What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-12-21 compared with 2020-12-16 · 253 added, 246 removed, 243 unchanged (67% of the section changed)

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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, 2020 and 2019, and the related Consolidated Statements of Operations, Comprehensive Loss, Equity (Deficit), and Cash Flows for the years ended September 30, 2020 and 2019.

and subsidiaries (collectively referred to herein as “Barnwell,” “we,” “our,” “us” or the “Company”) as of September 30, 2021 and 2020, and the related Consolidated Statements of Operations, Comprehensive Income (Loss), Equity (Deficit), and Cash Flows for the years ended September 30, 2021 and 2020.

This discussion should be read in conjunction with the consolidated financial statements and related Notes to Consolidated Financial Statements included in this report.

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Impact of COVID-19

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic and the United States and Canadian governments declared the virus a national emergency shortly thereafter.

As a result, the normal operations of many businesses have been disrupted, 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.

The global economy, our markets and our business have been materially and adversely affected by COVID-19.

The COVID-19 outbreak has caused and continues to cause significant reductions in demand for oil and oil prices, which has caused the Company to suspend the development of proved undeveloped reserves and has impacted and continues to impact the Company’s financial condition and outlook.

While the Company’s contract drilling segment remained operational throughout fiscal 2020 and continues to work, the continuing impact of COVID-19 on the ability or desire for customers to continue such work is uncertain, and any discontinuation of contracts currently in backlog would result in a material adverse impact to the Company’s financial condition and outlook.

In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic and the United States and Canadian governments declared the virus a national emergency shortly thereafter.

The ongoing global health crisis (including resurgences) resulting from the pandemic have, and continue to, disrupt the normal operations of many businesses, including the temporary closure or scale-back of business operations and/or the imposition of either quarantine or remote work or meeting requirements for employees, either by government order or on a voluntary basis.

While the outbreak recently appeared to be trending downward, particularly as vaccination rates increased, new variants of COVID-19 continue emerging, including the highly transmissible Delta variant and the newly-discovered Omicron variant (currently a “variant of concern”), spreading throughout the U.S.

and globally and causing significant uncertainty.

The global economy, our markets and our business have been, and may continue to be, materially and adversely affected by COVID-19.

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 recovered from the lows of March through May of the prior year, uncertainty regarding future oil prices has impacted and continues to impact the Company’s financial condition and outlook.

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 and ability or desire for customers to continue such work is uncertain, and any discontinuation of contracts currently in backlog would result in a material adverse impact to the Company’s financial condition and outlook.

Though availability of vaccines and reopening of state and local economies has improved the outlook for recovery from COVID-19's impacts, the impact of the Delta or Omicron variant or other new, more contagious or lethal variants that may emerge, the effectiveness of COVID-19 vaccines against the Delta or Omicron variant or such other variants and the related responses by governments, including reinstated government-imposed lockdowns or other measures, cannot be predicted at this time.

Both the health and economic aspects of the COVID-19 pandemic remain highly fluid and the future course of each is uncertain.

We cannot foresee whether the outbreak of COVID-19 will be effectively contained on a sustained basis, nor can we predict the severity and duration of its impact.

If the outbreak of COVID-19 is not effectively and timely controlled, our business operations and financial condition may continue to be materially and adversely affected as a result of the deteriorating market outlook, the global economic recession, weakened liquidity or factors that we cannot foresee.

If the outbreak of COVID-19 is not effectively and timely controlled on a sustained basis going forward, our business operations and financial condition may be materially and adversely affected by factors that we cannot foresee.

Any of these factors and other factors beyond our control could have an adverse effect on the overall business environment, cause uncertainties in the regions where we conduct business, cause our business to suffer in ways that we cannot predict and materially and adversely impact our business, financial condition and results of operations.

Going Concern

Our ability to sustain our business in the future will depend on sufficient oil and natural gas operating cash flows, which are highly sensitive to volatile oil and natural gas prices, sufficient contract drilling operating cash flows, which are subject to potentially large changes in demand, and sufficient future land investment segment proceeds and distributions from the Kukio Resort Land Development Partnerships, the timing of which are both highly uncertain and not within Barnwell’s control.

outflows such as oil and natural gas asset retirement obligations and ongoing operating and general and administrative expenses.

Our ability to sustain our business in the future will depend on the sufficiency of our cash on hand, oil and natural gas operating cash flows, which are highly sensitive to volatile oil and natural gas prices, contract drilling operating cash flows, which are subject to large changes in demand, and future land investment segment proceeds and distributions from the Kukio Resort Land Development Partnerships, the timing of which are both highly uncertain and not within Barnwell’s control.

A sufficient level of such cash and cash inflows are necessary to fund discretionary oil and natural gas capital expenditures, which must be economically successful to provide sufficient returns, as well as fund our non-discretionary outflows such as oil and natural gas asset retirement obligations and ongoing operating and general and administrative expenses.

In addition, as discussed in the "Asset Retirement Obligation" section of "Liquidity and Capital Resources," a significant amount of funds will be required to be put on deposit with Canadian regulatory authorities to fund abandonments at the Company's oil and natural gas properties in the Manyberries area.

Other sources and potential sources of funding are discussed below.

In fiscal 2020, the Company listed its corporate office on the 29th floor of a commercial office building in downtown Honolulu, Hawaii for sale and on September 30, 2021, the Company’s Honolulu corporate office was sold for approximately $1,864,000, net of related costs.

On March 16, 2021, the Company initiated 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 under price and volume guidelines set by the Company's Board of Directors and the terms and conditions described in the Registration Statement.

The sale of shares under the ATM began in May 2021 and as of September 30, 2021, the Company sold 1,167,987 shares of common stock resulting in net proceeds of $3,784,000 after commissions and fees of $123,000.

In April 2021, the Company re-initiated the marketing of its non-core oil and natural gas properties in the Spirit River, Wood River, Medicine River, Kaybob, Bonanza, Balsam and Thornbury areas for sale.

On July 8 2021, Barnwell entered into and completed a purchase and sale agreement with an independent third party and sold its interests in certain natural gas and oil properties located in the Spirit River area of Alberta, Canada.

The sales price per the agreement was adjusted for customary purchase price adjustments to $1,047,000 in order to, among other things, reflect an economic effective closing date of sale of July 8, 2021.

From Barnwell's net proceeds, $526,000 was withheld for remittance by the buyers to the Canada Revenue Agency for potential amounts due for Barnwell’s Canadian income taxes related to the sale.

Negotiations regarding the potential sales of other non-core oil and natural gas properties is ongoing, however there is no assurance that the sale of any of the other non-core properties will occur.

We have experienced a trend of losses and negative operating cash flows in three of the last four years.

Due to the additional impacts of the COVID-19 pandemic, we now face a greater uncertainty about our cash inflows as described above, which in turn leads to substantial doubt regarding our ability to make the required discretionary cash outflows for the capital expenditures necessary to convert our proved undeveloped reserves to proved developed reserves.

Furthermore, because of the greater uncertainty about our cash inflows described above, there is substantial doubt about our ability to fund our non-discretionary cash outflows and thus substantial doubt about our ability to continue as a going concern for one year from the date of the filing of this report.

Prior to and during fiscal 2020 and subsequently, the Company investigated potential sources of funding, including non-core oil and natural gas property sales, however, no probable sources of such funding have yet been secured.

Additionally, the Company has listed its corporate office on the 29th floor of a commercial office building in downtown Honolulu, Hawaii, for sale to generate liquidity in order to help mitigate the substantial doubt about our ability to continue as a going concern.

However, the Company’s ability to sell its corporate office at an appropriate time or for a sufficient price is outside of the Company's control and is therefore not probable.

Because of this uncertainty as well as uncertainties regarding the potential duration and depth of the impacts of the COVID-19 pandemic on our business as described above, substantial doubt about our ability to continue as a going concern for one year from the date of the filing of this report exists.

During fiscal 2020 and 2021, continuing uncertainties regarding the impacts of the COVID-19 pandemic on our business and the sufficiency of our cash balances and future cash inflows as described above raised substantial doubt about our ability to meet our estimated cash outflows or continue as a going concern.

However, due to the $3,784,000 of net proceeds raised by the ATM through September 30, 2021, the proceeds received from the sale of the Company's corporate office and its interests in certain natural gas and oil properties in the Spirit River area, as well as the $7,156,000 of net cash inflows in the year ended September 30, 2021 from land segment percentage of sales proceeds and distributions from the Kukio Resort Land Development Partnerships, substantial doubt about our ability to meet our estimated cash outflows or continue as a going concern for one year from the date of the filing of this report has been overcome.

Critical Accounting Policies and Estimates

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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;

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.

If net capitalized costs exceed this limit, the excess is expensed.

All items classified as unevaluated and unproved properties are assessed on a quarterly basis for possible impairment or reduction in value.

Properties are assessed on an individual basis or as a group if properties are individually insignificant.

The assessment includes consideration of various factors, including, but not limited to, the following:

intent to drill;

remaining lease term;

geological and geophysical evaluations;

drilling results and activity;

assignment of proved reserves;

and economic viability of development if proved reserves are assigned.

During any period in which these factors indicate an impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and become subject to amortization.

Judgments and Assumptions

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A portion of the revisions are attributable to changes in the rolling 12-month average first-day-of-the-month prices, which impact the economics of producible reserves.

In the last three fiscal years, annual revisions to our reserve volume estimates have averaged 27% 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

36% 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.

There can be no assurance that more significant revisions will not be necessary in the future.

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In the ordinary course of business, but at least quarterly, we prepare updated estimates that may impact the cost and profit or loss for each contract based on actual results to date plus management’s best estimate of costs to be incurred to complete each performance obligation.

Increases or decreases in the estimated costs to complete a performance obligation without a change to the contract price has the impact to decrease or increase,

respectively, the contract completion percentage applied to the contract price to calculate the cumulative contract revenue to be recognized to date.

Increases or decreases in the estimated costs to complete a performance obligation without a change to the contract price has the impact to decrease or increase, respectively, the contract completion percentage applied to the contract price to calculate the cumulative contract revenue to be recognized to date.

Changes in the cost estimates can have a material impact on our contract revenue and are reflected in the results of operations when they become known.

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Any unforeseen cancellation of a contract may result in a material revision to our estimates.

We have a long history of working with multiple types of projects and preparing cost estimates, and we rely on the expertise of key personnel to prepare what we believe are reasonable best estimates given available facts and circumstances.

We have a long history of working with multiple types of projects and preparing cost estimates, and we rely on the expertise of key personnel to prepare what we believe are reasonable best estimates

given available facts and circumstances.

Due to the nature of the work involved, however, judgment is involved to estimate the costs to complete and the amounts estimated could have a material impact on the revenue we recognize in each accounting period.

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Significant changes to these estimates could result in an increase or decrease in our tax provision in future periods.

We are also required to make judgments about the recoverability of deferred tax assets and when it is more likely than not that all or a portion of deferred tax assets will not be realized, a

valuation allowance is provided.

We are also required to make judgments about the recoverability of deferred tax assets and when it is more likely than not that all or a portion of deferred tax assets will not be realized, a valuation allowance is provided.

We consider available positive and negative evidence and available tax planning strategies when assessing the realizability of deferred tax assets.

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Barnwell is engaged in the following lines of business:

1) acquiring, developing, producing and selling oil and natural gas in Canada (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).

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).

Oil and Natural Gas Segment

Barnwell is involved in the acquisition and development of oil and natural gas properties in Canada where we initiate and participate in acquisition and developmental operations for oil and natural gas on properties in which we have an interest, and evaluate proposals by third parties with regard to participation in exploratory and developmental operations elsewhere.

Additionally, through its wholly-owned subsidiary BOK, Barnwell is indirectly involved in several non-operated oil and natural gas investments in Oklahoma.

Barnwell sells all of its oil and natural gas under short-term contracts with marketers based on prices indexed to market prices.

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Oil and natural gas exploration, development and operating costs generally follow trends in product market prices, thus in times of higher product prices the cost of exploring, developing and operating the oil and natural gas properties will tend to escalate as well.

Capital expenditures are required

to fund the exploration, development, and production of oil and natural gas.

Capital expenditures are required to fund the exploration, development, and production of oil and natural gas.

Cash outlays for capital expenditures are largely discretionary, however, a minimum level of capital expenditures is required to replace depleting reserves.

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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 approximately 870 acres of the Kaupulehu Lot 4A area located in the North Kona District of the island of Hawaii.

• The right to receive percentage of sales payments from KD I resulting from the sale of single-family residential lots by KD I, within Increment I of the Kaupulehu Lot 4A area located in the North Kona District of the island of Hawaii.

Kaupulehu Developments is entitled to receive payments from KD I based on the following percentages of the gross receipts from KD I’s sales at Increment I:

10% of such aggregate gross proceeds greater than $100,000,000 up to $300,000,000;

and 14% of such aggregate gross proceeds in excess of $300,000,000.

Increment I is an area zoned for approximately 80 single-family lots, of which 17 remained to be sold at September 30, 2020, and a beach club on the portion of the property bordering the Pacific Ocean.

• Prior to March 7, 2019, the right to receive percentage of sales payments from KD II resulting from the sale of lots and/or residential units by KD II, within Increment II of Kaupulehu Lot 4A.

Increment II is the remaining portion of the approximately 870-acre property and is zoned for single-family and multi-family residential units and a golf course and clubhouse.

Kaupulehu Developments was entitled to receive payments from KD II based on a percentage of the gross receipts from KD II’s sales ranging from 8% to 10% of the price of improved or unimproved lots or 2.60% to 3.25% of the price of units constructed on a lot, to be determined in the future depending upon a number of variables, including whether the lots are sold prior to improvement.

Kaupulehu Developments was also entitled to receive 50% of any future distributions otherwise payable from KD II to it members up to $8,000,000, of which $3,500,000 had been received.

Two ocean front parcels approximately two to three acres in size fronting the ocean were developed and sold within Increment II by KD II, and Kaupulehu Developments received percentage of sales payments from those sales.

The remaining acreage within Increment II is not yet developed.

In February 2019, KD II was granted a 20-year time extension of the allowed zoning for the project that would have otherwise expired in April 2019.

As of March 7, 2019, with the admission of Replay as a new development partner of Increment II, the ownership interests in KD II of KDK and Replay were changed to 55% and 45%, respectively.

Additionally, Kaupulehu Developments has 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.

and 14% of such aggregate gross proceeds in excess

of $300,000,000.

Inventory of unsold lots at Increment I were nine single-family lots at September 30, 2021.

• The right to receive 15% of the distributions of KD II, the cost of which is to be solely borne by KDK out of its 55% ownership interest in KD II, plus a priority payout of 10% of KDK's cumulative net profits derived from Increment II sales subsequent to Phase 2A, up to a maximum of $3,000,000.

Such interests are limited to distributions or net profits interests and Barnwell does not have any partnership interest in KD II or KDK through its interest in Kaupulehu Developments.

Barnwell also has rights to three single-family residential lots in Phase 2A of Increment II, and four single-family residential lots in phases subsequent to Phase 2A when such lots are developed by KD II, all at no cost to Barnwell.

Barnwell is committed to commence

construction of improvements within 90 days of the transfer of the four lots in the phases subsequent to Phase 2A as a condition of the transfer of such lots.

Also, in addition to Barnwell's existing obligations to pay professional fees to certain parties based on percentages of its gross receipts, Kaupulehu Developments is now also obligated to pay an amount equal to 0.72% and 0.20% of the cumulative net profits of KD II to KD Development, LLC and a pool of various individuals, respectively, all of whom are partners of KKM and are unrelated to Barnwell, in compensation for the agreement of these parties to admit the new development partner for Increment II.

• Prior to March 7, 2019, we had an indirect 19.6% non-controlling ownership interest in KD Kukio Resorts, KD Maniniowali, and KDK.

As of March 7, 2019, with the admission of Replay as a new development partner of Increment II, we now have an indirect 10.8% non-controlling ownership interest in KD II through KDK.

Our indirect interest in the other entities remains unchanged.

Barnwell is committed to commence construction of improvements within 90 days of the transfer of the four lots in the phases subsequent to Phase 2A as a condition of the transfer of such lots.

Also, in addition to Barnwell's existing obligations to pay professional fees to certain parties based on percentages of its gross receipts, Kaupulehu Developments is now also obligated to pay an amount equal to 0.72% and 0.20% 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.

Two developed single-family lots were sold in Increment II in prior years and the remaining 420 developable acres at Increment II are entitled for up to 350 homesites.

The remaining acreage within Increment II is not yet under development, and there is no assurance that development of such acreage will in fact occur.

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, KD Maniniowali and KD I and an indirect 10.8% non-controlling ownership interest in KD II through KDK.

These entities own certain real estate and development rights interests in the Kukio, Maniniowali and Kaupulehu portions of Kukio Resort, a private residential community on the Kona coast of the island of Hawaii, as well as Kukio Resort’s real estate sales office operations.

KDK was the developer of Increments I and II.

The partnerships derive income from the sale of residential parcels as well as from commission on real estate sales by the real estate sales office.

KD I has engaged Replay as a consultant to assist with the sales and marketing strategy of Increment I.

Replay does not have an ownership interest in KD I.

• Approximately 1,000 acres of vacant leasehold land zoned conservation in the Kaupulehu Lot 4C area located adjacent to the 870-acre Lot 4A described above, which currently has no development potential without both a development agreement with the lessor and zoning reclassification.

KDK was the developer of Kaupulehu Lot 4A Increments I and II.

The partnerships derive income from the sale of residential parcels as well as from 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.

Contract Drilling Segment

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Business Environment

Our operations are located in Canada and in the state of Hawaii.

Our operations are located in Canada and in the states of Hawaii and Oklahoma.

Accordingly, our business performance is directly affected by macroeconomic conditions in those areas, as well as general economic conditions of the U.S.

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Oil and Natural Gas Segment

Barnwell realized an average price for oil of $33.85 per barrel during the year ended September 30, 2020, a decrease of 19% from $41.84 per barrel realized during the prior year.

The decrease in the average price for oil over the past year is primarily due to the contraction of global oil demand resulting from the COVID-19 pandemic and the impact of the price war between Saudi Arabia and Russia.

Accordingly, oil price declines began in March 2020, with oil futures prices temporarily declining to unprecedented levels below zero.

While oil prices have recovered somewhat from those record lows, the Company is unable to reasonably predict future oil prices and the impacts future oil prices will have on the Company.

Barnwell realized an average price for oil of $51.74 per barrel during the year ended September 30, 2021, an increase of 53% from $33.85 per barrel realized during the prior year.

While oil prices have recovered from the significant lows of March and May of the prior year, the Company is unable to reasonably predict future oil prices and the impacts future oil prices will have on the Company.

Barnwell realized an average price for natural gas of $2.62 per Mcf during the year ended September 30, 2021, an increase of 60% from $1.64 per Mcf realized during the prior year.

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 17 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.

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 nine 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.

The amount and timing of future land investment segment proceeds from percentage of sales payments and cash distributions from the Kukio Resort Land Development Partnerships are highly uncertain and out of our control, and there is no assurance with regards to the amounts of future sales of residential lots within Increments I and II.

Barnwell estimates that it will be heavily reliant upon land investment segment proceeds in order to provide sufficient liquidity to fund our operations in 2021 and beyond.

No definitive development plans have been made by the developer of Increment II as of the date of this report.

Barnwell estimates that it will be partially reliant upon land investment segment proceeds in order to provide sufficient liquidity to fund our operations in 2022 and beyond.

However, there can be no assurance that the amount of future land investment segment proceeds will provide the liquidity required.

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Results of Operations

Net loss attributable to Barnwell for fiscal 2020 totaled $4,756,000, a $7,658,000 increase in operating results from a net loss of $12,414,000 in fiscal 2019.

Net earnings attributable to Barnwell for fiscal 2021 totaled $6,253,000, an $11,009,000 increase in operating results from a net loss of $4,756,000 in fiscal 2020.

The following factors affected the results of operations for the current fiscal year as compared to the prior fiscal year:

• A $3,036,000 increase in contract drilling segment operating results, before income taxes, primarily resulting from significantly increased activity attributable to a significant well drilling contract;

• A $1,336,000 gain recognized in the current year period from the sale of the Company's leasehold interest in a three-quarter of an acre contract drilling segment maintenance and storage yard in Honolulu, Hawaii;

• A $2,967,000 decrease in oil and natural gas segment operating losses, before income taxes, due primarily to a $1,384,000 decrease in the ceiling test impairment which was $5,710,000 in the prior year period, compared to $4,326,000 in the current year period, and $287,000 higher revenues and $363,000 lower operating expenses and a $933,000 decrease in the oil and natural gas depletion in the current year period as compared to the same period in prior year;

• A $6,653,000 improvement in oil and natural gas segment operating results, before income taxes, primarily attributable to a decrease in the ceiling test impairment which was $4,326,000 in the prior year period, compared to a ceiling test impairment of $630,000 in the current year

Also contributing to the increase was a significant increase in oil and natural gas prices in the current period as compared to the same period in the prior year;

• A $5,441,000 increase in equity in income from affiliates as a result of increased operating results of the Kukio Resort Land Development Partnerships;

• A $1,463,000 increase in land investment segment operating results, before non-controlling interests’ share of such profits, due to the sale of eight lots in the current period, whereas there were only two lot sales in the same period in the prior year;

• A $2,341,000 gain recognized in the current year period from the termination of the Company’s Post-retirement Medical plan and $1,982,000 in gains from the sales of assets in the current year period;

• A $3,214,000 decrease in contract drilling segment operating results, before income taxes, primarily resulting from decreased activity attributable to a significant well drilling contract as this contract was essentially completed as of December 31, 2020;

• A $1,268,000 increase in general and administrative expenses primarily due to increases in share-based compensation expense, bonuses and director fees, and costs related to the cooperation and support agreement with the MRMP Stockholders in the current year period as compared to the same period in the prior year, partially offset by a reduction in legal fees in the current year period as compared to the same period in the prior year;

• A $1,336,000 gain recognized in the prior year period from the sale of the Company’s leasehold interest in a three-quarter of an acre contract drilling segment maintenance and storage yard in Honolulu, Hawaii, whereas there was no such gain in the current period.

Barnwell conducts operations in the U.S.

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The average exchange rate of the Canadian dollar to the U.S.

dollar decreased 1% in fiscal 2020, as compared to fiscal 2019, and the exchange rate of the Canadian dollar to the U.S.

dollar remained relatively the same rate at September 30, 2020, as compared to September 30, 2019.

dollar increased 6% in fiscal 2021, as compared to fiscal 2020, and the exchange rate of the Canadian dollar to the U.S.

dollar increased 5% at September 30, 2021, as compared to September 30, 2020.

Accordingly, the assets, liabilities, stockholders’ equity and revenues and expenses of Barnwell’s subsidiaries operating in Canada have been adjusted to reflect the change in the exchange rates.

Barnwell’s Canadian dollar assets are greater than its Canadian dollar liabilities;

Barnwell’s Canadian dollar liabilities are greater than its Canadian dollar assets;

therefore, increases or decreases in the value of the Canadian dollar to the U.S.

dollar generate other comprehensive income or loss, respectively.

Other comprehensive income and losses are not included in net loss.

Other comprehensive loss due to foreign currency translation adjustments, net of taxes, for fiscal 2020 was $146,000, an $88,000 decrease from other comprehensive loss due to foreign currency translation adjustments, net of taxes, of $234,000 in fiscal 2019.

dollar generate other comprehensive loss or income, respectively.

Other comprehensive income and losses are not included in net earnings (loss).

Other comprehensive loss due to foreign currency translation adjustments, net of taxes, for fiscal 2021 was $283,000, a $137,000 change from other comprehensive loss due to foreign currency translation adjustments, net of taxes, of $146,000 in fiscal 2020.

There were no taxes on other comprehensive loss due to foreign currency translation adjustments in fiscal 2021 and 2020 due to a full valuation allowance on the related deferred tax assets.

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* Natural gas price per unit is net of pipeline charges.

The oil and natural gas segment generated a $4,230,000 operating loss in fiscal 2020 before general and administrative expenses, an increase in operating results of $2,967,000 as compared to

$7,197,000 of operating loss in fiscal 2019.

There was a $4,326,000 ceiling test impairment included in the operating loss in the current year as compared to a $5,710,000 ceiling test impairment in the prior year.

Oil and natural gas revenues increased $287,000 (4%) from $6,406,000 in fiscal 2019 to $6,693,000 in fiscal 2020, primarily due to an increase in oil production from new wells drilled in fiscal 2020 in the Spirit River and Twining areas, and an increase in natural gas prices in the current year period as compared to the prior year period.

The increase in oil production from the two new wells in the Spirit River and Twining areas and oil production from minor acquisitions in the current year period was partially offset by natural declines in oil production due to aging of wells and the sale of interests in the Progress area in October 2019, as well as temporary shut-ins in certain areas due to workovers, unfavorable weather conditions, and low oil prices.

The increase was largely offset by a 19% decrease in oil prices in the current year period as compared to the prior year period.

Oil and natural gas operating expenses decreased $363,000 (7%) from $5,213,000 in fiscal 2019 to $4,850,000 in fiscal 2020, primarily due to significant repair and maintenance costs at the Twining property included in the prior year period, whereas there were no such costs in the current year period.

The decrease was also due to shut-in of wells with relatively high operating costs and reductions in operator time and discounted costs obtained from vendors that were negotiated in light of the extremely low oil prices.

Oil and natural gas segment depletion decreased $933,000 from $2,680,000 in fiscal 2019 to $1,747,000 in fiscal 2020, primarily due to a decrease in the depletion rate for the current year period, as compared to the same period in prior year, due primarily to impairment write-downs in the prior and current years.

The well drilled in the Spirit River area commenced production on November 17, 2019 and produced approximately 26,000 net barrels of oil during the fiscal year ended September 30, 2020 which represented 17% of the year's net oil production.

The Company's share of recent net oil production from this well averaged over 200 barrels per day during the first month of production but has since declined to approximately 40 barrels per day due to natural declines.

The new well that was drilled and completed in December 2019 at the Twining area began producing oil and natural gas in January 2020.

This well contributed approximately 15,900 barrels of net oil production from January through September 2020, representing 10% total net oil production for the year ended September 30, 2020.

The well was temporarily shut-in from mid-April 2020 to mid-May 2020 due to decreased oil prices.

Recent net oil production from this well was approximately 103 barrels per day.

As a result of the unprecedented contraction of global oil demand resulting from the COVID-19 pandemic combined with the price war between Saudi Arabia and Russia, oil price declines began in March 2020, with oil futures prices temporarily declining to unprecedented levels below zero.

While oil prices have recovered somewhat from those record lows, the Company is unable to reasonably predict future oil prices and the impacts future oil prices will have on the Company.

The oil and natural gas segment generated a $2,423,000 operating profit in fiscal 2021 before general and administrative expenses, an increase in operating results of $6,653,000 as compared to $4,230,000 of operating loss in fiscal 2020.

There was a $630,000 ceiling test impairment included in the operating profit in the current year as compared to a $4,326,000 ceiling test impairment in the prior year.

Oil and natural gas revenues increased $3,561,000 (53%) from $6,693,000 in fiscal 2020 to $10,254,000 in fiscal 2021, primarily due to significant increases in oil, natural gas and natural gas liquids prices as compared to the same periods in the prior as prior year's commodity prices were impacted by the COVID-19 pandemic.

Oil and natural gas operating expenses increased $1,706,000 (35%) from $4,850,000 in fiscal 2020 to $6,556,000 in fiscal 2021, primarily due to equalization of operating costs related to processing facilities and workovers in the current year period and to a lesser degree due to carbon taxes, whereas there were no such costs in the prior year period, as well as due to lower operating costs in the prior year period due to the aforementioned low commodity prices.

Oil and natural gas segment depletion decreased $1,102,000 from $1,747,000 in fiscal 2020 to $645,000 in fiscal 2021, primarily due to a decrease in the depletion rate for the current year period, as compared to the same period in prior year, due primarily to impairment write-downs in the prior year.

Net oil production during the fiscal year ended September 30, 2021 decreased 4% due largely to a natural decline in oil production from the Spirit River area as compared to the prior year period.

In addition, the Company sold its oil and natural gas properties in the Spirit River area in July 2021.

decrease was partially offset by an increase in production from the Twining area due largely to the acquisition of additional wells in the area.

Net natural gas and natural gas liquids production increased 7% and 14%, respectively, as compared to the same period of the prior year, also due largely to the acquisition of additional wells in the Twining area, partially offset by a decrease in production due to the sale of oil and natural gas properties in the Hillsdown area in April 2021.

While oil prices have recovered from the significant lows of March through May of the prior year, the Company is unable to reasonably predict future oil prices and the impacts future oil prices will have on the Company.

Sale of interest in leasehold land

Kaupulehu Developments is entitled to receive a percentage of the gross receipts from the sales of lots and/or residential units in Increment I by KD I.

Prior to March 7, 2019, Kaupulehu Developments was also entitled to receive percentage of sales payments from the sales of lots and/or residential units in

Increment II by KD II and entitled to receive 50% of any future distributions otherwise payable from KD II to its members up to $8,000,000, of which $3,500,000 was received.

Effective March 7, 2019 Kaupulehu Developments' arrangements with regard to payments from the sales of lots and/or residential units in Increment II were changed, as detailed in the Overview section above.

The following table summarizes the revenues received from KD I and KD II and the amount of fees directly related to such revenues:

The following table summarizes the revenues received from KD I and the amount of fees directly related to such revenues:

Year ended September 30,

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Sale of interest in leasehold land, net of fees paid $ 1,526,000 $ 285,000

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 Phase II of Increment I.

During the year ended September 30, 2020, Barnwell received $325,000 in percentage of sales payments from KD I from the sale of two single-family lots within Phase II of Increment I.

During the year ended September 30, 2019, Barnwell received $165,000 in percentage of sales payments from KD I from the sale of one single-family lot within Phase II of Increment I.

In November 2020, subsequent to the close of the year ended September 30, 2020, Kaupulehu Developments received a percentage of sales payment of $170,000 from the sale of one lot within Phase II of Increment I.

Financial results from the receipt of this payment will be reflected in Barnwell's quarter ending December 31, 2020.

Accordingly, with the inclusion of the lot sale in November 2020, 16 single-family lots of the 80 lots developed within Increment I remained to be sold as of the date of this report.

As discussed in the Overview section above, Replay was admitted as a new development partner of Increment II on March 7, 2019.

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.

Subsequent to the close of the year ended September 30, 2021, Kaupulehu Developments received percentage of sales payments totaling $600,000 from the sale of three lots within Phase II of Increment I.

Financial results from the receipt of these payment will be reflected in Barnwell's quarter ending December 31, 2021.

Accordingly, with the inclusion of the lot sales subsequent to September 30, 2021, six single-family lots of the 80 lots developed within Increment I remained to be sold as of the date of this report.

The Company does not have a controlling interest in Increments I and II, and there is no assurance with regards to the amounts of future sales from Increments I and II, or that the remaining acreage within Increment II will be developed.

No definitive development plans have been made by 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.

Contract drilling revenues increased $5,645,000 (106%) to $10,994,000 in fiscal 2020, as compared to $5,349,000 in fiscal 2019, and contract drilling costs increased $2,540,000 (51%) to $7,513,000 in fiscal 2020, as compared to $4,973,000 in fiscal 2019.

The contract drilling segment generated a $3,125,000 operating profit before general and administrative expenses during fiscal 2020, an increase in operating results of $3,036,000 as compared to an operating profit before general and administrative expenses of $89,000 in fiscal 2019.

The increase in operating results was primarily due to a significant well drilling contract for multiple wells that is based on a fixed rate per day or fixed rate per hour, depending upon the activity, as opposed to the Company's typical contracts that are based on a fixed price per lineal foot drilled.

Up to three drilling rigs were being used at this job during the current year period with crews working extended hours.

The current period increase in operating results was partially offset by a decrease in operating results due to the unfavorable impact of the unsuccessful removal of a hole opener at the bottom of a water well as discussed below.

The significantly increased operational activity that has led to the increased contract drilling segment operating results for the year ended September 30, 2020, has declined since September 30, 2020,

as the aforementioned significant well drilling contract is nearing completion, such that contract drilling revenues are anticipated to decline in fiscal 2021 as compared to fiscal 2020 based on the number and value of contracts in backlog.

At September 30, 2020, there was a backlog of four well drilling and thirteen pump installation and repair contracts, of which all four well drilling and ten pump installation and repair contracts were in progress as of September 30, 2020.

Contract drilling revenues decreased $5,185,000 (47%) to $5,809,000 in fiscal 2021, as compared to $10,994,000 in fiscal 2020, and contract drilling costs decreased $1,958,000 (26%) to $5,555,000 in fiscal 2021, as compared to $7,513,000 in fiscal 2020.

The contract drilling segment generated an $89,000 operating loss before general and administrative expenses during fiscal 2021, a decrease in operating

results of $3,214,000 as compared to an operating profit before general and administrative expenses of $3,125,000 in fiscal 2020.

The decrease in operating results was primarily due to a significant well drilling contract in the prior year period.

The significant well drilling contract was for multiple wells and was based on a fixed rate per day or fixed rate per hour, depending upon the activity, as opposed to the Company's typical contracts that are based on a fixed price per lineal foot drilled.

Up to three drilling rigs were being used at this job during the prior year period with crews working extended hours.

However, activity related to this contract was essentially completed in the quarter ended December 31, 2020 and thus contract drilling revenues and costs have decreased in the current year period as compared to the same period of the prior year.

At September 30, 2021, there was a backlog of six well drilling and ten pump installation and repair contracts, of which five well drilling and nine pump installation and repair contracts were in progress as of September 30, 2021.

The backlog of contract drilling revenues as of December 1, 2021 was approximately $9,500,000, of which $5,900,000 is expected to be realized in fiscal 2022 with the remainder to be recognized in the following fiscal year.

Based on these contracts in backlog, contract drilling segment operating profit is estimated to be significantly lower in fiscal 2021 as compared to fiscal 2020.

Based on these contracts in backlog, contract drilling segment operating profit is estimated to be higher in fiscal 2022 as compared to fiscal 2021.

In the quarter ended December 31, 2019, the Company experienced the failure of a hole opener which broke apart leaving pieces in the bottom of a water well being drilled in Hawaii.

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In September 2020, while making progress towards the drilling of a replacement well in different location, the drill string twisted off and became lodged in the well borehole, which required a stoppage of drilling and the need to dislodge and retrieve the broken drill string.

Accordingly, estimated total rework costs to remediate the situation have been accrued at September 30, 2020.

As a result of all of the above, $390,000 of revenue previously recognized was reversed in the year ended September 30, 2020 and the Company recognized a decrease of approximately $1,440,000 in the margin of this contract in the year ended September 30, 2020.

Accordingly, the estimated total rework costs to remediate the situation was accrued at September 30, 2020.

In January 2021, the broken drill string was retrieved from the well borehole and drilling of the replacement well recommenced.

In the year ended September 30, 2019, two of the water wells drilled by the contract drilling segment for one customer were determined to not meet the contract specifications for plumbness.

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Accordingly, no accruals have been recorded as of September 30, 2021 as there is no probable or estimable contingent liability.

On July 28, 2020, the Staff of the State of Hawaii’s Commission on Water Resource Management (“Commission”) circulated a draft of a proposed recommendation to the Commission under which the Company, the water utility, the water utility's independent hydrologist firm and the owner of the land on which the two aforementioned water wells were drilled would be assessed penalty fines because each of the wells were calculated to have been drilled beyond the depth permitted by the permit.

The wells were

drilled to a depth to penetrate certain layers of impermeable rock necessary to access the aquifer at the instructions and on the advice of the hydrologist hired by the owner of the well.

The Company’s share of the proposed penalties and fines were originally calculated to approximately $1,200,000.

In July 2020, the Staff of the State of Hawaii’s Commission on Water Resource Management (“Commission”) circulated a draft of a proposed recommendation to the Commission under which the Company, the water utility, the water utility's independent hydrologist firm and the owner of the land on which the two aforementioned water wells were drilled would be assessed penalty fines because each of the wells were calculated to have been drilled beyond the depth permitted by the permit.

The wells were drilled to a depth to penetrate certain layers of impermeable rock necessary to access the aquifer at the instructions and on the advice of the hydrologist hired by the owner of the well.

The Company’s share of the proposed penalties and fines was originally calculated to approximately $1,200,000.

Subsequently, the Staff of the Commission acknowledged that one well had not been drilled to a depth beyond its permitted depth and the fines on that well were eliminated.

Additionally, the fines applicable to the depth of the second well were recalculated and reduced to approximately $300,000 as to the Company.

The Commission and the aforementioned four parties fined have worked on a possible proposed alternative settlement in lieu of the penalties and fines whereby the named parties would be responsible for providing the Commission with assistance to monitor the aquifer, at no cost to the Commission, to aid in the Commission’s efforts to monitor water quality in the subject area.

The Company and the other three parties are currently evaluating proposals that it believes would likely satisfy the Commission's request under the proposed alternative settlement but it is currently uncertain as to whether or not they will be acceptable to the Commission.

Additionally, it is uncertain as to how the cost of the alternative settlement would be allocated to the named parties of the subject violations.

Accordingly, the Company recorded a contingent liability of approximately $300,000 at September 30, 2020.

Additionally, the fines applicable to the depth of the second well were dropped in lieu of the parties entering into an agreement to perform a water quality study and repurpose a current well into a monitoring well.

Accordingly, the Company recorded a contingent liability of approximately $300,000 at September 30, 2020 and no subsequent revision to the accrual has been recorded as of September 30, 2021.

There has been a significant decrease in demand for water well drilling contracts in recent years that has generally led to increased competition for available contracts and lower margins on awarded contracts.

The Company is unable to predict the near-term and long-term availability of water well drilling and pump installation and repair contracts as a result of this volatility in demand.

While the Company’s contract drilling segment continues to work, the impact of COVID-19 on the ability or desire for customers to continue such work is uncertain, and any discontinuation of contracts currently in backlog for any reason would result in a material adverse impact to the Company’s financial condition and outlook.

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 crew and ability or desire for customers to continue such work is uncertain, and any discontinuation of contracts currently in backlog for any reason would result in a material adverse impact to the Company’s financial condition and outlook.

General and administrative expenses

General and administrative expenses increased $1,268,000 (22%) to $7,088,000 in fiscal 2021, as compared to $5,820,000 in fiscal 2020.

The increase was due to increased proxy legal costs, proxy solicitation, proxy advisory, public relations costs and bad debt expense in the current year period, as compared to the same period in the prior year.

The increase was partially offset by lower compensation costs in the current year period, as compared to the same period in the prior year.

The increase was primarily due to increases in share-based compensation expense, bonuses and director fees, and costs related to the cooperation and support agreement with the MRMP Stockholders as discussed below, in the current year period as compared to the same period in the prior year.

The increase was partially offset by a reduction in fees related to legal services, proxy solicitation, proxy advisory, and public relation costs in the current year period as compared to the same period in the prior year.

In January 2021, the Company entered into a cooperation and support agreement with MRMP-Managers LLC, Ned L.

Sherwood Revocable Trust, Ned L.

Sherwood and Bradley M.

Tirpak (collectively, the “MRMP Stockholders”), with respect to the potential proxy contest pertaining to the election of directors to our Board of Directors.

Pursuant to the terms of the agreement, among other things, the Company and the MRMP Stockholders agreed on certain nominations and voting with respect to the directors nominated to stand for reelection to the Board of Directors at the 2021 annual meeting of stockholders, which was held on April 20, 2021.

The Company agreed to reimburse the MRMP Stockholders for their reasonable, documented out-of-pocket fees and expenses (including legal expenses) of up to a maximum of $300,000 in connection with the MRMP Stockholders’ election contest at the Company’s 2020 annual meeting of stockholders and the negotiation of this agreement and accordingly, incurred approximately $296,000 in expenses related to this agreement in the year ended September 30, 2021.

Depletion, depreciation, and amortization

Depletion, depreciation, and amortization decreased $875,000 (29%) in fiscal 2020 as compared to fiscal 2019 primarily due to the decrease in oil and natural gas depletion as discussed in the “Oil and natural gas” section above.

Depletion, depreciation, and amortization decreased $1,184,000 (55%) in fiscal 2021 as compared to fiscal 2020 primarily due to a decrease in the oil and natural gas depletion rates as a result of ceiling test impairment write-downs in the prior year as discussed in the “Oil and natural gas” section above.

Impairment of assets

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There was a $4,326,000 ceiling test impairment during the year ended September 30, 2020.

Changes in the mandated 12-month historical rolling average first-day-of-the-month prices for oil, natural gas and natural gas liquids prices, the value of reserve additions as compared to the amount of capital expenditures to obtain them, and changes in production rates and estimated levels of reserves, future development costs and the estimated market value of unproved properties, impact the determination

of the maximum carrying value of oil and natural gas properties.

Prior to the quarter ended March 31, 2020, the ceiling test calculation included management’s estimation that the Company had the ability to fund all of the future capital expenditures necessary over the next five years to develop proved undeveloped reserves in the Twining area of Alberta, Canada.

However, due to the impact on oil prices and the extreme uncertainties created by the COVID-19 pandemic on the Company's financial outlook, management is no longer reasonably certain that the Company will have the financial resources necessary to make any of the capital expenditures necessary to develop the proved undeveloped reserves.

Therefore, the proved undeveloped reserves were excluded from the quarterly ceiling test calculations subsequent to December 31, 2019.

As discussed above, the ceiling test mandates the use of the 12-month historical rolling average first-day-of-the-month prices.

If oil prices remain at current levels or decline further, it is more likely than not that the Company will incur further impairment write-downs in future periods in the absence of any offsetting factors that are not currently known or projected.

In September 2021, the Company designated a contract drilling segment drilling rig and related ancillary equipment, with an aggregate net carrying value of $725,000, as assets held for sale and recorded an impairment of $38,000 to reduce the value of these assets to its fair value, less estimated selling costs.

The fair value of these assets in the aggregate amount of $687,000 is recorded as “Assets held for sale” on the Company's Consolidated Balance Sheet at September 30, 2021.

During the year ended September 30, 2020, the Company recorded a $50,000 impairment in the carrying value of its investment in leasehold land interest in Lot 4C as a result of recent uncertainty regarding the timing of future development and potential use of water rights within Lot 4C prior to the expiration of the lease term.

The lease terminates in December 2025.

Gain on sale of asset

Gain on termination of Post-Retirement Medical plan

In June 2021, the Company terminated its Post-retirement Medical plan, which covered officers of the Company who had attained at least 20 years of service of which at least 10 years were at the position of Vice President or higher, their spouses and qualifying dependents, effective June 4, 2021.

Pursuant to the Post-retirement Medical plan document, the Company, as the sponsor of the Post-retirement Medical plan, had the right to terminate the plan within sixty days ’ notice to each participant and the plan may be terminated by the resolution of the Board of the Directors of the Company.

Further, under the terms of the plan document, the participants in the Post-retirement Medical plan were not entitled to any unpaid vested benefits thereunder upon plan termination.

The Post-retirement Medical plan was an unfunded plan and the Company funded benefits when payments were made.

As a result of the plan termination, the Company recognized a non-cash gain of $2,341,000 during the year ended September 30, 2021.

Gain on sale of assets

On July 8, 2021, Barnwell entered into and completed a purchase and sale agreement with an independent third party and sold its interests in certain natural gas and oil properties located in the Spirit River area of Alberta, Canada.

From Barnwell's net proceeds, $526,000 was withheld for remittance by the buyers

to the Canada Revenue Agency for potential amounts due for Barnwell’s Canadian income taxes related to the sale.

The difference in the relationship between capitalized costs and proved reserves of the Spirit River properties sold as compared to the properties retained by Barnwell was significant as there was a 93% difference in capitalized costs divided by proved reserves if the gain was recorded versus the gain being credited against the full-cost pool.

Accordingly, Barnwell recorded a gain on the sale of Spirit River of $818,000 in the year ended September 30, 2021 in accordance with the guidance in Rule 4-10(c)(6)(i) of Regulation S-X of the rules and regulations of the SEC, which requires an allocation of capitalized costs to the reserves sold and reserves retained on the basis of the relative fair values of the properties as there was a substantial economic difference between the properties sold and those retained.

Also included in the gain calculation were asset retirement obligations of $77,000 assumed by the purchaser.

On September 30, 2021, the Company’s Honolulu corporate office was sold for approximately $1,864,000, net of related costs, resulting in a gain of $1,164,000, which was recognized in the year ended September 30, 2021.

In March 2020, the Company sold its leasehold interest in a three-quarter of an acre contract drilling segment maintenance and storage yard in Honolulu, Hawaii to an unrelated third party for a $1,100,000 cash payment.

As a result of the sale transaction, the Company recognized a gain of $1,336,000, inclusive of a $236,000 gain from the reversal of the storage yard's lease liability in excess of the right-of-use asset, in the year ended September 30, 2020.

Equity in income (loss) of affiliates

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 was allocated partnership income of $352,000 in fiscal 2020, as compared to allocated losses of $276,000 in fiscal 2019.

The increase in the allocated partnership income is primarily due to the Kukio Resort Land Development Partnerships' sale of two lots during the current year, whereas there was one lot sale in the prior year, and an increase in real estate resale activity in the current year as compared to the prior year period.

Additionally, the increase is also attributed to a $197,000 partial payment of the preferred return from KKM, as discussed below.

Barnwell has the right to receive distributions from the Kukio Resort Land Development Partnerships via its non-controlling interests in KD Kona and KKM, based on its respective partnership sharing ratios.

Additionally, Barnwell is entitled to a preferred return from KKM on any allocated equity in income of the Kukio Resort Land Development Partnerships in excess of its partnership sharing ratio for cumulative distributions to all of its partners in excess of $45,000,000 from those partnerships.

Cumulative distributions from the Kukio Resort Land Development Partnerships have reached the $45,000,000 threshold and in August 2020, the Kukio Resort Land Development Partnerships made distributions in excess of the threshold out of the proceeds from the sale of two lots in Increment I in that month.

Accordingly, Barnwell received a $197,000 partial payment of the preferred return in August 2020, which is reflected as an additional equity pickup in the "Equity in income (loss) of affiliates" line item on the accompanying Consolidated Statement of Operations for the year ended September 30, 2020.

Additionally, subsequent to September 30, 2020, the Kukio Resort Land Development Partnerships sold one lot in Increment I and made additional net cash distributions of $1,034,000 to the Company.

Accordingly, Barnwell received additional preferred return payments of $459,000, which will be reflected in Barnwell's financial results for the quarter ending December 31, 2020.

The preferred return payments received after September 30, 2020 brought the cumulative preferred return to $656,000, which is the total amount Barnwell was entitled to, and thus there is no more preferred return outstanding as of the date of this report.

Barnwell was allocated partnership income of $5,793,000 in fiscal 2021, as compared to allocated income of $352,000 in fiscal 2020.

The increase in the allocated partnership income is primarily due to the Kukio Resort Land Development Partnerships' sale of eight lots during the current year, whereas there were two lot sales in the prior year.

In addition, there was a significant increase in real estate resale activity in the current year period for which the Kukio Resort Land Development Partnerships' real estate sales office earns commissions revenue, as well as an increase in the Kukio Resort Land Development Partnerships' revenues related to an increase in club memberships sold.

The increase is also attributed to distributions received from the Kukio Resort Land Development Partnerships in excess of our investment balance of $654,000 which was recorded as income during the year ended September 30, 2021 and $459,000 in preferred return payments received from KKM in the year ended September 30, 2021.

During the year ended September 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 reduced its Kukio Resort Land Development Partnership investment balance to zero as of September 30, 2021.

In addition, the Company recorded the distributions received in excess of our investment balance of $654,000 as equity in income of affiliates during the year ended September 30, 2021.

The Company records the distributions in excess of our investment in the Kukio Resort Land Development Partnerships as income because the distributions are not refundable by agreement or by law and the Company is not liable for the obligations of or otherwise committed to provide financial support to the Kukio Resort Land Development Partnerships.

The Company will record future equity method earnings only after our share

of the Kukio Resort Land Development Partnership’s cumulative earnings during the suspended period exceeds our share of the Kukio Resort Land Development Partnership’s income recognized for the excess distributions.

Additionally, Barnwell was entitled to a preferred return from KKM on any allocated equity in income of the Kukio Resort Land Development Partnerships in excess of its partnership sharing ratio for cumulative distributions to all of its partners in excess of $45,000,000 from those partnerships.

Cumulative distributions from the Kukio Resort Land Development Partnerships have reached the $45,000,000 threshold and in the quarter ended December 31, 2020, the Kukio Resort Land Development Partnerships made distributions in excess of the threshold out of the proceeds from the sale of two lots in Increment I.

Accordingly, Barnwell received a total of $459,000 in preferred return payments, which is reflected as an additional equity pickup in the "Equity in income of affiliates" line item on the accompanying Consolidated Statement of Operations for the year ended September 30, 2021.

The preferred return payments received in the quarter ended December 31, 2020 brought the cumulative preferred return total to $656,000, which is the total amount Barnwell was entitled to, and thus there is no more preferred return outstanding as of September 30, 2021.

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.

Of the $6,011,000 net cash distribution received from the Kukio Resort Land Development Partnerships, $459,000 represented a partial payment of the preferred return from KKM, as discussed above.

During the year ended September 30, 2019, Barnwell received net cash distributions in the amount of $314,000 from the Kukio Resort Land Development Partnerships after distributing $38,000 to non-controlling interest

The components of loss before income taxes, after adjusting the loss for non-controlling interests, are as follows:

During the year ended September 30, 2020, Barnwell received net cash distributions in the amount of $360,000 from the Kukio Resort Land Development Partnerships after distributing $20,000 to non-controlling interests.

Of the $360,000 net cash distribution received from the Kukio Resort Land Development Partnerships, $197,000 represented a partial payment of the preferred return from KKM.

Financial results from the receipt of these payment will be reflected in Barnwell's quarter ending December 31, 2021.

No definitive development plans have been made by the developer of Increment II as of the date of this report.

The components of earnings (loss) before income taxes, after adjusting the earnings (loss) for non-controlling interests, are as follows:

Year ended September 30,

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$ 6,585,000 $ (4,753,000)

Barnwell’s effective consolidated income tax benefit rate for fiscal 2020, after adjusting loss before income taxes for non-controlling interests, was nil as compared to 2% for fiscal 2019.

Barnwell’s effective consolidated income tax rate for fiscal 2021, after adjusting earnings (loss) before income taxes for non-controlling interests, was 5% as compared to nil for fiscal 2020.

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.

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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, and therefore, receives no benefit from consolidated or unitary losses.

On June 28, 2019, the Government of Alberta reduced its corporate income tax rate from 12% to 11%, effective July 1, 2019, with further reductions in the rate by 1% on January 1 of every year until it reaches 8% on January 1, 2022.

On June 29, 2020, the Government of Alberta introduced Alberta’s Recovery Plan which will, among other things, reduce Alberta’s general corporate income tax rate to 8% (from 10%) effective July 1, 2020.

This reduction, however, had not been enacted as of September 30, 2020.

This reduction was enacted in the quarter ended December 31, 2020.

Canadian deferred tax assets and liabilities have been measured using the enacted tax rates in effect for the year in which the differences are expected to reverse.

Alberta rate changes have no significant

impact to earnings/loss as a result of a full valuation allowance being applied to Canadian deferred tax assets.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law to provide economic relief to businesses that were negatively impacted by the COVID-19 pandemic.

Key tax provisions of the CARES Act impacting the Company include the modification of rules related to corporate alternative minimum tax (“AMT”) credits and net operating losses (“NOLs”), as discussed further below.

The repeal of the corporate AMT by the Tax Cuts and Jobs Act of 2017 (“TCJA”) provided a mechanism for the refund over time of any unused AMT credit carryovers.

Under the TCJA, 50% of the Company's total credit ($230,000 = $460,000 x 50%) was refundable effective for tax years beginning after December 31, 2017 (i.e., our fiscal 2019) and was reclassified to current taxes receivable as of September 30, 2019.

The CARES Act subsequently provided for an election to take the entire refundable credit in the Company’s 2018 tax year (fiscal year 2019 return).

As such, the Company reclassified the remaining 50% from non-current to current taxes receivable as of March 31, 2020 as a result of the CARES Act legislation.

The TCJA imposed an 80% limitation on the utilization of U.S.

federal NOLs generated in tax years beginning after December 31, 2017, which is the Company’s fiscal 2019, however the CARES Act suspended this limitation through the 2020 tax year (the Company’s fiscal 2021).

This limitation will be reinstated effective for tax years beginning on or after January 1, 2021.

Net earnings (loss) attributable to non-controlling interests

Alberta rate changes have no significant impact to earnings/loss as a result of a full valuation allowance being applied to Canadian deferred tax assets.

Net earnings attributable to non-controlling interests

Earnings and losses attributable to non-controlling interests represent the non-controlling interests’ share of revenues and expenses related to the various partnerships and joint ventures in which Barnwell has controlling interests and consolidates.

Net earnings attributable to non-controlling interests totaled $79,000 in fiscal 2020, as compared to net loss attributable to non-controlling interests of $3,000 in fiscal 2019.

The $82,000 (2,733%) increase is primarily due to an increase in the amount of Kaupulehu Developments' and Kukio Resort Land Development Partnerships’ income in the current year period as compared to the same period in the prior year.

Net earnings attributable to non-controlling interests totaled $950,000 in fiscal 2021, as compared to net earnings attributable to non-controlling interests of $79,000 in fiscal 2020.

The $871,000 (1,103%) increase is primarily due to increases in the amount of Kukio Resort Land Development Partnerships' income and percentage of sales proceeds received in the current year period as compared to the same period in the prior year.

Retirement plans curtailment

In December 2019, the Company’s Board of Directors approved a resolution to freeze all future benefit accruals for all participants under the Company’s defined benefit pension plan (“Pension Plan”) and Supplemental Executive Retirement Plan (“SERP”) effective December 31, 2019.

Consequently, current participants in the Pension Plan and SERP no longer accrue new benefits under the plans and new employees of the Company are no longer eligible to enter the Pension Plan and SERP as participants after December 31, 2019.

December 31, 2019.

The freezing of the Pension Plan and SERP triggered a curtailment which required a remeasurement of the projected benefit obligations of the Pension Plan and SERP and resulted in a $1,726,000 reduction in unrecognized pension benefit costs that were previously included in accumulated other comprehensive loss, with a corresponding curtailment gain in other comprehensive income which was recorded during the year ended September 30, 2020.

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The Company is currently evaluating the impact of these standards.

In August 2018, the FASB issued ASU No.

2018-13, “Fair Value Measurement:

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement,” which provides changes to certain fair value disclosure requirements.

This ASU is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted.

The adoption of this update is not expected to have a material impact on Barnwell's consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-14, “Compensation - Retirement Benefits-Defined Benefit Plans - General:

Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans,” which provides changes to certain pension and postretirement plan disclosures.

This ASU is effective for annual reporting periods ending after December 15, 2020, with early adoption permitted.

The adoption of this update is not expected to have a material impact on Barnwell's consolidated financial statements.

In October 2018, the FASB issued ASU No.

2018-17, “Consolidation:

Targeted Improvements to Related Party Guidance for Variable Interest Entities,” which modifies the guidance related to indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interest.

This ASU is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted.

The adoption of this update is not expected to have a material impact on Barnwell's consolidated financial statements.

In December 2019, the FASB issued ASU No.

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Liquidity and Capital Resources

Barnwell’s primary sources of liquidity are cash on hand, cash flow generated by operations, and land investment segment proceeds.

Barnwell’s primary sources of liquidity are cash on hand, cash flow generated by operations, land investment segment proceeds, and starting in fiscal 2021, funds generated by the ATM program.

At September 30, 2021, Barnwell had $12,134,000 in working capital.

Cash flows provided by operating activities totaled $750,000 for fiscal 2020, as compared to cash flows used by operating activities of $2,133,000 for the same period in fiscal 2019.

This $2,883,000 change in operating cash flows was primarily due to significantly higher operating results for the contract drilling segment as compared to the prior year period and changes in working capital, primarily attributed to fluctuations in contract liabilities in the current period as compared to the prior year period.

Net cash used in investing activities totaled $833,000 for fiscal 2020, as compared to net cash provided by investing activities of $905,000 for fiscal 2019.

The $1,738,000 decrease in investing cash flows was primarily due to $741,000 in maturities of certificates of deposit in the prior fiscal year period as compared to none in the current year period, a $911,000 decrease in proceeds from the sale of oil and natural gas properties in the current period as compared to the prior year period, and an increase of $2,331,000 in cash used for oil and natural gas capital expenditures, mainly attributed to two new wells drilled in the Twining and Spirit River areas in the current period, as compared to the prior year period.

These items were partially offset by an increase of $1,100,000 in proceeds in the current year period attributed to the sale of the Company's leasehold interest in a three-quarter of an acre contract drilling segment maintenance and storage yard in Honolulu, Hawaii, and a decrease of $848,000 in other capital expenditures in the current year period, primarily due to the purchase of a water well drilling rig and other ancillary equipment in the prior year period.

Cash flows provided by financing activities totaled $60,000 for fiscal 2020, as compared to cash used in financing activities of $110,000 for fiscal 2019.

The $170,000 change in financing cash flows was primarily attributed to an increase of $147,000 in long-term debt borrowings attributed to the PPP loan received during the current year period.

This change was partially offset by $87,000 in distributions to non-controlling interests in the current year period, whereas there was $110,000 in distributions to non-controlling interests in the prior year period.

Cash flows provided by operating activities totaled $831,000 for fiscal 2021, as compared to cash flows provided by operating activities of $750,000 for the same period in fiscal 2020.

This $81,000 change in operating cash flows was primarily due to a significant increase in distributions of income from the Kukio Resort Land Development Partnerships in the current year period, as compared to the prior year, and higher operating results, before non-cash impairment expenses, for the oil and natural gas segment, which was partially offset by significantly lower operating results for the contract drilling segment in the current year period as compared to the prior year period.

The change was also due to fluctuations in working capital, primarily attributed to fluctuations in other current assets and accounts payable in the current period as compared to the prior year period.

Net cash provided by investing activities totaled $3,686,000 for fiscal 2021, as compared to net cash used in investing activities of $833,000 for fiscal 2020.

The $4,519,000 increase in investing cash flows was primarily due to a decrease of $1,193,000 in cash paid for oil and natural gas capital expenditures, a $1,241,000 increase in percentage of sales proceeds received, net of fees, an increase of $1,344,000 received in distributions from equity investees in excess of earnings, and a net increase of $764,000 in proceeds from the sale of assets related to the sale of the Company's Honolulu corporate office in the current year period and the sale of the Company's leasehold interest in a three-quarter of an acre contract drilling segment maintenance and storage yard in Honolulu, Hawaii in the prior year period.

Cash flows provided by financing activities totaled $2,192,000 for fiscal 2021, as compared to cash flows provided by financing activities of $60,000 for fiscal 2020.

The $2,132,000 change in financing cash flows was primarily attributed to $3,179,000 in proceeds from issuance of stock, net of costs, related to the Company's ATM offering in the current year period as compared to none in the prior year period, which was partially offset by an increase of $947,000 in distributions to non-controlling interests in the current year period.

Paycheck Protection Program Loan

On April 28, 2020, the Company, as obligor, entered into a promissory note evidencing an unsecured loan in the approximate amount of $147,000 under the Paycheck Protection Program (“PPP”) pursuant to the CARES Act that was signed into law in March 2020.

The note matures two years after the date of the loan disbursement and bears interest at a fixed annual rate of 1.00%, with the first six months of principal and interest deferred.

Under the terms of the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”), and the PPP, the Company can apply for and be granted forgiveness for all or a portion of the loan issued under the PPP and the loan is expected to be forgiven to the extent the proceeds are used in accordance with the PPP to cover payroll, mortgage interest, rent, and utility costs incurred by the Company over the 24-week period following the loan disbursement date.

In October 2020, the Company was notified by the lender of our PPP loan of changes to certain terms of our PPP loan to conform with the amendments to the CARES Act implemented by the Flexibility Act which included, but was not limited to, the extension of the initial deferment period of the loan’s

principal and interest payments from six months to ten months after the last day of the covered period and if the Company does not apply for forgiveness of the loan within ten months after the last day of the covered period.

As of the date of this filing, the Company is in the process of applying for forgiveness and believes that its use of the loan proceeds will meet the conditions for forgiveness under the PPP and expects the loan to be recorded as income when legal forgiveness is obtained.

Canada Emergency Wage Subsidy

During the year ended September 30, 2020, the Company’s two subsidiaries with Canadian operations, Barnwell of Canada and Octavian Oil qualified for the Canada Emergency Wage Subsidy (“CEWS”).

Initially, the CEWS program provided a subsidy of 75% of eligible employee wages up to a maximum of approximately $600 per week for each employee calculated based on specified decreases in revenues.

Subsequent to July 5, 2020, the CEWS program was adjusted and the subsidy amounts were reduced according to the government's revised eligibility requirements.

As of the date of this report, the Company received a total of approximately $82,000 in CEWS subsidies.

The CEWS is currently scheduled to run through December 19, 2020 with a commitment by the Canadian government to extend the program into 2021.

The note was to mature two years after the date of the loan disbursement with interest at a fixed annual rate of 1.00%, and with the principal and interest payments deferred until ten months after the last day of the covered period.

In April 2021, the Company was notified by the lender of our PPP loan that the entire PPP loan amount and related accrued interest was forgiven by the Small Business Administration.

As a result of the loan forgiveness, the Company recognized a gain on debt extinguishment of $149,000 during the year ended September 30, 2021.

Canada Emergency Business Account Loan

In the quarter ended December 31, 2020, the Company’s Canadian subsidiary, Barnwell of Canada, received a loan of CAD$40,000 under the Canada Emergency Business Account (“CEBA”) loan program for small businesses.

In the quarter ended March 31, 2021, the Company applied for an increase to our CEBA loan and received an additional CAD$20,000 for a total loan amount received of CAD$60,000 ($47,000) under the program.

The CEBA loan is interest-free with no principal payments required until December 31, 2022, after which the remaining loan balance is converted to a three year term loan at 5% annual interest paid monthly.

If the Company repays 66.6% of the principal amount prior to December 31, 2022, there will be loan forgiveness of 33.3% up to a maximum of CAD$20,000.

At The Market Offering

On March 16, 2021, the Company entered into a 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 at any time our public float remains under $75 million), through or to A.G.P as the Company’s sales agent or as principal.

Sales of our common stock under the ATM, if any, will be made by any methods deemed to be “at the market offerings” as defined in Rule 415(a)(4) under the Securities Act, including sales made directly on the NYSE American, on any other existing trading market for our Common Stock, or to or through a market maker.

Shares of common stock

sold under the ATM are offered pursuant to the Company’s Registration Statement on Form S-3 (File No.

333-254365), filed with the Securities and Exchange Commission on March 16, 2021, and declared effective on March 26, 2021 (the "Registration Statement”), and the prospectus dated March 26, 2021, included in the Registration Statement.

Going Concern

A sufficient level of such cash inflows are necessary to fund discretionary oil and natural gas capital expenditures, which must be economically successful to provide sufficient returns, as well as fund our non-discretionary outflows such as oil and natural gas asset retirement obligations and ongoing operating and general and administrative expenses.

Other sources and potential sources of funding are discussed below.

From Barnwell's net proceeds, $526,000 was withheld for remittance by the buyers to the Canada Revenue Agency for potential amounts due for Barnwell’s Canadian income taxes related to the sale.

Negotiations regarding the potential sales of other non-core oil and natural gas properties is ongoing, however there is no assurance that the sale of any of the other non-core properties will occur.

We have experienced a trend of losses and negative operating cash flows in three of the last four years.

Additionally, the Company has listed its corporate office on the 29th floor of a commercial office building in downtown Honolulu, Hawaii, for sale to generate liquidity without impacting operations significantly, in order to mitigate the substantial doubt about our ability to continue as a going concern.

However, the Company’s ability to sell its corporate office at an appropriate time or for a sufficient price is outside of the Company's control and is therefore not probable.

During fiscal 2020 and 2021, continuing uncertainties regarding the impacts of the COVID-19 pandemic on our business and the sufficiency of our cash balances and future cash inflows as described

above raised substantial doubt about our ability to meet our estimated cash outflows or continue as a going concern.

NYSE American Continued Listing Standard

On January 13, 2020, the Company received a letter from the Exchange Staff indicating that the Company was not in compliance with Part 10, Sections 1003(a)(i) and (a)(ii) of the Guide since it reported stockholders’ equity of $1.2 million and net losses in fiscal years ended September 30, 2019, September 30, 2018 and September 30, 2016.

The Company’s failure to meet the NYSE American’s stockholders’ equity requirements and the exceptions resulted in a risk that our common stock may be delisted.

In accordance with the NYSE American’s policies and procedures, the Company submitted its Plan addressing how the Company intended to regain compliance with Part 10, Section 1003 of the Guide.

On April 2, 2020, the NYSE American notified the Company that it accepted the Company’s Plan and granted the Company an extension for its continued listing during the Plan Period.

The Company has been and will continue to be subject to periodic review by Exchange Staff during the Plan Period.

The Plan was submitted to the NYSE American before the start of the COVID-19 pandemic-related low commodity price environment, the oil price war between Saudi Arabia and Russia and other macroeconomic pressures that have impacted our businesses and the U.S.

economy in general.

The magnitude and duration of these factors have and will adversely affect the Company’s ability to achieve the Plan’s goals and to return to compliance with the NYSE American’s listing standards.

If the Company does not regain compliance by the end of the Plan Period, or if the Company does not make ongoing progress consistent with its Plan, the NYSE American may initiate delisting procedures as appropriate.

The Company’s reported stockholders’ equity fell from $2,049,000 at March 31, 2020 to a stockholders’ deficit of $1,512,000 at June 30, 2020, and then to a stockholders’ deficit of $2,045,000 at September 30, 2020, as disclosed in the accompanying consolidated financial statements of this report.

Thus, the Company may fail to be in compliance with the NYSE American continued listing standards relating to stockholders’ equity to which the Plan relates;

specifically Section 1003(a)(i) and Section 1003(a)(ii).

The Company submitted updates to the Plan, as required or requested by the NYSE American, in July 2020, August 2020 and September 2020.

The September 2020 Plan updates presented initiatives which, if all of them are achieved, could result in the amount of stockholders’ equity required by the NYSE American at the end of the Plan Period and accordingly result in the Company regaining compliance with the NYSE American’s continued listing standards.

There is no assurance that the presented initiatives will in fact be achieved.

The Company has not yet received any correspondence from the NYSE American regarding the September 2020 Plan updates.

If the NYSE American delists our common stock, investors may face material adverse consequences, including, but not limited to, a lack of a trading market for our common stock, reduced liquidity, and an inability for us to obtain financing to fund our operations.

On January 13, 2020, the Company received notice from the NYSE American that the Company was not in compliance with Section 1003(a)(i) and Section 1003(a)(ii) of the NYSE American Company Guide (the “Guide”), which respectively require an issuer to have (i) stockholders’ equity of $2.0 million or more if such issuer reported losses from continuing operations and/or net losses in two of its three most recent fiscal years and (ii) stockholders’ equity of $4.0 million or more if such issuer reported losses from continuing operations and/or net losses in three of its four most recent fiscal years, since we reported stockholders’ equity of $1.2 million as of September 30, 2019 and net losses in three of the last four most recent fiscal years then ended, and that the Company’s common stock could be at risk of being delisted.

In accordance with the NYSE American’s policies and procedures, we subsequently submitted a plan (the “Plan”) to the NYSE American detailing the steps we planned to take to raise our stockholders’ equity above $4.0 million and regain compliance with Section 1003(a)(i) and Section 1003(a)(ii) of the Guide.

On April 2, 2020, the NYSE American notified the Company that it accepted the Plan and granted the Company an extension for its continued listing until July 13, 2021.

On July 13, 2021, the Company filed a Form 8-K report with the Securities and Exchange Commission announcing that the Company’s pro forma stockholders’ equity (unaudited) as of July 13, 2021 was projected to be above the $4.0 million required to comply with Section 1003(a)(i) and Section 1003(a)(ii) of the Guide.

Accordingly, in a letter dated July 14, 2021, the NYSE American determined the Company had resolved the continued listing deficiency with respect to Section 1003(a)(i) and Section 1003(a)(ii) of the Guide and notified the Company that it had successfully regained compliance with the NYSE American continued listing standards.

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 $2,522,000 from $629,000 in fiscal 2019 to $3,151,000 in fiscal 2020.

Due to the uncertainties created by the COVID-19 pandemic, investments in oil and natural gas properties have been suspended pending suitable market opportunities and sufficient sources of funding.

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 $934,000 from $3,151,000 in fiscal 2020 to $2,217,000 in fiscal 2021.

The Company participated in the drilling of seven gross (0.20 net) non-operated wells in Oklahoma during the year ended September 30, 2021.

Capital expenditures incurred by the Company for these Oklahoma wells totaled $1,178,000 for the year ended September 30, 2021.

One gross (0.04 net) well was completed and the well began flowback production in late May 2021 and the Company’s share of net production, after royalties, from this well was 1,000 barrels of oil, 4,000 MCF of natural gas and 1,000 barrels of natural gas liquids through September 30, 2021.

The remaining six gross (0.16 net) wells were all producing in October 2021.

The Company did not drill or participate in the drilling of wells in Canada during the year ended September 30, 2021.

Drilling opportunities in the Company's core Twining area are being investigated for potential investment in the forthcoming months.

Oil and Natural Gas Property Acquisitions and Dispositions

In October 2019, Barnwell entered into a purchase and sale agreement with an independent third party and sold its interests in properties located in the Progress area of Alberta, Canada.

In April 2021, Barnwell entered into a purchase and sale agreement with an independent third party and sold its interests in properties located in the Hillsdown area of Alberta, Canada.

The sales price per the agreement was adjusted for customary purchase price adjustments to $132,000 in order to, among other things, reflect an economic effective date of October 1, 2020.

$72,000 of the sales proceeds was withheld by the buyers for potential amounts due for Barnwell’s Canadian income taxes related to the sale.

The final determination of the customary adjustments to the purchase price has not yet been made, however it is not expected to result in a material adjustment.

The proceeds were credited to the full cost pool, with no gain or loss recognized, as the sale did not result in a significant alteration of the relationship between capitalized costs and proved reserves.

There were no oil and natural gas property dispositions during the year ended September 30, 2019.

The $1,519,000 of proceeds from sale of oil and natural gas properties included in the Consolidated Statement of Cash Flows for the year ended September 30, 2019 primarily represents the refund of income taxes previously withheld from what otherwise would have been proceeds on prior years' oil and natural gas property sales.

From Barnwell's net proceeds, $526,000 was withheld for remittance by the buyers to the Canada Revenue Agency for potential amounts due for Barnwell’s Canadian income taxes related to the sale.

Also included in the gain calculation were asset retirement obligations of $77,000 assumed by the purchaser.

Negotiations regarding the potential sales of other non-core oil and natural gas properties is ongoing, however there is no assurance that the sale of any of the other non-core properties will occur.

In the quarter ended December 31, 2019, Barnwell entered into a purchase and sale agreement with an independent third party and sold its interests in properties located in the Progress area of Alberta, Canada.

The sales price per the agreement was adjusted for customary purchase price adjustments to $594,000 in order to, among other things, reflect an economic effective date of October 1, 2019.

In April 2021, Barnwell acquired additional working interests in oil and natural gas properties located in the Twining area of Alberta, Canada for cash consideration of $348,000.

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 final determination of the customary adjustments to the purchase price has not yet been made, however it is not expected to result in a material adjustment.

There were no significant amounts paid for oil and natural gas property acquisitions during the year ended September 30, 2020.

In the quarter ended December 31, 2018, Barnwell acquired additional working interests in oil and natural gas properties located in the Wood River and Twining areas of Alberta, Canada for cash consideration of $355,000.

The purchase prices per the agreements were adjusted for customary purchase price adjustments to reflect the economic activity from the effective date to the closing date.

The customary adjustments to the purchase prices were finalized in the quarter ended June 30, 2019 and resulted in an immaterial adjustment.

There were no other oil and natural gas working interest acquisitions during the year ended September 30, 2019.

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.

The estimated asset retirement obligation for the Company's wells and facilities in the Manyberries area is included in “Asset retirement obligation” in the Consolidated Balance Sheets.

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.

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.

Many 100% LGX-owned wells are to be reclaimed by the OWA.

However, as next largest interest holder in 82 of the wells and 7 facilities formerly operated by LGX, averaging 11%, the Company is required to take care and custody of those properties and to coordinate their closure.

On November 5, 2019, in response to the AER order, the Company submitted its proposed plan to abandon the Manyberries wells and facilities in an orderly fashion over a ten-year period.

This area has unique access issues as a result of an Emergency Protection Order, under the Canadian Government’s Species at Risk Act, to protect the Sage Grouse.

This area has unique access issues as a result of an Emergency Protection Order to protect the Sage Grouse under the Canadian Government’s Species at Risk Act.

Access is limited to a window of mid-September to the end of November each year.

The plan that the Company has submitted began in October 2019 with field inspections, securing wells, and equipment inventory, for which minor expenses were expended.

The plan includes further field activity beginning in the fall of 2020, our fiscal 2021 first quarter, which has been initiated and initially

involves removal and salvage of the surface equipment;

these costs are estimated to be minimal due in part to the salvage value of the equipment.

Beyond fiscal 2021, the Company proposes to perform seven to ten well abandonments per year over an estimated ten-year period as well as abandon the facilities in that time period.

Annual gross costs estimated to be incurred currently are approximately $500,000, approximately $55,000 net to the Company, however, the Company expects it will have to pay the gross costs and then recover from the other working interest owners and the OWA their costs, such that there will be a period between Barnwell having to pay the gross costs and getting reimbursed for the other parties’ portions.

As an alternative to the above plan, the Company is in discussions to allow the OWA to perform well abandonments and reclamations on the company’s behalf.

This would eliminate the need for Barnwell to carry LGX’s average 85% portion of Barnwell interest in wells in Manyberries.

Barnwell would also benefit from the OWA’s extensive experience and scale of operations in this area.

This could allow Barnwell to accelerate closure of the Manyberries area to a 4-year period (fiscal 2022-2025) from the above ten-year plan, and it is estimated that this plan would increase Barnwell’s net expenditures to approximately $150,000 annually, with some minor costs likely extending into fiscal 2026.

Over the past five years, the Company has diligently worked to reduce its ARO associated with its oil and natural gas segment, both by divesting low-productivity assets and actively closing wells and sites.

Fifteen 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 has funded the SRP in spring 2020.

The SRP has been designed to reduce oil and gas industry liabilities by funding vendors who perform closure work.

In partnership with its vendors, Barnwell-operated sites have received $200,000 in net funding to date, to be directed to ARO reduction activities.

Barnwell has further benefited from grants allocated to its non-operated property partners, with a further $75,000 in activities approved to date.

Recently, the OWA created a WIP program for specific areas where there are a significant number of orphaned wells to abandon.

The OWA has the ability and expertise to abandon wells using its internal resources and network of service providers resulting in efficiencies that companies such as Barnwell, would not be able to obtain on its own.

Under the WIP program, the Company would be required to provide payment for only Barnwell’s working interest share, however, all WIP’s would have to participate in the program for the OWA to begin its work.

In March 2021, the Company was notified by the OWA that Barnwell’s Manyberries wells were confirmed to be in the WIP program.

Under the new agreement with the OWA, the Company is required to pay the abandonment and reclamation costs in advance through a cash deposit.

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 2022.

The Company revised its Manyberries ARO liability based on the OWA’s revised abandonment and reclamation estimates, which resulted in an increase of approximately $213,000 in the current year.

The increase in the ARO liability was a result of higher reclamation and remediation costs than anticipated, partially offset by lower abandonment estimates.

Based on a review of the details of the cash deposit calculation provided by the OWA, which includes amounts added for possible contingencies, the Company believes the required cash deposit amount by the OWA is higher than the actual costs of the asset retirement obligation for the Manyberries wells and that any excess of the deposit over actual asset retirement costs for the first phase of the work would be credited toward the second phase of the work.

A remaining excess deposit, if any, would ultimately be refunded to the Company upon completion of all of the work.

Contractual Obligations

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What changed 10-K

Item 7. Management’s Discussion and Analysis