HOUSTON, TEXAS--(Marketwired - March 10, 2017) - Epsilon Energy Ltd. ("Epsilon") (TSX:EPS) today reported its financial results for the fourth quarter and full-year ended December 31, 2016.

Mr. Michael Raleigh, Chief Executive Officer, commented, "We remain optimistic on medium-term realized natural gas pricing, as evidenced over the past several quarters where subdued producer activity, flat gas supply and increasing interstate pipeline capacity has improved Marcellus gas price netbacks. During the fourth quarter, Epsilon's realized natural gas price was $1.70 per Mcf, a 35% increase from the third quarter and a 62% increase from the fourth quarter of 2015. Subsequent to year end, Epsilon's realized natural gas prices have continued to improve despite the very mild winter weather conditions and associated natural gas storage inventories. The FERC certification in early 2017 of seven interstate pipeline projects concentrated in the eastern half of the United States reaffirms our confidence for continued narrowing of price differentials over the medium-term. These projects include 1,500 miles of new construction and expansion and with capacity exceeding 7 Bcf/d."

Highlights for the year and material subsequent events following the end of the quarter through the date of this release include:

• Maintained a strong balance sheet with cash balance of approximately $18 million throughout 2016.
• Purchased and retired just over 380,000 shares of stock at an average price of Cdn$2.86 per share.
• Purchased and retired Cdn$0.5 million of convertible debentures. Subsequent to year end, approximately $40 million principal amount of convertible debentures were redeemed .
• Upstream EBITDA of $6.6 million and Midstream EBITDA of $7.7 million for the year ($2.7 million and $2.0 million respectively for the quarter).
• Total 2016 production of 11 Bcf, as compared to 9 Bcf in 2015.
• Marcellus working interest (WI) gas averaged 36 MMcf/d for the fourth quarter of 2016. Working interest gas production as of this release is approximately 32 MMcf/d.
• Gathered and delivered 88.2 Bcf gross (30.9 Bcf net to Epsilon's interest) during the year, or 242 MMcf/d through the Auburn System which represents approximately 73% of maximum throughput.
• Gathered and delivered 22.7 Bcf gross (7.9 Bcf net to Epsilon's interest) during the fourth quarter of 2016. Midstream system throughput from year end through February averaged 286 MMcf/d.

Financial and Operating Results

				Three months ended December 31,						Twelve months ended December 31,
				2016			2015			2016			2015
Revenue By Product - Total Period ($000)
	Natural gas revenue ($000)			$	5,047		$	2,215		$	15,263		$	11,266
		Volume (MMCF)			2,969			2,102			11,016			9,343
		Avg. Price ($/MCF)		$	1.70		$	1.05		$	1.39		$	1.21
		Exit Rate (MMCFPD)			32.5			20.3			32.5			20.3
	Oil revenue ($000)			$	-		$	2		$	-		$	3
		Volume (MBO)			-			1			-			3
		Avg. Price ($/Bbl)		$	-		$	40.22		$	-		$	45.92
	Midstream gathering system revenue ($000)			$	2,570		$	2,421		$	10,133		$	12,561
	Total			$	7,617		$	4,638		$	25,396		$	23,830

Capital Expenditures

Epsilon's total capital expenditures were $0.3 million for the year ended December 31, 2016. All capital was allocated to the ongoing build-out and maintenance of the Auburn Gas Gathering system.

Epsilon plans capital expenditures of $1 million for 2017 in the Marcellus. Of this, $0.5 million is budgeted for the ongoing development of the midstream system and $0.5 million for anticipated upstream maintenance capital and the completion of 4 gross (0.09 net) previously drilled wells. The upstream budget is discretionary and will be driven by natural gas prices and management's elected pace of proving Upper Marcellus resource on Epsilon's leasehold.

Subsequent to year end, the Company signed an agreement with an undisclosed seller to acquire a strategic position in the Anadarko Basin from which Epsilon is proposing to build into a material oil and gas business. This first acquisition includes operated undeveloped acreage with minor associated production. The acquisition is subject to customary due diligence and is anticipated to close during the second quarter of 2017. Strategically, Epsilon is envisioning two growth platforms, the Marcellus and the Anadarko Basin, where it will create value for shareholders through oil and gas development activities. Additional announcements will be provided following the completion of the transaction process. The Company will fund the acquisition with operating cash.

In conjunction with this continuing acquisition process, the Company is pleased to announce that Henry N. Clanton has joined the Company as its Chief Operating Officer. Mr. Clanton is an industry veteran with over 30 years of experience in the upstream E&P sector. His experience includes financial and technical management over all phases of drilling, completions, production and field operations. He joins Epsilon after having spent 14 years with a private E&P start-up which he co-founded and served as a Managing Partner. Previous to that time Mr. Clanton worked with Schlumberger, ARCO Permian, and Coastal Management Corporation. He holds a MBA and a BS in Petroleum Engineering from Texas A&M University. Initially, Mr. Clanton will take a lead role in the Company's plans to acquire and grow operated positions in the Marcellus and Anadarko Basin.

Marcellus Operational Guidance

The Operator drilled 2 gross (.01 net) upper Marcellus wells during the quarter. The table below details Epsilon's well development status at December 31, 2016:

		Sept 30, 2016				Dec 31, 2016
		Gross		Net		Gross		Net
Producing		91		24.11		91		24.11
Shut-in		-		-		-		-
Waiting on pipeline		-		-		-		-
Waiting on completion		7		0.12		9		0.13
Drilling		-		-		-		-

Epsilon has not received any well proposals from the Operator subsequent to quarter end.

Fourth Quarter Results

Epsilon generated revenues of $7.6 million for the three months ended December 31, 2016 compared to $4.6 million for the three months ended December 31, 2015. The Company's Marcellus net revenue interest production was 3.0 Bcf in the fourth quarter.

Realized natural gas prices averaged $1.70 per Mcf in the fourth quarter of 2016. Operating expenses for Marcellus Upstream operations in the fourth quarter were $1.8 million.

The Auburn Gas Gathering system delivered 22.7 Bcf of natural gas during the quarter as compared to 24.8 Bcf during the third quarter of 2016. Primary gathering volumes increased 3.6% quarter over quarter to 13.8 Bcf. Imported cross-flow volumes decreased 22.8% to 8.9 Bcf.

Epsilon reported net after tax loss of $0.1 million attributable to common shareholders or ($0.00) per basic and diluted common shares outstanding for the three months ended December 31, 2016, compared to net loss of $15.6 million, and $(0.34) per basic and diluted common shares outstanding for the three months ended December 31, 2015.

For the three months ended December 31, 2016, Epsilon's Adjusted Earnings Before Interest, Income Taxes, Depreciation, Amortization ("Adjusted EBITDA") was $4.7 million as compared to $1.6 million for the three months ended December 31, 2015. The increase in Adjusted EBITDA was primarily due to increased production and higher natural gas prices.

Adjusted EBITDA

Epsilon defines Adjusted EBITDA as earnings before (1) net interest expense, (2) depreciation, depletion and amortization expense, (3) recovery of prior impairments of oil and gas properties, (4) non-cash stock compensation expense, (5) unrealized gain on derivatives and (6) other income. Adjusted EBITDA is not a measure of net income or cash flows as determined by IFRS.

Management believes these non-IFRS financial measures facilitate evaluation of the Company's business on a "normalized" or recurring basis and without giving effect to certain non-cash expenses and other items, thereby providing management, investors and analysts with comparative information for evaluating the Company in relation to other oil and gas companies providing corresponding non-IFRS financial measures. These non-IFRS financial measures should be considered in addition to, but not as a substitute for, measures for financial performance prepared in accordance with IFRS, and that the reconciliations to the closest corresponding IFRS measure should be reviewed carefully.

About Epsilon

Epsilon Energy Ltd. is a North American natural gas development, production and midstream company with a current focus on the Marcellus Shale of Pennsylvania.

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.

The reserves and associated future net revenue information set forth in this news release are estimates only. In general, estimates of oil and natural gas reserves and the future net revenue therefrom are based upon a number of variable factors and assumptions, such as production rates, ultimate reserves recovery, timing and amount of capital expenditures, ability to transport production, marketability of oil and natural gas, royalty rates, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary materially from actual results. For those reasons, estimates of the oil and natural gas reserves attributable to any particular group of properties, as well as the classification of such reserves and estimates of future net revenues associated with such reserves prepared by different engineers (or by the same engineers at different times) may vary. The actual reserves of the Company may be greater or less than those calculated. In addition, the Company's actual production, revenues, development and operating expenditures will vary from estimates thereof and such variations could be material.

Statements relating to "reserves" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in the future. There is no assurance that forecast price and cost assumptions will be attained and variances could be material.

Proved reserves are those reserves which are most certain to be recovered. There is at least a 90% probability that the quantities actually recovered will equal or exceed the estimated proved reserves. Undeveloped reserves are those reserves expected to be recovered from known accumulations where a significant expenditure (for example, when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves classification (proved, probable) to which they are assigned. Proved undeveloped reserves are those reserves that can be estimated with a high degree of certainty and are expected to be recovered from known accumulations where a significant expenditure is required to render them capable of production.

The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties due to the effects of aggregation. The estimated future net revenues contained in this news release do not necessarily represent the fair market value of the Company's reserves.

Special note for news distribution in the United States

The securities described in the news release have not been registered under the United States 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.

EPSILON ENERGY LTD.
Interim Unaudited Condensed Consolidated Statements of Operations
(All amounts stated in US$)

				Years ended December 31,
				2016				2015
Revenues:
	Oil and gas revenue			$	15,263,438			$	11,269,090
	Gas gathering and compression revenue				10,132,911				12,561,331
		Total revenue			25,396,349				23,830,421
Operating costs and expenses:
	Project operating costs				9,051,980				9,950,115
	Depletion, depreciation, amortization and decommissioning accretion				11,873,017				13,225,816
	Impairment loss				-				34,510,200
	Stock based compensation expense				221,296				120,426
	General and administrative				1,908,572				1,858,585
		Total operating costs and expenses			23,054,865				59,665,142
Operating income (loss)					2,341,484				(35,834,721	)
Other income and (expense):
	Interest income				75,474				14,298
	Finance expense				(3,911,881	)			(3,933,672	)
		Realized loss on commodity contracts			(151,198	)			-
		Net change in unrealized loss on commodity contracts			(336,352	)			-
	Bad debt expense				-				(525,777	)
	Other (expense) income				(96,952	)			486,377
		Net other (expense) income			(4,420,909	)			(3,958,774	)
Net loss before tax					(2,079,425	)			(39,793,495	)
Income tax expense - current					23,800				-
Income tax expense (recovery) - deferred					851,106				(14,269,838	)
NET LOSS				$	(2,954,331	)		$	(25,523,657	)
Net loss per share, basic				$	(0.06	)		$	(0.54	)
Net loss per share, diluted				$	(0.06	)		$	(0.54	)
Weighted average number of shares outstanding, basic					45,882,030				47,049,955
Weighted average number of shares outstanding, diluted					45,882,030				47,049,955

EPSILON ENERGY LTD.
Interim Unaudited Condensed Consolidated Statements of Financial Position
(All amounts stated in US$)

				December 31,				December 31,
				2016				2015
ASSETS
Current assets
	Cash and cash equivalents			$	31,486,593			$	16,954,664
	Accounts receivable				4,387,487				3,214,406
	Restricted cash				530,538				-
	Other current assets				139,991				138,985
		Total current assets			36,544,609				20,308,055
Non-current assets
Oil and gas interests:
	Property and equipment (net)				90,716,131				102,159,208
	Total non-current assets				90,716,131				102,159,208
Total assets				$	127,260,740			$	122,467,263
EQUITY AND LIABILITIES
Current liabilities
	Accounts payable and accrued liabilities			$	5,003,737			$	4,596,083
	Commodity contracts				336,352				-
	Revolving line of credit				12,460,000				7,000,000
	Convertible debentures				28,388,210				-
		Total current liabilities			46,188,299				11,596,083
Non-current liabilities
	Convertible debentures				-				26,790,579
	Decommissioning liabilities				2,442,935				2,327,785
	Deferred tax liability				15,077,065				14,225,959
		Total non-current liabilities			17,520,000				43,344,323
Total liabilities					63,708,299				54,940,406
Equity
	Share capital				126,315,325				127,371,404
	Equity component of convertible debentures				5,033,884				5,019,523
	Contributed surplus				6,017,972				5,796,676
	Deficit				(82,556,063	)			(79,877,471	)
	Accumulated other comprehensive income				8,741,323				9,216,725
		Total equity			63,552,441				67,526,857
Total liabilities and shareholders' equity				$	127,260,740			$	122,467,263

EPSILON ENERGY LTD.
Interim Unaudited Condensed Consolidated Statements of Cash Flows
(All amounts stated in US$)

			Years ended December 31
			2016				2015
Cash flows from operating activities:
Net loss			$	(2,954,331	)		$	(25,523,657	)
Adjustments for:
	Depletion, depreciation, amortization and decommissioning accretion			11,873,017				13,225,816
	Debenture accretion and fee amortization			1,147,828				1,176,450
	Impairment loss			-				34,510,200
	Net change in unrealized loss on commodity contracts			336,352				-
	Stock-based compensation expense			221,296				120,426
	Income tax expense (recovery)			874,906				(14,269,838	)
	Income taxes paid			(23,800	)			-
	Bad debt expense			-				525,777
Changes in non-cash working capital balances related to operations				(297,269	)			760,982
Net cash provided by operating activities				11,177,999				10,526,156
Cash flows from investing activities:
Additions to oil and natural gas properties - E&E				-				(1,400	)
Additions to oil and natural gas properties - PP&E				(314,790	)			(4,071,204	)
Change in working capital related to capital asset additions				(469,164	)			(1,067,740	)
Changes in restricted cash				(530,538	)			-
Net cash used in investing activities				(1,314,492	)			(5,140,344	)
Cash flows from financing activities:
Purchase and cancellation of options				-				(16,808	)
Buyback of common shares				(780,340	)			(2,238,378	)
Changes in restricted cash				-				140,000
Purchase of convertible debenture				(357,842	)			(752,442	)
Proceeds from draw on revolving line of credit				5,460,000				-
Net cash used in financing activities				4,321,818				(2,867,628	)
Effect of currency rates on cash and cash equivalents				346,604				(1,625,251	)
Increase in cash and cash equivalents				14,531,929				892,933
Cash and cash equivalents, beginning of period				16,954,664				16,061,731
Cash and cash equivalents, end of period			$	31,486,593			$	16,954,664
Cash and cash equivalents consist of:
Cash			$	31,486,593			$	16,954,664
Cash and cash equivalents			$	31,486,593			$	16,954,664

EPSILON ENERGY LTD.
Adjusted EBITDA Reconciliation
(All amounts stated in US$)

			Years ended December 31,
			2016				2015
Net income (loss)			$	(2,954	)		$	(25,524	)
Add Back:
	Net interest expense			3,836				3,919
	Deferred income tax (recovery) provision			875				(14,271	)
	Depreciation, depletion, amortization, and accretion			11,873				13,227
	Stock based compensation expense (recovery)			221				121
	Net change in unrealized (gain) loss on commodity contracts			336				-
	Impairment expense (recovery)			-				34,510
	Bad debt expense			-				526
	Other income			92				(56	)
Adjusted EBITDA			$	14,279			$	12,452