MEXCO ENERGY CORP

ITEM 1A. RISK FACTORS 

The Company is subject to various risks and uncertainties in the ordinary course of business. The following summarizes significant risks and uncertainties that may adversely affect our business, financial condition or results of operations. We could also face additional risks and uncertainties  that are not currently known to us or that we currently deem to be immaterial. If any of these risks actually occurs, it could materially harm our business, financial condition, or results of operations, and the trading price of our shares could decline. Investors should carefully consider each of the following risk factors and all of the other information set forth in this Annual Report on Form 10-K.

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

Volatility of oil and gas prices significantly affects our results and profitability. 

Prices for oil and natural gas fluctuate widely. We cannot predict futu and are oil and natural gas prices with any certainty. Historically, the marketinfluenced by numerous for oil and gas have been volatile, and they are likely to continue to be volatile. Factors that can cause price fluctuationsactors beyond our control, include the level of ing global demand for petroleum products; foreign ssupply and pricing of oil demand gas; the, actions of OPEC, its members  and other state-controlled oil companies relatiproducing to oil price and producnation controls; nature and extent of s, governmental regulation and taxation,  (including environmental regulations;), levels of domestic and international eexploration, drilling  and production activity; the cost of exploring for, producing and delivering oil, transportation and gas; speculative trading in crude oil and natural gas derivative contracts; availability, proximity and capstorage capacity of oil and gas pipelines and other transportation facilities; weather conditions; the price andconstraints, availability of alternative fuels;, technological advancedevelopments affecting energy consumption; n, speculational andve trading interna commodity derivatives, weather conditions, geopolitical pdevelopments, pandemics;, and, overall political andglobal economic conditions in oil producing countries.

Increases and decr.

Theases in se prices also affect the amoun fluctuations impact ofur cash flow available fors, capital expenditures and our a flexibility to borrow money or raise additional, and access to capital. The amount we can borrow from bankReductions in prices may be subject to redetermination decrease the borrowing based on changes in prices. In ad under our credition, we may have facility, trigger ceiling test write-downs when prices decline. Lower prices may also re, and reduce the amount of crude oil and natural gas that can be produced economically. Thus, we may experience material increases or decreases in reserve quantitiAs a result, reserve estimates solely as a result ofmay change significantly due to price changes and not as a result of drilling or welmovements rather than operational performance.

Changes in oil and gascommodity prices impact bothalso affect estimated future net revenue and the estimated quantity ofes and proved reserves. Any reduction in reserves, including reductions due to price fluctuations, quantities, which in turn can reduce theour borrowing base under our credit facilicapacity and adversely affect the amount of cash flow available for capital expenditures and our abilitylimit access to obtain aadditional capital for our exploration and development activities.

Oil and natural gas prices do not necessarily fluctuatmove in direct relationship to each other. Lowertandem, and periods of low prices or lack ofimited storage may have anor transportation capacity may adversely affect on our financial condition due toby reduction of ouring revenues, operating income, and cash flows; curtailment or shut-in of our, causing production due to lack of transpocurtationilments or storage capacity; causehut-ins, rendering certain properties in our portfolio to b unecome economically unviable; and,, and limit our financial condition,ing our liquidity, and/or ability to finance planneund capital expenditures and operations.

Our results of operations may be negatively impacted by current global epolitical and economic events, including the imposition ofevolving trade policies, tariffs.

Our business, financi, and broader geopolitical condition and future results areinstability.

Our business is subject to political and economic risks and uncertainties, includ arising from volatility in the political, legal, and regulatory environments as a result of the, including changes in U.S. presidential administration s, shifting energy and instability resulting from civil unrest, political demonstrations, mass striketrade policies, and increased geopolitical tensions. Ongoing armed conflicts, including the war between Russia and Ukraine and instability in the Middle East, as well as or armedther regional conflict or othes or crisesivil unrest in crude oil orand natural gas producing areas such as the ongoing war between Russia and Ukraines, may contribute to commodity price volatility and the Israel-Iran conflict. supply disruptions.

Escalating trade tensions, particularly and a more fragmented global trade environment, including between the U.S.nited States and Canadakey trading partners such as China, Mexico, China and other countries, and Canada, have resulted in, and may leadcontinue to the imposition of result in, tariffs and tr, sanctions, export controls, or other trade restrictions. Our operators could face unanticipatedThese measures, as well as efforts to reshore or diversify critical supply chains, may increase costs and competition for mlimit the availability of equipment, materials, and components to continue their currentservices required for our operators drilling plans. In addition,and development activities.

At the current U.S. presidential admsame time, energy security policies and regulatory inistrtiation has signaled it will encourage ves in the United States and abroad may seek to increased domestic oil and natural gas production of crude oil, which could lead to falling crude oil and natural gas prices.

alter supply-demand dynamics and exert downward pressure on commodity prices. These factors, individually or collectively, could adversely affect our results of operations, financial condition, and cash flows.

Changes in environmental laws, could increase our operators costs and adversely impact our business, financial condition, and cash flows.

In recent years the , U.S. Congresfederal and state governments hasve considered leor implemented legislation toand reduce egulatory initiatives aimed at GHG emissions of GHGs, including methane, a primary component of natural gas, an and carbon dioxide, a byproduct of the burn. Such measures, including of naturpotential gas. Addressing GHG eemissions with legislation on emissions feesfees, reporting requirements, or performance standards, could increase operating costs and compliance burdens within the oil and natural gas industry.

Fluids resulting from crude In addition, produced water and other fluids associated with oil and natural gas production, consisting primari are commonly of salt-water, are disposed by injection in belowof through underground disposalinjection wells. In recent years, state and federal reRegulatory agencies haves have increasingly focused on athe possible connectiontential link between fluid injection and increasduced seismic activity. Tity. As a result, state regulatory agencies, including the Texas Railroad Commission, has suspendedve imposed restrictions or limited new weladditional permits forting requirements on salt water disposal wells, particularly in in certain areas, including portions of the Permian Basin. IncreasedFurther regulation on the treatment anf fluid disposal of fluidsr seismicity concerns could increase operating costs a, limit disposal capacity, and curtailadversely impact the economical  viability of drilling and production activities.

Lower oil and gas prices and other factors may cause us to record ceiling test write-downs.

LoweWe account for our oil and gas prices increase the risk of ceiling limitnatural gas operation write-downs. Wes useing the full cost method to account for oil and gas operations. Accordingly, we capitalize the cost to , under which acquiresition, explore foration, and develop crude oil and natural gas properties ment costsincluding the costs of abandoned properties, dry holes, geophysical costs, and annual llease rentalsare capitalized. Sales or other dispositions of oil and natural gas properties are accountrecorded for as adjustments to capitalized costs, with no gain or loss recordgnized. Depletion of evaluis calculated oil and natural gas properties is computed in using the units of -of-production method, whereby capitalized costs are amortize based overn total proved reserves. 

Under the full cost accounting rules, the net capitalized cost of crude oil and natural gas properties may not exceed  is subject to a ceiling limit which isation based upon the present value of estimated future net cash flows from proved reserves, discounted at 10%, plus the lower of cost or fair market value of unproved properties. If net capitalized costs of oil and natural gas properties exceed tThe ceiling limit, we must charge the amount of the excess against earnings. This is called a ceiling test writedown. We calculation uses the unweighted arithmetic average first -day of -of-the -month prices for oil and natural gas foover the preceding 12-month period preceding the calculation date in estimatd and is performed quarterly. If capitalized costs exceed the ceiling discounted future net reserves. Under the account, the excess must be charged to earning rules, we are required to perform as as a noncash ceiling test each quarter. A ceiling testwrite-down. While such write-downs does not impaaffect cash flows from operating activitieons, but doesthey reduce e net income and stockholders equity and earnings. .

The risk that we will be required toof ceiling test write -down the carrying value of oil and natural gas properties increases when oil and natural gass increases during periods of low commodity prices are low. There were no ceiling test impairments on our oil and gas propertiesrecorded during fiscal 2025 and6 or 2024.

5.

We must replace reserves we produce.

Our future success depends upon our ability to find, develop, or acquire additional, economically recoverable oil and gas reserves. Our pProved reserves will generally decline as reserves are depleted, except to the extent that we can findthey are replaced through successful exploration, development, or acquire replacement reservsition activities. One offset to the obvious benefits afThe availability of high-quality domestic oil and natural gas opportunities is limited, and competition forded by higher product prices especially for small such assets is intense; as a result, there can be no assurance that we will be able to mid-capidentify, companies in this industrylete, or integrate acquisitions on acceptable terms, is thf at quality domestic oilall. If we are unable to replace reserves on and gas reserves are hard to fin economic basis, our production, revenues, and long-term business prospects could be adversely affected.

Approximately 2819% and 3328% of our total estimated net proved reserves at March 31, 20256 and 20245, respectively, were undeveloped, and those reserves may not ultimately be developed. 

Recovery of undeveloped reserves requires significant capital expenditures and successful drilling operations. Our reserve dataestimates assumes that we can and will make these expenditures and conduct will be made and these operations at development activities will be successfully. Tl; however, these assumptions, however, may not prove correct. Delays in the development of our reserves, increases in costs tod develop such reservement costs, or decreases inlower commodity prices w, capital constraints, or unsuccessful drilling reduce thesults could reduce future net revenues or our, decrease estimated proved undeveloped reserves and may result , or render certain some projects becoming uneconomical. In addition, if we or the outsidef third-party operators of our properties chooser we do not to spend invest the capital required to develop these reserves, or if we are not able to development efforts are unsuccessfully develop these reserves, we willmay be required to write- off thesesuch reserves. Any suchresulting write-offs of our reserves could reduce our ability to boborrow moneing capacity and could reduceadversely affect the value of our common stock.

Information concerning our reserves and future net revenues estimates is inherently uncertain.

Estimates of oil and gas rReserves, by necessity, are projections estimates are based on engineering data,and geological data and there arequire uncertainties inhersignificant judgment in the interpretation ofing such data as well as thend projection ofng future rates of production and the timing ofrates, development timing, and associated expenditures. Reserve engineering is a n inherently subjective process ofthat involves estimating undergroues of subsurface oil and agas accumulations of oil and gas that are difficult tocannot be measure. d precisely.

Estimates of economically recoverable oil and gas reserves and of future net cash flows depend upon a number of variable factors and asassumptions, such asincluding future production, oil and gas levels, commodity prices, operating costs, development costs, and remedial costexpenditures, all of which may vary considerabldiffer materially from actual results. As a result, estimates of the economically recoverable quantities of oil and gareserve estimates and of future netrelated cash flows exp projected therefromions may vary substantially. ignificantly over time.

As required by the SEC, the eestimated discounted future net cash flows from proved reserves are bascalculated on a twelve using a 12-month un-weighted farithmetic average of first-day-of-the-month average oil and gas prices for the twelve months pperior to the date ofd preceding the reporting date. Actual future prices and costs may bediffer materially higher or lower.

An increase in thfrom those used in such estimates, which could result in significant revisions to reported reserves and associated valuations.

A negative differential between NYMEX and the reference or regional index price used to price our oil and gas would reduce our cash flow from operations.

Our oil and gas is priced in the local markets where it is produced based on local or rregional supply and demand factorconditions. TAs a result, the prices we receive for our oil and gas are typically lowmay differ than the relevantfrom benchmark prices, such as The those of the New York Mercantile Exchange (NYMEX). Th, with the difference between the benchmark price and the price we receive is called a dreferred to as a differential. Differential. Numerous factors may influence local prics may be affected by a variety of factors, including, such as  refinery capacity,and pipeline capacity and, pipeline specifications, upsets in the midstream orand downstream sectors of the industrydisruptions, trade restrictions and, governmental regulations such as policies of the Trump Administra, and regional demand condition. As. In additionally, insufficient pipeline capacity, lack of demand in any given operating area, or other regional factors may cause the differentials to increasewiden in a particular area compared with othercertain producing areas. During fiscal 2025, 6, our average differentials averagedwere $2.7997 per Bbl of oil and ($0.301.48) per Mcf of gas. IncreasChanges in these differential between the benchmark prices for oil s could materially affect our revenues and gas and the wellhead price we receive could significantlycash flow from operations, with favorable differentials increasing reduce our revenualized prices and our cash flow from operations.

unfavorable differentials decreasing them.

Drilling and operating activities are high -risk activities that subject us to a variety of factors that we cannot control. 

These factors include availability of workover and drilling rigs, well blowouts, cratering, explosions, fires, formations with abnormal pressures, pollution, releases of toxic gases, and other environmental hazards and risks. Any of these operating hazards could result in substantial losses to us. In addition, we incur the risk that no commercially productive reservoirs will be encountered, and there is no assurance that we will recover all or any portion of our investment in wells that are drilled or re-entered.

We may not be able to fund the capital expenditures that will be required for us to increase reserves and production.

We must make capital expenditures to develop our existing reserves and to acquire new reserves. Historically, we have usfunded our capital expenditures through cash flow from operations and borrowings under our credit facility to fund our capital expenditures, ; however, lower oil and natural gas prices mayor production levenls may limit these optionsfunding sources. Volatility in oil and gascommodity prices, the timing of our drilling programs, and drilling results willdirectly affect our cash flow from operations. Lower prices and/or lower production will also decreaslevels would reduce revenues and cash flows, thus reduciereby limiting the amount of ffinancial resources available to meet ourfund capital requirements, including reducing the amount available toexpenditures and pursue our drilling opportunities.

The borrowing baseAvailability under our credit facility will beis determined from time to timeperiodically by theour lender. Reductions is and is based in part on estimates of our oil and natural gas reserves could result in a re. Reduction in the borrowing base, which would reduce the amount of financial ns in resources available under the credit facility to meet our capital requirements. Such a reduction could be the result oferve estimates (whether due to lower commodity prices and/or, production, inability to drill or unfavorable declines, drilling results, changes in oil and gas reserve engineering, the lenders inability to agree to an adequate borrowing base assumptions, or adverse changes in the lenders practices regarding estim determination of reserves. If cash flow from operations or our practices) could reduce the borrowing base decrease for any reason, our ability to undertake exploration and developmeand, in turn, the amount activities could be adversely affected. As a result, our abvailable under the facility to replace production may be limited.

Our identified drilling locations are scheduled out over several years, making them susceptible to uncertainties that . Any such reduction could materially alter the occurrence or timing of their drilling.

Our managementlimit our liquidity and outside operators have specifically identified aability to fund scheduled drilling locexplorations as an estimation of our future multi-year drilling and development activities on our existing acreage. These drilling locations represent a significant part of our growth strategy. Our ability to drill and develop these loc.

If cash flow from operations depends on a number of uncertainties, including crude oil and natural gas prices, theor borrowing availability of capital, costs, drilling results, regulatory approvals and other factors. If future drildecling results in these projects do not establish sufficientes for any reserves to achieve an economic return, we may curtail drilling in these projects. Because of these uncason, our ability to undertainties, we do not know if the numerous potentike capital drilling locations we have identified will ever be drilled or if we will be able to programs and replace produce crude oil or natural gas from these or any other potential drilling locations.

tion could be adversely affected.

Our business depends on oil and natural gas transportation facilities whichthat are owned by others.

The marketability of our production depends in part on the availability, proximity, and capacity of natural gas gathering systems, pipelines, and processing facilities. Federal and state regulation of oil and gas production and transportation, tax policies, and energy policies, changes in supply and demand, and general economic conditions could all affect our ability to produce and market our oil and gas.

We own non-operating interests in properties developed and operated by third parties and, as a result, we are unable to control the operation and profitability of such properties. 

We participate in the drilling and completion of wells withoperated by third- party operatories that exercise exclusive control over such operations. As a participant, we rely on third-party operators to successfully operate these properties purs pursuant to joint operating agreements and other similar contractual arrangements. As a ccordingly, we rely on third-participant in thesey operators to conduct operations, we and may not be able to maximize the value associated with thof these properties in the manner we believe appropriate, or at all. For example, we cannot control the success of drilling and development activities on properties operated by third-parties, which depend on a number of factors under the

We have limited or no control of a third-partver key operator, including such operators determinational decisions with respect to, amo, including other things, the timing and nature and timing of drilling and operationaldevelopment activities, the timing and amount of capital expenditures, and theechnology selection of. The suitable technology. In addition,ccess and timing of operations are also dependent on the third-party operators operationtechnical expertise and, financial resources, and its ability to gobtain the approval ofs from other participants in drilling wells will impact the timing and potential success of drilling and development activities in a manner that we are unable to control. s.

A third-party operators failure to adequately perform operationsadequately, breach of the applicable agreements, or failuractions adverse to actour in ways that are favorable to uterests could reduce our production and revenues, negativeadversely impaaffect our liquidity and cause us to spend, increase capital in excess of ourrequirements beyond current plans, and have a material adverse effect on our business, financial condition, and results of operations.

Acquiring reserves in the oil and gas industry is highly competitive. 

Competition for oil and gas reserve acquisitions is significant. We may compete with major oil and gas companies, other independent oil and gas companies, and individual producers and operators, some of which have substantially greater financial and personnel resources substantially in excess of those available to usthan we do. As a result, we may be placed aat a competitive disadvantage in acquiring reserves and development opportunities. Our ability to acquire and develop additional properties in the future will depend upon our ability to selectidentify, evaluate, and acquire suitable producing properties and prospects for future  development activitieprospects.

We may not be insured against all of the operating hazards to which our business is exposed.

Our operations are subject to all the  risks inherent in the exploration for, and, development, and production of oil and gas, including blowouts, fires, and other casualties. WAlthough we maintain insurance coverage customary for similar operations of a similar nature, but , losses could arisemay result from uninsured risks or in amounts infrom claims that excess of existinged our insurance coverage limits.

Changes in effective tax rates or laws could adversely impact our results of operations. 

Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including: changes in the valuation of our deferred tax assets and liabilities;, the tax effects of stock-based compensation;, or changes in tax laws, regulations, or interpretations thereof.

Fo

In par example, in previous years, ticular, U.S. federal tax policy remains subject to significant legislative activity and uncertainty, including comprehensive tax legislation h proposals such as been proposed to ethe One Big Beautiful Bill and other similar measures that may modify corporate tax rates, liminatet deductions, or defer certain key U.S. federal income totherwise change the taxation of energy companies. In addition, prior and future legislative proposals have considered changes to tax deductiprovisions historically available toutilized by crude oil and natural gas exploration and production companies. Such proposed changes have, included: a repeal of theding percentage depletion allowance for crude oil and natural gas properties; the elimination of deductions for ints, intangible drilling and exploration and ddevelopment costs; the elimina deduction of thes, deduction for certains related to production activities;, and an extension of the amortization periods for certain geological and geophysical expenditures. 

The passageenactment of any such legislation as a result of these proposals or other similaror regulatory changes in U.S. federal income tax laws t that alter, eliminate, or defer these or other tax deductions utilized within or otherwise increase the tax burden on the industry could adversely affect our business, financial condition, results of operations, and cash flows.

Our reliance on information technology, including thoseinformation technologies hosted by third parties, exposes us to cyber security risks that could affect our business, financial condition, or reputation.

Our reliance on information technology, including systems hosted or managed by third parties, exposes us to cybersecurity risks that could adversely affect our business, financial condition, or results of operations. The oil and natural gas industry has become is increasingly dependent on digital technologies to conduct certain exploration, development, production, and processing activities, including digital technologies toseismic data interpret seismic data, manageation, drilling rigoperations, production equipment and gathering systems, conduct management, reservoir modeling and reserves estimation, and the processing and record ing of financial and operatingonal data. At the same time, cyber incidents, including deliberate attacks orand unintentional events, have increased in frequency and sophistication. The U.S. government has issued public warnings that indicate ing that energy assets mightay be specific targets ofed by cyber security threats. 

Our and our operators technologies, ssystems, networks, andas well as those of our operators, vendors, suppliers, and other business partners, may become the target of subject to cyberattacks or, information security breaches th, or other cybersecurity incidents that could result in the unauthorized release, gathering, monitoringaccess to, misuse, loss, or destruction of proprietary and other information, or other disruption of business activities. In addition, certain cyber incidents, such as surveillance or other advanced persistent threats, may remain undetected for an extended periods. Our systems forexisting protecting against cyber security riskve measures may not be sufficient. As cyber  to prevent or detect such incidents continue to evolve, , and we may be requireneed to expend additional resources to continue to modify or eenhance our protectivecybersecurity measures or to, investigate andincidents, or remediate any vulnerability to cyber incidents.

ies as threats continue to evolve.

The loss of our cChief eExecutive oOfficer or pPresident could adversely impact our ability to execute our business strategy. 

We depend, and will continue to depend in the foreseeable future, upon the continued services of our Chief Executive Officer, Nicholas C. Taylor, and our President and Chief Financial Officer, Tamala L. McComic, who have extensive experience and expertise in evaluating and analyzing producing oil and gas properties and drilling prospects, maximizing production from oil and gas properties, and developing and executing acquisitions and financing. As of March 31, 20256, we do not have key-man insurance onfor the lives of Mr. Taylor and Ms. McComic. The unexpected loss of the services of one or more of these individuals could, therefore,  significantly and adversely affect our operations.

We may be affected by one substantial shareholder.

Nicholas C. Taylor beneficially owns approximately 46% of the outstanding shares of our our common stock. Mr. Taylor i and serves alsos our Chairman of the Board and Chief Executive Officer. As a result, Mr. Taylor has, giving him significant influence in matters voted on by our shareholders, including the election of our Board members. Mr. Taylor participates in all facets of our business and has a significant impact on both our business strategy and daily operations. The retirement, incapacity, or death of Mr. Taylor, or any change in the power to vote shares beneficially owned by Mr. Taylor, could result in negative market or industry perception and could have an aadverse ely affect on our business.

RISKS RELATED TO OUR COMMON STOCK

We may issue additional shares of common stock in the future, which could cause dilution to all shareholders.

We may seek to raise additional equity capital in the future. Any issuance of additional shares of our common stock will dilute the percentage ownership interest of all shareholders and may dilute the book value per share of our common stock.

Control by our executive officers and directors may limit your ability to influence the outcome of matters requiring stockholder approval and could discourage our potential acquisition by third parties. 

As of March 31, 20256, our executive officers and directors beneficially owned approximately 49% of our common stock. These stockholders, if acting together, would be able to influence significantly influence all matters requiring approval by our stockholders, including the election of our board of directors and the approval of mergers or other business combination transactions.

The price of our common stock has been volatile and could continue to fluctuate substantially.

Mexco common stock is traded on the New York Stock Exchanges NYSE American. The maOur common stock has a relatively low trading volume, and the market price of our common stock has experienced, and could continue to experience, volatility due to reasonfactors unrelated to our operating performance. These reasons include: supply and demand for oil and natural gas; political conditions in oil and natural gas producing regions; demand for our common stock and limited trading volume; investor perception of our industry; fluctuations in commodity prices; variations in our results of operations; legislative or regulatory changes; general trends in the oil and natural gas industry; market conditions and analysts estimates; and, other events in the oil and gas industry.

Many of these factors are beyond our control, and we cannot predict their potential effects on the price of our common stock. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future. In addition, the stock markets in general can experience considerable price and volume fluctuations.