Company Overview
Mexco Energy Corporation (MXC) is a Colorado-based independent oil and gas exploration and production company that has been actively involved in the energy industry for over four decades. The company's focus is on the acquisition, exploration, development, and production of crude oil, natural gas, and natural gas liquids, with a primary emphasis on the prolific Permian Basin region of West Texas and Southeastern New Mexico.
Established in 1972, Mexco Energy has cultivated a strong reputation for its prudent and disciplined approach to managing its operations and finances. The company's strategy centers on identifying and acquiring non-operated working interests and royalties in proven hydrocarbon-producing regions, allowing it to leverage the expertise and resources of larger operators while maintaining a relatively low-risk profile. While Mexco's primary focus is on the Permian Basin, the company has diversified its portfolio by owning producing properties and undeveloped acreage in fourteen states across the United States.
Financials and Liquidity
Mexco's financial position has remained robust, with a healthy balance sheet and ample liquidity to fund its ongoing development activities. As of September 30, 2024, the company reported total assets of $19.33 million, of which $15.10 million were attributed to its oil and gas properties. Mexco's working capital stood at $1.97 million, providing the necessary flexibility to pursue new opportunities and weather potential market volatility. The company has historically funded its operations, acquisitions, and development activities through a combination of cash flow, bank borrowings, asset sales, and equity issuances. In 2018, Mexco entered into a loan agreement with West Texas National Bank, which has provided an important source of liquidity.
The company's financial strength is further evidenced by its debt-free status, with a debt-to-equity ratio of 0. Mexco maintains a cash position of $1.58 million and has access to a $1.50 million revolving credit facility with West Texas National Bank. This facility has no monthly commitment reduction and a borrowing base that is evaluated annually. The company's current ratio and quick ratio both stand at 4.32, indicating strong short-term liquidity.
Production and Revenue
The company's production mix is weighted heavily towards oil, which accounted for approximately 87% of its total operating revenues in the first six months of fiscal 2025. During this period, Mexco's oil production increased by 18.2% compared to the same period in the prior year, while natural gas production saw an 8.3% increase. This production growth, coupled with a 1.4% increase in the average realized oil price, contributed to a 10% year-over-year increase in the company's total operating revenues, which reached $3.48 million.
In the second quarter of fiscal 2025, Mexco's oil sales revenue was $1.52 million, representing a significant increase of 38.4% compared to the same period in the prior year. This growth was driven by a 48.8% increase in oil production volumes to 20.32 thousand barrels (Mbbl), partially offset by a 7.0% decrease in the average realized oil price to $74.86 per barrel. Natural gas sales revenue for the quarter was $174.24 thousand, a decrease of 38.0% compared to the prior year period, due to a 50.0% decline in the average realized natural gas price to $1.30 per Mcf, partially offset by a 24.0% increase in natural gas production volumes to 133.98 MMcf.
The fluctuations in oil and natural gas prices were partly due to pipeline constraints and maintenance in the Permian Basin area, which contributed to wider price differentials versus benchmark prices. In addition to oil and gas sales, Mexco reported other revenue of $53.37 thousand and $93.15 thousand for the three and six month periods, respectively.
Strategic Acquisitions
Mexco's focus on strategic acquisitions has been a key driver of its growth. In the first six months of fiscal 2025, the company invested approximately $900,000 to acquire various royalty interests in over 300 wells located in Colorado, Texas, and Wyoming. These acquisitions not only expanded Mexco's production base but also diversified its asset portfolio, reducing its reliance on any single geographic region or operator. This strategy builds upon the company's earlier acquisitions, such as those made in 2021 when Mexco acquired royalty interests in 6 producing wells in Howard County, Texas, and royalty interests in approximately 250 producing wells across Laramie County, Wyoming, Adams County, Colorado, and Weld County, Colorado.
Capital Allocation and Development
The company's disciplined capital allocation approach is further evidenced by its participation in the drilling and completion of 30 horizontal wells during the fiscal year ending March 31, 2025, at an estimated cost of $2.0 million. These new wells, primarily located in the Delaware Basin and Reagan County, Texas, are expected to contribute to Mexco's production growth and cash flow generation in the coming years.
Financial Performance
Despite the inherent challenges posed by the volatile nature of the energy industry, Mexco has demonstrated its ability to navigate these uncertainties. In the second quarter of fiscal 2025, the company reported net income of $317,198, or $0.15 per diluted share, compared to $269,433, or $0.12 per diluted share, in the same period of the prior year. For the first six months of fiscal 2025, Mexco generated net income of $608,237, or $0.29 per diluted share. It's worth noting that the company has faced significant challenges in recent years, including the impact of the COVID-19 pandemic in 2020, which led to a decline in energy demand and affected Mexco's operations and financial results. However, the company responded by carefully managing costs and capital expenditures during this difficult period.
The company's strong operational performance has also translated into robust cash flow generation. In the first six months of fiscal 2025, Mexco reported operating cash flow of $2.01 million, a testament to the company's ability to efficiently manage its assets and maximize returns for its shareholders. For the most recent quarter (Q2 2025), Mexco generated operating cash flow of $927,791 and free cash flow of $1,445,178, representing significant increases from the previous year due to higher revenues and changes in working capital.
Looking at the full fiscal year 2024, Mexco reported revenue of $6.60 million, net income of $1.34 million, operating cash flow of $4.43 million, and free cash flow of $1.08 million. The company's performance in the first half of fiscal 2025 suggests a continuation of this positive trend, with total revenue for the six months ended September 30, 2024, increasing by 9.0% to $3.48 million.
Outlook and Conclusion
Looking ahead, Mexco remains well-positioned to capitalize on the ongoing development of the Permian Basin. The company's strategic focus on non-operated working interests and royalties, combined with its disciplined approach to capital allocation and prudent financial management, positions it as a compelling investment opportunity for investors seeking exposure to the dynamic energy sector. With nearly 50 years of experience as an independent oil and gas producer, Mexco has demonstrated resilience and an ability to adapt to changing market conditions, making it a noteworthy player in the industry.
The company's strong performance in recent quarters, marked by increased production volumes and revenue growth, underscores its operational efficiency and the quality of its asset base. Mexco's debt-free status and robust liquidity position provide a solid foundation for future growth and the flexibility to pursue attractive opportunities in the market. As the energy landscape continues to evolve, Mexco Energy Corporation appears well-equipped to navigate challenges and capitalize on opportunities, potentially delivering sustainable value to its shareholders in the years to come.