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Mexco Energy Corp Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 12, 2011 11:36AM
Mexco Energy Corp (MXC) filed Quarterly Report for the period ended 2011-06-30. Mexco Energy Corp. has a market cap of $11.8 million; its shares were traded at around $6.52 with a P/E ratio of 75.3 and P/S ratio of 3.6. Mexco Energy Corp. had an annual average earning growth of 3.4% over the past 10 years.
Highlight of Business Operations:
For the first three months of fiscal 2012, cash flow from operations was $383,152, a 14% decrease when compared to the corresponding period of fiscal 2011. Cash of $122,614 was used for additions to oil and gas properties and $850,000 for reduction in long term debt. Cash proceeds from sale of oil and gas properties was $462,608. Accordingly, net cash decreased $55,558. This decrease in cash can be primarily attributed to the reduction in long term debt partially offset by an increase in cash receipts from oil and gas sales and proceeds from sale of property.
At June 30, 2011, we had working capital of $391,335 compared to working capital of $470,253 at March 31, 2011. This decrease in working capital was mainly a result of 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 $71.21 per bbl in August 2010 to a high of $110.00 per bbl in April 2011. The Henry Hub Spot Market Price (“Henry Hub”) for natural gas has ranged from a low of $3.18 per MMBtu in October 2010 to a high of $4.94 per MMBtu in August 2010. On June 30, 2011 the WTI posted price for crude oil was $91.25 per bbl and the Henry Hub spot price for natural gas was $4.28 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.
Depreciation, depletion and amortization. Depreciation, depletion and amortization (“DD&A”) expense was $245,174 for the first quarter of fiscal 2012, a 3% decrease from $251,495 for the first quarter of fiscal 2011, primarily due to a decrease in gas production and an increase in oil and natural gas reserves.
Interest Rate Risk. At June 30, 2011, we had an outstanding loan balance of $950,000 under our $4.9 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 $9,500, based on the outstanding balance at June 30, 2011.
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, 2011, our largest credit risk associated with any single purchaser was $58,179 or 13% of our total oil and gas receivable. We are also exposed to credit risk in the event of nonperformance from any of our working interest partners. At June 30, 2011, our largest credit risk associated with any working interest partner was $2,239 or 10% of our total trade receivable. We have not experienced any significant credit losses.
Stocks Discussed: MXC,