MXC

MEXCO ENERGY CORP - 10-Q Summary (Period Ended Dec 31, 2024)

Business Context and Reporting Period

Mexco Energy Corporation (MXC) is an independent oil and natural gas exploration and production company focused on West Texas and Southeastern New Mexico, with interests in 15 states. The company operates as a smaller reporting company. This filing covers the quarterly period ended December 31, 2024, and the nine-month period ended December 31, 2024 (Fiscal Year 2025).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total operating revenue increased 11.6% year-over-year for the nine months ended Dec 31, 2024, driven by a 21.4% increase in oil production volumes (61,685 bbls vs. 50,826 bbls). This was partially offset by a 3.3% decrease in average realized oil prices ($74.50 vs. $77.06) and a 30.7% decrease in average natural gas prices ($1.47 vs. $2.12) due to pipeline constraints in the Permian Basin.
• Expense Increases: Depreciation, depletion, and amortization (DD&A) rose 39% to $1.76 million due to a larger amortization base and increased production. Production costs increased 15% to $1.31 million, attributed to higher production taxes and lease operating expenses on new wells.
• Cash Flow Decline: Operating cash flow decreased by $433,602 compared to the prior year, primarily due to an increase in accounts receivable and a slight decrease in net income.
• Capital Deployment: Investing cash outflows more than doubled to $3.67 million, reflecting significant acquisitions of royalty interests in approximately 700 wells across multiple states and increased drilling participation.
• Liquidity: Cash and cash equivalents decreased by $1.56 million to $910,005, driven by heavy capital expenditures and share repurchases.

Guidance, Outlook, and Risks

• Development Plans: Management plans to participate in the drilling and completion of 28 horizontal wells for the fiscal year ending March 31, 2025, at an estimated cost of $1.5 million. Most wells are located in the Delaware Basin (Lea and Eddy Counties, NM).
• Recent Activity: In January 2025 (subsequent event), the company expended $70,000 to drill six horizontal wells in the Bone Spring Sand formation. Initial production rates from wells completed in late 2024 averaged 1,300 to 1,689 BOE per day.
• Dividends and Buybacks: A regular annual dividend of $0.10 per share was paid in June 2024. The company repurchased 57,766 shares for $703,216 during the nine-month period. Approximately $296,784 remains available under the current repurchase program.
• Risks: Primary risks include volatility in crude oil and natural gas prices and pipeline capacity constraints in the Permian Basin, which have negatively impacted natural gas realizations. The company has no hedging agreements in place.
• Debt Covenants: The company maintains a $2.5 million credit facility with West Texas National Bank. It currently has no outstanding balance but must maintain a Senior Debt/EBITDA ratio of 4.00 or less and an Interest Coverage ratio of 2.00 or greater.

Investor Verification Checklist

• Production Volumes vs. Prices: Verify the sustainability of the 21% volume increase in oil production against the backdrop of declining realized prices.
• Capital Allocation: Assess the impact of the $3.67 million in capital expenditures on future cash flow, given the reduction in cash reserves to under $1 million.
• Acquisition Quality: Review the specific terms and expected returns of the ~$2 million in royalty interest acquisitions made across 15 states during the period.
• Debt Capacity: Confirm the company's ability to fund the planned $1.5 million in drilling for the remainder of the fiscal year using existing cash and the $1.5 million credit facility.
• Gas Realizations: Monitor the impact of Permian Basin pipeline constraints on natural gas pricing, which saw a 30% year-over-year price decline.