# Mexco Energy Corp: Form 10-Q for the period ended Dec 31, 2022

- Company: [Mexco Energy Corp](/companies/mxc.md) (CIK 66418)
- Form: 10-Q
- Filed: 2023-02-10
- Accepted by EDGAR: Feb 10, 2023, 06:03 ET
- Period: 2022-12-31
- Accession: 0001493152-23-004184
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/66418/000149315223004184/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/66418/000149315223004184/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-10-01 to 2022-12-31 | $2.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-04-01 to 2022-12-31 | $7.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2022-10-01 to 2022-12-31 | $1.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-04-01 to 2022-12-31 | $3.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-10-01 to 2022-12-31 | $3.2k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-04-01 to 2022-12-31 | $9.9k | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-10-01 to 2022-12-31 | $62.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-04-01 to 2022-12-31 | $115.2k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-10-01 to 2022-12-31 | $1.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-04-01 to 2022-12-31 | $3.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-10-01 to 2022-12-31 | $0.56 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-04-01 to 2022-12-31 | $1.70 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-10-01 to 2022-12-31 | $0.58 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-04-01 to 2022-12-31 | $1.75 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-10-01 to 2022-12-31 | 2,205,706 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-04-01 to 2022-12-31 | 2,213,652 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-04-01 to 2022-12-31 | $4.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Share repurchases | 9 months, 2022-04-01 to 2022-12-31 | $168.3k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-12-31 | $631.0k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-12-31 | $2.7m | us-gaap:AssetsCurrent |
| Total assets | at 2022-12-31 | $17.0m | us-gaap:Assets |
| Current liabilities | at 2022-12-31 | $247.1k | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-12-31 | $1.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-12-31 | $16.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 18,808 characters.

Unless the context otherwise requires, references to the “Company”, “Mexco”, “we”, “us” or “our” mean Mexco Energy Corporation and its consolidated subsidiaries.

**Cautionary Statements Regarding Forward-Looking Statements.** Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements regarding our plans, beliefs or current expectations and may be signified by the words “could”, “should”, “expect”, “project”, “estimate”, “believe”, “anticipate”, “intend”, “budget”, “plan”, “forecast”, “predict” and other similar expressions. Forward-looking statements appear throughout this Form 10-Q with respect to, among other things: profitability; planned capital expenditures; estimates of oil and gas production; future project dates; estimates of future oil and gas prices; estimates of oil and gas reserves; our future financial condition or results of operations; and our business strategy and other plans and objectives for future operations. Forward-looking statements involve known and unknown risks and uncertainties that could cause actual results to differ materially from those contained in any forward-looking statement.

While we have made assumptions that we believe are reasonable, the assumptions that support our forward-looking statements are based upon information that is currently available and is subject to change. All forward-looking statements in the Form 10-Q are qualified in their entirety by the cautionary statement contained in this section. We do not undertake to update, revise or correct any of the forward-looking information. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Form 10-K.

**Liquidity and Capital Resources.** Historically, we have funded our operations, acquisitions, exploration and development expenditures from cash generated by operating activities, bank borrowings, sales of non-core properties and issuance of common stock. Our primary financial resource is our base of oil and gas reserves. We have pledged our producing oil and gas properties to secure our credit facility. We do not have any delivery commitments to provide a fixed and determinable quantity of its oil and gas under any existing contract or agreement.

Our long-term strategy is on increasing profit margins while concentrating on obtaining reserves with low cost operations by acquiring and developing oil and gas properties with potential for long-lived production. We focus our efforts on the acquisition of royalties and working interests in non-operated properties in areas with significant development potential.

At December 31, 2022, we had working capital of $2,468,314 compared to working capital of $2,469,776 at March 31, 2022, a decrease of $1,462 for the reasons set forth below.

### Cash Flows

Changes in the net funds provided by or (used in) each of our operating, investing and financing activities are set forth in the table below:

|  | For the Nine Months Ended December 31, 2022 | 2021 | Change |
| --- | ---: | ---: | ---: |
| Net cash provided by operating activities | 4,350,920 | 2,728,586 | 1,622,334 |
| Net cash used in investing activities | (4,969,269) | (1,021,849) | 3,947,420 |
| Net cash used in financing activities | (121,381) | (884,360) | (762,979) |

**Cash Flow Provided by Operating Activities.** Cash flow from operating activities is primarily derived from the production of our crude oil and natural gas reserves and changes in the balances of non-cash accounts, receivables, payables or other non-energy property asset account balances. Cash flow provided by our operating activities for the nine months ended December 31, 2022 was $4,350,920 in comparison to $2,728,586 for the nine months ended December 31, 2021. This increase of $1,622,334 in our cash flow operating activities consisted of an increase in our non-cash expenses of $496,349; an increase in our accounts receivable of $639,657; and, an increase in our net income for the current nine months of $1,898,037. Variations in cash flow from operating activities may impact our level of exploration and development expenditures.

Our expenditures in operating activities consist primarily of drilling expenses, production expenses and engineering services. Our expenses also consist of employee compensation, accounting, insurance and other general and administrative expenses that we have incurred in order to address normal and necessary business activities of a public company in the crude oil and natural gas production industry.

**Cash Flow Used in Investing Activities.** Cash flow from investing activities is derived from changes in oil and gas property balances. For the nine months ended December 31, 2022, we had net cash of $4,969,269 used for additions to oil and gas properties compared to $1,021,849 for the nine months ended December 31, 2021.

**Cash Flow Provided by Financing Activities.** Cash flow from financing activities is derived from our changes in long-term debt and in equity account balances. Cash flow used in our financing activities was $121,381 for the nine months ended December 31, 2022 compared to cash flow used in our financing activities of $884,360 for the nine months ended December 31, 2021. During the nine months ended December 31, 2022, we received advances and made repayments of $675,000 on our credit facility, received proceeds of $16,700 from the exercise of director stock options, received payment of $30,179 from a director for profits on purchase of stock within the six-month window of a previous stock sale, and expended $168,260 for the purchase of 12,416 shares of our stock for the treasury.

Accordingly, net cash decreased $739,730, leaving cash and cash equivalents on hand of $631,036 as of December 31, 2022.

### Oil and Natural Gas Property Development.

**New Participations in Fiscal 2023.** The Company currently plans to participate in the drilling and completion of 50 horizontal wells at an estimated aggregate cost of approximately $4,000,000 for the fiscal year ending March 31, 2023, of which 53% will be spent in the Delaware Basin and the remaining balance in the Midland Basin. Thirty-eight of these horizontal wells are in the Delaware Basin located in the western portion of the Permian Basin in Lea and Eddy Counties, New Mexico and twelve are in the Midland Basin located in the eastern portion of the Permian Basin in Reagan County, Texas.

In April 2022, Mexco expended approximately $176,000 to participate in the drilling of four horizontal wells in the Wolfcamp Sand formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is .52%.

Mexco expended approximately $1,196,000 to participate in the drilling and completion of three horizontal wells in the Wolfcamp Sand formation of the Midland Basin located in the eastern portion of the Permian Basin in Reagan County, Texas. Mexco’s working interest in these wells is 3.2%. These wells were completed in October 2022 with initial average production rates of 507 barrels of oil, 2,147 barrels of water and 2,147,000 cubic feet of gas per day, or, 560 barrels of oil equivalent per day.

Mexco expended approximately $681,000 to participate in the drilling and completion of eight horizontal wells in the Wolfcamp Sand formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is .52%. These wells are currently being completed.

Mexco expended approximately $607,000 to participate in the drilling and completion of a horizontal well in the Wolfcamp Sand formation of the Midland Basin in Reagan County, Texas. Mexco’s working interest in this well is 5.1%. This well was completed in October 2022 with initial average production rates of 134 barrels of oil, 874 barrels of water and 143,000 cubic feet of gas per day, or, 158 barrels of oil equivalent per day.

Mexco expended approximately $625,000 to participate in the drilling and completion of four horizontal wells in the Bone Spring formation of the Delaware Basin in Eddy County, New Mexico. Mexco’s working interest in these wells is 2.1%. These wells began producing in October 2022 with initial average production rates of 1,154 barrels of oil, 2,887 barrels of water and 2,966,000 cubic feet of gas per day, or, 1,648 barrels of oil equivalent per day.

Mexco expended approximately $78,000 to participate in the drilling and completion of two horizontal wells in the Penn Shale formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is .22%. These wells are currently being completed.

Mexco expended approximately $85,000 to participate in the drilling and completion of eight horizontal wells in the Spraberry trend of the Midland Basin in Reagan County, Texas. Mexco’s working interest in these wells is approximately .08%. These wells are currently being completed.

Mexco expended $16,000 to participate in the drilling and completion of three horizontal wells in the Bone Spring formation of the Delaware Basin in Eddy County, New Mexico. Mexco’s working interest in these wells is .05%. These wells are currently being completed.

In October 2022, the Company made an approximately 2% equity investment commitment in a limited liability company amounting to $2,000,000 of which $200,000 has been funded through December 31, 2022. The limited liability company is capitalized at approximately $100 million to purchase mineral interests in the Utica and Marcellus areas in the state of Ohio.

**Completion of Wells Drilled in Fiscal 2022.** The Company expended approximately $329,000 for the completion costs of 8 horizontal wells located in Lea County, New Mexico that the Company participated in drilling during fiscal 2022. The first 4 of these wells began producing in May 2022 and the remaining 4 were completed in November 2022 with initial average production rates of 953 barrels of oil, 4,063 barrels of water and 3,071,000 cubic feet of gas per day, or, 1,465 barrels of oil equivalent per day.

**Acquisitions in Fiscal 2023.** The Company acquired various royalty (mineral) interests in 22 wells and several additional potential locations for development operated by Chesapeake Energy Corporation and located in the Eagleford area of Dimmit County, Texas for a purchase price of $939,000 which was effective April 1, 2022.

**Subsequent Participations.** In January 2023, Mexco expended $180,000 to participate in the drilling of four horizontal wells in the Wolfcamp Sand formation of the Delaware Basin in Lea County, New Mexico.

In February 2023, Mexco expended approximately $31,000 to participate in the drilling and completion of seven horizontal wells in the Bone Spring formation of the Delaware Basin in Lea County, New Mexico.

We are participating in other projects and are reviewing projects in which we may participate. The cost of such projects would be funded, to the extent possible, from existing cash balances and cash flow from operations. The remainder may be funded through borrowings on the credit facility and, if appropriate, sales of non-core properties.

Crude oil and natural gas generally remained volatile during the last year. The volatility of the energy markets makes it extremely difficult to predict future oil and natural gas price movements with any certainty. For example, in the last twelve months, the NYMEX West Texas Intermediate (“WTI”) posted price for crude oil has ranged from a low of $67.00 per bbl in December 2022 to a high of $119.68 per bbl in March 2022. The Henry Hub Spot Market Price (“Henry Hub”) posted price for natural gas has ranged from a low of $3.46 per MMBtu in November 2022 to a high of $9.85 per MMBtu in August 2022.

On December 31, 2022, the WTI posted price for crude oil was $76.24 and the Henry Hub posted price for natural gas was $3.52. See Results of Operations below for realized price.

**Contractual Obligations.** We have no off-balance sheet debt or unrecorded obligations and have not guaranteed the debt of any other party. The following table summarizes our future payments we are obligated to make based on agreements in place as of December 31, 2022:

| Contractual obligations: | Payments due in: Total | less than 1 year | 1 - 3 years | over 3 years |
| --- | ---: | ---: | ---: | ---: |
| Leases (1) | $92,213 | $58,240 | $33,973 | $- |

(1) The lease amount represents the monthly rent amount for our principal office space in Midland, Texas under a 38-month lease agreement effective May 15, 2018 and extended another 36 months to July 31, 2024. Of this total obligation for the remainder of the lease, our majority shareholder will pay $15,572 less than 1 year and $9,083 1-3 years for his portion of the shared office space.

**Results of Operations – Three Months Ended December 31, 2022 and 2021.** For the quarter ended December 31, 2022, there was net income of $1,244,785 compared to $753,302 for the quarter ended December 31, 2021, a 65% increase as a result of an increase in operating revenues due to an increase in oil and gas production and prices partially offset by an increase in operating expenses that is further explained below.

*Oil and gas sales*. Revenue from oil and gas sales was $2,486,017 for the third quarter of fiscal 2023, a 58% increase from $1,573,984 for the same period of fiscal 2022. This resulted from an increase in oil and natural gas production volumes and an increase in oil price partially offset by a decrease in natural gas price.

| Oil: | 2022 | 2021 | % Difference |
| --- | ---: | ---: | ---: |
| Revenue | $1,750,539 | $1,073,078 | 63.1% |
| Volume (bbls) | 21,308 | 14,142 | 50.7% |
| Average Price (per bbl) | $82.15 | $75.88 | 8.3% |
| Gas: |  |  |  |
| Revenue | $735,478 | $500,906 | 46.8% |
| Volume (mcf) | 145,980 | 91,534 | 59.5% |
| Average Price (per mcf) | $5.04 | $5.47 | (7.9%) |

*Production and exploration.* Production costs were $478,670 for the third quarter of fiscal 2023, a 64% increase from $291,068 for the same period of fiscal 2022. This is primarily the result of an increase in production taxes and marketing charges as a result of the increase in oil and gas revenues.

*Depreciation, depletion and amortization.* Depreciation, depletion and amortization expense was $496,509 for the third quarter of fiscal 2023, an 85% increase from $268,018 for the same period of fiscal 2022, primarily due to an increase in production and full cost pool amortization base partially offset by an increase in oil and gas reserves.

*General and administrative expenses.* General and administrative expenses were $288,536 for the third quarter of fiscal 2023, a 20% increase from $239,767 for the same period of fiscal 2022. This was primarily due to an increase in salaries, employee stock option compensation and accounting fees.

*Interest expense.* Interest expense was $3,230 for the third quarter of fiscal 2023, a 3% increase from $3,132 for the same period of fiscal 2022, due to an increase in interest rate.

*Income taxes.* Income tax expense was $61,986 for the three months ended December 31, 2022, an 89% increase from $32,785 for the three months ended December 31, 2021 consisting only of state income tax. This increase was due to our continuing development program primarily in the State of New Mexico. The effective tax rate for the three months ended December 31, 2022 and 2021 was 5% and 4%, respectively. For federal income tax purposes, we are in a net deferred tax asset position and believe it is more likely than not that these deferred tax assets will not be realized.

**Results of Operations – Nine Months Ended December 31, 2022 and 2021.** For the nine months ended December 31, 2022, there was a net income of $3,755,173 compared to net income of $1,857,136 for the nine months ended December 31, 2021. This was a result of an increase in operating revenues due to an increase in oil and gas production volumes and prices partially offset by an increase in operating expenses that is further explained below.

*Oil and gas sales*. Revenue from oil and gas sales was $7,184,025 for the nine months ended December 31, 2022, a 64% increase from $4,370,720 for the same period of fiscal 2022. This resulted from an increase in oil and natural gas prices and an increase in oil and natural gas production volumes.

| Oil: | 2022 | 2021 | % Difference |
| --- | ---: | ---: | ---: |
| Revenue | $4,707,735 | $3,193,315 | 47.4% |
| Volume (bbls) | 50,052 | 45,857 | 9.1% |
| Average Price (per bbl) | $94.06 | $69.64 | 35.1% |
| Gas: |  |  |  |
| Revenue | $2,476,290 | $1,177,405 | 110.3% |
| Volume (mcf) | 394,293 | 274,204 | 43.8% |
| Average Price (per mcf) | $6.28 | $4.29 | 46.3% |

*Production and exploration.* Production costs were $1,308,143 for the nine months ended December 31, 2022, a 45% increase from $903,643 for the nine months ended December 31, 2021. This increase is primarily the result of an increase in production taxes and marketing charges as a result of the increase in oil and gas revenues.

*Depreciation, depletion and amortization.* Depreciation, depletion and amortization expense was $1,268,016 for the nine months ended December 31, 2022, a 56% increase from $812,398 for the nine months ended December 31, 2021, due to an increase production and full cost pool amortization base partially offset by an increase in oil and gas reserves.

*General and administrative expenses.* General and administrative expenses were $876,735 for the nine months ended December 31, 2022, a 19% increase from $739,469 for the nine months ended December 31, 2021. This was primarily due to an increase in employee stock option compensation, salaries and contract services, and legal fees.

*Interest expense.* Interest expense was $9,770 for the nine months ended December 31, 2022, a 58% decrease from $23,255 for the nine months ended December 31, 2021 due to a decrease in borrowings.

*Income taxes.* Income tax expense was $115,236 for the nine months ended December 31, 2022, a 108% increase from $55,492 for the nine months ended December 31, 2021 consisting only of state income tax. This increase was due to our continuing development program primarily in the State of New Mexico. The effective tax rate for the nine months ended December 31, 2022 and 2021 was 3%. For federal income tax purposes, we are in a net deferred tax asset position and believe it is more likely than not that these deferred tax assets will not be realized.

## Market risk

As filed, 2,325 characters.

The primary sources of market risk for us include fluctuations in commodity prices and interest rates. All of our financial instruments are for purposes other than trading.

**Credit Risk.** Credit risk is the risk of loss as a result of nonperformance by other parties of their contractual obligations. Our primary credit risk is related to oil and gas production sold to various purchasers and the receivables are generally not collateralized. At December 31, 2022, our largest credit risk associated with any single purchaser was $1,255,427 or 61% of our total oil and gas receivables. We have not experienced any significant credit losses.

**Energy Price Risk.** Our most significant market risk is the pricing applicable to our crude oil and natural gas production. Our financial condition, results of operations, and capital resources are highly dependent upon the prevailing market prices of, and demand for, oil and natural gas. Prices for oil and natural gas production has been volatile and unpredictable for several years, and we expect this volatility to continue in the future.

For example, in the last twelve months, the NYMEX West Texas Intermediate (“WTI”) posted price for crude oil has ranged from a low of $67.00 per bbl in December 2022 to a high of $119.68 per bbl in March 2022. The Henry Hub Spot Market Price (“Henry Hub”) posted price for natural gas has ranged from a low of $3.46 per MMBtu in November 2022 to a high of $9.85 per MMBtu in August 2022. On December 31, 2022, the WTI posted price for crude oil was $76.24 and the Henry Hub posted price for natural gas was $3.52. See Results of Operations above for the Company’s realized prices during the three and nine months. Subsequently, on January 24, 2023, the WTI posted price for crude oil was $76.11 and the Henry Hub posted price for natural gas was $3.35.

Similarly, any improvements in oil and gas prices can have a favorable impact on our financial condition, results of operations and capital resources. If the average oil price had increased or decreased by ten dollars per barrel for the first nine months of fiscal 2023, pretax income would have changed by $500,520. If the average gas price had increased or decreased by one dollar per mcf for the first nine months of fiscal 2023, pretax income would have changed by $394,293.

## Controls and procedures

As filed, 920 characters.

**Evaluation of Disclosure Controls and Procedures.** We maintain disclosure controls and procedures to ensure that the information we must disclose in our filings with the SEC is recorded, processed, summarized and reported on a timely basis. At the end of the period covered by this report, our principal executive officer and principal financial officer reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e). Based on such evaluation, such officers concluded that, as of December 31, 2022, our disclosure controls and procedures were effective.

**Changes in Internal Control over Financial Reporting.** No changes in our internal control over financial reporting occurred during the nine months ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 142 characters.

There have been no material changes to the information previously disclosed in Item 1A. “Risk Factors” in our 2022 Annual Report on Form 10-K.

Filed Feb 10, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-004184. Last ingested by Listed: Oct 24, 2026, 14:53 ET. No prices; not investment advice.