UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
For
the quarterly period ended
OR
For the transition period from _______ to _________
Commission
File No.
(Exact name of registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. ☒ NO ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company as defined in Rule 12b-2 of the Exchange Act.
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The number of shares outstanding of the registrant’s common stock, $ par value, as of August 8, 2024 was .
MEXCO ENERGY CORPORATION
Table of Contents
Page 2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Mexco Energy Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
| June 30, | March 31, | |||||||
| 2024 | 2024 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable: | ||||||||
| Oil and natural gas sales | ||||||||
| Trade | ||||||||
| Prepaid drilling | ||||||||
| Prepaid costs and expenses | ||||||||
| Total current assets | ||||||||
| Property and equipment, at cost | ||||||||
| Oil and gas properties, using the full cost method | ||||||||
| Other | ||||||||
| Accumulated depreciation, depletion and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | ||||||||
| Investments – cost basis | ||||||||
| Operating lease, right-of-use asset | ||||||||
| Other noncurrent assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Income tax payable | ||||||||
| Operating lease liability, current | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Operating lease liability, long-term | ||||||||
| Asset retirement obligations | ||||||||
| Deferred income tax liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock - $ par value; shares authorized; outstanding | ||||||||
| Common stock - $par value; shares authorized; and shares issued; and, and shares outstanding as of June 30, 2024 and March 31, 2024, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Treasury stock, at cost ( and shares, respectively) | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
Page 3 |
Mexco Energy Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30,
(Unaudited)
| 2024 | 2023 | |||||||
| Operating revenues: | ||||||||
| Oil sales | $ | $ | ||||||
| Natural gas sales | ||||||||
| Other | ||||||||
| Total operating revenues | ||||||||
| Operating expenses: | ||||||||
| Production | ||||||||
| Accretion of asset retirement obligations | ||||||||
| Depreciation, depletion and amortization | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Operating income | ||||||||
| Other income (expense): | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Net other income | ||||||||
| Income before provision for income taxes | ||||||||
| Income tax expense: | ||||||||
| Current | ||||||||
| Deferred | ||||||||
| Total income tax expense | ||||||||
| Net income | $ | $ | ||||||
| Income per common share: | ||||||||
| Basic: | $ | $ | ||||||
| Diluted: | $ | $ | ||||||
| Weighted average common shares outstanding: | ||||||||
| Basic: | ||||||||
| Diluted: | ||||||||
The accompanying notes are an integral part of the consolidated financial statements.
Page 4 |
Mexco Energy Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| Common Stock Par Value | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Total Stockholders’ Equity | ||||||||||||||||
| Balance at April 1, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Net income | ||||||||||||||||||||
| Dividends paid | ( | ) | ( | ) | ||||||||||||||||
| Issuance of stock through options exercised | ||||||||||||||||||||
| Purchase of stock | ( | ) | ( | ) | ||||||||||||||||
| Stock based compensation | ||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Common Stock Par Value | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Total Stockholders’ Equity | ||||||||||||||||
| Balance at April 1, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Net income | ||||||||||||||||||||
| Dividends paid | ( | ) | ( | ) | ||||||||||||||||
| Issuance of stock through options exercised | ||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| SHARE ACTIVITY | ||||||||||||||||||||
| Common stock shares, issued: | ||||||||||||||||||||
| Balance at April 1, 2024 | ||||||||||||||||||||
| Issued | ||||||||||||||||||||
| Balance at June 30, 2024 | ||||||||||||||||||||
| Common stock shares, held in treasury: | ||||||||||||||||||||
| Balance at April 1, 2024 | ( | ) | ||||||||||||||||||
| Acquisitions | ( | ) | ||||||||||||||||||
| Balance at June 30, 2024 | ( | ) | ||||||||||||||||||
| Common stock shares, outstanding at June 30, 2024 | ||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
Page 5 |
Mexco Energy Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30,
(Unaudited)
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Deferred income tax expense | ||||||||
| Stock-based compensation | ||||||||
| Depreciation, depletion and amortization | ||||||||
| Accretion of asset retirement obligations | ||||||||
| Amortization of debt issuance costs | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Decrease in accounts receivable | ||||||||
| Decrease in prepaid expenses | ||||||||
| (Increase) decrease in right-of-use asset | ( | ) | ||||||
| Increase in accounts payable and accrued expenses | ||||||||
| Settlement of asset retirement obligations | ( | ) | ( | ) | ||||
| Increase in income taxes payable | ||||||||
| (Increase) decrease in operating lease liability | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Additions to oil and gas properties | ( | ) | ( | ) | ||||
| Investments in limited liability companies at cost | ( | ) | ||||||
| Proceeds from sale of oil and gas properties and equipment | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Dividends paid | ( | ) | ( | ) | ||||
| Acquisition of treasury stock | ( | ) | ||||||
| Debt issuance costs | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Accrued capital expenditures included in accounts payable | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Asset retirement obligations | $ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
Page 6 |
Mexco Energy Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Operations
Mexco Energy Corporation (a Colorado corporation) and its wholly owned subsidiaries, Forman Energy Corporation (a New York corporation), Southwest Texas Disposal Corporation (a Texas corporation) and TBO Oil & Gas, LLC (a Texas limited liability company) (collectively, the “Company”) are engaged in the acquisition, exploration, development and production of crude oil, natural gas, condensate and natural gas liquids (“NGLs”). Most of the Company’s oil and gas interests are centered in West Texas and Southeastern New Mexico; however, the Company owns producing properties and undeveloped acreage in fourteen states. All of Company’s oil and gas interests are operated by others.
2. Basis of Presentation and Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements include the accounts of Mexco Energy Corporation and its wholly owned subsidiaries. All significant intercompany balances and transactions associated with the consolidated operations have been eliminated.
Estimates and Assumptions. In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), management is required to make informed judgments, estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and affect the reported amounts of revenues and expenses during the reporting period. In addition, significant estimates are used in determining proved oil and gas reserves. Although management believes its estimates and assumptions are reasonable, actual results may differ materially from those estimates. The estimate of the Company’s oil and natural gas reserves, which is used to compute depreciation, depletion, amortization and impairment of oil and gas properties, is the most significant of the estimates and assumptions that affect these reported results.
Interim Financial Statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position of the Company as of June 30, 2024, and the results of its operations and cash flows for the interim periods ended June 30, 2024 and 2023. The consolidated financial statements as of June 30, 2024 and for the three-month periods ended June 30, 2024 and 2023 are unaudited. The consolidated balance sheet as of March 31, 2024 was derived from the audited balance sheet filed in the Company’s 2024 annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”). The results of operations for the periods presented are not necessarily indicative of the results to be expected for a full year. The accounting policies followed by the Company are set forth in more detail in Note 2 of the “Notes to Consolidated Financial Statements” in the Form 10-K. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the SEC. However, the disclosures herein are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Form 10-K.
Investments.
3. Asset Retirement Obligations
The Company’s asset retirement obligations (“ARO”) relate to the plugging of wells, the removal of facilities and equipment, and site restoration on oil and gas properties. The fair value of a liability for an ARO is recorded in the period in which it is incurred, discounted to its present value using the credit adjusted risk-free interest rate, and a corresponding amount capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted each period until the liability is settled or the well is sold, at which time the liability is removed. The related asset retirement cost is capitalized as part of the carrying amount of our oil and natural gas properties. The ARO is included on the consolidated balance sheets with the current portion being included in the accounts payable and other accrued expenses.
Page 7 |
The following table provides a rollforward of the AROs for the first three months of fiscal 2025:
| Carrying amount of asset retirement obligations as of April 1, 2024 | $ | |||
| Liabilities incurred | ||||
| Liabilities settled | ( | ) | ||
| Accretion expense | ||||
| Carrying amount of asset retirement obligations as of June 30, 2024 | ||||
| Less: Current portion | ||||
| Non-Current asset retirement obligation | $ |
4. Long Term Debt
On
December 28, 2018, the Company entered into a loan agreement (the “Agreement”) with West Texas National Bank (“WTNB”),
which originally provided for a credit facility of $
On
February 28, 2020, the Agreement was amended to increase the credit facility to $
Under
the Agreement, interest on the facility accrues at a rate equal to the prime rate as quoted in the Wall Street Journal plus one-half
of one percent (
No
principal payments are anticipated to be required through the maturity date of the credit facility,
Amounts borrowed under the Agreement are collateralized by the common stock of the Company’s wholly owned subsidiaries and substantially all of the Company’s oil and gas properties.
In addition, this Agreement prohibits the Company from paying cash dividends on its common stock without prior written permission of WTNB. The Company obtained written permission from WTNB prior to declaring the regular annual dividend on April 30, 2024 as discussed in Note 10. The Agreement does not permit the Company to enter into hedge agreements covering crude oil and natural gas prices without prior WTNB approval.
There
was
The Company recognized compensation expense of $ and $ related to vesting stock options in general and administrative expense in the Consolidated Statements of Operations for the first quarter of fiscal 2025 and 2024, respectively. The total cost related to non-vested awards not yet recognized at June 30, 2024 totals $, which is expected to be recognized over a weighted average of years.
During
the three months ended June 30, 2024, stock options were granted. During the three months ended June 30, 2023, the Compensation Committee
of the Board of Directors approved and the Company granted stock options exercisable at $
Page 8 |
| Three Months Ended | ||||||||
| June 30 | ||||||||
| 2024 | 2023 | |||||||
| Grant-date fair value | $ | |||||||
| Volatility factor | % | |||||||
| Dividend yield | ||||||||
| Risk-free interest rate | % | |||||||
| Expected term (in years) | ||||||||
| Number of Shares | Weighted Average Exercise Price Per Share | Weighted Aggregate Average Remaining Contract Life in Years | Intrinsic Value | |||||||||||||
| Outstanding at April 1, 2024 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Forfeited or Expired | ( | ) | ||||||||||||||
| Outstanding at June 30, 2024 | $ | $ | ||||||||||||||
| Vested at June 30, 2024 | $ | $ | ||||||||||||||
| Exercisable at June 30, 2024 | $ | $ | ||||||||||||||
During
the three months ended June 30, 2024, stock options covering shares were exercised with a total intrinsic value of $. The
Company received proceeds of $
No forfeiture rate is assumed for stock options granted to directors or employees due to the forfeiture rate history for these types of awards. During the three months ended June 30, 2024, unvested stock options were forfeited due to the resignation of an employee. During the three months ended June 30, 2023, there were stock options forfeited or expired.
Outstanding options at June 30, 2024 expire between September 2028 and April 2033 and have exercise prices ranging from $ to $.
6. Leases
The
Company leases approximately
The Company determines an arrangement is a lease at inception. Operating leases are recorded in operating lease right-of-use asset, operating lease liability, current, and operating lease liability, long-term on the consolidated balance sheets.
Operating
lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities
represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the
commencement date based on the present value of lease payments over the lease term. As the Company’s lease does not provide an
implicit rate, the Company uses the incremental borrowing rate based on the information available at commencement date in
determining the present value of lease payments. The incremental borrowing rate used at adoption of the renewal was
Page 9 |
The balance sheets classification of lease assets and liabilities was as follows:
| June 30, 2024 | ||||
| Assets | ||||
| Operating lease right-of-use asset, beginning balance | $ | |||
| Current period amortization | ( | ) | ||
| Lease extension | ||||
| Total operating lease right-of-use asset | $ | |||
| Liabilities | ||||
| Operating lease liability, current | $ | |||
| Operating lease liability, long term | ||||
| Total lease liabilities | $ | |||
Future minimum lease payments as of June 30, 2024 under non-cancellable operating leases are as follows:
| Lease Obligation | ||||
| Fiscal Year Ended March 31, 2025 | $ | |||
| Fiscal Year Ended March 31, 2026 | ||||
| Fiscal Year Ended March 31, 2027 | ||||
| Fiscal Year Ended March 31, 2028 | ||||
| Total lease payments | $ | |||
| Less: imputed interest | ( | ) | ||
| Operating lease liability | ||||
| Less: operating lease liability, current | ( | ) | ||
| Operating lease liability, long term | $ | |||
Net
cash paid for our operating lease for the three months ended June 30, 2024 and 2023 was $
7. Income Taxes
On
August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (“IRA 2022”). The
The income tax provision consists of the following for the three months ended June 30, 2024 and 2023:
| Three Months Ended | ||||||||
| June 30 | ||||||||
| 2024 | 2023 | |||||||
| Current income tax expense: | ||||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| Total current income tax expense | ||||||||
| Deferred income tax expense: | ||||||||
| Federal | ||||||||
| State | ||||||||
| Total deferred income tax expense | ||||||||
| Total income tax expense: | $ | $ | ||||||
Federal
income tax for the three months ended June 30, 2024 was $
Page 10 |
A reconciliation of the provision for income taxes to income taxes computed using the federal statutory rate for the three months ended June 30 follows:
| 2024 | 2023 | |||||||
| Income tax expense | $ | $ | ||||||
| Effective income tax rate (1) | % | % | ||||||
| (1) |
Total income tax expense from continuing operations for the three months ended June 30, 2024 and 2023 differed from amounts computed by applying the U.S. federal statutory tax rate to pre-tax income primarily due to state income taxes, net of federal benefit, and the impact of permanent differences between book and taxable income.
8. Related Party Transactions
Related
party transactions for the Company primarily relate to shared office expenditures in addition to administrative and operating expenses
paid on behalf of the principal stockholder. The total billed to and reimbursed by the stockholder for the quarters ended June 30, 2024
and 2023 was $
| 2024 | 2023 | |||||||
| Net income | $ | $ | ||||||
| Shares outstanding: | ||||||||
| Weighted average common shares outstanding – basic | ||||||||
| Effect of the assumed exercise of dilutive stock options | ||||||||
| Weighted average common shares outstanding – dilutive | ||||||||
| Income per common share: | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
For
the three months ended June 30, 2024, shares relating to stock options were excluded from the computation of diluted net income
because their inclusion would be anti-dilutive. Anti-dilutive stock options have a weighted average exercise price of $
Page 11 |
10. Stockholders’ Equity
In
April 2024, the Board of Directors authorized the use of up to $
On
August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (“IRA 2022”). The IRA 2022, among other
tax provisions, establishes a
During
the three months ended June 30, 2024, the Company repurchased shares for the treasury account at an aggregate cost of $
On
April 30, 2024, the Board of Directors declared a regular annual dividend of $ per common share. The Company paid the dividend of
$
Dividends declared by the Board and stock repurchased during the period are presented in the Company’s consolidated statements of changes in stockholders’ equity as dividends paid and purchases of treasury stock, respectively. Dividends paid and stock repurchased during the period are presented as cash used in financing activities in the Company’s consolidated statements of cash flows. Stock repurchases are included as treasury stock in the consolidated balance sheets.
11. Subsequent Events
The Company completed a review and analysis of all events that occurred after the consolidated balance sheet date to determine if any such events must be reported and has determined that there are no other subsequent events to be disclosed.
Page 12 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless the context otherwise requires, references to the “Company”, “Mexco”, “we”, “us” or “our” mean Mexco Energy Corporation and its consolidated subsidiaries.
Cautionary Statements Regarding Forward-Looking Statements. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements regarding our plans, beliefs or current expectations and may be signified by the words “could”, “should”, “expect”, “project”, “estimate”, “believe”, “anticipate”, “intend”, “budget”, “plan”, “forecast”, “predict” and other similar expressions. Forward-looking statements appear throughout this Form 10-Q with respect to, among other things: profitability; planned capital expenditures; estimates of oil and gas production; future project dates; estimates of future oil and gas prices; estimates of oil and gas reserves; our future financial condition or results of operations; and our business strategy and other plans and objectives for future operations. Forward-looking statements involve known and unknown risks and uncertainties that could cause actual results to differ materially from those contained in any forward-looking statement.
While we have made assumptions that we believe are reasonable, the assumptions that support our forward-looking statements are based upon information that is currently available and is subject to change. All forward-looking statements in the Form 10-Q are qualified in their entirety by the cautionary statement contained in this section. We do not undertake to update, revise or correct any of the forward-looking information. It is suggested that these financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Form 10-K.
Liquidity and Capital Resources. Historically, we have funded our operations, acquisitions, exploration and development expenditures from cash generated by operating activities, bank borrowings, sales of non-core properties and issuance of common stock. Our primary financial resource is our base of oil and gas reserves. We have pledged our producing oil and gas properties to secure our credit facility. We do not have any delivery commitments to provide a fixed and determinable quantity of our oil and gas under any existing contract or agreement.
Our long-term strategy is on increasing profit margins while concentrating on obtaining reserves with low-cost operations by acquiring and developing oil and gas properties with potential for long-lived production. We focus our efforts on the acquisition of royalty and working interests and non-operated properties in areas with significant development potential.
At June 30, 2024, we had working capital of $3,038,700 compared to working capital of $3,259,200 at March 31, 2024, a decrease of $220,500 for the reasons set forth below.
Cash Flows
Changes in the net funds provided by or (used in) each of our operating, investing and financing activities are set forth in the table below:
| For the Three Months Ended June 30, | ||||||||||||
| 2024 | 2023 | Change | ||||||||||
| Net cash provided by operating activities | $ | 1,078,614 | $ | 1,616,195 | $ | (537,581 | ) | |||||
| Net cash used in investing activities | $ | (717,387 | ) | $ | (264,091 | ) | $ | 453,296 | ||||
| Net cash used in financing activities | $ | (319,996 | ) | $ | (211,388 | ) | $ | 108,608 | ||||
Cash Flow Provided by Operating Activities. Cash flow from operating activities is primarily derived from the production of our crude oil and natural gas reserves and changes in the balances of non-cash accounts, receivables, payables or other non-energy property asset account balances. Cash flow provided by our operating activities for the three months ended June 30, 2024 was $1,078,614 in comparison to $1,616,195 for the three months ended June 30, 2023. This decrease of $537,581 in our cash flow from operating activities consisted of an increase in our non-cash expenses of $51,324; a decrease in our accounts receivable of $424,805; an increase of $41,668 in our accounts payable and accrued expenses; a decrease of $14,068 in deferred income tax expense; and, a decrease in our net income for the current quarter of $174,575. Variations in cash flow from operating activities may impact our level of exploration and development expenditures.
Our expenditures in operating activities consist primarily of drilling expenses, production expenses and engineering services. Our expenses also consist of employee compensation, accounting, insurance and other general and administrative expenses that we have incurred in order to address normal and necessary business activities of a public company in the crude oil and natural gas production industry.
Cash Flow Used in Investing Activities. Cash flow from investing activities is derived from changes in oil and gas property balances. For the three months ended June 30, 2024, we had net cash of $517,387 used for additions to oil and gas properties and a $200,000 investment in a limited liability company compared to $264,091 for the three months ended June 30, 2023.
Cash Flow Provided by Financing Activities. Cash flow from financing activities is derived from our changes in long-term debt and in equity account balances. Net cash flow used in our financing activities was $319,996 for the three months ended June 30, 2024 compared to cash flow provided by our financing activities of $211,388 for the three months ended June 30, 2023. During the three months ended June 30, 2024, we expended $209,000 to pay the regular annual dividend, expended $188,637 to purchase 13,766 shares of our stock for the treasury account, and received proceeds of $77,641 from the exercise of employee stock options. During the three months ended June 30, 2023, we expended $213,600 to pay the special dividend.
Accordingly, net cash increased $41,231, leaving cash and cash equivalents on hand of $2,514,715 as of June 30, 2024.
Oil and Natural Gas Property Development
New Participations in Fiscal 2025. The Company currently plans to participate in the drilling and completion of 30 horizontal wells at an estimated cost of approximately $1,900,000 for the fiscal year ending March 31, 2025. Twenty-six of these wells are in the Delaware Basin located in the western portion of the Permian Basin in Lea and Eddy Counties, New Mexico. The remaining 4 wells are in Reagan County, Texas.
In April 2024, Mexco expended approximately $80,000 to participate in the drilling of five horizontal wells in the Bone Spring formation of the Delaware Basin in Lea County, New Mexico.
Page 13 |
In April 2024, Mexco expended approximately $127,800 to drill four horizontal wells in the Wolfcamp Sand formation of the Delaware Basin in Lea County, New Mexico.
In October 2022, the Company made an approximately 2% equity investment commitment in a limited liability company amounting to $2,000,000 of which $1,000,000 has been funded as of June 30, 2024. The limited liability company is capitalized at approximately $100 million to purchase mineral interests in the Utica and Marcellus areas in the state of Ohio. Subsequently, in July 2024, the Company funded another $200,000 toward this investment. To date, this LLC has returned $98,637 or 8% of the total investment.
Completion of Wells Drilled in Fiscal 2024. The Company also expects to expend approximately $300,000 in the completion of 19 horizontal wells in which the Company participated during fiscal 2024.
The Company expended approximately $90,000 for the completion costs of two horizontial wells in the Bone Spring Sand formation of the Delaware Basin in Lea County, New Mexico that the Company participated in drilling during fiscal 2024. Mexco’s working interest in these wells is .53%. Subsequently, in July 2024, these wells were completed with initial average production rates of 1,402 barrels of oil, 2,009 barrels of water and 2,168,000 cubic feet of gas per day, or 1,763 BOE per day.
Five horizontal wells in the Bone Spring Sand formation of the Delaware Basin in Lea County, New Mexico in which the Company participated during fiscal 2024 were completed in April 2024 with initial average production rates of 732 barrels of oil, 1,481 barrels of water and 657,000 cubic feet of gas per day, or 842 of oil equivalent per day. Mexco’s working interest in these wells is approximately 1.16%.
A horizontal well in the Penn Shale formation of the Delaware Basin in Lea County, New Mexico was completed in May 2024 with the initial production rate of 964 barrels of oil, 2,441 barrels of water and 626,000 cubic feet of gas per day, or 1,068 of oil equivalent per day. Mexco’s working interest in this well is .165%.
Subsequently, in July 2024, the Company expended approximately $21,000 for the completion costs of four horizontial wells in the Bone Spring Sand formation of the Delaware Basin in Lea County, New Mexico that the Company participated in drilling during fiscal 2024. Mexco’s working interest in these wells is .45%.
In May 2024, Mexco expended approximately $27,000 for additional drilling costs in an exploratory well in the Fusselman Formation of Irion County, Texas. This well was later determined to be noncommercial and will be plugged and abandoned.
Acquisitions. In April 2024, the Company acquired small royalty (mineral) interests in 21 wells operated by Anadarko Petroleum Corporation and Cimarex Energy Company and located in Reeves County, Texas for a purchase price of $158,000.
We are participating in other projects and are reviewing projects in which we may participate. The cost of such projects would be funded, to the extent possible, from existing cash balances and cash flow from operations. The remainder may be funded through borrowings on the credit facility and, if appropriate, sales of non-core properties.
Crude oil and natural gas prices generally remained volatile during the last year. The volatility of the energy markets makes it extremely difficult to predict future oil and natural gas price movements with any certainty. For example, in the last twelve months, the NYMEX West Texas Intermediate (“WTI”) posted price for crude oil has ranged from a low of $64.59 per bbl in December 2023 to a high of $89.66 per bbl in September 2023. The Henry Hub Spot Market Price (“Henry Hub”) for natural gas has ranged from a low of $1.25 per MMBtu in March 2024 to a high of $3.34 per MMBtu in October 2023.
On June 30, 2024, the WTI posted price for crude oil was $77.52 and the Henry Hub spot price for natural gas was $2.42 per MMBtu. See Results of Operations below for realized prices.
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Contractual Obligations. We have no off-balance sheet debt or unrecorded obligations and have not guaranteed the debt of any other party. The following table summarizes our future payments we are obligated to make based on agreements in place as of June 30, 2024:
| Payments due in: | ||||||||||||||||
| Total | less than 1 year | 1 - 3 years | over 3 years | |||||||||||||
| Contractual obligations: | ||||||||||||||||
| Leases (1) | $ | 185,813 | $ | 60,146 | $ | 125,667 | $ | - | ||||||||
| (1) | The lease amount represents the monthly rent amount for our principal office space in Midland, Texas under a 38 month lease agreement effective May 15, 2018, extended another 36 months to July 31, 2024 and extended another 36 to July 31, 2027. Of this total obligation for the remainder of the lease, our majority shareholder will pay $10,625 less than 1 year and $21,198 1-3 years for his portion of the shared office space. |
Results of Operations – Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023. For the quarter ended June 30, 2024, net income was $291,039 compared to net income of $465,614 for the quarter ended June 30, 2023. This was primarily the result of a decrease in operating revenues and an increase in operating expenses, which is further explained below.
Oil and gas sales. Revenue from oil and gas sales was $1,688,056 for the quarter ended June 30, 2024, a 2% decrease from $1,715,090 for the quarter ended June 30, 2023. This primarily resulted from a decrease in oil and gas production and a decrease in gas prices partially offset by an increase in oil prices. The decrease in the natural gas price was, in part, due to temporary pipeline constraints on certain properties and at certain times, prices were negative. The following table sets forth our oil and natural gas revenues, production quantities and average prices received during the three months ended June 30:
| 2024 | 2023 | % Difference | ||||||||||
| Oil: | ||||||||||||
| Revenue | $ | 1,510,304 | $ | 1,429,678 | 5.6 | % | ||||||
| Volume (bbls) | 18,909 | 19,528 | (3.2 | )% | ||||||||
| Average Price (per bbl) | $ | 79.87 | $ | 73.21 | 9.1 | % | ||||||
| Gas: | ||||||||||||
| Revenue | $ | 177,752 | $ | 285,412 | (37.7 | )% | ||||||
| Volume (mcf) | 136,307 | 141,578 | (3.7 | )% | ||||||||
| Average Price (per mcf) | $ | 1.30 | $ | 2.02 | (35.6 | )% | ||||||
Production and exploration. Production costs were $437,420 for the three months ended June 30, 2024, a 25% increase from $349,407 for the three months ended June 30, 2023. This increase is primarily the result of an increase in gathering, processing and transportation expenses as well as lease operating expenses on new wells in which we own a working interest.
Depreciation, depletion and amortization. Depreciation, depletion and amortization (“DD&A”) expense was $539,697 for the first quarter of fiscal 2025, an 11% increase from $486,186 for the first quarter of fiscal 2024, primarily due to a decrease in gas reserves and an increase in the full cost pool amortization base partially offset by a decrease in oil and gas production volumes and an increase in oil.
General and administrative expenses. General and administrative expenses were $367,045 for the three months ended June 30, 2024, an 8% increase from $340,969 for the three months ended June 30, 2023. This was primarily due to an increase in engineering and contract services.
Interest expense. Interest expense, which consisted of debt issuance costs, was $1,083 for the first quarter of fiscal 2025, an increase of 0.2% from $1,081 for the first quarter of fiscal 2024.
Income taxes. Federal income tax for the three months ended June 30, 2024 was $86,520. Federal income tax for the three months ended June 30, 2023 was $88,683. State income tax was $20,066 for the three months ended June 30, 2024, a 39% decrease from $32,818 for the three months ended June 30, 2023 due to the decrease in oil and natural gas sales in the State of New Mexico. The effective tax rate for state and federal taxes combined for the three months ended June 30, 2024 and 2023 was 27% and 21%, respectively.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The primary source of market risk for us includes fluctuations in commodity prices and interest rates. All of our financial instruments are for purposes other than trading.
Credit Risk. Credit risk is the risk of loss as a result of nonperformance by other parties of their contractual obligations. Our primary credit risk is related to oil and gas production sold to various purchasers and the receivables are generally not collateralized. At June 30, 2024, our largest credit risk associated with any single purchaser was $551,457 or 58% of our total oil and gas receivables. We have not experienced any significant credit losses.
Energy Price Risk. Our most significant market risk is the pricing applicable to our crude oil and natural gas production. Our financial condition, results of operations, and capital resources are highly dependent upon the prevailing market prices of, and demand for, oil and natural gas. Prices for oil and natural gas production has been volatile and unpredictable for several years, and we expect this volatility to continue in the future.
Currently, prices for natural gas have been adversely effected by temporary pipeline capacity constraints primarily in the Permian Basin.
Factors that can cause price fluctuations include the level of global demand for petroleum products, foreign and domestic supply of oil and gas, the establishment of and compliance with production quotas by oil-exporting countries, weather conditions, the price and availability of alternative fuels and overall political and economic conditions in oil producing and consuming countries.
For example, in the last twelve months, the NYMEX West Texas Intermediate (“WTI”) posted price for crude oil has ranged from a low of $64.59 per bbl in December 2023 to a high of $89.66 per bbl in September 2023. The Henry Hub Spot Market Price (“Henry Hub”) posted price for natural gas has ranged from a low of $1.25 per MMBtu in March 2024 to a high of $3.34 per MMBtu in October 2023. On June 30, 2024, the WTI posted price for crude oil was $77.52 and the Henry Hub posted price for natural gas was $2.42. See Results of Operations above for the Company’s realized prices during the quarter.
Declines in oil and natural gas prices will materially adversely affect our financial condition, liquidity, ability to obtain financing and operating results. Changes in oil and gas prices impact both estimated future net revenue and the estimated quantity of proved reserves. Any reduction in reserves, including reductions due to price fluctuations, can reduce the borrowing base under our credit facility and adversely affect the amount of cash flow available for capital expenditures and our ability to obtain additional capital for our acquisition, exploration and development activities. In addition, a noncash write-down of our oil and gas properties could be required under full cost accounting rules if prices declined significantly, even if it is only for a short period of time. Lower prices may also reduce the amount of crude oil and natural gas that can be produced economically. Thus, we may experience material increases or decreases in reserve quantities solely as a result of price changes and not as a result of drilling or well performance.
Similarly, any improvements in oil and gas prices can have a favorable impact on our financial condition, results of operations and capital resources. Oil and natural gas prices do not necessarily fluctuate in direct relationship to each other. If the average oil price had increased or decreased by ten dollars per barrel for the quarter ended June 30, 2024, our oil sales would have changed by $189,090. If the average gas price had increased or decreased by one dollar per mcf for the quarter ended June 30, 2024, our natural gas sales would have increased or decreased by $136,307.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures to ensure that the information we must disclose in our filings with the SEC is recorded, processed, summarized and reported on a timely basis. At the end of the period covered by this report, our principal executive officer and principal financial officer reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e). Based on such evaluation, such officers concluded that, as of June 30, 2024, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting. No changes in our internal control over financial reporting occurred during the quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We may, from time to time, be a party to various proceedings and claims incidental to our business. While many of these matters involve inherent uncertainty, we believe that the amount of the liability, if any, ultimately incurred with respect to these proceedings and claims will not have a material adverse effect on our consolidated financial position as a whole or on our liquidity, capital resources or future results of operations.
Item 1A. Risk Factors
There have been no material changes to the information previously disclosed in Item 1A. “Risk Factors” in our 2024 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
c. Issuer Purchases of Equity Securities
The following table provides information related to repurchases of our common stock for the treasury account during the three months ended June 30, 2024:
| Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Approximate Dollar Value of Shares that May Yet be Purchased Under the Program | |||||||||||||
| April 1-30, 2024 | 13,766 | $ | 13.70 | 13,766 | $ | 811,363 | ||||||||||
| May 1-31, 2024 | - | - | - | $ | 811,363 | |||||||||||
| June 1-30, 2024 | - | - | - | $ | 811,363 | |||||||||||
Item 6. Exhibits
| 31.1 | Certification of the Chief Executive Officer of Mexco Energy Corporation | ||
| 31.2 | Certification of the Chief Financial Officer of Mexco Energy Corporation | ||
| 32.1 | Certification of the Chief Executive Officer and Chief Financial Officer of Mexco Energy Corporation pursuant to 18 U.S.C. §1350 | ||
| 101.INS | XBRL Instance Document | ||
| 101.SCH | XBRL Taxonomy Extension Schema Document | ||
| 101.CAL | XBRL Taxonomy Extenstion Calculation Linkbase Document | ||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | ||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | ||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | ||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) |
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MEXCO ENERGY CORPORATION | |
| (Registrant) | |
| Dated: August 8, 2024 | /s/ Nicholas C. Taylor |
| Nicholas C. Taylor | |
| Chairman of the Board and Chief Executive Officer | |
| Dated: August 8, 2024 | /s/ Tamala L. McComic |
| Tamala L. McComic | |
| President, Chief Financial Officer, Treasurer and Assistant Secretary |
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