Ladies and gentlemen, thank you for standing by. Welcome to the Epsilon Third Quarter 2022 Conference Call. During today's call, all parties will be in a listen-only mode. Following the company's prepared remarks, the call will be open for questions-and-answers. This conference is being recorded, and a replay will be made available on the company's website following the call. I would now like to turn the conference over to Andrew Williamson, Epsilon's Chief Financial Officer.

Thank you, operator, and on behalf of the management team, I'd like to welcome all of you to today's conference call to review Epsilon's third quarter 2022 financial and operating results. Before we begin, I'd like to remind you that our comments may include forward-looking statements. It should be noted that a variety of factors could cause Epsilon's actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. Today's call will also contain certain non-GAAP financial measures. Please refer to the earnings release that we issued yesterday for disclosures on forward-looking statements and reconciliations of non-GAAP measures. With that, I'd like to turn the call over to Jason Stabell, our Chief Executive Officer.

Thank you, Andrew. Good day to everyone. And thank you for joining us for our third quarter 2022 conference call. Joining me today are Andrew Williamson, our CFO, and Henry Clanton, our COO. We will be available to answer questions later in the call. I am pleased to report that we delivered record financial results in the third quarter of 2022 and expect a strong finish to the year. In short, the company is in a good position as we enter 2023. Here are some key highlights from the third quarter. We maintained net revenue interest production quarter-on-quarter at 27.6 MMcfe/d. We generated net income of $9.6 million or $0.41 per diluted share and adjusted EBITDA grew 6% quarter-over-quarter to $16.5 million. We continued to produce meaningful free cash flow with $11.2 million in the quarter. Both adjusted EBITDA and free cash flow have grown considerably in 2022. Year-to-date, we have totaled $41.5 million in adjusted EBITDA, up 173% from the same period last year, and $26 million in free cash flow, up 189% over the same period last year. We increased cash at quarter-end to $40.8 million, up 32% from the prior quarter, representing almost $1.80 per share. We have a debt-free balance sheet with a growing cash position, which has allowed us to return $3.1 million to shareholders in the third quarter and $10.7 million year-to-date through quarterly dividends and share repurchases. We have maintained positive momentum, no small part due to the ability of our technical and finance teams to execute at a high level. They have welcomed Andrew and me to the team, and we thank them for all their efforts. As a reminder, we are largely unhedged and have been able to fully capitalize on the higher commodity pricing we have seen throughout 2022. In the third quarter, our average realized price was $7.54/Mcfe. Our third quarter production of 27.6 MMcfe/d was up slightly from the prior quarter. The combination of sustained production and continued strong pricing contributed to our outstanding results. Through the first nine months of the year, we have generated more adjusted EBITDA, $41.5 million, than the full years of 2020 and 2021 combined, which was $39.8 million. During the same period, our free cash flow of $26 million was almost three times greater than the free cash flow generated in the first nine months of 2021. We are clearly in a much stronger financial position today, and we remain focused on delivering solid results. Moving on to our assets, in mid-August, the Koromlan 107HC well came online. The well has produced above our pre-drill estimates with cumulative gross production of over 3.9 Bcf in less than three months. We have an approximate 16% net revenue interest in the well. The Koromlan is a long lateral nearly 14,000 feet, completed in the lower Marcellus, and demonstrates the potential of our Auburn area drilling inventory. In the third quarter, we incurred $1.6 million in capital expenditures. We are not forecasting any material capital expenditures in the fourth quarter. While we do not operate, we will continue to try to work with the operator to drill the highly economic inventory in our portfolio. In addition to our upstream assets, we also have an interest in the Auburn Gas Gathering System. This important strategic asset provides us with a steady stream of revenue and cash flow that underpins our dividend to shareholders. In the third quarter, the Auburn Gas Gathering System delivered 16 Bcf gross of natural gas. This was down slightly compared to the prior quarter, but the mix between primary and cross-flow volume shifted, which resulted in marginally higher revenue for the quarter, despite the lower overall throughput. Supported by our strong balance sheet, we're evaluating potential opportunities outside of our existing asset base. As of September 30, 2022, we had available liquidity of approximately $55 million comprised of $41 million in cash and $14 million of undrawn borrowing availability under our revolving credit facility that has a total commitment of up to $100 million. As we look ahead to 2023, we are positioned for continued success in a variety of commodity price environments and expect to continue to generate free cash flows from our existing assets. Our cash and liquidity position provide meaningful flexibility to pursue attractive acquisitions in our current area of focus in Appalachia. Our deep knowledge and long history in the basin, coupled with our strong balance sheet, distinguish us from many small to mid-sized companies. We are poised to execute on attractive opportunities, and we believe that our ability to quickly evaluate and execute within our focus area is a key pillar to our future success. We are excited about the future and remain focused on creating value for our shareholders. These efforts include continued shareholder returns through dividends, pursuing organic and inorganic opportunities, and better highlighting the attractive value proposition of our shares to the investment community. Operator, we can now open the line for questions.

The first question is from Tom McIntyre with MFS. Please go ahead.

Yes, good morning. Thanks for having the call. I think that's a nice sign to investors with the new management team, so I appreciate it. Simple question, the press release made reference to disclosing or talking about material subsequent matters. But I don't really see any of those things in the press release or really mentioned this morning. So what were you getting at when you put that kind of language into the press release? I thought it might be the capital allocation goals or plans or something, but I didn't really see anything there?

Tom, thank you. This is Jason Stabell. Thanks for taking the time to join the call. That was just the normal disclosure language we don't have any material subsequent news to report.

Yes, no that was my impression too.

Sorry for that.

I read three times. I said I must be missing something, well, usually people don't say they're reporting on something and then don't say anything about it, but anyway. So with that aside, do you have anything to say about because with the cash building and it seems like it's going to build some more in the fourth quarter or at least as much as the build in the third quarter maybe not? I don't know, there was nothing mentioned either about replenishing the buyback or anything being done with the dividend and what are your thoughts on that as you become debt-free? So you're not a bank, so what are your thoughts on that?

Well, thanks for the question. We will continue each quarter to evaluate the dividend we put in place a dividend that we think is sustainable. So I wouldn't suspect big changes there. In terms of buybacks, we still have authority on our existing buyback program of several hundred thousand shares. My personal view on that is we will use the buyback opportunistically; I think it's a lever for us in some ways. It can work against what we're trying to accomplish, which is increased liquidity of our stock. However, as you've seen in the second and third quarters, we are willing to step in and make purchases of our stock at attractive points. And then, thirdly, I think when we look at our opportunity set. One of the great advantages that I think we can create over time is building cash in an environment where cash and the cost of capital is increasing. We like putting the cash on our balance sheet and being a credible counterparty for opportunities that may come and present themselves here over the near to medium term.

Yes, and I can't argue with where that has served you well in the past. So I'm not going to argue about that today. So I just was wondering if there's usually - you've had a long history of buying back shares, and then you replenish it. And there was no mention, and you said several hundred thousand? I don't know, what is the exact dollar amount? What is the exact authorization still like? I don't know that?

219,000 shares.

So about $1.57 million.

You said it right.

Yes, okay. And you mentioned thinking about the Marcellus/Utica. I guess the question is, would you have - I mean you're small, small. So it's not probably a big issue, but you would address it before you did anything. But take out pipeline, getting it out of the region - I mean, is that an issue for that one, as opposed to? I was expecting more of an update, perhaps on your Oklahoma drilling and thoughts down there, but you guys know your business, not me?

Sure, so just so I understand the question, are you asking about takeaway?

Yes, that's been the bugaboo about the Marcellus. And then you had this is like the first time in several quarters where you've - there's been no reference to the drilling results or plans, even though there's been some hints in the past about your Oklahoma venture. And if you're going to be weighing where to put money, I would think you'd be weighing the two different basins there?

Sure, Oklahoma's is in the portfolio. So it's certainly something that we're considering for capital allocation. It is sensitive to cost inflation on the service side, and it is price sensitive. So we're working with our partner there, a private entity named Comanche, to evaluate what inventory we will be addressing in 2023. Those plans haven't yet been finalized, and when and if they are, we'll certainly report them to the market. On the takeaway issue, it has been well publicized in the Marcellus that there are takeaway constraints. We do have the advantage of being a smaller player. So our volumes, we do take them in kind and market them, and we have not had an issue. We're a price taker. But we try to optimize our realized prices through our marketing efforts. Our actual ownership in Auburn is it's a gathering system that feeds ultimately into the Tennessee pipeline system. So our gathering system has adequate capacity for any additional activity, and in Tennessee, it's a seasonal issue. In terms of takeaway capacity as we get into winter, and in-basin demand and Northeastern demand kick in, you're going to see a lot more draw there in October and November. Obviously, we're in the shoulder seasons where you can have issues. We saw them and Waha was well with maintenance where lines do get backed up because of the demand reductions. So, weather is going to drive things here in the next couple of weeks coming out of the basin. Hopefully that answers your question.

Yes, it does and I appreciate the time and like I said, I am glad to see you communicating with the shareholders a little bit here starting with the new management team. So good luck with your efforts.

Thank you, Tom. Appreciate it.

The next question is from Nat Stewart with N.a.s. Capital. Please go ahead.

Hi Jason, I just had a few questions for you. I thought that was great news about the Koromlan well on being above expectations. I think it really highlights the quality of your position there. I was just curious, have you gotten a real feel for what the prospects are for working with the operator, perhaps improving the relationship there? Perhaps to, if not increased, do more to maintain production there. Obviously, that seems like you have a great inventory that could generate a lot of cash?

Yes, thanks for joining and thanks for the question. Yes, we're excited about the Koromlan results. And you're right, they do speak to the quality of our inventory. As far as our discussions with the operator, as you know, we've been of the position that we'd love to increase the investment; we are not the operator there. So we're afforded the opportunity to reach out and communicate to them our views on capital allocation. They have a larger portfolio over which they're making decisions. So what I'll say on that is, we're a new management team, and we're trying to improve and reset the communication there. Our hope is that we'll have some success. I think it's too early yet to know what fruit will be born there.

Great. Now, in terms of just a follow-up question about the opportunities you're looking at, when I look in, I think many investors look at natural gas-oriented companies today that are publicly traded, the shares seem pretty cheap, even at substantially lower gas prices. Are you able to get a feel for how the private market might be pricing potential deals or acquisitions? Is it at this type of discount as well? And have you been able to assess that environment in terms of how favorable it is right now, relative to say, the public market or whatnot?

Good question, we're just really kicking off our business development efforts in that regard. So what should I say on that? When you have an environment where prices have moved as dramatically as they have on the gas side, I think that can create less financial stress or maybe more uncertainty around a bid-ask spread and transaction. So we're a little bit wait-and-see. I do think there are some opportunities in our focus area in the Northeast. When you think about that area, there have been some very large consolidators; we know the names, three or four very large public companies. Our view is that sitting below those, there are a number of opportunities that sit in private hands that I think we could have a decent chance to pursue transactions with. So I'm not sure if that gives you enough detail, but let me know if you need any.

Sure, yes, that's good. And it does know if I interpreted it correctly. And I could be wrong. It seems like perhaps the focus is really in the Northeast, at least for now. Is Oklahoma something you'd consider divesting, or has that not been considered, or is that just it seems like you're content with what's going on there?

So with any new management team, you come in, and you try to get your arms around the portfolio, I think the Oklahoma portfolio is one where we've allocated some capital. As I mentioned in the previous question, it is a bit more sensitive to cost and commodity. So it's something that I think we'd evaluate further investment there. I think we'd also evaluate the potential divestment; it’s something as we think about our portfolio that is going to depend on the opportunities that we identify in the Northeast and whether Oklahoma continues to make sense for us or not. At this point, I'm not in a position to say yes or no on that, Nat.

Okay, well, that sounds great guys, and good luck, and I'm really excited about the future here.

I appreciate the question, thanks, and your interest.

This concludes our question-and-answer session. I would like to turn the conference back over to Jason Stabell for any closing remarks.

Thank you, Gary. I would also like to thank all those joining today for their interest in Epsilon and our Board and team members for their support and hard work. Again, I hope it's clear from our remarks today that we are excited about the prospects for the company and believe that Epsilon is well positioned to create meaningful value for our shareholders. Finally, let me reiterate that we believe Epsilon is differentiated by the combination of a strong debt-free balance sheet, unhedged commodity exposure, and regional focus. We look forward to updating you on our progress in the coming quarters as we implement our plans and raise investor awareness. Hope you all have a great weekend. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.