MEXCO ENERGY CORP

Mexco Energy 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. The industry is characterized by volatile commodity prices driven by shifting global supply-and-demand fundamentals, OPEC+ production decisions, geopolitical tensions, inflationary pressures, interest rate uncertainty, and concerns regarding the pace of global economic growth. The Permian Basin is one of the oldest and most prolific producing basins in North America and has been a significant source of oil production since the 1920s, containing numerous oil and gas-bearing formations that have supported commercial production for decades. The industry is highly competitive, with competition based on commodity prices, acquisition costs, contract terms, access to capital, operational expertise, and the quality and availability of service providers.

The oil and gas industry is highly competitive, and Mexco competes with major integrated oil and gas companies, other independent oil and gas companies, private equity-backed operators, and individual producers, many of which have financial, technical, and personnel resources substantially greater than its own. Competition for oil and gas reserve acquisitions and development opportunities is significant, and the company's ability to acquire and develop additional properties depends on its ability to identify, evaluate, and consummate transactions in a timely manner in a highly competitive marketplace. The company's primary competitive advantages include a focus on acquiring proved reserves that fit well with existing operations or in areas where Mexco has established production, with acquisitions preferably containing most of their value in producing wells, behind-pipe reserves, and high-quality proved undeveloped locations.

Mexco generates revenue through the acquisition, exploration, development, and production of crude oil and natural gas properties, with revenues from oil and gas royalty interests accounting for approximately 49% of total operating revenues and income from investments in LLCs for fiscal 2026. The company's primary customer segments include third-party operators who market and sell production from properties in which Mexco owns a working or royalty interest, with proceeds attributable to its interest collected and remitted either by the operator or by the purchaser. As a non-operator, Mexco depends on third-party operators to conduct exploration, development, and production activities on its behalf, and these operators generally determine drilling schedules, development activities, production levels, and operating practices.

Oil contributed approximately 81% of oil and natural gas sales and approximately 46% of total proved reserves volumes for fiscal 2026. The company is primarily focused on two areas: 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 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 75% of discounted future net cash flows from proved reserves and 76% of operating revenues. The Delaware Basin properties, encompassing 39,129 gross acres, 209 net acres, 769 gross producing wells, or 4 net wells, account for approximately 53% of discounted future net cash flows from proved reserves as of March 31, 2026, and for fiscal 2026 these properties accounted for 54% of operating revenues. The Midland Basin properties, encompassing 115,077 gross acres, 232 net acres, 1,786 gross producing wells, or 4 net wells, account for approximately 21% of discounted future net cash flows from proved reserves as of March 31, 2026, and for fiscal 2026 these properties accounted for 21% of operating revenues.

As of March 31, 2026, Mexco had interests in approximately 8,100 gross (26.1 net) producing oil and gas wells and owned leasehold mineral, royalty and other interests in approximately 705,000 gross (2,697 net) acres. Total estimated proved reserves at March 31, 2026 were approximately 1.437 million barrels of oil equivalent of which 46% was oil and 54% was natural gas, and estimated present value of proved reserves was approximately $21 million ¹ based on estimated future net revenues excluding taxes discounted at 10% per annum. The company owns partial interests in approximately 8,100 producing wells all 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. During fiscal 2026, oil production was 82,133 barrels ² and gas production was 681,794 Mcf ³. The average sales price per barrel of oil was $64.25 ⁴ and per Mcf of natural gas was $1.86 ⁵ for fiscal 2026.

During fiscal 2026, the company participated in the development of 57 horizontal wells and one vertical well at a cost of approximately $1,250,000 ⁶. Mexco expended approximately $230,000 ⁷ to participate in the drilling and completion of five horizontal wells in the Bone Spring formation of the Delaware Basin in Eddy County, New Mexico, with a working interest of 0.5% ⁸. Mexco expended approximately $79,000 ⁹ to drill and complete two horizontal wells in the Bone Spring formation of the Delaware Basin in Lea County, New Mexico, with a working interest of 0.3% ¹⁰. Mexco expended approximately $155,000 ¹¹ to participate in the drilling and completion of three horizontal wells in the Wolfcamp Sand Formation of the Delaware Basin in Lea County, New Mexico, with a working interest of 0.52% ¹². Mexco expended approximately $65,000 ¹³ to participate in an exploratory vertical well in the Ellenburger formation of Ward County, Texas, which was determined to be noncommercial. In December 2025, Mexco expended approximately $406,000 ¹⁴ to participate in the drilling and completion of two horizontal development wells in the Wolfcamp XY formation of the Delaware Basin in Eddy County, New Mexico, with a working interest of 2.1% ¹⁵. In December 2025, Mexco expended approximately $46,000 ¹⁶ to participate in the drilling and completion of six horizontal wells in the Bone Spring formation of the Delaware Basin in Lea County, New Mexico, with a working interest of 0.04% ¹⁷. In March 2026, Mexco expended approximately $200,000 ¹⁸ to participate in the drilling and completion of five horizontal wells in the Wolfcamp B formation in the Spraberry trend area of the Midland Basin in Midland and Glasscock Counties, Texas, with a working interest of 1.9% ¹⁹. The company acquired royalty interests throughout fiscal 2026 with an aggregate purchase price of $817,700 ²⁰, covering approximately 262 producing wells, additional interests in 19 previously owned wells, and 40 undeveloped net leasehold in Eddy County, New Mexico. In October 2022, the company made an approximately 2% equity investment commitment in a limited liability company amounting to $2,000,000 ²¹, which was fully funded as of July 2025, and as of March 31, 2026, this LLC has returned $558,216 ²², or 25% of the total investment. The Board authorized the use of up to $1,000,000 ²³ to repurchase shares of common stock in April 2024, and as of March 31, 2026, the repurchase program had $296,784 ²⁴ in remaining funds. In June 2026, the Board authorized the use of an additional $250,000 ²⁵ to repurchase shares. The company declared a regular annual dividend of $0.10 ²⁶ per common share paid on June 16, 2025, and a special dividend of $0.10 ²⁷ per common share paid on June 4, 2024.

Net income for fiscal 2026 was $1,305,722 ²⁸, compared to $1,712,368 ²⁹ for fiscal 2025, a 24% decrease. Total operating revenues from oil and natural gas sales were $6,548,048 ³⁰ for fiscal 2026, an 8% decrease from $7,116,485 ³¹ for fiscal 2025. Net cash provided by operating activities was $3,779,152 ³² for fiscal 2026, compared to $4,269,621 ³³ for fiscal 2025. Cash and cash equivalents on hand as of March 31, 2026 were $2,775,976 ³⁴, and working capital was $3,995,456 ³⁵ compared to $2,469,664 ³⁶ as of March 31, 2025.

The company's primary business strategies for fiscal 2027 include optimizing cash flows through operating efficiencies and cost reductions, divesting non-core assets, and working to balance capital spending with cash flows to minimize borrowings and maintain ample liquidity.

The company expects production from its mineral interests to increase as operators continue to drill, complete, and develop its acreage, and believes the anticipated aggregate royalty receipts will enable it to grow its cash flows. A number of the horizontal wells in which the company participates involve longer laterals that are more efficient and have greater estimated ultimate recovery. The company is participating in other projects and is reviewing projects in which it may participate, with the cost of such projects to be funded from existing cash balances and cash flow from operations, with the remainder potentially funded through borrowings on the credit facility and sales of non-core properties.

The company's long-term strategy is to increase profit margins by focusing on acquiring and developing oil and gas properties with low-cost operations and the potential for long-lived production, with efforts focused on the acquisition of royalties and non-operated working interests in areas with significant development potential.

The company's operations are subject to all the risks inherent in the exploration, development, and production of oil and gas, including blowouts, fires, and other casualties, and it maintains insurance coverage customary for operations of a similar nature. The company relies on third-party operators to conduct exploration, development, and production activities on its behalf, and its production volumes, operating results, and costs are influenced by the decisions and performance of such operators, over which it has limited control.

The company has historically funded capital expenditures through cash flow from operations and borrowings under its credit facility, and it may use alternative capital resources including joint ventures, carried working interests, and issuances of common stock through a private placement or public offering. The company's credit facility with West Texas National Bank is secured by substantially all of its properties under a deed of trust.

The company did not incur any material capital expenditures for remediation or pollution control activities for the year ended March 31, 2026, and as of the date of the report, is not aware of any environmental issues or claims that will require material capital expenditures during fiscal 2027.

Commodity prices remained volatile during fiscal 2026 due to shifting global supply-and-demand fundamentals, OPEC+ production decisions, geopolitical tensions, inflationary pressures, interest rate uncertainty, and concerns regarding the pace of global economic growth. Fluctuations in oil and natural gas prices, evolving trade policies, and continued uncertainty in the broader economic environment may continue to impact the industry and operating results. Pipeline capacity constraints and maintenance in the Permian Basin area have contributed to a wider difference between the Waha Hub and the Henry Hub, and at times realized prices were negative.

The company faces risks from changes in environmental laws that could increase operators' costs, including potential regulations aimed at greenhouse gas emissions and increased focus on the potential link between fluid injection and induced seismicity, which could increase operating costs, limit disposal capacity, and adversely impact the economic viability of drilling and production activities.

The company's results are significantly affected by the volatility of oil and gas prices, which fluctuate widely due to factors including global supply and demand, actions of OPEC and other producing nations, government regulation, and geopolitical developments. Lower commodity prices may decrease the borrowing base under the credit facility, trigger ceiling test write-downs, and reduce the amount of oil and natural gas that can be produced economically. The company uses the full cost method of accounting, which makes it more susceptible to significant non-cash ceiling test impairment charges during periods of low commodity prices, though no ceiling test impairments were recorded during fiscal 2026 or 2025. Approximately 19% of total estimated net proved reserves at March 31, 2026 were undeveloped, and those reserves may not ultimately be developed if third-party operators do not invest the required capital or if development efforts are unsuccessful. The company owns non-operating interests in properties developed and operated by third parties and has limited control over key operational decisions, including the timing and nature of drilling and development activities, capital expenditures, and technology selection. A third-party operator's failure to perform adequately could reduce production and revenues and have a material adverse effect on the business. The company's average differentials during fiscal 2026 were $2.97 per Bbl of oil and ($1.48) per Mcf of gas, and changes in these differentials could materially affect revenues and cash flow from operations.

Management's message emphasizes the company's focus on optimizing cash flows through operating efficiencies and cost reductions, divesting non-core assets, and balancing capital spending with cash flows to minimize borrowings and maintain ample liquidity in light of ongoing commodity price volatility. The strategic priorities for fiscal 2027 include continuing to acquire proved reserves that fit well with existing operations, particularly in the Delaware Basin and Midland Basin of the Permian Basin, and capitalizing on development of mineral interests by other operators that requires no capital expenditure funding from the company. Management believes the anticipated aggregate royalty receipts from such development will enable the company to grow its cash flows.