Quarterly Report for Quarter Ending December 31, 2025 (Form 10-Q)

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 the 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, 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 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.

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:

		For the Nine Months Ended December 31,
		2025				2024				Change
Net cash provided by operating activities		$	2,930,832			$	2,941,115			$	(10,283	)
Net cash used in investing activities		$	(2,212,547	)		$	(3,670,019	)		$	(1,457,472	)
Net cash used in financing activities		$	(204,600	)		$	(834,575	)		$	(629,975	)

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 nine months ended December 31, 2025 was $2,930,832 in comparison to $2,941,115 for the nine months ended December 31, 2024. This decrease of $10,283 in our cash flow operating activities consisted of an increase in our non-cash expenses, an increase in our accounts receivable of $481,198; a decrease of $376,035 of our accounts payable and accrued expenses and income tax payable; and, a decrease in our net income for the current nine months of $461,668. Variations in cash flow from operating activities may impact our level of exploration and development expenditures.

Our expenditures in operating activities consist primarily of drilling expenses, production expenses and 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 nine months ended December 31, 2025, we had net cash of $2,212,547 used for additions to oil and gas properties and our investment in the limited liability company compared to $3,670,019 for the nine months ended December 31, 2024.

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. Net cash flow used in our financing activities was $204,600 for the nine months ended December 31, 2025 compared to cash flow used in our financing activities of $834,575 for the nine months ended December 31, 2024. During the nine months ended December 31, 2025, we expended $204,600 to pay the regular annual dividend. During the nine months ended December 31, 2024, we expended $209,000 to pay the regular annual dividend and $703,216 to purchase 57,766 shares of our stock for the treasury account and received $77,641 from the exercise of stock options.

Accordingly, net cash increased $513,685, leaving cash and cash equivalents on hand of $2,267,640 as of December 31, 2025.

At December 31, 2025, we had working capital of $3,186,231 compared to working capital of $2,469,664 at March 31, 2025, an increase of $716,567 for the reasons set forth below.

Oil and Natural Gas Property Development

New Participations in Fiscal 2026. The Company currently plans to participate in the drilling and completion of fifty horizontal wells and one vertical well at an estimated cost of approximately $1,700,000 for the fiscal year ending March 31, 2026. Forty-five of these wells are in the Delaware Basin located in the western portion of the Permian Basin in Lea and Eddy Counties, New Mexico. The remaining wells are in Glasscock, Midland, and Ward Counties, Texas.

Mexco expended approximately $166,000 to participate in the drilling and completion of five horizontal wells in the Bone Spring formation of the Delaware Basin in Eddy County, New Mexico. In November 2025, two of these wells were completed with initial average production rates of 1,194 barrels of oil, 2,924 barrels of water, and 1,819,000 cubic feet of gas per day, or 1,497 BOE per day. Mexco's working interest in these wells is .5%. Subsequently, in February 2026, the Company expended approximately $64,000 to complete the remaining three wells.

Mexco expended approximately $79,000 to drill and complete two horizontal wells in the Bone Spring formation of the Delaware Basin in Lea County, New Mexico. In August 2025, these wells were completed with initial average production rates of 741 barrels of oil, 3,276 barrels of water, and 1,110,000 cubic feet of gas per day, or 926 BOE per day. Mexco's working interest in these wells is .3%.

Mexco expended approximately $155,000 to participate in the drilling and completion of three horizontal wells in the Wolfcamp Sand Formation of the Delaware Basin in Lea County, New Mexico. In December 2025, these wells were completed with initial average production rates of 827 barrels of oil, 3,483 barrels of water, and 2,354,000 cubic feet of gas per day, or 1,219 BOE per day. Mexco's working interest in these wells is .52%.

Mexco expended approximately $65,000 to participate in an exploratory vertical well in the Ellenburger formation of Ward County, Texas. In November, this well was determined to be noncommercial.

In December 2025, Mexco expended approximately $404,000 to participate in the drilling and completion of two horizontal development wells in the Wolfcamp XY formation of the Delaware Basin in Eddy County, New Mexico. Mexco's working interest in these wells is 2.1%.

In December 2025, Mexco expended approximately $46,000 to participate in the drilling and completion of six horizontal wells in the Bone Spring formation of the Delaware Basin in Lea County, New Mexico. Mexco's working interest in these wells is .05%.

Completion of Wells Drilled in Fiscal 2025. The Company expended approximately $150,000 for the completion of seventeen horizontal wells in which the Company participated during fiscal 2025. These wells, located in Delaware Basin of Lea County, New Mexico, have been completed and turned to production.

Investments. In October 2022, the Company made an approximately 2% equity investment commitment in a limited liability company amounting to $2,000,000, which was fully funded as of July 2025. The limited liability company is capitalized at approximately $100 million to purchase mineral interests in the Utica and Marcellus areas in the state of Ohio. In October 2025, the Company expended $200,000 to exercise its option to participate in a voluntary optional cash call to increase its capitalized investment. And in December 2025, expended an additional $27,429 to exercise its option to acquire its share of the non-consent interests from the October cash call. As of December 31, 2025, this LLC has returned $476,635 or 21% of the total investment.

Acquisitions. In May 2025, the Company acquired royalty (mineral) interests in 2 wells operated by Chevron Corporation and located in Pecos County, Texas for a purchase price of $40,000. This acquisition was effective April 1, 2025 and includes acreage for future development.

In August 2025, the Company acquired royalty interests in 12 producing wells operated by Diamondback Energy, Inc. and located in Martin County, Texas for a purchase price of $60,300 and royalty interests in 25 wells operated by Chevron Corporation and located in Weld County, Colorado for a purchase price of $26,300. These acquisitions were effective September 1, 2025.

In October 2025, the Company acquired royalty interests in 3 producing wells operated by Expand Energy Corporation and located in Caddo Parish, Louisiana for a purchase price of $31,300; royalty interests in 14 producing wells operated by Diamondback Energy, Inc. and located in Martin County, Texas for a purchase price of $44,300; royalty interests in 3 producing wells operated by Permian Resources Corporation and located in Eddy County, New Mexico for a purchase price of $6,800; and, overriding royalty interest in 4 producing wells operated by Tap Rock Resources and located in Eddy County, New Mexico for a purchase price of $240,300. These acquisitions were effective November 1, 2025.

In December 2025, the Company acquired royalty interests in 14 producing wells operated by Anadarko Petroleum Corporation and located in Weld County, Colorado for a purchase price of $35,300; royalty interests in approximately 4 producing wells operated by SM Energy Company and located in Howard County, Texas for a purchase price of $100,600; royalty interests in 11 producing wells operated by Ovintiv Inc. and located in Martin County, Texas for a purchase price of $18,300. These acquisitions were effective December 1, 2025.

Also in December 2025, the Company acquired additional royalty interests in the 3 producing wells operated by Expand Energy Corporation and located in Caddo Parish, Louisiana for a purchase price of $22,300 and effective January 1, 2026.

Subsequently, in January 2026, the Company royalty interests in 3 producing wells operated by ConocoPhillips and located in Karnes County, Texas for a purchase price of $27,800. This acquisition is effective January 1, 2026.

Other Projects. 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.

Pricing. 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 $51.25 per bbl in December 2025 to a high of $76.02 per bbl in January 2025. The Henry Hub Spot Market Price ("Henry Hub") for natural gas has ranged from a low of $2.65 per MMBtu in June and October 2025 to a high of $9.86 per MMBtu in January 2025.

On December 31, 2025, the WTI posted price for crude oil was $53.40 and the Henry Hub spot price for natural gas was $4.00 per MMBtu. See Results of Operations below for realized prices. Pipeline capacity constraints and maintenance in the Permian Basin area has contributed to a wider difference between the WaHa Hub and the Henry Hub and at times prices were negative. These conditions adversely impacted realized prices during certain periods and contributed to variability in operating results.

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 December 31, 2025:

		Payments due in:
		Total				less than 1 year				1 - 3 years				over 3 years
Contractual obligations:
Leases (1)		$	95,507			$	60,320			$	35,187			$	-

(1)

The lease amount represents the monthly rent amount for our principal office space in Midland, Texas under a 36-month lease agreement expiring July 31, 2027. Of this total obligation for the remainder of the lease, our majority shareholder will pay $10,175 less than 1 year and $5,935 1-3 years for his portion of the shared office space.

Results of Operations - Three Months Ended December 31, 2025 and 2024. For the quarter ended December 31, 2025, there was net income of $50,245 compared to $469,133 for the quarter ended December 31, 2024 as a result of a decrease in operating revenues and an increase in income taxes partially offset by a decrease in operating expenses that is further explained below.

Oil and gas sales. Revenue from oil and gas sales was $1,301,794 for the third quarter of fiscal 2026, a 29% decrease from $1,828,404 for the same period of fiscal 2025. This resulted from a decrease in oil production volumes and a decrease in oil and natural gas prices partially offset by an increase in natural gas production volumes. Natural gas prices have been negatively impacted by limited pipeline capacity in the Permian Basin.

		2025				2024				% Difference
Oil:
Revenue		$	1,098,779			$	1,563,663				(29.7	%)
Volume (bbls)			18,753				22,451				(16.5	%)
Average Price (per bbl)		$	58.59			$	69.65				(15.9	%)
Gas:
Revenue		$	203,015			$	264,741				(23.3	%)
Volume (mcf)			160,867				149,945				7.3	%
Average Price (per mcf)		$	1.26			$	1.77				(28.8	%)

Other operating revenues. Other revenues increased to $82,093 for the three months ended December 31, 2025, from $62,861 for the three months ended December 31, 2024. This increase resulted from an increase in income from our most recent limited liability company investment.

Interest income. Interest income on corporate funds increased to $23,953 for the three months ended December 31, 2025, from $7,315 for the three months ended December 31, 2024. This increase resulted from an increase in our investment fund balances.

Production and exploration. Production costs were $302,572 for the third quarter of fiscal 2026, a 34% decrease from $460,241 for the same period of fiscal 2025. This was primarily the result of a decrease in lease operating expenses on wells in which we own a working interest and a decrease in production taxes due to the decrease in oil and gas revenues.

Depreciation, depletion and amortization. Depreciation, depletion and amortization expense was $664,265 for the third quarter of fiscal 2026, a 4% increase from $636,424 for the same period of fiscal 2025, primarily due to a decrease in oil and gas reserves and an increase in gas production partially offset by a decrease in oil production and a decrease in the full cost pool amortization base.

General and administrative expenses. General and administrative expenses were $317,524 for the third quarter of fiscal 2026, a 7% decrease from $340,514 for the same period of fiscal 2025. This was primarily due to a decrease in contract services.

Income taxes. Income tax expense for the three months ended December 31, 2025 was $64,106 compared an income tax benefit of $18,305 for the three months ended December 31, 2024. The effective tax rate for state and federal taxes combined for the three months ended December 31, 2025 and 2024 was 56% and (4%), respectively. The effective tax rate for the three months ended December 31, 2025 reflects the timing of estimated income tax accruals and other tax items recognized during the quarter. See Note 7 - Income Taxes to the Notes to Consolidated Financial Statements for additional information.

Results of Operations - Nine Months Ended December 31, 2025 and 2024. For the nine months ended December 31, 2025, there was a net income of $615,702 compared to net income of $1,077,370 for the nine months ended December 31, 2024. This was primarily a result of a decrease in operating revenues that is further explained below.

Oil and gas sales. Revenue from oil and gas sales was $4,681,094 for the nine months ended December 31, 2025, a 10% decrease from $5,212,313 for the same period of fiscal 2025. This resulted from a decrease in oil price and production volume partially offset by an increase in natural gas price and production volume. The following table sets forth our oil and natural gas revenue, production quantities, and average prices received during the nine months ended December 31:

		2025				2024				% Difference
Oil:
Revenue		$	3,796,821			$	4,595,585				(17.4	%)
Volume (bbls)			60,877				61,685				(1.3	%)
Average Price (per bbl)		$	62.37			$	74.50				(16.3	%)
Gas:
Revenue		$	884,273			$	616,728				43.4	%
Volume (mcf)			501,830				420,236				19.4	%
Average Price (per mcf)		$	1.76			$	1.47				19.9	%

Other operating revenues. Other revenues increased 61% to $251,712 for the nine months ended December 31, 2025, from $156,014 for the nine months ended December 31, 2024. This increase resulted from an increase in income from our most recent limited liability company investment.

Interest income. Interest income on corporate funds increased to $58,610 for the nine months ended December 31, 2025, from $50,891 for the nine months ended December 31, 2024. This increase resulted from an increase in our investment fund balances.

Production and exploration. Production costs were $1,076,435 for the nine months ended December 31, 2025, an 18% decrease from $1,311,066 for the nine months ended December 31, 2024. This was primarily the result of a decrease in lease operating expenses on wells in which we own a working interest and a decrease in production taxes due to the decrease in oil revenue partially offset by the increase gas revenue.

Depreciation, depletion and amortization. Depreciation, depletion and amortization expense was $2,002,182 for the nine months ended December 31, 2025, a 14% increase from $1,760,409 for the nine months ended December 31, 2024, primarily due to a decrease in oil and gas reserves and an increase in gas production partially offset by a decrease in oil production and a decrease in the full cost amortization base.

General and administrative expenses. General and administrative expenses were $1,044,225 for the nine months ended December 31, 2025, a .2% increase from $1,042,084 for the nine months ended December 31, 2024. This was primarily due to an increase in accounting and engineering services, insurance and salaries partially offset by a decrease in contract services and stock option compensation.

Income taxes. Income tax expense for the nine months ended December 31, 2025 was $225,572 compared to $200,034 for the nine months ended December 31, 2024. The effective tax rate for the nine months ended December 31, 2025 and 2024 was 27% and 16%, respectively. See Note 7 - Income Taxes to the Notes to Consolidated Financial Statements for additional information.