Mexco Energy Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended September 30, 2023. The unaudited filing covers Mexco Energy Corporation and its subsidiaries, which acquire, explore, develop and produce oil and natural gas, primarily through non-operated interests.
Financial performance
| Metric | Three months ended September 30 | Six months ended September 30 |
|---|---|---|
| Operating revenue, 2023 | $1.407 million; down 39% year over year | $3.155 million; down 34% |
| Operating income, 2023 | $319,000, versus $1.240 million | $883,000, versus $2.570 million |
| Net income, 2023 | $269,000, versus $1.212 million | $735,000, versus $2.510 million |
| Diluted earnings per share | $0.12, versus $0.55 | $0.34, versus $1.13 |
| Operating margin | 22.7%, versus 53.3% | 28.0%, versus 53.8% |
| Operating cash flow | Not separately presented for the quarter | $2.430 million, versus $3.418 million |
Oil and gas sales were $1.381 million in the quarter and $3.096 million for the six-month period. Quarterly oil revenue fell 21%, with oil volume down 6% and average realized price down 16% to $80.51 per barrel. Quarterly gas revenue fell 68%, as volume declined 9% and average price fell 65% to $2.60 per Mcf. For six months, oil volume increased 16% but average price fell 26% to $76.21 per barrel; gas volume was nearly flat while average price fell 68% to $2.27 per Mcf.
Cash, liquidity, debt and capital
- Cash was $2.585 million at September 30, up from $2.236 million at March 31. Working capital was $3.245 million, down $231,000; current assets were $3.472 million and current liabilities $226,000.
- Operating cash flow of $2.430 million funded $1.544 million of net investing outflows. Financing outflows were $537,000, including a $214,000 special dividend and $325,000 of share repurchases. Net cash increased $349,000.
- No borrowings were outstanding on the credit facility; $1.5 million was available. The facility matures March 28, 2026, is secured by substantially all oil and gas properties and subsidiary stock, and includes financial covenants and restrictions, including limits on dividends and hedging without lender approval.
- Total liabilities were $1.074 million, including $698,000 of noncurrent asset retirement obligations and $150,000 of deferred income tax liabilities. The company reported no off-balance-sheet debt or guarantees of another party’s debt.
Changes, outlook and notable items
- The earnings decline principally reflected lower commodity prices and lower quarterly production; for the six months, higher production did not offset lower realized prices. Six-month operating expenses rose 3%, including higher depreciation, depletion and amortization and general and administrative expenses.
- Management plans to participate in 40 horizontal wells in fiscal 2024 at an estimated aggregate cost of approximately $1.7 million, primarily in the Delaware Basin. The filing provides project plans, not formal earnings or production guidance.
- In October 2023, Mexco signed a letter of intent for a three-year assignment of 98% of certain deep rights on 200 acres in Texas. The company expects approximately $980,000, subject to completion of the transaction. It also agreed, subject to title review, to buy mineral interests for $60,500.
- Mexco authorized up to $1 million in share repurchases. It repurchased 26,000 shares for $325,256 during the six months and another 6,000 shares for $75,477 in October. A $0.10-per-share special dividend was paid in May; future dividends are not assured.
- Management identifies commodity-price volatility as its main market risk. A $10-per-barrel change in average oil price would have changed first-half revenue by approximately $332,000; a $1-per-Mcf gas-price change would have changed it by approximately $250,000. One purchaser represented 55% of oil and gas receivables at period end.
- The filing reports effective disclosure controls and no material change in internal control. It reports no material change in previously disclosed risk factors and no known material legal proceedings.
Key investor checks
- Verify realized prices, production volumes and the timing of shut-ins and new well completions behind the sharp year-over-year earnings decline.
- Assess whether the planned well spending and subsequent well results support future production and cash flow; initial well rates cited in the filing are gross well rates, not Mexco’s net production.
- Confirm whether the Texas deep-rights assignment is completed and whether the expected approximately $980,000 proceeds are received.
- Monitor commodity prices, the concentration of receivables with the largest purchaser, and compliance with credit-facility covenants.
- Reconcile share-count dates: the filing reports 2,110,500 shares outstanding at September 30, while its cover reports 2,104,500 as of November 8.