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
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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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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐
The number of shares outstanding of the registrant’s common stock, par value $.50 per share, as of November 8, 2023 was .
MEXCO ENERGY CORPORATION AND SUBSIDIARIES
Table of Contents
| Page 2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Mexco Energy Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
| September 30, 2023 | March 31, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable: | ||||||||
| Oil and natural gas sales | ||||||||
| Trade | ||||||||
| Prepaid costs and expenses | ||||||||
| Prepaid drilling | ||||||||
| 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 | $ | $ | ||||||
| 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 September 30, 2023 and March 31, 2023, 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
(Unaudited)
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| 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 (expenses): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net other income (expense) | ( | ) | ( | ) | ||||||||||||
| 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 (Losses) | Treasury Stock | Total Stockholders’ | ||||||||||||||||
| Balance at April 1, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Net income | ||||||||||||||||||||
| Dividends paid | ( | ) | ( | ) | ||||||||||||||||
| Issuance of stock through options exercised | ||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Net income | ||||||||||||||||||||
| Purchase of stock | ( | ) | ( | ) | ||||||||||||||||
| Stock based compensation | ||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Common Stock Par Value | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Total Stockholders’ | ||||||||||||||||
| Balance at April 1, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Net income | ||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Net income | ||||||||||||||||||||
| Profit from purchase of stock by insider | ||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| SHARE ACTIVITY | ||||||||||||||||||||
| Common stock shares, issued: | ||||||||||||||||||||
| Balance at April 1, 2023 | ||||||||||||||||||||
| Issued | ||||||||||||||||||||
| Balance at September 30, 2023 | ||||||||||||||||||||
| Common stock shares, held in treasury: | ||||||||||||||||||||
| Balance at April 1, 2023 | ( | ) | ||||||||||||||||||
| Acquisitions | ( | ) | ||||||||||||||||||
| Balance at September 30, 2023 | ( | ) | ||||||||||||||||||
| Common stock shares, outstanding at September 30, 2023 | ||||||||||||||||||||
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 Six Months Ended September 30,
(Unaudited)
| 2023 | 2022 | |||||||
| 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 right-of-use asset | ||||||||
| Decrease in prepaid expenses | ||||||||
| Decrease in accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Settlement of asset retirement obligations | ( | ) | ( | ) | ||||
| Decrease in operating lease liability | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Additions to oil and gas properties | ( | ) | ( | ) | ||||
| Drilling refund | ||||||||
| Investments in limited liability companies at cost | ( | ) | ( | ) | ||||
| Proceeds from sale of oil and gas properties and equipment | ||||||||
| Additions to other property and equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Profits from purchase of stock by insider | ||||||||
| Acquisition of treasury stock | ( | ) | ||||||
| Dividends paid | ( | ) | ||||||
| Debt issuance costs | ( | ) | ||||||
| Proceeds from long-term debt | ||||||||
| Reduction of long-term debt | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| 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 the West Texas and Southeastern New Mexico; however, the Company owns producing properties and undeveloped acreage in fourteen states. All of the 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 September 30, 2023, and the results of its operations and cash flows for the interim periods ended September 30, 2023 and 2022. The consolidated financial statements as of September 30, 2023 and for the three and six month periods ended September 30, 2023 and 2022 are unaudited. The consolidated balance sheet as of March 31, 2023 was derived from the audited balance sheet filed in the Company’s 2023 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.
Reclassifications. Certain amounts in prior periods’ consolidated financial statements have been reclassified to conform with the current period’s presentation. These reclassifications had no effect on previously reported results of operations, retained earnings or net cash flows.
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 six months of fiscal 2024:
| Carrying amount of asset retirement obligations as of April 1, 2023 | $ | |||
| Liabilities incurred | ||||
| Liabilities settled | ( | ) | ||
| Accretion expense | ||||
| Carrying amount of asset retirement obligations as of September 30, 2023 | ||||
| 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 written permission of WTNB. The Company obtained written permission from WTNB prior to declaring the special dividend on April 10, 2023 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 stock-based compensation expense of $ and $ in general and administrative expense in the Consolidated Statements of Operations for the three months ended September 30, 2023 and 2022, respectively. Stock-based compensation expense recognized for the six months ended September 30, 2023 and 2022 was $ and $, respectively. The total cost related to non-vested awards not yet recognized at September 30, 2023 totals $ which is expected to be recognized over a weighted average of years.
During
the six months ended September 30, 2023, the Compensation Committee of the Board of Directors approved and the Company granted
stock options exercisable at $
| Page 8 |
| Six Months Ended September 30 | ||||||||
| 2023 | 2022 | |||||||
| Grant-date fair value | $ | $ | ||||||
| Volatility factor | % | % | ||||||
| Dividend yield | ||||||||
| Risk-free interest rate | % | % | ||||||
| Expected term (in years) | ||||||||
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contract Life in Years | Intrinsic Value | |||||||||||||
| Outstanding at April 1, 2023 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Forfeited or Expired | ||||||||||||||||
| Outstanding at September 30, 2023 | $ | $ | ||||||||||||||
| Vested at September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2023 | $ | $ | ||||||||||||||
During
the six months ended September 30, 2023, stock options covering shares were exercised with a total intrinsic value of $. The
Company received proceeds of $
There were stock options forfeited or expired during the six months ended September 30, 2023 and 2022. No forfeiture rate is assumed for stock options granted to directors or employees due to the forfeiture rate history of these types of awards.
Outstanding options at September 30, 2023 expire between and and have exercise prices ranging from $ to $.
6. Leases
The
Company leases approximately
| Page 9 |
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 was
The balance sheets classification of lease assets and liabilities was as follows:
| September 30, 2023 | ||||
| Assets | ||||
| Operating lease right-of-use asset, beginning balance | $ | |||
| Current period amortization | ( | ) | ||
| 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 September 30, 2023 under non-cancellable operating leases are as follows:
| Lease Obligation | ||||
| Fiscal Year Ended March 31, 2024 | $ | |||
| Fiscal Year Ended March 31, 2025 | ||||
| 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 six months ended September 30, 2023 and 2022 was $
7. Income Taxes
On
August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (“IRA 2022”).
The income tax provision consists of the following for the six months ended September 30, 2023 and 2022:
| Six Months Ended September 30 | ||||||||
| 2023 | 2022 | |||||||
| 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: | $ | $ | ||||||
| Page 10 |
Federal
income tax for the six months ended September 30, 2023 was $
A reconciliation of the provision for income taxes to income taxes computed using the federal statutory rate for the six months ended September 30 follows:
| 2023 | 2022 | |||||||
| Tax expense at federal statutory rate (1) | $ | $ | ||||||
| Statutory depletion carryforward | ( | ) | ( | ) | ||||
| Change in valuation allowance | ( | ) | ( | ) | ||||
| U. S. tax reform, corporate rate reduction | ||||||||
| Permanent differences | ||||||||
| State income expense | ||||||||
| Other | ||||||||
| Total income tax | $ | $ | ||||||
| Effective income tax rate | % | % | ||||||
| (1) |
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 September 30,
2023 and 2022 was $
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Shares outstanding: | ||||||||||||||||
| Weighted avg. shares outstanding – basic | ||||||||||||||||
| Effect of assumed exercise of dilutive stock options | ||||||||||||||||
| Weighted avg. shares outstanding – dilutive | ||||||||||||||||
| Income per common share: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
For
the three and six months ended September 30, 2023, 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
June 2023, 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 six months ended September 30, 2023 there were shares of common stock repurchased for the treasury account at an aggregate
cost of $
On
April 10, 2023, the Board of Directors declared a special dividend of $ per common share. The Company paid the special 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
In
October 2023, the Company signed a Letter of Intent regarding a
In
October 2023, the Company entered into an agreement, pending completion of title search, to purchase small producing and non-producing
mineral interests in
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 this 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 in non-operated properties in areas with significant development potential.
At September 30, 2023, we had working capital of $3,245,180 compared to working capital of $3,475,776 at March 31, 2023, a decrease of $230,596 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 Six Months Ended September 30, | ||||||||||||
| 2023 | 2022 | Change | ||||||||||
| Net cash provided by operating activities | $ | 2,430,364 | $ | 3,418,087 | $ | (987,723 | ) | |||||
| Net cash used in investing activities | $ | (1,544,299 | ) | $ | (4,253,453 | ) | $ | (2,709,154 | ) | |||
| Net cash (used in) provided by financing activities | $ | (536,644 | ) | $ | 30,179 | $ | 566,823 | |||||
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 six months ended September 30, 2023 was $2,430,364 in comparison to $3,418,087 for the six months ended September 30, 2022. This decrease of $987,723 in our cash flow operating activities consisted of an increase in our non-cash expenses of $295,985; a decrease in our accounts receivable of $447,403; a increase of $35,655 in our accounts payable and accrued expenses; and, a decrease in our net income for the current quarter of $1,775,341. 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 six months ended September 30, 2023, we had net cash of $1,544,299 used for additions to oil and gas properties compared to $4,253,453 for the six months ended September 30, 2022.
| Page 13 |
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. Cash flow used in our financing activities was $536,644 for the six months ended September 30, 2023 compared to cash flow provided by our financing activities of $30,179 for the six months ended September 30, 2022. During the six months ended September 30, 2023, we expended $213,600 to pay the special dividend and $325,256 to purchase 26,000 shares of our stock for the treasury account.
Accordingly, net cash increased $349,421, leaving cash and cash equivalents on hand of $2,585,192 as of September 30, 2023.
Oil and Natural Gas Property Development
New Participations in Fiscal 2024. The Company currently plans to participate in the drilling and completion of 40 horizontal wells at an estimated aggregate cost of approximately $1,700,000 for the fiscal year ending March 31, 2024. All of these horizontal wells are in the Delaware Basin located in the western portion of the Permian Basin in Lea and Eddy Counties, New Mexico.
In May 2023, Mexco expended approximately $133,000 to participate in the drilling of four horizontal wells in the Wolfcamp Sand formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is .52%. Subsequently, in October 2023, Mexco expended approximately $65,000 to complete two of these wells.
In May 2023, Mexco expended approximately $68,000 to participate in the drilling of two horizontal wells in the Penn Shale formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is .4%. Subsequently, in October 2023, Mexco expended approximately $83,000 to complete these wells.
During the first six months of fiscal 2024, Mexco expended approximately $105,000 to participate in the drilling and completion of two horizontal wells in the Penn Shale formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is approximately ..285%.
In July 2023, Mexco expended approximately $787,000 to participate in the drilling of five horizontal wells in the Bone Spring Sand formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is approximately 2.2%.
In July 2023, Mexco expended approximately $36,000 to participate in the drilling and completion of two horizontal wells in the Bone Spring Sand formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is approximately .1%.
In October 2022, the Company made an approximately 2% equity investment commitment in a limited liability company amounting to $2,000,000 of which $600,000 has been funded to date. 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.
In April 2019, the Company invested over a period of four years $300,000 for a less than 1% investment commitment in a limited liability company to purchase mineral interests in the Utica and Marcellus areas of Ohio. To date, this LLC has returned $255,657 or 85% of the total investment.
Completion of Wells Drilled in Fiscal 2023. The Company expended approximately $450,000 in the completion of 21 horizontal wells in which the Company participated in fiscal 2023.
The Company expended approximately $427,000 for the completion costs of eight horizontal wells in the Wolfcamp Sand formation of the Delaware Basin in Lea County, New Mexico that the Company participated in drilling during fiscal 2023. Mexco’s working interest in these wells is .52%. Subsequently, these wells began producing in October 2023 with initial average production rates of 825 barrels of oil, 3,540 barrels of water and 2,150,000 cubic feet of gas per day, or, 1,183 barrels of oil equivalent per day.
Three horizontal wells in the Bone Spring formation of the Delaware Basin in Eddy County, New Mexico in which the Company participated during fiscal 2023 were completed in May 2023 with initial average production rates of 437 barrels of oil, 983 barrels of water and 603,000 cubic feet of gas per day, or, 538 barrels of oil equivalent per day. Mexco’s working interest in these wells is .05%.
Subsequently, in October 2023, six of seven horizontal wells in the Bone Spring Sand formation of the Delaware Basin in Lea County, New Mexico in which the Company participated during fiscal 2023 were completed with initial average production rates of 1,991 barrels of oil, 2,134 barrels of water and 2,414,000 cubic feet of gas per day, or, 2,393 barrels of oil equivalent per day. Mexco’s working interest in these wells is .033%.
| Page 14 |
Acquisitions. In June 2023, the Company acquired small royalty (mineral) interests in 6 wells operated by Highpeak Energy and located in Howard County, Texas for a purchase price of $20,000 which is effective July 1, 2023.
Sales of Properties. During the first quarter of fiscal 2024, the Company received approximately $280,000 in cash from a sale of joint venture leasehold acreage and marginal producing working interest wells in Reagan County, Texas, marginal producing working interest wells in Pecos County, Texas and interest in surface acreage in Palo Pinto County, Texas.
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 $62.72 per bbl in March 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 $1.74 per MMBtu in June 2023 to a high of $7.20 per MMBtu in December 2022.
On September 30, 2023, the WTI posted price for crude oil was $86.77 and the Henry Hub spot price for natural gas was $2.68 per MMBtu. See Results of Operations below for realized prices.
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 September 30, 2023:
| Payments due in: | ||||||||||||||||
| Total | less than 1 year | 1 - 3 years | over 3 years | |||||||||||||
| Contractual obligations: | ||||||||||||||||
| Leases (1) | $ | 48,533 | $ | 48,533 | $ | - | $ | - | ||||||||
| (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 and extended another 36 months to July 31, 2024. Of this total obligation for the remainder of the lease, our majority shareholder will pay $12,977 less than 1 year for his portion of the shared office space. |
Results of Operations – Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022. There was net income of $269,433 for the quarter ended September 30, 2023 compared to net income of $1,211,716 for the quarter ended September 30, 2022. This was a result of a decrease in oil and gas prices and production that is further explained below.
Oil and gas sales. Revenue from oil and gas sales was $1,380,710 for the second quarter of fiscal 2024, a 39% decrease from $2,281,895 for the same period of fiscal 2023. This resulted from a decrease in oil and gas prices and a decrease in oil and gas production, partly due to wells shut in during completion of new wells.
| 2023 | 2022 | % Difference | ||||||||||
| Oil: | ||||||||||||
| Revenue | $ | 1,099,806 | $ | 1,397,875 | (21.3 | %) | ||||||
| Volume (bbls) | 13,661 | 14,520 | (5.9 | %) | ||||||||
| Average Price (per bbl) | $ | 80.51 | $ | 96.27 | (16.4 | %) | ||||||
| Gas: | ||||||||||||
| Revenue | $ | 280,904 | $ | 884,020 | (68.2 | %) | ||||||
| Volume (mcf) | 108,087 | 118,607 | (8.9 | %) | ||||||||
| Average Price (per mcf) | $ | 2.60 | $ | 7.45 | (65.1 | %) | ||||||
| Page 15 |
Production and exploration. Production costs were $392,674 for the second quarter of fiscal 2024, a .4% decrease from $394,445 for the same period of fiscal 2023. This is the result of a decrease in production taxes and marketing charges as a result of the decrease in oil and gas revenues offset by an increase in lease operating expense on non-operated wells in New Mexico.
Depreciation, depletion and amortization. Depreciation, depletion and amortization expense was $382,180 for the second quarter of fiscal 2024, a 1% decrease from $384,379 for the same period of fiscal 2023, primarily due to a decrease in oil and gas production partially offset by a decrease in reserves.
General and administrative expenses. General and administrative expenses were $305,543 for the second quarter of fiscal 2024, a 3% increase from $297,956 for the same period of fiscal 2023. This was primarily due to an increase in employee stock option compensation partially offset by a decrease in legal fees.
Income taxes. Federal income tax for the three months ended September 30, 2023 was $61,179. There was no federal income tax expense for the three months ended September 30, 2022 because the Company was in a net deferred tax asset position. State income tax was $13,346 for the three months ended September 30, 2023, a 47% decrease from $24,963 for the three months ended September 30, 2022 due to the decrease in oil and natural gas sales in the State of New Mexico. The effective tax rate for the three months ended September 30, 2023 and 2022 was 22% and 2%, respectively.
Results of Operations – Six Months Ended September 30, 2023 Compared to Six Months Ended September 30, 2022. For the six months ended September 30, 2023, there was net income of $735,047 compared to net income of $2,510,388 for the six months ended September 30, 2022. This was a result of a decrease in operating revenues and an increase in operating expenses that is further explained below.
Oil and gas sales. Revenue from oil and gas sales was $3,095,800 for the six months ended September 30, 2023, a 34% decrease from $4,698,008 for the same period of fiscal 2023. This resulted from a decrease in oil and gas prices partially offset by an increase in oil and gas production.
| 2023 | 2022 | % Difference | ||||||||||
| Oil: | ||||||||||||
| Revenue | $ | 2,529,484 | $ | 2,957,196 | (14.5 | )% | ||||||
| Volume (bbls) | 33,189 | 28,744 | 15.5 | % | ||||||||
| Average Price (per bbl) | $ | 76.21 | $ | 102.88 | (25.9 | )% | ||||||
| Gas: | ||||||||||||
| Revenue | $ | 566,316 | $ | 1,740,812 | (67.5 | )% | ||||||
| Volume (mcf) | 249,665 | 248,313 | .5 | % | ||||||||
| Average Price (per mcf) | $ | 2.27 | $ | 7.01 | (67.6 | )% | ||||||
Production and exploration. Production costs were $742,081 for the six months ended September 30, 2023, an 11% decrease from $829,473 for the six months ended September 30, 2022. This is the result of a decrease in production taxes and marketing charges as a result of the decrease in oil and gas revenues offset by an increase in lease operating expense on non-operated wells in New Mexico.
Depreciation, depletion and amortization. Depreciation, depletion and amortization expense was $868,366 for the six months ended September 30, 2023, a 13% increase from $771,507 for the six months ended September 30, 2022, primarily due to an increase in oil and gas production and a decrease in reserves.
General and administrative expenses. General and administrative expenses were $646,512 for the six months ended September 30, 2023, a 10% increase from $588,199 for the six months ended September 30, 2022. This was primarily due to an increase in employee stock option compensation and engineering services.
Income taxes. Federal income tax for the six months ended September 30, 2023 was $149,862. There was no federal income tax expense for the six months ended September 30, 2022 because the Company was in a net deferred tax asset position. State income tax was $46,164 for the six months ended September 30, 2023, a 13% decrease from $53,250 for the six months ended September 30, 2022 due to the decrease in oil and natural gas sales in the State of New Mexico. The effective tax rate for the six months ended September 30, 2023 and 2022 was 21% and 2%, respectively.
| Page 16 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The primary source of market risk for us includes fluctuations in commodity prices. 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 September 30, 2023, our largest credit risk associated with any single purchaser was $443,055 or 55% 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. Pricing for oil and natural gas production has been volatile and unpredictable for several years, and we expect this volatility to continue in the future.
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 $62.72 per bbl in March 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 $1.74 per MMBtu in June 2023 to a high of $7.20 per MMBtu in December 2022. On September 30, 2023, the WTI posted price for crude oil was $86.77 and the Henry Hub posted price for natural gas was $2.68. See Results of Operations above for the Company’s realized prices during the three and six months.
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. If the average oil price had increased or decreased by ten dollars per barrel for the first six months of fiscal 2024, our operating revenues would have increased or decreased by $331,890. If the average gas price had increased or decreased by one dollar per mcf for the first six months of fiscal 2024, our operating revenues would have increased or decreased by $249,665.
Information about market risks for the six months ended September 30, 2023, does not differ materially from that discussed under Item 7A of the registrant’s 2023 Annual Report on Form 10-K.
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 September 30, 2023, 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 six months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| Page 17 |
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business. We are not aware of any legal or governmental proceedings against us, or contemplated to be brought against us, under various environmental protection statutes or other regulations to which we are subject.
Item 1A. Risk Factors
There have been no material changes to the information previously disclosed in Item 1A. “Risk Factors” in our 2023 Annual Report on Form 10-K.
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 | Inline XBRL Instance Document |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL | Inline XBRL Taxonomy Extenstion Calculation Linkbase Document |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) |
| Page 18 |
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: November 8, 2023 | /s/ Nicholas C. Taylor |
| Nicholas C. Taylor | |
| Chairman of the Board and Chief Executive Officer | |
| Dated: November 8, 2023 | /s/ Tamala L. McComic |
| Tamala L. McComic | |
| President, Chief Financial Officer, Treasurer and Assistant Secretary |
| Page 19 |
Exhibit 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION
CERTIFICATION
I, Nicholas C. Taylor, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Mexco Energy Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 8, 2023 | /s/ Nicholas C. Taylor |
| Nicholas C. Taylor | |
| Chairman of the Board and Chief Executive Officer |
Exhibit 31.2
CHIEF
FINANCIAL OFFICER CERTIFICATION
CERTIFICATION
I, Tamala L. McComic, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Mexco Energy Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 8, 2023 | /s/ Tamala L. McComic |
| Tamala L. McComic | |
| President and Chief Financial Officer |
Exhibit 32.1
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
OF MEXCO ENERGY CORPORATION
PURSUANT TO 18 U.S.C. §1350
In connection with the Quarterly Report of Mexco Energy Corporation on Form 10-Q for the quarterly period ended September 30, 2023, as filed with the Securities and Exchange Commission on November 9, 2022 (the “Report”), the undersigned, in the capacities and on the dates indicated below, each hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of their knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Mexco Energy Corporation as of the dates and for periods presented as required by such Report. |
| Date: November 8, 2023 | /s/ Nicholas C. Taylor |
| Nicholas C. Taylor | |
| Chairman of the Board and Chief Executive Officer | |
| Date: November 8, 2023 | /s/ Tamala L. McComic |
| Tamala L. McComic | |
| President and Chief Financial Officer |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2023 |
Jun. 30, 2023 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, par value | $ 1.00 | $ 1.00 |
| Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
| Preferred stock, shares outstanding | 0 | 0 |
| Common stock, par value | $ 0.50 | $ 0.50 |
| Common stock, shares authorized | 40,000,000 | 40,000,000 |
| Common stock, shares issued | 2,221,916 | 2,221,416 |
| Common stock, shares outstanding | 2,110,500 | 2,136,000 |
| Treasury stock, shares | 111,416 | 85,416 |
Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Operating revenues: | ||||
| Total operating revenues | $ 1,406,610 | $ 2,324,792 | $ 3,155,029 | $ 4,774,765 |
| Operating expenses: | ||||
| Production | 392,674 | 394,445 | 742,081 | 829,473 |
| Accretion of asset retirement obligations | 7,540 | 7,830 | 14,896 | 15,349 |
| Depreciation, depletion, and amortization | 382,180 | 384,379 | 868,366 | 771,507 |
| General and administrative | 305,543 | 297,956 | 646,512 | 588,199 |
| Total operating expenses | 1,087,937 | 1,084,610 | 2,271,855 | 2,204,528 |
| Operating income | 318,673 | 1,240,182 | 883,174 | 2,570,237 |
| Other income (expenses): | ||||
| Interest income | 26,364 | 58 | 50,059 | 93 |
| Interest expense | (1,079) | (3,561) | (2,160) | (6,692) |
| Net other income (expense) | 25,285 | (3,503) | 47,899 | (6,599) |
| Income before provision for income taxes | 343,958 | 1,236,679 | 931,073 | 2,563,638 |
| Income tax expense: | ||||
| Current | 13,346 | 24,963 | 46,164 | 53,250 |
| Deferred | 61,179 | 149,862 | ||
| Total income tax expense | 74,525 | 24,963 | 196,026 | 53,250 |
| Net income | $ 269,433 | $ 1,211,716 | $ 735,047 | $ 2,510,388 |
| Income per common share: | ||||
| Basic: | $ 0.13 | $ 0.56 | $ 0.35 | $ 1.17 |
| Diluted: | $ 0.12 | $ 0.55 | $ 0.34 | $ 1.13 |
| Weighted average common shares outstanding: | ||||
| Basic: | 2,122,336 | 2,149,416 | 2,129,213 | 2,149,416 |
| Diluted: | 2,174,713 | 2,218,511 | 2,178,719 | 2,217,627 |
| Oil Sales [Member] | ||||
| Operating revenues: | ||||
| Total operating revenues | $ 1,099,806 | $ 1,397,875 | $ 2,529,484 | $ 2,957,196 |
| Natural Gas Sales [Member] | ||||
| Operating revenues: | ||||
| Total operating revenues | 280,904 | 884,020 | 566,316 | 1,740,812 |
| Other [Member] | ||||
| Operating revenues: | ||||
| Total operating revenues | $ 25,900 | $ 42,897 | $ 59,229 | $ 76,757 |
Nature of Operations |
6 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Nature of Operations | 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 the West Texas and Southeastern New Mexico; however, the Company owns producing properties and undeveloped acreage in fourteen states. All of the Company’s oil and gas interests are operated by others.
|
Basis of Presentation and Significant Accounting Policies |
6 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Accounting Policies [Abstract] | |
| Basis of Presentation and Significant Accounting Policies | 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 September 30, 2023, and the results of its operations and cash flows for the interim periods ended September 30, 2023 and 2022. The consolidated financial statements as of September 30, 2023 and for the three and six month periods ended September 30, 2023 and 2022 are unaudited. The consolidated balance sheet as of March 31, 2023 was derived from the audited balance sheet filed in the Company’s 2023 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. The Company accounts for investments of less than 3% in any limited liability companies at cost. The Company has no control of the limited liability companies. The cost of the investment is recorded as an asset on the consolidated balance sheets and when income from the investment is received, it is immediately recognized on the consolidated statements of operations.
Reclassifications. Certain amounts in prior periods’ consolidated financial statements have been reclassified to conform with the current period’s presentation. These reclassifications had no effect on previously reported results of operations, retained earnings or net cash flows.
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Asset Retirement Obligations |
6 Months Ended | |||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||
| Asset Retirement Obligation Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||
| Asset Retirement Obligations | 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.
The following table provides a rollforward of the AROs for the first six months of fiscal 2024:
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Long Term Debt |
6 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Debt Disclosure [Abstract] | |
| Long Term Debt | 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 $1,000,000 with a maturity date of December 28, 2021. The Agreement has no monthly commitment reduction and a borrowing base to be evaluated annually.
On February 28, 2020, the Agreement was amended to increase the credit facility to $2,500,000, extend the maturity date to March 28, 2023 and increase the borrowing base to $1,500,000. On March 28, 2023, the Agreement was amended to extend the maturity date to March 28, 2026.
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 (0.5%) floating daily. Interest on the outstanding amount under the Agreement is payable monthly. In addition, the Company will pay an unused commitment fee in an amount equal to one-half of one percent (0.5%) times the daily average of the unadvanced amount of the commitment. The unused commitment fee is payable quarterly in arrears on the last day of each calendar quarter. As of September 30, 2023, there was $1,500,000 available for borrowing by the Company on the facility.
No principal payments are anticipated to be required through the maturity date of the credit facility, March 28, 2026. Upon closing the second amendment to Agreement, the Company paid a loan origination fee of $9,000 plus legal and recording expenses totaling $12,950, which were deferred over the life 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.
The Agreement contains customary covenants for credit facilities of this type including limitations on change in control, disposition of assets, mergers and reorganizations. The Company is also obligated to meet certain financial covenants under the Agreement and requires senior debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratios (Senior Debt/EBITDA) less than or equal to 4.00 to 1.00 measured with respect to the four trailing quarters and minimum interest coverage ratios (EBITDA/Interest Expense) of 2.00 to 1.00 for each quarter.
In addition, this Agreement prohibits the Company from paying cash dividends on its common stock without written permission of WTNB. The Company obtained written permission from WTNB prior to declaring the special dividend on April 10, 2023 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 no balance outstanding on the line of credit as of September 30, 2023.
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Stock-based Compensation |
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| Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based Compensation |
The Company recognized stock-based compensation expense of $ and $ in general and administrative expense in the Consolidated Statements of Operations for the three months ended September 30, 2023 and 2022, respectively. Stock-based compensation expense recognized for the six months ended September 30, 2023 and 2022 was $ and $, respectively. The total cost related to non-vested awards not yet recognized at September 30, 2023 totals $ which is expected to be recognized over a weighted average of years.
During the six months ended September 30, 2023, the Compensation Committee of the Board of Directors approved and the Company granted stock options exercisable at $12.68 per share with an estimated fair value of $. During the six months ended September 30, 2022, the Compensation Committee of the Board of Directors approved and the Company granted stock options exercisable at $18.05 per share with an estimated fair value of $. These options are exercisable at a price not less than the fair market value of the stock at the date of grant, have an exercise period of and generally vest over .
During the six months ended September 30, 2023, stock options covering shares were exercised with a total intrinsic value of $. The Company received proceeds of $2,962 from these exercises. During the six months ended September 30, 2022, stock options were exercised.
There were stock options forfeited or expired during the six months ended September 30, 2023 and 2022. No forfeiture rate is assumed for stock options granted to directors or employees due to the forfeiture rate history of these types of awards.
Outstanding options at September 30, 2023 expire between and and have exercise prices ranging from $ to $.
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Leases |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | 6. Leases
The Company leases approximately 4,160 rentable square feet of office space from an unaffiliated third party for our corporate office located in Midland, Texas. This includes square feet of office space shared with and paid by our majority shareholder. The lease does not include an option to renew and is a 36-month lease that was to expire in May 2021. In June 2020, in exchange for a reduction in rent for the months of June and July 2020, the Company agreed to a 2-month extension to its current lease agreement at the regular monthly rate extending its current lease expiration date to July 2021. In June 2021, the Company agreed to extend its current lease at a flat (unescalated) rate for 36 months. The amended lease now expires on July 31, 2024.
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 was 3.75%. Significant judgement is required when determining the incremental borrowing rate. Rent expense for lease payments is recognized on a straight-line basis over the lease term.
The balance sheets classification of lease assets and liabilities was as follows:
Future minimum lease payments as of September 30, 2023 under non-cancellable operating leases are as follows:
Net cash paid for our operating lease for the six months ended September 30, 2023 and 2022 was $21,334. Rent expense, less sublease income of $7,786 is included in general and administrative expenses.
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Income Taxes |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes | 7. Income Taxes
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (“IRA 2022”). The IRA 2022, among other tax provisions, imposes a 15% corporate alternative minimum tax on corporations with book financial statement income in excess of $1.0 billion, effective for tax years beginning after December 31, 2022. The IRA 2022 also establishes a 1% excise tax on stock repurchases made by publicly traded U.S. corporations, effective for stock repurchases in excess of an annual limit of $1.0 million after December 31, 2022. The IRA 2022 did not impact the Company’s current year tax provision or the Company’s financial statements.
The income tax provision consists of the following for the six months ended September 30, 2023 and 2022:
Federal income tax for the six months ended September 30, 2023 was $149,862. There was federal income tax expense for the six months ended September 30, 2022 because the Company was in a net deferred tax asset position.
A reconciliation of the provision for income taxes to income taxes computed using the federal statutory rate for the six months ended September 30 follows:
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Related Party Transactions |
6 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions | 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 September 30, 2023 and 2022 was $8,612 and $13,649, respectively. The total billed to and reimbursed by the stockholder for the six months ended September 30, 2023 and 2022 was $17,994 and $23,735, respectively. The principal stockholder pays for his share of the lease amount for the shared office space directly to the lessor. Amounts paid by the principal stockholder directly to the lessor for the three months ending September 30, 2023 and 2022 were $3,893. Amounts paid by the principal stockholder directly to the lessor for the six months ending September 30, 2023 and 2022 were $7,786.
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Income Per Common Share |
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| Income per common share: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Per Common Share |
For the three and six months ended September 30, 2023, 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 $15.32 at September 30, 2023. For the three and six months ended September 30, 2022, 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 $18.05 at September 30, 2022.
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Stockholders’ Equity |
6 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Equity [Abstract] | |
| Stockholders’ Equity | 10. Stockholders’ Equity
In June 2023, the Board of Directors authorized the use of up to $1,000,000 to repurchase shares of the Company’s common stock, par value $, for the treasury account. This program does not have an expiration date and may be modified, suspended or terminated at any time by the board of directors. Under the repurchase program, shares of common stock may be purchased from time to time through open market purchases or other transactions. The amount and timing of repurchases will be subject to the availability of stock, prevailing market conditions, the trading price of the stock, our financial performance and other conditions. Repurchases may also be made from time-to-time in connection with the settlement our share-based compensation awards. Repurchases will be funded from cash flow from operations.
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 1% excise tax on stock repurchases made by publicly traded U.S. corporations, effective for stock repurchases in excess of an annual limit of $1,000,000 after December 31, 2022.
During the six months ended September 30, 2023 there were shares of common stock repurchased for the treasury account at an aggregate cost of $325,256. During the six months ended September 30, 2022 there were shares of common stock repurchased for the treasury account. Subsequently, in October 2023, the Company repurchased shares for the treasury at an aggregate cost of $75,477.
On April 10, 2023, the Board of Directors declared a special dividend of $ per common share. The Company paid the special dividend of $213,600 on May 15, 2023 to the stockholders of record at the close of business on May 1, 2023. The Company can provide no assurance that dividends will be declared in the future or as to the amount of any future dividend.
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.
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Subsequent Events |
6 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | 11. Subsequent Events
In October 2023, the Company signed a Letter of Intent regarding a 3-year Term Assignment of 98% of the Company’s leasehold interest in certain deep rights of 200 acres in Loving and Ward Counties, Texas. The Company expects to receive $5,000 per net leasehold acre in the total amount of approximately $980,000. The Company will retain the remaining 2% leasehold interest as a participating interest in the full unit at approximately .625% working interest. The Company will also retain an overriding royalty interest of 5% proportionately reduced.
In October 2023, the Company entered into an agreement, pending completion of title search, to purchase small producing and non-producing mineral interests in 1,280 gross acres in Ector, Midland and Upton Counties, Texas for a purchase price of $60,500.
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. |
Basis of Presentation and Significant Accounting Policies (Policies) |
6 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Accounting Policies [Abstract] | |
| Principles of Consolidation | 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.
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| Estimates and Assumptions | 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.
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| Interim Financial Statements | 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 September 30, 2023, and the results of its operations and cash flows for the interim periods ended September 30, 2023 and 2022. The consolidated financial statements as of September 30, 2023 and for the three and six month periods ended September 30, 2023 and 2022 are unaudited. The consolidated balance sheet as of March 31, 2023 was derived from the audited balance sheet filed in the Company’s 2023 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.
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| Investments | Investments. The Company accounts for investments of less than 3% in any limited liability companies at cost. The Company has no control of the limited liability companies. The cost of the investment is recorded as an asset on the consolidated balance sheets and when income from the investment is received, it is immediately recognized on the consolidated statements of operations.
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| Reclassifications | Reclassifications. Certain amounts in prior periods’ consolidated financial statements have been reclassified to conform with the current period’s presentation. These reclassifications had no effect on previously reported results of operations, retained earnings or net cash flows. |
Asset Retirement Obligations (Tables) |
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||
| Asset Retirement Obligation Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||
| Schedule of Rollforward of Asset Retirement Obligations | The following table provides a rollforward of the AROs for the first six months of fiscal 2024:
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Stock-based Compensation (Tables) |
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| Share-Based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Grant-date Fair Value of Stock Options Granted and Assumptions Used Binominal Models |
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| Summary of Activity of Stock Options |
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Leases (Tables) |
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| Leases | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Operating Lease Assets and Liabilities | The balance sheets classification of lease assets and liabilities was as follows:
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| Schedule of Future Minimum Lease Payments | Future minimum lease payments as of September 30, 2023 under non-cancellable operating leases are as follows:
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Income Taxes (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Income Tax Provision | The income tax provision consists of the following for the six months ended September 30, 2023 and 2022:
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| Schedule of Reconciliation of Provision for Income Taxes | A reconciliation of the provision for income taxes to income taxes computed using the federal statutory rate for the six months ended September 30 follows:
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Income Per Common Share (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income per common share: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Reconciliation of Basic and Diluted Net Income (loss) Per Share |
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Basis of Presentation and Significant Accounting Policies (Details Narrative) |
6 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Accounting Policies [Abstract] | |
| Cost method investments, percentage description | The Company accounts for investments of less than 3% in any limited liability companies at cost |
Schedule of Rollforward of Asset Retirement Obligations (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
Mar. 31, 2023 |
|
| Asset Retirement Obligation Disclosure [Abstract] | |||||
| Asset Retirement Obligation, Beginning Balance | $ 730,276 | ||||
| Asset Retirement Obligation, Liabilities Incurred | 2,495 | ||||
| Asset Retirement Obligation, Liabilities Settled | (30,115) | ||||
| Asset Retirement Obligation, Accretion Expense | $ 7,540 | $ 7,830 | 14,896 | $ 15,349 | |
| Asset Retirement Obligation, Ending Balance | 717,552 | 717,552 | |||
| Asset Retirement Obligation, Current | 20,000 | 20,000 | |||
| Asset Retirement Obligations, Noncurrent | $ 697,552 | $ 697,552 | $ 710,276 | ||
Long Term Debt (Details Narrative) - USD ($) |
6 Months Ended | ||
|---|---|---|---|
Feb. 28, 2020 |
Dec. 28, 2018 |
Sep. 30, 2023 |
|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||
| Line of credit | $ 0 | ||
| Loan Agreement [Member] | |||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||
| Debt instrument covenant description | The Agreement contains customary covenants for credit facilities of this type including limitations on change in control, disposition of assets, mergers and reorganizations. The Company is also obligated to meet certain financial covenants under the Agreement and requires senior debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratios (Senior Debt/EBITDA) less than or equal to 4.00 to 1.00 measured with respect to the four trailing quarters and minimum interest coverage ratios (EBITDA/Interest Expense) of 2.00 to 1.00 for each quarter. | ||
| Loan Agreement [Member] | West Texas National Bank [Member] | |||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||
| Credit facility | $ 2,500,000 | $ 1,000,000 | |
| Line of credit facility, maturity date | Mar. 28, 2026 | Dec. 28, 2021 | |
| Line of credit, increase in borrowing base amount | $ 1,500,000 | ||
| Debt instrument rate | 0.50% | ||
| Commitment fee description | the Company will pay an unused commitment fee in an amount equal to one-half of one percent (0.5%) times the daily average of the unadvanced amount of the commitment | ||
| Line of credit available for borrowing | $ 1,500,000 | ||
| Loan origination fee | $ 9,000 | ||
| Legal fees | $ 12,950 |
Schedule of Grant-date Fair Value of Stock Options Granted and Assumptions Used Binominal Models (Details) - $ / shares |
6 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Share-Based Payment Arrangement [Abstract] | ||
| Grant-date fair value | $ 8.73 | $ 18.05 |
| Volatility factor | 56.50% | 57.30% |
| Dividend yield | ||
| Risk-free interest rate | 3.44% | 3.15% |
| Expected term (in years) | 6 years 3 months | 6 years 3 months |
Schedule of Operating Lease Assets and Liabilities (Details) - USD ($) |
Sep. 30, 2023 |
Mar. 31, 2023 |
|---|---|---|
| Leases | ||
| Operating lease right-of-use asset, beginning balance | $ 75,629 | |
| Current period amortization | (27,920) | |
| Total operating lease right-of-use asset | 47,709 | $ 75,629 |
| Operating lease liability, current | 47,709 | 56,366 |
| Operating lease liability, long term | $ 19,263 | |
| Total lease liabilities | $ 47,709 |
Schedule of Future Minimum Lease Payments (Details) - USD ($) |
Sep. 30, 2023 |
Mar. 31, 2023 |
|---|---|---|
| Leases | ||
| Fiscal Year Ended March 31, 2024 | $ 29,120 | |
| Fiscal Year Ended March 31, 2025 | 19,413 | |
| Total lease payments | 48,533 | |
| Less: imputed interest | (824) | |
| Operating lease liability | 47,709 | |
| Less: operating lease liability, current | (47,709) | $ (56,366) |
| Operating lease liability, long term | $ 19,263 |
Leases (Details Narrative) |
1 Months Ended | 6 Months Ended | |
|---|---|---|---|
Jun. 30, 2021 |
Sep. 30, 2023
USD ($)
ft²
|
Sep. 30, 2022
USD ($)
|
|
| Deferred Compensation Arrangement with Individual, Excluding Share-Based Payments and Postretirement Benefits [Line Items] | |||
| Area of lease | ft² | 4,160 | ||
| Lease term | 36 months | ||
| Lease term extension, description | the Company agreed to extend its current lease at a flat (unescalated) rate for 36 months | In June 2020, in exchange for a reduction in rent for the months of June and July 2020, the Company agreed to a 2-month extension to its current lease agreement at the regular monthly rate extending its current lease expiration date to July 2021 | |
| Lease expiration date | Jul. 31, 2024 | ||
| Incremental borrowing rate | 3.75% | ||
| Net cash paid for operating lease | $ | $ 21,334 | $ 21,334 | |
| Sublease income | $ | $ 7,786 | ||
| Shareholder [Member] | |||
| Deferred Compensation Arrangement with Individual, Excluding Share-Based Payments and Postretirement Benefits [Line Items] | |||
| Area of lease | ft² | 1,112 | ||
Schedule of Income Tax Provision (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Income Tax Disclosure [Abstract] | ||||
| Federal | ||||
| State | 46,164 | 53,250 | ||
| Total current income tax expense | $ 13,346 | $ 24,963 | 46,164 | 53,250 |
| Federal | 149,862 | |||
| State | ||||
| Total deferred income tax expense | 61,179 | 149,862 | ||
| Total income tax expense | $ 74,525 | $ 24,963 | $ 196,026 | $ 53,250 |
Schedule of Reconciliation of Provision for Income Taxes (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|||
| Income Tax Disclosure [Abstract] | ||||||
| Tax expense at federal statutory rate | [1] | $ 195,525 | $ 527,182 | |||
| Statutory depletion carryforward | (65,011) | (98,658) | ||||
| Change in valuation allowance | (3,578) | (439,909) | ||||
| U. S. tax reform, corporate rate reduction | ||||||
| Permanent differences | 22,926 | 11,385 | ||||
| State income expense | 46,164 | 53,250 | ||||
| Other | ||||||
| Total income tax expense | $ 74,525 | $ 24,963 | $ 196,026 | $ 53,250 | ||
| Effective income tax rate | 21.10% | 2.10% | ||||
| ||||||
Income Taxes - Schedule of Reconciliation of Provision for Income Taxes (Details) (Parenthetical) |
6 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Income Tax Disclosure [Abstract] | ||
| Federal income tax rate | 21.00% | 21.00% |
Income Taxes (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Aug. 16, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Income Tax Disclosure [Abstract] | |||||
| Income tax examination, description | The IRA 2022, among other tax provisions, imposes a 15% corporate alternative minimum tax on corporations with book financial statement income in excess of $1.0 billion, effective for tax years beginning after December 31, 2022. The IRA 2022 also establishes a 1% excise tax on stock repurchases made by publicly traded U.S. corporations, effective for stock repurchases in excess of an annual limit of $1.0 million after December 31, 2022 | ||||
| Fedral income tax | $ 61,179 | $ 149,862 | |||
Related Party Transactions (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Related Party Transaction [Line Items] | ||||
| Due to related party | $ 3,893 | $ 3,893 | $ 7,786 | $ 7,786 |
| Related Party [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Reimbursement expenses | $ 8,612 | $ 13,649 | $ 17,994 | $ 23,735 |
Schedule of Reconciliation of Basic and Diluted Net Income (loss) Per Share (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Sep. 30, 2023 |
Jun. 30, 2023 |
Sep. 30, 2022 |
Jun. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Income per common share: | ||||||
| Net income | $ 269,433 | $ 465,614 | $ 1,211,716 | $ 1,298,672 | $ 735,047 | $ 2,510,388 |
| Weighted avg. shares outstanding – basic | 2,122,336 | 2,149,416 | 2,129,213 | 2,149,416 | ||
| Effect of assumed exercise of dilutive stock options | $ 52,377 | $ 69,095 | $ 49,506 | $ 68,211 | ||
| Weighted avg. shares outstanding – dilutive | 2,174,713 | 2,218,511 | 2,178,719 | 2,217,627 | ||
| Basic | $ 0.13 | $ 0.56 | $ 0.35 | $ 1.17 | ||
| Diluted | $ 0.12 | $ 0.55 | $ 0.34 | $ 1.13 | ||
Income Per Common Share (Details Narrative) - $ / shares |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Income per common share: | ||||
| Antidilutive securities excluded from computation of earnings per share | 63,000 | 31,000 | 63,000 | 31,000 |
| Anti-dilutive stock options have a weighted average exercise price | $ 15.32 | $ 18.05 | ||
Stockholders’ Equity (Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended | |||||
|---|---|---|---|---|---|---|---|---|
Apr. 10, 2023 |
Oct. 31, 2023 |
Sep. 30, 2023 |
Jun. 30, 2023 |
Sep. 30, 2023 |
Sep. 30, 2022 |
Dec. 31, 2022 |
Aug. 16, 2022 |
|
| Stock authorized repurchased shares for treasury | $ 1,000,000 | |||||||
| Common stock, par value | $ 0.50 | $ 0.50 | $ 0.50 | |||||
| Excise tax percentage | 1.00% | |||||||
| Stock repurchased during the period, shares | 26,000 | 0 | ||||||
| Stock repurchased during the period, value | $ 325,256 | $ 325,256 | ||||||
| Dividend | $ 213,600 | $ 213,600 | ||||||
| Subsequent Event [Member] | ||||||||
| Stock repurchased during the period, shares | 6,000 | |||||||
| Stock repurchased during the period, value | $ 75,477 | |||||||
| Board of Directors [Member] | ||||||||
| Common stock, par value | $ 0.10 | $ 0.50 | ||||||
| Maximum [Member] | Board of Directors [Member] | ||||||||
| Stock authorized repurchased shares for treasury | $ 1,000,000 | |||||||
Subsequent Events (Details Narrative) |
1 Months Ended | |
|---|---|---|
|
Oct. 31, 2023
USD ($)
a
|
Sep. 30, 2023
ft²
|
|
| Subsequent Event [Line Items] | ||
| Term assignment | 36 months | |
| Area of land | ft² | 4,160 | |
| Subsequent Event [Member] | Loving And Ward Counties Texas [Member] | ||
| Subsequent Event [Line Items] | ||
| Term assignment | 3 years | |
| Leasehold interest | 98.00% | |
| Area of land | a | 200 | |
| Leasehold per net, value | $ 5,000 | |
| Purchase of land | $ 980,000 | |
| Leasehold interest description | The Company will retain the remaining 2% leasehold interest as a participating interest in the full unit at approximately .625% working interest | |
| Royalty interest | 5.00% | |
| Subsequent Event [Member] | Ector Midland And Upton Conties Texas [Member] | ||
| Subsequent Event [Line Items] | ||
| Area of land | a | 1,280 | |
| Purchase price | $ 60,500 |