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Mexco Energy Corp Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 15, 2010 03:41PM
Mexco Energy Corp (MXC) filed Quarterly Report for the period ended 2010-09-30. Mexco Energy Corp has a market cap of $14.56 million; its shares were traded at around $7.26 with a P/E ratio of 30.25 and P/S ratio of 4.49. Mexco Energy Corp had an annual average earning growth of 7% over the past 10 years.
Highlight of Business Operations:
For the first six months of fiscal 2011, cash flow from operations was $597,867, a 32% increase when compared to the corresponding period of fiscal 2010. Cash of $1,631,713 was used for additions to oil and gas properties, $478,000 was used for the acquisition of a subsidiary and net proceeds from long term debt was $1,450,000. Accordingly, net cash decreased $17,679. This decrease in cash can be primarily attributed to the use of cash for investing activities partially offset by an increase in cash receipts from trade accounts and oil and gas sales.
In August 2010, we purchased overriding royalty interests averaging .28% in 5,120 gross acres covering eight sections in the Haynesville trend area of DeSoto Parish, Louisiana, for an approximate purchase price of $1.65 million, prior to closing adjustments. Mexco paid $1.46 million in cash funded from working capital and primarily from the $5.0 million credit facility. The remainder was paid as 26,833 shares of its common stock issued from our treasury shares. This acreage currently contains five (5) horizontal wells producing from the Haynesville Shale formation and operated by Petrohawk Operating Company which will operate six of the eight sections. The two remaining sections will be operated by Chesapeake Energy. This acreage contains an additional 59 potential drill sites in the Haynesville. Other wells drilled in the Haynesville area show the presence of at least two (2) other potential producing zones, the Bossier and Cotton Valley, which are held by production and available for development should conditions warrant. Hundreds of Haynesville, hundreds of Cotton Valley and several dozen Bossier Shale wells are currently producing in the Haynesville trend area. Any development of these royalties will be free to Mexco of expenses for drilling and operations. The Haynesville area has been estimated to become the largest gas resource in the United States and the fourth largest in the world subject to realization of technical estimates, according to World Oil in its June 2010 edition. World Oil recognizes DeSoto Parish as one of the top six (6) parishes of Louisiana where the most productive Haynesville wells are located.
At September 30, 2010, we had working capital of approximately $421,647 compared to working capital of $478,394 at March 31, 2010, a decrease of $56,747. This was mainly as a result of a decrease in accounts receivable and accounts payable and accrued expenses partially offset by an increase in prepaid costs and 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 $66.88 per bbl in May 2010 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 $2.32 per MMBtu in October 2009 to a high of $7.51 per MMBtu in January 2010. On September 30, 2010 the WTI posted price for crude oil was $79.97 per bbl and the Henry Hub spot price for natural gas was $3.85 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 $621,365 for the six months ended September 30, 2010, a 22% increase from $510,224 for the six months ended September 30, 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% working interest.
Interest Rate Risk. At September 30, 2010, we had an outstanding loan balance of $2,150,000 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 $21,500 based on the outstanding balance at September 30, 2010.
Stocks Discussed: MXC,