{"url_path":"/sec/mxc/10-k/2026/item-1a","section_key":"item-1a","section_title":"Item 1A ****RISK FACTORS**","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-06-29","source_url":"https://www.sec.gov/Archives/edgar/data/66418/0001493152-26-030386-index.html","accession_number":"0001493152-26-030386","cik":"0000066418","ticker":"MXC","issuer_name":"MEXCO ENERGY CORP","edgar_url":"https://www.sec.gov/Archives/edgar/data/66418/0001493152-26-030386-index.html","primary_entity_key":"0000066418","primary_entity_name":"MEXCO ENERGY CORP"},"word_count":3277,"has_tables":true,"body_markdown":"**ITEM 1A.****RISK FACTORS**\n\n \n\nThe\nCompany is subject to various risks and uncertainties in the ordinary course of business. The following summarizes significant risks\nand uncertainties that may adversely affect our business, financial condition or results of operations. We could also face additional\nrisks and uncertainties that are not currently known to us or that we deem immaterial. If any of these risks actually occur, it could\nmaterially harm our business, financial condition, or results of operations, and the trading price of our shares could decline. Investors\nshould carefully consider each of the following risk factors and all of the other information set forth in this Annual Report on Form\n10-K.\n\n \n\n**RISKS\nRELATED TO OUR BUSINESS AND INDUSTRY**\n\n** **\n\n*Volatility\nof oil and gas prices significantly affects our results and profitability.*\n\n* *\n\nPrices\nfor oil and natural gas fluctuate widely and are influenced by numerous factors beyond our control, including global supply and demand,\nactions of OPEC and other producing nations, government regulation and taxation (including environmental regulation), levels of exploration\nand production activity, transportation and storage capacity constraints, availability of alternative fuels, technological developments\naffecting energy consumption, speculative trading in commodity derivatives, weather conditions, geopolitical developments, pandemics,\nand overall global economic conditions.\n\n \n\nThese\nprice fluctuations impact our cash flows, capital expenditure flexibility, and access to capital. Reductions in prices may decrease the\nborrowing base under our credit facility, trigger ceiling test write-downs, and reduce the amount of oil and natural gas that can be\nproduced economically. As a result, reserve estimates may change significantly due to price movements rather than operational performance.\n\n \n\nChanges\nin commodity prices also affect estimated future net revenues and proved reserve quantities, which in turn can reduce our borrowing capacity\nand limit access to additional capital for exploration and development activities.\n\n \n\nOil\nand natural gas prices do not necessarily move in tandem, and periods of low prices or limited storage or transportation capacity may\nadversely affect our financial condition by reducing revenues, operating income, and cash flows, causing production curtailments or shut-ins,\nrendering certain properties uneconomic, and limiting our liquidity and ability to fund capital expenditures.\n\n \n\n*Our\nresults of operations may be negatively impacted by current global political and economic events, including evolving trade policies,\ntariffs, and broader geopolitical instability.*\n\n* *\n\nOur\nbusiness is subject to risks and uncertainties arising from volatility in political, legal, and regulatory environments, including changes\nin U.S. presidential administrations, shifting energy and trade policies, and increased geopolitical tensions. Ongoing armed conflicts,\nincluding the war between Russia and Ukraine and instability in the Middle East, as well as other regional conflicts or civil unrest\nin crude oil and natural gas producing areas, may contribute to commodity price volatility and supply disruptions.\n\n \n\nEscalating\ntrade tensions and a more fragmented global trade environment, including between the United States and key trading partners such as China,\nMexico, and Canada, have resulted in, and may continue to result in, tariffs, sanctions, export controls, or other trade restrictions.\nThese measures, as well as efforts to reshore or diversify critical supply chains, may increase costs and limit the availability of equipment,\nmaterials, and services required for our operators’ drilling and development activities.\n\n \n\nAt\nthe same time, energy security policies and regulatory initiatives in the United States and abroad may seek to increase domestic oil\nand natural gas production, which could alter supply-demand dynamics and exert downward pressure on commodity prices. These factors,\nindividually or collectively, could adversely affect our results of operations, financial condition, and cash flows.\n\n \n\n10\n\n \n\n \n\n*Changes\nin environmental laws, could increase our operators’ costs and adversely impact our business, financial condition, and cash flows.*\n\n* *\n\nIn\nrecent years, U.S. federal and state governments have considered or implemented legislation and regulatory initiatives aimed at GHG emissions,\nincluding methane and carbon dioxide. Such measures, including potential emissions fees, reporting requirements, or performance standards,\ncould increase operating costs and compliance burdens within the oil and natural gas industry.\n\n \n\nIn\naddition, produced water and other fluids associated with oil and natural gas production are commonly disposed of through underground\ninjection wells. Regulators have increasingly focused on the potential link between fluid injection and induced seismicity. As a result,\nstate regulatory agencies, including the Texas Railroad Commission, have imposed restrictions or additional permitting requirements on\nsaltwater disposal wells in certain areas, including portions of the Permian Basin. Further regulation of fluid disposal or seismicity\nconcerns could increase operating costs, limit disposal capacity, and adversely impact the economic viability of drilling and production\nactivities.\n\n \n\n*Lower\noil and gas prices and other factors may cause us to record ceiling test write-downs.*\n\n* *\n\nWe\naccount for our oil and natural gas operations using the full cost method, under which acquisition, exploration, and development costs—including\ncosts of abandoned properties, dry holes, geophysical costs, and lease rentals—are capitalized. Sales or dispositions of oil and\nnatural gas properties are recorded as adjustments to capitalized costs, with no gain or loss recognized. Depletion is calculated using\nthe units-of-production method based on total proved reserves.\n\n \n\nUnder\nfull cost accounting rules, the net capitalized cost of oil and natural gas properties is subject to a “ceiling limitation”\nbased on the present value of estimated future net cash flows from proved reserves, discounted at 10%, plus the lower of cost or fair\nmarket value of unproved properties. The ceiling calculation uses the unweighted arithmetic average first-day-of-the-month prices for\noil and natural gas over the preceding 12-month period and is performed quarterly. If capitalized costs exceed the ceiling, the excess\nmust be charged to earnings as a noncash “ceiling test write-down.” While such write-downs do not affect cash flows from\noperations, they reduce net income and stockholders’ equity.\n\n \n\nThe\nrisk of ceiling test write-downs increases during periods of low commodity prices. There were no ceiling test impairments recorded during\nfiscal 2026 or 2025.\n\n \n\n*We\nmust replace reserves we produce.*\n\n* *\n\nOur\nfuture success depends on our ability to find, develop, or acquire additional economically recoverable oil and gas reserves. Proved reserves\nwill generally decline as reserves are depleted, except to the extent that they are replaced through successful exploration, development,\nor acquisition activities. The availability of high-quality domestic oil and natural gas opportunities is limited, and competition for\nsuch assets is intense; as a result, there can be no assurance that we will be able to identify, complete, or integrate acquisitions\non acceptable terms, if at all. If we are unable to replace reserves on an economic basis, our production, revenues, and long-term business\nprospects could be adversely affected.\n\n \n\n*Approximately\n19% and 28% of our total estimated net proved reserves at March 31, 2026 and 2025, respectively, were undeveloped, and those reserves\nmay not ultimately be developed.*\n\n* *\n\nRecovery\nof undeveloped reserves requires significant capital expenditures and successful drilling operations. Our reserve estimates assume\nthat these expenditures will be made and that development activities will be successful; however, these assumptions may not prove\ncorrect. Delays in the development, increased development costs, lower commodity prices, capital constraints, or unsuccessful\ndrilling results could reduce future net revenues, decrease estimated proved undeveloped reserves, or render certain projects\nuneconomic. If third-party operators or we do not invest the capital required to develop these reserves, or if development efforts\nare unsuccessful, we may be required to write off such reserves. Any resulting write-offs could reduce our borrowing capacity and\nadversely affect the value of our common stock.\n\n \n\n11\n\n \n\n \n\n*Information\nconcerning our reserves and future net revenue estimates is inherently uncertain.*\n\n* *\n\nReserve\nestimates are based on engineering and geological data and require significant judgment in interpreting such data and projecting future\nproduction rates, development timing, and associated expenditures. Reserve engineering is an inherently subjective process that involves\nestimates of subsurface oil and gas accumulations that cannot be measured precisely.\n\n \n\nEstimates\nof economically recoverable reserves and future net cash flows depend on a number of assumptions, including future production levels,\ncommodity prices, operating costs, development costs, and remedial expenditures, all of which may differ materially from actual results.\nAs a result, reserve estimates and related cash flow projections may vary significantly over time.\n\n \n\nAs\nrequired by the SEC, estimated future net cash flows from proved reserves are calculated using a 12-month unweighted arithmetic average\nof first-day-of-the-month oil and gas prices for the period preceding the reporting date. Actual future prices and costs may differ materially\nfrom those used in such estimates, which could result in significant revisions to reported reserves and associated valuations.\n\n \n\n*A negative differential between NYMEX and the reference or regional index price used to price our oil and gas would reduce our cash\nflow from operations.*\n\n* *\n\nOur\noil 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\nas a differential. Differentials may be affected by a variety of factors, including refinery and pipeline capacity, pipeline specifications,\nmidstream and downstream disruptions, trade restrictions, governmental regulations, and regional demand conditions. In addition, insufficient\npipeline capacity, lack of demand, or other regional factors may cause differentials to widen in certain producing areas. During fiscal\n2026, our average differentials were $2.97 per Bbl of oil and ($1.48) per Mcf of gas. Changes in these differentials could materially\naffect our revenues and cash flow from operations, with favorable differentials increasing realized prices and unfavorable differentials\ndecreasing them.\n\n \n\n*Drilling\nand operating activities are high-risk activities that subject us to a variety of factors that we cannot control.*\n\n* *\n\nThese\nfactors include availability of workover and drilling rigs, well blowouts, cratering, explosions, fires, formations with abnormal pressures,\npollution, releases of toxic gases, and other environmental hazards and risks. Any of these operating hazards could result in substantial\nlosses to us. In addition, we incur the risk that no commercially productive reservoirs will be encountered, and there is no assurance\nthat we will recover all or any portion of our investment in wells that are drilled or re-entered.\n\n \n\n*We\nmay not be able to fund the capital expenditures that will be required for us to increase reserves and production.*\n\n* *\n\nWe\nmust make capital expenditures to develop our existing reserves and acquire new reserves. Historically, we have funded capital expenditures\nthrough cash flow from operations and borrowings under our credit facility; however, lower oil and natural gas prices or production levels\nmay limit these funding sources. Volatility in commodity prices, the timing of drilling programs, and drilling results directly affect\ncash flow from operations. Lower prices or production levels would reduce revenues and cash flows, thereby limiting the financial resources\navailable to fund capital expenditures and pursue drilling opportunities.\n\n \n\nAvailability\nunder our credit facility is determined periodically by our lenders and is based in part on estimates of our oil and natural gas\nreserves. Reductions in reserve estimates (whether due to lower commodity prices, production declines, drilling results, changes in\nreserve engineering assumptions, or lender determination practices) could reduce the borrowing base and, in turn, the amount\navailable under the facility. Any such reduction could limit our liquidity and ability to fund exploration and development\nactivities.\n\n \n\nIf\ncash flow from operations or borrowing availability declines for any reason, our ability to undertake capital programs and replace production\ncould be adversely affected.\n\n \n\n12\n\n \n\n \n\n*Our\nbusiness depends on oil and natural gas transportation facilities that are owned by others.*\n\n* *\n\nThe\nmarketability of our production depends in part on the availability, proximity, and capacity of natural gas gathering systems,\npipelines, and processing facilities. Federal and state regulation of oil and gas production and transportation, tax policies, and energy\npolicies, changes in supply and demand, and general economic conditions could all affect our ability to produce and market our oil\nand gas.\n\n \n\n*We\nown non-operating interests in properties developed and operated by third parties and, as a result, we are unable to control the operation\nand profitability of such properties.*\n\n* *\n\nWe\nparticipate in the drilling and completion of wells operated by third parties that exercise exclusive control over such operations pursuant\nto joint operating agreements and other contractual arrangements. Accordingly, we rely on third-party operators to conduct operations\nand may not be able to maximize the value of these properties in the manner we believe appropriate, or at all.\n\n \n\nWe\nhave limited or no control over key operational decisions, including the timing and nature of drilling and development activities, capital\nexpenditures, and technology selection. The success and timing of operations are also dependent on the operator’s technical expertise,\nfinancial resources, and ability to obtain approvals from other participants.\n\n \n\nA\nthird-party operator’s failure to perform adequately, breach of applicable agreements, or actions adverse to our interests could\nreduce production and revenues, adversely affect liquidity, increase capital requirements beyond current plans, and have a material adverse\neffect on our business, financial condition, and results of operations.\n\n \n\n*Acquiring\nreserves in the oil and gas industry is highly competitive.*\n\n* *\n\nCompetition\nfor oil and gas reserve acquisitions is significant. We may compete with major oil and gas companies, other independent oil and gas companies,\nand individual producers and operators, some of which have substantially greater financial and personnel resources than we do. As a result,\nwe may be at a competitive disadvantage in acquiring reserves and development opportunities. Our ability to acquire and develop additional\nproperties will depend on our ability to identify, evaluate, and acquire suitable producing properties and development prospects.\n\n \n\n*We\nmay not be insured against all of the operating hazards to which our business is exposed.*\n\n* *\n\nOur\noperations are subject to risks inherent in the exploration, development, and production of oil and gas, including blowouts, fires, and\nother casualties. Although we maintain insurance coverage customary for similar operations, losses may result from uninsured risks or\nfrom claims that exceed our insurance coverage limits.\n\n \n\n*Changes\nin effective tax rates or laws could adversely impact our results of operations.*\n\n* *\n\nOur\nfuture effective tax rates could be subject to volatility or adversely affected by a number of factors, including changes in the valuation\nof our deferred tax assets and liabilities, the tax effects of stock-based compensation, or changes in tax laws, regulations, or interpretations\nthereof.\n\n \n\n13\n\n \n\n \n\nIn\nparticular, U.S. federal tax policy remains subject to significant legislative activity and uncertainty, including comprehensive tax\nlegislation proposals such as the “One Big Beautiful Bill” and other similar measures that may modify corporate tax rates,\nlimit deductions, or otherwise change the taxation of energy companies. In addition, prior and future legislative proposals have considered\nchanges to tax provisions historically utilized by crude oil and natural gas exploration and production companies, including percentage\ndepletion allowances, intangible drilling and development cost deductions, deductions related to production activities, and amortization\nperiods for geological and geophysical expenditures.\n\n \n\nThe\nenactment of any such legislation or regulatory changes that alter, eliminate, or defer tax deductions or otherwise increase the tax\nburden on the industry could adversely affect our business, financial condition, results of operations, and cash flows.\n\n \n\n*Our\nreliance on information technology, including information technologies hosted by third parties, exposes us to cybersecurity risks that\ncould affect our business, financial condition, or reputation.*\n\n* *\n\nOur\nreliance on information technology, including systems hosted or managed by third parties, exposes us to cybersecurity risks that could\nadversely affect our business, financial condition, or results of operations. The oil and natural gas industry is increasingly dependent\non digital technologies to conduct exploration, development, production, and processing activities, including seismic data interpretation,\ndrilling operations, production equipment and gathering systems management, reservoir modeling and reserves estimation, and the processing\nand recording of financial and operational data. At the same time, cyber incidents, including deliberate attacks and unintentional events,\nhave increased in frequency and sophistication. The U.S. government has issued public warnings indicating that energy assets may be targeted\nby cybersecurity threats.\n\n \n\nOur\nsystems, as well as those of our operators, vendors, suppliers, and other business partners, may be subject to cyberattacks, information\nsecurity breaches, or other cybersecurity incidents that could result in unauthorized access to, misuse, loss, or destruction of proprietary\nand other information, or disruption of business activities. In addition, certain cyber incidents, such as surveillance or other advanced\npersistent threats, may remain undetected for extended periods. Our existing protective measures may not be sufficient to prevent or\ndetect such incidents, and we may need to expend additional resources to enhance our cybersecurity measures, investigate incidents, or\nremediate vulnerabilities as threats continue to evolve.\n\n \n\n*The\nloss of our Chief Executive Officer or President could adversely impact our ability to execute our business strategy.*\n\n* *\n\nWe\ndepend, and will continue to depend in the foreseeable future, upon the continued services of our Chief Executive Officer, Nicholas C.\nTaylor, and our President and Chief Financial Officer, Tamala L. McComic, who have extensive experience and expertise in evaluating and\nanalyzing producing oil and gas properties and drilling prospects, maximizing production from oil and gas properties, and developing\nand executing acquisitions and financing. As of March 31, 2026, we do not have key-man insurance for the lives of Mr. Taylor and Ms.\nMcComic. The unexpected loss of the services of one or more of these individuals could significantly and adversely affect\nour operations.\n\n \n\n*We\nmay be affected by one substantial shareholder.*\n\n* *\n\nNicholas\nC. Taylor beneficially owns approximately 46% of our common stock and serves as our Chairman of the Board and Chief Executive Officer,\ngiving him significant influence in matters voted on by our shareholders, including the election of our Board members. Mr. Taylor participates\nin all facets of our business and has a significant impact on both our business strategy and daily operations. The retirement, incapacity,\nor death of Mr. Taylor, or any change in the power to vote shares beneficially owned by Mr. Taylor, could result in negative market perception\nand adversely affect our business.\n\n \n\n14\n\n \n\n \n\n**RISKS\nRELATED TO OUR COMMON STOCK**\n\n** **\n\n*We\nmay issue additional shares of common stock in the future, which could cause dilution to all shareholders.*\n\n* *\n\nWe\nmay seek to raise additional equity capital in the future. Any issuance of additional shares of our common stock will dilute the percentage\nownership interest of all shareholders and may dilute the book value per share of our common stock.\n\n \n\n*Control\nby our executive officers and directors may limit your ability to influence the outcome of matters requiring stockholder approval and\ncould discourage our potential acquisition by third parties.*\n\n* *\n\nAs\nof March 31, 2026, our executive officers and directors beneficially owned approximately 49% of our common stock. These stockholders,\nif acting together, would be able to significantly influence all matters requiring approval by our stockholders, including the election\nof our board of directors and the approval of mergers or other business combination transactions.\n\n \n\n*The\nprice of our common stock has been volatile and could continue to fluctuate substantially.*\n\n* *\n\nMexco\ncommon stock is traded on the New York Stock Exchange’s NYSE American. Our common stock has a relatively low trading volume, and\nthe market price of our common stock has experienced, and could continue to experience, volatility due to factors unrelated to our operating\nperformance. These reasons include: supply and demand for oil and natural gas; political conditions in oil and natural gas producing\nregions; demand for our common stock and limited trading volume; investor perception of our industry; fluctuations in commodity prices;\nvariations in our results of operations; legislative or regulatory changes; general trends in the oil and natural gas industry; market\nconditions and analysts’ estimates; and other events in the oil and gas industry.\n\n \n\nMany\nof these factors are beyond our control, and we cannot predict their potential effects on the price of our common stock. We cannot assure\nyou that the market price of our common stock will not fluctuate or decline significantly in the future. In addition, the stock markets\nin general can experience considerable price and volume fluctuations."}