What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-15 compared with 2023-02-13 · 132 added, 69 removed, 144 unchanged (58% of the section changed)

14 unchanged sentences

Management has determined that our most critical accounting policies and estimates are those related to the full-cost ceiling calculation and depletion of our oil and natural gas properties, the estimation of our contract drilling segment's revenues and expenses, and the calculation of our income taxes, all of which are discussed in our 2022 Annual Report.

There have been no significant changes to these critical accounting policies and estimates during the three months ended December 31, 2022.

There have been no significant changes to these critical accounting policies and estimates during the three and six months ended March 31, 2023.

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

32 unchanged sentences

Kaupulehu Developments is entitled to receive payments from KD I based on 10% of the gross receipts from KD I’s sales at Increment I.

Increment I is an area zoned for approximately 79 single-family lots, of which one remained to be sold at December 31, 2022.

Increment I is an area zoned for approximately 79 single-family lots, of which one remained to be sold at March 31, 2023.

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

15 unchanged sentences

Results of Operations

The net earnings attributable to Barnwell for the three months ended December 31, 2022 totaled $1,089,000, a $16,000 increase in operating results from net earnings of $1,073,000 for the three months ended December 31, 2021.

The following factors affected the results of operations for the three months ended December 31, 2022 as compared to the same period in the prior year:

• A $551,000 gain recognized in the current year period from the sale of a contract drilling segment drilling rig;

• A $418,000 improvement in oil and natural gas segment operating results, before income taxes, due to an increase in oil prices and an increase in the net production of oil and natural gas in the current period as compared to the same period in the prior year.

The increase in production was primarily due to the additional working interests acquired and wells drilled in the Twining area in fiscal 2022 and was partially offset by a decrease in production from wells in Oklahoma;

The net loss attributable to Barnwell for the three months ended March 31, 2023 totaled $1,237,000, a $3,289,000 decrease in operating results from net earnings of $2,052,000 for the three months ended March 31, 2022.

The following factors affected the results of operations for the three months ended March 31, 2023 as compared to the prior year period:

• A $1,729,000 decrease in oil and natural gas segment operating results, before income taxes, due primarily to significant decreases in natural gas, oil, and natural gas liquid prices in the current period as compared to the same period in the prior year;

• Equity in income from affiliates decreased $1,760,000 and land investment segment operating results, before non-controlling interests’ share of such profits, decreased $695,000 due to the Kukio Resort Development Partnerships' sale of fewer lots in the current period.

No lots were sold during the current year period, whereas there were three lot sales in the prior year period;

• A $198,000 improvement in contract drilling segment operating results, before income taxes, due to work performed on higher value water well drilling contracts in the current year period as compared to the prior year period.

• Equity in income from affiliates decreased $669,000 and land investment segment operating results, before non-controlling interests’ share of such profits, decreased $335,000 due to the Kukio Resort Development Partnerships' sale of one lot in the current year period, whereas there were three lot sales in the prior year period;

• General and administrative expenses increased $419,000 primarily due to an increase in professional fees in the current year period as compared to the same period in the prior year, partially offset by a $138,000 decrease in share-based compensation expense in the current year period as compared to the prior year period.

The net loss attributable to Barnwell for the six months ended March 31, 2023 totaled $148,000, a $3,273,000 decrease in operating results from a net earnings of $3,125,000 for the six months ended March 31, 2022.

The following factors affected the results of operations for the six months ended March 31, 2023 as compared to the prior year period:

• A $1,311,000 decrease in oil and natural gas segment operating results, before income taxes, due to decreases in oil and natural gas prices and a decrease in the net production from wells in Oklahoma in the current year period as compared to the same period in the prior year;

which was partially offset by an increase in the net production of oil and natural gas primarily due to the additional working interests acquired and wells drilled in the Twining area in fiscal 2022;

• Equity in income from affiliates decreased $2,429,000 and land investment segment operating results, before non-controlling interests’ share of such profits, decreased $1,030,000 due to the Kukio Resort Development Partnerships' sale of one lot in the current year period, whereas there were six lot sales in the prior year period;

• A $551,000 gain recognized in the current year period from the sale of a contract drilling segment drilling rig;

• A $397,000 increase in contract drilling segment operating results, before income taxes, primarily resulting from increased activity and an increase in the work performed on higher value water well drilling contracts in the current year period as compared to the prior year period.

Barnwell conducts operations in the U.S.

4 unchanged sentences

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

dollar decreased 7% in the three months ended December 31, 2022 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, 2022 as compared to September 30, 2022.

dollar decreased 6% and 7% in the three and six months ended March 31, 2023, respectively, as compared to the same periods in the prior year.

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

dollar increased 1% at March 31, 2023, as compared to September 30, 2022.

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

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

Other comprehensive income due to foreign currency translation adjustments, net of taxes, for the three months ended December 31, 2022 was $2,000, a $27,000 change from other comprehensive loss due to foreign currency translation adjustments, net of taxes, of $25,000 for the same period in the prior year.

There were no taxes on other comprehensive income (loss) due to foreign currency translation adjustments in the three months ended December 31, 2022 and 2021 due to a full valuation allowance on the related deferred tax assets.

Other comprehensive income due to foreign currency translation adjustments, net of taxes, for the three months ended March 31, 2023 was nil, a $12,000 change from other comprehensive income due to foreign currency translation adjustments, net of taxes, of $12,000 for the same period in the prior year.

Other comprehensive income due to foreign currency translation adjustments, net of taxes, for the six months ended March 31, 2023 was $2,000, a $15,000 change from other comprehensive loss due to foreign currency translation adjustments, net of taxes, of $13,000 for the same period in the prior year.

There were no taxes on other comprehensive income (loss) due to foreign currency translation adjustments in the three and six months ended March 31, 2023 and 2022 due to a full valuation allowance on the related deferred tax asset.

Oil and Natural Gas

3 unchanged sentences

Three months ended Increase

December 31, (Decrease)

March 31, (Decrease)

2023 2022 $ %

2 unchanged sentences

Natural gas liquids (Bbls)** $ 35.13 $ 61.70 $ (26.57) (43 %)

Average Price Per Unit

Six months ended Increase

March 31, (Decrease)

2023 2022 $ %

Natural Gas (Mcf)* $ 3.54 $ 4.00 $ (0.46) (12 %)

Oil (Bbls)** $ 68.68 $ 78.43 $ (9.75) (12 %)

Natural gas liquids (Bbls)** $ 40.09 $ 44.37 $ (4.28) (10 %)

Net Production

Three months ended Increase

December 31, (Decrease)

March 31, (Decrease)

2023 2022 Units %

2 unchanged sentences

Natural gas liquids (Bbls)** 8,000 10,000 (2,000) (20 %)

Net Production

Six months ended Increase

March 31, (Decrease)

2023 2022 Units %

Natural Gas (Mcf)* 527,000 420,000 107,000 25 %

Oil (Bbls)** 91,000 81,000 10,000 12 %

Natural gas liquids (Bbls)** 18,000 23,000 (5,000) (22 %)

_______________________________________

2 unchanged sentences

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

The oil and natural gas segment generated $1,986,000 of operating profit before general and administrative expenses in the three months ended December 31, 2022, an increase in operating results of $418,000 as compared to a $1,568,000 operating profit during the same period of the prior year.

Oil and natural gas segment revenues and operating expenses increased $1,306,000 (33%) and $528,000 (28%) for the three months ended December 31, 2022, respectively, as compared to the same period in the prior year, primarily due to 6% and 42% increases in oil and natural gas liquid prices, respectively, and 46% and 23% increases in natural gas and oil net production, respectively.

Our Oklahoma operations generated $517,000 (10%) of our oil and natural gas segment revenues for the three months ended December 31, 2022 as compared to $964,000 (25%) of our oil and natural gas segment revenues for the three months ended December 31, 2021.

Oil and natural gas segment depletion increased $360,000 (83%) for the three months ended December 31, 2022, as compared to the prior year period, primarily due to increases in the depletion rate for Canadian properties and also new production from those properties, both of which were the result of the drilling of new wells, acquisition of additional working interests, and facilities expansion and upgrade costs, all in the Twining area.

The increase in oil and natural gas depletion was partially offset by a decrease in depletion for Oklahoma properties due to the decrease in production from wells in Oklahoma in the current year period as compared to the prior year period.

The oil and natural gas segment generated a $701,000 operating profit before general and administrative expenses in the three months ended March 31, 2023, a decrease in operating results of $1,729,000 as compared to the $2,430,000 operating profit before general and administrative expenses generated during the same period of the prior year.

The oil and natural gas segment generated a $2,687,000 operating profit before general and administrative expenses in the six months ended March 31, 2023, a decrease in operating results of $1,311,000 as compared to the $3,998,000 operating profit before general and administrative expenses generated during the same period of the prior year.

Oil and natural gas revenues decreased $1,447,000 (28%) for the three months ended March 31, 2023, as compared to the same period in the prior year, primarily due to significant decreases in natural gas, oil, and natural gas liquid prices, which decreased 34%, 26%, and 43%, respectively, as compared to the same period in the prior year.

Oil and natural gas revenues decreased $141,000 (2%) for the six months ended March 31, 2023, as compared to the same period in the prior year, primarily due to 12%, 12%, and 10% decreases in natural gas, oil, and natural gas liquid prices, respectively, and was partially offset by 12% and 25% increases in oil and natural gas production, respectively, as compared to the same period in the prior year.

The increase in oil and natural gas production in the six months of the current year was due to new wells drilled in the Twining area, partially offset by a decrease in production from the Oklahoma wells.

Our Oklahoma operations generated $309,000 (8%) and $826,000 (9%) of our oil and natural gas segment revenues for the three and six months ended March 31, 2023, respectively, as compared to

$992,000 (19%) and $1,956,000 (22%) of our oil and natural gas segment revenues for the three and six months ended March 31, 2022, respectively.

Oil and natural gas operating expenses increased $141,000 (7%) and $669,000 (17%) for the three and six months ended March 31, 2023, respectively, as compared to the same periods in the prior year, primarily due to production from wells drilled in the Twining area in fiscal 2022 and was partially offset by a decrease in production from wells in Oklahoma in the current year periods as compared to the prior year periods.

Oil and natural gas segment depletion increased $141,000 (24%) and $501,000 (49%) for the three and six months ended March 31, 2023, respectively, as compared to the same periods in the prior year.

The increases were primarily due to increases in the depletion rate for Canadian properties and also new production from those properties, both of which were the result of the drilling of new wells, acquisition of additional working interests, and facilities expansion and upgrade costs, all in the Twining area.

The increases in oil and natural gas depletion was partially offset by decreases in depletion for Oklahoma properties due to the decrease in production from wells in Oklahoma in the current year periods as compared to the prior year periods.

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

3 unchanged sentences

Three months ended

March 31, Six months ended

2023 2022 2023 2022

Sale of interest in leasehold land:

2 unchanged sentences

Sale of interest in leasehold land, net of fees paid $ — $ 610,000 $ 233,000 $ 1,137,000

During the three months ended December 31, 2022, Barnwell received $265,000 in percentage of sales payments from KD I from the sale of one single-family lot within Increment I.

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

As of December 31, 2022, only one single-family lot of the 79 lots developed within Increment I remained to be sold and it is not expected to be sold in the Company's fiscal 2023.

No lots were sold during the three months ended March 31, 2023.

During the three months ended March 31, 2022, Barnwell received $695,000 in percentage of sales payments from KD I from the sale of three single-family lots within Increment I.

During the six months ended March 31, 2023, Barnwell received $265,000 in percentage of sales payments from KD I from the sale of one single-family lot within Increment I.

During the six months ended March 31, 2022, Barnwell received $1,295,000 in percentage of sales payments from KD 1 from the sale of six single-family lots within Increment I.

As of March 31, 2023, only one single-family lot of the 79 lots developed within Increment I remained to be sold and it is not expected to be sold in the Company's fiscal 2023.

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

1 unchanged sentence

Contract Drilling

Contract drilling revenues and contract drilling costs increased $1,072,000 (122%) and $877,000 (89%), respectively, for the three months ended December 31, 2022, as compared to the same period in the prior year.

The contract drilling segment generated a $48,000 operating profit before general and

administrative expenses in the three months ended December 31, 2022, an increase in operating results of $199,000 as compared to a $151,000 operating loss during the same period of the prior year.

The increase in contract drilling revenues and contract drilling costs for the three months ended December 31, 2022 as compared to the same period in the prior year is due to work performed on higher value water well drilling contracts in the current year period as compared to the prior year period and due to a higher amount of revenues and expenses recognized from previously uninstalled materials during the current year period.

Contract drilling revenues and contract drilling costs increased $683,000 (83%) and $483,000 (53%), respectively, for the three months ended March 31, 2023, as compared to the same period in the prior year.

The contract drilling segment generated a $57,000 operating profit before general and administrative expenses in the three months ended March 31, 2023, an increase in operating results of $198,000 as compared to the $141,000 operating loss generated during the same period of the prior year.

Contract drilling revenues and contract drilling costs increased $1,755,000 (104%) and $1,360,000 (72%), respectively, for the six months ended March 31, 2023, as compared to the same period in the prior year.

The contract drilling segment generated a $105,000 operating profit before general and administrative expenses in the six months ended March 31, 2023, an increase in operating results of $397,000 as compared to the $292,000 operating loss generated during the same period of the prior year.

The increases in contract drilling revenues and contract drilling costs for the three and six months ended March 31, 2023 as compared to the same periods in the prior year are due to a higher level of activity and work performed on higher value water well drilling contracts in the current year periods as compared to the same periods in the prior year and due to a higher amount of revenues and expenses recognized from previously uninstalled materials during the current year periods.

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

2 unchanged sentences

Barnwell’s management believes the plumbness deviation is not impactful to the performance of the submersible pumps that will be installed in the well.

Accordingly, while costs for the centralizers, armored cabling and the pump installation and removal test have been accrued, no accrual has been recorded as of December 31, 2022 for any further costs related to this contract as there is no related probable or estimable contingent liability.

Accordingly, while costs for the centralizers, armored cabling and the pump installation and removal test have been accrued, no accrual has been recorded as of March 31, 2023 for any further costs related to this contract as there is no related probable or estimable contingent liability.

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

2 unchanged sentences

General and Administrative Expenses

General and administrative expenses increased $419,000 (23%) for the three months ended December 31, 2022, as compared to the same period in the prior year.

The increase was primarily due to an increase in professional fees in the current year period as compared to the same period in the prior year, partially offset by a $138,000 decrease in share-based compensation expense in the current year period as compared to the prior year period.

General and administrative expenses decreased $191,000 (9%) for the three months ended March 31, 2023 as compared to the same period in the prior year.

The decrease was due to decreases of $98,000 in share-based compensation expense, $72,000 in compensation costs, $85,000 in professional fees related to land investment segment proceeds, and $432,000 in fees related to legal and consulting services in the current year period as compared to the same period in the prior year, partially offset by a $526,000 increase in stockholders costs primarily attributed to the cooperation and support agreement and associated fees to certain directors, as discussed below, in the current year period as compared to the same period in the prior year.

General and administrative expenses increased $228,000 (6%) for the six months ended March 31, 2023 as compared to the same period in the prior year.

The increase was primarily due to increases of $161,000 in professional fees and $528,000 in stockholders costs primarily attributed to the cooperation and support agreement and associated fees to certain directors in the current year period as compared to the same period in the prior year, partially offset by decreases of $236,000 in share-based compensation expense and $126,000 in professional fees related to land investment segment proceeds in the current year period as compared to the same period in the prior year.

In January 2023, the Company entered into a cooperation and support agreement (the “Cooperation Agreement”) with Alexander C.

Kinzler , the Company’s CEO and President in his capacity as a stockholder , MRMP-Managers LLC, the Ned L.

Sherwood Revocable Trust, NLS Advisory Group, Inc.

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

Pursuant to the terms of the Cooperation Agreement, among other things, the Company agreed to promptly appoint Joshua S.

Horowitz and Laurance Narbut, effective February 9, 2023, to serve on the Board.

In addition, the Company agreed to nominate a five-person board comprised of Mr.

Kinzler, Kenneth Grossman, Douglas Woodrum, and Messrs.

Horowitz and Narbut as candidates for election to the Board at the 2023 Annual Meeting, which was held on April 17, 2023, and the 2024 annual meeting of stockholders (the “2024 Annual Meeting”) and Mr.

Kinzler and the MRMP Stockholders agreed to vote their respective shares of common stock of the Company in favor of the election of the Company’s slate at the 2023 Annual Meeting and the 2024 Annual Meeting.

Additionally, pursuant to the terms of the Cooperation Agreement, the Company terminated the previously adopted Tax Benefits Preservation Plan.

In exchange for this arrangement, the Company agreed to reimburse the MRMP Stockholders and Mr.

Kinzler for their reasonable, documented out-of-pocket fees and expenses (including legal expenses) in connection with the negotiation and execution of the Cooperation Agreement and the transactions contemplated hereby and the proposed nomination of directors at the 2023 Annual Meeting.

Accordingly, the Company incurred approximately $351,000 in expenses under the Cooperation Agreement in the three and six months ended March 31, 2023.

In May 2023, the Company’s Board of Directors approved and ratified the payment of one-time special director fees to directors Messrs.

Grossman and Woodrum for their services on behalf of the Company and the Board pertaining to the negotiations of the Cooperation Agreement and the settlement of the potential proxy contest.

Grossman received a one-time special director fee of $100,000 to be paid by a cash payment of $40,000 and a stock grant of 22,728 shares of Barnwell common stock (valued at $60,000 using the closing price of Barnwell's common stock on May 11, 2023, the date of grant).

Woodrum received a one-time special director fee of $50,000 to be paid by a cash payment of $20,000 and a stock grant of 11,363 shares of Barnwell common stock (valued at $30,000 using the closing price of

Barnwell's common stock on May 11, 2023, the date of grant).

Accordingly, these special one-time director fees of $150,000 were accrued by the Company as of March 31, 2023.

Depletion, Depreciation, and Amortization

Depletion, depreciation, and amortization increased $357,000 (74%) for the three months ended December 31, 2022, as compared to the same period in the prior year, primarily due to increases in the depletion rate for Canadian properties and also new production from those properties, partially offset by a decrease in depletion for Oklahoma properties as discussed in the “Oil and natural gas” section above.

Depletion, depreciation, and amortization increased $143,000 (23%) and $500,000 (45%) for the three and six months ended March 31, 2023, respectively, as compared to the same periods in the prior year, primarily due to increases in the depletion rates for Canadian properties and also new production from those properties, partially offset by a decrease in depletion for Oklahoma properties as discussed in the “Oil and natural gas” section above.

Foreign Currency Gain

Foreign currency gain was $78,000 during the three months ended December 31, 2022, as compared to none during the three months ended December 31, 2021, due to the effects of foreign exchange rate changes on intercompany loans and advances as a result of the weakening of the U.S.

Foreign currency gain was $2,000 and $80,000 during the three and six months ended March 31, 2023, respectively, as compared to none during the three and six months ended March 31, 2022, due to the effects of foreign exchange rate changes on intercompany loans and advances as a result of the weakening of the U.S.

dollar against the Canadian dollar.

The foreign currency gain from intercompany balances was included in our condensed consolidated net earnings as the intercompany balances were not considered long-term in

nature because management estimates that these intercompany balances will be settled in the future.

The foreign currency gain from intercompany balances was included in our condensed consolidated net earnings as the intercompany balances were not considered long-term in nature because management estimates that these intercompany balances will be settled in the future.

Gain on Sale of Assets

In October 2022, the Company completed the sale of a contract drilling segment drilling rig to an independent third part for proceeds of $551,000, net of related costs.

The drilling rig was fully depreciated and had a net book value of zero and as a result of the sale, the Company recognized a $551,000 gain during the three months ended December 31, 2022.

The drilling rig was fully depreciated and had a net book value of zero and as a result of the sale, the Company recognized a $551,000 gain during the six months ended March 31, 2023.

Equity in Income of Affiliates

Barnwell recognized equity in income of affiliates of $538,000 during the three months ended December 31, 2022, as compared to $1,207,000 during the three months ended December 31, 2021.

The decrease was primarily due to the Kukio Resort Land Development Partnerships' sale of one lot during the current year period as compared to three lot sales in the prior year period.

Equity in income of affiliates was nil and $538,000 during the three and six months ended March 31, 2023, respectively, as compared to equity in income of affiliates of $1,760,000 and $2,967,000 during the three and six months ended March 31, 2022, respectively.

The decrease in partnership income is primarily due to the Kukio Resort Land Development Partnerships' sale of one lot during the current year period, as compared to six lot sales in the prior year period, of which three lots were sold in the quarter ended March 31, 2022.

The Kukio Resort Land Development Partnerships have only one lot to sell in Increment I and we are not anticipating any more lot sales in fiscal 2023.

During the three months ended December 31, 2022, Barnwell received cash distributions of $538,000 from the Kukio Resort Land Development Partnerships resulting in a net amount of $478,000, after distributing $60,000 to non-controlling interests.

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

In the quarter ended June 30, 2021, the Company received cumulative distributions from the Kukio Resort Land Development Partnerships in excess of our investment balance and in accordance with applicable accounting guidance, the Company suspended its equity method earnings recognition and the Kukio Resort Land Development 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, 2022 was equivalent to the $538,000 of distributions received in that period.

Cumulative distributions received from the Kukio Resort Land Development Partnerships in excess of our investment balance was $1,198,000 at December 31, 2022 and $958,000 at September 30, 2022.

Barnwell’s effective consolidated income tax rate for the three months ended December 31, 2022, after adjusting earnings before income taxes for non-controlling interests, was 7%, as compared to an effective income tax rate of 9% for the three months ended December 31, 2021.

During the six months ended March 31, 2023, Barnwell received cash distributions of $538,000 from the Kukio Resort Land Development Partnerships resulting in a net amount of $478,000, after distributing $60,000 to non-controlling interests.

During the six months ended March 31, 2022, Barnwell received cash distributions of $2,967,000 from the Kukio Resort Land Development Partnerships resulting in a net amount of $2,643,000 after distributing $324,000 to non-controlling interests.

because the distributions are not refundable by agreement or by law and the Company is not liable for the obligations of or otherwise committed to provide financial support to the Kukio Resort Land Development Partnerships.

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

Accordingly, the amount of equity in income of affiliates recognized in the six months ended March 31, 2023 was equivalent to the $538,000 of distributions received in that period.

Cumulative distributions received from the Kukio Resort Land Development Partnerships in excess of our investment balance was $1,211,000 at March 31, 2023 and $958,000 at September 30, 2022.

Barnwell’s effective consolidated income tax rate, after adjusting (loss) earnings before income taxes for non-controlling interests, was nil and (106)% for the three and six months ended March 31, 2023, respectively, as compared to 6% and 7% for the three and six months ended March 31, 2022.

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.

1 unchanged sentence

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 and, therefore, is subject to Oklahoma state taxes.

In addition, net operating loss carryforwards, all of which had a full valuation allowance at the end of the previous fiscal year, are being partially utilized in the current year to offset taxable income in the U.S.

federal and Canadian jurisdictions.

The net operating loss carryforwards beyond the current year’s utilization continue to have a full valuation allowance as realization of their benefit is not more likely than not.

Income from our investment in the Oklahoma oil venture is 100% allocable to Oklahoma.

As such, Barnwell receives no benefit from consolidated or unitary losses and, therefore, is subject to Oklahoma state taxes.

In addition, net operating loss carryforwards, the benefit of which had not previously been recognized due to the Company's continuing full valuation allowance, are estimated to be partially utilized in the Canadian tax jurisdiction in the current year periods as the recognized benefit is now considered more likely to occur than not.

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 for the three months ended December 31, 2022 totaled $120,000, as compared to net earnings attributable to non-controlling interests of $267,000 for the same period in the prior year.

The decrease of $147,000 is primarily due to decreases in the amount of equity in income of affiliates and percentage of sales revenue received in the current year period as compared to the same period in the prior year.

Net earnings attributable to non-controlling interests totaled $2,000 and $122,000 for the three and six months ended March 31, 2023, respectively, as compared to net earnings attributable to non-controlling interests of $346,000 and $613,000 for the same periods in the prior year.

The changes of $344,000 (99%) and $491,000 ( 80%) for the three and six months, respectively, are primarily due to decreases in the amount of equity in income of affiliates and percentage of sales revenues received in the current year periods as compared to the same periods in the prior year.

Liquidity and Capital Resources

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

At December 31, 2022, Barnwell had $6,747,000 in working capital.

Cash flows provided by operating activities totaled $897,000 for the three months ended December 31, 2022, as compared to cash flows provided by operating activities of $909,000 for the same period in the prior year.

This $12,000 change in operating cash flows was primarily due to a decrease in distributions from the Kukio Resort Land Development Partnerships, which was partially offset by higher operating results for the oil and natural gas segment in the current year period as compared to the prior year period, and fluctuations in working capital.

Cash flows used in investing activities totaled $6,891,000 during the three months ended December 31, 2022, as compared to cash flows provided by investing activities of $194,000 during the same period of the prior year.

This $7,085,000 change in investing cash flows was primarily due to an increase of $3,168,000 in cash paid for oil and natural gas capital expenditures, an increase of $3,464,000 in advances to operators for capital expenditures, and a decrease of $687,000 in proceeds from the sale of assets in the current year period as compared to same period in the prior year.

Cash flows used in financing activities totaled $108,000 during the three months ended December 31, 2022, as compared to cash flows used in financing activities of $251,000 for the same period in the prior year.

The $143,000 change in financing cash flows was due to a decrease in distributions to non-controlling interests in the current year period as compared to the same period in the prior year.

Cash Dividend

At March 31, 2023, Barnwell had $4,254,000 in working capital.

Cash flows provided by operations totaled $734,000 for the six months ended March 31, 2023, as compared to cash flows provided by operations of $1,699,000 for the same period in the prior year.

This $965,000 change in operating cash flows was due to significantly lower operating results for the oil and natural gas segment in the current year period as compared to the prior year period.

Additionally, the change was also due to a decrease in distributions of income from the Kukio Resort Land Development Partnerships in the current year period as compared to the prior year period and fluctuations in working capital.

Cash flows used in investing activities totaled $7,370,000 during the six months ended March 31, 2023, as compared to cash flows used in investing activities of $5,141,000 during the same period of the prior year.

This $2,229,000 change in investing cash flows was due to an increase of $2,083,000 in cash paid for oil and natural gas capital expenditures, an increase of $481,000 in advances to operators for capital expenditures, a decrease of $904,000 in proceeds from sale of interest in leasehold land, net of costs paid, and a decrease of $687,000 in proceeds from the sale of assets in the current year period as compared to same period in the prior year, partially offset by a $1,563,000 decrease in payments to acquire oil and natural gas properties in the current year period as compared to the same period in the prior year.

Cash flows used in financing activities totaled $423,000 for the six months ended March 31, 2023, as compared to cash flows provided by financing activities of $1,799,000 for the six months ended March 31, 2022.

The $2,222,000 change in financing cash flows was due to a $299,000 increase in payment of dividends and a $2,356,000 decrease in proceeds from issuance of common stock, net of costs, related to the Company's ATM offering in the prior year period, partially offset by a $433,000 decrease in distributions to non-controlling interests in the current year period as compared to the same period in the prior year.

Cash Dividends

In December 2022, the Company's Board of Directors declared a cash dividend of $0.015 per share that was paid on January 11, 2023 to stockholders of record on December 27, 2022.

No dividends were declared or paid during the three months ended December 31, 2021.

In February 2023, the Company's Board of Directors declared a cash dividend of $0.015 per share that was paid on March 13, 2023 to stockholders of record on February 23, 2023.

No dividends were declared or paid during the six months ended March 31, 2022.

Canada Emergency Business Account Loan

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In January 2022, the Canadian government announced the extension of the CEBA loan repayment deadline and interest-free period from December 31, 2022 to December 31, 2023.

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

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

loan at 5% annual interest paid monthly.

If the Company repays 66.7% of the principal amount prior to December 31, 2023, there will be loan forgiveness of 33.3% up to a maximum of CAD$20,000.

The current loan balance of $44,000 is included in “Other current liabilities” in the Company's Condensed Consolidated Balance sheet at December 31, 2022.

The current loan balance of $44,000 is included in “Other current liabilities” in the Company's Condensed Consolidated Balance sheet at March 31, 2023.

At The Market Offering

On March 16, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P,”), with respect to an at-the-market offering program (“ATM”) pursuant to which the Company may offer and sell, from time to time, shares of its common stock, par value $0.50 per share, having an aggregate sales price of up to $25 million (subject to certain limitations set forth in the Sales Agreement and applicable securities laws, rules and regulations), through or to A.G.P as the Company’s sales agent or as principal.

On March 16, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P,”), with respect to the ATM pursuant to which the Company may offer and sell, from time to time, shares of its common stock, par value $0.50 per share, having an aggregate sales price of up to $25 million (subject to certain limitations set forth in the Sales Agreement and applicable securities laws, rules and regulations), through or to A.G.P as the Company’s sales agent or as principal.

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

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

During the six months ended March 31, 2022, the Company sold 509,467 shares of common stock resulting in net proceeds of $2,356,000 after commissions and fees of $75,000 and ATM-related professional services of $22,000.

In August 2022, the Company’s Board of Directors suspended the sales of our common stock under the ATM until further notice.

Oil and Natural Gas Capital Expenditures

Barnwell’s oil and natural gas capital expenditures, including accrued capital expenditures, advances to operators, and excluding additions and revisions to estimated asset retirement obligations, totaled $5,928,000 for the three months ended December 31, 2022 of which $5,354,000 was for a new Texas investment and $574,000 was primarily for the completion and equipping of Canadian wells and facilities at Twining, as compared to $2,870,000, essentially all in Canada, for the same period in the prior year.

Barnwell’s oil and natural gas capital expenditures, including accrued capital expenditures, advances to operators, and excluding acquisitions and additions and revisions to estimated asset retirement obligations, totaled $1,752,000 and $7,680,000 for the three and six months ended March 31, 2023, respectively, as compared to $2,796,000 and $5,666,000 for the same periods in the prior year.

In December 2022, Barnwell Texas, LLC (“Barnwell Texas”), a new wholly-owned subsidiary of the Company, entered into a purchase and sale agreement with an independent third party whereby Barnwell Texas acquired a 22.3% non-operated working interest in oil and natural gas leasehold acreage in the Permian Basin in Texas for cash consideration of $806,000.

In connection with the purchase of such leasehold interests, Barnwell Texas acquired a 15.4% non-operated working interest in the planned drilling of two oil wells in the Wolfcamp Formation in Loving and Ward Counties, Texas and made a pre-payment of $4,293,000 to pay its share of the estimated costs to drill, complete and equip the wells.

As of December 31, 2022, the total costs incurred for these two oil wells was $829,000 and thus, the remaining prepaid balance of $3,464,000 was recorded as “Advances to operators for capital expenditures” on the Company's Condensed Consolidated Balance sheet.

In fiscal 2022, 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 and the capital expenditures incurred for the drilling these wells in the three months ended December 31, 2021 totaled approximately $2,350,000.

In connection with the purchase of such leasehold interests, Barnwell Texas acquired a 15.4% non-operated working interest in two oil wells in the Wolfcamp Formation in Loving and Ward Counties, Texas and made a pre-payment of $4,293,000 to pay its share of the estimated costs to drill, complete and equip the wells.

During the six months ended March 31, 2023, the total costs incurred for the drilling of these two oil wells as of that date was $3,812,000 and thus, the remaining prepaid balance of $481,000 was recorded as “Advances to operators for capital expenditures” on the Company's Condensed Consolidated Balance sheet as of March 31, 2023.

The two gross (0.3 net) wells were awaiting tie-in as of March 31, 2023 and began initial flowback in late April 2023.

During the three months ended March 31, 2023, the Company participated in the drilling of three gross (0.9 net) non-operated wells in the Twining area of Alberta, Canada of which one was nearing the end of the drilling phase and two were drilled and awaiting completion as of March 31, 2023.

All three are expected to be completed and commence production in the latter part of the three months ending June 30,

Capital expenditures incurred for the drilling of these wells and Twining facilities in the six months ended March 31, 2023 totaled approximately $2,236,000.

In fiscal 2022, 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 and the capital expenditures incurred for the drilling these wells in the six months ended March 31, 2022 totaled approximately $4,258,000.

Barnwell estimates that investments in oil and natural gas properties for fiscal 2023 will range from $9,500,000 to $10,000,000.

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

There were no oil and gas working interest acquisitions during the three months ended December 31, 2022.

Oil and Natural Gas Property Acquisitions

There were no oil and natural gas working interest acquisitions during the six months ended March 31, 2023.

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

In January 2022, Barnwell acquired additional working interests in oil and natural gas properties located in the Twining area of Alberta, Canada for consideration of $1,246,000.

The purchase price per the agreement was adjusted for customary purchase price adjustments to reflect the economic activity from the effective date to the closing date.

Barnwell also assumed $1,500,000 in asset retirement obligations associated with the acquisition.

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