MEXCO ENERGY CORP - 10-K Summary (Fiscal Year Ended March 31, 2003)
Business Context and Reporting Period
Mexco Energy Corporation is an independent oil and gas company incorporated in Colorado, primarily focused on the acquisition, exploration, and development of natural gas resources in the United States, with a concentration in West Texas. The reporting period covers the fiscal year ended March 31, 2003. As of this date, gas reserves constituted approximately 90% of total proved reserves and generated 76% of revenues.
Key Financial Metrics
| Metric | Fiscal 2003 | Fiscal 2002 |
|---|---|---|
| Operating Revenues | $2,949,113 | $1,778,583 |
| Net Income | $672,808 | $189,291 |
| Cash Flow from Operations | $1,369,690 | $899,977 |
| Total Debt | $2,150,000 | $1,710,000 |
| Working Capital | $389,179 | $347,204 |
| Stockholders' Equity | $4,956,388 | $4,276,042 |
| Net Income Per Share (Basic) | $0.39 | $0.11 |
Production Data: Oil production increased to 23,391 barrels (avg. price $27.39/bbl) and gas production to 538,787 Mcf (avg. price $3.79/Mcf). Production costs per equivalent Mcf rose to $1.25 from $1.09 in the prior year.
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased 66% to $2.95 million, driven by a 52% increase in oil and gas sales. This was due to higher production volumes (11% oil, 15% gas) and significantly higher commodity prices (27% oil, 35% gas).
- Profitability: Net income surged 255% to $672,808. A significant contributor was a one-time gain of $254,862 from the settlement of a class action lawsuit regarding contract price disputes.
- Expense Increases: Production costs rose 31% due to increased repairs. Depreciation, depletion, and amortization (DD&A) increased 43% primarily due to downward revisions of proved undeveloped reserves in the El Cinco Field. Interest expense increased 69% due to higher borrowings.
- Reserve Revisions: Total proved reserves declined significantly from the prior year (Oil: 150,149 Bbls vs. 237,307 Bbls; Gas: 7.93 Bcf vs. 10.18 Bcf), largely due to revisions of previous estimates and production.
Guidance, Outlook, and Risks
Management Commentary: Management believes the Company can maintain adequate liquidity for the next fiscal year, funded by operating cash flows and a revolving credit facility. The Company continues to focus on natural gas reserves and cost reductions.
Risks and Contingencies:
- Price Volatility: The Company is highly sensitive to oil and gas price fluctuations. A $0.01 decrease in gas price would reduce pretax income by approximately $5,388.
- Debt Covenants: The Company has a $5 million revolving credit facility with a borrowing base of $2.53 million. The borrowing base is subject to monthly reductions and annual redetermination. As of March 31, 2003, the outstanding balance was $2.15 million.
- Reserve Uncertainty: Reserve estimates are inherently imprecise. The Company noted downward revisions in the El Cinco Field, which impacted DD&A expenses.
- Regulatory & Environmental: Operations are subject to extensive federal, state, and local regulations. The Company is adopting SFAS No. 143 (Asset Retirement Obligations) in the subsequent quarter, which may materially increase liabilities.
Investor Verification Checklist
- Reserve Revisions: Verify the impact of the downward revision of proved undeveloped reserves in the El Cinco Field on future production and DD&A charges.
- Debt Capacity: Monitor the borrowing base redetermination scheduled for August 1, 2003, and the impact of monthly commitment reductions on liquidity.
- One-Time Gains: Assess the sustainability of earnings excluding the $254,862 lawsuit settlement proceeds.
- Customer Concentration: Note that one customer (Sid Richardson Energy Services) accounted for 26% of revenues in 2003.
- Stock Repurchases: Review the impact of the $127,536 spent on share repurchases during the fiscal year on cash reserves.