Business Context and Reporting Period
Company: Mexco Energy Corporation (formerly Miller Oil Company)
Reporting Period: Fiscal year ended March 31, 1997
Industry: Oil and gas exploration, development, and production
Operations: The company operates exclusively in the United States, with a primary concentration in Texas. As of March 31, 1997, it held leasehold rights covering 193,555 gross acres (3,674 net acres) with 1,502 producing wells. Approximately 81% of the present value of future net revenues is concentrated in three fields: Lazy JL, Viejos, and Gomez.
Key Financial Metrics
| Metric | 1997 | 1996 | 1995 |
|---|---|---|---|
| Oil & Gas Revenue | $1,453,124 | $798,589 | $543,267 |
| Total Revenue | $1,465,907 | $834,073 | $573,921 |
| Net Income | $377,867 | $200,606 | $104,843 |
| Earnings Per Share | $0.27 | $0.15 | $0.09 |
| Total Assets | $5,109,199 | $2,612,039 | $1,951,896 |
| Long-Term Debt | $1,637,000 | $0 | $0 |
| Cash & Equivalents | $40,813 | $172,112 | $220,974 |
| Operating Cash Flow | $866,931 | $396,409 | $255,649 |
| Production Cost per Unit | $4.41 | $4.54 | $4.60 |
Material Changes vs. Prior Period
- Revenue Growth: Oil and gas revenue increased 82% to $1.45 million, driven by higher production volumes and increased commodity prices (Oil: $22.09/bbl vs. $17.45/bbl; Gas: $2.47/MCF vs. $1.57/MCF).
- Profitability: Net income rose 88% to $377,867. Earnings per share increased from $0.15 to $0.27.
- Capital Structure: The company incurred $1.637 million in long-term debt via a revolving line of credit, up from zero in 1996. This was used to fund acquisitions and operations.
- Acquisition: On February 25, 1997, the company acquired Forman Energy Corporation for approximately $1.59 million, significantly expanding its asset base and reserves.
- Reserves: Proved oil reserves increased to 436,289 barrels and gas reserves to 2,956,219 MCF. The standardized measure of discounted future net cash flows rose to $4.448 million.
Outlook, Risks, and Management Commentary
- Liquidity: The company maintains a $1.75 million revolving line of credit with $113,000 available as of March 31, 1997. The borrowing base decreases by $36,500 monthly. Management believes cash flows and borrowings are sufficient for future capital expenditures.
- Subsequent Event: On May 23, 1997, the company issued 200,000 shares of common stock for $1 million. $500,000 was used to reduce the line of credit principal, and $225,000 was used to purchase mineral interests.
- Risks: Operations are subject to high exploration risks, including dry wells and equipment failure. The company relies on a few major purchasers for oil (Navajo Crude Oil Marketing, 73%) and gas (Aquila Southwest Pipeline, 60%).
- Dividends: No dividends have been paid. Payment is currently restricted by bank loan covenants.
Investor Verification Checklist
- Debt Covenants: Verify compliance with the revolving line of credit covenants and the monthly reduction of the borrowing base.
- Reserve Estimates: Confirm the accuracy of the independent engineer's reserve estimates (T. Scott Hickman & Associates) given the significant increase in reserves following the Forman acquisition.
- Customer Concentration: Assess the risk associated with 73% of oil sales going to a single purchaser (Navajo Crude Oil Marketing).
- Related Party Transactions: Review the $112,657 in billings to the majority stockholder for lease operating expenses and the $6,042 receivable due from them.
- Capital Expenditures: Monitor the utilization of the $225,000 from the May 1997 stock offering for the Gomez Field property and future development plans.