Epsilon Energy Ltd. Segments Disclosure
14. Operating Segments
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (CODM). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as executive management consisting of the Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer. The CODM uses the Company’s consolidated financial results, including operating income or loss by segment, to make key operating decisions, assess performance, and to allocate resources. Segment performance is evaluated based on operating income or loss as shown in the table below. Interest income and income taxes are managed separately on a group basis.
The Company’s reportable segments are as follows:
| a. | The Upstream segment activities include acquisition, development and production of natural gas and oil reserves on properties within the United States and Canada; and |
| b. | The Gas Gathering segment partners with two other companies to operate a natural gas gathering system. |
Segment activity as of, and for the years ended December 31, 2025 and 2024 is as follows:
| Upstream | | Gas Gathering | | Total | ||||
As of and for the year ended December 31, 2025 | |||||||||
Operating revenue | |||||||||
Natural gas | $ | 29,121,446 | $ | — | $ | 29,121,446 | |||
Natural gas liquids | 1,978,860 | — | 1,978,860 | ||||||
Oil and condensate | 13,803,515 | — | 13,803,515 | ||||||
Gathering and compression fees | — | 6,683,735 | 6,683,735 | ||||||
Intersegment gathering and compression fees | — | 1,864,769 | 1,864,769 | ||||||
44,903,821 | 8,548,504 | 53,452,325 | |||||||
Reconciliation of operating revenue | |||||||||
Elimination of intersegment revenues | (1,864,769) | ||||||||
Total consolidated operating revenue(1)(3) | 51,587,556 | ||||||||
Operating costs | |||||||||
Gathering, transportation, and compression | 7,836,882 | — | 7,836,882 | ||||||
Other lease operating expense | 4,681,443 | — | 4,681,443 | ||||||
Gathering system operating expenses | — | 2,362,036 | 2,362,036 | ||||||
Intersegment other lease operating expense | 1,864,769 | — | 1,864,769 | ||||||
Impairment | 3,936,669 | — | 3,936,669 | ||||||
Loss on sale of oil and gas properties | 19,256,530 | — | 19,256,530 | ||||||
Depletion, depreciation, amortization and accretion | 11,139,747 | 1,030,573 | 12,170,320 | ||||||
Segment operating (loss) income | $ | (3,812,219) | $ | 5,155,895 | $ | (521,093) | |||
Reconciliation of segment operating loss | |||||||||
Salary expense | (3,876,611) | ||||||||
Stock based compensation | (1,744,917) | ||||||||
Transaction costs | (2,947,907) | ||||||||
Other general and administrative | (3,291,624) | ||||||||
Elimination of intersegment other lease operating expenses | 1,864,769 | ||||||||
Interest income | 188,369 | ||||||||
Interest expense | (624,160) | ||||||||
Gain on derivative contracts | 5,500,486 | ||||||||
Other income | 16,556 | ||||||||
Net loss before income tax expense | $ | (5,436,132) | |||||||
Capital expenditures (2) | $ | 14,374,208 | $ | 465,203 | $ | 14,839,411 | |||
Segment assets (3) | $ | 181,251,460 | $ | 6,068,250 | $ | 187,319,710 | |||
Total segment assets reconciled to consolidated amounts are as follows: | |||||||||
Total segment assets | $ | 187,319,710 | |||||||
Current assets, net | 32,583,778 | ||||||||
Fair value of derivatives, long term | 1,154,936 | ||||||||
Other property and equipment | 5,364,697 | ||||||||
Operating lease right-of-use asset | 488,949 | ||||||||
Credit facility fees | 774,347 | ||||||||
Restricted Cash | 553,000 | ||||||||
Total assets | $ | 228,239,417 | |||||||
| Upstream | | Gas Gathering | | Total | ||||
As of and for the year ended December 31, 2024 | |||||||||
Operating revenue | |||||||||
Natural gas | $ | 10,786,068 | $ | — | $ | 10,786,068 | |||
Natural gas liquids | 1,481,958 | — | 1,481,958 | ||||||
Oil and condensate | 13,730,686 | — | 13,730,686 | ||||||
Gathering and compression fees | — | 5,524,063 | 5,524,063 | ||||||
Intersegment gathering and compression fees | — | 1,135,176 | 1,135,176 | ||||||
25,998,712 | 6,659,239 | 32,657,951 | |||||||
Reconciliation of operating revenue | |||||||||
Elimination of intersegment revenues | (1,135,176) | ||||||||
Total consolidated operating revenue(1)(3) | 31,522,775 | ||||||||
Operating costs | |||||||||
Gathering, transportation, and compression | 4,996,764 | — | 4,996,764 | ||||||
Other lease operating expense | 2,268,060 | — | 2,268,060 | ||||||
Gathering system operating expenses | — | 2,265,190 | 2,265,190 | ||||||
Intersegment other lease operating expense | 1,135,176 | — | 1,135,176 | ||||||
Impairment | 1,450,076 | — | 1,450,076 | ||||||
Depletion, depreciation, amortization and accretion | 9,275,604 | 909,515 | 10,185,119 | ||||||
Segment operating income | $ | 6,873,032 | $ | 3,484,534 | $ | 9,222,390 | |||
Reconciliation of segment operating income | |||||||||
Salary expense | (2,815,428) | ||||||||
Stock based compensation | (1,244,416) | ||||||||
Other general and administrative | (2,873,286) | ||||||||
Elimination of intersegment other lease operating expenses | 1,135,176 | ||||||||
Interest income | 493,277 | ||||||||
Interest expense | (46,400) | ||||||||
Loss on derivative contracts | (391,147) | ||||||||
Other income | 76,727 | ||||||||
Net income before income tax expense | $ | 3,556,893 | |||||||
Capital expenditures (2) | $ | 36,219,444 | $ | 341,452 | $ | 36,560,896 | |||
Segment assets (3) | $ | 97,944,718 | $ | 6,666,860 | $ | 104,611,578 | |||
Total segment assets reconciled to consolidated amounts are as follows: | |||||||||
Total segment assets | $ | 104,611,578 | |||||||
Current assets, net | 14,131,519 | ||||||||
Other property and equipment | 897,099 | ||||||||
Operating lease right-of-use asset | 344,589 | ||||||||
Restricted cash | 470,000 | ||||||||
Total assets | $ | 120,454,785 | |||||||
| (1) | Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the years ended December 31, 2025 and 2024 have been eliminated upon consolidation. For the year ended December 31, 2025, three purchasers each accounted for 10% or more of our total revenue: ARM Energy (55%) and Ares Energy (20%) from the upstream segment and Williams (17%) from the gas gathering segment. For the year ended December 31, 2024, three purchasers each accounted for 10% or more of our total revenue: ARM Energy (30%) and Ares Energy (38%) from the upstream segment and Williams (20%) from the gas gathering segment. |
| (2) | Capital expenditures for the Upstream segment consist primarily of the acquisition of properties, and the drilling and completing of wells while Gas Gathering consists of expenditures relating to the expansion, completion, and maintenance of the gathering and compression facility. |
| (3) | Our upstream segment includes Canadian revenue and assets for the year ended December 31, 2025 of $1.0 million and $6.6 million, respectively. Our upstream segment includes Canadian revenue and assets for the year ended December 31, 2024 of $0.1 million and $3.7 million, respectively. |
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 27, 2026 | Showing above |
| 2024 | Mar 19, 2025 | |
| 2023 | Mar 21, 2024 | |
About Segments Disclosures
Segment disclosures break a company into its reportable operating units, revealing revenue, profit, and asset allocation that consolidated financial statements obscure. Under ASC 280, segments must match how the chief operating decision maker views the business, providing a window into internal management structure and resource allocation priorities.
Key signals: compare segment margins to identify which units drive profitability and which destroy value. Watch for changes in the number of reportable segments — segment aggregation or disaggregation often coincides with strategic shifts or attempts to obscure declining performance. Intersegment elimination patterns reveal internal pricing practices. The reconciliation between segment totals and consolidated figures exposes corporate overhead allocation and unallocated items. Geographic revenue concentration highlights regulatory and currency exposure. Compare segment-level capital expenditure against segment revenue to assess where management is investing for future growth versus harvesting existing assets.