Epsilon Energy Ltd. (NASDAQ: EPSN) corrected its second quarter FY26 financial results, revising its adjusted net income to a loss of $0.03 per share, down from the previously reported earnings of $0.05. The company attributed the correction to the recategorization of sale proceeds from asset sales, which had no basis, from other income to gain on asset sales to align with its definition of adjusted net income. Reported GAAP earnings in the Form 10-Q remain unaffected by this change. Management clarified that the correction was limited to the presentation of adjusted net income and adjusted EPS in the summary table, with no impact on cash flows or underlying business economics.

Total revenue for the quarter rose 57% year-on-year to $18.3 million, driven by higher realized prices for oil and natural gas liquids. However, adjusted EBITDA contracted 21% YoY to $5.8 million, reflecting a sharp decline in gas revenues despite price tailwinds in other commodities. The company ended the quarter with total debt of $40.5 million and cash plus short-term investments of $11.7 million. During the first half of the year, Epsilon paid down $10 million in debt.

Operational Highlights

Total net revenue interest (NRI) production declined 13% quarter-on-quarter to 3,088 MMcfe but remained broadly flat year-on-year. The decline was primarily due to planned maintenance and field optimization activities. Management described Q2 as a trough for production this year, as new development contributions from the Powder River Basin and Permian started late in the quarter.

• Gas: Production fell 16% QoQ to 2,082 MMcf. Marcellus production dropped 16% due to a planned suction pressure increase in the Auburn Gas Gathering System.
• Oil: Output decreased 8% QoQ to 126 MBbl. Permian production remained flat as new well volumes came online.
• NGL: Volumes were stable at 42 MBbl, down 1% QoQ.

Financial Performance

Revenue composition shifted significantly toward liquids. Oil revenue surged 332% YoY to $11.8 million, while NGL revenue jumped 856% YoY to $1.4 million. Conversely, gas revenue fell 45% YoY to $3.8 million, impacted by lower volumes and a 28% drop in realized gas prices to $1.81/Mcf.

Capital expenditures rose 74% QoQ to $8.5 million as the company advanced development activities across its core basins. The company completed two Niobrara DUCs in the Powder River Basin and participated in five Marcellus wells expected to come online in December.

Guidance and Outlook

For the first time, Epsilon Energy issued production guidance for the second half of 2026, anticipating significant growth driven by high-return oil projects. Management expects full-year FY26 total production of 13,740–14,280 MMcfe, representing 18% YoY growth at the midpoint. Oil production is guided at 640–670 MBbl, a 194% YoY increase at the midpoint.

Full-year capital expenditure guidance stands at $42.0–$47.0 million. Approximately 35% of 2026 capital spending is expected to impact results only in Q4, while another 24% will not impact 2026 results, deferring value creation to FY27. The company plans to utilize a revolver to partially fund the investment ramp starting in Q3 while maintaining target leverage levels of 1.5 times EBITDA.

The company maintains a hedge book covering significant portions of its expected production through FY27, with oil swaps averaging $64.32/Bbl and gas swaps averaging $3.90/MMBtu for the remainder of FY26. Management targets 50% PDP hedged coverage over the next 18 months.

What the Numbers Show

The correction reveals that the previously reported profitability was driven by non-operational items. The reclassification of the $4.2 million gain on asset sales from other income to a specific gain line item removed it from the adjusted net income calculation, turning a reported profit into a loss. This highlights the sensitivity of the company's adjusted metrics to one-time asset disposals rather than core operational cash flow generation. Despite the adjusted loss, the company’s balance sheet remains strong with $11.7 million in cash and short-term investments against $40.5 million in debt, supported by recent debt paydowns and strategic interest sell-downs that preserve over 70% working interest in key projects.

Epsilon Energy Ltd. (NASDAQ: EPSN) will issue its second quarter 2026 earnings release on Wednesday, August 12, 2026, after the market close. This announcement provides investors with the timeline for accessing the company’s latest financial performance data. The company, a North American onshore natural gas and oil production and gathering firm with assets across the Appalachian, Powder River, Permian, and Western Canadian Sedimentary basins, aims to maintain transparency with its stakeholders through scheduled disclosures.

Following the release of the earnings report, Epsilon Energy will host a conference call on Thursday, August 13, 2026, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) to discuss its financial and operating results. Interested parties in the United States and Canada may participate toll-free by dialing (833) 816-1385. International participants can join by dialing (412) 317-0478. Participants should request to be joined to the "Epsilon Energy First Quarter 2026 Earnings Conference Call" upon connection.

The conference call will also be available via webcast at https://event.choruscall.com/mediaframe/webcast.html?webcastid=6qJpqYfZ . A replay of the webcast will be accessible on the company’s website, www.epsilonenergyltd.com , following the conclusion of the live event. These digital options ensure broader accessibility for global investors and analysts tracking the company’s performance.

Key Dates and Contact Information

For further inquiries regarding the earnings release or conference call, investors may contact Jason Stabell, Chief Executive Officer, or Andrew Williamson, Chief Financial Officer. Their contact details are available through the company’s official investor relations channels.