What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-06-26 compared with 2022-06-27 · 118 added, 114 removed, 274 unchanged (46% of the section changed)

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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 Years Ended March 31,

Net cash provided by operating activities

the Years Ended March 31,

Net cash provided by operating

Net cash used in investing activities

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$ (1,710,024 )

Net cash (used in) provided by financing activities

$ (1,422,439 )

Net cash used in financing activities

Flow Provided by Operating Activities.

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non-cash expenses of $565,838;

an increase in our accounts receivable of $291,262;

an increase of $91,917 in our accounts payable and

a decrease in our accounts receivable of $594,673;

a decrease of $128,615 in our accounts payable and

accrued expenses;

and, an increase in our net income of $1,807,636.

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.

Variations in cash flow from operating activities may impact our

level of exploration and development expenditures.

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

also consist of employee compensation, accounting, insurance and other general and administrative expenses that we have incurred in order

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For the year ended March 31, 2023, we had net cash of $5,014,357 used for additions to oil and gas properties and a $425,000 investment

in a limited liability company compared to $1,337,624 and $50,000, respectively, for the year ended March 31, 2021.

Flow Provided by Financing Activities.

in two limited liability companies compared to $1,635,024 and $75,000, respectively, for the year ended March 31, 2022.

Flow Used in Financing Activities.

Cash flow from financing activities is derived from our changes in long-term debt and in equity

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Net cash flow used in our financing activities was $209,815 for the year ended March 31, 2023 compared to net cash

flow provided by our financing activities of $701,009 for the year ended March 31, 2021.

During the years ended March 31, 2022 and 2021,

we received advances of $275,000 and $935,000, respectively, from our credit facility.

For the year ended March 31, 2022 and March 31,

2021, we made payments of $1,455,000 and $550,000, respectively, on the credit facility.

For the year ended March 31, 2022 and March

31, 2021, we received proceeds of $458,570 and $247,435, respectively for the exercise of employee and director stock options.

the year ended March 31, 2021, we received $68,574 under the paycheck protection program (PPP).

flow used in our financing activities of $721,430 for the year ended March 31, 2022.

During the year ended March 31, 2023, we received

advances and made payments of $675,000 on our credit facility, received proceeds of $16,700 from the exercise of director stock options,

received payment of $30,179 form a director for profits on purchase of stock within the six-month window of a previous stock sale, expended

$244,494 for the purchase of 18,416 shares of our stock for the treasury and, expended $12,200 for the renewal of our credit facility.

During the year ended March 31, 2022, we received advances of $275,000 and made payments of $1,455,000 on our credit facility and received

proceeds of $458,570 for the exercise of employee and director stock options.

net cash increased $865,005, leaving cash and cash equivalents on hand of $2,235,771 as of March 31, 2023.

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$4,200,000, of which $3,750,000 was expended during the fiscal year ending March 31, 2023.

Eleven of these wells have not been completed.

All 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 Reeves County, Texas.

Eighteen of these wells have not been completed.

Thirty-nine 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 portion of the Permian Basin in Reagan County, Texas.

addition to the above working interests, there were 85 gross wells (.04 net wells) drilled by other operators on Mexco’s royalty

interests and 50 gross wells (.29 net wells) obtained through acquisitions.

expended approximately $92,000 to participate in the completion of four horizontal wells in the Wolfcamp Sand formation of the Delaware

Basin located in the western portion of the Permian Basin in Lea County, New Mexico.

These wells were completed in January 2022 with

initial average production rates of 1,204 barrels of oil, 3,369 barrels of water and 3,141,000 cubic feet of gas per day, or, 1,728 barrels

of oil equivalent per day.

Mexco’s working interest in these wells is .37%.

expended approximately $59,000 to participate in the drilling of two horizontal wells in the 3 rd Bone Spring formation and

two horizontal wells in the Wolfcamp Sand formation of the Delaware Basin located in the western portion of the Permian Basin in Lea

County, New Mexico.

April 2022, Mexco expended approximately $176,000 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 April 2022, Mexco expended approximately

$101,000 to complete these wells and in May 2022 the wells began flowing 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

expended approximately $126,000 to participate in the drilling of four horizontal wells in the Wolfcamp Sand formation of the Delaware

Basin located in the western portion of the Permian Basin in Lea County, New Mexico.

Subsequently, in May 2023, Mexco

expended approximately $211,000 to complete these wells.

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%.

expended approximately $180,000 to participate in the drilling and completion of four horizontal wells in the Lower Wolfcamp Shale of

These wells were completed in

February and March 2023 with initial average production rates of 1,011 barrels of oil, 4,581 barrels of water and 3,577,000 cubic feet

of gas per day, or 1,607 barrels of oil equivalent per day.

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 was completed in October 2022

with initial average production rates of 295 barrels of oil, 1,313 barrels of water and 237,000 cubic feet of gas per day, or, 335 barrels

of oil equivalent per day.

expended approximately $649,000 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 were completed in January

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 $84,000 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%.

These wells began producing in January

2023 with initial average production rates of 1,367 barrels of oil, 3,900 barrels of water and 1,786,000 cubic feet of gas per day, or,

1,665 barrels of oil equivalent per day.

expended $31,500 for its share to participate in the drilling and completion of two horizontal wells in the 3 rd Bone Spring

Sand formation of the Delaware Basin located in the western portion of the Permian Basin in Lea County, New Mexico.

These wells were

completed in August 2021 with initial average production rates of 1,294 barrels of oil, 3,345 barrels of water and 3,124,000 cubic feet

of gas per day, or, 1,815 barrels of oil equivalent per day.

expended approximately $30,000 to participate in the drilling and completion of two horizontal wells in the Bone Spring formation of

the Delaware Basin in Lea County, New Mexico.

Mexco’s working interest in these wells is .1%.

expended approximately $107,000 to participate in the drilling of three horizontal wells in the 2 nd Bone Spring formation

and two horizontal wells in the 3 rd Bone Spring formation of the Delaware Basin located in the western portion of the Permian

Basin in Lea County, New Mexico.

Mexco’s working interest in these wells is an average of approximately .22%.

Subsequently, these

wells were completed in May 2022 with initial average production rates of 1,482 barrels of oil, 2,674 barrels of water and 1,722,000

cubic feet of gas per day, or, 1,769 barrels of oil equivalent per day.

expended approximately $140,400 to participate in the drilling and completion of four horizontal wells in the Wolfcamp Sand formation

of the Delaware Basin located in the western portion of the Permian Basin in Lea County, New Mexico.

These wells were completed in January

These wells began producing in February

2023 with initial average production rates of 622 barrels of oil, 1,991 barrels of water and 262,000 cubic feet of gas per day, or, 666

barrels of oil equivalent per day.

Mexco’s working interest in these wells is .37%.

participated in the drilling and completion of two horizontal wells in the Wolfcamp formation of the Delaware Basin located in the western

portion of the Permian Basin in Lea County, New Mexico with aggregate costs of approximately $88,000.

These wells were completed at the

end of June 2021 with initial average production rates of 1,184 barrels of oil, 4,380 barrels of water and 1,818,000 cubic feet of gas

per day, or 1,444 barrels of oil equivalent per day.

Mexco’s working interest in these wells is .6%.

participated in the drilling of two horizontal wells in the Bone Spring formation of the Delaware Basin located in the western portion

of the Permian Basin in Reeves County, Texas at an aggregate cost of approximately $131,000.

Mexco working interest in these wells is

approximately .8%.

These wells have been completed and began producing in January 2022.

Company also participated in the drilling and completion of four vertical wells in Winkler County, Texas at an aggregate cost of $15,800.

expended approximately $93,000 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 .11%.

These wells began producing

in December 2022.

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, operated by Blackbeard Operating, LLC are currently producing.

These wells were subsequently 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.

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.

Mexco’s working interest in these wells is approximately .03%.

These wells are currently being completed.

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.

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

These wells are currently awaiting

completion operations.

March 2023, Mexco expended approximately $60,000 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 approximately .285%.

These wells began

drilling in April 2023.

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

of which $400,000 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.

of Wells Drilled in Fiscal 2023.

The Company expended approximately $165,000 for the additional completion costs of 12 horizontal

wells located in Eddy and Lea Counties, New Mexico that the Company participated in drilling during fiscal 2021.

As of June 2021, all

of these wells were completed and are currently producing.

The Company expended approximately $329,000 for the completion costs of 8 horizontal wells located

in Lea County, New Mexico that the Company participated in drilling during fiscal 2022.

The first 4 of these wells began producing in

May 2022 and the remaining 4 were completed in November 2022 with initial average production rates of 1,168 barrels of oil, 3,797 barrels

of water and 2,621,000 cubic feet of gas per day, or, 1,605 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.

The Company also

acquired, for a purchase price of $117,200, royalty interests covering 28 producing wells in 6 counties in the Haynesville trend

area of Louisiana and 5 counties in Texas.

Participations.

In April 2022, Mexco expended approximately $140,000 to participate in the drilling of four horizontal wells in the

Wolfcamp Sand formation of the Delaware Basin located in the western portion of the Permian Basin in Lea County, New Mexico.

working interest in these wells is .52%.

April 2022, Mexco expended approximately $427,000 to participate in the drilling 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 2.9%.

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

of the Delaware Basin located in the western portion of the Permian Basin in Lea County, New Mexico.

Mexco’s working interest in

these wells is .52%.

May 2022, Mexco expended approximately $230,000 to participate in the drilling of a horizontal well 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 this

well is 4.8%.

June 2022, Mexco expended approximately $300,000 to participate in the drilling and completion of four horizontal wells in the

Bone Spring formation of the Delaware Basin located in the western portion of the Permian Basin in Eddy County, New Mexico.

working interest in these wells is 2.1%.

Acquisitions.

The Company purchased various overriding royalty interests in 53 producing wells primarily operated by XTO Energy, Inc.

in the Eagleford area of Atascosa and Karnes Counties, Texas for a purchase price of $567,000 with an effective date of January 1, 2022.

Subsequently,

on May 4, 2022 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 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.

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.

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

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For example, in the last twelve months,

the NYMEX West Texas Intermediate (“WTI”) posted price for crude oil has ranged from a low of $54.63 per bbl in April 2021

to a high of $119.68 per bbl in March 2022.

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 $118.09 per bbl in June 2022.

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

a low of $2.43 per MMBtu in April 2021 to a high of $6.70 per MMBtu in February 2022.

a low of $1.93 per MMBtu in March 2023 to a high of $9.85 per MMBtu in August 2022.

March 31, 2023 the WTI posted price for crude oil was $71.65 per bbl and the Henry Hub spot price for natural gas was $2.10 per MMBtu.

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had net income of $4,662,702 for the year ended March 31, 2023 compared to $2,855,066 for the year ended March 31, 2022, a 63% increase

as a result of an increase in operating revenues due to an increase in oil and natural gas prices and production partially offset

by an increase in operating expenses that is further explained below.

as a result of an increase in operating revenues due to an increase in oil and natural gas prices and production partially offset by

an increase in operating expenses that is further explained below.

and natural gas sales.

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a 38% increase from $1,345,435 in fiscal 2022.

This was primarily due to an increase in oil and gas production and an increase in the full

cost pool amortization base partially offset by an increase in the oil and gas reserves.

This was primarily due to an increase in oil and gas production and an increase in the

full cost pool amortization and a decrease in the oil and gas reserves.

and administrative expenses.

General and administrative expenses were $1,051,435 for the year ended March 31, 2022, a 26% increase

General and administrative expenses were $1,120,691 for the year ended March 31, 2023, an 18% increase

from $949,079 for the year ended March 31, 2022.

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

director fees, accounting fees and bank charges.

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

and contract services, legal and accounting fees.

Interest expense was $13,097 in fiscal 2023, a 51% decrease from $26,512 in fiscal 2022, due to a decrease in borrowings.

There was no federal income tax for fiscal 2023 or fiscal 2022.

The effective tax rate for fiscal 2022 and fiscal 2021 was

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.

State income tax was $164,510 in fiscal 2023, a 61% increase from $102,356 in fiscal 2022, due to the increase in oil and natural gas

The effective tax rate for fiscal 2023 and fiscal 2022 was 3.4% and 3.5%, respectively.

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

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future payments we are obligated to make based on agreements in place as of March 31, 2023:

Payments due in:

less than 1 year

Contractual obligations:

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 $15,572 less than 1 year and $20,763 1-3 years for his portion of the shared office space.

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 $15,572 less than 1 year and $5,191 1-3 years for his portion of the shared office

Capital Resources

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Since the revenue

checks are generally received two to four months after the production month, the Company accrues for revenue earned but not received

checks are generally received two to three months after the production month, the Company accrues for revenue earned but not received

by estimating production volumes and product prices.

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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.

The Company determines an arrangement is a lease at inception.

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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 7. Management’s Discussion and Analysis