocket travel expenses when incurred.

As of May 1, 2017, independent board member compensation is fixed at an annual fee of Cdn$40,000, paid semi-annually in July and January.

As of May 1, 2017, board member compensation is fixed at an annual fee of Cdn$80,000.

Cdn$40,000 is paid in cash semi-annually in July and January and Cdn$40,000 paid as a share-based award.

Incentive Plan Awards—Value Vested or Earned During the Year for Directors (Other Than Named Executive Officers)

8 unchanged sentences

not Paid Out or

Tracy Stephens

Stephen Finlayson

Tracy Stephens

Jason Standowski

The values of incentive plan awards that were vested or earned during the year ended December 31, 2021 are as follows:

6 unchanged sentences

During the Year

Tracy Stephens

Stephen Finlayson

Tracy Stephens

Directors and Officers Liability Insurance

We maintain directors’ and officers’ liability insurance for the protection of our directors and officers against liability incurred by them in their capacities as our directors and officers.

The policy provides an aggregate limit of liability of $30,000,000 with a deductible to us of $25,000 per loss.

The policy provides an aggregate limit of liability

of $30,000,000 with a deductible to us of $25,000 per loss.

The annual premium for the Directors’ and Officers’ liability insurance is about $350,000 and is renewed annually.

17 unchanged sentences

John Lovoi (9)

Ryan Roebuck (10)

Tracy Stephens (10)

Stephen Finlayson (11)

Jason Stankowski (12)

Henry Clanton (13)

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Lovoi is the chairman of our board of directors.

(10) Includes 10,000 shares issuable upon the exercise (at exercise price of $5.50) of options exercisable within 60 days of March 25, 2021.

Roebuck is a member of our board of directors.

Stephens is a member of our board of directors.

Finlayson is a member of our board of directors.

Stankowski is a member of our board of directors and a partner and portfolio manager for Clayton Partners, LLC.

(13) Includes 30,000 shares issuable upon the exercise (at exercise price of $5.03) of options exercisable within 60 days of March 25, 2021.

11 unchanged sentences

Our Board has determined that Messrs.

Matthew Dougherty, Jacob Roorda, Tracy Stephens, Stephen Finlayson, Jason Stankowski (as of January21, 2021) and David Winn (as of January 21, 2021) are independent in accordance with the listing requirements of the NASDAQ Global Market, representing over 50% of the Board.

Matthew Dougherty, Jacob Roorda, Tracy Stephens, Stephen Finlayson, Jason Stankowski (as of January 21, 2021) and David Winn (as of January 21, 2021) are independent in accordance with

the listing requirements of the NASDAQ Global Market, representing over 50% of the Board.

Our Board conducted its independence analysis for each of its current members other than John Lovoi and Michael Raleigh, considering all relevant facts and circumstances, including the director’s other commercial, accounting, legal, banking, consulting, charitable and familial relationships.

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In addition, pursuant to our by-laws, we may indemnify such person in such other circumstances as the ABCA or law permits.

Our by-laws also provide that none of our directors or officers shall be liable for the acts, receipts, neglects or defaults of any other director, officer or employee, or for joining in any receipt or other act for conformity, or for any loss, damage or expense happening to us through the insufficiency or deficiency of title to any property acquired for or on behalf of us, or for the insufficiency or deficiency of any security in or upon which any of our moneys shall be invested, or for any loss or damage arising from the bankruptcy, insolvency or tortious acts of any person with whom any of our moneys, securities or effects shall be deposited, or for any loss occasioned by any error of judgment or oversight on his part, or for any other loss, damage or misfortune which shall happen in the execution of the duties of his or her office or

in relation thereto;

provided that nothing in our by-laws shall relieve any director or officer from the duty to act in accordance with the ABCA and the regulations thereunder.

5 unchanged sentences

Audit of financial statements

Services in connection with regulatory filings

Audit related fees

Total Audit Fees

1 unchanged sentence

Financial Statements :

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 243 )

Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020 .

Consolidated Statements of Operations for the years ended December 31, 2020 and December 31, 2019 .

Consolidated Statements of Comprehensive Income for the years ended December 31, 2020 and December 31, 2019.

Consolidated Statements of Operations a nd Comprehensive Income for the years ended December 31, 2021 and December 31, 2020 .

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2021 and December 31, 2020.

Consolidated Statements of Cash Flows for the years ended December 31, 2021 and December 31, 2020 .

Consolidated Statement of Changes in Shareholders’ Equity for the years ended December 31, 2020 and December 31, 2019.

Notes to Consolidated Financial Statements

1 unchanged sentence

There are no Financial Statement Schedules included with this filing for the reason that they are not required.

Articles of Incorporation of Epsilon Energy Ltd.

(incorporated by reference to Exhibit 3.1 of Form 10, File No.

Articles of Incorporation of Epsilon Energy Ltd (incorporated by reference to Exhibit 3.1 of Form 10, File No.

001-38770, filed on December 21, 2018).

43 unchanged sentences

Summary Reserve Report

XBRL Instance Document.

XBRL Taxonomy Extension Schema Document.

XBRL Taxonomy Extension Calculation Linkbase Document.

XBRL Taxonomy Extension Definition Linkbase Document.

XBRL Taxonomy Extension Label Linkbase Document.

XBRL Taxonomy Extension Presentation Linkbase Document.

Inline XBRL Instance Document.

Inline XBRL Taxonomy Extension Schema Document.

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Inline XBRL Taxonomy Extension Definition Linkbase Document.

Inline XBRL Taxonomy Extension Label Linkbase Document.

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Filed herewith.

34 unchanged sentences

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 9A. Controls and Procedures