Item 1. Business
ITEM
1. BUSINESS
General
Mexco
Energy Corporation, a Colorado corporation, is an independent oil and gas company engaged in the acquisition, exploration, development
and production of crude oil and natural gas properties located in the United States. Incorporated in April 1972 under the name Miller
Oil Company, the Company changed its name to Mexco Energy Corporation effective April 30, 1980. At that time, the shareholders of the
Company also approved amendments to the Articles of Incorporation resulting in a one-for-fifty reverse stock split of the Company’s
common stock.
Our
total estimated proved reserves at March 31, 2025 were approximately 1.401 million barrels of oil equivalent (“MMBOE”) of
which 48% was oil and 52% was natural gas, and our estimated present value of proved reserves was approximately
$23 million based on estimated future net revenues excluding taxes discounted at 10% per annum, pricing and other assumptions set forth
in “Item 2 – Properties” below.
Nicholas
C. Taylor beneficially owns approximately 46% of the outstanding shares of our common stock. Mr. Taylor is also our Chairman of the Board
and Chief Executive Officer. As a result, Mr. Taylor has significant influence in matters voted on by our shareholders, including the
election of our Board members. Mr. Taylor participates in all facets of our business and has a significant impact on both our business
strategy and daily operations.
3
Company
Profile
Since
our inception, we have been engaged in acquiring and developing oil and gas properties and the exploration for and production of natural
gas, crude oil, condensate and natural gas liquids (“NGLs”) within the United States. We especially seek to acquire proved
reserves that fit well with existing operations or in areas where Mexco has established production. Acquisitions preferably will contain
most of their value in producing wells, behind pipe reserves and high quality proved undeveloped locations. Competition for the purchase
of proved reserves is intense. Sellers often utilize a bid process to sell properties. This process usually intensifies the competition
and makes it extremely difficult to acquire reserves without assuming significant price and production risks. We actively search for
opportunities to acquire proved oil and gas properties. However, because the competition is intense, we cannot give any assurance that
we will be successful in our efforts during fiscal 2026.
While
we own oil and gas properties in other states, the majority of our activities are centered in West Texas and Southeastern New Mexico.
The Company also owns producing properties and undeveloped acreage in fourteen states. We acquire interests in producing and non-producing
oil and gas leases from landowners and leaseholders in areas considered favorable for oil and gas exploration, development and production.
In addition, we may acquire oil and gas interests by joining in oil and gas drilling prospects generated by third parties. We may also
employ a combination of the above methods of obtaining producing acreage and prospects. In recent years, we have placed primary emphasis
on the evaluation and purchase of producing oil and gas properties, including working, royalty and mineral interests, and prospects that
could have a potentially meaningful impact on our reserves. All of the Company’s oil and gas interests are operated by others.
From
1983 to 2025, Mexco Energy Corporation made numerous acquisitions of royalties, overriding royalties, minerals and working interests
in producing oil and gas properties including the following most significant acquisitions:
1990-1994
Royalty interests,
aggregate purchase price of approximately $501,000 covering multiple wells in the Gomez (Ellenberger) Field of Pecos County, Texas.
1993-2014
Tabbs Bay Oil Company and
Thompson Brothers Lumber Company, respectively dissolved in 1957 and 1947. Purchase covering thousands of acres located respectively
in 19 counties of Texas, 3 parishes of Louisiana and one county in Arkansas and 8 counties of Texas, respectively consisting of various
mineral, royalty and overriding royalty interests.
1997
Forman Energy
Corporation, purchase price of $1,591,000 consisting primarily of working interests in approximately 634 wells located in 12 states.
2004
Royalty interests, purchase
price $304,000 covering 37 producing wells in the Cotton Valley formation in Limestone County, Texas and the Lower Cotton Valley
formation in Jackson Parish, Louisiana. This acreage also contains additional potential undrilled locations.
Royalty interests, purchase
price $500,000 covering 4 producing gas units in Freestone County, Texas containing 33 producing wells and additional potential undeveloped
locations in the Cotton Valley formation.
2005
Royalty interests, purchase
price $550,000 covering 75 producing wells and additional potential undeveloped locations in the Cotton Valley formation of Freestone
and Limestone Counties, Texas.
2007
Non-operated working interests,
purchase price $425,000 covering 2 properties in Lea County, New Mexico.
Royalty (mineral) acreage,
purchase price $1,850,000 covering 122 mineral acres in the Newark East (Barnett Shale) Field of Tarrant County, Texas amounting
to approximately 21.45% royalty interest.
2008
Royalty (mineral) acreage,
purchase price $429,000 covering 522 mineral acres in the Newark East (Barnett Shale) Field of Tarrant County, Texas containing 6
producing natural gas wells and additional potential undeveloped well locations. In March 2009, purchased additional interests, $49,000.
4
2010
Southwest Texas
Disposal Corporation, purchase price $478,000 consisting of royalty interests in over 300 wells located in 60 counties and parishes
of 6 states.
Overriding
royalty interests, purchase price $1,650,000 covering 5,120 gross acres over 8 sections in the Haynesville trend area of DeSoto Parish,
Louisiana containing 6 horizontal producing wells and additional potential undeveloped drill sites. The Company paid $1.46 million
in cash and the remainder was paid as 26,833 shares of its common stock issued from treasury shares.
2011
Non-operating
working interests, purchase price $670,000 covering 160 gross acres in the Fuhrman-Mascho Field of Andrews County, Texas containing
5 producing wells in the Grayburg and San Andres formations and additional potential drill sites. In March 2012, purchased additional
working interests, $275,000.
2012
TBO Oil and Gas, LLC, purchase
price of $1,150,000 consisting of working interests in approximately 280 wells located in 16 counties of 3 states.
2014
Royalty interests, purchase
price $200,000 covering 43 wells in 12 counties of 8 states, primarily in Texas.
Royalty interests, purchase
price $580,000 covering 580 wells in 87 counties of 8 states. Approximately 90% of the net revenue from these royalties is produced
by 157 wells located in the Barnett Shale of the Fort Worth Basin of Texas.
Royalty and mineral interests,
purchase price $1,000,000 covering approximately 1,800 wells in 27 counties of Texas. Of these oil and gas reserves, approximately
60% is natural gas and 40% oil.
Non-Operated working interests,
purchase price $840,000 in 70 Natural gas producing wells located in 5 counties of Oklahoma.
Non-Operated working interests,
purchase price $200,000 covering 80 wells located in Hockley and Pecos Counties, Texas.
Non-Operated working interests,
purchase price $450,000 covering 43 wells in Webster Parish, Louisiana; Eddy County, New Mexico; and, Nolan and Smith Counties, Texas.
2019
Royalty interest investment,
$300,000 for a less than 1% investment commitment in a limited liability company, capitalized at approximately $50 million to purchase
royalty interests consisting of minerals located in the Marcellus and Utica areas of Ohio. This LLC has returned $321,112 (107%)
of the total investment since inception in fiscal 2020.
2022-2023
Overriding
royalty interests, purchase price of $567,000 covering 53 producing wells and several additional potential locations for development
in Atascosa and Karnes Counties, Texas.
Royalty interests, purchase
price of $939,000 covering 22 producing wells and several additional potential locations for development in the Eagleford area of
Dimmit County, Texas.
Royalty interest investment,
$2,000,000 for an approximate 2% investment commitment in a limited liability company, capitalized at approximately $100 million
to purchase royalty interests consisting of minerals located in the Marcellus and Utica areas of Ohio. As of the date of this report,
$1,800,000 of the commitment has been expended and 14% of the investment has been returned.
Royalty interests, purchase
price of $117,200 covering 28 producing wells in 6 counties in the Haynesville trend area of Louisiana and 5 counties in Texas.
2023-2024
Royalty interests, purchase
price of $455,000 covering 8 producing wells and additional potential locations for development in Reeves County, Texas.
5
Royalty interests,
purchase price of $367,500 covering 84 producing wells and additional potential locations for development in 6 counties in Texas.
Royalty interest, purchase
price of $575,600 covering 9 producing wells with additional potential locations for development and 4 producing wellbores in Weld
County, Colorado.
Royalty interests, purchase
price of $390,300 covering 255 producing wells in the Haynesville trend area of Caddo Parish, Louisiana.
2024-2025
Royalty interests, purchase
price of $568,000 covering 30 producing wells and additional potential locations for development in Adams, Broomfield and Weld Counties,
Colorado.
Royalty interests, purchase
price of $483,000 covering 240 producing wells in Laramie County, Wyoming and Adams and Weld Counties, Colorado.
Royalty interest, purchase
price of $473,000 covering 84 producing wells in DeSoto Parish, Louisiana and Karnes, Live Oak, Reagan, Reeves and Upton Counties,
Texas.
Royalty interests, purchase
price of $260,000 covering 3 producing wells with additional potential locations for development in Eddy County, New Mexico.
Royalty interests, purchase
price of $188,000 covering over 400 producing wells in multiple counties throughout the states of Nebraska, North Dakota, South Dakota
and Montana.
Industry
Environment and Outlook
The
commodity price environment was challenging in fiscal 2025. The war in Ukraine and the Israel-Hamas war, rising interest rates, global
supply chain disruptions, concerns about a potential economic downturn or recession and measures to combat persistent inflation and instability
in the financial sector have contributed to recent economic and pricing volatility and may continue to impact pricing throughout fiscal
2026. In light of these challenges facing our industry and in response to the continued challenging environment, our primary business
strategies for fiscal 2026 will continue to include: (1) optimizing cash flows through operating efficiencies and cost reductions, (2)
divesting of non-core assets, and (3) working to balance capital spending with cash flows to minimize borrowings and maintain ample liquidity.
See
Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for discussion of our fiscal
2025 operating results and potential impact on fiscal 2026 operating results due to commodity price changes.
Oil
and Gas Operations
As
of March 31, 2025, oil contributed approximately 84% of our oil and natural gas sales and approximately 48% of our total proved reserves
volumes for fiscal 2025. Revenues from oil and gas royalty interests accounted for approximately 31% of our total operating revenues
for fiscal 2025.
There
are two primary areas in which the Company is focused, 1) the Delaware Basin located in the Western portion of the Permian Basin including
Lea and Eddy Counties, New Mexico and Reeves and Loving Counties, Texas and 2) the Midland Basin located in the Eastern portion of the
Permian Basin including Reagan, Upton, Midland, Martin, Howard and Glasscock Counties, Texas. The Permian Basin in total accounts for
80% of our discounted future net cash flows from proved reserves and 80% of our gross revenues.
The
Permian Basin is one of the oldest and most prolific producing basins in North America which has been a significant source of oil production
since the 1920s. The Permian Basin is known to have a number of zones of oil and natural gas bearing rock throughout.
The
Delaware Basin properties, encompassing 39,850 gross acres, 211 net acres, 751 gross producing wells or 4 net wells account for approximately
67% of our discounted future net cash flows from proved reserves as of March 31, 2025. For fiscal 2025, these properties accounted for
65% of our gross revenues. Of these discounted future net cash flows from proved reserves, approximately 27% are attributable to proven
undeveloped reserves which would be developed through new drilling.
6
The
Midland Basin properties, encompassing 114,077 gross acres, 232 net acres, 1,652 gross producing wells or 4 net wells account for approximately
12% of our discounted future net cash flows from proved reserves as of March 31, 2025. For fiscal 2025, these properties accounted for
14% of our gross revenues. Of these discounted future net cash flows from proved reserves, approximately 3% are attributable to proven
undeveloped reserves which would be developed through new drilling.
Mexco
believes its most important properties for future development by horizontal drilling and hydraulic fracturing area are located in Lea
and Eddy Counties, New Mexico of the Delaware Basin and the Midland Basin in Midland, Reagan and Upton Counties, Texas.
For
more on these and other operations in this area see “Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Liquidity and Capital Resources Commitments”.
We
own partial interests in approximately 7,500 producing wells all of which are located within the United States in the states of Texas,
New Mexico, Oklahoma, Louisiana, Alabama, Arkansas, Wyoming, Kansas, Colorado, Montana, Virginia, North Dakota, South Dakota and Ohio.
Additional information concerning these properties and our oil and gas reserves is provided below.
The
following table indicates our oil and gas production in each of the last five years:
Year
Oil(Bbls)
Gas (Mcf)
2025
83,564
570,012
2024
69,999
502,879
2023
73,968
534,363
2022
61,689
393,841
2021
50,327
324,205
Competition
and Markets
The
oil and gas industry is a highly competitive business. Competition for oil and gas reserve acquisitions is significant. We may compete
with major oil and gas companies, other independent oil and gas companies and individual producers and operators, some of which have
financial and personnel resources substantially in excess of those available to us. As a result, we may be placed at a competitive disadvantage.
Competitive factors include price, contract terms and types and quality of service, including pipeline distribution. The price for oil
and gas is widely followed and is generally subject to worldwide market factors. Our ability to acquire and develop additional properties
in the future will depend upon our ability to evaluate and select suitable properties and to consummate transactions in this highly competitive
environment in a timely manner.
In
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
factors affect the quantities of oil and natural gas production and the price we can obtain for the production from our oil and natural
gas properties. Such factors include: the extent of domestic production; the level of imports of foreign oil and natural gas; the general
level of market demand on a regional, national and worldwide basis; domestic and foreign economic conditions that determine levels of
industrial production; political events in foreign oil-producing regions; and variations in governmental regulations including environmental,
energy conservation and tax laws or the imposition of new regulatory requirements upon the oil and natural gas industry.
The
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.
7
Major
Customers
We
made sales that amounted to 10% or more of operating revenues as follows for the years ended March 31:
2025
2024
Company A
58 %
59 %
Historically,
the Company has not experienced significant credit losses on our oil and gas accounts and management is of the opinion that significant
credit risk does not exist. Because a ready market exists for oil and gas production, we do not believe the loss of any individual purchaser
would have a material adverse effect on our financial position or results of operations.
Environmental
Regulation
The
oil and gas industry is extensively regulated at the federal, state, and local levels. Regulations affecting elements of the energy sector
are under constant review for amendment or expansion and frequently more stringent requirements are imposed. Various federal and state
agencies, including the Texas Railroad Commission, the Bureau of Land Management (the “BLM”), an agency of the U.S Department
of the Interior (“DOI”), the Federal Energy Regulatory Commission (“FERC”), the U.S. Environmental Protection
Agency (the “EPA”), the Department of Transportation (“DOT”) and the U.S. Occupational Safety and Health Administration
(“OSHA”), have legal and regulatory authority and oversight over the operations on the properties in which the Company owns
an interest.
Under
certain environmental laws and regulations, the operators of the Company properties could be subject to strict, joint and several liability
for the removal or remediation of property contamination, whether at a drill site or a waste disposal facility, even when the operators
did not cause the contamination or their activities were in compliance with all applicable laws at the time the actions were taken. The
Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), also known as the “superfund”
law, for example, imposes liability, regardless of fault or the legality of the original conduct, on certain classes of persons for releases
into the environment of a “hazardous substance.” Liable persons may include the current or previous owner and operator of
a site where a hazardous substance has been disposed and persons who arranged for the disposal of a hazardous substance at a site. Under
CERCLA and similar statutes, government authorities or private parties may take actions in response to threats to the public health or
the environment or sue responsible persons for the associated costs. In the course of operations, the working interest owner and/or the
operator of the Company properties may have generated and may generate materials that could trigger cleanup liabilities. In addition,
the Company properties have produced oil and/or natural gas for many years, and previous operators may have disposed or released hydrocarbons,
wastes or hazardous substances at the Company properties. The operator of the Company properties or the working interest owners may be
responsible for all or part of the costs to clean up any such contamination. Although the Company is not the operator of such properties,
its ownership of the properties could cause it to be responsible for all or part of such costs to the extent CERCLA or any similar statute
imposes responsibility on such parties as “owners.”
Various
state governments and regional organizations comprising state governments already have enacted legislation and promulgated rules restricting
greenhouse gases (“GHGs”) emissions or promoting the use of renewable energy, and additional such measures are frequently
under consideration. Although it is not possible at this time to estimate how potential future requirements addressing GHG emissions
would impact operations on the Company properties and revenue, either directly or indirectly, any future federal, state or local laws
or implementing regulations that may be adopted to address GHG emissions could require the operators of our properties to incur new or
increased costs to obtain permits, operate and maintain equipment and facilities, install new emission controls, acquire allowances to
authorize GHG emissions, pay taxes related to GHG emissions or administer a GHG emissions program. Regulation of GHGs could also result
in a reduction in demand for and production of oil and natural gas. Additionally, to the extent that unfavorable weather conditions are
exacerbated by global climate change or otherwise, the Company properties may be adversely affected to a greater degree than previously
experienced.
We
did not incur any material capital expenditures for remediation or pollution control activities for the year ended March 31, 2025. Additionally,
as of the date of this report, we are not aware of any environmental issues or claims that will require material capital expenditures
during fiscal 2026.
8
Other
Regulation
Other
agencies with certain authority over the Company’s business include the Internal Revenue Service (the “IRS”), the SEC
and NYSE. Ensuring compliance with the rules, regulations and orders promulgated by such entities requires extensive effort and incremental
costs to comply, which affects the Company’s profitability. Because public policy changes are commonplace, and existing laws and
regulations are frequently amended, the Company is unable to predict the future cost or impact of compliance. However, the Company does
not expect that any of these laws and regulations will affect its operations materially differently than they would affect other companies
with similar operations, size and financial strength.
Title
to Properties
The
leasehold properties we own are subject to royalty, overriding royalty and other outstanding interests customary in the industry. The
properties may be subject to burdens such as liens incident to operating agreements and current taxes, development obligations under
oil and gas leases and other encumbrances, easements and restrictions. We do not believe any of these burdens will materially interfere
with the use of these properties.
Prior
to drilling of an oil and natural gas well, it is normal practice in our industry for the person or company acting as the operator of
the well to obtain a preliminary title review to ensure there are no obvious defects in title to the well. Frequently, as a result of
such examinations, certain curative work must be done to correct defects in the marketability of the title, and such curative work entails
expense. Our operators’ failure to cure any title defects may delay or prevent us from utilizing the associated mineral interest.
We believe the title to our properties is good and defensible in accordance with standards generally acceptable in the oil and gas industry
subject to such exceptions that, in the opinion of counsel employed in the various areas in which we have activities, are not so material
as to detract substantially from the use of such properties.
Substantially
all of our properties are currently mortgaged under a deed of trust to secure funding through a credit facility.
Insurance
Our
operations are subject to all the risks inherent in the exploration for and development and production of oil and gas including blowouts,
fires and other casualties. We maintain insurance coverage customary for operations of a similar nature, but losses could arise from
uninsured risks or in amounts in excess of existing insurance coverage.
Executive
Officers
The
following table sets forth certain information concerning the executive officers of the Company as of March 31, 2025.
Name
Age
Position
Nicholas
C. Taylor
87
Chairman
and Chief Executive Officer
Tamala
L. McComic
56
President,
Chief Financial Officer, Treasurer, and Assistant Secretary
Donna
Gail Yanko
80
Vice
President
Stacy
D. Hardin
60
Secretary
and Assistant Treasurer
Set
forth below is a description of the principal occupations during at least the past five years of each executive officer of the Company.
Nicholas
C. Taylor was elected Chairman of the Board and Chief Executive Officer of the Company in September 2011 and continues to serve in such
capacity on a part time basis, as required. He served as Chief Executive Officer, President and Director of the Company from 1983 to
2011. From July 1993 to the present, Mr. Taylor has been involved in the independent practice of law and other business activities. In
November 2005 he was appointed by the Speaker of the House to the Texas Ethics Commission and served until February 2010.
Tamala
L. McComic, a Certified Public Accountant and Chartered Global Management Accountant, became Controller for the Company in July 2001
and was elected President and Chief Financial Officer in September 2011. She served the Company as Executive Vice President and Chief
Financial Officer from 2009 to 2011 and Vice President and Chief Financial Officer from 2003 to 2009. Prior thereto, Ms. McComic served
as Treasurer and Assistant Secretary of the Company.
9
Donna
Gail Yanko was appointed to the position of Vice President of the Company in 1990. She also served as Corporate Secretary from 1992 to
2021 and from 1986 to 1992 was Assistant Secretary. From 1986 to 2015, on a part-time basis, she assisted the Chairman of the Board of
the Company in his personal business activities. Ms. Yanko also served as a director of the Company from 1990 to 2008.
Stacy
D. Hardin joined the Company in 2006 and was elected Corporate Secretary of the Company in September 2021. She has also served the Company
as Assistant Treasurer of the Company since 2010 and from 2006 to 2021 was Assistant Secretary. Prior thereto, Ms. Hardin served as Assistant
Controller.
Employees
As
of March 31, 2025, we had two full-time and three part-time employees. We believe that relations with these employees are generally satisfactory.
From time to time, we utilize the services of independent geological, land and engineering consultants on a limited basis and expect
to continue to do so in the future.
Office
Facilities
Our
principal offices are located at 415 W. Wall, Suite 475, Midland, Texas 79701 and our telephone number is (432) 682-1119. We believe
our facilities are adequate for our current operations and future needs.
Access
to Company Reports
Mexco
Energy Corporation files annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains
an internet website (www.sec.gov) that contains annual, quarterly and current reports, proxy statements and other information that issuers,
including Mexco, file electronically with the SEC.
We
also maintain an internet website at www.mexcoenergy.com. In the Investor Relations section, our website contains our Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other reports and amendments to those reports as soon
as reasonably practicable after such material is electronically filed with the SEC. Information on our website is not incorporated by
reference into this Form 10-K and should not be considered part of this report or any other filing that we make with the SEC. Additionally,
our Code of Business Conduct and Ethics and the charters of our Audit Committee, Compensation Committee and Nominating Committee are
posted on our website. Any of these corporate documents as well as any of the SEC filed reports are available in print free of charge
to any stockholder who requests them. Requests should be directed to our Corporate Secretary by mail to P.O. Box 10502, Midland, Texas
79702 or by email to mexco@sbcglobal.net.