Risk Factors Dashboard

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 deem immaterial. We could also face additional risks and uncertainties not currently known to us or that we currently deem to be immaterial. If any of these risks actually occur, it could materially harm our business, financial condition, or results of operations, and the trading price of our shares could decline. 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 and are influenced by numerous factors beyond our control, including global supply and demand, actions of OPEC and other producing nations, government regulation and taxation (including environmental regulation), levels of exploration and production activity, transportation and storage capacity constraints, availability of alternative fuels, technological developments affecting energy consumption, speculative trading in commodity derivatives, weather conditions, geopolitical developments, pandemics, and overall global economic conditions.

These price fluctuations impact our cash flows, capital expenditure flexibility, and access to capital. Reductions in prices may decrease the borrowing base under our credit facility, trigger ceiling test write-downs, and reduce the amount of oil and natural gas that can be produced economically. As a result, reserve estimates may change significantly due to price movements rather than operational performance.

Changes in commodity prices also affect estimated future net revenues and proved reserve quantities, which in turn can reduce our borrowing capacity and limit access to additional capital for exploration and development activities.

Oil and natural gas prices do not necessarily move in tandem, and periods of low prices or limited storage or transportation capacity may adversely affect our financial condition by reducing revenues, operating income, and cash flows, causing production curtailments or shut-ins, rendering certain properties uneconomic, and limiting our liquidity and ability to fund capital expenditures.

Our results of operations may be negatively impacted by current global political and economic events, including evolving trade policies, tariffs, and broader geopolitical instability.

Our business is subject to risks and uncertainties arising from volatility in political, legal, and regulatory environments, including changes in U.S. presidential administrations, shifting energy and trade policies, and increased geopolitical tensions. Ongoing armed conflicts, including the war between Russia and Ukraine and instability in the Middle East, as well as other regional conflicts or civil unrest in crude oil and natural gas producing areas, may contribute to commodity price volatility and supply disruptions.

Escalating trade tensions and a more fragmented global trade environment, including between the United States and key trading partners such as China, Mexico, and Canada, have resulted in, and may continue to result in, tariffs, sanctions, export controls, or other trade restrictions. These measures, as well as efforts to reshore or diversify critical supply chains, may increase costs and limit the availability of equipment, materials, and services required for our operators’ drilling and development activities.

At the same time, energy security policies and regulatory initiatives in the United States and abroad may seek to increase domestic oil and natural gas production, which could 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, U.S. federal and state governments have considered or implemented legislation and regulatory initiatives aimed at GHG emissions, including methane and carbon dioxide. Such measures, including potential emissions fees, reporting requirements, or performance standards, could increase operating costs and compliance burdens within the oil and natural gas industry.

In addition, produced water and other fluids associated with oil and natural gas production are commonly disposed of through underground injection wells. Regulators have increasingly focused on the potential link between fluid injection and induced seismicity. As a result, state regulatory agencies, including the Texas Railroad Commission, have imposed restrictions or additional permitting requirements on saltwater disposal wells in certain areas, including portions of the Permian Basin. Further regulation of fluid disposal or seismicity concerns could increase operating costs, limit disposal capacity, and adversely impact the economic viability of drilling and production activities.

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

We account for our oil and natural gas operations using the full cost method, under which acquisition, exploration, and development costs—including costs of abandoned properties, dry holes, geophysical costs, and lease rentals—are capitalized. Sales or dispositions of oil and natural gas properties are recorded as adjustments to capitalized costs, with no gain or loss recognized. Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded. Depletion is calculated using the units-of-production method based on total proved reserves.

Under full cost accounting rules, the net capitalized cost of oil and natural gas properties is subject to a “ceiling limitation” based on 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. The ceiling calculation uses the unweighted arithmetic average first-day-of-the-month prices for oil and natural gas over the preceding 12-month period and is performed quarterly. If capitalized costs exceed the ceiling, the excess must be charged to earnings as a noncash “ceiling test write-down.” While such write-downs do not affect cash flows from operations, they reduce net income and stockholders’ equity.

The risk of ceiling test write-downs increases during periods of low commodity prices. There were no ceiling test impairments recorded during fiscal 2026 or 2025.

We must replace reserves we produce.

Our future success depends on our ability to find, develop, or acquire additional economically recoverable oil and gas reserves. Proved reserves will generally decline as reserves are depleted, except to the extent that they are replaced through successful exploration, development, or acquisition activities. The availability of high-quality domestic oil and natural gas opportunities is limited, and competition for such assets is intense; as a result, there can be no assurance that we will be able to identify, complete, or integrate acquisitions on acceptable terms, if at all. If we are unable to replace reserves on an economic basis, our production, revenues, and long-term business prospects could be adversely affected.

Approximately 19% and 28% of our total estimated net proved reserves at March 31, 2026 and 2025, 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 estimates assume that these expenditures will be made and that development activities will be successful; however, these assumptions may not prove correct. Delays in the development, increased development costs, lower commodity prices, capital constraints, or unsuccessful drilling results could reduce future net revenues, decrease estimated proved undeveloped reserves, or render certain projects uneconomic. Delays in the development of our reserves, increases in costs to develop such reserves, or decreases in commodity prices will reduce the future net revenues or our estimated proved undeveloped reserves and may result in some projects becoming uneconomical. If third-party operators or we do not invest the capital required to develop these reserves, or if development efforts are unsuccessful, we may be required to write off such reserves. Any resulting write-offs could reduce our borrowing capacity and adversely affect the value of our common stock.

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

Reserve estimates are based on engineering and geological data and require significant judgment in interpreting such data and projecting future production rates, development timing, and associated expenditures. Reserve engineering is an inherently subjective process that involves estimates of subsurface oil and gas accumulations that cannot be measured precisely.

Estimates of economically recoverable reserves and future net cash flows depend on a number of assumptions, including future production levels, commodity prices, operating costs, development costs, and remedial expenditures, all of which may differ materially from actual results. As a result, reserve estimates and related cash flow projections may vary significantly over time.

As required by the SEC, estimated future net cash flows from proved reserves are calculated using a 12-month unweighted arithmetic average of first-day-of-the-month oil and gas prices for the period preceding the reporting date. Actual future prices and costs may differ materially from 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 local markets based on regional supply and demand conditions. As a result, the prices we receive may differ from benchmark prices such as those of the New York Mercantile Exchange (“NYMEX”), with the difference referred to as a differential. Differentials may be affected by a variety of factors, including refinery and pipeline capacity, pipeline specifications, midstream and downstream disruptions, trade restrictions, governmental regulations, and regional demand conditions. In addition, insufficient pipeline capacity, lack of demand, or other regional factors may cause differentials to widen in certain producing areas. During fiscal 2026, our average differentials were $2.97 per Bbl of oil and ($1.48) per Mcf of gas. During fiscal 2025, differentials averaged $2.79 per Bbl of oil and ($0.30) per Mcf of gas. Changes in these differentials could materially affect our revenues and cash flow from operations, with favorable differentials increasing realized prices and 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 acquire new reserves. Historically, we have funded capital expenditures through cash flow from operations and borrowings under our credit facility; however, lower oil and natural gas prices or production levels may limit these funding sources. Historically, we have used our cash flow from operations and borrowings under our credit facility to fund our capital expenditures, however, lower oil and gas prices may prevent these options. Volatility in commodity prices, the timing of drilling programs, and drilling results directly affect cash flow from operations. Volatility in oil and gas prices, the timing of our drilling programs and drilling results will affect our cash flow from operations. Lower prices or production levels would reduce revenues and cash flows, thereby limiting the financial resources available to fund capital expenditures and pursue drilling opportunities.

Availability under our credit facility is determined periodically by our lenders and is based in part on estimates of our oil and natural gas reserves. Reductions in reserve estimates (whether due to lower commodity prices, production declines, drilling results, changes in reserve engineering assumptions, or lender determination practices) could reduce the borrowing base and, in turn, the amount available under the facility. Any such reduction could limit our liquidity and ability to fund exploration and development activities.

If cash flow from operations or borrowing availability declines for any reason, our ability to undertake capital programs and replace production could be adversely affected.

Our business depends on oil and natural gas transportation facilities that 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. Federal and state regulation of oil and gas production and transportation, tax 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 operated by third parties that exercise exclusive control over such operations pursuant to joint operating agreements and other contractual arrangements. Accordingly, we rely on third-party operators to conduct operations and may not be able to maximize the value of these properties in the manner we believe appropriate, or at all.

We have limited or no control over key operational decisions, including the timing and nature of drilling and development activities, capital expenditures, and technology selection. The success and timing of operations are also dependent on the operator’s technical expertise, financial resources, and ability to obtain approvals from other participants.

A third-party operator’s failure to perform adequately, breach of applicable agreements, or actions adverse to our interests could reduce production and revenues, adversely affect liquidity, increase capital requirements 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 than we do. We may compete with major oil and gas companies, other independent oil and gas companies and individual producers and operators, some of which have financial and personnel resources substantially in excess of those available to us. As a result, we may be at a competitive disadvantage in acquiring reserves and development opportunities. Our ability to acquire and develop additional properties will depend on our ability to identify, evaluate, and acquire suitable producing properties and development prospects. Our ability to acquire and develop additional properties in the future will depend upon our ability to select and acquire suitable producing properties and prospects for future development activities.

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

Our operations are subject to risks inherent in the exploration, development, and production of oil and gas, including blowouts, fires, and other casualties. Although we maintain insurance coverage customary for similar operations, losses may result from uninsured risks or from claims that exceed 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.

In particular, U.S. federal tax policy remains subject to significant legislative activity and uncertainty, including comprehensive tax legislation proposals such as the “One Big Beautiful Bill” and other similar measures that may modify corporate tax rates, limit deductions, or otherwise change the taxation of energy companies. In addition, prior and future legislative proposals have considered changes to tax provisions historically utilized by crude oil and natural gas exploration and production companies, including percentage depletion allowances, intangible drilling and development cost deductions, deductions related to production activities, and amortization periods for geological and geophysical expenditures.

The enactment of any such legislation or regulatory changes that alter, eliminate, or defer tax deductions 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 information technologies hosted by third parties, exposes us to cybersecurity 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 is increasingly dependent on digital technologies to conduct exploration, development, production, and processing activities, including seismic data interpretation, drilling operations, production equipment and gathering systems management, reservoir modeling and reserves estimation, and the processing and recording of financial and operational data. The oil and natural gas industry has become increasingly dependent on digital technologies to conduct certain exploration, development, production, and processing activities, including digital technologies to interpret seismic data, manage drilling rigs, production equipment and gathering systems, conduct reservoir modeling and reserves estimation, and process and record financial and operating data. At the same time, cyber incidents, including deliberate attacks and unintentional events, have increased in frequency and sophistication. At the same time, cyber incidents, including deliberate attacks or unintentional events, have increased. The U.S. government has issued public warnings indicating that energy assets may be targeted by cybersecurity threats.

Our systems, as well as those of our operators, vendors, suppliers, and other business partners, may be subject to cyberattacks, information security breaches, or other cybersecurity incidents that could result in unauthorized access to, misuse, loss, or destruction of proprietary and other information, or disruption of business activities. In addition, certain cyber incidents, such as surveillance or other advanced persistent threats, may remain undetected for extended periods. In addition, certain cyber incidents, such as surveillance, may remain undetected for an extended period. Our existing protective measures may not be sufficient to prevent or detect such incidents, and we may need to expend additional resources to enhance our cybersecurity measures, investigate incidents, or remediate vulnerabilities as threats continue to evolve.

The loss of our Chief Executive Officer or President 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, 2026, we do not have key-man insurance for the lives of Mr. Taylor and Ms. McComic. The unexpected loss of the services of one or more of these individuals could significantly and adversely affect our operations. 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 our common stock and serves as our Chairman of the Board and Chief Executive Officer, 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 perception and adversely affect our business. Taylor, could result in negative market or industry perception and could have an adverse effect 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, 2026, our executive officers and directors beneficially owned approximately 49% of our common stock. These stockholders, if acting together, would be able to 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 Exchange’s NYSE American. Our 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 factors 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.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 1C.

CYBERSECURITY

Mexco maintains a risk-based cybersecurity program designed to protect the confidentiality, integrity, and availability of information systems and data used in our operations. The program includes technical, administrative, and organizational safeguards intended to identify, assess, and mitigate cybersecurity risks.

Governance. The Board of Directors, through the Audit Committee, oversees cybersecurity risk. Management is responsible for implementing and maintaining cybersecurity controls and for day-to-day risk management activities. The Board and Audit Committee receive periodic updates on cybersecurity risks and are notified of material cybersecurity incidents in accordance with our incident response processes.