What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-02-11 compared with 2021-08-13 · 101 added, 276 removed, 104 unchanged (78% of the section changed)

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Forward-looking statements involve risks, uncertainties and assumptions which could cause actual results to differ materially from those contained in such statements.

The risks, uncertainties and other factors that might cause actual results to differ materially from Barnwell’s expectations are set forth in the “Forward-Looking Statements” and “Risk Factors” sections of Barnwell’s Annual Report on Form 10-K for the year ended September 30, 2020.

Investors should not place undue reliance on these forward-looking statements, as they speak only as of the date of filing of this Form 10-Q, and Barnwell expressly disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statements contained herein.

Critical Accounting Policies and Estimates

Management has determined that our most critical accounting policies and estimates are those related to the full-cost ceiling calculation and depletion of our oil and natural gas properties, the estimation of our contract drilling segment's revenues and expenses, and the calculation of our income taxes, all of which are discussed in our Annual Report on Form 10-K, as amended by our Form 10-K/A Amendment No.1, for the fiscal year ended September 30, 2020.

There have been no significant changes to these critical accounting policies and estimates during the three and nine months ended June 30, 2021.

1, for the fiscal year ended September 30, 2021.

There have been no significant changes to these critical accounting policies and estimates during the three months ended December 31, 2021.

We continue to monitor our accounting policies to ensure proper application of current rules and regulations.

Current Outlook

Impact of COVID-19

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

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

While the outbreak recently appeared to be trending downward, the emergence of new variants of COVID-19, including the highly transmissible Delta variant, has spread throughout the U.S.

and globally and caused

significant uncertainty.

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

While the outbreak recently appeared to be trending downward, particularly as vaccination rates increased, new variants of COVID-19 continue emerging, including the Omicron variant, spreading throughout the U.S.

and causing significant disruptions.

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

The COVID-19 outbreak materially and adversely affected our business operations and financial condition as a result of the deteriorating market outlook, the global economic recession and weakened liquidity.

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

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

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

Although demand for oil and oil prices has recovered from the lows of March through May of 2020, uncertainty regarding future oil prices has impacted and continues to impact the Company’s financial condition and outlook.

While the Company’s contract drilling segment remained operational throughout fiscal 2020 and 2021 and continues to work, the continuing potential impact of COVID-19 on the health of our contract drilling segment's crews is uncertain, and any work stoppage or discontinuation of contracts currently in backlog could result in a material adverse impact to the Company’s financial condition and outlook.

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

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

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

Going Concern

The accompanying condensed 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 condensed 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.

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

The corporate office is currently under a purchase and

sales contract with a buyer with a tentative closing to occur prior to September 30, 2021.

While the Company believes the likelihood of the sale occurring as per the terms of the contract is more likely than not, the Company’s ability to successfully consummate the sale cannot be assured.

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 June 30, 2021, the Company sold 586,546 shares of common stock resulting in net proceeds of $1,860,000 after commissions and fees of $59,000.

From July 1, 2021 to the date of this Quarterly Report, an additional 581,441 shares of common stock were sold resulting in net proceeds of $1,924,000 after commissions and fees of $64,000.

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.

Subsequent to June 30, 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.

$524,000 of the sales proceeds was withheld for remittance by the buyers to the Canada Revenue Agency for potential amounts due for Barnwell’s Canadian income taxes related to the sale.

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

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

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 for one year from the date of the filing of this report.

However, due to the $3,784,000 of funds raised by the ATM through the date of this Quarterly Report, as well as the $3,965,000 of net cash inflows in the quarter ended June 30, 2021 from land segment percentage of sales proceeds and distributions from the Kukio Resort Land Development Partnerships, such substantial doubt has been overcome.

Impact of Recently Issued Accounting Standards on Future Filings

In June 2016, the FASB issued ASU No.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2016-13, “Financial Instruments - Credit Losses (Topic 326):

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The Company is currently evaluating the impact of these standards.

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 post-retirement plan disclosures.

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

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

In December 2019, the FASB issued ASU No.

2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes,” which enhances and simplifies various aspects of the income tax accounting guidance in ASC 740.

This ASU is effective for annual reporting periods beginning after December 15, 2020 and interim periods within those annual periods, with early adoption permitted.

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

Barnwell is engaged in the following lines of business:

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Oil and Natural Gas Segment

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

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

participation in exploratory and developmental operations elsewhere.

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

Land Investment Segment

Through Barnwell’s 77.6% interest in Kaupulehu Developments, 75% interest in KD Kona, and 34.45% non-controlling interest in KKM Makai, the Company’s land investment interests include the following:

• The right to receive percentage of sales payments from KD I resulting from the sale of single-family residential lots by KD I, within Increment I of the approximately 870 acres of the Kaupulehu Lot 4A area located in the North Kona District of the island of Hawaii.

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

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

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

Increment I is an area zoned for approximately 80 single-family lots, of which nine remained to be sold at June 30, 2021, and a beach club on the portion of the property bordering the Pacific Ocean, and is partially developed.

Increment I is an area zoned for approximately 80 single-family lots, of which six remained to be sold at December 31, 2021, and a beach club on the portion of the property bordering the Pacific Ocean, and is partially developed.

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

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

Barnwell also has rights to three single-family residential lots in Phase 2A of Increment II, and four single-family residential lots in phases subsequent to Phase 2A when such

lots are developed by KD II, all at no cost to Barnwell.

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

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

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

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

• An indirect 19.6% non-controlling ownership interest in KD Kukio Resorts, LLLP, KD Maniniowali, LLLP and KD I and an indirect 10.8% non-controlling ownership interest in KD II through KDK.

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

The partnerships derive income from the sale of residential parcels as well as from commissions on real estate sales by the real estate sales office and revenues resulting from the sale of private club memberships.

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

The partnerships derive income from the sale of residential parcels as well as from commission on real estate sales by the real estate sales office and revenues resulting from the sale of private club memberships.

• Approximately 1,000 acres of vacant leasehold land zoned conservation in the Kaupulehu Lot 4C area, which currently has no development potential without both a development agreement with the lessor and zoning reclassification.

Contract Drilling Segment

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Results of Operations

The net earnings attributable to Barnwell for the three months ended June 30, 2021 totaled $4,978,000, an $8,434,000 improvement in operating results from a net loss of $3,456,000 for the three months ended June 30, 2020.

The following factors affected the results of operations for the three months ended June 30, 2021 as compared to the prior year period:

• A $4,227,000 improvement in oil and natural gas segment operating results, before income taxes, due primarily to a ceiling test impairment of $2,689,000 in the prior year period, whereas there was no such ceiling test impairment in the current year period.

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

• A $3,459,000 increase in equity in income from affiliates as a result of increased operating results of the Kukio Resort Development Partnerships;

• A $1,253,000 increase in land investment segment operating results, before non-controlling interests’ share of such profits, due to the sale of six lots in the current period, whereas there were no lot sales in the same period in the prior year;

• A $2,341,000 gain recognized in the current year period from the termination of the Company's Post-retirement Medical plan;

• A $1,190,000 decrease in contract drilling operating results, before income taxes, primarily resulting from decreased activity attributable to a significant well drilling contract as this contract was essentially completed as of December 31, 2020;

• A $979,000 increase in general and administrative expenses primarily due to increases in compensation costs and accrued bonuses, share-based compensation expense, and professional fees in the current year period as compared to the same period in the prior year.

The net earnings attributable to Barnwell for the nine months ended June 30, 2021 totaled $4,706,000, a $10,090,000 improvement in operating results from a net loss of $5,384,000 for the nine months ended June 30, 2020.

The following factors affected the results of operations for the nine months ended June 30, 2021 as compared to the prior year period:

• A $5,775,000 improvement in oil and natural gas segment operating results, before income taxes, primarily attributable to a decrease in the ceiling test impairment which was $4,326,000 in the prior year period, compared to a ceiling test impairment of $630,000 in the current year period.

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

• A $5,205,000 increase in equity in income from affiliates as a result of increased operating results of the Kukio Resort Development Partnerships;

• A $1,738,000 increase in land investment segment operating results, before non-controlling interests’ share of such profits, due to the sale of eight lots in the current period, whereas there were no lot sales in the same period in the prior year;

• A $2,341,000 gain recognized in the current year period from the termination of the Company's Post-retirement Medical plan;

• An $2,063,000 decrease in contract drilling segment operating results, before income taxes, primarily resulting from decreased activity attributable to a significant well drilling contract as this contract was essentially completed as of December 31, 2020;

• A $565,000 increase in general and administrative expenses primarily due to increases in accrued bonuses, share-based compensation expense, and costs related to the cooperation and support agreement with the MRMP Stockholders in the current year period as compared to the same period in the prior year, partially offset by a reduction in professional fees in the current year period as compared to the same period in the prior year;

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

The net earnings attributable to Barnwell for the three months ended December 31, 2021 totaled $1,073,000, a $489,000 increase in operating results from net earnings of $584,000 for the three months ended December 31, 2020.

The following factors affected the results of operations for the three months ended December 31, 2021 as compared to the same period in the prior year:

• A $1,941,000 improvement in oil and natural gas segment operating results, before income taxes, due in part to a ceiling test impairment of $630,000 in the prior year period, whereas there was no such ceiling test impairment in the current year period.

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

• A $909,000 decrease in contract drilling segment operating results, before income taxes, primarily due to a significant well drilling contract in the prior year period that was essentially completed as of December 31, 2020;

• A $645,000 increase in general and administrative expenses primarily due to increases in share-based compensation expense, compensation costs and professional fees related to legal and consulting services in the current year period as compared to the same period in the prior year.

Barnwell conducts operations in the U.S.

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

dollar increased 13% and 7% in the three and nine months ended June 30, 2021, respectively, as compared to the same periods in the prior year.

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

dollar increased 7% at June 30, 2021, as compared to September 30, 2020.

dollar increased 3% in the three months ended December 31, 2021 as compared to the same period in the prior year, and the exchange rate of the Canadian dollar to the U.S.

dollar increased 1% at December 31, 2021 as compared to September 30, 2021.

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

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dollar generate other comprehensive loss or income, respectively.

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

Other comprehensive loss due to foreign currency translation adjustments, net of taxes, for the three months ended June 30, 2021 was $74,000, a $51,000 change from other comprehensive loss due to foreign currency translation adjustments, net of taxes, of $125,000 for the same period in the prior year.

Other comprehensive loss due to foreign currency translation adjustments, net of taxes, for the nine months ended June 30, 2021 was $393,000, a $357,000 change from other comprehensive loss due to foreign currency translation adjustments, net of taxes, of $36,000 for the same period in the prior year.

There were no taxes on other comprehensive loss due to foreign currency translation adjustments in the three and nine months ended June 30, 2021 and 2020 due to a full valuation allowance on the related deferred tax asset.

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

comprehensive loss due to foreign currency translation adjustments, net of taxes, for the three months ended December 31, 2021 was $25,000, a $209,000 change from other comprehensive loss due to foreign currency translation adjustments, net of taxes, of $234,000 for the same period in the prior year.

There were no taxes on other comprehensive loss due to foreign currency translation adjustments in the three months ended December 31, 2021 and 2020 due to a full valuation allowance on the related deferred tax assets.

Oil and natural gas

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Three months ended Increase

June 30, (Decrease)

2021 2020 $ %

Natural Gas (Mcf)* $ 2.70 $ 1.42 $ 1.28 90 %

Oil (Bbls)** $ 61.31 $ 17.24 $ 44.07 256 %

Liquids (Bbls)** $ 36.17 $ 4.67 $ 31.50 675 %

Average Price Per Unit

Nine months ended Increase

June 30, (Decrease)

December 31, (Decrease)

2021 2020 $ %

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Three months ended Increase

June 30, (Decrease)

2021 2020 Units %

Natural Gas (Mcf)* 185,000 125,000 60,000 48 %

Oil (Bbls)** 35,000 34,000 1,000 3 %

Liquids (Bbls)** 6,000 3,000 3,000 100 %

Net Production

Nine months ended Increase

June 30, (Decrease)

December 31, (Decrease)

2021 2020 Units %

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** Bbl = stock tank barrel equivalent to 42 U.S.

The oil and natural gas segment generated a $1,015,000 operating profit before general and administrative expenses in the three months ended June 30, 2021, an increase in operating results of $4,227,000 as compared to the $3,212,000 operating loss before general and administrative expenses generated during the same period of the prior year.

The oil and natural gas segment generated a $1,289,000 operating profit before general and administrative expenses in the nine months ended June 30, 2021, an increase in operating results of $5,775,000 as compared to the $4,486,000 operating loss before general and administrative expenses generated during the same period of the prior year.

There was no ceiling test impairment during the three months ended June 30, 2021 and there was a $630,000 ceiling test impairment included in the operating profit for the nine months ended June 30, 2021.

The operating losses for the three months and nine months ended June 30, 2020 include a ceiling test impairment of $2,689,000 and $4,326,000, respectively.

Oil and natural gas revenues increased $2,057,000 (248%) and $2,445,000 (50%) for the three and nine months ended June 30, 2021, respectively, as compared to the same periods in the prior year, primarily due to significant increases in oil and natural gas prices as compared to the same periods in the prior as prior year's commodity prices were impacted by the COVID-19 pandemic.

Oil and natural gas operating expenses increased $736,000 (75%) for the three months ended June 30, 2021 as compared to the same period in the prior year primarily due to the temporary shut-in of wells with high operating costs in the prior year period because of the low commodity prices caused by the COVID pandemic.

Additionally, the increase in operating expenses in the current period was due to the addition of new wells acquired in April 2021 in the Twining area, increases in workovers and electricity costs, and carbon taxes whereas there was no such costs in the prior year period.

Oil and natural gas operating expenses increased $1,432,000 (41%) for the nine months ended June 30, 2021 as compared to the same period in the prior year, primarily due to equalization of operating costs related to processing facilities and workovers in the current year period and to a lesser degree due to carbon taxes, whereas there were no such costs in the prior year period, as well as due to the aforementioned lower operating costs in the prior year period due to low commodity prices.

Oil and natural gas segment depletion decreased $217,000 (58%) and $1,066,000 (68%) for the three and nine months ended June 30, 2021, respectively, as compared to the same periods in the prior year, primarily due to decreases in the depletion rates for the current year periods, as compared to the same periods in prior year, due primarily to impairment write-downs in the prior year.

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

The oil and natural gas segment generated $1,568,000 of operating profit before general and administrative expenses in the three months ended December 31, 2021, an increase in operating results of $1,941,000 as compared to a $373,000 operating loss during the same period of the prior year.

There was a $630,000 ceiling test impairment included in the operating loss in the prior year period, whereas there was no ceiling test impairment in the current year period due to an increase in the historical average first-day-of-the-month prices during the 12-month period ended December 31, 2021, as compared to those historical prices in the prior year period.

Oil and natural gas revenues increased $2,033,000 (108%) for the three months ended December 31, 2021, as compared to the same period in the prior year, primarily due to 93% and 92% increases in oil and natural gas prices, respectively, and 117% and 20% increases in natural gas liquids and natural gas production, respectively, primarily from new production from Oklahoma properties.

New oil production from the Oklahoma properties offset the decline in oil production from Canadian properties.

Oil and natural gas operating expenses increased $481,000 (34%) for the three months ended December 31, 2021, as compared to the prior year period, primarily due to higher workovers, repairs, utilities and hauling costs at the Twining area, as well as restart costs for the Twining wells acquired in the previous fiscal year.

The increase was partially offset by a decrease in costs due to lower production from Canadian properties in the current year period as compared to the prior year period.

Oil and natural gas

segment depletion increased $241,000 (124%) for the three months ended December 31, 2021, as compared to the prior year period, primarily due to $157,000 in depletion due to production in Oklahoma, whereas there was no such depletion in the three months ended December 31, 2020 and an increase in the depletion rate due primarily to the drilling of three new wells at the Twining area.

The depletion rate prior to the drilling of the three new wells was lower due to impact of prior ceiling test impairments on the depletion base.

All seven of the non-operated wells in Oklahoma that the Company participated in drilling in the year ended September 30, 2021 were producing in the three months ended December 31, 2021.

The Company’s share of net production from these wells plus one well with a minor overriding royalty interest totaled 6,000 barrels of oil, 9,000 barrels of natural gas liquids, and 67,000 Mcf of natural gas for total revenues of $964,000 during the three months ended December 31, 2021.

Our Oklahoma production is from shale oil wells that as a rule have steep production declines and accordingly, we estimate that their production will decline significantly.

Oil prices continue to be volatile over time and thus the Company is unable to reasonably predict future oil, natural gas and natural gas liquids prices and the impacts future prices will have on the Company.

Sale of interest in leasehold land

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Three months ended

June 30, Nine months ended

2021 2020 2021 2020

Sale of interest in leasehold land:

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Sale of interest in leasehold land, net of fees paid $ 527,000 $ 426,000

During the three months ended June 30, 2021, Barnwell received $1,253,000 in percentage of sales payments from KD I from the sale of six single-family lots within Phase II of Increment I.

During the nine months ended June 30, 2021, Barnwell received $1,738,000 in percentage of sales payments from KD I from the sale of eight single-family lots within Phase II of Increment I.

No lots were sold during the three and nine months ended June 30, 2020.

As of June 30, 2021, nine single-family lots of the 80 lots developed within Increment I remained to be sold.

During the three months ended December 31, 2021, Kaupulehu Developments received $600,000 in percentage of sales payments from KD I from the sale of three single-family lots within Phase II of Increment I.

During the three months ended December 31, 2020, Kaupulehu Developments received $485,000 in percentage of sales payments from KD I from the sale of two single-family lots within Phase II of Increment I.

As of December 31, 2021, six single-family lots of the 80 lots developed within Increment I remained to be sold.

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

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

Contract drilling

Contract drilling revenues and contract drilling costs decreased $2,151,000 (71%) and $941,000 (48%), respectively, for the three months ended June 30, 2021, as compared to the same period in the prior year.

The contract drilling segment generated a $213,000 operating loss before general and administrative expenses in the three months ended June 30, 2021, a decrease in operating results of $1,190,000 as compared to the $977,000 operating profit generated during the same period of the prior year.

Contract drilling revenues and contract drilling costs decreased $4,059,000 (49%) and $1,953,000 (35%), respectively, for the nine months ended June 30, 2021, as compared to the same period in the prior

The contract drilling segment generated a $392,000 operating profit before general and administrative expenses in the nine months ended June 30, 2021, a decrease in operating results of $2,063,000 as compared to the $2,455,000 operating profit generated during the same period of the prior year.

The decreases in contract drilling revenues and contract drilling costs for the three and nine months ended June 30, 2021 as compared to the same periods in the prior year is primarily due to a significant well drilling contract in the prior year periods.

Contract drilling revenues and contract drilling costs decreased $1,066,000 (55%) and $128,000 (12%), respectively, for the three months ended December 31, 2021, as compared to the same period in the prior year.

The contract drilling segment generated a $151,000 operating loss before general and administrative expenses in the three months ended December 31, 2021, a decrease in operating results of $909,000 as compared to a $758,000 operating profit during the same period of the prior year.

The decrease in contract drilling revenues and contract drilling costs for the three months ended December 31, 2021 as compared to the same period in the prior year is primarily due to a significant well drilling contract in the prior year period.

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

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

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

Accordingly, contract drilling revenues and costs for the remaining quarter of fiscal 2021 are expected to be lower as compared to the same period in fiscal 2020.

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.

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 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 June 30, 2021 as there is no probable or estimable contingent liability.

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

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

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

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

Additionally, the fines applicable to the depth of the second well were 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 accruals have been recorded as of June 30, 2021.

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

In the three months ended December 31, 2021, it was determined that a contract drilling segment well completed in the period did not meet the contract specifications for plumbness under a gyroscopic plumbness test which the contract required.

While the well did pass the cage plumbness test, the contract uses the gyroscopic test as the measure of plumbness.

Barnwell and the customer currently have a verbal arrangement where Barnwell will provide for centralizers and armored cabling and a warranty agreement, however Barnwell’s management believes the plumbness deviation is not impactful to the performance of the submersible pumps that will be installed in the well.

Accordingly, while costs for the centralizers and armored cabling have been accrued, no accrual has been recorded as of December 31, 2021 for the warranty as there is no probable or estimable contingent liability.

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

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

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

The continuing potential impact of COVID-19 on the health of our contract drilling segment's crew is uncertain, and any work stoppage or discontinuation of contracts currently in backlog due to COVID-19 impacts could result in a material adverse impact to the Company’s financial condition and outlook.

General and administrative expenses

General and administrative expenses increased $979,000 (78%) for the three months ended June 30, 2021 as compared to the same period in the prior year.

The increase was primarily due to increases in compensation costs and accrued bonuses, share-based compensation expense, and professional fees related to land investment segment proceeds and legal services in the current year period as compared to the same period in the prior year.

General and administrative expenses increased $565,000 (12%) for the nine months ended June 30, 2021 as compared to the same period in the prior year.

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

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

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

Sherwood Revocable Trust, Ned L.

Sherwood and Bradley M.

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

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

The Company agreed to reimburse the MRMP Stockholders for their reasonable, documented out-of-pocket fees and expenses (including legal expenses) of up to a maximum of $300,000 in connection with the MRMP Stockholders’ election contest at the

Company’s 2020 annual meeting of stockholders and the negotiation of this agreement.

Accordingly, the Company incurred approximately $296,000 in expenses related to this agreement in the nine months ended June 30, 2021.

General and administrative expenses increased $645,000 (54%) for the three months ended December 31, 2021, as compared to the same period in the prior year.

The increase was primarily due to increases in share-based compensation expense, compensation costs and professional fees related to legal and consulting services in the current year period as compared to the same period in the prior year.

Depletion, depreciation, and amortization

Depletion, depreciation, and amortization decreased $243,000 (51%) and $1,132,000 (61%) for the three and nine months ended June 30, 2021, respectively, as compared to the same periods in the prior year, primarily due to a decrease in the oil and natural gas depletion rates as a result of ceiling test impairment write-downs in the prior year as discussed in the “Oil and natural gas” section above.

Depletion, depreciation, and amortization increased $207,000 (75%) for the three months ended December 31, 2021, as compared to the same period in the prior year, primarily due to $157,000 in depletion due to production in Oklahoma, whereas there was no such depletion in the three months ended December 31, 2020 and an increase in the depletion rate due primarily to the drilling of three new wells at the Twining area, as discussed in the “Oil and natural gas” section above.

Impairment of assets

Under the full cost method of accounting, the Company performs quarterly oil and natural gas ceiling test calculations.

There was no ceiling test impairment during the three months ended June 30, 2021 and there was a $630,000 ceiling test impairment during the nine months ended June 30, 2021.

There was a ceiling test impairment of $2,689,000 and $4,326,000 during the three and nine months ended June 30, 2020, respectively.

There was no ceiling test impairment during the three months ended December 31, 2021.

There was a $630,000 ceiling test impairment during the three months ended December 31, 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.

Gain on Termination of Post-retirement Medical Plan

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

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

As result of the plan termination, the Company recognized a non-cash gain of $2,341,000 during the three and nine months ended June 30, 2021.

Gain on Sale of 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 nine months ended June 30, 2020.

Equity in Income (Loss) of Affiliates

Barnwell’s investment in the Kukio Resort Land Development Partnerships is accounted for using the equity method of accounting.

Barnwell was allocated partnership income of $3,348,000 and $5,026,000 during the three and nine months ended June 30, 2021, respectively, as compared to allocated losses of $111,000 and $179,000 during the three and nine months ended June 30, 2020, respectively.

The increase in the allocated partnership income is primarily due to the Kukio Resort Land Development

Partnerships' sale of eight lots during the current year, of which six lots were sold in the quarter ended June 30, 2021, whereas there was no lot sales in the prior year.

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

The increase is also attributed to distributions received from the Kukio Resort Land Development Partnerships in excess of our investment balance of $748,000 which was recorded as income during the three and nine months ended June 30, 2021 (see Note 4) and $459,000 in preferred return payments received from KKM in the nine months ended June 30, 2021, as discussed below.

Barnwell has the right to receive distributions from the Kukio Resort Land Development Partnerships via its non-controlling interests in KD Kona and KKM, based on its respective partnership sharing ratios 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 (loss) of affiliates" line item on the accompanying Condensed Consolidated Statement of Operations for the nine months ended June 30, 2021.

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

During the nine months ended June 30, 2021, Barnwell received net cash distributions in the amount of $5,328,000 from the Kukio Resort Land Development Partnerships after distributing $599,000 to non-controlling interests.

Of the $5,328,000 of net cash distributions received from the Kukio Resort Land Development Partnerships, $459,000 represented a payment of the preferred return from KKM, as discussed above.

There were no distributions from the Kukio Resort Land Development Partnerships for the nine months ended June 30, 2020.

Barnwell’s effective consolidated income tax rate, after adjusting earnings before income taxes for non-controlling interests, was 4% and 6% for the three and nine months ended June 30, 2021, respectively, as compared to 1% for the three months ended June 30, 2020 and nil for the nine months ended June 30, 2020.

Equity in income of affiliates

Barnwell recognized equity in income of affiliates of $1,207,000 during the three months ended December 31, 2021, as compared to $1,054,000 during the three months ended December 31, 2020.

The increase was primarily due to the Kukio Resort Land Development Partnerships' sale of three lots during the current year period as compared to two lot sales in the prior year period and more club memberships sold, partially offset by $459,000 in preferred return payments received from KKM in the prior year period as compared to none in the current year period.

During the three months ended December 31, 2021, Barnwell received cash distributions of $1,207,000 from the Kukio Resort Land Development Partnerships resulting in a net amount of $1,075,000, after distributing $132,000 to non-controlling interests.

During the three months ended December 31, 2020, Barnwell received net cash distributions in the amount of $1,712,000 from the Kukio Resort Land Development Partnerships after distributing $155,000 to non-controlling interests.

Of the $1,712,000 net cash distributions received, $459,000 represented a payment of the preferred return from KKM, as discussed in Note 3 of the Notes to Condensed Consolidated Financial Statements.

In the quarter ended June 30, 2021, the Company received cumulative distributions from the Kukio Resort Land Development Partnerships in excess of our investment balance and in accordance with applicable accounting guidance, the Company suspended its equity method earnings recognition and the Kukio Resort Land Development Partnership investment balance was reduced to zero with the distributions received in excess of our investment balance recorded as equity in income of affiliates because the distributions are not refundable by agreement or by law and the Company is not liable for the obligations of or otherwise committed to provide financial support to the Kukio Resort Land Development Partnerships.

The Company will record future equity method earnings only after our share of the Kukio Resort Land Development Partnership’s cumulative earnings in excess of distributions during the suspended period exceeds our share of the Kukio Resort Land Development Partnership’s income recognized for the excess distributions, and during this suspended period any distributions received will be

recorded as equity in income of affiliates.

Accordingly, the amount of equity in income of affiliates recognized in the three months ended December 31, 2021 was equivalent to the $1,207,000 of distributions received in that period.

Barnwell’s effective consolidated income tax rate for the three months ended December 31, 2021, after adjusting earnings before income taxes for non-controlling interests, was 9%, as compared to an effective income tax rate of 10% for the three months ended December 31, 2020.

Consolidated taxes do not bear a customary relationship to pretax results due primarily to the fact that the Company is taxed separately in Canada based on Canadian source operations and in the U.S.

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Income from our non-controlling interest in the Kukio Resort Land Development Partnerships is treated as non-unitary for state of Hawaii unitary filing purposes, thus unitary Hawaii losses provide limited sheltering of such non-unitary income.

Net Earnings (Loss) Attributable to Non-controlling Interests

Income from our investment in the Oklahoma oil venture is 100% allocable to Oklahoma and Barnwell receives no benefit from consolidated or unitary losses and, therefore, is subject to Oklahoma state taxes.

Net earnings attributable to non-controlling interests

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

Net earnings attributable to non-controlling interests totaled $576,000 and $797,000 for the three and nine months ended June 30, 2021, respectively, as compared to net loss attributable to non-controlling interests of $11,000 and $20,000 for the same periods in the prior year.

The changes of $587,000 (5,336%) and $817,000 ( 4,085%) for the three and nine months, respectively, are primarily due to an increase in the amount of Kukio Resort Land Development Partnerships' income in the current year periods as compared to the same periods in the prior year.

Additionally, the increases are also due to percentage of sales proceeds received in the current year periods, whereas there were no percentage of sale proceeds received in the prior year periods.

Net earnings attributable to non-controlling interests for the three months ended December 31, 2021 totaled $267,000, as compared to net earnings attributable to non-controlling interests of $159,000 for the same period in the prior year.

The increase of $108,000 is primarily due to increases in the amount of Kukio Resort Land Development Partnerships' income and percentage of sales proceeds received in the current year period as compared to the same period in the prior year.

Liquidity and Capital Resources

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

At June 30, 2021, Barnwell had $8,335,000 in working capital.

Cash flows provided by operations totaled $2,105,000 for the nine months ended June 30, 2021, as compared to $472,000 for the same period in the prior year.

This $1,633,000 change in operating cash flows was primarily due to distributions of income from the Kukio Resort Land Development Partnerships in the current year period, as compared to none in the same period of the prior year, and higher operating results, before non-cash impairment expenses, for the oil and natural gas segment, which was partially offset by significantly lower operating results for the contract drilling segment in the current year period as compared to the prior year period.

The change was also due to fluctuations in working capital in the current period as compared to the prior year period.

Cash flows provided by investing activities totaled $1,955,000 during the nine months ended June 30, 2021, as compared to cash flows used in investing activities of $1,116,000 during the same period of the prior year.

This $3,071,000 increase in investing cash flows was primarily due to a decrease of $1,605,000 in cash paid for oil and natural gas capital expenditures, a $1,526,000 increase in percentage of sales proceeds received, net of fees, and an increase of $1,649,000 received in distributions from equity investees in excess of earnings in the current year period as compared to none in the prior year period.

These changes were partially offset by a $348,000 increase in payments to acquire oil and natural gas properties in the current year period, a $548,000 decrease in proceeds from the sale oil and natural gas properties as compared to the prior year period, and a decrease of $1,100,000 in proceeds from the sale of the Company's leasehold interest in a three-quarter of an acre contract drilling segment maintenance and storage yard in Honolulu, Hawaii, from sales in the prior year as compared to no sales of similar assets in the current year.

Net cash provided by financing activities totaled $832,000 for the nine months ended June 30, 2021, as compared to $147,000 for the nine months ended June 30, 2020.

The $685,000 change in financing cash flows was primarily attributed to $1,736,000 in proceeds from issuance of stock, net of costs, related to the Company's ATM offering in the current year period as compared to none in the prior

year period, which was partially offset by $951,000 in distributions to non-controlling interests in the current year period as compared to none in the same period in the prior year.

Paycheck Protection Program Loan

On April 28, 2020, the Company, as obligor, entered into a promissory note evidencing an unsecured loan in the approximate amount of $147,000 under the Paycheck Protection Program (“PPP”) pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“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 three and nine months ended June 30, 2021.

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

At December 31, 2021, Barnwell had $10,676,000 in working capital.

Cash flows provided by operating activities totaled $909,000 for the three months ended December 31, 2021, as compared to cash flows provided by operating activities of $80,000 for the same period in the prior year.

This $829,000 change in operating cash flows was primarily due to higher operating results, before non-cash impairment expenses, for the oil and natural gas segment, which was partially offset by lower operating results for the contract drilling segment in the current year period as compared to the prior year period, and fluctuations in working capital.

Cash flows provided by investing activities totaled $194,000 during the three months ended December 31, 2021, as compared to cash flows provided by investing activities of $875,000 during the

same period of the prior year.

This $681,000 decrease in investing cash flows was primarily due to an increase of $338,000 in oil and natural gas capital expenditures, an increase of $317,000 in payments to acquire oil and natural gas properties, and a decrease of $813,000 in distributions from equity investees in excess of earnings received in the prior year period as compared to none in the current year period, partially offset by a $687,000 increase in proceeds from the sale of contract drilling assets in the current period as compared to none in the prior year period.

Cash flows used in financing activities totaled $251,000 during the three months ended December 31, 2021, as compared to cash flows used in financing activities of $217,000 for the same period in the prior year.

Canada Emergency Business Account Loan

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

In the quarter ended 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.

In January 2022, the CEBA program announced an extension to the repayment deadline from December 31, 2022, to December 31, 2023.

Accordingly, the CEBA loan is interest-free with no principal payments required until December 31, 2023, after which the remaining loan balance is converted to a two year term loan at 5% annual interest paid monthly.

If the Company repays 66.6% of the principal amount prior to December 31, 2023, there will be loan forgiveness of 33.3% up to a maximum of CAD$20,000.

At The Market Offering

On March 16, 2021, the Company entered into a Sales Agreement with 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.

From July 1, 2021 to the date of this Quarterly Report, an additional 581,441 shares of common stock were sold resulting in net proceeds of $1,924,000 after commissions and fees of $64,000.

Going Concern

Other sources and potential sources of funding are discussed below.

The corporate office is currently under a purchase and sales contract with a buyer with a tentative closing to occur prior to September 30, 2021.

From July 1, 2021 to the date of this Quarterly Report, an additional 581,441 shares of common stock were sold resulting in net proceeds of $1,924,000 after commissions and fees of $64,000.

$524,000 of the sales proceeds was withheld for remittance by the buyers to the Canada Revenue Agency for potential amounts due for Barnwell’s Canadian income taxes related to the sale.

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

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

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 for one year from the date of the filing of this report.

NYSE American Continued Listing Standard

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

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

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

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

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

Oil and Natural Gas Capital Expenditures

Barnwell’s oil and natural gas capital expenditures, including accrued capital expenditures and excluding acquisitions and additions and revisions to estimated asset retirement obligations, totaled $726,000 and $897,000 for the three and nine months ended June 30, 2021, respectively, as compared to $26,000 and $3,144,000 for the same periods in the prior year.

The Company participated in the drilling of six gross (0.19 net) non-operated wells in Oklahoma during the three and nine months ended June 30, 2021, of which one gross well (0.04 net well) was completed and five gross wells (0.15 net wells) were in progress as of June 30, 2021.

Capital expenditures incurred by the Company for these Oklahoma wells totaled $588,000 for the three and nine months ended June 30, 2021.

The completed well began flowback production in late May 2021 and the Company’s share of net production, after royalties, from this well was 463 barrels of oil, 1,240 MCF of natural gas and 172 barrels of natural gas liquids through June 30, 2021.

The Company did not drill or participate in the drilling of wells in Canada during the three and nine months ended June 30, 2021.

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

Oil and Natural Gas Property Acquisitions and Dispositions

On April 8, 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.

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.

$524,000 of the sales proceeds 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.

Barnwell expects to report a gain on this transaction which will be recognized in its quarter ending September 30, 2021.

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.

On April 8, 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 nine months ended June 30, 2020.

Asset Retirement Obligation

In September 2019, the Alberta Energy Regulator (“AER”) issued an abandonment/closure order for all wells and facilities in the Manyberries area which had been largely operated by LGX Oil & Gas Ltd.

(“LGX”), an operating company that went into receivership in 2016.

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

Many 100% LGX owned wells are to be reclaimed by the Orphan Well Association (“OWA”).

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

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

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

Recently, the OWA has created a Working Interest Partners (“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 and in June 2021, the Company executed an agreement committing to its participation.

Under the 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 $1,568,000 and the Company will need to pay $913,000 of the total deposit by August 2021 and will need to pay the remaining balance of $655,000 by August 2022.

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

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

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

Any remaining excess deposit would ultimately be refunded to the Company upon completion of all of the work.

It is anticipated that the OWA’s abandonment program for the Manyberries area wells will commence and be completed in the fall of 2021 with the reclamation to begin the following fall of 2022.

Barnwell’s oil and natural gas capital expenditures, including accrued capital expenditures and excluding additions and revisions to estimated asset retirement obligations, totaled $2,870,000 for the three months ended December 31, 2021, as compared to $139,000 for the same period in the prior year.

The Company participated in the drilling of one operated and two non-operated for a total of three gross (1.6 net) wells in the Twining area of Alberta, Canada.

The drilling phases of the wells were largely complete as of December 31, 2021, with completion of those wells to occur and expected production commencing in the latter part of the three months ending March 31, 2022.

Capital expenditures incurred for the drilling phase of these wells in the three months ended December 31, 2021 totaled approximately $2,350,000.

All seven of the non-operated wells in Oklahoma that the Company participated in drilling in the year ended September 30, 2021 were producing in the three months ended December 31, 2021.

Barnwell estimates that investments in oil and natural gas properties for fiscal 2022 will range from $7,000,000 to $9,500,000.

This estimated amount may increase or decrease as dictated by cash flows and management's assessment of the oil and natural gas environment and prospects.

Oil and Natural Gas Properties Acquisitions

In the three months ended December 31, 2021, Barnwell acquired working interests in oil and natural gas properties located in the Twining area of Alberta, Canada, for cash consideration of $317,000.

There were no oil and natural gas working interest acquisitions during the three months ended December 31, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis