What changed in this filing

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Item 1A. Risk Factors

2022-06-27 compared with 2021-06-25 · 105 added, 172 removed, 227 unchanged (55% of the section changed)

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foreign supply and pricing of oil and gas;

the ability of the Organization of Petroleum

Exporting Countries (“OPEC”) to set and maintain oil price and production controls;

nature and extent of governmental regulation

and taxation, including environmental regulations;

level of domestic and international exploration, drilling and production activity;

the cost of exploring for, producing and delivering oil and gas;

the ability of OPEC to set and maintain

oil price and production controls;

nature and extent of governmental regulation and taxation, including environmental regulations;

of domestic and international exploration, drilling and production activity;

the cost of exploring for, producing and delivering oil

speculative trading in crude oil and natural gas derivative contracts;

availability, proximity and capacity of oil and gas pipelines and other transportation facilities;

availability, proximity and capacity of oil and gas pipelines

and other transportation facilities;

weather conditions;

the price and

availability of alternative fuels;

technological advances affecting energy consumption;

national and international pandemics like the

and, overall political and economic conditions in oil producing countries.

the price and availability of alternative fuels;

technological advances affecting

energy consumption;

national and international pandemics like the COVID-19;

and, overall political and economic conditions in oil producing

and decreases in prices also affect the amount of cash flow available for capital expenditures and our ability to borrow money or raise

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results of operations may be negatively impacted by current global events such as the coronavirus outbreak.

December 2019, a novel strain of the coronavirus (“COVID-19”) surfaced and spread around the world, including to the United

In March 2020, the World Health Organization declared COVID-19 a pandemic, and the President of the United States declared the

COVID-19 outbreak a national emergency.

The COVID-19 pandemic has significantly affected the global economy, disrupted global supply

chains and created significant volatility and disruption in the financial and commodity markets.

In addition, the COVID-19 pandemic has

resulted in travel restrictions, business closures and the institution of quarantining and other restrictions on movement in many communities.

As a result, there has been a significant reduction in demand for and prices of oil and natural gas.

As of the first quarter of calendar

year 2021, prices have recovered to pre-pandemic levels, due in part to the accessibility of vaccines, reopening of states after the

lockdown, and optimism about the economic recovery.

The continued spread of COVID-19, including vaccine-resistant strains, or repeated

deterioration in oil and natural gas prices could result in additional adverse impacts on the Company’s results of operations,

cash flows and financial position.

ability or willingness of OPEC and other oil exporting nations to set and maintain production levels has a significant impact on oil

and natural gas commodity prices.

is an intergovernmental organization that seeks to manage the price and supply of oil on the global energy market.

OPEC and certain other

oil exporting nations have previously agreed to take measures, including production cuts, to support crude oil prices.

A dispute between

OPEC and Russia over production cuts resulted in a decision by Saudi Arabia and other Persian Gulf members of OPEC to increase production.

In April 2020, OPEC and Russia agreed to certain production cuts.

If these cuts are effected, however, they may not offset near-term

demand loss attributable to the COVID-19 pandemic and the related economic slowdown.

In response to an oversupply of crude oil and corresponding

low prices, there has been a significant decline in drilling by U.S.

producers starting in mid-March 2020, but domestic supply has continued

to exceed demand, which has led to significant operational stress with respect to capacity limitations associated with storage, pipeline

and refining infrastructure.

As storage capacity becomes fully subscribed, operators may be forced to curtail some portion or all production.

Therefore, the impact cannot be reasonably estimated at this time.

Volatility due to OPEC actions and other factors affecting the global

supply and demand of oil and natural gas may continue.

actions and political instability may negatively affect drilling and production levels.

production of oil and natural gas is subject to regulation under a wide range of local, state and federal statutes, rules, orders and

Federal, state and local statutes and regulations require permits for drilling operations, drilling bonds and reports concerning

The trend in oil and natural gas regulation has been to increase regulatory restrictions and limitations on such activities.

Any changes in, or more stringent enforcement of, these laws and regulations may result in delays or restrictions in permitting or development

of projects or more stringent or costly construction, drilling, water management or completion activities or waste handling, storage,

transport, remediation, or disposal emission or discharge requirements which could have a material adverse effect on the Company.

example, on January 20, 2021, the Biden Administration placed a 60-day moratorium on new oil and gas leasing and drilling permits on

federal land, and on January 27, 2021, the Department of Interior acting pursuant to a Presidential Executive Order suspended the federal

oil and gas leasing program indefinitely.

However, earlier this month, a federal judge issued an order temporarily blocking the moratorium.

Biden Administration has also announced that it intends to review the Trump Administration’s 2017 repeal of the 2015 rule regulating

hydraulic fracturing activities in federal land under the Presidential Executive Order on Protecting Public Health and the Environment

and Restoring Science to Tackle the Climate Crisis.

industry has experienced sharp declines in the demand for crude oil and natural gas worldwide, which has resulted in steep declines in

The global economy and commodity prices are being severely negatively impacted, as economic activity and demand for energy have

declined in response to the COVID-19 pandemic, as well as due to other geopolitical factors.

The magnitude of the impact of the COVID-19

pandemic will depend on the duration and extent of the pandemic, including increases in COVID-19 case counts, any additional waves of

the virus, new variants of the virus and the availability and ultimate efficacy of the vaccine on new variants of the virus.

could have a material adverse effect on the costs, operations, business and financial condition, and therefore, the results of operations.

measures and technological advances could reduce demand for oil and natural gas.

conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and natural gas, technological

advances in fuel economy and energy generation devices could reduce demand for oil and natural gas.

The impact of the changing demand

for oil and natural gas services and products may have a material adverse effect on our business, financial condition, results of operations

and cash available for distribution.

in environmental laws could increase our operators’ costs and adversely impact our business, financial condition and cash flows.

Biden has indicated that he is supportive of, and has issued executive orders promoting various programs and initiatives designed to,

among other things, curtail climate change, control the release of methane from new and existing oil and natural gas operations, and

decarbonize electric generation and the transportation sector.

It remains unclear what additional actions President Biden will take and

what support he will have for any potential legislative changes from Congress.

Further, it is uncertain to what extent any new environmental

laws or regulations, or any repeal of existing environmental laws or regulations, may affect our or our operators’ business.

such actions could significantly increase our operators’ costs or impair their ability to explore and develop other projects, which

could adversely impact our business, financial condition and cash flows.

oil and gas prices and other factors may cause us to record ceiling test writedowns.

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We use the full cost method to account for oil and gas operations.

Accordingly, we capitalize the cost to acquire, explore for and develop crude oil and natural gas properties.

Under the full cost accounting

rules, the net capitalized cost of crude oil and natural gas properties may not exceed a “ceiling limit”

which is based upon

the present value of estimated future net cash flows from proved reserves, discounted at 10% plus the lower of cost or fair market value

of unproved properties.

If net capitalized costs of oil and natural gas properties exceed the ceiling limit, we must charge the amount

of the excess against earnings.

This is called a “ceiling test writedown.”

Under the accounting rules, we are required to

perform a ceiling test each quarter.

A ceiling test writedown does not impact cash flow from operating activities, but does reduce stockholders’

equity and earnings.

The risk that we will be required to write down the carrying value of oil and natural gas properties increases when

oil and natural gas prices are low.

We incurred impairment charges during fiscal 2016 and may incur additional impairment charges in

the future, particularly if commodity prices decline, which could have a material adverse effect on our results of operations for the

periods in which such charges are taken.

Accordingly, we capitalize the cost to acquire, explore for and develop crude oil and natural gas properties including the cost of

abandoned properties, dry holes, geophysical costs and annual lease rentals.

Sales or other dispositions of oil and natural gas properties

are accounted for as adjustments to capitalized costs, with no gain or loss recorded.

Depletion of evaluated oil and natural gas properties

is computed in the units of production method, whereby capitalized costs are amortized over total proved reserves.

Under the full

cost accounting rules, the net capitalized cost of crude oil and natural gas properties may not exceed a “ceiling limit”

which is based upon the present value of estimated future net cash flows from proved reserves, discounted at 10% plus the lower of cost

or fair market value of unproved properties.

If net capitalized costs of oil and natural gas properties exceed the ceiling limit, we

must charge the amount of the excess against earnings.

This is called a “ceiling test writedown.” We use the unweighted

arithmetic average first day of the month price for oil and natural gas for the 12-month period preceding the calculation date in estimating

discounted future net reserves.

Under the accounting rules, we are required to perform a ceiling test each quarter.

A ceiling test

writedown does not impact cash flow from operating activities, but does reduce stockholders’ equity and earnings.

The risk that

we will be required to write down the carrying value of oil and natural gas properties increases when oil and natural gas prices are

We incurred impairment charges during fiscal 2016 and may incur additional impairment charges in the future, particularly if commodity

prices decline, which could have a material adverse effect on our results of operations for the periods in which such charges are taken.

There were no ceiling test impairments on our oil and gas properties during fiscal 2022 and 2021.

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These assumptions, however, may not prove correct.

If we or the outside

operators of our properties choose not to spend the capital to develop these reserves, or if we are not able to successfully develop

these reserves, we will be required to write-off these reserves.

Any such write-offs of our reserves could reduce our ability to borrow

money and could reduce the value of our common stock.

Delays in the

development of our reserves, increases in costs to develop such reserves, or decreases in commodity prices will reduce the future net

revenues or our estimated proved undeveloped reserves and may result in some projects becoming uneconomical.

In addition, if we or

the outside operators of our properties choose not to spend the capital to develop these reserves, or if we are not able to successfully

develop these reserves, we will be required to write-off these reserves.

Any such write-offs of our reserves could reduce our ability

to borrow money and could reduce the value of our common stock.

concerning our reserves and future net revenues estimates is inherently uncertain.

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The prices we receive

for our oil and gas are typically lower than the relevant benchmark prices, such as The New York Mercantile Exchange (“NYMEX”).

The difference between the benchmark price and the price we receive is called a differential.

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that we will recover all or any portion of our investment in wells drilled or re-entered.

are subject to the risks and uncertainties of evaluating reserves and potential liabilities and may be disruptive and difficult to integrate

into our business.

plan to continue growing our reserves through acquisitions.

Acquired properties can be subject to significant unknown liabilities.

to completing an acquisition, it is generally not feasible to conduct a detailed review of each individual property to be acquired in

an acquisition.

Even a detailed review or inspection of each property may not reveal all existing or potential liabilities associated

with owning or operating the property.

Moreover, some potential liabilities, such as environmental liabilities related to groundwater

contamination, may not be discovered even when a review or inspection is performed.

Our initial reserve estimates for acquired properties

may be inaccurate.

Downward adjustments to our estimated proved reserves, including reserves added through acquisitions, could require

us to write down the carrying value of our oil and gas properties, which would reduce our earnings and our stockholders’

In addition, we may have to assume cleanup or reclamation obligations or other unanticipated liabilities in connection with these acquisitions.

The scope and cost of these obligations may ultimately be materially greater than estimated at the time of the acquisition.

may not be able to fund the capital expenditures that will be required for us to increase reserves and production.

must make capital expenditures to develop our existing reserves and to discover new reserves.

must make capital expenditures to develop our existing reserves and to acquire new reserves.

Historically, we have used our cash flow

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Such a reduction could be the result of lower commodity prices and/or production, inability to drill

or unfavorable drilling results, changes in oil and gas reserve engineering, the lender’s inability to agree to an adequate borrowing

base or adverse changes in the lender’s practices regarding estimation of reserves.

or unfavorable drilling results, changes in oil and gas reserve engineering, the lender’s inability to agree to an adequate borrowing

base or adverse changes in the lender’s practices regarding estimation of reserves.

cash flow from operations or our borrowing base decrease for any reason, our ability to undertake exploration and development activities

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of our wells to adequately perform operations could reduce our revenues and production.

oil and gas industry is highly competitive.

reserves in the oil and gas industry is highly competitive.

for oil and gas reserve acquisitions is significant.

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will depend upon our ability to select and acquire suitable producing properties and prospects for future development activities.

addition, the oil and gas industry as a whole also competes with other industries in supplying the energy and fuel requirements of industrial,

commercial and individual consumers.

The price and availability of alternative energy sources could adversely affect our revenue.

market for our oil, gas and natural gas liquids production depends on factors beyond our control, including domestic and foreign political

conditions, the overall level of supply of and demand for oil, gas and natural gas liquids, the price of imports of oil and gas, weather

conditions, the price and availability of alternative fuels, the proximity and capacity of gas pipelines and other transportation facilities

and overall economic conditions.

may not be insured against all of the operating hazards to which our business is exposed.

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and cash flows.

March 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”),

to stabilize the economy during the coronavirus pandemic.

The CARES Act temporarily suspends and modifies certain tax laws established

by the 2017 tax reform law known as the Tax Cuts and Jobs Act, including, but not limited to, modifications to net operating loss limitations,

business interest limitations and alternative minimum tax.

The CARES Act did not have a material impact on the Company’s current

year provision and the Company’s consolidated financial statements.

terrorist or cyber-attack or armed conflict could harm our business by decreasing our revenues and increasing our costs.

activities, anti-terrorist efforts, cyber-attacks and other armed conflicts involving the United States may adversely affect the United

States and global economies and could prevent us from meeting our financial and other obligations.

If any of these events occur or escalate,

the resulting political instability and societal disruption could reduce overall demand for oil and natural gas, potentially putting

downward pressure on demand for our production and causing a reduction in our revenue.

Oil and natural gas related facilities could be

direct targets of terrorist attacks, and our operations could be adversely impacted if significant infrastructure or facilities used

for the production, transportation, processing or marketing of oil and natural gas production are destroyed or damaged.

are dependent on electrical power, internet and telecommunication infrastructure and information and computer systems.

If any of these

systems are compromised or unavailable, our business could be adversely affected.

are dependent on electric power, internet and telecommunication infrastructure and our information systems and computer based programs.

If any of such infrastructure, systems or programs were to fail or become unavailable or compromised, or create erroneous information

in our hardware or software network infrastructure, our ability to safely and effectively conduct our business will be limited and any

such consequence could have a material adverse effect on our business.

reliance on information technology, including those hosted by third parties, exposes us to cyber security risks that could affect our

business, financial condition or reputation and increase compliance challenges.

rely on information technology systems, including internet sites, computer software, data hosting facilities and other hardware and platforms,

some of which are hosted by third parties, to assist in conducting our business.

Our information technology systems, as well as those

of third parties we use in our operations, may be vulnerable to a variety of evolving cybersecurity risks, such as those involving unauthorized

access or control, denial-of-service attacks, malicious software, data privacy breaches by employees, insiders or others with authorized

access, cyber or phishing-attacks, ransomware, malware, social engineering, physical breaches or other actions.

These cybersecurity threat

actors, whether internal or external to us, are becoming more sophisticated and coordinated in their attempts to access the Company’s

information technology systems and data, including the information technology systems of cloud providers and other third parties with

whom the Company conducts business.

we have implemented information technology controls and systems that are designed to protect information and mitigate the risk of data

loss and other cybersecurity risks, such measures cannot entirely eliminate cybersecurity threats, and the enhanced controls we have

installed may be breached.

If our information technology systems cease to function properly or our cybersecurity is breached, we could

suffer disruptions to our normal operations.

A cyber-attack involving our information systems and related infrastructure, or that of

our business associates, could negatively impact our operations in a variety of ways, including, but not limited to, the following:

Unauthorized access to seismic data, reserves information, strategic information, or other sensitive or proprietary information

could have a negative impact on our ability to compete for oil and natural gas resources;

A cyber-attack on a vendor or service provider could result in supply chain disruptions which could delay or halt our major

development projects;

A cyber-attack on third-party gathering, pipeline, or rail transportation systems could delay or prevent our outside operators from

transporting and marketing production, resulting in a loss of revenues;

A cyber-attack which halts activities at a power generation facility or refinery using natural gas as feed stock could have a

significant impact on the natural gas market, resulting in reduced demand for our production, lower natural gas prices, and reduced

A deliberate corruption of our financial or operating data could result in events of non-compliance which could then lead to

regulatory fines or penalties;

of the above could negatively impact our operational and financial results.

Additionally, certain cyber incidents, such as surveillance,

may remain undetected for an extended period.

As cyber threats continue to evolve, we may be required to expend significant additional

resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.

Additionally, the growth of cyber-attacks has resulted in evolving legal and compliance matters which impose significant costs that are

likely to increase over time.

loss of our chief executive officer or other key personnel could adversely impact our ability to execute our business strategy.

business, financial condition or reputation.

oil and natural gas industry has become increasingly dependent on digital technologies to conduct certain exploration, development, production,

and processing activities, including digital technologies to interpret seismic data, manage drilling rigs, production equipment and gathering

systems, conduct reservoir modeling and reserves estimation, and process and record financial and operating data.

At the same time, cyber

incidents, including deliberate attacks or unintentional events, have increased.

government has issued public warnings that

indicate energy assets might be specific targets of cyber security threats.

Our and our operators’ technologies, systems, networks,

and those of vendors, suppliers and other business partners, may become the target of cyberattacks or information security breaches that

could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of proprietary and other information, or

other disruption of business activities.

In addition, certain cyber incidents, such as surveillance, may remain undetected for an extended

Our systems for protecting against cyber security risks may not be sufficient.

As cyber incidents continue to evolve, we may

be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate any

vulnerability to cyber incidents.

loss of our chief executive officer or president could adversely impact our ability to execute our business strategy.

depend, and will continue to depend in the foreseeable future, upon the continued services of our Chief Executive Officer, Nicholas C.

Taylor, our President and Chief Financial Officer, Tamala L.

McComic, and other key personnel, who have extensive experience and expertise

in evaluating and analyzing producing oil and gas properties and drilling prospects, maximizing production from oil and gas properties

and developing and executing acquisitions and financing.

Taylor and our President and Chief Financial Officer, Tamala L.

McComic, who have extensive experience and expertise in evaluating and

analyzing producing oil and gas properties and drilling prospects, maximizing production from oil and gas properties and developing and

executing acquisitions and financing.

As of March 31, 2022, we do not have key-man insurance on the lives of Mr.

The unexpected loss of the services of one or more of these individuals could, therefore, significantly and adversely

affect our operations.

Taylor and Ms.

The unexpected loss of the services of one or more of these individuals could, therefore, significantly and adversely affect our operations.

may be affected by one substantial shareholder.

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price of our common stock has been volatile and could continue to fluctuate substantially.

common stock is traded on the New York Stock Exchange’s NYSE American.

The market price of our common stock has and could continue

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general trends in the oil and natural gas industry;

market conditions and analysts’

market conditions and analysts’ estimates;

and, other events in the oil and

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in general can experience considerable price and volume fluctuations.

of the Company’s internal control over financial reporting could harm its business and financial results.

management of Mexco is responsible for establishing and maintaining effective internal control over financial reporting.

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Internal control over financial reporting includes

maintaining records that in reasonable detail accurately and fairly reflect Mexco’s transactions;

providing reasonable assurance

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors