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Commodity Risk Management Activities

6 Months Ended

Jun. 30, 2025

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Commodity Risk Management Activities

15. Commodity Risk Management Activities

Commodity Price Risks

Epsilon engages in price risk management activities from time to time. These activities are intended to manage Epsilon’s exposure to fluctuations in commodity prices for natural gas and oil by securing derivative contracts for a portion of expected sales volumes.

Inherent in the Company’s fixed price contracts, are certain business risks, including market risk and credit risk. Market risk is the risk that the price of oil and natural gas will change, either favorably or unfavorably, in response to changing market conditions. Credit risk is the risk of loss from nonperformance by the Company’s counterparty to a contract. The Company does not currently require collateral from any of its counterparties nor do its counterparties currently require collateral from the Company.

The Company enters into certain commodity derivative instruments to mitigate commodity price risk associated with a portion of its future natural gas and oil production and related cash flows. The natural gas and oil revenues and cash flows are affected by changes in commodity product prices, which are volatile and cannot be accurately predicted. The objective for holding these commodity derivatives is to protect the operating revenues and cash flows related to a portion of the future natural gas and oil sales from the risk of significant declines in commodity prices, which helps ensure the Company’s ability to fund the capital budget.

Epsilon has historically elected not to designate any of its financial commodity derivative contracts as accounting hedges and, accordingly, accounts for these financial commodity derivative contracts using the mark-to-market accounting method. Under this accounting method, changes in the fair value of outstanding financial instruments are recognized as gains or losses in the period of change and are recorded as Loss on derivative contracts on the condensed Consolidated Statements of Operations and Comprehensive Income. The related cash flow impact is reflected in cash flows from operating activities. During the three and six months ended June 30, 2025, Epsilon recognized gains on commodity derivative contracts of $2,573,863 and $1,111,693, respectively. These amounts included cash received of $306,660 and cash paid of $108,383 on settlements on these contracts, respectively. For the three and six months ended June 30, 2024, Epsilon recognized losses on commodity derivative contracts of $94,891 and $195,617, respectively. These amounts included cash received on settlements on these contracts of $272,257 and $760,542, respectively.

Commodity Derivative Contracts

At June 30, 2025, the Company had outstanding natural gas NYMEX Henry Hub (“HH”) swaps totaling 2.67 Bcf, natural gas Tennessee Z4 basis swaps totaling 0.78 Bcf, natural gas NYMEX HH options totaling 0.93 Bcf, and crude oil NYMEX WTI CMA swaps totaling 40 MBbls.

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​	​	​	​	​	​	​
​	​	Fair Value of Derivative  Assets
​		June 30,			December 31,
​	​	2025		​	2024
Current		​			​
Henry Hub Nymex Swap		$	322,385	​	$	151,274
Tennessee Z4 Basis swap		​	351,769	​	​	195,211
Henry Hub Nymex Option - Put		​	181,254	​	​	—
Crude Oil NYMEX WTI CMA	​	​	263,462	​	​	56,547
Long-term			​	​	​	​
Henry Hub Nymex Swap	​	​	7,225	​	​	—
Henry Hub Nymex Option - Put		​	222,199	​	​	—
​		$	1,348,294	​	$	403,032

​

​	​	​	​	​	​	​
​	​	Fair Value of Derivative  Liabilities
​		June 30,			December 31,
​	​	2025		​	2024
Current		​			​
Henry Hub Nymex Swap		$	(264,965)	​	$	(448,852)
Tennessee Z4 Basis swap		​	—	​	​	(441,728)
Henry Hub Nymex Option - Call	​	​	(105,437)	​	​	—
Long-term			​	​	​	​
Henry Hub Nymex Swap		​	(51,406)	​	​	—
Henry Hub Nymex Option - Call		​	(193,958)	​	​	—
​		$	(615,766)	​	$	(890,580)
​	​	​	​	​	​	​
Net Fair Value of Derivatives		$	732,528	​	$	(487,548)

​

The following table presents the changes in the fair value of Epsilon’s commodity derivatives for the periods indicated:

​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Three months ended June 30,					​	Six months ended June 30,
​		2025			2024			2025			2024
Fair value of (liability) asset, beginning of the period	​	$	(1,534,675)	​	$	511,244	​	$	(487,548)	​	$	1,100,255
Gain/(loss) on derivative contracts included in earnings	​		2,573,863	​		(94,891)	​		1,111,693	​		(195,617)
Settlement of commodity derivative contracts	​		(306,660)	​		(272,257)	​		108,383	​		(760,542)
Fair value of asset, end of the period	​	$	732,528	​	$	144,096	​	$	732,528	​	$	144,096

​

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- References

No definition available.

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- Definition

The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 815
-SubTopic 40
-Name Accounting Standards Codification
-Section 50
-Paragraph 5
-Subparagraph (f)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147480237/815-40-50-5

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 815
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 5C
-Subparagraph (b)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147480434/815-10-50-5C

Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef
-Topic 815
-Name Accounting Standards Codification
-Publisher FASB
-URI https://asc.fasb.org/815/tableOfContent

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