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Engaged in the acquisition, exploration, development and production of oil and natural gas reserves in North America, the Middle East and Africa.

Message: Clarus report...target to $4.60

Clarus report...target to $4.60

posted on Apr 05, 2010 11:01AM

Impressive FD&A Costs Highlight YE’09



1. CFPS Beats Expectation in Q4/09

EPS generated a FD CFPS of $0.03 in the quarter compared to

our expectation of nil. Production was relatively close to our

estimate at 953 boe/d. However, it was a cash cost structure that

was less than half our expectation that lead to the positive


2. 2P Reserves Up 39%

EPS announced that it increased its proved reserves by 90% to

16.1 mmboe and its 2P reserves rose 39% to 22.1 mmboe from

the previous year. This impressive growth was accomplished

despite the disposition of 10.2 mmboe of 2P reserves in the U.S.

and Yemen.

3. FD&A Costs Should Be Near Best in Peer Group

EPS posted an FD&A (incl. future development capital) of

$4.16/boe for proved reserves and $5.79/boe for 2P reserves in

2009 on a net capex program of $1.4 million. This is the 2


lowest figure we have seen to date, which means EPS should

remain near the top of its peer group.

4. Chesapeake Joint Venture To Lead The Way

Although Epsilon was able to reach close to 14 mmcf/d in

production by the end of 2009, it has made several dramatic

changes in 2010. Virtually all of the international assets are gone

and EPS’s fortunes in the near-term are in the hands of

Chesapeake Energy and the joint venture on the Highway 706

project in Pennsylvania. With as many as 35 gross wells to drill

over the next couple of years, EPS should benefit with a stable

production base of more than 30 mmcf/d by the end of 2011.

Conclusion and Recommendation

Epsilon has done a very commendable job of meeting various

production goals while maintaining strong financial flexibility over the

past year. We look for the initiation of drilling by Chesapeake and

additional EPS wells in the Bakken as potential catalysts in the next

few months. We maintain our


recommendation and our 12-

month target price of


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