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What changed in BARNWELL INDUSTRIES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of BARNWELL INDUSTRIES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+291 added−316 removedSource: 10-K (2023-12-18) vs 10-K (2022-12-29)

Top changes in BARNWELL INDUSTRIES INC's 2023 10-K

291 paragraphs added · 316 removed · 223 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

86 edited+20 added−9 removed43 unchanged
Biggest changeNo estimates of total proved net oil or natural gas reserves have been filed with, or included in reports to, any federal authority or agency, other than the SEC, since October 1, 2021.
Biggest changeNo estimates of total proved net oil or natural gas reserves have been filed with, or included in reports to, any federal authority or agency, other than the SEC, since October 1, 2022. 7 As of September 30, 2023 Estimated Net Proved Developed Reserves Estimated Net Proved Undeveloped Reserves Estimated Net Proved Reserves Oil, including natural gas liquids (Bbls) 1,116,000 110,000 1,226,000 Natural gas (Mcf) 6,093,000 608,000 6,701,000 Total (Boe) 2,132,000 211,000 2,343,000 During fiscal 2023, Barnwell’s total net proved developed reserves of oil and natural gas liquids increased by 70,000 Bbls (7%) and total net proved developed reserves of natural gas increased by 1,236,000 Mcf (25%), for a combined increase of 249,000 Boe (13%).
The Canadian Legacy assets are located throughout Alberta, Canada, and produce shallow gas and conventional oil from a variety of pools. These assets have been accumulated over decades of Barnwell activity. Barnwell continues to evaluate opportunities to either divest the legacy Canadian assets or add to them through acquiring working interests depending on technical and economic evaluations.
The Legacy assets are located throughout Alberta, Canada, and produce shallow gas and conventional oil from a variety of pools. These assets have been accumulated over decades of Barnwell activity. Barnwell continues to evaluate opportunities to either divest the legacy Canadian assets or add to them through acquiring working interests depending on technical and economic evaluations.
Barnwell has included all abandonment, decommissioning and reclamation costs and inactive well costs in accordance with best practice recommendations into the Company’s reserve reports.
Barnwell has included all abandonment, decommissioning and reclamation costs and inactive well costs into the Company’s reserve reports in accordance with best practice recommendations.
Capital Expenditures and Acquisitions Barnwell invested $11,052,000 in oil and natural gas properties during fiscal 2022, including accrued capital expenditures and acquisitions of oil and natural gas properties and excluding additions and revisions to estimated asset retirement obligations.
Barnwell invested $11,052,000 in oil and natural gas properties during fiscal 2022, including accrued capital expenditures and acquisitions of oil and natural gas properties and excluding additions and revisions to estimated asset retirement obligations.
Also, in addition to Barnwell’s existing obligations to pay professional fees to certain parties based on percentages of its gross receipts, Kaupulehu Developments also is obligated to pay an amount equal to 0.72% and 0.2% of the cumulative net profits of KD II to KD Development and a pool of various individuals, respectively, all of whom are partners of KKM and are unrelated to Barnwell, in compensation for the agreement of these parties to admit the new development partner for Increment II.
Also, in addition to Barnwell’s existing obligations to pay professional fees to certain parties based on percentages of its gross receipts, Kaupulehu Developments also is obligated to pay an amount equal to 0.72% and 0.2% of the cumulative net profits of KD II to KD Development and a pool of various individuals, respectively, all of whom are partners of KKM and are unrelated to Barnwell, in compensation for the agreement of these parties to admit the new development partner, Replay, for Increment II.
Factors considered are grouped into six factor groups, these being current financial distress, liability magnitude, resources lifespan, operations compliance, closure efficiency, and administrative compliance. These factors are compared to peer operators and ranked into three “Tiers.” Barnwell’s assessment under the LCA Program 12 is currently favorable with Tier 1 or 2 overall rankings in the six factor groups.
Factors considered are grouped into six factor groups, these being current financial distress, liability magnitude, resources lifespan, operations compliance, closure efficiency, and administrative compliance. These factors are compared to peer operators and ranked into three “Tiers.” Barnwell’s assessment under the LCA Program is currently favorable with Tier 1 or 2 overall rankings in the six factor groups.
Barnwell of Canada is a U.S. incorporated company that has been active in Canada for over 50 years, primarily as a non-operator participating in exploration projects operated by others. Octavian Oil is a Canadian company incorporated in 2016 to achieve growth through the acquisition and development of crude oil reserves and development of those reserves.
Barnwell of Canada is a U.S. incorporated company that has been active in Canada for over 50 years, primarily as a non-operator participating in exploration projects operated by others. Octavian Oil is a Canadian company incorporated in 2016 to achieve growth through the acquisition and development of crude oil reserves.
In 2004 and 2006, Kaupulehu Developments sold its leasehold interest in Kaupulehu Lot 4A to KD I's and KD II's predecessors in interest, which was prior to Barnwell’s affiliation with KD I and KD 14 II which commenced on November 27, 2013, the acquisition date of our ownership interest in the Kukio Resort Land Development Partnerships.
In 2004 and 2006, Kaupulehu Developments sold its leasehold interest in Kaupulehu Lot 4A to KD I's and KD II's predecessors in interest, 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.
No definitive development plans have been made by the developer of Increment II as of the date of this report. 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.
No definitive development plans have been made by KDII, the developer of Increment II, as of the date of this report. 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.
The amount of oil and natural gas produced is subject to control by regulatory agencies in each province. The province of Alberta and the Government of Canada also monitor the volume of natural gas that may be removed from the province and the conditions of removal; currently all our natural gas is sold within Alberta.
The amount of oil and natural gas produced is subject to control by regulatory agencies in each province. The province of Alberta and the Government of Canada also monitor the volume of natural gas that may be removed from the province and the conditions of removal; currently all our Canadian natural gas is sold within Alberta.
The purchasers of the 80 single-family lots have the right to apply for membership in the Kuki`o Golf and Beach Club, which is located adjacent to and south of the Four Seasons Resort Hualalai at Historic Ka`upulehu.
The purchasers of the 80 single-family lots also have the right to apply for membership in the Kuki`o Golf and Beach Club, which is located adjacent to and south of the Four Seasons Resort Hualalai at Historic Ka`upulehu.
The arrangement also gives Barnwell 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.
The arrangement 15 also gives Barnwell 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.
Contract revenues are not dependent upon the discovery of water or other similar targets, and contracts are not subject to renegotiation of profits or termination at the election of the governmental entities involved. Contracts provide for arbitration in the event of disputes.
Contract revenues are not dependent upon the discovery of water or other 16 similar targets, and contracts are not subject to renegotiation of profits or termination at the election of the governmental entities involved. Contracts provide for arbitration in the event of disputes.
Technologies relied on to establish reasonable certainty of economic producibility include electrical logs, radioactivity logs, core analyses, geologic maps and available production data, seismic data and well test data. 8 Standardized Measure of Discounted Future Net Cash Flows The following table sets forth Barnwell’s “Estimated Future Net Revenues” from total proved oil, natural gas and natural gas liquids reserves located in Canada and the U.S. and the present value of Barnwell’s “Estimated Future Net Revenues” (discounted at 10%) as of September 30, 2022.
Technologies relied on to establish reasonable certainty of economic producibility include electrical logs, radioactivity logs, core analyses, geologic maps and available production data, seismic data and well test data. 8 Standardized Measure of Discounted Future Net Cash Flows The following table sets forth Barnwell’s “Estimated Future Net Revenues” from total proved oil, natural gas and natural gas liquids reserves located in Canada and the U.S. and the present value of Barnwell’s “Estimated Future Net Revenues” (discounted at 10%) as of September 30, 2023.
Reserves The amounts set forth in the following table, based on our independent reserve engineers’ evaluation of our reserves, summarize our estimated proved reserves of oil (including natural gas liquids) and natural gas as of September 30, 2022 for all properties located in Canada and the U.S. in which Barnwell has an interest.
The amounts set forth in the following table, based on our independent reserve engineers’ evaluation of our reserves, summarize our estimated proved reserves of oil (including natural gas liquids) and natural gas as of September 30, 2023 for all properties located in Canada and the U.S. in which Barnwell has an interest.
Under the new agreement with the OWA, the Company is required to pay the abandonment and reclamation costs in advance through a cash deposit.
Under the agreement with the OWA, the Company is required to pay the abandonment and reclamation costs in advance through a cash deposit.
Operations All acquisitions, operational and developmental activities in the Twining area are the responsibility of the President and Chief Operating Officer of Octavian Oil with approvals for major expenditures secured from Barnwell’s executive management and, when applicable, the Board of Directors.
Operations All acquisitions, operational and developmental activities in the Twining area are the responsibility of the President and Chief Operating Officer of Barnwell of Canada and Octavian Oil with approvals for major expenditures secured from Barnwell’s executive management and, when applicable, the Board of Directors.
The following table sets forth Barnwell’s oil and natural gas net reserves at September 30, 2022, by location and property name, based on information prepared by our independent reserve engineers, as well as net production and net revenues by location and property name for the year ended September 30, 2022.
The following table sets forth Barnwell’s oil and natural gas net reserves at September 30, 2023, by location and property name, based on information prepared by our independent reserve engineers, as well as net production and net revenues by location and property name for the year ended September 30, 2023.
Barnwell of Canada’s President and Chief Operating Officer is a professional engineer with over 25 years of relevant experience in the oil and natural gas industry in Canada and is a member of the Association of Professional Engineers and Geoscientists of Alberta.
The President and Chief Operating Officer of Barnwell of Canada and Octavian Oil is a professional engineer with over 25 years of relevant experience in the oil and natural gas industry in Canada and is a member of the Association of Professional Engineers and Geoscientists of Alberta.
Increment I is an area of 80 single-family lots, 78 of which were sold from 2006 to 2022, and a beach club on the portion of the property bordering the Pacific Ocean.
Increment I is an area of 80 single-family lots, 78 of which were sold from 2006 to 2023, and a beach club on the portion of the property bordering the Pacific Ocean.
Barnwell operates in the following three principal business segments: • Oil and Natural Gas Segment - Barnwell engages in oil and natural gas development, production, acquisitions and sales in Canada and in the U.S. state of Oklahoma. • Land Investment Segment - Barnwell invests in land interests in Hawaii. • Contract Drilling Segment - Barnwell provides well drilling services and water pumping system installation and repairs in Hawaii.
Barnwell operates in the following three principal business segments: • Oil and Natural Gas Segment - Barnwell engages in oil and natural gas development, production, acquisitions and sales in Canada and in the U.S. states of Oklahoma and Texas. • Land Investment Segment - Barnwell invests in land interests in Hawaii. • Contract Drilling Segment - Barnwell provides well drilling services and water pumping system installation and repairs in Hawaii.
Developed Acreage and Undeveloped Acreage The following table sets forth the gross and net acres of both developed and undeveloped oil and natural gas leases in Canada which Barnwell held as of September 30, 2022.
Developed Acreage and Undeveloped Acreage The following table sets forth the gross and net acres of both developed and undeveloped oil and natural gas leases in Canada which Barnwell held as of September 30, 2023.
Pricing is Water Resources’ major method of competition; reliability of service also is a significant factor. Competitive pressures are expected to remain high, thus there is no assurance that the quantity or values of available or awarded jobs which occurred in fiscal 2022 will continue.
Pricing is Water Resources’ major method of competition; reliability of service also is a significant factor. 17 Competitive pressures are expected to remain high, thus there is no assurance that the quantity or values of available or awarded jobs which occurred in fiscal 2023 will continue.
Operations Water Resources owns and operates three water well drilling rigs, two pump rigs and other ancillary drilling and pump equipment. Additionally, Water Resources leases month-to-month a storage facility in Honolulu, Hawaii, and leases a one-acre maintenance and storage facility with 2,800 square feet of interior space in Kawaihae, Hawaii, and a one-half acre equipment storage yard in Waimea, Hawaii.
Operations Water Resources owns and operates three water well drilling rigs, two pump rigs and other ancillary drilling and pump equipment. Additionally, Water Resources leases month-to-month a storage facility in Honolulu, Hawaii, and a one-acre maintenance and storage facility with 2,800 square feet of interior space in Kawaihae, Hawaii.
“Undeveloped Acreage” includes acres covered by leases upon which there are no producing wells and which are maintained by the payment of delay rentals or the commencement of drilling thereon. Eighty-six percent of Barnwell’s undeveloped acreage is not subject to expiration at September 30, 2022.
“Undeveloped Acreage” includes acres covered by leases upon which there are no producing wells and which are maintained by the payment of delay rentals or the commencement of drilling thereon. Eighty-three percent of Barnwell’s undeveloped acreage is not subject to expiration at September 30, 2023.
Well Drilling Activities The Company participated in the drilling of six gross (1.7 net) non-operated development wells in the Twining area during the year ended September 30, 2022. Capital expenditures incurred by the Company for these non-operated development wells totaled $4,366,000 for the year ended September 30, 2022.
In fiscal 2022, the Company participated in the drilling of six gross (1.7 net) non-operated development wells in the Twining area. Capital expenditures incurred by the Company for these non-operated development wells totaled $4,366,000 for the year ended September 30, 2022.
Water Resources markets its services to land developers and government agencies, and identifies potential contracts through public notices, its officers’ involvement in the community and referrals. Contracts are usually fixed price per lineal foot drilled and are negotiated with private entities or obtained through competitive bidding with private entities or local, state and federal agencies.
Water Resources markets its services to land developers and government agencies, and identifies potential contracts through public notices, and referrals. Contracts are usually fixed price per lineal foot drilled and are negotiated with private entities or obtained through competitive bidding with private entities or local, state and federal agencies.
Barnwell’s capital expenditures were mostly for the drilling of wells in the Twining area and also were for facilities expansion and upgrade costs in the Twining area and the acquisition of additional working interests in several wells in the Twining area.
Barnwell’s capital expenditures were primarily for the drilling of wells in the Twining area, for facilities expansion and upgrade costs in the Twining area and the acquisition of additional working interests in several wells in the Twining area.
Financial Information About Industry Segments and Geographic Areas Note 11 in the “Notes to Consolidated Financial Statements” in Item 8 contains information on our segments and geographic areas. Employees At December 1, 2022, Barnwell employed 35 individuals; 34 on a full time basis and 1 on a part-time basis. Environmental Costs Barnwell is subject to extensive environmental laws and regulations.
Financial Information About Industry Segments and Geographic Areas Note 11 in the “Notes to Consolidated Financial Statements” in Item 8 contains information on our segments and geographic areas. Employees At December 1, 2023, Barnwell employed 37 individuals; 36 on a full time basis and 1 on a part-time basis. Environmental Costs Barnwell is subject to extensive environmental laws and regulations.
An estimate of fair value would also consider, among other items, the value of Barnwell’s undeveloped land position, the recovery of reserves not presently classified as proved, anticipated future changes in oil and natural gas prices (these amounts were based on a natural gas price of $4.12 per Mcf and an oil price of $81.01 per Bbl) and costs, and a discount factor more representative of the time value of money and the risks inherent in reserve estimates.
An estimate of fair value would also consider, among other items, the value of Barnwell’s undeveloped land position, the recovery of reserves not presently classified as proved, anticipated future changes in oil and natural gas prices (these amounts were based on a natural gas price of $2.54 per Mcf and an oil price of $69.66 per Bbl) and costs, and a discount factor more representative of the time value of money and the risks inherent in reserve estimates.
The prices received are freely negotiated between buyers and sellers and are determined from transparent posted prices adjusted for quality and transportation differentials. In fiscal 2022, over 80% of Barnwell’s Canadian oil and natural gas revenues were from products sold at spot prices.
The prices received are freely negotiated between buyers and sellers and are 11 determined from transparent posted prices adjusted for quality and transportation differentials. In fiscal 2023, 95% of Barnwell’s Canadian oil and natural gas revenues were from products sold at spot prices.
Five gross (1.4 net) wells were producing at September 30, 2022 and the remaining one gross (0.3 net) well is awaiting tie-in and is expected to produce in fiscal 2023. The Company drilled one gross (1.0 net) operated development well in the Twining area which was producing at September 30, 2022.
Five gross (1.4 10 net) wells were producing at September 30, 2022 and the remaining one gross (0.3 net) well was awaiting tie-in and started producing in fiscal 2023. The Company drilled one gross (1.0 net) operated development well in the Twining area which was producing at September 30, 2022.
The competition comes from numerous independent land development companies and other industries involved in land investment activities. The principal factors affecting competition are the location of the project and pricing. Barnwell is a minor participant in the land development industry and competes in its land investment activities with many other entities having far greater financial and other resources.
The principal factors affecting competition are the location of the project and pricing. Barnwell is a minor participant in the land development industry and competes in its land investment activities with many other entities having far greater financial and other resources.
At September 30, 2022, there was a backlog of seven well drilling and 14 pump installation and repair contracts, of which four well drilling and 10 pump installation and repair contracts were in progress as of September 30, 2022.
At September 30, 2023, there was a backlog of four well drilling and seven pump installation and repair contracts, of which three well drilling and four pump installation and repair contracts were in progress as of September 30, 2023.
ITEM 1. BUSINESS Overview Barnwell was incorporated in Delaware in 1956 and fiscal 2022 represented Barnwell’s 66th year of operations.
ITEM 1. BUSINESS Overview Barnwell was incorporated in Delaware in 1956 and fiscal 2023 represented Barnwell’s 67th year of operations.
Under the current royalty framework the same royalty calculation applies to both oil and natural gas wells, whereas the previous royalty framework had different royalties applicable to each category, and royalties are determined on a revenue minus cost basis where producers pay a flat royalty rate of 5% of gross revenues until a well reaches payout after which an increased post-payout royalty applies.
Under the current royalty framework for newly drilled wells, the same royalty calculation applies to both oil and natural gas wells and royalties are determined on a revenue minus cost basis where producers pay a flat royalty rate of 5% of gross revenues until a well reaches payout after which an increased post-payout royalty applies.
Since Barnwell’s entry into the Twining property, we have participated in drilling eight gross horizontal development wells that were completed with multi-stage sand fracs, all of which have been or are forecast to be profitable. Of these eight wells, two are 100%-owned operated wells chosen by Barnwell and six gross (1.7 net) are non-operated wells.
Since Barnwell’s entry into the Twining property, we have participated in drilling 11 gross horizontal development wells that were completed with multi-stage sand fracs, all of which have been or are forecast to be profitable. Of these 11 wells, two are 100%-owned operated wells in locations selected by Barnwell and nine gross (2.6 net) are non-operated wells.
For a discussion regarding our total annual production volumes, average sales prices, and related production costs, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 9 Year ended September 30, 2022 2021 2020 Annual net production: Natural gas (Mcf) 964,000 694,000 649,000 Oil (Bbls) 182,000 147,000 153,000 Natural gas liquids (Bbls) 48,000 24,000 21,000 Total (Boe) 396,000 291,000 286,000 Total (Mcfe) 2,296,000 1,685,000 1,658,000 Annual average sales price per unit of production: Mcf of natural gas* $4.63 $2.62 $1.64 Bbl of oil** $86.73 $51.74 $33.85 Bbl of natural gas liquids** $48.06 $31.92 $17.16 Annual average production cost per Boe produced*** $23.66 $22.40 $16.79 Annual average production cost per Mcfe produced*** $4.08 $3.86 $2.89 ______________________________________________________ * Calculated on revenues net of pipeline charges before royalty expense divided by gross production. ** Calculated on revenues before royalty expense divided by gross production. *** Calculated on production costs, excluding natural gas pipeline charges, divided by the combined total production of natural gas liquids, oil and natural gas.
For a discussion regarding our total annual production volumes, average sales prices, and related production costs, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 9 Year ended September 30, 2023 2022 2021 Annual net production: Natural gas (Mcf) 1,263,000 964,000 694,000 Oil (Bbls) 204,000 182,000 147,000 Natural gas liquids (Bbls) 52,000 48,000 24,000 Total (Boe) 467,000 396,000 291,000 Total (Mcfe) 2,799,000 2,296,000 1,685,000 Annual average sales price per unit of production: Mcf of natural gas* $2.64 $4.63 $2.62 Bbl of oil** $69.77 $86.73 $51.74 Bbl of natural gas liquids** $32.24 $48.06 $31.92 Annual average production cost per Boe produced*** $22.10 $23.66 $22.40 Annual average production cost per Mcfe produced*** $3.68 $4.08 $3.86 ______________________________________________________ * Calculated on revenues net of pipeline charges before royalty expense divided by gross production. ** Calculated on revenues before royalty expense divided by gross production. *** Calculated on production costs, excluding natural gas pipeline charges, divided by the combined total production of natural gas liquids, oil and natural gas.
Fourteen percent of Barnwell’s leasehold interests in undeveloped acreage is subject to expiration and expire over the next five fiscal years, if not developed, as follows: 12% expire during fiscal 2023; no expirations during fiscal 2024 and 2025; 2% expire during fiscal 2026; and no expirations during fiscal 2027.
Seventeen percent of Barnwell’s leasehold interests in undeveloped acreage is subject to expiration and may expire over the next five fiscal years, if not developed, as follows: 6% expire during fiscal 2024; no expirations during fiscal 2025; 2% expire during fiscal 2026; 5% expire during fiscal 2027; and 4% expire during fiscal 2028.
The approximate dollar amount of Water Resources’ backlog of firm well drilling and pump installation and repair contracts at December 1, 2022 and 2021 was as follows: December 1, 2022 2021 Well drilling $ 10,000,000 $ 8,000,000 Pump installation and repair 1,200,000 1,500,000 $ 11,200,000 $ 9,500,000 Of the contracts in backlog at December 1, 2022, $8,600,000 is expected to be recognized in fiscal 2023 with the remainder to be recognized in the following fiscal year.
The approximate dollar amount of Water Resources’ backlog of firm well drilling and pump installation and repair contracts at December 1, 2023 and 2022 was as follows: December 1, 2023 2022 Well drilling $ 5,900,000 $ 10,000,000 Pump installation and repair 900,000 1,200,000 $ 6,800,000 $ 11,200,000 Of the contracts in backlog at December 1, 2023, $6,300,000 is expected to be recognized in fiscal 2024 with the remainder to be recognized in the following fiscal year.
These targets became effective January 1, 2022. Barnwell believes the targets assessed by the AER are within estimated forecasts for Barnwell’s future ARO spending and therefore the Company will be in compliance with spend targets under the Inventory Reduction Program.
The target for 2024 is 6.6% of an individual company’s inactive liability. These targets became effective January 1, 2022. Barnwell believes the targets assessed by the AER are within estimated forecasts for Barnwell’s future ARO spending and therefore the Company will be in compliance with spend targets under the Inventory Reduction Program.
At September 30, 2022, Barnwell’s reserves were approximately 54% operated and consisted of 56% conventional oil and natural gas liquids and 44% natural gas. At September 30, 2021, Barnwell’s reserves were approximately 64% operated and consisted of 56% conventional oil and natural gas liquids and 44% natural gas.
Reserves At September 30, 2023, Barnwell’s reserves were approximately 43% operated and consisted of 52% conventional oil and natural gas liquids and 48% natural gas. At September 30, 2022, Barnwell’s reserves were approximately 54% operated and consisted of 56% conventional oil and natural gas liquids and 44% natural gas.
The estimated asset retirement obligation for the Company's interest in the wells and facilities in the Manyberries area is included in “Asset retirement obligation” in the Consolidated Balance Sheets. Recently, the OWA created a WIP program for specific areas where there are a significant number of orphaned wells to abandon.
The estimated asset retirement obligation for the Company's interest in the wells and facilities in the Manyberries area is included in “Asset retirement obligation” in the Consolidated Balance Sheets. After the abandonment/closure order was issued for Manyberries, the OWA created a Working Interest Partners (“WIP”) program for specific areas where there are a significant number of orphaned wells to abandon.
Barnwell believes it can continue to manage its operations to maintain a favorable ranking. Importantly, an inventory reduction program also has been implemented which requires mandatory annual minimum expenditures towards outstanding decommissioning and reclamation obligations in accordance with five-year rolling spending targets. Currently, these targets are forecast by the AER to increase by 9% per year.
Barnwell believes it can continue to manage its operations to maintain a favorable ranking. Importantly, an inventory reduction program also has been implemented which requires mandatory annual minimum expenditures towards outstanding decommissioning and reclamation obligations in accordance with AER targets which are adjusted by the AER on an annual basis.
During the year ended September 30, 2022, Water Resources sold a drilling rig and related ancillary equipment to an independent third party for proceeds of $687,000, net of related costs, which was equivalent to its net carrying value. No drilling rigs were sold in fiscal 2021.
In fiscal 2022, Water Resources sold a drilling rig and related ancillary equipment to an independent third party for proceeds of $687,000, net of related costs, which was equivalent to its net carrying value.
In fiscal 2022, Water Resources started two well drilling and four pump installation and repair contracts and completed three well drilling and three pump installation and repair contracts. Of the three 16 completed well drilling contracts, one was started in fiscal 2018 and two were started in fiscal 2019.
In fiscal 2023, Water Resources started two well drilling and three pump installation and repair contracts and completed three well drilling and nine pump installation and repair contracts. Of the three completed well drilling contracts, two were started in fiscal 2021 and one was started in fiscal 2022.
We sell oil, natural gas and natural gas liquids to a variety of energy marketing companies. Because our products are commodities for which there are numerous marketers, we are not dependent upon one purchaser or a small group of purchasers. Accordingly, the loss of any single purchaser would not materially affect our revenues.
Because our products are commodities for which there are numerous marketers, we are not dependent upon one purchaser or a small group of purchasers. Accordingly, the loss of any single purchaser would not materially affect our revenues.
Production amounts reported are net of royalties. All of Barnwell’s net production in fiscal 2022 and 2021 was derived in Alberta, Canada and in Oklahoma. Barnwell's net production in fiscal 2020 was derived in Alberta, Canada.
Production amounts reported are net of royalties. All of Barnwell’s net production in fiscal 2023 was derived in Alberta, Canada and in the U.S. states of Oklahoma and Texas. Barnwell’s net production in fiscal 2022 and 2021 was derived in Alberta, Canada and in Oklahoma.
Barnwell plans to continue to develop the pool with more horizontal wells if commodity prices continue to support their profitability. 5 The Legacy category consists of the Company's Canadian oil and natural gas assets not in the Twining area which are largely non-operated.
Barnwell plans to continue to develop the pool with more horizontal wells if commodity prices continue to support their profitability. 5 The Legacy assets represent 8% of Barnwell’s fiscal 2023 Boe production and consist of the largely non-operated Canadian oil and natural gas assets not in the Twining area.
The preparation of data used by the independent petroleum reserve engineers to compile our oil and natural gas reserve estimates was completed in accordance with various internal control procedures 6 which include verification of data input into reserves evaluation software, reconciliations and reviews of data provided to the independent petroleum reserve engineers to ensure completeness, and management review controls, including an independent internal review of the final reserve report for completeness and accuracy.
All information with respect to the Company’s U.S. reserves in this Form 10-K is derived from the reports of Ryder Scott, which are filed with this Form 10-K as Exhibits 99.2 and 99.3. 6 The preparation of data used by the independent petroleum reserve engineers to compile our oil and natural gas reserve estimates was completed in accordance with various internal control procedures which include verification of data input into reserves evaluation software, reconciliations and reviews of data provided to the independent petroleum reserve engineers to ensure completeness, and management review controls, including an independent internal review of the final reserve report for completeness and accuracy.
Year ending September 30, 2023 $ 10,645,000 2024 6,976,000 2025 5,007,000 Thereafter 8,206,000 Undiscounted future net cash flows, after income taxes $ 30,834,000 Standardized measure of discounted future net cash flows $ 27,878,000 * _______________________________________________ * This amount does not purport to represent, nor should it be interpreted as, the fair value of Barnwell’s oil and natural gas reserves.
Year ending September 30, 2024 $ 7,993,000 2025 5,654,000 2026 3,900,000 Thereafter 2,413,000 Undiscounted future net cash flows, after income taxes $ 19,960,000 Standardized measure of discounted future net cash flows $ 19,913,000 * _______________________________________________ * This amount does not purport to represent, nor should it be interpreted as, the fair value of Barnwell’s oil and natural gas reserves.
The total cash deposit amount was calculated to be approximately $1,525,000 and the Company paid $888,000 of the total deposit in July and August 2021 and will need to pay the remaining balance of $637,000 by August 2023.
The total cash deposit amount was calculated to be approximately $1,525,000 and the Company paid $888,000 of the total deposit in July and August 2021 and may need to pay the remaining balance of $637,000 by August 2024. The Company revised its Manyberries ARO liability based on the OWA’s revised abandonment and reclamation estimates.
Barnwell does not use derivative instruments to manage price risk. 11 In fiscal 2022 and 2021, Barnwell took most of its Canadian oil, natural gas liquids and natural gas “in kind” where Barnwell markets the products instead of having the operator of a producing property market the products on Barnwell’s behalf.
In fiscal 2023 and 2022, Barnwell took most of its Canadian oil, natural gas liquids and natural gas “in kind” where Barnwell markets the products instead of having the operator of a producing property market the products on Barnwell’s behalf. We sell oil, natural gas and natural gas liquids to a variety of energy marketing companies.
There also is competition between the oil and natural gas industry and other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers. Barnwell is a minor participant in the industry and competes in its oil and natural gas activities with many other companies having far greater financial, technical and other resources.
Barnwell is a minor participant in the industry and competes in its oil and natural gas activities with many other companies having far greater financial, technical and other resources.
In October 2022, Water Resources sold an additional drilling rig to an independent third party for proceeds of $551,000, net of related costs and accordingly, the Company will recognize a $551,000 gain on the sale of the drilling rig in the first quarter of fiscal 2023 ending December 31, 2022 as the rig was fully depreciated.
In fiscal 2023, Water Resources sold a drilling rig to an independent third party for proceeds of $551,000, net of related costs, and recognized a $551,000 gain on the sale of the drilling rig during the year ended September 30, 2023, as the rig was fully depreciated.
Of the three completed pump installation and repair contracts, one was started in fiscal 2016, one was started in fiscal 2020 and one was started in the current year. Fifty-two percent of well drilling and pump installation and repair jobs, representing 59% of total contract drilling revenues in fiscal 2022, have been pursuant to government contracts.
Fifty-two percent of well drilling and pump installation and repair jobs, representing 8% of total contract drilling revenues in fiscal 2023, have been pursuant to government contracts.
Federal and state and Canadian Federal and provincial governmental agencies issue rules and regulations and enforce laws to protect the environment which are often difficult and costly to comply with and which carry substantial penalties for failure to comply, particularly in regard to the discharge of materials into the environment. 17 These laws, which are constantly changing, regulate the discharge of materials into the environment and maintenance of surface conditions and may require Barnwell to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites where it has a working interest.
These laws, which are constantly changing, regulate the discharge of materials into the environment and maintenance of surface conditions and may require Barnwell to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites where it has a working interest.
Operations In the 1980s, Kaupulehu Developments obtained the state and county zoning changes necessary to permit development of the Four Seasons Resort Hualalai at Historic Ka`upulehu and Hualalai Golf Club, which opened in 1996, a second golf course, and single-family and multi-family residential units. These projects were developed by an unaffiliated entity on leasehold land acquired from Kaupulehu Developments.
Barnwell's ownership interests in the Kukio Resort Land Development Partnerships are accounted for using the equity method of accounting. 14 Operations In the 1980s, Kaupulehu Developments obtained the state and county zoning changes necessary to permit development of the Four Seasons Resort Hualalai at Historic Ka`upulehu and Hualalai Golf Club, which opened in 1996, a second golf course, and single-family and multi-family residential units.
Developed Acreage* Undeveloped Acreage* Total Location Gross Net Gross Net Gross Net Canada 136,220 32,890 28,400 8,210 164,620 41,100 _________________________________________________ * “Developed Acreage” includes the acres covered by leases upon which there are one or more producing wells.
Developed Acreage* Undeveloped Acreage* Total Location Gross Net Gross Net Gross Net Canada 136,220 33,980 27,110 8,710 163,330 42,690 _________________________________________________ * “Developed Acreage” includes the acres covered by leases upon which there are one or more producing wells.
Oil and natural gas unit sales are based on the quantity produced from the properties by the respective property operators. Prices received in Canada also have been negatively impacted by the lack of export pipeline capacity. Preparation of Reserve Estimates Barnwell’s reserves are estimated by our independent petroleum reserve engineers, InSite Petroleum Consultants Ltd.
Prices received in Canada also have been negatively impacted by the lack of export pipeline capacity. Preparation of Reserve Estimates Barnwell’s reserves are estimated by our independent petroleum reserve engineers, InSite Petroleum Consultants Ltd. (“InSite”) in Canada and Ryder Scott Company, L.P.
The oil wells operated by the Company are largely low decline wells, less than 15% per year decline rates, and due to these lower decline rates, these Twining oil wells require a lower amount of capital investment than higher decline rate wells.
These assets are partially operated by the Company and partially operated by Pine Cliff Energy Ltd. The oil wells operated by the Company have largely less than 15% per year decline rates, and due to these lower decline rates, require less capital investment to replace decline.
There can be no assurance that Barnwell will be successful in renewing its leasehold interests in the event of expiration. Much of the undeveloped acreage is at non-operated properties over which we do not have control, and the value of such acreage is not estimated to be significant at current commodity prices.
The remaining undeveloped acreage is at non-operated properties over which we do not have control, and the value of such acreage is not estimated to be significant at current commodity prices.
Barnwell invested $2,217,000 in oil and natural gas properties during fiscal 2021, including accrued capital expenditures and acquisitions of oil and natural gas properties and excluding additions and revisions to estimated asset retirement obligations.
Capital Expenditures and Acquisitions Barnwell invested $10,729,000 in oil and natural gas properties during fiscal 2023, including accrued capital expenditures and acquisitions of oil and natural gas properties and excluding additions and revisions to estimated asset retirement obligations. Barnwell’s capital expenditures were primarily for the drilling of new wells in Texas and the Twining area.
The oil and natural gas industry is intensely competitive in all phases, including the acquisition and development of new production and reserves and the acquisition of equipment and labor necessary to conduct drilling activities. The competition comes from numerous major oil companies as well as numerous other independent operators.
Competition Barnwell competes in the sale of oil and natural gas on the basis of price and on the ability to deliver products. The oil and natural gas industry is intensely competitive in all phases, including the acquisition and development of new production and reserves and the acquisition of equipment and labor necessary to conduct drilling activities.
Barnwell also pays gross overriding royalties and leasehold royalties on a portion of its oil and natural gas sales to parties other than the province of Alberta. In January 2016, the Alberta Royalty Panel recommended a new modernized Alberta royalty framework which applies to wells drilled on or after January 1, 2017.
Barnwell also pays gross overriding royalties and leasehold royalties on a portion of its oil and natural gas sales to parties other than the province of Alberta.
In June 2021, the AER announced that the previous Licensee Liability Program (“LLP”) would be replaced by the Licensee Life-Cycle Management via a Licensee Capability Assessment (“LCA”).
In fiscal 2023, the weighted-average royalty rate paid on all of Oklahoma’s and Texas’s production was 23% and 26%, respectively. In June 2021, the AER announced that the previous Licensee Liability Program (“LLP”) would be replaced by a Licensee Life-Cycle Management Program via a Licensee Capability Assessment (“LCA”).
All information with respect to the Company’s Canadian reserves in this Form 10-K is derived from the report of InSite and a copy of the report issued by InSite is filed with this Form 10-K as Exhibit 99.1.
(“Ryder Scott”) in the U.S., in accordance with generally accepted petroleum engineering and evaluation principles and techniques and rules and regulations of the SEC. All information with respect to the Company’s Canadian reserves in this Form 10-K is derived from the report of InSite, which is filed with this Form 10-K as Exhibit 99.1.
Barnwell’s undeveloped acreage includes a significant concentration in the Twining area (2,860 net acres). Marketing of Oil and Natural Gas Barnwell sells its Canadian oil, natural gas, and natural gas liquids production, including under short-term contracts between itself and two main oil marketers, one natural gas purchaser, and one natural gas liquids marketer.
Marketing of Oil and Natural Gas Barnwell sells its Canadian oil, natural gas, and natural gas liquids production, including under short-term contracts between itself and two main oil purchasers, one natural gas purchaser, and one natural gas liquids purchaser.
Oil and natural gas prices have recovered significantly from the prior year which could improve sources of external finances. Natural gas prices are typically higher in the winter than at other times due to increased heating demand. Oil prices also are subject to seasonal fluctuations, but to a lesser degree.
Natural gas prices are typically higher in the winter than at other times due to increased heating demand. Oil prices also are subject to seasonal fluctuations, but to a lesser degree. Oil and natural gas unit sales are based on the quantity produced from the properties by the respective property operators.
The reserve data in this table is based on constant dollars where reserve estimates are based on sales prices, costs and statutory tax rates in existence at September 30, 2022, the date of the projection.
The reserve data in this table is based on constant dollars where reserve estimates are based on sales prices, costs and statutory tax rates using a historical average price of the first day pricing of the last 12-months ending with September 2023.
In fiscal 2022, the weighted-average royalty rate paid on all of Barnwell’s Canadian natural gas was 12%, and the weighted-average royalty rate paid on oil was 17%. In fiscal 2022, the weighted-average royalty rate paid on all of Oklahoma’s production was 23%.
In fiscal 2023, 76% of Canadian royalties were related to Alberta government charges and 24% of royalties were related to freehold, overriding royalties and other charges. 12 In fiscal 2023, the weighted-average royalty rate paid on all of Barnwell’s Canadian natural gas was 10%, and the weighted-average royalty rate paid on oil was 17%.
Producing Wells As of September 30, 2022, Barnwell had interests in 148 gross (62.4 net) producing wells in Alberta, Canada, of which 93 gross (55.2 net) were oil wells and 55 gross (7.2 net) were natural gas wells and had interests in seven gross (0.2 net) producing oil wells in Oklahoma.
Producing Wells As of September 30, 2023, Barnwell has interests in 145 gross (65.7 net) producing wells in Alberta, Canada, of which 95 gross (59.3 net) were oil wells and 50 gross (6.4 net) were natural gas wells.
The increase in natural gas reserves 7 were primarily the result of higher oil and gas prices resulting in positive revisions in the current year period.
The increase in natural gas reserves were primarily the result of the wells drilled in Texas and Canada in the current year.
A remaining excess deposit, if any, would ultimately be refunded to the Company upon completion of all of the work. As at September 30, 2022, the Company recognized a cumulative reduction in the deposit balance of $113,000 for work performed under this program.
A remaining excess deposit, if any, would ultimately be refunded to the Company upon completion of all of the work.
In the recent past, the industry experienced a period of low oil and natural gas prices that negatively impacted our past operating results, cash flows and liquidity. Credit and capital markets for oil and natural gas companies have been negatively affected as well, resulting in a decline in sources of financing as compared to previous years.
In the recent past, the industry experienced a period of low oil and natural gas prices that negatively impacted our past operating results, cash flows and liquidity. Credit and capital markets for oil and natural gas markets are volatile. We may seek to raise additional capital if such proceeds are considered attractive and would support potential growth.
To aid in this regard, and as a stimulus response to the COVID-19 pandemic, the Canadian Federal Government created and funded the Alberta-administered Site Rehabilitation Program (“SRP”) in spring 2020. The SRP has been designed to reduce oil and gas industry liabilities by funding vendors who perform closure work.
Twenty-three Barnwell-operated sites have been certified as fully reclaimed or exempt since 2016. To aid in this regard, and as a stimulus response to the COVID-19 pandemic, the Canadian Federal Government created and funded the Alberta-administered Site Rehabilitation Program (“SRP”) in spring 2020.
In fiscal 2022, six single-family lots were sold and two single-family lots, of the 80 lots developed within Increment I, remained to be sold as of September 30, 2022.
In fiscal 2023, one single-family lot was sold and two single-family lots, of the 80 lots developed within Increment I, remained to be sold as of September 30, 2023. The developer had consolidated these two remaining lots into one large lot but has since split them back into the original two lots.
Capital expenditures incurred by the Company for these Oklahoma wells totaled $1,178,000 for the year ended September 30, 2021. All wells were producing during the year 10 ended September 30, 2022, producing 42,000 barrels of oil and natural gas liquids and 192,000 Mcf of natural gas.
Capital expenditures incurred by the Company for these Oklahoma wells totaled $1,178,000 for the year ended September 30, 2021. The Company did not drill or participate in the drilling of wells in Canada during the year ended September 30, 2021.
The Company did not drill or participate in the drilling of wells in Canada during the year ended September 30, 2021. In fiscal 2020, the Company drilled one gross (1.0 net) horizontal development well in the Twining area. The Company did not drill or participate in the drilling of wells in Oklahoma during the year ended September 30, 2020.
Well Drilling Activities The Company participated in the drilling of three gross (0.9 net) non-operated development wells in the Twining area of Alberta, Canada during the year ended September 30, 2023.
Over the past five years, the Company has worked to reduce its abandonment and reclamation obligations associated with its oil and natural gas segment, both by divesting low-productivity assets and actively closing wells and sites. Sixteen Barnwell operated sites have been certified as fully reclaimed or exempt since 2016.
As at September 30, 2023, the Company recognized a cumulative reduction in the deposit balance of $300,000 for work performed under this program. 13 Over the past seven years, the Company has worked to reduce its abandonment and reclamation obligations associated with its oil and natural gas segment, both by divesting low-productivity assets and actively closing wells and sites.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe require highly skilled and experienced personnel to operate our business. In addition to competing in highly competitive industries, we compete in a highly competitive labor market. Our business could be adversely affected by an inability to retain personnel or upward pressure on wages as a result of the highly competitive labor market.
Biggest changeFailure to retain key personnel could hurt our operations. We require highly skilled and experienced personnel to operate our business. In addition to competing in highly competitive industries, we compete in a highly competitive labor market.
In addition to the usual delays in payment by purchasers of oil and natural gas to the operators of our properties, and the delays of those operators in remitting payment to us, payments between any of these parties may also be delayed by: 27 • restrictions imposed by lenders; • accounting delays; • delays in the sale or delivery of products; • delays in the connection of wells to a gathering system; • blowouts or other accidents; • adjustments for prior periods; • recovery by the operator of expenses incurred in the operation of the properties; and • the establishment by the operator of reserves for these expenses.
In addition to the usual delays in payment by purchasers of oil and natural gas to the operators of our properties, and the delays of those operators in remitting payment to us, payments between any of these parties may also be delayed by: • restrictions imposed by lenders; • accounting delays; • delays in the sale or delivery of products; • delays in the connection of wells to a gathering system; • blowouts or other accidents; • adjustments for prior periods; • recovery by the operator of expenses incurred in the operation of the properties; and • the establishment by the operator of reserves for these expenses.
In particular, GHG emissions-related legislation, regulations, and other government actions and shifting consumer preferences and other private efforts aimed at reducing GHG emissions may result in increased and substantial capital, compliance, operating, and maintenance costs and could, among other things, reduce demand for the Company’s oil and natural gas; adversely affect the economic feasibility of the Company’s resources; impact or limit our business plans; and adversely affect the Company’s sales volumes, revenues, margins and reputation.
In particular, GHG emissions-related legislation, regulations, and other government actions and shifting consumer preferences and other private efforts aimed at reducing GHG emissions may result in increased and substantial capital, compliance, operating, and maintenance costs and could, among other things, reduce demand for the Company’s oil and natural gas; adversely affect the economic feasibility of the Company’s resources; impact or limit our 27 business plans; and adversely affect the Company’s sales volumes, revenues, margins and reputation.
It also is possible that in the future we will be subject to disputes concerning taxation and other matters in Canada, including the manner in which we calculate our income for tax purposes, and these disputes could have a material adverse effect on our financial performance. 29 Unforeseen title defects may result in a loss of entitlement to production and reserves.
It also is possible that in the future we will be subject to disputes concerning taxation and other matters in Canada, including the manner in which we calculate our income for tax purposes, and these disputes could have a material adverse effect on our financial performance. Unforeseen title defects may result in a loss of entitlement to production and reserves.
The LCA establishes clear expectations for industry with regards to the management of liabilities throughout the entire lifecycle of oil and gas projects. Factors considered are grouped into six factor groups, these being current financial distress, liability magnitude, resources lifespan, operations compliance, closure efficiency and administrative compliance. These factors are compared to peer operators and ranked into three “Tiers”.
The LCA establishes clear expectations for industry with regards 22 to the management of liabilities throughout the entire lifecycle of oil and gas projects. Factors considered are grouped into six factor groups, these being current financial distress, liability magnitude, resources lifespan, operations compliance, closure efficiency and administrative compliance. These factors are compared to peer operators and ranked into three “Tiers”.
In the event a third party operator of a non-operated property becomes insolvent, it may result in increased operating expenses and cash required for abandonment liabilities if the Company is required to take over operatorship. 23 We may incur material costs to comply with or as a result of health, safety, and environmental laws and regulations.
In the event a third party operator of a non-operated property becomes insolvent, it may result in increased operating expenses and cash required for abandonment liabilities if the Company is required to take over operatorship. We may incur material costs to comply with or as a result of health, safety, and environmental laws and regulations.
Demand for services is highly dependent upon land development activities in the state of Hawaii. The real estate development industry is cyclical in nature and is particularly vulnerable to shifts in local, regional, and national economic conditions outside of our control such as interest rates, housing demand, population growth, employment levels and job growth and property taxes.
Demand for services is highly dependent upon land development activities in the state of Hawaii. The real estate development industry is cyclical in nature and is particularly vulnerable to shifts in local, regional, and national economic conditions outside of our control such as interest rates, housing demand, 29 population growth, employment levels and job growth and property taxes.
If cost estimates for a contract are inaccurate, or if the contract is not performed within cost estimates, then cost overruns may result in losses or cause the contract not to be as profitable as expected. 31 A significant portion of our contract drilling business is dependent on municipalities and a decline in municipal spending could adversely impact our business.
If cost estimates for a contract are inaccurate, or if the contract is not performed within cost estimates, then cost overruns may result in losses or cause the contract not to be as profitable as expected. A significant portion of our contract drilling business is dependent on municipalities and a decline in municipal spending could adversely impact our business.
We cannot guarantee that we will be successful in developing or acquiring additional reserves and our current financial resources may 22 be insufficient to make such investments. Furthermore, if oil or natural gas prices increase, our cost for additional reserves also could increase. We may not realize an adequate return on oil and natural gas investments.
We cannot guarantee that we will be successful in developing or acquiring additional reserves and our current financial resources may be insufficient to make such investments. Furthermore, if oil or natural gas prices increase, our cost for additional reserves also could increase. We may not realize an adequate return on oil and natural gas investments.
Should we be unable to fully fund the cost of remedying an environmental problem, we might be required to suspend operations or enter into interim compliance measures pending completion of the required remedy. 24 We may fail to fully identify potential problems related to acquired reserves or to properly estimate those reserves.
Should we be unable to fully fund the cost of remedying an environmental problem, we might be required to suspend operations or enter into interim compliance measures pending completion of the required remedy. We may fail to fully identify potential problems related to acquired reserves or to properly estimate those reserves.
If future oil and natural gas segment acquisition and development activities are not successful it could have an adverse effect on our future results of operations and financial condition. Oil and natural gas prices are highly volatile and further declines, or extended low prices will significantly affect our financial condition and results of operations.
If future oil and natural gas segment acquisition and development activities are not successful it could have an adverse effect on our future results of operations and financial condition. 21 Oil and natural gas prices are highly volatile and further declines, or extended low prices will significantly affect our financial condition and results of operations.
A related effect of such issuances may enhance existing large stockholders’ influence on the Company, including that of Alexander Kinzler, our Chief Executive Officer. 20 A small number of stockholders, including our CEO, own a significant amount of our common stock and may have influence over the Company.
A related effect of such issuances may enhance existing large stockholders’ influence on the Company, including that of Alexander Kinzler, our Chief Executive Officer. A small number of stockholders, including our CEO, own a significant amount of our common stock and may have influence over the Company.
Electricity, supplies, and labor costs are a few of the operating costs that are susceptible to material 25 fluctuation. The need for significant repairs and maintenance of infrastructure may increase as our properties age. A significant increase in operating costs could negatively impact operating results and cash flow.
Electricity, supplies, and labor costs are a few of the operating costs that are susceptible to material fluctuation. The need for significant repairs and maintenance of infrastructure may increase as our properties age. A significant increase in operating costs could negatively impact operating results and cash flow.
If market factors change and inhibit the marketing of our production, overall production or realized prices may decline. We are not the operator and have limited influence over the operations of certain of our oil and natural gas properties. We hold minority interests in certain of our oil and natural gas properties.
If market factors change and inhibit the marketing of our production, overall production or realized prices may decline. 24 We are not the operator and have limited influence over the operations of certain of our oil and natural gas properties. We hold minority interests in certain of our oil and natural gas properties.
We often are not entitled to contractual indemnification for environmental liabilities or title defects in excess of the amounts claimed by us before closing and acquire properties on an “as is” basis.
We often are not entitled to contractual 23 indemnification for environmental liabilities or title defects in excess of the amounts claimed by us before closing and acquire properties on an “as is” basis.
Ultimately, the success of these drilling and completion techniques can only be evaluated over time as more wells are drilled and production profiles are established over a sufficiently long time period.
Ultimately, the success of these drilling and completion techniques can only be evaluated over time as more wells are drilled and production profiles are established over a sufficiently 25 long time period.
These investments involve risks which include: • the lack of a controlling interest in these partnerships and, therefore, the inability to require that the entities sell assets, return invested capital or take any other action without obtaining the majority vote of partners; • potential for future additional capital contributions to fund operations and development activities; • the adverse impact on overall profitability if the entities do not achieve the financial results projected; • the reallocation of amounts of capital from other operating initiatives and/or an increase in indebtedness to pay potential future additional capital contributions, which could in turn restrict our ability to access additional capital when needed or to pursue other important elements of our business strategy; • undisclosed, contingent or other liabilities or problems, unanticipated costs, and an inability to recover or manage such liabilities and costs and which could delay or prevent development of the real estate held by the land development partnerships; and • certain underlying partnership data is not accessible to us, therefore we depend on the general partner to provide us with reliable accounting information. 30 Our land investment business is concentrated in the state of Hawaii.
These investments involve risks which include: • the lack of a controlling interest in these partnerships and, therefore, the inability to require that the entities sell assets, return invested capital or take any other action without obtaining the majority vote of partners; • potential for future additional capital contributions to fund operations and development activities; • the adverse impact on overall profitability if the entities do not achieve the financial results projected; • the reallocation of amounts of capital from other operating initiatives and/or an increase in indebtedness to pay potential future additional capital contributions, which could in turn restrict our ability to access additional capital when needed or to pursue other important elements of our business strategy; • undisclosed, contingent or other liabilities or problems, unanticipated costs, and an inability to recover or manage such liabilities and costs and which could delay or prevent development of the real estate held by the land development partnerships; and • certain underlying partnership data is not accessible to us, therefore we depend on the general partner to provide us with reliable accounting information.
We derive a significant portion of our revenues from our operations in Canada; 67% in fiscal 2022. 28 Additionally, our ability to compete in the Canadian oil and natural gas industry may be adversely affected by governmental regulations or other policies that favor the awarding of contracts to contractors in which Canadian nationals have substantial ownership interests.
We derive a significant portion of our revenues from our operations in Canada; 67% in fiscal 2023. Additionally, our ability to compete in the Canadian oil and natural gas industry may be adversely affected by governmental regulations or other policies that favor the awarding of contracts to contractors in which Canadian nationals have substantial ownership interests.
If oil and natural gas prices decline, we may be required to take write-downs of the carrying values of our oil and natural gas properties. Oil and natural gas prices affect the value of our oil and natural gas properties as determined in our full cost ceiling calculation.
If oil and natural gas prices decline and remain low, we may be required to take write-downs of the carrying values of our oil and natural gas properties. Oil and natural gas prices affect the value of our oil and natural gas properties as determined in our full cost ceiling calculation.
A significant portion of our contract drilling division revenues is derived from water and infrastructure contracts with governmental entities or agencies; 59% in fiscal 2022. Reduced tax revenues and governmental budgets may limit spending by local governments which in turn will affect the demand for our services.
A significant portion of our contract drilling division revenues is derived from water and infrastructure contracts with governmental entities or agencies; 8% in fiscal 2023. Reduced tax revenues and governmental budgets may limit spending by local governments which in turn will affect the demand for our services.
As of September 30, 2022, the CEO, who is a member of the Board of Directors, and two other stockholders hold approximately 39% of our outstanding common stock. The interests of one or more of these stockholders may not always coincide with the interests of other stockholders.
As of September 30, 2023, the CEO, who is a member of the Board of Directors, and two other stockholders hold approximately 44% of our outstanding common stock. The interests of one or more of these stockholders may not always coincide with the interests of other stockholders.
The occurrence of natural disasters in Hawaii could adversely affect our business. The occurrence of a natural disaster in Hawaii such as, but not limited to, earthquakes, landslides, hurricanes, tornadoes, tsunamis, volcanic activity, droughts and floods, could have a material adverse effect on our ability to complete our contracts. ITEM 1B. UNRESOLVED STAFF COMMENTS None. 32
The occurrence of a natural disaster in Hawaii such as, but not limited to, earthquakes, landslides, hurricanes, tornadoes, tsunamis, volcanic activity, droughts and floods, could have a material adverse effect on our ability to complete our contracts. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
The market price of our common stock has been volatile and could fluctuate based on a variety of factors, including: • fluctuations in commodity prices; • variations in results of operations; • announcements by us and our competitors; • legislative or regulatory changes; • general trends in the industry; • general market conditions; • litigation; and • other events applicable to our industries. 21 Failure to retain key personnel could hurt our operations.
The market price of our common stock has been volatile and could fluctuate based on a variety of factors, including: • fluctuations in commodity prices; • variations in results of operations; • announcements by us and our competitors; • legislative or regulatory changes; • general trends in the industry; • general market conditions; • litigation; and • other events applicable to our industries.
The receipt of future payments and cash distributions could be jeopardized if the developer fails to proceed with development and marketing of the property. We hold investment interests in unconsolidated land development partnerships, which are accounted for using the equity method of accounting, in which we do not have a controlling interest. These investments involve risks and are highly illiquid.
The receipt of future payments and cash distributions could be jeopardized if the developer fails to proceed with development and marketing of the property. 28 We hold investment interests in unconsolidated land development partnerships, which are accounted for using the equity method of accounting, in which we do not have a controlling interest.
The contracts in our backlog are subject to change orders and cancellation. Our backlog consists of the uncompleted portion of services to be performed under contracts that have been started and new contracts not yet started. Our contracts are subject to change orders and cancellations, and such changes could adversely affect our operations.
Our backlog consists of the uncompleted portion of services to be performed under contracts that have been started and new contracts not yet started. Our contracts are subject to change orders and cancellations, and such changes could adversely affect our operations. The occurrence of natural disasters in Hawaii could adversely affect our business.
Consequently, it may be more challenging for investors to analyze our results of operations and financial prospects, as the information we provide to stockholders may be different from what one might receive from other public companies in which one hold shares. As a smaller reporting company, we are not required to provide this information.
Consequently, it may be more challenging for investors to analyze our results of operations and financial prospects, as the information we provide to stockholders may be different from what one might receive from other public companies in which one hold shares.
Retirement plan cash funding obligations and plan expenses and obligations are subject to a high degree of uncertainty and could increase in future years depending on numerous factors, including the performance of the financial markets, specifically the equity markets, levels of interest rates, and the cost of health care insurance premiums.
Retirement plan cash funding obligations and plan expenses and obligations are subject to a high degree of uncertainty and could increase in future years depending on numerous factors, including the performance of the financial markets, specifically the equity markets, levels of interest rates, and the cost of health care insurance premiums. 19 The price of our common stock has been volatile and could continue to fluctuate substantially.
Part of our strategy involves using some of the latest available horizontal drilling and completion techniques. The results of our drilling are subject to drilling and completion technique risks, and results may not meet our expectations for reserves or production.
If these factors, assumptions and prices prove to be inaccurate, actual results may vary materially from reserve estimates. Part of our strategy involves using some of the latest available horizontal drilling and completion techniques. The results of our drilling are subject to drilling and completion technique risks, and results may not meet our expectations for reserves or production.
As a result, our financial results are dependent on the economic growth and health of Hawaii, particularly the island of Hawaii. Barnwell’s land investment segment is impacted by the condition of Hawaii’s real estate market, which is affected by Hawaii’s economy and Hawaii’s tourism industry, as well as the U.S. and world economies in general.
Barnwell’s land investment segment is impacted by the condition of Hawaii’s real estate market, which is affected by Hawaii’s economy and Hawaii’s tourism industry, as well as the U.S. and world economies in general.
In addition, there can be no assurance that insurance will continue to be available to cover any or all of these risks, or, even if available, that insurance premiums or other costs will not rise significantly in the future, so as to make the cost of such insurance prohibitive.
In addition, there can be no assurance that insurance will continue to be available to cover any or all of these risks, or, even if available, that insurance premiums or other costs will not rise significantly in the future, so as to make the cost of such insurance prohibitive. 26 Deficiencies in operating practices and record keeping, if any, may increase our risks and liabilities relating to incidents such as spills and releases and may increase the level of regulatory enforcement actions.
Further, there are significant personal liability risks to Barnwell of Canada's individual officers and directors related to well clean-up costs that may affect our ability to attract or retain the necessary people.
Our business could be adversely affected by an inability to retain personnel or upward pressure on wages as a result of the highly competitive labor market. Further, there are significant personal liability risks to Barnwell of Canada's individual officers and directors related to well clean-up costs that may affect our ability to attract or retain the necessary people.
Under the LCA Program, an inventory reduction program has also been implemented which requires mandatory annual minimum expenditures towards outstanding decommissioning and reclamation obligations in accordance with five-year rolling spending targets which are currently forecasted by the AER to increase by approximately 9% per year. These targets became effective January 1, 2022.
Under the LCA Program, an inventory reduction program has also been implemented which requires mandatory annual minimum expenditures towards outstanding decommissioning and reclamation obligations in accordance with AER targets which are adjusted by the AER on an annual basis. The target for 2024 is 6.6% of an individual company’s inactive liability. These targets became effective January 1, 2022.
Stockholders may be diluted significantly through our efforts to obtain financing, satisfy obligations through the issuance of securities or use our stock as consideration in certain transactions.
If any of the following risk factors should occur, our profitability, financial condition or liquidity could be materially negatively impacted. Entity-Wide Risks Stockholders may be diluted significantly through our efforts to obtain financing, satisfy obligations through the issuance of securities or use our stock as consideration in certain transactions.
There can be no assurance that our ability to obtain such bonds will continue on the same basis as the past. Additionally, bonding insurance rates may increase and have an impact on our ability to win competitive bids, which could have a corresponding material impact on contract drilling operating results.
Additionally, bonding insurance rates may increase and have an impact on our ability to win competitive bids, which could have a corresponding material impact on contract drilling operating results. 30 The contracts in our backlog are subject to change orders and cancellation.
Deficiencies in operating practices and record keeping, if any, may increase our risks and liabilities relating to incidents such as spills and releases and may increase the level of regulatory enforcement actions. Our operations are subject to domestic and foreign government regulation and other risks, particularly in Canada and the U.S.
Our operations are subject to domestic and foreign government regulation and other risks, particularly in Canada and the U.S.
Removed
If any of the following risk factors should occur, our profitability, financial condition or liquidity could be materially negatively impacted. Entity-Wide Risks Our business operations and financial condition have been and may continue to be materially and adversely affected by the outbreak of novel strains of coronavirus.
Added
As a smaller reporting company, we are not required to provide this information. 20 We face various risks and uncertainties related to public health crises, including the COVID-19 pandemic. The COVID-19 pandemic and its consequences may have a material adverse effect on us.
Removed
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.
Added
We face various risks and uncertainties related to public health crises, including the global COVID-19 pandemic, which has disrupted financial markets and significantly impacted worldwide economic activity.
Removed
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.
Added
The future impact of the COVID-19 pandemic as well as mandatory and voluntary actions taken to mitigate the public health impact of the pandemic may have a material adverse effect on our financial condition. The COVID-19 pandemic and social and governmental responses to the pandemic have caused, and may continue to cause, severe economic, market and other disruptions worldwide.
Removed
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.
Added
Although the COVID-19 pandemic and related societal and government responses have not, to date, had a material impact on our business or financial results, the extent to which COVID-19 and related actions may, in the future, impact our operations cannot be predicted with any degree of confidence.
Removed
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.
Added
As a result, we cannot at this time predict the direct or indirect impact on us of the COVID-19 pandemic, but it could have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects.
Removed
While the Company’s contract drilling segment remained operational throughout fiscal 2020 and 2021 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.
Added
These investments involve risks and are highly illiquid.
Removed
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.
Added
Our land investment business is concentrated in the state of Hawaii. As a result, our financial results are dependent on the economic growth and health of Hawaii, particularly the island of Hawaii.
Removed
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.
Added
There can be no assurance that our ability to obtain such bonds will continue on the same basis as the past.
Removed
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.
Removed
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. 19 There may be adverse effects on the value of your investment from our use of our Tax Benefits Preservation Plan.
Removed
In October 2022, subsequent to the end of our 2022 fiscal year, our Board of Directors adopted a Tax Benefits Preservation Plan designed to protect the availability of the Company’s existing net operating loss carryforwards and certain other tax attributes by discouraging persons or groups of persons from acquiring ownership of our common stock in a manner that could trigger an “ownership change” for purposes of Sections 382 and 383 of the Internal Revenue Code (the “Code”).
Removed
The Tax Benefits Preservation Plan may have an “anti-takeover effect” because it may deter a person or group of persons from acquiring beneficial ownership of 4.95% or more of our outstanding common stock or, in the case of a person or group of persons that already own 4.95% or more of our outstanding common stock, from acquiring any additional common stock.
Removed
The Tax Benefits Preservation Plan could discourage or prevent a merger, tender offer, proxy contest or accumulations of substantial blocks of shares of our common stock, and, notwithstanding its purpose, could adversely affect our stockholders’ ability to realize a premium over the then-prevailing market price for our common stock in connection with any such transactions or actions.
Removed
In addition, because our Board of Directors may consent to certain transactions, the Tax Benefits Preservation Plan gives our Board of Directors significant discretion over whether a potential acquirer’s efforts to acquire a large interest in us will be successful.
Removed
Additionally, a stockholder’s ability to dispose of our common stock may be limited if the Tax Benefits Preservation Plan reduces the number of persons willing to acquire our common stock or the amount they are willing to acquire. Thus, the Tax Benefits Preservation Plan could severely reduce liquidity of our common stock, negatively impacting the value of your investment.
Removed
A stockholder also may become a greater than 4.95% stockholder upon actions taken by persons related to, or affiliated with, that stockholder. Stockholders are advised to carefully monitor their ownership of our common stock and consult their own legal advisors and/or us to determine whether their ownership of common stock approaches the proscribed level.
Removed
There can be no assurance that the Tax Benefits Preservation Plan will prevent an “ownership change” within the meaning of Sections 382 and 383 of the Code, in which case we may lose all or most of the anticipated tax benefits associated with our prior losses.
Removed
The price of our common stock has been volatile and could continue to fluctuate substantially.
Removed
If these factors, assumptions and prices prove to be inaccurate, actual results may vary materially from reserve estimates. 26 Actual revenues and operating expenses for our Oklahoma properties may differ from our estimates.
Removed
As revenue and operating expense information from our royalty and non-operated working interest properties in Oklahoma are generally received several months after the production month, the Company accrues for revenue and operating expenses by estimating our share of production volumes and costs based on data provided by the operator of the properties and product spot prices, and are subsequently adjusted to actual amounts in the period of receipt of actual data.
Removed
Any identified differences between estimated revenue and operating cost estimates and actual data historically have not been significant, however at this time there is limited history to date and thus there is no assurance that actual information will not vary significantly from our estimates. SEC rules could limit our ability to book additional proved undeveloped reserves (“PUDs”) in the future.
Removed
SEC rules require that, subject to limited exceptions, PUDs may only be booked if they relate to wells scheduled to be drilled within five years after the date of booking. This requirement may limit our ability to book PUDs as we pursue our drilling program.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed1 unchanged
Biggest changeBarnwell’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. ITEM 4. MINE SAFETY DISCLOSURES Disclosure is not applicable to Barnwell. 33 PART II
Biggest changeBarnwell’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. ITEM 4. MINE SAFETY DISCLOSURES Disclosure is not applicable to Barnwell. 31 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+0 added−0 removed0 unchanged
Biggest changeThe payment of future cash dividends will depend on, among other things, our financial condition, operating cash flows, the amount of cash inflows from land investment activities, and the level of our oil and natural gas capital expenditures and any other investments.
Biggest changeRecord Date Date of Payment Dividend Paid August 24, 2023 September 11, 2023 $0.015 May 25, 2023 June 12, 2023 $0.015 February 23, 2023 March 13, 2023 $0.015 December 27, 2022 January 11, 2023 $0.015 August 23, 2022 September 6, 2022 $0.015 The payment of future cash dividends will depend on, among other things, our financial condition, operating cash flows, the amount of cash inflows from land investment activities, and the level of our oil and natural gas capital expenditures and any other investments.
Securities Authorized for Issuance Under Equity Compensation Plans See information included in Part III, Item 12, under the caption “Equity Compensation Plan Information.” Stock Performance Graph and Cumulative Total Return Disclosure is not required as Barnwell qualifies as a smaller reporting company. ITEM 6. [RESERVED] 34
Securities Authorized for Issuance Under Equity Compensation Plans See information included in Part III, Item 12, under the caption “Equity Compensation Plan Information.” Stock Performance Graph and Cumulative Total Return Disclosure is not required as Barnwell qualifies as a smaller reporting company. 32 ITEM 6. [RESERVED] 33
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The principal market on which Barnwell’s common stock is being traded is the NYSE American under the ticker symbol “BRN.” The following tables present the quarterly high and low sales prices, on the NYSE American, for Barnwell’s common stock during the periods indicated: Quarter Ended High Low Quarter Ended High Low December 31, 2020 $1.99 $0.76 December 31, 2021 $3.50 $2.30 March 31, 2021 $6.99 $1.25 March 31, 2022 $6.38 $2.38 June 30, 2021 $4.34 $2.02 June 30, 2022 $3.40 $2.29 September 30, 2021 $3.59 $2.00 September 30, 2022 $3.32 $2.12 Holders As of December 9, 2022, there were 9,956,687 shares of common stock, par value $0.50, outstanding.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The principal market on which Barnwell’s common stock is being traded is the NYSE American under the ticker symbol “BRN.” The following tables present the quarterly high and low sales prices, on the NYSE American, for Barnwell’s common stock during the periods indicated: Quarter Ended High Low Quarter Ended High Low December 31, 2021 $3.50 $2.30 December 31, 2022 $3.33 $2.70 March 31, 2022 $6.38 $2.38 March 31, 2023 $2.97 $1.89 June 30, 2022 $3.40 $2.29 June 30, 2023 $3.10 $2.47 September 30, 2022 $3.32 $2.12 September 30, 2023 $2.79 $2.18 Holders As of December 12, 2023, there were 10,000,106 shares of common stock, par value $0.50, outstanding.
As of December 9, 2022, there were approximately 80 shareholders of record and approximately 1,000 beneficial owners. Dividends In August 2022, the Company's Board of Directors declared a cash dividend of $0.015 per share that was paid on September 6, 2022 to stockholders of record on August 23, 2022. No dividends were declared or paid during fiscal 2021.
As of December 12, 2023, there were approximately 81 shareholders of record and approximately 1,000 beneficial owners. Dividends The following table sets forth the cash dividends paid per share of common stock during fiscal 2023 and 2022.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

97 edited+40 added−62 removed64 unchanged
Biggest changeAlso contributing to the increase was a ceiling test impairment of $630,000 in the prior year period, whereas there was no such ceiling test impairment in the current year period; • Equity in income from affiliates decreased $2,393,000 and land investment segment operating results, before non-controlling interests’ share of such profits, decreased $532,000 due to the Kukio Resort Development Partnerships' sale of six lots in the current year period, whereas there were eight lot sales in the prior year period; • General and administrative expenses increased $956,000 primarily due to increases in professional fees in the current year period as compared to the same period in the prior year, partially offset by a decrease in stockholder costs in the prior year period as compared to the current year period; and • A $484,000 foreign currency loss 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 strengthening of the U.S. dollar against the Canadian dollar.
Biggest changeAdditionally, 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 also caused the decrease; • Equity in income from affiliates decreased $2,642,000 and land investment segment operating results, before non-controlling interests’ share of such profits, decreased $941,000 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; • General and administrative expenses decreased $1,088,000 primarily due to decreases in share-based compensation, accrued bonus expense, professional fees, and bad debt expense, partially offset by an increase in stockholder costs in the current year period as compared to the same period in the prior year; • A $551,000 gain recognized in the current year period from the sale of a contract drilling segment drilling rig; and • A $76,000 foreign currency gain recorded in the current year period as compared to a $484,000 foreign currency loss in the prior year period, primarily due to the effects of foreign exchange 41 rate changes on intercompany loans and advances as a result of the weakening of the U.S. dollar against the Canadian dollar.
The ceiling limitation is the sum of 1) the discounted present value (at 10%), using average first-day-of-the-month prices during the 12-month period ending as of the balance sheet date held constant over the life of the reserves, of Barnwell’s estimated future net cash flows from estimated production of proved oil and natural gas reserves, less estimated future expenditures to be incurred in developing and producing the proved reserves but excluding future cash outflows associated with settling asset retirement obligations with the exception of those associated with proved undeveloped reserves from wells that are to be drilled in the future; plus 2) the cost of major development projects and unproven properties not subject to depletion, if any; plus 3) the lower of cost or estimated fair value of unproven properties included in costs subject to depletion; less 4) related income tax effects.
The ceiling limitation is the sum of 1) the discounted present value (at 10%), using average first-day-of-the-month prices during the 12-month period ending as of the balance sheet date held constant over the life of the reserves, of Barnwell’s estimated future net cash flows from estimated production of proved oil and natural gas reserves, less estimated future expenditures to be incurred in developing and producing the proved reserves but excluding future cash outflows associated with settling 34 asset retirement obligations with the exception of those associated with proved undeveloped reserves from wells that are to be drilled in the future; plus 2) the cost of major development projects and unproven properties not subject to depletion, if any; plus 3) the lower of cost or estimated fair value of unproven properties included in costs subject to depletion; less 4) related income tax effects.
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 40 located in the North Kona District of the island of Hawaii.
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.
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. 49 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.
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.
Management considers the possibility of alternative outcomes based upon past experience, previous actions by taxing authorities (e.g., actions taken in other jurisdictions) and advice from tax experts. Where 39 uncertainty exists due to the complexity of income tax statutes and where the potential tax amounts are significant, we generally seek independent tax opinions to support our positions.
Management considers the possibility of alternative outcomes based upon past experience, previous actions by taxing authorities (e.g., actions taken in other jurisdictions) and advice from tax experts. Where uncertainty exists due to the complexity of income tax statutes and where the potential tax amounts are significant, we generally seek independent tax opinions to support our positions.
Barnwell recognizes the financial statement effects of tax positions when it is more likely than not that the position will be sustained by a taxing authority. Judgments and Assumptions We make estimates and judgments in determining our income tax expense for each reporting period.
Barnwell recognizes the financial statement effects of tax positions when it is more likely than not that the position will be sustained by a taxing authority. 37 Judgments and Assumptions We make estimates and judgments in determining our income tax expense for each reporting period.
No definitive development plans have been made by the developer of Increment II as of the date of this report. Contract Drilling Segment Demand for water well drilling and/or pump installation and repair services is volatile and dependent upon land development activities within the state of Hawaii.
No definitive development plans have been made by KD II, the developer of Increment II, as of the date of this report. Contract Drilling Segment Demand for water well drilling and/or pump installation and repair services is volatile and dependent upon land development activities within the state of Hawaii.
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. Judgments and Assumptions Management evaluates the performance of contracts on an individual basis.
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. 36 Judgments and Assumptions Management evaluates the performance of contracts on an individual basis.
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.
The continuing potential impact of COVID-19 on the health of our contract drilling segment's crew is uncertain, and any work 45 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.
No definitive development plans have been made by 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.
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.
While the quantities of proved reserves require substantial judgment, the associated prices of oil, natural gas and natural gas liquids reserves are the average first-day-of-the-month prices during the 12-month period ending in the reporting period on a constant basis as prescribed by SEC regulations.
While the quantities of proved reserves require substantial judgment, the associated prices of oil, natural gas and natural gas liquids reserves are the average first-day-of-the-month prices during the 12- 35 month period ending in the reporting period on a constant basis as prescribed by SEC regulations.
An equal amount of cost and revenue is recorded when uninstalled materials are controlled by the customer, which is typically when Barnwell has the right to payment for the materials and when the materials are delivered to the customer’s site or location and such 37 materials have been accepted by the customer.
An equal amount of cost and revenue is recorded when uninstalled materials are controlled by the customer, which is typically when Barnwell has the right to payment for the materials and when the materials are delivered to the customer’s site or location and such materials have been accepted by the customer.
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.
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 44 acreage within Increment II will be developed.
In accordance with FASB ASC 606-10-32-4, our estimates are based on the assumption that the existing 38 contract will not be cancelled. Any unforeseen cancellation of a contract may result in a material revision to our estimates.
In accordance with FASB ASC 606-10-32-4, our estimates are based on the assumption that the existing contract will not be cancelled. Any unforeseen cancellation of a contract may result in a material revision to our estimates.
The partnerships derive income from the sale of residential parcels, of which two remained to be sold at September 30, 2022, 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. • 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 partnerships derive income from the sale of residential parcels, of which two remained to be sold at September 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. • 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.
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.
Barnwell is 39 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.
Under the new agreement with the OWA, the Company is required to pay the abandonment and reclamation costs in advance through a cash deposit.
Under the agreement with the OWA, the Company is required to pay the abandonment and reclamation costs in advance through a cash deposit.
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 September 30, 2022 for any further costs related to this contract as there is no related probable or estimable contingent liability.
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 September 30, 2023 for any further costs related to this contract as there is no related probable or estimable contingent liability.
In the last three fiscal years, annual revisions to our reserve volume estimates have averaged 36 44% of the previous year’s estimate, due in large part to the impacts of volatile oil and natural gas prices which change the economic viability of producing such reserves and changes in estimated proved undeveloped reserves which can fluctuate from year to year depending upon the Company's plans and ability to fund the capital expenditures necessary to develop such reserves.
In the last three fiscal years, annual revisions to our reserve volume estimates have averaged 31% of the previous year’s estimate, due in large part to the impacts of volatile oil and natural gas prices which change the economic viability of producing such reserves and changes in estimated proved undeveloped reserves which can fluctuate from year to year depending upon the Company's plans and ability to fund the capital expenditures necessary to develop such reserves.
The Company will record future equity method earnings only after our share of the Kukio Resort Land Development Partnership’s cumulative earnings in excess of distributions during the suspended period exceeds our share of the Kukio Resort Land Development Partnership’s income recognized for the excess distributions, and during this suspended period any distributions received will be recorded as equity in income of affiliates.
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.
No definitive development plans have been made by the developer of Increment II as of the date of this report. 45 Contract drilling Contract drilling revenues and costs are associated with well drilling and water pump installation, replacement and repair in Hawaii.
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 costs are associated with well drilling and water pump installation, replacement and repair in Hawaii.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is intended to assist in the understanding of the Consolidated Balance Sheets of Barnwell Industries, Inc. and subsidiaries (collectively referred to herein as “Barnwell,” “we,” “our,” “us” or the “Company”) as of September 30, 2022 and 2021, and the related Consolidated Statements of Operations, Comprehensive Income, Equity, and Cash Flows for the years ended September 30, 2022 and 2021.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is intended to assist in the understanding of the Consolidated Balance Sheets of Barnwell Industries, Inc. and subsidiaries (collectively referred to herein as “Barnwell,” “we,” “our,” “us” or the “Company”) as of September 30, 2023 and 2022, and the related Consolidated Statements of Operations, Comprehensive (Loss) Income, Equity, and Cash Flows for the years ended September 30, 2023 and 2022.
Oil and Natural Gas Property Acquisitions and Dispositions 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.
Oil and Natural Gas Property Acquisitions and Dispositions Fiscal 2022 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.
There were no taxes on other comprehensive loss due to foreign currency translation adjustments in fiscal 2022 and 2021 due to a full valuation allowance on the related deferred tax assets. 43 Oil and natural gas Selected Operating Statistics The following tables set forth Barnwell’s annual average prices per unit of production and annual net production volumes for fiscal 2022 as compared to fiscal 2021.
There were no taxes on other comprehensive loss due to foreign currency translation adjustments in fiscal 2023 and 2022 due to a full valuation allowance on the related deferred tax assets. 42 Oil and natural gas Selected Operating Statistics The following tables set forth Barnwell’s annual average prices per unit of production and annual net production volumes for fiscal 2023 as compared to fiscal 2022.
Overview Barnwell is engaged in the following lines of business: 1) acquiring, developing, producing and selling oil and natural gas in Canada and Oklahoma (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).
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).
Land Investment Segment Future land investment payments and any future cash distributions from our investment in the Kukio Resort Land Development Partnerships are dependent upon the sale of the remaining two residential lots within Increment I by KD I and potential future development or sale of the remaining portion of Increment II by KD II of Kaupulehu Lot 4A.
Land Investment Segment Future revenues from the sale of interest in leasehold land and any future cash distributions from our investment in the Kukio Resort Land Development Partnerships are dependent upon the sale of the remaining two residential lots within Increment I by KD I and potential future development or sale of the remaining portion of Increment II by KD II of Kaupulehu Lot 4A.
In January 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.
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.
The $503,000 of proceeds from sale of oil and natural gas properties included in the Consolidated Statement of Cash Flows for the year ended September 30, 2022 primarily represents the 53 refund of income taxes previously withheld from what otherwise would have been proceeds on prior year's oil and natural gas property sales.
The $503,000 of proceeds from sale of oil and natural gas properties included in the Consolidated Statement of Cash Flows for the year ended September 30, 2022 primarily represents the refund of income taxes previously withheld from what otherwise would have been proceeds on fiscal 2021’s oil and natural gas property sales.
Conversely, the higher the estimated reserves, the lower the depletion rate per unit of production. If reported reserve volumes were revised downward by 5% as of the beginning of fiscal 2022, depletion for fiscal 2022 would have increased by approximately $129,000.
Conversely, the higher the estimated reserves, the lower the depletion rate per unit of production. If reported reserve volumes were revised downward by 5% as of the beginning of fiscal 2023, depletion for fiscal 2023 would have increased by approximately $211,000.
Oil prices continue to be volatile over time and thus, the Company is unable to reasonably predict future oil prices and the impacts future oil prices will have on the Company.
Oil and natural gas prices continue to be volatile over time 40 and thus, the Company is unable to reasonably predict future prices and the impacts future prices will have on the Company.
A remaining excess deposit, if any, would ultimately be refunded to the Company upon completion of all of the work. As of September 30, 2022, the Company recognized a cumulative reduction in the deposit balance of $113,000 for work performed under this program. Contractual Obligations Disclosure is not required as Barnwell qualifies as a smaller reporting company.
A remaining excess deposit, if any, would ultimately be refunded to 52 the Company upon completion of all of the work. As at September 30, 2023, the Company recognized a cumulative reduction in the deposit balance of $300,000 for work performed under this program. Contractual Obligations Disclosure is not required as Barnwell qualifies as a smaller reporting company.
The $291,000 (31%) decrease is primarily due to decreases in the amount of equity in income of affiliates and percentage of sales revenue received in the current year period as compared to the same period in the prior year.
The $509,000 (77%) decrease is primarily due to decreases in the amount of equity in income of affiliates and percentage of sales revenue received in the current year period as compared to the same period in the prior year.
The estimated asset retirement obligation for the Company's interest in the wells and facilities in the Manyberries area is included in “Asset retirement obligation” in the Consolidated Balance Sheets. Recently, the OWA created a WIP program for specific areas where there are a significant number of orphaned wells to abandon.
The estimated asset retirement obligation for the Company's interest in the wells and facilities in the Manyberries area is included in “Asset retirement obligation” in the Consolidated Balance Sheets. After the abandonment/closure order was issued for Manyberries, the OWA created a WIP program for specific areas where there are a significant number of orphaned wells to abandon.
Accordingly, the amount of equity in income of affiliates recognized in the year ended September 30, 2022 was equivalent to the $3,400,000 of distributions received in that period. Cumulative distributions received from the Kukio Resort Land Development Partnerships in excess of our investment balance was $958,000 at September 30, 2022 and $654,000 at September 30, 2021.
Accordingly, the amount of equity in income of affiliates recognized in the year ended September 30, 2023 was equivalent to the $758,000 of distributions received in that period. Cumulative distributions received from the Kukio Resort Land Development Partnerships in excess of our investment balance was $708,000 at September 30, 2023 and $958,000 at September 30, 2022.
Foreign currency loss Foreign currency loss was $484,000 during the year ended September 30, 2022, as compared to none during the year ended September 30, 2021 due to the effects of foreign exchange rate changes on intercompany loans and advances as a result of the strengthening of the U.S. dollar against the Canadian dollar.
Foreign currency (gain) loss Foreign currency gain was $76,000 during the year ended September 30, 2023, as compared to a foreign currency loss of $484,000 during the year ended September 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.
At September 30, 2022, there was a backlog of seven well drilling and 14 pump installation and repair contracts, of which four well drilling and 10 pump installation and repair contracts were in progress as of September 30, 2022.
At September 30, 2023, there was a backlog of four well drilling and seven pump installation and repair contracts, of which three well drilling and four pump installation and repair contracts were in progress as of September 30, 2023.
The contract drilling segment generated a $222,000 operating loss before general and administrative expenses during fiscal 2022, a decrease in operating results of $133,000 as compared to an operating loss before general and administrative expenses of $89,000 in fiscal 2021.
The contract drilling segment generated a $428,000 operating loss before general and administrative expenses during fiscal 2023, a decrease in operating results of $206,000 as compared to an operating loss before general and administrative expenses of $222,000 in fiscal 2022.
If reported reserve volumes were revised downward by 5% at the end of fiscal 2022, the ceiling limitation would have decreased approximately $1,664,000 before income taxes, which would not have resulted in an increase in the ceiling impairment before income taxes due to sufficient room between the ceiling and the carrying value of oil and natural gas properties at the end of fiscal 2022 of approximately $20,064,000.
If reported reserve volumes were revised downward by 5% at the end of fiscal 2023, the ceiling limitation would have decreased approximately $1,329,000 before income taxes, which would not have resulted in a ceiling impairment before income taxes due to sufficient room between the ceiling and the carrying value of oil and natural gas properties at the end of fiscal 2023 of approximately $5,428,000.
The average exchange rate of the Canadian dollar to the U.S. dollar decreased 1% in fiscal 2022, as compared to fiscal 2021, and the exchange rate of the Canadian dollar to the U.S. dollar decreased 7% at September 30, 2022, as compared to September 30, 2021.
The average exchange rate of the Canadian dollar to the U.S. dollar decreased 5% in fiscal 2023, as compared to fiscal 2022, and the exchange rate of the Canadian dollar to the U.S. dollar increased 1% at September 30, 2023, as compared to September 30, 2022.
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 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.
Net earnings attributable to non-controlling interests totaled $659,000 in fiscal 2022, as compared to net earnings attributable to non-controlling interests of $950,000 in fiscal 2021.
Net earnings attributable to non-controlling interests totaled $150,000 in fiscal 2023, as compared to net earnings attributable to non-controlling interests of $659,000 in fiscal 2022.
The following table summarizes the revenues received from KD I and the amount of fees directly related to such revenues: Year ended September 30, 2022 2021 Sale of interest in leasehold land: Revenues - sale of interest in leasehold land $ 1,295,000 $ 1,738,000 Fees - included in general and administrative expenses (158,000) (212,000) Sale of interest in leasehold land, net of fees paid $ 1,137,000 $ 1,526,000 During the year ended September 30, 2022, Barnwell received $1,295,000 in percentage of sales payments from KD I from the sale of six single-family lots within Increment I.
The following table summarizes the revenues received from KD I and the amount of fees directly related to such revenues: Year ended September 30, 2023 2022 Sale of interest in leasehold land: Revenues - sale of interest in leasehold land $ 265,000 $ 1,295,000 Fees - included in general and administrative expenses (32,000) (158,000) Sale of interest in leasehold land, net of fees paid $ 233,000 $ 1,137,000 During the year ended September 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.
The Company participated in the drilling of six gross (1.7 net) non-operated wells in the Twining area during the year ended September 30, 2022. Capital expenditures incurred by the Company for these non-operated wells totaled $4,366,000 for the year ended September 30, 2022.
Capital expenditures incurred for the drilling of these wells and Twining facilities during the year ended September 30, 2023 totaled approximately $4,770,000. In fiscal 2022, the Company participated in the drilling of six gross (1.7 net) non-operated wells in the Twining area.
Other comprehensive loss due to foreign currency translation adjustments, net of taxes, for fiscal 2022 was $40,000, a $243,000 change from other comprehensive loss due to foreign currency translation adjustments, net of taxes, of $283,000 in fiscal 2021.
Other comprehensive loss due to foreign currency translation adjustments, net of taxes, for fiscal 2023 was $2,000, a $38,000 change from other comprehensive loss due to foreign currency translation adjustments, net of taxes, of $40,000 in fiscal 2022.
Income taxes The components of earnings before income taxes, after adjusting the earnings for non-controlling interests, are as follows: Year ended September 30, 2022 2021 United States $ 739,000 $ 5,436,000 Canada 5,121,000 1,149,000 $ 5,860,000 $ 6,585,000 Barnwell’s effective consolidated income tax rate for fiscal 2022, after adjusting earnings before income taxes for non-controlling interests, was 6% as compared to 5% for fiscal 2021.
Income taxes The components of (loss) earnings before income taxes, after adjusting the (loss) earnings for non-controlling interests, are as follows: Year ended September 30, 2023 2022 United States $ (2,414,000) $ 739,000 Canada 1,400,000 5,121,000 $ (1,014,000) $ 5,860,000 Barnwell’s effective consolidated income tax benefit rate for fiscal 2023, after adjusting loss before income taxes for non-controlling interests, was 5%, as compared to an effective consolidated income tax rate of 6% for fiscal 2022.
Also included in the gain calculation were asset retirement obligations of $77,000 assumed by the purchaser. Asset Retirement Obligation In September 2019, the AER issued an abandonment/closure order for all wells and facilities in the Manyberries area which had been largely operated by LGX, an operating company that went into receivership in 2016.
Asset Retirement Obligation In September 2019, the AER issued an abandonment/closure order for all wells and facilities in the Manyberries area which had been largely operated by LGX, an operating company that went into receivership in 2016.
In September 2022, the Company determined that the right-of-use asset related to the operating lease for the Lot 4C leasehold land zoned conservation held by Kaupulehu Developments was fully impaired as of September 30, 2022. As a result, the Company recognized an $89,000 right-of-use asset impairment expense during the year ended September 30, 2022.
Impairment of assets There was no impairment of assets during the year ended September 30, 2023. In fiscal 2022, the Company determined that the right-of-use asset related to the operating lease for the Lot 4C leasehold land zoned conservation held by Kaupulehu Developments was fully impaired as of September 30, 2022.
During the year ended September 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.
During the year ended September 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.
Of the $6,011,000 net cash distribution received from the Kukio Resort Land Development Partnerships, $459,000 represented a payment of the preferred return from KKM, as discussed in Note 3 of the Notes to Consolidated Financial Statements. 48 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 Partnership 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.
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 Partnership investment balance was reduced to zero with the distributions received in excess of our investment balance recorded as equity in income of affiliates 47 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.
Accordingly, our business performance is directly affected by macroeconomic conditions in those areas, as well as general economic conditions of the U.S. domestic and world economies.
Business Environment Our operations are located in Canada and in the states of Hawaii, Oklahoma, and Texas. Accordingly, our business performance is directly affected by macroeconomic conditions in those areas, as well as general economic conditions of the U.S. domestic and world economies.
Oil and natural gas prices are determined by many factors that are outside of our control. Market prices for oil and natural gas products are dependent upon factors such as, but not limited to, changes in market supply and demand, which are impacted by overall economic activity, changes in weather, pipeline capacity constraints, inventory storage levels, and output.
Market prices for oil and natural gas products are dependent upon factors such as, but not limited to, changes in market supply and demand, which are impacted by overall 38 economic activity, changes in weather, pipeline capacity constraints, inventory storage levels, and output. Oil and natural gas prices are very difficult to predict and fluctuate significantly.
Results of Operations Summary Net earnings attributable to Barnwell for fiscal 2022 totaled $5,513,000, a $740,000 decrease in operating results from net earnings of $6,253,000 in fiscal 2021.
Results of Operations Summary Net loss attributable to Barnwell for fiscal 2023 totaled $961,000, a $6,474,000 decrease from net earnings of $5,513,000 in fiscal 2022.
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. Liquidity and Capital Resources Barnwell’s primary sources of liquidity are cash on hand, cash flow generated by operations, and land investment segment proceeds.
The FASB has subsequently issued other related ASUs which amend ASU 2016-13 to provide clarification and additional guidance. The adoption of this update is not expected to have a material impact on Barnwell’s consolidated financial statements. Liquidity and Capital Resources Barnwell’s primary sources of liquidity are cash on hand, cash flow generated by operations, and land investment segment proceeds.
Oil and Natural Gas Capital Expenditures Barnwell’s oil and natural gas capital expenditures, including accrued capital expenditures and acquisitions of oil and natural gas properties and excluding additions and revisions to estimated asset retirement obligations, increased $8,835,000 from $2,217,000 in fiscal 2021 to $11,052,000 in fiscal 2022.
Oil and Natural Gas Capital Expenditures Barnwell’s oil and natural gas capital expenditures, including accrued capital expenditures and acquisitions of oil and natural gas properties and excluding additions and revisions to estimated asset retirement obligations, decreased $323,000 from $11,052,000 in fiscal 2022 to $10,729,000 in fiscal 2023.
Cash flows provided by financing activities totaled $1,560,000 for fiscal 2022, as compared to cash flows provided by financing activities of $2,192,000 for fiscal 2021.
Cash flows used in financing activities totaled $786,000 for fiscal 2023, as compared to cash flows provided by financing activities of $1,560,000 for fiscal 2022.
The foreign currency loss from intercompany balances was included in our 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.
The foreign currency gains and losses from intercompany balances are included in our consolidated statement of operations as the intercompany balances were not considered long-term in nature because management estimates that these intercompany balances will be settled in the future.
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.
Accordingly, as a result of the loan forgiveness, the Company recognized a gain on debt extinguishment of $15,000 during the year ended September 30, 2023, which was included in the “Gas processing and other” line item in the accompanying Consolidated Statements of Operations. 50 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.
Additionally, through its wholly-owned subsidiary BOK, Barnwell is indirectly involved in non-operated oil and natural gas investments in Oklahoma. Barnwell sells all of its Canadian oil and natural gas under short-term contracts with marketers based on prices indexed to market prices. The price of natural gas, oil and natural gas liquids is freely negotiated between the buyers and sellers.
Additionally, through its wholly-owned subsidiaries BOK and Barnwell Texas, Barnwell is involved in non-operated oil and natural gas investments in Oklahoma and Texas, respectively. Barnwell sells all of its Canadian and U.S. oil and natural gas under short-term contracts with marketers based on prices indexed to market prices.
The backlog of contract drilling revenues as of December 1, 2022 was approximately $11,200,000, of which $8,600,000 is expected to be realized in fiscal 2023 with the remainder to be recognized in the following fiscal year. Based on these contracts in backlog, contract drilling segment operating results are estimated to be higher in fiscal 2023 as compared to fiscal 2022.
The backlog of contract drilling revenues as of December 1, 2023 was approximately $6,800,000, of which $6,300,000 is expected to be realized in fiscal 2024 with the remainder to be recognized in the following fiscal year. Based on these contracts in backlog, contract drilling segment operating results for fiscal 2024 is estimated to be relatively similar to fiscal 2023.
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. 35 Critical Accounting Policies and Estimates The Company considers an accounting estimate to be critical if the accounting estimate requires the Company to make assumptions that are difficult or subjective about matters that were highly uncertain at the time that the accounting estimate was made, and changes in the estimate that are reasonably likely to occur in periods subsequent to the period in which the estimate was made, or use of different estimates that the Company could have used in the current period, would have a material impact on the Company’s financial condition or results of operations.
Critical Accounting Policies and Estimates The Company considers an accounting estimate to be critical if the accounting estimate requires the Company to make assumptions that are difficult or subjective about matters that were highly uncertain at the time that the accounting estimate was made, and changes in the estimate that are reasonably likely to occur in periods subsequent to the period in which the estimate was made, or use of different estimates that the Company could have used in the current period, would have a material impact on the Company’s financial condition or results of operations.
During the year ended September 30, 2021, Barnwell received net cash distributions in the amount of $6,011,000 from the Kukio Resort Land Development Partnerships after distributing $683,000 to non-controlling interests.
During the year ended September 30, 2023, Barnwell received cash distributions of $758,000 from the Kukio Resort Land Development Partnership resulting in a net amount of $674,000, after distributing $84,000 to non-controlling interests.
Oil and natural gas prices realized by Barnwell are essentially determined by world prices for oil and western Canadian/Midwestern U.S. prices for natural gas. 50 Impact of Recently Issued Accounting Standards on Future Filings In June 2016, the Financial Accounting Standards Board (“FASB”) issued 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.
Impact of Recently Issued Accounting Standards on Future Filings In June 2016, the Financial Accounting Standards Board (“FASB”) issued 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.
Inflation The effect of inflation on Barnwell has generally been to increase its cost of operations, general and administrative costs and direct costs associated with oil and natural gas production and contract drilling operations.
Inflation The effect of inflation on Barnwell has generally been to increase its cost of operations, general and administrative costs and direct costs associated with oil and natural gas production and contract drilling operations. Oil and natural gas prices realized by Barnwell are essentially determined by world prices for oil and western Canadian/Midwestern U.S. prices for natural gas.
The decrease in partnership income is primarily due to the Kukio Resort Land Development Partnerships' sale of eight lots during the prior year period, as compared to six lot sales in the current year period, and $459,000 in preferred return payments received from KKM in the prior year period as compared to none in the current year period.
The decrease in partnership income is primarily due to the Kukio Resort Land Development Partnerships' sale of one lot during the current year period, as compared to six lot sales in the prior year period.
The oil and natural gas segment generated a $10,536,000 operating profit in fiscal 2022 before general and administrative expenses, an increase in operating results of $8,113,000 as compared to $2,423,000 of operating profit in fiscal 2021.
The oil and natural gas segment generated a $4,673,000 operating profit in fiscal 2023 before general and administrative expenses, a decrease in operating results of $5,863,000 as compared to $10,536,000 of operating profit in fiscal 2022.
The total cash deposit amount was calculated to be approximately $1,525,000 and the Company paid $888,000 of the total deposit in July and August 2021 and will need to pay the remaining balance of $637,000 by August 2023.
The total cash deposit amount was calculated to be approximately $1,525,000 and the Company paid $888,000 of the total deposit in July and August 2021 and may need to pay the remaining balance of $637,000 by August 2024. The Company revised its Manyberries ARO liability based on the OWA’s revised abandonment and reclamation estimates.
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 ($44,000) 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.
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.
Included in the current income tax provision for the year ended September 30, 2022 is a $62,000 expense for income tax penalties and interest thereon for the non-filing of IRS Form 8858 in each of our U.S. federal income tax returns for fiscal years 2019, 2020 and 2021.
The net operating loss carryforwards beyond the current year’s utilization continue to have a full valuation allowance as realization of their benefit is not more likely than not. 48 Included in the current income tax provision for the year ended September 30, 2022 is a $62,000 expense for income tax penalties and interest thereon for the non-filing of IRS Form 8858 in each of our U.S. federal income tax returns for fiscal years 2019, 2020 and 2021.
General and administrative expenses General and administrative expenses increased $956,000 (13%) to $8,044,000 in fiscal 2022, as compared to $7,088,000 in fiscal 2021.
General and administrative expenses General and administrative expenses decreased $1,088,000 (14%) to $6,956,000 in fiscal 2023, as compared to $8,044,000 in fiscal 2022.
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.
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. The pump installation and removal test was successfully completed.
Cash Flows Cash flows provided by operating activities totaled $7,291,000 for fiscal 2022, as compared to cash flows provided by operating activities of $831,000 for the same period in fiscal 2021.
At September 30, 2023, Barnwell had $2,487,000 in working capital. Cash Flows Cash flows provided by operating activities totaled $1,943,000 for fiscal 2023, as compared to cash flows provided by operating activities of $7,291,000 for the same period in fiscal 2022.
Increment I is an area zoned for approximately 80 single-family lots, of which two remained to be sold at September 30, 2022. • 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.
The developer had consolidated these two remaining lots into one large lot but has since split them back into the original two lots. • 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.
Barnwell realized an average price for natural gas of $4.63 per Mcf during the year ended September 30, 2022, an increase of 77% from $2.62 per Mcf realized during the prior year.
Oil and Natural Gas Segment Barnwell realized an average price for oil of $69.77 per barrel during the year ended September 30, 2023, a decrease of 20% from $86.73 per barrel realized during the prior year and realized an average price for natural gas of $2.64 per Mcf during the year ended September 30, 2023, a decrease of 43% from $4.63 per Mcf realized during the prior year.
This $10,798,000 change in investing cash flows was primarily due to an increase of $1,215,000 in payments to acquire oil and natural gas properties, an increase of $7,084,000 in cash paid for oil and natural gas capital expenditures, a decrease of $1,419,000 received in distributions from equity investees in excess of earnings, and a net decrease of $1,177,000 in proceeds from the sale of assets in the current year period as compared to same period in the prior year.
This $4,068,000 change in investing cash flows was due to an increase of $2,697,000 in cash paid for oil and natural gas capital expenditures, a decrease of $904,000 in proceeds from the sale of interest in leasehold land, net of costs paid, and a decrease of $1,741,000 in proceeds related to 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.
Dispositions There were no significant oil and natural gas property dispositions during the year ended September 30, 2022.
Barnwell also assumed $1,500,000 in asset retirement obligations associated with the acquisition. There were no significant oil and natural gas property dispositions during the year ended September 30, 2022.
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.
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 80 single-family lots, of which two remained to be sold at September 30, 2023.
This $6,460,000 change in operating cash flows was primarily due to significantly higher operating results for the oil and natural gas segment, which was partially offset by lower operating results for the contract drilling segment and a decrease in distributions from the Kukio Resort Land Development Partnerships in the current year period as compared to the prior year period.
This $5,348,000 change in operating cash flows was due to significantly lower operating results for the oil and 49 natural gas segment in the current year period as compared to the prior year period.
Equity in income of affiliates Barnwell’s investment in the Kukio Resort Land Development Partnerships is accounted for using the equity method of accounting. Barnwell recognized equity in income of affiliates of $3,400,000 for the year ended September 30, 2022, as compared to equity in income of affiliates of $5,793,000 for the year ended September 30, 2021.
Barnwell recognized equity in income of affiliates of $758,000 for the year ended September 30, 2023, as compared to equity in income of affiliates of $3,400,000 for the year ended September 30, 2022.
During the year ended September 30, 2021, Barnwell received $1,738,000 in percentage of sales payments from KD I from the sale of eight single-family lots within Increment I. In November 2022, Kaupulehu Developments received a percentage of sales payment of $265,000 from the sale of one lot within Increment I.
During the year ended September 30, 2022, Barnwell received $1,295,000 in percentage of sales payments from KD I from the sale of six single-family lots within Increment I. As of September 30, 2023, two single-family lots of the 80 lots developed within Increment I remained to be sold.
The increase was also partially attributable to workovers, repairs, higher utilities and hauling costs, and restart costs for certain acquired wells, as well as to the remediation of a minor pipeline leak. 44 Oil and natural gas segment depletion increased $1,961,000 (304%) from $645,000 in fiscal 2021 to $2,606,000 in fiscal 2022, primarily due to 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.
Oil and natural gas segment depletion increased $1,663,000 (64%) from $2,606,000 in fiscal 2022 to $4,269,000 in fiscal 2023, primarily due to depletion attributable to production in Texas, whereas there was no such depletion in the prior year period, and an increase 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 and facilities expansion and upgrade costs, all in the Twining area.

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