Mexco Energy Corporation — Form 10-Q Summary
Reporting period: The filing covers the quarter and six months ended September 30, 2011, corresponding to fiscal 2012 Q2—not 2010 Q2 as stated in the request metadata. Financial statements are unaudited.
Business and financial performance
Mexco explores, develops, and produces oil, natural gas, condensate, and natural gas liquids, with most interests in West Texas and properties in twelve states.
| Metric | Three months ended Sep. 30, 2011 | Six months ended Sep. 30, 2011 | Comparable 2010 period |
|---|---|---|---|
| Operating revenue | $815,761 | $1,724,855 | $788,639; $1,625,032 |
| Operating income | $111,466 | $268,146 | $59,722; $19,824 |
| Net income | $79,272 | $183,657 | $70,040; $75,816 |
| Diluted earnings per share | $0.04 | $0.09 | $0.04; $0.04 |
| Cash flow from operations | Not provided by quarter | $636,240 | $597,867 |
Six-month oil and gas sales were $1,715,995, up 6%. Oil revenue rose 32% as oil volume and average price increased; gas revenue fell 11% as volume declined, while average price was nearly unchanged. For the quarter, oil and gas revenue rose 3% overall. Operating expenses for the six months decreased 9%, primarily due to lower production and DD&A costs; general and administrative expense rose 11%.
Cash, debt, and liquidity
- Cash was $79,429 at September 30, 2011, down $99,642 from March 31. Cash from operations was $636,240; investing activities provided $171,360, including $462,608 of proceeds primarily from a leasehold-interest sale; financing used $907,242, including $1,025,000 of debt repayment.
- Working capital was approximately $424,277, versus $470,253 at March 31, 2011. Total current assets were $636,936 and current liabilities were $212,659.
- Long-term debt was $775,000, down from $1,800,000. The revolving facility has a $4.9 million borrowing base, with reported availability of $4.125 million; it matures November 30, 2012. The company was in covenant compliance. No principal payments were anticipated through November 30, 2012.
- Management said operating cash flow and available financing should provide adequate liquidity for the current fiscal year. The credit agreement prohibits cash dividends.
Developments, outlook, and risks
- Mexco reported drilling and development participation in Texas and New Mexico projects, and described potential additional drill sites in the Fuhrman-Mascho Field. It received $450,000 in June for assigning a five-year leasehold interest while retaining an 8.33% royalty.
- The board authorized up to $250,000 for share repurchases. Mexco bought 2,000 shares for $11,980 during the six months and another 2,000 shares for $10,800 in October.
- No formal earnings or production guidance was given. Management cautioned that forward-looking estimates, including reserves, production, prices, and capital plans, are subject to uncertainty and are not guaranteed.
- Commodity-price exposure is the principal market risk; the company had no oil or gas hedges. Management said results are more sensitive to gas prices because most production and reserves are gas. A $1-per-Mcf change in average gas price for the six-month period would have changed net income by $209,453, according to the filing.
- Other risks include reserve and borrowing-base reductions or a possible full-cost ceiling write-down if prices fall, floating-rate debt, and customer or working-interest-partner credit exposure. A 1-percentage-point interest-rate change would affect annual pretax income by $7,750 at the reported debt balance.
- The filing reports approximately $550,000 of unrecognized tax benefits, an approximately $1.8 million regular-tax net operating loss carryforward, and a $3.9 million statutory depletion carryforward. Management noted use of tax attributes may be limited.
- No material change to previously disclosed risk factors was reported. The company said it was unaware of relevant pending environmental proceedings; it reported effective disclosure controls and no material internal-control changes.
Key facts investors should verify
- Confirm the intended period: this filing is for fiscal 2012 Q2, ended September 30, 2011, despite the request’s 2010 Q2 label.
- Track production volumes and realized oil and gas prices, particularly continued gas-volume declines and gas-price sensitivity.
- Verify credit-facility availability, borrowing-base terms, maturity, covenant compliance, and the impact of commodity prices on collateral and liquidity.
- Review reserve estimates and any future full-cost ceiling impairment exposure.
- Assess the tax-attribute limitations and the potential treatment of the unrecognized tax benefits.