Barnwell Industries Inc 10-Q for FY2023 Q3
Barnwell Industries Inc (BRN)
10-Q
2023-08-14
For: 2023-06-30
View Original
Added on
April 09, 2026
About this 10-Q
Barnwell Industries Inc filed this 10-Q on August 14, 2023, covering the quarter ended June 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $5.68M
- down 29.3% from $8.03M a year earlier
- Net loss
- $717K
- compared with net income of $2.53M a year earlier
- Diluted EPS
- -$0.07
- compared with $0.25 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended June 30, 2023
or
Commission File Number 1-5103
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip code) | |||||||
( | ||||||||
| (Registrant’s telephone number, including area code) | ||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| | ||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||||||||||||
| ☒ | Smaller reporting company | ||||||||||||||||
| Emerging growth company | |||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of August 4, 2023 there were 9,990,778 shares of common stock, par value $0.50, outstanding.
BARNWELL INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| June 30, 2023 | September 30, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts and other receivables, net of allowance for doubtful accounts of: $ | |||||||||||
| Income taxes receivable | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Asset for retirement benefits | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Property and equipment: | |||||||||||
| Oil and natural gas properties, full cost method of accounting: | |||||||||||
| Proved properties | |||||||||||
| Drilling rigs and other property and equipment | |||||||||||
| Total property and equipment | |||||||||||
| Accumulated depletion, impairment, depreciation, and amortization | ( | ( | |||||||||
| Total property and equipment, net | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued capital expenditures | |||||||||||
| Accrued compensation | |||||||||||
| Accrued operating and other expenses | |||||||||||
| Current portion of asset retirement obligation | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Operating lease liabilities | |||||||||||
| Liability for retirement benefits | |||||||||||
| Asset retirement obligation | |||||||||||
| Deferred income tax liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Equity: | |||||||||||
Common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive income, net | |||||||||||
Treasury stock, at cost: | ( | ( | |||||||||
Total stockholders’ equity | |||||||||||
| Non-controlling interests | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
See Notes to Condensed Consolidated Financial Statements
3
BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended June 30, | Nine months ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Oil and natural gas | $ | $ | $ | $ | |||||||||||||||||||
| Contract drilling | |||||||||||||||||||||||
| Sale of interest in leasehold land | |||||||||||||||||||||||
| Gas processing and other | |||||||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Oil and natural gas operating | |||||||||||||||||||||||
| Contract drilling operating | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Depletion, depreciation, and amortization | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Foreign currency gain | ( | ( | |||||||||||||||||||||
| Gain on sale of assets | ( | ||||||||||||||||||||||
| (Loss) earnings before equity in income of affiliates and income taxes | ( | ( | |||||||||||||||||||||
| Equity in income of affiliates | |||||||||||||||||||||||
| (Loss) earnings before income taxes | ( | ( | |||||||||||||||||||||
| Income tax (benefit) provision | ( | ( | |||||||||||||||||||||
| Net (loss) earnings | ( | ( | |||||||||||||||||||||
| Less: Net earnings attributable to non-controlling interests | |||||||||||||||||||||||
| Net (loss) earnings attributable to Barnwell Industries, Inc. | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Basic and diluted net (loss) earnings per common share attributable to Barnwell Industries, Inc. stockholders | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Weighted-average number of common shares outstanding: | |||||||||||||||||||||||
| Basic and diluted | |||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
4
BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
| Three months ended June 30, | Nine months ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net (loss) earnings | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||||||||
Foreign currency translation adjustments, net of taxes of $ | ( | ( | |||||||||||||||||||||
| Retirement plans: | |||||||||||||||||||||||
Amortization of accumulated other comprehensive gain into net periodic benefit cost, net of taxes of $ | ( | ( | |||||||||||||||||||||
| Total other comprehensive loss | ( | ( | ( | ( | |||||||||||||||||||
| Total comprehensive (loss) income | ( | ( | |||||||||||||||||||||
| Less: Comprehensive income attributable to non-controlling interests | ( | ( | ( | ( | |||||||||||||||||||
| Comprehensive (loss) income attributable to Barnwell Industries, Inc. | $ | ( | $ | $ | ( | $ | |||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
5
BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Three months ended June 30, 2023 and 2022
(Unaudited)
| Shares Outstanding | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Treasury Stock | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments, net of taxes of $ | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Net (loss) earnings | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments, net of taxes of $ | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Dividends declared, $ | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Retirement plans: | |||||||||||||||||||||||||||||||||||||||||||||||
Amortization of accumulated other comprehensive gain into net periodic benefit cost, net of taxes of $ | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
6
BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Nine months ended June 30, 2023 and 2022
(Unaudited)
| Shares Outstanding | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Treasury Stock | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments, net of taxes of $ | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net of costs | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Net (loss) earnings | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments, net of taxes of $ | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Dividends declared, $ | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Retirement plans: | |||||||||||||||||||||||||||||||||||||||||||||||
Amortization of accumulated other comprehensive gain into net periodic benefit cost, net of taxes of $ | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
7
BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine months ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net (loss) earnings | $ | ( | $ | ||||||||
| Adjustments to reconcile net (loss) earnings to net cash | |||||||||||
| provided by operating activities: | |||||||||||
| Equity in income of affiliates | ( | ( | |||||||||
| Depletion, depreciation, and amortization | |||||||||||
| Gain on sale of assets | ( | ||||||||||
| Sale of interest in leasehold land, net of fees paid | ( | ( | |||||||||
| Distributions of income from equity investees | |||||||||||
| Retirement benefits income | ( | ( | |||||||||
| Non-cash rent income | ( | ( | |||||||||
| Accretion of asset retirement obligation | |||||||||||
| Deferred income tax benefit | ( | ( | |||||||||
| Asset retirement obligation payments | ( | ( | |||||||||
| Share-based compensation expense | |||||||||||
| Common stock issued for services | |||||||||||
| Retirement plan contributions and payments | ( | ( | |||||||||
| Bad debt expense (recovery) | ( | ||||||||||
| Foreign currency gain | ( | ||||||||||
| Decrease from changes in current assets and liabilities | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Distribution from equity investees in excess of earnings | |||||||||||
| Proceeds from sale of interest in leasehold land, net of fees paid | |||||||||||
| Proceeds from the sale of contract drilling assets | |||||||||||
| Payments to acquire oil and natural gas properties | ( | ||||||||||
| Capital expenditures - oil and natural gas | ( | ( | |||||||||
| Capital expenditures - all other | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Distributions to non-controlling interests | ( | ( | |||||||||
| Payment of dividends | ( | ||||||||||
| Proceeds from issuance of stock, net of costs | |||||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ||||||||||
| Net (decrease) increase in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
See Notes to Condensed Consolidated Financial Statements
8
BARNWELL INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Barnwell Industries, Inc. and all majority-owned subsidiaries (collectively referred to herein as “Barnwell,” “we,” “our,” “us,” or the “Company”), including a 77.6 %-owned land investment general partnership (Kaupulehu Developments), a 75 %-owned land investment partnership (KD Kona 2013 LLLP), and a variable interest entity (Teton Barnwell Fund I, LLC) for which the Company is deemed to be the primary beneficiary. All significant intercompany accounts and transactions have been eliminated.
Undivided interests in oil and natural gas exploration and production joint ventures are consolidated on a proportionate basis. Barnwell’s investments in both unconsolidated entities in which a significant, but less than controlling, interest is held and in variable interest entities in which the Company is not deemed to be the primary beneficiary are accounted for by the equity method.
Unless otherwise indicated, all references to “dollars” in this Form 10-Q are to U.S. dollars.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements and notes have been prepared by Barnwell in accordance with the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. These condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in Barnwell’s September 30, 2022 Annual Report on Form 10-K, as amended by our Form 10-K/A Amendment No. 1 (our “2022 Annual Report”). The Condensed Consolidated Balance Sheet as of September 30, 2022 has been derived from audited consolidated financial statements.
In the opinion of management, all adjustments (which include only normal recurring adjustments, with the exception of an out-of-period adjustment for the nine months ended June 30, 2023 as described below) necessary to present fairly the financial position at June 30, 2023, results of operations, comprehensive (loss) income, and equity for the three and nine months ended June 30, 2023 and 2022, and cash flows for the nine months ended June 30, 2023 and 2022, have been made. The results of operations for the period ended June 30, 2023 are not necessarily indicative of the operating results for the full year.
Out-of-Period Adjustment
During the three months ended December 31, 2022, errors were identified related to estimates of accrued oil and natural gas sales and accrued professional fees for the year ended September 30, 2022. Accordingly, the Company recorded out-of-period adjustments in the three months ended December 31,
9
Use of Estimates in the Preparation of Condensed Consolidated Financial Statements
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management of Barnwell to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ significantly from those estimates. Significant assumptions are required in the valuation of deferred tax assets, asset retirement obligations, share-based payment arrangements, obligations for retirement plans, contract drilling estimated costs to complete, proved oil and natural gas reserves, and the carrying value of other assets, and such assumptions may impact the amount at which such items are recorded.
Significant Accounting Policies
Other than as set forth below, there have been no changes to Barnwell's significant accounting policies as described in the Notes to Consolidated Financial Statements included in Item 8 of the Company's 2022 Annual Report.
Share-based Compensation
Share-based compensation cost for Barnwell’s equity-classified stock options and restricted stock units is measured at fair value and is recognized as an expense over the requisite service period. For stock options, Barnwell utilizes a closed-form valuation model to determine the fair value of each option award. Expected volatilities are based on the historical volatility of Barnwell’s stock over a period consistent with that of the expected terms of the options. The expected terms of the options represent expectations of future employee exercise and are estimated based on factors such as vesting periods, contractual expiration dates, historical trends in Barnwell’s stock price, and historical exercise behavior. If the Company does not have sufficient historical data regarding employee exercise behavior, the “simplified method” as permitted by the SEC’s Staff Accounting Bulletin No. 110, Share-Based Payment is utilized to estimate the expected terms of the options. The risk-free rates for periods within the contractual life of the
10
2. (LOSS) EARNINGS PER COMMON SHARE
Basic (loss) earnings per share is computed using the weighted-average number of common shares outstanding for the period. Diluted (loss) earnings per share is calculated using the treasury stock method to reflect the assumed issuance of common shares for all potentially dilutive securities, which consist of outstanding stock options and nonvested restricted stock units. Potentially dilutive shares are excluded from the computation of diluted (loss) earnings per share if their effect is anti-dilutive.
For the three months ended June 30, 2023, options to purchase 493,022 shares of common stock and 37,312 restricted stock units were excluded from the computation of diluted shares as their inclusion would have been anti-dilutive. For the nine months ended June 30, 2023, options to purchase 574,341 shares of common stock and 12,301 restricted stock units were excluded from the computation of diluted shares as their inclusion would have been anti-dilutive. For the three and nine months ended June 30, 2022, options to purchase 615,000
Reconciliations between net (loss) earnings attributable to Barnwell stockholders and common shares outstanding of the basic and diluted net (loss) earnings per share computations are detailed in the following tables:
| Three months ended June 30, 2023 | |||||||||||||||||
| Net Loss (Numerator) | Shares (Denominator) | Per-Share Amount | |||||||||||||||
| Basic net loss per share | $ | ( | $ | ( | |||||||||||||
| Effect of dilutive securities - | |||||||||||||||||
| common stock options and restricted stock units | |||||||||||||||||
| Diluted net loss per share | $ | ( | $ | ( | |||||||||||||
| Nine months ended June 30, 2023 | |||||||||||||||||
| Net Loss (Numerator) | Shares (Denominator) | Per-Share Amount | |||||||||||||||
| Basic net loss per share | $ | ( | $ | ( | |||||||||||||
| Effect of dilutive securities - | |||||||||||||||||
| common stock options and restricted stock units | |||||||||||||||||
| Diluted net loss per share | $ | ( | $ | ( | |||||||||||||
11
| Three months ended June 30, 2022 | |||||||||||||||||
| Net Earnings (Numerator) | Shares (Denominator) | Per-Share Amount | |||||||||||||||
| Basic net earnings per share | $ | $ | |||||||||||||||
| Effect of dilutive securities - | |||||||||||||||||
| common stock options | |||||||||||||||||
| Diluted net earnings per share | $ | $ | |||||||||||||||
| Nine months ended June 30, 2022 | |||||||||||||||||
| Net Earnings (Numerator) | Shares (Denominator) | Per-Share Amount | |||||||||||||||
| Basic net earnings per share | $ | $ | |||||||||||||||
| Effect of dilutive securities - | |||||||||||||||||
| common stock options | |||||||||||||||||
| Diluted net earnings per share | $ | $ | |||||||||||||||
3. INVESTMENTS
Investment in Kukio Resort Land Development Partnerships
On November 27, 2013, Barnwell, through a wholly-owned subsidiary, entered into two limited liability limited partnerships, KD Kona 2013 LLLP (“KD Kona”) and KKM Makai, LLLP (“KKM”), and indirectly acquired a 19.6 5,140,000 . These entities, collectively referred to hereinafter as the “Kukio Resort Land Development Partnerships,” own certain real estate and development rights interests in the Kukio, Maniniowali and Kaupulehu portions of Kukio Resort, a private residential community on the Kona coast of the island of Hawaii, as well as Kukio Resort’s real estate sales office operations. KDK holds interests in KD Acquisition, LLLP (“KD I”) and KD Acquisition II, LP, formerly KD Acquisition II, LLLP (“KD II”). KD I is the developer of Kaupulehu Lot 4A Increment I (“Increment I”), and KD II is the developer of Kaupulehu Lot 4A Increment II (“Increment II”). Barnwell’s ownership interests in the Kukio Resort Land Development Partnerships is accounted for using the equity method of accounting.
In March 2019, KD II admitted a new development partner, Replay Kaupulehu Development, LLC (“Replay”), a party unrelated to Barnwell, in an effort to move forward with development of the remainder of Increment II at Kaupulehu. KDK and Replay hold ownership interests of 55 % and 45 %, respectively, of KD II and Barnwell has a 10.8 % indirect non-controlling ownership interest in KD II through KDK, which is accounted for using the equity method of accounting. Barnwell continues to have an indirect 19.6 % non-controlling ownership interest in KD Kukio Resorts, LLLP, KD Maniniowali, LLLP, and KD I.
The partnerships derive income from the sale of residential parcels in Increment I, of which only one lot remains to be sold as of June 30, 2023, as well as from commissions on real estate sales by the real estate sales office and revenues resulting from the sale of private club memberships.
12
Increment II is not yet under development, and there is no assurance that development of such acreage will occur. No definitive development plans have been made by KD II, the developer of Increment II, as of the date of this report.
Barnwell has the right to receive distributions from the Kukio Resort Land Development Partnerships via its non-controlling interest in KD Kona and KKM, based on its respective partnership sharing ratios of 75 % and 34.45 %, respectively. No cash distributions were received during the three months ended June 30, 2023. During the three months ended June 30, 2022, Barnwell received cash distributions of $433,000 from the Kukio Resort Land Development Partnerships resulting in a net amount of $385,000 after distributing $48,000 to non-controlling interests. During the nine months ended June 30, 2023, Barnwell received cash distributions of $538,000 from the Kukio Resort Land Development Partnerships resulting in a net amount of $478,000 , after distributing $60,000 to non-controlling interests. During the nine months ended June 30, 2022, Barnwell received cash distributions of $3,400,000 from the Kukio Resort Land Development Partnerships resulting in a net amount of $3,028,000 after distributing $372,000 to non-controlling interests.
Equity in income of affiliates was nil and $538,000 for the three and nine months ended June 30, 2023, respectively, as compared to equity in income of affiliates of $433,000 and $3,400,000 for the three and nine months ended June 30, 2022, respectively.
Summarized financial information for the Kukio Resort Land Development Partnerships is as follows:
| Three months ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revenue | $ | $ | |||||||||
| Gross profit | $ | $ | |||||||||
| Net earnings | $ | $ | |||||||||
| Nine months ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revenue | $ | $ | |||||||||
| Gross profit | $ | $ | |||||||||
| Net earnings | $ | $ | |||||||||
In the quarter ended June 30, 2021, the Company received cumulative distributions from the Kukio Resort Land Development Partnerships in excess of our investment balance and in accordance with applicable accounting guidance, the Company suspended its equity method earnings recognition and the Kukio Resort Land Development Partnerships investment balance was reduced to zero with the distributions received in excess of our investment balance recorded as equity in income of affiliates because the distributions are not refundable by agreement or by law and the Company is not liable for the obligations of or otherwise committed to provide financial support to the Kukio Resort Land Development Partnerships. The Company will record future equity method earnings only after our share of the Kukio Resort Land Development Partnerships’ cumulative earnings in excess of distributions during the suspended period exceeds our share of the Kukio Resort Land Development Partnerships’ income recognized for the excess distributions, and during this suspended period any distributions received will be recorded as equity in income of affiliates. Accordingly, the amount of equity in income of affiliates recognized in the nine months ended June 30, 2023 was equivalent to the $538,000 of distributions received in that period.
13
Cumulative distributions received from the Kukio Resort Land Development Partnerships in excess of our investment balance was $993,000 at June 30, 2023 and $958,000 at September 30, 2022.
Sale of Interest in Leasehold Land
Kaupulehu Developments has the right to receive payments from KD I and KD II resulting from the sale of lots and/or residential units within Increment I and Increment II by KD I and KD II (see Note 17).
With respect to Increment I, Kaupulehu Developments is entitled to receive payments from KD I based on 10 % of the gross receipts from KD I’s sales of single-family residential lots in Increment I. One single-family lot was sold during the nine months ended June 30, 2023 and one single-family lot, of the 79 lots developed within Increment I, remained to be sold as of June 30, 2023.
| Three months ended June 30, | Nine months ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Sale of interest in leasehold land: | |||||||||||||||||||||||
| Revenues - sale of interest in leasehold land | $ | $ | $ | $ | |||||||||||||||||||
| Fees - included in general and administrative expenses | ( | ( | |||||||||||||||||||||
| Sale of interest in leasehold land, net of fees paid | $ | $ | $ | $ | |||||||||||||||||||
There is no assurance with regards to the amounts of future payments from Increment I or Increment II to be received, or that the remaining acreage within Increment II will be developed. No definitive development plans have been made by KD II, the developer of Increment II, as of the date of this report.
Investment in Leasehold Land Interest - Lot 4C
14
4. CONSOLIDATED VARIABLE INTEREST ENTITY
In February 2021, Barnwell Industries, Inc. established a new wholly-owned subsidiary named BOK Drilling, LLC (“BOK”) for the purpose of indirectly investing in oil and natural gas exploration and development in Oklahoma. BOK and Gros Ventre Partners, LLC (“Gros Ventre”) entered into the Limited Liability Agreement (the “Teton Operating Agreement”) of Teton Barnwell Fund I, LLC (“Teton Barnwell”), an entity formed for the purpose of directly entering into such oil and natural gas investments. Under the terms of the Teton Operating Agreement, the profits of Teton Barnwell are split between BOK and Gros Ventre at 98 % and 2 %, respectively, and as the manager of Teton Barnwell, Gros Venture is paid an annual asset management fee equal to 1 % of the cumulative capital contributions made to Teton Barnwell as compensation for its management services. BOK is responsible for 100 % of the capital contributions made to Teton Barnwell.
The Company has determined that Teton Barnwell is a variable interest entity (“VIE”) as the entity is structured with non-substantive voting rights and that the Company is the primary beneficiary. This is due to the fact that even though Teton Barnwell has a unanimous consent voting structure, BOK is responsible for 100 % of the capital contributions required to fund Teton Barnwell’s future oil exploration and development investments pursuant to the Teton Operating Agreement and thus, BOK has the power to steer the decisions that most significantly impact Teton Barnwell’s economic performance and has the obligation to absorb any potential losses that could be significant to Teton Barnwell. As BOK is the primary beneficiary of the VIE, Teton Barnwell’s operating results, assets and liabilities are consolidated by the Company.
The following table summarizes the carrying value of the assets and liabilities of Teton Barnwell that are consolidated by the Company. Intercompany balances are eliminated in consolidation and thus, are not reflected in the table below.
| June 30, 2023 | September 30, 2022 | ||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts and other receivables | |||||||||||
| Oil and natural gas properties, full cost method of accounting: | |||||||||||
| Proved properties, net | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued operating and other expenses | |||||||||||
| Total liabilities | $ | $ | |||||||||
15
5. ASSET HELD FOR SALE
6. OIL AND NATURAL GAS PROPERTIES
Fiscal 2023 Investments and Acquisitions
In December 2022, Barnwell Texas, LLC (“Barnwell Texas”), a new wholly-owned subsidiary of the Company, entered into a purchase and sale agreement with an independent third party whereby Barnwell Texas acquired a 22.3 % non-operated working interest in oil and natural gas leasehold acreage in the Permian Basin in Texas for cash consideration of $806,000 . In connection with the purchase of such leasehold interests, Barnwell Texas acquired a 15.4 % non-operated working interest in two oil wells in the Wolfcamp Formation in Loving and Ward Counties, Texas and has paid $4,293,000 for its share of the costs to drill, complete and equip the wells through the nine months ended June 30, 2023. The two Texas wells began producing in late April 2023. Additionally, in connection with the entry into this agreement, the Company is obligated to pay a broker’s fee of 5.0 % of the capital invested under this arrangement to Four Pines Exploration LLC - Exploration - Series 1 (“Four Pines”). Four Pines is controlled by Mr. Colin O’Farrell who is an affiliate of Teton Barnwell (see Note 17 for additional details). As of June 30, 2023, the Company has paid $255,000 in broker fees to Four Pines related to this arrangement.
Fiscal 2022 Acquisitions
In the quarter ended December 31, 2021, Barnwell acquired working interests in oil and natural gas properties located in the Twining area of Alberta, Canada, for cash consideration of $317,000 .
7. RETIREMENT PLANS
Barnwell sponsors a noncontributory defined benefit pension plan (“Pension Plan”) covering substantially all of its U.S. employees and a noncontributory Supplemental Executive Retirement Plan (“SERP”), which covers certain current and former employees of Barnwell for amounts exceeding the limits allowed under the Pension Plan.
16
The following tables detail the components of net periodic benefit (income) cost for Barnwell’s retirement plans:
| Pension Plan | SERP | ||||||||||||||||||||||
| Three months ended June 30, | |||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Interest cost | $ | $ | $ | $ | |||||||||||||||||||
| Expected return on plan assets | ( | ( | |||||||||||||||||||||
| Amortization of net actuarial gain | ( | ||||||||||||||||||||||
| Net periodic benefit (income) cost | $ | ( | $ | ( | $ | $ | |||||||||||||||||
| Pension Plan | SERP | ||||||||||||||||||||||
| Nine months ended June 30, | |||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Interest cost | $ | $ | $ | $ | |||||||||||||||||||
| Expected return on plan assets | ( | ( | |||||||||||||||||||||
| Amortization of net actuarial gain | ( | ||||||||||||||||||||||
| Net periodic benefit (income) cost | $ | ( | $ | ( | $ | $ | |||||||||||||||||
The net periodic benefit (income) cost is included in “General and administrative” expenses in the Company's Condensed Consolidated Statements of Operations.
Currently, no contributions are expected to be made to the Pension Plan during fiscal 2023. The SERP plan is unfunded and Barnwell funds benefits when payments are made. Expected payments under the SERP for fiscal 2023 are not material. Fluctuations in actual equity market returns as well as changes in general interest rates will result in changes in the market value of plan assets and may result in increased or decreased retirement benefits costs and contributions in future periods.
8. INCOME TAXES
The components of (loss) earnings before income taxes, after adjusting the (loss) earnings for non-controlling interests, are as follows:
| Three months ended June 30, | Nine months ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| United States | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||
| Canada | ( | ||||||||||||||||||||||
| $ | ( | $ | $ | ( | $ | ||||||||||||||||||
17
The components of the income tax (benefit) provision are as follows:
| Three months ended June 30, | Nine months ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Current | $ | ( | $ | $ | $ | ||||||||||||||||||
| Deferred | ( | ( | ( | ( | |||||||||||||||||||
| $ | ( | $ | $ | ( | $ | ||||||||||||||||||
Consolidated taxes do not bear a customary relationship to pretax results due primarily to the fact that the Company is taxed separately in Canada based on Canadian source operations and in the U.S. based on consolidated operations, and essentially all deferred tax assets, net of relevant offsetting deferred tax liabilities, are not estimated to have a future benefit as tax credits or deductions. Income from our non-controlling interest in the Kukio Resort Land Development Partnerships is treated as non-unitary for state of Hawaii unitary filing purposes, thus unitary Hawaii losses provide limited sheltering of such non-unitary income. Income from our investment in the Oklahoma oil venture is 100% allocable to Oklahoma. As such, Barnwell receives no benefit from consolidated or unitary losses and, therefore, is subject to Oklahoma state taxes. Consolidated taxes also include the impacts of favorable state jurisdiction provision to tax return true-ups. In addition, net operating loss carryforwards, the benefit of which had not previously been recognized due to the Company's continuing full valuation allowance, are estimated to be partially utilized in the Canadian tax jurisdiction in the current year periods as the recognized benefit is now considered more likely to occur than not.
18
9. REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue
| Three months ended June 30, 2023 | ||||||||||||||||||||||||||||||||
| Oil and natural gas | Contract drilling | Land investment | Other | Total | ||||||||||||||||||||||||||||
| Revenue streams: | ||||||||||||||||||||||||||||||||
| Oil | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Natural gas | ||||||||||||||||||||||||||||||||
| Natural gas liquids | ||||||||||||||||||||||||||||||||
| Drilling and pump | ||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||
| Total revenues before interest income | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Geographical regions: | ||||||||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Canada | ||||||||||||||||||||||||||||||||
| Total revenues before interest income | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Timing of revenue recognition: | ||||||||||||||||||||||||||||||||
| Goods transferred at a point in time | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Services transferred over time | ||||||||||||||||||||||||||||||||
| Total revenues before interest income | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Three months ended June 30, 2022 | ||||||||||||||||||||||||||||||||
| Oil and natural gas | Contract drilling | Land investment | Other | Total | ||||||||||||||||||||||||||||
| Revenue streams: | ||||||||||||||||||||||||||||||||
| Oil | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Natural gas | ||||||||||||||||||||||||||||||||
| Natural gas liquids | ||||||||||||||||||||||||||||||||
| Drilling and pump | ||||||||||||||||||||||||||||||||
| Total revenues before interest income | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Geographical regions: | ||||||||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Canada | ||||||||||||||||||||||||||||||||
| Total revenues before interest income | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Timing of revenue recognition: | ||||||||||||||||||||||||||||||||
| Goods transferred at a point in time | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Services transferred over time | ||||||||||||||||||||||||||||||||
| Total revenues before interest income | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
19
| Nine months ended June 30, 2023 | ||||||||||||||||||||||||||||||||
| Oil and natural gas | Contract drilling | Land investment | Other | Total | ||||||||||||||||||||||||||||
| Revenue streams: | ||||||||||||||||||||||||||||||||
| Oil | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Natural gas | ||||||||||||||||||||||||||||||||
| Natural gas liquids | ||||||||||||||||||||||||||||||||
| Drilling and pump | ||||||||||||||||||||||||||||||||
| Contingent residual payments | ||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||
| Total revenues before interest income | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Geographical regions: | ||||||||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Canada | ||||||||||||||||||||||||||||||||
| Total revenues before interest income | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Timing of revenue recognition: | ||||||||||||||||||||||||||||||||
| Goods transferred at a point in time | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Services transferred over time | ||||||||||||||||||||||||||||||||
| Total revenues before interest income | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nine months ended June 30, 2022 | ||||||||||||||||||||||||||||||||
| Oil and natural gas | Contract drilling | Land investment | Other | Total | ||||||||||||||||||||||||||||
| Revenue streams: | ||||||||||||||||||||||||||||||||
| Oil | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Natural gas | ||||||||||||||||||||||||||||||||
| Natural gas liquids | ||||||||||||||||||||||||||||||||
| Drilling and pump | ||||||||||||||||||||||||||||||||
| Contingent residual payments | ||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||
| Total revenues before interest income | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Geographical regions: | ||||||||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Canada | ||||||||||||||||||||||||||||||||
| Total revenues before interest income | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Timing of revenue recognition: | ||||||||||||||||||||||||||||||||
| Goods transferred at a point in time | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Services transferred over time | ||||||||||||||||||||||||||||||||
| Total revenues before interest income | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
20
Contract Balances
| June 30, 2023 | September 30, 2022 | ||||||||||
| Accounts receivables from contracts with customers | $ | $ | |||||||||
| Contract assets | |||||||||||
| Contract liabilities | |||||||||||
Accounts receivables from contracts with customers are included in “Accounts and other receivables, net of allowance for doubtful accounts,” and contract assets, which includes costs and estimated earnings in excess of billings and retainage, are included in “Other current assets.” Contract liabilities, which includes billings in excess of costs and estimated earnings are included in “Other current liabilities” in the accompanying Condensed Consolidated Balance Sheets.
Retainage, included in contract assets, represents amounts due from customers, but where payments are withheld contractually until certain construction milestones are met. Amounts retained typically range from 5 % to 10 % of the total invoice, up to contractually-specified maximums. The Company classifies as a current asset those retainages that are expected to be collected in the next twelve months.
Contract assets represent the Company’s rights to consideration in exchange for services transferred to a customer that have not been billed as of the reporting date. The Company’s rights are generally unconditional at the time its performance obligations are satisfied.
When the Company receives consideration or such consideration is unconditionally due from a customer prior to transferring goods or services to the customer under the terms of a sales contract, the Company records deferred revenue, which represents a contract liability. Such deferred revenue typically results from billings in excess of costs and estimated earnings on uncompleted contracts. As of June 30, 2023 and September 30, 2022, the Company had $305,000 and $1,087,000 , respectively, included in “Other current liabilities” on the balance sheets for those performance obligations expected to be completed in the next twelve months.
During the nine months ended June 30, 2023 and 2022, the amount of revenue recognized that was previously included in contract liabilities as of the beginning of the respective period was $1,012,000 and $342,000 , respectively.
Contracts are sometimes modified for a change in scope or other requirements. The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of the Company’s contract modifications are for goods and services that are not distinct from the existing performance obligations. The effect of a contract modification on the transaction price, and the measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase or decrease) on a cumulative catchup basis.
21
Performance Obligations
The Company’s remaining performance obligations for drilling and pump installation contracts (hereafter referred to as “backlog”) represent the unrecognized revenue value of the Company’s contract commitments. The Company’s backlog may vary significantly each reporting period based on the timing of major new contract commitments. In addition, our customers have the right, under some infrequent circumstances, to terminate contracts or defer the timing of the Company’s services and their payments to us. Nearly all of the Company's contract drilling segment contracts have original expected durations of one year or less. At June 30, 2023, the Company had five contract drilling jobs with original expected durations of greater than one year. For these contracts, 100 % of the remaining performance obligation of $4,052,000 is expected to be recognized in the next twelve months.
Contract Fulfillment Costs
Preconstruction costs, which include costs such as set-up and mobilization, are capitalized and allocated across all performance obligations and deferred and amortized over the contract term on a progress towards completion basis. As of June 30, 2023 and September 30, 2022, the Company had $581,000 and $689,000 , respectively, in unamortized preconstruction costs related to contracts that were not completed. During the three and nine months ended June 30, 2023 and 2022, the amortization of preconstruction costs related to contracts were not material and were included in the accompanying Condensed Consolidated Statements of Operations. Additionally, no impairment charges in connection with the Company’s preconstruction costs were recorded during the three and nine months ended June 30, 2023 and 2022.
22
10. SEGMENT INFORMATION
Barnwell operates the following segments: 1) acquiring, developing, producing and selling oil and natural gas in Canada and the U.S. (oil and natural gas); 2) investing in land interests in Hawaii (land investment); and 3) drilling wells and installing and repairing water pumping systems in Hawaii (contract drilling).
The following table presents certain financial information related to Barnwell’s reporting segments. All revenues reported are from external customers with no intersegment sales or transfers.
| Three months ended June 30, | Nine months ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Oil and natural gas | $ | $ | $ | $ | |||||||||||||||||||
| Contract drilling | |||||||||||||||||||||||
| Land investment | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total before interest income | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | |||||||||||||||||||
| Depletion, depreciation, and amortization: | |||||||||||||||||||||||
| Oil and natural gas | $ | $ | $ | $ | |||||||||||||||||||
| Contract drilling | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total depletion, depreciation, and amortization | $ | $ | $ | $ | |||||||||||||||||||
| Operating profit (loss) (before general and administrative expenses): | |||||||||||||||||||||||
| Oil and natural gas | $ | $ | $ | $ | |||||||||||||||||||
| Contract drilling | ( | ( | |||||||||||||||||||||
| Land investment | |||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||
| Gain on sale of assets | |||||||||||||||||||||||
| Total operating profit | |||||||||||||||||||||||
| Equity in income of affiliates: | |||||||||||||||||||||||
| Land investment | |||||||||||||||||||||||
| General and administrative expenses | ( | ( | ( | ( | |||||||||||||||||||
| Foreign currency gain | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| (Loss) earnings before income taxes | $ | ( | $ | $ | ( | $ | |||||||||||||||||
23
11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The changes in each component of accumulated other comprehensive income (loss) were as follows:
| Three months ended June 30, | Nine months ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Foreign currency translation: | |||||||||||||||||||||||
| Beginning accumulated foreign currency translation | $ | $ | $ | $ | |||||||||||||||||||
| Change in cumulative translation adjustment before reclassifications | ( | ( | |||||||||||||||||||||
| Income taxes | |||||||||||||||||||||||
| Net current period other comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Ending accumulated foreign currency translation | |||||||||||||||||||||||
| Retirement plans: | |||||||||||||||||||||||
| Beginning accumulated retirement plans benefit income (cost) | ( | ( | |||||||||||||||||||||
| Amortization of net actuarial gain | ( | ( | |||||||||||||||||||||
| Income taxes | |||||||||||||||||||||||
| Net current period other comprehensive loss | ( | ( | |||||||||||||||||||||
| Ending accumulated retirement plans benefit income (cost) | ( | ( | |||||||||||||||||||||
| Accumulated other comprehensive income (loss), net of taxes | $ | $ | ( | $ | $ | ( | |||||||||||||||||
The amortization of net actuarial gain for the retirement plans are included in the computation of net periodic benefit (income) cost which is a component of “General and administrative” expenses on the accompanying Condensed Consolidated Statements of Operations (see Note 7 for additional details).
12. FAIR VALUE MEASUREMENTS
The carrying values of cash and cash equivalents, accounts and other receivables, accounts payable and accrued current liabilities approximate their fair values due to the short-term nature of the instruments.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The estimated fair values of oil and natural gas properties and the asset retirement obligation incurred in the drilling of oil and natural gas wells or assumed in the acquisitions of additional oil and natural gas working interests are based on an estimated discounted cash flow model and market assumptions. The significant Level 3 assumptions used in the calculation of estimated discounted cash flows included future commodity prices, projections of estimated quantities of oil and natural gas reserves, expectations for timing and amount of future development, operating and asset retirement costs, projections of future rates of production, expected recovery rates and risk adjusted discount rates.
Barnwell estimates the fair value of asset retirement obligations based on the projected discounted future cash outflows required to settle abandonment and restoration liabilities. Such an estimate requires assumptions and judgments regarding the existence of liabilities, the amount and timing of cash outflows
24
13. DEBT
Canada Emergency Business Account Loan
In the quarter ended December 31, 2020, the Company’s Canadian subsidiary, Barnwell of Canada, received a loan of CAD$40,000 (in Canadian dollars) under the Canada Emergency Business Account (“CEBA”) loan program for small businesses. In the quarter ended March 31, 2021, the Company applied for an increase to our CEBA loan and received an additional CAD$20,000 for a total loan amount received of CAD$60,000 ($45,000 ) under the program. In January 2022, the Canadian government announced the extension of the CEBA loan repayment deadline and interest-free period from December 31, 2022 to December 31, 2023. Accordingly, the CEBA loan is interest-free with no principal payments required until December 31, 2023, after which the remaining loan balance is converted to a two year term loan at 5 % annual interest paid monthly. If the Company repays 66.7 % of the principal amount prior to December 31, 2023, there will be loan forgiveness of 33.3 % up to a maximum of CAD$20,000 . The current loan balance of $45,000 is included in “Other current liabilities” in the Company's Condensed Consolidated Balance sheet at June 30, 2023.
14. STOCKHOLDERS' EQUITY
Restricted Stock Units
On June 9, 2023, the Board of Directors of the Company granted a total of 37,312 restricted stock units to the independent directors of the Board as partial payment of fiscal 2023 director fees for their service as members of the Board from the period of April 1, 2023 to September 30, 2023. The restricted stock units vest and become nonforfeitable on September 30, 2023.
The following table summarizes Barnwell’s restricted stock unit activity from October 1, 2022 through June 30, 2023:
| Restricted Stock Units | Shares | Weighted-Average Grant Date Fair Value | ||||||||||||
| Nonvested at October 1, 2022 | $ | |||||||||||||
| Granted | ||||||||||||||
| Vested | ||||||||||||||
| Forfeited | ||||||||||||||
| Nonvested at June 30, 2023 | $ | |||||||||||||
Compensation cost for restricted stock unit awards is measured at fair value and is recognized as an expense over the requisite service period. During the three and nine months ended June 30, 2023, the Company recognized share-based compensation expense related to restricted stock units of $49,000
25
was no 50,000 , which is expected to be recognized over the weighted-average remaining requisite service period of 0.3 years.
Stock Options
In the the quarter ended June 30, 2023, 100,000 shares of vested stock options expired and 50,000 shares of outstanding stock options were forfeited prior to the option’s vesting date. The Company's policy is to recognize forfeitures as they occur. Thus, when an award is forfeited prior to the vesting date, the Company will recognize an adjustment for the previously recognized expense in the period of the forfeiture. Accordingly, as a result of the forfeited stock options, the Company recorded a share-based compensation benefit of $96,000
Common Stock Issued for Services
In May 2023, the Company issued a total of 34,091 shares of Barnwell common stock to certain independent directors for their services on behalf of the Company and the Board of Directors pertaining to the negotiations of the Cooperation Agreement and the settlement of the potential proxy contest (see Note 17 for additional details). The total value of the shares issued was $90,000 which was valued using the closing price of Barnwell's common stock on May 11, 2023, the date of grant.
Cash Dividends
In December 2022, the Company's Board of Directors declared a cash dividend of $0.015 per share that was paid on January 11, 2023 to stockholders of record on December 27, 2022.
In February 2023, the Company's Board of Directors declared a cash dividend of $0.015 per share that was paid on March 13, 2023 to stockholders of record on February 23, 2023.
In May 2023, the Company's Board of Directors declared a cash dividend of $0.015 per share that was paid on June 12, 2023 to stockholders of record on May 25, 2023.
No dividends were declared or paid during the nine months ended June 30, 2022.
The Tax Benefits Preservation Plan
On October 17, 2022, the Board of Directors of the Company adopted a Tax Benefits Preservation Plan (the “Tax Plan”) designed to protect the availability of the Company’s existing net operating loss carryforwards and certain other tax attributes. To implement the Tax Plan, the Board of Directors declared a dividend of one right (a “Right”) for each outstanding share of the Company's common stock. The Rights were issued to stockholders of record at the close of business on October 27, 2022 pursuant to the Tax Plan. The Rights are exercisable if a person or group of persons acquires 4.95% or more of the Company’s common stock. The Rights are also exercisable if a person or group of persons that already owns 4.95% or more of the Company’s common stock acquires an additional share other than as a result of a dividend or a stock split. Existing stockholders that beneficially own in excess of 4.95% of the Company’s common stock are “grandfathered in” at their current ownership level. If the Rights become exercisable, all holders of Rights, other than the person or group of persons triggering the Rights, will be entitled to purchase shares of the Company’s common stock at a 50% discount. Rights held by the person or group of persons triggering the Rights will become void and will not be exercisable.
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On January 25, 2023, the Tax Plan was terminated by the Board of Directors and as a result, all Rights distributed to holders of the Company's common stock expired at the time of termination.
At The Market Offering
On March 16, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P,”), with respect to an at-the-market offering program (“ATM”) pursuant to which the Company may offer and sell, from time to time, shares of its common stock, par value $0.50 per share, having an aggregate sales price of up to $25 million (subject to certain limitations set forth in the Sales Agreement and applicable securities laws, rules and regulations), through or to A.G.P as the Company’s sales agent or as principal. Sales of our common stock under the ATM, if any, will be made by any methods deemed to be “at the market offerings” as defined in Rule 415(a)(4) under the Securities Act, including sales made directly on the NYSE American, on any other existing trading market for our Common Stock, or to or through a market maker. Shares of common stock sold under the ATM are offered pursuant to the Company’s Registration Statement on Form S-3 (File No. 333-254365), filed with the Securities and Exchange Commission on March 16, 2021, and declared effective on March 26, 2021 (the "Registration Statement”), and the prospectus dated March 26, 2021, included in the Registration Statement.
15. CONTINGENCIES
Legal and Regulatory Matters
Barnwell is routinely involved in disputes with third parties that occasionally require litigation. In addition, Barnwell is required to maintain compliance with all current governmental controls and regulations in the ordinary course of business. Barnwell’s management is not aware of any claims or litigation involving Barnwell that are likely to have a material adverse effect on its results of operations, financial position or liquidity.
In the quarter ended December 31, 2021, it was determined that a contract drilling segment well completed in the period did not meet the contract specifications for plumbness under a gyroscopic plumbness test which the contract required. While the well did pass the cage plumbness test, the contract uses the gyroscopic test as the measure of plumbness. Barnwell and the customer currently have an arrangement where Barnwell will provide for centralizers, armored cabling and a pump installation and removal test to confirm that plumbness is satisfactory. Barnwell’s management believes the plumbness deviation is not impactful to the performance of the submersible pumps that will be installed in the well. Accordingly, while costs for the centralizers, armored cabling and the pump installation and removal test have been accrued, no accrual has been recorded as of June 30, 2023 for any further costs related to this contract as there is no related probable or estimable contingent liability.
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16. INFORMATION RELATING TO THE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine months ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid during the year for: | |||||||||||
| Income taxes paid, net | $ | $ | |||||||||
Capital expenditure accruals related to oil and natural gas exploration and development decreased $6,000 during the nine months ended June 30, 2023 and increased $812,000 during the nine months ended June 30, 2022. Additionally, capital expenditure accruals related to oil and natural gas asset retirement obligations increased $789,000 and $2,476,000 during the nine months ended June 30, 2023 and 2022, respectively.
17. RELATED PARTY TRANSACTIONS
Kaupulehu Developments is entitled to receive payments from the sales of lots and/or residential units by KD I and KD II. KD I and KD II are part of the Kukio Resort Land Development Partnerships in which Barnwell holds indirect 19.6 % and 10.8 % non-controlling ownership interests, respectively, accounted for under the equity method of investment. The percentage of sales payments are part of transactions which took place in 2004 and 2006 where Kaupulehu Developments sold its leasehold interests in Increment I and Increment II to KD I's and KD II's predecessors in interest, respectively, which was prior to Barnwell’s affiliation with KD I and KD II which commenced on November 27, 2013, the acquisition date of our ownership interest in the Kukio Resort Land Development Partnerships. Changes to the arrangement above, effective March 7, 2019, are discussed in Note 3.
During the nine months ended June 30, 2023, Barnwell received $265,000 in percentage of sales payments from KD 1 from the sale of one single-family lot within Increment I. During the nine months ended June 30, 2022, Barnwell received $1,295,000 in percentage of sales payments from KD 1 from the sale of six single-family lots within Increment I.
Mr. Colin R. O'Farrell, formerly a member of the Board of Directors of the Company from July 7, 2021 to March 7, 2022, is the sole member of Four Pines Operating LLC which owns a 25 % interest in Gros Ventre. In February 2021, Gros Ventre and BOK, a wholly-owned subsidiary of Barnwell, entered into the Teton Operating Agreement of Teton Barnwell, an entity formed for the purpose of directly investing in oil and natural gas exploration and development in Oklahoma. Under the terms of the Teton Operating Agreement, Gros Ventre makes no capital contributions and receives 2 % of the profits of Teton Barnwell. Additionally, as the manager of Teton Barnwell, Gros Venture is paid an annual asset management fee equal to 1 % of the cumulative capital contributions made to Teton Barnwell as compensation for its management services. Furthermore, as discussed above, Mr. O'Farrell controls Four Pines, which, as of June 30, 2023, was paid $255,000 in broker fees in connection with the oil and natural gas investment discussed in Note 6.
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Cooperation and Support Agreement
In January 2023, the Company entered into a cooperation and support agreement (the “Cooperation Agreement”) with Alexander C. Kinzler, the Company’s CEO and President in his capacity as a stockholder, MRMP-Managers LLC, the Ned L. Sherwood Revocable Trust, NLS Advisory Group, Inc. and Ned L. Sherwood (collectively, the “MRMP Stockholders”), with respect to a potential proxy contest pertaining to the election of directors to our Board of Directors (the “Board”). The Cooperation Agreement extended for two years the standstill terms of the previous agreement entered into with the MRMP Stockholders in 2021, which ended the potential of a proxy contest at the 2023 annual meeting of stockholders (the “2023 Annual Meeting”), which was held on April 17, 2023.
Pursuant to the terms of the Cooperation Agreement, among other things, the Company agreed to promptly appoint Joshua S. Horowitz and Laurance Narbut, effective February 9, 2023, to serve on the Board. In addition, the Company agreed to nominate a five-person board comprised of Mr. Kinzler, Kenneth Grossman, Douglas Woodrum, and Messrs. Horowitz and Narbut as candidates for election to the Board at the 2023 Annual Meeting and the 2024 annual meeting of stockholders (the “2024 Annual Meeting”) and Mr. Kinzler and the MRMP Stockholders agreed to vote their respective shares of common stock of the Company in favor of the election of the Company’s slate at the 2023 Annual Meeting and the 2024 Annual Meeting. Additionally, pursuant to the terms of the Cooperation Agreement, the Company terminated the previously adopted Tax Benefits Preservation Plan, although the MRMP Stockholders have agreed to limit their beneficial and economic ownership of the Company to 28 % of the outstanding common stock of the Company for the next 12 months and 30 % for the subsequent 12-month period. In exchange for this arrangement, the Company agreed to reimburse the MRMP Stockholders and Mr. Kinzler for their reasonable, documented out-of-pocket fees and expenses (including legal expenses) in connection with the negotiation and execution of the Cooperation Agreement and the transactions contemplated hereby and the proposed nomination of directors at the 2023 Annual Meeting. In the nine months ended June 30, 2023, $190,000 and $149,000 in expenses were recorded for reimbursements to MRMP Stockholders and Mr. Kinzler, respectively, under the Cooperation Agreement.
18. SUBSEQUENT EVENTS
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Relevant to Forward-Looking Information
For the Purpose Of “Safe Harbor” Provisions Of The
Private Securities Litigation Reform Act of 1995
This Form 10-Q, and the documents incorporated herein by reference, contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). A forward-looking statement is one which is based on current expectations of future events or conditions and does not relate to historical or current facts. These statements include various estimates, forecasts, projections of Barnwell’s future performance, statements of Barnwell’s plans and objectives, and other similar statements. All such statements we make are forward-looking statements made under the safe harbor of the PSLRA, except to the extent such statements relate to the operations of a partnership or limited liability company. Forward-looking statements include phrases such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “predicts,” “estimates,” “assumes,” “projects,” “may,” “will,” “will be,” “should,” or similar expressions. Although Barnwell believes that its current expectations are based on reasonable assumptions, it cannot assure that the expectations contained in such forward-looking statements will be achieved. Forward-looking statements involve risks, uncertainties and assumptions which could cause actual results to differ materially from those contained in such statements. The risks, uncertainties and other factors that might cause actual results to differ materially from Barnwell’s expectations are set forth in the “Forward-Looking Statements” and “Risk Factors” sections of Barnwell’s 2022 Annual Report. Investors should not place undue reliance on these forward-looking statements, as they speak only as of the date of filing of this Form 10-Q, and Barnwell expressly disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statements contained herein.
Critical Accounting Policies and Estimates
Management has determined that our most critical accounting policies and estimates are those related to the full-cost ceiling calculation and depletion of our oil and natural gas properties, the estimation of our contract drilling segment's revenues and expenses, and the calculation of our income taxes, all of which are discussed in our 2022 Annual Report. There have been no significant changes to these critical accounting policies and estimates during the three and nine months ended June 30, 2023. We continue to monitor our accounting policies to ensure proper application of current rules and regulations.
Impact of COVID-19
In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic and the U.S. and Canadian governments declared the virus a national emergency shortly thereafter. The ongoing global health crisis (including resurgences) resulting from the pandemic have, and continue to, disrupt the normal operations of many businesses, including the temporary closure or scale-back of business operations and/or the imposition of either quarantine or remote work or meeting requirements for employees, either by government order or on a voluntary basis. While the outbreak recently appeared to be trending downward, particularly as vaccination rates increased, new variants of COVID-19 continue emerging, including the Omicron variants, spreading throughout the U.S. and globally and causing significant disruptions. The global economy, our markets and our business have been, and may continue to be, materially and adversely affected by COVID-19.
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The COVID-19 outbreak materially and adversely affected our business operations and financial condition as a result of the deteriorating market outlook, the global economic recession and weakened liquidity. Although demand for oil and oil prices has increased significantly from the lows of March through May of 2020, uncertainty regarding future oil prices continues to exist. While the Company’s contract drilling segment remained operational throughout fiscal 2020 through fiscal 2022 and continues to work, the continuing potential impact of COVID-19 on the health of our contract drilling segment's crews is uncertain, and any work stoppage or discontinuation of contracts currently in backlog could result in a material adverse impact to the Company’s financial condition and outlook. Though availability of vaccines and reopening of state and local economies has improved the outlook for recovery from COVID-19's impacts, the impact of new, more contagious or lethal variants that may emerge, and the effectiveness of COVID-19 vaccines against variants and the related responses by governments, including reinstated government-imposed lockdowns or other measures, cannot be predicted at this time. Both the health and economic aspects of the COVID-19 pandemic remain highly fluid and the future course of each is uncertain. We cannot foresee whether the outbreak of COVID-19 will be effectively contained on a sustained basis, nor can we predict the severity and duration of its impact. If the impact of COVID-19 is not effectively and timely controlled on a sustained basis going forward, our business operations and financial condition may be materially and adversely affected by factors that we cannot foresee. Any of these factors and other factors beyond our control could have an adverse effect on the overall business environment, cause uncertainties in the regions where we conduct business, cause our business to suffer in ways that we cannot predict and materially and adversely impact our business, financial condition and results of operations.
Impact of Recently Issued Accounting Standards on Future Filings
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss model with an expected loss model referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including but not limited to trade receivables. This ASU is effective for annual reporting periods beginning after December 15, 2022, and interim periods within those annual periods. The FASB has subsequently issued other related ASUs which amend ASU 2016-13 to provide clarification and additional guidance. The Company is currently evaluating the impact of these standards.
Overview
Barnwell is engaged in the following lines of business: 1) acquiring, developing, producing and selling oil and natural gas in Canada and the U.S. (oil and natural gas segment), 2) investing in land interests in Hawaii (land investment segment), and 3) drilling wells and installing and repairing water pumping systems in Hawaii (contract drilling segment).
Oil and Natural Gas Segment
Barnwell is involved in the acquisition and development of oil and natural gas properties in Canada where we initiate and participate in acquisition and developmental operations for oil and natural gas on properties in which we have an interest, and evaluate proposals by third parties with regard to participation in exploratory and developmental operations elsewhere. Additionally, through its wholly-owned subsidiaries, Barnwell is involved in several non-operated oil and natural gas investments in Oklahoma and Texas.
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Land Investment Segment
Through Barnwell’s 77.6% interest in Kaupulehu Developments, 75% interest in KD Kona, and 34.45% non-controlling interest in KKM Makai, the Company’s land investment interests include the following:
•The right to receive percentage of sales payments from KD I resulting from the sale of single-family residential lots by KD I, within Increment I of the Kaupulehu Lot 4A area located in the North Kona District of the island of Hawaii. Kaupulehu Developments is entitled to receive payments from KD I based on 10% of the gross receipts from KD I’s sales at Increment I. Increment I is an area zoned for approximately 79 single-family lots, of which one remained to be sold at June 30, 2023.
•The right to receive 15% of the distributions of KD II, the cost of which is to be solely borne by KDK out of its 55% ownership interest in KD II, plus a priority payout of 10% of KDK's cumulative net profits derived from Increment II sales subsequent to Phase 2A, up to a maximum of $3,000,000. Such interests are limited to distributions or net profits interests and Barnwell does not have any partnership interest in KD II or KDK through its interest in Kaupulehu Developments. Barnwell also has rights to three single-family residential lots in Phase 2A of Increment II, and four single-family residential lots in phases subsequent to Phase 2A when such lots are developed by KD II, all at no cost to Barnwell. Barnwell is committed to commence construction of improvements within 90 days of the transfer of the four lots in the phases subsequent to Phase 2A as a condition of the transfer of such lots. Also, in addition to Barnwell's existing obligations to pay professional fees to certain parties based on percentages of its gross receipts, Kaupulehu Developments is also obligated to pay an amount equal to 0.72% and 0.20% of the cumulative net profits of KD II to KD Development, LLC and a pool of various individuals, respectively, all of whom are partners of KKM and are unrelated to Barnwell. The remaining acreage within Increment II is not yet under development, and there is no assurance that development of such acreage will occur. No definitive development plans have been made by KDII, the developer of Increment II, as of the date of this report.
•An indirect 19.6% non-controlling ownership interest in KD Kukio Resorts, LLLP, KD Maniniowali, LLLP and KD I and an indirect 10.8% non-controlling ownership interest in KD II through KDK. These entities own certain real estate and development rights interests in the Kukio, Maniniowali and Kaupulehu portions of Kukio Resort, a private residential community on the Kona coast of the island of Hawaii, as well as Kukio Resort’s real estate sales office operations. KDK was the developer of Kaupulehu Lot 4A Increments I and II. The partnerships derive income from the sale of residential parcels as well as from commission on real estate sales by the real estate sales office and revenues resulting from the sale of private club memberships.
•Approximately 1,000 acres of vacant leasehold land zoned conservation in the Kaupulehu Lot 4C area, which currently has no development potential without both a development agreement with the lessor and zoning reclassification. The lease terminates in December 2025.
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Contract Drilling Segment
Barnwell drills water and water monitoring wells and installs and repairs water pumping systems in Hawaii. Contract drilling results are highly dependent upon the quantity, dollar value and timing of contracts awarded by governmental and private entities and can fluctuate significantly.
Results of Operations
Summary
The net loss attributable to Barnwell for the three months ended June 30, 2023 totaled $717,000, a $3,248,000 decrease in operating results from net earnings of $2,531,000 for the three months ended June 30, 2022. The following factors affected the results of operations for the three months ended June 30, 2023 as compared to the prior year period:
•A $3,836,000 decrease in oil and natural gas segment operating results, before income taxes, due primarily to significant decreases in natural gas, oil, and natural gas liquid prices, partially offset by an increase in production in the current period as compared to the same period in the prior year from new wells drilled in Texas and in the Twining area;
•A $182,000 improvement in contract drilling segment operating results, before income taxes, due to work performed on higher value water well drilling contracts in the current year period as compared to the prior year period; and
•General and administrative expenses decreased $385,000, primarily due to a reduction in accrued bonus expense and decreases in share-based compensation and professional fees in the current year period as compared to the same period in the prior year.
The net loss attributable to Barnwell for the nine months ended June 30, 2023 totaled $865,000, a $6,521,000 decrease in operating results from a net earnings of $5,656,000 for the nine months ended June 30, 2022. The following factors affected the results of operations for the nine months ended June 30, 2023 as compared to the prior year period:
•A $5,147,000 decrease in oil and natural gas segment operating results, before income taxes, due to significant decreases in natural gas, oil, and natural gas liquid prices and a decrease in the net production from wells in Oklahoma in the current year period as compared to the same period in the prior year. The decrease in operating results was partially offset by an increase in net production of oil and natural gas primarily due to the additional working interests acquired and wells drilled in the Twining area and from new wells drilled in Texas;
•Equity in income from affiliates decreased $2,862,000 and land investment segment operating results, before non-controlling interests’ share of such profits, decreased $1,030,000 due to the Kukio Resort Development Partnerships' sale of one lot in the current year period, whereas there were six lot sales in the prior year period;
•A $579,000 increase in contract drilling segment operating results, before income taxes, primarily resulting from increased activity and an increase in the work performed on higher value water well drilling contracts in the current year period as compared to the prior year period;
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•A $551,000 gain recognized in the current year period from the sale of a contract drilling segment drilling rig; and
•A $201,000 foreign currency gain recorded in the current year period due to the effects of foreign exchange rate changes on intercompany loans and advances as a result of the weakening of the U.S. dollar against the Canadian dollar.
General
Barnwell conducts operations in the U.S. and Canada. Consequently, Barnwell is subject to foreign currency translation and transaction gains and losses due to fluctuations of the exchange rates between the Canadian dollar and the U.S. dollar. Barnwell cannot accurately predict future fluctuations of the exchange rates and the impact of such fluctuations may be material from period to period. To date, we have not entered into foreign currency hedging transactions. Foreign currency gains or losses on intercompany loans and advances that are not considered long-term investments in nature because management intends to settle these intercompany balances in the future are included in our statements of operations.
The average exchange rate of the Canadian dollar to the U.S. dollar decreased 5% and 6% in the three and nine months ended June 30, 2023, respectively, as compared to the same periods in the prior year. The exchange rate of the Canadian dollar to the U.S. dollar increased 3% at June 30, 2023, as compared to September 30, 2022. Accordingly, the assets, liabilities, stockholders’ equity and revenues and expenses of Barnwell’s subsidiaries operating in Canada have been adjusted to reflect the change in the exchange rates. Other comprehensive income and losses are not included in net earnings and net loss. Other comprehensive income due to foreign currency translation adjustments, net of taxes, for the three months ended June 30, 2023 was $15,000, a $123,000 change from other comprehensive loss due to foreign currency translation adjustments, net of taxes, of $108,000 for the same period in the prior year. Other comprehensive income due to foreign currency translation adjustments, net of taxes, for the nine months ended June 30, 2023 was $17,000, a $138,000 change from other comprehensive loss due to foreign currency translation adjustments, net of taxes, of $121,000 for the same period in the prior year. There were no taxes on other comprehensive (loss) income due to foreign currency translation adjustments in the three and nine months ended June 30, 2023 and 2022 due to a full valuation allowance on the related deferred tax asset.
Oil and Natural Gas
The following tables set forth Barnwell’s average prices per unit of production and net production volumes. Production amounts reported are net of royalties.
| Average Price Per Unit | |||||||||||||||||||||||
| Three months ended | Increase | ||||||||||||||||||||||
| June 30, | (Decrease) | ||||||||||||||||||||||
| 2023 | 2022 | $ | % | ||||||||||||||||||||
| Natural Gas (Mcf)* | $ | 1.82 | $ | 6.40 | $ | (4.58) | (72 | %) | |||||||||||||||
| Oil (Bbls)** | $ | 65.96 | $ | 104.83 | $ | (38.87) | (37 | %) | |||||||||||||||
| Natural gas liquids (Bbls)** | $ | 28.63 | $ | 53.08 | $ | (24.45) | (46 | %) | |||||||||||||||
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| Average Price Per Unit | |||||||||||||||||||||||
| Nine months ended | Increase | ||||||||||||||||||||||
| June 30, | (Decrease) | ||||||||||||||||||||||
| 2023 | 2022 | $ | % | ||||||||||||||||||||
| Natural Gas (Mcf)* | $ | 2.88 | $ | 4.91 | $ | (2.03) | (41 | %) | |||||||||||||||
| Oil (Bbls)** | $ | 67.68 | $ | 88.12 | $ | (20.44) | (23 | %) | |||||||||||||||
| Natural gas liquids (Bbls)** | $ | 34.66 | $ | 47.50 | $ | (12.84) | (27 | %) | |||||||||||||||
| Net Production | |||||||||||||||||||||||
| Three months ended | Increase | ||||||||||||||||||||||
| June 30, | (Decrease) | ||||||||||||||||||||||
| 2023 | 2022 | Units | % | ||||||||||||||||||||
| Natural Gas (Mcf)* | 330,000 | 254,000 | 76,000 | 30 | % | ||||||||||||||||||
| Oil (Bbls)** | 53,000 | 47,000 | 6,000 | 13 | % | ||||||||||||||||||
| Natural gas liquids (Bbls)** | 16,000 | 13,000 | 3,000 | 23 | % | ||||||||||||||||||
| Net Production | |||||||||||||||||||||||
| Nine months ended | Increase | ||||||||||||||||||||||
| June 30, | (Decrease) | ||||||||||||||||||||||
| 2023 | 2022 | Units | % | ||||||||||||||||||||
| Natural Gas (Mcf)* | 857,000 | 674,000 | 183,000 | 27 | % | ||||||||||||||||||
| Oil (Bbls)** | 144,000 | 128,000 | 16,000 | 13 | % | ||||||||||||||||||
| Natural gas liquids (Bbls)** | 34,000 | 36,000 | (2,000) | (6 | %) | ||||||||||||||||||
_______________________________________
* Mcf = 1,000 cubic feet. Natural gas price per unit is net of pipeline charges.
** Bbl = stock tank barrel equivalent to 42 U.S. gallons
The oil and natural gas segment generated a $287,000 operating profit before general and administrative expenses in the three months ended June 30, 2023, a decrease in operating results of $3,836,000 as compared to the $4,123,000 operating profit before general and administrative expenses generated during the same period of the prior year. The oil and natural gas segment generated a $2,974,000 operating profit before general and administrative expenses in the nine months ended June 30, 2023, a decrease in operating results of $5,147,000 as compared to the $8,121,000 operating profit before general and administrative expenses generated during the same period of the prior year.
The following table sets forth Barnwell’s oil and natural gas segment operating profits before general and administrative expenses by geographic location:
| Three months ended June 30, | Nine months ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Operating profit (loss) (before general and administrative expenses) | |||||||||||||||||||||||
| Canada | $ | (71,000) | $ | 3,481,000 | $ | 2,017,000 | $ | 6,015,000 | |||||||||||||||
| Oklahoma | 201,000 | 642,000 | 800,000 | 2,106,000 | |||||||||||||||||||
| Texas | 157,000 | — | 157,000 | — | |||||||||||||||||||
| Total operating profit | $ | 287,000 | $ | 4,123,000 | $ | 2,974,000 | $ | 8,121,000 | |||||||||||||||
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Oil and natural gas revenues decreased $2,789,000 (38%) for the three months ended June 30, 2023, as compared to the same period in the prior year, primarily due to significant decreases in natural gas, oil, and natural gas liquid prices, which decreased 72%, 37%, and 46%, respectively, as compared to the same period in the prior year. The decrease was partially offset by 13% and 30% increases in oil and natural gas production, respectively, as compared to the same period in the prior year. Oil and natural gas revenues decreased $2,930,000 (18%) for the nine months ended June 30, 2023, as compared to the same period in the prior year, primarily due to 41%, 23%, and 27% decreases in natural gas, oil, and natural gas liquid prices, respectively, and was partially offset by 13% and 27% increases in oil and natural gas production, respectively, as compared to the same period in the prior year. The increase in oil and natural gas production in the nine months of the current year was due to new wells drilled in the Twining area and from new wells drilled in Texas, partially offset by a decrease in production from the Oklahoma wells.
The two gross (0.3 net) non-operated wells drilled in Texas began producing in late April 2023 and the Company’s share of net production from these wells totaled 6,000 barrels of oil, 5,000 barrels of natural gas liquids, and 53,000 Mcf of natural gas for total revenues of $590,000 during the three and nine months ended June 30, 2023.
Our Oklahoma operations generated $279,000 (6%) and $1,105,000 (8%) of our oil and natural gas segment revenues for the three and nine months ended June 30, 2023, respectively, as compared to $840,000 (12%) and $2,796,000 (17%) of our oil and natural gas segment revenues for the three and nine months ended June 30, 2022, respectively.
Oil and natural gas operating expenses increased $609,000 (25%) and $1,278,000 (20%) for the three and nine months ended June 30, 2023, respectively, as compared to the same periods in the prior year, primarily due to costs associated with new production from wells drilled in the Twining area and from new wells drilled in Texas and was partially offset by a decrease in production from wells in Oklahoma in the current year periods as compared to the prior year periods.
Oil and natural gas segment depletion increased $438,000 (57%) and $939,000 (53%) for the three and nine months ended June 30, 2023, respectively, as compared to the same periods in the prior year. The increases were due to depletion attributable to production in Texas, whereas there was no such depletion in the prior year periods, and increases in the depletion rate for Canadian properties and also new production from those properties, both of which were the result of the drilling of new wells, acquisition of additional working interests, and facilities expansion and upgrade costs, all in the Twining area. The increases in oil and natural gas depletion was partially offset by decreases in depletion for Oklahoma properties due to the decrease in production from wells in Oklahoma in the current year periods as compared to the prior year periods.
Oil prices continue to be volatile over time and thus the Company is unable to reasonably predict future oil, natural gas and natural gas liquids prices and the impacts future prices will have on the Company.
Sale of Interest in Leasehold Land
Kaupulehu Developments is entitled to receive a percentage of the gross receipts from the sales of lots and/or residential units in Increment I by KD I.
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The following table summarizes the revenues received from KD I and the amount of fees directly related to such revenues:
| Three months ended June 30, | Nine months ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Sale of interest in leasehold land: | |||||||||||||||||||||||
| Revenues - sale of interest in leasehold land | $ | — | $ | 695,000 | $ | 265,000 | $ | 1,295,000 | |||||||||||||||
| Fees - included in general and administrative expenses | — | (85,000) | (32,000) | (158,000) | |||||||||||||||||||
| Sale of interest in leasehold land, net of fees paid | $ | — | $ | 610,000 | $ | 233,000 | $ | 1,137,000 | |||||||||||||||
No lots were sold during the three months ended June 30, 2023 and 2022. During the nine months ended June 30, 2023, Barnwell received $265,000 in percentage of sales payments from KD I from the sale of one single-family lot within Increment I. During the nine months ended June 30, 2022, Barnwell received $1,295,000 in percentage of sales payments from KD 1 from the sale of six single-family lots within Increment I.
As of June 30, 2023, only one single-family lot of the 79 lots developed within Increment I remained to be sold and it is not expected to be sold in the Company's fiscal 2023. The Company does not have a controlling interest in Increments I and II, and there is no assurance with regards to the amounts of future sales from Increments I and II, or that the remaining acreage within Increment II will be developed. No definitive development plans have been made by KD II, the developer of Increment II, as of the date of this report.
Contract Drilling
Contract drilling revenues and contract drilling costs increased $398,000 (54%) and $210,000 (24%), respectively, for the three months ended June 30, 2023, as compared to the same period in the prior year. The contract drilling segment generated a $5,000 operating profit before general and administrative expenses in the three months ended June 30, 2023, an increase in operating results of $182,000 as compared to the $177,000 operating loss generated during the same period of the prior year. Contract drilling revenues and contract drilling costs increased $2,153,000 (89%) and $1,570,000 (57%), respectively, for the nine months ended June 30, 2023, as compared to the same period in the prior year. The contract drilling segment generated a $110,000 operating profit before general and administrative expenses in the nine months ended June 30, 2023, an increase in operating results of $579,000 as compared to the $469,000 operating loss generated during the same period of the prior year.
The increases in contract drilling revenues and contract drilling costs for the three and nine months ended June 30, 2023 as compared to the same periods in the prior year are due to a higher level of activity in the current year nine month period and work performed on higher value water well drilling contracts in the three and nine month current year periods as compared to the same periods in the prior year. Additionally, the increases in contract drilling revenues and contract drilling costs for the nine months ended June 30, 2023 was also due to a higher amount of revenues and expenses recognized from previously uninstalled materials during the current year period.
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In the quarter ended December 31, 2021, it was determined that a contract drilling segment well completed in the period did not meet the contract specifications for plumbness under a gyroscopic plumbness test which the contract required. While the well did pass the cage plumbness test, the contract uses the gyroscopic test as the measure of plumbness. Barnwell and the customer currently have an arrangement where Barnwell will provide for centralizers, armored cabling and a pump installation and removal test to confirm that plumbness is satisfactory. Barnwell’s management believes the plumbness deviation is not impactful to the performance of the submersible pumps that will be installed in the well. Accordingly, while costs for the centralizers, armored cabling and the pump installation and removal test have been accrued, no accrual has been recorded as of June 30, 2023 for any further costs related to this contract as there is no related probable or estimable contingent liability.
There has been a significant decrease in demand for water well drilling contracts in recent years that has generally led to increased competition for available contracts and lower margins on awarded contracts. The Company is unable to predict the near-term and long-term availability of water well drilling and pump installation and repair contracts as a result of this volatility in demand. The continuing potential impact of COVID-19 on the health of our contract drilling segment's crew is uncertain, and any work stoppage or discontinuation of contracts currently in backlog due to COVID-19 impacts could result in a material adverse impact to the Company’s financial condition and outlook.
General and Administrative Expenses
General and administrative expenses decreased $385,000 (22%) for the three months ended June 30, 2023 as compared to the same period in the prior year. The decrease was due to decreases of $127,000 in share-based compensation expense, $98,000 in accrued bonus expense, and $129,000 in professional fees primarily related to legal services in the current year period as compared to the same period in the prior year.
General and administrative expenses decreased $157,000 (3%) for the nine months ended June 30, 2023 as compared to the same period in the prior year. The decrease was primarily due to decreases of $363,000 in share-based compensation expense, $92,000 in accrued bonus expense, $70,000 in compensation costs, and $126,000 in professional fees related to land investment segment proceeds in the current year period as compared to the same period in the prior year. The decrease in general and administrative expenses was partially offset by an increase of $492,000 in stockholders costs primarily attributed to the cooperation and support agreement and associated fees to certain directors, as discussed below, in the current year period as compared to the same period in the prior year.
In January 2023, the Company entered into a cooperation and support agreement (the “Cooperation Agreement”) with Alexander C. Kinzler, the Company’s CEO and President in his capacity as a stockholder, MRMP-Managers LLC, the Ned L. Sherwood Revocable Trust, NLS Advisory Group, Inc. and Ned L. Sherwood (collectively, the “MRMP Stockholders”), with respect to a potential proxy contest pertaining to the election of directors to our Board of Directors (the “Board”). Pursuant to the terms of the Cooperation Agreement, among other things, the Company agreed to promptly appoint Joshua S. Horowitz and Laurance Narbut, effective February 9, 2023, to serve on the Board. In addition, the Company agreed to nominate a five-person board comprised of Mr. Kinzler, Kenneth Grossman, Douglas Woodrum, and Messrs. Horowitz and Narbut as candidates for election to the Board at the 2023 Annual Meeting, which was held on April 17, 2023, and the 2024 annual meeting of stockholders (the “2024 Annual Meeting”) and Mr. Kinzler and the MRMP Stockholders agreed to vote their respective shares of common stock of the Company in favor of the election of the Company’s slate at the 2023 Annual Meeting and the 2024 Annual Meeting. Additionally, pursuant to the terms of the Cooperation Agreement,
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the Company terminated the previously adopted Tax Benefits Preservation Plan. In exchange for this arrangement, the Company agreed to reimburse the MRMP Stockholders and Mr. Kinzler for their reasonable, documented out-of-pocket fees and expenses (including legal expenses) in connection with the negotiation and execution of the Cooperation Agreement and the transactions contemplated hereby and the proposed nomination of directors at the 2023 Annual Meeting. The Company incurred approximately $339,000 in expenses under the Cooperation Agreement in the nine months ended June 30, 2023 with respect to the such reimbursements to the MRMP Stockholders and Mr. Kinzler.
In May 2023, the Company’s Board of Directors approved and ratified the payment of one-time special director fees to directors Messrs. Grossman and Woodrum for their services on behalf of the Company and the Board pertaining to the negotiations of the Cooperation Agreement and the settlement of the potential proxy contest. Mr. Grossman received a one-time special director fee of $100,000, which was paid in $40,000 cash and a stock grant of 22,728 shares of Barnwell common stock (valued at $60,000 using the closing price of Barnwell's common stock on May 11, 2023, the date of grant). Mr. Woodrum received a one-time special director fee of $50,000, which was paid in $20,000 cash and a stock grant of 11,363 shares of Barnwell common stock (valued at $30,000 using the closing price of Barnwell's common stock on May 11, 2023, the date of grant).
Depletion, Depreciation, and Amortization
Depletion, depreciation, and amortization increased $443,000 (54%) and $943,000 (49%) for the three and nine months ended June 30, 2023, respectively, as compared to the same periods in the prior year, due to depletion attributable to production in Texas and increases in the depletion rates for Canadian properties and also new production from those properties, partially offset by a decrease in depletion for Oklahoma properties as discussed in the “Oil and natural gas” section above.
Foreign Currency Gain
Foreign currency gain was $121,000 and $201,000 during the three and nine months ended June 30, 2023, respectively, as compared to none during the three and nine months ended June 30, 2022, due to the effects of foreign exchange rate changes on intercompany loans and advances as a result of the weakening of the U.S. dollar against the Canadian dollar. The foreign currency gain from intercompany balances was included in our condensed consolidated net earnings as the intercompany balances were not considered long-term in nature because management estimates that these intercompany balances will be settled in the future.
Gain on Sale of Assets
In October 2022, the Company completed the sale of a contract drilling segment drilling rig to an independent third party for proceeds of $551,000, net of related costs. The drilling rig was fully depreciated and had a net book value of zero and as a result of the sale, the Company recognized a $551,000 gain during the nine months ended June 30, 2023.
Equity in Income of Affiliates
Equity in income of affiliates was nil and $538,000 during the three and nine months ended June 30, 2023, respectively, as compared to equity in income of affiliates of $433,000 and $3,400,000 during the three and nine months ended June 30, 2022, respectively. The decrease in partnership income is primarily due to the Kukio Resort Land Development Partnerships' sale of one lot during the current year
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period, as compared to six lot sales in the prior year period. The Kukio Resort Land Development Partnerships have only one lot to sell in Increment I and we are not anticipating any more lot sales in fiscal 2023.
During the nine months ended June 30, 2023, Barnwell received cash distributions of $538,000 from the Kukio Resort Land Development Partnerships resulting in a net amount of $478,000, after distributing $60,000 to non-controlling interests. During the nine months ended June 30, 2022, Barnwell received cash distributions of $3,400,000 from the Kukio Resort Land Development Partnerships resulting in a net amount of $3,028,000 after distributing $372,000 to non-controlling interests.
In the quarter ended June 30, 2021, the Company received cumulative distributions from the Kukio Resort Land Development Partnerships in excess of our investment balance and in accordance with applicable accounting guidance, the Company suspended its equity method earnings recognition and the Kukio Resort Land Development Partnerships investment balance was reduced to zero with the distributions received in excess of our investment balance recorded as equity in income of affiliates because the distributions are not refundable by agreement or by law and the Company is not liable for the obligations of or otherwise committed to provide financial support to the Kukio Resort Land Development Partnerships. The Company will record future equity method earnings only after our share of the Kukio Resort Land Development Partnerships’ cumulative earnings in excess of distributions during the suspended period exceeds our share of the Kukio Resort Land Development Partnerships’ income recognized for the excess distributions, and during this suspended period any distributions received will be recorded as equity in income of affiliates. Accordingly, the amount of equity in income of affiliates recognized in the nine months ended June 30, 2023 was equivalent to the $538,000 of distributions received in that period.
Cumulative distributions received from the Kukio Resort Land Development Partnerships in excess of our investment balance was $993,000 at June 30, 2023 and $958,000 at September 30, 2022.
Income Taxes
Barnwell’s effective consolidated income tax rate, after adjusting (loss) earnings before income taxes for non-controlling interests, was 19% and 9% for the three and nine months ended June 30, 2023, respectively, as compared to 3% and 5% for the three and nine months ended June 30, 2022, respectively.
Consolidated taxes do not bear a customary relationship to pretax results due primarily to the fact that the Company is taxed separately in Canada based on Canadian source operations and in the U.S. based on consolidated operations, and essentially all deferred tax assets, net of relevant offsetting deferred tax liabilities, are not estimated to have a future benefit as tax credits or deductions. Income from our non-controlling interest in the Kukio Resort Land Development Partnerships is treated as non-unitary for state of Hawaii unitary filing purposes, thus unitary Hawaii losses provide limited sheltering of such non-unitary income. Income from our investment in the Oklahoma oil venture is 100% allocable to Oklahoma. As such, Barnwell receives no benefit from consolidated or unitary losses and, therefore, is subject to Oklahoma state taxes. Consolidated taxes also include the impacts of favorable state jurisdiction provision to tax return true-ups. In addition, net operating loss carryforwards, the benefit of which had not previously been recognized due to the Company's continuing full valuation allowance, are estimated to be partially utilized in the Canadian tax jurisdiction in the current year periods as the recognized benefit is now considered more likely to occur than not.
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Net Earnings Attributable to Non-controlling Interests
Earnings and losses attributable to non-controlling interests represent the non-controlling interests’ share of revenues and expenses related to the various partnerships and joint ventures in which Barnwell has controlling interests and consolidates.
Net earnings attributable to non-controlling interests totaled $2,000 and $124,000 for the three and nine months ended June 30, 2023, respectively, as compared to net earnings attributable to non-controlling interests of $58,000 and $671,000 for the same periods in the prior year. The changes of $56,000 (97%) and $547,000 (82%) for the three and nine months, respectively, are primarily due to decreases in the amount of equity in income of affiliates and percentage of sales revenues received in the current year periods as compared to the same periods in the prior year.
Liquidity and Capital Resources
Barnwell’s primary sources of liquidity are cash on hand, cash flow generated by operations and land investment segment proceeds. At June 30, 2023, Barnwell had $1,581,000 in working capital.
Cash Flows
Cash flows provided by operations totaled $157,000 for the nine months ended June 30, 2023, as compared to cash flows provided by operations of $5,669,000 for the same period in the prior year. This $5,512,000 change in operating cash flows was due to significantly lower operating results for the oil and natural gas segment in the current year period as compared to the prior year period. Additionally, the change was also due to a decrease in distributions of income from the Kukio Resort Land Development Partnerships in the current year period as compared to the prior year period and fluctuations in working capital.
Cash flows used in investing activities totaled $9,875,000 during the nine months ended June 30, 2023, as compared to cash flows used in investing activities of $6,063,000 during the same period of the prior year. This $3,812,000 change in investing cash flows was due to an increase of $3,481,000 in cash paid for oil and natural gas capital expenditures, a decrease of $904,000 in proceeds from sale of interest in leasehold land, net of costs paid, and a decrease of $687,000 in proceeds from the sale of assets in the current year period as compared to same period in the prior year, partially offset by a $1,563,000 decrease in payments to acquire oil and natural gas properties in the current year period as compared to the same period in the prior year.
Cash flows used in financing activities totaled $577,000 for the nine months ended June 30, 2023, as compared to cash flows provided by financing activities of $1,727,000 for the nine months ended June 30, 2022. The $2,304,000 change in financing cash flows was due to a $499,000 increase in payment of dividends and a $2,356,000 decrease in proceeds from issuance of common stock, net of costs, related to the Company's ATM offering in the prior year period, partially offset by a $501,000 decrease in distributions to non-controlling interests in the current year period as compared to the same period in the prior year.
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Cash Dividends
In December 2022, the Company's Board of Directors declared a cash dividend of $0.015 per share that was paid on January 11, 2023 to stockholders of record on December 27, 2022.
In February 2023, the Company's Board of Directors declared a cash dividend of $0.015 per share that was paid on March 13, 2023 to stockholders of record on February 23, 2023.
In May 2023, the Company's Board of Directors declared a cash dividend of $0.015 per share that was paid on June 12, 2023 to stockholders of record on May 25, 2023.
No dividends were declared or paid during the nine months ended June 30, 2022.
Canada Emergency Business Account Loan
In the quarter ended December 31, 2020, the Company’s Canadian subsidiary, Barnwell of Canada, received a loan of CAD$40,000 (in Canadian dollars) under the Canada Emergency Business Account (“CEBA”) loan program for small businesses. In the quarter ended March 31, 2021, the Company applied for an increase to our CEBA loan and received an additional CAD$20,000 for a total loan amount received of CAD$60,000 ($45,000) under the program. In January 2022, the Canadian government announced the extension of the CEBA loan repayment deadline and interest-free period from December 31, 2022 to December 31, 2023. Accordingly, the CEBA loan is interest-free with no principal payments required until December 31, 2023, after which the remaining loan balance is converted to a two year term loan at 5% annual interest paid monthly. If the Company repays 66.7% of the principal amount prior to December 31, 2023, there will be loan forgiveness of 33.3% up to a maximum of CAD$20,000. The current loan balance of $45,000 is included in “Other current liabilities” in the Company's Condensed Consolidated Balance sheet at June 30, 2023.
At The Market Offering
On March 16, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P,”), with respect to the ATM pursuant to which the Company may offer and sell, from time to time, shares of its common stock, par value $0.50 per share, having an aggregate sales price of up to $25 million (subject to certain limitations set forth in the Sales Agreement and applicable securities laws, rules and regulations), through or to A.G.P as the Company’s sales agent or as principal. Sales of our common stock under the ATM, if any, will be made by any methods deemed to be “at the market offerings” as defined in Rule 415(a)(4) under the Securities Act, including sales made directly on the NYSE American, on any other existing trading market for our Common Stock, or to or through a market maker. Shares of common stock sold under the ATM are offered pursuant to the Company’s Registration Statement on Form S-3 (File No. 333-254365), filed with the Securities and Exchange Commission on March 16, 2021, and declared effective on March 26, 2021 (the "Registration Statement”), and the prospectus dated March 26, 2021, included in the Registration Statement.
During the nine months ended June 30, 2022, the Company sold 509,467 shares of common stock resulting in net proceeds of $2,356,000 after commissions and fees of $75,000 and ATM-related professional services of $22,000. In August 2022, the Company’s Board of Directors suspended the sales of our common stock under the ATM until further notice.
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Oil and Natural Gas Capital Expenditures
Barnwell’s oil and natural gas capital expenditures, including accrued capital expenditures and excluding acquisitions and additions and revisions to estimated asset retirement obligations, totaled $2,336,000 and $10,016,000 for the three and nine months ended June 30, 2023, respectively, as compared to $1,687,000 and $7,353,000 for the same periods in the prior year.
In December 2022, Barnwell Texas, LLC (“Barnwell Texas”), a new wholly-owned subsidiary of the Company, entered into a purchase and sale agreement with an independent third party whereby Barnwell Texas acquired a 22.3% non-operated working interest in oil and natural gas leasehold acreage in the Permian Basin in Texas for cash consideration of $806,000. In connection with the purchase of such leasehold interests, Barnwell Texas acquired a 15.4% non-operated working interest in two oil wells in the Wolfcamp Formation in Loving and Ward Counties, Texas and has paid $4,293,000 for its share of the costs to drill, complete and equip the wells through the nine months ended June 30, 2023. The two gross (0.3 net) non-operated wells began producing in late April 2023 and the Company’s share of net production from these wells totaled 6,000 barrels of oil, 5,000 barrels of natural gas liquids, and 53,000 Mcf of natural gas during the three and nine months ended June 30, 2023.
In the quarter ended March 31, 2023, the Company participated in the drilling of three gross (0.9 net) non-operated wells in the Twining area of Alberta, Canada. All three wells were completed and began producing during the latter part of the three months ended June 30, 2023. Capital expenditures incurred for the drilling of these wells and Twining facilities in the nine months ended June 30, 2023 totaled approximately $4,649,000.
In fiscal 2022, the Company participated in the drilling of one operated and three non-operated for a total of four gross (1.9 net) wells in the Twining area of Alberta, Canada and the capital expenditures incurred for the drilling these wells in the nine months ended June 30, 2022 totaled approximately $4,858,000.
Barnwell estimates that investments in oil and natural gas properties for fiscal 2023 will range from $10,200,000 to $10,500,000. This estimated amount may increase or decrease as dictated by cash flows and management's assessment of the oil and natural gas environment and prospects.
Oil and Natural Gas Property Acquisitions
In the quarter ended December 31, 2021, Barnwell acquired working interests in oil and natural gas properties located in the Twining area of Alberta, Canada, for cash consideration of $317,000.
In the quarter ended March 31, 2022, Barnwell acquired additional working interests in oil and natural gas properties located in the Twining area of Alberta, Canada for consideration of $1,246,000. The purchase price per the agreement was adjusted for customary purchase price adjustments to reflect the economic activity from the effective date to the closing date. Barnwell also assumed $1,500,000 in asset retirement obligations associated with the acquisition.
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ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that material information relating to Barnwell, including its consolidated subsidiaries, is made known to the officers who certify Barnwell’s financial reports and to other members of executive management and the Board of Directors.
As of June 30, 2023, an evaluation was carried out by Barnwell’s Chief Executive Officer and Chief Financial Officer of the effectiveness of Barnwell’s disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that Barnwell’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective as of June 30, 2023 to ensure that information required to be disclosed by Barnwell in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in th3e Securities Exchange Act of 1934 and the rules thereunder.
Changes in Internal Control Over Financial Reporting
There was no change in Barnwell’s internal control over financial reporting during the quarter ended June 30, 2023 that materially affected, or is reasonably likely to materially affect, Barnwell’s internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
| Exhibit Number | Description | |||||||
| 10.1 | Form of Director Restricted Stock Unit Award (1) | |||||||
| 31.1 | Certification of Chief Executive Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||
| 31.2 | Certification of Chief Financial Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||
| 32 | Certification Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||
| 101.INS | Inline XBRL Instance Document | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
__________________________________________________
(1) Incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on June 15, 2023.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BARNWELL INDUSTRIES, INC. | ||||||||
| (Registrant) | ||||||||
| Date: | August 14, 2023 | /s/ Russell M. Gifford | ||||||
| Russell M. Gifford | ||||||||
| Executive Vice President, | ||||||||
| Chief Financial Officer, | ||||||||
| Treasurer and Secretary | ||||||||
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INDEX TO EXHIBITS
| Exhibit Number | Description | |||||||
| 10.1 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32 | ||||||||
| 101.INS | Inline XBRL Instance Document | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
__________________________________________________
(1) Incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on June 15, 2023.
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Exhibit No. 31.1
Certifications
I, Alexander C. Kinzler, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Barnwell Industries, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | August 14, 2023 | /s/ Alexander C. Kinzler | ||||||
| Alexander C. Kinzler | ||||||||
| President, Chief Executive Officer, Chief Operating Officer, General Counsel | ||||||||
Exhibit No. 31.2
Certifications
I, Russell M. Gifford, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Barnwell Industries, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | August 14, 2023 | /s/ Russell M. Gifford | ||||||
| Russell M. Gifford | ||||||||
| Executive Vice President, Chief Financial Officer, Treasurer and Secretary | ||||||||
Exhibit No. 32
Barnwell Industries, Inc.
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Barnwell Industries, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2023 as filed with the Securities and Exchange Commission (the “Report”), each of the undersigned officers of the Company does hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: | August 14, 2023 | /s/ Alexander C. Kinzler | ||||||
| Alexander C. Kinzler | ||||||||
| Title: President, Chief Executive Officer, Chief Operating Officer, General Counsel | ||||||||
| Dated: | August 14, 2023 | /s/ Russell M. Gifford | ||||||
| Name: Russell M. Gifford | ||||||||
| Title: Executive Vice President, Chief Financial Officer, Treasurer and Secretary | ||||||||
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-Q or as a separate disclosure document.
A signed original of the written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.