Mexco Energy Corporation — FY2024 Form 10-K
Reporting period: Fiscal year ended March 31, 2024, compared with fiscal 2023. This is an annual report, not a calendar-year 2023 or standalone fourth-quarter filing. Mexco is a U.S. independent oil and gas company whose properties are operated by third parties, with principal activity in West Texas and southeastern New Mexico.
Financial performance and liquidity
| Metric | FY2024 | FY2023 | Change |
|---|---|---|---|
| Total operating revenue | $6.605 million | $9.557 million | Down 31% |
| Oil and gas sales | $6.463 million | $9.381 million | Down 31% |
| Operating income | $1.835 million | $4.832 million | Down 62% |
| Net income | $1.345 million | $4.663 million | Down 71% |
| Diluted earnings per share | $0.62 | $2.11 | Down |
| Operating cash flow | $4.434 million | $6.516 million | Down $2.082 million |
| Cash and cash equivalents | $2.473 million | $2.236 million | Up $0.238 million |
| Working capital | $3.259 million | $3.476 million | Down $0.217 million |
Calculated operating margin was approximately 27.8% versus 50.6%; net margin was approximately 20.4% versus 48.8%. Oil sales fell 18%, reflecting a 13% lower realized price and 5% lower volume. Gas sales fell 61%, as the realized price declined 59% and volume declined 6%. Production costs were $1.526 million, down 11%; DD&A rose 6% to $1.970 million, and general and administrative expense rose 11% to $1.244 million. Income tax expense increased to $621,000 from $165,000, with the effective rate rising to 31.6% from 3.4%.
Investing activities used $3.416 million, including $3.349 million of oil and gas property additions and $400,000 invested in limited liability companies. Financing activities used $780,000, including $586,000 of share repurchases and $214,000 of dividends. The company had no outstanding credit-facility balance at year-end; $1.5 million was available to borrow under its facility, which matures March 28, 2026. The facility is secured by substantially all oil and gas properties and includes financial covenants and restrictions, including a requirement for lender permission before cash dividends.
Operations, reserves, and changes from prior year
- Production was 69,999 barrels of oil and 502,879 Mcf of gas, down 5% and 6%, respectively; combined production was 153,812 BOE, down about 6%.
- Estimated proved reserves were 1.547 million BOE, essentially flat with 1.552 million BOE in FY2023. Oil and NGLs represented 51% of reserves and gas 49%.
- PV-10 declined to $29.078 million from $39.473 million, while the standardized measure of discounted future net cash flows fell to $24.628 million from $32.815 million. The filing attributes reserve revisions and lower reserve values principally to lower commodity prices, changes in development timing, and the five-year PUD development limit.
- FY2024 reserve additions included 272 MBOE from extensions and discoveries and 44 MBOE from acquisitions, offset by 163 MBOE of downward revisions. The company converted approximately 62 MBOE of PUDs to developed producing reserves through 43 wells.
- Proved undeveloped reserves were 508 MBOE, or 33% of proved reserves, with estimated future development costs of $5.48 million. These projects depend on operators’ development plans and access to funding.
Outlook, risks, and notable items
Mexco provided no specific numerical earnings, production, or capital-spending guidance. For fiscal 2025, management’s stated priorities are to optimize cash flow through efficiencies and cost reductions, divest non-core assets, and balance capital spending with cash flow to limit borrowing and preserve liquidity. Management cited commodity-price volatility, inflation, higher interest rates, geopolitical conflict, and supply-chain disruption as factors that may affect fiscal 2025.
- Commodity and reserve risk: Lower prices can reduce cash flow, economic reserves, and borrowing capacity, and may trigger non-cash full-cost ceiling-test impairments. No ceiling-test impairment was recorded in FY2024 or FY2023.
- Third-party operators and development: Mexco does not operate its properties and cannot control drilling schedules, costs, or results. The company participated in 51 horizontal wells and one vertical well; 19 of those wells remained incomplete at year-end. An exploratory well in Irion County, Texas was later deemed noncommercial and is expected to be plugged and abandoned in FY2025.
- Customer concentration: One purchaser accounted for 59% of FY2024 operating revenue and 48% of oil and gas receivables. The largest single-purchaser receivable was $480,836.
- Concentration of influence: Chairman and CEO Nicholas Taylor beneficially owned approximately 45% of common shares. Officers and directors together beneficially owned approximately 48%.
- Other exposures: Risks include environmental and emissions regulation, transportation and pipeline capacity, cyber incidents, uninsured operating hazards, and the need to replace produced reserves. The filing reports no known environmental matter expected to require material FY2025 capital spending and no legal proceeding expected to materially affect the company.
- Capital allocation and subsequent events: Mexco repurchased 50,101 shares for $585,035 in FY2024. After year-end, the board authorized a new $1 million repurchase program; 13,766 shares were repurchased in April 2024. A $0.10-per-share annual dividend was paid in June 2024 with lender approval.
- Audit and controls: The independent auditor issued an unqualified opinion on the financial statements and identified proved-reserve estimation as a critical audit matter. Management concluded internal control over financial reporting and disclosure controls were effective as of March 31, 2024; the auditor did not audit internal-control effectiveness.
Key facts for investors to verify
- Whether realized oil and gas prices and production trends stabilize, particularly given the steep decline in gas revenue.
- Progress, costs, and operator schedules for the $5.48 million PUD development program and the 19 incomplete wells.
- How reserve valuations and potential borrowing capacity respond to commodity prices and future reserve revisions.
- The terms, borrowing-base availability, covenant compliance, and dividend restrictions of the WTNB credit facility.
- The financial and operational implications of the 59% revenue concentration with one purchaser and Mexco’s reliance on third-party operators.
- Whether post-year-end investment funding, acquisitions, drilling, dividend payments, and repurchases remain supportable by cash flow and liquidity.