Mexco Energy Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended March 31, 2022. This is an annual report, not standalone fourth-quarter results. Comparative figures are for fiscal 2021. Mexco is a non-operated U.S. oil and gas producer focused principally on West Texas and southeastern New Mexico.
Financial and operating performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Operating revenue | $6.59 million | $2.80 million |
| Operating income | $2.88 million | $0.16 million |
| Net income | $2.86 million | $0.16 million |
| Basic / diluted EPS | $1.36 / $1.32 | $0.08 / $0.08 |
| Operating cash flow | $3.74 million | $0.71 million |
| Capital additions to oil and gas properties | $1.89 million | $1.59 million |
- Revenue rose 135%, driven by higher production and realized prices. Oil production increased 22.6% to 61,689 barrels; gas production increased 21.5% to 393,841 Mcf. Average realized prices rose 88.4% for oil to $75.95/bbl and 103% for gas to $4.67/Mcf.
- Operating expenses increased to $3.71 million from $2.64 million, including production costs of $1.28 million, DD&A of $1.35 million and general and administrative expenses of $1.05 million. Approximate operating margin was 43.7%, compared with 5.7% in FY2021; net margin was 43.3%, compared with 5.6%.
- Cash and cash equivalents were $1.37 million at year-end, up from $58,000. Working capital was $2.47 million versus $619,000.
- No credit-facility balance remained at March 31, 2022; the company reported $1.5 million available to borrow. The facility matures March 28, 2023, is secured by substantially all oil and gas properties, and contains financial covenants and restrictions, including on dividends.
- Total proved reserves were 1.616 million BOE, up from 1.504 million BOE. PV-10 was $30.78 million versus $13.76 million; the standardized measure after estimated future income taxes was $25.92 million versus $12.76 million. These reserve measures are price- and assumption-dependent, not estimates of market value.
Material changes and notable items
- Net income increased to $2.86 million from $156,000, primarily reflecting higher commodity prices and production. Net cash from operations increased by $3.03 million.
- Mexco repaid $1.455 million of credit-facility borrowings and drew $275,000 during the year. It also received $459,000 from stock-option exercises.
- Reserve additions included 307 MBOE from extensions and discoveries and 21 MBOE from acquisitions, partially offset by 86 MBOE of downward revisions. Mexco converted about 88 MBOE of proved undeveloped reserves to producing developed reserves.
- There were no ceiling-test impairments in FY2022 or FY2021, no federal income-tax expense in either year, and no derivative contracts at year-end. The FY2021 comparison included $68,957 of PPP loan forgiveness and a $19,200 derivative loss.
Outlook, risks and contingencies
- No formal earnings or production guidance is provided. Management described continued evaluation of acquisition and drilling opportunities, with planned funding from cash, operating cash flow and, if needed, borrowings or non-core asset sales. Fiscal 2023 development spending is not specified as a consolidated forecast.
- Subsequent activity included a $939,000 royalty-interest acquisition effective April 1, 2022, and additional drilling participations. The filing reports approximately $237,000 spent on eight Delaware Basin wells and $657,000 on four Midland Basin wells during fiscal 2023’s first quarter; it also reports approximately $300,000 spent in June 2022 on four Delaware Basin wells.
- Commodity-price volatility is a central risk. Management noted the effects of COVID-19, supply-demand uncertainty and Russia’s invasion of Ukraine. A $10/bbl change in average oil price would have changed FY2022 pretax income by approximately $617,000; a $1/Mcf gas-price change would have changed it by approximately $394,000.
- Customer concentration is significant: one purchaser represented 67% of FY2022 operating revenue and 60% of oil and gas receivables. The company also relies on third-party operators and transportation infrastructure, over which it has limited control.
- Other key risks include reserve-estimate uncertainty, development funding and execution, potential future full-cost impairment, environmental and climate regulation, and the possibility that undeveloped reserves are not developed. Proved undeveloped reserves were 37% of total proved reserves; estimated future development costs were $6.51 million.
- Management concluded internal control over financial reporting and disclosure controls were effective at March 31, 2022. The auditor issued an unqualified opinion and identified proved-reserve estimation as a critical audit matter. No material environmental remediation expenditures or known material environmental claims were reported.
Key facts for investors to verify
- Confirm the company’s current borrowing availability, covenant compliance and credit-facility status ahead of the March 2023 maturity stated in the filing.
- Review updated realized prices, production, purchaser concentration and cash conversion; FY2022 results benefited substantially from higher commodity prices.
- Assess the timing, costs and operator plans for converting the 590 MBOE of year-end proved undeveloped reserves into production.
- Check subsequent-period spending and production results for the disclosed acquisitions and drilling participations.
- Review the independent reserve report and assumptions behind PV-10 and the standardized measure, which are not fair-value estimates.