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Mexco Energy Corp Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 14, 2009 11:18PM
Mexco Energy Corp (MXC) filed Quarterly Report for the period ended 2009-06-30. Mexco Energy Corporation is an independent energy company engaged in the exploration for and the acquisition development and production of oil and gas. Mexco Energy Corp has a market cap of $20.5 million; its shares were traded at around $10.9 with a P/E ratio of 17.9 and P/S ratio of 4.2. Mexco Energy Corp had an annual average earning growth of 2.5% over the past 5 years.
Highlight of Business Operations:
For the first three months of fiscal 2010, cash flow from operations was $293,379, a 24% decrease when compared to the corresponding period of fiscal 2009. Cash of $234,224 was used for additions to oil and gas properties and $150,000 for reduction in long term debt. Accordingly, net cash decreased $92,663. This decrease can be primarily attributed to a decrease in cash from oil and gas sales as compared to cash from oil and gas sales in the corresponding period of fiscal 2009.
At June 30, 2009, we had working capital of approximately $175,166 compared to working capital of $221,989 at March 31, 2009. This was mainly a result of a decrease in accounts receivable and cash and cash equivalents, partially offset by a decrease in accounts payable and accrued expenses.
Crude oil and natural gas prices have fluctuated significantly in recent years. During the second quarter of fiscal 2009, oil and gas prices began trending downward, while drilling, completion and operating costs remained high. 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 make it extremely difficult to predict future oil and natural gas price movements with any certainty. For example, the West Texas Intermediate (“WTI”) posted price for crude oil has ranged from a low of $30.28 per bbl in December 2008 to a high of $145.31 per bbl in July 2008. The Henry Hub Spot Market Price (“Henry Hub”) for natural gas has ranged from a low of $3.58 per MMBtu in March 2009 to a high of $13.31 per MMBtu in July 2008. On June 30, 2009 the WTI posted price for crude oil was $69.82 per bbl and the Henry Hub spot price for natural gas was $3.72 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.
Results of Operations – Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008. Net income decreased from $538,789 for the quarter ended June 30, 2008 to a net loss of $68,003 for the quarter ended June 30, 2009; a decrease of $606,792 as a result of a decrease in operating revenues partially offset by a decrease in production costs.
Oil and gas sales. Revenue from oil and gas sales decreased from $1,672,587 for the first quarter of fiscal 2009 to $653,810 for the same period of fiscal 2010. This decrease of 61% resulted from a decrease in oil and gas prices offset partially by an increase in oil and gas production. Average gas prices decreased from $9.70 per mcf for the first quarter of fiscal 2009 to $3.04 per mcf for the same period of fiscal 2010. Average oil prices decreased from $118.57 per bbl for the first quarter of fiscal 2009 to $53.78 for the same period of fiscal 2010. Oil and gas production quantities were 4,107 barrels (“bbls”) and 122,286 thousand cubic feet (“mcf”) for the first quarter of fiscal 2009 and 4,331 bbls and 138,418 mcf for the same period of fiscal 2010, an increase of 5% in oil production and 13% in gas production.
Interest Rate Risk. At June 30, 2009, we had an outstanding loan balance of $1,250,000 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 $12,500, based on the outstanding balance at June 30, 2009.
Stocks Discussed: MXC,