What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-02-09 · 108 added, 181 removed, 83 unchanged (78% of the section changed)

27 unchanged sentences

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

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.

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 its oil and gas under any existing contract or agreement.

do not have any delivery commitments to provide a fixed and determinable quantity of our 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 royalties and

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

December 31, 2023, we had working capital of $4,297,176 compared to working capital of $3,475,776 at March 31, 2023, an increase of $821,400

We focus our efforts on the acquisition of royalty and working

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

June 30, 2024, we had working capital of $3,038,700 compared to working capital of $3,259,200 at March 31, 2024, a decrease of $220,500

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 Nine Months Ended

For the Three Months Ended

Net cash provided by operating activities

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account balances.

Cash flow provided by our operating activities for the nine months ended December 31, 2023 was $3,374,717 in comparison

to $4,350,920 for the nine months ended December 31, 2022.

This decrease of $976,203 in our cash flow operating activities consisted

Cash flow provided by our operating activities for the three months ended June 30, 2024 was $1,078,614 in comparison

to $1,616,195 for the three months ended June 30, 2023.

This decrease of $537,581 in our cash flow from operating activities consisted

of an increase in our non-cash expenses of $51,324;

a decrease in our accounts receivable of $424,805;

an increase of $113,278 of

our accounts payable and accrued expenses;

and, a decrease in our net income for the current nine months of $2,674,516.

Variations in

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

an increase of $41,668 in our

accounts payable and accrued expenses;

a decrease of $14,068 in deferred income tax expense;

and, a decrease in our net income for the

current quarter of $174,575.

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 nine months ended December 31, 2023, we had net cash of $1,365,030 used for additions to oil and gas properties compared to $4,969,269

for the nine months ended December 31, 2022.

For the three months ended June 30, 2024, we had net cash of $517,387 used for additions to oil and gas properties and a $200,000 investment

in a limited liability company compared to $264,091 for the three months ended June 30, 2023.

Flow Provided by Financing Activities.

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account balances.

Cash flow used in our financing activities was $666,520 for the nine months ended December 31, 2023 compared to cash

flow used in our financing activities of $121,381 for the nine months ended December 31, 2022.

During the nine months ended December

31, 2023, we expended $213,600 to pay the special dividend and $455,132 to purchase 37,161 shares of our stock for the treasury account.

net cash increased $1,343,167, leaving cash and cash equivalents on hand of $3,578,938 as of December 31, 2023.

Net cash flow used in our financing activities was $319,996 for the three months ended June 30, 2024 compared to cash

flow provided by our financing activities of $211,388 for the three months ended June 30, 2023.

During the three months ended June 30,

2024, we expended $209,000 to pay the regular annual dividend, expended $188,637 to purchase 13,766 shares of our stock for the treasury

account, and received proceeds of $77,641 from the exercise of employee stock options.

During the three months ended June 30, 2023, we

expended $213,600 to pay the special dividend.

net cash increased $41,231, leaving cash and cash equivalents on hand of $2,514,715 as of June 30, 2024.

and Natural Gas Property Development

Participations in Fiscal 2025.

The Company currently plans to participate in the drilling and completion of 48 horizontal wells

and 1 vertical well at an estimated aggregate cost of approximately $2,200,000 for the fiscal year ending March 31, 2024.

of these horizontal wells are in the Delaware Basin located in the western portion of the Permian Basin in Lea and Eddy Counties,

The remaining 3 horizontal wells are in the Bakken formation in McKenzie County, north Dakota and the vertical well is

in Irion County, Texax.

the first nine months of fiscal 2024, Mexco expended approximately $264,000 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%.

of these wells began producing in November 2023 with initial average production rates of 1,066 barrels of oil, 4,393 barrels of water

and 2,483,000 cubic feet of gas per day, or 1,480 barrels of oil equivalent (“BOE”) per day.

the first nine months of fiscal 2024, Mexco expended approximately $152,000 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 .4%.

wells began producing in November 2023 with initial average production rates of 837 barrels of oil, 1,794 barrels of water and 659,000

cubic feet of gas per day, or 947 BOE per day.

the first nine months of fiscal 2024, Mexco expended approximately $105,000 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 approximately

These wells began producing in September 2023 with initial average production rates of 582 barrels of oil, 1,488 barrels of water

and 791,000 cubic feet of gas per day, or 714 BOE per day.

July 2023, Mexco expended approximately $787,000 to participate in the drilling of five horizontal wells in the Bone Spring Sand formation

The Company currently plans to participate in the drilling and completion of 30 horizontal wells at

an estimated cost of approximately $1,900,000 for the fiscal year ending March 31, 2025.

Twenty-six of these wells are in the Delaware

Basin located in the western portion of the Permian Basin in Lea and Eddy Counties, New Mexico.

The remaining 4 wells are in Reagan County,

April 2024, Mexco expended approximately $80,000 to participate in the drilling of five 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 2.2%.

July 2023, Mexco expended approximately $36,000 to participate in the drilling and completion of two horizontal wells in the Bone Spring

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

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

of these wells began producing in September 2023 with initial average production rates of 747 barrels of oil, 1,933 barrels of water

and 433,000 cubic feet of gas per day, or 819 BOE per day.

November 2023, Mexco expended approximately $32,000 to participate in the drilling and completion of one horizontal well in the Penn

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

Mexco’s working interest in this well is .16%.

April 2024, Mexco expended approximately $127,800 to drill four horizontal wells in the Wolfcamp Sand formation of the Delaware Basin

in Lea County, New Mexico.

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

$2,000,000 of which $600,000 has been funded as of December 31, 2023.

Subsequently, in February 2024, the Company funded another

of which $1,000,000 has been funded as of June 30, 2024.

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.

Subsequently, in July 2024, the Company funded another

$200,000 toward this investment.

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.

To date, this LLC has returned $58,022 or 7% of the total

April 2019, the Company invested over a period of four years $300,000 for a less than 1% investment commitment in a limited liability

company to purchase mineral interests in the Utica and Marcellus areas of Ohio.

To date, this LLC has returned $263,756 or 88% of the

total investment.

To date, this LLC has returned $98,637 or 8% of the total investment.

of Wells Drilled in Fiscal 2024.

The Company expended approximately $450,000 in the completion of 21 horizontal wells in which the

Company participated in fiscal 2023.

Company expended approximately $427,000 for the completion costs of eight horizontal wells in the Wolfcamp Sand formation of the Delaware

The Company also expects to expend approximately $300,000 in the completion of 19 horizontal wells

in which the Company participated during fiscal 2024.

Company expended approximately $90,000 for the completion costs of two horizontial wells in the Bone Spring Sand formation of the Delaware

Basin in Lea County, New Mexico that the Company participated in drilling during fiscal 2024.

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wells is .53%.

These wells began producing in October 2023 with initial average production rates of 825 barrels of oil, 3,540 barrels

of water and 2,150,000 cubic feet of gas per day, or, 1,183 BOE per day.

horizontal wells in the Bone Spring formation of the Delaware Basin in Eddy County, New Mexico in which the Company participated during

fiscal 2023 were 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.

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

October 2023, six of seven horizontal wells in the Bone Spring Sand formation of the Delaware Basin in Lea County, New Mexico in which

the Company participated during fiscal 2023 were completed with initial average production rates of 1,991 barrels of oil, 2,134 barrels

of water and 2,414,000 cubic feet of gas per day, or, 2,393 barrels of oil equivalent per day.

Mexco’s working interest in these

wells is .033%.

Subsequently, in July 2024, these wells were completed with initial average production rates of 1,402 barrels of oil,

2,009 barrels of water and 2,168,000 cubic feet of gas per day, or 1,763 BOE per day.

horizontal wells in the Bone Spring Sand formation of the Delaware Basin in Lea County, New Mexico in which the Company participated

during fiscal 2024 were completed in April 2024 with initial average production rates of 732 barrels of oil, 1,481 barrels of water and

657,000 cubic feet of gas per day, or 842 of oil equivalent per day.

Mexco’s working interest in these wells is approximately 1.16%.

horizontal well in the Penn Shale formation of the Delaware Basin in Lea County, New Mexico was completed in May 2024 with the initial

production rate of 964 barrels of oil, 2,441 barrels of water and 626,000 cubic feet of gas per day, or 1,068 of oil equivalent per day.

Mexco’s working interest in this well is .165%.

Subsequently,

in July 2024, the Company expended approximately $21,000 for the completion costs of four horizontial wells in the Bone Spring Sand formation

of the Delaware Basin in Lea County, New Mexico that the Company participated in drilling during fiscal 2024.

Mexco’s working interest

in these wells is .45%.

May 2024, Mexco expended approximately $27,000 for additional drilling costs in an exploratory well in the Fusselman Formation of Irion

County, Texas.

This well was later determined to be noncommercial and will be plugged and abandoned.

Acquisitions.

In December 2023, the Company acquired royalty (mineral) interests in 8 wells operated by Occidental Petroleum Corporation and located

in Reeves County, Texas for a purchase price of $364,000 which is effective November 1, 2023.

Subsequently, in January 2024, the Company

acquired an additional interest in these same wells for a purchase price of $91,000, effective December 1, 2023.

November 2023, the Company acquired small royalty (mineral) interests in 13 wells operated by Diamondback Energy, Inc.

and located in

Midland County, Texas for a purchase price of $45,300 which is effective November 1, 2023.

November 2023, the Company acquired small producing and non-producing royalty (mineral) interests in 1,280 gross acres in Crane, Ector,

Midland and Upton Counties, Texas for a purchase price of $60,500 which is October 1, 2023.

June 2023, the Company acquired small royalty (mineral) interests in 6 wells operated by Highpeak Energy and located in Howard County,

Texas for a purchase price of $20,000 which is effective July 1, 2023.

of Properties.

During the first quarter of fiscal 2024, the Company received approximately $280,000 in cash from a sale of joint

venture leasehold acreage and marginal producing working interest wells in Reagan County, Texas, marginal producing working interest

wells in Pecos County, Texas and interest in surface acreage in Palo Pinto County, Texas.

December 2023, the Company made on a 3-year Term Assignment of 98% of the Company’s leasehold interest in certain deep rights

of 200 acres in Loving and Ward Counties, Texas.

The Company received $5,000 per net leasehold acre in the total amount of approximately

The Company retained the remaining 2% leasehold interest as a participating interest in the full unit at approximately .625%

working interest.

The Company also retained an overriding royalty interest of 5% proportionately reduced.

in December 2023, the Company made on a 3-year Term Assignment of the Company’s leasehold interest in 12.96 net mineral acres

located in Lea County, New Mexico.

The Company received $2,500 per net leasehold acre in the total amount of $32,400.

The Company retained

an overriding royalty interest equal to the positive difference between 25% and any existing burdens of record as of the effective date.

In April 2024, the Company acquired small royalty (mineral) interests in 21 wells operated by Anadarko Petroleum Corporation and

Cimarex Energy Company and located in Reeves County, Texas for a purchase price of $158,000.

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 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 $62.72 per bbl in March 2023 to a high of $89.66

per bbl in September 2023.

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

of $1.74 per MMBtu in June 2023 to a high of $3.78 per MMBtu in January 2023.

December 31, 2023, the WTI posted price for crude oil was $67.63 and the Henry Hub posted price for natural gas was $2.58.

of Operations below for realized price.

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 $64.59 per bbl in December 2023 to a

high of $89.66 per bbl in September 2023.

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

low of $1.25 per MMBtu in March 2024 to a high of $3.34 per MMBtu in October 2023.

June 30, 2024, the WTI posted price for crude oil was $77.52 and the Henry Hub spot price for natural gas was $2.42 per MMBtu.

of Operations below for realized prices.

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 December 31, 2023:

following table summarizes our future payments we are obligated to make based on agreements in place as of June 30, 2024:

Payments due in:

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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 $9,084 less than 1 year for his portion of the shared office space.

of Operations – Three Months Ended December 31, 2023 and 2022.

For the quarter ended December 31, 2023, there was net income

of $345,610 compared to $1,244,785 for the quarter ended December 31, 2022 as a result of a decrease in operating revenues due to a decrease

in oil and gas prices and production partially offset by a decrease in operating expenses that is further explained below.

and gas sales .

Revenue from oil and gas sales was $1,610,595 for the third quarter of fiscal 2024, a 35% decrease from $2,486,017

for the same period of fiscal 2023.

This resulted from a decrease in oil and natural gas production volumes and a decrease in oil and

natural gas prices.

Volume (bbls)

Average Price (per bbl)

Average Price (per mcf)

and exploration.

Production costs were $401,035 for the third quarter of fiscal 2024, a 16% decrease from $478,670 for the same period

of fiscal 2023.

This is primarily the result of a decrease in production taxes and marketing charges as a result of the decrease in oil

and gas revenues.

Depreciation,

depletion and amortization.

Depreciation, depletion and amortization expense was $400,337 for the third quarter of fiscal 2024, a

19% decrease from $496,509 for the same period of fiscal 2023, primarily due to a decrease in production and full cost pool amortization

and administrative expenses.

General and administrative expenses were $335,153 for the third quarter of fiscal 2024, a 16% increase

from $288,536 for the same period of fiscal 2023.

This was primarily due to an increase in accounting fees and employee stock option

compensation.

Federal income tax for the three months ended December 31, 2023 was $169,986.

There was no federal income tax expense for

the three months ended December 31, 2022 because the Company was in a net deferred tax asset position.

State income tax was $32,959 for

the three months ended December 31, 2023, a 47% decrease from $61,986 for the three months ended December 31, 2022 due to the decrease

in oil and natural gas sales in the State of New Mexico.

The effective tax rate for state and federal taxes combined for the three months

ended December 31, 2023 and 2022 was 37% and 5%, respectively.

The increase in the effective federal tax rate is the result of the reconciliation

to the federal tax return.

of Operations – Nine Months Ended December 31, 2023 and 2022.

For the nine months ended December 31, 2023, there was a net

income of $1,080,657 compared to net income of $3,755,173 for the nine months ended December 31, 2022.

This was a result of a decrease

in operating revenues due to a decrease in oil and gas prices and a decrease in gas production partially offset by an increase in oil

production and a decrease in operating expenses that is further explained below.

effective May 15, 2018, extended another 36 months to July 31, 2024 and extended another 36 to July 31, 2027.

Of this total obligation

for the remainder of the lease, our majority shareholder will pay $10,625 less than 1 year and $21,198 1-3 years for his portion

of the shared office space.

of Operations – Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023.

For the quarter ended June 30,

2024, net income was $291,039 compared to net income of $465,614 for the quarter ended June 30, 2023.

This was primarily the result of

a decrease in operating revenues and an increase in operating expenses, which is further explained below.

and gas sales.

Revenue from oil and gas sales was $4,706,395 for the nine months ended December 31, 2023, a 35% decrease from $7,184,025

for the same period of fiscal 2023.

This resulted from a decrease in oil and natural gas prices and a decrease in natural gas production

partially offset by an increase in oil production.

Revenue from oil and gas sales was $1,688,056 for the quarter ended June 30, 2024, a 2% decrease from $1,715,090 for

the quarter ended June 30, 2023.

This primarily resulted from a decrease in oil and gas production and a decrease in gas prices partially

offset by an increase in oil prices.

The decrease in the natural gas price was, in part, due to temporary pipeline constraints on certain

properties and at certain times, prices were negative.

The following table sets forth our oil and natural gas revenues, production quantities

and average prices received during the three months ended June 30:

Volume (bbls)

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and exploration.

Production costs were $1,143,116 for the nine months ended December 31, 2023, a 13% decrease from $1,308,143 for

the nine months ended December 31, 2022.

This decrease is primarily the result of a decrease in production taxes and marketing charges

as a result of the decrease in oil and gas revenues.

Production costs were $437,420 for the three months ended June 30, 2024, a 25% increase from $349,407 for the three

months ended June 30, 2023.

This increase is primarily the result of an increase in gathering, processing and transportation expenses

as well as lease operating expenses on new wells in which we own a working interest.

Depreciation,

depletion and amortization.

Depreciation, depletion and amortization expense was $1,268,703 for the nine months ended December 31,

2023, a .1% increase from $1,268,016 for the nine months ended December 31, 2022, due to a decrease in oil and gas reserves and an increase

in oil production partially offset by a decrease in gas production and the full cost amortization base.

Depreciation, depletion and amortization (“DD&A”) expense was $539,697 for the first

quarter of fiscal 2025, an 11% increase from $486,186 for the first quarter of fiscal 2024, primarily due to a decrease in gas reserves

and an increase in the full cost pool amortization base partially offset by a decrease in oil and gas production volumes and an increase

and administrative expenses.

General and administrative expenses were $981,665 for the nine months ended December 31, 2023, a 12%

increase from $876,735 for the nine months ended December 31, 2022.

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

accounting fees and engineering services partially offset by a decrease in legal fees.

Federal income tax for the nine months ended December 31, 2023 was $319,848.

There was no federal income tax expense for the

nine months ended December 31, 2022 because the Company was in a net deferred tax asset position.

State income tax was $79,123 for the

nine months ended December 31, 2023, a 31% decrease from $115,236 for the nine months ended December 31, 2022 due to the decrease in

oil and natural gas sales in the State of New Mexico.

The effective tax rate for state and federal taxes combined for the nine months

ended December 31, 2023 and 2022 was 27% and 3%, respectively.

The increase in the effective federal tax rate is the result of the reconciliation

to the federal tax return.

General and administrative expenses were $367,045 for the three months ended June 30, 2024, an 8% increase

from $340,969 for the three months ended June 30, 2023.

This was primarily due to an increase in engineering and contract services.

Interest expense, which consisted of debt issuance costs, was $1,083 for the first quarter of fiscal 2025, an increase of

0.2% from $1,081 for the first quarter of fiscal 2024.

Federal income tax for the three months ended June 30, 2024 was $86,520.

Federal income tax for the three months ended June

30, 2023 was $88,683.

State income tax was $20,066 for the three months ended June 30, 2024, a 39% decrease from $32,818 for the three

months ended June 30, 2023 due to the decrease in oil and natural gas sales in the State of New Mexico.

The effective tax rate for state

and federal taxes combined for the three months ended June 30, 2024 and 2023 was 27% and 21%, respectively.

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