CONCORD, ONTARIO--(Marketwire - March 21, 2013) - Epsilon Energy Ltd. ("Epsilon") (TSX:EPS) today reported its financial results for the fourth quarter and full-year ended December 31, 2012. Highlights for the year include:

• Record annual production of 14 billion cubic feet (Bcf);
• 102% increase in total proved reserves to 146 Bcf;
• Completed construction of Marcellus Pennsylvania midstream gas gathering system which generated $9 million in revenue in 2012;
• Adjusted EBITDA of $30 million in 2012 versus $5 million in 2011;
• Reduced operating costs to $0.91 per thousand cubic feet (Mcf), a 23% decrease from 2011; and
• Began operating multi-well oil development program in Alberta, Canada.

"In 2012 we harvested our Marcellus acreage position in Pennsylvania generating strong cash flow despite a challenging natural gas price environment," remarked Zoran Arandjelovic, Epsilon's Chairman, CEO and President. "The Marcellus drilling inventory and associated midstream system will continue to provide future growth opportunities with low reinvestment risk and strong rates of return. We will continue to focus on expansion of our Canadian oil development initiatives in 2013 and operatorship in Canada to fully exploit our sizable acreage position."

			Quarter Ended December 31,						Year Ended December 31,
			2012			2011			2012			2011
Natural gas sales ($000)			$	12,068		$	3,247		$	32,887		$	8,088
	Volume (Mmcf)			4,284			908			13,925			2,032
	Avg. Price ($/Mcf)		$	2.82		$	3.58		$	2.36		$	3.98
	Exit Rate (Mmcf/day)			40			18			40			18
Oil sales ($000)			$	147		$	518		$	962		$	838
	Volume (MBbl)			2.01			7.00			11.83			11.18
	Avg. Price ($/Bbl)		$	73.07		$	73.96		$	81.32		$	74.99
	Exit Rate (Bbl/day)			29			35			29			35
Midstream revenue ($000)			$	2,288		$	813		$	9,228		$	923
Total revenue			$	14,503		$	4,578		$	43,077		$	9,849

In 2012, revenues increased 337% compared to 2011, with fourth quarter revenues reaching the highest levels since inception. The increase in revenues was driven by a significant increase in natural gas production in the Marcellus and associated revenues from Epsilon's jointly owned gas gathering and compression system. The increase in production volume was offset by a $1.62 or 41% decrease in the realized price per Mcf of gas in 2012 versus 2011. Exiting 2012, Epsilon had five wells that were drilled, completed and waiting on pipe, and 18 wells that were drilled but not completed. These wells will be brought online throughout 2013.

Proved reserves as of December 31, 2012 increased to 146 Bcf, more than double the proved reserve estimate of 72 Bcf as of December 31, 2011. The 102% increase in proved reserves was based upon an evaluation performed by Epsilon's independent reserve engineering firm, Miller and Lents, Ltd. The average prices utilized to value the Company's estimated proved natural gas and oil reserves at December 31, 2012 were $3.54 per MMBtu for natural gas and $92.88 per barrel for oil, compared to $3.23 per MMBtu for natural gas and $98.93 per barrel for oil at December 31, 2011.

The increase in reserves was driven by successful drilling results, favorable production rates and better than anticipated decline rates in the Marcellus. Based upon production results in 2012, EUR's for Marcellus proved producing wells increased with several producing wells exceeding 10 Bcf per gross well. Proved undeveloped EUR's ranged from 5.5 to 7.5 Bcf per gross well at December 31, 2012, an increase from 4.9 Bcf per well in the prior year. The estimated number of potential well sites in the Marcellus also increased. The reserve estimates did not include any proved undeveloped or probable locations for the Upper Marcellus, Purcell Limestone or Utica Shale which are being drilled and tested by various operators in the region.

December 31, 2012 Net Reserves Summary ⁽¹⁾⁽²⁾

			Natural Gas		Oil		Total Gas Equivalent
			(Mmcf)		(MBbl)		(Mmcfe) (6:1)
Proved
	Developed producing		54,567		61		54,932
	Developed non-producing		7,602		-		7,602
	Undeveloped		84,055		-		84,055
Total Proved			146,224		61		146,588
Probable			21,748		69		22,161
Total Proved plus Probable			167,971		130		168,749

December 31, 2012 Net Present Value Summary ^(1)(2)(3)

			(in $000's)
Proved
	Developed producing	$	97,275
	Developed non-producing		13,537
	Undeveloped		69,470
Total Proved			180,281
Probable			12,004
Total Proved plus Probable		$	192,286

(1)	"Net" means the Company's reserves net of royalties
(2)	Forecast pricing based on NYMEX strip pricing as at December 31, 2012 then escalated 2%
(3)	Net present value before income taxes discounted at 10%

The net present value of the Company's Marcellus reserves include a deduction for gathering fees. Epsilon's wholly owned subsidiary, Epsilon Midstream, LLC, owns a 35% working interest in the associated gathering system. The gas gathering income for Epsilon Midstream, LLC is not accounted for in the reserve report.

The gas gathering system generated $9 million in revenue during 2012 exiting the year at a rate of 200 Mmcf/day. The midstream system began operating in September 2011 and construction of the compression facility was completed in July 2012 to reach compression capacity of 300 Mmcf/day with pipeline gathering capacity of 500 Mmcf/day.

The Company remains active in oil exploration activities in Canada. In September 2012, Epsilon entered into a joint venture agreement to earn a 50% interest in leasehold properties in Alberta, Canada. Epsilon, acting as operator, drilled its first well in late 2012 and two subsequent wells in February 2013. Epsilon is operating the project in the Pembina area of Central Alberta targeting Basal Belly River zone.

				Years ended December 31,
				2012				2011
Revenues:
	Oil & gas revenue			$	33,848,783			$	8,926,189
	Gas gathering & compression revenue				9,228,001				922,520
		Total revenue			43,076,784				9,848,709
Operating costs and expenses:
	Project operating costs				12,608,814				2,402,303
	Depletion, depreciation, amortization and accretion				23,712,504				4,957,092
	Impairment expense (recovery)				(2,834,810	)			42,784,980
	Stock based compensation				682,252				1,416,817
	General and administrative				2,930,057				2,334,715
		Total operating costs and expenses			37,098,817				53,895,907
Operating Income (Loss)					5,977,967				(44,047,198	)
Other income and expense:
	Gain on farmout agreement				-				49,026,755
	Interest income				95,552				50,497
	Finance Expense				(3,613,487	)			-
	Realized gain on commodity contracts				410,091				-
	Unrealized gain commodity contracts				1,988,065				-
	Gain (Loss) on sale of fixed assets				194				(114,310	)
		Net other income (expense)			(1,119,585	)			48,962,942
Deferred income tax (recovery) expense					8,988,046				(14,286,627	)
NET (LOSS) EARNINGS				$	(4,129,664	)		$	19,202,371
Net income (loss) per share, basic				$	(0.08	)		$	0.39
Net income (loss) per share, diluted				$	(0.08	)		$	0.38
Weighted average number of shares outstanding, basic					49,848,772				49,749,669
Weighted average number of shares outstanding, diluted					50,037,086				50,296,421

The Company generated a net loss of $4 million for the year ended December 31, 2012 as compared to net income of $19 million in 2011. During 2012 Epsilon recognized $9 million in income tax expense related to the Marcellus operations, versus a $14 million tax benefit during 2011. In addition, the 2011 results included a $49 million gain on the Chesapeake farm-out agreement, partially offset by a $43 million non-cash asset impairment due to low natural gas prices. Adjusted EBITDA, which excludes these items, was $30 million in 2012, a significant increase from $5 million in 2011.

The term Adjusted EBITDA consists of net income plus interest, taxes, depreciation, amortization, impairments and stock based compensation. Adjusted EBITDA deducts the gain on farm-out. Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation from or as a substitute for net income or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. Additionally, Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. Epsilon has included Adjusted EBITDA as a supplemental disclosure because its management believes that EBITDA provides useful information regarding our ability to service debt and to fund capital expenditures and provides investors a helpful measure for comparing its operating performance with the performance of other companies that have different financing and capital structures or tax rates. The following table sets forth a reconciliation of Adjusted EBITDA to net income, which is the most directly comparable measure of financial performance calculated under generally accepted accounting principles.

			Years ended December 31,
			2012				2011
Net Income (Loss)			$	(4,130	)		$	19,202
Add Back:
	Net interest expense			3,517				-
	Deferred income tax (recovery) provision			8,988				(14,286	)
	Depreciation, depletion, amortization, and accretion			23,713				4,957
	Stock based compensation			682				1,417
	Impairment expense (recovery)			(2,835	)			42,785
	Gain on farm-out agreement			-				(49,027	)
Adjusted EBITDA			$	29,935			$	5,048

Forward-Looking Statements

Certain statements contained in this news release constitute forward looking statements. The use of any of the words "anticipate", "continue", "estimate", "expect", 'may", "will", "project", "should", 'believe", and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements are based on reasonable assumption but no assurance can be given that these expectations will prove to be correct and the forward-looking statements included in this news release should not be unduly relied upon.

Special note for news distribution in the United States

The securities described in the news release have not been registered under the United Stated Securities Act of 1933, as amended, (the "1933 Act") or state securities laws. Any holder of these securities, by purchasing such securities, agrees for the benefit of Epsilon Energy Ltd. (the "Corporation") that such securities may not be offered, sold, or otherwise transferred only (A) to the Corporation or its affiliates; (B) outside the United States in accordance with applicable state laws and either (1) Rule 144(as) under the 1933 Act or (2) Rule 144 under the 1933 Act, if applicable.