Operating Segments

6 Months Ended

Jun. 30, 2021

11. Operating Segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as executive management. Segment performance is evaluated based on operating profit or loss as shown in the table below. Interest income and expense, and income taxes are managed separately on a group basis.

The Company’s reportable segments are as follows:

The Upstream segment activities include acquisition, development and production of oil, natural gas, and other liquid reserves on properties within the United States;

The Gas Gathering segment partners with two other companies to operate a natural gas gathering system; and

The Corporate segment activities include corporate listing and governance functions of the Company.

Segment activity as of, and for the six months ended June 30, 2021 and 2020 is as follows:


	Upstream		Gas Gathering		Corporate			Elimination		Consolidated
As of and for the six months ended June 30, 2021
Operating revenue
Natural gas	$	11,439,021	$	—	$	—		$	—	$	11,439,021
Natural gas liquids		98,150		—		—			—		98,150
Oil and condensate		140,738		—		—			—		140,738
Gathering and compression fees		—		4,623,548		—			(770,296)		3,853,252
Total operating revenue ⁽¹⁾	$	11,677,909	$	4,623,548	$	—		$	(770,296)	$	15,531,161

Net earnings (loss) for the period	$	5,684,536	$	2,751,860	$	(6,185,854)	⁽³⁾	$	—	$	2,250,542
Operating costs		3,378,327		1,134,790		—			(770,296)		3,742,821
Development geological and geophysical expenses		22,990		—		—			—		22,990
Depletion, deprec., amortization and accretion		2,592,056		736,898		—			—		3,328,954
Impairment		—		—		—			—		—

Segment assets	$	78,621,390	$	11,941,329	$	133,220		$	—	$	90,695,939
Capital expenditures ⁽²⁾		1,394,757		70,504		—			—		1,465,261
Proved properties (net)		34,531,736		—		—			—		34,531,736
Unproved properties (net)		21,557,121		—		—			—		21,557,121
Gathering system (net)		—		9,437,587		—			—		9,437,587
Other property and equipment (net)		964,435		—		—			—		964,435

As of and for the six months ended June 30, 2020
Operating revenue
Natural gas	$	7,896,104	$	—	$	—		$	—	$	7,896,104
Natural gas liquids		41,862		—		—			—		41,862
Oil and condensate		188,225		—		—			—		188,225
Gathering and compression fees		—		5,470,069		—			(889,627)		4,580,442
Total operating revenue⁽¹⁾	$	8,126,191	$	5,470,069	$	—		$	(889,627)	$	12,706,633

Net earnings (loss) for the period	$	(1,606,943)	$	2,478,161	$	(1,126,953)	⁽³⁾	$	—	$	(255,735)
Operating costs		4,081,887		1,067,107		—			(889,627)		4,259,367
Development geological and geophysical expenses		4,902		—		—			—		4,902
Depletion, deprec., amortization and accretion		3,886,345		1,105,801		—			—		4,992,146
Impairment		1,760,000		—		—			—		1,760,000
Bad Debt Expense		—		819,000		—			—		819,000

Segment assets	$	79,534,080	$	14,177,400	$	72,118		$	—	$	93,783,598
Capital expenditures ⁽²⁾		2,454,661		141,946		—			—		2,596,607
Proved properties (net)		38,208,022		—		—			—		38,208,022
Unproved properties (net)		21,175,910		—		—			—		21,175,910
Gathering system (net)		—		10,522,464		—			—		10,522,464
Other property and equipment (net)		725,584		—		—			—		725,584

(1)

Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the six months ended June 30, 2021 and 2020 have been eliminated upon consolidation. For the six months ended June 30, 2021, Epsilon sold natural gas to 25 unique customers. The two customers over 10% comprised 35% and 10% of total revenue. For the six months ended June 30, 2020, Epsilon sold natural gas to 18 unique customers. The three customers over 10% comprised 31%, 21%, and 21% of total revenue.

(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 and completion of the gathering and compression facility.

(3)

Segment reporting for net earnings for the period does not include non-monetary compensation, general and administrative expense, interest income, interest expense, both gains and (losses) on derivative contracts, or income tax amounts as they are managed on a group basis and are instead included in the corporate column for reconciliation purposes.

Segment activity for the three months ended June 30, 2021 and 2020 is as follows:


	Upstream			Gas Gathering		Corporate			Elimination		Consolidated
For the three months ended June 30, 2021
Operating revenue
Natural gas	$	5,106,922		$	—	$	—		$	—	$	5,106,922
Natural gas liquids		52,529			—		—			—		52,529
Oil and condensate		79,303			—		—			—		79,303
Gathering and compression fees		—			2,236,960		—			(385,865)		1,851,095
Total operating revenue	$	5,238,754	⁽¹⁾	$	2,236,960	$	—		$	(385,865)		7,089,849

Net earnings (loss) for the period	$	2,153,394		$	1,321,225	$	(3,959,644)	⁽³⁾		—	$	(485,025)
Operating costs		1,784,138			559,412		—			(385,865)		1,957,685
Development geological and geophysical expenses		11,451			—		—			—		11,451
Depletion, deprec., amortization and accretion		1,289,771			356,323		—			—		1,646,094
Bad debt expense		—			—		—			—		—

Capital expenditures⁽²⁾		480,317			57,220		—			—		537,537

For the three months ended June 30, 2020
Operating revenue
Natural gas	$	3,876,340		$	—	$	—		$	—	$	3,876,340
Natural gas liquids		10,204			—		—			—		10,204
Oil and condensate		128,503			—		—			—		128,503
Gathering and compression fees		—			2,733,931		—			(470,191)		2,263,740
Total operating revenue	$	4,015,047	⁽¹⁾	$	2,733,931	$	—		$	(470,191)		6,278,787

Net earnings (loss) for the period	$	(845,046)		$	1,610,968	$	(1,331,956)	⁽³⁾	$	—	$	(566,034)
Operating costs		2,034,120			549,893		—			(470,191)		2,113,822
Development geological and geophysical expenses		2,273			—		—			—		2,273
Depletion, deprec., amortization and accretion		2,004,700			573,070		—			—		2,577,770
Bad Debt Expense		819,000			—		—			—		819,000

Capital expenditures⁽²⁾		1,098,987			61,500		—			—		1,160,487

(1)

Segment operating revenue represents revenues generated from the operations of the segment. Inter-segment sales during the three months ended June 30, 2021 and 2020 have been eliminated upon consolidation. For the three months ended June 30, 2021, Epsilon sold natural gas to 23 unique customers. The four customers over 10% comprised 15%, 14%, 13%, and 11% of total revenue. For the three months ended June 30, 2020, Epsilon sold natural gas to 17 unique customers. The three customers over 10% comprised 39%, 28%, and 13% of total revenue.

(2)

(3)

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 31
-URI http://asc.fasb.org/extlink&oid=123359005&loc=d3e8924-108599

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
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-Name Accounting Standards Codification
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