What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-02-10 compared with 2022-11-09 · 139 added, 123 removed, 101 unchanged (72% of the section changed)

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that is currently available and is subject to change.

All forward-looking statements in this Form 10-Q are qualified in their entirety

All forward-looking statements in the 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.

It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the

and Capital Resources.

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We have pledged our producing oil and gas properties to secure our credit facility.

do not have any delivery commitments to provide a fixed and determinable quantity of our oil and gas under any existing contract or agreement.

do not have any delivery commitments to provide a fixed and determinable quantity of its oil and gas under any existing contract or agreement.

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.

September 30, 2022, we had working capital of $2,298,977 compared to working capital of $2,469,776 at March 31, 2022, a decrease of $170,789

We focus our efforts on the acquisition of royalties and

working interests in non-operated properties in areas with significant development potential.

December 31, 2022, we had working capital of $2,468,314 compared to working capital of $2,469,776 at March 31, 2022, a decrease of $1,462

for the reasons set forth below.

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,

For the Nine Months Ended

Net cash provided by operating activities

Net cash used in investing activities

$ (4,253,453 )

Net cash provided by (used in) financing activities

Net cash used in financing activities

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 property asset account

Cash flow provided by our operating activities for the six months ended September 30, 2022 was $3,418,087 in comparison to

$1,584,816 for the six months ended September 30, 2021.

This increase of $1,833,271 in our cash flow operating activities consisted of

an increase in our non-cash expenses of $251,742;

a decrease in our accounts receivable of $263,939;

a decrease of $80,141 in our accounts

payable and accrued expenses;

and, an increase in our net income for the current quarter of $1,406,554.

Variations in cash flow from

operating activities may impact our level of exploration and development expenditures.

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 nine months ended December 31, 2022 was $4,350,920 in comparison

to $2,728,586 for the nine months ended December 31, 2021.

This increase of $1,622,334 in our cash flow operating activities consisted

of an increase in our non-cash expenses of $496,349;

an increase in our accounts receivable of $639,657;

and, an increase in our net

income for the current nine months of $1,898,037.

Variations in cash flow from operating activities may impact our level of exploration

and development expenditures.

expenditures in operating activities consist primarily of drilling expenses, production expenses and engineering services.

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Cash flow from investing activities is derived from changes in oil and gas property balances.

For the six months ended September 30, 2022, we had net cash of $4,253,453 used for additions to oil and gas properties compared to $554,787

for the six months ended September 30, 2021.

For the nine months ended December 31, 2022, we had net cash of $4,969,269 used for additions to oil and gas properties compared to $1,021,849

for the nine months ended December 31, 2021.

Flow Provided by Financing Activities.

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account balances.

Cash flow provided by our financing activities was $30,179 for the six months ended September 30, 2022 compared to

cash flow used in our financing activities of $994,268 for the six months ended September 30, 2021.

During the six months ended September

30, 2022, we received advances and made payments of $500,000 on our credit facility and received payment of $30,179 from a director for

profits on purchase of stock within the six-month window of a previous sale of stock.

net cash decreased $805,187, leaving cash and cash equivalents on hand of $565,579 as of September 30, 2022.

Cash flow used in our financing activities was $121,381 for the nine months ended December 31, 2022 compared to cash

flow used in our financing activities of $884,360 for the nine months ended December 31, 2021.

During the nine months ended December

31, 2022, we received advances and made repayments of $675,000 on our credit facility, received proceeds of $16,700 from the exercise

of director stock options, received payment of $30,179 from a director for profits on purchase of stock within the six-month window of

a previous stock sale, and expended $168,260 for the purchase of 12,416 shares of our stock for the treasury.

net cash decreased $739,730, leaving cash and cash equivalents on hand of $631,036 as of December 31, 2022.

and Natural Gas Property Development.

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Delaware Basin and the remaining balance in the Midland Basin.

Thirty-six of these horizontal wells are in the Delaware Basin located

Thirty-eight 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 and twelve are in the Midland Basin located in the eastern

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Mexco’s working interest in these wells is .52%.

the first six months of fiscal 2023, Mexco expended approximately $1,196,000 to participate in the drilling and completion of three horizontal

wells in the Wolfcamp Sand formation of the Midland Basin located in the eastern portion of the Permian Basin in Reagan County, Texas.

Mexco’s working interest in these wells is 3.2%.

These wells are currently being completed.

May 2022, Mexco expended approximately $97,000 to participate in the drilling of four horizontal wells in the Wolfcamp Sand formation

expended approximately $1,196,000 to participate in the drilling and completion of three horizontal wells in the Wolfcamp Sand formation

of the Midland Basin located in the eastern portion of the Permian Basin in Reagan County, Texas.

Mexco’s working interest in these

wells is 3.2%.

These wells were completed in October 2022 with initial average production rates of 507 barrels of oil, 2,147 barrels

of water and 2,147,000 cubic feet of gas per day, or, 560 barrels of oil equivalent per day.

expended approximately $681,000 to participate in the drilling and completion of eight 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 2022,

Mexco expended approximately $148,000 to complete these wells.

the first six months of fiscal 2023, Mexco expended approximately $607,000 to participate in the drilling and completion of a horizontal

well in the Wolfcamp Sand formation of the Midland Basin in Reagan County, Texas.

These wells are currently being

expended approximately $607,000 to participate in the drilling and completion of a horizontal well in the Wolfcamp Sand formation of

the Midland Basin in Reagan County, Texas.

Mexco’s working interest in this well is 5.1%.

This well are currently being completed.

the first six months of fiscal 2023, Mexco expended approximately $600,000 to participate in the drilling and completion of four horizontal

wells in the Bone Spring formation of the Delaware Basin in Eddy County, New Mexico.

This well was completed in October 2022

with initial average production rates of 134 barrels of oil, 874 barrels of water and 143,000 cubic feet of gas per day, or, 158 barrels

of oil equivalent per day.

expended approximately $625,000 to participate in the drilling and completion of four horizontal wells in the Bone Spring formation of

the Delaware Basin in Eddy County, New Mexico.

Mexco’s working interest in these wells is 2.1%.

These wells are currently being completed.

June 2022, Mexco expended approximately $157,000 to participate in the drilling of four horizontal wells in the Wolfcamp Sand formation

of the Delaware Basin in Lea County, New Mexico.

These wells began producing in

October 2022 with initial average production rates of 1,154 barrels of oil, 2,887 barrels of water and 2,966,000 cubic feet of gas per

day, or, 1,648 barrels of oil equivalent per day.

expended approximately $78,000 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 .22%.

August 2022, Mexco expended approximately $33,000 to participate in the drilling of two horizontal wells in the Penn Shale formation

of the Delaware Basin in Lea County, New Mexico.

These wells are currently being completed.

expended approximately $85,000 to participate in the drilling and completion of eight horizontal wells in the Spraberry trend of the

Midland Basin in Reagan County, Texas.

Mexco’s working interest in these wells is approximately .08%.

These wells are currently

being completed.

expended $16,000 to participate in the drilling and completion of three horizontal wells in the Bone Spring formation of the Delaware

Basin in Eddy County, New Mexico.

Mexco’s working interest in these wells is .05%.

These wells are currently being completed.

October 2022, the Company made an approximately 2% equity investment commitment in a limited liability company amounting to $2,000,000

of which $200,000 has been funded through December 31, 2022.

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.

of Wells Drilled in Fiscal 2022.

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The first 4 of these wells began producing in

May 2022 with initial average production rates of 1,384 barrels of oil, 3,530 barrels of water and 2,172,000 cubic feet of gas per day,

or, 1,804 barrels of oil equivalent per day.

May 2022 and the remaining 4 were completed in November 2022 with initial average production rates of 953 barrels of oil, 4,063 barrels

of water and 3,071,000 cubic feet of gas per day, or, 1,465 barrels of oil equivalent per day.

in Fiscal 2023.

The Company acquired various royalty (mineral) interests in 22 wells and several additional potential locations for

development operated by Chesapeake Energy Corporation and located in the Eagleford area of Dimmit County, Texas for a purchase price

of $939,000 which was effective April 1, 2022.

Participations.

In October 2022, Mexco expended approximately $682,000 to participate in the drilling and completion of four horizontal

wells operated by XTO Energy, Inc.

in the Bone Spring formation of the Delaware Basin in Lea County, New Mexico.

Mexco’s working

interest in these wells is 2.2%

in October 2022, Mexco expended $16,000 to participate in the drilling and completion of three horizontal wells operated by Mewbourne

Oil Company in the Bone Spring formation of the Delaware Basin in Eddy County, New Mexico.

Mexco’s working interest in these wells

Acquisitions.

The Company acquired various royalty (mineral) interests in 22 wells and several additional potential locations for development operated

by Chesapeake Energy Corporation and located in the Eagleford area of Dimmit County, Texas for a purchase price of $939,000 which was

effective April 1, 2022.

In January 2023, Mexco expended $180,000 to participate in the drilling of four horizontal wells in the Wolfcamp

Sand formation of the Delaware Basin in Lea County, New Mexico.

February 2023, Mexco expended approximately $31,000 to participate in the drilling and completion of seven horizontal wells in the Bone

Spring formation of the Delaware Basin in Lea County, New Mexico.

are participating in other projects and are reviewing projects in which we may participate.

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the credit facility and, if appropriate, sales of non-core properties.

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 $61.55 per bbl in December 2021 to a

high of $119.68 per bbl in March 2022.

The Henry Hub Spot Market Price (“Henry Hub”) for natural gas has ranged from a low

of $3.32 per MMBtu in December 2021 to a high of $9.85 per MMBtu in August 2022.

September 30, 2022, the WTI posted price for crude oil was $75.47 and the Henry Hub spot price for natural gas was $6.40 per MMBtu.

Results of Operations below for realized prices.

oil and natural gas 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 $67.00 per bbl in December 2022 to a high of $119.68

per bbl in March 2022.

The Henry Hub Spot Market Price (“Henry Hub”) posted price for natural gas has ranged from a low of

$3.46 per MMBtu in November 2022 to a high of $9.85 per MMBtu in August 2022.

December 31, 2022, the WTI posted price for crude oil was $76.24 and the Henry Hub posted price for natural gas was $3.52.

of Operations below for realized price.

We have no off-balance sheet debt or unrecorded obligations and have not guaranteed the debt of any other party.

following table summarizes our future payments we are obligated to make based on agreements in place as of September 30, 2022:

following table summarizes our future payments we are obligated to make based on agreements in place as of December 31, 2022:

Payments due in:

less than 1 year

Contractual obligations:

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our majority shareholder will pay $15,572 less than 1 year and $9,083 1-3 years for his portion of the shared office space.

of Operations – Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021.

There was net income

of $1,211,716 for the quarter ended September 30, 2022 compared to net income of $708,828 for the quarter ended September 30, 2021.

was a result of an increase in oil and gas prices and an increase in gas production partially offset by an increase in operating expenses

and a decrease in oil production that is further explained below.

of Operations – Three Months Ended December 31, 2022 and 2021.

For the quarter ended December 31, 2022, there was net income

of $1,244,785 compared to $753,302 for the quarter ended December 31, 2021, a 65% increase as a result of an increase in operating revenues

due to an increase in oil and gas production and prices partially offset by an increase in operating expenses that is further explained

and gas sales .

Revenue from oil and gas sales was $2,281,895 for the second quarter of fiscal 2023, a 48% increase from $1,541,171

Revenue from oil and gas sales was $2,486,017 for the third quarter of fiscal 2023, a 58% increase from $1,573,984

for the same period of fiscal 2022.

This resulted from an increase in oil and gas prices and an increase in gas production partially

offset by a decrease in oil production.

This resulted from an increase in oil and natural gas production volumes and an increase in oil price

partially offset by a decrease in natural gas price.

Volume (bbls)

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and exploration.

Production costs were $394,445 for the second quarter of fiscal 2023, an 18% increase from $335,588 for the same

period of fiscal 2022.

This is primarily the result of an increase in production taxes and marketing charges as a result of the increase

in oil and gas revenues.

Production costs were $478,670 for the third quarter of fiscal 2023, a 64% increase from $291,068 for the same period

of fiscal 2022.

This is primarily the result of an increase in production taxes and marketing charges as a result of the increase in

oil and gas revenues.

Depreciation,

depletion and amortization.

Depreciation, depletion and amortization expense was $384,379 for the second quarter of fiscal 2023,

a 37% increase from $280,060 for the same period of fiscal 2022, primarily due to an increase in production and an increase in the full

cost pool amortization base partially offset by an increase in reserves.

Depreciation, depletion and amortization expense was $496,509 for the third quarter of fiscal 2023, an

85% increase from $268,018 for the same period of fiscal 2022, primarily due to an increase in production and full cost pool amortization

base partially offset by an increase in oil and gas reserves.

and administrative expenses.

General and administrative expenses were $322,919 for the second quarter of fiscal 2023, a 51% increase

General and administrative expenses were $288,536 for the third quarter of fiscal 2023, a 20% increase

from $239,767 for the same period of fiscal 2022.

This was primarily due to an increase in salaries and contract services, legal fees,

employee stock option compensation and shareholder services.

Interest expense was $3,561 for the second quarter of fiscal 2023, a 53% decrease from $7,530 for the same period of fiscal

2022, due to a decrease in borrowings partially offset by an increase in interest rate.

There was no income tax expense for the three months ended September 30, 2022 and 2021.

The effective tax rate for the three

months ended September 30, 2022 and 2021 was 0%.

We are in a net deferred tax asset position and believe it is more likely than not that

these deferred tax assets will not be realized.

of Operations – Six Months Ended September 30, 2022 Compared to Six Months Ended September 30, 2021.

For the six months ended

September 30, 2022, there was net income of $2,510,388 compared to net income of $1,103,834 for the six months ended September 30, 2021.

This was a result of an increase in operating revenues partially offset by an increase in operating expenses that is further explained

This was primarily due to an increase in salaries, employee stock option compensation

and accounting fees.

Interest expense was $3,230 for the third quarter of fiscal 2023, a 3% increase from $3,132 for the same period of fiscal

2022, due to an increase in interest rate.

Income tax expense was $61,986 for the three months ended December 31, 2022, an 89% increase from $32,785 for the three months

ended December 31, 2021 consisting only of state income tax.

This increase was due to our continuing development program primarily in

the State of New Mexico.

The effective tax rate for the three months ended December 31, 2022 and 2021 was 5% and 4%, respectively.

federal income tax purposes, we are in a net deferred tax asset position and believe it is more likely than not that these deferred tax

assets will not be realized.

of Operations – Nine Months Ended December 31, 2022 and 2021.

For the nine months ended December 31, 2022, there was a net

income of $3,755,173 compared to net income of $1,857,136 for the nine months ended December 31, 2021.

This was a result of an increase

in operating revenues due to an increase in oil and gas production volumes and prices partially offset by an increase in operating expenses

that is further explained below.

and gas sales .

Revenue from oil and gas sales was $4,698,008 for the six months ended September 30, 2022, a 68% increase from $2,796,736

Revenue from oil and gas sales was $7,184,025 for the nine months ended December 31, 2022, a 64% increase from $4,370,720

for the same period of fiscal 2022.

This resulted from an increase in oil and gas prices and an increase in gas production partially

offset by a decrease in oil production.

This resulted from an increase in oil and natural gas prices and an increase in oil and natural gas

production volumes.

Volume (bbls)

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and exploration.

Production costs were $829,473 for the six months ended September 30, 2022, a 35% increase from $612,575 for the

six months ended September 30, 2021.

This is primarily the result of an increase in production taxes and marketing charges as a result

of the increase in oil and gas revenues.

Production costs were $1,308,143 for the nine months ended December 31, 2022, a 45% increase from $903,643 for the

nine months ended December 31, 2021.

This increase is primarily the result of an increase in production taxes and marketing charges as

a result of the increase in oil and gas revenues.

Depreciation,

depletion and amortization.

Depreciation, depletion and amortization expense was $771,507 for the six months ended September 30,

2022, an 42% increase from $544,380 for the six months ended September 30, 2021, primarily due to an increase in production and an increase

in the full cost pool amortization base partially offset by an increase in reserves.

Depreciation, depletion and amortization expense was $1,268,016 for the nine months ended December 31,

2022, a 56% increase from $812,398 for the nine months ended December 31, 2021, due to an increase production and full cost pool amortization

base partially offset by an increase in oil and gas reserves.

and administrative expenses.

General and administrative expenses were $641,449 for the six months ended September 30, 2022, a 23%

increase from $522,409 for the six months ended September 30, 2021.

This was primarily due to an increase in salaries and contract services,

employee stock option compensation, legal fees and shareholder services.

Interest expense was $6,692 for the six months ended September 30, 2022, a 67% decrease from $20,249 for the same period

fiscal 2022 due to a decrease in borrowings partially offset by an increase in interest rate.

There was no income tax expense for the six months ended September 30, 2022 and 2021.

The effective tax rate for the six months

ended September 30, 2022 and 2021 was 0%.

We are in a net deferred tax asset position and believe it is more likely than not that these

deferred tax assets will not be realized.

General and administrative expenses were $876,735 for the nine months ended December 31, 2022, a 19%

increase from $739,469 for the nine months ended December 31, 2021.

This was primarily due to an increase in employee stock option compensation,

salaries and contract services, and legal fees.

Interest expense was $9,770 for the nine months ended December 31, 2022, a 58% decrease from $23,255 for the nine months

ended December 31, 2021 due to a decrease in borrowings.

Income tax expense was $115,236 for the nine months ended December 31, 2022, a 108% increase from $55,492 for the nine months

ended December 31, 2021 consisting only of state income tax.

This increase was due to our continuing development program primarily in

the State of New Mexico.

The effective tax rate for the nine months ended December 31, 2022 and 2021 was 3%.

For federal income tax purposes,

we are in a net deferred tax asset position and believe it is more likely than not that these deferred tax assets will not be realized.

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-Q

Item 2. Management’s Discussion and Analysis