Mexco Energy (US:MXC)2022-06-27 20:59Part I Business Overview Mexco Energy Corporation is an independent oil and gas company focused on non-operated interests in the Permian Basin, with 1.616 MMBOE proved reserves - The company is an independent oil and gas entity primarily engaged in acquiring and developing non-operated working and royalty interests in the Permian Basin141718 Proved Reserves and PV-10 Value (as of March 31, 2022) | Metric | Value | | :--- | :--- | | Total Estimated Proved Reserves | 1.616 million BOE | | Oil and NGLs Percentage | 50% | | Natural Gas Percentage | 50% | | Estimated PV-10 Value | ~$31 million | - The Permian Basin is the company's core operational area, contributing 84% of discounted future net cash flows from proved reserves, with the Delaware Basin accounting for 61%2628 Historical Production Volumes | Year | Oil (Bbls) | Gas (Mcf) | | :--- | :--- | :--- | | 2022 | 61,689 | 393,841 | | 2021 | 50,327 | 324,205 | | 2020 | 44,301 | 294,007 | | 2019 | 35,359 | 295,133 | | 2018 | 34,743 | 318,774 | - A single customer accounted for 68% of oil and gas revenues in fiscal 2022, indicating significant customer concentration38 - The company maintains a lean operational structure with only two full-time and three part-time employees as of March 31, 202254 Risk Factors The company faces risks from volatile commodity prices, reserve replacement, PUD development, and reliance on third-party operators - Volatility of oil and gas prices is a primary risk, impacting revenues, capital expenditure cash flow, borrowing capacity, and potentially leading to ceiling test writedowns6061 - Approximately 37% of total estimated net proved reserves were undeveloped as of March 31, 2022, requiring significant capital and successful drilling for recovery70 - Limited control over non-operated properties, including operational procedures, expenditures, and development timelines, poses a risk to revenues and production80 - The Chairman and CEO, Nicholas C. Taylor, beneficially owns approximately 44% of common stock, granting significant influence over shareholder matters and business strategy88 - The company has never paid cash dividends and does not anticipate doing so, as earnings are retained for business growth91 Properties and Reserves Total proved reserves increased 7.5% to 1.616 MMBOE by March 31, 2022, with PV-10 value doubling to $30.8 million - Average commodity prices used in fiscal 2022 reserve calculations increased dramatically year-over-year, with oil rising to $74.52/bbl and natural gas to $4.60/mcf98 Proved Reserves and PV-10 Value Comparison (as of March 31) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total Net Proved Reserves (BOE) | 1,616,180 | 1,503,970 | | PV-10 Value ($) | $30,777,000 | $13,758,300 | | Standardized Measure ($) | $25,920,000 | $12,763,000 | - In fiscal 2022, the company added 307 MBOE through extensions and discoveries and 21 MBOE through acquisitions, offset by production and downward revisions of 86 MBOE109 Net Production and Average Sales Price (Fiscal Year Ended March 31) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Oil | | | | Production (Bbls) | 61,689 | 50,327 | | Average Sales Price/Bbl ($) | $75.95 | $40.31 | | Gas | | | | Production (Mcf) | 393,841 | 324,205 | | Average Sales Price/Mcf ($) | $4.67 | $2.30 | | Total | | | | Total Production (BOE) | 127,329 | 104,361 | Legal and Safety Disclosures The company is not involved in any material legal or governmental proceedings, and mine safety disclosures are not applicable to its operations - The company is not aware of any material legal or governmental proceedings against it119 - Mine safety disclosures are not applicable to the company's operations121 Part II Common Stock Market and Shareholder Matters Mexco's common stock trades on NYSE American under 'MXC' with significant volatility; no cash dividends are anticipated, and a $250,000 repurchase program is authorized Quarterly Stock Price Range (Fiscal 2022) | Quarter (2021-2022) | High ($) | Low ($) | | :--- | :--- | :--- | | Apr - Jun 2021 | 10.60 | 6.88 | | Jul - Sep 2021 | 11.80 | 7.80 | | Oct - Dec 2021 | 18.00 | 8.35 | | Jan - Mar 2022 | 43.00 | 9.00 | - The company has never declared or paid cash dividends and does not anticipate doing so, with its current bank loan also prohibiting such payments without permission126 - A $250,000 share repurchase program is authorized, but no shares were repurchased in fiscal years 2022 or 2021129130 Management's Discussion and Analysis (MD&A) Fiscal 2022 net income surged to $2.86 million on 135% revenue growth, driven by higher commodity prices and production, enabling debt repayment Liquidity and Capital Resources Liquidity significantly improved in fiscal 2022, with operating cash flow reaching $3.7 million, enabling $1.6 million in property additions and full debt repayment Cash Flow Summary (Years Ended March 31) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities ($) | $3,744,407 | $710,047 | | Net Cash Used in Investing Activities ($) | ($1,710,024) | ($1,387,624) | | Net Cash (Used in) Provided by Financing Activities ($) | ($721,430) | $701,009 | - During fiscal 2022, the company participated in drilling 40 horizontal wells at a cost of approximately $1.3 million, primarily in the Delaware Basin141 - The company acquired overriding royalty interests in 53 producing wells in the Eagle Ford area for $567,000159 - Subsequent to fiscal year-end, the company acquired additional royalty interests for $939,000 and committed to further drilling projects in the Permian Basin154155160 Results of Operations Net income for fiscal 2022 surged 1731% to $2.86 million, driven by 135% revenue growth to $6.5 million from higher commodity prices and production - Net income for fiscal 2022 was $2,855,066, an increase of 1731% compared to $155,932 in fiscal 2021164 Revenue and Price Analysis (FY 2022 vs FY 2021) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Oil Revenue | $4,685,094 | $2,028,792 | +130.9% | | Average Oil Price/bbl ($) | $75.95 | $40.31 | +88.4% | | Gas Revenue | $1,840,170 | $744,987 | +147.0% | | Average Gas Price/mcf ($) | $4.67 | $2.30 | +103.0% | - Operating expenses increased at a slower pace than revenues, with production costs up 47%, DD&A up 48%, and G&A expenses up 26% year-over-year166167168 Critical Accounting Policies Critical accounting policies include the full cost method for oil and gas properties and the quarterly ceiling test, where proved reserve estimates are key judgments - The company uses the full cost method of accounting, capitalizing all costs associated with property acquisition, exploration, and development174 - A quarterly ceiling test ensures capitalized costs do not exceed the after-tax present value of future net cash flows from proved reserves; no write-downs were recorded in fiscal 2022 or 202167177 - Estimates of proved reserves, prepared by an independent engineering firm, are critical and inherently uncertain, serving as a key input for DD&A calculation and the ceiling test179 Market Risk Disclosures Primary market risk is commodity price volatility; a $10/bbl oil price change impacts pretax income by $617,000, and a $1/mcf gas price change by $394,000 - The primary market risk stems from fluctuating commodity prices; a hypothetical $10/bbl change in oil price would have altered fiscal 2022 pretax income by $616,890194200 - A hypothetical $1/mcf change in the average natural gas price for fiscal 2022 would have altered pretax income by $393,841200 - Credit risk is concentrated, with one purchaser accounting for 60% of total oil and gas receivables at March 31, 2022, though significant credit losses have not been experienced195 Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of March 31, 2022, with no material changes reported - Management, including the CEO and CFO, assessed and concluded the company's internal control over financial reporting was effective as of March 31, 2022, based on the COSO 2013 framework203205 - The company's disclosure controls and procedures were also evaluated and found to be effective as of March 31, 2022206 Part III Directors, Compensation, and Related Party Transactions Information on directors, executive compensation, security ownership, and related party transactions is incorporated by reference from the separately filed 2022 Proxy Statement - Detailed information for Items 10 through 14 is incorporated by reference from the definitive Proxy Statement to be filed within 120 days of the fiscal year-end209211212213214 Financial Statements and Notes Consolidated Financial Statements Audited consolidated financial statements for fiscal 2022 show significant improvement, with total assets at $13.3 million, liabilities reduced to $1.1 million, and net income surging to $2.86 million Consolidated Balance Sheet Highlights (as of March 31) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Total Current Assets ($) | $2,733,539 | $757,494 | | Property and Equipment, Net ($) | $10,132,902 | $9,768,943 | | Total Assets ($) | $13,284,520 | $10,830,687 | | Total Current Liabilities ($) | $263,763 | $138,534 | | Long-Term Debt ($) | $0 | $1,154,949 | | Total Liabilities ($) | $1,059,904 | $2,007,280 | | Total Stockholders' Equity ($) | $12,224,616 | $8,823,407 | Consolidated Statement of Operations Highlights (Years Ended March 31) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Total Operating Revenues ($) | $6,587,780 | $2,799,004 | | Operating Income ($) | $2,881,238 | $158,701 | | Net Income ($) | $2,855,066 | $155,932 | | Diluted EPS ($) | $1.32 | $0.08 | Note 5: Long-Term Debt In fiscal 2022, the company fully repaid its $1.18 million outstanding debt, resulting in a zero balance by March 31, 2022, with a $1.5 million credit facility available Credit Facility Activity (Years Ended March 31) | Activity | Principal Amount ($) | | :--- | :--- | | Balance at March 31, 2021 | $1,180,000 | | Borrowings (FY 2022) | $275,000 | | Repayments (FY 2022) | $1,455,000 | | Balance at March 31, 2022 | $0 | - The credit facility has a borrowing base of $1,500,000, which was fully available as of March 31, 2022326327 Note 16: Oil and Gas Reserve Data (Unaudited) Unaudited proved oil and gas reserves increased to 1.616 MMBOE, with PUDs at 37%; the standardized measure rose to $25.9 million due to higher prices Changes in Proved Reserves (BOE) | Description | Oil (Bbls) | Gas (Mcf) | | :--- | :--- | :--- | | As of March 31, 2021 | 738,000 | 4,595,000 | | Revisions/Purchases/Discoveries (Net) | 133,000 | 641,000 | | Production | (62,000) | (394,000) | | As of March 31, 2022 | 809,000 | 4,842,000 | - At March 31, 2022, Proved Undeveloped Reserves (PUDs) were estimated at 590 MBOE, representing 37% of total proved reserves370 Standardized Measure of Discounted Future Net Cash Flows | Metric | March 31, 2022 | March 31, 2021 | | :--- | :--- | :--- | | Standardized Measure ($) | $25,920,000 | $12,763,000 | - The increase in the standardized measure was primarily driven by a $16.8 million positive change from higher prices and adjusted production costs381