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Epsilon Energy Ltd. Announces Doubling of Estimated Proved Reserves

CONCORD, ONTARIO -- (Marketwire) -- 12/18/12 -- Epsilon Energy Ltd. ("Epsilon") (TSX:EPS) announced today that proved reserves as of October 31, 2012 increased to 150 Bcfe, more than double the proved reserve estimate of 72 Bcfe as of December 31, 2011. The 107% increase in proved reserves is based upon an evaluation performed by Epsilon's independent reserve engineering firm, Miller and Lents, Ltd. ("MLL").

The increase in reserves is driven by successful drilling results, favorable production rates and better than anticipated decline rates in the Marcellus. Based upon production results in 2012, EUR's for Marcellus proved producing wells increased up to 7.5 Bcfe per gross well, from an average of 4.9 Bcfe per well. The estimated number of potential well sites in the Marcellus also increased. The reserve estimates do not include any proved undeveloped or probable locations for the Upper Marcellus, Purcell Limestone or Utica Shale which are being drilled and tested by various operators in the region.

November 1, 2012 Net Reserves Summary (1)(2)                                
                                                                   Total Gas
                                          Natural Gas     Oil     Equivalent
                                               (Mmcf)  (Mbbl)  (MMcfe) (6:1)
  Developed producing                          52,694      28         52,863
  Developed non-producing                      15,587       -         15,587
  Undeveloped                                  81,876       -         81,876
Total Proved                                  150,157      28        150,326
Probable                                       11,215       -         11,215
Total Proved plus Probable                    161,372      28        161,541
November 1, 2012 Net Present Value Summary (1)(2)(3)                        
Developed producing                                                  $99,871
Developed non-producing                                               35,404
Undeveloped                                                           74,431
Total Proved                                                         209,706
Probable                                                               9,330
Total Proved plus Probable                                          $219,036
(1) "Net" means the Company's reserves net of royalties                     
(2) Forecast pricing based on NYMEX strip pricing as at November 1, 2012    
    then escalated 2%                                                       
(3) Net present value before income taxes discounted at 10%                 

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

Epsilon hedges portions of its expected future production volumes to increase the predictability of its cash flow and to help maintain a strong, flexible financial position. Approximately 70% of expected January through March 2013 natural gas production is hedged at a weighted average price of $3.36 per Mcf including basis differentials. Furthermore, Epsilon has hedged an additional 25% of expected April through October 2013 natural gas production at a weighted average price of $3.93 per Mcf excluding basis differentials which are not currently hedged.

The Company remains active in oil exploration and development activities in Canada. In September 2012, Epsilon signed a definitive agreement with a private Canadian company whereby Epsilon will have the opportunity to earn a 50% interest in leasehold properties in Alberta, Canada targeting the Basal Belly River zone. Epsilon, acting as operator, spud the first of five wells in November which is currently being tested and evaluated.

Commenting on the updated reserve estimates, Zoran Arandjelovic, Epsilon's Chairman, CEO and President, said, "Our efforts in the Marcellus and focus on expanding Canadian oil opportunities have generated significant value for Epsilon's shareholders as reflected in these results. The significant upward revision of our proved reserve estimates reinforces the company is significantly undervalued. The Board continues to work with Evercore Partners and Cormark Securities to explore and evaluate a range of strategic alternatives to enhance stockholder value."

Epsilon Energy Ltd. is a North American onshore exploration and production company with a current focus in the Marcellus Shale in Pennsylvania, Bakken Shale in Saskatchewan and Basal Belly River in Alberta.

Forward-Looking Statements

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

Special note for news distribution in the United States

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

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