What changed in this filing

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Item 1A. Risk Factors

2025-03-19 compared with 2024-03-21 · 25 added, 41 removed, 308 unchanged (18% of the section changed)

10 unchanged sentences

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.

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.

To the extent commodity prices received from production are insufficient to fund planned capital expenditures, spending will be required to be reduced, assets could be sold or funds may be borrowed to fund any such shortfall.

22 unchanged sentences

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, may vary.

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.

27 unchanged sentences

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.

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.

56 unchanged sentences

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

to Epsilon Energy Ltd.

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

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.

withholding tax.

1 unchanged sentence

Approximately 50% and 77% of our revenue during fiscal years 2024 and 2023, respectively, was derived from natural gas production and gathering system revenues in the state of Pennsylvania.

As a result of prolonged weak pricing in Zone 4 of the Tennessee Gas Pipeline and, therefore, a reduced pace of development, Epsilon’s management is striving to allocate capital to additional upstream opportunities outside of the Marcellus Shale.

More specifically, the Company has allocated capital to the Permian Basin through its investments in New Mexico and Texas.

Epsilon’s management expects to continue to seek opportunities outside of the Marcellus Shale in order to provide the Company the flexibility to respond to market conditions by allocating capital across multiple basins and commodities.

Approximately 40% and 6% of our revenue during fiscal years 2024 and 2023, 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.

18 unchanged sentences

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

We do not have key-person insurance in effect

for management.

We do not have key-person insurance in effect for management.

The contributions of these individuals to our immediate operations are likely to be of central importance.

29 unchanged sentences

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.

is substantial risk that commodity prices may decline in the future, although it is not possible to predict the time or extent of such decline.

There is substantial risk that commodity prices may decline in the future, although it is not possible to predict the time or extent of such decline.

Volatile oil and natural gas prices make it difficult to estimate the value of producing properties for acquisition and often cause disruption in the market for oil and natural gas producing properties, as buyers and sellers have difficulty agreeing on such value.

61 unchanged sentences

Risks Related to Internal Controls

For as long as we are an “emerging growth company,” we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to some other public companies.

As an “emerging growth company” as defined in the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.

We will cease being an emerging growth company not later than December 31, 2024.

For so long as we remain an “emerging growth company,” we will not be required to:

● have an auditor report on our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002 (provided that this exemption will continue to apply for so long as we are a “non-accelerated filer”);

● comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis);

● submit certain executive compensation matters to shareholder approval (requiring a non-binding shareholder vote to approve golden parachute arrangements in connection with mergers and certain other business combinations, and advisory votes on executive compensation pursuant to the “say on frequency” and “say on pay” provisions under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010;

● include detailed compensation discussion and analysis in our filings under the Securities Exchange Act of 1934 (the “Exchange Act”) and instead may provide a reduced level of disclosure concerning executive compensation.

In addition, the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period for complying with new or revised accounting standards.

We have elected to take advantage of the extended transition period, which allows us to delay the adoption of new or revised accounting standards until those standards apply to private companies.

As a result of this election, our financial statements may not be comparable to public companies that comply with new or revised accounting standards.

Because of these exemptions, some investors may find our common shares less attractive, which may result in a less active trading market for our common shares, and our shares price may be more volatile.

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.

We have chosen to take advantage of some, but not all, of the available exemptions for smaller reporting companies.

We cannot predict whether investors will find our common shares less attractive if we rely on these exemptions.

If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.

If we fail to establish and maintain proper disclosure or internal controls, our ability to produce accurate financial statements and supplemental information or comply with applicable regulations could be impaired.

2 unchanged sentences

We must maintain effective disclosure controls and procedures.

We must also maintain effective internal controls over financial reporting or, at the appropriate time, our independent auditors will be unwilling or unable to provide us with an unqualified report on the effectiveness of our internal controls over financial reporting as required by Section 404(b) of

the Sarbanes-Oxley Act, once we become subject to those requirements.

If we fail to maintain effective controls, investors may lose confidence in our operating results, the price of our common shares could decline and we may be subject to litigation or regulatory enforcement actions.

5 unchanged sentences

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.

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.

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.

The gathering rate on the Auburn GGS is subject to a cost-of-service model which could result in a non-competitive gathering rate and reduced throughput.

The gathering rate charged by the Auburn GGS is determined by a cost-of-service model whereby the Anchor Shippers in the system, of which Epsilon is one, dedicate acreage and reserves to the gas gathering system in exchange for the Auburn GGS owners agreeing to a contractual rate of return on invested capital.

The term of this arrangement is 15 years commencing in 2012 and expiring in 2026 with an 18% rate of return.

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 January 2027, the Auburn GGS will transition to a fixed gathering rate.

Under the cost-of-service model, if total throughput on the system is lower than forecasted in the prior year, the gathering rate will increase.

The 2022 model forecasts 276 Bcf throughput from 2022-2026 (approximately 69% of current capacity at the 550 psig design suction pressure) which resulted in a $0.40 gathering rate.

If the gathering rate on the Auburn GGS increases, it could result in reduced or deferred development in the Auburn GGS.

In one unlikely scenario, if no further development activity beyond work in progress occurs in the Auburn GGS, forecast throughput from 2022-2026 is expected to decline to 205 Bcf (approximately 52% of current capacity at the 550 psig design suction pressure) resulting in a still acceptable $0.62 gathering rate.

Although the Anchor Shippers have dedicated their reserves to the Auburn GGS, they are under no obligation to develop the reserves.

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.

25 unchanged sentences

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.

24 unchanged sentences

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.

2 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 1A. Risk Factors