UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 20212022

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. 1-31785

MEXCO ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

(432) 682-1119

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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 ☒ 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 ☒ 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.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The number of shares outstanding of the registrant’s common stock, par value $.50 per share, as of November 5, 20219, 2022 was 2,121,6662,149,416.

MEXCO ENERGY CORPORATION AND SUBSIDIARIES

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS

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

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

The accompanying notes are an integral part of

the consolidated financial statements.

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

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

Mexco Energy Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended September 30,

(Unaudited)

The accompanying notes are an integral part of

the consolidated financial statements.

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 acquisition, 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 the West Texas and Southeastern New Mexico; however, the Company owns producing properties and undeveloped acreage in fourteen states. All of the Company’s oil and gas interests are operated by others.

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 consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), 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 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.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, 2021,2022, and the results of its operations and cash flows for the interim periods ended September 30, 20212022 and 2020.2021. The consolidated financial statements as of September 30, 20212022 and for the three and six month periods ended September 30, 20212022 and 20202021 are unaudited. The consolidated balance sheet as of March 31, 20212022 was derived from the audited balance sheet filed in the Company’s 20212022 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 consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Form 10-K.

InvestmentsInvestments. . The Company accounts for investments of less than 1% in limited liability companies at cost.cost. The Company has no control of the limited liability companies. The cost of the investment is recorded as an asset on the consolidated balance sheets and when income from the investment is received, it is immediately recognized on the consolidated statements of operations.

Derivative Financial Instruments. The Company’s derivative financial instruments are used to manage commodity price risk attributable to expected oil and gas production. While there is risk the financial benefit of rising oil and gas prices may not be captured, the Company believes the benefits of stable and predictable cash flows outweigh the potential risks.

The Company accounts for derivative financial instruments using fair value accounting and recognizes gains and losses in earnings during the period in which they occur. Unsettled derivative instruments are recorded in the accompanying consolidated balance sheets as either a current or non-current asset or a liability measured at its fair value. The Company only offsets derivative assets and liabilities for arrangements with the same counterparty when right of offset exists. Derivative assets and liabilities with different counterparties are recorded gross in the consolidated balance sheets. Derivative contract settlements are reflected in operating activities in the accompanying consolidated statements of cash flows.

As of September 30, 2021, the Company had no derivative contracts. During the six months ended September 30, 2020, the Company entered into a series of crude oil put option contracts. All of these such contracts expired in July and August 2020.

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 initially 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 until the liability is settled or the well is sold, at which time the liability is removed. The related asset retirement cost is capitalized as part of the carrying amount of our oil and natural gas properties. The ARO is included on the consolidated balance sheets with the current portion being included in the accounts payable and other accrued expenses.

The following table provides a rollforward of the AROs for the first six months of fiscal 2022:2023:

Schedule of Rollforward of Asset Retirement Obligations

4. Long Term Debt

Long-term debt on the Consolidated Balance Sheets consisted of the following as of the dates indicated:

Schedule of Long-Term Debt

For the current period, since the Company has no long term debt outstanding, unamortized debt issuance costs are included in Other noncurrent assets.

On December 28, 2018, the Company entered into a loan agreement (the “Agreement”) with West Texas National Bank (“WTNB”), which provided for a credit facility of $1,000,000 with a maturity date of December 28, 2021. The Agreement has no monthly commitment reduction and a borrowing base to be evaluated annually.

On February 28, 2020, the Agreement was amended to increase the credit facility to $2,500,000, extend the maturity date to March 28, 2023 and increase the borrowing base to $1,500,000.

Under the Agreement, interest on the facility accrues at a rate equal to the prime rate as quoted in the Wall Street Journal plus one-half of one percent (0.5%) floating daily. Interest on the outstanding amount under the Agreement is payable monthly. In addition, the Company will pay an unused commitment fee in an amount equal to one-half of one percent (0.5%) times the daily average of the unadvanced amount of the commitment.commitment. The unused commitment fee is payable quarterly in arrears on the last day of each calendar quarter.quarter. As of September 30, 2021,2022, there was $1,500,000 available for borrowing by the Company on the facility.

No principal payments are anticipated to be required through the maturity date of the credit facility, March 28, 2023. Upon closing with WTNB on the original Agreement, the Company paid a .5%.5% loan origination fee in the amount of $5,000 plus legal and recording expenses totaling $34,532, which were deferred over the life of the credit facility. Upon closing the amendment to the Agreement, the Company paid a .1%.1% loan origination fee of $2,500 and an extension fee of $3,125 plus legal and recording expenses totaling $12,266, which were also deferred over the life of the credit facility.

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.

The Agreement contains customary covenants for credit facilities of this type including limitations on change in control, disposition of assets, mergers and reorganizations. The Company is also obligated to meet certain financial covenants under the Agreement and requires senior debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratios (Senior Debt/EBITDA) less than or equal to 4.00 to 1.00 measured with respect to the four trailing quarters and minimum interest coverage ratios (EBITDA/Interest Expense) of 2.00 to 1.00 for each quarterquarter..

In addition, this Agreement prohibits the Company from paying cash dividends on its common stock without written permission of WTNB. The Agreement does not permit the Company to enter into hedge agreements covering crude oil and natural gas prices without prior WTNB approval.

There was no balance outstanding on the line of credit as of September 30, 2021.2022. The following table is a summary of activity on the WTNB line of credit for the six months ended September 30, 2021:2022:

 Summary of Line of Credit Activity

5. Leases

The Company leases approximately 4,160 rentable square feet of office space from an unaffiliated third party for our corporate office located in Midland, Texas. This includes 1,112 square feet of office space shared with and reimbursed by our majority shareholder. The lease does not include an option to renew and is a 36 month lease that expiredwas to expire in May 2021. In June 2020, in exchange for a reduction in rent for the months of June and July 2020, the Company agreed to a 2-month extension to its current lease agreement at the regular monthly rate extending its current lease expiration date to July 2021. In June 2021, the Company agreed to extend its current lease at a flat (unescalated) rate for 36 months. The amended lease now expires on July 31, 2024.

The Company determines an arrangement is a lease at inception. Operating leases are recorded in operating lease right-of-use asset, operating lease liability, current, and operating lease liability, long-term on the consolidated balance sheets.

Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s lease does not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate used at adoption was 3.75%. Significant judgement is required when determining the incremental borrowing rate. Rent expense for lease payments is recognized on a straight-line basis over the lease term.

The balance sheets classification of lease assets and liabilities was as follows:

Schedule of Operating Lease Assets and Liabilities

Future minimum lease payments as of September 30, 20212022 under non-cancellable operating leases are as follows:

Schedule of Future Minimum Lease Payments

Net cash paid for our operating lease for the six months ended September 30, 20212022 and 20202021 was $20,90321,334 and $21,69320,903, respectively. Rent expense, less sublease income of $10,7687,786 and $9,45910,768, respectively, is included in general and administrative expenses.

6. Stock-based Compensation

The Company recognized stock-based compensation expense of $22,56834,431 and $13,94322,568 in general and administrative expense in the Consolidated Statements of Operations for the three months ended September 30, 20212022 and 2020,2021, respectively. Stock-based compensation expense recognized for the six months ended September 30, 20212022 and 20202021 was $36,43360,002 and $27,94836,433, respectively. The total cost related to non-vested awards not yet recognized at September 30, 20212022 totals $265,248539,745 which is expected to be recognized over a weighted average of 2.822.88 years.

During the six months ended September 30, 2022, the Compensation Committee of the Board of Directors approved and the Company granted 31,000 stock options exercisable at $18.05 per share with an estimated fair value of $385,640. During the six months ended September 30, 2021, the Compensation Committee of the Board of Directors approved and the Company granted 31,000stock options exercisable at $8.51per share with an estimated fair value of $187,550. During the six months ended September 30, 2020, 0stock options were granted. These options are exercisable at a price not less than the fair market value of the stock at the date of grant, have an exercise period of ten yearsand generally vest over four years.

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, 20212022 and 2020.2021. All such amounts represent the weighted average amounts.

 Summary of Grant-date Fair Value of Stock Options Granted and Assumptions Used Binomial Models

The following table is a summary of activity of stock options for the six months ended September 30, 2021:2022:

Summary of Activity of Stock Options

During the six months ended September 30, 2022, no stock options were exercised. During the six months ended September 30, 2021, stock options covering 27,900 shares were exercised with a total intrinsic value of $104,473. The Company received proceeds of $185,732 from these exercises. During the six months ended September 30, 2020, stock options covering 1,500 shares were exercised with a total intrinsic value of $135. The Company received proceeds of $9,435 from these exercises.

There were 0no stock options forfeited or expired during the six months ended September 30, 20212022 and 2020.2021. No forfeiture rate is assumed for stock options granted to directors or employees due to the forfeiture rate history of these types of awards.

Outstanding options at September 30, 20212022 expire between April 2023August 2024 and July 2031August 2032 and have exercise prices ranging from $3.34 to $8.5118.05.

7. Income Taxes

A valuation allowance for deferred tax assets, including net operating losses, is recognized when it is more likely than not that some or all of the benefit from the deferred tax asset will not be realized. To assess that likelihood, we use estimates and judgment regarding our future taxable income, and we consider the tax consequences in the jurisdiction where such taxable income is generated, to determine whether a valuation allowance is required. Such evidence can include our current financial position, our results of operations, both actual and forecasted, the reversal of deferred tax liabilities, and tax planning strategies as well as the current and forecasted business economics of our industry.

Based on the material write-downs of the carrying value of our oil and natural gas properties during fiscal 2016, we are in a net deferred tax asset position as of September 30, 2021.2022. Our deferred tax asset is $1,045,531313,582 as of September 30, 20212022 with a valuation amount of $1,045,531313,582. We believe it is more likely than not that these deferred tax assets will not be realized. Management assessesconsiders the likelihood that the Company’s net operating losses and other deferred tax attributes will be utilized prior to their expiration, if applicable. The determination to record a valuation allowance was based on management’s assessment of all available evidence, both positive and negative, evidence to estimate whether sufficient future taxable income will be generated to permitsupporting realizability of the useCompany deferred tax asset as required by applicable accounting standards. In light of those criteria for recognizing the tax benefit of deferred tax assets. The amountassets, the Company’s assessment resulted in application of a valuation allowance against the deferred tax asset considered realizable, however, could be adjusted if estimatesas of future taxable income are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as expected future growth.September 30, 2022.

8. Related Party Transactions

Related party transactions for the Company primarily relate to shared office expenditures in addition to administrative and operating expenses paid on behalf of the principal stockholder. The total billed to and reimbursed by the stockholder for the quarters ended September 30, 20212022 and 20202021 was $10,28813,649 and $8,21910,288, respectively. The total billed to and reimbursed by the stockholder for the six months ended September 30, 20212022 and 20202021 was $23,05623,735 and $18,32123,056, respectively. The principal stockholder pays for his share of the lease amount for the shared office space directly to the lessor. Amounts paid by the principal stockholder directly to the lessor for the three months ending September 30, 20212022 and 20202021 were $3,9443,893 and $3,8463,944, respectively. Amounts paid by the principal stockholder directly to the lessor for the six months ending September 30, 20212022 and 20202021 were $7,9887,786 and $7,6497,988, respectively.

9. Income (loss) Per Common Share

The Company’s basic net income (loss) per share has been computed based on 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 and diluted net lossincome per share for the three and six month periods ended September 30, 20212022 and 2020.2021.

Schedule of Reconciliation of Basic and Diluted Net Income (loss) Per Share

For the three and six months ended September 30, 2022 and 2021, 31,000 shares relating to stock options were excluded from the computation of diluted net income because their inclusion would be anti-dilutive. Due to a net loss for the for the three and six months ended September 30, 2020, the weighted average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.

10.Stockholders’ Equity

On September 6, 2022, one of the Company’s directors paid the Company $30,179, representing profit on Company stock purchased within the six-month window of a previous Company stock sale. Such payment was made in accordance with Section 16(b) of the Securities Exchange Act of 1934.

11. Subsequent Events

On October 4, 2021, stock options covering 3, 2022, the Company expended approximately $16,100698,000 shares were exercised with a total intrinsic valuefor the drilling and completion of $128,615. The Company received proceeds of $103,928 from these exercises.seven wells in Eddy and Lea Counties, New Mexico.

On October 5, 2021, stock options covering 1,000 shares were exercised with a total intrinsic value of $8,138. The Company received proceeds of $5,980 from these exercises.

On October 22, 2021,21, 2022, the Company expended $84,600147,600 for the completion of 4four wells in Lea County, NM.New Mexico.

On October 27, 2021,2022, the Company expendedmade an approximately 2% equity investment commitment in a limited liability company amounting to $126,0002,000,000 for the drilling of 4 wells in Lea County, NM.

On November 1, 2021, the Company had cash on hand of. The limited liability is capitalized at approximately $335,000100. million to purchase mineral interests in the Utica and Marcellus areas in the state of Ohio.

The Company completed a review and analysis of all events that occurred after the consolidated balance sheet date to determine if any such events must be reported and has determined that there are no other subsequent events to be disclosed.

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 consolidated 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, sales of non-core properties and issuance of common stock. Our primary financial resource is our base of oil and gas reserves. We have pledged our producing oil and gas properties to secure our credit facility. We do not have any delivery commitments to provide a fixed and determinable quantity of itsour oil and gas under any existing contract or agreement.

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

At September 30, 2021,2022, we had working capital of $744,882$2,298,977 compared to working capital of $618,960$2,469,776 at March 31, 2021, an increase2022, a decrease of $125,922$170,789 for the reasons set forth below.

Cash Flows

Changes in the net funds provided by or (used in) each of our operating, investing and financing activities are set forth in the table below:

Cash Flow Provided by Operating Activities. Cash flow from operating activities is primarily derived from the production of our crude oil and natural gas reserves and changes in the balances of non-cash accounts, receivables, payables or other non-energy property asset account balances. Cash flow provided by our operating activities for the six months ended September 30, 20212022 was $1,584,816$3,418,087 in comparison to $164,237$1,584,816 for the six months ended September 30, 2020.2021. This increase of $1,420,579$1,833,271 in our cash flow operating activities consisted of an increase in our non-cash expenses of $92,505; an increase$251,742; a decrease in our accounts receivable of $102,786;$263,939; a decrease of $80,141 in our accounts payable and accrued expenses; and, an increase in our net income for the current six monthsquarter of $1,445,474 compared to a net loss the same six month period of the prior year.$1,406,554. Variations in cash flow from operating activities may impact our level of exploration and development expenditures.

Our expenditures in operating activities consist primarily of non-operated leasedrilling expenses, production expenses and production expenses.engineering services. Our expenses also consist of employee compensation, accounting, insurance and other general and administrative expenses that we have incurred in order to address normal and necessary business activities of a public company in the crude oil and natural gas production industry.

Cash Flow Used in Investing Activities. Cash flow from investing activities is derived from changes in oil and gas property balances. For the six months ended September 30, 2021,2022, we had net cash of $554,787$4,253,453 used for additions to oil and gas properties compared to $593,949$554,787 for the six months ended September 30, 2020.2021.

Cash Flow Provided by Financing Activities. Cash flow from financing activities is derived from our changes in long-term debt and in equity account balances. Cash flow provided by our financing activities was $30,179 for the six months ended September 30, 2022 compared to cash flow used in our financing activities wasof $994,268 for the six months ended September 30, 2021 compared to cash flow provided by our financing activities of $458,009 for the six months ended September 30, 2020.2021. During the six months ended September 30, 2021 and 2020,2022, we received advances of $275,000 and $605,000, respectively, from our credit facility. During the six months ended September 30, 2021 and 2020, we made payments of $1,455,000$500,000 on our credit facility and $225,000, respectively,received payment of $30,179 from a director for profits on purchase of stock within the credit facility. For the six months ended September 30, 2021 and 2020, we received proceedssix-month window of $185,732 and $9,435, respectively, from the exercisea previous sale of employee and director stock options. For the six months ended September 30, 2020, we received $68,574 under the paycheck protection program (PPP).stock.

Accordingly, net cash increased $35,761,decreased $805,187, leaving cash and cash equivalents on hand of $93,574$565,579 as of September 30, 2021.2022.

Oil and Natural Gas Property Development

New Participations in Fiscal 2022.2023. The Company currently plans to participate in the drilling and completion of 3948 horizontal wells at an estimated aggregate cost of approximately $1,000,000$4,300,000 for the fiscal year ending March 31, 2022. All2023, of which 57% will be spent in the Delaware Basin and the remaining balance in the Midland Basin. Thirty-six of these horizontal wells are in the Delaware Basin located in the western portion of the Permian Basin in Lea and Eddy Counties, New Mexico and Reevestwelve are in the Midland Basin located in the eastern portion of the Permian Basin in Reagan County, Texas.

During the six months ended September 30, 2021,In April 2022, Mexco expended approximately $180,000$140,000 to participate in the drilling of four horizontal wells in the Wolfcamp Sand formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is .52%.

During the first six months of fiscal 2023, Mexco expended approximately $1,196,000 to participate in the drilling and completion of three horizontal wells in the Wolfcamp Sand formation of the Midland Basin located in the eastern portion of the Permian Basin in Reagan County, Texas. Mexco’s working interest in these wells is 3.2%. These wells are currently being completed.

In May 2022, Mexco expended approximately $97,000 to participate in the drilling of four horizontal wells in the Wolfcamp Sand formation of the Delaware Basin in Lea County, New Mexico. Mexco’s working interest in these wells is .52%. Subsequently, in October 2022, Mexco expended approximately $148,000 to complete these wells.

During the first six months of fiscal 2023, Mexco expended approximately $607,000 to participate in the drilling and completion of a horizontal well in the Wolfcamp Sand formation of the Midland Basin in Reagan County, Texas. Mexco’s working interest in this well is 5.1%. This well are currently being completed.

During the first six months of fiscal 2023, Mexco expended approximately $600,000 to participate in the drilling and completion of four horizontal wells in the Lower Wolfcamp ShaleBone Spring formation of the Delaware Basin in Eddy County, New Mexico. Mexco’s working interest in these wells is .44%2.1%. These wells are currently being completed.

In September 2021,June 2022, Mexco expended approximately $43,000$157,000 to participate in the drilling of threefour horizontal wells in the 2^nd Bone Spring formation and two horizontal wells in the 3^rd Bone SpringWolfcamp Sand formation of the Delaware Basin located in the western portion of the Permian Basin in Lea County, New Mexico. Mexco’s working interest in these wells is an average of approximately .22%.52%.

In August 2021,2022, Mexco expended approximately $28,000$33,000 to participate in the drilling of two horizontal wells in the Wolfcamp SandPenn Shale formation of the Delaware Basin located in the western portion of the Permian Basin in Lea County, New Mexico. Mexco’s working interest in these wells is .37%.22%. Subsequently,

Completion of Wells Drilled in October 2021, MexcoFiscal 2022. The Company expended approximately $42,000$329,000 for the completion costs of 8 horizontal wells located in Lea County, New Mexico that the Company participated in drilling during fiscal 2022. The first 4 of these wells.wells began producing in May 2022 with initial average production rates of 1,384 barrels of oil, 3,530 barrels of water and 2,172,000 cubic feet of gas per day, or, 1,804 barrels of oil equivalent per day.

Subsequent Participations. In August 2021,October 2022, Mexco expended approximately $52,000$682,000 to participate in the drilling and completion of twofour horizontal wells operated by XTO Energy, Inc. in the Bone Spring formation of the Delaware Basin located in the western portion of the Permian Basin in Reeves County, Texas. Mexco working interest in these wells is approximately .6%. These wells have been drilled and are planned to be completed in November 2021.

In May 2021, Mexco expended approximately $28,000 to participate in the drilling of two horizontal wells in the Wolfcamp Sand formation of the Delaware Basin located in the western portion of the Permian Basin in Lea County, New Mexico. Mexco’s working interest in these wells is .37%. Subsequently, in October 2021, Mexco expended approximately $42,000 for the completion of these wells.2.2%

Also during the quarter ended June 30, 2021,in October 2022, Mexco participatedexpended $16,000 to participate in the drilling and completion of twothree horizontal wells operated by Mewbourne Oil Company in the WolfcampBone Spring formation of the Delaware Basin located in the western portion of the Permian Basin in LeaEddy County, New Mexico with aggregate costs of approximately $88,000. These wells were completed at the end of June 2021 with initial average production rates of 1,184 barrels of oil, 4,380 barrels of water and 1,818,000 cubic feet of gas per day, or 1,444 barrels of oil equivalent per day.Mexico. Mexco’s working interest in these wells is .56%.05%.

Completion of Wells Drilled in Fiscal 2021.Acquisitions. The Company expended approximately $165,000acquired various royalty (mineral) interests in 22 wells and several additional potential locations for the additional completion costs of 12 horizontal wells located in Eddydevelopment operated by Chesapeake Energy Corporation and Lea Counties, New Mexico that the Company participated in drilling during fiscal 2021.

The Company participated in the completion of two horizontal wells in the Wolfcamp formation of the Delaware Basin located in the western portionEagleford area of the Permian Basin in LeaDimmit County, New Mexico with aggregate costsTexas for a purchase price of approximately $108,000. These wells were completed at the end of June 2021 and beginning of July 2021 with initial average production rates of 1,046 barrels of oil, 3,214 barrels of water and 2,146,000 cubic feet of gas per day, or 1,403 barrels of oil equivalent per day. Mexco’s working interest in these wells is 1.2%.

The Company participated in the completion of two horizontal wells in the Wolfcamp formation of the Delaware Basin located in the western portion of the Permian Basin in Lea County, New Mexico with aggregate costs of approximately $55,000. These wells were completed at the end of June 2021 with initial average production rates of 774 barrels of oil, 2,648 barrels of water and 973,000 cubic feet of gas per day, or 913 barrels of oil equivalent per day. Mexco’s working interest in these wells is .56%.$939,000 which was effective April 1, 2022.

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 non-core properties.

Crude oil and natural gas prices generally remained volatile during the last year. 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 West Texas Intermediate (“WTI”) posted price for crude oil has ranged from a low of $31.75$61.55 per bbl in October 2020December 2021 to a high of $71.43$119.68 per bbl in September 2021.March 2022. The Henry Hub Spot Market Price (“Henry Hub”) for natural gas has ranged from a low of $1.41$3.32 per MMBtu in October 2020December 2021 to a high of $23.86$9.85 per MMBtu in February 2021.August 2022.

On September 30, 2021,2022, the WTI posted price for crude oil as $71.01was $75.47 and the Henry Hub spot price for natural gas was $5.58$6.40 per MMBtu. See Results of Operations below for realized prices.