Epsilon Energy Ltd.

The company said the second quarter was a trough for production and that new development began contributing late in the quarter, but it did not give quarterly revenue, EPS, or gross margin figures on the call. Management said the midpoint of full-year 2026 guidance implies high-teens year-over-year growth in total production and almost 200% year-over-year growth in oil volumes. The company also said it paid down debt by $10 million in the first half and expects to use the revolver to partially fund a higher spending ramp while staying within its target leverage of 1.5x EBITDA. For the rest of 2026, it expects meaningful quarter-over-quarter production growth, with the biggest step-up coming in the fourth quarter from first Parkman volumes, and it plans to continue investing for growth into 2027 across Powder River, Permian, and Marcellus assets.

Jason Stabell framed the quarter as one of execution, saying major operational initiatives stayed on schedule and on budget and that the company is now seeing the benefits of transitioning into more operated activity. He emphasized that the business should see meaningful quarter-over-quarter production growth through the rest of 2026, driven primarily by crude volumes in the Powder River Basin. He also highlighted strong early results from the Niobrara completions, a successful first Parkman drilling program, and a productive first 3-mile Barnett well, while noting that the Peak acquisition integration is largely complete.

Andrew Williamson said Q2 was the production trough for the year and that growth should accelerate as Q2 activity shows up in Q3 and into year-end. He quantified the plan as high-teens total production growth and almost 200% oil growth at the midpoint of 2026 guidance, and said well over half of full-year capital spending will not affect results until Q4, with over a third showing up next year. He also noted $10 million of debt paydown in the first half, said the company is comfortable staying within its 1.5x EBITDA leverage target, and reiterated a hedge posture of 50% PDP coverage over the next 18 months.

Analysts focused on how Epsilon will guide the business going forward, especially after the company began giving production guidance for the second half of 2026. Management said the next formal step will be full-year 2027 guidance, targeted for the first quarter of next year before year-end 2026 results, and that guidance will then be refined quarterly. Questions also centered on Marcellus curtailments, timing risk for Q4 wells, hedging in case of a warmer winter, and whether the company would do more working-interest sell-downs; management said it uses seasonal curtailments to maximize annual gas cash flow, believes its guidance already includes margin for delay, sees no plan to hedge above its 50% PDP target, and views sell-downs as a tool to rightsize the capital program rather than a standing plan.