BARNWELL INDUSTRIES INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm To the Board of Stockholders and Board of Directors of Barnwell Industries, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Barnwell Industries, Inc. and subsidiaries (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 then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters 61 does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Estimation of Proved Reserves Impacting the Recognition and Valuation of Depletion Expense and Impairment and Oil and Gas Properties Critical Audit Matter Description As described in Note 1 to the financial statements, the Company accounts for its oil and gas properties using the full cost method of accounting which requires management to make estimates of proved reserve volumes and future revenues and expenses to calculate depletion expense and measure its oil and gas properties for potential impairment. To estimate the volume of proved reserves and future revenues, management makes significant estimates and assumptions, including forecasting the production decline rate of producing properties and forecasting the timing and volume of production associated with the Company’s development plan for proved undeveloped properties. In addition, the estimation of proved reserves is also impacted by management’s judgments and estimates regarding the financial performance of wells associated with proved reserves to determine if wells are expected, with reasonable certainty, to be economical under the appropriate pricing assumptions required in the estimation of depletion expense and potential impairment measurements. We identified the estimation of proved reserves of oil and gas properties, due to its impact on depletion expense and impairment evaluation, as a critical audit matter. The principal consideration for our determination that the estimation of proved reserves is a critical audit matter is that changes in certain inputs and assumptions, which require a high degree of subjectivity necessary to estimate the volume and future revenues of the Company’s proved reserves could have a significant impact on the measurement of depletion expense or the impairment assessment. In turn, auditing those inputs and assumptions required subjective and complex auditor judgement. How the Critical Audit Matter was Addressed in the Audit We obtained an understanding of the design and implementation of management’s controls and our audit procedures related to the estimation of proved reserves included the following, among others. • We evaluated the level of knowledge, skill, and ability of the Company’s reservoir engineering specialists and their relationship to the Company, made inquiries of those reservoir engineers regarding the process followed and judgments made to estimate the Company’s proved reserve volumes, and read the reserve report prepared by the Company’s specialists. • To the extent key, sensitive inputs and assumptions used to determine proved reserve volumes and other cash flow inputs and assumptions are derived from Company’s accounting records, such as commodity pricing, historical pricing differentials, operating costs, estimated capital costs and working and net revenue interests, we tested management’s process for determining the assumptions, including examining the underlying support, on a sample basis. Specifically, our audit procedures involved testing management’s assumptions as follows: ◦ Compared the estimated pricing differentials used in the reserve report to realized prices related to revenue transactions recorded in the current year and examined contractual support for the pricing differentials; ◦ Evaluated the models used to estimate the operating costs at year-end compared to historical operating costs; 62 ◦ Compared the models used to determine the future capital expenditures and compared estimated future capital expenditures used in the reserve report to amounts expended for recently drilled and completed wells with similar locations; ◦ Evaluated the working and net revenue interests used in the reserve report by inspecting a sample of ownership interests, historical pricing differentials, and operating costs to underlying support from the Company’s accounting records; ◦ Evaluated the Company’s evidence supporting the amount of proved undeveloped properties reflected in the reserve report by examining support for the Company’s or the operator’s ability and intent to develop the proved undeveloped properties; ◦ Applied analytical procedures to the reserve report by comparing to historical actual results and to the prior year reserve report. Revenue Recognition Based on the Percentage of Completion Method Critical Audit Matter Description As described further in Note 1 to the financial statements, revenues derived from contract drilling contracts are recognized over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer, using the percentage-of-completion method of accounting, based primarily on contract cost incurred to date compared to total estimated contract cost. Revenue recognition under this method is judgmental, particularly on lump-sum contracts, as it requires the Company to prepare estimates of total contract revenue and total contract costs, including costs to complete in-process contracts. Auditing the Company’s estimates or total contract revenue and costs used to recognize revenue on contract drilling contracts involved significant auditor judgment, as it required the evaluation of subjective factors such as assumptions related to project schedule and completion, forecasted labor, and material and subcontract costs. These assumptions involved significant management judgment, which affects the measurement of revenue recognized by the Company. How the Critical Audit Matter was Addressed in the Audit We obtained an understanding of the design and implementation of management’s controls and our audit procedures related to the estimation of proved reserves included the following, among others. • We obtained an understanding of the Company’s estimation process that affected revenue recognized on engineering and construction contracts. This included controls over management’s monitoring and review of project costs, including the Company’s procedures to validate the completeness and accuracy of data used to determine the estimates. • We selected a sample of projects and, among other procedures, obtained and inspected the contract agreements, amendments and change orders to test the existence of customer arrangements and understand the scope of pricing of the related contracts; • Evaluated the Company’s estimated revenue and costs to complete by obtaining and analyzing supporting documentation of management’s estimates of variable consideration and contract costs; • Compared contract profitability estimates in the current year to historical estimates and actual performance. Calculation of Gain Associated with Sale of Oil and Gas Properties Critical Audit Matter Description As described further in Note 7 to the consolidated financial statements, the Company recorded a gain to the statement of operations from sale of certain oil and gas properties. Determination of the accounting for 63 this transaction is challenging as it requires the Company to prepare significant assumptions and estimates regarding the associated fair value of the oil and gas reserves sold as compared to costs capitalized. The fair value estimate allows the Company to determine if the sale of the oil and gas assets are significant to the total full cost pool to record a gain on sale under the full cost method of accounting. Auditing the Company’s estimates and assumptions used to calculate the fair value of the oil and gas reserves used to determine the relationship between capitalized costs and proved reserves of the Spirit River properties sold as compared to the properties retained by the Company, as it required the evaluation of the significant inputs and assumptions used in the reserve reports prepared by a third party reserve engineer (the Company’s specialist). Further, such fair values determined by the Company’s specialist also determined the gain calculation under the full cost method of accounting used by the Company. How the Critical Audit Matter was Addressed in the Audit We obtained an understanding of the design and implementation of management’s controls and our audit procedures related to the fair value of oil and gas reserves sold in relationship with the capitalized costs utilized in the calculation of the gain associated with the sale of oil and gas properties included the following: • We evaluated the level of knowledge, skill, and ability of the Company’s reservoir engineering specialists and their relationship to the Company, made inquiries of those reservoir engineers regarding the process followed and judgments made to estimate the Company’s proved reserve volumes, and read the reserve report prepared by the Company’s specialists. • Utilized the support of auditor’s specialists to recalculate independently of reserve engineer the fair value of oil and gas reserves sold vs. retained based on reserve information provided by the Company’s through their third party reserve engineer; • We evaluated management’s application of gain accounting under full cost method related to the sale of the oil and gas properties to determine proper treatment was applied. • Compared the calculation inputs for the gain recorded to the purchase and sale agreement. /s/ WEAVER AND TIDWELL, L.L.P. We have served as the Company’s auditor since 2020. Dallas, Texas December 21, 2021 64 BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 2021 2020 ASSETS Current assets: Cash and cash equivalents $ 11,279,000 $ 4,584,000 Accounts and other receivables, net of allowance for doubtful accounts of: $ 391,000 at September 30, 2021; $ 341,000 at September 30, 2020 3,069,000 2,176,000 Income taxes receivable 530,000 472,000 Assets held for sale 687,000 699,000 Other current assets 2,470,000 1,556,000 Total current assets 18,035,000 9,487,000 Asset for retirement benefits 2,229,000 771,000 Investments — 901,000 Operating lease right-of-use assets 296,000 249,000 Oil and natural gas properties, full cost method of accounting: Proved properties, net 2,423,000 2,303,000 Unproved properties 962,000 — Total oil and natural gas properties, net 3,385,000 2,303,000 Drilling rigs and other property and equipment, net 490,000 1,471,000 Total assets $ 24,435,000 $ 15,182,000 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 1,416,000 $ 2,104,000 Accrued capital expenditures 909,000 542,000 Accrued compensation 1,073,000 408,000 Accrued operating and other expenses 1,171,000 1,325,000 Current portion of asset retirement obligation 713,000 647,000 Other current liabilities 619,000 1,338,000 Total current liabilities 5,901,000 6,364,000 Long-term debt 47,000 58,000 Operating lease liabilities 180,000 143,000 Liability for retirement benefits 2,101,000 4,829,000 Asset retirement obligation 6,340,000 5,547,000 Deferred income tax liabilities 359,000 194,000 Total liabilities 14,928,000 17,135,000 Commitments and contingencies (Note 18) Equity: Common stock, par value $ 0.50 per share; authorized, 20,000,000 shares: 9,613,525 issued at September 30, 2021; 8,445,060 issued at September 30, 2020 4,807,000 4,223,000 Additional paid-in capital 4,590,000 1,350,000 Retained earnings (accumulated deficit) 2,356,000 ( 3,897,000 ) Accumulated other comprehensive income (loss), net 32,000 ( 1,435,000 ) Treasury stock, at cost: 167,900 shares at September 30, 2021 and 2020 ( 2,286,000 ) ( 2,286,000 ) Total stockholders’ equity (deficit) 9,499,000 ( 2,045,000 ) Non-controlling interests 8,000 92,000 Total equity (deficit) 9,507,000 ( 1,953,000 ) Total liabilities and equity $ 24,435,000 $ 15,182,000 See Notes to Consolidated Financial Statements 65 BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year ended September 30, 2021 2020 Revenues: Oil and natural gas $ 10,254,000 $ 6,693,000 Contract drilling 5,809,000 10,994,000 Sale of interest in leasehold land 1,738,000 325,000 Gas processing and other 312,000 335,000 18,113,000 18,347,000 Costs and expenses: Oil and natural gas operating 6,556,000 4,850,000 Contract drilling operating 5,555,000 7,513,000 General and administrative 7,088,000 5,820,000 Depletion, depreciation, and amortization 963,000 2,147,000 Impairment of assets 668,000 4,376,000 Interest expense 13,000 3,000 Gain on debt extinguishment ( 149,000 ) — Gain on termination of post-retirement medical plan ( 2,341,000 ) — Gain on sale of assets ( 1,982,000 ) ( 1,336,000 ) 16,371,000 23,373,000 Earnings (loss) before equity in income of affiliates and income taxes 1,742,000 ( 5,026,000 ) Equity in income of affiliates 5,793,000 352,000 Earnings (loss) before income taxes 7,535,000 ( 4,674,000 ) Income tax provision 332,000 3,000 Net earnings (loss) 7,203,000 ( 4,677,000 ) Less: Net earnings attributable to non-controlling interests 950,000 79,000 Net earnings (loss) attributable to Barnwell Industries, Inc. stockholders $ 6,253,000 $ ( 4,756,000 ) Basic net earnings (loss) per common share attributable to Barnwell Industries, Inc. stockholders $ 0.73 $ ( 0.57 ) Diluted net earnings (loss) per common share attributable to Barnwell Industries, Inc. stockholders $ 0.73 $ ( 0.57 ) Weighted-average number of common shares outstanding: Basic 8,592,154 8,277,160 Diluted 8,592,154 8,277,160 See Notes to Consolidated Financial Statements 66 BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year ended September 30, 2021 2020 Net earnings (loss) $ 7,203,000 $ ( 4,677,000 ) Other comprehensive income (loss): Foreign currency translation adjustments, net of taxes of $ 0 ( 283,000 ) ( 146,000 ) Retirement plans: Amortization of accumulated other comprehensive loss into net periodic benefit cost, net of taxes of $ 0 101,000 120,000 Net actuarial gain (loss) arising during the period, net of taxes of $ 0 1,108,000 ( 218,000 ) Curtailment gain, net of taxes of $ 0 — 1,726,000 Gain on termination of post-retirement medical plan, net of taxes of $ 0 541,000 — Total other comprehensive income 1,467,000 1,482,000 Total comprehensive income (loss) 8,670,000 ( 3,195,000 ) Less: Comprehensive income attributable to non-controlling interests ( 950,000 ) ( 79,000 ) Comprehensive income (loss) attributable to Barnwell Industries, Inc. $ 7,720,000 $ ( 3,274,000 ) See Notes to Consolidated Financial Statements 67 BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) Years ended September 30, 2021 and 2020 Shares Outstanding Common Stock Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Treasury Stock Non-controlling Interests Total Equity (Deficit) Balance at September 30, 2019 8,277,160 $ 4,223,000 $ 1,350,000 $ 859,000 $ ( 2,917,000 ) $ ( 2,286,000 ) $ 100,000 $ 1,329,000 Net (loss) earnings — — — ( 4,756,000 ) — — 79,000 ( 4,677,000 ) Foreign currency translation adjustments, net of taxes of $ 0 — — — — ( 146,000 ) — — ( 146,000 ) Distributions to non-controlling interests — — — — — — ( 87,000 ) ( 87,000 ) Retirement plans: Amortization of accumulated other comprehensive loss into net periodic benefit cost, net of taxes of $ 0 — — — — 120,000 — — 120,000 Net actuarial loss arising during the period, net of taxes of $ 0 — — — — ( 218,000 ) — — ( 218,000 ) Curtailment gain, net of taxes of $ 0 — — — — 1,726,000 — — 1,726,000 Balance at September 30, 2020 8,277,160 4,223,000 1,350,000 ( 3,897,000 ) ( 1,435,000 ) ( 2,286,000 ) 92,000 ( 1,953,000 ) Net earnings — — — 6,253,000 — — 950,000 7,203,000 Foreign currency translation adjustments, net of taxes of $ 0 — — — — ( 283,000 ) — — ( 283,000 ) Distributions to non-controlling interests — — — — — — ( 1,034,000 ) ( 1,034,000 ) Share-based compensation — — 643,000 — — — — 643,000 Issuance of common stock, net of costs 1,167,987 583,000 2,596,000 — — — — 3,179,000 Issuance of common stock for services 478 1,000 1,000 — — — — 2,000 Retirement plans: Amortization of accumulated other comprehensive loss into net periodic benefit cost, net of taxes of $ 0 — — — — 101,000 — — 101,000 Net actuarial gain arising during the period, net of taxes of $ 0 — — — — 1,108,000 — — 1,108,000 Gain on termination of post-retirement medical plan, net of taxes $ 0 — — — — 541,000 — — 541,000 Balance at September 30, 2021 9,445,625 $ 4,807,000 $ 4,590,000 $ 2,356,000 $ 32,000 $ ( 2,286,000 ) $ 8,000 $ 9,507,000 See Notes to Consolidated Financial Statements 68 BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended September 30, 2021 2020 Cash flows from operating activities: Net earnings (loss) $ 7,203,000 $ ( 4,677,000 ) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Equity in income of affiliates ( 5,793,000 ) ( 352,000 ) Depletion, depreciation, and amortization 963,000 2,147,000 Impairment of assets 668,000 4,376,000 Gain on sale of oil and natural gas properties ( 818,000 ) — Gain on sale of other assets ( 1,164,000 ) ( 1,336,000 ) Sale of interest in leasehold land, net of fees paid ( 1,526,000 ) ( 285,000 ) Distributions of income from equity investees 5,045,000 75,000 Retirement benefits income ( 88,000 ) ( 60,000 ) Accretion of asset retirement obligation 580,000 561,000 Deferred income tax expense 165,000 26,000 Asset retirement obligation payments ( 421,000 ) ( 498,000 ) Share-based compensation expense 643,000 — Common stock issued for services 1,000 — Non-cash rent (income) expense ( 4,000 ) 48,000 Retirement plan contributions and payments ( 14,000 ) ( 8,000 ) Bad debt expense 32,000 285,000 Gain on debt extinguishment ( 149,000 ) — Gain on termination of post-retirement medical plan ( 2,341,000 ) — (Decrease) increase from changes in current assets and liabilities ( 2,151,000 ) 448,000 Net cash provided by operating activities 831,000 750,000 Cash flows from investing activities: Distributions from equity investees in excess of earnings 1,649,000 305,000 Proceeds from sale of interest in leasehold land, net of fees paid 1,526,000 285,000 Proceeds from the sale of oil and natural gas assets 581,000 608,000 Proceeds from the sale of other assets, net of closing costs 1,864,000 1,100,000 Payments to acquire oil and natural gas properties ( 348,000 ) — Capital expenditures - oil and natural gas ( 1,523,000 ) ( 2,716,000 ) Capital expenditures - all other ( 63,000 ) ( 415,000 ) Net cash provided by (used in) investing activities 3,686,000 ( 833,000 ) Cash flows from financing activities: Borrowings on long-term debt 47,000 147,000 Distributions to non-controlling interests ( 1,034,000 ) ( 87,000 ) Proceeds from issuance of stock, net of costs 3,179,000 — Net cash provided by financing activities 2,192,000 60,000 Effect of exchange rate changes on cash and cash equivalents ( 14,000 ) ( 6,000 ) Net increase (decrease) in cash and cash equivalents 6,695,000 ( 29,000 ) Cash and cash equivalents at beginning of year 4,584,000 4,613,000 Cash and cash equivalents at end of year $ 11,279,000 $ 4,584,000 See Notes to Consolidated Financial Statements 69 BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2021 AND 2020 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Barnwell is engaged in the following lines of business: 1) acquiring, developing, producing and selling oil and natural gas in Canada and Oklahoma, 2) investing in land interests in Hawaii, and 3) drilling wells and installing and repairing water pumping systems in Hawaii. Principles of Consolidation The consolidated financial statements include the accounts of Barnwell Industries, Inc. and all majority-owned subsidiaries (collectively referred to herein as “Barnwell,” “we,” “our,” “us,” or the “Company”), including a 77.6 %-owned land investment general partnership (Kaupulehu Developments), a 75 %-owned land investment partnership (KD Kona), and a variable interest entity (Teton Barnwell Fund I, LLC) for which the Company is deemed to be the primary beneficiary. All significant intercompany accounts and transactions have been eliminated. Undivided interests in oil and natural gas exploration and production joint ventures are consolidated on a proportionate basis. Barnwell’s investments in both unconsolidated entities in which a significant, but less than controlling, interest is held and in VIEs in which the Company is not deemed to be the primary beneficiary are accounted for by the equity method. Use of Estimates in the Preparation of Consolidated Financial Statements The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management of Barnwell to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ significantly from those estimates. Significant assumptions are required in the valuation of deferred tax assets, asset retirement obligations, share-based payment arrangements, obligations for retirement plans, contract drilling estimated costs to complete, proved oil and natural gas reserves, and the carrying value of other assets, and such assumptions may impact the amount at which such items are recorded. Revenue Recognition Barnwell operates in and derives revenue from the following three principal business segments: • Oil and Natural Gas Segment - Barnwell engages in oil and natural gas development, production, acquisitions and sales in Canada and Oklahoma. • Land Investment Segment - Barnwell invests in land interests in Hawaii. • Contract Drilling Segment - Barnwell provides well drilling services and water pumping system installation and repairs in Hawaii. 70 Oil and Natural Gas - Barnwell’s investments in oil and natural gas properties are located in Alberta, Canada and Oklahoma. These property interests are principally held under governmental leases or licenses. Barnwell sells the large majority of its oil, natural gas and natural gas liquids production under short-term contracts between itself and marketers based on prices indexed to market prices and recognizes revenue at a point in time when the oil, natural gas and natural gas liquids are delivered, as this is where Barnwell’s performance obligation is satisfied and title has passed to the customer. Land Investment - Barnwell is entitled to receive contingent residual payments from the entities that previously purchased Barnwell’s land investment interests under contracts entered into in prior years. The residual payments under those contracts become due when the entities sell lots and/or residential units in the areas that were previously sold under the aforementioned contracts or when a preferred payment threshold is achieved. The residual payments received by Barnwell are recognized as revenue when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Contract Drilling - Through contracts which are normally less than twelve months in duration, Barnwell drills water and water monitoring wells and installs and repairs water pumping systems in Hawaii. Barnwell recognizes revenue from well drilling or the installation of pumps over time based on total costs incurred on the projects relative to the total expected costs to satisfy the performance obligation as management believes this is an accurate representation of the percentage of completion as control is continuously transferred to the customer. Uninstalled materials, which typically consists of well casing or pumps, are excluded in the costs-to-costs calculation for the duration of the contract as including these costs would result in a distortion of progress towards satisfaction of the performance obligation due to the resulting cumulative catch-up in margin in a single period. An equal amount of cost and revenue is recorded when uninstalled materials are controlled by the customer, which is typically when Barnwell has the right to payment for the materials and when the materials are delivered to the customer’s site or location and such materials have been accepted by the customer. Uninstalled materials are held in inventory and included in “Other current assets” on the Company’s Consolidated Balance Sheets until control is transferred to the customer. When the estimate on a contract indicates a loss, Barnwell records the entire estimated loss in the period the loss becomes known. The contract price may include variable consideration, which includes such items as increases to the transaction price for unapproved change orders and claims for which price has not yet been agreed by the customer. The Company estimates variable consideration using either the most likely amount or expected value method, whichever is a more appropriate reflection of the amount to which it expects to be entitled based on the characteristics and circumstances of the contract. Variable consideration is included in the estimated transaction price to the extent it is probable that a significant reversal of cumulative recognized revenue will not occur. Contract price and cost estimates are reviewed periodically as work progresses and adjustments proportionate to the costs incurred to date to total estimated costs at completion are reflected in contract revenues in the reporting period when such estimates are revised. The nature of accounting for these contracts is such that refinements of the estimated costs to complete may occur and are characteristic of the estimation process due to changing conditions and new developments. Many factors and assumptions can and do change during a contract performance obligation period which can result in a change to contract profitability including unforeseen underground geological conditions (to the extent that contract remedies are unavailable), the availability and costs of skilled contract labor, the performance of major material suppliers, the performance of major subcontractors, unusual weather conditions and unexpected changes in material costs, changes in the scope and nature of the work to be performed, and unexpected 71 construction execution errors, among others. These factors may result in revisions to costs and income and are recognized in the period in which the revisions become known. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. Management evaluates the performance of contracts on an individual basis. 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. The cumulative effect of revisions in estimates of the total forecasted revenue and costs, including any unapproved change orders and claims, during the course of the contract is reflected in the accounting period in which the facts that caused the revision become known. Changes in the cost estimates can have a material impact on our consolidated financial statements and are reflected in the results of operations when they become known. Unexpected significant inefficiencies that were not considered a risk at the time of entering into the contract, such as design or construction execution errors that result in significant wasted resources, are excluded from the measure of progress toward completion and the costs are expensed as incurred. To the extent a contract is deemed to have multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation using its best estimate of the standalone selling price of each distinct good or service in the contract. When the Company receives consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract, the Company records deferred revenue, which represents a contract liability. Such deferred revenue typically results from billings in excess of costs and estimated earnings on uncompleted contracts. Contract liabilities are included in “Other current liabilities” on the Company’s Consolidated Balance Sheets. Costs and estimated earnings in excess of billings represent certain amounts under customer contracts that were earned and billable, but yet not invoiced, and are included in contract assets and reported in “Other current assets” on the Company’s Consolidated Balance Sheets. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and short-term investments with original maturities of three months or less. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. We maintain bank account balances with high quality financial institutions which often exceed insured limits. We have not experienced any losses with these accounts and believe that we are not exposed to any significant credit risk on cash. Accounts and Other Receivables Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is Barnwell’s best estimate of the amount of probable credit losses in Barnwell’s existing accounts receivable and is based on historical write-off experience and the application of the specific identification method. Account balances are charged off against the allowance after all means of 72 collection have been exhausted and the potential for recovery is considered remote. Barnwell does not have any off-balance sheet credit exposure related to its customers. Investments in Real Estate Barnwell accounts for sales of Increment I and Increment II leasehold land interests under the full accrual method. Gains from such sales were recognized when the buyer’s investments were adequate to demonstrate a commitment to pay for the property, risks and rewards of ownership transferred to the buyer, and Barnwell did not have a substantial continuing involvement with the property sold. With regard to payments Kaupulehu Developments is entitled to receive from KD I and KD II, the percentage of sales payments from KD I and KD II and percentage of distributions from KD II are contingent future profits which will be recognized when they are realized. All costs of the sales of Increment I and Increment II leasehold land interests were recognized at the time of sale and were not deferred to future periods when any contingent profits will be recognized. Variable Interest Entities The consolidation of VIEs is required when an enterprise has a controlling financial interest and is therefore the VIE’s primary beneficiary. A controlling financial interest will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The determination of whether an entity is a VIE and, if so, whether the Company is the primary beneficiary, may require significant judgment. Barnwell analyzes its entities in which it has a variable interest to determine whether the entities are VIEs and, if so, whether the Company is the primary beneficiary. This analysis includes a qualitative review based on an evaluation of the design of the entity, its organizational structure, including decision making ability and financial agreements, as well as a quantitative review. Entities that have been determined to be VIEs and for which we have a controlling financial interest and are therefore the VIE’s primary beneficiary are consolidated (see Note 5). Entities that have been determined to be VIEs and for which we do not have a controlling financial interest and are therefore not the VIE’s primary beneficiary are not consolidated. These unconsolidated entities are accounted for under the equity method (see Note 4). Equity Method Investments Affiliated companies, which are limited partnerships or similar entities, in which Barnwell holds more than a 3 % to 5 % ownership interest and does not control, are accounted for as equity method investments. Equity method investment adjustments include Barnwell’s proportionate share of investee income or loss, adjustments to recognize certain differences between Barnwell’s carrying value and Barnwell’s equity in net assets of the investee at the date of investment, impairments and other adjustments required by the equity method. Gains or losses are realized when such investments are sold. Barnwell classifies distributions received from equity method investments using the cumulative earnings approach in the Consolidated Statements of Cash Flows. Under the cumulative earnings approach, distributions received up to the amount of cumulative equity in earnings recognized are treated as returns on investment and are classified within operating cash flows and those in excess of that amount are treated as returns of investment and are classified within investing cash flows. 73 Investments in equity method investees are evaluated for impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the carrying amounts of the assets exceed their respective fair values, additional impairment tests are performed to measure the amounts of the impairment losses, if any. When an impairment test demonstrates that the fair value of an investment is less than its carrying value, management will determine whether the impairment is either temporary or other-than-temporary. Examples of factors which may be indicative of an other-than-temporary impairment include (a) the length of time and extent to which fair value has been less than carrying value, (b) the financial condition and near-term prospects of the investee, and (c) the intent and ability to retain the investment in the investee for a period of time sufficient to allow for any anticipated recovery in fair value. If the decline in fair value is determined by management to be other-than-temporary, the carrying value of the investment is written down to its estimated fair value as of the balance sheet date of the reporting period in which the assessment is made. Oil and Natural Gas Properties Barnwell uses the full cost method of accounting under which all costs incurred in the acquisition, exploration and development of oil and natural gas reserves, including costs related to unsuccessful wells and estimated future site restoration and abandonment, are capitalized. We capitalize internal costs that can be directly identified with our acquisition, exploration and development activities and do not include any costs related to production, general corporate overhead or similar activities. The capitalized costs of oil and gas properties, excluding unevaluated and unproved properties, are amortized as depreciation, depletion and amortization expense using the units-of-production method based on estimated proved recoverable oil and gas reserves. Costs associated with unevaluated and unproved properties, initially excluded from the amortization base, relate to unproved leasehold acreage, wells and production facilities in progress and wells pending determination of the existence of proved reserves. Unproved leasehold costs are transferred to the amortization base with the costs of drilling the related well once a determination of the existence of proved reserves has been made or upon impairment of a lease. Costs associated with wells in progress and completed wells that have yet to be evaluated are transferred to the amortization base once a determination is made whether or not proved reserves can be assigned to the property. Costs of dry wells are transferred to the amortization base immediately upon determination that the well is unsuccessful. 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. Under the full cost method of accounting, we review the carrying value of our oil and natural gas properties, on a country-by-country basis, each quarter in what is commonly referred to as the ceiling test. Under the ceiling test, capitalized costs, net of accumulated depletion and oil and natural gas related deferred income taxes, may not exceed an amount equal to the sum of 1) the discounted present value (at 10 %), using average first-day-of-the-month prices during the 12-month period ending as of the balance sheet date held constant over the life of the reserves, of Barnwell’s estimated future net cash flows from 74 estimated production of proved oil and natural gas reserves as determined by independent petroleum reserve engineers, less estimated future expenditures to be incurred in developing and producing the proved reserves but excluding future cash outflows associated with settling asset retirement obligations with the exception of those associated with proved undeveloped reserves from wells that are to be drilled in the future; plus 2) the cost of major development projects and unproven properties not subject to depletion, if any; plus 3) the lower of cost or estimated fair value of unproven properties included in costs subject to depletion; less 4) related income tax effects. If net capitalized costs exceed this limit, the excess is expensed. Depletion is computed using the units-of-production method whereby capitalized costs, net of estimated salvage values, plus estimated future costs to develop proved reserves and satisfy asset retirement obligations, are amortized over the total estimated proved reserves on a country-by-country basis. Investments in major development projects are not depleted until either proved reserves are associated with the projects or impairment has been determined. Proceeds from the disposition of oil and natural gas properties are credited to the full cost pool, with no gain or loss recognized, unless such a sale would significantly alter the relationship between capitalized costs and the proved reserves in a particular country. Given the volatility of oil and gas prices, it is reasonably possible that the estimate of discounted future net cash flows from proved oil and gas reserves could change in the near term. If oil and gas prices decline in the future, even if only for a short period of time, it is possible that impairments of oil and gas properties could occur. In addition, it is reasonably possible that impairments could occur if costs are incurred in excess of any increases in the present value of future net cash flows from proved oil and gas reserves, or if properties are sold for proceeds less than the discounted present value of the related proved oil and gas reserves. Barnwell’s sales reflect its working interest share after royalties. Barnwell’s production is generally delivered and sold at the plant gate. Barnwell does not have transportation volume commitments with pipelines and does not have natural gas imbalances related to natural gas balancing arrangements with its partners. Acquisitions In accordance with the guidance for business combinations, Barnwell determines whether an acquisition is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. Each business combination is then accounted for by applying the acquisition method of accounting. If the assets acquired are not a business, the Company accounts for the transaction as an asset acquisition. Under both methods purchase prices are allocated to acquired assets and assumed liabilities based on their estimated fair value at the time of the acquisition. For transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase. The Company capitalizes acquisition-related costs and fees associated with asset acquisitions and immediately expenses acquisition-related costs and fees associated with business combinations. Long-lived Assets Long-lived assets to be held and used, other than oil and natural gas properties, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Recoverability is measured by comparing the carrying amount of the asset to the future net cash flows expected to result from use of the asset (undiscounted and without interest charges). If it is determined that the asset may not be recoverable, impairment loss is measured as the 75 amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of the asset carrying value or fair value, less cost to sell. Water well drilling rigs, office and other property and equipment are depreciated using the straight-line method based on estimated useful lives. Share-based Compensation Share-based compensation cost is measured at fair value. Barnwell utilizes a closed-form valuation model to determine the fair value of each option award. Expected volatilities are based on the historical volatility of Barnwell’s stock over a period consistent with that of the expected terms of the options. The expected terms of the options represent expectations of future employee exercise and are estimated based on factors such as vesting periods, contractual expiration dates, historical trends in Barnwell’s stock price, and historical exercise behavior. If the Company does not have sufficient historical data regarding employee exercise behavior, the “simplified method” as permitted by the SEC’s Staff Accounting Bulletin No. 110, Share-Based Payment is utilized to estimate the expected terms of the options. The risk-free rates for periods within the contractual life of the options are based on the yields of U.S. Treasury instruments with terms comparable to the estimated option terms. Expected dividends are based on current and historical dividend payments. The Company's policy is to recognize forfeitures as they occur. Retirement Plans Barnwell accounts for its defined benefit pension plan, Supplemental Executive Retirement Plan, and post-retirement medical insurance benefits plan, which was terminated in June 2021, by recognizing the over-funded or under-funded status as an asset or liability in its Consolidated Balance Sheets and recognizes changes in that funded status in the year in which the changes occur through comprehensive income. See further discussion at Note 9. The estimation of Barnwell’s retirement plan obligations, costs and liabilities requires management to estimate the amount and timing of cash outflows for projected future payments and cash inflows for maturities and expected returns on plan assets. These assumptions may have an effect on the amount and timing of future contributions. At the end of each year, Barnwell determines the discount rate to be used to calculate the present value of plan liabilities and the net periodic benefit cost. The discount rate is an estimate of the current interest rate at which the retirement plan liabilities could be effectively settled at the end of the year. In estimating this rate, Barnwell performs a cash-flow matching discount rate analysis developed using high-quality corporate bonds yield. The discount rate used to value the future benefit obligation as of each year-end is the rate used to determine the periodic benefit cost in the following year. The expected long-term return on assets assumption for the pension plans represents the average rate of return to be earned on plan assets over the period the benefits included in the benefit obligation are to be paid. The actual fair value of plan assets and estimated rate of return is used to determine the expected investment return during the year. The estimated rate of return on plan assets is based on an estimate of future experience for plan asset returns, the mix of plan assets, current market conditions, and expectations for future market conditions. A decrease (increase) of 50 basis points in the expected return on assets assumption would increase (decrease) pension expense by approximately $ 62,000 based on the assets of the plan at September 30, 2021. 76 The effects of changing assumptions are included in unamortized net gains and losses, which directly affect accumulated other comprehensive income. These unamortized gains and losses in excess of certain thresholds are amortized and reclassified to (loss) income over the average remaining service life of active employees. Asset Retirement Obligation Barnwell accounts for asset retirement obligations by recognizing the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. Barnwell estimates the fair value of asset retirement obligations based on the projected discounted future cash outflows required to settle abandonment and restoration liabilities. Such an estimate requires assumptions and judgments regarding the existence of liabilities, the amount and timing of cash outflows required to settle the liability, what constitutes adequate restoration, inflation factors, credit adjusted discount rates, and consideration of changes in legal, regulatory, environmental and political environments. Abandonment and restoration cost estimates are determined in conjunction with Barnwell’s reserve engineers based on historical information regarding costs incurred to abandon and restore similar well sites, information regarding current market conditions and costs, and knowledge of subject well sites and properties. These assumptions represent Level 3 inputs. Barnwell’s estimated site restoration and abandonment costs of its oil and natural gas properties are capitalized as part of the carrying amount of oil and natural gas properties and depleted over the life of the related reserves. When the assumptions used to estimate a recorded asset retirement obligation change, a revision is recorded to both the asset retirement obligation and the capitalized cost of asset retirements. The liability is accreted at the end of each period through charges to oil and natural gas operating expense. Income Taxes Income taxes are determined using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax impacts of differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax asset will not be realized. Management evaluates its potential exposures from tax positions taken that have been or could be challenged by taxing authorities. These potential exposures result because taxing authorities may take positions that differ from those taken by management in the interpretation and application of statutes, regulations and rules. Management considers the possibility of alternative outcomes based upon past experience, previous actions by taxing authorities (e.g., actions taken in other jurisdictions) and advice from tax experts. Recognized tax positions are initially and subsequently measured as the largest amount of tax benefit that is more likely than not of being realized upon ultimate settlement with a taxing authority on a jurisdiction-by-jurisdiction basis. Liabilities for unrecognized tax benefits related to such tax positions are included in long-term liabilities unless the tax position is expected to be settled within the upcoming year, in which case the liabilities are included in current liabilities. Interest and penalties related to uncertain tax positions are included in income tax expense. 77 Environmental Barnwell is subject to extensive environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and maintenance of surface conditions and may require Barnwell to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefit are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Barnwell recognizes an insurance receivable related to environmental expenditures when collection of the receivable is deemed probable. Any recognition of an insurance receivable is recorded by crediting and offsetting the original charge. Any differential arising between insurance recoveries and insurance receivables is expensed or capitalized, consistent with the original treatment. Foreign Currency Translation Assets and liabilities of foreign subsidiaries are translated at the year-end exchange rate. Operating results of foreign subsidiaries are translated at average exchange rates during the period. Translation adjustments have no effect on net income and are included in “Accumulated other comprehensive income (loss), net” in stockholders’ equity. Fair Value Measurements Fair value is defined as the amount that would be received from the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are classified and disclosed in one of the following categories: • Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities in active markets and have the highest priority. • Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. • Level 3: Unobservable inputs for the financial asset or liability and have the lowest priority. Recently Adopted Accounting Pronouncements 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. The Company adopted the provisions of this ASU effective October 1, 2020. The adoption of this update did not have an 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. 78 The Company adopted the provisions of this ASU effective October 1, 2020. The adoption of this update did not have an 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. The Company adopted the provisions of this ASU effective October 1, 2020. The adoption of this update did not have an impact on Barnwell's consolidated financial statements. 2. GOING CONCERN The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business for the twelve-month period following the date of issuance of these consolidated financial statements. 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. 79 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. 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. 3. EARNINGS (LOSS) PER COMMON SHARE Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated using the treasury stock method to reflect the assumed issuance of common shares for all potentially dilutive securities, which consist of outstanding stock options. Potentially dilutive shares are excluded from the computation of diluted earnings (loss) per share if their effect is anti-dilutive. Options to purchase 615,000 shares were excluded from the computation of diluted shares for the year ended September 30, 2021, as their inclusion would have been antidilutive. There were no options outstanding at September 30, 2020. Reconciliations between net earnings (loss) attributable to Barnwell stockholders and common shares outstanding of the basic and diluted net earnings (loss) per share computations are detailed in the following tables: Year ended September 30, 2021 Net Earnings Shares Per-Share (Numerator) (Denominator) Amount Basic net earnings per share $ 6,253,000 8,592,154 $ 0.73 Effect of dilutive securities - common stock options — — Diluted net earnings per share $ 6,253,000 8,592,154 $ 0.73 Year ended September 30, 2020 Net Loss Shares Per-Share (Numerator) (Denominator) Amount Basic net loss per share $ ( 4,756,000 ) 8,277,160 $ ( 0.57 ) Effect of dilutive securities - common stock options — — Diluted net loss per share $ ( 4,756,000 ) 8,277,160 $ ( 0.57 ) 80 4. INVESTMENTS Investment in Kukio Resort Land Development Partnerships On November 27, 2013, Barnwell, through a wholly-owned subsidiary, entered into two limited liability limited partnerships, KD Kona and KKM, and indirectly acquired a 19.6 % non-controlling ownership interest in each of KD Kukio Resorts, KD Maniniowali, and KDK for $ 5,140,000 . The Kukio Resort Land Development Partnerships own certain real estate and development rights interests in the Kukio, Maniniowali and Kaupulehu portions of Kukio Resort, a private residential community on the Kona coast of the island of Hawaii, as well as Kukio Resort’s real estate sales office operations. KDK holds interests in KD I and KD II. KD I is the developer of Increment I and KD II is the developer of Increment II. Barnwell's ownership interests in the Kukio Resort Land Development Partnerships is accounted for using the equity method of accounting. 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. Two ocean front parcels approximately two to three acres in size fronting the ocean were developed within Increment II by KD II, of which one was sold in fiscal 2017 and one was sold in fiscal 2016. 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. In March 2019, KD II admitted a new development partner, Replay, a party unrelated to Barnwell, in an effort to move forward with development of the remainder of Increment II at Kaupulehu. KDK and Replay hold ownership interests of 55 % and 45 %, respectively, of KD II and Barnwell has a 10.8 % indirect non-controlling ownership interest in KD II through KDK, which is accounted for using the equity method of accounting. Barnwell continues to have an indirect 19.6 % non-controlling ownership interest in KD Kukio Resorts, KD Maniniowali, and KD I. 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 of 75 % and 34.45 %, respectively. 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 30, 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 payment of the preferred return from KKM, as discussed above. 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 81 to non-controlling interests. Of the $ 360,000 net cash distribution received from the Kukio Resort Land Development Partnerships, $ 197,000 represented a payment of the preferred return from KKM. Barnwell's share of the operating results of its equity affiliates was income of $ 5,793,000 , which includes the $ 459,000 payment of the preferred return from KKM discussed above, for the year ended September 30, 2021, as compared to income of $ 352,000 , which includes a preferred return payment of $ 197,000 from KKM, for the year ended September 30, 2020. The equity in the underlying net assets of the Kukio Resort Land Development Partnerships exceeds the carrying value of the investment in affiliates by approximately $ 138,000 as of September 30, 2021, which is attributable to differences in the value of capitalized development costs and a note receivable. The basis difference will be recognized as the partnerships sell lots and recognize the associated costs and sell memberships for the Kuki`o Golf and Beach Club for which the receivable relates. The basis difference adjustments of $ 146,000 and $ 13,000 , for the years ended September 30, 2021 and 2020, respectively, increased equity in income of affiliates. Summarized financial information for the Kukio Resort Land Development Partnerships is as follows: Year ended September 30, 2021 2020 Revenue $ 43,013,000 $ 7,911,000 Gross profit $ 24,759,000 $ 4,071,000 Net earnings $ 20,612,000 $ 618,000 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. At September 30, 2020, the Company’s investment in the Kukio Resort Land Development Partnerships was $ 901,000 . Sale of Interest in Leasehold Land Kaupulehu Developments has the right to receive payments from KD I and KD II resulting from the sale of lots and/or residential units within Increment I and Increment II by KD I and KD II (see Note 20). With respect to Increment I, Kaupulehu Developments is entitled to receive payments from KD I based on the following percentages of the gross receipts from KD I’s sales of single-family residential lots in Increment I: 10 % of such aggregate gross proceeds greater than $ 100,000,000 up to $ 300,000,000 ; and 82 14 % of such aggregate gross proceeds in excess of $ 300,000,000 . In fiscal 2021, eight single-family lots in Increment I were sold bringing the total amount of gross proceeds from single-family lot sales through September 30, 2021 to $ 237,038,000 . As of September 30, 2021, nine single-family lots, of the 80 lots developed within Increment I, remained to be sold. Under the terms of the Increment II agreement with KD II, Kaupulehu Developments is entitled to 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 as to the priority payout. Such interests are limited to distributions or net profits interests and Barnwell does not have any partnership interests in KD II or KDK through its interest in Kaupulehu Developments. The arrangement also gives Barnwell rights to three single-family residential lots in Phase 2A of Increment II, and four single-family residential lots in phases subsequent to Phase 2A when such lots are developed by KD II, all at no cost to Barnwell. Barnwell is committed to commence construction of improvements within 90 days of the transfer of the four lots in the phases subsequent to Phase 2A as a condition of the transfer of such lots. Also, in addition to Barnwell’s existing obligations to pay professional fees to certain parties based on percentages of its gross receipts, Kaupulehu Developments is also obligated to pay an amount equal to 0.72 % and 0.20 % of the cumulative net profits of KD II to KD Development 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. Such compensation will be reflected as the obligation becomes probable and the amount of the obligation can be reasonably estimated. The following table summarizes the Increment I revenues from KD I and the amount of fees directly related to such revenues (see Note 18 “Commitments and Contingencies - Other Matters”): Year ended September 30, 2021 2020 Sale of interest in leasehold land: Revenues - sale of interest in leasehold land $ 1,738,000 $ 325,000 Fees - included in general and administrative expenses ( 212,000 ) ( 40,000 ) Sale of interest in leasehold land, net of fees paid $ 1,526,000 $ 285,000 There is no assurance with regards to the amounts of future payments from Increment I or Increment II to be received, or that the remaining acreage within Increment II will be developed. No definitive development plans have been made by the developer of Increment II as of the date of this report. Investment in Leasehold Land Interest – Lot 4C Kaupulehu Developments holds an interest in an area of approximately 1,000 acres of vacant leasehold land zoned conservation located adjacent to Lot 4A, which currently has no development potential without both a development agreement with the lessor and zoning reclassification. The lease terminates in December 2025. In 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 the uncertainty regarding the timing of future development and potential use of water rights within Lot 4C prior to the expiration of the lease term. 83 5. CONSOLIDATED VARIABLE INTEREST ENTITY In February 2021, Barnwell Industries, Inc. established a new wholly-owned subsidiary named BOK Drilling, LLC (“BOK”) for the purpose of indirectly investing in oil and natural gas exploration and development in Oklahoma. BOK and Gros Ventre Partners, LLC (“Gros Ventre”), an entity affiliated with the Company, entered into the Limited Liability Agreement (the “Agreement”) of Teton Barnwell Fund I, LLC (“Teton Barnwell”), an entity formed for the purpose of directly entering into such oil and natural gas investments. Under the terms of the Agreement, the profits of Teton Barnwell are split between BOK and Gros Ventre at 98 % and 2 %, respectively, and as the manager of Teton Barnwell, Gros Ventre is paid an annual asset management fee equal to 1 % of the cumulative capital contributions made to Teton Barnwell as compensation for its management services. BOK is responsible for 100 % of the capital contributions made to Teton Barnwell and as of September 30, 2021, the Company made a total of $ 750,000 in capital contributions to Teton Barnwell to fund its oil and natural gas investments in Oklahoma. The Company has determined that Teton Barnwell is a VIE as the entity is structured with non-substantive voting rights and that the Company is the primary beneficiary. This is due to the fact that even though Teton Barnwell has a unanimous consent voting structure, BOK is responsible for 100 % of the capital contributions required to fund Teton Barnwell’s future oil exploration and development investments pursuant to the Agreement and thus, BOK has the power to steer the decisions that most significantly impact Teton Barnwell’s economic performance and has the obligation to absorb any potential losses that could be significant to Teton Barnwell. As BOK is the primary beneficiary of the VIE, Teton Barnwell’s operating results, assets and liabilities are consolidated by the Company. Mr. Colin R. O'Farrell, a member of the Board of Directors of the Company effective July 12, 2021, is the sole member of Four Pines Operating LLC which owns a 25 % interest in Gros Ventre. Mr. O'Farrell's influence as a member of the Board of Directors of the Company further supports the consolidation of Teton Barnwell's operating results, assets and liabilities as discussed above. The following table summarizes the carrying value of the assets and liabilities of Teton Barnwell that are consolidated by the Company. Intercompany balances are eliminated in consolidation and thus, are not reflected in the table below. September 30, 2021 ASSETS Cash and cash equivalents $ 136,000 Accounts and other receivables 118,000 Oil and natural gas properties, full cost method of accounting: Proved properties, net 203,000 Unproved properties 962,000 Total assets $ 1,419,000 LIABILITIES Accounts payable $ 3,000 Accrued capital expenditures 581,000 Accrued operating and other expenses 20,000 Total liabilities $ 604,000 84 6. ASSETS HELD FOR SALE Honolulu Corporate Office The Company’s Honolulu corporate office was designated as an asset held for sale and the carrying value in the aggregate amount of $ 699,000 was included in “Asset held for sale” on the Company's Consolidated Balance Sheet at September 30, 2020. 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. Contract Segment Drilling Rig and Equipment 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. 7. OIL AND NATURAL GAS PROPERTIES Dispositions 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. 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. 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. 85 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. 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. Acquisitions 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. Impairment of Oil and Natural Gas Properties Under the full cost method of accounting, the Company performs quarterly oil and natural gas ceiling test calculations. There was a ceiling test impairment of $ 630,000 during the year ended September 30, 2021. 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. 86 8. PROPERTY AND EQUIPMENT AND ASSET RETIREMENT OBLIGATION Barnwell’s property and equipment is detailed as follows: Estimated Useful Lives Gross Property and Equipment Accumulated Depletion, Depreciation, Amortization, and Impairment Net Property and Equipment At September 30, 2021: Oil and natural gas properties: (full cost accounting) Proved properties $ 58,490,000 $ ( 56,067,000 ) $ 2,423,000 Unproved properties 962,000 — 962,000 Total oil and natural gas properties 59,452,000 ( 56,067,000 ) 3,385,000 Drilling rigs and equipment 3 – 10 years 7,273,000 ( 6,789,000 ) 484,000 Other property and equipment 3 – 10 years 687,000 ( 681,000 ) 6,000 Total $ 67,412,000 $ ( 63,537,000 ) $ 3,875,000 Estimated Useful Lives Gross Property and Equipment Accumulated Depletion, Depreciation, Amortization, and Impairment Net Property and Equipment At September 30, 2020: Oil and natural gas properties: (full cost accounting) Proved properties $ 64,142,000 $ ( 61,839,000 ) $ 2,303,000 Unproved properties — — — Total oil and natural gas properties 64,142,000 ( 61,839,000 ) 2,303,000 Drilling rigs and equipment 3 – 10 years 8,244,000 ( 6,793,000 ) 1,451,000 Other property and equipment 3 – 17 years 1,045,000 ( 1,025,000 ) 20,000 Total $ 73,431,000 $ ( 69,657,000 ) $ 3,774,000 See Note 7 for discussion of acquisitions and divestitures of oil and natural gas properties in fiscal 2021 and 2020. 87 Barnwell recognizes the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. The following is a reconciliation of the asset retirement obligation: Year ended September 30, 2021 2020 Asset retirement obligation as of beginning of year $ 6,194,000 $ 6,389,000 Obligations incurred on new wells drilled or acquired 532,000 227,000 Liabilities associated with properties sold ( 375,000 ) ( 169,000 ) Revision of estimated obligation 279,000 ( 279,000 ) Accretion expense 580,000 561,000 Payments ( 421,000 ) ( 498,000 ) Foreign currency translation adjustment 264,000 ( 37,000 ) Asset retirement obligation as of end of year 7,053,000 6,194,000 Less current portion ( 713,000 ) ( 647,000 ) Asset retirement obligation, long-term $ 6,340,000 $ 5,547,000 Asset retirement obligations were reduced by $ 375,000 and $ 169,000 , in fiscal 2021 and 2020, respectively, for those obligations that were assumed by purchasers of Barnwell's oil and natural gas properties. Asset retirement obligations also increased by $ 279,000 in fiscal 2021 as compared to a reduction of $ 279,000 in fiscal 2020 primarily due to upward revisions from acceleration in the estimated timing of future abandonments as a result of changes in the estimated economic life of certain wells and changes in management's discretionary timing of abandonment projects due to an increase in estimated funds available as well as an increase in the estimated cost of abandonments at the Manyberries area, as further discussed below. Asset retirement obligations increased by $ 532,000 and $ 227,000 in fiscal 2021 and 2020, respectively, due primarily to our acquisitions (see Note 7 for additional details). The asset retirement obligation reflects the estimated present value of the amount of dismantlement, removal, site reclamation, and similar activities associated with Barnwell's oil and natural gas properties. Barnwell estimates the ultimate productive life of the properties, a credit-adjusted risk-free rate, and an inflation factor in order to determine the current present value of this obligation. The credit-adjusted risk-free rate for the entire asset retirement obligation is a blended rate which ranges from 6 % to 13.5 %. 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. 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 88 and will need to pay the remaining balance of $ 637,000 by August 2022. The deposit balance at September 30, 2021, less draw-downs by the OWA for OWA-performed abandonments, was $ 809,000 and is reflected in "Other current assets" in the Consolidated Balance Sheet as of September 30, 2021. There is no right of offset between the deposit with the OWA and the Company's ARO liability balance. 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. A remaining excess deposit, if any, would ultimately be refunded to the Company upon completion of all of the work. 9. RETIREMENT PLANS Barnwell sponsors a noncontributory defined benefit pension plan (“Pension Plan”) covering substantially all of its U.S. employees, with benefits based on years of service and the employee’s highest consecutive 5 years average earnings. Barnwell’s funding policy is intended to provide for both benefits attributed to service to date and for those expected to be earned in the future. In addition, Barnwell sponsors a Supplemental Executive Retirement Plan (“SERP”), a noncontributory supplemental retirement benefit plan which covers certain current and former employees of Barnwell for amounts exceeding the limits allowed under the Pension Plan, and previously sponsored a post-retirement medical insurance benefits plan (“Post-retirement Medical”) covering officers of Barnwell Industries, Inc., the parent company, who have 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. 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 Pension Plan and 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. 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. In June 2021, the Company terminated its Post-retirement Medical plan 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 termination of the plan. 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. 89 The following tables detail the changes in benefit obligations, fair values of plan assets and reconciliations of the funded status of the retirement plans: Pension SERP Post-retirement Medical September 30, 2021 2020 2021 2020 2021 2020 Change in Projected Benefit Obligation: Benefit obligation at beginning of year $ 10,280,000 $ 10,971,000 $ 2,031,000 $ 2,385,000 $ 2,839,000 $ 2,633,000 Service cost — 50,000 — 3,000 — — Interest cost 258,000 304,000 51,000 63,000 48,000 80,000 Actuarial (gain) loss ( 15,000 ) 504,000 63,000 ( 90,000 ) — 134,000 Benefits paid ( 158,000 ) ( 153,000 ) ( 9,000 ) — ( 5,000 ) ( 8,000 ) Curtailments — ( 1,396,000 ) — ( 330,000 ) — — Termination of post-retirement medical plan — — — — ( 2,882,000 ) — Benefit obligation at end of year 10,365,000 10,280,000 2,136,000 2,031,000 — 2,839,000 Change in Plan Assets: Fair value of plan assets at beginning of year 11,051,000 10,192,000 — — — — Actual return on plan assets 1,701,000 1,012,000 — — — — Employer contributions — — — — 5,000 8,000 Benefits paid ( 158,000 ) ( 153,000 ) — — ( 5,000 ) ( 8,000 ) Fair value of plan assets at end of year 12,594,000 11,051,000 — — — — Funded status $ 2,229,000 $ 771,000 $ ( 2,136,000 ) $ ( 2,031,000 ) $ — $ ( 2,839,000 ) Pension SERP Post-retirement Medical September 30, 2021 2020 2021 2020 2021 2020 Amounts recognized in the Consolidated Balance Sheets: Noncurrent assets $ 2,229,000 $ 771,000 $ — $ — $ — $ — Current liabilities — — ( 35,000 ) ( 32,000 ) — ( 9,000 ) Noncurrent liabilities — — ( 2,101,000 ) ( 1,999,000 ) — ( 2,830,000 ) Net amount $ 2,229,000 $ 771,000 $ ( 2,136,000 ) $ ( 2,031,000 ) $ — $ ( 2,839,000 ) Amounts recognized in accumulated other comprehensive income (loss) before income taxes: Net actuarial loss $ 471,000 $ 1,681,000 $ 135,000 $ 72,000 $ — $ 721,000 Prior service cost (credit) — — — — — — Accumulated other comprehensive loss $ 471,000 $ 1,681,000 $ 135,000 $ 72,000 $ — $ 721,000 Currently, no contributions will be made to the Pension Plan during fiscal 2022. The SERP plan is unfunded and Barnwell funds benefits when payments are made. Expected payments under the SERP for fiscal 2022 is not material. Fluctuations in actual market returns as well as changes in general interest rates will result in changes in the market value of plan assets and may result in increased or decreased retirement benefits costs and contributions in future periods. 90 The Pension Plan actuarial gains in fiscal 2021 were primarily due to an increase in the discount rate and actual investment returns that were greater than the assumed rate of return. The SERP actuarial losses in fiscal 2021 were primarily due to an updated mortality projection scale and adjustments due to experience, partially offset by an increase in the discount rate. The Pension Plan actuarial losses in fiscal 2020 were primarily due to a decrease in the discount rate. The SERP actuarial gains in fiscal 2020 were primarily due to the freezing of the plan benefit accruals which decreased the net periodic cost and improved the funded position. The Post-retirement Medical plan actuarial losses in fiscal 2020 were primarily due to a decrease in the discount rate. The following table presents the weighted-average assumptions used to determine benefit obligations and net benefit (income) costs: Pension SERP Post-retirement Medical Year ended September 30, 2021 2020 2021 2020 2021 2020 Assumptions used to determine fiscal year-end benefit obligations: Discount rate 2.84 % 2.54 % 2.84 % 2.54 % N/A 2.54 % Rate of compensation increase N/A N/A N/A N/A N/A N/A Assumptions used to determine net benefit costs (years ended): Discount rate 2.54 % 3.06 % / 3.15 % (1) 2.54 % 3.06 % / 3.15 % (1) 2.54 % / 3.00 % (2) 3.06 % Expected return on plan assets 5.00 % 6.50 % N/A N/A N/A N/A Rate of compensation increase N/A 4.00 % N/A 4.00 % N/A N/A _______________________________________________ (1) 3.06% as of September 30, 2019 and 3.15% as of December 31, 2019 remeasurement. (2) 2.54% as of September 30, 2020 and 3.00% as of May 31, 2021 termination. We select a discount rate by reference to yields available on the FTSE High Grade Credit Index at our consolidated balance sheet date. The expected return on plan assets is primarily based on historical rates of return. The components of net periodic benefit (income) cost are as follows: Pension SERP Post-retirement Medical Year ended September 30, 2021 2020 2021 2020 2021 2020 Net periodic benefit (income) cost for the year: Service cost $ — $ 50,000 $ — $ 3,000 $ — $ — Interest cost 258,000 304,000 51,000 63,000 48,000 80,000 Expected return on plan assets ( 546,000 ) ( 680,000 ) — — — — Amortization of prior service cost (credit) — 1,000 — ( 1,000 ) — — Amortization of net actuarial loss 39,000 35,000 — 5,000 62,000 80,000 Curtailment cost (income) — 53,000 — ( 53,000 ) — — Net periodic benefit (income) cost $ ( 249,000 ) $ ( 237,000 ) $ 51,000 $ 17,000 $ 110,000 $ 160,000 91 The accumulated benefit obligation differs from the projected benefit obligation in that it assumes future compensation levels will remain unchanged. The accumulated benefit obligation for the Pension Plan was $ 10,365,000 and $ 10,280,000 at September 30, 2021 and 2020, respectively. The accumulated benefit obligation for the SERP was $ 2,136,000 and $ 2,031,000 at September 30, 2021 and 2020, respectively. The benefits expected to be paid under the retirement plans as of September 30, 2021 are as follows: Pension SERP Expected Benefit Payments: Fiscal year ending September 30, 2022 $ 320,000 $ 35,000 Fiscal year ending September 30, 2023 $ 470,000 $ 97,000 Fiscal year ending September 30, 2024 $ 533,000 $ 123,000 Fiscal year ending September 30, 2025 $ 526,000 $ 122,000 Fiscal year ending September 30, 2026 $ 519,000 $ 121,000 Fiscal years ending September 30, 2027 through 2031 $ 2,840,000 $ 636,000 Plan Assets Management communicates periodically with its professional investment advisors to establish investment policies, direct investments and select investment options. The overall investment objective of the Pension Plan is to attain a diversified combination of investments that provides long-term growth in the assets of the plan to fund future benefit obligations while managing risk in order to meet current benefit obligations. Generally, interest and dividends received provide cash flows to fund current benefit obligations. Longer-term obligations are generally estimated to be provided for by growth in equity securities. The Company’s investment policy permits investments in a diversified mix of U.S. and international equities, fixed income securities and cash equivalents. Barnwell’s investments in fixed income securities include corporate bonds, preferred securities, and fixed income exchange-traded funds. The Company’s investments in equity securities primarily include domestic and international large-cap companies, as well as, domestic and international equity securities exchange-traded funds. The Company’s year-end target allocation, by asset category, and the actual asset allocations were as follows: Target September 30, Asset Category Allocation 2021 2020 Cash and other 0 % - 15 % — % — % Fixed income securities 15 % - 40 % 31 % 52 % Equity securities 45 % - 75 % 69 % 48 % Actual investment allocations may vary from our target allocations from time to time due to prevailing market conditions. We periodically review our actual investment allocations and rebalance our investments to our target allocations as dictated by current and anticipated market conditions and required cash flows. 92 We categorize plan assets into three levels based upon the assumptions used to price the assets. Level 1 provides the most reliable measure of fair value, whereas Level 3 requires significant management judgment in determining the fair value. Equity securities and exchange-traded funds are valued by obtaining quoted prices on recognized and highly liquid exchanges. Fixed income securities are valued based upon the closing price reported in the active market in which the security is traded. All of our plan assets are categorized as Level 1 assets, and as such, the actual market value is used to determine the fair value of assets. The following tables set forth by level, within the fair value hierarchy, pension plan assets at their fair value: Fair Value Measurements Using: Carrying Amount as of September 30, 2021 Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial Assets: Cash $ 25,000 $ 25,000 $ — $ — Corporate bonds 1,000 1,000 — — Fixed income exchange-traded funds 3,809,000 3,809,000 — — Preferred securities 48,000 48,000 — — Equity securities exchange-traded funds 459,000 459,000 — — Equities 8,252,000 8,252,000 — — Total $ 12,594,000 $ 12,594,000 $ — $ — Fair Value Measurements Using: Carrying Amount as of September 30, 2020 Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial Assets: Corporate bonds $ 1,000 $ 1,000 $ — $ — Fixed income exchange-traded funds 5,762,000 5,762,000 — — Equity securities exchange-traded funds 352,000 352,000 — — Equities 4,936,000 4,936,000 — — Total $ 11,051,000 $ 11,051,000 $ — $ — 93 10. INCOME TAXES The components of earnings (loss) before income taxes, after adjusting the earnings (loss) for non-controlling interests, are as follows: Year ended September 30, 2021 2020 United States $ 5,436,000 $ 1,518,000 Canada 1,149,000 ( 6,271,000 ) $ 6,585,000 $ ( 4,753,000 ) The components of the income tax provision related to the above earnings (loss) are as follows: Year ended September 30, 2021 2020 Current provision (benefit): United States – Federal Before operating loss carryforwards $ 60,000 $ — Benefit of operating loss carryforwards ( 60,000 ) — After operating loss carryforwards — — United States – State Before operating loss carryforwards 174,000 ( 23,000 ) Benefit of operating loss carryforwards ( 7,000 ) — After operating loss carryforwards 167,000 ( 23,000 ) Canadian — — Total current 167,000 ( 23,000 ) Deferred provision: United States – State 165,000 26,000 Canadian — — Total deferred 165,000 26,000 $ 332,000 $ 3,000 Consolidated taxes do not bear a customary relationship to pretax results due primarily to the fact that the Company is taxed separately in Canada based on Canadian source operations and in the U.S. based on consolidated operations, and essentially all deferred tax assets, net of relevant offsetting deferred tax liabilities, are not estimated to have a future benefit as tax credits or deductions. Income from our non-controlling interest in the Kukio Resort Land Development Partnerships is treated as non-unitary for state of Hawaii unitary filing purposes, thus unitary Hawaii losses provide limited sheltering of such non-unitary income. Income from our investment in the Oklahoma oil venture is 100% allocable to Oklahoma, and therefore, receives no benefit from consolidated or unitary losses. On June 28, 2019, the Canadian province of Alberta enacted legislation that decreased the provincial general corporate tax rate from 12% to 11% effective July 1, 2019, with further 1% rate reductions on January 1 of every year until the provincial general corporate tax rate is 8% on January 1, 2022, bringing Barnwell of Canada’s and Octavian Oil’s total Canadian statutory tax rates from 30.65% and 27.00%, respectively, to 29.70% and 26.00%, respectively, effective July 1, 2019 and to 26.85% and 23.00%, respectively, effective 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 was enacted in the quarter ended December 94 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 December 27, 2020, then President Donald Trump signed into law the Consolidated Appropriations Act (the “Act”), an omnibus spending bill to fund the federal government that also includes an array of COVID-related tax relief for individuals and businesses. The tax-related measures contained in the Act revise and expand provisions enacted earlier in the year by the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act. The Act also extends a number of expiring tax provisions. Additionally, the Act provides for a 100% deduction for certain business meals incurred in calendar years 2021 and 2022. The Company determined that income tax effects related to the passage of the Consolidated Appropriations Act were not material to the financial statements for the year ended September 30, 2021. A reconciliation between the reported income tax expense and the amount computed by multiplying the earnings (loss) attributable to Barnwell before income taxes by the U.S. federal tax rate of 21 % is as follows: Year ended September 30, 2021 2020 Tax provision (benefit) computed by applying statutory rate $ 1,383,000 $ ( 998,000 ) Impact of TCJA limitation on post-TCJA net operating loss carryforwards — ( 260,000 ) (Decrease) increase in the valuation allowance ( 1,482,000 ) 1,978,000 Additional effect of the foreign tax provision on the total tax provision 87,000 ( 762,000 ) U.S. state tax provision, net of federal benefit 332,000 3,000 Other 12,000 42,000 $ 332,000 $ 3,000 The changes in the valuation allowance shown in the table above exclude the impact of changes in state taxes and foreign tax credit expiries, the valuation allowance impacts of which are incorporated within the respective reconciliation line items elsewhere in the table. 95 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows: September 30, 2021 2020 Deferred income tax assets: Foreign tax credit carryover under U.S. tax law $ 1,197,000 $ 2,421,000 U.S. federal net operating loss carryover 8,846,000 8,874,000 U.S. state unitary net operating loss carryovers 939,000 877,000 Canadian net operating loss carryovers 1,411,000 1,351,000 Tax basis of investment in land in excess of book basis under U.S. tax law 305,000 306,000 Property and equipment accumulated book depreciation and depletion in excess of tax under Canadian tax law 1,091,000 1,421,000 Property and equipment accumulated book depreciation and depletion in excess of tax under U.S. tax law 699,000 931,000 Liabilities accrued for books but not for tax under U.S. tax law 1,225,000 1,894,000 Liabilities accrued for books but not for tax under Canadian tax law 1,813,000 1,591,000 Other 170,000 345,000 Total gross deferred income tax assets 17,696,000 20,011,000 Less valuation allowance ( 16,398,000 ) ( 19,357,000 ) Net deferred income tax assets 1,298,000 654,000 Deferred income tax liabilities: Book basis of investment in land development partnerships in excess of tax basis under U.S. tax law ( 1,156,000 ) ( 654,000 ) Book basis of investment in land development partnerships in excess of tax basis under U.S. state non-unitary tax law ( 352,000 ) ( 194,000 ) U.S. oil and gas property and equipment accumulated tax depreciation and depletion in excess of book under U.S. tax law ( 142,000 ) — U.S. oil and gas property and equipment accumulated tax depreciation and depletion in excess of book under U.S. state tax law ( 7,000 ) — Total deferred income tax liabilities ( 1,657,000 ) ( 848,000 ) Net deferred income tax liability $ ( 359,000 ) $ ( 194,000 ) Reported as: Deferred income tax assets — — Deferred income tax liabilities ( 359,000 ) ( 194,000 ) Net deferred income tax liability $ ( 359,000 ) $ ( 194,000 ) The total valuation allowance decreased $ 2,959,000 for the year ended September 30, 2021. The decrease was primarily due to a $ 1,225,000 decrease in the U.S. federal tax law valuation allowance related to U.S. federal net operating loss carryforwards, a $ 1,224,000 decrease in the U.S. federal tax law valuation allowance related to foreign tax credit carryovers, and a $ 257,000 decrease in the valuation allowance for deferred tax assets under Canadian law related to property and equipment accumulated book depletion in excess of tax and Canadian jurisdiction net operating loss carryforwards that may not be realizable. Of the total net decrease in the valuation allowance for fiscal 2021, $ 2,830,000 was recognized as an income tax benefit and $ 129,000 was credited to accumulated other comprehensive loss. 96 Net deferred tax assets at September 30, 2021 of $ 1,298,000 consists of the portion of U.S. federal consolidated deferred tax assets that are estimated to be partially realized through corresponding reversals of U.S. federal consolidated deferred tax liabilities related to the Kukio Resort Land Development Partnerships' excess of book income over taxable income and the Oklahoma oil venture's book basis of property and equipment in excess of tax basis. At September 30, 2021, Barnwell had U.S. federal foreign tax credit carryovers, U.S. federal net operating loss carryovers, U.S. state net operating loss carryovers and Canadian net operating loss carryovers totaling $ 1,197,000 , $ 42,125,000 , $ 14,674,000 and $ 5,716,000 , respectively. All four items were fully offset by valuation allowances at September 30, 2021, except for a portion of Hawaii NOLs which is expected to shelter a portion of the reversal of the Company’s Hawaii non-unitary taxable temporary difference related to its investment in Hawaii land development partnerships. The U.S. federal net operating loss carryovers generated through September 30, 2018 expire in fiscal years 2032-2038, the U.S. state unitary net operating loss carryovers generated through September 30, 2017 expire in fiscal years 2033-2037, the Canadian net operating loss carryovers expire in fiscal years 2037-2041, and the foreign tax credit carryovers expire in fiscal years 2022-2025. The U.S. federal net operating loss carryovers generated in the years ended September 30, 2021, 2020 and 2019 and the U.S. state net operating loss carryovers generated in the years ended September 30, 2021, 2020, 2019 and 2018 have no expiry, however utilization of the U.S. state net operating loss carryovers generated in fiscal 2018 and future years are limited to 80% of taxable income. FASB ASC Topic 740, Income Taxes, prescribes a threshold for recognizing the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by a taxing authority. The Company has no uncertain tax positions as of September 30, 2021 or 2020. Included below is a summary of the tax years, by jurisdiction, that remain subject to examination by taxing authorities at September 30, 2021: Jurisdiction Fiscal Years Open U.S. federal 2018 – 2020 Various U.S. states 2018 – 2020 Canada federal 2014 – 2020 Various Canadian provinces 2014 – 2020 97 11. REVENUE FROM CONTRACTS WITH CUSTOMERS Disaggregation of Revenue The following tables provide information about disaggregated revenue by revenue streams, reportable segments, geographical region, and timing of revenue recognition for the years ended September 30, 2021 and 2020. Year ended September 30, 2021 Oil and natural gas Contract drilling Land investment Other Total Revenue streams: Oil $ 7,617,000 $ — $ — $ — $ 7,617,000 Natural gas 1,871,000 — — — 1,871,000 Natural gas liquids 766,000 — — — 766,000 Drilling and pump — 5,809,000 — — 5,809,000 Contingent residual payments — — 1,738,000 — 1,738,000 Other — — — 304,000 304,000 Total revenues before interest income $ 10,254,000 $ 5,809,000 $ 1,738,000 $ 304,000 $ 18,105,000 Geographical regions: United States $ 118,000 $ 5,809,000 $ 1,738,000 $ 35,000 $ 7,700,000 Canada 10,136,000 — — 269,000 10,405,000 Total revenues before interest income $ 10,254,000 $ 5,809,000 $ 1,738,000 $ 304,000 $ 18,105,000 Timing of revenue recognition: Goods transferred at a point in time $ 10,254,000 $ — $ 1,738,000 $ 304,000 $ 12,296,000 Services transferred over time — 5,809,000 — — 5,809,000 Total revenues before interest income $ 10,254,000 $ 5,809,000 $ 1,738,000 $ 304,000 $ 18,105,000 Year ended September 30, 2020 Oil and natural gas Contract drilling Land investment Other Total Revenue streams: Oil $ 5,214,000 $ — $ — $ — $ 5,214,000 Natural gas 1,119,000 — — — 1,119,000 Natural gas liquids 360,000 — — — 360,000 Drilling and pump — 10,994,000 — — 10,994,000 Contingent residual payments — — 325,000 — 325,000 Other — — — 317,000 317,000 Total revenues before interest income $ 6,693,000 $ 10,994,000 $ 325,000 $ 317,000 $ 18,329,000 Geographical regions: United States $ — $ 10,994,000 $ 325,000 $ 6,000 $ 11,325,000 Canada 6,693,000 — — 311,000 7,004,000 Total revenues before interest income $ 6,693,000 $ 10,994,000 $ 325,000 $ 317,000 $ 18,329,000 Timing of revenue recognition: Goods transferred at a point in time $ 6,693,000 $ — $ 325,000 $ 317,000 $ 7,335,000 Services transferred over time — 10,994,000 — — 10,994,000 Total revenues before interest income $ 6,693,000 $ 10,994,000 $ 325,000 $ 317,000 $ 18,329,000 98 Contract Balances The following table provides information about accounts receivables, contract assets and contract liabilities from contracts with customers: September 30, 2021 2020 Accounts receivables from contracts with customers $ 2,797,000 $ 1,772,000 Contract assets 581,000 413,000 Contract liabilities 455,000 1,097,000 Accounts receivables from contracts with customers are included in “Accounts and other receivables, net of allowance for doubtful accounts,” and contract assets, which includes costs and estimated earnings in excess of billings and retainage, are included in “Other current assets.” Contract liabilities, which includes billings in excess of costs and estimated earnings are included in “Other current liabilities” in the accompanying Consolidated Balance Sheets. Retainage, included in contract assets, represents amounts due from customers, but where payments are withheld contractually until certain construction milestones are met. Amounts retained typically range from 5 % to 10 % of the total invoice, up to contractually-specified maximums. The Company classifies as a current asset those retainages that are expected to be collected in the next twelve months. Contract assets represent the Company’s rights to consideration in exchange for services transferred to a customer that have not been billed as of the reporting date. The Company’s rights are generally unconditional at the time its performance obligations are satisfied. When the Company receives consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract, the Company records deferred revenue, which represents a contract liability. Such deferred revenue typically results from billings in excess of costs and estimated earnings on uncompleted contracts. As of September 30, 2021 and 2020, the Company had $ 455,000 and $ 1,097,000 , respectively, included in “Other current liabilities” on the Consolidated Balance Sheets for those performance obligations expected to be completed in the next twelve months. During the years ended September 30, 2021 and 2020, the amount of revenue recognized that was previously included in contract liabilities as of the beginning of the respective period was $ 1,013,000 and $ 1,054,000 , respectively. Contracts are sometimes modified for a change in scope or other requirements. The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of the Company’s contract modifications are for goods and services that are not distinct from the existing performance obligations. The effect of a contract modification on the transaction price, and the measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase or decrease) on a cumulative catchup basis. 99 Performance Obligations The Company’s remaining performance obligations for drilling and pump installation contracts (hereafter referred to as “backlog”) represent the unrecognized revenue value of the Company’s contract commitments. The Company’s backlog may vary significantly each reporting period based on the timing of major new contract commitments. In addition, our customers have the right, under some infrequent circumstances, to terminate contracts or defer the timing of the Company’s services and their payments to us. Nearly all of the Company's contract drilling segment contracts have original expected durations of one year or less. At September 30, 2021, the Company had four contract drilling jobs with original expected durations of greater than one year. For these contracts, approximately 13 % of the remaining performance obligation of $ 2,817,000 is expected to be recognized in the next twelve months and the remaining, thereafter. Contract Fulfillment Costs Preconstruction costs, which include costs such as set-up and mobilization, are capitalized and allocated across all performance obligations and deferred and amortized over the contract term on a progress towards completion basis. As of September 30, 2021 and 2020, the Company had $ 326,000 and $ 145,000 , respectively, in unamortized preconstruction costs related to contracts that were not completed. During the years ended September 30, 2021 and 2020, the amortization of preconstruction costs related to contracts was $ 224,000 and $ 163,000 , respectively. These amounts have been included in “Contract drilling operating” costs and expenses in the accompanying Consolidated Statements of Operations. Additionally, no impairment charges in connection with the Company’s preconstruction costs were recorded during the years ended September 30, 2021 and 2020. Water Well Re-drill 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. Efforts to remove the items from the well were unsuccessful through the quarter ended March 31, 2020 and subsequently the Company determined that the well should be abandoned and a new well drilled at no incremental cost to the customer as per the terms of the contract. Accordingly, all the costs to drill and abandon the first well, which are all wasted costs, were excluded from the measurement of progress toward contract completion and all such costs were fully accrued in the quarter ended March 31, 2020, as this contract was determined to be a loss job. 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, 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. 100 Uninstalled Materials Uninstalled materials, which typically consists of well casing or pumps, are excluded in the costs-to-costs calculation for the duration of the contract as including these costs would result in a distortion of progress towards satisfaction of the performance obligation due to the resulting cumulative catch-up in margin in a single period. An equal amount of cost and revenue is recorded when uninstalled materials are controlled by the customer, which is typically when Barnwell has the right to payment for the materials and when the materials are delivered to the customer’s site or location and such materials have been accepted by the customer. Uninstalled materials are held in inventory and included in “Other current assets” on the Company’s Consolidated Balance Sheets. A summary of Barnwell's uninstalled materials is as follows: September 30, 2021 September 30, 2020 Uninstalled materials 226,000 489,000 101 12. SEGMENT AND GEOGRAPHIC INFORMATION Barnwell operates the following segments: 1) acquiring, developing, producing and selling oil and natural gas in Canada and Oklahoma (oil and natural gas); 2) investing in land interests in Hawaii (land investment); and 3) drilling wells and installing and repairing water pumping systems in Hawaii (contract drilling). The following table presents certain financial information related to Barnwell’s reporting segments. All revenues reported are from external customers with no intersegment sales or transfers. Year ended September 30, 2021 2020 Revenues: Oil and natural gas $ 10,254,000 $ 6,693,000 Contract drilling 5,809,000 10,994,000 Land investment 1,738,000 325,000 Other 304,000 317,000 Total before interest income 18,105,000 18,329,000 Interest income 8,000 18,000 Total revenues $ 18,113,000 $ 18,347,000 Depletion, depreciation, and amortization: Oil and natural gas $ 645,000 $ 1,747,000 Contract drilling 305,000 356,000 Other 13,000 44,000 Total depletion, depreciation, and amortization $ 963,000 $ 2,147,000 Impairment: Oil and natural gas $ 630,000 $ 4,326,000 Contract drilling 38,000 — Land investment — 50,000 Total impairment $ 668,000 $ 4,376,000 Operating profit (loss) (before general and administrative expenses): Oil and natural gas $ 2,423,000 $ ( 4,230,000 ) Contract drilling ( 89,000 ) 3,125,000 Land investment 1,738,000 275,000 Other 291,000 273,000 Gain on sale of assets 1,982,000 1,336,000 Total operating profit 6,345,000 779,000 Equity in income of affiliates: Land investment 5,793,000 352,000 General and administrative expenses ( 7,088,000 ) ( 5,820,000 ) Interest expense ( 13,000 ) ( 3,000 ) Interest income 8,000 18,000 Gain on debt extinguishment 149,000 — Gain on termination of post-retirement medical plan 2,341,000 — Earnings (loss) before income taxes $ 7,535,000 $ ( 4,674,000 ) 102 Capital Expenditures: Year ended September 30, 2021 2020 Oil and natural gas $ 3,028,000 $ 3,099,000 Contract drilling 62,000 408,000 Other 1,000 7,000 Total $ 3,091,000 $ 3,514,000 Oil and natural gas capital expenditures include acquisitions as well as changes to capitalized asset retirement obligations, including revisions of asset retirement obligations (see Note 8 for additional details). Assets By Segment: September 30, 2021 2020 Oil and natural gas (1) $ 6,401,000 $ 3,613,000 Contract drilling (2) 4,071,000 3,838,000 Land investment (2) — 901,000 Other: Cash and cash equivalents 11,279,000 4,584,000 Corporate and other 2,684,000 2,246,000 Total $ 24,435,000 $ 15,182,000 ______________ (1) L ocated primarily in the province of Alberta, Canada with a minor portion in Oklahoma. (2) Located in Hawaii. Long-Lived Assets By Geographic Area: September 30, 2021 2020 United States $ 4,180,000 $ 3,393,000 Canada 2,220,000 2,302,000 Total $ 6,400,000 $ 5,695,000 Revenue By Geographic Area: Year ended September 30, 2021 2020 United States $ 7,700,000 $ 11,325,000 Canada 10,405,000 7,004,000 Total (excluding interest income) $ 18,105,000 $ 18,329,000 103 13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Components of accumulated other comprehensive income (loss), net of taxes, are as follows: Year ended September 30, 2021 2020 Foreign currency translation: Beginning accumulated foreign currency translation $ 545,000 $ 691,000 Change in cumulative translation adjustment before reclassifications ( 283,000 ) ( 146,000 ) Income taxes — — Net current period other comprehensive loss ( 283,000 ) ( 146,000 ) Ending accumulated foreign currency translation 262,000 545,000 Retirement plans: Beginning accumulated retirement plans benefit cost ( 1,980,000 ) ( 3,608,000 ) Amortization of net actuarial loss and prior service cost 101,000 120,000 Net actuarial gains arising during the period 1,108,000 1,508,000 Gain on termination of post-retirement medical plan 541,000 — Income taxes — — Net current period other comprehensive income 1,750,000 1,628,000 Ending accumulated retirement plans benefit cost ( 230,000 ) ( 1,980,000 ) Accumulated other comprehensive income (loss), net of taxes $ 32,000 $ ( 1,435,000 ) The amortization of net actuarial loss and prior service cost for the retirement plans are included in the computation of net periodic benefit (income) cost which is a component of “General and administrative” expenses on the accompanying Consolidated Statements of Operations (see Note 9 for additional details). 14. FAIR VALUE MEASUREMENTS Fair Value of Financial Instruments The carrying values of cash and cash equivalents, accounts and other receivables, accounts payable and accrued current liabilities approximate their fair values due to the short-term nature of the instruments. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis The estimated fair values of oil and natural gas properties and the asset retirement obligation incurred in the drilling of oil and natural gas wells or assumed in the acquisitions of additional oil and natural gas working interests are based on an estimated discounted cash flow model and market assumptions. The significant Level 3 assumptions used in the calculation of estimated discounted cash flows included future commodity prices, projections of estimated quantities of oil and natural gas reserves, expectations for timing and amount of future development, operating and asset retirement costs, projections of future rates of production, expected recovery rates and risk adjusted discount rates. See Note 7 for additional information regarding oil and natural gas property acquisitions. Barnwell estimates the fair value of asset retirement obligations based on the projected discounted future cash outflows required to settle abandonment and restoration liabilities. Such an estimate requires 104 assumptions and judgments regarding the existence of liabilities, the amount and timing of cash outflows required to settle the liability, what constitutes adequate restoration, inflation factors, credit adjusted discount rates, and consideration of changes in legal, regulatory, environmental and political environments. Abandonment and restoration cost estimates are determined in conjunction with Barnwell’s reserve engineers based on historical information regarding costs incurred to abandon and restore similar well sites, information regarding current market conditions and costs, and knowledge of subject well sites and properties. Asset retirement obligation fair value measurements in the current period were Level 3 fair value measurements. As further described in Note 8, the Company recognizes the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. Asset retirement obligations are not measured at fair value subsequent to initial recognition. 15. DEBT 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 PPP pursuant to the CARES Act that was signed into law in March 2020. 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 (in Canadian dollars) under the Canada Emergency Business Account (“CEBA”) loan program for small businesses. In the quarter ended March 31, 2021, the Company applied for an increase to our CEBA loan and received an additional CAD$ 20,000 for a total loan amount received of CAD$ 60,000 ($ 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 . 16. LEASES The Company’s right-of-use (“ROU”) assets and lease liabilities at September 30, 2021, primarily relate to non-cancelable operating leases for our Hawaii corporate and Canadian office spaces and our leasehold land interest for Lot 4C held by Kaupulehu Developments. Management determines if a contract is or contains a lease at inception of the contract or modification of the contract. A contract is or contains a lease if the contract conveys the right to control the use of the asset for a period in exchange for consideration. Operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement date. The Company’s leases do not provide a readily determinable implicit rate; therefore, management uses the Company’s incremental borrowing rate to discount lease payments based on information available at lease commencement. Our 105 lease terms may include options to extend or terminate the lease when it is reasonably certain we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease terms. The Company has lease agreements with lease and non-lease components and the non-lease components are excluded in the calculation of the ROU asset and lease liability and expensed as incurred. None of the Company’s lease agreements contain material residual value guarantees or material restrictions or covenants. A ROU asset and corresponding lease liability is not recorded for leases with an initial term of 12 months or less (short-term leases) as the Company recognizes lease expense for these leases as incurred over the lease term. Leases recorded on the balance sheet consist of the following: September 30, 2021 2020 Assets: Operating lease right-of-use assets $ 296,000 $ 249,000 Total right-of-use assets $ 296,000 $ 249,000 Liabilities: Current portion of operating lease liabilities $ 117,000 $ 111,000 Operating lease liabilities 180,000 143,000 Total lease liabilities $ 297,000 $ 254,000 The components of lease expenses are as follows: Year ended September 30, 2021 2020 Operating lease cost $ 130,000 $ 334,000 Short-term lease cost 254,000 69,000 Variable lease cost 103,000 — Total lease cost $ 487,000 $ 403,000 Supplemental information related to leases is as follows: September 30, 2021 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 133,000 $ 189,000 Operating leases: Weighted-average remaining lease term (in years) 2.9 3.4 Weighted-average discount rate 5.19 % 5.85 % 106 The remaining lease payments for our operating leases as of September 30, 2021, are as follows: Fiscal year ending: 2022 $ 129,000 2023 97,000 2024 58,000 2025 30,000 2026 7,000 Thereafter through 2027 — Total lease payments 321,000 Less: amounts representing interest ( 24,000 ) Present value of lease liabilities $ 297,000 The lease payments for the Lot 4C leasehold land were subject to renegotiation as of January 1, 2006. Per the lease agreement, the lease payments will remain unchanged pending an appraisal, whereupon the lease rent could be adjusted to fair market value. Barnwell does not know the amount of the new lease payments which could be effective upon performance of the appraisal; they may remain unchanged or increase, and Barnwell currently expects the adjustment, if any, to not be material. The future lease payment disclosures above assume the minimum lease payments for leasehold land in effect at December 31, 2005 remain unchanged through December 2025, the end of the lease term. Gain on sale of leased asset 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. 17. STOCKHOLDERS' EQUITY (DEFICIT) Share-based Compensation 2018 Equity Incentive Plan The Company’s stock option plans are administered by the Compensation Committee of the Board of Directors. The stockholder-approved 2018 Equity Incentive Plan provides for the issuance of incentive stock options, nonstatutory stock options, stock options with stock appreciation rights, restricted stock, restricted stock units and performance units, qualified performance-based awards, and stock grants to employees, consultants and non-employee members of the Board of Directors. 800,000 shares of Barnwell common stock have been reserved for issuance and as of September 30, 2021, a total of 135,000 share options remain available for grant. Barnwell currently has a policy of issuing new shares to satisfy share option exercises when the optionee requests shares. 107 Equity-classified Awards On February 9, 2021, the Board of Directors of the Company granted options to purchase 665,000 shares of common stock, 310,000 shares to independent directors and 355,000 shares to employees. 605,000 shares of the stock options granted have an exercise price equal to the closing market price of Barnwell’s stock on the date of grant of $ 3.33 , vest annually over three years , and expire in ten years from the date of grant. 60,000 shares of the stock options granted have an exercise price of $ 3.66 (110% of the closing market price on the date of grant for options granted to affiliates), vest annually over three years , and expire in five years from the date of grant. A summary of the activity in Barnwell’s equity-classified share options from October 1, 2020 through September 30, 2021 is presented below: Options Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at October 1, 2020 — $ — Granted 665,000 3.36 Exercised — — Expired/Forfeited ( 50,000 ) 3.33 Outstanding at September 30, 2021 615,000 $ 3.36 8.9 $ — Exercisable at September 30, 2021 — $ — — $ — The following assumptions were used in estimating the fair value of the equity-classified share options granted on February 9, 2021: > 10% Owner-Employee Others Number of shares 60,000 605,000 Expected volatility 127.4 % 105.8 % Expected dividends None None Expected term (in years) 3.5 6.0 Risk-free interest rate 0.19 % 0.82 % Expected forfeitures None None Fair value per share $ 2.51 $ 2.70 The application of alternative assumptions could produce significantly different estimates of the fair value of share-based compensation, and consequently, the related costs reported in the “General and administrative” expenses in the Consolidated Statements of Operations. Compensation cost for equity-classified awards is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period. During the year ended September 30, 2021, the Company recognized total share-based compensation expense of $ 643,000 . There was no share-based compensation expense recognized during the year ended September 30, 2020. Additionally, there was no impact on income taxes for the years ended September 30, 2021 and 2020 due to a full valuation allowance on the related deferred tax asset. As of September 30, 2021, the total remaining unrecognized compensation cost related to nonvested share options was $ 1,005,000 , which is expected to be recognized over the weighted-average remaining requisite service period of 2.4 years. 108 At The Market Offering On March 16, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P,”), with respect to the ATM pursuant to which the Company may offer and sell, from time to time, shares of its common stock, par value $ 0.50 per share, having an aggregate sales price of up to $ 25 million (subject to certain limitations 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. 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 . 18. COMMITMENTS AND CONTINGENCIES Incentive compensation plan In fiscal 2020, Barnwell established an incentive compensation plan to compensate all Canadian oil and natural gas segment personnel and an incentive compensation plan to compensate Canadian executive officers. The value of the plans are directly related to our oil and natural gas segment's free cash flows and the divestiture of oil and natural gas assets. As of September 30, 2021, Barnwell has accrued approximately $ 325,000 in bonus compensation under these plans and the amount is reported in “Accrued compensation” on the Consolidated Balance Sheet at September 30, 2021. Environmental Matters Because of the inherent uncertainties associated with environmental assessment and remediation activities, future expenses to remediate sites identified in the future, if any, could be incurred. Barnwell's management is not currently aware of any significant environmental contingent liabilities requiring disclosure or accrual. Legal and Regulatory Matters Barnwell is routinely involved in disputes with third parties that occasionally require litigation. In addition, Barnwell is required to maintain compliance with all current governmental controls and regulations in the ordinary course of business. Barnwell’s management is not aware of any claims or litigation involving Barnwell that are likely to have a material adverse effect on its results of operations, financial position or liquidity. In the 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. Subsequently, in the quarter ended March 31, 2020, the Company executed a separate five-year warranty 109 agreement with the customer for one of the wells that did not meet plumbness. Under the terms of the agreement, if the lack of plumbness is determined to be the cause of a pump failure within the warranty period, the Company would be obligated to replace the pump at no cost to the customer. If the Company is unable to replace the pump using industry-standard methods, or if there are two or more pump failures attributable to lack of plumbness within the five-year warranty period, the Company would be obligated to drill a new well at no cost to the customer. Negotiations with the customer are currently ongoing for the other well that the customer claims did not meet plumbness despite the fact that the independent consulting engineer for the job concluded that the most recent plumbness test, completed after the well was cased with casing cemented into place as per the contract, showed that the well meets the plumbness specifications of the contract. Management believes the degrees of deviation for both wells are not impactful to the performance of the submersible pumps that will be installed in those wells. Accordingly, no accruals have been recorded as of September 30, 2021 as there is no probable or estimable contingent liability. In July 2020, the Staff of the 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 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. Other Matters Barnwell is obligated to pay Nearco Enterprises Ltd. 10.4 %, net of non-controlling interests' share, of Kaupulehu Developments’ gross receipts from real estate transactions. The fees represent compensation for promotion and marketing of Kaupulehu Developments’ property and were determined based on the estimated fair value of such services. These fees are included in general and administrative expenses. Barnwell is obligated to pay its external real estate legal counsel 1.2 %, net of non-controlling interests' share, of all Increment II payments received by Kaupulehu Developments for services provided by its external real estate legal counsel in the negotiation and closing of the Increment II transaction. These fees are included in general and administrative expenses. Kaupulehu Developments is also obligated to pay an amount equal to 0.72 % and 0.20 % of the cumulative net profits of KD II to KD Development 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. Such compensation will be reflected as the obligation becomes probable and the amount of the obligation can be reasonably estimated. 110 19. INFORMATION RELATING TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS The following table details the effect of changes in current assets and liabilities on the Consolidated Statements of Cash Flows, and presents supplemental cash flow information: Year ended September 30, 2021 2020 Increase (decrease) from changes in: Receivables $ ( 814,000 ) $ ( 598,000 ) Income tax receivable 457,000 129,000 Other current assets ( 920,000 ) 260,000 Accounts payable ( 746,000 ) 924,000 Accrued compensation 668,000 203,000 Other current liabilities ( 796,000 ) ( 470,000 ) (Decrease) increase from changes in current assets and liabilities $ ( 2,151,000 ) $ 448,000 Supplemental disclosure of cash flow information: Cash paid (received) during the year for: Income taxes refunded, net $ ( 303,000 ) $ ( 166,000 ) Supplemental disclosure of non-cash investing activities: Canadian income tax withholding on proceeds from the sale of oil and natural gas properties $ 598,000 $ — Capital expenditure accruals related to oil and natural gas acquisition and development increased $ 346,000 and $ 435,000 during the years ended September 30, 2021 and 2020, respectively. Additionally, capital expenditure accruals related to oil and natural gas asset retirement obligations increased $ 811,000 during the year ended September 30, 2021 and decreased $ 52,000 during the year ended September 30, 2020. 20. RELATED PARTY TRANSACTIONS Kaupulehu Developments is entitled to receive payments from the sales of lots and/or residential units by KD I and KD II. KD I and KD II are part of the Kukio Resort Land Development Partnerships in which Barnwell holds indirect 19.6 % and 10.8 % non-controlling ownership interests, respectively, accounted for under the equity method of investment. The percentage of sales payments are part of transactions which took place in 2004 and 2006 where Kaupulehu Developments sold its leasehold interests in Increment I and Increment II to KD I's and KD II's predecessors in interest, respectively, which was prior to Barnwell’s affiliation with KD I and KD II which commenced on November 27, 2013, the acquisition date of our ownership interest in the Kukio Resort Land Development Partnerships. Changes to the arrangement above, effective March 7, 2019, are discussed in Note 4. 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 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 lots within Phase II of Increment I. 111 Mr. Colin R. O'Farrell, a member of the Board of Directors of the Company effective July 12, 2021, is the sole member of Four Pines Operating LLC which owns a 25 % interest in Gros Ventre. In February 2021, Gros Ventre and BOK, a wholly-owned subsidiary of Barnwell, entered into the Agreement of Teton Barnwell, an entity formed for the purpose of directly investing in oil and natural gas exploration and development in Oklahoma. Under the terms of the Agreement, Gros Ventre makes no capital contributions and receives 2 % of the profits of Teton Barnwell. Additionally, as the manager of Teton Barnwell, Gros Ventre is paid an annual asset management fee equal to 1 % of the cumulative capital contributions made to Teton Barnwell as compensation for its management services. 21. SUBSEQUENT EVENTS Kukio Resort Land Development Partnerships and Sale of Interest in Leasehold Land Subsequent to 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 payments will be reflected in Barnwell's quarter ending December 31, 2021. Additionally, subsequent to September 30, 2021, Barnwell received net cash distributions in the amount of $ 1,075,000 from the Kukio Resort Land Development Partnerships. Financial results of this distribution will be reflected in Barnwell's quarter ending December 31, 2021. Contract Segment Drilling Rig and Equipment Subsequent to September 30, 2021, the Company sold a contract segment drilling rig and related ancillary equipment for proceeds of $ 687,000 , net of related costs, which is equivalent to its net carrying value at September 30, 2021. Financial results from this sale will be reflected in Barnwell's quarter ending December 31, 2021. 22. SUMMARY OF SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Disclosure is not required as Barnwell qualifies as a smaller reporting company. 23. SUPPLEMENTARY OIL AND NATURAL GAS INFORMATION (UNAUDITED) The following tables summarize information relative to Barnwell’s oil and natural gas operations, which are conducted in Canada and in the U.S state of Oklahoma. Proved reserves are the estimated quantities of oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved producing oil and natural gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. The estimated net interests in total proved and proved producing reserves are based upon subjective engineering judgments and may be affected by the limitations inherent in such estimations. The process of estimating reserves is subject to continual revision as additional information becomes available as a result of drilling, testing, reservoir studies and production history. There can be no assurance that such estimates will not be materially revised in subsequent periods. 112 (A) Oil and Natural Gas Reserves The following table summarizes changes in the estimates of Barnwell’s net interests in total proved reserves of oil and natural gas liquids and natural gas, which are all in Canada. Proved oil, natural gas liquids and natural gas reserves located in the U.S. state of Oklahoma are not significant and are therefore not included in the table below. All of the information regarding Canadian reserves in this Form 10-K is derived from the report of our independent petroleum reserve engineers, InSite, and is included as an Exhibit to this Form 10-K. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries and undeveloped locations are more imprecise than estimates of established proved producing oil and natural gas properties. Accordingly, these estimates are expected to change as future information becomes available. Proved oil and natural gas reserves are the estimated quantities of oil and natural gas that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under economic and operating conditions (i.e., prices and costs) existing at the time the estimate is made. Proved developed oil and natural gas reserves are proved reserves that can be expected to be recovered through existing wells and equipment in place and under operating methods being utilized at the time the estimates were made. OIL & NGL (Bbls) GAS (Mcf) Total (Boe) Proved reserves: Balance at September 30, 2019 1,419,000 4,520,000 2,198,000 Revisions of previous estimates ( 740,000 ) ( 1,746,000 ) ( 1,041,000 ) Acquisitions of reserves 68,000 628,000 176,000 Less sales of reserves ( 38,000 ) ( 443,000 ) ( 114,000 ) Less production ( 174,000 ) ( 649,000 ) ( 286,000 ) Balance at September 30, 2020 535,000 2,310,000 933,000 Revisions of previous estimates 291,000 1,345,000 523,000 Acquisitions of reserves 80,000 289,000 130,000 Less sales of reserves ( 97,000 ) ( 341,000 ) ( 156,000 ) Less production ( 169,000 ) ( 690,000 ) ( 288,000 ) Proved Reserves, September 30, 2021 640,000 2,913,000 1,142,000 Proved Developed Reserves, September 30, 2021 636,000 2,913,000 1,138,000 Proved Undeveloped Reserves, September 30, 2021 4,000 — 4,000 113 (B) Capitalized Costs Relating to Oil and Natural Gas Producing Activities All capitalized costs relating to oil and natural gas producing activities in Canada and the U.S. are summarized as follows: September 30, 2021 Canada United States Total Proved properties $ 58,273,000 $ 217,000 $ 58,490,000 Unproved properties — 962,000 962,000 Total capitalized costs 58,273,000 1,179,000 59,452,000 Accumulated depletion, depreciation, and impairment 56,053,000 14,000 56,067,000 Net capitalized costs $ 2,220,000 $ 1,165,000 $ 3,385,000 September 30, 2020 Canada United States Total Proved properties $ 64,142,000 $ — $ 64,142,000 Unproved properties — — — Total capitalized costs 64,142,000 — 64,142,000 Accumulated depletion, depreciation, and impairment 61,839,000 — 61,839,000 Net capitalized costs $ 2,303,000 $ — $ 2,303,000 (C) Costs Incurred in Oil and Natural Gas Property Acquisition, Exploration and Development Year ended September 30, 2021 Canada United States Total Acquisition of properties: Proved $ 1,032,000 $ 70,000 $ 1,102,000 Unproved — — — Exploration costs 255,000 — 255,000 Development costs 563,000 1,108,000 1,671,000 Total $ 1,850,000 $ 1,178,000 $ 3,028,000 Year ended September 30, 2020 Canada United States Total Acquisition of properties: Proved $ 242,000 $ — $ 242,000 Unproved — — — Development costs 2,857,000 — 2,857,000 Total $ 3,099,000 $ — $ 3,099,000 Costs incurred in the tables above include additions and revisions to Barnwell’s asset retirement obligation of $ 811,000 and $( 52,000 ) for the years ended September 30, 2021 and 2020, respectively. 114 (D) Results of Operations for Oil and Natural Gas Producing Activities Year ended September 30, 2021 Canada United States Total Net revenues $ 10,136,000 $ 118,000 $ 10,254,000 Production costs ( 6,532,000 ) ( 24,000 ) ( 6,556,000 ) Depletion ( 631,000 ) ( 14,000 ) ( 645,000 ) Reduction of carrying value of oil and natural gas properties ( 630,000 ) — ( 630,000 ) Pre-tax results of operations (1) 2,343,000 80,000 2,423,000 Estimated income tax expense (2) — — — Results of operations (1) $ 2,343,000 $ 80,000 $ 2,423,000 Year ended September 30, 2020 Canada United States Total Net revenues $ 6,693,000 $ — $ 6,693,000 Production costs ( 4,850,000 ) — ( 4,850,000 ) Depletion ( 1,747,000 ) — ( 1,747,000 ) Reduction of carrying value of oil and natural gas properties ( 4,326,000 ) — ( 4,326,000 ) Pre-tax results of operations (1) ( 4,230,000 ) — ( 4,230,000 ) Estimated income tax expense (2) — — — Results of operations (1) $ ( 4,230,000 ) $ — $ ( 4,230,000 ) _________________ (1) Before gain on sale of oil and natural gas properties, general and administrative expenses, interest expense, and foreign exchange gains and losses. (2) Estimated income tax expense includes changes to the deferred income tax valuation allowance necessary for the portion of Canadian and U.S. federal tax law deferred tax assets that may not be realizable. (E) Standardized Measure, Including Year-to-Year Changes Therein, of Estimated Discounted Future Net Cash Flows The following tables utilize reserve and production data estimated by independent petroleum reserve engineers. The information may be useful for certain comparison purposes but should not be solely relied upon in evaluating Barnwell or its performance. Moreover, the projections should not be construed as realistic estimates of future cash flows, nor should the standardized measure be viewed as representing current value. Additionally, proved oil, natural gas and natural gas liquids reserves located in the United States are not significant and are therefore not included in the tables below. The estimated future cash flows at September 30, 2021 and 2020 were based on average sales prices in effect on the first day of the month for the preceding twelve month period in accordance with SEC Release No. 33-8995. The future production and development costs represent the estimated future expenditures that we will incur to develop and produce the proved reserves, assuming continuation of existing economic conditions. The future income tax expenses were computed by applying statutory income tax rates in existence at September 30, 2021 and 2020 to the future pre-tax net cash flows relating to proved reserves, net of the tax basis of the properties involved. Material revisions to reserve estimates may occur in the future, development and production of the oil and natural gas reserves may not occur in the periods assumed and actual prices realized and actual 115 costs incurred are expected to vary significantly from those used. Management does not rely upon this information in making investment and operating decisions; rather, those decisions are based upon a wide range of factors, including estimates of probable reserves as well as proved reserves and price and cost assumptions different than those reflected herein. Barnwell has included all abandonment, decommissioning and reclamation costs and inactive well costs in accordance with best practice recommendations into the Company’s reserve reports. Standardized Measure of Discounted Future Net Cash Flows September 30, 2021 2020 Future cash inflows $ 36,130,000 $ 20,426,000 Future production costs ( 25,323,000 ) ( 17,860,000 ) Future development costs ( 240,000 ) ( 73,000 ) Future income tax expenses ( 995,000 ) ( 92,000 ) Future net cash flows excluding abandonment, decommissioning and reclamation 9,572,000 2,401,000 Future abandonment, decommissioning and reclamation ( 14,525,000 ) ( 13,055,000 ) Future net cash flows ( 4,953,000 ) ( 10,654,000 ) 10% annual discount for timing of cash flows 7,598,000 8,969,000 Standardized measure of discounted future net cash flows $ 2,645,000 $ ( 1,685,000 ) Changes in the Standardized Measure of Discounted Future Net Cash Flows Year ended September 30, 2021 2020 Beginning of year $ ( 1,685,000 ) $ 2,310,000 Sales of oil and natural gas produced, net of production costs ( 3,604,000 ) ( 1,843,000 ) Net changes in prices and production costs, net of royalties and wellhead taxes 5,702,000 ( 1,876,000 ) Net change due to purchases and sales of minerals in place ( 882,000 ) 467,000 Previously estimated development costs incurred — 1,305,000 Changes in future development costs — 7,773,000 Revisions of previous quantity estimates 4,217,000 ( 10,274,000 ) Net change in income taxes ( 845,000 ) 288,000 Accretion of discount ( 176,000 ) 230,000 Other - changes in the timing of future production and other ( 55,000 ) ( 63,000 ) Other - net change in Canadian dollar translation rate ( 27,000 ) ( 2,000 ) Net change 4,330,000 ( 3,995,000 ) End of year $ 2,645,000 $ ( 1,685,000 ) 116 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.