Mexco Energy Corporation — Form 10-Q Summary
Reporting period: Three months ended June 30, 2022, the company’s fiscal 2023 first quarter (not calendar 2022 Q1). Mexco acquires, explores, develops, and produces oil and natural gas, primarily through non-operated interests. Comparisons below are with the three months ended June 30, 2021, unless stated otherwise.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Total operating revenues | $2.450 million | $1.264 million |
| Oil and gas sales | $2.416 million | $1.256 million |
| Operating income | $1.302 million | $408 thousand |
| Net income | $1.299 million | $395 thousand |
| Diluted earnings per share | $0.59 | $0.19 |
| Operating cash flow | $1.496 million | $666 thousand |
| Capital spending and other investing cash flow | $(2.329) million | $(297) thousand |
Operating margin was approximately 53% of revenue, compared with 32% a year earlier; net margin was approximately 53%, compared with 31%. Oil and gas sales increased 92%: oil revenue rose 58% as realized price increased to $109.62 per barrel, partly offset by a 7.9% decline in oil volume; gas revenue rose 219% as realized price increased to $6.61 per mcf and volume rose 44%. Production costs increased 57% to $435 thousand, DD&A increased 46% to $387 thousand, and G&A increased 3% to $319 thousand. Interest expense declined to $3 thousand from $13 thousand. No income tax expense was recorded; the reported effective tax rate was zero.
Liquidity, debt, and balance sheet
Cash was $537 thousand at June 30, 2022, down $834 thousand from March 31, chiefly as investing outflows exceeded operating cash generation. Working capital was $1.769 million, down $701 thousand from March 31. Total assets were $14.681 million and stockholders’ equity was $13.549 million. There was no outstanding credit-facility debt; $1.5 million was available under the facility. The facility’s stated maturity is March 28, 2023, and it is secured by substantially all oil and gas properties and subsidiary stock. The company reported no off-balance-sheet debt or unrecorded obligations.
Changes, plans, and risks
- Oil and gas property additions were $2.321 million, compared with $303 thousand in the prior-year quarter. Mexco reported a $939 thousand acquisition of royalty interests in 22 wells and additional development locations in Texas, effective April 1, 2022.
- Management planned to participate in 52 horizontal wells during fiscal 2023 at an estimated aggregate cost of approximately $3.8 million. It expected to fund projects primarily from cash and operating cash flow, with possible use of the credit facility or sales of non-core properties.
- Subsequent to quarter-end, the company disclosed additional well-related expenditures, including approximately $300 thousand in Eddy County, $768 thousand and $377 thousand for Reagan County interests and completions, and $33 thousand for Lea County drilling participation.
- Commodity prices are the principal market risk. Management described oil and gas prices as volatile and noted that price declines could reduce cash flow, reserves and borrowing capacity, and could trigger a noncash full-cost accounting write-down. The company does not hedge without prior lender approval.
- One purchaser represented 56% of oil and gas receivables, or $851 thousand; receivables are generally unsecured. Management reported no significant credit losses.
- The credit agreement includes leverage and interest-coverage covenants, restricts cash dividends without lender permission, and limits certain corporate actions. Management said disclosure controls were effective and reported no material changes in internal control. No material risk-factor changes were reported; the company said it was not aware of legal or governmental proceedings against it.
Investor facts to verify
- Whether planned fiscal 2023 spending of approximately $3.8 million and the 52-well program proceeded as expected, and how subsequent well expenditures affected cash and liquidity.
- Current production, realized commodity prices, and the contribution of the new wells and acquired royalty interests to revenue and cash flow.
- Credit-facility renewal or repayment plans ahead of its March 2023 maturity, covenant compliance, and continued availability of the $1.5 million borrowing base.
- Exposure to the largest purchaser and any changes in receivables concentration or collection experience.
- Reserve estimates and full-cost ceiling-test sensitivity to commodity-price changes; the filing does not provide a clear quantified sensitivity for a potential impairment.