Business Context and Reporting Period
Company: Mexco Energy Corp.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three months ended June 30, 1997
Industry: Oil and Gas Exploration and Production
Mexco Energy Corp. is a Colorado corporation engaged in the acquisition, development, and production of oil and gas properties. The company operates primarily in Texas, with recent activity in the Gomez Field and the Lazy JL Field.
Key Financial Metrics
| Metric | Q2 1997 | Q2 1996 |
|---|---|---|
| Total Revenues | $456,815 | $270,437 |
| Net Income | $24,633 | $69,800 |
| Net Income Per Share | $0.02 | $0.05 |
| Net Cash from Operations | $456,516 | $173,471 |
| Capital Expenditures | ($832,214) | ($95,125) |
| Cash and Equivalents (End of Period) | $165,115 | $250,458 |
| Bank Line of Credit Balance | $1,137,000 | N/A |
| Total Assets | $5,803,135 | N/A |
Note: Q2 1996 balance sheet data is not provided in the filing text.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 70% to $456,815, driven by a 60% increase in oil revenues and an 88% increase in gas revenues due to production from new acquisitions.
- Profitability Decline: Despite revenue growth, Net Income decreased 65% to $24,633. This was caused by a 195% increase in Depreciation, Depletion, and Amortization (DD&A) and a 106% rise in General and Administrative (G&A) expenses.
- Cost Increases: Production costs rose 81% due to higher production taxes and lease operating expenses associated with increased output.
- Commodity Prices: Average oil prices fell from $20.77 to $18.15 per barrel, and gas prices fell from $2.12 to $1.92 per MCF compared to the prior year.
- Working Capital: Working capital decreased by $107,237 (86%) from the previous quarter due to heavy capital expenditures.
Outlook, Management Commentary, and Risks
Capital Resources and Liquidity
In May 1997, the company raised $1,000,000 through a private placement of 200,000 shares of common stock at $5.00 per share. $500,000 of these proceeds were used to reduce the principal on its revolving line of credit. The company maintains a $1,750,000 line of credit maturing July 15, 1998, with a borrowing base that reduces by $36,500 monthly. Management believes current cash flows and borrowing capacity are sufficient to fund future operations.
Operational Highlights
- Acquisitions: Purchased approximately 1.5% additional mineral and royalty interests in a producing gas well in the Gomez Field, Pecos County, Texas.
- Drilling: Successfully drilled and completed three wells in the Lazy JL Field, Garza County, Texas (42.60% working interest).
Risks and Contingencies
- Price Volatility: Operations are sensitive to fluctuations in oil and gas prices, which were lower in the current quarter.
- Debt Covenants: The borrowing base on the line of credit decreases monthly, potentially limiting future borrowing capacity.
- Seasonality: Management notes that results for the three months ended June 30, 1997, are not necessarily indicative of full-year results.
Investor Verification Checklist
- Capital Expenditure Efficiency: Verify the production output and economic viability of the $832,214 spent on capital expenditures this quarter.
- Debt Service: Confirm the impact of the monthly $36,500 reduction in the borrowing base on future liquidity and expansion plans.
- Expense Management: Review the sustainability of the 106% increase in G&A expenses and the 195% increase in DD&A relative to future revenue projections.
- Commodity Exposure: Assess the company's hedging strategy (if any) given the decline in oil and gas prices during the period.