Mexco Energy Corporation — Form 10-Q Summary
Reporting period: The filing covers the quarter and nine months ended December 31, 2012 (fiscal 2013 third quarter). The request metadata says 2011 Q3, but the filing itself reports 2012 results. Financial statements are unaudited.
Business context
Mexco explores, develops, and produces oil, natural gas, condensate, and natural gas liquids, primarily through interests in properties operated by others. Most of its interests are in West Texas, with properties in twelve states. On December 31, 2012, the company acquired TBO Oil & Gas, LLC, which holds non-operated interests in approximately 280 wells producing primarily oil. TBO’s results are not included in the reported periods.
Financial results and position
| Metric | Three months ended Dec. 31, 2012 | Nine months ended Dec. 31, 2012 |
|---|---|---|
| Total operating revenue | $790,604 | $2,161,326 |
| Operating income (loss) | ($78,469) | ($217,545) |
| Net income (loss) | ($39,580) | ($102,034) |
| Basic and diluted EPS | ($0.02) | ($0.05) |
| Cash provided by operating activities | — | $503,359 |
| Cash used in investing activities | — | $2,113,178 |
| Cash provided by financing activities | — | $1,216,313 |
For the nine-month period, oil and gas sales were $2,139,609. Cash declined by $393,506 to $105,175. Gross additions to oil and gas properties were $1,018,346, and Mexco paid $1,150,000 for TBO. The acquisition was funded with credit-facility borrowings.
At December 31, 2012, total assets were $17.66 million, current assets were $725,421, and working capital was approximately $451,154. Long-term debt was $2.9 million, up from $1.7 million at March 31, 2012. The $4.9 million revolving facility had approximately $2.0 million available; it matures November 30, 2014, and the company reported compliance with its covenants. Its floating rate was 2.712% at quarter-end. The facility prohibits cash dividends.
Material changes versus prior-year periods
- Quarterly revenue increased 4% to $790,604, but Mexco moved from net income of $50,961 to a net loss of $39,580. Production costs rose 40%, DD&A rose based on the reported amounts, and interest expense increased as borrowings grew.
- Nine-month revenue declined 13% to $2,161,326, and net results shifted from income of $234,618 to a loss of $102,034. Oil and gas sales fell 13%: higher oil volume partly offset lower oil prices, while gas revenue declined 35%, driven mainly by a 33% lower average gas price and slightly lower volume.
- Nine-month operating cash flow fell 50% from $1,000,832. Investing outflows increased substantially, including the TBO acquisition; financing inflows included $1.45 million of borrowing and $250,000 of repayments.
Outlook, risks, and notable items
- Management expects operating cash flow and financing availability to provide adequate liquidity for the next fiscal year. No quantified earnings, production, or capital-spending guidance is provided.
- Development activity includes a Pecos County well in which Mexco holds a 100% working interest; it was being completed and tested, with approximately $1.055 million spent through December 31. The company also described ongoing and planned drilling projects.
- Commodity prices are the principal market risk. Mexco had no oil or gas hedges at quarter-end. Management says lower prices could reduce cash flow, reserves, borrowing capacity, and access to capital, and could trigger a full-cost-accounting write-down. The filing says results are more sensitive to gas prices; a $1/Mcf change in the nine-month average gas price would have changed net income by approximately $295,457.
- Floating-rate debt creates interest-rate exposure: a one-percentage-point rate change would change annual pretax income by approximately $29,000 at the quarter-end debt balance. Oil and gas receivables are generally unsecured; the filing reports no significant credit losses.
- Mexco reported no material changes to previously disclosed risk factors, no material litigation identified, and no subsequent events requiring disclosure. Disclosure controls were assessed as effective.
Key facts for investors to verify
- Confirm the applicable period: the filing is for the quarter ended December 31, 2012, notwithstanding the request metadata’s 2011 Q3 designation.
- Review the MD&A’s quarterly DD&A comparison: it describes a 27% decrease, but the statement amounts ($283,498 versus $223,181) indicate an increase. The filing text does not reconcile this inconsistency.
- Assess the TBO acquisition’s subsequent contribution to production, cash flow, and debt service; the acquired business’s results are excluded from the reported periods.
- Track cash, borrowing-base availability, covenant compliance, and the impact of commodity prices on reserves and financing capacity.
- Evaluate the Pecos County well’s completion and test results and the funding needs of planned drilling and development.