MXC

MEXCO ENERGY CORP - 10-K Summary (Fiscal Year Ended March 31, 2002)

Business Context and Reporting Period

Mexco Energy Corporation is an independent oil and gas company incorporated in Colorado, primarily operating in West Texas. The company focuses on the acquisition, exploration, and development of oil and gas properties, with a strategic emphasis on natural gas reserves. As of March 31, 2002, gas reserves constituted approximately 88% of total proved reserves. The reporting period covers the fiscal year ended March 31, 2002.

Key Financial Metrics

Production Data (Fiscal 2002): Oil production was 21,139 barrels (avg. price $21.58/bbl); Gas production was 467,013 Mcf (avg. price $2.81/Mcf). Production costs per equivalent barrel were $6.56.

Material Changes vs. Prior Period

• Revenue Decline: Operating revenues decreased 43% to $1.78 million, primarily driven by a 25% drop in average oil prices and a 45% drop in average gas prices compared to 2001.
• Profitability: Net income fell significantly to $189,291 from $1.54 million in the prior year due to lower commodity prices.
• Debt Increase: Total debt increased to $1.71 million from $600,000. The company utilized a revolving line of credit to fund property acquisitions and development expenditures totaling $2.25 million.
• Production Costs: Production costs rose 23% to $648,820, attributed to increased working interests acquired and repairs on operated properties.
• Reserves: Proved gas reserves increased significantly to 10.18 billion Mcf from 6.35 billion Mcf, largely due to acquisitions and extensions, though the standardized measure of discounted future net cash flows decreased to $9.3 million from $12.2 million due to price declines.

Guidance, Outlook, and Risks

Management Commentary: Management believes the company can maintain adequate liquidity for the next fiscal year through cash flow from operations and existing credit facilities. The company continues to focus on increasing production and profit margins through cost reductions and gas reserve concentration.

Outlook: The company expects to participate in the drilling of a third well in mid-July 2002 on recently acquired acreage in Edwards County, Texas. No further stock dividends are currently planned.

Risks and Contingencies:

• Price Volatility: The company has no hedging arrangements. A 1-cent decrease in gas price would reduce pretax income by $4,670; a 1-cent decrease in oil price would reduce it by $211.
• Legal Proceedings: The company is a plaintiff in two class action lawsuits regarding contract price disputes. One is settled with an estimated net recovery of $150,000 (not yet recorded); the second is pending.
• Concentration Risk: One customer (Sid Richardson Energy Services) accounted for 24% of revenues in 2002.
• Regulatory: Operations are subject to extensive federal, state, and local environmental and safety regulations which may increase costs.

Investor Verification Checklist

• Verify the realization of the estimated $150,000 settlement from the class action lawsuit against gas purchasers.
• Monitor the success of the third well drilling planned for mid-July 2002 in Edwards County, Texas.
• Track commodity price trends, as the company has no hedging strategy and is highly sensitive to oil and gas price fluctuations.
• Review the status of the revolving credit facility with Bank of America, noting the borrowing base redetermination scheduled for August 1, 2002.
• Confirm the impact of the 10% stock dividend issued in February 2002 on per-share metrics and liquidity.