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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2025.

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-38770

EPSILON ENERGY LTD.

(Exact name of registrant as specified in its charter)


Alberta, Canada	98-1476367
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

500 Dallas Street, Suite 1250

Houston, Texas 77002

(281) 670-0002

(Address of principal executive offices including zip code and

telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Shares, no par value	EPSN	NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act:

NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.


Yes ☐	No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.


Yes ☐	No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes ☒	No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).


Yes ☒	No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☒	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).


Yes ☐	No ☒

Aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $133.7 million. There were 30,239,980 Common Shares (no par value) outstanding as of March 26, 2026.

PART I

FORWARD LOOKING STATEMENTS.

Certain statements contained in this report constitute forward-looking statements. The use of any of the words ‘‘anticipate,’’ ‘‘continue,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘may,’’ ‘‘will,’’ ‘‘project,’’ ‘‘should,’’ ‘‘believe,’’ and similar expressions and statements relating to matters that are not historical facts constitute ‘‘forward looking statements’’ within the meaning of applicable securities laws. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated. Such forward-looking statements are based on reasonable assumptions, but no assurance can be given that these expectations will prove to be correct and the forward-looking statements included in this report should not be unduly relied upon. These statements are made only as of the date of this report. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to oil and natural gas production rates, commodity prices for crude oil or natural gas, supply and demand for oil and natural gas; the estimated quantity of oil and natural gas reserves, including reserve life; future development and production costs, and statements expressing general views about future operating results — are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in this Annual Report on Form 10-K, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

DEFINED TERMS

We have included below the definitions for certain terms used in this document:

‘‘3-D seismic’’ Geophysical data that depict the subsurface strata in three dimensions. 3-D seismic typically provides a more detailed and accurate interpretation of the subsurface strata than 2-D, or two-dimensional, seismic.

‘‘ABCA’’ Business Corporations Act (Alberta).

‘‘Anchor shippers’’ Parties listed in the Anchor Shipper Gas Gathering Agreement for Northern Pennsylvania, including Epsilon Energy USA, Inc., Equinor USA Onshore Properties, Inc., and Expand Energy Corporation. for the Auburn Gas Gathering System.

‘‘ASC’’ Accounting Standards Codification.

‘‘Bbl’’ One stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to oil, NGLs and other liquid hydrocarbons.

‘‘Bcf’’ One billion cubic feet, used in reference to natural gas.

‘‘Boe’’ One stock tank barrel of oil equivalent, computed on an approximate energy equivalent basis that one Bbl of crude oil equals six Mcf of natural gas and one Bbl of crude oil equals one Bbl of natural gas liquids.

‘‘Completion’’ The process of preparing a natural gas and oil wellbore for production through the installation of permanent production equipment, as well as perforation and fracture stimulation to optimize production.

‘‘Delay rental’’ Consideration paid to the lessor by a lessee to extend the terms of an oil and natural gas lease in the absence of drilling operations and/or production that is contractually required to hold the lease. This consideration is generally required to be paid on or before the anniversary date of the natural gas and oil lease during its primary term, and typically extends the lease for an additional year.

‘‘Development well’’ A well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

‘‘Differential’’ The difference between a benchmark price of oil and natural gas, such as the NYMEX crude oil spot price, and the wellhead price received.

‘‘Dry hole’’ A well found to be incapable of producing either natural gas or oil in sufficient quantities to justify completion as a natural gas or oil well.

‘‘Exit rate’’ Upstream term referring to the rate of production of oil and/or gas as of a specified date.

‘‘Exploratory well’’ A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir.

‘‘FASB’’ Financial Accounting Standards Board.

‘‘Field’’ An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition. There may be two or more reservoirs in a field that are separated vertically by intervening impervious strata, or laterally by local geologic barriers, or both. Reservoirs that are associated by being in overlapping or adjacent fields may be treated as a single or common operational field. The geological terms ‘‘structural feature’’ and ‘‘stratigraphic condition’’ are intended to identify localized geological features as opposed to the broader terms of basins, trends, provinces, plays, areas of interest, etc.

‘‘Free cash flow’’ A measure of a company’s financial performance, calculated as operating cash flow minus capital expenditures. Free cash flow represents the cash that a company is able to generate after spending the money required to maintain or expand its asset base.

‘‘GAAP’’ Generally accepted accounting principles in the United States of America.

“GGS” A natural gas gathering system.

‘‘Gross acres’’ or ‘‘gross wells’’ The total acres or wells, as the case may be, in which a working interest is owned.

“Henry Hub” A natural gas pipeline located in Erath, Louisiana, that serves as the official delivery location for futures contracts on the NYMEX. The hub is owned by Sabine Pipe Line LLC and has access to many of the major gas markets in the United States.

‘‘ISDA’’ International Swaps and Derivatives Association, Inc.

‘‘Lease operating expense’’ or ‘‘LOE’’ The expenses of lifting oil or gas from a producing formation to the surface, constituting part of the current operating expenses of a working interest, and also including labor, superintendence, supplies, repairs, short-lived assets, maintenance, allocated overhead costs and other expenses incidental to production, but not including lease acquisition or drilling or completion expenses.

‘‘MBbl’’ One thousand barrels of oil, NGLs or other liquid hydrocarbons.

‘‘MBbl/d’’ One MBbl per day.

‘‘MBoe’’ One thousand BOE.

‘‘MBoe/d’’ One MBOE per day.

‘‘Mcf’’ One thousand cubic feet, used in reference to natural gas.

“Mcfe” One thousand cubic feet equivalent, used in reference to natural gas. One Mcf of natural gas equivalent, converting one Bbl of oil or natural gas liquids at the ratio of one Bbl of oil or natural gas liquids to 6 Mcf of natural gas.

‘‘MMBbl’’ One million Bbl.

‘‘MMBoe’’ One million Boe.

‘‘MMBtu’’ One million British Thermal Units, used in reference to natural gas.

‘‘MMcf’’ One million cubic feet, used in reference to natural gas.

‘‘MMcf/d’’ One MMcf per day.

“MMcfe” One million Mcfe.

‘‘Net acres’’ or ‘‘net wells’’ The sum of the fractional working interests owned in gross acres or wells, as the case may be.

‘‘NGL’’ Natural gas liquid.

‘‘NYMEX’’ The New York Mercantile Exchange.

‘‘PDP’’ Proved developed producing reserves.

‘‘Plugging and abandonment’’ Refers to the sealing off of fluids in the strata penetrated by a well so that the fluids from one stratum will not escape into another or to the surface. Regulations of most states legally require plugging of abandoned wells.

‘‘Prospect’’ A property on which indications of oil or gas have been identified based on available seismic and geological information.

‘‘Proved developed reserves’’ Proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well.

‘‘Proved reserves’’ Those reserves that, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs and under existing economic conditions, operating methods and government regulations— prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced, or the operator must be reasonably certain that it will commence the project, within a reasonable time.

The area of the reservoir considered as proved includes all of the following:

The area identified by drilling and limited by fluid contacts, if any, and

Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.

Reserves that can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when both of the following occur:

Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based, and

The project has been approved for development by all necessary parties and entities, including governmental entities.

Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period before the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

‘‘Proved undeveloped reserves’’ or ‘‘PUDs’’ Proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances. Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless specific circumstances justify a longer time. Under no circumstances shall estimates of proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty.

‘‘PV-10’’ The present value, discounted at 10% per annum, of future net revenues (estimated future gross revenues less estimated future costs of production, development, and asset retirement costs) associated with reserves and is not necessarily the same as market value. PV-10 does not include estimated future income taxes. Unless otherwise noted, PV-10 is calculated using the pricing scheme as required by the Securities and Exchange Commission (‘‘SEC’’). PV-10 of proved reserves is calculated the same as the standardized measure of discounted future net cash flows, except that the

standardized measure of discounted future net cash flows includes future estimated income taxes discounted at 10% per annum. See the definition of standardized measure of discounted future net cash flows.

‘‘Reasonable certainty’’ If deterministic methods are used, reasonable certainty means a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimate. A high degree of confidence exists if the quantity is much more likely to be achieved than not, and, as changes due to increased availability of geoscience (geological, geophysical and geochemical) engineering, and economic data are made to estimated ultimate recovery with time, reasonably certain estimated ultimate recovery is much more likely to increase or remain constant than to decrease.

‘‘Reserves’’ Estimated remaining quantities of natural gas and oil and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering natural gas and oil or related substances to market, and all permits and financing required to implement the project.

‘‘Reservoir’’ A porous and permeable underground formation containing a natural accumulation of producible crude oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

‘‘Royalty’’ The amount or fee paid to the owner of mineral rights, expressed as a percentage or fraction of gross income from crude oil or natural gas produced and sold, unencumbered by expenses relating to the drilling, completing or operating of the affected well.

‘‘Royalty interest’’ An interest in an oil or natural gas property entitling the owner to shares of the crude oil or natural gas production free of costs of exploration, development and production operations.

‘‘Section’’ An area of one square mile of land, 640 acres, with 36 sections making up one survey township on a rectangular grid.

‘‘SOFR’’ The Secured Overnight Financing Rate that is generally published by the Federal Reserve Bank of New York.

‘‘Standardized Measure’’ or ‘‘SMOG’’ The standardized measure of discounted future net cash flows (the ‘‘Standardized Measure’’) is an estimate of future net cash flows associated with proved reserves, discounted at 10% per annum. Future net cash flows is calculated by reducing future net revenues by estimated future income tax expenses and discounting at 10% per annum. The Standardized Measure and the PV-10 of proved reserves is calculated in the same exact fashion, except that the Standardized Measure includes future estimated income taxes discounted at 10% per annum. The Standardized Measure is in accordance with U.S. GAAP.

‘‘Working interest’’ The interest in a crude oil and natural gas property (normally a leasehold interest) that gives the owner the right to drill, produce and conduct operations on the property and to a share of production, subject to all royalties, overriding royalties and other burdens and to all costs of exploration, development and operations and all risks in connection therewith.

‘‘Workover’’ Operations on a producing well to restore or increase production.

ITEM 1. BUSINESS.

Summary

Epsilon Energy Ltd. (the “Company” or “Epsilon” or “we”) was incorporated under the laws of the Province of Alberta, Canada on 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. 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.”

At December 31, 2025, Epsilon’s total estimated net proved reserves were 86.4 Bcf of natural gas reserves, 9.3 MMBbls of oil reserves, and 2.4 MMBbls of NGL reserves. Epsilon holds leasehold rights to approximately 101,265 gross (54,044 net) acres. The Company has natural gas production in the Appalachian Basin Pennsylvania and oil, natural gas liquids and natural gas production in the Powder River Basin in Wyoming, the Permian Basin in Texas and New Mexico, and the Western Canadian Sedimentary Basin in Alberta, Canada.

On November 14, 2025, Epsilon acquired Peak Exploration & Production LLC and Peak BLM Lease LLC and their subsidiaries (together, “Peak”) for total consideration of $88.5 million consisting of 1) issuance of 5,681,489 common shares valued at $27.6 million, 2) contingent consideration of up to 2,500,000 common shares valued at $10.6 million, and the settlement of $50.3 million of debt. The contingent consideration was settled on November 19, 2025, through the issuance of 2,234,847 common shares for $10.6 million. The acquired assets primarily include operated and non-operated production and leasehold interests in the core of the Powder River Basin in Wyoming. As part of the acquisition, the Company added 17 full-time employees from Peak.

The results of operations attributable to the Peak acquisition have been included in the Company’s consolidated financial statements as of the closing date of the acquisition.

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; Peak Exploration & Production LLC, a Delaware limited liability company; Peak BLM Lease LLC, a Delaware limited liability company; Peak Powder River Resources, LLC, a Wyoming limited liability company (the licensed operator in the state of Wyoming); Peak Energy Operating #2, LLC, a Colorado limited liability company; Willow Springs Development, LLC, a Colorado limited liability company; Peak Powder River Acquisition, LLC, a Delaware limited liability company; and Altolisa Holdings, LLC, a Delaware limited liability company.

Substantially all the Pennsylvania acreage (4,878 net) is dedicated to the Auburn Gas Gathering System (“Auburn GGS”) located in Susquehanna County, Pennsylvania for a 10-year term expiring in 2033 under an operating agreement whereby the Auburn GGS owners charge a fixed gathering and compression rate which is adjusted annually by the CPI-U All Urban Consumer Price Index published by the US Bureau of Labor Statistics. We own a 35% interest in the Auburn GGS which is operated by a subsidiary of Williams Partners, LP. In 2025, we paid $3.5 million (after elimination) to the Auburn GGS to gather and treat our 9.4 Bcf of natural gas production in Pennsylvania ($2.4 million after elimination was paid to the Auburn GGS to gather and treat our 5.7 Bcf in 2024), including the fees paid to our subsidiary, Epsilon Midstream.

Our principal executive office is located at 500 Dallas Street, Suite 1250, Houston, Texas 77002, 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.

Operational Highlights of 2025

Appalachian Basin—Pennsylvania

●

During the year ended December 31, 2025, Epsilon’s realized natural gas price was $2.98 per Mcf,

excluding the impact of hedges, a 66% increase from $1.80 for the year ended December 31, 2024.

●

Total natural gas sales for the year ended December 31, 2025 were 9.4 Bcf, a 65% increase from the 5.7 Bcf sold for the year ended December 31, 2024, driven by new wells and curtailed wells returning to production.

●

Gathered and delivered 40.5 Bcf gross (14.2 Bcf net to Epsilon’s interest) during the year, or 111 MMcf/d through the Auburn GGS.

●

In 2025, 4 gross (0.24 net) wells were turned on line in January 2025 and 3 gross (0.04) wells were turned on line in March 2025.

Permian Basin—Texas and New Mexico

●

During the year ended December 31, 2025, Epsilon’s realized price for all Permian Basin production was $49.19 per Boe, excluding the impact of hedges, an 8% decrease from the $53.52 per Boe for the year ended December 31, 2024.

●

Total sales for the year ended December 31, 2025, including oil, natural gas, and natural gas liquids, were 212 Mboe, an 18% decrease from the 259 MBoe sold for the year ended December 31, 2024.

●

In 2025, the Company participated in the drilling and completion of 1 gross (0.25 net) wells in Texas. This well went into production in July 2025.

Anadarko Basin—Oklahoma

●

During the year ended December 31, 2025, Epsilon’s realized price for all Oklahoma production was $4.33 per Mcfe, excluding the impact of hedges, a 0.2% decrease from $4.34 realized for the year ended December 31, 2024.

●

Total sales for the year ended December 31, 2025, including oil, natural gas, and natural gas liquids, were 0.34 Bcfe, a 17% decrease from 0.41 Bcfe sold for the year ended December 31, 2024.

●

In 2025, there was no development activity in Oklahoma. The Company sold all of its assets in the Anadarko Basin in December 2025.

Powder River Basin—Wyoming

●

The Powder River Basin assets were acquired on November 14, 2025.

●

During the period ended December 31, 2025, Epsilon’s realized price for all Wyoming production was $36.91 per Boe, excluding the impact of hedges.

●

Total sales for the period ended December 31, 2025, including oil, natural gas, and natural gas liquids, were 108.5 MBoe.

Western Canadian Sedimentary Basin—Alberta, Canada

●

During the year ended December 31, 2025, Epsilon’s realized price for all Canada production was $36.07 per Boe, excluding the impact of hedges, a 22% decrease from the $46.07 per Boe realized for the year ended December 31, 2024.

●

Total sales for the year ended December 31, 2025, including oil, natural gas, and natural gas liquids, were 27.4 MBoe, a 996% increase from 2.5 MBoe sold for the year ended December 31, 2024.

●

In 2025, the Company participated in the completion of 2 gross (0.5 net) wells in Canada. The two wells turned on line in March 2025.

Properties

Wells

As of December 31, 2025, Epsilon’s 101,265 gross (54,044 net) acres are located in the United States and Canada

and include 540 gross (90.69 net) wells. Of these wells, 105 gross (45 net) wells are operated.


		Gross⁽¹⁾		Net⁽²⁾
Producing Wells
Gas		274		33.63
Oil		194		55.42
Total Producing Wells		468		89.05
Non-Producing Wells		72		1.64
Total Wells		540		90.69

Acreage

As of December 31, 2025, our leasehold inventory consisted of the following acreage amounts, rounded to the nearest acre:


		Gross⁽¹⁾		Net^{(2) (3)}
Developed Acres
Pennsylvania		11,398		4,878
Wyoming		10,428		6,781
Texas		3,086		771
Canada		4,138		1,273
		29,050		13,703
Undeveloped Acres
Pennsylvania		250		250
Wyoming		50,517		32,785
Texas		13,548		3,354
Canada		7,900		3,950
		72,215		40,339
Total Acres
Pennsylvania		11,648		5,129
Wyoming		60,945		39,566
Texas		16,634		4,126
Canada		12,038		5,223
Total acres		101,265		54,044

(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.

Business Segments

Our operations are conducted by two operating segments for which information is provided in our consolidated financial statements for the years ended December 31, 2025 and 2024.

The two segments are as follows:

Upstream: Activities include interest in the acquisition, exploration, development and production of oil and natural gas reserves.

Gathering System: Interest in a natural gas gathering system.

For information about our segment’s revenues, profits and losses, total capital expenditures, and total assets, see Note 14 “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, 2025 and 2024, respectively, follows:


		Year ended
		December 31,
		2025			2024
Production Volumes
Pennsylvania
Natural gas (MMcf)			9,402			5,699
Total (MMcfe)			9,402			5,699
Permian Basin
Natural gas (MMcf)			161			205
Natural gas liquids (MBoe)			36			52
Oil (MBbl)			149			173
Total (MMcfe)			1,271			1,554
Oklahoma
Natural gas (MMcf)			197			237
Natural gas liquids (MBoe)			14			17
Oil (MBbl)			9			11
Total (MMcfe)			335			408
Wyoming
Natural gas (MMcf)			189			—
Natural gas liquids (MBoe)			27			—
Oil (MBbl)			50			—
Total (MMcfe)			651			—
Canada
Natural gas (MMcf)			52			—
Natural gas liquids (MBoe)			4			—
Oil (MBbl)			15			3
Total (MMcfe)			166			15
Company Total
Natural gas (MMcf)			10,001			6,142
Natural gas liquids (MBoe)			81			69
Oil (MBbl)			223			187
Total (MMcfe)			11,825			7,676


		Year ended
		December 31,
		2025			2024
Revenues
Pennsylvania
Natural gas revenue		$	28,012,040		$	10,247,834
Avg. Price ($/Mcf)		$	2.98		$	1.80
Gathering system revenue (net of elimination)		$	6,683,735		$	5,524,063
Total PA Revenues		$	34,695,775		$	15,771,897
Permian Basin
Natural gas revenue		$	113,038		$	32,930
Avg. Price ($/Mcf)		$	0.70		$	0.16
Natural gas liquids revenue		$	706,010		$	1,060,967
Avg. Price ($/Bbl)		$	19.51		$	20.48
Oil and condensate revenue		$	9,614,603		$	12,770,258
Avg. Price ($/Bbl)		$	64.50		$	73.81
Total Permian Basin Revenues		$	10,433,651		$	13,864,155
Oklahoma
Natural gas revenue		$	640,607		$	505,304
Avg. Price ($/Mcf)		$	3.25		$	2.13
Natural gas liquids revenue		$	318,108		$	420,991
Avg. Price ($/Bbl)		$	22.56		$	24.16
Oil and condensate revenue		$	507,406		$	844,265
Avg. Price ($/Bbl)		$	54.11		$	76.75
Total OK Revenues		$	1,466,121		$	1,770,560
Wyoming
Natural gas revenue		$	291,933		$	—
Avg. Price ($/Mcf)		$	1.54		$	—
Natural gas liquids revenue		$	872,263		$	—
Avg. Price ($/Bbl)		$	32.48		$	—
Oil and condensate revenue		$	2,840,537		$	—
Avg. Price ($/Bbl)		$	56.66		$	—
Total WY Revenues		$	4,004,733		$	—
Canada
Natural gas revenue		$	63,828		$	—
Avg. Price ($/Mcf)		$	1.22		$	—
Natural gas liquids revenue		$	82,479		$	—
Avg. Price ($/Bbl)		$	23.01		$	—
Oil and condensate revenue		$	840,969		$	116,163
Avg. Price ($/Bbl)		$	55.84		$	46.04
Total Canada Revenues		$	987,276		$	116,163
Total Company Revenues		$	51,587,556		$	31,522,775

Gathering System Operations

Epsilon Energy USA is the 100% owner of Epsilon Midstream, which owns a 35% undivided interest in 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, consisting of Epsilon Energy USA, Equinor USA Onshore Properties, Inc., and Expand Energy Corporation, dedicated approximately 18,000 mineral acres to the Auburn GGS on January 1, 2012 for an initial term of 15 years under an Anchor Shipper Gas Gathering Agreement for northern Pennsylvania whereby the Auburn GGS owners received a fixed percentage rate of return on the total capital invested in the construction of the system.

On May 17, 2024, Epsilon Energy USA executed a new Anchor Shipper Gas Gathering Agreement for northern Pennsylvania (the “ASGGA”) with operator Appalachia Midstream Services, LLC for a primary term of ten years and an

effective date of January 1, 2024. Epsilon Energy USA simultaneously terminated the prior agreement. The new ASGGA establishes fixed gathering, compression and cross-flow rates for all shippers on each system into which Epsilon produces natural gas. These rates will be adjusted annually by the Consumer Price Index for All Urban Consumers (“CPI-U”) commencing January 2025. Notably, the gathering rates in Auburn GGS, Rome GGS & Overfield GGS will no longer be subject to a cost-of-service redetermination annually; however, acreage dedications, service priority levels, required shipper approvals and shipper voting procedures are all substantially consistent with the prior agreement.

Revenues from the Auburn GGS are earned primarily from the Anchor Shippers with well pads located within the Auburn GGS system boundary. Revenues are also earned when natural gas originating in adjacent gathering systems flow into the Auburn GGS (“cross-flow gas”) to the compression facility, and then to the delivery meter at Tennessee Gas Pipeline. The relative mix of Anchor Shipper gas and cross-flow gas is critical to the revenue and earnings of the Auburn GGS because the cross-flow gathering rate is only 25% of the Anchor Shipper rate. Shippers cross-flowing gas must pay the gathering rate of the originating gathering system plus 25% of the Auburn GGS gathering rate. The purpose of the reduced rate is to attract additional volumes that require delivery to Tennessee Gas Pipeline when there is spare capacity at the Auburn compression facility, or the “Auburn CF”.

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. At inception, the capacity of the Auburn CF was approximately 330,000 Mcf per day at a design suction pressure of 800 psig. The design suction pressure was subsequently reduced to 550 psig in June 2020 at the request of the Anchor Shippers. This request served to minimize throughput decline during a period of low pricing in which the drilling of new wells was undesirable. The design suction pressure at the Auburn compression facility was reduced further from 550 psig to 450 psig in January 2025 and from 450 psig to 400 psig in December 2025. Operating at the lower design suction pressure has the benefit of reducing hydrate occurrences in the system which can pose an operational hazard. The current system capacity of the Auburn CF at this lower design pressure is approximately 127,000 Mcf per day. The facility capacity could be increased again, if required, by either adding compression units or increasing the design suction pressure.

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.

During the years ended December 31, 2025 and 2024, the Auburn GGS delivered 40.5 Bcf and 36.9 Bcf respectively, of natural gas, or 111,000 Mcf per day and 101,000 Mcf per day.

Gathering system revenues derived from Epsilon’s production, which have been eliminated from total gathering system revenues (“elimination entry”), amounted to $1.9 million and $1.1 million for the years ended December 31, 2025 and 2024, respectively.

Proved Reserves

Per our reserve reports prepared by independent petroleum consultants, DeGolyer and MacNaughton and Cawley, Gillespie & Associates (Powder River Basin assets only), our estimated proved reserves as of December 31, 2025, are summarized in the table below. See Risk Factors for information relating to the uncertainties surrounding these reserve categories.


		Natural Gas		Natural Gas		Oil and Other		Total
		MMcf		Liquids MBbl		Liquids MBbl		MMcfe
Proved developed reserves		75,849		1,599		4,000		109,444
Proved undeveloped reserves		10,523		753		5,259		46,593
Total Proved Reserves at December 31, 2025		86,372		2,352		9,259		156,037

Changes in Total Proved Undeveloped Reserves
Proved undeveloped reserves at December 31, 2024		12,550		387		725		19,225
Revisions of previous estimates		(4,949)		(85)		(194)		(6,628)
Acquisitions		4,609		639		4,933		38,041
Divestitures		(1,521)		(134)		(65)		(2,715)
Transfers to proved developed		(166)		(54)		(140)		(1,330)
Proved undeveloped reserves at December 31, 2025		10,523		753		5,259		46,593

Revisions to previous estimates for total proved undeveloped reserves for 2025 include reductions of 6,340 MMcfe related to changes to the previously adopted development plan and reductions of 269 MMcfe related to technical revisions and reductions of 19 MMcfe related to commodity pricing. Acquisitions of 38,041 MMcfe relate to reserves acquired in Wyoming from the Peak acquisition. Divestitures of 2,715 MMcfe relate to the selling of all interests in Oklahoma. Transfers to Proved Developed Reserves of 1,330 MMcfe relates to the development of wells in the Permian Basin.

Our development capital spending to convert Proved Undeveloped Reserves to Proved Developed Reserves for the periods indicated is as follows:

●

In 2025 in Pennsylvania, 4 gross (0.24) wells were turned on line in January 2025 and 3 gross (0.04) wells were turned on line in March 2025.

●

In 2024 in Pennsylvania, we drilled 3 gross (0.04 net) wells and participated in the completion of 10 gross (0.82 net) wells. The three wells turned on line in October 2024.

●

In 2025 in the Permian Basin, the Company participated in the drilling and completion of 1 gross (.25 net) well. This well went into production in Texas in July 2025.

●

In 2024 in the Permian Basin, the Company participated in the drilling and completion of 2 gross (0.5 net) wells. These wells went into production in May 2024 and July 2024.

●

In 2025 in Canada, we participated in the completion of 2 gross (0.5 net) wells. The two wells turned on line in March 2025.

●

In 2024 in Canada, we participated in the drilling and completion of 2 gross (0.5 net) wells. One well was put on production in September 2024. One well was deemed non-commercial.

●

In 2025 and 2024 in Oklahoma, there was no development activity. The Company sold all of its assets in Oklahoma in December 2025.

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 Operating 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 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 Operating Officer on a semi-annual basis. Our Chief Operating Officer holds a Bachelor of Science degree in Petroleum Engineering and received a Master’s Degree of Business Administration. He has over 30 years of

experience in upstream exploration and production, and has managed all phases of drilling, completions, production and field operations.

The reserve information in this report is based on estimates prepared by DeGolyer and MacNaughton and Cawley, Gillespie & Associates, our independent petroleum consultants. Estimates of reserves were prepared by the use of appropriate geologic, petroleum engineering, and evaluation principles and techniques that are in accordance with the reserves definitions of Rules 4-10(a) (1)-(32) of Regulation S-X of the SEC and with practices generally recognized by the petroleum industry as presented in the publication of the Society of Petroleum Engineers entitled “Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information (revised June 2019) Approved by the SPE Board on 25 June 2019” and in Monograph 3 and Monograph 4 published by the Society of Petroleum Evaluation Engineers. The method or combination of methods used in the analysis of each reservoir was tempered by experience with similar reservoirs, stage of development, quality and completeness of basic data, and production history.

For the evaluation of unconventional reservoirs, a performance-based methodology integrating the appropriate geology and petroleum engineering data was utilized for this report. Performance-based methodology primarily includes (1) production diagnostics, (2) decline-curve analysis, and (3) model-based analysis (if necessary, based on availability of data). Production diagnostics include data quality control, identification of flow regimes, and characteristic well performance behavior. These analyses were performed for all well groupings (or type-curve areas).

The person responsible for preparing the DeGolyer and MacNaughton reserve report, Dilhan Ilk, is a Registered Professional Engineer (No.139334) in the State of Texas and a Senior Vice President of the firm. Dr. Ilk graduated from Texas A&M University with a Doctor in Philosophy degree in Petroleum Engineering, is a member of the Society of Petroleum Engineers, and has in excess of 15 years of experience in oil and gas reservoir studies and reserves evaluations.

Cawley Gillespie & Associates is a Texas Registered Engineering Firm (F-693), made up of independent registered professional engineers and geologists that have provided petroleum consulting services to the oil and gas industry for over 60 years. The lead evaluator that prepared the reserve report was Zane Meekins, P.E., Executive Vice President at Cawley Gillespie.

Mr. Meekins has been with Cawley Gillespie since 1989 and graduated from Texas A&M University in 1987 with a Bachelor of Science degree in Petroleum Engineering. Mr. Meekins is a State of Texas registered professional engineer (License #71055) and a member of the Society of Petroleum Evaluation Engineers and the Society of Petroleum Engineers. Mr. Meekins meets or exceeds the education, training, and experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers. Mr. Meekins is proficient in judiciously applying industry standard practices to engineering and geoscience evaluations as well as applying SEC and other industry reserves definitions and guidelines.

Marketing and Major Customers

Natural gas marketing is 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 locations. 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 CF.

Epsilon uses a third-party service, ARM Energy Management LLC (“ARM”) for its Pennsylvania natural gas marketing. In this capacity, ARM is responsible for carrying out marketing activities such as submission of nominations, receipt of payments, and submission of invoices.

For the year ended December 31, 2025, we sold natural gas through ARM to 34 unique customers. SWN Energy Services Company, LLC accounted for 10% or more of our total revenue. For the year ended December 31, 2024, we sold natural gas through ARM to 33 unique customers. Direct Energy Business Marketing, LLC and EQT Energy, LLC each accounted for 10% or more of our total revenue.

In Wyoming, for our operated oil and gas production, two customers accounted for 95.7% of our total revenues.

Geographic Locations of Operations

Approximately 67% and 50% of our revenue during fiscal years 2025 and 2024, respectively, was derived from natural gas production and gathering system revenues in the state of Pennsylvania. Approximately 19% and 40% of our revenue during fiscal years 2025 and 2024, respectively, was derived from oil, natural gas, and natural gas liquids revenues in the state of Texas. In November 2025, the Company completed the acquisition of oil and gas assets in the Powder River Basin, Wyoming which will materially increase the geographic diversification of our revenues going forward and could provide enhanced flexibility to respond to market conditions by allocating capital across multiple basins and commodities.

However, the Company is still subject to geographic concentration, and 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

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.

Employees

As of December 31, 2025, we had twenty-seven full-time employees (including executive officers) in Texas, Colorado, and Wyoming. 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.

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.

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 (“EPA”), or the Bureau of Land Management (“BLM”) 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:

●

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, the EPA has concluded that emissions of carbon dioxide, methane and other GHGs present an endangerment to public health and the environment. For example, the 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 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.

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 BLM 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 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.’’ The last reported sales price of our common shares on the NASDAQ Global Market on March 23, 2026 was $6.00 per share.

Shareholders. We had approximately 2,000 shareholders of record as of March 1, 2026.

Dividends. Epsilon made aggregate quarterly distributions of $6.0 million ($0.25 per share) during the year ended December 31, 2025. The dividend is well supported and the Company intends to maintain it going forward, subject to quarterly approval by the Board.

Securities Authorized for Issuance under Equity Incentive Plans.

The following tables set out the number of common shares available to be issued upon exercise of outstanding securities and the changes to the securities outstanding for the year pursuant to our equity compensation plans and the weighted average exercise price of outstanding securities for the periods indicated:


	Number of Shares to be		Weighted Average	Number of Shares Remaining
	Issued Upon Exercise		Exercise Price of	Available for Future Issuance
	of Outstanding Options,		Outstanding Options,	Under Equity Compensation Plans
Plan Category	Warrants and Rights		Warrants and Rights	(excluding shares in column (a))
Common shares under 2020 Equity Incentive Plan	781,792	$	5.15	140,637

At December 31, 2025, under the 2020 Equity Incentive Plan (the “2020 Plan”) (See Note 7, “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 1,859,363 common shares granted under the 2020 Plan.

The following table sets out the number of time restricted common shares available to be issued upon vesting over the next three years and the changes during the year 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, 2025					December 31, 2024
				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		560,970		$	5.77		491,536		$	6.00
Granted		488,283			4.77		300,052			5.97
Vested		(267,461)			5.60		(230,618)			5.65
Balance non-vested Restricted Stock at end of period		781,792		$	5.15		560,970		$	5.77

Recent Developments

Business Combination

On November 14, 2025, Epsilon acquired Peak Exploration & Production LLC and Peak BLM Lease LLC and their subsidiaries (together, “Peak”) for total consideration of $88.5 million consisting of 1) issuance of 5,681,489 common shares valued at $27.6 million, 2) contingent consideration of up to 2,500,000 common shares valued at $10.6 million, and the settlement of $50.3 million of debt. The contingent consideration was settled on November 19, 2025, through the issuance of 2,234,847 common shares for $10.6 million. The acquired assets primarily include operated and non-operated production and leasehold interests in the core of the Powder River Basin in Wyoming. The acquired Proved Reserves include 16.8 Bcf of natural gas, 8.2 MMBbls of oil, and 2.0 MMBbls of natural gas liquids, according to the report by Cawley Gillespie & Associates as of December 31, 2025. As part of the acquisition, the Company added 17 full-time employees from Peak.

The results of operations attributable to the Peak acquisition have been included in the Company’s consolidated financial statements as of the closing date of the acquisition.

Asset Sale

On December 11, 2025, Epsilon divested Dewey Energy Holdings, LLC, a wholly owned subsidiary of the Company to an undisclosed private buyer for $2.5 million. The assets sold included approximately 964 Mcfe/d (60% natural gas) of production (Q4 2025 figure) and approximately 6,400 net deep acres and 2,200 net shallow acres of leasehold, all located in Dewey County, Oklahoma.

Credit Facility

On October 10, 2025, the Company closed a new senior secured reserve based revolving credit facility with Frost Bank as administrative agent and Frost Bank and Texas Capital Bank as lenders. This replaced the Company’s previous credit facility. As of December 31, 2025, the borrowing base was $80 million, supported by the Company’s producing reserves and is subject to semi-annual redeterminations with a maturity date of October 10, 2029. Interest will be charged at the 3-month Term SOFR rate plus a margin of 3-4% (depending on facility utilization), payable quarterly. The facility is secured by the assets of the Company’s Epsilon Energy USA subsidiary. During March 2026, the Company made a $5 million repayment on the outstanding credit facility. The current balance as of March 25, 2026 is $45.5 million.

ITEM 1A. RISK FACTORS.

You should carefully consider the risks and uncertainties described below, together with all of the other information and risks included in, or incorporated by reference into this report, including our consolidated financial statements and the related notes thereto, before making any financial decisions relating to Epsilon.

Risks Related to Oil and Natural Gas Reserves

Our business is dependent on oil and natural gas prices, and any fluctuations or decreases in such prices could adversely affect our results of operations and financial condition.

Revenues, profitability, liquidity, ability to access capital and future growth prospects are highly dependent on the prices received for oil and natural gas. The prices of these commodities are subject to wide fluctuations in response to relatively minor changes in supply and demand. Historically, the markets for oil and natural gas have been volatile, and this volatility may continue in the future. The volatility of the energy markets generally makes it extremely difficult to predict future oil and natural gas price movements. Also, prices for oil and prices for natural gas do not necessarily move in tandem. Declines in oil or natural gas prices would not only reduce revenue but could also reduce the amount of oil and natural gas that can be economically produced and therefore potentially lower natural gas and oil reserve quantities. If the oil and natural gas industry experiences 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.

Our long term commercial success depends on our ability to find, acquire, develop and commercially produce oil and natural gas reserves, the failure of which could result in under-use of capital and in losses.

Oil and natural gas operations involve many risks that even a combination of experience, knowledge and careful evaluation may not be able to overcome. Our long term commercial success depends on our ability to find, acquire, develop and commercially produce oil and natural gas reserves. Without the continual addition of new reserves, any existing reserves that we may have at any particular time and the production from those reserves will decline over time as those reserves are exploited. A future increase in our reserves will depend not only on our ability to explore and develop any properties we may have from time to time, but also on our ability to select and acquire suitable producing properties or

prospects. We cannot assure you that we will be able to locate and continue to locate satisfactory properties for acquisition or participation. Moreover, if we do identify such acquisitions or participations, we may determine that current markets, terms of acquisition and participation or pricing conditions make such acquisitions or participations uneconomic. We cannot assure you that we will discover or acquire further commercial quantities of oil and natural gas.

Future oil and natural gas exploration may involve unprofitable efforts, not only from dry wells, but also from wells that are productive but do not produce sufficient net revenues to return a profit after drilling, operating and other costs. Completion of a well does not ensure a profit on the investment or recovery of drilling, completion and operating costs. In addition, drilling hazards or environmental damage could greatly increase the cost of operations, and various field operating conditions may adversely affect the production from successful wells. These conditions include delays in obtaining governmental approvals or consents, shut-ins of connected wells resulting from extreme weather conditions, insufficient storage or transportation capacity or other geological and mechanical conditions. While diligent well supervision and effective maintenance operations can contribute to maximizing production rates over time, production delays and declines from normal field operating conditions cannot be eliminated and can be expected to adversely affect revenue and cash flow levels to varying degrees.

Oil and natural gas exploration, development and production operations are subject to all the risks and hazards typically associated with such operations, including hazards such as fire, explosion, blowouts, cratering, sour gas releases and spills, each of which could result in substantial damage to oil and natural gas wells, production facilities, other property and the environment or in personal injury. In accordance with industry practice, we are not fully insured against all of these risks, nor are all such risks insurable. Although we maintain liability insurance in an amount that we consider consistent with industry practice, the nature of these risks is such that liabilities could exceed policy limits, in which event we could incur significant costs that could have a material adverse effect upon our financial condition. Oil and natural gas production operations are also subject to all the risks typically associated with such operations, including encountering unexpected formations or pressures, premature decline of reservoirs and the invasion of water into producing formations, and the loss of the ability to use hydraulic fracturing (see risk factor regarding government legislation). Losses resulting from the occurrence of any of these risks could have a material adverse effect on our future results of operations, liquidity and financial condition.

Our reserve estimates may be inaccurate, and future net cash flows as well as our ability to replace any reserves are uncertain.

There are numerous uncertainties inherent in estimating quantities of oil and natural gas reserves and cash flows to be derived therefrom, including many factors beyond our control. The reserve and associated cash flow information set forth herein represents estimates only. In general, estimates of economically recoverable oil and natural gas reserves and the future net cash flows therefrom are based upon a number of variable factors and assumptions such as historical oil and natural gas prices, production levels, capital expenditures, operating and development costs, the effects of regulation, the accuracy and reliability of the underlying engineering and geologic data, and the availability of funds; 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.

In accordance with applicable securities laws, the technical report on our oil and natural gas reserves prepared by DeGolyer and MacNaughton, independent petroleum consultants, as of December 31, 2025 and 2024 (“DeGolyer Reserve Report”), and the report by Cawley, Gillespie & Associates as of December 31, 2025 (“CGA Reserve Report”), used SEC guideline prices and cost estimates in calculating net cash flows from oil and natural gas reserve quantities included within the report. Actual future net revenue will be affected by other factors such as actual commodity prices, production levels, supply and demand for oil and natural gas, curtailments or increases in consumption by oil and natural gas purchasers, changes in governmental regulation or taxation and the impact of inflation on costs. Actual production and revenues derived therefrom will vary from the estimates contained in the DeGolyer Reserve Report and CGA Reserve Report, and such variations could be material. The DeGolyer Reserve Report and the CGA Reserve Report are based in part on the assumed success of activities that we intend to undertake in future years. The oil and natural gas reserves and estimated cash flows to be derived therefrom contained in these reserve reports will be reduced to the extent that such activities do not achieve the level of success assumed in these reserve reports.

Our future oil and natural gas reserves, production, and derived cash flows are highly dependent on our successfully acquiring or discovering and developing new reserves. Without the continual addition of new reserves, any of our existing reserves and their production will decline as such reserves are exploited. A future increase in our reserves will depend not only on our ability to develop any properties we may have from time to time, but also on our ability to select and acquire suitable producing properties or prospects. There can be no assurance that our future exploration and development efforts will result in the discovery and development of additional commercial accumulations of oil and natural gas.

Risks Related to Stage of Development, Structure and Capital Resources

If there is a sustained economic downturn or recession in the United States or globally, natural gas and oil prices may fall and may become and remain depressed for a long period of time, which may adversely affect our results of operations. We may be unable to obtain additional capital required to implement our business plan, which could restrict our ability to sustain or grow our business.

Operations could also be adversely affected by general economic downturns or limitations on spending. An economic downturn and uncertainty may have a negative impact on our business. During 2025 and 2024, there was tremendous volatility in prices and available financing for oil and gas projects. There can be no assurance that we will be able to access capital markets to provide funding for future operations that would require additional capital beyond our current existing available capital on terms acceptable to us.

Substantial capital, which may not be available to us in the future, is required to replace and grow reserves.

We anticipate making capital expenditures for the acquisition, exploration, development and production of oil and natural gas reserves in the future. If our revenues or reserves decline, we may have limited ability to expend the capital necessary to undertake or complete future drilling programs. There can be no assurance that debt or equity financing or cash generated by operations will be available or sufficient to meet these requirements, or for other corporate purposes. If debt or equity financing is available, there is no assurance that it will be on terms acceptable to us. Moreover, future activities may require us to alter our capitalization significantly. Additional capital raised through the issuance of common shares or other securities convertible into common shares may result in a change of control and dilution to shareholders. Our inability to access sufficient capital for our operations could have a material adverse effect on our financial condition and results of operations.

Our cash flow from our reserves may not be sufficient to fund our ongoing activities at all times. From time to time, we may require additional financing in order to carry out our oil and natural gas acquisition, exploration and development activities. Failure to obtain such financing on a timely basis could cause us to forfeit our interest in certain properties, miss certain acquisition opportunities, or reduce or terminate our operations. 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.

The borrowing base under our credit facility may be reduced in light of commodity price declines or reserve changes, which could limit us in the future.

Lower commodity volumes and prices may reduce the amount of our borrowing base under our credit agreement, which is determined at the discretion of our lenders primarily based on the collateral value of our Proved Developed Reserves that have been mortgaged to the lenders, and is subject to semiannual redeterminations. Upon a redetermination, if borrowings in excess of the revised borrowing capacity were outstanding, we could be forced to immediately repay a portion of the debt outstanding.

The terms of our revolving credit facility may restrict our operations, particularly our ability to respond to changes or to take certain actions.

The agreement that governs our revolving credit facility contains covenants that impose operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long term best interest, including restrictions on our ability, subject to satisfaction of certain conditions, to incur additional indebtedness, sell assets, enter into transactions with affiliates, and enter into or refrain from entering into hedging contracts.

In addition, the restrictive covenants in our revolving credit facility require us to maintain specified financial ratios and satisfy other financial condition tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and we may be unable to meet them.

A breach of the covenants or restrictions under the contract that governs our revolving credit facility could result in an event of default under the applicable indebtedness. Such a default may allow the creditors to accelerate the repayment of the outstanding indebtedness. In the event our lenders accelerate the repayment of our borrowings, we may not have sufficient resources to repay that indebtedness.

Depending on forces outside our control, we may need to allocate our available capital in ways that we did not anticipate.

Because of the volatile nature of the oil and natural gas industry, we regularly review our budgets in light of past results and future opportunities that may become available to us. In addition, our ability to carry out operations may depend upon the decisions of other working interest owners in our properties. Accordingly, while we anticipate that we will have the ability to spend the funds available to us, there may be circumstances where, for sound business reasons, a reallocation of funds may be prudent.

We may issue debt to acquire assets or for working capital.

From time to time, we may enter into transactions to acquire assets or shares of other companies. These transactions may be financed partially or wholly with debt, which may increase our debt levels. Depending on future exploration and development plans, we may require additional equity and/or debt financing that may not be available or, if available, may not be available on favorable terms. Neither our articles of incorporation nor our by-laws limit the amount of indebtedness that we may incur. The level of our indebtedness, from time to time, could impair our ability to obtain additional financing in the future on a timely basis to take advantage of business opportunities that may arise.

Our potential lenders will likely require security over substantially all of our assets. If we become unable to pay our debt service charges or otherwise commit an event of default, such as bankruptcy, these lenders may foreclose on or sell our properties. The proceeds of any such sale would be applied to satisfy amounts owed to our lenders and other creditors, and only the remainder, if any, would be available to us.

Future equity transactions could result in dilution to existing stockholders.

We may make future acquisitions or enter into financing or other transactions involving the issuance of securities, which may be dilutive to existing security holders.

Competition in the natural gas and oil industry is intense, which may hinder our ability, and the ability of our third-party operating partners, to contract for drilling equipment, and we may not be able to control the scheduling and activities of contracted drilling equipment.

Oil and natural gas exploration and development activities are dependent on the availability of drilling and related equipment in the particular areas where such activities will be conducted. Demand for such limited equipment or access restrictions may affect the availability of such equipment to us and our third-party operating partners and may delay exploration and development activities. Past industry conditions have led to periods of extreme shortages of drilling equipment in certain areas of the United States. On the oil and natural gas properties that we do not operate, we will be

dependent on such operators for the timing of activities related to such properties and may be largely unable to direct or control the activities of the operators.

Results of our drilling are uncertain, and we may not be able to generate high returns.

Our operations involve utilizing the latest drilling and completion techniques in order to maximize cumulative recoveries and generate high returns. If drilling results are less than anticipated or we are unable to execute our drilling program because of capital constraints, lease expirations, access to gathering systems and limited takeaway capacity or otherwise, or if crude oil and natural gas prices decline, the return on our investment in these areas may not be as attractive as anticipated. Further, less than anticipated results in developments could incur material write downs of our oil and natural gas properties and the value of undeveloped acreage could decline in the future.

Extensive government legislation and regulatory initiatives could increase costs and impose burdensome operating restrictions that may cause operational delays.

Hydraulic fracturing, which involves the injection of water, sand and chemicals under pressure into deep rock formations to stimulate oil or natural gas production, is often used in the completion of unconventional oil and natural gas wells. Currently, hydraulic fracturing is primarily regulated in the United States at the state level, which generally focuses on regulation of well design, pressure testing, and other operating practices.

However, some states and local jurisdictions across the United States, such as the State of New York, have begun adopting more restrictive regulation. Some members of the U.S. Congress and the EPA are studying environmental contamination related to hydraulic fracturing and the impact of fracturing on public health. In March 2015, the U.S. Congress introduced legislation to regulate hydraulic fracturing and require disclosure of the chemicals used in the hydraulic fracturing process, and may implement more stringent regulations in the future. Additionally, some states, such as the State of New York, have adopted, and others are considering, regulations that could restrict hydraulic fracturing. The ultimate status of such regulation is currently unknown. Any federal or state legislative or regulatory changes with respect to hydraulic fracturing could cause us to incur substantial compliance costs or result in operational delays, and the consequences of any failure to comply by us or our third-party operating partners could have a material adverse effect on our financial condition and results of operations.

Our corporate structure could result in incremental tax burden in certain circumstances.

Epsilon Energy Ltd. is an Alberta company. Epsilon Energy USA Inc. (Ohio corporation) may be a U.S. real property holding corporation (a “USRPHC”) for U.S. federal income tax purposes if it is determined, at any time, that the fair market value of its assets that consist of “United States real property interests,” as defined in the Internal Revenue Code, and applicable Treasury regulations, constitute at least 50% of the combined fair market value of our real property interests and other business assets. If Epsilon Energy USA Inc. were a USRPHC, then Epsilon Energy Ltd.’s investment in Epsilon Energy USA Inc. would be a United States Real Property Interest (USRPI) for US federal tax purposes. As a result, the Foreign Investment in Real Property Tax Act, or “FIRPTA,” would require Epsilon Energy Ltd. to pay U.S. 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 are subject to U.S. withholding tax.

Our operations are currently geographically concentrated and therefore subject to regional economic, regulatory and capacity risks.

Approximately 67% and 50% of our revenue during fiscal years 2025 and 2024, respectively, was derived from natural gas production and gathering system revenues in the state of Pennsylvania. Approximately 19% and 40% of our revenue during fiscal years 2025 and 2024, respectively, was derived from oil, natural gas, and natural gas liquids revenues in the state of Texas. In November 2025, the Company completed the acquisition of oil and gas assets in the Powder River Basin, Wyoming which could provide the Company the enhanced flexibility to respond to market conditions by allocating capital across multiple basins and commodities.

However, the Company is still subject to geographic concentration and we may be disproportionately exposed to the effect of regional supply and demand factors, delays or interruptions of production from wells in these areas 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.

Delays in business operations may reduce cash flows and subject us to credit risks.

In addition to the usual delays in payments by purchasers of oil and natural gas to us or to the operators, and the delays by operators in remitting payment to us, payments from these parties may be delayed by restrictions imposed by lenders, accounting delays, delays in the sale or delivery of products, delays in the connection of wells to a gathering system, adjustment for prior periods, or recovery by the operator of expenses incurred in the operation of the properties. In addition, the transition of one operator to another as the result of an operator being bought or sold could cause additional operational delays beyond our control. Any of these delays could reduce the amount of cash flow available for our business in a given period and expose us to additional third-party credit risks.

We depend on the successful acquisition, exploration and development of oil and natural gas properties to develop any future reserves and grow production and revenue in the future, and assessments of our assets may be subject to uncertainty.

Acquisitions of oil and natural gas companies and oil and natural gas assets are typically based on engineering and economic assessments made by independent engineers and our own assessments. These assessments will include a series of assumptions regarding such factors as recoverability and marketability of oil and natural gas, future prices of oil and natural gas and operating costs, future capital expenditures and royalties and other government levies which will be imposed over the producing life of the reserves. Many of these factors are subject to change and are beyond our control. In particular, the prices of, and markets for, oil and natural gas products may change from those anticipated at the time of making such assessment. In addition, all such assessments involve a measure of geologic and engineering uncertainty which could result in lower production and reserves than anticipated. Initial assessments of acquisitions may be based on analysis by our internal engineers or reports by a firm of independent engineers that are not the same as the firm that we use for our year-end reserve evaluations. Because each of these firms may have different evaluation methods and approaches, these initial assessments may differ significantly from the assessments of the firm that we use.

We depend on third-party operators and our key personnel, and competition for experienced technical personnel may negatively affect our operations.

Approximately 50% of our oil and natural gas properties are operated by third-party operators. As such, we will be dependent on such operators for the timing of activities related to such properties and will largely be unable to direct or control the activities of the operators. The objectives and strategy of those operators may not always be consistent with ours, and we have a limited ability to exercise influence over, and control the risks associated with, operations of these properties. The failure of an operator of our wells to adequately perform operations, an operator’s breach of the applicable agreements or an operator’s failure to act in ways that are in our best interests could reduce our production and revenues from our assets or could increase costs or create liability for the operator’s failure to properly maintain the well and facilities and to adhere to applicable safety and environmental standards.

Our success will depend in large measure on certain key personnel. 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. The contributions of these individuals to our immediate operations are likely to be of central importance. In addition, the competition for qualified personnel in the oil and natural gas industry is intense, and there can be no assurance that we will be able to continue to attract and retain all personnel necessary for the development and operation of our business. Certain of our directors are also directors of other companies and as such may, in certain circumstances, have a conflict of interest requiring them to abstain from certain decisions. Conflicts, if any, will be subject to the procedures and remedies of the Conflicts Committee of our board of directors.

Our leasehold interests are subject to termination or expiration under certain conditions.

Our properties are held in the form of leases and working interests in leases, collectively referred to as “leasehold interests.” If we or our joint venture partner fails to meet the specific requirement(s) of a particular leasehold interest, the leasehold interest may terminate or expire. There can be no assurance that any of the obligations required to maintain each

leasehold interest will be met. The termination or expiration of a particular leasehold interest may have a material adverse effect on our financial condition and results of operations.

We may incur losses as a result of title deficiencies.

Although title reviews will be done according to industry standards before the purchase of most oil and natural gas-producing properties or the commencement of drilling wells, such reviews do not guarantee or certify that an unforeseen defect in the chain of title will not arise to defeat our claim, which could result in a reduction in our ownership interest or of the revenue that we receive.

We may be exposed to third-party credit risk, and defaults by third parties could adversely affect us.

We are or may be exposed to third-party credit risk through our contractual arrangements with current or future joint venture partners, marketers of our petroleum and natural gas production, derivative counterparties and other parties. In the event such entities fail to meet their contractual obligations to us, such failures could have a material adverse effect on us and our cash flow from operations.

We may not be insured against all of the operating risks to which we are exposed.

Our involvement in the exploration for and development of oil and natural gas properties may result in our becoming subject to liability for pollution, blowouts, property damage, personal injury or other hazards. Although before drilling we plan to obtain insurance in accordance with industry standards to address certain of these risks, such insurance may not be available, be price prohibitive, or contain limitations on liability that may not be sufficient to cover the full extent of such liabilities. In addition, such risks may not in all circumstances be insurable, or, in certain circumstances, we may elect not to obtain insurance to deal with specific risks because of the high premiums associated with such insurance or other reasons. The payment of such uninsured liabilities would reduce the funds available to us. The occurrence of a significant event that we are not fully insured against, or the insolvency of the insurer of such event, could have a material adverse effect on our financial position and our results of operations.

Risks Related to Commodity Prices, Hedging and Marketing

Natural gas and oil prices fluctuate widely, and low prices for an extended period would likely have a material adverse effect on our business.

Our revenues, profitability and future growth and the carrying value of our oil and natural gas properties are substantially dependent on prevailing prices of oil and natural gas. Our ability to borrow and to obtain additional capital on attractive terms is also substantially dependent upon oil and natural gas prices. Prices for oil and natural gas are subject to large fluctuations in response to relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty and a variety of additional factors beyond our control. These factors include economic conditions in the United States, the Middle East and elsewhere in the world; the actions of OPEC; governmental regulation; political stability in the Middle East and elsewhere; the foreign supply of oil and natural gas; the price of foreign imports; 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. There can be no assurance that recent commodity prices can be sustained over the life of our operations. 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. Price volatility also makes it difficult to budget for and project the return on acquisitions and development and exploitation projects.

In addition, bank borrowings that may be available to us are in part determined by our borrowing base. A sustained material decline in prices from historical average prices could reduce our borrowing base, thereby reducing the bank credit available to us, which could require that a portion, or all, of our bank debt be repaid.

Hedging transactions may limit our potential gains or cause us to lose money.

From time to time, we may enter into agreements to receive fixed prices on our oil and natural gas production to offset the risk of revenue losses if commodity prices decline; however, if commodity prices increase beyond the levels set in such agreements, we will not benefit from such increases.

We are exposed to risks of loss in the event of nonperformance by our counterparties to our hedging arrangements. Some of our counterparties may be highly leveraged and subject to their own operating and regulatory risks. Despite our analysis, we may experience financial losses in our dealings with these and other parties with whom we enter into transactions as a normal part of our business activities. Any nonpayment or nonperformance by our counterparties could have a material adverse effect on our business, financial condition and results of operations.

Additionally, we may, due to circumstances beyond our control, be put in a position of over hedging. If this occurs, our revenue could be adversely affected due to the necessity of buying oil and natural gas at the current market rate in order to fulfill hedging sales obligations.

Market conditions or operation impediments may hinder our access to natural gas and oil markets or delay our production.

The marketability and price of oil and natural gas that we may produce, acquire or discover will be affected by numerous factors beyond our control. Our ability to market our oil and natural gas may depend upon our ability to acquire space on pipelines that deliver crude oil and natural gas to commercial markets. This risk is somewhat mitigated in Pennsylvania by our 35% ownership of a gathering system in northeast Pennsylvania. We may also be affected by extensive government regulation relating to price, taxes, royalties, land tenure, allowable production, and many other aspects of the oil and natural gas business.

We depend upon two significant purchasers for the sale of most of our oil and natural gas production in Wyoming. The loss of one or more of these purchasers could, among other factors, limit our access to suitable markets for the oil and natural gas we produce.

For year ended December 31, 2025, HF Sinclair Refining & Marketing LLC and WGR Operating, LP accounted for approximately 68.4% and 27.3% of our total revenues in Wyoming, respectively, excluding the impact of our commodity derivatives. No other purchaser accounted for more than 10% of our revenue during such periods. We do not have long term contracts with our purchasers but rather we sell the substantial majority of our production under arm’s length contracts with terms of 12 months or less, potentially including on a month-to-month basis, to a relatively small number of purchasers. We do not believe that the loss of a single purchaser would materially affect our business because there are numerous other potential purchasers in the area in which we sell our production. However, the loss of any one of these significant purchasers, our ability to sell our production to other purchasers on terms we consider acceptable, the inability or failure of our significant purchasers to meet their obligations to us or their insolvency or liquidation could have a short term impact on our financial condition and results of operations. We cannot assure you that any of our purchasers will continue to do business with us or that we will continue to have ready access to suitable markets for our future production.

Investor sentiment towards climate change, fossil fuels, and sustainability could adversely affect our business and our share price.

There have been efforts in recent years aimed at the investment community, including investment advisors, sovereign wealth funds, public pension funds, universities and other groups, to promote the divestment of shares of energy companies, as well as to pressure lenders and other financial services companies to limit or curtail activities with energy companies. If these efforts are successful, our stock price and our ability to access capital markets may be negatively impacted.

Members of the investment community are also increasing their focus on sustainability practices, including practices related to GHGs and climate change, in the energy industry. As a result, we may face increasing pressure regarding our sustainability disclosures and practices. Additionally, members of the investment community may screen companies such as ours for sustainability performance before investing in our shares.

We are subject to complex laws and regulations, including environmental regulations that can have a material adverse effect on the cost, manner and feasibility of doing business.

Oil and natural gas operations (exploration, production, pricing, marketing and transportation) are subject to extensive controls and regulations imposed by various levels of government that may be amended from time to time. Our operations may require licenses and permits from various governmental authorities. There can be no assurance that we will be able to obtain all necessary licenses and permits that may be required to carry out exploration and development at our projects. It is not expected that any of these controls or regulations will affect our operations in a manner materially different than they would affect other oil and natural gas companies of similar size.

In Wyoming, we conduct oil and natural gas exploration, development and production activities on federal lands, including lands administered by the BLM and in some cases, United States Forest Service. Operations on federal lands are frequently subject to permitting delays. Operations on these lands are also subject to the National Environmental Policy Act ("NEPA”) which requires federal agencies, including the BLM, to evaluate major agency actions having the potential to significantly impact the environment. In the course of such evaluations, an agency will prepare an Environmental Assessment that assesses the potential direct, indirect and cumulative impacts of a proposed project and, if necessary, will prepare a more detailed Environmental Impact Statement that may be made available for public review and comment. While the Company currently has exploration, development and production activities on federal lands, our proposed exploration, development and production activities are expected to include federal mineral interests, which will require the acquisition of governmental permits or authorizations that are subject to the procedural requirements of NEPA. This process has the potential to delay, limit, or increase the cost of the development of oil and natural gas projects. Authorizations under NEPA are also subject to protest, appeal or litigation, any or all of which may delay or halt projects. Moreover, depending on the mitigation strategies recommended in Environmental Assessments or Environmental Impact Statements, they could incur added costs, which may be substantial.

Environmental and health and safety risks may adversely affect our business.

All phases of the oil and natural gas business present environmental risks and hazards and are subject to environmental regulation pursuant to a variety of federal, state and local laws and regulations. Environmental legislation provides for, among other things, restrictions and prohibitions on spills and releases or emissions of various substances produced in association with oil and natural gas operations. The legislation also requires that wells and facility sites be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. Compliance with such legislation can require significant expenditures and a breach may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. The discharge of oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities to governments and third parties and may require us to incur costs to remedy such discharge. Although we believe that we are in material compliance with current applicable environmental regulations, we cannot assure you that environmental laws will not result in a curtailment of production or a material increase in the costs of production, development or exploration activities or otherwise adversely affect our financial condition, results of operations or prospects.

We must also conduct our operations in accordance with various laws and regulations concerning occupational safety and health. Currently, we do not foresee expending material amounts to comply with these occupational safety and health laws and regulations. However, since such laws and regulations are frequently changed, we are unable to predict the future effect of these laws and regulations.

Risks Related to Cybersecurity

We may be subject to interruptions or failures in our information technology systems.

We rely on sophisticated information technology systems and infrastructure to support our business, including process control technology. Any of these systems are susceptible to outages due to fire, floods, power loss, telecommunications failures, usage errors by employees, computer viruses, cyberattacks or other security breaches or similar events. The failure of any of our information technology systems may cause disruptions in our operations, which could adversely affect our revenue and profitability.

We are subject to cybersecurity risks. A cyber incident could occur and result in information theft, data corruption, operational disruption and/or financial loss.

We depend on information technology systems that we manage, and others that are managed by third-party service and equipment providers, to conduct our day-to-day operations, including critical systems, and these systems are subject to risks associated with cyber incidents or attacks, especially originating from countries such as China, Russia, Iran, and North Korea as broadly reported in the media. Our technology systems and networks, and those of our vendors, suppliers and other business partners, may become the target of cyberattacks or information security breaches. A cyber incident could negatively impact the Company in a number of ways, including but not limited to: (i) remediation costs, such as liability for stolen assets or information and repairs of system damage; (ii) increased cybersecurity protection costs, which may include the costs of making organizational changes, deploying additional personnel and protection technologies, training employees, and engaging third-party experts and consultants; (iii) lost revenue resulting from downtime, operational disruptions, the unauthorized use of proprietary information or the failure to retain or attract customers following an attack; (iv) litigation and legal risks, including regulatory actions by state and federal governmental authorities and non-U.S. authorities and related investigation costs; (v) increased insurance premiums; (vi) reputational damage that adversely affects customer or investor confidence; (vii) the loss, theft, corruption or unauthorized release of intellectual property, proprietary information, customer and vendor data or other critical data and (viii) damage to the Company’s competitiveness, stock price, and long term stockholder value. Certain cyber incidents, such as surveillance, may remain undetected for an extended period of time. As the sophistication of cyber incidents continues to evolve, we will likely be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate any vulnerability to cyber incidents. Our insurance coverage for cyberattacks may not be sufficient to cover all the losses we may experience as a result of such cyberattacks.

Risks Related to Internal Controls

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 and our annual revenue is more than $100 million. 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.

As we grow, we may be subject to growth related risks including capacity constraints and pressure on our internal systems and controls. Our ability to manage growth effectively will require us to continue to implement and improve our operational and financial systems and to train and manage our employee base.

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.

Risks Related to Gathering System

Because of the natural decline in production from existing wells, our success depends on the Anchor Shippers’ economically developing the remaining Marcellus Shale reserves in Pennsylvania.

Our natural gas gathering system is dependent upon the level of production from natural gas wells, from which production will naturally decline over time. In order to maintain or increase throughput levels on our gathering system and compression facility, we must continually develop reserves within the Auburn GGS boundary or obtain new supplies external to the Auburn GGS boundary. Developing reserves within the system boundary is the priority as external natural gas volumes have a contractual gathering rate that is 25% of the Anchor Shipper rate. 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.

Because of the large supply of gas, and limited availability of transportation out of Pennsylvania, our gas is subject to a price differential.

Differential is an energy industry term that refers to the discount or premium received for the sale of a petroleum product at a specific location relative to a nationally recognized sales hub. In Pennsylvania, natural gas is significantly discounted to Henry Hub pricing and the size of the differential can be volatile. Many factors influence the size and duration of differentials including local supply / demand imbalances, seasonal fluctuations in demand, transportation availability and cost, as well as the regulatory environment as it pertains to constructing new transportation pipelines. In northeast Pennsylvania, negative differentials have persisted for many years due to rapid increases in supply as a result of advances in well completion techniques. Despite substantial increases in local demand for natural gas coupled with pipeline expansions, optimizations, and new pipelines that have been brought into service, the natural gas differential in northeast Pennsylvania remains significant. There is no guarantee that future demand or pipeline transportation projects will eliminate this differential, and it will therefore remain a significant risk to demand for transportation service on the Auburn GGS, and therefore Epsilon’s revenues and cash flows.

We compete with other operators in our gas gathering energy businesses.

Although the Anchor Shippers have dedicated their acreage and reserves to the Auburn GGS, the Auburn GGS may not be chosen by other producers in these areas to gather and compress the natural gas extracted. We compete with other companies, including co-owners of the Auburn GGS who operate other systems, for any such production from non-Anchor Shippers on the basis of many factors, including but not limited to geographic proximity to the production, costs of connection, available capacity, rates and access to markets. Competition in natural gas gathering is based in large part on existing assets, reputation, efficiency, system reliability, gathering system capacity and pricing arrangements. Our key competitors in the natural gas gathering business include independent gas gatherers and major integrated energy companies. Alternate gathering facilities are available to non-Anchor Shippers we serve, and those producers may also elect to construct proprietary gas gathering systems. A significant increase in competition in the gas gathering industry could have a material adverse effect on our financial position, results of operations and cash flows.

Several of our assets that have been in service for many years may require significant expenditures to maintain them. As a result, our maintenance or repair costs may increase in the future.

Our gathering lines and compression facility are generally long-lived assets, and many of such assets have been in service for many years. The age and condition of our assets could result in increased maintenance or repair expenditures in the future. Any significant increase in these expenditures could adversely affect our gathering rate and competitive position.

We are exposed to the credit risk of our customers and counterparties, and our credit risk management will not be able to completely eliminate such risk.

We are subject to the risk of loss resulting from nonpayment and/or nonperformance by our customers and counterparties in the ordinary course of our business. Generally, our customers are rated investment grade, are otherwise considered creditworthy, or may be required to make prepayments or provide security to satisfy credit concerns. However, our credit procedures and policies cannot completely eliminate customer and counterparty credit risk. Our customers and counterparties include natural gas producers whose creditworthiness may be suddenly and disparately impacted by, among other factors, commodity price volatility, deteriorating energy market conditions, and public and regulatory opposition to energy producing activities. In a low commodity price environment certain of our customers could be negatively impacted, causing them significant economic stress including, in some cases, to file for bankruptcy protection or to renegotiate contracts. To the extent one or more of our key customers commences bankruptcy proceedings, our contracts with the customers may be subject to rejection under applicable provisions of the United States Bankruptcy Code, or may be renegotiated. 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. 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.

Prices for natural gas in northeast Pennsylvania are volatile and are subject to significant discounts from pricing at Henry Hub. This discount and volatility has and could continue to adversely affect our financial results, cash flows, access to capital and ability to maintain our existing businesses.

Our revenues, operating results, and future rate of growth depend primarily upon the price of natural gas in northeast Pennsylvania which is currently volatile and significantly discounted to natural gas at Henry Hub due to insufficient interstate pipeline capacity out of the region. This volatility and discount has adversely impacted reserve development in the past, and could do so again in the future. A slowing pace of or complete halt to the development of Anchor Shipper reserves will impact our financial results, cash flows, and access to capital.

The financial condition of our natural gas gathering businesses is dependent on the continued availability of natural gas supplies and demand for those supplies in the markets we serve.

Our ability to expand our natural gas gathering business primarily depends on the level of drilling and production by the Anchor Shippers. Production from existing wells with access to our gathering systems will naturally decline over time. The amount of natural gas reserves underlying these existing wells may also be less than anticipated, and the rate at which production from these reserves declines may be greater than anticipated. We do not obtain independent evaluations of the third-party natural gas reserves flowing into our systems and compression facilities. Demand for our services is dependent on the demand for gas in the markets we serve. Alternative fuel sources such as electricity, coal, fuel oils, or nuclear energy could reduce demand for natural gas in our markets and have an adverse effect on our business. A failure to obtain access to sufficient natural gas supplies or a reduction in demand for our services in the markets we serve could result in impairments of our assets and have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Our operations are subject to operational hazards and unforeseen interruptions.

There are operational risks associated with gathering and compression of natural gas, including:

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Hurricanes, tornadoes, floods, extreme weather conditions and other natural disasters;

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Aging infrastructure and mechanical problems;

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Damages to pipelines and pipeline blockages or other pipeline interruptions;

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Uncontrolled releases of natural gas, brine, or industrial chemicals;

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Operator error;

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Damage caused by third-party activity, such as operation of construction equipment;

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Pollution and other environmental risks;

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Fires, explosions, craterings, and blowouts; and

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Terrorist attacks on our facilities or those of other energy companies.

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. 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. In spite of our precautions, an event such as those described above could cause considerable harm to people or property and could have a material adverse effect on our financial condition and results of operations, particularly if the event is not fully covered by insurance. Accidents or other operating risks could further result in loss of service available to our customers.

Risks Related to Our Business Combination

We may be unable to successfully integrate acquired businesses, which could adversely affect our operations and financial results. The success of the acquisition depends, in part, on our ability to realize anticipated synergies and integrate the acquired assets, personnel and systems with those of the Company. Integration efforts may be complex, time-consuming, and costly, and may include consolidating systems, aligning accounting processes, retaining key personnel, and harmonizing corporate cultures.

We may encounter difficulties in integrating information technology systems, internal controls over financial reporting, and operational processes, which could result in delays, increased expenses, or disruptions to our business. In addition, we may fail to retain key employees, customers, or suppliers of the acquired business. If we are unable to successfully integrate acquired businesses or achieve expected synergies within anticipated timeframes, our financial condition, results of operations, and cash flows could be materially adversely affected.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 1C. CYBERSECURITY

Risk Management and Strategy

The Company considers cybersecurity risks as part of our overall risk management process. The management team works closely with our IT consultants and IT auditors to ensure potential risks are mitigated within our systems.

The Company engages a third-party IT consulting firm and conducts an annual IT audit to test our risk management processes.

The Company, together with our IT consultants and auditors, has processes that thoroughly vet third-party service providers, continuously monitoring to ensure compliance with our cybersecurity standards.

The Company has not encountered cybersecurity threats that have materially impacted our business or operations.

Governance

The Company’s Board of Directors is aware of the impact of potential cybersecurity threats and stays in close contact with management in case a threat is identified.

The Audit Committee of the Board of Directors is the primary governing body that is tasked with the evaluation and confirmation of the Company’s cybersecurity threat mitigation processes. More specifically, they review the Company’s annual IT audits and discuss any potential threats in quarterly meetings.

The Chief Financial Officer, Chief Operating Officer, Controller, Senior Vice Presidents and Director – Finance are all involved in communications with our IT consultants and auditors. The Chief Financial Officer notifies the Audit Committee and Chief Executive Officer of any cybersecurity threats.

ITEM 2. PROPERTIES.

The information required by Item 2 is contained in ‘‘Item 1. Business – Properties.’’

ITEM 3. LEGAL PROCEEDINGS.

In 2025, Peak Powder River Resources LLC (“PPRR”), a Subsidiary of Peak Exploration & Production LLC (“Peak E&P”) filed a lawsuit against a contractor regarding alleged non-performance while running casing in a well in Wyoming. The Company is seeking damages due to its inability to complete the Leavitt Fed 2-9-4MH well. PPRR is in the process of scheduling arbitration

PPRR and Peak Powder River Acquisitions (“PPRA”), a subsidiary of Peak BLM Lease LLC (Peak BLM”), has intervened as a defendant-intervenor in litigation challenging BLM’s issuance of federal oil and gas leases acquired by the Company in 2017, 2018, and 2020. Plaintiffs allege deficiencies in BLM’s environmental review under NEPA. The Company intervened to protect its leasehold interests. Management does not believe the outcome will have a material adverse effect on the Company’s financial position.

Between September 30, 2025 and October 28, 2025, we received multiple demand letters on behalf of purported Epsilon stockholders (the “Demands”). The Demands primarily alleged that the Preliminary Proxy Statement filed on September 19, 2025 or the Definitive Proxy Statement filed on October 10, 2025, as applicable, failed to disclose certain material information with respect to the acquisition of Peak Exploration and Production, LLC, and Peak BLM Lease LLC.

On October 16, 2025, we received a copy of a complaint filed against Epsilon and certain members of Epsilon’s Board of Directors in the Supreme Court of the State of New York, County of New York, on behalf of purported Epsilon stockholder Anthony Morgan (the “Morgan Complaint”). On October 17, 2025, we received a copy of a complaint filed against Epsilon and certain members of Epsilon’s Board of Directors in the Supreme Court of the State of New York, County of New York, on behalf of purported Epsilon stockholder Richard Lawrence (the “Lawrence Complaint,” and together with the Morgan Complaint, the “Complaints”).

The Complaints allege, among other things, that Epsilon and the other named defendants (the “Epsilon Defendants”) violated New York common law based on claims of negligence, negligent misrepresentation and concealment. Specifically, the Complaints allege that the Preliminary Proxy Statement or the Definitive Proxy Statement, as applicable, failed to disclose, among other things, certain details regarding the background of the Transactions. Among other remedies, the Complaints sought an injunction against consummating the Transactions, rescission or actual and punitive damages if the Transactions are consummated, costs and attorneys’ fees. To date, we have not been served with the Complaints, and the Plaintiffs have not taken any additional steps in furtherance of prosecuting the Complaints.

While we believe that the disclosures set forth in the Preliminary Proxy Statement and the Definitive Proxy Statement comply fully with applicable law, to moot certain of the claims made in the Demands and Complaints, to avoid nuisance and potential expense and delay, we voluntarily supplemented the Definitive Proxy Statement with certain disclosures in our Supplemental Disclosures to Definitive Proxy Statement filed on October 31, 2025. Nothing in our Supplemental Disclosures was an admission of the legal necessity or materiality under applicable law of any of the disclosures set forth in the Preliminary Proxy Statement or the Definitive Proxy Statement. To the contrary, we deny all allegations in the Demands and Complaints that any additional disclosure was required.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

The information required by Item 201 of Regulation S-K is contained in ‘‘Item 1. Business.’’

On February 18, 2026, the Board authorized a new share repurchase program of up to 3,014,986 common shares, representing 10% of the outstanding common shares of the Company at such time, for an aggregate purchase price of not more than US $15.0 million. The program is pursuant to a normal course issuer bid and conducted in accordance with Rule 10b-18 under the Exchange Act. The program commenced on February 19, 2026 and is set to expire February 18, 2027, unless the maximum amount of common shares is purchased before then or the Board approves earlier termination.

On February 12, 2025, the Board authorized a new share repurchase program of up to 2,200,876 common shares, representing 10% of the outstanding common shares of the Company at such time, for an aggregate purchase price of not more than US $13.0 million. The program was pursuant to a normal course issuer bid and conducted in accordance with Rule 10b-18 under the Exchange Act. The program commenced on February 12, 2025 and expired on February 11, 2026. No shares were repurchased under this program.

On November 14, 2025, after receiving shareholder approval following a special meeting, the Company closed on the acquisition of Peak Exploration and Production LLC and Peak BLM Lease LLC and their subsidiaries (together, “Peak”). As consideration, 7,916,336 common shares were issued to the shareholders of Peak after the satisfaction of the conditions of the contingent share consideration and all closing purchase price adjustments.

On December 31, 2025, our Board made grants to our management, employees, and directors entitling them to receive an aggregate of 488,283 common shares which shall not be issued to the award recipients unless certain time based vesting criteria are met, in which case the vesting will occur in three equal parts on the succeeding periods ending on December 31. Additionally, 47,417 common shares were issued as dividend equivalent rights. The awards were made under the 2020 Equity Incentive plan in accordance with Rule 701 promulgated under the Securities Act.

The Company funds the purchases of its shares out of available cash and does not incur debt to fund the share repurchase program. The shares are accounted for as treasury shares until such a time as they are retired. There were no common share purchases made by the Company during the three months ended December 31, 2025.

ITEM 6. [RESERVED.]

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion is intended to assist in the understanding of trends and significant changes in our results of operations and the financial condition of Epsilon Energy Ltd. and its subsidiaries for the periods presented. This section should be read in conjunction with the audited consolidated financial statements as of December 31, 2025 and 2024 and for the years then ended together with accompanying notes.

Overview

Epsilon Energy Ltd. (the “Company”) is a North American onshore focused independent natural gas and oil company engaged in the acquisition, development, gathering and production of natural gas and oil reserves. Our areas of operations are the Appalachian Basin in Pennsylvania, the Powder River Basin in Wyoming, the Permian Basin in Texas and New Mexico, and the Western Canadian Sedimentary Basin in Alberta, Canada.

At December 31, 2025 our total estimated net proved reserves were 86.4 Bcf of natural gas reserves, 9.3 MMBbls of oil reserves, and 2.4 MMBbls of NGL reserves, and we held leasehold rights to approximately 101,265 gross (54,044 net) acres. We have natural gas production from our non-operated wells in Pennsylvania and natural gas, natural gas liquids, and oil production from our operated and non-operated wells in the Permian, Powder River, and Western Canadian Sedimentary Basins.

We are committed to disciplined capital allocation which could include shareholder returns in the form of dividends and/or share buybacks. We plan to maintain a strong balance sheet and liquidity position to allow us to opportunistically invest in both our existing project areas and potential new projects.

Our Pennsylvania (“PA”) assets are supported by our 35% ownership in the Auburn GGS.

We have a substantial remaining drillable location inventory within our existing leaseholds in Pennsylvania, Wyoming, and Texas.

On November 14, 2025, Epsilon acquired Peak Exploration and Production LLC and Peak BLM Lease LLC and their subsidiaries (together, "Peak") through a business combination. The acquisition added 284 gross (60 net) wells, including 105 gross (45 net) operated wells, and 60,945 gross (39,566 net) acres located in Campbell, Converse and Johnson Counties, Wyoming.

On December 11, 2025, Epsilon divested Dewey Energy Holdings, LLC, a wholly owned subsidiary of the Company to an undisclosed private buyer. The assets sold included approximately 964 Mcfe/d (60% natural gas) of production and approximately 6,400 net deep acres and 2,200 net shallow acres of leasehold, all located in Dewey County, Oklahoma.

During 2025, we realized net loss of $5.8 million as compared to net income of $1.9 million for 2024. This included a $19.3 million loss in Q4 2025 on the sale of our Anadarko Basin assets in Oklahoma, which provides potential tax benefits that may be utilized going forward.

At December 31, 2025, our total estimated net proved developed reserves were 109,444 MMcfe, a 69% increase from December 31, 2024. The increase is mainly attributable to Wyoming reserves acquired from the Peak acquisition.

At December 31, 2025, our total estimated net proved reserves were 156,037 MMcfe, a 86% increase from December 31, 2024. The increase is mainly attributable to Wyoming reserves acquired from the Peak acquisition.

Our standardized measure of discounted future net cash flows as of December 31, 2025 and 2024 was $156.1 million and $50.7 million, respectively. This measure of discounted future net cash flows does not include any estimate for future cash flows generated by our gathering system assets.

Results of Operations

The following review of operations for the periods presented below should be read in conjunction with our consolidated financial statements and the notes thereto.

Revenues

During the year ended December 31, 2025, revenues increased $20.1 million, or 64%, to $51.6 million from $31.5 million during the year ended December 31, 2024.

Revenue and volume statistics for the years ended December 31, 2025 and 2024 were as follows:


		Year ended
		December 31,
		2025			2024
Revenues
Pennsylvania
Natural gas revenue		$	28,012,040		$	10,247,834
Volume (MMcf)			9,402			5,699
Avg. Price ($/Mcf)		$	2.98		$	1.80
Gathering system revenue (net of elimination)		$	6,683,735		$	5,524,063
Total PA Revenues		$	34,695,775		$	15,771,897
Permian Basin
Natural gas revenue		$	113,038		$	32,930
Volume (MMcf)			161			205
Avg. Price ($/Mcf)		$	0.70		$	0.16
Natural gas liquids revenue		$	706,010		$	1,060,967
Volume (MBoe)			36.2			51.8
Avg. Price ($/Bbl)		$	19.51		$	20.48
Oil and condensate revenue		$	9,614,603		$	12,770,258
Volume (MBbl)			149.1			173.0
Avg. Price ($/Bbl)		$	64.50		$	73.81
Total Permian Basin Revenues		$	10,433,651		$	13,864,155
Oklahoma
Natural gas revenue		$	640,607		$	505,304
Volume (MMcf)			197			237
Avg. Price ($/Mcf)		$	3.25		$	2.13
Natural gas liquids revenue		$	318,108		$	420,991
Volume (MBoe)			14.1			17.4
Avg. Price ($/Bbl)		$	22.56		$	24.16
Oil and condensate revenue		$	507,406		$	844,265
Volume (MBbl)			9.4			11.0
Avg. Price ($/Bbl)		$	54.11		$	76.75
Total OK Revenues		$	1,466,121		$	1,770,560
Wyoming
Natural gas revenue		$	291,933		$	—
Volume (MMcf)			189			—
Avg. Price ($/Mcf)		$	1.54		$	—
Natural gas liquids revenue		$	872,263		$	—
Volume (MBoe)			27			—
Avg. Price ($/Bbl)		$	32.48		$	—
Oil and condensate revenue		$	2,840,537		$	—
Volume (MBbl)			50.1			—
Avg. Price ($/Bbl)		$	56.66		$	—
Total WY Revenues		$	4,004,733		$	—
Canada
Natural gas revenue		$	63,828		$	—
Volume (MMcf)			52			—
Avg. Price ($/Mcf)		$	1.22		$	—
Natural gas liquids revenue		$	82,479		$	—
Volume (MBoe)			3.6			—
Avg. Price ($/Bbl)		$	23.01		$	—
Oil and condensate revenue		$	840,969		$	116,163
Volume (MBbl)			15.1			2.5
Avg. Price ($/Bbl)		$	55.84		$	46.04
Total Canada Revenues		$	987,276		$	116,163
Total Revenues		$	51,587,556		$	31,522,775

Upstream natural gas revenue for the year ended December 31, 2025 increased by $18.3 million, or 170%, from 2024. An increase of $11.6 million was due to higher natural gas prices and an increase of $6.8 million was due to higher produced volumes as a result of previously delayed wells coming on line and the end of operator-elected well shut-ins in Pennsylvania.

Upstream natural gas liquids revenue for the year ended December 31, 2025 increased by $0.5 million, or 34% from 2024. An increase of $0.2 million was due to higher produced volumes from new wells in the Permian and Powder River Basins and an increase of $0.3 million was due to higher natural gas liquids prices.

Upstream oil and condensate revenue for the year ended December 31, 2025 increased by $0.1 million, or 1% over 2024. An increase of $2.7 million was due to increased production from new wells in the Permian and Powder River Basins offset by a reduction of $2.6 million due to lower oil prices.

Gathering system revenue (net of elimination) for the year ended December 31, 2025 increased by $1.2 million, or 21% over 2024. The increase was primarily due to slightly higher throughput, but more importantly, crossflow gas being displaced with Anchor Shipper gas which is charged a higher gathering fee. Revenues derived from transporting and compressing our production, which have been eliminated from gathering system revenues, amounted to $1.9 million and $1.1 million, respectively, for the years ended December 31, 2025 and 2024.

Operating Costs

The following table presents total cost and cost per unit of production (Mcfe), including ad valorem, severance, and production taxes for the years ended December 31, 2025 and 2024:


	Year ended December 31,
	2025			2024
Lease operating costs (net of elimination)	$	12,518,325		$	7,264,824
Gathering system operating costs		2,362,036			2,265,190
	$	14,880,361		$	9,530,014

Upstream operating costs—Total $/Mcfe	$	1.06		$	0.95
Gathering system operating costs $/Mcf	$	0.16		$	0.17

Operating costs include the effects of elimination entries to remove the gathering fees paid to Epsilon’s ownership in the gathering system.

Upstream operating costs consist of lease operating expenses necessary to extract natural gas and oil, including gathering and treating the natural gas and oil to prepare it for sale. For the year ended December 31, 2025, upstream operating costs increased by $5.3 million, or 72% from the same period in 2024. The increase is primarily due to the increase in gas production in Pennsylvania and the acquired production in the Powder River Basin. The higher unit operating cost is primarily due to the higher liquids (oil and natural gas liquids) proportion of total sales (Mcfe).

Gathering system operating costs consist primarily of rental payments for the natural gas fueled compression units and overhead fees due to the system’s operator. For the year ended December 31, 2025, gathering system operating costs decreased by $0.1 million, or 4% from the same period in 2024.

Depletion, Depreciation, Amortization and Accretion (DD&A)


	Year ended December 31,
	2025			2024
Depletion, depreciation, amortization and accretion	$	12,170,320		$	10,185,119

Natural gas and oil and gathering system assets are depleted and depreciated using the units of production method aggregating properties on a field basis. For leasehold acquisition costs and the cost to acquire proved and unproved properties, the reserve base used to calculate depreciation and depletion is total proved reserves. For natural gas and oil

development and gathering system costs, the reserve base used to calculate depletion and depreciation is proved developed reserves. A reserve report is prepared as of December 31, each year.

Depreciation expense includes amounts pertaining to our office furniture and fixtures, leasehold improvements and computer hardware. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, ranging from 3 to 7 years. Also included in depreciation expense is an amount pertaining to buildings owned by the Company. Depreciation for the buildings is calculated using the straight-line method over an estimated useful life of 30 years.

Accretion expense is related to the asset retirement costs.

During the year ended December 31, 2025, DD&A expense increased by $2 million, or 19%, compared to the same period in 2024. This increase was primarily a result of higher produced volumes in Pennsylvania and acquired properties in Wyoming.

Impairment


	Year ended December 31,
	2025			2024
Impairment	$	3,936,669		$	1,450,076

We perform a quantitative impairment test whenever events or changes in circumstances indicate that an asset group's carrying amount may not be recoverable, over proved properties using the market forward prices, timing, methods and other assumptions consistent with historical periods. When indicators of impairment are present, GAAP requires that the Company first compare expected future undiscounted cash flows by asset group to their respective carrying values. If the carrying amount exceeds the estimated undiscounted future cash flows, a reduction of the carrying amount of the natural gas properties to their estimated fair values is required. Additionally, GAAP requires that if an exploratory well is determined not to have found proved reserves, the costs incurred, net of any salvage value, should be charged to expense.

For the year ended December 31, 2025, the Company recorded an impairment of $3.2 million on the Canadian wells (2 gross, 0.5 net) and $0.7 million on the New Mexico wells (2 gross, 0.2 net) due to low forward oil prices on December 31, 2025 (which are required to be used in impairment testing) and an offset frac hit impacting production and reserves in New Mexico. During the year ended December 31, 2024, Epsilon recorded an impairment of $1.45 million on the Killam project (interest acquired in April 2024) in Alberta, Canada as a result of a decrease in forecasted reserves.

Loss on Sale of Assets


	Year ended December 31,
	2025			2024
Loss on sale of assets	$	19,256,530		$	—

For the year ended December 31, 2025, the Company sold all of its interests in Oklahoma for $2.5 million. This resulted in a loss on the sale of $19.3 million, primarily on undeveloped leasehold. The Company had no asset sales in 2024.

Transaction Costs


	Year ended December 31,
	2025			2024
Transaction Costs	$	2,947,907		$	—

For the year ended December 31,2025, the Company had transaction costs related to the Peak acquisition of $2.9 million for advisory and legal services incurred by the Company.

General and Administrative (“G&A”)


	Year ended December 31,
	2025			2024
General and administrative expenses
Stock based compensation expense	$	1,744,917		$	1,244,416
Other general and administrative expense		7,168,235			5,688,714
Total general and administrative expenses	$	8,913,152		$	6,933,130

G&A expenses consist of general corporate expenses such as compensation, legal, accounting and professional fees, consulting services, travel and other related corporate costs such as restricted shares of stock granted and the related non-cash compensation.

G&A expenses for the year ended December 31, 2025 increased by $2 million, or 29%, compared to the same period in 2024. An increase of $1.2 million is related to higher compensation expense, an increase of $0.5 million in stock based compensation, and an increase of $0.1 million in audit and tax fees.

Interest Income


		Year ended December 31,
		2025			2024
Interest income		$	188,369		$	493,277

During the year ended December 31, 2025, interest income decreased by $0.3 million, or 62%, from the same period in 2024. This decrease was primarily due to the reduction in the balance of cash equivalents associated with the maturation of all short term investments in June 2024.

Interest Expense


	Year ended December 31,
	2025			2024
Interest expense	$	624,160		$	46,400

Interest expense relates to the interest and commitment fees paid on the revolving line of credit.

Interest expense increased by $0.6 million, or 1245%, during the year ended December 31, 2025 from 2024. The increase is due to interest charged on the outstanding debt balance from the closing of the Peak acquisition on November 14, 2025, commitment fees on unused debt capacity, and the amortization of front-end fees related to the new credit facility entered into in October 2025.

Gain (Loss) on Derivative Contracts, net


		Year ended December 31,
		2025			2024
Gain (loss) on derivative contracts, net		$	5,500,486		$	(391,147)

During the year ended December 31, 2025, the Company had NYMEX Henry Hub (“HH”) Natural Gas Futures swaps, NYMEX HH options, and crude oil NYMEX WTI CMA swaps derivative contracts for the purpose of hedging a portion of its physical natural gas and oil sales revenue. During the year ended December 31, 2024, the Company had NYMEX HH Natural Gas Futures swaps, Tennessee Gas Pipeline Zone 4 basis swaps, and crude oil NYMEX HH CMA swaps derivative contracts for the same hedging purpose. The amounts recorded represent the fair value changes on our derivative instruments during the year. For the year ended December 31, 2025, the Company received net cash settlements of $1,163,662. For the year ended December 31, 2024, the Company received net cash settlements of $1,196,656.

At December 31, 2025, the Company had outstanding NYMEX HH swaps totaling 1.68 Bcf, NYMEX HH options totaling 4.51 Bcf, NYMEX WTI CMA swaps totaling 340,916 Bbls, and NYMEX WTI CMA options totaling 181,634 Bbls for the contract period of January 2026 to January 2028.

At December 31, 2024, the Company had outstanding NYMEX HH swaps totaling 2.2615 Bcf and Tennessee Z4 basis swaps totaling 2.2615 Bcf for the contract period of January 2025 to October 2025, and NYMEX WTI CMA swaps totaling 20,662 Bbls for the contract period of January 2025 to June 2025.

Income Tax (Benefit) Expense


	Year ended December 31,
	2025			2024
Income tax expense	$	362,731		$	1,629,093

During the year ended December 31, 2025, income tax expense decreased by $1.3 million, or 78%, from the same period in 2024. This decrease was primarily due to a decrease in taxable income as a result of loss on the asset sale, as well as increased expenses related to the Peak acquisition.

Net (Loss) Income Compared to Adjusted EBITDA


	Year ended December 31,
	2025		2024
Net (loss) income	$	(5,798,863)	$	1,927,800
Add Back:
Interest expense (income), net		435,791		(446,877)
Income tax (benefit) expense		362,731		1,629,093
Depreciation, depletion, amortization, and accretion		12,170,320		10,185,119
Impairment expense		3,936,669		1,450,076
Stock based compensation expense		1,744,917		1,244,416
Loss on sale of assets		19,256,530		—
Transaction costs		2,947,907
(Gain) loss on derivative contracts net of cash received or paid on settlement		(4,336,824)		1,587,803
Foreign currency translation loss		24,805		570
Adjusted EBITDA	$	30,743,983	$	17,578,000

We define Adjusted EBITDA as earnings before (1) net interest expense, (2) taxes, (3) depreciation, depletion, amortization and accretion expense, (4) impairments of natural gas and oil properties, (5) non-cash stock compensation expense, (6) gain or loss on sale of assets, (7) gain or loss on derivative contracts net of cash received or paid on settlement, (8) transaction costs and (9) gain or loss on foreign currency translation. Adjusted EBITDA is not a measure of financial performance as determined under U.S. GAAP and should not be considered in isolation from or as a substitute for net income or cash flow measures prepared in accordance with U.S. GAAP or as a measure of profitability or liquidity.

Additionally, Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. We have included Adjusted EBITDA as a supplemental disclosure because its management believes that Adjusted EBITDA provides useful information regarding our ability to service debt and to fund capital expenditures. It further provides investors a helpful measure for comparing operating performance on a "normalized" or recurring basis with the performance of other companies, without giving effect to certain non-cash expenses and other items. This provides management, investors and analysts with comparative information for evaluating us in relation to other natural gas and oil companies providing corresponding non-U.S. GAAP financial measures or that have different financing and capital structures or tax rates. These non-U.S. GAAP financial measures should be considered in addition to, but not as a substitute for, measures for financial performance prepared in accordance with U.S. GAAP. The table above sets forth a reconciliation of net income to Adjusted EBITDA, which is the most directly comparable measure of financial performance calculated under U.S. GAAP and should be reviewed carefully.

Capital Resources and Liquidity

Cash Flow

The primary source of cash during the year ended December 31, 2025 was funds generated from operations and financing activities. The primary source of cash during the year ended December 31, 2024 was funds generated from operations and proceeds from short term investments. For the year ended December 31, 2025 the primary uses of cash were development of upstream properties, the distribution of dividends, and costs related to the Peak acquisition. For the year ended December 31, 2024 the primary uses of cash were the acquisition and development of upstream properties and the distribution of dividends.

At December 31, 2025, we had a working capital surplus of $7.6 million, an increase of $0.5 million from the $7.1 million surplus at December 31, 2024. The surplus increased from December 31, 2024 due to an increase in current assets. We anticipate that our current cash balance, available borrowings, and cash flows from operations to be sufficient to meet our cash requirements for at least the next twelve months.

Year ended December 31, 2025 compared to 2024

During the year ended December 31, 2025, $20.6 million was provided by our operating activities, compared to $16.8 million in 2024, a $3.8 million, or 23%, increase. The increase was primarily due to higher production and throughput volumes in Pennsylvania due to new wells turned on line as well as curtailed wells returning to production.

The Company used $61.6 million for investing activities during the year ended December 31, 2025, compared to $16.7 million in 2024, a $44.9 million, or 270%, increase. The increase was primarily due to $49.8 million paid for the Peak acquisition.

During the year ended December 31, 2025, $43.7 million was provided by financing activities compared to $7.3 million used in 2024, a $51 million, or 697% decrease. The decrease was primarily due to the $50.5 million draw on the Company’s credit facility to repay the outstanding debt of Peak related to the acquisition.

Credit Agreement

The Company closed a new senior secured reserve based revolving credit facility on October 10, 2025 with Frost Bank as administrative agent and Frost Bank and Texas Capital Bank as lenders. This replaced the Company’s previous credit facility. As of December 31, 2025, the borrowing base was $80 million, supported by the Company’s producing reserves and is subject to semi-annual redeterminations with a maturity date of October 10, 2029. Interest will be charged at the 3-month Term SOFR rate plus a margin of 3-4% (depending on facility utilization), payable quarterly. The facility is secured by the assets of the Company’s Epsilon Energy USA subsidiary. During March 2026, the Company made a $5 million repayment on the outstanding credit facility. The current balance as of March 25, 2026 is $45.5 million.

Under the terms of the facility, the Company must adhere to the following financial covenants:

●

Current ratio of 1.0 to 1.0 (current assets / current liabilities)

●

Leverage ratio of less than 2.5 to 1.0 (total debt / income adjusted for interest, taxes and non-cash amounts)

Additionally, the Company is required to hedge 50% of its forecasted Proved Developed Producing production over a rolling 18-month period. If the facility utilization drops below 50%, then the required hedging drops to 25% of Proved Developed Producing production for the last 6 months of the 18-month period.

Repurchase Transactions

On February 18, 2026, the Board authorized a new share repurchase program of up to 3,014,986 common shares, representing 10% of the current outstanding common shares of Epsilon, for an aggregate purchase price of not more than

US $15.0 million. The program is pursuant to a normal course issuer bid and will be conducted in accordance with Rule 10b-18 under the Exchange Act. The program will commence on February 19, 2026 and end on February 18, 2027, unless the maximum amount of common shares is purchased before then or the Board approves earlier termination.

On February 12, 2025, the Board authorized a new share repurchase program of up to 2,200,876 common shares, representing 10% of the outstanding common shares of the Company at such time, for an aggregate purchase price of not more than US $13.0 million. The program is pursuant to a normal course issuer bid and conducted in accordance with Rule 10b-18 under the Exchange Act. The program commenced on February 12, 2025 and expired on February 11, 2026. No shares were repurchased under this program.

On March 19, 2024, the Board of Directors authorized a new share repurchase program of up to 2,191,320 common shares, representing 10% of the outstanding common shares of Epsilon at such time, for an aggregate purchase price of not more than US $12.0 million. The program was pursuant to a normal course issuer bid and was conducted in accordance with Rule 10b-18 under the Exchange Act. The program commenced on March 27, 2024 and expired on February 12, 2025, when the Board terminated and revoked authority under the program. During the year ended December 31, 2024, we repurchased 125,000 common shares and spent $627,500 at an average price of $5.00 per share (excluding commissions) under the plan.

In 2024, the Company also repurchased 248,700 common shares and spent $1,203,708 at an average price of $4.82 per share (excluding commissions) and retired 319,574 common shares under the 2023-2024 repurchase program before the plan terminated on March 26, 2024. During the year ended December 31, 2024, the Company repurchased a total of 373,700 shares and spent $1,831,208 at an average price of $4.88 per share (excluding commissions) under the two previous repurchase programs.

Derivative Transactions

The Company has entered into hedging arrangements to reduce the impact of natural gas and oil price volatility on operations. By removing the price volatility from a significant portion of natural gas and oil production, the potential effects of changing prices on operating cash flows have been mitigated, but not eliminated. While mitigating the negative effects of falling commodity prices, these derivative contracts also limit the benefits we might otherwise receive from increases in commodity prices.

At December 31, 2025, Epsilon’s outstanding natural gas and crude oil commodity contracts consisted of the following:


				Weighted Average Price ($/Mmbtu)
		Volume					Ceiling			Floor			Fair Value of Asset
Derivative Type		(MMbtu)		Swaps			Price			Price			December 31, 2025
2026
NYMEX Henry Hub (LD) Options Call		2,360,801		$	—		$	5.05		$	—		$	(295,384)
NYMEX Henry Hub (LD) Options Put		—		$	—		$	—		$	3.35		$	709,792
NYMEX Henry Hub (LD) Swaps		1,339,777		$	4.00		$	—		$	—		$	632,140
2027
NYMEX Henry Hub (LD) Options Call		2,126,016		$	—		$	4.87		$	—		$	(631,696)
NYMEX Henry Hub (LD) Options Put		—		$	—		$	—		$	3.29		$	639,282
NYMEX Henry Hub (LD) Swaps		312,297		$	3.76		$	—		$	—		$	(32,489)
2028
NYMEX Henry Hub (LD) Options Call		27,978		$	—		$	4.70		$	—		$	(22,920)
NYMEX Henry Hub (LD) Options Put		—		$	—		$	—		$	3.65		$	8,513
NYMEX Henry Hub (LD) Swaps		27,978		$	4.46		$	—		$	—		$	(7,910)
		6,194,847											$	999,328


		Weighted Average Price ($/Mmbtu)
	Volume				Ceiling			Floor		Fair Value of Asset
Derivative Type	(Bbl)	Swaps			Price			Price		December 31, 2025
2026
NYMEX WTI CMA Options Call	55,230	$	—		$	69.23		$	—	$	(63,877)
NYMEX WTI CMA Options Put	—	$	—		$	—		$	59.37	$	313,499
NYMEX WTI CMA Swaps	226,622	$	63.21		$	—		$	—	$	1,398,170
2027
NYMEX WTI CMA Options Call	118,096	$	—		$	67.82		$	—	$	(384,927)
NYMEX WTI CMA Options Put	—	$	—		$	—		$	57.60	$	839,353
NYMEX WTI CMA Swaps	105,986	$	63.76		$	—		$	—	$	679,105
2028
NYMEX WTI CMA Options Call	8,308	$	—		$	67.96		$	—	$	(33,685)
NYMEX WTI CMA Options Put	—	$	—		$	—		$	57.57	$	61,503
NYMEX WTI CMA Swaps	8,308	$	62.97		$	—		$	—	$	40,807
	522,550									$	2,849,948

Contractual Obligations

The following table summarizes our contractual obligations at December 31, 2025.


	Payments Due by Period
			Less than		1 – 3		Greater than
	Total		1 Year		Years		3 Years
Derivative liabilities	$	1,552,027	$	410,342	$	1,141,685	$	—
Asset retirement obligations, undiscounted		18,765,954		—		—		18,765,954
Capital expenditure commitments		3,828,678		3,828,678		—		—
Total future commitments	$	24,146,659	$	4,239,020	$	1,141,685	$	18,765,954

We enter into commitments for capital expenditures in advance of the expenditures being made. As of December 31, 2025, our commitments for capital expenditures were $3.8 million related to the drilling of 1 gross (0.25 net) well in Texas.

Summary of Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and accompanying notes, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, and SEC rules which require management to make estimates and assumptions about future events that affect the reported amounts in the financial statements and the accompanying notes. We identify certain accounting policies as critical based on, among other things, their impact on the portrayal of our financial condition, results of operations or liquidity, and the degree of difficulty, subjectivity and complexity in their application. Critical accounting estimates cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. Management routinely discusses the development, selection and disclosure of each of the critical accounting estimates. Described below are the most significant accounting policies we apply in preparing our consolidated financial statements. We also describe the most significant estimates and assumptions we make in applying these policies.

Proved Natural Gas and Oil Reserves

Our engineers estimate proved natural gas and oil reserves in accordance with SEC regulations, which directly impact financial accounting estimates, including depreciation, depletion and amortization and impairments of proved properties and related assets. Proved reserves represent estimated quantities of crude oil and condensate, NGLs and natural gas that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under economic and operating conditions existing at the time the estimates were made. The process of estimating future production volumes of proved natural gas and oil reserves is complex, requiring significant subjective

decisions in the evaluation of all available geological, engineering and economic data for each reservoir. There are uncertainties inherent in the interpretation of such data, as well as the projection of future rates of production and timing of development expenditures. Reservoir engineering is a subjective process of estimating underground accumulations of natural gas and oil that cannot be measured in an exact way. The accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation, and judgment. Accordingly, there can be no assurance that ultimately, the reserves will be produced, nor can there be assurance that the proved undeveloped reserves will be developed within the period anticipated. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. Consequently, material revisions (upward or downward) to existing reserve estimates may occur from time to time. We cannot predict the types of reserve revisions that will be required in future periods. For related discussion, see the sections titled “Risk Factors” and “Supplemental Information to Consolidated Financial Statements.”

Impairments

The carrying value of unproved and proved oil and natural gas properties and gathering system assets are reviewed for impairment whenever events indicate that the carrying amounts for those assets may not be recoverable. Such indicators include changes in our business plans, changes in commodity prices leading to unprofitable performance, and, for natural gas and oil properties, significant downward revisions of estimated proved reserve quantities or significant increases in the estimated development costs.

We compare expected undiscounted future cash flows at a depreciation, depletion and amortization group level to the carrying value of the asset. If the expected undiscounted future cash flows, based on our estimates of (and assumptions regarding) future oil and natural gas prices, operating costs, development expenditures, anticipated production from proved reserves and other relevant data, are lower than the carrying value of the asset, the carrying value is reduced to fair value. Fair value is generally calculated using the “Income Approach” based on estimated discounted net cash flows. Estimates of future cash flows require significant judgment, and the assumptions used in preparing such estimates are inherently uncertain. In addition, such assumptions and estimates are reasonably likely to change in the future. Significant inputs used to determine the fair values of proved properties include estimates of: (i) reserves; (ii) future operating and development costs; (iii) future commodity prices and (iv) a market-based weighted average cost of capital rate.

We evaluate impairment of proved natural gas and oil properties on an area basis. On this basis, certain fields may be impaired because they are not expected to recover their entire carrying value from future net cash flows. The basis for future depletion, depreciation, amortization, and accretion will take into account the reduction in the value of the asset as a result of any accumulated impairment losses. Unproved natural gas and oil properties are assessed periodically for impairment based on remaining lease terms, drilling results, reservoir performance, future plans to develop acreage, and other relevant factors.

When circumstances indicate that the gathering system properties may be impaired, Epsilon compares expected undiscounted future cash flows related to the gathering system to the unamortized capitalized cost of the asset. If the expected undiscounted future cash flows are lower than the unamortized capitalized cost, the capitalized cost is reduced to fair value. Fair value is generally calculated using the Income Approach, which considers estimated discounted future cash flows.

Asset Retirement Obligations (“ARO”)

We recognize asset retirement obligations under ASC 410, Asset Retirement and Environmental Obligations. ASC 410 requires legal obligations associated with the retirement of long-lived assets to be recognized at their fair value at the time that the obligations are incurred. For our upstream properties, these obligations consist of estimated future costs associated with the plugging and abandonment of natural gas and oil wells, removal of equipment and facilities from leased acreage and land restoration in accordance with applicable local, state and federal laws. For our gathering system, these obligations consist of estimated future costs associated with the removal of equipment and facilities from leased acreage and land restoration in accordance with applicable local, state and federal laws. The discounted fair value of an ARO liability is required to be recognized in the period in which it is incurred, with the associated asset retirement cost capitalized as part of the carrying cost of the natural gas and oil or gathering system asset. The initial recognition of an ARO fair value requires that management make numerous assumptions regarding such factors as the amounts and timing

of settlements; the credit-adjusted risk-free discount rate; and the inflation rate. In periods subsequent to the initial measurement of an ARO, period-to-period changes are recognized in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. Increases in the ARO liability due to the passage of time impact net income as accretion expense. The related capitalized cost, including revisions thereto, is charged to expense through DD&A over the life of the natural gas and oil property or gathering system asset.

Income Taxes

Tax regulations and legislation in the U.S. and Canada are subject to change and differing interpretations requiring judgment. We compute income taxes using the asset-and-liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities, as well as loss and tax credit carryforwards. Changes in tax rates and laws are recognized in income in the period such changes are enacted.

We establish a valuation allowance if, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We consider all positive and negative evidence, including historical operating results, the existence of cumulative losses, estimates of future operating income, and the reversal of existing taxable temporary differences in assessing the need for a valuation allowance. Income tax filings are subject to audits and re-assessments. Changes in facts, circumstances, and interpretations of the standards may result in a material increase or decrease in our provision for income taxes.

Business Combinations

We account for acquisitions that have been determined to be business combinations using the acquisition method of accounting. Accordingly, identifiable assets acquired and liabilities assumed are recognized at the date of acquisition at their respective estimated fair values.

We made a number of assumptions in estimating the fair value of assets acquired and liabilities assumed in these acquisitions. The most significant assumptions relate to the estimated fair values of proved and unproved oil and gas properties. The fair value of identifiable assets acquired and liabilities assumed is determined based on various valuation techniques, including market prices, discounted cash flow analysis, and independent appraisals. Significant judgments and assumptions are inherent in these valuation techniques and include, among other things, estimates of reserves, estimates of future production volumes, estimates of future commodity prices, expected development costs, lease operating costs and the discount rate that reflects the risk of the underlying cash flow estimates.

Estimated fair values assigned to assets acquired can have a significant impact on future results of operations presented in the Company's financial statements. A higher fair value assigned to a property results in higher DD&A expense, which results in lower net income. In the event that future commodity prices or reserve quantities are lower than those used as inputs to determine estimates of acquisition date fair values, the likelihood increases that certain costs may be determined to not be recoverable.

Recently Issued Accounting Standards

See Note 3, “Summary of Significant Accounting Policies” in Notes to the Consolidated Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our earnings and cash flow are significantly affected by changes in the market price of commodities. The prices of oil and natural gas can fluctuate widely and are influenced by numerous factors such as demand, production levels, and world political and economic events and the strength of the U.S. dollar relative to other currencies. Should the price of oil or natural gas decline substantially, the value of our assets could fall dramatically, impacting our future options and exploration and development activities, along with our gas gathering system revenues. In addition, our operations are exposed to market risks in the ordinary course of our business, including interest rate and certain exposure as well as risks relating to changes in the general economic conditions in the United States.

Gathering System Revenue Risk

The Auburn GGS gather gas produced from the Marcellus Shale with historically high levels of recoverable reserves and low cost of production. We believe that a short term low commodity price environment will not significantly impact the reserves produced and thus the revenue of our gas gathering system.

Derivative Contracts

The Company’s financial results and condition depend on the prices received for natural gas and oil production. Natural gas and oil prices have fluctuated widely and are determined by economic and political factors. Supply and demand factors, including weather, general economic conditions, the ability to transport the gas to other regions, as well as conditions in other natural gas and oil regions, impact prices. Epsilon has established a hedging strategy and may manage the risk associated with changes in commodity prices by entering into various derivative financial instrument agreements and physical contracts. Although these commodity price risk management activities could expose the Company to losses or gains, entering into these contracts helps to stabilize cash flows and support the Company’s capital spending program.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Our consolidated balance sheets as of December 31, 2025 and 2024, and the consolidated statements of operations and comprehensive income, changes in shareholders’ equity and cash flows for years ended December 31, 2025 and 2024 included in this annual report have been prepared in accordance with U.S. GAAP.

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Epsilon Energy Ltd.

Houston, Texas

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Epsilon Energy Ltd. (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of operations and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Estimation of Future Production Volumes Used to Estimate Proved Oil and Natural Gas Reserves and the Associated Effect on Depreciation, Depletion and Amortization (“DD&A”) Expense Related to Proved Oil and Natural Gas Properties

As described in Note 3 to the consolidated financial statements, the Company uses the successful efforts method of accounting for its oil and natural gas producing activities which involves management making significant estimates, including estimating the future production volumes of proved oil and natural gas reserves. As disclosed in Note 5, the Company’s oil and natural gas properties, net balance as of December 31, 2025 was $181 million, which includes proved

oil and natural gas properties of $233.3 million and accumulated depletion, amortization and impairment of $131.6 million. Depletion, depreciation, amortization, and accretion expense was $12.2 million for the year ended December 31, 2025.

We have identified the estimation of future production volumes used to estimate proved oil and natural gas reserves and the associated effect on DD&A expense related to proved oil and natural gas properties as a critical audit matter. Estimating future production volumes involves a high degree of subjectivity from management and their independent petroleum engineers. Changes in this estimate could have a significant effect on the measurement of DD&A expense. Auditing the estimation of future production volumes required subjective and complex auditor judgment.

The primary procedures we performed to address this critical audit matter included:

●

Evaluating the professional qualifications and objectivity of the independent petroleum engineers, including their relationship to the Company.

●

Assessing the reasonableness of the future production volumes by comparing estimates of future production volumes against historical results of production volumes on a summary basis for all wells.

●

Performing a retrospective review over management estimates of future production volumes made in prior periods as compared to actual results.

Estimation of Future Production Volumes Used to Estimate Fair Value of the Acquired Proved Oil and Gas Properties in the Peak Acquisition

As described in Note 4 to the consolidated financial statements, on November 14, 2025, the Company completed an acquisition of Peak E&P, LLC and Peak BLM, LLC (“Peak Acquisition”) for a total consideration of $88.5 million. In connection with the Peak Acquisition, the Company recognized proved oil and gas properties of $47.9 million. To determine the acquisition date fair value of the oil and gas properties, management used internal engineers to make significant estimates, including estimating the future production volumes of the acquired oil and gas reserves.

We have identified the estimation of future production volumes used to estimate the fair value of the acquired proved oil and gas properties in the Peak Acquisition as a critical audit matter. Estimating future production volumes involves a high degree of subjectivity from management and their internal petroleum engineers. Changes in this estimate could have a significant effect on the fair value of the acquired oil and natural gas properties. Auditing the estimation of future production volumes requires subjective and complex auditor judgement.

The primary procedures we performed to address this critical audit matter included:

●

Assessing the reasonableness of the future production volumes by comparing estimates of future production volumes against historical results of production volumes on a summary basis for all wells and on a detailed basis for certain wells.

●

Performing a retrospective review over management estimates of future production volumes made in the acquisition date fair value forecast as compared to actual results.

/s/ BDO USA, P.C.

We have served as the Company’s auditor since 2017.

Houston, Texas

March 27, 2026

EPSILON ENERGY LTD.

Consolidated Balance Sheets


		December 31,			December 31,
		2025			2024
ASSETS
Current assets
Cash and cash equivalents		$	8,959,954		$	6,519,793
Accounts receivable			16,132,501			5,843,722
Fair value of derivatives			2,694,340			—
Prepaid income taxes			2,949,311			975,963
Other current assets			1,847,672			792,041
Total current assets			32,583,778			14,131,519
Non-current assets
Property and equipment:
Oil and gas properties, successful efforts method
Proved properties			233,334,212			191,879,210
Unproved properties			79,307,169			28,364,186
Accumulated depletion, depreciation, amortization and impairment			(131,636,141)			(123,281,395)
Total oil and gas properties, net			181,005,240			96,962,001
Gathering system			43,540,389			43,116,371
Accumulated depletion, depreciation, amortization and impairment			(37,472,139)			(36,449,511)
Total gathering system, net			6,068,250			6,666,860
Land			1,231,965			637,764
Buildings and other property and equipment, net			4,132,732			259,335
Total property and equipment, net			192,438,187			104,525,960
Other assets:
Operating lease right-of-use assets, long term			488,949			344,589
Restricted cash			553,000			470,000
Fair value of derivatives, long term			1,154,936			—
Deferred financing costs			774,347			—
Prepaid drilling costs			246,220			982,717
Total non-current assets			195,655,639			106,323,266
Total assets		$	228,239,417		$	120,454,785

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable trade		$	11,148,050		$	2,334,732
Gathering fees payable			1,076,143			997,016
Royalties payable			8,702,526			1,400,976
Accrued capital expenditures			24,888			572,079
Accrued compensation			1,056,304			695,018
Other accrued liabilities			2,682,090			371,503
Fair value of derivatives			—			487,548
Operating lease liabilities			271,494			121,135
Total current liabilities			24,961,495			6,980,007
Non-current liabilities
Credit facility payable			50,500,000			—
Ad valorem taxes, long term			7,411,971			—
Asset retirement obligations			7,437,960			3,652,296
Deferred income taxes			12,855,585			12,738,577
Operating lease liabilities, long term			340,052			355,776
Total non-current liabilities			78,545,568			16,746,649
Total liabilities			103,507,063			23,726,656
Commitments and contingencies (Note 11)
Shareholders' equity
Preferred shares, no par value, unlimited shares authorized, none issued or outstanding			—			—
Common shares, no par value, unlimited shares authorized and 30,239,980 shares issued and outstanding at December 31, 2025 and 22,008,766 issued and outstanding at December 31, 2024			154,274,125			116,081,031
Additional paid-in capital			13,863,824			12,118,907
Accumulated deficit			(53,302,162)			(41,505,076)
Accumulated other comprehensive income			9,896,567			10,033,267
Total shareholders' equity			124,732,354			96,728,129
Total liabilities and shareholders' equity		$	228,239,417		$	120,454,785

The accompanying notes are an integral part of these consolidated financial statements

EPSILON ENERGY LTD.

Consolidated Statements of Operations and Comprehensive Income


		Year ended December 31,
		2025			2024
Revenues from contracts with customers:
Gas, oil, NGL, and condensate revenue		$	44,903,821		$	25,998,712
Gas gathering and compression revenue			6,683,735			5,524,063
Total revenue			51,587,556			31,522,775

Operating costs and expenses:
Lease operating expenses			12,518,325			7,264,824
Gathering system operating expenses			2,362,036			2,265,190
Depletion, depreciation, amortization, and accretion			12,170,320			10,185,119
Impairment expense			3,936,669			1,450,076
Loss on sale of oil and gas properties			19,256,530			—
Transaction costs			2,947,907			—
General and administrative expenses:
Stock based compensation expense			1,744,917			1,244,416
Other general and administrative expenses			7,168,235			5,688,714
Total operating costs and expenses			62,104,939			28,098,339
Operating (loss) income			(10,517,383)			3,424,436

Other income (expense):
Interest income			188,369			493,277
Interest expense			(624,160)			(46,400)
Gain (loss) on derivative contracts, net			5,500,486			(391,147)
Other income, net			16,556			76,727
Other income, net			5,081,251			132,457

Net (loss) income before income tax expense			(5,436,132)			3,556,893
Income tax (benefit) expense			362,731			1,629,093
NET (LOSS) INCOME		$	(5,798,863)		$	1,927,800
Currency translation adjustments			(136,700)			262,588
Unrealized loss on securities			—			(1,598)
NET COMPREHENSIVE (LOSS) INCOME		$	(5,935,563)		$	2,188,790

Net (loss) income per share, basic		$	(0.25)		$	0.09
Net (loss) income per share, diluted		$	(0.25)		$	0.09
Weighted average number of shares outstanding, basic			23,020,672			21,930,277
Weighted average number of shares outstanding, diluted			23,020,672			21,930,277

The accompanying notes are an integral part of these consolidated financial statements

EPSILON ENERGY LTD.

Consolidated Statements of Changes in Shareholders’ Equity


															Accumulated
															Other						Total
		Common Shares Issued					Treasury Shares					Additional			Comprehensive			Accumulated			Shareholders'
		Shares		Amount			Shares		Amount			paid-in Capital			Income			Deficit			Equity
Balance at December 31, 2023		22,222,722		$	118,272,565		(70,874)		$	(360,326)		$	10,874,491		$	9,772,277		$	(37,946,042)		$	100,612,965
Net income		—			—		—			—			—			—			1,927,800			1,927,800
Dividends		—			—		—			—			—			—			(5,486,834)			(5,486,834)
Stock-based compensation expense		—			—		—			—			1,244,416			—			—			1,244,416
Buyback of common shares		—			—		(373,700)			(1,831,208)			—			—			—			(1,831,208)
Retirement of treasury shares		(444,574)			(2,191,534)		444,574			2,191,534			—			—			—			—
Vesting of shares of restricted stock		230,618			—		—			—			—			—			—			—
Other comprehensive income		—			—		—			—			—			260,990			—			260,990
Balance at December 31, 2024		22,008,766		$	116,081,031		—		$	—		$	12,118,907		$	10,033,267		$	(41,505,076)		$	96,728,129
Net loss		—			—		—			—			—			—			(5,798,863)			(5,798,863)
Dividends		—			—		—			—			—			—			(5,998,223)			(5,998,223)
Dividend equivalent rights		47,417			—		—			—			—			—			—			—
Stock-based compensation expense		—			—		—			—			1,744,917			—			—			1,744,917
Shares issued in business combination		7,916,336			38,193,094		—			—			—			—			—			38,193,094
Vesting of shares of restricted stock		267,461			—		—			—			—			—			—			—
Other comprehensive loss		—			—		—			—			—			(136,700)			—			(136,700)
Balance at December 31, 2025		30,239,980		$	154,274,125		—		$	—		$	13,863,824		$	9,896,567		$	(53,302,162)		$	124,732,354

The accompanying notes are an integral part of these consolidated financial statements

EPSILON ENERGY LTD.

Consolidated Statements of Cash Flows


		Year ended December 31,
		2025			2024
Cash flows from operating activities:
Net income		$	(5,798,863)		$	1,927,800
Adjustments to reconcile net income to net cash provided by operating activities:
Depletion, depreciation, amortization, and accretion			12,170,320			10,185,119
Impairment expense			3,936,669			1,450,076
Accretion of discount on available for sale securities			—			(297,637)
Amortization on deferred financing costs			44,510			—
Loss on sale of oil and gas properties			19,256,530			—
(Gain) loss on derivative contracts			(5,500,486)			391,147
Settlement received on derivative contracts			1,163,662			1,196,656
Settlement of asset retirement obligation			(1,600)			(88,992)
Stock-based compensation expense			1,744,917			1,244,416
Deferred income tax (benefit) expense			117,008			1,184,634
Changes in assets and liabilities, net of assets and liabilities acquired in business combination:
Accounts receivable			(1,588,383)			171,726
Prepaid income taxes			(1,973,348)			(23,662)
Other assets and liabilities			(10,365)			(17,828)
Accounts payable, royalties payable, gathering fees payable, and other accrued liabilities			(2,940,888)			(493,176)
Net cash provided by operating activities			20,619,683			16,830,279
Cash flows from investing activities:
Additions to unproved oil and gas properties			(6,999,905)			(4,507,280)
Additions to proved oil and gas properties			(7,929,773)			(31,695,651)
Additions to gathering system properties			(465,203)			(341,452)
Additions to land, buildings and property and equipment			270,488			(16,513)
Purchases of short term investments - available for sale			—			(4,045,785)
Proceeds from short term investments - held to maturity			—			6,743,178
Proceeds from short term investments - available for sale			—			16,373,752
Net asset acquired in business combination			(49,754,846)			—
Proceeds from sale of oil and gas properties			2,500,000			—
Prepaid drilling costs			736,497			831,091
Net cash used in investing activities			(61,642,742)			(16,658,660)
Cash flows from financing activities:
Buyback of common shares			—			(1,831,208)
Borrowings on credit facility			50,500,000			—
Dividends paid			(5,998,223)			(5,486,834)
Deferred financing costs			(818,857)			—
Net cash provided by (used in) financing activities			43,682,920			(7,318,042)
Effect of currency rates on cash, cash equivalents, and restricted cash			(136,700)			262,588
Increase (decrease) in cash, cash equivalents, and restricted cash			2,523,161			(6,883,835)
Cash, cash equivalents, and restricted cash, beginning of period			6,989,793			13,873,628
Cash, cash equivalents, and restricted cash, end of period		$	9,512,954		$	6,989,793

Supplemental cash flow disclosures:
Income tax paid - federal		$	1,417,860		$	414,250
Income tax paid - state (PA)		$	755,138		$	—
Income tax paid - state (other)		$	3,986		$	(2,071)
Interest paid		$	9,935		$	16,832

Non-cash investing activities:
Change in proved properties accrued in accounts payable		$	(937,079)		$	(862,744)
Change in gathering system accrued in accounts payable		$	(41,186)		$	36,645
Asset retirement obligation asset additions and adjustments		$	25,195		$	54,902

The accompanying notes are an integral part of these consolidated financial statements

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2025 and 2024

1. Description of Business

Epsilon Energy Ltd. (the “Company” or “Epsilon” or “we”) was incorporated under the laws of the Province of Alberta, Canada on March 14, 2005. 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.” 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.

2. Basis of Preparation

Principles of Consolidation

The Company’s consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Epsilon Energy USA, Inc. and its wholly owned subsidiaries, Epsilon Midstream, LLC, Epsilon Operating, LLC, Dewey Energy GP, LLC, Peak Exploration & Production LLC, Peak BLM Lease LLC, Peak Powder River Resources, LLC, Peak Energy Operating #2, LLC, Willow Springs Development, LLC, Peak Powder River Acquisition, LLC and Altolisa Holdings, LLC. With regard to the gathering system, in which Epsilon owns an undivided interest in the asset, proportionate consolidation accounting is used. All inter-company transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates pertain to proved natural gas reserves and related cash flow estimates used in impairment tests of oil and natural gas and gathering system properties, asset retirement obligations, accrued natural gas and oil revenues and operating expenses, accrued gathering system revenues and operating expenses, as well as the valuation of commodity derivative instruments. Actual results could differ from those estimates.

3. Summary of Significant Accounting Policies

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents includes cash on hand and short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Restricted cash consists of amounts deposited to back bonds or letters of credit. The Company presents restricted cash with cash and cash equivalents in the Consolidated Statements of Cash Flows.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Consolidated Balance Sheets to the total of the amounts in the Consolidated Statements of Cash Flows as of December 31, 2025 and 2024:


		December 31,			December 31,
		2025			2024
Cash and cash equivalents		$	8,959,954		$	6,519,793
Restricted cash included in other assets			553,000			470,000
Cash, cash equivalents, and restricted cash in the statement of cash flows		$	9,512,954		$	6,989,793

EPSILON ENERGY LTD.

Notes to the Consolidated Financial Statements (Continued)

For the years ended December 31, 2025 and 2024

Oil and Natural Gas Properties

Epsilon accounts for its crude oil and natural gas exploration and production activities under the successful efforts method of accounting.

Oil and natural gas lease acquisition costs are capitalized when incurred. Unproved properties with acquisition costs that are not individually significant are aggregated. If the unproved properties are determined to be productive, the appropriate related costs are transferred to proved oil and natural gas properties. Lease delay rentals are expensed as incurred.

Oil and natural gas exploration costs, other than the costs of drilling exploratory wells, are expensed as incurred. The costs of drilling exploratory wells are capitalized pending determination of whether Epsilon has discovered proved commercial reserves. If proved commercial reserves are not discovered, such drilling costs are expensed. In some circumstances, it may be uncertain whether proved commercial reserves have been discovered when drilling has been completed. Such exploratory well drilling costs may continue to be capitalized if the reserve quantity is sufficient to justify its completion as a producing well and sufficient progress in assessing the reserves and the economic and operating viability of the project is being made. Costs to develop proved reserves, including the costs of all development wells and related equipment used in the production of crude oil and natural gas, are capitalized (see Note 5).

Depreciation, depletion and amortization of the cost of proved oil and natural gas properties is calculated using the unit-of-production method. The reserve base used to calculate depreciation, depletion and amortization for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves. With respect to lease and well equipment costs, which include development costs and successful exploration drilling costs, the reserve base includes only proved developed reserves.

When circumstances indicate that proved (developed and undeveloped) oil and natural gas properties may be impaired, Epsilon compares expected undiscounted future cash flows at a depreciation, depletion and amortization group level to the carrying value of the asset. If the expected undiscounted future cash flows, based on Epsilon’s estimate of future crude oil and natural gas prices, operating costs, anticipated production from

Epsilon Energy Ltd. 10-K