Mexco Energy Corporation — Form 10-Q Summary
Reporting period: Three months ended June 30, 2020. Although the request identifies 2020 Q1, the filing describes this as the first quarter of fiscal 2021. The statements are unaudited; the comparable period is the three months ended June 30, 2019.
Business and financial performance
Mexco explores, develops and produces oil and natural gas, principally in West Texas and southeastern New Mexico. Its interests are operated by other parties.
| Metric | Quarter ended June 30, 2020 | Prior-year quarter |
|---|---|---|
| Total operating revenue | $370,456 | $699,591 |
| Oil and gas sales | $364,179 | $691,694 |
| Operating loss | $281,380 | $47,850 |
| Net loss | $299,670 | $54,186 |
| Loss per share, basic and diluted | $0.15 | $0.03 |
| Operating cash flow | $66,472 | $185,956 |
Oil revenue declined 52%, while oil volumes rose 8.7%; average realized oil price fell 55.9% to $24.48 per barrel. Gas revenue fell 20.8%, despite volumes increasing 10.7%, as the average price declined 28.5% to $1.03 per Mcf. Production expense decreased 22% to $171,666, and general and administrative expense decreased 20% to $248,878. DD&A rose 7% to $224,105; interest expense rose 74% to $11,055. The filing does not report a positive operating or net margin; the operating loss was approximately 76% of revenue.
Liquidity, debt and cash flow
Cash was $52,537 at June 30, 2020, up from $34,381 at March 31. Working capital was $102,065, down from $186,785. Operating activities provided $66,472; investing activities used $251,890, including $257,281 of oil and gas property additions; financing activities provided $203,574. The company reported a net cash increase of approximately $18,156.
Credit-facility borrowings were $930,000 gross ($895,554 net of issuance costs), with $570,000 available under the facility. The facility matures March 28, 2023, and bears interest at prime plus 0.5%; no principal payments were anticipated before maturity. Mexco received a $68,574 PPP loan at 1% interest, due May 2022, and intends to seek forgiveness, subject to SBA approval. Asset retirement obligations were $775,696. The company reported compliance with its credit covenants at quarter-end.
Outlook, risks and notable items
- Management cited the severe commodity-price decline and volatility, including COVID-19 and supply-demand disruptions, as key pressures. It said price declines could impair liquidity, financing access, reserves, borrowing capacity and property values; a full-cost accounting write-down could be required if prices fall significantly.
- For fiscal 2021, Mexco planned to participate in approximately 20 horizontal wells at an estimated aggregate cost of $950,000, of which $205,000 had been spent. It also planned approximately $280,000 for completion costs on 22 wells drilled in fiscal 2020. These are plans, not guaranteed expenditures or production outcomes.
- Management said it was applying financial discipline and could continue selling non-core assets to meet obligations. No specific earnings or revenue guidance was provided.
- Crude-oil put options covered 5,000 barrels for July and August 2020 at a $25 floor price. Derivative activity resulted in a net realized and unrealized loss of $7,250 for the quarter.
- On July 1, 2020, Mexco sold deep rights in a Martin County, Texas property for $100,000 cash.
- The filing reported no material change in previously disclosed risk factors, no known material legal proceedings, effective disclosure controls, and no material quarter-end change in internal control over financial reporting.
Investor verification priorities
- Verify the reporting-period labeling: the quarter ended June 30, 2020 is presented as fiscal 2021 Q1, not calendar 2020 Q1.
- Assess whether operating cash flow and available credit can support planned drilling and completion spending amid commodity-price volatility.
- Track actual well spending, completion timing, production and Mexco’s small working-interest shares against management’s plans.
- Confirm the outcome and timing of the PPP forgiveness application and monitor credit-facility covenant headroom and borrowing-base reviews.
- Review subsequent-period effects of the $100,000 property sale and any changes in oil and gas prices, reserves, or impairment assessments.