Mexco Energy Corporation — FY2023 Form 10-K
Reporting period: Fiscal year ended March 31, 2023, compared with fiscal 2022. This is an annual report, not a standalone calendar fourth-quarter filing.
Business context
Mexco is a U.S. oil and gas acquisition, development and production company. Its interests are non-operated and concentrated in West Texas and southeastern New Mexico; it also holds properties in 14 states. The Permian Basin accounted for 79% of fiscal 2023 gross revenues. Oil represented about 70% of oil and gas revenues.
Financial and operating performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total operating revenue | $9.56 million | $6.59 million |
| Oil and gas sales | $9.38 million | $6.53 million |
| Operating income | $4.83 million | $2.98 million |
| Net income | $4.66 million | $2.86 million |
| Diluted earnings per share | $2.11 | $1.32 |
| Cash from operating activities | $6.52 million | $3.74 million |
| Cash used in investing activities | $5.44 million | $1.71 million |
Revenue increased 45% and net income rose 63%, reflecting higher production and realized prices. Oil production grew 20% to 73,968 barrels and gas production grew 36% to 534,363 Mcf. Average realized prices rose 16% for oil to $88.18 per barrel and 15% for gas to $5.35 per Mcf. Operating margin was approximately 50.6%, up from 45.3%.
Operating expenses totaled $4.72 million, up from $3.60 million. Production costs increased 34% to $1.72 million, DD&A increased 38% to $1.85 million, and general and administrative expense increased 18% to $1.12 million. Interest expense declined to $13,097. State income tax was $164,510; the company reported no federal income tax provision for either year.
Cash and cash equivalents were $2.24 million at year-end, and working capital was $3.48 million. Long-term debt was zero at March 31, 2023. The WTNB credit facility was extended to March 28, 2026; the filing reports $1.5 million available to borrow, secured by substantially all oil and gas properties and subject to covenants. Fiscal 2023 oil and gas property additions were $5.31 million; the company also invested $425,000 in limited liability companies.
Proved reserves were 1.552 million BOE, down from 1.616 million BOE. PV-10 was $39.47 million, compared with $30.78 million; the standardized measure after estimated income taxes was $32.82 million, versus $25.92 million. Reserve values use prescribed 12-month average prices and are not estimates of fair market value.
Changes, outlook and notable items
- Reserve additions included 101,000 BOE from extensions and discoveries and 52,000 BOE from acquisitions; downward revisions reduced reserves by 54,000 BOE. The filing attributes revisions primarily to the five-year PUD development limit and changed development timing.
- Mexco converted approximately 186,000 BOE of proved undeveloped reserves to producing reserves, with about $3.61 million of associated capital costs. Ending PUDs were approximately 403,000 BOE, or 26% of proved reserves, with estimated future development costs of $3.84 million.
- The company participated in drilling 50 horizontal wells at an estimated cost of about $4.2 million, of which $3.75 million was spent during the year; 18 wells were not yet completed at year-end. Management described further drilling and acquisition opportunities but provided no quantified earnings or production guidance. Funding may come from cash, operating cash flow, borrowings, non-core asset sales or equity.
- After year-end, Mexco paid a special $0.10-per-share dividend, with lender consent; authorized a new share repurchase program of up to $1 million; and received approximately $258,000 from a June 2023 sale of acreage and marginal working-interest wells. A $2 million commitment to an Ohio minerals investment had $400,000 funded as of the report.
- Material risks include commodity-price volatility, dependence on outside operators and third-party transportation, reserve estimation and development risk, financing and borrowing-base constraints, environmental and climate regulation, and customer concentration. One purchaser generated 53% of fiscal 2023 operating revenue. No ceiling-test impairment was recorded in fiscal 2023 or 2022, and the company reported no known environmental matter expected to require material fiscal 2024 capital spending.
Key investor verification points
- Confirm the credit facility’s borrowing base, availability, covenant compliance and any restrictions on dividends or hedging.
- Assess the assumptions behind reserve estimates, PV-10 and the schedule and funding of undeveloped reserves.
- Review whether the major purchaser concentration and reported receivable exposure have changed since year-end.
- Track completion timing, realized production and economics of wells still in progress, and returns from the LLC investments.
- Review subsequent-period commodity prices, capital spending, share repurchases and the effect of the special dividend on liquidity.
The independent auditor issued an unqualified opinion on the financial statements. Management concluded internal control over financial reporting and disclosure controls were effective as of March 31, 2023; the auditor was not engaged to provide an opinion on internal control effectiveness.