Mexco Energy Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended March 31, 2021. Although the request metadata refers to 2020 Q4, this filing reports the full fiscal year, not a standalone quarter. Mexco is a U.S. oil and gas exploration, development and production company; its interests are non-operated and concentrated in West Texas and southeastern New Mexico.
Financial and operating performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total operating revenue | $2.799 million | $2.739 million |
| Oil and gas sales | $2.774 million | $2.720 million |
| Operating income (loss) | $158,701 | ($63,676) |
| Net income (loss) | $155,932 | ($99,478) |
| Cash from operations | $710,047 | $864,960 |
| Cash used in investing | ($1.388 million) | ($1.742 million) |
| Cash from financing | $701,009 | $782,734 |
- Net margin was approximately 5.6%, compared with a net loss in FY2020. Revenue increased about 2%, while operating expenses fell about 6% to $2.640 million.
- Oil revenue declined 12% to $2.029 million: volume rose 14% to 50,327 barrels, but realized price fell 23% to $40.31 per barrel. Natural gas revenue rose 82% to $745,000: volume increased 10% to 324,205 Mcf and realized price increased 64% to $2.30 per Mcf.
- Production and exploration costs were $871,963, down 5%; DD&A was $906,361, up 6%; general and administrative expense was $833,431, down 17%. Interest expense rose 41% to $53,232.
- Cash increased $23,432 to $57,813 at year-end. Working capital was $618,960, versus $186,785 a year earlier. The company reported $1.180 million outstanding under its bank facility and $320,000 available at March 31, 2021; balance-sheet long-term debt, net of issuance costs, was $1.155 million.
- Net proved reserves were 1.504 million BOE, down from 1.816 million BOE. PV-10 fell to $13.758 million from $21.637 million; the standardized measure fell to $12.763 million from $18.976 million. No ceiling-test impairment was recorded in either year.
Changes, outlook and material items
- Results returned to profit from a FY2020 loss, supported by higher gas sales and lower operating expenses, partly offset by weaker oil prices. Operating cash flow nevertheless fell 18%, including a substantial increase in oil and gas receivables.
- Management’s FY2022 priorities are to improve cash flow through operating efficiencies and cost reductions, divest non-core assets, and align capital spending with cash flow to limit borrowing, reduce debt and preserve liquidity. The filing gives no specific earnings, production or capital-spending guidance.
- COVID-19-related demand and price shocks affected operations through the first three fiscal quarters; management reported price recovery in FY2021’s fourth quarter and FY2022’s first quarter, while warning that renewed outbreaks could reverse the recovery.
- Fiscal-year capital investment included approximately $1.592 million of oil and gas property additions. Mexco participated in 22 horizontal wells, 12 of which were incomplete at year-end. Its planned PUD development costs were estimated at $3.015 million through March 31, 2024; funding may depend on cash flow, borrowings, asset sales or equity issuance.
- Reserve revisions reduced estimates by approximately 324 MBOE, primarily because certain undeveloped reserves exceeded the SEC five-year development limit. Extensions and discoveries added 139 MBOE, while property sales removed 23 MBOE. PUDs were 32% of proved reserves at year-end, down from 50% a year earlier.
- The company recognized $68,957 of PPP loan forgiveness income and a $19,200 realized loss on oil-price put options. The PPP loan was forgiven in November 2020. No derivative contracts remained outstanding at year-end.
- Substantially all oil and gas properties secure the credit facility. It carries a floating prime-plus-0.5% rate, financial covenants, and restrictions including limits on dividends and lender approval for hedging. By June 21, 2021, after further borrowing and repayments, the balance was $800,000.
- Key risks include oil and gas price volatility, reserve-estimation uncertainty, reliance on third-party operators and transportation infrastructure, environmental and regulatory exposure, customer concentration, and access to capital. One customer generated 66% of FY2021 oil and gas revenue and represented 71% of oil and gas receivables.
Investor verification priorities
- Reconcile the reserve decline and the substantial downward revisions, including the effect of the five-year PUD rule and the development timetable for remaining PUDs.
- Review liquidity and borrowing capacity, covenant compliance, subsequent debt repayments, and the cash needed for committed and planned well development.
- Assess how much the improved FY2021 result depends on gas prices, the one-time PPP forgiveness, and lower overhead, versus recurring operating cash generation.
- Verify collection and continued sales arrangements for the concentrated customer exposure, and monitor receivables and operating cash flow.
- Compare future realized prices, production, and reserve values with the SEC reserve assumptions. The filing’s standardized measure and PV-10 are estimates, not market valuations.
- Consider the filing’s disclosure that management assessed internal controls as effective; the auditor issued an unqualified opinion on the financial statements but did not audit or opine on internal-control effectiveness.