Epsilon Energy Ltd. Liquidation Value

Epsilon Energy Ltd. (EPSN) closed FY2025 (period ending December 31, 2025) with total assets of $228.2M and total liabilities of $103.5M, producing reported book equity of $124.7M. Under a liquidation lens, recovery to equity is materially impaired relative to book. The dominant asset is oil and gas property under the successful efforts method: gross proved O&G property of $233.3M and unproved acreage of $79.3M, partially offset by $131.6M of accumulated DD&A, yielding net O&G PP&E of $181.0M. Applying a 50-60% haircut to this asset class (typical for distressed upstream E&P where PDP reserve value in a forced-sale context is highly commodity-price dependent), recoverable value from O&G PP&E would be approximately $90-108M. Other PP&E net of $5.4M receives a similar haircut to approximately $2.7-3.8M. Cash and restricted cash total approximately $9.5M, recovering at near par. Derivative assets of $5.4M gross (net $3.8M after netting) are mark-to-market and would close out near fair value in a wind-down. AR of $16.1M recovers at 90-95%, or approximately $14.5-15.3M. Intangibles and deferred financing costs ($0.8M) receive zero recovery.

On the liability side, face-value claims total $103.5M. Critically, the company drew $50.5M on its Frost Bank / Texas Capital Bank revolving credit facility in connection with the November 2025 Peak E&P acquisition. This is the single largest balance-sheet change versus the prior 10-Q period (September 30, 2025), when borrowings were nil. The facility matures October 2029 at SOFR plus 3-4%. AR obligation (undiscounted long-term) per prior filing was $15.8M; the XBRL-tagged balance at year-end is $7.4M (current carrying value post-discounting). ARO must be settled at face on wind-up. Deferred tax liabilities net to $12.9M, which at face value represents a claims position in liquidation. Current liabilities of $25.0M include $11.1M AP, $8.7M accrued royalties, and $1.1M accrued compensation.

The Peak acquisition closed November 14, 2025, adding approximately $49.8M of cash outflow and $38.2M of stock consideration. Peak also generated $3.8M of remaining capital commitments (tagged as PurchaseCommitmentRemainingMinimumAmountCommitted). The Peak integration added unproved acreage and proved properties. Goodwill or intangible uplift from the acquisition is not separately XBRL-tagged; the filing discusses the transaction in MD&A but does not break out purchase price allocation in the tags provided. A material weakness in internal controls was disclosed post-acquisition for significant and non-standard transactions, with remediation ongoing. This adds process risk to the reliability of the asset values reported.

Rough liquidation arithmetic: Adjusted asset recovery approximately $120-135M against face liabilities of $103.5M produces a thin-to-marginal positive recovery to equity. However, this depends critically on realized O&G asset values in a forced sale, which at current gas prices and with a $50.5M first-lien credit facility in place could easily compress to negative equity recovery. MFFAIS CLV is reported at negative $66.8M, consistent with a more conservative haircut scenario. The filing confirms no pension obligation, no material off-balance-sheet guarantees disclosed, and operating lease liabilities of $0.6M at face.