Mexco Energy Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter and first nine months ended December 31, 2023; fiscal year ends March 31. Mexco explores for, develops, and produces oil and natural gas, primarily through non-operated interests in West Texas and southeastern New Mexico. Financial statements are unaudited.
Financial performance
| Metric | Three months ended Dec. 31, 2023 | Prior-year quarter | Nine months ended Dec. 31, 2023 | Prior-year period |
|---|---|---|---|---|
| Operating revenue | $1.656 million | $2.581 million | $4.811 million | $7.356 million |
| Operating income | $513,000 | $1.310 million | $1.396 million | $3.880 million |
| Net income | $346,000 | $1.245 million | $1.081 million | $3.755 million |
| Diluted EPS | $0.16 | $0.56 | $0.50 | $1.70 |
| Operating cash flow | Not provided separately | Not provided separately | $3.375 million | $4.351 million |
Quarterly revenue fell about 36% and net income about 72% year over year. For the nine months, revenue declined about 35% and net income about 71%. Management attributed the revenue declines primarily to lower oil and gas prices and production, with lower gas production partly offset by higher oil production. Nine-month operating margin was approximately 29%, versus 53% a year earlier.
- Commodity results: Nine-month oil sales were $3.916 million on 50,826 barrels, with an average realized price of $77.06 per barrel versus $94.06. Gas sales were $790,000 on 372,459 Mcf, averaging $2.12 per Mcf versus $6.28.
- Cash and liquidity: Cash was $3.579 million at December 31, up from $2.236 million at March 31. Working capital was $4.297 million, an increase of $821,000 since March 31. Nine-month operating cash flow was down $976,000 year over year; investing used $1.365 million and financing used $667,000.
- Capital allocation: Investing cash use included $1.472 million in oil and gas property additions, partly offset by $307,000 in property-sale proceeds. Financing outflows included a $214,000 special dividend and $455,000 of share repurchases.
- Debt and obligations: No amount was drawn on the $2.5 million credit facility at period-end, with $1.5 million available. The facility matures March 28, 2026 and is secured by substantially all oil and gas properties and subsidiary shares. Other reported obligations include $692,000 of noncurrent asset-retirement obligations, $320,000 of deferred tax liabilities, and $34,000 of lease liabilities.
Operations, outlook, and notable items
- For fiscal 2024, Mexco planned participation in 48 horizontal and one vertical well at an estimated aggregate cost of approximately $2.2 million. The filing describes multiple well participations and production starts during the period; well-level initial production rates are not company-wide production guidance.
- In February 2024, the Company spent approximately $244,000 to participate in drilling six Bone Spring horizontal wells in New Mexico. It also funded an additional $200,000 toward an investment in an Ohio minerals LLC after period-end.
- During December, Mexco received approximately $980,000 for a three-year assignment of 98% of certain deep rights in Texas and $32,400 for a three-year assignment in New Mexico, while retaining stated residual interests. It also acquired royalty interests in several Texas properties.
- The Company’s strategy is to acquire and develop properties with potential for long-lived production and low operating costs. Project spending is expected to be funded primarily from cash and operating cash flow, with borrowing or non-core asset sales as possible supplements. No formal earnings or production guidance is provided.
- Oil and gas prices are volatile. Management states that a $10 per barrel change in average oil price would have changed nine-month operating revenue by approximately $508,000; a $1 per Mcf gas-price change would have changed it by approximately $372,000. Lower prices may reduce cash flow, reserves, borrowing capacity, and could trigger a full-cost accounting write-down.
- At period-end, one purchaser represented $565,000, or 62%, of oil and gas receivables. Receivables are generally unsecured; the Company reports no significant credit losses to date. Its bank agreement also restricts cash dividends without lender permission and hedging without prior approval.
- Income tax expense included $320,000 of deferred federal tax expense; the nine-month effective tax rate was 27%, versus 3% in the prior-year period. The Company repurchased 37,161 shares for $455,000 under a $1 million authorization and paid a $0.10-per-share special dividend. Future dividends are not assured.
- The Company reported effective disclosure controls, no material change in internal control, no known material legal proceedings, and no material changes to previously disclosed risk factors.
Key facts for investors to verify
- Whether weaker realized gas prices and lower gas volumes persist, and how commodity movements affect earnings, cash flow, reserves, and the borrowing base.
- Actual spending and results against the approximately $2.2 million fiscal 2024 well-participation plan, including the performance of recently producing wells.
- Terms, retained interests, and cash proceeds associated with the property assignments and royalty acquisitions, including the post-quarter transactions.
- Availability and covenant compliance under the credit facility, and whether repurchases or dividends continue; the filing says future dividends are not assured.
- The filing’s MD&A gives nine-month oil revenue as $3,916,792, while the statement of operations reports $3,916,492; investors may wish to confirm the correct figure.