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Mexco Energy Corp Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 12, 2010 05:17PM
Mexco Energy Corp (MXC) filed Quarterly Report for the period ended 2010-06-30. Mexco Energy Corp has a market cap of $11.5 million; its shares were traded at around $6.0901 with a P/E ratio of 30.5 and P/S ratio of 3.6. Mexco Energy Corp had an annual average earning growth of 7% over the past 10 years.
Highlight of Business Operations:
For the first three months of fiscal 2011, cash flow from operations was $444,942, a 52% increase when compared to the corresponding period of fiscal 2010. Cash of $97,440 was used for additions to oil and gas properties and $375,000 for reduction in long term debt. Accordingly, net cash decreased $18,982. This decrease in cash can be primarily attributed to the reduction in long term debt partially offset by an increase in cash receipts from trade accounts and oil and gas sales.
At June 30, 2010, we had a working capital deficit of $75,354 compared to working capital of $478,394 at March 31, 2010. This decrease in working capital was mainly a result of a current portion of long term debt in the amount of $325,000, a decrease in accounts receivable and an increase in accounts payable and accrued expenses.
Crude oil and natural gas prices have fluctuated significantly in recent years. The effect of declining product prices on our business is significant. Lower product prices reduce our cash flow from operations and diminish the present value of our oil and gas reserves. Lower product prices also offer us less incentive to assume the drilling risks that are inherent in our business. 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 West Texas Intermediate (“WTI”) posted price for crude oil has ranged from a low of $59.52 per bbl in July 2009 to a high of $86.84 per bbl in April 2010. The Henry Hub Spot Market Price (“Henry Hub”) for natural gas has ranged from a low of $1.84 per MMBtu in September 2009 to a high of $7.51 per MMBtu in January 2010. On June 30, 2010 the WTI posted price for crude oil was $75.63 per bbl and the Henry Hub spot price for natural gas was $4.53 per MMBtu. Management is of the opinion that cash flow from operations and funds available from financing will be sufficient to provide adequate liquidity for the next fiscal year.
Production and exploration. Production costs were $368,227 for the three months ended June 2010, a 53% increase from $240,973 for the three months ended June 2009. This was primarily the result of a workover and repairs in the amount of approximately $113,000 on one of our operated wells in Hutchinson County, Texas in which we own 100%.
Interest Rate Risk. At June 30, 2010, we had an outstanding loan balance of $325,000 under our $5.0 million revolving credit agreement, which bears interest at an annual rate equal to the BBA LIBOR daily floating rate, plus 2.50 percentage points. If the interest rate on our bank debt increases or decreases by one percentage point our annual pretax income would change by $3,250, based on the outstanding balance at June 30, 2010.
Credit Risk. Credit risk is the risk of loss as a result of nonperformance by other parties of their contractual obligations. Our primary credit risk is related to oil and gas production sold to various purchasers and the receivables are generally not collateralized. At June 30, 2010, our largest credit risk associated with any single purchaser was $70,536. We are also exposed to credit risk in the event of nonperformance from any of our working interest partners. At June 30, 2010, our largest credit risk associated with any working interest partner was $4,964. We have not experienced any significant credit losses.
Stocks Discussed: MXC,