Mexco Energy Corp: Form 10-Q for the period ended Jun 30, 2026

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 are based on management’s current expectations, assumptions and beliefs and may be identified by words such as “could”, “should”, “expect”, “project”, “estimate”, “believe”, “anticipate”, “intend”, “plan”, “forecast”, “predict”, and similar expressions.

Forward-looking statements in this Form 10-Q include, among other things, statements regarding profitability, planned capital expenditures, estimated oil and gas production and reserves, future project dates, future oil and gas prices; future financial condition or results of operations, business strategy, and other plans and objectives for future operations. These statements involve known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements.

Although we believe the expectations and assumptions reflected in these forward-looking statements are reasonable, they are inherently subject to risks, uncertainties, and changes in circumstances that are difficult to predict. Except as required by the Exchange Act and Securities Act, we undertake no obligation to update or revise any forward-looking statements. Readers should review the consolidated financial statements and related notes, as well as the risk factors, included in our Annual Report on 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 and non-operated properties in areas with significant development potential.

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:

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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. Net cash provided by operating activities was $1,451,247 for the three months ended June 30, 2026 compared to $1,363,277 for the three months ended June 30, 2025, an increase of $87,970. The increase was primarily attributable to a $259,114 increase in net income, a $60,634 increase in net non-cash adjustments, and a $26,135 increase in accounts payables and accrued expenses. These increases were partially offset by a decrease in our accounts receivable of $135,552 and income tax payable of $132,519. Variations in cash flow from operating activities may affect 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 include employee compensation, accounting, insurance, and other general and administrative expenses incurred to support the 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 three months ended June 30, 2026, net cash used for additions to oil and gas properties, net of drilling refunds was $2,729,750 compared to net cash for additions to oil and gas properties net of proceeds from property sales of $365,910 for the three months ended June 30, 2025. The increase in capital expenditures reflects our strategy of acquiring royalty interests and participating in drilling opportunities that management believes will enhance long-term reserves and production.

Cash Flow Used in Financing Activities. Cash flow from financing activities is derived from changes in long-term debt and in equity account balances. Net cash flow used in our financing activities was $204,600 for the three months ended June 30, 2026 and 2025 to pay the annual dividend.

Accordingly, net cash decreased $1,483,103, leaving cash and cash equivalents on hand of $1,292,873 as of June 30, 2026.

We had working capital of $2,721,592 as of June 30, 2026 compared to $3,995,456 at March 31, 2026, a decrease of $1,273,864 for the reasons set forth below.

Oil and Natural Gas Property Development

New Participations in Fiscal 2027. The Company currently plans to participate in the drilling and completion of 53 horizontal wells at an estimated cost of approximately $1,300,000 for the fiscal year ending March 31, 2027. Forty-eight of these wells are in the Delaware Basin located in the western portion of the Permian Basin in Lea County, New Mexico. The remaining wells are in Reeves County, Texas.

In May 2026, Mexco expended approximately $400,000 to participate in the drilling and completion of five horizontal wells in the Wolfcamp A formation of the Delaware Basin in Reeves County, Texas. Mexco’s working interest in these wells is .8%.

Completion of Wells Drilled in Fiscal 2026. The Company also expects to expend approximately $500,000 for the completion of 20 horizontal wells in which the Company participated during fiscal 2026.

The Company expended approximately $100,000 for additional drilling and completion costs of five horizontal wells in the Wolfcamp B formation in the Spraberry trend area of the Midland Basin in Midland and Glasscock Counties, Texas that the Company participated in drilling during fiscal 2026. Mexco’s working interest in these wells is 1.9%.

Two horizontal wells in the Wolfcamp XY formation of the Delaware Basin in Eddy County, New Mexico in which the Company participated during fiscal 2026 were completed in April 2026 with initial average production rates of 607 barrels of oil, 1,295 barrels of water, and 2,170,000 cubic feet of gas per day, or 969 BOE per day. Mexco’s working interest in these wells is approximately 2.1%.

Subsequently, in July 2026, the Company expended approximately $70,000 to drill and complete three horizontal wells in the Bone Spring formation of the Delaware Basin in Lea County, New Mexico.

Investments. In October 2022, the Company made an approximately 2% equity investment commitment in a limited liability company amounting to $2,000,000, which was fully funded as of July 2025. The limited liability company is capitalized at approximately $100 million to acquire mineral interests in the Utica and Marcellus formations in the state of Ohio. In October 2025, the Company expended $200,000 to exercise its option to participate in a voluntary optional cash call to increase its capitalized investment. In December 2025, the Company expended an additional $27,429 to exercise its option to acquire its share of the non-consenting interests from the October cash call. As of June 30, 2026, this LLC has returned $668,364, or 30% of the total investment.

Subsequently, in July 2026, the Company entered into an agreement to make a capital commitment of $1,000,000 to another limited liability company formed to acquire non-cost bearing mineral and royalty interests in the Utica Shale play in the state of Ohio.

Acquisitions. In April 2026, the Company acquired royalty interests in 82 producing wells in Weld County, Colorado for an aggregate purchase price of $690,900. These acquisitions were effective May 1, 2026.

In April 2026, the Company acquired royalty interests in 62 producing wells in Atascosa, Howard, LaSalle, Martin, and Yoakum Counties, Texas, and additional royalty interests in 3 properties in which we already owned an interest in Howard County, Texas for an aggregate purchase price of $337,700. These acquisitions were effective May 1, 2026.

In June 2026, the Company acquired royalty interests in 32 producing wells in Adams and Larimer Counties, Colorado for an aggregate purchase price of $377,600. These acquisitions are effective July 1, 2026.

In June 2026, the Company acquired royalty interests in 30 producing wells in Karnes, McMullen, Panola, and Winkler Counties, Texas for an aggregate purchase price of $408,700. These acquisitions are effective July 1, 2026.

In June 2026, the Company acquired royalty interests in 9 producing wells and additional royalty interests in 8 properties in which we already owned an interest in Caddo and DeSoto Parishes, Louisiana for an aggregate purchase price of $266,200. These acquisitions are effective July 1, 2026.

In June 2026, the Company acquired royalty interests in 185 producing wells in Ashtabula County, Ohio for a purchase price of $14,100. These acquisitions are effective July 1, 2026.

All of our acquisitions were funded from existing cash resources.

Other Projects. 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.

Pricing. Crude oil and natural gas prices 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 $51.25 per bbl in December 2025 to a high of $108.93 per bbl in April 2026. The Henry Hub Spot Market Price (“Henry Hub”) for natural gas has ranged from a low of $2.54 per MMBtu in April 2026 to a high of $30.72 per MMBtu in January 2026, reflecting a temporary price spike during a period of severe weather and significant market volatility.

On June 30, 2026, the WTI posted price for crude oil was $65.48 and the Henry Hub spot price for natural gas was $3.34 per MMBtu. See Results of Operations below for realized prices. Pipeline capacity constraints and maintenance in the Permian Basin area have contributed to a wider difference between the WaHa Hub and the Henry Hub, and at times prices were negative.

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 June 30, 2026:

(1) The lease amount represents the monthly rent amount for our principal office space in Midland, Texas under a 36-month lease agreement expiring July 31, 2027. Of this total obligation for the remainder of the lease, our majority shareholder will pay $10,175 within 1 year and $848 in years 1-3 for his portion of the shared office space.

Results of Operations – Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025. For the quarter ended June 30, 2026, net income was $501,065 compared to net income of $241,951 for the quarter ended June 30, 2025. This was the result of an increase in operating revenues and a decrease in operating expenses, which is further explained below.

Oil and gas sales. Revenue from oil and gas sales was $1,978,158 for the quarter ended June 30, 2026, a 13% increase from $1,754,734 for the quarter ended June 30, 2025. This primarily resulted from an increase in oil prices partially offset by a decrease in gas prices and a decrease in oil and gas production volumes. The following table sets forth our oil and natural gas revenues, production quantities and average prices received during the three months ended June 30:

Income from investments in LLCs. Income from investments in LLCs increased 101% to $115,254 for the quarter ended June 30, 2026 from $57,236 for the quarter ended June 30, 2025. This increase resulted primarily from higher earnings from one of the Company’s limited liability companies.

Interest income. Interest income on corporate funds increased 2% to $14,852 for the quarter ended June 30, 2026 from $14,531 for the quarter ended June 30, 2025. This increase resulted from a change in our average cash balances.

Production and exploration. Production costs were $411,006 for the three months ended June 30, 2026, a 1.5% increase from $404,770 for the three months ended June 30, 2025. This was primarily due to an increase in lease operating expenses on wells in which we own a working interest.

Depreciation, depletion and amortization. DD&A expense was $606,521 for the first quarter of fiscal 2027, a 10% decrease from $675,270 for the first quarter of fiscal 2026, primarily due to a decrease in oil and gas production volumes and an increase in natural gas reserves partially offset by a decrease in oil reserves and an increase in the full cost pool amortization base.

General and administrative expenses. General and administrative expenses were $389,829 for the three months ended June 30, 2026, a 1% decrease from $394,437 for the three months ended June 30, 2025. This was primarily due to a decrease in stock option compensation and salaries partially offset by an increase in engineering, accounting, and legal fees.

Income taxes. Income tax for the three months ended June 30, 2026 was $195,310 compared to $103,231 for the three months ended June 30, 2025. The combined federal and state effective tax rate for the three months ended June 30, 2026 and 2025 was 28% and 30%, respectively. See Note 7 – Income Taxes to the Notes to Consolidated Financial Statements for additional information.

The primary source of market risk for us includes 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 relates to oil and gas production sold to various purchasers and the receivables are generally not collateralized. At June 30, 2026, our two largest purchasers accounted for approximately 38% and 20%, respectively, 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 on the prevailing market prices of, and demand for, oil and natural gas. Prices for oil and natural gas production have 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 $51.25 per bbl in December 2025 to a high of $108.93 per bbl in April 2026. The Henry Hub Spot Market Price (“Henry Hub”) for natural gas has ranged from a low of $2.54 per MMBtu in April 2026 to a high of $30.72 per MMBtu in January 2026, reflecting a temporary price spike during a period of severe weather and significant market volatility.

On June 30, 2026, the WTI posted price for crude oil was $65.48 and the Henry Hub spot price for natural gas was $3.34 per MMBtu. See Results of Operations above for realized prices.

Pipeline capacity constraints and maintenance in the Permian Basin area have contributed to a wider difference between the Waha Hub and the Henry Hub, and at times realized prices were negative.

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 affect both estimated future net revenues 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, not 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. Oil and natural gas prices do not necessarily fluctuate in direct relationship to each other. If the average oil price had increased or decreased by ten dollars per barrel for the quarter ended June 30, 2026, our oil sales would have changed by $188,020. If the average gas price had increased or decreased by one dollar per mcf for the quarter ended June 30, 2026, our natural gas sales would have increased or decreased by $155,426.

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 June 30, 2026, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting. No changes in the Company’s internal control over financial reporting occurred during the quarter ended June 30, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the information previously disclosed in Item 1A. “Risk Factors” in our 2026 Annual Report on Form 10-K.