# Mexco Energy Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [Mexco Energy Corp](/companies/mxc.md) (CIK 66418)
- Form: 10-Q
- Filed: 2023-11-08
- Accepted by EDGAR: Nov 8, 2023, 16:58 ET
- Period: 2023-09-30
- Accession: 0001493152-23-039929
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/66418/000149315223039929/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/66418/000149315223039929/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $1.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-04-01 to 2023-09-30 | $3.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $318.7k | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-04-01 to 2023-09-30 | $883.2k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $1.1k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-04-01 to 2023-09-30 | $2.2k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $74.5k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-04-01 to 2023-09-30 | $196.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $269.4k | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-04-01 to 2023-09-30 | $735.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.12 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-04-01 to 2023-09-30 | $0.34 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.13 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-04-01 to 2023-09-30 | $0.35 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 2,174,713 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-04-01 to 2023-09-30 | 2,178,719 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-04-01 to 2023-09-30 | $2.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 6 months, 2023-04-01 to 2023-09-30 | $213.6k | us-gaap:PaymentsOfDividends |
| Share repurchases | 6 months, 2023-04-01 to 2023-09-30 | $325.3k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $2.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $3.5m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $18.2m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $226.5k | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $1.1m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $17.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 17,892 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 this 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 consolidated 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 our 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 royalty and working interests in non-operated properties in areas with significant development potential.

At September 30, 2023, we had working capital of $3,245,180 compared to working capital of $3,475,776 at March 31, 2023, a decrease of $230,596 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 Six Months Ended September 30, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: |
| Net cash provided by operating activities | $2,430,364 | $3,418,087 | $(987,723) |
| Net cash used in investing activities | $(1,544,299) | $(4,253,453) | $(2,709,154) |
| Net cash (used in) provided by financing activities | $(536,644) | $30,179 | $566,823 |

**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 six months ended September 30, 2023 was $2,430,364 in comparison to $3,418,087 for the six months ended September 30, 2022. This decrease of $987,723 in our cash flow operating activities consisted of an increase in our non-cash expenses of $295,985; a decrease in our accounts receivable of $447,403; a increase of $35,655 in our accounts payable and accrued expenses; and, a decrease in our net income for the current quarter of $1,775,341. 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 six months ended September 30, 2023, we had net cash of $1,544,299 used for additions to oil and gas properties compared to $4,253,453 for the six months ended September 30, 2022.

**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 $536,644 for the six months ended September 30, 2023 compared to cash flow provided by our financing activities of $30,179 for the six months ended September 30, 2022. During the six months ended September 30, 2023, we expended $213,600 to pay the special dividend and $325,256 to purchase 26,000 shares of our stock for the treasury account.

Accordingly, net cash increased $349,421, leaving cash and cash equivalents on hand of $2,585,192 as of September 30, 2023.

### Oil and Natural Gas Property Development

**New Participations in Fiscal 2024.** The Company currently plans to participate in the drilling and completion of 40 horizontal wells at an estimated aggregate cost of approximately $1,700,000 for the fiscal year ending March 31, 2024. All 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.

In May 2023, Mexco expended approximately $133,000 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%. Subsequently, in October 2023, Mexco expended approximately $65,000 to complete two of these wells.

In May 2023, Mexco expended approximately $68,000 to participate in the drilling 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 .4%. Subsequently, in October 2023, Mexco expended approximately $83,000 to complete these wells.

During the first six months of fiscal 2024, Mexco expended approximately $105,000 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 approximately .285%.

In July 2023, Mexco expended approximately $787,000 to participate in the drilling of five horizontal wells in the Bone Spring Sand formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is approximately 2.2%.

In July 2023, Mexco expended approximately $36,000 to participate in the drilling and completion of two horizontal wells in the Bone Spring Sand formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is approximately .1%.

In October 2022, the Company made an approximately 2% equity investment commitment in a limited liability company amounting to $2,000,000 of which $600,000 has been funded to date. 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.

In April 2019, the Company invested over a period of four years $300,000 for a less than 1% investment commitment in a limited liability company to purchase mineral interests in the Utica and Marcellus areas of Ohio. To date, this LLC has returned $255,657 or 85% of the total investment.

**Completion of Wells Drilled in Fiscal 2023.** The Company expended approximately $450,000 in the completion of 21 horizontal wells in which the Company participated in fiscal 2023.

The Company expended approximately $427,000 for the completion costs of eight horizontal wells in the Wolfcamp Sand formation of the Delaware Basin in Lea County, New Mexico that the Company participated in drilling during fiscal 2023. Mexco’s working interest in these wells is .52%. Subsequently, these wells began producing in October 2023 with initial average production rates of 825 barrels of oil, 3,540 barrels of water and 2,150,000 cubic feet of gas per day, or, 1,183 barrels of oil equivalent per day.

Three horizontal wells in the Bone Spring formation of the Delaware Basin in Eddy County, New Mexico in which the Company participated during fiscal 2023 were completed in May 2023 with initial average production rates of 437 barrels of oil, 983 barrels of water and 603,000 cubic feet of gas per day, or, 538 barrels of oil equivalent per day. Mexco’s working interest in these wells is .05%.

Subsequently, in October 2023, six of seven horizontal wells in the Bone Spring Sand formation of the Delaware Basin in Lea County, New Mexico in which the Company participated during fiscal 2023 were completed with initial average production rates of 1,991 barrels of oil, 2,134 barrels of water and 2,414,000 cubic feet of gas per day, or, 2,393 barrels of oil equivalent per day. Mexco’s working interest in these wells is .033%.

**Acquisitions.** In June 2023, the Company acquired small royalty (mineral) interests in 6 wells operated by Highpeak Energy and located in Howard County, Texas for a purchase price of $20,000 which is effective July 1, 2023.

**Sales of Properties.** During the first quarter of fiscal 2024, the Company received approximately $280,000 in cash from a sale of joint venture leasehold acreage and marginal producing working interest wells in Reagan County, Texas, marginal producing working interest wells in Pecos County, Texas and interest in surface acreage in Palo Pinto County, Texas.

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 prices 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 $62.72 per bbl in March 2023 to a high of $89.66 per bbl in September 2023. The Henry Hub Spot Market Price (“Henry Hub”) for natural gas has ranged from a low of $1.74 per MMBtu in June 2023 to a high of $7.20 per MMBtu in December 2022.

On September 30, 2023, the WTI posted price for crude oil was $86.77 and the Henry Hub spot price for natural gas was $2.68 per MMBtu. See Results of Operations below for realized prices.

**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 September 30, 2023:

| Contractual obligations: | Payments due in: Total | less than 1 year | 1 - 3 years | over 3 years |
| --- | ---: | ---: | ---: | ---: |
| Leases (1) | $48,533 | $48,533 | $- | $- |

(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 $12,977 less than 1 year for his portion of the shared office space.

**Results of Operations – Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022.** There was net income of $269,433 for the quarter ended September 30, 2023 compared to net income of $1,211,716 for the quarter ended September 30, 2022. This was a result of a decrease in oil and gas prices and production that is further explained below.

*Oil and gas sales.* Revenue from oil and gas sales was $1,380,710 for the second quarter of fiscal 2024, a 39% decrease from $2,281,895 for the same period of fiscal 2023. This resulted from a decrease in oil and gas prices and a decrease in oil and gas production, partly due to wells shut in during completion of new wells.

| Oil: | 2023 | 2022 | % Difference |
| --- | ---: | ---: | ---: |
| Revenue | $1,099,806 | $1,397,875 | (21.3%) |
| Volume (bbls) | 13,661 | 14,520 | (5.9%) |
| Average Price (per bbl) | $80.51 | $96.27 | (16.4%) |
| Gas: |  |  |  |
| Revenue | $280,904 | $884,020 | (68.2%) |
| Volume (mcf) | 108,087 | 118,607 | (8.9%) |
| Average Price (per mcf) | $2.60 | $7.45 | (65.1%) |

Page 15

*Production and exploration.* Production costs were $392,674 for the second quarter of fiscal 2024, a .4% decrease from $394,445 for the same period of fiscal 2023. This is the result of a decrease in production taxes and marketing charges as a result of the decrease in oil and gas revenues offset by an increase in lease operating expense on non-operated wells in New Mexico.

*Depreciation, depletion and amortization.* Depreciation, depletion and amortization expense was $382,180 for the second quarter of fiscal 2024, a 1% decrease from $384,379 for the same period of fiscal 2023, primarily due to a decrease in oil and gas production partially offset by a decrease in reserves.

*General and administrative expenses.* General and administrative expenses were $305,543 for the second quarter of fiscal 2024, a 3% increase from $297,956 for the same period of fiscal 2023. This was primarily due to an increase in employee stock option compensation partially offset by a decrease in legal fees.

*Income taxes.* Federal income tax for the three months ended September 30, 2023 was $61,179. There was no federal income tax expense for the three months ended September 30, 2022 because the Company was in a net deferred tax asset position. State income tax was $13,346 for the three months ended September 30, 2023, a 47% decrease from $24,963 for the three months ended September 30, 2022 due to the decrease in oil and natural gas sales in the State of New Mexico. The effective tax rate for the three months ended September 30, 2023 and 2022 was 22% and 2%, respectively.

**Results of Operations – Six Months Ended September 30, 2023 Compared to Six Months Ended September 30, 2022.** For the six months ended September 30, 2023, there was net income of $735,047 compared to net income of $2,510,388 for the six months ended September 30, 2022. This was a result of a decrease in operating revenues and an increase in operating expenses that is further explained below.

*Oil and gas sales.* Revenue from oil and gas sales was $3,095,800 for the six months ended September 30, 2023, a 34% decrease from $4,698,008 for the same period of fiscal 2023. This resulted from a decrease in oil and gas prices partially offset by an increase in oil and gas production.

| Oil: | 2023 | 2022 | % Difference |
| --- | ---: | ---: | ---: |
| Revenue | $2,529,484 | $2,957,196 | (14.5)% |
| Volume (bbls) | 33,189 | 28,744 | 15.5% |
| Average Price (per bbl) | $76.21 | $102.88 | (25.9)% |
| Gas: |  |  |  |
| Revenue | $566,316 | $1,740,812 | (67.5)% |
| Volume (mcf) | 249,665 | 248,313 | .5% |
| Average Price (per mcf) | $2.27 | $7.01 | (67.6)% |

*Production and exploration.* Production costs were $742,081 for the six months ended September 30, 2023, an 11% decrease from $829,473 for the six months ended September 30, 2022. This is the result of a decrease in production taxes and marketing charges as a result of the decrease in oil and gas revenues offset by an increase in lease operating expense on non-operated wells in New Mexico.

*Depreciation, depletion and amortization.* Depreciation, depletion and amortization expense was $868,366 for the six months ended September 30, 2023, a 13% increase from $771,507 for the six months ended September 30, 2022, primarily due to an increase in oil and gas production and a decrease in reserves.

*General and administrative expenses.* General and administrative expenses were $646,512 for the six months ended September 30, 2023, a 10% increase from $588,199 for the six months ended September 30, 2022. This was primarily due to an increase in employee stock option compensation and engineering services.

*Income taxes.* Federal income tax for the six months ended September 30, 2023 was $149,862. There was no federal income tax expense for the six months ended September 30, 2022 because the Company was in a net deferred tax asset position. State income tax was $46,164 for the six months ended September 30, 2023, a 13% decrease from $53,250 for the six months ended September 30, 2022 due to the decrease in oil and natural gas sales in the State of New Mexico. The effective tax rate for the six months ended September 30, 2023 and 2022 was 21% and 2%, respectively.

## Market risk

As filed, 3,853 characters.

The primary source of market risk for us includes fluctuations in commodity prices. 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 September 30, 2023, our largest credit risk associated with any single purchaser was $443,055 or 55% 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. Pricing for oil and natural gas production has been volatile and unpredictable for several years, and we expect this volatility to continue in the future.

Factors that can cause price fluctuations include the level of global demand for petroleum products, foreign and domestic supply of oil and gas, the establishment of and compliance with production quotas by oil-exporting countries, weather conditions, the price and availability of alternative fuels and overall political and economic conditions in oil producing and consuming countries.

For example, in the last twelve months, the NYMEX West Texas Intermediate (“WTI”) posted price for crude oil has ranged from a low of $62.72 per bbl in March 2023 to a high of $89.66 per bbl in September 2023. The Henry Hub Spot Market Price (“Henry Hub”) posted price for natural gas has ranged from a low of $1.74 per MMBtu in June 2023 to a high of $7.20 per MMBtu in December 2022. On September 30, 2023, the WTI posted price for crude oil was $86.77 and the Henry Hub posted price for natural gas was $2.68. See Results of Operations above for the Company’s realized prices during the three and six months.

Declines in oil and natural gas prices will materially adversely affect our financial condition, liquidity, ability to obtain financing and operating results. Changes in oil and gas prices impact both estimated future net revenue and the estimated quantity of proved reserves. Any reduction in reserves, including reductions due to price fluctuations, can reduce the borrowing base under our credit facility and adversely affect the amount of cash flow available for capital expenditures and our ability to obtain additional capital for our acquisition, exploration and development activities. In addition, a noncash write-down of our oil and gas properties could be required under full cost accounting rules if prices declined significantly, even if it is only for a short period of time. Lower prices may also reduce the amount of crude oil and natural gas that can be produced economically. Thus, we may experience material increases or decreases in reserve quantities solely as a result of price changes and not as a result of drilling or well performance.

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 six months of fiscal 2024, our operating revenues would have increased or decreased by $331,890. If the average gas price had increased or decreased by one dollar per mcf for the first six months of fiscal 2024, our operating revenues would have increased or decreased by $249,665.

Information about market risks for the six months ended September 30, 2023, does not differ materially from that discussed under Item 7A of the registrant’s 2023 Annual Report on Form 10-K.

## Controls and procedures

As filed, 921 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 September 30, 2023, 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 six months ended September 30, 2023 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 2023 Annual Report on Form 10-K.

Filed Nov 8, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-039929. Last ingested by Listed: Oct 24, 2026, 14:53 ET. No prices; not investment advice.