SCHEDULE: Yorktown Takes 8.86% Stake in Epsilon Energy, Director Appointed

Yorktown Energy Partners X, L.P. acquired an 8.86% beneficial ownership in Epsilon Energy Ltd. common shares as part of an acquisition, with a 180-day lock-up and a new board appointment.

Summary

• Yorktown Energy Partners X, L.P. and its affiliates (Reporting Persons) now beneficially own 2,656,705 Common Shares of Epsilon Energy Ltd., representing 8.86% of the total outstanding shares.
• This ownership resulted from the transfer of Peak E&P Interests to Epsilon Energy USA, Inc. as part of a Membership Interest Purchase Agreement dated August 11, 2025, which closed on November 14, 2025.
• A Lock-Up Agreement restricts the Reporting Persons from selling or disposing of these shares for 180 days following the November 14, 2025 Closing Date.
• Bryan H. Lawrence, a Managing Member of Yorktown X Associates, was appointed to Epsilon Energy Ltd.'s Board of Directors on the Closing Date.
• Epsilon Energy Ltd. entered into a Registration Rights Agreement, committing to file a Form S-3 to allow public resale of these shares by selling shareholders after the restricted period.

Sentiment

Score: 7

Explanation: The filing reflects the successful completion of a strategic acquisition and the integration of a significant institutional investor onto the board, which are generally positive. However, the potential for future selling pressure from the large share block after the lock-up and the investor's stated intent to potentially influence major corporate changes introduce some uncertainty.

Positives

• Strategic acquisition of Peak E&P Interests by Epsilon Energy Ltd. completed, potentially enhancing asset base and operational scale.
• Appointment of Bryan H. Lawrence, a Managing Member from a significant institutional investor (Yorktown), to the Board of Directors, potentially bringing valuable expertise and oversight.
• The 180-day lock-up agreement for the newly issued shares reduces immediate selling pressure from the new large shareholder.
• Registration Rights Agreement facilitates future liquidity for the selling shareholders, which can be a positive for attracting future strategic investors.

Negatives

• Significant share issuance (8.86% of outstanding shares) could lead to dilution for existing shareholders.
• The lock-up period, while preventing immediate sales, means a large block of shares will become eligible for sale after 180 days, potentially creating future selling pressure.
• The Reporting Persons explicitly state they may review their investment, acquire more, sell, or propose extraordinary corporate transactions, indicating potential for future strategic shifts or changes in control.

Risks

• Future selling pressure from the 2,656,705 shares held by Yorktown once the 180-day lock-up period expires.
• Potential for changes in Epsilon Energy Ltd.'s business, financial condition, operations, or prospects, which could influence Yorktown's investment decisions.
• General market, industry, and economic conditions could impact the value of Epsilon's securities.
• The Reporting Persons may propose or encourage extraordinary corporate transactions (merger, asset sales, changes to capitalization or dividend policy, changes in management or board composition), which could alter the company's strategic direction or ownership structure.

Future Outlook

The Reporting Persons acquired the securities for investment purposes and will continuously review their investment. They may acquire more securities, dispose of holdings, or propose significant corporate transactions such as mergers, asset sales, changes to capitalization or dividend policy, or changes in management or board composition.

Management Comments

• The Reporting Persons acquired the securities described in this Schedule 13D for investment purposes, and they intend to review their investments in the Issuer on a continuing basis.
• The Reporting Persons may, at any time and from time to time, review or reconsider their position, change their purpose or formulate plans or proposals with respect thereto.
• The Reporting Persons or their designees to the Issuer's board of directors may engage in discussions with management, the board of directors, and shareholders of the Issuer and other relevant parties or encourage such persons to consider or explore extraordinary corporate transactions...

Industry Context

This filing reflects a strategic acquisition in the energy sector, where Epsilon Energy Ltd. is expanding its asset base by acquiring Peak E&P Interests. The involvement of a private equity firm like Yorktown Energy Partners, specializing in energy investments, and their subsequent board appointment, suggests a potential for active engagement in Epsilon's strategic direction and governance. Such transactions are common in the energy industry for consolidation and growth.

Comparison to Industry Standards

• The 180-day lock-up period is a standard practice in M&A transactions involving share consideration, aligning with typical lock-up durations seen in similar deals to prevent immediate market disruption.
• The appointment of a representative from a significant investor to the board is a common governance practice, ensuring alignment of interests and providing strategic input from a major shareholder.
• The inclusion of registration rights is also standard for large share issuances to institutional investors, providing a clear path for future liquidity while managing market impact.

Management Changes

Corporate Governance

Related Party Transactions

• Yorktown Energy Partners X, L.P. (a Reporting Person) was a seller in the Peak E&P Agreement and received Epsilon Energy Ltd. Common Shares as consideration.
• Yorktown Energy Partners XI, L.P. acted as the representative of the Sellers in the Peak E&P Purchase Agreement.

Stakeholder Impact

• Shareholders: Potential dilution from the issuance of new shares. Future selling pressure after the lock-up period. Increased institutional oversight and potential strategic shifts due to a major investor's board representation.
• Management: New board member from a significant investor may bring additional scrutiny or strategic direction.

Next Steps

• Epsilon Energy Ltd. to file a Form S-3 registration statement to permit public resale of Common Shares by selling shareholders.
• Reporting Persons will continue to review their investment in Epsilon Energy Ltd.
• Reporting Persons may acquire additional securities, dispose of holdings, or propose extraordinary corporate transactions.

Key Dates

Recommendation

The filing confirms the completion of a strategic acquisition and the integration of a significant institutional investor, which are generally positive for long-term growth. However, the immediate impact includes share dilution and the overhang of a large block of shares that will become eligible for sale after a 180-day lock-up. The new investor's stated intent to potentially influence major corporate transactions also introduces a degree of uncertainty. Given these balanced factors, a "hold" recommendation is appropriate, advising investors to monitor the company's integration of the acquired assets, the performance under the new board composition, and the market's absorption of the shares post-lock-up before making further investment decisions.

Keywords

Epsilon Energy, Yorktown Energy Partners, Schedule 13D, Lock-Up Agreement, Peak E&P Acquisition, Common Shares, Beneficial Ownership, Director Appointment, Registration Rights, Oil and Gas, Energy Sector, SEC Filing