Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
MXC > SEC Filings for MXC > Form 10-Q on 14-Nov-2011All Recent SEC Filings

Show all filings for MEXCO ENERGY CORP

Form 10-Q for MEXCO ENERGY CORP


14-Nov-2011

Quarterly Report


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.

Page 11

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 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 and issuance of common stock. Our primary financial resource is our base of oil and gas reserves. We pledge our producing oil and gas properties to secure our revolving line of credit. We do not have any delivery commitments to provide a fixed and determinable quantity of its 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 primarily gas properties and secondarily oil properties with potential for long-lived production. We focus our efforts on the acquisition of royalties in areas with significant development potential.

For the first six months of fiscal 2012, cash flow from operations was $636,240, a 6% increase when compared to the corresponding period of fiscal 2011. Cash of $291,248 was used for additions to oil and gas properties, $1,025,000 was used to reduce long term debt and $462,608 was received primarily from the sale of a term leasehold interest in oil and gas properties. Accordingly, net cash decreased $99,642. This decrease in cash can be primarily attributed to the use of cash for financing activities.

In March 2011, we purchased working interests in 160 gross acres in the Fuhrman-Mascho Field of Andrews County, Texas, for an approximate cash purchase price of $670,000 funded from our $4.9 million credit facility. This acreage contains five (5) wells, three of which are producing from the San Andres, one well producing from the Grayburg and San Andres formations at an approximate depth of 5,000 feet and one well currently undergoing a workover. Two additional wells have been drilled and are currently in the process of completion. All seven (7) of these wells are operated by Cone and Petree Oil & Gas Exploration, Inc. The Company owns working interests of approximately 10% (7.2% net revenue interest) in this property. This property contains an additional 9 potential drill sites in the Grayburg and San Andres formations with more dense spacing of approximately 10 acres per well. This new spacing in the Fuhrman-Mascho Field has been shown to increase production.

During the first quarter of fiscal 2012, we participated in five (5) infill wells in the Yeso/Paddock formations of the Dodd-Federal Unit in the Grayburg San Andres Jackson Field of Eddy County, New Mexico. These wells are proposed to be drilled in the next twelve months to a total depth of approximately 5,000 feet. The unit, operated by Concho Resources, Inc. (NYSE:CXO), currently contains approximately 115 producing wells. Mexco's working interest in this unit is .1848% (.14% net revenue interest).

In June 2011, we received $450,000 in cash from Energen Corporation (NYSE:EGN) for the assignment of a five year term leasehold interest in 200 acres at $2,250 per acre. The assignment covers depths of 7,680' to 11,500' feet from the surface. Mexco retained a royalty of 8.33%. This interest has potential for oil production from the Avalon and Bone Springs in separate intervals by horizontal drilling above the prolific Vermejo Fusselman Gas Field of Loving County, Texas.

Page 12

During the first six months of fiscal 2012, a joint venture in which we are a working interest partner drilled two (2) infill wells in the Strawn formation on a 160 acre tract in Andrews County, Texas. The section in which this tract is located currently contains 12 wells completed with encouraging results. Our share of the costs to drill and complete these wells through September 2011 for our approximately 1% working interest was approximately $53,000.

During the second quarter of fiscal 2012, a joint venture in which we are a working interest partner drilled two (2) infill wells in the Strawn formation on a 160 acre tract in Glasscock County, Texas. The immediate offsetting sections in which this tract is located currently contain 14 wells completed with encouraging results. Our share of the costs to drill and complete these wells through September 2011 for our approximately 1% working interest was approximately $62,000.

We are participating in other projects and are reviewing projects in which we may participate. The cost of such projects would be funded, to the extent possible, from existing cash balances and cash flow from operations. The remainder may be funded through borrowings on the credit facility and, if appropriate, sales of Mexco common stock.

On June 29, 2011, our board of directors authorized the use of up to $250,000 to repurchase shares of our common stock for the treasury account. During the six months ended September 30, 2011, we repurchased 2,000 shares for the treasury at an aggregate cost of $11,980.

At September 30, 2011, we had working capital of approximately $424,277 compared to working capital of $470,253 at March 31, 2011, a decrease of $45,976. This was mainly as a result of a decrease in accounts receivable and an increase in accounts payable and accrued expenses partially offset by an increase in prepaid costs and expenses.

Crude oil and natural gas prices have fluctuated significantly in recent years. The effect of declining product prices on our business is significant. Lower product prices reduce our cash flow from operations and diminish the present value of our oil and gas reserves. Lower product prices also offer us less incentive to assume the drilling risks that are inherent in our business. 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 West Texas Intermediate ("WTI") posted price for crude oil has ranged from a low of $75.25 per bbl in August and September 2011 to a high of $110.00 per bbl in April 2011. The Henry Hub Spot Market Price ("Henry Hub") for natural gas has ranged from a low of $3.18 per MMBtu in October 2010 to a high of $4.92 per MMBtu in June 2011. On September 30, 2011 the WTI posted price for crude oil was $75.25 per bbl and the Henry Hub spot price for natural gas was $3.68 per MMBtu. Management is of the opinion that cash flow from operations and funds available from financing will be sufficient to provide adequate liquidity for the current fiscal year.

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, 2011:

                                                  Payments Due In (1):
                                Total       less than 1 year      1-3 years       3 years
Contractual obligations:
Secured bank line of credit   $ 775,000     $               -     $  775,000     $       -

(1) Does not include estimated interest of $21,000 less than 1 year and $64,000 1-3 years.

These amounts represent the balances outstanding under the bank line of credit. These repayments assume that interest will be paid on a monthly basis and that no additional funds will be drawn.

Results of Operations - Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010. Net income was $79,272 for the quarter ended September 30, 2011, a 13% increase from $70,040 for the quarter ended September 30, 2010. This was a result of a 3% increase in operating revenues and a 3% decrease in operating expenses costs partially offset by a 253% increase in tax expense.

Oil and gas sales. Revenue from oil and gas sales was $810,655 for the second quarter of fiscal 2012, a 3% increase from $783,990 for the same period of fiscal 2011. This resulted from an increase in oil price and production partially offset by a decrease in gas price and production.

Page 13

                            2011          2010        % Difference
Oil:
Revenue                   $ 419,128     $ 318,059              31.8 %
Volume (bbls)                 4,923         4,469              10.2 %
Average Price (per bbl)   $   85.14     $   71.17              19.6 %

Gas:
Revenue                   $ 391,527     $ 465,931             (16.0 %)
Volume (mcf)                101,106       115,887             (12.8 %)
Average Price (per mcf)   $    3.87     $    4.02              (3.7 %)

Production and exploration. Production costs were $236,330 for the second quarter of fiscal 2012, a 7% decrease from $253,138 for the same period of fiscal 2011. This was primarily the result of a workover and repairs on one of our operated wells in Hutchinson County, Texas during the second quarter of fiscal 2011.

Depreciation, depletion and amortization. Depreciation, depletion and amortization expense was $234,006 for the second quarter of fiscal 2012, a 13% decrease from $267,691 for the same period of fiscal 2011, primarily due to a decrease in gas production partially offset by an increase to the full cost pool amortization base.

General and administrative expenses. General and administrative expenses were $225,261 for the second quarter of fiscal 2012, a 13% increase from $199,544 for the same period of fiscal 2011. This was due to an increase in stock option compensation expense and accounting fees.

Interest expense. Interest expense was $5,961 for the second quarter of fiscal 2012, a 13% decrease from $6,857 for the same period of fiscal 2011, due to a decrease in borrowings.

Income taxes. Income tax expense was $26,325 for the three months ended September 30, 2011, an increase from an income tax benefit of $17,153 for the three months ended September 30, 2010. The previous year's benefit was primarily a result of an increase in the statutory depletion carryforward.

Results of Operations - Six Months Ended September 30, 2011 Compared to Six Months Ended September 30, 2010. Net income was $183,657 for the six months ended September 30, 2011, a 142% increase from $75,816 for the six months ended September 30, 2010. This was a result of a 6% increase in operating revenues and a 9% decrease in operating expenses costs partially offset by a 202% increase in tax expense.

Oil and gas sales. Revenue from oil and gas sales was $1,715,995 for the six months ended September 30, 2011, a 6% increase from $1,616,000 for the same period of fiscal 2011. This resulted from an increase in oil price and production partially offset by a decrease in gas price and production.

                            2011          2010        % Difference
Oil:
Revenue                   $ 862,985     $ 653,116              32.1 %
Volume (bbls)                 9,483         8,985               5.5 %
Average Price (per bbl)   $   91.00     $   72.69              25.2 %

Gas:
Revenue                   $ 853,010     $ 962,884             (11.4 %)
Volume (mcf)                209,453       235,944             (11.2 %)
Average Price (per mcf)   $    4.07     $    4.08                 -

Production and exploration. Production costs were $464,232 for the six months ended September 30, 2011, a 25% decrease from $621,365 for the six months ended September 30, 2010. This was primarily the result of a workover and repairs on one of our operated wells in Hutchinson County, Texas during the first six months of fiscal 2011.

Depreciation, depletion and amortization. Depreciation, depletion and amortization expense was $479,180 for the six months ended September 30, 2011, an 8% decrease from $519,186 for the six months ended September 30, 2010, primarily due to an increase in oil and natural gas reserves and to a lesser extent, a decrease in gas production.

Page 14

General and administrative expenses. General and administrative expenses were $495,561 for the six months ended September 30, 2011, an 11% increase from $447,683 for the six months ended September 30, 2010. This was due to an increase in stock option compensation and accounting fees.

Interest expense. Interest expense was $16,881 for the six months ended September 30, 2011, a 66% increase from $10,196 for the same period fiscal 2011 due to an increase in borrowings.

Income taxes. Income tax expense was $67,702 for the six months ended September 30, 2011, an increase from an income tax benefit of $66,162 for the six months ended September 30, 2010. The fiscal 2011 benefit was primarily a result of an increase in statutory depletion carryforward.

  Add MXC to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for MXC - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.