Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant ☒

​

Filed by a Party other than the Registrant ☐

​

Check the appropriate box:

​

​

​

​

​

​

​

EPSILON ENERGY LTD.

(Name of Registrant as Specified in its Charter)

​

N/A

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

​

Payment of Filing Fee (Check all boxes that apply):

​

​

​

​

​

Table of Contents

Epsilon Energy Ltd.

500 Dallas Street, Ste. 1250

Houston, Texas 77002

(281) 670-0002

​

Notice of Special Meeting of Shareholders

​

[•], 2025

​

To our Shareholders:

​

You are cordially invited to attend a special meeting of shareholders (the “Special Meeting”) of Epsilon Energy Ltd. (“Epsilon,” the “Company,” “we,” “us” or “our”), to be held at One Allen Center, 500 Dallas Street, Emporium Conference Room, Houston, Texas 77002 on [•], 2025 at [•] a.m. Central Time. Epsilon shareholders will be able to attend and vote at the Special Meeting in person.

​

On August 11, 2025, we entered into (i) that Membership Interest Purchase Agreement by and among the Company, Epsilon Energy USA, Inc. (“Epsilon USA”), Peak Exploration & Production, LLC, certain seller signatory thereto, and Yorktown Energy Partners XI, L.P., as representative of such sellers (the “Peak E&P Purchase Agreement”), and (ii) that Membership Interest Purchase Agreement by and among the Company, Epsilon USA, Yorktown Energy Partners XI, L.P., and Peak BLM Lease LLC (the “Peak BLM Purchase Agreement” and together with the Peak E&P Purchase Agreement, the “Purchase Agreements”). All capitalized terms used but not defined in this notice have the meaning given to them in the Peak E&P Purchase Agreement.

​

Subject to the terms and conditions of the Purchase Agreements, at the Closing, Epsilon USA, a wholly owned subsidiary of the Company, will acquire all of the issued and outstanding limited liability company interests of each of Peak Exploration & Production, LLC and Peak BLM Lease LLC (collectively, together with their respective subsidiaries, the “Acquired Companies”), and as a result the Acquired Companies would become indirect wholly owned subsidiaries of the Company. Subject to certain adjustments in the Peak E&P Purchase Agreement, the Company would issue an aggregate of up to 5,800,000 common shares, no par value (“Common Shares”), of the Company at Closing. At the Closing. the Company would issue 200,000 Common Shares under the Peak BLM Purchase Agreement and, subject to the conditions of the Peak BLM Purchase Agreement, the Company would issue an additional aggregate amount of up to 2,500,000 Common Shares following the Closing. As a result of these transactions, if the maximum number of Common Shares is issued pursuant to the Purchase Agreements, (a) our current shareholders will own approximately 72% of our outstanding Common Shares, on a fully diluted basis, and (b) the respective sellers of the Acquired Companies (and/or their affiliates) will own approximately 28% of our outstanding Common Shares, on a fully diluted basis, in each case based on the number of Common Shares issued and outstanding, on a fully diluted basis, as of [●], 2025 (the “Record Date”), which is the record date for the Special Meeting. If none of the 2,500,000 Common Shares that may be issued following the Closing are issued to Yorktown Energy Partners, XI, L.P. pursuant to the Peak BLM Purchase Agreement (a) our current shareholders will own approximately 79% of our outstanding Common Shares, on a fully diluted basis, and (b) the Acquired Companies will own approximately 21% of our outstanding Common Shares, on a fully diluted basis, in each case based on the number of Common Shares issued and outstanding, on a fully diluted basis, as of the Record Date.

​

Our Common Shares are listed on the NASDAQ Global Market (“NASDAQ”) under the ticker symbol “EPSN.” As a result, the Company is subject to NASDAQ Listing Rule 5635, pursuant to which shareholder approval is required prior to certain issuances of securities equal to 20% or more of the outstanding common stock or 20% or more of the voting power outstanding before the issuance.

Accordingly, we are holding the Special Meeting for shareholders to consider and vote upon the following:

​

​

​

Table of Contents

These items are fully described in the Proxy Statement, which is part of this notice.

​

All shareholders of record as of the Record Date are entitled to vote at the Special Meeting.

​

We are providing the accompanying Proxy Statement and proxy card to our shareholders in connection with the solicitation of proxies to be voted at the Special Meeting (including following any adjournments or postponements of the Special Meeting). Information about the Special Meeting and the transactions contemplated by the Purchase Agreements (the “Transactions”) is included in this Proxy Statement. Whether or not you plan to attend the Special Meeting, we urge all shareholders to read this Proxy Statement, including the annexes and the accompanying financial statements of the Acquired Companies and the unaudited pro forma financial information included herein, carefully and in its entirety. In particular, we urge you to read carefully the section entitled “Risk Factors” in the accompanying Proxy Statement. A copy of the Peak E&P Purchase Agreement is attached as Annex A to the Proxy Statement. A copy of the Peak BLM Purchase Agreement is attached as Annex B to the Proxy Statement. The accompanying Proxy Statement, including the summary of the Purchase Agreements beginning on page 26 thereof, is incorporated by reference in this notice.

​

After careful consideration, our Board (the “Board”) has unanimously (a) determined that the Purchase Agreements and the Transactions, including the issuance of Common Shares pursuant thereto are advisable, fair to, and in the best interests of the Company and its shareholders, (b) approved and adopted the Purchase Agreements and the Transactions and (c) resolved to recommend that our shareholders vote “FOR” the approval of the Share Issuance Proposal and the Adjournment Proposal.

​

The Board unanimously recommends that you vote “FOR” the Share Issuance Proposal and “FOR” the Adjournment Proposal.

​

The Share Issuance Proposal requires the affirmative vote of at least a majority of the votes cast in person or represented by proxy at the Special Meeting by the holders of Common Shares entitled to vote thereon, assuming a quorum is present. The Adjournment Proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy at the Special Meeting and entitled to vote thereon.

​

Your vote is very important. Whether or not you plan to attend the Special Meeting, please vote as soon as possible by following the instructions in this Proxy Statement to make sure that your shares are represented at the Special Meeting. If you hold your shares in “street name” through a bank, broker or other nominee, you will need to follow the instructions provided to you by your bank, broker or other nominee to ensure that your shares are represented and voted at the Special Meeting. It is important for you to note that if the Share Issuance Proposal does not receive the requisite vote for approval, we will not be able to consummate the Transactions. The Adjournment Proposal is not conditioned on the approval of the Share Issuance Proposal, and the Share Issuance Proposal is not conditioned on the approval of the Adjournment Proposal.

​

If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted “FOR” each of the proposals presented at the Special Meeting. If you fail to return your proxy card or fail to instruct your bank, broker or other nominee how to vote, and do not attend the Special Meeting, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting.

​

Your vote is very important. Whether or not you expect to attend the Special Meeting, please vote as soon as possible to ensure that your shares are represented at the Special Meeting.

​

By order of the Board,

​

Jason Stabell

Chief Executive Officer

​

YOUR VOTE IS IMPORTANT.

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,

PLEASE SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD.

​

This Proxy Statement is dated [•], 2025 and is expected to be first mailed to Epsilon’s shareholders on or about [•], 2025.

​

​

Table of Contents

TABLE OF CONTENTS

​

​

​

​

Table of Contents

SUMMARY TERM SHEET

​

This summary term sheet highlights information contained elsewhere in this Proxy Statement. This summary term sheet does not contain all of the information you should consider before voting. You should carefully read this entire Proxy Statement, including the attached annexes, for a more complete understanding of the matters to be considered at the Special Meeting (as defined herein).

​

This Proxy Statement includes “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act (each as defined herein). Please refer to the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in this Proxy Statement for a description of the substantial risks and uncertainties related to any forward-looking statements that are included in this Proxy Statement.

​

All references in this Proxy Statement to “we,” “our,” “us,” “Epsilon” or the “Company” refer to Epsilon Energy Ltd. and its subsidiaries.

​

Our board of directors (the “Board”) is soliciting the enclosed proxy card for use at the special meeting of shareholders (the “Special Meeting”) to be held at One Allen Center, 500 Dallas Street, Emporium Conference Room, Houston, Texas 77002 on [•], 2025 at [•] a.m. Central Time. Epsilon shareholders will be able to attend and vote at the Special Meeting in person.

​

We are holding the Special Meeting for shareholders to consider and vote upon the following:

​

​

​

Each of the Share Issuance Proposal and the Adjournment Proposal are described more fully in the sections entitled “Proposal 1 — The Share Issuance Proposal” and “Proposal 2 — The Adjournment Proposal.”

​

Epsilon is a North American on-shore focused independent natural gas and oil company engaged in the acquisition, development, gathering and production of natural gas and oil reserves. Epsilon has natural gas production in the Marcellus Shale in Pennsylvania; oil, natural gas liquids and natural gas production in the Permian Basin in Texas and New Mexico, the NW Anadarko Basin in Oklahoma; and oil, natural gas liquids, and natural gas production in the Western Canadian Sedimentary Basin in Alberta, Canada. Epsilon conducts operations in the United States through its wholly owned subsidiaries Epsilon Energy USA Inc., an Ohio corporation, or “Epsilon USA”; Epsilon Midstream, LLC, a Pennsylvania limited liability company, or “Epsilon Midstream”; Epsilon Operating, LLC, a Delaware limited liability company; Dewey Energy GP LLC, a Delaware limited liability company; Dewey Energy Holdings LLC, a Delaware limited liability company; and Altolisa Holdings, LLC, a Delaware limited liability company. For more information about us, please see the section entitled “Information About the Parties.”

​

The acquired companies are (i) Peak Exploration & Production, LLC, a Delaware limited liability company (“Peak E&P”), and (ii) Peak BLM Lease LLC, a Delaware limited liability company (“Peak BLM”), and their respective subsidiaries (collectively, the “Acquired Companies”). The Acquired Companies are privately held oil and gas exploration and production companies that operate in the Powder River Basin of Wyoming (the “PRB”). As of June 30, 2025, the Acquired Companies own approximately 39,600 net leasehold acres (out of 61,000 gross acres) in the PRB, primarily in Campbell and Converse Counties, Wyoming. The Acquired Companies’ operations are focused on the development of multiple productive horizons, including the Parkman, Shannon, Turner, Niobrara, and Mowry formations, utilizing advanced horizontal drilling and completion technologies. For more information about the Acquired Companies, please see the sections entitled “Information About the Parties” and “Information About the Acquired Companies.”

​

On August 11, 2025, we entered into (i) that Membership Interest Purchase Agreement by and among the Company, Epsilon USA, Peak Exploration & Production, LLC, certain sellers signatory thereto, and Yorktown Energy Partners XI, L.P., as representative of such sellers (the “Peak E&P Purchase Agreement”), and (ii) that Membership Interest Purchase Agreement by and among the Company, Epsilon USA, Yorktown Energy Partners XI, L.P., and Peak BLM Lease LLC (the “Peak BLM Purchase Agreement” and together with the Peak E&P Purchase Agreement, the “Purchase Agreements” and the transactions contemplated thereby, the “Transactions”). All capitalized terms used but not defined in this notice have the meaning given to them in the Peak E&P Purchase Agreement.

​

Subject to the terms and conditions of the Purchase Agreements, at the closing of the Transactions (the “Closing”), Epsilon USA, a wholly owned subsidiary of the Company, will acquire all of the issued and outstanding limited liability company

​

Table of Contents

interests of Peak E&P and Peak BLM, and as a result the Acquired Companies would become indirect wholly owned subsidiaries of the Company. Subject to certain adjustments in the Peak E&P Purchase Agreement, the Company would issue an aggregate of up to 5,800,000 common shares, no par value (“Common Shares”), of the Company at Closing (as defined below). Also at the Closing, the Company would issue up to 200,000 Common Shares under the Peak BLM Purchase Agreement and, subject to the conditions of the Peak BLM Purchase Agreement, the Company would issue an additional aggregate amount of up to 2,500,000 Common Shares following the Closing. As a result of these Transactions, if the maximum number of Common Shares is issued pursuant to the Purchase Agreements (a) our current shareholders will own approximately 72% of our outstanding Common Shares, on a fully diluted basis, and (b) the respective sellers of the membership interests of Peak E&P and Peak BLM (and/or their affiliates, together, the “Sellers”) will own approximately 28% of our outstanding Common Shares, on a fully diluted basis, in each case based on the number of Common Shares issued and outstanding, on a fully diluted basis, as of [●], 2025, the record date for the Special Meeting (the “Record Date”). If none of the 2,500,000 Common Shares that may be issued following the Closing are issued to Yorktown Energy Partners XI, L.P. pursuant to the Peak BLM Purchase Agreement (a) our current shareholders will own 79% of our outstanding Common Shares, on a fully diluted basis, and (b) the Acquired Companies will own approximately 21% of our outstanding Common Shares, on a fully diluted basis, in each case based on the number of Common Shares issued and outstanding, on a fully diluted basis, as of the Record Date. Additionally, the Company will make a payment of $51.2 million (with proceeds from the Company’s revolving credit facility), which is estimated as of June 30, 2025, to satisfy all indebtedness of Peak E&P. Our management and Board considered various factors in determining whether to approve the Purchase Agreements and the Transactions contemplated thereby in determining whether to approve the issuance of up to 8,500,000 Common Shares (the “Share Issuance”). For more information about the Board’s reasons for approving the Transactions, see the section entitled “Proposal 1 — The Share Issuance Proposal — Our Board’s Reasons for the Approval of the Transactions and the Share Issuance.”

​

Unless waived by the parties to the Purchase Agreements, and subject to applicable law, the Closing is subject to a number of conditions set forth in the Purchase Agreements, including, among others, (i) the receipt of approval of the Share Issuance Proposal by the affirmative vote of at least a majority of the votes cast in person or represented by proxy at the Special Meeting by the holders of Common Shares entitled to vote thereon; (ii) the total of all title defects, environmental defects and casualty losses applicable to certain assets must be less than 20% of the respective Purchase Agreement’s unadjusted purchase price; and (iii) NASDAQ’s approval for listing of the Common Shares issuable to the Sellers in connection with the Purchase Agreements on the NASDAQ Global Market (“NASDAQ”). For more information about the closing conditions to the Transactions, please see the section entitled “Proposal 1 — The Share Issuance Proposal — The Purchase Agreements — Conditions to Closing.”

​

The Purchase Agreements may be terminated at any time prior to the consummation of the Transactions upon agreement of the parties thereto, or by us or the Sellers in specified circumstances. For more information about the termination rights under the Purchase Agreements, please see the section entitled “Proposal 1 — The Share Issuance Proposal — The Purchase Agreements — Termination.”

​

The proposed Transactions involve numerous risks. For more information about these risks, please see the section entitled “Risk Factors.”

​

​

Table of Contents

FREQUENTLY USED TERMS

​

Throughout this Proxy Statement, except as otherwise indicated:

​

“ABCA” means the Business Corporations Act (Alberta).

​

“Acquired Companies” means, collectively, Peak Exploration & Production, LLC, a Delaware limited liability company, Peak BLM Lease LLC, a Delaware limited liability company, and their respective subsidiaries.

​

“Board” means the board of directors of Epsilon.

​

“CT” means Computershare Trust Company of Canada, Epsilon’s transfer agent.

​

“Epsilon” or the “Company” means Epsilon Energy Ltd., a corporation incorporated under the laws of the Province of Alberta, Canada.

​

“Epsilon Parties,” “we,” “us,” “our” or the “Company” means Epsilon and its consolidated subsidiaries.

​

“Epsilon USA” means Epsilon Energy USA, Inc., an Ohio corporation, the Company’s wholly owned subsidiary through which it operates its properties.

​

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

​

“GAAP” means accounting principles generally accepted in the United States as in effect from time to time.

​

“Gray Reed” means Gray Reed & McGraw LLP, counsel to Epsilon with respect to the Transactions.

​

“NASDAQ” means the NASDAQ Global Market.

​

“PRB” means the Powder River Basin in Wyoming.

​

“SEC” means the Securities and Exchange Commission.

​

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

​

“Transactions” means the transactions contemplated by the Purchase Agreements.

​

“Willkie” means Willkie Farr & Gallagher LLP, counsel to Yorktown with respect to the Transactions.

​

“Yorktown” means certain investment partnerships managed by Yorktown Partners, LLC, including Yorktown Energy Partners IX, LP., Yorktown Energy Partners X, L.P., and Yorktown Energy Partners XI, L.P.

​

​

Table of Contents

GLOSSARY OF OIL AND NATURAL GAS TERMS

​

We have included below the definitions for certain terms used in this Proxy Statement:

​

“APD” means application for permit to drill.

​

“Basin” means a large natural depression on the earth’s surface in which sediments generally brought by water accumulate.

​

“Bbl” means one stock tank barrel, or 42 U.S. gallons liquid volume, used in this proxy statement in reference to oil, NGLs and other liquid hydrocarbons.

​

“Boe” means one stock tank barrel of oil equivalent, computed on an approximate energy equivalent basis that one Bbl of crude oil equals six Mcf of natural gas and one Bbl of crude oil equals one Bbl of natural gas liquids.

​

“Boe/d” mean one Boe per day.

​

“BLM” means the United States Bureau of Land Management.

​

“Completion” means the process of preparing a natural gas and oil wellbore for production through the installation of permanent production equipment, as well as perforation and fracture stimulation to optimize production.

​

“Condensate” means a mixture of hydrocarbons that exists in the gaseous phase at original reservoir temperature and pressure, but that, when produced, is in the liquid phase at surface pressure and temperature.

​

“Developed acres or acreage” means the number of acres that are allocated or assignable to productive wells or wells capable of production.

​

“Development well” means a well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

​

“Differential” means an adjustment to the price of oil or natural gas from an established spot market price to reflect differences in the quality and/or location of oil or natural gas.

​

“DSU” means wells per drilling and spacing unit.

​

“Economically producible” means, as it relates to a resource, a resource which generates revenue that exceeds, or is reasonably expected to exceed, the costs of operation. For a complete definition of economically producible, refer to the SEC’s Regulation S-X, Rule 4-10(a)(10).

​

“Exploratory well” means a well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir. Generally, an exploratory well is any well that is not a development well, an extension well, a service well, or a stratigraphic test well, as those items are defined under Regulation S-X.

​

“Estimated ultimate recovery” or “EUR” means the sum of reserves remaining as of a given date and cumulative production as of that date.

​

“FERC” means the Federal Energy Regulatory Commission of the United States of America.

​

“Field” means an area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition. There may be two or more reservoirs in a field that are separated vertically by intervening impervious strata, or laterally by local geologic barriers, or both. Reservoirs that are associated by being in overlapping or adjacent fields may be treated as a single or common operational field. The geological terms “structural feature” and “stratigraphic condition” are intended to identify localized geological features as opposed to the broader terms of basins, trends, provinces, plays, areas of interest, etc.

​

“Fracturing” or “fracture simulation” means the process of improving a well’s production or injection rates by pumping a mixture of fluids into the formation and rupturing the rock, creating an artificial channel. As part of this process, sand or other material may also be injected into the formation to keep the channel open, so that fluids or natural gases may more easily flow through the formation.

​

“GHG” means greenhouse gases.

​

Table of Contents

“Gross acres” or “gross wells” means the total acres or wells, as the case may be, in which a working interest is owned.

​

“Hydraulic fracturing” means the process of improving a well’s production or injection rates by pumping a mixture of fluids into the formation and rupturing the rock, creating an artificial channel. As part of this process, sand or other material may also be injected into the formation to keep the channel open, so that fluids or natural gases may more easily flow through the formation.

​

“Lease or leases” means a full or partial interest in oil or natural gas properties authorizing the owner of the lease to drill for, produce, and sell oil and natural gas in exchange for any or all of rental, bonus, and royalty payments. Leases are generally acquired from private landowners (fee leases) and from federal and state governments on acreage held by them.

​

“Lease operating expense” or “LOE” means the expenses of lifting oil or gas from a producing formation to the surface, constituting part of the current operating expenses of a working interest, and also including labor, superintendence, supplies, repairs, short-lived assets, maintenance, allocated overhead costs and other expenses incidental to production, but not including lease acquisition or drilling or completion expenses.

​

“MBbl” means one thousand barrels of oil, NGLs or other liquid hydrocarbons.

​

“Mcf” means one thousand cubic feet, used in reference to natural gas.

​

“Mboe” means one thousand Boe.

​

“MMBtu” means one million British Thermal Units, used in reference to natural gas.

​

“MMcf” means one million cubic feet, used in reference to natural gas.

​

“Net acres” or “net wells” means the sum of the fractional working interests owned in gross acres or wells, as the case may be.

​

“Net production” means the total production attributable to the fractional working interest owned.

​

“Net revenue interest” means (a) in respect of leasehold acreage, all of the working interests less all royalties, overriding royalties, non-participating royalties, net profit interest or similar burdens on or measured by production from oil and natural gas, and (b) in respect of mineral acreage, all retained royalties plus any working interest in such acreage, less all royalties, overriding royalties, non-participating royalties, net profits interests, or similar burdens on or measured by production from oil and natural gas.

​

“NGA” means the Natural Gas Act of 1938.

​

“NGL” means natural gas liquid.

​

“NYMEX” means the New York Mercantile Exchange.

​

“Operator” means the individual or company responsible to the working interest owners for the exploration, development and production of an oil or natural gas well or lease.

​

“PDP” means proved developed producing reserves.

​

“Prospect” means a property on which indications of oil or gas have been identified based on available seismic and geological information.

​

“Proved developed reserves” means proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well.

​

“Proved reserves” means those reserves that, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs and under existing economic conditions, operating methods and government regulations— prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced, or the operator must be reasonably certain that it will commence the project, within a reasonable time.

​

The area of the reservoir considered as proved includes all of the following:

​

Table of Contents

​

​

Reserves that can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when both of the following occur:

​

​

​

Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period before the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

​

“Proved undeveloped reserves” or “PUDs” means proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances. Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless specific circumstances justify a longer time. Under no circumstances shall estimates of proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty.

​

“PV-10” means the present value, discounted at 10% per annum, of future net revenues (estimated future gross revenues less estimated future costs of production, development, and asset retirement costs) associated with reserves and is not necessarily the same as market value. PV-10 does not include estimated future income taxes. Unless otherwise noted, PV-10 is calculated using the pricing scheme as required by the SEC. PV-10 of proved reserves is calculated the same as the standardized measure of discounted future net cash flows, except that the standardized measure of discounted future net cash flows includes future estimated income taxes discounted at 10% per annum. See the definition of Standardized Measure.

​

“Reasonable certainty” means, if deterministic methods are used, reasonable certainty means a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimate. A high degree of confidence exists if the quantity is much more likely to be achieved than not, and, as changes due to increased availability of geoscience (geological, geophysical and geochemical) engineering, and economic data are made to estimated ultimate recovery with time, reasonably certain estimated ultimate recovery is much more likely to increase or remain constant than to decrease.

​

“Reserves” means estimated remaining quantities of natural gas and oil and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering natural gas and oil or related substances to market, and all permits and financing required to implement the project.

​

“Reservoir” means a porous and permeable underground formation containing a natural accumulation of producible crude oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

​

“Royalty” means the amount or fee paid to the owner of mineral rights, expressed as a percentage or fraction of gross income from crude oil or natural gas produced and sold, unencumbered by expenses relating to the drilling, completing or operating of the affected well.

​

“Royalty interest” means an interest in an oil or natural gas property entitling the owner to shares of the crude oil or natural gas production free of costs of exploration, development and production operations.

“SCF” means a measure of natural gas at standard conditions, normally 60 degF and 14.7 psia representing 1 cubic foot.

​

“Section” means an area of one square mile of land, 640 acres, with 36 sections making up one survey township on a rectangular grid.

Table of Contents

​

“Standardized Measure” or “SMOG” means the standardized measure of discounted future net cash flows is an estimate of future net cash flows associated with proved reserves, discounted at 10% per annum. Future net cash flows is calculated by reducing future net revenues by estimated future income tax expenses and discounting at 10% per annum. The Standardized Measure and the PV-10 of proved reserves is calculated in the same exact fashion, except that the Standardized Measure includes future estimated income taxes discounted at 10% per annum. The Standardized Measure is in accordance with U.S. GAAP.

​

“Working interest” means the interest in a crude oil and natural gas property (normally a leasehold interest) that gives the owner the right to drill, produce and conduct operations on the property and to a share of production, subject to all royalties, overriding royalties and other burdens and to all costs of exploration, development and operations and all risks in connection therewith.

​

“WOGCC” means the State of Wyoming’s oil and gas regulatory body, the Wyoming Oil & Gas Conservation Commission.

​

“Workover” means operations on a producing well to restore or increase production.

​

“WTI” means West Texas Intermediate.

​

​

Table of Contents

QUESTIONS AND ANSWERS ABOUT THE PROPOSALS FOR SHAREHOLDERS

​

Why am I receiving this Proxy Statement?

​

We are sending you this Proxy Statement and the enclosed proxy card because our Board is soliciting your proxy to vote on proposals in connection with the Transactions. This Proxy Statement summarizes the information you need to know to vote at the Special Meeting. All shareholders who find it convenient to do so are cordially invited to attend the Special Meeting to be held at One Allen Center, 500 Dallas Street, Emporium Conference Room, Houston, Texas 77002. However, you do not need to attend the Special Meeting to vote your shares. Instead, you may simply sign, date and return the enclosed proxy card or voting instruction form provided by your bank or broker, or follow the instructions specified in your proxy card or voting instruction form to vote by telephone or via the internet.

​

We intend to begin delivering this Proxy Statement, the attached notice of our Special Meeting and the enclosed proxy card on or about [•], 2025 to all shareholders who own Common Shares as of the Record Date and are thus entitled to vote at the Special Meeting. As of the Record Date, there were approximately [•] Common Shares issued and entitled to vote at the Special Meeting. Our Common Shares is our only class of stock entitled to vote at the Special Meeting.

​

What is a proxy and how does it work?

​

Our Board is asking for your proxy. A “proxy” is your legal designation of another person to vote the stock you own in the manner you direct. If you designate someone as your proxy in a written document, that document is also called a proxy or a proxy card. By giving your proxy to the persons named as proxy holders in the proxy card accompanying this Proxy Statement, you authorize them to vote your Common Shares at the Special Meeting in the manner you direct. You may cast votes “FOR,” “AGAINST” or “ABSTAIN” with respect to both, either or neither of the matters we are submitting to a vote of holders of Common Shares at the Special Meeting.

​

What will the Sellers receive?

​

In connection with the Purchase Agreements, the Sellers will be entitled to receive, subject to certain adjustments and conditions, (a) at the Closing, 5,800,000 Common Shares under the terms of the Peak E&P Purchase Agreement, and (b) at the Closing, 200,000 Common Shares under the Peak BLM Purchase Agreement and, subject to the conditions of the Peak BLM Purchase Agreement, an additional aggregate amount of up to 2,500,000 Common Shares following the Closing. As a result of the Transactions, if the maximum number of Common Shares is issued pursuant to the Purchase Agreements (a) our current shareholders will own approximately 72% of our outstanding Common Shares, on a fully diluted basis, and (b) the Acquired Companies will own approximately 28% of our outstanding Common Shares, on a fully diluted basis, in each case based on the number of Common Shares issued and outstanding, on a fully diluted basis, as of the Record Date. If none of the 2,500,000 Common Shares that that may be issued following the Closing are issued to Yorktown pursuant to the Peak BLM Purchase Agreement (a) our current shareholders will own approximately 79% of our outstanding Common Shares, on a fully diluted basis, and (b) the Acquired Companies will own approximately 21% of our outstanding Common Shares, on a fully diluted basis, in each case based on the number of Common Shares issued and outstanding, on a fully diluted basis, as of the Record Date.

​

What am I voting on?

​

The items of business scheduled to be voted on at the Special Meeting are:

​

​

​

Each of the Share Issuance Proposal and the Adjournment Proposal are described more fully in the sections entitled “Proposal 1 — The Share Issuance Proposal” and “Proposal 2 — The Adjournment Proposal.”

​

How does the Board recommend that I vote?

​

Our Board unanimously recommends that you vote:

​

Table of Contents

​

Who can vote?

​

You can vote your Common Shares if our records show that you were the owner of the shares as of the close of business on the Record Date. As of the Record Date, there were a total of [•] Common Shares issued and entitled to vote at the Special Meeting. You are entitled to one vote for each Common Share that you own as of the Record Date.

​

How is a quorum determined?

​

We will hold the Special Meeting if shareholders representing the required quorum of Common Shares entitled to vote authorize their proxy online or telephonically, sign and return their proxy cards or attend the Special Meeting in person. The presence in person or by proxy of a majority of the outstanding Common Shares constitutes a quorum. If you authorize your proxy online or telephonically or sign and return your proxy card, your shares will be counted to determine whether we have a quorum even if you abstain or fail to indicate your vote on the proxy card.

​

What is the required vote for approval?

​

The Share Issuance Proposal requires the affirmative vote of at least a majority of the votes cast in person or represented by proxy at the Special Meeting by the holders of Common Shares entitled to vote thereon, assuming a quorum is present. The Adjournment Proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy at the Special Meeting and entitled to vote thereon. You may abstain from voting on (i) the Share Issuance Proposal and/or (ii) the Adjournment Proposal, in which case no vote will be recorded with respect to such proposal. Such abstention will be the equivalent of a vote “AGAINST” the Share Issuance Proposal or the Adjournment Proposal. If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted “FOR” both of the proposals presented at the Special Meeting. If you fail to return your proxy card or fail to instruct your bank, broker or other nominee how to vote, and do not attend the Special Meeting, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting.

​

The Transactions are conditioned on, among other things, the approval of the Share Issuance Proposal by our shareholders. If the Share Issuance Proposal does not receive the requisite vote for approval, we will not be able to consummate the Transactions.

​

What will happen in the Transactions?

​

Subject to the terms and conditions of the Purchase Agreements, at the Closing, Epsilon USA, a wholly owned subsidiary of the Company, will acquire all of the issued and outstanding limited liability company interests of Peak E&P and Peak BLM, and as a result the Acquired Companies, would become indirect wholly owned subsidiaries of the Company. Subject to certain adjustments in the Peak E&P Purchase Agreement, the Company would issue an aggregate of up to 5,800,000 Common Shares, of the Company at Closing. Also at the Closing, the Company would issue 200,000 Common Shares to Yorktown and, subject to conditions of the Peak BLM Purchase Agreement, an additional aggregate amount of up to 2,500,000 Common Shares following the Closing. Additionally, the Company will make a payment of $51.2 million (with proceeds from the Company’s revolving credit facility), which is estimated as of June 30, 2025, to satisfy all indebtedness of Peak E&P. For more information about the Board’s reasons for approving the Transactions, see the section entitled “Proposal 1 — The Share Issuance Proposal — Our Board’s Reasons for the Approval of the Transactions and the Share Issuance.”

​

How will the Transactions impact the Common Shares outstanding after the Transactions?

​

As a result of the Transactions, if the maximum number of Common Shares is issued pursuant to the Purchase Agreements (a) our current shareholders will own approximately 72% of our outstanding Common Shares, on a fully diluted basis, and (b) the respective sellers (and/or their affiliates) will own approximately 28% of our outstanding Common Shares, on a fully diluted basis, in each case based on the number of Common Shares issued and outstanding, on a fully diluted basis, as of the Record Date. If none of the 2,500,000 Common Shares that may be issued following the Closing are issued to Yorktown pursuant to the Peak BLM Purchase Agreement (a) our current shareholders will own approximately 79% of our outstanding Common Shares, on a fully diluted basis, and (b) the Acquired Companies will own approximately 21% of our outstanding Common Shares, on a fully diluted basis, in each case based on the number of Common Shares issued and outstanding, on a fully diluted basis, as of the Record Date.

​

Table of Contents

Will the Common Shares currently outstanding and the Common Shares to be  issued in the Transactions be listed on NASDAQ?

​

The Common Shares issued and outstanding prior to the Closing will continue to be listed on NASDAQ as will the Common Shares issued pursuant to the Transactions.

​

How will Epsilon be structured following the Transactions?

​

At the Closing, the Acquired Companies will become indirect wholly owned subsidiaries of Epsilon.

​

What conditions must be satisfied to complete the Transactions?

​

Unless waived by the parties to the Purchase Agreements, and subject to applicable law, the Closing is subject to a number of conditions set forth in the Purchase Agreements, including, among others, (a) the approval of the Share Issuance Proposal by the affirmative vote of at least a majority of the votes cast in person or represented by proxy at the Special Meeting by the holders of Common Shares entitled to vote thereon; (b) the total of all title and remediation amounts applicable to certain assets must be less than 20% of the respective Purchase Agreement’s unadjusted purchase price; and (c) NASDAQ’s approval for listing of the Common Shares issuable to the Sellers in connection with the Purchase Agreements on NASDAQ. For more information about the closing conditions to the Transactions, please see the section entitled “Proposal 1 — The Share Issuance Proposal — The Purchase Agreements — Conditions to Closing.”

​

Why is Epsilon proposing the Share Issuance Proposal?

​

We are proposing the Share Issuance Proposal in order to comply with applicable provisions of NASDAQ Listing Rule 5635, which requires shareholder approval prior to the issuances of securities equal to 20% or more of the outstanding common stock or 20% or more of the voting power outstanding before the issuance.

​

In connection with the Transactions, the Company would issue at Closing (a) 5,800,000 Common Shares under the terms of the Peak E&P Purchase Agreement, and (b) 200,000 Common Shares under the Peak BLM Purchase Agreement and, subject to the conditions of the Peak BLM Purchase Agreement, the Company would issue an additional aggregate amount of up to 2,500,000 Common Shares following the Closing. As a result of these Transactions, if the maximum number of Common Shares is issued pursuant to the Purchase Agreements, (a) our current shareholders will own approximately 72% of our outstanding Common Shares, on a fully diluted basis, and (b) the respective sellers of the Acquired Companies (and/or their affiliates) will own approximately 28% of our outstanding Common Shares, on a fully diluted basis, in each case based on the number of Common Shares issued and outstanding, on a fully diluted basis, as the Record Date. If none of the 2,500,000 Common Shares that may be issued following the Closing are issued to Yorktown pursuant to the Peak BLM Purchase Agreement (a) our current shareholders will own approximately 79% of our outstanding Common Shares, on a fully diluted basis, and (b) the Acquired Companies will own approximately 21% of our outstanding Common Shares, on a fully diluted basis, in each case based on the number of Common Shares issued and outstanding, on a fully diluted basis, as of the Record Date.

​

Because we may be issuing 20% or more of the outstanding Common Shares in connection with the Transactions, we are required to obtain shareholder approval of such issuance pursuant to the applicable provisions of NASDAQ Listing Rule 5635. For more information, please see the section entitled “Proposal 1 — The Share Issuance Proposal.”

​

Why is Epsilon proposing the Adjournment Proposal?

​

We are proposing the Adjournment Proposal to allow our Board to adjourn the Special Meeting to a later date or dates to permit further solicitation of proxies in the event that there are insufficient votes for the approval of the Share Issuance Proposal. For more information, please see the section entitled “Proposal 2 — The Adjournment Proposal.”

​

What are the material U.S. federal income tax consequences of the Transactions to me?

​

Because our current shareholders will continue to own and hold their existing Common Shares following the Transactions, the Transactions generally will not result in U.S. federal income tax consequences to our current shareholders.

​

Do I have appraisal rights if I object to the proposed Transactions?

​

No. Appraisal rights are not available to holders of Common Shares in connection with the Transactions.

​

Table of Contents

What happens if the Purchase Agreements are terminated and the Transactions are not consummated?

​

There are certain circumstances under which the Purchase Agreements may be terminated prior to the consummation of the Transactions, for instance by mutual consent or if Closing has not occurred within 180 days after the Purchase Agreements’ execution, or February 7, 2026. The Company would have to pay a break-up fee under the terms of the Peak E&P Purchase Agreement in an amount of $750,000 if the Closing of the Peak E&P Purchase Agreement does not occur purely as a result of the Company’s inability to pass the Share Issuance Proposal. Please see the sections entitled “Proposal 1 — The Share Issuance Proposal — The Purchase Agreements — Termination” for information regarding the parties’ termination rights.

​

When are the Transactions expected to be completed?

​

The Transactions are currently expected to close in the fourth quarter of 2025, subject to the approval of our shareholders of the Share Issuance Proposal, certain other conditions regarding the current state of the assets at the time of Closing, the approval for listing by NASDAQ for the Common Shares to be issued in connection with the Transactions, and the satisfaction of other customary closing conditions. For a description of the conditions to the completion of the Transactions, see the section entitled “Proposal 1 — The Share Issuance Proposal — The Purchase Agreements — Conditions to Closing.”

​

Are there any risks that I should consider as an Epsilon Shareholder in deciding how to vote?

​

Yes. You should read and carefully consider the risk factors set forth in the section entitled “Risk Factors” beginning on page 19. You also should read and carefully consider the risk factors of Epsilon contained in the documents that are incorporated by reference in this Proxy Statement.

​

How do I vote by proxy?

​

Follow the instructions on the proxy card to authorize a proxy to vote your Common Shares at the Special Meeting. We urge you to sign, date and return the enclosed proxy card or voting instruction form provided by your bank or broker as soon as possible to ensure that your vote is recorded promptly. The individuals named and designated as proxies will vote your Common Shares as you instruct. You have the following choices in voting your Common Shares:

​

​

​

​

How can I authorize my proxy online or via telephone?

​

You may vote your shares via the internet or by telephone by following the instructions provided on your proxy card or voting instruction form. If your shares are registered in the name of a broker, bank or other financial institution, you may also be eligible to vote your shares electronically over the internet or by telephone if your financial institution makes such options available.

​

What if other matters come up at the Special Meeting?

​

As of the date of this Proxy Statement, the only matters we know of that will be voted on at the Special Meeting are the Share Issuance Proposal and the Adjournment Proposal. If other matters are properly presented at the Special Meeting, the designated proxies will vote your Common Shares at their discretion.

​

How will my shares be voted if I return a blank proxy?

​

If you sign, date and return your proxy and do not indicate how you want your Common Shares to be voted, then your Common Shares will be voted “FOR” the approval of the Share Issuance Proposal and “FOR” the Adjournment Proposal.

​

Can I change my previously authorized vote?

​

Yes, you can change your vote at any time before the vote on a proposal either by executing or authorizing, dating and delivering to us a new proxy electronically via the internet, by telephone or by mail at any time prior to 11:59 PM, Eastern Time,

Table of Contents

on [●], 2025, the day before the Special Meeting, by giving us a written notice revoking your proxy card or by attending the Special Meeting and voting your Common Shares during the Special Meeting. Your attendance at the Special Meeting will not, by itself, revoke a proxy previously given by you. We will honor the latest dated proxy.

​

Proxy revocation notices or new proxy cards should be sent to Computershare Investor Services Inc., 320 Bay Street, 14^th Floor, Toronto, ON M5H 4A6.

​

Can I vote during the Special Meeting rather than by authorizing a proxy?

​

If you are a registered common shareholder, you can attend the Special Meeting in person and vote your Common Shares during the Special Meeting to be held at One Allen Center, 500 Dallas Street, Emporium Conference Room, Houston, Texas 77002; however, we encourage you to authorize your proxy to ensure that your vote is counted. If your Common Shares are registered in the name of a broker, bank, or other financial institution and you want to vote at the meeting you will need to complete the appointment of proxyholder section on the proxy card or voter instruction form you have been sent and send it back in advance of the proxy cut-off to appoint yourself or someone else to attend the meeting.

​

Will my Common Shares be voted if I do not provide my proxy?

​

If your Common Shares are held in the name of your broker, a bank or other nominee in “street name,” that party will give you instructions for voting your Common Shares. If your Common Shares are held in “street name” and you would like to vote your Common Shares in person at the Special Meeting, you must complete the appointment section on your voter instruction form delegating yourself or another delegate and return your voter instruction form.

​

Under NASDAQ Listing Rules, brokers who hold shares in “street name” for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are not permitted to exercise their voting discretion with respect to the approval of matters that NASDAQ determines to be “non-routine” without specific instructions from the beneficial owner. It is expected that all proposals to be voted on at the Special Meeting are “non-routine” matters. Broker non-votes occur when a broker or nominee is not instructed by the beneficial owner of shares to vote on a particular proposal for which the broker does not have discretionary voting power.

​

If you hold your Common Shares in “street name” and you do not instruct your broker, bank or other nominee on how to vote your Common Shares, your broker, bank or other nominee will not vote your shares on the Share Issuance Proposal but may vote on the Adjournment Proposal as it is a routine matter. Because the Adjournment Proposal is routine, such shares associated with any broker non-votes will be considered present for purposes of establishing a quorum.

​

What do I do if my shares are held in “street name”?

​

If your Common Shares are held in the name of your broker, a bank or other nominee in “street name,” that party will give you instructions for voting your Common Shares. If your Common Shares are held in “street name” and you would like to vote your Common Shares in person at the Special Meeting, you must contact your broker, bank or other nominee to obtain a proxy form from the record holder of your Common Shares.

​

What happens if I sell my shares before the Special Meeting?

​

The Record Date for shareholders entitled to vote at the Special Meeting is earlier than the date of the Special Meeting. If you transfer your Common Shares after the Record Date but before the Special Meeting, you will, unless special arrangements are made, retain your right to vote at the Special Meeting.

​

What happens if the Special Meeting is postponed or adjourned?

​

If the Special Meeting is postponed or adjourned, your proxy will still be valid and may be voted at the postponed or adjourned meeting. You will still be able to change or revoke your proxy until it is voted. See “Can I change my previously authorized vote?” above.

​

How can I submit a question at the Special Meeting?

​

Shareholders may ask questions in a non-disruptive manner during the Special Meeting. Questions will be addressed in the Q&A portion of the Special Meeting.

​

Who pays for this proxy solicitation?

​

Epsilon’s Board is soliciting your proxy and Epsilon will pay for the proxy solicitation costs related to the Special Meeting. In addition to sending and making available these materials, some of Epsilon’s directors, officers and other employees may solicit proxies by contacting Epsilon’s shareholders by telephone, by mail, by e-mail or online. Epsilon shareholders may also

Table of Contents

be solicited by, among others, news releases issued by Epsilon, postings on Epsilon’s websites and social media accounts and advertisements in periodicals. None of Epsilon’s directors, officers or employees will receive any extra compensation for their solicitation services. Epsilon has also retained Campaign Management as its proxy solicitor to assist in the solicitation of proxies. For these proxy solicitation services, Campaign Management will receive an estimated fee of approximately $11,500, plus reasonable out-of-pocket expenses and fees for any additional services. Epsilon will also reimburse banks, brokers, and other nominees for their expenses in sending proxy solicitation materials to the beneficial owners of our Common Shares and obtaining their proxies.

​

When and where will the Special Meeting be held?

​

The Special Meeting will be held at One Allen Center, 500 Dallas Street, Emporium Conference Room, Houston, Texas 77002 on [•], 2025 at [•] a.m. Central Time. Epsilon shareholders will be able to attend in person and vote at the Special Meeting.

​

Where can I find the voting results of the Special Meeting?

​

We will file the final voting results of the Special Meeting with the SEC in a Current Report on Form 8-K within four business days after the date of the Special Meeting, following any adjournments or postponements thereof.

​

I share an address with another shareholder, but we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials?

​

If you share an address with another shareholder, you may receive only one set of proxy materials unless you have provided contrary instructions. The rules promulgated by the SEC permit companies, brokers, banks or other financial institutions to deliver a single copy of proxy statements and annual reports to households at which two or more shareholders reside. This practice, known as “householding,” is designed to reduce duplicate mailings, save significant printing and postage costs and conserve natural resources. Shareholders will receive only one copy of our proxy statements and annual reports if they share an address with another shareholder, have been previously notified of householding by their broker, bank or other financial institution, and have consented to householding, either affirmatively or implicitly by not objecting to householding. If you would like to opt out of householding for future mailings, or if you currently receive multiple copies of our annual reports and proxy statements and would prefer to receive a single copy in the future, please contact your broker, bank or financial institution. You may also obtain a separate proxy statement or annual report without charge by sending a written request to Computershare Investor Services Inc., 320 Bay Street, 14^th Floor, Toronto, ON M5H 4A6. They will promptly send additional copies of this Proxy Statement upon receipt of such request.

​

What if I receive more than one proxy card?

​

This means that you have multiple accounts holding Common Shares. These may include accounts with our transfer agent and/or accounts with a broker, bank or other holder of record. In order to vote all of the shares held by you in multiple accounts, you will need to vote separately the shares held in each account. Please follow the voting instructions provided on each proxy card to ensure that all of your shares are voted.

​

You are encouraged to have all accounts registered in the same name and address whenever possible. You should contact your bank, broker, or other nominee for more information.

​

What do I need to do now?

​

You are urged to read carefully and consider the information contained in this Proxy Statement, including the annexes hereto. You should then vote as soon as possible in accordance with the instructions provided in this Proxy Statement and on the enclosed proxy card or, if you hold your Common Shares through a brokerage firm, bank or other nominee, on the voting instruction form provided by the broker, bank or nominee.

​

Who can help answer my questions?

​

If you have questions about the proposals or if you need additional copies of this Proxy Statement or the enclosed proxy card, you should contact:

​

Epsilon Energy Ltd.

500 Dallas Street, Ste. 1250

Houston, Texas 77002

281-670-0002

Attention: AeRayna Flores

Email: Aerayna.Flores@epsilonenergyltd.com

​

To help ensure timely delivery, please request any such additional copies no later than five business days prior to the

Table of Contents

Special Meeting. You may also obtain additional information about us from documents filed with the SEC by following the instructions in the section entitled “Where You Can Find Additional Information; Incorporation of Certain Documents by Reference.”

​

The SEC has an informational website that provides shareholders with general information about how to cast their vote and why voting should be an important consideration for shareholders. You may access that information at www.sec.gov/spotlight/proxymatters.shtml or at www.investor.gov.

PROXY STATEMENT SUMMARY

​

This summary highlights selected information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that may be important to you. You should carefully read this entire Proxy Statement, including the annexes and accompanying financial statements of the Acquired Companies and unaudited pro forma financial information included herein, to fully understand the proposed Transactions before voting on the proposals to be considered at the Special Meeting. Please see the section entitled “Where You Can Find Additional Information; Incorporation of Certain Documents by Reference” of this Proxy Statement.

​

The Companies

​

Epsilon Energy Ltd.

​

Epsilon is a North American on-shore focused independent natural gas and oil company engaged in the acquisition, development, gathering and production of natural gas and oil reserves. Epsilon has natural gas production in the Marcellus Shale in Pennsylvania; oil, natural gas liquids and natural gas production in the Permian Basin in Texas and New Mexico, the NW Anadarko Basin in Oklahoma; and oil, natural gas liquids, and natural gas production in the Western Canadian Sedimentary Basin in Alberta, Canada. Epsilon conducts operations in the United States through its wholly owned subsidiaries Epsilon USA; Epsilon Midstream, LLC, a Pennsylvania limited liability company, or “Epsilon Midstream”; Epsilon Operating, LLC, a Delaware limited liability company; Dewey Energy GP LLC, a Delaware limited liability company; Dewey Energy Holdings LLC, a Delaware limited liability company; and Altolisa Holdings, LLC, a Delaware limited liability company.

​

Our Common Shares are listed on NASDAQ under the ticker symbol “EPSN.”

​

The mailing address of our principal executive office is 500 Dallas Street, Ste. 1250, Houston, Texas 77002 and our telephone number is (281) 670-0002.

​

For more information about us, please see the section entitled “Information About The Parties.”

​

The Acquired Companies

​

The Acquired Companies are (i) Peak Exploration & Production, LLC, a Delaware limited liability company, and (ii) Peak BLM Lease LLC, a Delaware limited liability company, and their respective subsidiaries. The Acquired Companies are privately held oil and gas exploration and production companies that operate in the PRB. As of June 30, 2025, the Acquired Companies owned approximately 39,600 net leasehold acres (out of 61,000 gross acres) in the PRB, primarily in Campbell and Converse Counties, Wyoming. The Acquired Companies’ operations are focused on the development of multiple productive horizons, including the Parkman, Shannon, Turner, Niobrara, and Mowry formations, utilizing advanced horizontal drilling and completion technologies.

​

The mailing address of the Acquired Companies’ principal executive offices is 1910 Main Avenue, Durango, Colorado 81301, and their telephone number is (970) 247-1500. For more information about the Acquired Companies, please see the sections entitled “Information About the Parties,” “Information About the Acquired Companies” and “Management’s Discussion and Analysis of the Acquired Companies.”

​

The Purchase Agreements

​

On August 11, 2025, we entered into the Purchase Agreements. All capitalized terms used but not defined in this notice have the meaning given to them in the Peak E&P Purchase Agreement.

​

Our Board Following the Transactions

​

At the Closing of the Transactions, the Company shall appoint two (2) designees of the Sellers to the Board of the Company. For more information, please see the section entitled “Management After the Transactions.”

​

The Share Issuance Proposal

Table of Contents

​

Subject to the terms and conditions of the Purchase Agreements, at the Closing, Epsilon USA will acquire all of the issued and outstanding limited liability company interests of Peak E&P and Peak BLM, and as a result the Acquired Companies would become indirect wholly owned subsidiaries of the Company. Subject to certain adjustments in the Peak E&P Purchase Agreement, the Company would issue an aggregate of up to 5,800,000 Common Shares at Closing. Also at the Closing, and subject to certain adjustments in the Peak BLM Purchase Agreement, the Company would issue up to 200,000 Common Shares to Yorktown pursuant to the Peak BLM Purchase Agreement and, subject to the conditions of the Peak BLM Purchase Agreement, the Company would issue an additional aggregate amount of up to 2,500,000 Common Shares to Yorktown  following the Closing.

​

As a result of the Transactions, if the maximum number of Common Shares is issued pursuant to the Purchase Agreements (a) our current shareholders will own approximately 72% of our outstanding Common Shares, on a fully diluted basis, and (b) the respective sellers (and/or their affiliates) will own approximately 28% of our outstanding Common Shares, on a fully diluted basis, in each case based on the number of Common Shares issued and outstanding, on a fully diluted basis, as of the Record Date. If none of the 2,500,000 Common Shares that may be issued following the Closing are issued to Yorktown pursuant to the Peak BLM Purchase Agreement (a) our current shareholders will own approximately 79% of our outstanding Common Shares, on a fully diluted basis, and (b) the Acquired Companies will own approximately 21% of our outstanding Common Shares, on a fully diluted basis, in each case based on the number of Common Shares issued and outstanding, on a fully diluted basis, as of the Record Date. Additionally, the Company will make a payment of $51.2 million (with proceeds from the Company’s revolving credit facility), which is estimated as of June 30, 2025, to satisfy all indebtedness of Peak E&P. For more information about the issuance contemplated by the Purchase Agreements, please see the section entitled “Proposal 1 — The Share Issuance Proposal.”

​

The Adjournment Proposal

​

In addition, our shareholders will be asked to vote on a proposal to adjourn the Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies in the event that there are insufficient votes for the approval of the Share Issuance Proposal. For more information, please see the section entitled “Proposal 2 — The Adjournment Proposal.”

​

Date, Time and Place of Special Meeting

​

The Special Meeting will be held at One Allen Center, 500 Dallas Street, Emporium Conference Room, Houston, Texas 77002. Epsilon shareholders will be able to attend in person and vote at the Special Meeting.

​

Voting Power; Record Date

​

Only shareholders of record at the close of business on [•], 2025, the Record Date, will be entitled to vote at the Special Meeting. You are entitled to one vote for each Common Share that you owned as of the close of business on the Record Date. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker, bank or other nominee to ensure that votes related to the shares you beneficially own are properly counted. As of the Record Date, there were [•] Common Shares outstanding and entitled to vote.

​

Accounting and Tax Treatment

​

The Transactions will be accounted for using the acquisition method of accounting for business combinations with the Company being treated as the acquirer. The Transactions will result in the recognition of assets acquired and liabilities assumed at fair value. The preliminary allocation of the purchase price used in the unaudited pro forma condensed combined financial information presented elsewhere in this Proxy Statement is based on preliminary estimates and currently available information. These assumptions and estimates, some of which cannot be finalized until the Closing, will be revised as additional information becomes available upon the Closing and finalization of the valuation of the Acquired Companies’ assets and liabilities. The final determination of the allocation of the purchase price will be based on the fair values of the assets and liabilities of the Acquired Companies as of the Closing Date.

​

For U.S. federal income tax purposes, we expect to treat the Transactions as a taxable acquisition of the assets of the Acquired Companies by Epsilon in exchange for the Share Issuance under the Purchase Agreements.

​

Proxy Solicitation

​

We are soliciting proxies on behalf of our Board. Proxies may be solicited by mail. We have also retained Campaign Management as our proxy solicitor to assist in the solicitation of proxies.

​

If you have any questions or need assistance voting your Common Shares, please contact our proxy solicitor, Campaign Management:

​

Table of Contents

Campaign Management

15 West 38^th Street, Suite #747

New York, New York 10018

North America Toll-Free Phone: 1-855-434-5243

Email: info@campaign-mgmt.com

Call Collect Outside North America: +1 (212) 632-8422

Conditions to Closing

​

Conditions to the Sellers’ Obligations

​

The obligations of the Sellers to consummate the Transactions are subject to the satisfaction (or waiver in writing) on or prior to the Closing of each of the following conditions precedent:

​

​

​

​

​

​

​

​

Conditions to Epsilon’s and Epsilon USA’s Obligations

​

The obligations of Epsilon and Epsilon USA to consummate the Transactions are subject to the satisfaction (or waiver by Epsilon USA in writing) on or prior to the Closing Date of each of the following conditions precedent:

​

​

​

​

​

​

​

Quorum and Required Vote for Proposals for the Special Meeting

​

We will hold the Special Meeting if shareholders representing the required quorum of Common Shares entitled to vote authorize their proxy online or telephonically, sign and return their proxy cards or attend the Special Meeting in person. The presence in person or by proxy of a majority of the outstanding Common Shares entitled to vote constitutes a quorum. If you

Table of Contents

authorize your proxy online or telephonically or sign and return your proxy card, your shares will be counted to determine whether we have a quorum even if you abstain or fail to indicate your vote on the proxy card.

​

The Share Issuance Proposal requires the affirmative vote of at least a majority of the votes cast in person or represented by proxy at the Special Meeting by the holders of Common Shares, assuming a quorum is present. The Adjournment Proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy at the Special Meeting. Accordingly, a shareholder’s failure to vote by proxy or to vote in person at the Special Meeting will have no effect on the Share Issuance Proposal or the Adjournment Proposal. An abstention, on the other hand, will be the equivalent of a vote “AGAINST” the Share Issuance Proposal or the Adjournment Proposal.

​

The Transactions are conditioned on, among other things, the approval of the Share Issuance Proposal. The Adjournment Proposal is not conditioned on the approval of the Share Issuance Proposal. If the Share Issuance Proposal does not receive the requisite vote for approval, we will not be able to consummate the Transactions.

​

Recommendation to Our Shareholders; Reasons for the Transactions

​

The Board unanimously recommends that our shareholders vote “FOR” each of the Share Issuance Proposal and the Adjournment Proposal. In making its determination, the Board considered a number of factors, which are described in greater detail in the section entitled “Proposal 1 — The Share Issuance Proposal — Our Board’s Reasons for the Approval of the Transactions and the Share Issuance.”

​

Risk Factors

​

In evaluating the Transactions and the proposals to be considered and voted on at the Special Meeting, you should carefully review and consider the risk factors set forth under the section entitled “Risk Factors” of this Proxy Statement. The occurrence of one or more of the events or circumstances described in that section, alone or in combination with other events or circumstances, may have a material adverse effect on (i) the ability of us or the Sellers to complete the Transactions and (ii) the business, cash flows, financial condition and results of operations of Epsilon or the Acquired Companies prior to the consummation of the Transactions and the combined company following consummation of the Transactions.

​

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

​

This Proxy Statement and the documents incorporated by reference herein contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. These statements are based on current expectations, estimates, forecasts and projections about the industries in which we and the Acquired Companies operate and the beliefs and assumptions of our respective management. We use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” variations of such words and similar expressions to identify forward-looking statements. In addition, statements that refer to the Transactions and any statements regarding the expected timing, benefits, synergies, growth opportunities and other financial and operating benefits thereof, the Closing and timing or satisfaction of regulatory requirements and closing conditions, or the anticipated operations, financial position, liquidity, performance, prospects or growth and scale opportunities of the combined company; integration activities; the anticipated value of the combined business to us and our stakeholders; the expected impact of the Transactions on our results of operations and financial condition; anticipated growth and trends in the business or key markets; and other characterizations of future events or circumstances, are forward-looking statements. Readers are cautioned that actual results could differ materially from those expressed in any forward-looking statements. While forward-looking statements are based on assumptions and analyses that management of Epsilon and the Acquired Companies believe to be reasonable under the circumstances, whether actual results and developments will meet such expectations and predictions depends on a number of risks and uncertainties that could cause actual results, performance, and financial condition to differ materially from such expectations. Any forward-looking statements speak only as of the date on which it is made. Factors or events that could cause actual results to differ may emerge from time to time, and it is not possible to predict all of them. Please consider the foregoing factors and the other risk factors in the section entitled “Risk Factors,” as well as the risk factors contained in our SEC filings available at www.sec.gov, including our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and such reports that are subsequently filed with the SEC. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements. Readers are cautioned not to put undue reliance on forward-looking statements, and Epsilon and the Acquired Companies assume no obligation and do not intend to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by securities and other applicable laws. Neither Epsilon nor the Acquired Companies give any assurance that any of Epsilon, the Acquired Companies or the combined company will achieve its expectations.

​

Table of Contents

RISK FACTORS

​

You should carefully review and consider the following risk factors and the other information contained in this Proxy Statement, including the unaudited pro forma condensed combined financial information, financial statements of the Acquired Companies and notes to the financial statements included herein, in evaluating the Transactions and the proposals to be voted on at the Special Meeting. The following risk factors apply to the business and operations of Epsilon and the Acquired Companies and will also apply to the business and operations of the combined company following the completion of the Transactions. The occurrence of one or more of the events or circumstances described in these risk factors, alone or in combination with other events or circumstances, may adversely affect the ability to complete or realize the anticipated benefits of the Transactions, and may have an adverse effect on the business, cash flows, financial condition and results of operations of the combined company. You should also carefully consider the following risk factors in addition to the other information included in this Proxy Statement, including matters addressed in the section entitled “Cautionary Note Regarding Forward-Looking Statements.” We, and the Acquired Companies, may face additional risks and uncertainties that are not presently known to us or the Acquired Companies, or that we or the Acquired Companies currently deem immaterial, which may also impair our or the Acquired Companies’ business or financial condition. The following discussion should be read in conjunction with the unaudited pro forma condensed combined financial information, financial statements of the Acquired Companies and notes to the financial statements included herein.

​

We have grouped the risks into three categories but without any reflection on the importance of, or likelihood of, any particular risk.

​

Risks Relating to the Transactions

​

The Transactions are subject to closing conditions and may not be completed, the Purchase Agreements may be terminated in accordance with their terms, and we may be required to pay a termination fee upon termination.

​

The Transactions are subject to customary closing conditions that must be satisfied or waived prior to the completion of the Transactions, including the approval by our shareholders of the Share Issuance Proposal and other customary closing conditions. Many of the closing conditions are not within our control. No assurance can be given that our shareholders will approve the Share Issuance Proposal or that the required conditions to Closing will be satisfied in a timely manner or at all. Any delay in completing the Transactions could cause us not to realize, or to be delayed in realizing, some or all of the benefits that we expect to achieve if the Transactions are successfully completed within the expected time frame.

​

Additionally, either we or the Sellers may terminate the Purchase Agreements under certain circumstances, including, among other reasons, if the Transactions are not completed by February 7, 2026. In addition, if the Peak E&P Purchase Agreement is terminated solely for lack of approval of the Share Issuance Proposal, we will be obligated to pay a termination fee of $750,000.

​

Moreover, if the Transactions are not completed for any reason, including because approval of the Share Issuance Proposal is not obtained, our ongoing businesses may be adversely affected and, without realizing any of the expected benefits of having completed the Transactions, we would be subject to a number of risks, including the following:

​

​

​

​

​

​

The Share Issuance will not be adjusted based on changes in our stock price or our performance.

​

Under the Purchase Agreements, the Share Issuance will not be adjusted for changes in the market price of our Common Shares or our economic performance. If the market price of our Common Shares increases or decreases, the Share Issuance will not be adjusted to account for any such changes or any effective increase or decrease in the value of the Share Issuance under the Purchase Agreements.

Table of Contents

We will be subject to business uncertainties and contractual restrictions, including the risk of litigation, while the Transactions are pending that may cause disruption and may make it more difficult to maintain relationships with employees, suppliers or customers.

​

Uncertainty about the effect of the Transactions on employees, suppliers and customers may have an adverse effect on Epsilon and/or the Acquired Companies, which uncertainties may impair our or the Acquired Companies’ ability to attract, retain and motivate key personnel until the Transactions are completed and for a period of time thereafter, and could cause customers, suppliers and others that deal with us or the Acquired Companies to seek to change existing business relationships with us or the Acquired Companies.

​

Employee retention and recruitment may be challenging before the completion of the Transactions, as employees and prospective employees may experience uncertainty about their future roles following the Transactions. Key employees may depart or prospective key employees may fail to accept employment with the Company because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company following the Transactions, any of which could have a material adverse effect on our business, financial condition and results of operations.

​

The pursuit of the Transactions and the preparation for the integration may place a significant burden on management and internal resources. The diversion of management’s attention away from day-to-day business concerns and any difficulties encountered in the transition and integration process could have a material adverse effect on our business, financial condition and results of operations.

​

Until the completion of the Transactions or the termination of the Purchase Agreements in accordance with their terms, we are prohibited from taking certain actions that might otherwise be beneficial to us and our shareholders.

​

During the period between the date of the Purchase Agreements and Closing (or earlier termination of the Purchase Agreements), the Purchase Agreements restricts us from amending our organizational documents, making material changes to our method of accounting, or adopting any plan of merger or dissolution or other restructuring, in each case without the consent of the Sellers. These restrictions may prevent us from taking actions during the pendency of the Transactions that would have been beneficial. Adverse effects arising from these restrictions during the pendency of the Transactions could be exacerbated by any delays in consummation of the Transactions or termination of the Purchase Agreements.

​

Current Epsilon shareholders will have a reduced ownership and voting interest in Epsilon after the Transactions compared to their current ownership and will exercise less influence over management.

​

Based on the number of issued and outstanding Common Shares as of the Record Date, plus the maximum number of Common Shares that may be issued pursuant to the Transactions, it is expected that, on a fully-diluted basis, our current shareholders will collectively own approximately 72%, and the Sellers will collectively own approximately 28%, of the outstanding Common Shares. Even if none of the contingent Common Shares are issued pursuant to the Peak BLM Purchase Agreement, our current shareholders will collectively own approximately 79%, and the Sellers will collectively own approximately 21%, of the outstanding Common Shares. As a result of the Transactions, our current shareholders will own a smaller percentage of the combined company than they currently own of Epsilon, and as a result will have less influence on the management and policies of the combined company following the Closing than they now have on the management and policies of Epsilon, as the case may be.

​

The Transactions will involve substantial costs.

​

We have incurred and expect to incur non-recurring costs associated with the Transactions and combining the operations of the companies. These costs and expenses include fees paid to legal, financial and accounting advisors, filing fees, employee transition/severance costs, printing costs and other costs and expenses. A significant portion of these transaction costs is contingent upon the Closing occurring, although some have been and will be incurred regardless of whether the Transactions are consummated.

​

Combining the businesses of Epsilon and the Acquired Companies may be more difficult, costly or time-consuming than expected and the combined company may fail to realize the anticipated synergies and other benefits of the Transactions, which may adversely affect the combined company’s business results and negatively affect the value of our Common Shares following the consummation of the Transactions.

​

Epsilon and the Acquired Companies have operated and, until the completion of the Transactions will continue to operate, independently. The success of the Transactions will depend on, among other things, the ability of Epsilon and the Acquired Companies to combine their businesses in a manner that facilitates growth opportunities and realizes expected cost savings. We have entered into the Purchase Agreements because we believe that the transactions contemplated by the Purchase Agreements are

Table of Contents

fair to and in the best interests of our shareholders and that combining the businesses of Epsilon and the Acquired Companies will produce benefits, including cost savings and additional attractive opportunities to deploy capital.

​

Following the Closing, Epsilon and the Acquired Companies must successfully combine their respective businesses in a manner that permits these benefits to be realized. For example, the following issues, among others, must be addressed in integrating the operations of the companies in order to realize the anticipated benefits of the Transactions:

​

​

​

​

​

​

​

​

​

​

​

It is possible that the integration process could result in the loss of key employees of Epsilon or the Acquired Companies, the loss of customers, the disruption of either Epsilon’s or the Acquired Companies’ ongoing businesses, inconsistencies in standards, controls, procedures and policies, unexpected integration issues, higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated. In addition, the actual integration may result in additional and unforeseen expenses. If the combined company is not able to adequately address integration challenges, we may be unable to successfully integrate operations and the anticipated benefits of the integration plan may not be realized.

​

The combined company may not be able to retain customers, suppliers or distributors, or customers, suppliers or distributors may seek to modify contractual relationships with the combined company, which could have an adverse effect on the combined company’s business and operations. Third parties may terminate or alter existing contracts or relationships with the combined company.

​

As a result of the Transactions, the combined company may experience impacts on relationships with customers, suppliers and distributors that may harm the combined company’s business and results of operations. Certain customers, suppliers or distributors may seek to terminate or modify contractual obligations following the Transactions whether or not contractual rights are triggered as a result of the Transactions. There can be no guarantee that customers, suppliers and distributors will remain with or continue to have a relationship with the combined company or do so on the same or similar contractual terms following the Transactions. If any customers, suppliers or distributors seek to terminate or modify contractual obligations or discontinue the relationship with the combined company, then the combined company’s business and results of operations may be harmed. If the combined company’s suppliers were to seek to terminate or modify an arrangement with the combined company, then the combined company may be unable to procure necessary supplies from other suppliers in a timely and efficient manner and on acceptable terms, or at all.

​

In addition, third parties with whom the Acquired Companies currently have relationships may terminate or otherwise reduce the scope of their relationship in anticipation of the Transactions. Any such disruptions could limit the combined company’s ability to achieve the anticipated benefits of the Transactions. The adverse effect of any such disruptions could also be exacerbated by a delay in the completion of the Transactions or by a termination of the Purchase Agreements.

​

Table of Contents

The unaudited pro forma condensed combined financial information and Epsilon’s and the Acquired Companies’ respective financial information included in this Proxy Statement may not be indicative of what the actual financial position or results of operations would have been if the Transactions are consummated. Our future results following the Transactions may differ, possibly materially, from the unaudited pro forma condensed combined financial information presented in this Proxy Statement.

​

The unaudited pro forma condensed combined financial information contain a variety of adjustments, assumptions, and estimates, and do not represent the actual financial position or results of operations of the combined company following the Transactions. Specifically, the Transactions and post-transaction integration process may give rise to unexpected liabilities and costs, including costs associated with the defense and resolution of Transactions-related litigation or other claims. In addition, the assumptions used in preparing the unaudited pro forma condensed combined financial information in this Proxy Statement may not prove to be accurate and may be affected by other factors. Any significant changes in the market price of the Common Shares may cause a significant change in the purchase price used for Epsilon’s accounting purposes and the unaudited pro forma condensed combined financial information contained in this Proxy Statement.

​

Because the unaudited pro forma condensed combined financial information in this Proxy Statement is presented for illustrative purposes only and is not necessarily indicative of what the actual financial position or results of operations would have been had the Transactions been completed on the dates indicated, our future results following the Transactions may differ, possibly materially, from such unaudited pro forma condensed combined financial information. See the section entitled “Unaudited pro forma condensed combined Financial Information” and the historical financial statements of Epsilon and the Acquired Companies included elsewhere in this Proxy Statement for more information.

​

The historical financial information of the Acquired Companies and the unaudited pro forma condensed combined financial information of the combined company included elsewhere in this Proxy Statement may not be indicative of the combined company’s actual financial position or results of operations.

​

The historical financial information of the Acquired Companies included in this Proxy Statement do not reflect the financial condition, results of operations or cash flows they would have achieved as a public company during the periods presented or those the combined company will achieve in the future. The combined company’s future financial condition, results of operations and cash flows could be materially different from amounts reflected in the Acquired Companies’ historical financial statements included elsewhere in this Proxy Statement. As such, it may be difficult for investors to compare the combined company’s future results to historical results or to evaluate its relative performance or trends in its business.

​

The Acquired Companies are currently not U.S. public reporting companies, and the obligations associated with integrating into a public company may require significant resources and management attention.

​

The Acquired Companies are, and prior to the consummation of the Transactions will remain, private companies that are not subject to reporting requirements. Upon completion of the Transactions, the combined company will become subject to the rules and regulations established from time to time by the SEC and NASDAQ with respect to the business and operations of the Acquired Companies. In addition, as a combined public company, we are required to document and test our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, so that our management can certify as to the effectiveness of our internal control over financial reporting in connection with our reports filed with the SEC. Bringing the Acquired Companies into compliance with these rules and regulations and integrating the Acquired Companies into our current compliance and accounting system may increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. Furthermore, the need to establish the necessary corporate infrastructure to integrate the Acquired Companies may divert management’s attention from implementing our growth strategy, which could prevent us from improving our business, financial condition and results of operations. Additionally, the measures we take may not be sufficient. If we do not continue to develop and implement the right processes and tools to manage the combined company following consummation of the Transactions, our ability to compete successfully and achieve our business objectives could be impaired, which could negatively impact our business, financial condition and results of operations. In addition, we cannot predict or estimate the amount of additional costs we may incur to bring the Acquired Companies into compliance with these requirements. These costs could materially increase our general and administration expenses. In addition, bringing the Acquired Companies into compliance with these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. These additional obligations could have a material adverse effect on our business, financial condition, results of operations and cash flow.

​

The absence of a fairness opinion may limit shareholder assurance regarding the fairness of the Transactions.

​

We are not obtaining a fairness opinion from a financial advisor in connection with the Purchase Agreements or the Share Issuance. A fairness opinion from an independent financial advisor would provide the financial advisor’s determination regarding whether the terms of the Transactions are fair, from a financial point of view, to our shareholders. Because we are  not obtaining such a fairness opinion, our shareholders will not have the benefit of an independent third-party evaluation of the financial fairness of the Transactions. As a result, shareholders must rely solely on the judgment of the Company’s management and Board in

Table of Contents

determining that the terms of the Transactions are fair and in the best interests of the Company and its shareholders. Shareholders should carefully consider the lack of a fairness opinion when evaluating the Transactions.

​

Risks Relating to Our Business

​

You should read and consider risk factors specific to our business which will also affect the combined company after the completion of the Transactions. These risks are described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and subsequent Quarterly Reports on Form 10-Q, which are incorporated by reference herein. For the location of information incorporated by reference in this Proxy Statement, see the section entitled “Where You Can Find Additional Information; Incorporation of Certain Documents by Reference.”

​

Risks Relating to the Acquired Companies’ Businesses

​

The businesses of the Acquired Companies and Epsilon are subject to many similar risks and uncertainties. Accordingly, the Acquired Companies’ businesses are, and after the completion of the Transaction will continue to be, subject to the risks described above and the business risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and subsequent Quarterly Reports on Form 10-Q, which are incorporated herein by reference. Additional risks applicable to the businesses of the Acquired Companies are set forth below.

​

The Acquired Companies’ producing properties are concentrated in the PRB, making them vulnerable to risks associated with operating in a single geographic area.

​

As a result of the Acquired Companies’ geographic concentration in the PRB, adverse industry developments in the PRB could have a greater impact on their financial condition and results of operations than if their exploration and development operations were more geographically diverse. They may be disproportionately exposed to the impact of regional supply and demand factors, governmental regulations, midstream capacity constraints, availability of facilities, services market limitations or interruption of the processing or transportation of crude oil, natural gas or NGLs, and extreme weather conditions and their adverse impact on production volumes, availability of electrical power, road accessibility and transportation facilities. In addition, fluctuations of supply and demand may become more pronounced within the PRB, which may cause these conditions to occur with greater frequency or magnify the effects of these conditions. Due to the concentrated nature of the Acquired Companies’ portfolio of properties, these fluctuations may result in a relatively greater impact on the Acquired Companies’ results of operations than they might have on other companies that have a more geographically diversified portfolio of properties. Delays or interruptions caused by such adverse developments could have a material adverse effect on the Acquired Companies’ financial condition and results of operations.

​

Similarly, the concentration of the Acquired Companies’ assets within a small number of producing formations exposes them to risks, such as changes in field wide rules, which could adversely affect development activities or production relating to those formations. In addition, in areas where exploration and production activities are increasing, the Acquired Companies could be subject to increasing competition for drilling rigs, workover rigs, tubulars and other well equipment, services, supplies as well as increased labor costs and qualified personnel, which may lead to periodic shortages or delays. The curtailments arising from these and similar circumstances may last from a few days to several months, and in many cases, the Acquired Companies may be provided only limited, if any, notice as to when these circumstances will arise and their anticipated duration.

​

Demand for qualified personnel in this area, and the cost to attract and retain such personnel, may increase substantially in the future. Moreover, the combined company’s competitors may be able to offer better compensation packages to attract and retain qualified personnel than the combined company is able to offer. Any delay or inability to secure the personnel necessary for them to continue or complete the Acquired Companies’ current and planned development activities could have a negative effect on production volumes or significantly increase costs, which, in turn, could have a material adverse effect on the combined company’s results of operations, liquidity and financial condition.

​

The unavailability, high cost or shortages of drilling rigs, fracking crews, equipment, raw materials, supplies, personnel and oilfield services could adversely affect the Acquired Companies’ ability to execute the Acquired Companies’ development plans within the Acquired Companies’ budget and on a timely basis.

​

The demand for drilling rigs, frac crews, pipe and other equipment, raw materials and supplies, including source water, sand and other proppant used in hydraulic fracturing operations, as well as for qualified and experienced field personnel, geologists, geophysicists, engineers and other professionals in the oil and natural gas industry, can fluctuate significantly, often in correlation with commodity prices or drilling activity in the Acquired Companies’ areas of operation and in other shale basins in the United States, causing periodic shortages of supplies and needed personnel and rapid increases in costs.

​

Table of Contents

The Acquired Companies own non-operating interests in properties that are operated by third parties and some of the Acquired Companies’ leasehold acreage on which they currently control operations could potentially be challenged resulting in their loss of operatorship. As a result, they are unable, or may become unable, to control the operation and ultimate profitability of such properties.

​

The Acquired Companies have sought to maintain operational control over the majority of their drilling, completion, and production activities. In Wyoming, operatorship is initially granted to the first working interest owner to successfully submit a State of Wyoming Application for Permit to Drill (“State APD”) for a given formation in a DSU, the requirements for which include:

​

​

​

​

​

​

​

​

To the extent that the combined company seeks to maintain control of operatorship on these properties, Chapter 3, Section 8(m) of the WOGCC’s rules on APDs contains a mechanism by which other working interest owners can challenge the combined company’s State APDs based on multiple factors, including working interest ownership in the DSU, expertise and technical ability to drill and complete wells and contractual obligations. The combined company cannot guarantee that it will be successful in maintaining operating control on all or a majority of the Acquired Companies’ currently controlled properties.

​

Some of the properties in which the Acquired Companies have an interest are in DSUs that are operated by other companies. The Acquired Companies have limited ability to influence or control the success of drilling and development activities on properties operated by third parties. Some of the factors that are under the control of the third-party operator include, among other things, the nature and timing of drilling and operational activities, the timing and amount of capital expenditures, and the use of suitable technology. In addition, the third-party operator’s operational expertise, financial resources and ability to gain the approval of other participants in drilling wells will impact the timing and potential success of drilling and development activities. A third-party operator’s failure to effectively perform operations, act in ways that are favorable to them or abide by applicable agreements could reduce the combined company’s production and revenues, negatively impact its liquidity, and cause it to spend capital in excess of its current plans, and, as a result, have a material adverse effect on its financial condition and operational results.

​

The Acquired Companies depend upon two significant purchasers for the sale of most of their oil and natural gas production. The loss of one or more of these purchasers could, among other factors, limit the Acquired Companies’ access to suitable markets for the oil and natural gas they produce.

​

For the six months ended June 30, 2025, HF Sinclair Refining & Marketing LLC and WGR Operating, LP accounted for approximately 80% and 17% of the Acquired Companies’ total revenues, respectively, excluding the impact of their commodity derivatives. For the year ended December 31, 2024, HF Sinclair Refining & Marketing LLC and Thunder Creek Gas Services, LLC accounted for approximately 87% and 11% of the Acquired Companies’ total revenues, respectively, excluding the impact of their commodity derivatives. For the year ended December 31, 2023, HF Sinclair Refining & Marketing LLC and Thunder Creek Gas Services, LLC accounted for approximately 87% and 10% of the Acquired Companies’ total revenues, respectively, excluding the impact of their commodity derivatives. The Acquired Companies do not have long-term contracts with their purchasers but rather the Acquired Companies sell the substantial majority of their production under arm’s length contracts with terms of 12 months or less, potentially including on a month-to- month basis, to a relatively small number of purchasers. We do not believe that the loss of a single purchaser would materially affect their business because there are numerous other potential purchasers in the area in which the Acquired Companies sell their production. However, the loss of any one of these significant purchasers, the Acquired Companies’ ability to sell their production to other purchasers on terms they consider acceptable, the inability or failure of their significant purchasers to meet their obligations to them or their insolvency or liquidation could have an adverse impact on the Acquired Companies’ financial condition and results of operations. We cannot assure you that any of the Acquired Companies’ purchasers will continue to do business with them or that the combined company will continue to have ready access to suitable markets for the Acquired Companies’ future production.

​

The availability of a ready market for any hydrocarbons the Acquired Companies produce depends on numerous factors beyond the Acquired Companies’ control, including but not limited to the extent of domestic production and imports of oil, the

Table of Contents

proximity and capacity of natural gas pipelines, the availability of skilled labor, materials and equipment, water sourcing, the effect of state and federal regulation of oil and natural gas production and federal regulation of oil and natural gas sold in interstate commerce.

​

The development of the Acquired Companies’ estimated undeveloped reserves may take longer and may require higher levels of capital expenditures than currently anticipated. Therefore, the Acquired Companies’ estimated undeveloped reserves may not be ultimately developed or produced.

​

As of December 31, 2024, approximately 34% of the Acquired Companies’ total estimated proved reserves were classified as PUDs. Development of these undeveloped reserves may take longer and require higher levels of capital expenditures than currently anticipated. Estimated future development costs relating to the development of the Acquired Companies’ PUDs at December 31, 2024 was approximately $223.6 million over the next five years. We cannot be certain that the estimated costs of the development of these reserves are accurate, that development will occur as scheduled or that the results of such development will be as estimated. The combined company’s ability to fund these expenditures is subject to a number of risks. The combined company may be unable to obtain any required capital or financing on satisfactory terms, which could lead to a decline in the Acquired Companies’ production and reserves. Delays in the development of PUDs, increases in costs to drill and develop such reserves or decreases in commodity prices will reduce the PV-10 value of estimated PUDs and future net cash flows estimated for such reserves and may result in some projects becoming uneconomical. In addition, delays in the development of reserves could cause the combined company to have to reclassify some of the PUDs as unproved reserves. Furthermore, there is no certainty that the combined company will be able to convert these undeveloped reserves to developed reserves or that the Acquired Companies’ PUDs will be economically viable or technically feasible to produce.

​

Further, the SEC rules require that, subject to limited exceptions, PUDs may only be booked if they relate to wells scheduled to be drilled within five years after the date of booking. This requirement has limited and may continue to limit the Acquired Companies’ ability to book additional PUDs as the combined company pursues the drilling program on these PUDs. As a result, the combined company may be required to reclassify certain of the PUDs if the combined company does not drill those wells within the required five-year timeframe.

​

​

Table of Contents

PROPOSAL 1: THE SHARE ISSUANCE PROPOSAL

​

Overview

​

On August 11, 2025, we entered into the Purchase Agreements. Subject to the terms and conditions of the Purchase Agreements, at the Closing, Epsilon USA, a wholly owned subsidiary of the Company, will acquire all of the issued and outstanding limited liability company interests of Peak E&P and Peak BLM, and as a result the Acquired Companies would become indirect wholly owned subsidiaries of the Company. Subject to certain adjustments in the Peak E&P Purchase Agreement, the Company would issue an aggregate of up to 5,800,000 Common Shares of the Company at Closing. Also at the Closing, the Company would issue 200,000 Common Shares to Yorktown under the Peak BLM Purchase Agreement and, subject to the conditions of the Peak BLM Purchase Agreement, the Company would issue an additional aggregate amount of up to 2,500,000 Common Shares to Yorktown following the Closing. As a result of the Transactions, at the Closing (a) our current shareholders will own approximately 79% of our outstanding Common Shares, on a fully diluted basis, and (b) the Sellers will own approximately 21% of our outstanding Common Shares, on a fully diluted basis, in each case based on the number of Common Shares issued and outstanding, on a fully diluted basis, as of the Record Date. If the maximum number of Common Shares is issued pursuant to the Peak BLM Purchase Agreements, including the 2,500,000 Common Shares that may be issued to Yorktown following the Closing, then at such time (a) our current shareholders will own approximately 72% of our outstanding Common Shares, on a fully diluted basis, and (b) the Sellers will own approximately 28% of our outstanding Common Shares, on a fully diluted basis, in each case based on the number of Common Shares issued and outstanding, on a fully diluted basis, as of the Record Date.

​

Our Common Shares are listed on NASDAQ under the ticker symbol “EPSN.” As a result, the Company is subject to NASDAQ Listing Rule 5635, pursuant to which shareholder approval is required prior to the acquisition of the equity securities of another company where the common stock to be issued in the acquisition could be 20% or more of the outstanding common stock before the issuance or 20% or more of the voting power outstanding before the issuance.

​

The terms of, reasons for and other aspects of the Purchase Agreements, the Transactions generally, and the issuance of Common Shares to the Sellers pursuant to the Purchase Agreements are described in detail below.

​

The Purchase Agreements

​

The following summary describes the material provisions of the Purchase Agreements. The provisions of the Purchase Agreements are complicated and not easily summarized. This summary may not contain all of the information about the Purchase Agreements that is important to you. This summary is qualified in its entirety by reference to the full text of the Peak E&P Purchase Agreement, which is attached as Annex A, and the Peak BLM Purchase Agreement, which is attached as Annex B, both of which are incorporated by reference into this Proxy Statement. The Purchase Agreements are the principal legal documents governing the Transactions, and Epsilon strongly encourages you to carefully read the Purchase Agreements in their entirety before making any voting decision.

​

The Purchase Agreements contain representations and warranties that Epsilon USA, on the one hand, and the Sellers and Acquired Companies, on the other hand, have made to one another as of specific dates. The information about Epsilon or the Acquired Companies contained elsewhere in this Proxy Statement or in Epsilon’s filings with the SEC may supplement, update or modify the factual disclosures about Epsilon contained in the following description of the material provisions of the Purchase Agreements or in the Purchase Agreements themselves. The representations and warranties contained in the Purchase Agreements are qualified and subject to important limitations that were negotiated and agreed to by the parties to the Purchase Agreements. Accordingly, in your review of the following description of the material provisions of the Purchase Agreements and the representations and warranties contained in the Purchase Agreements, you should bear in mind that such representations and warranties were made solely for the benefit of another party or parties to the Purchase Agreements and may have been negotiated with the principal purpose of allocating risk among the parties to the Purchase Agreements, rather than as statements of fact.

​

Neither Epsilon nor the Sellers intend that the Purchase Agreements will be a source of business or operational information about Epsilon or the Acquired Companies. In addition, the representations and warranties contained in the Purchase Agreements are qualified by information exchanged by the parties to the Purchase Agreements in confidential disclosure schedules. Accordingly, you should not rely on the following description of the material provisions of the Purchase Agreements or the representations and warranties contained in the Purchase Agreements as statements of fact regarding the parties to the Purchase Agreements.

​

Epsilon strongly encourages you to carefully read the information provided elsewhere in this Proxy Statement and in the documents incorporated by reference herein. For more information about the documents incorporated by reference, see the section entitled “Where You Can Find Additional Information; Incorporation of Certain Documents by Reference.”

​

Table of Contents

General

​

The Purchase Agreements provide that, at the Closing, Epsilon USA will acquire all of the issued and outstanding limited liability company interests of Peak E&P and Peak BLM, and as a result the Acquired Companies would become indirect wholly owned subsidiaries of the Company.

​

Purchase Price Consideration

​

At the Closing, the Company will issue (a) an aggregate of up to 5,800,000 Common Shares, subject to certain adjustments in the Peak E&P Purchase Agreement and (b) 200,000 Common Shares under the Peak BLM Purchase Agreement subject to certain adjustments in the Peak BLM Purchase Agreement. Following the Closing and subject to the conditions of the Peak BLM Purchase Agreement, the Company may issue an additional aggregate amount of up to 2,500,000 Common Shares to Yorktown.

​

At the Closing, Epsilon’s transfer agent will establish book-entry accounts for each Seller and credit the accounts with the applicable number of Common Shares.

​

A preliminary Settlement Statement will be prepared by the Sellers before Closing. The parties will attempt to resolve any disputes before Closing. Any unresolved amounts will be submitted before Closing to an independent accounting firm whose decision is final and binding.

​

Additionally, the Company will make a payment of $51.2 million (with proceeds from the Company’s revolving credit facility), which is estimated as of June 30, 2025, to satisfy all indebtedness of Peak E&P.

​

Post-Closing Consideration Under Peak BLM Agreement

​

The post-closing consideration under the Peak BLM Agreement is structured to provide for the payment of additional  considerations based on when Peak BLM has the right and ability pursuant to applicable law to conduct drilling and completion operations with respect to certain target wells (the “Resolution Date”).

​

​

​

​

​

​

Closing of the Transactions

​

The Closing Date will occur on the later of (a) October 27, 2025, or (b) the date that is two business days after the satisfaction or waiver of all conditions to the Closing (other than those conditions that by their nature cannot be satisfied until the Closing Date, which will be required to be satisfied or (to the extent permitted by applicable law) waived on the Closing Date). If the Closing does not occur within 180 days from the date of the execution of the Purchase Agreements, or February 7, 2026, then the Sellers may terminate the Purchase Agreements. For more information, please see the section below entitled “— Termination.”

​

Unless waived by the parties to the Purchase Agreements, and subject to applicable law, the Closing is subject to a number of conditions set forth in the Purchase Agreements, including, among others, (i) the approval of the Share Issuance Proposal; (ii) the total of all title and remediation amounts applicable to certain assets, and casualty loss amounts, must be less than 20% of the respective Purchase Agreement’s unadjusted purchase price; and (iii) NASDAQ’s approval for listing on NASDAQ of the Common Shares issuable to the Sellers in connection with the Purchase Agreements.

​

Table of Contents

Representations and Warranties

​

Each Purchase Agreement contains comprehensive and reciprocal representations and warranties made by each of the principal parties—Epsilon USA, on the one hand, and the applicable Sellers and Acquired Company, on the other. These representations and warranties are customary for transactions of this nature and are subject to various exceptions and qualifications, including materiality, knowledge, and material adverse effect qualifiers. The representations and warranties are generally grouped by party and cover a broad range of topics, as summarized below:

​

By Epsilon USA (regarding Epsilon and Epsilon USA)

​

​

​

​

​

​

​

By the Sellers:

​

​

​

​

​

​

​

​

By the Acquired Companies:

​

​

​

​

​

​

​

​

Table of Contents

​

​

​

​

​

​

The representations and warranties are subject to various limitations, including knowledge qualifiers (where certain representations are made to the “knowledge” of the party), materiality thresholds, and “material adverse effect” standards. Certain representations—such as those relating to title, environmental, operational, and reserve matters—are further addressed through dedicated title and environmental defect mechanisms, which provide the exclusive remedy for such matters asserted no later than forty-five (45) days following the execution date of the Purchase Agreements (the “Claim Date”).

​

The Purchase Agreements also provide that, except as expressly set forth in the Purchase Agreements or in certificates delivered at Closing, the Sellers disclaim all other representations and warranties, whether express, implied, statutory, or otherwise, including as to the condition, value, or suitability of the assets. Epsilon USA is deemed to have conducted its own independent investigation and is relying solely on the express representations and warranties in the Purchase Agreements and its own due diligence.

​

The survival periods for the representations and warranties of the Sellers and the Acquired Company terminate as of the Closing Date. Claims for fraud are not subject to these limitations and are expressly preserved.

​

In addition, the Purchase Agreements contemplate that Epsilon USA has obtained a representations-and-warranties insurance policy (the “R&W Insurance Policy”), which is intended to provide recourse for certain breaches of the Sellers’ representations and warranties, thereby reducing the Sellers’ indemnification exposure. The R&W Insurance Policy is subject to its own terms, conditions, and exclusions, and the Sellers are generally not liable for breaches covered by the policy, except in the case of fraud or as otherwise expressly provided.

​

Overall, the representations and warranties framework in the Purchase Agreements is designed to allocate risk among the parties, provide for specified remedies and limitations, and facilitate the efficient resolution of post-Closing claims.

​

Covenants

​

Under the Purchase Agreements, each party has agreed to customary covenants designed to preserve the value of the businesses between signing and Closing, to facilitate the transactions and to provide post-Closing protection in accordance with the following terms:

​

Conduct-of-Business Covenants

​

From signing through the earlier of Closing or termination, each Acquired Company must operate its business only in the ordinary course and refrain from specified activities without Epsilon USA’s consent, including, among other things, issuing equity, incurring indebtedness, disposing of material assets, amending governing documents, entering into certain contracts, making extraordinary capital expenditures, or settling litigation. Limitations apply to Epsilon and its subsidiaries (including limitations on share issuances, dividends, indebtedness and extraordinary transactions) to protect the Sellers against material dilution or adverse actions prior to shareholder approval and Closing.

​

Efforts Covenants

​

The parties must use reasonable best efforts to obtain required approvals and waivers, cooperate with respect to regulatory filings, and coordinate shareholder communications.

​

Independent Contractors; Affiliate Contracts

​

Prior to the Closing, the Acquired Companies shall have terminated certain applicable consulting agreements. Additionally, the Acquired Companies and each Seller will terminate all transactions and contracts between any Seller and the Acquired Companies.

​

Table of Contents

Employee and Benefit Matters

​

Epsilon USA may, but is not obligated to, provide a list to Peak E&P of the employees it intends to hire upon the Closing Date and Sellers shall terminate those employees that Epsilon USA does not intend to hire. Epsilon USA shall offer certain officer positions to Justin Vaughn and Glen Christiansen on similar terms and conditions it employs its current executive officers.

​

Indemnification of Directors and Officers; Tail Insurance

​

Epsilon USA will cause the Acquired Companies to maintain in their governing documents six-year indemnification and exculpation protections for pre-Closing directors and officers and to purchase six-year “tail” D&O coverage at Epsilon USA’s expense.

​

Registration Rights; Lock-Ups

​

At Closing, Epsilon will enter into a Registration Rights Agreement with each Seller granting customary demand and piggy-back registration rights for the Common Shares to be issued pursuant to the Purchase Agreements. Additionally, pursuant to the terms of the Registration Rights Agreement, Epsilon is required to file a registration statement with the SEC on the Close Date to register the resale of the Common Shares to be issued pursuant to the Purchase Agreements. Specified Sellers (and, if applicable, their permitted transferees) will execute 180-day lock-up agreements.

​

NASDAQ Listing

​

Prior to Closing, Epsilon shall cause the Common Shares to be issued pursuant to the Purchase Agreements to be approved for listing on NASDAQ.

​

Board Representation

​

At Closing, the Company shall appoint two (2) designees of Sellers to Epsilon’s Board, and each committee of the Board other than the Audit Committee; provided, that such designees shall be subject to, and comply with, all compliance procedures (including background checks) and qualification and expertise requirements applicable to the other members of the Board. Such designees will be nominated for re-election at the 2026 annual meeting of the Company’s shareholders.

​

Conditions to Closing

​

Unless waived by the parties to the Purchase Agreements, the Closing is subject to a number of conditions set forth in the Purchase Agreements, including, among others, (i) the approval of the Share Issuance Proposal by the affirmative vote of at least a majority of the votes cast in person or represented by proxy at the Special Meeting by the holders of Common Shares entitled to vote thereon; (ii) the total of all title and remediation amounts applicable to certain assets, and casualty loss amounts, must be less than 20% of the respective Purchase Agreement’s unadjusted purchase price, unless waived; and (iii) NASDAQ’s approval for listing on NASDAQ of the Common Shares issuable to the Sellers in connection with the Purchase Agreements.

​

Neither the Acquired Companies nor Epsilon can be certain when, or whether, the conditions to the Transactions will be satisfied or waived or whether the Transactions will ultimately be consummated. For more information on risks related to the Transactions, see the section entitled “Risk Factors.”

​

Termination

​

Prior to the Closing, each Purchase Agreement may be terminated by mutual written consent or by:

​

​

​

​

​

If Epsilon is unable to obtain approval of the Share Issuance Proposal by January 8, 2026, and if the Peak E&P Purchase Agreement is terminated, Epsilon USA may be obligated to pay a termination fee of $750,000. The parties to the Purchase

Table of Contents

Agreements have waived all other remedies under the Purchase Agreements, other than specific performance or to terminate the Purchase Agreements.

​

Title and Environmental Defect Mechanisms

​

The Purchase Agreements contain detailed procedures for identifying, asserting, and resolving title and environmental defects, as well as mechanisms for curing title benefits. These provisions are designed to allocate risk between the parties and provide exclusive remedies for such matters until the Claim Date.

​

Defect Notices and Cure

​

Epsilon USA must provide written notice of any alleged title or environmental defects (each, a "Defect Notice"). Notices must include a detailed description of the alleged defect, the affected asset, supporting documentation, and a calculation of the claimed defect amount. Epsilon USA is required to use commercially reasonable efforts to provide weekly preliminary notices of discovered defects prior to the Claim Date, but failure to provide such preliminary notice does not prejudice Epsilon USA’s right to assert defects by the Claim Date. Sellers have the right to cure any asserted defects prior to Closing.

​

Calculation of Defect Amounts

​

The amount by which the value of an asset is reduced due to a title defect or an environmental defect is determined according to detailed methodologies set forth in the Purchase Agreements. For title defects, the calculation may be based on the cost to cure, the proportionate reduction in net revenue interest or net mineral acres, or the economic impact of the defect, but in no event may the aggregate defect amounts exceed the allocated value of the affected asset (in each case, the “Title Defect Amount”). For environmental defects, the Remediation Amount is the reasonable cost of the most cost-effective remediation required under applicable environmental laws, taking into account the least stringent standard permitted and excluding certain costs such as internal overhead, costs not required by law, or duplicative amounts (in each case, the “Remediation Amount”).

​

Title Benefits

​

Sellers (or Epsilon USA, if discovered during diligence) may assert “Title Benefits”—circumstances that increase the value of an asset, such as an increase in net revenue interest or net mineral acres. Title Benefits offset Title Defect Amounts in the calculation of Purchase Price adjustments, but only to the extent of actual, quantifiable increases.

​

Thresholds and Deductibles

​

Only defects or benefits exceeding specified individual and aggregate thresholds (the “Individual Defect Threshold” and “Aggregate Defect Deductible”) are taken into account for purchase price adjustments. Defects or benefits below these thresholds are disregarded.

​

Dispute Resolution

​

If the parties cannot agree on the existence, cure or amount of a title defect, environmental defect, or Title Benefit prior to Closing, the disputed matters are submitted to a neutral third-party consultant (an attorney with relevant experience for title matters, or an environmental attorney for environmental matters) for binding resolution. The consultant is limited to the positions and documentation submitted by the parties and must act as an expert, not an arbitrator.

​

Exclusive Remedy and Waivers

​

The title and environmental defect mechanisms provide the exclusive remedy for such matters, and, after the Claim Date, Epsilon USA is precluded from asserting the same facts as a breach of representation or warranty if known prior to the Claim Date. Except as expressly set forth in the Purchase Agreements, including the special warranty of title, or in certificates delivered at Closing, Sellers disclaim all other representations and warranties regarding title and environmental matters, and Epsilon USA will acquire the assets on an “as is, where is” basis with respect to their physical and environmental condition. In the special warranty of title, the Sellers warrant Defensible Title to the Leases and Wells unto Epsilon USA from and against the claims of any and all persons lawfully claiming any part thereof, in each case, by, through, or under the Acquired Companies or their affiliates, but not otherwise.

​

Casualty Losses

​

Sellers bear the risk of casualty to the assets prior to Closing up to an agreed threshold. For larger losses, Epsilon USA may elect to accept an assignment of insurance proceeds or, in some cases, exclude the affected asset from the Transactions.

​

Table of Contents

Indemnification; Limitations on Liability

​

Except for fundamental representations (which survive for six years) and certain specified matters (such as tax, environmental and title claims, which survive for the applicable statutory period), the representations and warranties of the Sellers and the Acquired Company survive until the Closing Date, while the representations and warranties of Epsilon USA survive for twelve months following the Closing Date. Covenants survive for the period specified in the agreements (or, if not specified, until fully performed). The Sellers (on a several basis) indemnify Epsilon USA and its affiliates against breaches of the Seller’s and Acquired Companies’ covenants. Epsilon USA indemnifies the Sellers against breaches of Epsilon USA’s and Epsilon’s representations, warranties and covenants.

​

Except for fraud, the indemnification provisions (together with the title and environmental defect procedures and the R&W Insurance Policy obtained by Epsilon USA) constitute the parties’ sole and exclusive post-Closing remedies.

​

Specific Performance; R&W Insurance

​

As required by the Purchase Agreements, Epsilon USA has obtained the R&W Insurance Policy at its sole cost and expense. Subject to the policy’s terms, the R&W Insurance Policy is intended to provide recourse for certain breaches of the Sellers’ and Acquired Companies’ representations and warranties, thereby reducing indemnification exposure for the Sellers. The Purchase Agreements expressly permit the non-breaching party to seek specific performance or injunctive relief to enforce the agreements’ terms, provided that the Sellers have no right to specific performance compelling Epsilon USA to consummate a Closing.

​

Governing Law; Dispute Resolution

​

Both Purchase Agreements are governed by the laws of the State of Texas. The parties consent to exclusive jurisdiction in the federal or state courts located in Harris County, Texas for any proceeding arising out of or relating to the Purchase Agreements. Each party waives trial by jury. The parties are entitled to specific performance to prevent or remedy breaches of the Purchase Agreements.

​

Amendment

​

The Purchase Agreements may be amended or modified only by an agreement in writing executed by Epsilon USA and Sellers’ representative and expressly identified as an amendment or modification.

​

Background of the Transactions

​

The Board of Directors (“Board”) and management team of Epsilon regularly review Epsilon’s operating results, capital structure, future growth opportunities and its competitive position in the exploration and production industry. These analyses have included consideration by the Board and Epsilon’s management team, and discussions with industry participants from time to time, of potential strategic transactions, including acquisitions, divestitures, joint ventures and business combinations or other transactions, as well as ongoing initiatives aimed at enhancing shareholder value and growing Epsilon’s business organically, to prepare for and respond to changing market forces and resulting business risks and uncertainties in the exploration and production industry.

​

The terms of the Purchase Agreements are the result of arm’s-length negotiations among representatives of Yorktown Energy Partners LLC, the representative of Sellers (“Yorktown”), the Acquired Companies and Epsilon. The following is a summary of the events leading up to the signing of the Purchase Agreements and the key meetings, negotiations and discussions by and between Epsilon, the Acquired Companies, Yorktown and their respective advisors that preceded the public announcement of the Transactions. This summary does not purport to catalog every conversation or interaction among the representatives of Epsilon, the Acquired Companies, Yorktown and other parties.

​

Mr. Jason Stabell, Epsilon’s Chief Executive Officer, has known the principals of Yorktown for over twenty years and during his tenure as CEO of Epsilon has discussed several potential transactions and potential partnerships, including some involving the Acquired Companies.

​

On January 8, 2025, Mr. Stabell called Mr. Ali Kouros, a consultant of Peak BLM, to get an update on Yorktown and the Acquired Companies’ strategic plans in light of the delayed initial public offering of the Acquired Companies that was previously announced in November 2024. Mr. Stabell and Mr. Kouros discussed the merits of a potential transaction between Epsilon and the Acquired Companies, which included the enhanced financial capacity that could be provided by Epsilon to enhance the value of the Acquired Companies’ assets and the operational control and growth potential provided by the Acquired Companies’ assets.  

​

Over the following days several discussions occurred regarding a potential transaction between the parties that included Mr. Stabell, Mr. Andrew Williamson, Epsilon’s Chief Financial Officer, Mr. Bryan H. Lawrence, founder and managing member

Table of Contents

of Yorktown, and Mr. Kouros. Mr. Kouros and Mr. Lawrence provided high-level background materials on the Acquired Companies.

​

Mr. Stabell, Mr. John Lovoi, the Chairman of Epsilon’s Board, and Mr. Williamson flew to New York City to meet with representatives of Yorktown and the Acquired Companies at Yorktown’s  office on January 14, 2025, to discuss a potential transaction. Yorktown attendees were Mr. Bryan H. Lawrence, Mr. Bryan R. Lawrence, with Mr. Kouros attending on behalf of the Acquired Companies. The participants had preliminary discussions regarding potential equity splits, valuation methodology, governance and post-closing corporate structure. As a result of the discussion, Epsilon and the Acquired Companies agreed to pursue entry into a non-disclosure agreement, and then exchange detailed information in an effort to progress the discussions.

​

On January 18, 2025, the Acquired Companies and Epsilon entered into a non-disclosure agreement.

​

On January 20, 2025, Epsilon established a virtual data room and the Acquired Companies began uploading due diligence information regarding the Acquired Companies including financial information, reserves and production data, geologic / subsurface information, material contracts, land information, and future development plans.

​

On January 26, 2025, Epsilon initiated a discussion with TCBI Securities Inc. doing business as Texas Capital Securities (“TCS”) on potential transaction structure ideas. TCS provided a PRB-overview and the TCS team’s credentials on comparable transactions.

​

On January 29, 2025, TCS provided a more detailed presentation to Epsilon on transaction considerations, PRB-technical analysis, potential structuring considerations, terms of engagement, and a sample initial data request.

​

On February 6, 2025, Mr. Glen Christiansen, the President and COO of the Acquired Companies, and Mr. Justin Vaughn, the EVP and CFO of the Acquired Companies, met with Epsilon at its offices in Houston, Texas to discuss the Acquired Companies’ assets. This discussion included current operations, investment plans, details on the Acquired Companies’ term loan and the status of the permit moratorium in Converse County, Wyoming.

​

On February 7, 2025, Epsilon executed a non-disclosure agreement with TCS to share confidential information and prepare for a presentation to the Epsilon Board at the regularly scheduled meeting on February 12, 2025, to discuss a potential transaction with the Acquired Companies, and to consider the engagement of TCS as an advisor in connection therewith.

​

On February 12, 2025, TCS representatives and Epsilon’s management presented an overview of the PRB and the Acquired Companies’ assets to the Epsilon Board. The discussion included various transaction and structuring considerations. The Board spent considerable time discussing Yorktown’s proposed structuring of the transaction as a master limited partnership (“MLP”) and their intention to include a minority ownership in a to-be-formed international company. The Board instructed management to continue discussions with the Acquired Companies and Yorktown on a transaction involving the Acquired Companies but to communicate that an MLP structure was not favored by the Board for various reasons. Mr. Stabell communicated the Board’s conclusions to Mr. Kouros following the meeting. Subsequent to the meeting, the Board authorized the engagement of TCS.

​

On February 14, 2025, Epsilon provided the Acquired Companies’ data to TCS to conduct a parallel evaluation of the Acquired Companies’ assets.  

​

On February 21, 2025, Epsilon and TCS executed an engagement letter for advisory services to be provided in conjunction with the potential transaction.

​

On February 26, 2025, Epsilon provided information on its own assets including reserves and production data, geologic / subsurface information, and land information for review by the Acquired Companies.

​

During the first two weeks of March, Epsilon and TCS conducted detailed analyses of the Acquired Companies’ assets. This included an independent evaluation of the Acquired Companies’ existing production and undeveloped locations (comparing all to the Acquired Companies’ third-party reserve reports), an analysis of the Acquired Companies’ financial statements for years ended December 31, 2023 and 2024, and the creation of a financial model forecasting the cash-flows based on an assumed development pace going forward.

​

On March 19, 2025, Mr. Stabell provided the Board an update on the evaluation of the potential transaction. Consistent with the Board’s instruction, management and TCS were preparing an analysis of the relative values of Epsilon and the Acquired Companies with the assumed purchase price consideration being Epsilon’s Common Shares. The initial evaluation performed by Epsilon indicated a potential transaction was interesting due to the diverse and low decline production base, and large undeveloped acreage inventory across multiple benches in the PRB (mostly held by production), which provide operational control and capital allocation optionality.

Table of Contents

​

On March 25, 2025, Mr. Stabell provided information to Mr. Bryan H. Lawrence detailing the relative valuation methodology employed by Epsilon to calculate the relative values of Epsilon and the Acquired Companies primarily based on their respective third-party year-end 2024 reserve reports. Mr. Stabell and Mr. Kouros subsequently had several phone conversations to address questions on Epsilon’s methodology and commodity price assumptions.

​

On March 31, 2025, Mr. Stabell provided additional information to Mr. Lawrence regarding Epsilon’s assessment of the relative values of Epsilon and the Acquired Companies using several commodity price assumptions. Mr. Stabell informed Mr. Lawrence that at a flat price of $65 per barrel of oil and $4 per Mcf of natural gas, the analysis indicated an equity split of 70% to Epsilon and 30% to the Acquired Companies but highlighted several areas that required additional discussion that could impact the equity split. These issues included: the current permit moratorium in Converse County; the value attributed to the Acquired Companies’ proved undeveloped reserves due to the large near-term investment ramp required to crystalize this value; and additional balance sheet and long term payable adjustments to the Acquired Companies equity value, in addition to cash and debt considered in the presentation.

​

Mr. Kouros informed Mr. Stabell that Yorktown was also considering other alternative transactions but was still interested to receive a more formal proposal from Epsilon. He also advised that Yorktown still preferred a post-closing MLP structure.

​

On April 10, 2025, the Epsilon Board held a special meeting to discuss a potential transaction with the Acquired Companies. Representatives of TCS attended the meeting. Management and TCS presented the relative valuation work on the assets of Epsilon and the Acquired Companies at multiple commodity prices. Management presented the transaction rationale which included operational control, the growth potential of the Acquired Companies’ undeveloped inventory, the strong balance sheet for the combined company, adding a respected energy investor to the Epsilon Board, and the attraction of using shares in accretive M&A. Management also analyzed accretion showing that the deal was accretive on all key metrics. The Board authorized management to deliver a proposal to Yorktown and the Acquired Companies, including a fixed consideration of 5.7 million Common Shares, which represented approximately 20% of the pro forma equity and an additional consideration of 1.7 million contingent Common Shares for Peak BLM to be paid upon the lifting of the permit moratorium in Converse County. The proposal included purchase price adjustments for the Acquired Companies’ and Epsilon’s balance sheets calculated on the audited year-end 2024 financial statements of the companies. Mr. Stabell delivered the non-binding proposal to the Acquired Companies and Yorktown on April 11, 2025.

​

On April 15, 2025, the Acquired Companies delivered a counter proposal for a fixed Common Share consideration of 6.7 million shares and a 2.5 million contingent Common Share consideration. The Acquired Companies also proposed an equity reduction from Epsilon to account for a deferred tax liability carried on the balance sheet as of year-end 2024. This counter amounted to an approximate 15% increase (calculated in number of potential Common Shares issued as consideration) to the Epsilon proposal provided on April 11, 2025. The counter also included no expiry date for the contingent consideration for Peak BLM.

​

On April 23, 2025, TCS, on behalf of Epsilon, delivered the best and final proposal (in response to the counter delivered on April 15, 2025) to the Acquired Companies and Yorktown in the form of a non-binding letter. The proposal increased the fixed share consideration by 5% to 6.0 million Common Shares and expanded the contingent Common Share consideration to a maximum of 2.5 million Common Shares, with step-downs beginning at year-end 2026 of 500,000 Common Shares every six months. Additionally, if no resolution was reached on the permit moratorium by year-end 2027, Yorktown would be entitled to a $6.5 million cash payment upon the lifting of the permit moratorium.

​

On April 23, 2025, Mr. Stabell updated the Board on the status of discussion with the Acquired Companies and Yorktown. He anticipated that the next step was the execution of the non-binding letter, which included a 30-day exclusivity period during which the parties would work toward finalizing a detailed term sheet for presentation to the Board, after which the parties would proceed to definitive documentation.

​

On April 25, 2025, the non-binding letter was accepted and executed by Yorktown after receiving the support of the Acquired Companies’ management team and minority owners.

​

On April 28, 2025, Epsilon instructed Gray Reed, as its counsel, to begin the preparation of a non-binding detailed term sheet. The term sheet provided details on the parties involved, the transaction structure, the consideration amount and form, the conditions on the release of the contingent consideration, the effective time, some expectations on the operation of the business from the effective time to closing, board representation for the equity holders of the Acquired Companies, the intention of Epsilon to assume and coincidentally refinance Acquired Companies’ credit facility, legal aspects of the purchase agreements, lock-up provisions on the equity holders of the Acquired Companies post-closing, Epsilon’s intention to offer employment to select employees of the Acquired Companies, some limitations on the Acquired Companies’ equity holders’ transaction expenses being paid by the Acquired Companies pre-closing, an exclusivity period to the end of June 2025 to allow for the negotiation of definitive

Table of Contents

transaction documents, governing law, and a termination fee in the event Epsilon’s shareholder’s did not vote in favor of the transaction.

 ​

On May 9, 2025, the draft non-binding term sheet was delivered to the Acquired Companies and Yorktown.

​

On May 12, 2025, the Acquired Companies and Yorktown delivered comments to Epsilon on the draft non-binding term sheet.

​

On May 14, 2025, a conference call between representatives of the Acquired Companies, Yorktown, Epsilon and TCS was held to discuss the term sheet. Items discussed included the Peak BLM resolution trigger mechanism with respect to the payment of the additional contingent consideration. defect mechanism, employee matters and leakage definition.  

​

On May 21, 2025, at the regularly scheduled Board meeting, management updated the Board on the status of negotiations on the term sheet, presented cash flow figures on the pro-forma company, and presented an estimated timeline of the transaction process (assuming the term sheet was executed). The Board stated its continued support to proceed with the proposed transaction.  

​

On June 3, 2025, a call was held among representatives of Epsilon, Yorktown, the Acquired Companies and TCS on various deal terms included in the non-binding term sheet, including the outstanding items of employee matters, leakage definition, and the BLM resolution trigger mechanism for the payment of the additional contingent consideration. Verbal agreement was reached on the outstanding items.    

​

On June 6, 2025, Epsilon sent Yorktown and the Acquired Companies an updated non-binding term sheet reflecting an update to the Peak BLM resolution trigger mechanism, leakage definition, and employee matters.  

​

On June 13, 2025, Epsilon and Yorktown agreed to (and executed) the non-binding term sheet on the previously agreed relative valuations, that also included the terms of governance, transfer and lock up restrictions, a $750,000 termination fee in the case that Epsilon shareholders failed to approve the Transactions, an aggregate fee cap of $500,000 for the Sellers’ transaction expenses, language with respect to the Peak BLM resolution trigger mechanism for the payment of the additional contingent consideration. The parties also entered into an exclusivity period until July 31, 2025.

​

On June 19, 2025, at a special meeting of the Board, Epsilon management presented the non-binding term sheet. They also reviewed the transaction rationale previously presented, cash flows of the pro-forma company, accretion analysis on key metrics, a detailed internal view on the Acquired Companies’ undeveloped inventory, and pro forma ownership. The Board authorized management to proceed with the negotiation of definitive transaction documents on the terms consistent with those presented in the non-binding term sheet.

​

On June 23, 2025, Epsilon engaged Opportune LLP (“Opportune”) to assist with financial due diligence, pro-forma reporting and valuation for purchase price accounting. Epsilon also engaged New Tech Global Environmental, LLC to assist with environmental due diligence and site inspection.

​

On June 24, 2025, the Acquired Companies substantially completed their upload of requested due diligence items for the Acquired Companies covering organizational documents, financing, management and employees, environmental, tax, title, regulatory matters, insurance, material contracts and operations.

​

On June 27, 2025, an initial draft of the Peak E&P Purchase Agreement was sent to the Acquired Companies and Yorktown.

​

On June 30, 2025, Epsilon engaged Tri Energy Asset Management Inc. to assist with title due diligence.

​

On July 2, 2025, an initial draft of the Peak BLM Purchase Agreement was sent to the Acquired Companies and Yorktown.

​

On July 3, 2025, the Acquired Companies and Yorktown provided comments to the Peak E&P Purchase Agreement draft.  

​

On July 10, 2025, the Acquired Companies and Yorktown provided comments to the Peak BLM Purchase Agreement draft.

​

Also on July 10, 2025, Epsilon provided comments in response to the comments provided by the Acquired Companies and Yorktown (on July 3, 2025 (for Peak E&P) and July 10,2025 (for Peak BLM)) along with a key issues list to the Acquired Companies and Yorktown. The key issues included the termination fee application, timelines for due diligence and closing, defect thresholds for purchase price adjustments, public announcement on the transaction, limitations on the operation of the business after the effective time, and the Peak BLM resolution trigger mechanism for the payment of the additional contingent consideration.

Table of Contents

​

On July 11, 2025, Mr. Stabell updated the Board on the status of negotiations and expected timeline to execute the transaction.

​

On July 14, 2025, representatives from Epsilon, the Acquired Companies, and Yorktown discussed the items on the key issues list provided.

​

Also on July 14, 2025, Epsilon engaged Grant Thornton to conduct tax due diligence on the Acquired Companies.

​

On July 15, 2025, Epsilon sent a set of acceptable terms on the outstanding items (in response to comments made by Yorktown on the call the previous day), which included some slight changes to the terms negotiated in the non-binding term sheet. The Acquired Companies and Yorktown verbally accepted the terms described.

​

On July 16, 2025, representatives from Epsilon, the Acquired Companies, and Yorktown again reviewed the key issues list, and confirmed mutual agreement on most. Epsilon then advised they would incorporate the discussed changes into the drafts of the Purchase Agreements.

​

Also on July 16, 2025, Epsilon received a term sheet from Frost Bank on the proposed refinancing (at Closing) of Peak E&P’s existing credit facility. This term sheet was shared with the Acquired Companies and Yorktown.

​

Additionally on July 16, 2025, Epsilon executed a non-binding indication letter with QBE Specialty Insurance (“QBE”) to underwrite a representations and warranties insurance policy in connection with the proposed Transactions.  

​

On July 21, 2025, the Acquired Companies and Yorktown sent revised drafts of the Purchase Agreements to Epsilon, incorporating the changes previously discussed during the meeting held on July 16, 2025.

​

On July 22, 2025, the Acquired Companies and Epsilon management teams discussed post-closing personnel related matters, including the offers of employment and transition arrangements for employees of the Acquired Companies.

​

On July 24, 2025, the Acquired Companies provided to Epsilon with their unaudited financial statements at and for the quarter and six-months ended June 30, 2025.

​

On July 28, 2025, Epsilon’s tax advisor (Grant Thornton), counsel (Gray Reed), and Epsilon management held a call to discuss various tax considerations pursuant to the Purchase Agreements.

​

On July 28, 2025, Gray Reed provided the legal due diligence report after completing its diligence process. No material issues were identified.

​

On July 31, 2025, representatives of the Acquired Companies, Yorktown, Epsilon and both sides’ counsel held a call to discuss the outstanding items relating to the Purchase Agreements.

​

On August 1, 2025, representatives from Epsilon and the Acquired Companies discussed the Acquired Companies’ unaudited financial statements at and for the quarter and six-months ended June 30, 2025, insurance policies, and crude purchase agreements.

​

Also on August 1, 2025, Gray Reed provided revised drafts of the Purchase Agreements to the Acquired Companies and Yorktown.

​

On August 3, 2025, the Acquired Companies and their counsel provided the Purchase Agreements’ Disclosure Schedules to Epsilon and Gray Reed.

​

On August 3, 2025, Opportune provided the financial due diligence report of the Acquired Companies to Epsilon after completing their diligence process. No material issues were identified.

​

On August 5, 2025, Epsilon and Gray Reed provided purchase price allocation schedules to the Acquired Companies and their counsel.

​

On August 6, 2025, the Epsilon Board and management held a call to discuss the due diligence results, financing of the transaction, and the final terms of the Purchase Agreements. On the call, Epsilon’s Board approved signing the agreements as presented.

​

Table of Contents

On August 7, 2025, representatives from Epsilon and the Acquired Companies discussed outstanding items related to the Acquired Companies’ option holders and unissued leases. Agreement was reached on a resolution for both items.

​

On August 8, 2025, representatives from Epsilon, Gray Reed, Opportune, Grant Thornton, Willis Towers Watson (Epsilon’s insurance broker), and QBE’s counsel held a call to describe the due diligence process conducted on the acquired Companies and any material findings. Following the call, QBE approved binding the policy (excluding items to be diligenced between signing and closing) at signing.

​

Also on August 8, 2025, Willkie provided a draft side letter agreement addressing the outstanding unissued leases item. Epsilon accepted the draft as final.

​

On August 11, 2025, the Purchase Agreements were executed by the parties.

​

On August 13, 2025, Epsilon announced the execution of the Purchase Agreements.

​

Our Board’s Reasons for the Approval of the Transactions and the Share Issuance

​

After careful consideration, our Board has unanimously (a) determined that the Purchase Agreements and the Transactions, including the issuance of Common Shares pursuant thereto are advisable, fair to, and in the best interests of the Company and its shareholders, (b) approved and adopted the Purchase Agreements and the Transactions and (c) resolved to recommend that our shareholders vote “FOR” the approval of the Share Issuance Proposal and the Adjournment Proposal.

​

In the course of reaching its decision to approve and adopt the Purchase Agreement and the Transactions and to recommend approval to the shareholders, the Board consulted with various legal and financial advisors and included a number of factors, including, among others, the following principal factors which were material to the Board’s decision:

​

​

​

​

​

​

​

​

​

​

​

Table of Contents

These factors, taken together, led the Board to unanimously determine that the Transactions are advisable, fair to, and in the best interests of Epsilon and its shareholders.

​

In addition, the Board also identified and considered a number of potentially negative factors in its deliberations concerning the Transactions, including:

​

​

​

​

​

​

​

These potential negative factors were carefully weighed against the anticipated benefits of the Transactions in the Board’s decision-making process, but ultimately the Board was confident that such negative factors were outweighed by the positive factors in favor of approving and adopting the Purchase Agreement and the Transactions. Thus, the Board recommend that our shareholders vote “FOR” the approval of the Share Issuance Proposal and the Adjournment Proposal.

​

The foregoing discussion of the information and positive and negative factors considered by the Board in approving the Transactions is not intended to be exhaustive. In considering the Transactions, the Board did not find it practical or feasible to quantity or otherwise attempt to assign any relative or specific values to any of the foregoing factors. In making their determination, individual directors may have accorded different values to different factors.

​

Our Board Following the Transactions

​

If the Transactions are consummated, at Closing the Company shall appoint two (2) designees of Sellers to the Board of the Company, and each committee of the Board other than the Audit Committee. Those directors are Jack E. Vaughn and Bryan H. Lawrence. The designees of the Sellers will be nominated for re-election at the 2026 annual meeting of the Company’s shareholders. For more information, please see the section entitled “Management After the Transactions.”

​

Total Common Shares to be Issued in the Transactions

​

As a result of the Transactions, at the Closing (a) our current shareholders will own approximately 79% of our outstanding Common Shares, on a fully diluted basis, and (b) the Sellers will own approximately 21% of our outstanding Common Shares, on a fully diluted basis, in each case based on the number of Common Shares issued and outstanding, on a fully diluted basis, as of the Record Date. If the maximum number of Common Shares is issued pursuant to the Purchase Agreements, including the 2,500,000 Common Shares that may be issued to Yorktown following the Closing pursuant to the Peak BLM Purchase Agreement, then at such time (a) our current shareholders will own approximately 72% of our outstanding Common Shares, on a fully diluted basis, and (b) the Sellers will own approximately 28% of our outstanding Common Shares, on a fully diluted basis, in each case based on the number of Common Shares issued and outstanding, on a fully diluted basis, as of the Record Date. Because we may be issuing 20% or more of the outstanding Common Shares in connection with the Transactions, we are required to obtain shareholder approval of such issuance pursuant to the applicable provisions of NASDAQ Listing Rule 5635.

Table of Contents

​

Appraisal Rights

​

Appraisal rights are not available to holders of Common Shares in connection with the Transactions.

​

Accounting and Tax Treatment

​

The Transactions will be accounted for using the acquisition method of accounting for business combinations with the Company being treated as the acquirer. The Transactions will result in the recognition of assets acquired and liabilities assumed at fair value. The preliminary allocation of the purchase price used in the unaudited pro forma condensed combined financial information presented elsewhere in this Proxy Statement is based on preliminary estimates and currently available information. These assumptions and estimates, some of which cannot be finalized until the Closing, will be revised as additional information becomes available upon the Closing and finalization of the valuation of the Acquired Companies’ assets and liabilities. The final determination of the allocation of the purchase price will be based on the fair values of the assets and liabilities of the Acquired Companies as of the Closing Date of the Transactions.

​

For U.S. federal income tax purposes, we expect to treat the Transactions as a taxable acquisition of the assets of the Acquired Companies by Epsilon in exchange for the Share Issuance.

​

Why We Need Shareholder Approval

​

We are proposing the Share Issuance Proposal in order to comply with applicable provisions of NASDAQ Listing Rule 5635, which requires shareholder approval prior to the issuances of securities equal to 20% or more of the outstanding common stock or 20% or more of the voting power outstanding before the issuance.

​

As a result of the Transactions, at the Closing (a) our current shareholders will own approximately 79% of our outstanding Common Shares, on a fully diluted basis, and (b) the Sellers will own approximately 21% of our outstanding Common Shares, on a fully diluted basis, in each case based on the number of Common Shares issued and outstanding, on a fully diluted basis, as of the Record Date. If the maximum number of Common Shares is issued pursuant to the Purchase Agreements, including the 2,500,000 Common Shares that may be issued to Yorktown following the Closing pursuant to the Peak BLM Purchase Agreement, then at such time (a) our current shareholders will own approximately 72% of our outstanding Common Shares, on a fully diluted basis, and (b) the Sellers will own approximately 28% of our outstanding Common Shares, on a fully diluted basis, in each case based on the number of Common Shares issued and outstanding, on a fully diluted basis, as of the Record Date.

​

Because we would be issuing more than 20% of the outstanding Common Shares in connection with the Transactions in any case, we are required to obtain shareholder approval of such issuance pursuant to the applicable provisions of NASDAQ Listing Rule 5635. For more information about the Share Issuance pursuant to the Purchase Agreements, please see the section entitled “Proposal 1 — The Share Issuance Proposal — The Purchase Agreements —Purchase Price Consideration .”

​

We will not be able to consummate the Transactions unless the Share Issuance Proposal is adopted. Vote Required for Approval

​

The Share Issuance Proposal requires the affirmative vote of at least a majority of the votes cast in person or represented by proxy at the Special Meeting by the holders of Common Shares entitled to vote thereon, assuming a quorum is present. Accordingly, a shareholder’s failure to vote by proxy or to vote in person at the Special Meeting will have no effect on the Share Issuance Proposal, provided that a valid quorum has been established. An abstention, on the other hand, will be the equivalent of a vote “AGAINST” the Share Issuance Proposal. Abstentions (but not broker non-votes) will be counted in connection with the determination of whether a valid quorum is established.

​

Recommendation of Our Board

​

Our Board unanimously recommends that you vote “FOR” the Share Issuance Proposal.

​

Table of Contents

PROPOSAL 2: THE ADJOURNMENT PROPOSAL

​

Overview

​

The Adjournment Proposal, if adopted, will allow our Board to adjourn the Special Meeting to a later date or dates to permit further solicitation of proxies. The Adjournment Proposal will only be presented to our shareholders in the event that there are insufficient votes for the approval of the Share Issuance Proposal.

​

Consequences if the Adjournment Proposal is Not Approved

​

If the Adjournment Proposal is not approved by our shareholders, our Board may not be able to adjourn the Special Meeting to a later date in the event that there are insufficient votes for the approval of the Share Issuance Proposal.

​

Vote Required for Approval

​

The Adjournment Proposal requires the affirmative vote of at least a majority of the votes cast in person or represented by proxy at the Special Meeting by the holders of Common Shares entitled to vote thereon. You may vote “FOR” the Adjournment Proposal, “AGAINST” the Adjournment Proposal or you may ABSTAIN from voting with respect to the Proposal. Abstentions (but not broker non-votes) are considered Common Shares present and entitled to vote and will have the same effect as votes “AGAINST” the Adjournment Proposal.

​

Recommendation of the Board

​

Our Board unanimously recommends that you vote “FOR” the Adjournment Proposal.

​

Table of Contents

INFORMATION ABOUT THE PARTIES

​

Epsilon Energy Ltd.

​

Epsilon is a North American on-shore focused independent natural gas and oil company engaged in the acquisition, development, gathering and production of natural gas and oil reserves. Epsilon has natural gas production in the Marcellus Shale in Pennsylvania; oil, natural gas liquids and natural gas production in the Permian Basin in Texas and New Mexico, the NW Anadarko Basin in Oklahoma; and oil, natural gas liquids, and natural gas production in the Western Canadian Sedimentary Basin in Alberta, Canada. Epsilon conducts operations in the United States through its wholly owned subsidiaries Epsilon USA; Epsilon Midstream, LLC, a Pennsylvania limited liability company, or “Epsilon Midstream”; Epsilon Operating, LLC, a Delaware limited liability company; Dewey Energy GP LLC, a Delaware limited liability company; Dewey Energy Holdings LLC, a Delaware limited liability company; and Altolisa Holdings, LLC, a Delaware limited liability company.

​

Our securities are currently traded on NASDAQ under the ticker symbol “EPSN.”

​

The mailing address of our principal executive office is 500 Dallas Street, Ste. 1250, Houston, Texas 77002 and our telephone number is (281) 670-0002.

​

For additional information about Epsilon, please see our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and such reports that are subsequently filed with the SEC. The Company’s reserve report is attached to this Proxy Statement as Annex C.

​

The Acquired Companies

​

The Acquired Companies are (i) Peak Exploration & Production, LLC, a Delaware limited liability company, and (ii) Peak BLM Lease LLC, a Delaware limited liability company, and their respective subsidiaries. The Acquired Companies are privately held oil and gas exploration and production companies that operate in the PRB. As of June 30, 2025, the Acquired Companies own approximately 39,600 net leasehold acres (out of 61,000 gross acres) in the PRB, primarily in Campbell and Converse Counties, Wyoming. The Acquired Companies’ operations are focused on the development of multiple productive horizons, including the Parkman, Shannon, Turner, Niobrara, and Mowry formations, utilizing advanced horizontal drilling and completion technologies.

​

The mailing address of both the Acquired Companies’ principal executive offices is 1910 Main Avenue, Durango, Colorado 81301, and their telephone number is (970) 247-1500.

​

For more information about the Acquired Companies, please see the section entitled “Management’s Discussion and Analysis of the Acquired Companies.”

​

Table of Contents

INFORMATION ABOUT THE ACQUIRED COMPANIES

​

The Acquired Companies

​

The following discussion of the Acquired Companies’ business should be read in conjunction with “Management’s Discussion and Analysis of the Acquired Companies,” the accompanying financial statements of the Acquired Companies and the related notes included elsewhere in this Proxy Statement. Unless otherwise indicated, all reserve and property information relating to the Acquired Companies is as of December 31, 2024, which is the date of the most recent reserve reports regarding the Acquired Companies by their independent petroleum engineer, Cawley, Gillespie & Associates, Inc. (“Cawley Gillespie”).

​

Overview

​

The Acquired Companies are privately held oil and gas exploration and production companies that operate in the PRB. As of June 30, 2025, the Acquired Companies own approximately 39,600 net leasehold acres (out of approximately 61,000 gross acres) in the PRB, primarily in Campbell and Converse Counties, Wyoming. The Acquired Companies’ operations are focused on the development of multiple productive horizons, including the Parkman, Shannon, Turner, Niobrara, and Mowry formations, utilizing advanced horizontal drilling and completion technologies.  

​

Acreage

​

As of June 30, 2025, the Acquired Companies had approximately 61,000 gross (39,600 net) acres comprised of private, state, and federal lands with a number of large, contiguous leasehold blocks in the over-pressured core of the PRB, primarily in Campbell and Converse Counties, Wyoming. As of June 30, 2025, they have drilled and operate a total of 105 gross (56 net) producing horizontal wells. In addition, they have drilled two gross (one net) horizontal wells awaiting completion. They also own interests in an additional 101 gross (three net) non-operated, producing horizontal wells with an average working interest of approximately 3.6%. All 101 gross (three net) non-operated wells are primarily operated by other leading PRB operators including EOG Resources, Devon Energy, Anschutz Exploration, and Ballard Petroleum. The following map illustrates the Acquired Companies’ acreage positions within the PRB, consisting primarily of leased acreage in Campbell County, Wyoming, with additional positions in Johnson County and Converse County, Wyoming. 

Table of Contents

​

Table of Contents

As of December 31, 2024, the Acquired Companies’ most recent reserve reports identified 1,071 gross (326 net) horizontal drilling locations across their acreage in the PRB, the majority of which target the Parkman, Shannon, Turner, Niobrara and Mowry reservoirs. Epsilon has identified a subset of these locations, 175 gross / 111 net, as Priority (defined as those with lateral lengths of at least 10,000 ft., at least 45% working interest, and forecasted economics of at least 25% IRR at $65 WTI / $4 HHUB). A portion of the inventory in the conventional Turner and Shannon horizons (over-pressured, marine-influenced, tight sandstone formations) and the conventional Parkman horizon (normally pressured, marine-influenced, tight sandstone formation) has been substantially delineated by the number of horizontal and vertical wells drilled on or within the vicinity of their acreage and has lowered the geologic and operational risk. Additionally, the Acquired Companies have substantial inventory in the Niobrara and Mowry formations, which are both organic-rich, over-pressured, tight shale formations. Combining their results with those of other offset operators, attractive results in these horizons have been proven utilizing advanced drilling and completion techniques and technology.  

​

The Acquired Companies believe that there are additional potential development opportunities in the Teapot, Sussex, Muddy and Dakota formations.  

​

As of December 31, 2024, the Acquired Companies’ total estimated proved oil and natural gas reserves were approximately 21,500 Mboe, based on the most recent reserve reports each dated February 11, 2025, by Cawley Gillespie prepared for each of Peak E&P and Peak Power River Acquisitions, LLC, a wholly-owned subsidiary of Peak BLM, attached hereto as Annex D and Annex E, respectively. Because their reserves are historically reported in two streams, the economic value of the NGLs is included in their natural gas price and natural gas reserves. The Acquired Companies’ proved reserves are comprised of approximately 57% oil and 43% natural gas and are approximately 34% proved developed. 

​

The following table sets forth a summary, as of December 31, 2024, of the Acquired Companies’ gross and net identified total and priority horizontal drilling locations by reservoir.  

​

​

​

​

Acquired Companies’ Oil and Natural Gas Data

​

Evaluation and Review of Reserves

​

The Acquired Companies’ estimated net oil and natural gas reserves as of December 31, 2024 and December 31, 2023 included in this Proxy Statement are based on evaluations prepared by the independent petroleum engineering firm, Cawley Gillespie, in accordance with Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Evaluation Engineers and definitions and guidelines established by the SEC. The Acquired Companies’ independent reserve engineers were selected for their historical experience and geographic expertise in engineering similar resources. 

​

Cawley Gillespie is a Texas Registered Engineering Firm (F-693), made up of independent registered professional engineers and geologists that have provided petroleum consulting services to the oil and gas industry for over 60 years. The lead evaluator that prepared the reserve reports was Zane Meekins, P.E., Executive Vice President at Cawley Gillespie. 

​

Mr. Meekins has been with Cawley Gillespie since 1989 and graduated from Texas A&M University in 1987 with a Bachelor of Science degree in Petroleum Engineering. Mr. Meekins is a State of Texas registered professional engineer (License #71055) and a member of the Society of Petroleum Evaluation Engineers and the Society of Petroleum Engineers. Mr. Meekins

Table of Contents

meets or exceeds the education, training, and experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers. Mr. Meekins is proficient in judiciously applying industry standard practices to engineering and geoscience evaluations as well as applying SEC and other industry reserves definitions and guidelines. 

​

The Acquired Companies maintain an internal staff of engineers and geoscience professionals who are responsible for the internal review of their reserve estimates and work closely with their independent reserve engineers to ensure the integrity, accuracy and timeliness of the data used to calculate their reserves relating to their assets in the PRB. The Acquired Companies’ internal technical team members meet with their independent reserve engineers periodically during the period covered by the reserve reports to discuss the assumptions and methods used in the reserve estimation process. They provide historical information to their independent reserve engineers for their properties, such as ownership interest, oil and natural gas production, well test data, commodity prices and operating and development costs. 

​

For all of the Acquired Companies’ properties, their internally prepared reserve estimates as well as the reserve reports prepared by Cawley Gillespie are reviewed and approved by their Vice President, Reservoir Engineering, Tom Loveland. Mr. Loveland has been with the Acquired Companies since 2015 and has more than 23 years of experience in reservoir engineering and reserve management. 

​

The preparation of the Acquired Companies’ reserve estimates are completed in accordance with their internal control procedures. These procedures, which are intended to ensure reliability of reserve estimations, include the following: 

​

​

​

​

​

​

The reserves and values determined by Cawley Gillespie in the Acquired Companies’ most recent reserve reports may change when more recent reports for the combined company are completed. Changes may result from new interpretations of reservoir performance, SEC pricing, development plans, capital availability, or other factors.

​

Estimation of Proved Reserves

​

Under SEC rules, proved reserves are those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs and under existing economic conditions, operating methods and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time. If deterministic methods are used, the SEC has defined reasonable certainty for proved reserves as a “high degree of confidence that the quantities will be recovered.” All of the Acquired Companies’ reserves as of December 31, 2024 and December 31, 2023 were estimated using a deterministic method. The estimation of reserves involves two distinct determinations. The first determination results in the estimation of the quantities of recoverable oil and natural gas and the second determination results in the estimation of the uncertainty associated with those estimated quantities in accordance with the definitions established under SEC rules. The process of estimating the quantities of recoverable oil and natural gas reserves relies on the use of certain generally accepted analytical procedures. These analytical procedures fall into four broad categories or methods: (1) production performance-based methods; (2) material balance-based methods; (3) volumetric-based methods; and (4) analogy. These methods may be used singularly or in combination by the reserve evaluator in the process of estimating the quantities of reserves. Reserves for the Acquired Companies’ PDP wells were estimated using production performance methods for the vast majority of properties. Certain new producing properties with very little production history were forecast using a combination of production performance and analogy to similar production, both of which are considered to provide a relatively high degree of accuracy. Non-producing reserve estimates, for developed and undeveloped properties, were forecast using analogy methods and existing analog wells that are believed to share geologic characteristics, fluid characteristics, and operational characteristics with those properties. These are industry-proven methods that provide a relatively high degree of accuracy for predicting proved developed non-producing and proved undeveloped reserves for their properties. The reasonable time that hydrocarbon extraction commences is most commonly deemed to be within five years of the effective date of a reserve report. 

Table of Contents

​

To estimate economically recoverable proved reserves and related future net cash flows, Cawley Gillespie considers many factors and assumptions, including the use of reservoir parameters derived from geological and engineering data that cannot be measured directly, but that result in forecasts of future production rates, economic criteria based on current cost estimates and actual operating expenses, and the SEC pricing requirements. 

​

Under SEC rules, reasonable certainty can be established using techniques that have been proven effective by actual production from projects in the same reservoir or an analogous reservoir or by other evidence using reliable technology that establishes reasonable certainty. Reliable technology is a grouping of one or more technologies (including computational methods) that has been field-tested and has been demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation. To establish reasonable certainty with respect to the Acquired Companies’ estimated proved reserves, the technologies and economic data used in the estimation of their proved reserves have been demonstrated to yield results with consistency and repeatability, and include production and well test data, downhole completion information, geologic data, electrical logs, radioactivity logs, core analyses, historical well cost and operating expense data. 

​

Summary of Oil and Natural Gas Reserves

​

The following table summarizes the Acquired Companies’ estimated net oil and natural gas reserves as of December 31, 2024 and December 31, 2023, based on the most recent reserve report prepared by Cawley Gillespie. The Acquired Companies’ reserves are reported in two streams: oil and natural gas. The economic value of the NGLs is included in their natural gas price and reserves. All of these reserve estimates were prepared in accordance with the SEC’s rule regarding reserve reporting currently in effect.  

​

​

​

​

Reserve engineering is and must be recognized as a subjective process of estimating volumes of economically recoverable oil and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation. As a result, the estimates of different engineers often vary. In addition, the results of drilling, testing and production may justify revisions of such estimates. Accordingly, reserve estimates often differ from the quantities of oil and natural gas that are ultimately recovered. 

​

Estimates of economically recoverable oil and natural gas and of future net revenues are based on a number of variables and assumptions, all of which may vary from actual results, including geologic interpretation, prices and future production rates and costs. Please read “Risk Factors,” which incorporates by reference in the risk factors contained in the Company’s latest 10-K

Table of Contents

into this Proxy Statement. 

​

Proved Undeveloped Reserves.

​

As of December 31, 2024, the Acquired Companies’ PUDs were composed of 8,408 MBbls of oil and 35,305 MMcf of natural gas, for a total of 14,292 Mboe. As of December 31, 2023, their PUDs were composed of 4,936 MBbls of oil and 19,065 MMcf of natural gas, for a total of 8,114 Mboe. PUDs are converted from undeveloped to developed as the applicable wells begin production. 

​

The following table summarizes the Acquired Companies’ changes in PUDs during the years ended December 31, 2024 and 2023 (in Mboe):

​

​

During the year ended December 31, 2024, the Acquired Companies converted three PUD cases to proved developed reserves for 1 Mboe at an associated capital cost of $0 million. The Acquired Companies did not have any cost-bearing interest in the three PUDs, and only a small net revenue interest.  The development schedule for the Acquired Companies’ undeveloped property takes into account the availability of capital and resulted in an increase in the development schedule of unproved property, which added 20 PUD locations totaling 6,313 Mboe. In addition, their PUDs include positive performance revisions of 21 Mboe due to increased performance from offset analogs, particularly with natural gas from the lower Niobrara.  For the year ended December 31, 2024, oil and natural gas prices calculated in accordance with SEC guidelines decreased by 3.5% and 19.2%, respectively, as compared to the year ended December 31, 2023. This combined with relatively small changes to pricing deducts and gathering costs resulted in a loss of 154 Mboe.  

​

Future development plans on the acquired assets and associated future development costs will be determined going forward by the combined management team of Epsilon. PUD drilling locations and associated reserves will be subject to change accordingly.

​

The values of the Acquired Companies’ PUDs were determined by Cawley Gillespie in the Acquired Companies’ most recent reserve reports and these may change when more recent reports for the combined company are completed. Changes may result from new interpretations of reservoir performance, SEC pricing, development plans, capital availability, or other factors.

​

Table of Contents

Oil and Natural Gas Production Prices and Production Costs

​

Production and Price History

​

The following table sets forth information regarding net production of oil and natural gas, and certain price and cost information for the periods indicated. The Acquired Companies’ reserves and production are reported in two streams: crude oil and natural gas. The economic value of the NGLs is included in the natural gas price and reserves.

​

​

​

Productive Wells

​

The following table sets forth information regarding the Acquired Companies’ productive horizontal wells in which they have working interest as of June 30, 2025: 

​

​

The following table sets forth information regarding the Acquired Companies’ operated productive horizontal wells in which they have working interest as of June 30, 2025:

​

​

As of June 30, 2025, of the Acquired Companies’ 206 gross (59 net) productive horizontal wells, they operated 105 gross (56 net) producing horizontal wells with an average working interest of 53.3%, of which 84 gross (45 net) wells were oil wells and 21 gross (11 net) wells were natural gas wells. Of their 105 gross operated horizontal wells producing as of June 30, 2025, they have increased their average working interest by 11.8% over the life of the project as a result of force pooling interests in 69 gross horizontal wells. Productive wells consist of producing wells and wells capable of production, including oil wells awaiting connection to production facilities. Gross wells are the total number of producing wells in which they have an interest, and net wells are the sum of their fractional working interests owned in gross wells. 

​

Table of Contents

Developed and Undeveloped Acreage

​

The following table delineates the Acquired Companies’ developed and undeveloped leasehold acreage within the PRB as of June 30, 2025. “Developed Acres” denotes acres assigned to the drilling and spacing unit of productive wells. “Undeveloped Acres” are acres in which wells have not yet been drilled and completed to facilitate the production of commercial quantities of oil and/or natural gas, irrespective of the reserve classification. A Developed Acre does not signify full development, which would preclude the possibility of future infill wells; it simply indicates that the acreage falls within a drilling and spacing unit of a currently producing well. The total of Net Acres represents the sum of fractional working interests owned within Gross Acres, expressed as whole numbers and fractions.

​

​

Some of the leases comprising the Undeveloped Acres outlined in the table above are slated for expiration upon the conclusion of their respective primary terms unless production is established from the lease prior to such expiration, in which case the lease will remain in effect until production ceases. The Acquired Companies are committed to actively pursuing extensions and renewals for all significant leases in this situation. As of June 30, 2025, they estimate an expenditure of approximately $2.2 million to extend or renew every significant lease set to expire through the end of 2027. This estimation does not take into account the drilling of undeveloped locations and maintaining the expiring leases through production; thus, they do not anticipate a significant reduction in their reserves due to lease expirations. The following table presents the Undeveloped Net Acres that are set to expire within the specified years if no production is established thereon, and the estimated cost to extend or renew said acreage.

​

​

​

Should the Acquired Companies either be unable or decide not to renew, develop, or extend the above leases, approximately 1,013 MBbl and 4,175 MMcf (1,709 Mboe) of PUD reserves would be impacted.

​

Drilling Results

​

The following table sets forth information with respect to the number of wells drilled during the periods indicated in which the Acquired Companies had an interest. The information should not be considered indicative of future performance, nor should it be assumed that there is necessarily any correlation between the number of productive wells drilled, quantities of reserves found or economic value. Productive wells are those that produce commercial quantities of hydrocarbons, whether or not they produce a reasonable rate of return.

​

Table of Contents

​

​

​

Operations

​

General

​

The Acquired Companies operated approximately 91% of their net production for the year ended December 31, 2024. As operator, they design and manage the development of a well and supervise operation and maintenance activities on a day-to-day basis. Independent contractors engaged by the Acquired Companies provide all the equipment and personnel associated with these activities. The Acquired Companies employ petroleum engineers, geologists and land professionals who work to improve production rates, increase reserves and lower the cost of operating their oil and natural gas properties. 

​

Marketing and Customers

​

The Acquired Companies market the majority of the production from properties they operate for both their account and the account of the other working interest owners in these properties. They sell their production to purchasers at market prices. 

​

During the year ended December 31, 2024, 100% of the Acquired Companies’ combined operated oil and natural gas production was sold to three customers. For the six months ended June 30, 2025, 100% of their combined oil and natural gas operated production was sold to three customers. The Acquired Companies do not believe that the loss of a single purchaser would materially affect their business because there are numerous other potential purchasers in the area in which they sell their production. However, the loss of one of their top two purchasers, HF Sinclair Refining & Marketing LLC and Thunder Creek Gas Services, LLC (purchased by WGR Operating, LP at the end of 2023), would hinder their ability to sell their production to other purchasers on terms they consider acceptable. The inability or failure of their significant purchasers to meet their own obligations to the Acquired Companies or their own insolvency or liquidation could have a short-term impact on the Acquired Companies’ financial condition, results of operations and ability to make distributions to the Company.

​

Transportation

​

The Acquired Companies consider their gathering and delivery infrastructure sufficient for their production. Their oil is collected from the wellhead to their tank batteries and then transported by the purchaser by truck or pipeline to a tank farm, another pipeline or a refinery. The Acquired Companies’ natural gas is transported from the wellhead to the purchaser’s meter and pipeline interconnection point. Aside from their gathering agreements for both oil and natural gas, which are necessary for their business, they are not subject to any long-term delivery commitments or minimum volume commitments for the transportation of the Acquired Companies’ production.

​

Competition

​

The oil and natural gas industry is intensely competitive, and the Acquired Companies compete with other companies that have greater resources. These companies may be able to pay more for productive oil and natural gas properties and exploratory prospects, or to define, evaluate, bid for and purchase a greater number of properties and prospects, than the Acquired Companies’ financial or human resources permit. In addition, these companies may have a greater ability to continue exploration activities

Table of Contents

during periods of low oil and natural gas market prices. Such larger or more integrated competitors may be able to absorb the burden of existing, and any changes to, federal, state and local laws and regulations more easily than the Acquired Companies can, which would adversely affect their competitive position. The Acquired Companies ability to acquire additional properties and to discover reserves in the future will be dependent upon their ability to identify suitable properties where they have a competitive advantage due to their knowledge of the basin or landowner relations, allowing them to consummate transactions in a highly competitive environment.

​

 There is also competition between oil and natural gas producers and other industries producing energy and fuel. Furthermore, competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the federal government of the United States and the state governments of the states in which the Acquired Companies operate. It is not possible to predict the nature of any such legislation or regulation that may ultimately be adopted or its effects upon the Acquired Companies’ future operations. Such laws and regulations may substantially increase the costs of exploring for, developing or producing oil and natural gas and may prevent or delay the commencement or continuation of a given operation. Their larger competitors may be able to absorb the burden of existing, and any changes to, federal, state and local laws

​

Title to Properties

​

As is customary in the oil and natural gas industry, the Acquired Companies initially conduct only a cursory review of the title to their properties in connection with the acquisition of leasehold acreage. At such time as they determine to conduct drilling operations on those properties, they conduct a thorough title examination and perform title curative work with respect to significant title defects affecting their leasehold prior to commencement of drilling operations. To the extent title opinions or other investigations reflect title defects on their leasehold, they are responsible for curing such defects at their expense. Title defects affecting interest owned by non-operators in their wells are the responsibility of such non-operators to cure. The Acquired Companies have obtained title opinions on all of their operated producing properties and believe that they have satisfactory title to their producing properties in accordance with standards generally accepted in the oil and natural gas industry. 

​

 Prior to completing an acquisition of producing oil and natural gas leases, the Acquired Companies perform a review of title materials in the seller’s records to confirm the ownership of the most significant leases and, depending on the materiality of properties, they may perform additional title due diligence by reviewing the courthouse records in the county where the properties are located. Their oil and natural gas properties are subject to customary royalty and other interests, liens for current taxes and other burdens which they believe do not materially interfere with the use of or affect the Acquired Companies’ carrying value of the properties. 

​

 Although title to these properties is subject to encumbrances in some cases, such as customary interests generally retained in connection with the acquisition of real property, customary royalty interests and contract terms and restrictions, liens under operating agreements, liens related to environmental liabilities associated with historical operations, liens for current taxes and other burdens, easements, restrictions and minor encumbrances customary in the oil and natural gas industry, the Acquired Companies believe that none of these liens, restrictions, easements, burdens and encumbrances will materially detract from the value of these properties or from their interest in these properties or materially interfere with their use of these properties in the operation of their business. In addition, they believe that they have obtained sufficient rights-of-way grants and permits from public authorities and private parties for the Acquired Companies to operate their business in all material respects as described in this Proxy Statement. 

​

Wyoming Statutory Pooling Process

​

The State of Wyoming’s oil and gas regulatory body, the Wyoming Oil & Gas Conservation Commission (“WOGCC”), has rules and regulations that are designed to promote the exploration and development of oil and natural gas wells. One such regulation that allows companies to drill wells without the consent of all interest owners in a DSU is known as statutory pooling (aka “forced pooling”). As of June 30, 2025, the Acquired Companies have filed 155 APDs with the WOGCC, some of which may have interest owners within the DSU who are either unwilling or unable to voluntarily pool their interest with theirs in order to participate in the drilling of a well, thus requiring the interest to be force pooled. Wyoming’s pooling statute, W.S. 30-5-109, is a time-consuming regulatory burden that requires significant work before and after a well is drilled. Prior to drilling a well with separately owned interests in the DSU, a good faith effort must be made to secure voluntary participation of all interest owners in the lands within the DSU. For those interest owners who are unwilling or unable to participate in a well (“Non-Participating Owners”), a force pooling application is filed with the WOGCC to set a date for a pooling hearing. At such pooling hearing, evidence of the Acquired Companies’ efforts to secure voluntary participation is presented, and a pooling order is issued by the Commission. 

​

Alternatively, there may be instances where operators of adjacent leases propose a well to the Acquired Companies and initiate forced pooling actions to include their leasehold interests without the Acquired Companies’ consent. When this occurs, if the Acquired Companies are unwilling or unable to participate in the proposed well, they make every effort to prevent their interest

Table of Contents

from being force pooled by allowing others to participate in their stead for a fee. 

​

Pooling orders provide for the drilling and operation of a well in a DSU and for payment of the costs thereof. The parties paying for the drilling of the well are entitled to all production from the well after payment of royalty and other obligations payable out of production. Parties with working interest located within the DSU who opt not to participate, and allow their interest to be force pooled, will be subject to a risk penalty that is substantially greater than the initial cost to participate. The penalties associated with a force pooled working interest in a well are as follows: (i) up to three hundred percent (300%) of that portion of the costs and expenses of drilling, reworking, deepening or plugging back, testing and completing, after deducting any cash contributions received; and (ii) up to two hundred percent (200%) of that portion of the cost of newly acquired equipment in the well, to and including the wellhead connections, which would have been chargeable to the nonconsenting owner if they had participated therein, if the nonconsenting owner’s tract or interest is subject to a lease or other contract for oil and gas development; 

​

The WOGCC has consistently authorized the maximum penalty for the Acquired Companies’ horizontal development. 

​

The availability of forced pooling means that normally it is difficult for a small number of owners to block or delay the drilling of a particular well proposed by another interest holder. The Acquired Companies’ strategy is to use the forced pooling process to proceed with the desired development of their wells. In this manner, they have the ability to expand into and develop areas near their existing acreage even if they are unable to lease all of the mineral interests in those areas. In addition to leased acreage, pooled units within the PRB may expand to include both state and federal lands. The pooling of federal lands requires additional steps beyond those required for state and fee lands. DSUs containing any amount of federal lands are required to have a Federal Communization Agreement that allows for the unitization or pooling of federal and non-federal oil and gas leases within the DSU. 

​

The Acquired Companies have employed another method of developing federal lands with the formation of the INOT (Deep) Federal Exploratory Unit (the “INOT (Deep) Unit”). Federal exploratory onshore units are formed by virtue of the execution of two separate agreements: (i) the unit agreement (“UA”), which is a contract between the BLM and the working interest owner designated as operator (the “Proponent”), and (ii) the unit operating agreement (“UOA”), which is executed by the unit working interest owners and sets forth the cost allocation formula for the implementation of the UA, operational provisions and voting procedures. 

​

Pooling approval is based on whether the proposed unitization serves the public interest of conservation of natural resources. As a general rule, the Proponent of the unit must have 85% of all tracts committed to the unit to demonstrate to the BLM effective control of the unit area. Once approved, commencement of the first test well (“Initial Obligation Well”) must begin within six months following the effective date of the UOA and must be drilled to the objective depth or until unitized substances are discovered. The Acquired Companies successfully drilled and completed the Initial Obligation Well in the INOT (Deep) Unit, and based on the applicable provisions of the UA and the requirements imposed by the BLM, they believe this well is capable of producing unitized substances in paying quantities. A Participating Area (“PA”) was formed around the Initial Obligation Well to reflect the drainage area and to define the lands regarded as reasonably proved to be productive of unitized substances in paying quantities. As additional wells are drilled in the INOT (Deep) Unit, the PA will expand and all costs incurred in the development and operation of wells within the PA, and the production therefrom, will be proportionally shared amongst all working interests in the PA. If a well is completed and not included in a PA, the well, production, materials and equipment costs and all lease burdens shall be borne and paid by the parties to the drilling block.

​

Seasonality of Business

​

Weather conditions affect the demand for, and prices of, oil and natural gas. Demand for oil and natural gas is typically higher in the fourth and first quarters resulting in higher prices. Seasonal anomalies such as mild winters or mild summers also may impact demand and prices. Due to these seasonal fluctuations, results of operations for individual quarterly periods may not be indicative of the results that may be realized on an annual basis.

​

Oil and Natural Gas Leases

​

The typical oil and natural gas lease agreement covering the Acquired Companies’ properties provides for the payment of royalties to the mineral owner for all oil and natural gas produced from any wells drilled on the leased premises. The lessor royalties and other leasehold burdens on the Acquired Companies’ properties are generally between 15-20% (8/8ths). Their working interest for all operated producing horizontal wells averages approximately 53% and their net revenue interest is approximately 43%.

​

Regulation of the Oil and Natural Gas Industry

​

The Acquired Companies’ operations are substantially affected by federal, state and local laws and regulations. Failure to comply with applicable laws and regulations can result in substantial penalties. The regulatory burden on the industry increases

Table of Contents

the cost of doing business and affects profitability. Historically, the Acquired Companies’ compliance costs have not negatively impacted their results of operations in a material way; however, they are unable to predict future costs or impact of compliance. Additional proposals and proceedings that affect the oil and natural gas industry are regularly considered by Congress, the states, FERC and the courts. The Acquired Companies cannot predict when or whether any such proposals may become effective. The Acquired Companies do not believe that they would be affected by any such action materially differently than similarly situated competitors.

​

Regulation Affecting Production

​

The production of oil and natural gas is subject to United States federal and state laws and regulations, and orders of regulatory bodies under those laws and regulations, governing a wide variety of matters. All of the jurisdictions in which the Acquired Companies own or operate producing oil and natural gas properties, including Wyoming, have statutory provisions regulating the exploration for and production of oil and natural gas, including provisions related to permits for the drilling of wells, bonding requirements to drill or operate wells, the location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled, sourcing and disposal of water used in the drilling and completion process, and the abandonment of wells. Their operations are also subject to various conservation laws and regulations. These include the regulation of the size of drilling and spacing units or proration units, the number of wells which may be drilled in an area, and the unitization or pooling of oil and natural gas wells, as well as regulations that generally prohibit the venting or flaring of natural gas, and impose certain requirements regarding the ratability or fair apportionment of production from fields and individual wells. These laws and regulations may limit the amount of oil and natural gas they can drill.

​

Moreover, each state, including Wyoming, generally imposes a production or severance tax with respect to the production and sale of oil and natural gas within its jurisdiction. States do not regulate wellhead prices or engage in other similar direct regulation, but there can be no assurance that they will not do so in the future. The effect of such future regulations may be to limit the amounts of oil and natural gas that may be produced from the Acquired Companies’ wells, negatively affect the economics of production from these wells or limit the number of locations they can drill.

​

The failure to comply with the rules and regulations of oil and natural gas production and related operations can result in substantial penalties. The Acquired Companies’ competitors in the oil and natural gas industry are subject to the same regulatory requirements and restrictions that affect the Acquired Companies’ operations.

​

Regulation Affecting Sales and Transportation of Commodities

​

Sales prices of oil, natural gas, condensate and NGLs are not currently regulated and are made at market prices. Although prices of these energy commodities are currently unregulated, the United States Congress historically has been active in their regulation. The Acquired Companies cannot predict whether new legislation to regulate oil, natural gas, or the prices charged for these commodities might be proposed, what proposals, if any, might actually be enacted by the United States Congress or the various state legislatures and what effect, if any, the proposals might have on the Acquired Companies’ operations. Sales of oil and natural gas may be subject to certain state and federal reporting requirements.

​

The price and terms of service of transportation of the commodities, including access to pipeline transportation capacity, are subject to extensive federal and state regulation. Such regulation may affect the marketing of oil and natural gas the Acquired Companies produce, as well as the revenues received for sales of such production. Gathering systems may be subject to state ratable take and common purchaser statutes. Ratable take statutes generally require gatherers to take, without undue discrimination, oil and natural gas production that may be tendered to the gatherer for handling. Similarly, common purchaser statutes generally require gatherers to purchase, or accept for gathering, without undue discrimination as to source of supply or producer. These statutes are designed to prohibit discrimination in favor of one producer over another producer or one source of supply over another source of supply. These statutes may affect whether and to what extent gathering capacity is available for oil and natural gas production, if any, of the drilling program and the cost of such capacity. Further state laws and regulations govern rates and terms of access to intrastate pipeline systems, which may similarly affect market access and cost.

​

FERC regulates interstate natural gas pipeline transportation rates and terms and conditions of service. FERC is continually proposing and implementing new rules and regulations affecting interstate transportation. The stated purpose of many of these regulatory changes is to ensure terms and conditions of interstate transportation service are not unduly discriminatory or unduly preferential, to promote competition among the various sectors of the natural gas industry and to promote market transparency. The Acquired Companies do not believe that their drilling program will be affected by any such FERC action in a manner materially differently than other similarly situated natural gas producers.

​

In addition to the regulation of natural gas pipeline transportation, FERC has jurisdiction over the purchase or sale of natural gas or the purchase or sale of transportation services subject to FERC’s jurisdiction. Under the NGA, it is unlawful for “any entity,” including producers such as the Acquired Companies, that are otherwise not subject to FERC’s jurisdiction under the NGA to use any deceptive or manipulative device or contrivance in connection with the purchase or sale of natural gas or the purchase

Table of Contents

or sale of transportation services subject to regulation by FERC, in contravention of rules prescribed by FERC. FERC’s rules implementing this provision make it unlawful, in connection with the purchase or sale of natural gas subject to the jurisdiction of FERC, or the purchase or sale of transportation services subject to the jurisdiction of FERC, for any entity, directly or indirectly, to use or employ any device, scheme or artifice to defraud; to make any untrue statement of material fact or omit to make any such statement necessary to make the statements made not misleading; or to engage in any act or practice that operates as a fraud or deceit upon any person. The Energy Policy Act of 2005 gives FERC authority to impose civil penalties for violations of the NGA and the Natural Gas Policy Act of 1978 of more than $1.2 million per day, per violation. The anti-manipulation rule applies to activities of otherwise non-jurisdictional entities to the extent the activities are conducted “in connection with” natural gas sales, purchases or transportation subject to FERC jurisdiction, which includes the annual reporting requirements for natural gas sales and purchases described below.

​

FERC regulations require that any market participant, including a producer, that engages in certain wholesale sales or purchases of natural gas that equal or exceed $2.2 million MMBtus of physical natural gas in the previous calendar year, issue an annual report of such sales and purchases to FERC on Form No. 552 on May 1 of each year. Form No. 552 contains aggregate volumes of natural gas purchased or sold at wholesale in the prior calendar year to the extent such transactions utilize or contribute to the formation of price indices. Not all types of natural gas sales are required to be reported on Form No. 552. It is the responsibility of the reporting entity to determine which individual transactions should be reported based on the guidance provided in FERC orders and other precedent. This reporting requirement is intended to increase the transparency of the wholesale natural gas markets and to assist FERC in monitoring those markets and in detecting market manipulation.

​

The Acquired Companies’ ability to transport and sell oil, condensate and NGLs is dependent on pipelines whose rates, terms and conditions of service are subject to FERC jurisdiction under the Interstate Commerce Act, and intrastate pipeline transportation rates are subject to regulation by state regulatory commissions. Certain regulations implemented by the FERC in recent years and certain pending rulemaking and other proceedings could result in an increase in the cost of transportation service on liquids pipelines. The basis for intrastate liquids pipeline regulation, and the degree of regulatory oversight and scrutiny given to intrastate liquids pipeline rates, varies from state to state. However, the Acquired Companied do not believe that these regulations affect them any differently than other crude oil, condensate and NGL producers.

​

Further, interstate and intrastate common carrier liquids pipelines must provide service on a non-discriminatory basis. Under this open access standard, common carriers must offer service to all shippers requesting service on the same terms and under the same rates. When liquids pipelines operate at full capacity, access is governed by prorationing provisions set forth in the pipelines’ published tariffs. Accordingly, the Acquired Companies believe that access to pipeline transportation services generally will be available to them to the same extent as to other crude oil, condensate and NGL producers with which they compete.

​

In addition to FERC’s regulations, the Acquired Companies are required to observe anti-market manipulation laws with regard to their physical sales of energy commodities. In November 2009, the FTC issued regulations pursuant to the Energy Independence and Security Act of 2007, intended to prohibit market manipulation in the petroleum industry. Violators of the regulations face civil penalties of up to $1 million per violation per day. In July 2010, Congress passed the Dodd-Frank Act, which incorporated an expansion of the authority of the CFTC to prohibit market manipulation in the markets regulated by the CFTC. This authority, with respect to swaps and futures contracts, is similar to the anti-manipulation authority granted to the FTC with respect to purchases and sales. In July 2011, the CFTC issued final rules to implement their new anti-manipulation authority. The rules subject violators to a civil penalty of up to the greater of $1 million or triple the monetary gain to the person for each violation.

​

Regulation of Environmental and Occupational Safety and Health Matters

​

The Acquired Companies’ operations are subject to stringent federal, state and local laws and regulations governing occupational safety and health aspects of their operations, the discharge of materials into the environment and the protection of the environment and natural resources (including threatened and endangered species and their habitat). Numerous governmental entities, including the EPA and analogous state agencies have the power to enforce compliance with these laws and regulations and the permits issued under them, often requiring difficult and costly actions. These laws and regulations may, among other things (i) require the acquisition of permits to conduct drilling and other regulated activities; (ii) restrict the types, quantities and concentration of various substances that can be released into the environment or injected into formations in connection with oil and natural gas drilling and production activities; (iii) limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas; (iv) require remedial measures to mitigate pollution from former and on-going operations, such as requirements to close pits and plug abandoned wells; (v) apply specific health and safety criteria addressing worker protection; and (vi) impose substantial liabilities for pollution resulting from drilling and production operations. Any failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of corrective or remedial obligations, the occurrence of delays or restrictions in permitting or performance of projects, and the issuance of orders enjoining performance of some or all of their operations.

​

These laws and regulations may also restrict the rate of oil and natural gas production below the rate that would otherwise be possible. The regulatory burden on the oil and natural gas industry increases the cost of doing business in the industry and

Table of Contents

consequently affects profitability. The trend in environmental regulation has been to place more restrictions and limitations on activities that may affect the environment, and thus any changes in environmental laws and regulations or re interpretation of enforcement policies that result in more stringent and costly well drilling, construction, completion or water management activities, or waste handling, storage transport, disposal, or remediation requirements could have a material adverse effect on the Acquired Companies’ financial position and results of operations. The Acquired Companies may be unable to pass on such increased compliance costs to their customers. Moreover, accidental releases or spills may occur in the course of their operations, and they cannot assure you that they will not incur significant costs and liabilities as a result of such releases or spills, including any third-party claims for damage to property, natural resources or persons. Continued compliance with existing requirements is not expected to materially affect the Acquired Companies. However, there is no assurance that they will be able to remain in compliance in the future with such existing or any new laws and regulations or that such future compliance will not have a material adverse effect on their business and operating results.

​

The following is a summary of the more significant existing and proposed environmental and occupational safety and health laws, as amended from time to time, to which the Acquired Companies’ business operations are or may be subject and for which compliance may have a material adverse impact on their capital expenditures, results of operations or financial position.

​

Hazardous Substances and Wastes

​

The Resource Conservation and Recovery Act (“RCRA”), and comparable state statutes, regulate the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes. Pursuant to rules issued by the EPA, the individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own, more stringent requirements. Drilling fluids, produced waters, and most of the other wastes associated with the exploration, development, and production of oil or natural gas, if properly handled, are currently exempt from regulation as hazardous waste under RCRA and, instead, are regulated under RCRA’s less stringent non-hazardous waste provisions, state laws or other federal laws. However, it is possible that certain oil and natural gas drilling and production wastes now classified as non-hazardous could be classified as hazardous wastes in the future. In the course of the Acquired Companies’ operations, they generate some amounts of ordinary industrial wastes, such as paint wastes, waste solvents and waste oils that may be regulated as hazardous wastes.

​

The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), also known as the Superfund law, and comparable state laws impose joint and several liability, without regard to fault or legality of conduct, on classes of persons who are considered to be responsible for the release of a hazardous substance into the environment. These persons include the current and former owners and operators of the site where the release occurred and anyone who disposed or arranged for the disposal of a hazardous substance released at the site. Under CERCLA, such persons may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. CERCLA also authorizes the EPA and, in some instances, third parties to act in response to threats to the public health or the environment and to seek to recover from the responsible classes of persons the costs they incur. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. The Acquired Companies generate materials in the course of their operations that may be regulated as hazardous substances.

​

The Acquired Companies currently own, lease, or operate numerous properties that have been used for oil and natural gas exploration, production and processing for many years. Although they believe that they have utilized operating and waste disposal practices that were standard in the industry at the time, hazardous substances, wastes, or petroleum hydrocarbons may have been released on, under or from the properties owned or leased by the Acquired Companies, or on, under or from other locations, including off site locations, where such substances have been taken for treatment or disposal. In addition, some of the Acquired Companies’ properties have been operated by third parties or by previous owners or operators whose treatment and disposal of hazardous substances, wastes, or petroleum hydrocarbons was not under their control. These properties and the substances disposed or released on, under or from them may be subject to CERCLA, RCRA and analogous state laws. Under such laws, the Acquired Companies could be required to undertake response or corrective measures, which could include removal of previously disposed substances and wastes, cleanup of contaminated property or performance of remedial plugging or pit closure operations to prevent future contamination, the costs of which could be substantial.

​

Water Discharges

​

The Federal Water Pollution Control Act, also known as the Clean Water Act (“CWA”), and analogous state laws, impose restrictions and strict controls with respect to the discharge of pollutants, including spills and leaks of hazardous substances, into state waters and waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state agency. Spill prevention, control and countermeasure plan requirements imposed under the CWA require appropriate containment berms and similar structures to help prevent the contamination of navigable waters in the event of a petroleum hydrocarbon tank spill, rupture or leak. In addition, the CWA and analogous state laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance

Table of Contents

with discharge permits or other requirements of the CWA and analogous state laws and regulations.

​

The CWA also prohibits the discharge of dredge and fill material in regulated waters, including wetlands, unless authorized by permit. The EPA and the U.S. Army Corps of Engineers have issued final rules attempting to clarify the federal jurisdictional reach over waters of the United States (“WOTUS”) to conform to the definition of the waters of the United States Supreme Court in Sacket v. Environmental Protection Agency, 143 S.Ct 1322 (2023), but this rule has been stayed nationwide by the U.S. Sixth Circuit Court of Appeals. However, as a result of ongoing litigation concerning a January 2023 rule concerning WOTUS, several states are enjoined from following this new rule. As a result, substantial uncertainty exists with respect to future implementation of the WOTUS rule.

​

The primary federal law related specifically to oil spill liability is the Oil Pollution Act of 1990 (“OPA”), which amends and augments the oil spill provisions of the CWA and imposes certain duties and liabilities on certain “responsible parties” related to the prevention of oil spills and damages resulting from such spills in or threatening waters of the United States or adjoining shorelines. For example, operators of certain oil and natural gas facilities must develop, implement and maintain facility response plans, conduct annual spill training for certain employees and provide varying degrees of financial assurance. Owners or operators of a facility, vessel or pipeline that is a source of an oil discharge or that poses the substantial threat of discharge is one type of “responsible party” who is liable. The OPA applies joint and several liability, without regard to fault, to each liable party for oil removal costs and a variety of public and private damages. Although defenses exist, they are limited. As such, a violation of the OPA has the potential to adversely affect the Acquired Companies’ operations.

​

Subsurface Injections

​

In the course of the Acquired Companies’ operations, they produce water in addition to oil and natural gas. Water that is not recycled may be disposed of in disposal wells, which inject the produced water into non-producing subsurface formations. Underground injection operations are regulated pursuant to the Underground Injection Control (“UIC”) program established under the federal Safe Drinking Water Act (“SDWA”) and analogous state laws. The UIC program requires permits from the EPA or an analogous state agency for the construction and operation of disposal wells, establishes minimum standards for disposal well operations, and restricts the types and quantities of fluids that may be disposed. A change in UIC disposal well regulations or the inability to obtain permits for new disposal wells in the future may affect the Acquired Companies’ ability to dispose of produced water and ultimately increase the cost of their operations. For example, in response to recent seismic events near belowground disposal wells used for the injection of oil and natural gas related wastewaters, federal and some state agencies have begun investigating whether such wells have caused increased seismic activity, and some states have shut down or imposed moratoria on the use of such disposal wells. In response to these concerns, regulators in some states have adopted, and other states are considering adopting, additional requirements related to seismic safety. These seismic events have also led to an increase in tort lawsuits filed against exploration and production companies as well as the owners of underground injection wells. Increased costs associated with the transportation and disposal of produced water, including the cost of complying with regulations concerning produced water disposal, may reduce the Acquired Companies’ profitability; however, these costs are commonly incurred by all oil and natural gas producers, and the Acquired Companies do not believe that the costs associated with the disposal of produced water will have a material adverse effect on their operations.

​

Air Emissions

​

The CAA and comparable state laws restrict the emission of air pollutants from many sources, such as, for example, tank batteries and compressor stations, through air emissions standards, construction and operating permitting programs and the imposition of other compliance standards. These laws and regulations may require the Acquired Companies to obtain preapproval for the construction or modification of certain projects or facilities expected to produce or significantly increase air emissions, obtain and strictly comply with stringent air permit requirements or utilize specific equipment or technologies to control emissions of certain pollutants. The need to obtain permits has the potential to delay the development of oil and natural gas projects. Recently, there has been increased regulation with respect to air emissions resulting from the oil and natural gas sector. For example, the EPA promulgated rules in 2012, 2016 and 2024 under the CAA that subject oil and natural gas production, processing, transmission and storage operations to regulation under the New Source Performance Standards (“NSPS”) and a separate set of requirements to address certain hazardous air pollutants frequently associated with oil and natural gas production and processing activities pursuant to the National Emission Standards for Hazardous Air Pollutants (“NESHAPS”) program. Regarding production activities, these final rules require, among other things, the reduction of volatile organic compound (“VOC”) emissions from certain fractured and refractured natural gas wells for which well completion operations are conducted and further requires that a subset of these selected wells use reduced emission completions, also known as “green completions.” These regulations also establish specific new requirements regarding emissions from production related wet seal and reciprocating compressors, and from pneumatic controllers and storage vessels.

​

On March 8, 2024 the EPA published the latest version of final rules establishing new air emission controls for methane emissions from certain new, modified or reconstructed equipment and processes in the oil and natural gas source category, including production, processing, transmission and storage activities. The EPA’s final rule include the NSPS to limit methane emissions from

Table of Contents

equipment and processes across the oil and natural gas source category. The rules also extend limitations on VOC emissions to sources that were unregulated under the previous NSPS at Subpart OOOO, process pumps at compressor stations and storage facilities. Affected methane and VOC sources include hydraulically fractured (or re-fractured) oil and natural gas well completions, fugitive emissions from well sites and compressors, and pneumatic pumps. Also, this rulemaking seeks to phase out venting and flaring from well production sites. The effectiveness date of this rule is May 7, 2024 with phased in deadlines for certain sections of the rule. Several states and industry groups have filed suit before the D.C. Circuit challenging the EPA’s implementation of the methane rule and legal authority to issue the methane rules. Texas et al. v. EPA et al., No. 24-1054 (D.C. Cir). On April 12, 2024, the states filed a motion to stay the effectiveness in the rule which is pending.

​

In addition to the EPA methane rules, on April 10, 2024 the BLM published the Waste Prevention, Production Subject to Royalties, and Resource Conservation rule that seek to limit methane emissions from exploration and production activities on federal lands through limitations on venting and flaring of natural gas, a process whereby operators will pay a royalty for any gas that is avoidably wasted, and requirements for the implementation of leak detection and repair programs for certain processes and equipment. This rule becomes effective on June 10, 2024 with a phased in approach provided for certain sections of the rule. As a result, substantial uncertainty exists with respect to the implementation of both the EPA and BLM methane rules. The EPA also finalized separate rules under the CAA in June 2016 regarding criteria for aggregating multiple sites into a single source for air quality permitting purposes applicable to the oil and natural gas industry. This rule could cause small facilities (such as tank batteries and compressor stations), on an aggregate basis, to be deemed a major source, thereby triggering more stringent air permitting requirements, which in turn could result in operational delays or require the Acquired Companies to install costly pollution control equipment. In addition, in October 2015, the EPA issued a final rule under the CAA, lowering the NAAQS for ground level ozone from the current standard of 75 ppb for the current 8-hour primary and secondary ozone standards to 70 ppb for both standards. The final rule became effective on December 28, 2015. States are expected to implement more stringent permitting and pollution control requirements as a result of this new final rule, which could apply to the Acquired Companies’ operations. The final rule became effective on December 28, 2015. On December 20, 2020, the EPA retained the existing 70 ppb for both standards in its 5-year NAAQS review. Since the effectiveness of the 2015 ozone Standard, states have been submitting revisions to their State Implementation Plans (“SIPS”) to meet or maintain compliance with the 2015 ozone standard.

​

Compliance with one or more of these and other air pollution control and permitting requirements has the potential to delay the development of oil and natural gas projects and increase the Acquired Companies’ costs of development and production, which costs could be significant.

​

Regulation of GHG Emissions

​

In response to findings that emissions of carbon dioxide, methane and other GHGs present an endangerment to public health and the environment, the EPA has adopted regulations under existing provisions of the CAA that, among other things, establish prevention of serious deterioration (“PSD”) construction and operating permit reviews under Title V of the CAA for certain large stationary sources that are already potential major sources of certain principal, or criteria, pollutant emissions. Facilities required to obtain PSD permits for their GHG emissions also will be required to meet “best available control technology” standards that typically will be established by state agencies. In addition, the EPA has adopted rules requiring the monitoring and annual reporting of GHG emissions from specified large, GHG emission sources in the United States, including certain onshore and offshore oil and natural gas production sources, which include certain of their operations. As discussed above, federal regulatory action with respect to GHG emissions from the oil and natural gas sector has focused on methane emissions; however, implementation of the federal methane rules is uncertain at this time.

​

From time to time, Congress has considered legislation to reduce emissions of GHGs, but no significant legislation has been adopted. In the absence of substantive federal climate legislation, a number of states have taken action. State and/or regional cap and trade programs typically require major sources of GHG emissions to acquire and surrender emission allowances in return for emitting those GHGs. In addition, the United States is one of almost 200 nations that, in December 2015, agreed to the Paris Agreement, an international climate change agreement in Paris, France that calls for countries to set their own GHG emissions targets and be transparent about the measures each country will use to achieve its GHG emissions targets. The Paris Agreement entered into force on November 4, 2016 upon achieving its threshold for ratification by signatory countries. A long-term goal of this Paris Agreement is to limit global warming to below two degrees Celsius by 2100 from temperatures in the pre-industrial era. However, the Paris Agreement does not impose any binding obligations on its participants. Since then, the United States has withdrawn, rejoined, and withdrawn again from the Paris Agreement. As of January 20, 2025, President Trump withdrew again from the Paris Agreement.

​

Although it is not possible at this time to predict how new laws or regulations in the United States that may be adopted or issued to address GHG emissions would impact the Acquired Companies’ business, any such future laws, regulations or legal requirements imposing reporting or permitting obligations on, or limiting emissions of GHGs from, their equipment and operations could require them to incur costs to reduce emissions of GHGs associated with their operations as well as delays or restrictions in their ability to permit GHG emissions from new or modified sources. In addition, substantial limitations on GHG emissions could adversely affect demand for the oil and natural gas they produce and lower the value of the Acquired Companies’ reserves. Finally,

Table of Contents

it should be noted that increasing concentrations of GHGs in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, floods, droughts and other extreme climatic events; if any such effects were to occur, they could have an adverse effect on the Acquired Companies’ exploration and production operations.

​

Hydraulic Fracturing Activities

​

Hydraulic fracturing is an important and common practice that is used to stimulate production of oil and/or natural gas from dense subsurface rock formations. The Acquired Companies regularly use hydraulic fracturing as part of their operations. Hydraulic fracturing involves the injection of water, sand or alternative proppant and chemicals under pressure into targeted geological formations to fracture the surrounding rock and stimulate production.

​

Hydraulic fracturing is typically regulated by state oil and natural gas commissions. However, several federal agencies have asserted regulatory authority over certain aspects of the process. For example, the EPA published final CAA regulations in 2012 and, more recently, in June 2016 governing performance standards, including standards for the capture of air emissions released during oil and natural gas hydraulic fracturing, leak detection, and permitting; published in June 2016 an effluent limited guideline final rule prohibiting the discharge of wastewater from onshore unconventional oil and natural gas extraction facilities to publicly owned wastewater treatment plants; and issued in 2014 a prepublication of its Advance Notice of Proposed Rulemaking regarding TSCA reporting of the chemical substances and mixtures used in hydraulic fracturing. Also, in March 2015, the BLM adopted rules establishing stringent standards relating to hydraulic fracturing on federal and American Indian lands. In June 2016, a Wyoming federal judge struck down this final rule, finding that the BLM lacked congressional authority to promulgate the rule; however, this ruling has been appealed and a final decision remains pending. However, the President issued an executive order in March 2017 directing the BLM to review and, if the agency’s review determines that the BLM rule is not consistent with the order’s goal of goal of promoting clean and safe development of energy resources while avoiding unnecessary regulatory burdens, initiate a new rulemaking to repeal or revise the rule. In May 2017, the BLM asked the U.S. Tenth Circuit Court of Appeals to hold in abeyance the litigation surrounding the BLM hydraulic fracturing rules while the agency reconsiders the rules. The Tenth Circuit declined to do so and heard oral arguments in State of Wyoming et al. v. Jewell et. al on July 27, 2017. On July 25, 2017, the BLM initiated a rulemaking to rescind the final rule and reinstate the regulations that existed immediately before the effective date of the rule. In light of the BLM’s proposed rulemaking, on September 21, 2017, the Tenth Circuit dismissed the appeal and remanded with directions to vacate the lower court’s opinion, leaving the final rule in place. On December 29, 2017, the BLM published a final rule formally rescinding the 2015 hydraulic fracturing rule and “return[ing] the affected sections of the [CFR] to the language that existed immediately before the published effective date of the 2015 rule” (in relevant part). 82 Fed. Reg. 61924 (Dec. 29, 2017). In the preamble to the final rule, the BLM explained that the rescission of the 2015 rule was “needed to prevent the unnecessarily burdensome and unjustified administrative requirements and compliance costs of the 2015 rule from encumbering oil and gas development on Federal and Indian lands.” Litigation ensued over the BLM’s rescission of its 2015 rule. The United States District Court for the Northern District of California upheld the BLM’s rescission of the 2015 rule; the district court’s decisions on this were appealed to the Ninth Circuit.

​

The Ninth Circuit litigation was administratively closed in March of 2021 following a February 2021 mediation conference; the litigation continues to be administratively closed.

​

Several governmental reviews are underway that focus on environmental aspects of hydraulic fracturing activities. For example, in December 2016, the EPA released its final report on the potential impacts of hydraulic fracturing on drinking water resources. The EPA report concluded that “water cycle” activities associated with hydraulic fracturing may impact drinking water resources “under some circumstances,” noting that the following hydraulic fracturing water cycle activities and local- or regional-scale factors are more likely than others to result in more frequent or more severe impacts: water withdrawals for fracturing in times or areas of low water availability; surface spills during the management of fracturing fluids, chemicals or produced water; injection of fracturing fluids into wells with inadequate mechanical integrity; injection of fracturing fluids directly into groundwater resources; discharge of inadequately treated fracturing wastewater to surface waters; and disposal or storage of fracturing wastewater in unlined pits.

​

From time to time, legislation has been introduced, but not enacted, in Congress to provide for federal regulation of hydraulic fracturing and to require disclosure of the chemicals used in the fracturing process. Meanwhile, the regulation of hydraulic fracturing has continued at the state level. For example, Wyoming, where the Acquired Companies operate, has promulgated rules related to the public disclosure of substances used in hydraulic fluid, testing requirements for water wells near drilling sites, and leak detection and repair requirements for fugitive emissions from oil and gas production facilities.

​

In the event that a new, federal level of legal restrictions relating to the hydraulic fracturing process is adopted in areas where the Acquired Companies operate, they may incur additional costs to comply with such federal requirements that may be significant in nature, and also could become subject to additional permitting requirements and experience added delays or curtailment in the pursuit of exploration, development, or production activities.

​

Table of Contents

At the state level, Wyoming, where the Acquired Companies conduct operations, has adopted regulations that impose new or more stringent disclosure, monitoring, and groundwater testing requirements associated with hydraulic fracturing and drilling operations in general. However, states could elect to prohibit high volume hydraulic fracturing altogether, following the approach taken by the State of New York in 2015. In addition to state laws, local land use restrictions, such as city ordinances, may restrict drilling in general and/or hydraulic fracturing in particular. For example, several cities in Colorado passed temporary or permanent moratoria on hydraulic fracturing within their respective cities’ limits in 2012-2013 but, since that time, local district courts have struck down the ordinances for certain of those Colorado cities in 2014, which decisions were upheld by the Colorado Supreme Court in May 2016. Notwithstanding attempts at the local level to prohibit hydraulic fracturing, there exists the opportunity for cities to adopt local ordinances allowing hydraulic fracturing activities within their jurisdictions but regulating the time, place and manner of those activities. It is also possible the Conservation Commission could pursue more stringent policies or rules and the Wyoming state legislature may seek to adopt new legislation relating to oil and natural gas operations, including measures that would give local governments in Wyoming greater authority to limit hydraulic fracturing and other oil and natural gas operations or require greater distances between wells sites and occupied structures.

​

Compliance with existing laws and regulations has not negatively impacted the Acquired Companies’ operations or financial position in a material way, but if states or localities adopt more stringent restrictions or prohibitions that limit oil and natural gas production and development in the areas where they operate, including, among other things, the development of increased setback distances, they and similarly situated oil and natural exploration and production operators in the state may incur significant costs to comply with such requirements or may experience delays or curtailment in the pursuit of exploration, development, or production activities, and possibly be limited or precluded in the drilling of wells or in the amounts that they and similarly situated companies operate are ultimately able to produce from their reserves. Any such increased costs, delays, cessations, restrictions or prohibitions could have a material adverse effect on the Acquired Companies’ business, prospects, results of operations, financial condition, and liquidity.

​

Activities on Federal Lands

​

The Acquired Companies conduct oil and natural gas exploration, development and production activities on federal lands, including lands administered by the BLM and in some cases, United States Forest Service. Operations on federal lands are frequently subject to permitting delays. Operations on these lands are also subject to the National Environmental Policy Act (“NEPA”) which requires federal agencies, including the BLM, to evaluate major agency actions having the potential to significantly impact the environment. In the course of such evaluations, an agency will prepare an Environmental Assessment that assesses the potential direct, indirect and cumulative impacts of a proposed project and, if necessary, will prepare a more detailed Environmental Impact Statement that may be made available for public review and comment. While the Acquired Companies currently have exploration, development and production activities on federal lands, their proposed exploration, development and production activities are expected to include leasing of federal mineral interests, which will require the acquisition of governmental permits or authorizations that are subject to the procedural requirements of NEPA. This process has the potential to delay or limit, or increase the cost of, the development of oil and natural gas projects. Authorizations under NEPA are also subject to protest, appeal or litigation, any or all of which may delay or halt projects. Moreover, depending on the mitigation strategies recommended in Environmental Assessments or Environmental Impact Statements, they could incur added costs, which may be substantial.

​

For example, in September 2022, two environmental advocacy groups filed suit against the U.S. Department of the Interior and the BLM alleging violations of NEPA, the Administrative Procedure Act, the Federal Land Policy and Management Act, and the Mineral Leasing Act with respect to the Converse County Oil and Gas Project (the “Project”) in Wyoming. On September 13, 2024, the U.S. District Court for the District of Columbia issued a ruling temporarily enjoining further APDs with respect to the Project area, citing erroneous data that overstated the amount of available groundwater in the Project’s Environmental Impact Statement. This ruling had the effect of halting federal APD approvals within the Project area until the court “determines the appropriate final remedy” to correct the deficiency being alleged in the case.

​

While the Acquired Companies are not involved in this litigation (as a defendant, intervenor or otherwise) and their pending APDs to drill in Converse County do not relate to specific acreage covered by the Project, it is possible that the BLM’s review and ultimate approval of their APDs in Converse County could be impacted by this federal court ruling. Out of an abundance of caution and to ensure the Acquired Companies’ ability to continue the uninterrupted development of their oil and gas properties following this offering without any undue impact from the outcome of this litigation, they plan to focus their near-term development in Campbell County, Wyoming; however it should also be noted that only approximately 18% of the Acquired Companies’ gross identified horizontal drilling locations are located in Converse County, Wyoming.

​

Endangered Species and Migratory Birds Considerations

​

The federal Endangered Species Act (“ESA”), and comparable state laws protect endangered and threatened species. Pursuant to the ESA, if a species is classified as threatened or endangered, restrictions may be imposed on activities adversely affecting that species’ habitat. Similar protections are offered to migrating birds under the Migratory Bird Treaty Act. The Acquired Companies may conduct operations on oil and natural gas leases in areas where certain species that are listed as threatened or

Table of Contents

endangered are known to exist and where other species, such as the sage grouse, that potentially could be listed as threatened or endangered under the ESA may exist. The identification or designation of previously unprotected species as threatened or endangered in areas where underlying property operations are conducted could cause the Acquired Companies to incur increased costs arising from species protection measures, time delays or limitations on their exploration and production activities that could have an adverse impact on their ability to develop and produce reserves. If the Acquired Companies were to have a portion of their leases designated as critical or suitable habitat, it could adversely impact the value of their leases. In addition, the federal government has in the past issued indictments under the Migratory Bird Treaty Act to several oil and natural gas companies after dead migratory birds were found near reserve pits associated with drilling activities. The identification or designation of previously unprotected species as threatened or endangered in areas where underlying property operations are conducted could cause the Acquired Companies to incur increased costs arising from species protection measures or could result in limitations on their development activities that could have an adverse impact on their ability to develop and produce reserves. If they were to have a portion of their leases designated as critical or suitable habitat, it could adversely impact the value of the Acquired Companies’ leases.

​

Occupational Safety & Health Administration

​

The Acquired Companies are subject to the requirements of the Occupational Safety & Health Administration (“OSHA”) and comparable state statutes whose purpose is to protect the health and safety of workers. In addition, the OSHA hazard communication standard, the Emergency Planning and Community Right to Know Act and comparable state statutes and any implementing regulations require that the Acquired Companies organize and/or disclose information about hazardous materials used or produced in their operations and that this information be provided to employees, state and local governmental authorities and citizens.

​

Related Permits and Authorizations

​

Many environmental laws require the Acquired Companies to obtain permits or other authorizations from state and/or federal agencies before initiating certain drilling, construction, production, operation, or other oil and natural gas activities, and to maintain these permits and compliance with their requirements for on-going operations. These permits are generally subject to protest, appeal, or litigation, which can in certain cases delay or halt projects and cease production or operation of wells, pipelines, and other operations.

​

Related Insurance

​

The Acquired Companies maintain insurance against some risks associated with above or underground contamination that may occur as a result of their exploration and production activities. However, this insurance is limited to activities at the well site and there can be no assurance that this insurance will continue to be commercially available or that this insurance will be available at premium levels that justify its purchase by the Acquired Companies. The occurrence of a significant event that is not fully insured or indemnified against could have a materially adverse effect on their financial condition and operations. Further, the Acquired Companies have no coverage for gradual, long-term pollution events.

​

Human Capital Resources

​

As of June 30, 2025, the Acquired Companies employed 25 people, all of which were full-time employees. From time to time, the Acquired Companies utilize the services of independent contractors to perform various field and other services. They are not a party to any collective bargaining agreements and have not experienced any strikes or work stoppages. They consider their relations with their employees to be satisfactory. 

​

The Acquired Companies aim to provide a safe, healthy, respectful, and fair workplace for all employees. They believe their employees’ talent and wellbeing is foundational to delivering on their corporate strategy, and that intentional human capital management strategies enable the Acquired Companies to attract, develop, retain and reward their dedicated employees. The health, safety, and well-being of their employees is of the utmost importance.

​

Corporate Headquarters and Available Information

​

The principal executive offices of the Acquired Companies are located at 1910 Main Avenue, Durango, Colorado 81301, and their telephone number is (970) 247-1500.

​

​

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE ACQUIRED COMPANIES

​

You should read the following discussion of the Acquired Companies’ historical performance, financial condition and future prospects in conjunction with their audited financial statements as of and for the years ended December 31, 2024 and 2023  and the notes thereto, as well as our unaudited interim financial statements as of and for the six months ended June 30, 2025 and 2024 included elsewhere in this Proxy Statement. The information provided below supplements, but does not form part of our consolidated financial statements. This discussion contains forward looking statements that are based on the views and beliefs of our management, as well as assumptions and estimates made by our management. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. For further information on items that could impact our future operating performance or financial condition, see the section entitled “Risk Factors — Risks Relating to the Acquired Companies’ Businesses” elsewhere in this Proxy Statement.

​

Overview of the Acquired Companies

​

The Acquired Companies are (i) Peak E&P and (ii) Peak BLM, and their respective subsidiaries. The Acquired Companies are privately held oil and gas exploration and production companies that operate in the PRB. As of June 30, 2025, the Acquired Companies owned approximately 39,600 net leasehold acres (out of 61,000 gross acres) in the PRB, primarily in Campbell and Converse Counties, Wyoming. The Acquired Companies’ operations are focused on the development of multiple productive horizons, including the Parkman, Shannon, Turner, Niobrara, and Mowry formations, utilizing advanced horizontal drilling and completion technologies.  

​

How the Acquired Companies Evaluate Their Operations

​

The Acquired Companies’ management have historically used a variety of financial and operational metrics to assess the performance of our operations, including the following sources of our revenue, principal components of our cost structure and other financial metrics:

​

​

​

​

​

​

Sources of the Acquired Companies’ Revenues

​

Net Production Volumes—The Acquired Companies’ oil and natural gas revenue is derived from the sale of oil and natural gas production. They report their reserves in two streams: oil and natural gas. The economic value of NGLs is included in the natural gas price and production. As reservoir pressures decline, production from a given well or formation decreases. Growth in future production and reserves will depend on the ability to add new proved developed producing reserves in excess of the decline in the current production. The ability to add reserves through development projects is dependent on many factors, including the availability of capital, the ability to obtain regulatory approvals, and the ability to procure contract drilling rigs and completion equipment and associated personnel.

​

Realized Prices—The NYMEX WTI and Henry Hub futures prices are widely used benchmarks in the pricing of domestic and imported oil and natural gas, respectively, in the United States. The actual prices realized from the sale of oil and natural gas differ from the quoted NYMEX WTI price and the NYMEX Henry Hub price, respectively, as a result of quality and location differentials. The prices realized on the oil produced is affected by the ability to transport crude oil to the applicable transportation hub. Location differentials to NYMEX Henry Hub prices result from variances in transportation costs based on the proximity of the natural gas to the major consuming markets to which it is ultimately delivered.

​

Epsilon will continue to enter into hedging arrangements to reduce the impact of commodity price volatility on cash flows from operations and to satisfy hedge requirements of the Company’s Credit Facility (if any). All derivative instruments are recorded on the consolidated balance sheets as an asset or liability measured at fair value, with changes in the fair value of the derivatives recorded currently in the consolidated statements of operations.

​

Hedging only provides partial price protection against declines in prices and may partially limit our potential gains from future price increases. In addition, in times of low commodity prices, the ability to enter into additional commodity derivative contracts with favorable commodity price terms may be limited, which may adversely impact future operating income and cash

Table of Contents

flows as compared to historical periods during which the Acquired Companies were able to hedge a portion of production at higher prices.

​

Principal Components of the Acquired Companies’ Cost Structure

​

Lease Operating Expense—Lease operating expenses are the costs incurred in the operation and maintenance of producing properties and related well workover expenses. Expenses for direct labor, water injection and disposal, utilities, materials, supplies, compressor rental, and surface-use payments comprise the most significant portion of our lease operating expenses. Lease operating expenses do not include general and administrative expenses or production or ad valorem taxes. Certain items, such as direct labor and materials and supplies, generally remain relatively fixed across broad production volume ranges, but can fluctuate depending on activities performed during a specific period. For instance, repairs to equipment or surface facilities result in increased lease operating expenses in periods during which they are performed. Certain of our operating cost components are variable and increase or decrease as the level of produced hydrocarbons and water increases or decreases. For example, certain power and water disposal costs may vary directly with the amount of hydrocarbons and water produced.

​

Production and Ad Valorem Tax Expense—Production taxes are paid based on a percentage of revenues from oil and natural gas production sold at fixed rates established by state or local taxing authorities. In general, the production taxes paid are correlated to changes in revenues.  Taxes are recognized and paid at the full statutory rate until an application for a reduced production tax rate is approved, as applicable, at which time a refund will be issued for severance taxes paid in excess of the approved reduced rate. The Acquired Companies are also subject to ad valorem taxes in the counties where the production is located. Ad valorem taxes are generally based on the valuation of the oil and natural gas properties and vary slightly across the different counties in which the Acquired Companies operate.

​

Depletion, Depreciation and Amortization—Depletion, depreciation and amortization is the systematic expensing of the capitalized costs incurred to acquire, explore and develop natural gas and oil. The Acquired Companies use the successful efforts method of accounting for oil and natural gas activities and, as such, capitalize all costs associated with the drilling and completion of oil and natural gas properties associated with developmental wells. Costs associated with exploratory wells are capitalized, or suspended, until we determine if proved reserves are discovered.

​

Accretion— The Acquired Companies recognize accretion expense in connection with the discounted liability for future abandonment costs over the remaining estimated economic lives of the respective oil and natural gas properties.

​

Abandonment— The Acquired Companies recognize abandonment expenses in connection with the determination that certain leases of unproved property will be allowed to expire. Upon determination that a property lease will be allowed to expire, we recognize an abandonment expense for the associated costs of the lease.

​

Impairment of Oil and Natural Gas Properties—The Acquired Companies review and evaluate long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. If there is an indication the carrying amount of an asset may not be recovered, the asset is assessed for potential impairment by management through an established process. If, upon review, the sum of the undiscounted pre-tax reserve cash flows is less than the carrying value of the asset, the carrying value is written down to estimated fair value. An impairment loss is measured as the amount by which asset carrying value exceeds fair value on an individual field-by-field basis.

​

General and Administrative—General and administrative expenses include costs incurred to operate the business that are not directly tied to the operation of producing properties. Employee compensation and benefits, rent, office expenses and audit and other fees for professional services and legal compliance comprise the most significant portion of general and administrative expenses.

​

Gain (Loss) on Commodity Derivatives— The Acquired Companies recognize derivative instruments on the consolidated balance sheet as assets or liabilities at fair value with such amounts classified as current or long-term based on anticipated settlement dates. The accounting for the changes in fair value of a derivative depends on the intended use of the derivative and resulting designation. Historically, the Acquired Companies have not designated derivative instruments as hedges for accounting purposes and, as a result, mark derivative instruments to fair value and recognize the cash and non-cash change in fair value on derivative instruments for each period in their consolidated statements of operations.

​

​

​

​

Table of Contents

Results of Operations – Peak E&P

​

Six Months Ended June 30, 2025 Compared to the Six Months Ended June 30, 2024

​

Revenues—The following information provides the components of Peak E&P’s revenues, as well as average realized prices and net production volumes (dollar amounts in thousands):

​

​