MEXCO ENERGY CORP (MXC) stock intrinsic value fair value estimate & owner earnings analysis

Mexco Energy is a very small oil and natural gas producer based in Midland, Texas. It does not operate wells itself. It owns royalty and non-operated working interests in a large number of wells drilled by larger operators such as Diamondback Energy and Chevron, mostly in the Permian Basin of West Texas and southeastern New Mexico. It also owns a roughly 2% stake in a partnership that buys mineral interests in Ohio's Utica and Marcellus shale. In the year to March 31, 2026 it sold about 82,000 barrels of oil and 682 million cubic feet of gas for $6.56 million of revenue. Oil was about 80% of sales. The company does not hedge, so its results move directly with oil prices: its average realized price fell from $73.54 a barrel in fiscal 2025 to $64.25 in fiscal 2026. How we measure earnings. We start from operating cash flow, strip out swings in receivables, payables and taxes owed, subtract stock compensation, and subtract the drilling spending needed to keep production going. On that basis the company earned about $0.89 a share in fiscal 2026, $0.47 in 2025, $0.13 in 2024 and $1.12 in 2023. In fiscal 2017 through 2021, when oil was in the $40s and $50s and oil production was well under two-thirds of today's, it lost money on this measure every year. Oil volumes have since grown from about 35,000 barrels in fiscal 2019 to 82,000 in fiscal 2026. That growth came from buying royalties and joining wells drilled by others, paid for from cash flow, so the earlier years describe a smaller business. We use the median of fiscal 2023 to 2026, about $0.68 a share, as the starting level. We leave out fiscal 2022 because our method treated most of that year's price-driven revenue jump as growth spending, which made its earnings look better than they were. The company has no debt, and its interest payments are negligible, so earnings before and after lenders are the same. The key fact for valuation is that oil and gas reserves run out. Proved reserves at March 31, 2026 were 1.44 million barrels of oil equivalent, about 7.3 years of current production. The company has replaced much of what it produces: reserves rose from 1.40 to 1.44 million barrels equivalent in fiscal 2026. Over a longer stretch, though, they fell from 1.62 million in fiscal 2022 to 1.44 million in fiscal 2026, so it replaced only about three-quarters of what it produced over those four years. Our cases therefore let earnings wear down over time instead of holding them flat forever. No case assumes any growth in year one, against an actual gain of about 90% in fiscal 2026. That gain came mostly from lower drilling spending and higher gas volumes, not from anything we can count on repeating. Base case, about $7.24 a share: earnings hold at about $0.68 a share for five years. Over that period operators plan to drill 62 already-identified wells in which Mexco has interests, 41 of them in fiscal 2027. After that, earnings decline about 5% a year for twenty years, in line with the partial reserve replacement seen since 2022, and stop after year 25. The business is worth about $6.76 a share (about $14 million). There is no debt to pay off, and about $1.0 million of cash beyond operating needs adds $0.48 a share. Bear case, about $1.99 a share: realized oil prices settle back to the low $50s, where they were in fiscal 2019 and 2020, and Permian gas stays weak. That alone removes about $1 million a year of pre-tax revenue, leaving earnings near $0.25 a share. Lower prices also make reinvestment uneconomic, so reserves are not replaced. Earnings last about seven years, which is the current reserve life, then run off to nothing by year 12, and the company has to pay its roughly $0.74 million well-plugging obligation. The business is worth about $1.52 a share (about $3 million) after that obligation, plus $0.48 of surplus cash and no debt. Bull case, about $11.48 a share: the fiscal 2027 drilling program on 41 wells delivers as scheduled, and reserve replacement stays at or above 100% as it did in fiscal 2026. Earnings hold at the fiscal 2026 level of about $0.89 a share for ten years, then decline about 3% a year to year 30. The business is worth about $11.00 a share (about $23 million), plus $0.48 of surplus cash. We give no credit for higher oil prices in any case. The balance sheet is clean. At March 31, 2026 nothing was drawn on the $2.5 million bank line with West Texas National Bank, whose borrowing base is $1.5 million and which now matures March 28, 2029. Cash was $1.29 million at June 30, 2026 after heavy first-quarter drilling spending of $2.74 million, which was paid from cash flow and cash on hand. The Ohio mineral partnership has already returned about 25% of the roughly $2.2 million invested, and its income is included in the earnings above rather than counted again as an asset. Recent results support the base case: revenue in the June 2026 quarter rose 13% from a year earlier. For this value to be wrong, oil would need to stay well below $60 for years, or the operators' drilling on Mexco's acreage would need to stall so that reserves fall faster than the base case assumes. The dividend is small, at $0.10 a share a year.