Epsilon Energy Ltd. Revenue Disclosure
8. Revenue Recognition
Revenues are comprised primarily of sales of natural gas, oil and NGLs, along with the revenue generated from the Company’s ownership interest in the Auburn GGS in Pennsylvania.
Overall, product sales revenue generally is recorded in the month when contractual delivery obligations are satisfied, which occurs when control is transferred to the Company’s customers at delivery points based on contractual terms and conditions. In addition, gathering and compression revenue generally is recorded in the month when contractual service obligations are satisfied, which occurs as control of those services is transferred to the Company’s customers. 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, respectively, for the years ended December 31, 2025 and 2024.
The following table details revenue for the years ended December 31, 2025 and 2024:
Year Ended December 31, | ||||||
| 2025 | | 2024 | |||
Revenue | ||||||
Natural gas | $ | 29,121,446 | $ | 10,786,068 | ||
Natural gas liquids | 1,978,860 | 1,481,958 | ||||
Oil and condensate | 13,803,515 | 13,730,686 | ||||
Gathering and compression fees (1) | 6,683,735 | 5,524,063 | ||||
Total revenue | $ | 51,587,556 | $ | 31,522,775 | ||
Product Sales Revenue
The Company enters into contracts with third-party purchasers to sell its natural gas, oil, NGLs and condensate production. Under these product sales arrangements, the sale of each unit of product represents a distinct performance obligation. Product sales revenue is recognized at the point in time that control of the product transfers to the purchaser based on contractual terms which reflect prevailing commodity market prices. To the extent that marketing costs are incurred by the Company prior to the transfer of control of the product, those costs are included in lease operating expenses on the Company’s consolidated statements of operations and comprehensive income.
Settlement statements for product sales, and the related cash consideration, are generally received from the purchaser within 30 days. For operated production in Wyoming, cash consideration is typically received within 30 days after the end of a production month for oil, while natural gas and NGLs cash consideration is typically received within 60 days after the end of a production month. As a result, the Company must estimate the amount of production delivered to the customer and the consideration that will ultimately be received for sale of the natural gas, oil, NGLs, or condensate. Estimated revenue due to the Company is recorded within the receivables line item on the accompanying consolidated balance sheets until payment is received.
Gas Gathering and Compression Revenue
The Company also provides natural gas gathering and compression services through its ownership interest in the Auburn GGS in Pennsylvania. For the provision of gas gathering and compression services, the Company collects its share of the gathering and compression fees per unit of gas serviced and recognizes gathering revenue over time using an output method based on units of gas gathered.
The settlement statement from the operator of the Auburn GGS is received two months after transmission and compression has occurred. As a result, the Company must estimate the amount of production that was transmitted and compressed within the system. Estimated revenue due to the Company is recorded within the receivables line item on the accompanying consolidated balance sheets until payment is received.
Current Expected Credit Losses
Under ASU 326, Financial Instruments – Credit Losses, estimated losses on financial assets are provided through an allowance for credit losses. We also have accounts receivable which are primarily from purchasers of oil and natural gas, counterparties to our financial instruments, and revenues earned for compression and gathering services. Our oil, gas, and natural gas liquids accounts receivables are generally collected within 30 days after the end of the month. Compression and gathering receivables are generally collected within 60 days after the end of the month. We assess collectability through various procedures, including review of our trade receivable balances by counterparty, assessing economic events and conditions, our historical experience with counterparties, the counterparty’s financial condition and the amount and age of past due accounts. As of December 31, 2025 and 2024, we determined that our allowance for credit loss was nil.
The following table details accounts receivable as of December 31, 2025, 2024 and 2023:
| December 31, | | December 31, | | December 31, | ||||
2025 | 2024 | 2023 | |||||||
Accounts receivable | |||||||||
Natural gas and oil sales | $ | 10,848,263 | $ | 4,888,294 | $ | 4,327,886 | |||
Joint interest billing | 3,603,864 | — | 17,476 | ||||||
Gathering and compression fees | 1,307,947 | 918,471 | 1,543,239 | ||||||
Commodity contract | 167,636 | 36,957 | 72,075 | ||||||
Interest | — | — | 54,772 | ||||||
Other receivables | 204,791 | — | — | ||||||
Total accounts receivable | $ | 16,132,501 | $ | 5,843,722 | $ | 6,015,448 | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 27, 2026 | Showing above |
| 2024 | Mar 19, 2025 | |
| 2023 | Mar 21, 2024 | |
About Revenue Disclosures
Revenue disclosures under ASC 606 explain how a company identifies performance obligations, allocates transaction prices, and determines when revenue is recognized. This section is essential for understanding whether reported revenue reflects genuine economic activity or aggressive accounting choices. Analysts examine the mix of point-in-time versus over-time recognition, which directly affects revenue timing and comparability.
Key signals: rising contract liabilities (deferred revenue) suggest strong future revenue visibility, while declining contract assets may indicate slowing project milestones. Watch for variable consideration estimates — rebates, returns, and performance bonuses that require management judgment. Significant changes in disaggregated revenue by geography or product line can reveal shifting business mix before it appears in headline numbers. Compare revenue growth against contract liability growth to assess sustainability, and scrutinize any changes in the timing of recognition that coincide with earnings pressure.