5. Revolving Line of Credit

Effective July 30, 2013, Epsilon Energy USA Inc., a wholly owned subsidiary of the Company, executed a three-year senior secured revolving credit facility with a bank (‘‘Credit Facility’’) for a total commitment of up to $100 million. Upon each advance, interest is charged at the rate of LIBOR plus an ‘‘applicable margin’’. The applicable margin is based on the percent of the line of credit utilized.

The terms “Borrowing Base” and “Mortgaged Properties” include the Company’s gathering system assets in addition to the natural gas and oil properties. The “Required Reserve Value” is the lesser of 90% of the recognized value of all proved natural gas and oil properties or 150% of the then current borrowing base.

On February 11, 2020 the borrowing base was reaffirmed at $23 million and hedging requirements remained unchanged. Currently, when the Company’s utilization exceeds 25%, the Company must have in place acceptable commodity hedging agreements covering at least 75% of projected production for the first full twelve months after such occurrence and 50% of projected production of natural gas for the succeeding six months.

On April 6, 2021 the agreement was amended to extend the maturity date to March 1, 2024 and the borrowing base was decreased from $23 million to $18 million. In addition, the “applicable margin” rates were adjusted from 2.75%-3.75% to 3.25%-4.25%, a LIBOR minimum rate of 0.25% was added, and the leverage ratio compliance threshold was decreased from less than 3.5 to less than 3.0. The amendment also includes a “Benchmark Replacement” definition and transition plan to be used at such time when the LIBOR rate is discontinued. This rate also has a minimum of 0.25%.

The lender under the Credit Facility has a first priority security interest in the tangible and intangible assets, including the gathering system, of Epsilon Energy USA, Inc. to secure any outstanding amounts under the agreement. Under the terms of the agreement, the Company must maintain the following covenants:

Interest coverage ratio greater than 3 based on income adjusted for interest, taxes and non-cash amounts.

Current ratio, adjusted for line of credit amounts used and available and non-cash amounts, greater than 1.

Leverage ratio less than 3.0 based on income adjusted for interest, taxes and non-cash amounts.

The Company was in compliance with the financial covenants of the Credit Facility as of March 31, 2021 and expects to be in compliance with the financial covenants for the next 12 months.

A commitment fee of 0.50% is assessed quarterly on the daily average unused borrowing base on the Credit Facility.


	Balance at		Balance at
	March 31,		December 31,		Current		Interest Rate
	2021		2020		Borrowing Base		3 mo.
Revolving line of credit	$	—	$	—	$	18,000,000		LIBOR + 3.25% (1)

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At March 31, 2021, the weighted average interest rate was 3.50%.