0001398344-13-005311.txt : 20131112 0001398344-13-005311.hdr.sgml : 20131111 20131112172812 ACCESSION NUMBER: 0001398344-13-005311 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20130930 FILED AS OF DATE: 20131112 DATE AS OF CHANGE: 20131112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEXCO ENERGY CORP CENTRAL INDEX KEY: 0000066418 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 840627918 STATE OF INCORPORATION: CO FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-31785 FILM NUMBER: 131211525 BUSINESS ADDRESS: STREET 1: 214 W TEXAS AVENUE STREET 2: SUITE 1101 CITY: MIDLAND STATE: TX ZIP: 79701 BUSINESS PHONE: 9156821119 MAIL ADDRESS: STREET 1: 214 W TEXAS AVENUE STREET 2: SUITE 1101 CITY: MIDLAND STATE: TX ZIP: 79701 FORMER COMPANY: FORMER CONFORMED NAME: MILLER OIL CO DATE OF NAME CHANGE: 19800702 10-Q 1 fp0008664_10q.htm fp0008664_10q.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

OR
 
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from         to

Commission File No. 0-6994

MEXCO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)

Colorado
84-0627918
(State or other jurisdiction of
(IRS Employer
incorporation or organization)
Identification Number)
   
214 West Texas Avenue, Suite 1101
 
Midland, Texas
79701
(Address of principal executive offices)
(Zip code)

(432) 682-1119
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.  YES [X]  NO [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X]  No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company as defined in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer [   ]
 
Accelerated Filer [   ]
     
Non-Accelerated Filer [   ]
 
Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES [   ]   NO [X]

The number of shares outstanding of the registrant’s common stock, par value $.50 per share, as of November 12, 2013 was 2,036,866.
 
 
 

 
 
MEXCO ENERGY CORPORATION
 
Table of Contents
     
Page
PART I.  FINANCIAL INFORMATION
 
   
 
Item 1.
Consolidated Balance Sheets as of September 30, 2013 (Unaudited) and March 31, 2013
3
       
   
Consolidated Statements of Operations (Unaudited) for the three months and six months ended September 30, 2013 and September 30, 2012
4
       
   
Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) for the period ending September 30, 2013
5
       
   
Consolidated Statements of Cash Flows (Unaudited) for the six months ended September 30, 2013 and September 30, 2012
6
       
   
Notes to Consolidated Financial Statements (Unaudited)
7
       
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
13
       
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
17
       
 
Item 4.
Controls and Procedures
18
       
PART II.  OTHER INFORMATION
 
   
 
Item 1.
Legal Proceedings
19
       
 
Item 1A.
Risk Factors
19
       
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
19
       
 
Item 3.
Defaults upon Senior Securities
19
       
 
Item 4.
Mine Safety Disclosures
19
       
 
Item 5.
Other Information
19
       
 
Item 6.
Exhibits
19
       
SIGNATURES
20
   
CERTIFICATIONS
 

 
Page 2

 
 
Mexco Energy Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
 
   
September 30,
   
March 31,
 
   
2013
   
2013
 
   
(Unaudited)
       
ASSETS
           
Current assets
           
Cash and cash equivalents
  $ 222,630     $ 166,406  
Accounts receivable:
               
Oil and gas sales
    703,103       538,971  
Trade
    16,240       16,370  
Prepaid costs and expenses
    73,009       19,281  
Total current assets
    1,014,982       741,028  
                 
Property and equipment, at cost
               
Oil and gas properties, using the full cost method
    34,189,576       34,309,328  
Other
    93,257       92,326  
Accumulated depreciation, depletion and amortization
    (17,917,213 )     (17,323,692 )
Property and equipment, net
    16,365,620       17,077,962  
                 
Other noncurrent assets
    53,437       116,454  
Total assets
  $ 17,434,039     $ 17,935,444  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current liabilities
               
Accounts payable and accrued expenses
  $ 326,873     $ 431,848  
Derivative instruments
    50,300       -  
Total current liabilities
    377,173       431,848  
                 
Long-term debt
    2,225,000       2,950,000  
Asset retirement obligations
    795,203       763,412  
Derivative instruments – long term
    6,316       -  
Deferred income tax liabilities
    800,942       853,199  
Total liabilities
    4,204,634       4,998,459  
                 
Commitments and contingencies
               
                 
Stockholders' equity
               
Preferred stock - $1.00 par value;
               
10,000,000 shares authorized; none outstanding
    -       -  
Common stock - $0.50 par value; 40,000,000 shares authorized;
               
2,102,866 shares issued and 2,036,866 shares outstanding
               
as of September 30, 2013 and March 31, 2013, respectively
    1,051,433       1,051,433  
Additional paid-in capital
    6,843,329       6,761,091  
Retained earnings
    5,675,635       5,465,453  
Treasury stock, at cost (66,000 shares)
    (340,992 )     (340,992 )
Total stockholders' equity
    13,229,405       12,936,985  
Total liabilities and stockholders’ equity
  $ 17,434,039     $ 17,935,444  

The accompanying notes are an integral part of
the consolidated financial statements.

 
Page 3

 

Mexco Energy Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
   
Three Months Ended
   
Six Months Ended
 
   
September 30
   
September 30
 
   
2013
   
2012
   
2013
   
2012
 
Operating revenue:
                       
Oil and gas
  $ 1,108,102     $ 734,313     $ 2,092,371     $ 1,358,183  
Other
    13,344       9,288       25,600       12,539  
Total operating revenues
    1,121,446       743,601       2,117,971       1,370,722  
                                 
Operating expenses:
                               
Production
    312,954       254,513       621,590       470,363  
Accretion of asset retirement obligation
    11,020       9,604       21,937       19,142  
Depreciation, depletion, and amortization
    298,489       259,780       593,522       491,316  
General and administrative
    286,615       236,708       598,085       528,977  
Total operating expenses
    909,078       760,605       1,835,134       1,509,798  
                                 
Operating profit (loss)
    212,368       (17,004 )     282,837       (139,076 )
                                 
Other income (expenses):
                               
Interest income
    105       -       107       130  
Interest expense
    (18,202 )     (10,767 )     (38,332 )     (21,626 )
Loss on derivative instruments
    (59,295 )     -       (86,687 )     -  
Net other expense
    (77,392 )     (10,767 )     (124,912 )     (21,496 )
                                 
Earnings (loss) before provision for income taxes
    134,976       (27,771 )     157,925       (160,572 )
                                 
Income tax benefit:
                               
Current
    -       -       -       -  
Deferred
    (59,075 )     (28,534 )     (52,257 )     (98,118 )
      (59,075 )     (28,534 )     (52,257 )     (98,118 )
                                 
Net income (loss)
  $ 194,051     $ 763     $ 210,182     $ (62,454 )
                                 
                                 
Earnings (loss) per common share:
                               
Basic
  $ 0.10     $ 0.00     $ 0.10     $ (0.03 )
Diluted
  $ 0.10     $ 0.00     $ 0.10     $ (0.03 )
                                 
Weighted average common shares outstanding:
                               
Basic
    2,036,866       2,035,949       2,036,866       2,035,949  
Diluted
    2,039,108       2,038,240       2,038,800       2,035,949  

The accompanying notes are an integral part of
the consolidated financial statements.

 
Page 4

 
 
Mexco Energy Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
 
   
Common
Stock Par
Value
   
Treasury
Stock
   
Additional
Paid-In
Capital
   
Retained
Earnings
   
Total
Stockholders’
Equity
 
                               
Balance at March 31, 2013
  $ 1,051,433     $ (340,992 )   $ 6,761,091     $ 5,465,453     $ 12,936,985  
Net income
    -       -       -       16,131       16,131  
Stock based compensation
    -       -       39,372       -       39,372  
Balance at June 30, 2013
  $ 1,051,433     $ (340,992 )   $ 6,800,463     $ 5,481,584     $ 12,992,488  
Net income
    -       -       -       194,051       194,051  
Stock based compensation
    -       -       42,866       -       42,866  
Balance at September 30, 2013
  $ 1,051,433     $ (340,992 )   $ 6,843,329     $ 5,675,635     $ 13,229,405  
                                         
                                         
SHARE ACTIVITY
                                       
                                         
Common stock shares, issued:
                                       
Balance at March 31, 2013
            2,102,866                          
Issued
            -                          
Balance at June 30, 2013
            2,102,866                          
Issued
            -                          
Balance at Sept. 30, 2013
            2,102,866                          
                                         
Common stock shares, held in treasury:
                                 
Balance at March 31, 2013
            (66,000 )                        
Acquisitions
            -                          
Balance at June 30, 2013
            (66,000 )                        
Acquisitions
            -                          
Balance at Sept. 30, 2013
            (66,000 )                        
                                         
Common stock shares, outstanding
                                 
at September 30, 2013
            2,036,866                          

The accompanying notes are an integral part of
the consolidated financial statements.
 
 
Page 5

 
 
Mexco Energy Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended September 30,
(Unaudited)
 
   
2013
   
2012
 
Cash flows from operating activities:
           
Net income (loss)
  $ 210,182     $ (62,454 )
Adjustments to reconcile net income (loss) to net cash
               
provided by operating activities:
               
Deferred income tax  benefit
    (52,257 )     (98,118 )
Stock-based compensation
    82,238       84,808  
Depreciation, depletion and amortization
    593,522       491,316  
Accretion of asset retirement obligations
    21,937       19,142  
Change in fair value of derivative instruments
    86,687       -  
Other
    (2,071 )     -  
Changes in assets and liabilities:
               
Increase in accounts receivable
    (164,002 )     (15,040 )
Increase in prepaid expenses
    (53,728 )     (49,039 )
Decrease in non-current assets
    63,017       -  
Increase in accounts payable and accrued expenses
    69,511       17,675  
Net cash provided by operating activities
    855,036       388,290  
                 
Cash flows from investing activities:
               
Additions to oil and gas properties
    (786,097 )     (852,390 )
Additions to other property and equipment
    (931 )     (13,806 )
Settlement of derivatives
    (30,071 )     -  
Proceeds from sale of oil and gas properties and equipment
    743,287       -  
Net cash used in investing activities
    (73,812 )     (866,196 )
                 
Cash flows from financing activities:
               
Reduction of long-term debt
    (725,000 )     (225,000 )
Proceeds from long-term debt
    -       300,000  
Net cash (used in) provided by financing activities
    (725,000 )     75,000  
                 
Net increase (decrease) in cash and cash equivalents
    56,224       (402,906 )
                 
Cash and cash equivalents at beginning of period
    166,406       498,681  
                 
Cash and cash equivalents at end of period
  $ 222,630     $ 95,775  
                 
Supplemental disclosure of cash flow information:
               
Cash paid for interest
  $ 39,424     $ 19,839  
Income taxes paid
    -       -  
                 
Non-cash investing and financing activities:
               
Asset retirement obligations
  $ 10,672     $ 18,437  

The accompanying notes are an integral part of
the consolidated financial statements.
 
 
Page 6

 
 
MEXCO ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.  Nature of Operations

Mexco Energy Corporation (a Colorado corporation) and its wholly owned subsidiaries, Forman Energy Corporation (a New York corporation), Southwest Texas Disposal Corporation (a Texas corporation) and TBO Oil & Gas, LLC (a Texas limited liability company) (collectively, the “Company”) are engaged in the exploration, development and production of natural gas, crude oil, condensate and natural gas liquids (“NGLs”).  Most of the Company’s oil and gas interests are centered in West Texas; however, the Company owns producing properties and undeveloped acreage in twelve states.  Although most of the Company’s oil and gas interests are operated by others, the Company operates several properties in which it owns an interest.

2.  Basis of Presentation and Significant Accounting Policies

Principles of Consolidation.  The consolidated financial statements include the accounts of Mexco Energy Corporation and its wholly owned subsidiaries.  All significant intercompany balances and transactions associated with the consolidated operations have been eliminated.

Estimates and Assumptions.  In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make informed judgments, estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period.  In addition, significant estimates are used in determining year end proved oil and gas reserves.  Although management believes its estimates and assumptions are reasonable, actual results may differ materially from those estimates.  The estimate of the Company’s oil and natural gas reserves, which is used to compute depreciation, depletion, amortization and impairment of oil and gas properties, is the most significant of the estimates and assumptions that affect these reported results.

Interim Financial Statements.  In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position of the Company as of September 30, 2013, and the results of its operations and cash flows for the interim periods ended September 30, 2013 and 2012.  The financial statements as of September 30, 2013 and for the three and six month periods ended September 30, 2013 and 2012 are unaudited.  The consolidated balance sheet as of March 31, 2013 was derived from the audited balance sheet filed in the Company’s 2013 annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”).  The results of operations for the periods presented are not necessarily indicative of the results to be expected for a full year.  The accounting policies followed by the Company are set forth in more detail in Note 2 of the “Notes to Consolidated Financial Statements” in the Form 10-K.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the SEC.  However, the disclosures herein are adequate to make the information presented not misleading.  It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Form 10-K.
 
Derivatives.  The Company is required to recognize its derivative instruments on the consolidated balance sheets as assets or liabilities at fair value with such amounts classified as current or long-term based on their anticipated settlement dates. The accounting for the changes in fair value of a derivative depends on the intended use of the derivative and resulting designation. The Company has not designated its derivative instruments as hedges for accounting purposes and, as a result, marks its derivative instruments to fair value and recognizes the realized and unrealized change in fair value on derivative instruments in the consolidated statements of operations.
 
 
Page 7

 
 
Fair Value of Financial Instruments.  The Company’s financial instruments consist of cash and cash equivalents, receivables, payables, derivatives and long term debt. The carrying amount of cash and cash equivalents, receivables and payables approximates fair value because of the short-term nature of the instruments. The fair value of the revolving credit facility approximates its carrying value based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities. Derivatives are recorded at fair value (see the Company’s Note 5 on Fair Value Measurements).

Gas Balancing.  Gas imbalances are accounted for under the sales method whereby revenues are recognized based on production sold.  A liability is recorded when the Company’s excess takes of natural gas volumes exceeds the Company’s estimated remaining recoverable reserves (over produced).  No receivables are recorded for those wells where the Company has taken less than its ownership share of gas production (under produced).  The Company does not have any significant gas imbalances as of September 30, 2013 and March 31, 2013.

3.  Asset Retirement Obligations

The Company’s asset retirement obligations (“ARO”) relate to the plugging of wells, the removal of facilities and equipment, and site restoration on oil and gas properties.  The fair value of a liability for an ARO is recorded in the period in which it is incurred, discounted to its present value using the credit adjusted risk-free interest rate, and a corresponding amount capitalized by increasing the carrying amount of the related long-lived asset.  The liability is accreted each period, and the capitalized cost is depreciated over the useful life of the related asset.

The following table provides a rollforward of the AROs for the first six months of fiscal 2014:

Carrying amount of asset retirement obligations as of April 1, 2013
  $ 813,412  
Liabilities incurred
    10,672  
Liabilities settled
    (818 )
Accretion expense
    21,937  
Carrying amount of asset retirement obligations as of September 30, 2013
    845,203  
Less: Current portion
    50,000  
Non-Current asset retirement obligation
  $ 795,203  

The ARO is included in the Consolidated Balance Sheets with the current portion being included in the accounts payable and other accrued expenses.

4.  Stock-based Compensation

The Company recognized compensation expense of $42,866 and $41,029 in general and administrative expense in the Consolidated Statements of Operations for the three months ended September 30, 2013 and 2012, respectively.  Compensation expense recognized for the six months ended September 30, 2013 and 2012 was $82,238 and $84,808, respectively.  The total cost related to non-vested awards not yet recognized at September 30, 2013 totals approximately $195,653 which is expected to be recognized over a weighted average of 2.64 years.

The fair value of each stock option is estimated on the date of grant using the Binomial valuation model.  Expected volatilities are based on historical volatility of the Company’s stock over the expected term of 84 months for employees and 96 months for directors and other factors.  We use historical data to estimate option exercise and employee termination within the valuation model.  The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.  As the Company has never declared dividends, no dividend yield is used in the calculation.  Actual value realized, if any, is dependent on the future performance of the Company’s common stock and overall stock market conditions.  There is no assurance the value realized by an optionee will be at or near the value estimated by the Binomial model.

Included in the following table is a summary of the grant-date fair value of stock options granted and the related assumptions used in the Binomial models for stock options granted during the six months ended September 30, 2013 and 2012.  All such amounts represent the weighted average amounts.

 
Page 8

 
 
   
Six Months Ended
 
   
September 30
 
   
2013
   
2012
 
Grant-date fair value
  $ 4.75       -  
Volatility factor
    77.01 %     -  
Dividend yield
    -       -  
Risk-free interest rate
    1.74 %     -  
Expected term (in years)
    7       -  

The following table is a summary of activity of stock options for the six months ended September 30, 2013:

   
Number of Shares
   
Weighted Average Exercise Price
   
Weighted Average Remaining Contract Life in Years
   
Aggregate Intrinsic Value
 
Outstanding at March 31, 2013
    80,000     $ 6.52       8.03     $ -  
Granted
    35,000       5.98                  
Exercised
    -       -                  
Forfeited or Expired
    -       -                  
Outstanding at September 30, 2013
    115,000     $ 6.35       8.15     $ 23,800  
                                 
Vested at September 30, 2013
    40,000     $ 6.37       7.21     $ 7,425  
Exercisable at September 30, 2013
    40,000     $ 6.37       7.21     $ 7,425  

During the six months ended September 30, 2013, stock options covering 35,000 shares were granted.  There were no stock options granted during the six months ended September 30, 2012.
 
During the six months ended September 30, 2013 and 2012, no stock options were exercised.

The following table summarizes information about options outstanding at September 30, 2013:

Range of Exercise Prices
   
Number of Options
   
Weighted Average Exercise Price
   
Weighted Average Remaining Contract Life in Years
   
Aggregate Intrinsic Value
 
$ 5.98 – 6.25       45,000     $ 6.00              
  6.26 – 6.50       30,000       6.29              
  6.51 – 6.80       40,000       6.80              
$ 5.98 – 6.80       115,000     $ 6.35       8.15     $ 23,800  

Outstanding options at September 30, 2013 expire between August 2020 and April 2023 and have exercise prices ranging from $5.98 to $6.80.

No forfeiture rate is assumed for stock options granted to directors or employees due to the forfeiture rate history for these types of awards.  There were no stock options forfeited or expired during the six months ended September 30, 2013 or 2012.

5.  Fair Value of Financial Instruments

Fair value as defined by authoritative literature is the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date.  Fair value measurements are classified and disclosed in one of the following categories:

Level 1 – Quoted prices in active markets for identical assets and liabilities.

Level 2 – Quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 – Significant inputs to the valuation model are unobservable.
 
 
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Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.  In accordance with the reporting requirements of FASB ASC Topic 825, Financial Instruments, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments.

The fair value of the Company’s crude oil swaps are measured internally using established commodity futures price strips for the underlying commodity provided by a reputable third party, the contracted notional volumes, and time to maturity. The valuation of the Company’s derivative instrument is deemed to use Level 2 inputs.  See the Company’s Note 8 on Derivatives for further discussion.  The unrealized loss on derivatives for the six months ended September 30, 2013 was approximately $57,000.

The initial measurement of asset retirement obligations’ fair value is calculated using discounted cash flow techniques and is based on internal estimates of future retirement costs associated with oil and gas properties.  Given the unobservable nature of the inputs, including plugging costs and reserve lives, the initial measurement of the ARO liability is deemed to use Level 3 inputs.  See the Company’s note on AROs for further discussion.  AROs incurred during the six months ended September 30, 2013 were approximately $11,000.

6.  Credit Facility

The Company has a revolving credit agreement with Bank of America, N.A. (the “Agreement”), which provides for a credit facility of $4,900,000 with no monthly commitment reductions and a borrowing base evaluated annually, currently set at $4,900,000. Amounts borrowed under the Agreement are collateralized by the common stock of the Company’s wholly owned subsidiaries and substantially all of the Company’s oil and gas properties.  Availability of this line of credit at September 30, 2013 was $2,675,000.  No principal payments are anticipated to be required through November 30, 2015.

The Agreement was renewed seven times with the seventh amendment on October 25, 2013, which revised the maturity date to November 30, 2015.  Under the original and renewed agreements, interest on the facility accrues at an annual rate equal to the British Bankers Association London Interbank Offered Rate ("BBA LIBOR") daily floating rate, plus 2.50 percentage points, which was 2.68% on September 30, 2013.  Interest on the outstanding amount under the credit agreement is payable monthly.  In addition, the Company will pay an unused commitment fee in an amount equal to ½ of 1 percent (.5%) times the daily average of the unadvanced amount of the commitment.  The unused commitment fee is payable quarterly in arrears on the last day of each calendar quarter.
The Agreement contains customary covenants for credit facilities of this type including limitations on disposition of assets, mergers and reorganizations.  The Company is also obligated to meet certain financial covenants under the Agreement.  The Company is in compliance with all covenants as of September 30, 2013.  In addition, this Agreement prohibits the Company from paying cash dividends on our common stock.  The Agreement does grant the Company permission to enter into hedge agreements; however, the Company is under no obligation to do so.

The amended Agreement allows for up to $500,000 of the facility to be used for outstanding letters of credits.  As of September 30, 2013, a letter of credit for $50,000, in lieu of a plugging bond with the Texas Railroad Commission (“TRRC”) covering the properties the Company operates is outstanding under the facility.  This letter of credit renews annually.  As of October 31, 2013, a second letter of credit for $105,667 in favor of the TRRC, was issued and will also renew annually.  The Company will pay a fee in an amount equal to 1 percent (1.0%) per annum of the outstanding undrawn amount of each standby letter of credit, payable monthly in arrears, on the basis of the face amount outstanding on the day the fee is calculated. 

The balance outstanding on the line of credit as of September 30, 2013 was $2,225,000 and $1,975,000 as of October 31, 2013.

The following table is a summary of activity on the Bank of America, N.A. line of credit for the six months ended September 30, 2013:

   
Principal
 
Balance at March 31, 2013:
  $ 2,950,000  
Borrowings
    -  
Repayments
    (725,000 )
Balance at September 30, 2013:
  $ 2,225,000  

 
Page 10

 

7.  Income Taxes

The Company recognizes deferred tax assets and liabilities for future tax consequences of temporary differences between the carrying amounts of assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates applicable to the years in which those differences are expected to be settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in net income in the period that includes the enactment date.  Any interest and penalties related to uncertain tax positions are recorded as interest expense and general and administrative expense, respectively.

The income tax provision consists of the following for the three and six months ended September 30, 2013 and 2012:

   
Three Months Ended
   
Six Months Ended
 
   
September 30
   
September 30
 
   
2013
   
2012
   
2013
   
2012
 
Current income tax expense
  $ -     $ -     $ -     $ -  
Deferred income tax benefit
    (59,075 )     (28,534 )     (52,257 )     (98,118 )
Total income tax provision:
  $ (59,075 )   $ (28,534 )   $ (52,257 )   $ (98,118 )
                                 
Effective tax rate
    (44 %)     (103 %)     (33 %)     (61 %)

As of September 30, 2013, the Company has a statutory depletion carryforward of approximately $4,700,000, which does not expire.  At September 30, 2013, there was a net operating loss carryforward for regular income tax reporting purposes of approximately $3,200,000, which will begin expiring in 2021.  The Company’s ability to use the net operating loss carryforward and certain other tax attributes to reduce current and future U.S. federal taxable income is subject to limitations under the Internal Revenue Code.  This change in our effective tax rate was primarily due to the completion of our 2012 tax return which included a change in the statutory depletion carryforward resulting in a tax effect of approximately $75,000.

As of September 30, 2013, the Company had unrecognized tax benefits of approximately $677,000.  While it is expected the amount of unrecognized tax benefits will change in the next 12 months, we do not expect any change to have a significant impact on our results operations.  The recognition of the total amount of these unrecognized tax benefits would have an impact on the effective tax rate and if they are disallowed, we will be required to pay additional taxes.

8. Derivatives

All derivative financial instruments are recorded at fair value. The Company has not designated its derivative instruments as hedges for accounting purposes and, as a result, marks its derivative instruments to fair value and recognizes the realized and unrealized changes in fair value in the consolidated statements of operations under the caption “Loss on derivative instruments.”

The Company uses price swap contracts to reduce price volatility associated with certain of its oil sales. With respect to the Company’s fixed price swap contracts, the counterparty is required to make a payment to the Company if the settlement price for any settlement period is less than the swap price, and the Company is required to make a payment to the counterparty if the settlement price for any settlement period is greater than the swap price. The Company’s derivative contracts are based upon reported settlement prices on commodity exchanges, with crude oil derivative settlements based on New York Mercantile Exchange West Texas Intermediate (“NYMEX WTI”) pricing. The counterparty to the Company’s derivative contract is Merrill Lynch Commodities, Inc., who the Company believes is an acceptable credit risk.

As of September 30, 2013 the Company had the following open crude oil derivative positions with respect to future production based on NYMEX WTI pricing:

   
Volume
(bbls)
   
Fixed Swap Price
 
Production Period
           
September 2013 – March 2015
    9,500     $ 90.00  

The fair value of swaps is generally determined using established index prices and other sources which are based upon, among other things, futures prices and time to maturity.

 
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The net fair value of the Company’s derivative assets and liabilities and their locations on the consolidated balance sheet are as follows:

   
As of
   
As of
 
   
September 30,
   
March 31,
 
   
2013
   
2013
 
Current assets:  Derivative instruments
  $ -     $ -  
Noncurrent assets:  Derivative instruments
    -     $ -  
Total assets
  $ -     $ -  
                 
Current liabilities:  Derivative instruments
  $ 50,300     $ -  
Noncurrent liabilities: Derivative instruments
    6,316     $ -  
Total liabilities
  $ 56,616     $ -  

None of the Company’s derivatives have been designated as hedges. As such, all changes in fair value are immediately recognized in earnings. The following summarizes the loss on derivative instruments included in the consolidated statements of operations for the six months ended September 30, 2013 and 2012:
 
   
2013
   
2012
 
Unrealized loss on open non-hedge derivative instruments
  $ (56,616 )   $ -  
Loss on settlement of non-hedge derivative instruments
    (30,071 )   $ -  
Total loss on derivative instruments
  $ (86,687 )   $ -  

9.  Related Party Transactions

Related party transactions for the Company relate to shared office expenditures in addition to administrative and operating expenses paid on behalf of the majority stockholder.  The total billed to and reimbursed by the stockholder for the six months ended September 30, 2013 and 2012 was $62,175 and $70,599, respectively.

10.  Income (Loss) Per Common Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.  Diluted net income (loss) per share assumes the exercise of all stock options having exercise prices less than the average market price of the common stock during the period using the treasury stock method and is computed by dividing net income (loss) by the weighted average number of common shares and dilutive potential common shares (stock options) outstanding during the period.  In periods where losses are reported, the weighted-average number of common shares outstanding excludes potential common shares, because their inclusion would be anti-dilutive.

The following is a reconciliation of the number of shares used in the calculation of basic income (loss) per share and diluted income (loss) per share for the three and six month periods ended September 30, 2013 and 2012.

   
Three Months Ended
   
Six Months Ended
 
   
September 30
   
September 30
 
   
2013
   
2012
   
2013
   
2012
 
Net income (loss)
  $ 194,051     $ 763     $ 210,182     $ (62,454 )
                                 
Shares outstanding:
                               
Weighted avg. common shares outstanding – basic
    2,036,866       2,035,949       2,036,866       2,035,949  
Effect of the assumed exercise of dilutive stock options
    2,242       2,291       1,934       -  
Weighted avg. common shares outstanding – dilutive
    2,039,108       2,038,240       2,038,800       2,035,949  
                                 
Earnings (loss) per common share:
                               
Basic
  $ 0.10     $ 0.00     $ 0.10     $ (0.03 )
Diluted
  $ 0.10     $ 0.00     $ 0.10     $ (0.03 )

For the three and six month periods ending September 30, 2013, 105,000 potential common shares relating to stock options were excluded in the computation of diluted net income because the options are anti-dilutive.  Anti-dilutive stock options have a weighted average exercise price of $6.38 at September 30, 2013. For the three months ended September 30, 2012, 70,000 potential common shares relating to stock options were excluded in the computation of diluted net income per share.  Anti-dilutive stock options have a weighted average exercise price of $6.55 at September 30, 2012. Due to a net loss for the six months ended September 30, 2012, the weighted average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.
 
 
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11. Subsequent Events

On October 25, 2013, the Company renewed its revolving credit agreement with Bank of America, N.A.  For a description of this amended credit agreement , see Note 6 – Credit Facility.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise requires, references to the “Company”, “Mexco”, “we”, “us” or “our” mean Mexco Energy Corporation and its consolidated subsidiaries.

Cautionary Statements Regarding Forward-Looking Statements.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Forward-looking statements include statements regarding our plans, beliefs or current expectations and may be signified by the words “could”, “should”, “expect”, “project”, “estimate”, “believe”, “anticipate”, “intend”, “budget”, “plan”, “forecast”, “predict” and other similar expressions.  Forward-looking statements appear throughout this Form 10-Q with respect to, among other things:  profitability; planned capital expenditures; estimates of oil and gas production; future project dates; estimates of future oil and gas prices; estimates of oil and gas reserves; our future financial condition or results of operations; and our business strategy and other plans and objectives for future operations.  Forward-looking statements involve known and unknown risks and uncertainties that could cause actual results to differ materially from those contained in any forward-looking statement.

While we have made assumptions that we believe are reasonable, the assumptions that support our forward-looking statements are based upon information that is currently available and is subject to change.  All forward-looking statements in this Form 10-Q are qualified in their entirety by the cautionary statement contained in this section.  We do not undertake to update, revise or correct any of the forward-looking information.  It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Form 10-K.

Liquidity and Capital Resources.  Historically, we have funded our operations, acquisitions, exploration and development expenditures from cash generated by operating activities, bank borrowings and issuance of common stock.  Our primary financial resource is our base of oil and gas reserves.  We pledge our producing oil and gas properties to secure our revolving line of credit.  We do not have any delivery commitments to provide a fixed and determinable quantity of its oil and gas under any existing contract or agreement.

Our long term strategy is on increasing profit margins while concentrating on obtaining reserves with low cost operations by acquiring and developing oil and gas properties with potential for long-lived production.  We focus our efforts on the acquisition of royalties and working interests in non-operated properties in areas with significant development potential.

At September 30, 2013, we had working capital of $637,809 compared to working capital of $309,180 at March 31, 2013, an increase of $328,629 for the reasons set forth below.

For the first six months of fiscal 2014, cash flow from operations was $855,036, a 120% increase when compared to the corresponding period of fiscal 2013.  Cash of $725,000 was used to reduce the balance on the line of credit; net cash of $43,741 was used for additions to oil and gas properties and equipment; and, cash of $30,071 was used for settlement of derivatives.  Accordingly, net cash increased $56,224.

Texas

On August 13, 2013, Mexco assigned Pioneer Natural Resources Company a three year term leasehold interest in 417.33 net acres (837.33 gross acres) in Upton County, Texas in return for payment to Mexco of $1,500 per acre totaling $625,995.  Mexco retained a 1% royalty.  This interest has potential for oil production from the Horizontal Wolfcamp trend of the Permian Basin in West Texas.

In August 2013, a joint venture in which we are a working interest partner entered into an agreement for the assignment of a three year term leasehold interest in acreage in Reagan County, Texas.  In September 2013, we received $116,299 for our share of the leasehold acreage.

 
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We participated in the drilling of three (3) horizontal wells in the Wolfcamp formation of the Lin Field of Reagan County, Texas.  All three (3) of these wells have been completed and are currently producing and undergoing fracture stimulation.  The unit, operated by EOG Resources, Inc., contains approximately 500 acres.  Mexco’s working interest in these wells is .8086% (.6064% net revenue interest).  Our share of the costs to drill, complete and fracture these wells through September 30, 2013 was approximately $139,000.

We participated in the drilling of seven (7) horizontal wells in the Penn Detrital formation of the F A Hogg Field of Winkler County, Texas.  Five (5) of these wells have been completed and are currently producing with one (1) well currently undergoing completion procedures and one (1) well still being drilled.  The last well completed, on a 24-hour test on August 27, 2013, produced 220 barrels of oil, 180 barrels of water and 198,000 cubic feet of natural gas.  The seven units, six operated by OGX Operating, LLC and one operated by Petro-Hunt LLC, contain approximately 2,600 acres.  Mexco’s working interests in these wells range from .2919% to .4167% (.2275% to .3125% net revenue interest).  Our share of the costs to drill and complete these wells through September 30, 2013 was approximately $95,000.

We participated in the drilling of two (2) development wells in the Wolfcamp formation of the Clyde-Reynolds Field of Glasscock County, Texas.  Both wells are currently undergoing completion procedures.  The unit, operated by McClure Oil Company, Inc., contains approximately 600 acres.  Our share of the costs to drill and complete the wells through September 30, 2013 for our 1% working interest (.75% net revenue interest) was approximately $8,000.

We participated in the drilling of a well to an approximate depth of 5,000 feet in the Grayburg and San Andres formations of the Fuhrman-Mascho Field of Andrews County, Texas.  The unit, operated by Cone & Petree Oil & Gas Exploration, Inc., contains 160 gross acres and a total of nine (9) wells - four (4) producing oil from the San Andres formation and four (4) producing oil from the Grayburg and San Andres formations.  Our share of the costs for our approximate 16.2% working interest (11.66% net revenue interest) of this ninth well through September 30, 2013 was approximately $111,000. In August 2013, Cone & Petree announced plans to drill the tenth well in the Grayburg and San Andres formations on this acreage leaving six (6) potential drill sites with three (3) planned to be drilled in fiscal 2014.

New Mexico

We participated in the drilling of eight (8) horizontal wells in the Bone Springs formation of Lea County, New Mexico.  Five (5) of these wells are operated by COG Operating, LLC, two (2) are operated by Cimarex Energy and one (1) is operated by Manzano, LLC.  Seven (7) of these wells have been completed and are currently producing.  The eighth well, subsequently completed in October 2013, on a 24-hour test produced 335 barrels of oil, 421 barrels of water and 200,000 cubic feet of natural gas.  In June 2013, Cimarex announced plans to drill another well in this formation.  Mexco’s working interests in these wells range from .047% to .25% (.035% to .2125% net revenue interest).  Our share of the costs to drill and complete these wells through September 2013 was approximately $59,000.

A joint venture in which we are a working interest partner entered into a joint development agreement to develop the Avalon Shale portion of the Bone Spring formation using horizontal drilling and multi-stage fracture stimulation on a 640-acre tract in Lea County, New Mexico.  There are 12 prospective drill sites on this acreage.  Our share of the costs to drill the first well through September 2013 for our approximate .56% working interest (.42% net revenue interest) was approximately $32,000.

We have been scheduled to participate in twelve (12) infill wells in the Yeso/Paddock formations of the Dodd-Federal Unit in the Grayburg San Andres Jackson Field of Eddy County, New Mexico.  Eight (8) vertical and three (3) horizontal wells were drilled during the first six months of fiscal 2014, with the last one to be drilled in the next six months to a total depth of approximately 5,000 feet.  The unit, operated by Concho Resources, Inc., currently contains approximately 185 producing wells.  Mexco’s working interest in this unit is .1848% (.14% net revenue interest).  Our share of the costs to drill and complete these eleven wells through September 30, 2013 was approximately $31,000.

Oklahoma

We participated in the drilling of three (3) horizontal wells in a 640 acre unit in the Cottage Grove formation of Ellis County, Oklahoma.  All three (3) of these wells, operated by Mewbourne Oil Company, have been completed and are currently producing.  Mexco’s working interest in this unit is 1.2% (.9878% net revenue interest).  Our share of the costs to drill and complete these wells through September 2013 was approximately $121,000.
 
 
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North Dakota

We are scheduled to participate in six (6) horizontal infill wells on a 1,280-acre unit and four (4) horizontal infill wells on a 1,920-acre unit in the Bakken and Three Forks formations of the Catwalk Creek Field of Williams County, North Dakota.  The first of these wells on a 15-month schedule began drilling in June 2013.  Mexco’s working interest in the 1,280-acre unit is .234% (.205% net revenue interest) and .0521% (.0453% net revenue interest) in the 1,920-acre unit.  As of September 30, 2013, our share of the costs associated with these wells was approximately $6,000.

We are participating in other projects and are reviewing projects in which we may participate.  The cost of such projects would be funded, to the extent possible, from existing cash balances and cash flow from operations.  The remainder may be funded through borrowings on the credit facility and, if appropriate, sales of our common stock.

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 NYMEX WTI posted price for crude oil has ranged from a low of $81.25 per bbl in November 2012 to a high of $107.00 per bbl in September 2013.  The Henry Hub Spot Market Price (“Henry Hub”) for natural gas has ranged from a low of $3.08 per MMBtu in January 2013 to a high of $4.38 per MMBtu in April 2013. On September 30, 2013 the WTI posted price for crude oil was $98.50 per bbl and the Henry Hub spot price for natural gas was $3.49 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.

Contractual Obligations.  We have no off-balance sheet debt or unrecorded obligations and have not guaranteed the debt of any other party.  The following table summarizes our future payments we are obligated to make based on agreements in place as of September 30, 2013:
 
   
Payments Due In (1):
 
   
Total
   
less than 1 year
   
1-3 years
   
3 years
 
Contractual obligations:
                       
Secured bank line of credit
  $ 2,225,000     $     $ 2,225,000     $  

(1) 
Does not include estimated interest costs of $59,600 covering the period of less than 1 year and of $178,800 for the period of 1-3 years.

These amounts represent the balances outstanding under the bank line of credit.  These repayments assume that interest will be paid on a monthly basis and that no additional funds will be drawn.

Results of Operations – Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012.  Net income was $194,051 for the quarter ended September 30, 2013 compared to $763 for the quarter ended September 30, 2012.  This was a result of an increase in operating revenues and partially offset by an increase in production costs and loss on derivatives.

Oil and gas sales.  Revenue from oil and gas sales was $1,108,102 for the second quarter of fiscal 2014, a 51% increase from $734,313 for the same period of fiscal 2013.  This resulted from an increase in oil production and oil and gas prices partially offset by a decrease in gas production.

   
2013
   
2012
   
% Difference
 
Oil:
                 
Revenue
  $ 766,793     $ 465,783       64.6 %
Volume (bbls)
    7,378       5,356       37.8 %
Average Price (per bbl)
  $ 103.93     $ 86.97       19.5 %
                         
Gas:
                       
Revenue
  $ 341,309     $ 268,530       27.1 %
Volume (mcf)
    96,988       101,456       (4.4 %)
Average Price (per mcf)
  $ 3.51     $ 2.65       32.5 %
 
 
Page 15

 
 
Production and exploration.  Production costs were $312,954 for the second quarter of fiscal 2014, a 23% increase from $254,513 for the same period of fiscal 2013.  This was primarily the result of an increase in production taxes due to the increase in oil and gas revenues and an increase in operating expenses due to the additional working interest wells from the TBO acquisition.

Depreciation, depletion and amortization.  Depreciation, depletion and amortization expense was $298,489 for the second quarter of fiscal 2014, a 15% increase from $259,780 for the same period of fiscal 2013, primarily due to an increase in oil production and, to a lesser extent, an increase to the full cost pool amortization base.

General and administrative expenses.  General and administrative expenses were $286,615 for the second quarter of fiscal 2014, a 21% increase from $236,708 for the same period of fiscal 2013.  This was primarily due to an increase in insurance, salaries and employee stock option compensation expense.

Interest expense.  Interest expense was $18,202 for the second quarter of fiscal 2014, an 69% increase from $10,767 for the same period of fiscal 2013, due to an increase in borrowings.

Income taxes.  There was an income tax benefit of $59,075, or (44%), for the three months ended September 30, 2013 compared to an income tax benefit of $28,534, or (103%), for the three months ended September 30, 2012. This change in our effective tax rate was primarily due to the completion of our 2012 tax return which included a change in the statutory depletion carryforward resulting in a tax effect of approximately $75,000.
 
Derivatives.  Derivative losses of $59,295 were recorded during the three months ended September 30, 2013.  This amount reflects $23,736 of realized losses and $35,559 of unrealized losses resulting from our oil swap agreement.

Results of Operations – Six Months Ended September 30, 2013 Compared to Six Months Ended September 30, 2012.  For the six months ended September 30, 2013, there was net income of $210,182, a 437% increase from a net loss of $62,454 for the six months ended September 30, 2012.  This was a result of an increase in operating revenues.

Oil and gas sales.  Revenue from oil and gas sales was $2,092,371 for the six months ended September 30, 2013, a 54% increase from $1,358,183 for the same period of fiscal 2013.  This resulted from an increase in oil and gas production and an increase in oil and gas prices.

   
2013
   
2012
   
% Difference
 
Oil:
                 
Revenue
  $ 1,388,758     $ 898,588       54.5 %
Volume (bbls)
    14,139       10,425       35.6 %
Average Price (per bbl)
  $ 98.22     $ 86.20       13.9 %
                         
Gas:
                       
Revenue
  $ 703,613     $ 459,595       53.1 %
Volume (mcf)
    192,584       190,506       1.1 %
Average Price (per mcf)
  $ 3.65     $ 2.41       51.5 %

Production and exploration.  Production costs were $621,590 for the six months ended September 30, 2013, a 32% increase from $470,363 for the six months ended September 30, 2012.  This was primarily the result of an increase in production taxes due to the increase in oil and gas revenues and an increase in operating expenses due to the additional working interest wells from the TBO acquisition.

Depreciation, depletion and amortization.  Depreciation, depletion and amortization expense was $593,522 for the six months ended September 30, 2013, a 21% increase from $491,316 for the six months ended September 30, 2012, primarily due to an increase in oil and gas production and, to a lesser extent, an increase to the full cost pool amortization base.

General and administrative expenses.  General and administrative expenses were $598,085 for the six months ended September 30, 2013, a 13% increase from $528,977 for the six months ended September 30, 2012.  This was primarily due to an increase in accounting and engineering services, insurance, salaries and employee stock option compensation expense.

Interest expense.  Interest expense was $38,332 for the six months ended September 30, 2013, a 77% increase from $21,626 for the same period fiscal 2013 due to an increase in borrowings.
 
 
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Income taxes.  There was an income tax benefit of $52,257, or (33%), for the six months ended September 30, 2013 compared to an income tax benefit of $98,118, or (61%), for the six months ended September 30, 2012. This change in our effective tax rate was primarily due to the completion of our 2012 tax return which included a change in the statutory depletion carryforward resulting in a tax effect of approximately $75,000.

Derivatives.  Derivative losses of $86,687 were recorded during the six months ended September 30, 2013.  This amount reflects $30,071 of realized losses and $56,616 of unrealized losses resulting from our oil swap agreement.
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk

The primary sources of market risk for us include fluctuations in commodity prices and interest rates.  All of our financial instruments are for purposes other than trading.

Interest Rate Risk.  At September 30, 2013, we had an outstanding loan balance of $2,225,000 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 $22,250 based on the outstanding balance at September 30, 2013.

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 September 30, 2013, our largest credit risk associated with any single purchaser was $128,811 or 18% of our total oil and gas receivables.  We are also exposed to credit risk in the event of nonperformance from any of our working interest partners.  At September 30, 2013, our largest credit risk associated with any working interest partner was $4,458 or 27% of our total trade receivable.  We have not experienced any significant credit losses.

Commodity Price Risk.  Our most significant market risk is the pricing for natural gas and crude oil.  Our financial condition, results of operations, and capital resources are highly dependent upon the prevailing market prices of, and demand for, oil and natural gas.  Prices for oil and natural gas fluctuate widely.  We cannot predict future oil and natural gas prices with any certainty. Historically, the markets for oil and gas have been volatile, and they are likely to continue to be volatile.  Factors that can cause price fluctuations include the level of global demand for petroleum products, foreign supply of oil and gas, the establishment of and compliance with production quotas by oil-exporting countries, weather conditions, the price and availability of alternative fuels and overall political and economic conditions in oil producing countries.  Declines in oil and natural gas prices will materially adversely affect our financial condition, liquidity, ability to obtain financing and operating results. Changes in oil and gas prices impact both estimated future net revenue and the estimated quantity of proved reserves.  Any reduction in reserves, including reductions due to price fluctuations, can reduce the borrowing base under our revolving credit facility and adversely affect the amount of cash flow available for capital expenditures and our ability to obtain additional capital for our acquisition, exploration and development activities.  In addition, a noncash write-down of our oil and gas properties could be required under full cost accounting rules if prices declined significantly, even if it is only for a short period of time.  Lower prices may also reduce the amount of crude oil and natural gas that can be produced economically.  Thus, we may experience material increases or decreases in reserve quantities solely as a result of price changes and not as a result of drilling or well performance.

Similarly, any improvements in oil and gas prices can have a favorable impact on our financial condition, results of operations and capital resources.  Oil and natural gas prices do not necessarily fluctuate in direct relationship to each other.  Our financial results are more sensitive to movements in natural gas prices than oil prices because most of our production and reserves are natural gas.  If the average oil price had increased or decreased by one dollar per barrel for the first six months of fiscal 2014, our net income would have changed by $14,139.  If the average gas price had increased or decreased by one dollar per mcf for the first six months of fiscal 2014, our net income would have changed by $192,584.

We use price swap derivatives to reduce price volatility associated with certain of our oil sales.  Under these swap contracts, we receive a fixed price per barrel of oil and pay a floating market price per barrel of oil to the counterparty based on NYMEX WTI pricing. The fixed-price payment and the floating-price payment are offset, resulting in a net amount due to or from the counterparty.  In March 2013, we placed a commodity swap contract covering a total of 12,000 bbls of crude oil for the period from April 2013 to March 2015 at a fixed price of $90.00 per bbl.  Such contracts and any future swap arrangements may expose us to risk of financial loss in certain circumstances, including instances where production is less than expected or oil prices increase.  In addition, these arrangements may limit the benefit to us of increases in the price of oil.
 
 
Page 17

 
 
At September 30, 2013, we had a net liability derivative position of $56,616 related to our price swap derivatives.  Utilizing actual derivative contractual volumes as of September 30, 2013, a 10% increase or decrease in forward curves associated with the underlying commodity would have changed the net liability of these instruments by approximately $85,000.  However, any realized derivative gain or loss would be substantially offset by a decrease or increase, respectively, in the actual sales value of production covered by the derivative instrument.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures.  We maintain disclosure controls and procedures to ensure that the information we must disclose in our filings with the SEC is recorded, processed, summarized and reported on a timely basis.  At the end of the period covered by this report, our principal executive officer and principal financial officer reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(f).  Based on such evaluation, such officers concluded that, as of September 30, 2013, our disclosure controls and procedures were effective to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is disclosed within the time periods specified in the SEC’s rules and forms and are effective to ensure that information required to be disclosed by us is accumulated and communicated to them to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting.  No changes in our internal control over financial reporting occurred during the quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 
Page 18

 

PART II – OTHER INFORMATION

Item 1.
Legal Proceedings

We may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business.  We are not aware of any legal or governmental proceedings against us, or contemplated to be brought against us, under various environmental protection statutes or other regulations to which we are subject.

Item 1A.
Risk Factors

There have been no material changes to the information previously disclosed in Item 1A. “Risk Factors” in our 2013 Annual Report on Form 10-K other than those set forth below:

We have entered into price swap derivatives and may in the future enter into additional price swap derivatives for a portion of our production, which may result in our making cash payments or prevent us from receiving the full benefit of increases in prices for oil.

We use price swap derivatives to reduce price volatility associated with certain of our oil sales.  Under these swap contracts, we receive a fixed price per barrel of oil and pay a floating market price per barrel of oil to the counterparty based on NYMEX WTI pricing. The fixed-price payment and the floating-price payment are offset, resulting in a net amount due to or from the counterparty.

In March 2013, we placed a commodity swap contract covering a total of 12,000 bbls of crude oil for the period from April 2013 to March 2015 at a fixed price of $90.00 per bbl.  Such contracts and any future swap arrangements may expose us to risk of financial loss in certain circumstances, including instances where production is less than expected or oil prices increase.  In addition, these arrangements may limit the benefit to us of increases in the price of oil.  Accordingly, our earnings may fluctuate significantly as a result of changes in the fair value of our derivative instruments.

Our derivative transactions expose us to counterparty credit risk.

Our derivative transactions expose us to risk of financial loss if a counterparty fails to perform under a derivative contract.  Disruptions in the financial markets could lead to sudden decreases in a counterparty’s liquidity, which could make them unable to perform under the terms of the derivative contract and we may not be able to realize the benefit of the derivative contract.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None

Item 3.
Defaults Upon Senior Securities
None

Item 4.
Mine Safety Disclosures
None

Item 5.
Other Information
None

Item 6.
Exhibits

 
31.1
Certification of the Chief Executive Officer of Mexco Energy Corporation

 
31.2
Certification of the Chief Financial Officer of Mexco Energy Corporation

 
32.1
Certification of the Chief Executive Officer and Chief Financial Officer of Mexco Energy Corporation pursuant to 18 U.S.C. §1350

 
Page 19

 
 
SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
MEXCO ENERGY CORPORATION
 
 
(Registrant)
 
     
Dated: November 12, 2013
/s/ Nicholas C. Taylor
 
 
Nicholas C. Taylor
 
 
Chairman of the Board and Chief Executive Officer
 
     
Dated: November 12, 2013
/s/ Tamala L. McComic
 
 
Tamala L. McComic
 
 
President, Chief Financial Officer, Treasurer and Assistant Secretary

Page 20

EX-31.1 2 fp0008664_ex31-1.htm fp0008664_ex31-1.htm
 
Exhibit 31.1
 
CHIEF EXECUTIVE OFFICER CERTIFICATION

CERTIFICATION

I, Nicholas C. Taylor, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Mexco Energy Corporation;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

 
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
 
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:  November 12, 2013
/s/ Nicholas C. Taylor
 
Nicholas C. Taylor
 
Chairman of the Board and Chief Executive Officer
 
EX-31.2 3 fp0008664_ex31-2.htm fp0008664_ex31-2.htm
 
Exhibit 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION

CERTIFICATION

I, Tamala L. McComic, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Mexco Energy Corporation;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

 
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
 
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:  November 12, 2013
/s/ Tamala L. McComic
 
Tamala L. McComic
 
President and Chief Financial Officer
EX-32.1 4 fp0008664_ex32-1.htm fp0008664_ex32-1.htm
 
Exhibit 32.1

CERTIFICATION OF
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
OF MEXCO ENERGY CORPORATION
PURSUANT TO 18 U.S.C. §1350
 
In connection with the Quarterly Report of Mexco Energy Corporation on Form 10-Q for the quarterly period ended September 30, 2013, as filed with the Securities and Exchange Commission on November 13, 2013 (the “Report”), the undersigned, in the capacities and on the dates indicated below, each hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of their knowledge:
 
 
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
 
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Mexco Energy Corporation as of the dates and for periods presented as required by such Report.
 
Date:  November 12, 2013
/s/ Nicholas C. Taylor
 
 
Nicholas C. Taylor
 
 
Chairman of the Board and Chief Executive Officer
 
     
Date:  November 12, 2013
/s/ Tamala L. McComic
 
 
Tamala L. McComic
 
 
President and Chief Financial Officer
 

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$6.26 - 6.50 Options Outstanding, $5.98 - 6.80 June 2013 - March 2015, crude oil derivative positions Derivative, by Nature [Axis] Common Stock Texas Railroad Commission second letter of credit Options Outstanding, $6.51 - 6.80 Document And Entity Information Entity Registrant Name Entity Central Index Key Document Type Document Period End Date Amendment Flag Current Fiscal Year End Date Is Entity a Well-known Seasoned Issuer? Is Entity a Voluntary Filer? Is Entity's Reporting Status Current? Entity Filer Category Entity Public Float Entity Common Stock, Shares Outstanding Document Fiscal Period Focus Document Fiscal Year Focus Statement of Financial Position [Abstract] ASSETS Current assets Cash and cash equivalents Accounts receivable: Oil and gas sales Trade Prepaid costs and expenses Total current assets Property and equipment, at cost Oil and gas properties, using the full cost method Other Accumulated depreciation, depletion and amortization Property and equipment, net Other noncurrent assets Total Assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses Derivative instruments Total current liabilities Long-term debt Asset retirement obligations Derivative instruments - long term Deferred income tax liabilities Total liabilities Commitments and contingencies Stockholders' equity Preferred stock - $1.00 par value; 10,000,000 shares authorized; none outstanding Common stock - $0.50 par value; 40,000,000 shares authorized; 2,102,866 shares issued and 2,036,866 shares outstanding as of September 30, 2013 and March 31, 2013 Additional paid-in capital Retained earnings Treasury stock, at cost (66,000 shares) Total stockholders' equity Total liabilities and stockholders' equity Preferred stock par value Preferred stock shares authorized Preferred stock shares issued Preferred stock shares outstanding Common stock par value Common stock shares authorized Common stock shares issued Common stock shares outstanding Treasury stock, shares Income Statement [Abstract] Operating revenues: Oil and gas Other Total operating revenues Operating expenses: Production Accretion of asset retirement obligations Depreciation, depletion, and amortization General and administrative Total operating expenses Operating profit (loss) Other income (expense): Interest income Interest expense Loss on derivative instruments Net other expense Earnings (loss) before provision for income taxes Income tax expense (benefit): Current Deferred TOTAL Net income (loss) Earnings (loss) per common share: Basic Diluted Weighted average common shares outstanding: Basic Diluted Statement [Table] Statement [Line Items] Beginning balance, Shares Beginning balance, Amount Net income Stock based compensation Ending balance, Shares Ending balance, Amount Statement of Cash Flows [Abstract] Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Deferred income tax benefit Stock-based compensation Depreciation, depletion and amortization Change in fair value of derivative instruments Other Changes in assets and liabilities: Increase in accounts receivable Increase in prepaid expenses Decrease in non-current assets Increase in accounts payable and accrued expenses Net cash provided by operating activities Cash flows from investing activities: Additions to oil and gas properties Additions to other property and equipment Settlement of derivatives Proceeds from sale of oil and gas properties and equipment Net cash used in investing activities Cash flows from financing activities: Reduction of long-term debt Proceeds from long-term debt Net cash provided by (used in) financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental disclosure of cash flow information: Cash paid for interest Income taxes paid Non-cash investing and financing activities: Asset retirement obligations Accounting Policies [Abstract] Nature of Operations Summary of Significant Accounting Policies Asset Retirement Obligation Disclosure [Abstract] Asset Retirement Obligations Share-based Compensation [Abstract] Stock-based Compensation Fair Value Disclosures [Abstract] Fair Value of Financial Instruments Debt Disclosure [Abstract] Credit Facility Income Tax Disclosure [Abstract] Income Taxes Derivative Instruments and Hedging Activities Disclosure [Abstract] Derivatives Related Party Transactions [Abstract] Related Party Transactions Earnings Per Share [Abstract] Income (Loss) Per Common Share Subsequent Events [Abstract] Subsequent Events Principles of Consolidation Estimates and Assumptions Interim Financial Statements Derivatives Fair Value of Financial Instruments Gas Balancing Rollforward of the asset retirement obligations Disclosure of Compensation Related Costs, Share-based Payments [Abstract] Summary of the grant-date fair value of stock options granted and the related assumptions used in the Binomial models for stock options granted Summary of activity of stock options Summary information about options outstanding at June 30, 2013 Summary of activity on the Bank of America, N.A. line of credit Reconciliation of the provision for income taxes Derivatives Tables Schedule of open crude oil derivative positions with respect to future production Net fair value of the Company’s derivative assets and liabilities and their locations on the consolidated balance sheet Loss on derivative instruments included in the consolidated statements of operations Income Loss Per Common Share Tables Number of shares used in the calculation of basic income (loss) per share and diluted income (loss) per share Compensation expense Total cost related to non-vested awards Non-vested awards, weighted average period of recognition Exercised options Stock options granted Options outstanding, exercise price, high Options outstanding, exercise price, low Asset Retirement Obligations Unrealized loss on derivatives Credit Facility [Axis] Credit facility maximum capacity Credit facility current capacity Credit facility remaining capacity Interest Rate as of period end Commitment Fee Percentage Credit outstanding Notes to Financial Statements Statutory depletion carryforward Operating loss carryforwards Operating loss carryforward expires beginning Unrecognized tax benefits Statutory Depletion Carryforward, tax effect Totals billed to and reimbursed by the stockholder Income Loss Per Common Share Details Narrative Shares relating to stock options excluded in the computation of diluted net income per share Anti-dilutive stock options, weighted average exercise price Lease proceeds received Royalty retained Carrying amount of asset retirement obligations as of April 1, 2013 Liabilities incurred Liabilities settled Accretion expense Carrying amount of asset retirement obligations as of September 30, 2013 Less: Current portion Non-Current asset retirement obligation Grant-date fair value Volatility factor Dividend yield Risk-free interest rate Expected term (in years) Number of Shares Outstanding Weighted Average Exercise Price Per Share Weighted Aggregate Average Remaining Contract Life in Years Intrinsic Value Shares granted in period Shares granted - weighted average exercise price Vested - Shares Outstanding Vested - Weighted Average Exercise Price Per Share Vested - Weighted Aggregate Average Remaining Contract Life in Years Vested - Intrinsic Value Exercisable - Shares Outstanding Exercisable - Weighted Average Exercise Price Per Share Exercisable - Weighted Aggregate Average Remaining Contract Life in Years Exercisable - Intrinsic Value Range of Exercise Prices, low Range of Exercise Prices, high Number of Options Weighted Average Exercise Price Per Share Weighted Average Remaining Contract Life in Years Aggregate Intrinsic Value Balance at March 31, 2013: Borrowings Repayments Balance at June 30, 2013: Current income tax (benefit) expense Deferred income tax (benefit) expense Total income tax provision Effective tax rate Volume Fixed Swap Price Derivatives - Net Fair Value Of Companys Derivative Assets And Liabilities Details Current assets: Derivative instruments Noncurrent assets: Derivative instruments Total assets Current liabilities: Derivative instruments Noncurrent liabilities: Derivative instruments Total Liabilities Derivatives - Loss On Derivative Instruments Included In Consolidated Statements Of Operations Details Unrealized loss on open non-hedge derivative instruments Loss on settlement of non-hedge derivative instruments Loss on derivative instruments Weighted average common shares outstanding – basic Effect of the assumed exercise of dilutive stock options Weighted average common shares outstanding – dilutive Earnings (loss) per common share: Basic Earnings (loss) per common share: Diluted Asset Retirement Obligations [Default Label] Options Outstanding, $6.30 - 6.80 Notes To Financial Statements (Details) Oil and gas sales Weighted Average Remaining Contract Life in Years Range of Exercise Prices, low Statements of Cash Flows Statements of Operations Assets, Current Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment Property, Plant and Equipment, Net Assets Liabilities, Current Liabilities Treasury Stock, Value Stockholders' Equity Attributable to Parent Liabilities and Equity Other Revenue, Net Revenue, Net Costs and Expenses Interest Expense Nonoperating Income (Expense) Income Tax Expense (Benefit) Shares, Issued Other Noncash Income (Expense) Net Cash Provided by (Used in) Operating Activities Payments to Acquire Oil and Gas Property Payments to Acquire Other Property, Plant, and Equipment Net Cash Provided by (Used in) Investing Activities Repayments of Long-term Debt Net Cash Provided by (Used in) Financing Activities AssetRetirementObligations Derivatives, Policy [Policy Text Block] Fair Value of Financial Instruments, Policy [Policy Text Block] Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period Costs Incurred, Asset Retirement Obligation Incurred Other Tax Carryforward, Gross Amount (Deprecated 2013-01-31) Operating Loss Carryforwards Unrecognized Tax Benefits Deferred Tax Assets, Tax Credit Carryforwards, Other Asset Retirement Obligation Asset Retirement Obligation, Current Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Outstanding Options, Weighted Average Exercise Price Derivative Asset Derivative Liability XML 11 R17.htm IDEA: XBRL DOCUMENT v2.4.0.8
Subsequent Events
6 Months Ended
Sep. 30, 2013
Subsequent Events [Abstract]  
Subsequent Events

11. Subsequent Events

 

On October 25, 2013, the Company renewed its revolving credit agreement with Bank of America, N.A.  For a description of this amended credit agreement , see Note 6 – Credit Facility.

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CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $)
3 Months Ended 6 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Operating revenues:        
Oil and gas $ 1,108,102 $ 734,313 $ 2,092,371 $ 1,358,183
Other 13,344 9,288 25,600 12,539
Total operating revenues 1,121,446 743,601 2,117,971 1,370,722
Operating expenses:        
Production 312,954 254,513 621,590 470,363
Accretion of asset retirement obligations 11,020 9,604 21,937 19,142
Depreciation, depletion, and amortization 298,489 259,780 593,522 491,316
General and administrative 286,615 236,708 598,085 528,977
Total operating expenses 909,078 760,605 1,835,134 1,509,798
Operating profit (loss) 212,368 (17,004) 282,837 (139,076)
Other income (expense):        
Interest income 105    107 130
Interest expense (18,202) (10,767) (38,332) (21,626)
Loss on derivative instruments (59,295)    (86,687)   
Net other expense (77,392) (10,767) (124,912) (21,496)
Earnings (loss) before provision for income taxes 134,976 (27,771) 157,925 (160,572)
Income tax expense (benefit):        
Current            
Deferred (59,075) (28,534) (52,257) (98,118)
TOTAL (59,075) (28,534) (52,257) (98,118)
Net income (loss) $ 194,051 $ 763 $ 210,182 $ (62,454)
Earnings (loss) per common share:        
Basic $ 0.10 $ 0.00 $ 0.10 $ (0.03)
Diluted $ 0.10 $ 0.00 $ 0.10 $ (0.03)
Weighted average common shares outstanding:        
Basic 2,036,866 2,035,949 2,036,866 2,035,949
Diluted 2,039,108 2,038,240 2,038,800 2,035,949

XML 14 R10.htm IDEA: XBRL DOCUMENT v2.4.0.8
Stock-based Compensation
6 Months Ended
Sep. 30, 2013
Share-based Compensation [Abstract]  
Stock-based Compensation

4.  Stock-based Compensation

 

The Company recognized compensation expense of $42,866 and $41,029 in general and administrative expense in the Consolidated Statements of Operations for the three months ended September 30, 2013 and 2012, respectively.  Compensation expense recognized for the six months ended September 30, 2013 and 2012 was $82,238 and $84,808, respectively.  The total cost related to non-vested awards not yet recognized at September 30, 2013 totals approximately $195,653 which is expected to be recognized over a weighted average of 2.64 years.

 

The fair value of each stock option is estimated on the date of grant using the Binomial valuation model.  Expected volatilities are based on historical volatility of the Company’s stock over the expected term of 84 months for employees and 96 months for directors and other factors.  We use historical data to estimate option exercise and employee termination within the valuation model.  The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.  As the Company has never declared dividends, no dividend yield is used in the calculation.  Actual value realized, if any, is dependent on the future performance of the Company’s common stock and overall stock market conditions.  There is no assurance the value realized by an optionee will be at or near the value estimated by the Binomial model.

 

Included in the following table is a summary of the grant-date fair value of stock options granted and the related assumptions used in the Binomial models for stock options granted during the six months ended September 30, 2013 and 2012.  All such amounts represent the weighted average amounts.

 

    Six Months Ended  
    September 30  
    2013     2012  
Grant-date fair value   $ 4.75       -  
Volatility factor     77.01 %     -  
Dividend yield     -       -  
Risk-free interest rate     1.74 %     -  
Expected term (in years)     7       -  

 

The following table is a summary of activity of stock options for the six months ended September 30, 2013:

 

    Number of Shares     Weighted Average Exercise Price     Weighted Average Remaining Contract Life in Years     Aggregate Intrinsic Value  
Outstanding at March 31, 2013     80,000     $ 6.52       8.03     $ -  
Granted     35,000       5.98                  
Exercised     -       -                  
Forfeited or Expired     -       -                  
Outstanding at September 30, 2013     115,000     $ 6.35       8.15     $ 23,800  
                                 
Vested at September 30, 2013     40,000     $ 6.37       7.21     $ 7,425  
Exercisable at September 30, 2013     40,000     $ 6.37       7.21     $ 7,425  

 

During the six months ended September 30, 2013, stock options covering 35,000 shares were granted.  There were no stock options granted during the six months ended September 30, 2012.

 

During the six months ended September 30, 2013 and 2012, no stock options were exercised.

 

The following table summarizes information about options outstanding at September 30, 2013:

 

Range of Exercise Prices     Number of Options     Weighted Average Exercise Price     Weighted Average Remaining Contract Life in Years     Aggregate Intrinsic Value  
$ 5.98 – 6.25       45,000     $ 6.00              
  6.26 – 6.50       30,000       6.29              
  6.51 – 6.80       40,000       6.80              
$ 5.98 – 6.80       115,000     $ 6.35       8.15     $ 23,800  
                                     

 

Outstanding options at September 30, 2013 expire between August 2020 and April 2023 and have exercise prices ranging from $5.98 to $6.80.

 

No forfeiture rate is assumed for stock options granted to directors or employees due to the forfeiture rate history for these types of awards.  There were no stock options forfeited or expired during the six months ended September 30, 2013 or 2012.

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Income (Loss) Per Common Share (Tables)
6 Months Ended
Sep. 30, 2013
Income Loss Per Common Share Tables  
Number of shares used in the calculation of basic income (loss) per share and diluted income (loss) per share
    Three Months Ended     Six Months Ended  
    September 30     September 30  
    2013     2012     2013     2012  
Net income (loss)   $ 211,602     $ 763     $ 227,733     $ (62,454 )
                                 
Shares outstanding:                                
Weighted avg. common shares outstanding – basic     2,036,866       2,035,949       2,036,866       2,035,949  
Effect of the assumed exercise of dilutive stock options     2,242       2,291       1,934       -  
Weighted avg. common shares outstanding – dilutive     2,039,108       2,038,240       2,038,800       2,035,949  
                                 
Earnings (loss) per common share:                                
Basic   $ 0.10     $ 0.00     $ 0.11     $ (0.03 )
Diluted   $ 0.10     $ 0.00     $ 0.11     $ (0.03 )
XML 17 R18.htm IDEA: XBRL DOCUMENT v2.4.0.8
Summary of Significant Accounting Policies (Policies)
6 Months Ended
Sep. 30, 2013
Accounting Policies [Abstract]  
Principles of Consolidation

Principles of Consolidation.  The consolidated financial statements include the accounts of Mexco Energy Corporation and its wholly owned subsidiaries.  All significant intercompany balances and transactions associated with the consolidated operations have been eliminated.

Estimates and Assumptions

Estimates and Assumptions.  In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make informed judgments, estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period.  In addition, significant estimates are used in determining year end proved oil and gas reserves.  Although management believes its estimates and assumptions are reasonable, actual results may differ materially from those estimates.  The estimate of the Company’s oil and natural gas reserves, which is used to compute depreciation, depletion, amortization and impairment of oil and gas properties, is the most significant of the estimates and assumptions that affect these reported results.

Interim Financial Statements

Interim Financial Statements.  In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position of the Company as of September 30, 2013, and the results of its operations and cash flows for the interim periods ended September 30, 2013 and 2012.  The financial statements as of September 30, 2013 and for the three and six month periods ended September 30, 2013 and 2012 are unaudited.  The consolidated balance sheet as of March 31, 2013 was derived from the audited balance sheet filed in the Company’s 2013 annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”).  The results of operations for the periods presented are not necessarily indicative of the results to be expected for a full year.  The accounting policies followed by the Company are set forth in more detail in Note 2 of the “Notes to Consolidated Financial Statements” in the Form 10-K.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the SEC.  However, the disclosures herein are adequate to make the information presented not misleading.  It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Form 10-K.

Derivatives

Derivatives.  The Company is required to recognize its derivative instruments on the consolidated balance sheets as assets or liabilities at fair value with such amounts classified as current or long-term based on their anticipated settlement dates. The accounting for the changes in fair value of a derivative depends on the intended use of the derivative and resulting designation. The Company has not designated its derivative instruments as hedges for accounting purposes and, as a result, marks its derivative instruments to fair value and recognizes the realized and unrealized change in fair value on derivative instruments in the consolidated statements of operations.

Fair Value of Financial Instruments

Fair Value of Financial Instruments.  The Company’s financial instruments consist of cash and cash equivalents, receivables, payables, derivatives and long term debt. The carrying amount of cash and cash equivalents, receivables and payables approximates fair value because of the short-term nature of the instruments. The fair value of the revolving credit facility approximates its carrying value based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities. Derivatives are recorded at fair value (see the Company’s Note 5 on Fair Value Measurements).

Gas Balancing

Gas Balancing.  Gas imbalances are accounted for under the sales method whereby revenues are recognized based on production sold.  A liability is recorded when the Company’s excess takes of natural gas volumes exceeds the Company’s estimated remaining recoverable reserves (over produced).  No receivables are recorded for those wells where the Company has taken less than its ownership share of gas production (under produced).  The Company does not have any significant gas imbalances as of September 30, 2013 and March 31, 2013.

XML 18 R38.htm IDEA: XBRL DOCUMENT v2.4.0.8
Derivatives - Net fair value of the Company’s derivative assets and liabilities (Details) (USD $)
Sep. 30, 2013
Mar. 31, 2013
Derivatives - Net Fair Value Of Companys Derivative Assets And Liabilities Details    
Current assets: Derivative instruments      
Noncurrent assets: Derivative instruments      
Total assets      
Current liabilities: Derivative instruments 50,300   
Noncurrent liabilities: Derivative instruments 6,316   
Total Liabilities $ 56,616   
XML 19 R27.htm IDEA: XBRL DOCUMENT v2.4.0.8
Credit Facility (Details Narrative) (USD $)
6 Months Ended
Sep. 30, 2013
Mar. 31, 2013
Sep. 30, 2013
Bank of America credit agreement
Oct. 31, 2013
Bank of America credit agreement
Sep. 30, 2013
Texas Railroad Commission letter of credit
Oct. 31, 2013
Texas Railroad Commission second letter of credit
Credit facility maximum capacity     $ 4,900,000      
Credit facility current capacity     4,900,000      
Credit facility remaining capacity     2,675,000      
Interest Rate as of period end     2.68%      
Commitment Fee Percentage     0.50%      
Credit outstanding $ 2,225,000 $ 2,950,000 $ 2,225,000 $ 1,975,000 $ 50,000 $ 105,667
XML 20 R26.htm IDEA: XBRL DOCUMENT v2.4.0.8
Fair Value of Financial Instruments (Details Narrative) (USD $)
6 Months Ended
Sep. 30, 2013
Fair Value Disclosures [Abstract]  
Asset Retirement Obligations $ 11,000
Unrealized loss on derivatives $ 57,000
XML 21 R34.htm IDEA: XBRL DOCUMENT v2.4.0.8
Stock-based Compensation - Options outstanding (Details) (USD $)
Sep. 30, 2013
Mar. 31, 2013
Aggregate Intrinsic Value $ 23,800   
Options Outstanding, $5.98 - 6.25
   
Range of Exercise Prices, low $ 5.98  
Range of Exercise Prices, high $ 6.25  
Number of Options 45,000  
Weighted Average Exercise Price Per Share $ 6.00  
Options Outstanding, $6.26 - 6.50
   
Range of Exercise Prices, low $ 6.26  
Range of Exercise Prices, high $ 6.50  
Number of Options 30,000  
Weighted Average Exercise Price Per Share $ 6.29  
Options Outstanding, $6.51 - 6.80
   
Range of Exercise Prices, low $ 6.51  
Range of Exercise Prices, high $ 6.80  
Number of Options 40,000  
Weighted Average Exercise Price Per Share $ 6.80  
Options Outstanding, $5.98 - 6.80
   
Range of Exercise Prices, low $ 5.98  
Range of Exercise Prices, high $ 6.80  
Number of Options 115,000  
Weighted Average Exercise Price Per Share $ 6.35  
Weighted Average Remaining Contract Life in Years 8 years 55 days  
Aggregate Intrinsic Value $ 23,800  
XML 22 R40.htm IDEA: XBRL DOCUMENT v2.4.0.8
Income (Loss) Per Common Share - Reconciliation of the number of shares used in the calculation of basic income (Details) (USD $)
3 Months Ended 6 Months Ended
Sep. 30, 2013
Jun. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Notes to Financial Statements          
Net income (loss) $ 194,051 $ 16,131 $ 763 $ 210,182 $ (62,454)
Weighted average common shares outstanding – basic 2,036,866   2,035,949 2,036,866 2,035,949
Effect of the assumed exercise of dilutive stock options 2,242   2,291 1,934   
Weighted average common shares outstanding – dilutive 2,039,108   2,038,240 2,038,800 2,035,949
Earnings (loss) per common share: Basic $ 0.10   $ 0.00 $ 0.10 $ (0.03)
Earnings (loss) per common share: Diluted $ 0.10   $ 0.00 $ 0.10 $ (0.03)
XML 23 R31.htm IDEA: XBRL DOCUMENT v2.4.0.8
Asset Retirement Obligations - Rollforward of the asset retirement obligations (Details) (USD $)
3 Months Ended 6 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Mar. 31, 2013
Notes to Financial Statements          
Carrying amount of asset retirement obligations as of April 1, 2013     $ 813,412    
Liabilities incurred     10,672    
Liabilities settled     (818)    
Accretion expense 11,020 9,604 21,937 19,142  
Carrying amount of asset retirement obligations as of September 30, 2013 845,203   845,203    
Less: Current portion 50,000   50,000    
Non-Current asset retirement obligation $ 795,203   $ 795,203   $ 763,412
XML 24 R25.htm IDEA: XBRL DOCUMENT v2.4.0.8
Stock-based Compensation (Details Narrative) (USD $)
3 Months Ended 6 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]        
Compensation expense $ 42,866 $ 41,029 $ 82,238 $ 84,808
Total cost related to non-vested awards $ 195,653   $ 195,653  
Non-vested awards, weighted average period of recognition     2 years 234 days  
Exercised options     0 0
Stock options granted     35,000 0
Options outstanding, exercise price, high     $ 6.80  
Options outstanding, exercise price, low     $ 5.98  
XML 25 R6.htm IDEA: XBRL DOCUMENT v2.4.0.8
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)
6 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Cash flows from operating activities:    
Net income (loss) $ 210,182 $ (62,454)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Deferred income tax benefit (52,257) (98,118)
Stock-based compensation 82,238 84,808
Depreciation, depletion and amortization 593,522 491,316
Accretion of asset retirement obligations 21,937 19,142
Change in fair value of derivative instruments 86,687   
Other (2,071)   
Changes in assets and liabilities:    
Increase in accounts receivable (164,002) (15,040)
Increase in prepaid expenses (53,728) (49,039)
Decrease in non-current assets 63,017   
Increase in accounts payable and accrued expenses 69,511 17,675
Net cash provided by operating activities 855,036 388,290
Cash flows from investing activities:    
Additions to oil and gas properties (786,097) (852,390)
Additions to other property and equipment (931) (13,806)
Settlement of derivatives (30,071)   
Proceeds from sale of oil and gas properties and equipment 743,287   
Net cash used in investing activities (73,812) (866,196)
Cash flows from financing activities:    
Reduction of long-term debt (725,000) (225,000)
Proceeds from long-term debt    300,000
Net cash provided by (used in) financing activities (725,000) 75,000
Net decrease in cash and cash equivalents 56,224 (402,906)
Cash and cash equivalents at beginning of period 166,406 498,681
Cash and cash equivalents at end of period 222,630 95,775
Supplemental disclosure of cash flow information:    
Cash paid for interest 39,424 19,839
Income taxes paid      
Non-cash investing and financing activities:    
Asset retirement obligations $ 10,672 $ 18,437
XML 26 R8.htm IDEA: XBRL DOCUMENT v2.4.0.8
Summary of Significant Accounting Policies
6 Months Ended
Sep. 30, 2013
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2.  Basis of Presentation and Significant Accounting Policies

 

Principles of Consolidation.  The consolidated financial statements include the accounts of Mexco Energy Corporation and its wholly owned subsidiaries.  All significant intercompany balances and transactions associated with the consolidated operations have been eliminated.

 

Estimates and Assumptions.  In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make informed judgments, estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period.  In addition, significant estimates are used in determining year end proved oil and gas reserves.  Although management believes its estimates and assumptions are reasonable, actual results may differ materially from those estimates.  The estimate of the Company’s oil and natural gas reserves, which is used to compute depreciation, depletion, amortization and impairment of oil and gas properties, is the most significant of the estimates and assumptions that affect these reported results.

 

Interim Financial Statements.  In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position of the Company as of September 30, 2013, and the results of its operations and cash flows for the interim periods ended September 30, 2013 and 2012.  The financial statements as of September 30, 2013 and for the three and six month periods ended September 30, 2013 and 2012 are unaudited.  The consolidated balance sheet as of March 31, 2013 was derived from the audited balance sheet filed in the Company’s 2013 annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”).  The results of operations for the periods presented are not necessarily indicative of the results to be expected for a full year.  The accounting policies followed by the Company are set forth in more detail in Note 2 of the “Notes to Consolidated Financial Statements” in the Form 10-K.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the SEC.  However, the disclosures herein are adequate to make the information presented not misleading.  It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Form 10-K.

 

Derivatives.  The Company is required to recognize its derivative instruments on the consolidated balance sheets as assets or liabilities at fair value with such amounts classified as current or long-term based on their anticipated settlement dates. The accounting for the changes in fair value of a derivative depends on the intended use of the derivative and resulting designation. The Company has not designated its derivative instruments as hedges for accounting purposes and, as a result, marks its derivative instruments to fair value and recognizes the realized and unrealized change in fair value on derivative instruments in the consolidated statements of operations.

 

Fair Value of Financial Instruments.  The Company’s financial instruments consist of cash and cash equivalents, receivables, payables, derivatives and long term debt. The carrying amount of cash and cash equivalents, receivables and payables approximates fair value because of the short-term nature of the instruments. The fair value of the revolving credit facility approximates its carrying value based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities. Derivatives are recorded at fair value (see the Company’s Note 5 on Fair Value Measurements).

 

Gas Balancing.  Gas imbalances are accounted for under the sales method whereby revenues are recognized based on production sold.  A liability is recorded when the Company’s excess takes of natural gas volumes exceeds the Company’s estimated remaining recoverable reserves (over produced).  No receivables are recorded for those wells where the Company has taken less than its ownership share of gas production (under produced).  The Company does not have any significant gas imbalances as of September 30, 2013 and March 31, 2013.

XML 27 R11.htm IDEA: XBRL DOCUMENT v2.4.0.8
Fair Value of Financial Instruments
6 Months Ended
Sep. 30, 2013
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

5.  Fair Value of Financial Instruments

 

Fair value as defined by authoritative literature is the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date.  Fair value measurements are classified and disclosed in one of the following categories:

 

Level 1 – Quoted prices in active markets for identical assets and liabilities.

 

Level 2 – Quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

 

Level 3 – Significant inputs to the valuation model are unobservable.

 

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.  In accordance with the reporting requirements of FASB ASC Topic 825, Financial Instruments, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments.

 

The fair value of the Company’s crude oil swaps are measured internally using established commodity futures price strips for the underlying commodity provided by a reputable third party, the contracted notional volumes, and time to maturity. The valuation of the Company’s derivative instrument is deemed to use Level 2 inputs.  See the Company’s Note 8 on Derivatives for further discussion.  The unrealized loss on derivatives for the six months ended September 30, 2013 was approximately $57,000.

 

The initial measurement of asset retirement obligations’ fair value is calculated using discounted cash flow techniques and is based on internal estimates of future retirement costs associated with oil and gas properties.  Given the unobservable nature of the inputs, including plugging costs and reserve lives, the initial measurement of the ARO liability is deemed to use Level 3 inputs.  See the Company’s note on AROs for further discussion.  AROs incurred during the six months ended September 30, 2013 were approximately $11,000.

XML 28 R9.htm IDEA: XBRL DOCUMENT v2.4.0.8
Asset Retirement Obligations
6 Months Ended
Sep. 30, 2013
Asset Retirement Obligation Disclosure [Abstract]  
Asset Retirement Obligations

3.  Asset Retirement Obligations

 

The Company’s asset retirement obligations (“ARO”) relate to the plugging of wells, the removal of facilities and equipment, and site restoration on oil and gas properties.  The fair value of a liability for an ARO is recorded in the period in which it is incurred, discounted to its present value using the credit adjusted risk-free interest rate, and a corresponding amount capitalized by increasing the carrying amount of the related long-lived asset.  The liability is accreted each period, and the capitalized cost is depreciated over the useful life of the related asset.

 

The following table provides a rollforward of the AROs for the first six months of fiscal 2014:

 

Carrying amount of asset retirement obligations as of April 1, 2013   $ 813,412  
Liabilities incurred     10,672  
Liabilities settled     (818 )
Accretion expense     21,937  
Carrying amount of asset retirement obligations as of September 30, 2013     845,203  
Less: Current portion     50,000  
Non-Current asset retirement obligation   $ 795,203  

 

The ARO is included in the Consolidated Balance Sheets with the current portion being included in the accounts payable and other accrued expenses.

XML 29 R28.htm IDEA: XBRL DOCUMENT v2.4.0.8
Income Taxes (Details Narrative) (USD $)
6 Months Ended
Sep. 30, 2013
Notes to Financial Statements  
Statutory depletion carryforward $ 4,700,000
Operating loss carryforwards 3,200,000
Operating loss carryforward expires beginning 2021
Unrecognized tax benefits 677,000
Statutory Depletion Carryforward, tax effect $ 75,000
XML 30 R32.htm IDEA: XBRL DOCUMENT v2.4.0.8
Stock-based Compensation - Summary of the grant-date fair value (Details) (USD $)
6 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Notes to Financial Statements    
Grant-date fair value $ 4.75   
Volatility factor 77.01%   
Dividend yield      
Risk-free interest rate 1.74%   
Expected term (in years) 7 years 0 days   
XML 31 R37.htm IDEA: XBRL DOCUMENT v2.4.0.8
Derivatives - Open crude oil derivative positions (Details) (June 2013 - March 2015, crude oil derivative positions, USD $)
Sep. 30, 2013
bbl
June 2013 - March 2015, crude oil derivative positions
 
Volume 9,500
Fixed Swap Price $ 90
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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Sep. 30, 2013
Mar. 31, 2013
Stockholders' equity    
Preferred stock par value $ 1 $ 1
Preferred stock shares authorized 10,000,000 10,000,000
Preferred stock shares issued 0 0
Preferred stock shares outstanding 0 0
Common stock par value $ 0.5 $ 0.5
Common stock shares authorized 40,000,000 40,000,000
Common stock shares issued 2,102,866 2,099,116
Common stock shares outstanding 2,036,866 2,035,949
Treasury stock, shares 66,000 63,167
XML 35 R14.htm IDEA: XBRL DOCUMENT v2.4.0.8
Derivatives
6 Months Ended
Sep. 30, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives

8. Derivatives

 

All derivative financial instruments are recorded at fair value. The Company has not designated its derivative instruments as hedges for accounting purposes and, as a result, marks its derivative instruments to fair value and recognizes the realized and unrealized changes in fair value in the consolidated statements of operations under the caption “Loss on derivative instruments.”

 

The Company uses price swap contracts to reduce price volatility associated with certain of its oil sales. With respect to the Company’s fixed price swap contracts, the counterparty is required to make a payment to the Company if the settlement price for any settlement period is less than the swap price, and the Company is required to make a payment to the counterparty if the settlement price for any settlement period is greater than the swap price. The Company’s derivative contracts are based upon reported settlement prices on commodity exchanges, with crude oil derivative settlements based on New York Mercantile Exchange West Texas Intermediate (“NYMEX WTI”) pricing. The counterparty to the Company’s derivative contract is Merrill Lynch Commodities, Inc., who the Company believes is an acceptable credit risk.

 

As of September 30, 2013 the Company had the following open crude oil derivative positions with respect to future production based on NYMEX WTI pricing:

 

   

Volume

(bbls)

    Fixed Swap Price  
Production Period            
September 2013 – March 2015     9,500     $ 90.00  
                 

 

The fair value of swaps is generally determined using established index prices and other sources which are based upon, among other things, futures prices and time to maturity.

 

The net fair value of the Company’s derivative assets and liabilities and their locations on the consolidated balance sheet are as follows:

 

    As of     As of  
    September 30,     March 31,  
    2013     2013  
Current assets:  Derivative instruments   $ -     $ -  
Noncurrent assets:  Derivative instruments     -     $ -  
Total assets   $ -     $ -  
                 
Current liabilities:  Derivative instruments   $ 50,300     $ -  
Noncurrent liabilities: Derivative instruments     6,316     $ -  
Total liabilities   $ 56,616     $ -  

 

None of the Company’s derivatives have been designated as hedges. As such, all changes in fair value are immediately recognized in earnings. The following summarizes the loss on derivative instruments included in the consolidated statements of operations for the six months ended September 30, 2013 and 2012:

 

    2013     2012  
Unrealized loss on open non-hedge derivative instruments   $ (56,616 )   $ -  
Loss on settlement of non-hedge derivative instruments     (30,071 )   $ -  
Total loss on derivative instruments   $ (86,687 )   $ -  
XML 36 R5.htm IDEA: XBRL DOCUMENT v2.4.0.8
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) (USD $)
Common Stock Par Value
Treasury Stock
Additional Paid-In Capital
Retained Earnings
Total
Beginning balance, Amount at Mar. 31, 2013 $ 1,051,433 $ (340,992) $ 6,761,091 $ 5,465,453 $ 12,936,985
Beginning balance, Shares at Mar. 31, 2013 2,102,866 (66,000)      
Net income          16,131 16,131
Stock based compensation       39,372    39,372
Ending balance, Amount at Jun. 30, 2013 1,051,433 (340,992) 6,800,463 5,481,584 12,992,488
Ending balance, Shares at Jun. 30, 2013 2,102,866 (66,000)      
Net income          194,051 194,051
Stock based compensation       42,866    42,866
Ending balance, Amount at Sep. 30, 2013 $ 1,051,433 $ (340,992) $ 6,843,329 $ 5,675,635 $ 13,229,405
Ending balance, Shares at Sep. 30, 2013 2,102,866 (66,000)     2,036,866
XML 37 R2.htm IDEA: XBRL DOCUMENT v2.4.0.8
CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $)
Sep. 30, 2013
Mar. 31, 2013
ASSETS    
Cash and cash equivalents $ 222,630 $ 166,406
Accounts receivable:    
Oil and gas sales 703,103 538,971
Trade 16,240 16,370
Prepaid costs and expenses 73,009 19,281
Total current assets 1,014,982 741,028
Property and equipment, at cost    
Oil and gas properties, using the full cost method 34,189,576 34,309,328
Other 93,257 92,326
Accumulated depreciation, depletion and amortization (17,917,213) (17,323,692)
Property and equipment, net 16,365,620 17,077,962
Other noncurrent assets 53,437 116,454
Total Assets 17,434,039 17,935,444
LIABILITIES AND STOCKHOLDERS' EQUITY    
Accounts payable and accrued expenses 326,873 431,848
Derivative instruments 50,300   
Total current liabilities 377,173 431,848
Long-term debt 2,225,000 2,950,000
Asset retirement obligations 795,203 763,412
Derivative instruments - long term 6,316   
Deferred income tax liabilities 800,942 853,199
Total liabilities 4,204,634 4,998,459
Stockholders' equity    
Preferred stock - $1.00 par value; 10,000,000 shares authorized; none outstanding      
Common stock - $0.50 par value; 40,000,000 shares authorized; 2,102,866 shares issued and 2,036,866 shares outstanding as of September 30, 2013 and March 31, 2013 1,051,433 1,051,433
Additional paid-in capital 6,843,329 6,761,091
Retained earnings 5,675,635 5,465,453
Treasury stock, at cost (66,000 shares) (340,992) (340,992)
Total stockholders' equity 13,229,405 12,936,985
Total liabilities and stockholders' equity $ 17,434,039 $ 17,935,444
XML 38 R29.htm IDEA: XBRL DOCUMENT v2.4.0.8
Related Party Transactions (Details Narrative) (USD $)
6 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Notes to Financial Statements    
Totals billed to and reimbursed by the stockholder $ 62,175 $ 70,599
XML 39 R23.htm IDEA: XBRL DOCUMENT v2.4.0.8
Derivatives (Tables)
6 Months Ended
Sep. 30, 2013
Derivatives Tables  
Schedule of open crude oil derivative positions with respect to future production
   

Volume

(bbls)

    Fixed Swap Price  
Production Period            
September 2013 – March 2015     9,500     $ 90.00  
Net fair value of the Company’s derivative assets and liabilities and their locations on the consolidated balance sheet
    As of     As of  
    September 30,     March 31,  
    2013     2013  
Current assets:  Derivative instruments   $ -     $ -  
Noncurrent assets:  Derivative instruments     -     $ -  
Total assets   $ -     $ -  
                 
Current liabilities:  Derivative instruments   $ 50,300     $ -  
Noncurrent liabilities: Derivative instruments     6,316     $ -  
Total liabilities   $ 56,616     $ -  
Loss on derivative instruments included in the consolidated statements of operations
    2013     2012  
Unrealized loss on open non-hedge derivative instruments   $ (56,616 )   $ -  
Loss on settlement of non-hedge derivative instruments     (30,071 )   $ -  
Total loss on derivative instruments   $ (86,687 )   $ -  
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Derivatives - Loss on derivative instruments included in the consolidated statements of operations (Details) (USD $)
3 Months Ended 6 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Derivatives - Loss On Derivative Instruments Included In Consolidated Statements Of Operations Details        
Unrealized loss on open non-hedge derivative instruments     $ (56,616)   
Loss on settlement of non-hedge derivative instruments     (30,071)   
Loss on derivative instruments $ (59,295)    $ (86,687)   
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Credit Facility - Summary of activity on the Bank of America, N.A. line of credit (Details) (USD $)
6 Months Ended
Sep. 30, 2013
Notes to Financial Statements  
Balance at March 31, 2013: $ 2,950,000
Borrowings   
Repayments (725,000)
Balance at June 30, 2013: $ 2,225,000
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Income Taxes - Income tax provision (Details) (USD $)
3 Months Ended 6 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Notes to Financial Statements        
Current income tax (benefit) expense            
Deferred income tax (benefit) expense (59,075) (28,534) (52,257) (98,118)
Total income tax provision $ (59,075) $ (28,534) $ (52,257) $ (98,118)
Effective tax rate (44.00%) (103.00%) (33.00%) (61.00%)
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Income Taxes
6 Months Ended
Sep. 30, 2013
Income Tax Disclosure [Abstract]  
Income Taxes

7.  Income Taxes

 

The Company recognizes deferred tax assets and liabilities for future tax consequences of temporary differences between the carrying amounts of assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates applicable to the years in which those differences are expected to be settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in net income in the period that includes the enactment date.  Any interest and penalties related to uncertain tax positions are recorded as interest expense and general and administrative expense, respectively.

 

The income tax provision consists of the following for the three and six months ended September 30, 2013 and 2012:

 

    Three Months Ended     Six Months Ended  
    September 30     September 30  
    2013     2012     2013     2012  
Current income tax expense   $ -     $ -     $ -     $ -  
Deferred income tax benefit     (59,075 )     (28,534 )     (52,257 )     (98,118 )
Total income tax provision:   $ (59,075 )   $ (28,534 )   $ (52,257 )   $ (98,118 )
                                 
Effective tax rate     (44 %)     (103 %)     (33 %)     (61 %)

 

As of September 30, 2013, the Company has a statutory depletion carryforward of approximately $4,700,000, which does not expire.  At September 30, 2013, there was a net operating loss carryforward for regular income tax reporting purposes of approximately $3,200,000, which will begin expiring in 2021.  The Company’s ability to use the net operating loss carryforward and certain other tax attributes to reduce current and future U.S. federal taxable income is subject to limitations under the Internal Revenue Code.  This change in our effective tax rate was primarily due to the completion of our 2012 tax return which included a change in the statutory depletion carryforward resulting in a tax effect of approximately $75,000.

 

As of September 30, 2013, the Company had unrecognized tax benefits of approximately $677,000.  While it is expected the amount of unrecognized tax benefits will change in the next 12 months, we do not expect any change to have a significant impact on our results operations.  The recognition of the total amount of these unrecognized tax benefits would have an impact on the effective tax rate and if they are disallowed, we will be required to pay additional taxes.

XML 44 R30.htm IDEA: XBRL DOCUMENT v2.4.0.8
Income (Loss) Per Common Share (Details Narrative) (USD $)
3 Months Ended 6 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Income Loss Per Common Share Details Narrative      
Shares relating to stock options excluded in the computation of diluted net income per share 105,000 70,000 105,000
Anti-dilutive stock options, weighted average exercise price   $ 6.55 $ 6.38
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Income (Loss) Per Common Share
6 Months Ended
Sep. 30, 2013
Earnings (loss) per common share:  
Income (Loss) Per Common Share

10.  Income (Loss) Per Common Share

 

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.  Diluted net income (loss) per share assumes the exercise of all stock options having exercise prices less than the average market price of the common stock during the period using the treasury stock method and is computed by dividing net income (loss) by the weighted average number of common shares and dilutive potential common shares (stock options) outstanding during the period.  In periods where losses are reported, the weighted-average number of common shares outstanding excludes potential common shares, because their inclusion would be anti-dilutive.

 

The following is a reconciliation of the number of shares used in the calculation of basic income (loss) per share and diluted income (loss) per share for the three and six month periods ended September 30, 2013 and 2012.

 

    Three Months Ended     Six Months Ended  
    September 30     September 30  
    2013     2012     2013     2012  
Net income (loss)   $ 194,051     $ 763     $ 210,182     $ (62,454 )
                                 
Shares outstanding:                                
Weighted avg. common shares outstanding – basic     2,036,866       2,035,949       2,036,866       2,035,949  
Effect of the assumed exercise of dilutive stock options     2,242       2,291       1,934       -  
Weighted avg. common shares outstanding – dilutive     2,039,108       2,038,240       2,038,800       2,035,949  
                                 
Earnings (loss) per common share:                                
Basic   $ 0.10     $ 0.00     $ 0.10     $ (0.03 )
Diluted   $ 0.10     $ 0.00     $ 0.10     $ (0.03 )

 

For the three and six month periods ending September 30, 2013, 105,000 potential common shares relating to stock options were excluded in the computation of diluted net income because the options are anti-dilutive.  Anti-dilutive stock options have a weighted average exercise price of $6.38 at September 30, 2013. For the three months ended September 30, 2012, 70,000 potential common shares relating to stock options were excluded in the computation of diluted net income per share.  Anti-dilutive stock options have a weighted average exercise price of $6.55 at September 30, 2012. Due to a net loss for the six months ended September 30, 2012, the weighted average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.

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Credit Facility
6 Months Ended
Sep. 30, 2013
Debt Disclosure [Abstract]  
Credit Facility

6.  Credit Facility

 

The Company has a revolving credit agreement with Bank of America, N.A. (the “Agreement”), which provides for a credit facility of $4,900,000 with no monthly commitment reductions and a borrowing base evaluated annually, currently set at $4,900,000. Amounts borrowed under the Agreement are collateralized by the common stock of the Company’s wholly owned subsidiaries and substantially all of the Company’s oil and gas properties.  Availability of this line of credit at September 30, 2013 was $2,675,000.  No principal payments are anticipated to be required through November 30, 2015.

 

The Agreement was renewed seven times with the seventh amendment on October 25, 2013, which revised the maturity date to November 30, 2015.  Under the original and renewed agreements, interest on the facility accrues at an annual rate equal to the British Bankers Association London Interbank Offered Rate ("BBA LIBOR") daily floating rate, plus 2.50 percentage points, which was 2.68% on September 30, 2013.  Interest on the outstanding amount under the credit agreement is payable monthly.  In addition, the Company will pay an unused commitment fee in an amount equal to ½ of 1 percent (.5%) times the daily average of the unadvanced amount of the commitment.  The unused commitment fee is payable quarterly in arrears on the last day of each calendar quarter.

The Agreement contains customary covenants for credit facilities of this type including limitations on disposition of assets, mergers and reorganizations.  The Company is also obligated to meet certain financial covenants under the Agreement.  The Company is in compliance with all covenants as of September 30, 2013.  In addition, this Agreement prohibits the Company from paying cash dividends on our common stock.  The Agreement does grant the Company permission to enter into hedge agreements; however, the Company is under no obligation to do so.

 

The amended Agreement allows for up to $500,000 of the facility to be used for outstanding letters of credits.  As of September 30, 2013, a letter of credit for $50,000, in lieu of a plugging bond with the Texas Railroad Commission (“TRRC”) covering the properties the Company operates is outstanding under the facility.  This letter of credit renews annually.  As of October 31, 2013, a second letter of credit for $105,667 in favor of the TRRC, was issued and will also renew annually.  The Company will pay a fee in an amount equal to 1 percent (1.0%) per annum of the outstanding undrawn amount of each standby letter of credit, payable monthly in arrears, on the basis of the face amount outstanding on the day the fee is calculated. 

 

The balance outstanding on the line of credit as of September 30, 2013 was $2,225,000 and $1,975,000 as of October 31, 2013.

 

The following table is a summary of activity on the Bank of America, N.A. line of credit for the six months ended September 30, 2013:

 

    Principal  
Balance at March 31, 2013:   $ 2,950,000  
Borrowings     -  
Repayments     (725,000 )
Balance at September 30, 2013:   $ 2,225,000  
XML 47 R7.htm IDEA: XBRL DOCUMENT v2.4.0.8
Nature of Operations
6 Months Ended
Sep. 30, 2013
Accounting Policies [Abstract]  
Nature of Operations

1.  Nature of Operations

 

Mexco Energy Corporation (a Colorado corporation) and its wholly owned subsidiaries, Forman Energy Corporation (a New York corporation), Southwest Texas Disposal Corporation (a Texas corporation) and TBO Oil & Gas, LLC (a Texas limited liability company) (collectively, the “Company”) are engaged in the exploration, development and production of natural gas, crude oil, condensate and natural gas liquids (“NGLs”).  Most of the Company’s oil and gas interests are centered in West Texas; however, the Company owns producing properties and undeveloped acreage in twelve states.  Although most of the Company’s oil and gas interests are operated by others, the Company operates several properties in which it owns an interest.

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Stock-based Compensation - Summary of activity of stock options (Details) (USD $)
3 Months Ended 6 Months Ended
Mar. 31, 2013
Sep. 30, 2013
Notes to Financial Statements    
Number of Shares Outstanding 80,000 115,000
Weighted Average Exercise Price Per Share $ 6.52 $ 6.35
Weighted Aggregate Average Remaining Contract Life in Years 8 years 11 days 8 years 55 days
Intrinsic Value    $ 23,800
Shares granted in period   35,000
Shares granted - weighted average exercise price   $ 5.98
Vested - Shares Outstanding   40,000
Vested - Weighted Average Exercise Price Per Share   $ 6.37
Vested - Weighted Aggregate Average Remaining Contract Life in Years   7 years 77 days
Vested - Intrinsic Value    7,425
Exercisable - Shares Outstanding   40,000
Exercisable - Weighted Average Exercise Price Per Share   $ 6.37
Exercisable - Weighted Aggregate Average Remaining Contract Life in Years   7 years 77 days
Exercisable - Intrinsic Value    $ 7,425
XML 50 R19.htm IDEA: XBRL DOCUMENT v2.4.0.8
Asset Retirement Obligations (Tables)
6 Months Ended
Sep. 30, 2013
Asset Retirement Obligation Disclosure [Abstract]  
Rollforward of the asset retirement obligations
Carrying amount of asset retirement obligations as of April 1, 2013   $ 813,412  
Liabilities incurred     10,672  
Liabilities settled     (818 )
Accretion expense     21,937  
Carrying amount of asset retirement obligations as of September 30, 2013     845,203  
Less: Current portion     50,000  
Non-Current asset retirement obligation   $ 795,203  
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Related Party Transactions
6 Months Ended
Sep. 30, 2013
Related Party Transactions [Abstract]  
Related Party Transactions

9.  Related Party Transactions

 

Related party transactions for the Company relate to shared office expenditures in addition to administrative and operating expenses paid on behalf of the majority stockholder.  The total billed to and reimbursed by the stockholder for the six months ended September 30, 2013 and 2012 was $62,175 and $70,599, respectively.

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Income Taxes (Tables)
6 Months Ended
Sep. 30, 2013
Income Tax Disclosure [Abstract]  
Reconciliation of the provision for income taxes
    Three Months Ended     Six Months Ended  
    September 30     September 30  
    2013     2012     2013     2012  
Current income tax expense   $ -     $ -     $ -     $ -  
Deferred income tax benefit     (59,075 )     (28,534 )     (52,257 )     (98,118 )
Total income tax provision:   $ (59,075 )   $ (28,534 )   $ (52,257 )   $ (98,118 )
                                 
Effective tax rate     (44 %)     (103 %)     (33 %)     (61 %)

XML 54 R20.htm IDEA: XBRL DOCUMENT v2.4.0.8
Stock-based Compensation (Tables)
6 Months Ended
Sep. 30, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Summary of the grant-date fair value of stock options granted and the related assumptions used in the Binomial models for stock options granted
    Six Months Ended  
    September 30  
    2013     2012  
Grant-date fair value   $ 4.75       -  
Volatility factor     77.01 %     -  
Dividend yield     -       -  
Risk-free interest rate     1.74 %     -  
Expected term (in years)     7       -  
Summary of activity of stock options
    Number of Shares     Weighted Average Exercise Price     Weighted Average Remaining Contract Life in Years     Aggregate Intrinsic Value  
Outstanding at March 31, 2013     80,000     $ 6.52       8.03     $ -  
Granted     35,000       5.98                  
Exercised     -       -                  
Forfeited or Expired     -       -                  
Outstanding at September 30, 2013     115,000     $ 6.35       8.15     $ 23,800  
                                 
Vested at September 30, 2013     40,000     $ 6.37       7.21     $ 7,425  
Exercisable at September 30, 2013     40,000     $ 6.37       7.21     $ 7,425  
Summary information about options outstanding at June 30, 2013
Range of Exercise Prices     Number of Options     Weighted Average Exercise Price     Weighted Average Remaining Contract Life in Years     Aggregate Intrinsic Value  
$ 5.98 – 6.25       45,000     $ 6.00              
  6.26 – 6.50       30,000       6.29              
  6.51 – 6.80       40,000       6.80              
$ 5.98 – 6.80       115,000     $ 6.35       8.15     $ 23,800  
XML 55 R1.htm IDEA: XBRL DOCUMENT v2.4.0.8
Document and Entity Information (USD $)
6 Months Ended
Sep. 30, 2013
Nov. 12, 2013
Sep. 30, 2012
Document And Entity Information      
Entity Registrant Name MEXCO ENERGY CORP    
Entity Central Index Key 0000066418    
Document Type 10-Q    
Document Period End Date Jun. 30, 2013    
Amendment Flag false    
Current Fiscal Year End Date --03-31    
Is Entity a Well-known Seasoned Issuer? No    
Is Entity a Voluntary Filer? No    
Is Entity's Reporting Status Current? Yes    
Entity Filer Category Smaller Reporting Company    
Entity Public Float     $ 6,062,046
Entity Common Stock, Shares Outstanding   2,036,866  
Document Fiscal Period Focus Q2    
Document Fiscal Year Focus 2013    
XML 56 R21.htm IDEA: XBRL DOCUMENT v2.4.0.8
Credit Facility (Tables)
6 Months Ended
Sep. 30, 2013
Debt Disclosure [Abstract]  
Summary of activity on the Bank of America, N.A. line of credit
    Principal  
Balance at March 31, 2013:   $ 2,950,000  
Borrowings     -  
Repayments     (725,000 )
Balance at September 30, 2013:   $ 2,225,000