1 unchanged sentence
The following discussion is intended to assist in the understanding of the Consolidated Balance Sheets of Barnwell Industries, Inc.
−Removed: and subsidiaries (collectively referred to herein as “Barnwell,” “we,” “our,” “us” or the “Company”) as of September 30, 2022 and 2021, and the related Consolidated Statements of Operations, Comprehensive Income, Equity, and Cash Flows for the years ended September 30, 2022 and 2021.
+Added: and subsidiaries (collectively referred to herein as “Barnwell,” “we,” “our,” “us” or the “Company”) as of September 30, 2023 and 2022, and the related Consolidated Statements of Operations, Comprehensive (Loss) Income, Equity, and Cash Flows for the years ended September 30, 2023 and 2022.
This discussion should be read in conjunction with the consolidated financial statements and related Notes to Consolidated Financial Statements included in this report.
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Impact of COVID-19
−Removed: In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic and the U.S.
−Removed: and Canadian governments declared the virus a national emergency shortly thereafter.
−Removed: The ongoing global health crisis (including resurgences) resulting from the pandemic have, and continue to, disrupt the normal operations of many businesses, including the temporary closure or scale-back of business operations and/or the imposition of either quarantine or remote work or meeting requirements for employees, either by government order or on a voluntary basis.
−Removed: While the outbreak recently appeared to be trending downward, particularly as vaccination rates increased, new variants of COVID-19 continue emerging, including the Omicron variants, spreading throughout the U.S.
−Removed: and globally and causing significant disruptions.
−Removed: The global economy, our markets and our business have been, and may continue to be, materially and adversely affected by COVID-19.
−Removed: The COVID-19 outbreak materially and adversely affected our business operations and financial condition as a result of the deteriorating market outlook, the global economic recession and weakened liquidity.
−Removed: Although demand for oil and oil prices has increased significantly from the lows of March through May of 2020, uncertainty regarding future oil prices continues to exist.
−Removed: While the Company’s contract drilling segment remained operational throughout fiscal 2020 and 2021 and continues to work, the continuing potential impact of COVID-19 on the health of our contract drilling segment's crews is uncertain, and any work stoppage or discontinuation of contracts currently in backlog could result in a material adverse impact to the Company’s financial condition and outlook.
−Removed: Though availability of vaccines and reopening of state and local economies has improved the outlook for recovery from COVID-19's impacts, the impact of new, more contagious or lethal variants that may emerge, and the effectiveness of COVID-19 vaccines against variants and the related responses by governments, including reinstated government-imposed lockdowns or other measures, cannot be predicted at this time.
−Removed: Both the health and economic aspects of the COVID-19 pandemic remain highly fluid and the future course of each is uncertain.
−Removed: We cannot foresee whether the outbreak of COVID-19 will be effectively contained on a sustained basis, nor can we predict the severity and duration of its impact.
−Removed: If the impact of COVID-19 is not effectively and timely controlled on a sustained basis going forward, our business operations and financial condition may be materially and adversely affected by factors that we cannot foresee.
−Removed: Any of these factors and other factors beyond our control could have an adverse effect on the overall business environment, cause uncertainties in the regions where we conduct business, cause our business to suffer in ways that we cannot predict and materially and adversely impact our business, financial condition and results of operations.
+Added: We face various risks and uncertainties related to public health crises, including the global COVID-19 pandemic, which has disrupted financial markets and significantly impacted worldwide economic activity.
+Added: The future impact of the COVID-19 pandemic as well as mandatory and voluntary actions taken to mitigate the public health impact of the pandemic may have a material adverse effect on our financial condition.
+Added: The COVID-19 pandemic and social and governmental responses to the pandemic have caused, and may continue to cause, severe economic, market and other disruptions worldwide.
+Added: Although the COVID-19 pandemic and related societal and government responses have not, to date, had a material impact on our business or financial results, the extent to which COVID-19 and related actions may, in the future, impact our operations cannot be predicted with any degree of confidence.
+Added: As a result, we cannot at this time predict the direct or indirect impact on us of the COVID-19 pandemic, but it could have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects.
Critical Accounting Policies and Estimates
5 unchanged sentences
We use the full cost method of accounting for our oil and natural gas properties under which we are required to conduct quarterly calculations of a “ceiling,” or limitation, on the carrying value of oil and natural gas properties .
−Removed: The ceiling limitation is the sum of 1) the discounted present value (at 10%), using average first-day-of-the-month prices during the 12-month period ending as of the balance sheet date held constant over the life of the reserves, of Barnwell’s estimated future net cash flows from estimated production of proved oil and natural gas reserves, less estimated future expenditures to be incurred in developing and producing the proved reserves but excluding future cash outflows associated with settling asset retirement obligations with the exception of those associated with proved undeveloped reserves from wells that are to be drilled in the future;
+Added: The ceiling limitation is the sum of 1) the discounted present value (at 10%), using average first-day-of-the-month prices during the 12-month period ending as of the balance sheet date held constant over the life of the reserves, of Barnwell’s estimated future net cash flows from estimated production of proved oil and natural gas reserves, less estimated future expenditures to be incurred in developing and producing the proved reserves but excluding future cash outflows associated with settling
+Added: asset retirement obligations with the exception of those associated with proved undeveloped reserves from wells that are to be drilled in the future;
plus 2) the cost of major development projects and unproven properties not subject to depletion, if any;
19 unchanged sentences
A portion of the revisions are attributable to changes in the rolling 12-month average first-day-of-the-month prices, which impact the economics of producible reserves.
−Removed: In the last three fiscal years, annual revisions to our reserve volume estimates have averaged
−Removed: 44% of the previous year’s estimate, due in large part to the impacts of volatile oil and natural gas prices which change the economic viability of producing such reserves and changes in estimated proved undeveloped reserves which can fluctuate from year to year depending upon the Company's plans and ability to fund the capital expenditures necessary to develop such reserves.
+Added: In the last three fiscal years, annual revisions to our reserve volume estimates have averaged 31% of the previous year’s estimate, due in large part to the impacts of volatile oil and natural gas prices which change the economic viability of producing such reserves and changes in estimated proved undeveloped reserves which can fluctuate from year to year depending upon the Company's plans and ability to fund the capital expenditures necessary to develop such reserves.
There can be no assurance that more significant revisions will not be necessary in the future.
If future significant revisions are necessary that reduce previously estimated reserve quantities, such revisions could result in a write-down of oil and natural gas properties.
−Removed: If reported reserve volumes were revised downward by 5% at the end of fiscal 2022, the ceiling limitation would have decreased approximately $1,664,000 before income taxes, which would not have resulted in an increase in the ceiling impairment before income taxes due to sufficient room between the ceiling and the carrying value of oil and natural gas properties at the end of fiscal 2022 of approximately $20,064,000.
−Removed: The significant amount of room between the ceiling and the carrying value of oil and natural gas properties at the end of fiscal 2022 was due primarily to the fact that the carrying value was significantly reduced in prior years by impairment write-downs due to the extremely low average historical prices that were used in the ceiling test for those prior periods, whereas the prices used in the ceiling test at the end of fiscal 2022 reflects the significantly higher average historical prices used in that ceiling test.
+Added: If reported reserve volumes were revised downward by 5% at the end of fiscal 2023, the ceiling limitation would have decreased approximately $1,329,000 before income taxes, which would not have resulted in a ceiling impairment before income taxes due to sufficient room between the ceiling and the carrying value of oil and natural gas properties at the end of fiscal 2023 of approximately $5,428,000.
In addition to the impact of the estimates of proved reserves on the calculation of the ceiling, estimated proved reserves are also a significant component of the quarterly calculation of depletion expense.
2 unchanged sentences
If reported reserve volumes were revised downward by 5% as of the beginning of fiscal 2023, depletion for fiscal 2023 would have increased by approximately $211,000.
−Removed: While the quantities of proved reserves require substantial judgment, the associated prices of oil, natural gas and natural gas liquids reserves are the average first-day-of-the-month prices during the 12-month period ending in the reporting period on a constant basis as prescribed by SEC regulations.
+Added: While the quantities of proved reserves require substantial judgment, the associated prices of oil, natural gas and natural gas liquids reserves are the average first-day-of-the-month prices during the 12-
+Added: month period ending in the reporting period on a constant basis as prescribed by SEC regulations.
Additionally, the applicable discount rate that is used to calculate the discounted present value of the reserves is mandated at 10%.
6 unchanged sentences
Uninstalled materials, which typically consists of well casing or pumps, are excluded in the costs-to-costs calculation for the duration of the contract as including these costs would result in a distortion of progress towards satisfaction of the performance obligation due to the resulting cumulative catch-up in margin in a single period.
−Removed: An equal amount of cost and revenue is recorded when uninstalled materials are controlled by the customer, which is typically when Barnwell has the right to payment for the materials and when the materials are delivered to the customer’s site or location and such
−Removed: materials have been accepted by the customer.
+Added: An equal amount of cost and revenue is recorded when uninstalled materials are controlled by the customer, which is typically when Barnwell has the right to payment for the materials and when the materials are delivered to the customer’s site or location and such materials have been accepted by the customer.
Uninstalled materials are held in inventory and included in “Other current assets” on the Company’s Consolidated Balance Sheets until control is transferred to the customer.
18 unchanged sentences
In addition, many contracts give the customer a unilateral right to cancel for convenience or other than for cause.
−Removed: In accordance with FASB ASC 606-10-32-4, our estimates are based on the assumption that the existing
−Removed: contract will not be cancelled.
+Added: In accordance with FASB ASC 606-10-32-4, our estimates are based on the assumption that the existing contract will not be cancelled.
Any unforeseen cancellation of a contract may result in a material revision to our estimates.
24 unchanged sentences
Management considers the possibility of alternative outcomes based upon past experience, previous actions by taxing authorities (e.g., actions taken in other jurisdictions) and advice from tax experts.
−Removed: uncertainty exists due to the complexity of income tax statutes and where the potential tax amounts are significant, we generally seek independent tax opinions to support our positions.
+Added: Where uncertainty exists due to the complexity of income tax statutes and where the potential tax amounts are significant, we generally seek independent tax opinions to support our positions.
If our evaluation of the likelihood of the realization of benefits is inaccurate, we could incur additional income tax and interest expense that would adversely impact earnings, or we could receive tax benefits greater than anticipated which would positively impact earnings, either of which could be material.
Barnwell is engaged in the following lines of business:
−Removed: 1) acquiring, developing, producing and selling oil and natural gas in Canada and Oklahoma (oil and natural gas segment), 2) investing in land interests in Hawaii (land investment segment), and 3) drilling wells and installing and repairing water pumping systems in Hawaii (contract drilling segment).
+Added: 1) acquiring, developing, producing and selling oil and natural gas in Canada and the U.S.
+Added: (oil and natural gas segment), 2) investing in land interests in Hawaii (land investment segment), and 3) drilling wells and installing and repairing water pumping systems in Hawaii (contract drilling segment).
Oil and Natural Gas Segment
Barnwell is involved in the acquisition and development of oil and natural gas properties primarily in the Twining area of Alberta, 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.
−Removed: Additionally, through its wholly-owned subsidiary BOK, Barnwell is indirectly involved in non-operated oil and natural gas investments in Oklahoma.
−Removed: Barnwell sells all of its Canadian oil and natural gas under short-term contracts with marketers based on prices indexed to market prices.
+Added: Additionally, through its wholly-owned subsidiaries BOK and Barnwell Texas, Barnwell is involved in non-operated oil and natural gas investments in Oklahoma and Texas, respectively.
+Added: Barnwell sells all of its Canadian and U.S.
+Added: oil and natural gas under short-term contracts with marketers based on prices indexed to market prices.
The price of natural gas, oil and natural gas liquids is freely negotiated between the buyers and sellers.
Oil and natural gas prices are determined by many factors that are outside of our control.
−Removed: Market prices for oil and natural gas products are dependent upon factors such as, but not limited to, changes in market supply and demand, which are impacted by overall economic activity, changes in weather, pipeline capacity constraints, inventory storage levels, and output.
+Added: Market prices for oil and natural gas products are dependent upon factors such as, but not limited to, changes in market supply and demand, which are impacted by overall
+Added: economic activity, changes in weather, pipeline capacity constraints, inventory storage levels, and output.
Oil and natural gas prices are very difficult to predict and fluctuate significantly.
Natural gas prices tend to be higher in the winter than in the summer due to increased demand, although this trend has become less pronounced due to the increased use of natural gas to generate electricity for air conditioning in the summer and increased natural gas storage capacity in North America.
+Added: In November 2023, to provide partial protection against the risk of declining natural gas prices during the second half of our fiscal 2024, the Company amended certain of its Canadian purchase and sales contracts to change the sales price on a portion of the natural gas it sells to a fixed price during the period from April 1, 2024 to October 31, 2024.
+Added: With these changes, the Company anticipates that during that period approximately 25% of its Canadian natural gas production will be sold at fixed prices while the remaining 75% of such production will continue to be sold at spot prices.
+Added: Additionally, in December 2023, the Company amended certain of its Canadian purchase and sales contract to change the sales price on a portion of the oil it sells to a fixed price during the period from January 1, 2024 to June 30, 2024.
+Added: With these changes, the Company anticipates that during that period approximately 40% of its Canadian oil production will be sold at fixed prices while the remaining 60% of such production will continue to be sold at spot prices.
Oil and natural gas exploration, development and operating costs generally follow trends in product market prices, thus in times of higher product prices the cost of exploring, developing and operating the oil and natural gas properties will tend to escalate as well.
4 unchanged sentences
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:
−Removed: • 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
−Removed: located in the North Kona District of the island of Hawaii.
+Added: • 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 10% of the gross receipts from KD I’s sales at Increment I.
Increment I is an area zoned for approximately 80 single-family lots, of which two remained to be sold at September 30, 2023.
+Added: The developer had consolidated these two remaining lots into one large lot but has since split them back into the original two lots.
• The right to receive 15% of the distributions of KD II, the cost of which is to be solely borne by KDK out of its 55% ownership interest in KD II, plus a priority payout of 10% of KDK's cumulative net profits derived from Increment II sales subsequent to Phase 2A, up to a maximum of $3,000,000.
1 unchanged sentence
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.
−Removed: 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.
+Added: committed to commence construction of improvements within 90 days of the transfer of the four lots in the phases subsequent to Phase 2A as a condition of the transfer of such lots.
Also, in addition to Barnwell's existing obligations to pay professional fees to certain parties based on percentages of its gross receipts, Kaupulehu Developments is also obligated to pay an amount equal to 0.72% and 0.20% of the cumulative net profits of KD II to KD Development, LLC and a pool of various individuals, respectively, all of whom are partners of KKM and are unrelated to Barnwell.
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.
−Removed: No definitive development plans have been made by the developer of Increment II as of the date of this report.
+Added: No definitive development plans have been made by KDII, the developer of Increment II, as of the date of this report.
• An indirect 19.6% non-controlling ownership interest in KD Kukio Resorts, LLLP, KD Maniniowali, LLLP and KD I and an indirect 10.8% non-controlling ownership interest in KD II through KDK.
3 unchanged sentences
• 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.
+Added: The lease terminates in December 2025.
Contract Drilling Segment
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Contract drilling results are highly dependent upon the quantity, dollar value and timing of contracts awarded by governmental and private entities and can fluctuate significantly.
+Added: In December 2023, the Company entered into an agreement with a construction company for the sale of Water Resources for gross proceeds of $2,000,000, subject to customary post-closing price adjustments and the purchaser’s completion of due diligence.
+Added: The sale is expected to close in the first half of our fiscal 2024.
Business Environment
−Removed: Our operations are located in Canada and in the states of Hawaii and Oklahoma.
+Added: Our operations are located in Canada and in the states of Hawaii, Oklahoma, and Texas.
Accordingly, our business performance is directly affected by macroeconomic conditions in those areas, as well as general economic conditions of the U.S.
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Oil and Natural Gas Segment
−Removed: Barnwell realized an average price for oil of $86.73 per barrel during the year ended September 30, 2022, an increase of 68% from $51.74 per barrel realized during the prior year.
−Removed: Oil prices continue to be volatile over time and thus, the Company is unable to reasonably predict future oil prices and the impacts future oil prices will have on the Company.
−Removed: Barnwell realized an average price for natural gas of $4.63 per Mcf during the year ended September 30, 2022, an increase of 77% from $2.62 per Mcf realized during the prior year.
+Added: Barnwell realized an average price for oil of $69.77 per barrel during the year ended September 30, 2023, a decrease of 20% from $86.73 per barrel realized during the prior year and realized an average price for natural gas of $2.64 per Mcf during the year ended September 30, 2023, a decrease of 43% from $4.63 per Mcf realized during the prior year.
+Added: Oil and natural gas prices continue to be volatile over time
+Added: and thus, the Company is unable to reasonably predict future prices and the impacts future prices will have on the Company.
Land Investment Segment
−Removed: Future land investment payments and any future cash distributions from our investment in the Kukio Resort Land Development Partnerships are dependent upon the sale of the remaining two residential lots within Increment I by KD I and potential future development or sale of the remaining portion of Increment II by KD II of Kaupulehu Lot 4A.
+Added: Future revenues from the sale of interest in leasehold land and any future cash distributions from our investment in the Kukio Resort Land Development Partnerships are dependent upon the sale of the remaining two residential lots within Increment I by KD I and potential future development or sale of the remaining portion of Increment II by KD II of Kaupulehu Lot 4A.
The amount and timing of future land investment segment proceeds from percentage of sales payments and cash distributions from the Kukio Resort Land Development Partnerships are highly uncertain and out of our control, and there is no assurance with regards to the amounts of future sales of residential lots within Increments I and II.
−Removed: No definitive development plans have been made by the developer of Increment II as of the date of this report.
+Added: No definitive development plans have been made by KD II, the developer of Increment II, as of the date of this report.
Contract Drilling Segment
Demand for water well drilling and/or pump installation and repair services is volatile and dependent upon land development activities within the state of Hawaii.
−Removed: Management currently estimates that well drilling activity for fiscal 2023 is expected to be higher than fiscal 2022 based upon the number and value of contracts in backlog and anticipated job starts and durations.
Results of Operations
−Removed: Net earnings attributable to Barnwell for fiscal 2022 totaled $5,513,000, a $740,000 decrease in operating results from net earnings of $6,253,000 in fiscal 2021.
+Added: Net loss attributable to Barnwell for fiscal 2023 totaled $961,000, a $6,474,000 decrease from net earnings of $5,513,000 in fiscal 2022.
The following factors affected the results of operations for the current fiscal year as compared to the prior fiscal year:
−Removed: • In the prior year period, the Company recognized $4,472,000 in gains that did not occur in fiscal 2022, which included a $2,341,000 gain from the termination of the Company's Post-retirement Medical plan, $1,982,000 in gains from the sales of assets, and a $149,000 gain on debt extinguishment;
−Removed: • An $8,113,000 improvement in oil and natural gas segment operating results, before income taxes, due primarily to a significant increase in oil and natural gas prices in the current period
−Removed: as compared to the same period in the prior year and new production from wells drilled in Oklahoma.
−Removed: Also contributing to the increase was a ceiling test impairment of $630,000 in the prior year period, whereas there was no such ceiling test impairment in the current year period;
−Removed: • Equity in income from affiliates decreased $2,393,000 and land investment segment operating results, before non-controlling interests’ share of such profits, decreased $532,000 due to the Kukio Resort Development Partnerships' sale of six lots in the current year period, whereas there were eight lot sales in the prior year period;
−Removed: • General and administrative expenses increased $956,000 primarily due to increases in professional fees in the current year period as compared to the same period in the prior year, partially offset by a decrease in stockholder costs in the prior year period as compared to the current year period;
−Removed: • A $484,000 foreign currency loss recorded in the current year period due to the effects of foreign exchange rate changes on intercompany loans and advances as a result of the strengthening of the U.S.
+Added: • A $5,863,000 decrease in oil and natural gas segment operating results, before income taxes, due to significant decreases in natural gas, oil, and natural gas liquid prices.
+Added: Additionally, a decrease in the net production from wells in Oklahoma in the current year period as compared to the same period in the prior year also caused the decrease;
+Added: • Equity in income from affiliates decreased $2,642,000 and land investment segment operating results, before non-controlling interests’ share of such profits, decreased $941,000 due to the Kukio Resort Development Partnerships' sale of one lot in the current year period, whereas there were six lot sales in the prior year period;
+Added: • General and administrative expenses decreased $1,088,000 primarily due to decreases in share-based compensation, accrued bonus expense, professional fees, and bad debt expense, partially offset by an increase in stockholder costs in the current year period as compared to the same period in the prior year;
+Added: • A $551,000 gain recognized in the current year period from the sale of a contract drilling segment drilling rig;
+Added: • A $76,000 foreign currency gain recorded in the current year period as compared to a $484,000 foreign currency loss in the prior year period, primarily due to the effects of foreign exchange
+Added: rate changes on intercompany loans and advances as a result of the weakening of the U.S.
dollar against the Canadian dollar.
6 unchanged sentences
dollar decreased 5% in fiscal 2023, as compared to fiscal 2022, and the exchange rate of the Canadian dollar to the U.S.
−Removed: dollar decreased 7% at September 30, 2022, as compared to September 30, 2021.
+Added: dollar increased 1% at September 30, 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.
20 unchanged sentences
* Natural gas price per unit is net of pipeline charges.
−Removed: The oil and natural gas segment generated a $10,536,000 operating profit in fiscal 2022 before general and administrative expenses, an increase in operating results of $8,113,000 as compared to $2,423,000 of operating profit in fiscal 2021.
−Removed: There was no ceiling test impairment during the year ended September 30, 2022 and a $630,000 ceiling test impairment during the year ended September 30, 2021.
−Removed: Our Oklahoma operations generated $2,667,000 (25%) of our oil and natural gas segment operating profits for the year ended September 30, 2022 as compared to $80,000 (3%) of our oil and natural gas segment operating profits for the year ended September 30, 2021.
−Removed: Oil and natural gas revenues increased $12,327,000 (120%) from $10,254,000 in fiscal 2021 to $22,581,000 in fiscal 2022, primarily due to significant increases in oil, natural gas and natural gas liquids prices as compared to the same period in the prior year.
−Removed: Additionally, production increased due to new wells drilled in the Twining area and Oklahoma, as well as due to additional working interests acquired in the Twining area.
−Removed: The increase in net production from Canadian areas was partially offset by an increase in royalty rates attributed to the increase in commodity prices.
−Removed: Oil and natural gas operating expenses increased $2,883,000 (44%) from $6,556,000 in fiscal 2021 to $9,439,000 in fiscal 2022, primarily due to production from the new wells drilled in the Twining area and Oklahoma, as well as due to additional working interests acquired in the Twining area.
−Removed: The increase was also partially attributable to workovers, repairs, higher utilities and hauling costs, and restart costs for certain acquired wells, as well as to the remediation of a minor pipeline leak.
−Removed: Oil and natural gas segment depletion increased $1,961,000 (304%) from $645,000 in fiscal 2021 to $2,606,000 in fiscal 2022, primarily due to increases in the depletion rate for Canadian properties and also new production from those properties, both of which were the result of the drilling of new wells, acquisition of additional working interests, and facilities expansion and upgrade costs, all in the Twining area.
−Removed: The increase also was due to increased depletion from production in Oklahoma, whereas there was only a minor amount of such depletion in the prior year period.
−Removed: All seven non-operated wells in Oklahoma were producing during the year ended September 30, 2022.
−Removed: The Company’s share of net production from these wells plus another well with a minor overriding royalty interest totaled 42,000 barrels of oil and natural gas liquids and 192,000 Mcf of natural gas for total revenues of $3,496,000 during the year ended September 30, 2022.
−Removed: Our Oklahoma production is from shale oil wells that typically have steep production declines and accordingly, we estimate that their production will continue to decline significantly.
+Added: The oil and natural gas segment generated a $4,673,000 operating profit in fiscal 2023 before general and administrative expenses, a decrease in operating results of $5,863,000 as compared to $10,536,000 of operating profit in fiscal 2022.
+Added: The following table sets forth Barnwell’s oil and natural gas segment operating profit before general and administrative expenses by geographic location:
+Added: Year ended September 30,
+Added: Operating profit (before general and administrative expenses)
+Added: Canada $ 3,171,000 $ 7,869,000
+Added: Oklahoma 1,006,000 2,667,000
+Added: Texas 496,000 —
+Added: Total operating profit $ 4,673,000 $ 10,536,000
+Added: Oil and natural gas revenues decreased $3,205,000 (14%) from $22,581,000 in fiscal 2022 to $19,376,000 in fiscal 2023, primarily due to significant decreases in natural gas, oil, and natural gas liquid prices, which decreased 43%, 20%, and 33%, respectively, as compared to the same period in the prior year.
+Added: The decrease was partially offset by 12% and 31% increases in oil and natural gas production, respectively, as compared to the same period in the prior year.
+Added: The increase in oil and natural gas production in the current year was due to new wells drilled in the Twining area and from new wells drilled in Texas, partially offset by a decrease in production from the Oklahoma wells.
+Added: The two gross (0.3 net) non-operated wells drilled in Texas began producing in late April 2023 and the Company’s share of net production from these wells totaled 12,000 barrels of oil, 12,000 barrels of natural gas liquids, and 121,000 Mcf of natural gas for total revenues of $1,354,000 during the year ended September 30, 2023.
+Added: Oil and natural gas operating expenses increased $995,000 (11%) from $9,439,000 in fiscal 2022 to $10,434,000 in fiscal 2023, primarily due to costs associated with new production from wells drilled in the Twining area and from new wells drilled in Texas and an increase in workover costs in the current year period as compared to the same period in the prior year.
+Added: The increase was partially offset by a decrease in production from wells in Oklahoma in the current year period as compared to the prior year period.
+Added: Oil and natural gas segment depletion increased $1,663,000 (64%) from $2,606,000 in fiscal 2022 to $4,269,000 in fiscal 2023, primarily due to depletion attributable to production in Texas, whereas there was no such depletion in the prior year period, and an increase in the depletion rate for Canadian properties and also new production from those properties, both of which were the result of the drilling of new wells and facilities expansion and upgrade costs, all in the Twining area.
+Added: 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.
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.
7 unchanged sentences
Sale of interest in leasehold land, net of fees paid $ 233,000 $ 1,137,000
+Added: During the year ended September 30, 2023, Barnwell received $265,000 in percentage of sales payments from KD I from the sale of one single-family lot within Increment I.
During the year ended September 30, 2022, Barnwell received $1,295,000 in percentage of sales payments from KD I from the sale of six single-family lots within Increment I.
−Removed: During the year ended September 30, 2021, Barnwell received $1,738,000 in percentage of sales payments from KD I from the sale of eight single-family lots within Increment I.
−Removed: In November 2022, Kaupulehu Developments received a percentage of sales payment of $265,000 from the sale of one lot within Increment I.
−Removed: Financial results from the receipt of this payment will be reflected in Barnwell's first quarter of fiscal 2023 ending December 31, 2022.
−Removed: Accordingly, with the inclusion of the lot sale subsequent to September 30, 2022, one single-family lot of the 80 lots developed within Increment I remained to be sold as of the date of this report.
−Removed: 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.
−Removed: No definitive development plans have been made by the developer of Increment II as of the date of this report.
+Added: As of September 30, 2023, two single-family lots of the 80 lots developed within Increment I remained to be sold.
+Added: 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
+Added: acreage within Increment II will be developed.
+Added: No definitive development plans have been made by KD II, the developer of Increment II, as of the date of this report.
Contract drilling
Contract drilling revenues and costs are associated with well drilling and water pump installation, replacement and repair in Hawaii.
−Removed: Contract drilling revenues decreased $1,269,000 (22%) to $4,540,000 in fiscal 2022, as compared to $5,809,000 in fiscal 2021, and contract drilling costs decreased $964,000 (17%) to $4,591,000 in fiscal 2022, as compared to $5,555,000 in fiscal 2021.
The contract drilling segment generated a $428,000 operating loss before general and administrative expenses during fiscal 2023, a decrease in operating results of $206,000 as compared to an operating loss before general and administrative expenses of $222,000 in fiscal 2022.
−Removed: The decrease in contract drilling revenues, costs, and operating results for the year ended September 30, 2022 is due to decreased water well drilling activity in the current year period as compared to the same period in the prior year, primarily due to a significant well drilling contract in a portion of the prior year period, which was essentially completed as of December 31, 2020 and thus, did not contribute to operating results from that point forward.
−Removed: At September 30, 2022, there was a backlog of seven well drilling and 14 pump installation and repair contracts, of which four well drilling and 10 pump installation and repair contracts were in progress as of September 30, 2022.
+Added: Contract drilling revenues increased $887,000 (20%) to $5,427,000 in fiscal 2023, as compared to $4,540,000 in fiscal 2022, primarily due to a higher level of activity in the current year period, partially offset by a decrease in revenues recognized from previously uninstalled materials during the current year period as compared the same period in the prior year.
+Added: Contract drilling costs increased $1,078,000 (23%) to $5,669,000 in fiscal 2023, as compared to $4,591,000 in fiscal 2022, primarily due to a higher level of activity and an increase in costs for certain water well drilling contracts in the current year period due to unforeseen difficulties on two contracts.
+Added: The first job had a piece of the drill bit break off and fall into the hole causing an increase in costs due to efforts to retrieve the piece which was successfully done in November 2023.
+Added: The other job encountered an unusually hard geological formation, and the drilling has taken longer than previously anticipated which required an increase in estimated costs and resulted in the job becoming a loss job for which the Company recorded a $180,000 liability as of September 30, 2023.
+Added: The increase in total contract drilling costs was partially offset by a decrease in expenses recognized from previously uninstalled materials during the current year period as compared the same period in the prior year.
+Added: At September 30, 2023, there was a backlog of four well drilling and seven pump installation and repair contracts, of which three well drilling and four pump installation and repair contracts were in progress as of September 30, 2023.
The backlog of contract drilling revenues as of December 1, 2023 was approximately $6,800,000, of which $6,300,000 is expected to be realized in fiscal 2024 with the remainder to be recognized in the following fiscal year.
−Removed: Based on these contracts in backlog, contract drilling segment operating results are estimated to be higher in fiscal 2023 as compared to fiscal 2022.
+Added: Based on these contracts in backlog, contract drilling segment operating results for fiscal 2024 is estimated to be relatively similar to fiscal 2023.
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.
1 unchanged sentence
Barnwell and the customer currently have an arrangement where Barnwell will provide for centralizers, armored cabling and a pump installation and removal test to confirm that plumbness is satisfactory.
+Added: The pump installation and removal test was successfully completed.
Barnwell’s management believes the plumbness deviation is not impactful to the performance of the submersible pumps that will be installed in the well.
2 unchanged sentences
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.
−Removed: 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.
+Added: The continuing potential impact of COVID-19 on the health of our contract drilling segment's crew is uncertain, and any work
+Added: 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
−Removed: General and administrative expenses increased $956,000 (13%) to $8,044,000 in fiscal 2022, as compared to $7,088,000 in fiscal 2021.
−Removed: The increase was primarily due to increases of $1,245,000 in professional fees primarily related to legal and consulting services and $65,000 in director fees in the current year period as compared to the same period in the prior year, partially offset by a reduction of $191,000 in pension and post-retirement medical plan costs and $296,000 in stockholder costs related to
−Removed: the cooperation and support agreement executed with the MRMP Stockholders in the prior year period as compared to the current year period.
+Added: General and administrative expenses decreased $1,088,000 (14%) to $6,956,000 in fiscal 2023, as compared to $8,044,000 in fiscal 2022.
+Added: The decrease was primarily due to decreases of $492,000 in share-based compensation expense, $248,000 in bonus expense, $86,000 in bad debt expense, $126,000 in professional fees related to land investment segment proceeds, and $450,000 in fees related to consulting services in the current year period as compared to the same period in the prior year.
+Added: The decrease in general and administrative expenses was partially offset by an increase of $495,000 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.
+Added: In January 2023, the Company entered into a cooperation and support agreement (the “Cooperation Agreement”) with Alexander C.
+Added: Kinzler , the Company’s CEO and President in his capacity as a stockholder , MRMP-Managers LLC, the Ned L.
+Added: Sherwood Revocable Trust, NLS Advisory Group, Inc.
+Added: 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”).
+Added: Pursuant to the terms of the Cooperation Agreement, among other things, the Company agreed to promptly appoint Joshua S.
+Added: Horowitz and Laurance Narbut, effective February 9, 2023, to serve on the Board.
+Added: In addition, the Company agreed to nominate a five-person board comprised of Mr.
+Added: Kinzler, Kenneth Grossman, Douglas Woodrum, and Messrs.
+Added: 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.
+Added: 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.
+Added: Additionally, pursuant to the terms of the Cooperation Agreement, the Company terminated the previously adopted Tax Benefits Preservation Plan.
+Added: In exchange for this arrangement, the Company agreed to reimburse the MRMP Stockholders and Mr.
+Added: 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.
+Added: T he Company incurred approximately $351,000 in expenses under the Cooperation Agreement in the year ended September 30, 2023 with respect to such reimbursements to the MRMP Stockholders and Mr.
+Added: In May 2023, the Company’s Board of Directors approved and ratified the payment of one-time special director fees to directors Messrs.
+Added: 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.
+Added: Grossman received a one-time special director fee of $100,000, which was paid in $40,000 cash 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).
+Added: Woodrum received a one-time special director fee of $50,000, which was paid in $20,000 cash 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).
Depletion, depreciation, and amortization
−Removed: Depletion, depreciation, and amortization increased $1,815,000 (188%) from $963,000 in fiscal 2021 to $2,778,000 in fiscal 2022, primarily due to increases in the depletion rate for Canadian properties and also new production from those properties, both of which were the result of the drilling of new wells, acquisition of additional working interests, and facilities expansion and upgrade costs, all in the Twining area.
−Removed: The increase was also due to increased depletion from production in Oklahoma, whereas there was only a minor amount of such depletion in the prior year period.
+Added: Depletion, depreciation, and amortization increased $1,679,000 (60%) from $2,778,000 in fiscal 2022 to $4,457,000 in fiscal 2023, due to an increase in the depletion rate for Canadian properties and also
+Added: new production from those properties and the depletion attributable to production in Texas, partially offset by a decrease in depletion for Oklahoma properties as discussed in the “Oil and natural gas” section above.
Impairment of assets
−Removed: Under the full cost method of accounting, the Company performs quarterly oil and natural gas ceiling test calculations.
−Removed: There was no ceiling test impairment during the year ended September 30, 2022 and a $630,000 ceiling test impairment during the year ended September 30, 2021.
−Removed: 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.
−Removed: In September 2022, the Company determined that the right-of-use asset related to the operating lease for the Lot 4C leasehold land zoned conservation held by Kaupulehu Developments was fully impaired as of September 30, 2022.
−Removed: As a result, the Company recognized an $89,000 right-of-use asset impairment expense during the year ended September 30, 2022.
+Added: There was no impairment of assets during the year ended September 30, 2023.
+Added: In fiscal 2022, the Company determined that the right-of-use asset related to the operating lease for the Lot 4C leasehold land zoned conservation held by Kaupulehu Developments was fully impaired as of September 30, 2022.
+Added: As a result, the Company recognized an $89,000 right-of-use asset impairment expense in the year ended September 30, 2022.
The operating lease terminates in December 2025.
−Removed: In September 2021, the Company designated a contract drilling segment drilling rig and related ancillary equipment, with an aggregate net carrying value of $725,000, as assets held for sale and recorded an impairment of $38,000 to reduce the value of these assets to its fair value, less estimated selling costs.
−Removed: The impairment expense was included in the “Impairment of assets” line item in the accompanying Consolidated Statements of Operations for the year ended September 30, 2021.
−Removed: Foreign currency loss
−Removed: Foreign currency loss was $484,000 during the year ended September 30, 2022, as compared to none during the year ended September 30, 2021 due to the effects of foreign exchange rate changes on intercompany loans and advances as a result of the strengthening of the U.S.
+Added: Foreign currency (gain) loss
+Added: Foreign currency gain was $76,000 during the year ended September 30, 2023, as compared to a foreign currency loss of $484,000 during the year ended September 30, 2022 due to the effects of foreign exchange rate changes on intercompany loans and advances as a result of the weakening of the U.S.
dollar against the Canadian dollar.
−Removed: The foreign currency loss from intercompany balances was included in our consolidated net earnings as the intercompany balances were not considered long-term in nature because management estimates that these intercompany balances will be settled in the future.
−Removed: Gain on termination of Post-Retirement Medical plan
−Removed: 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
−Removed: of Vice President or higher, their spouses and qualifying dependents, effective June 4, 2021.
−Removed: The Post-retirement Medical plan was an unfunded plan and the Company funded benefits when payments were made.
−Removed: As result of the plan termination, the Company recognized a non-cash gain of $2,341,000 during the year ended September 30, 2021.
+Added: The foreign currency gains and losses from intercompany balances are included in our consolidated statement of operations as the intercompany balances were not considered long-term in nature because management estimates that these intercompany balances will be settled in the future.
Gain on sale of assets
−Removed: In July 2021, Barnwell 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.
−Removed: 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.
−Removed: Income taxes were withheld by the buyers from Barnwell's net proceeds for potential amounts due to the Canada Revenue Agency related to the sale, and the amount was subsequently refunded to Barnwell in fiscal 2022.
−Removed: The difference in the relationship between capitalized costs and proved reserves of the Spirit River properties sold, as compared to the properties retained by Barnwell, was significant as there was a 93% difference in capitalized costs divided by proved reserves if the gain was recorded versus the gain being credited against the full-cost pool.
−Removed: Accordingly, Barnwell recorded a gain on the sale of Spirit River of $818,000 in the year ended September 30, 2021 in accordance with the guidance in Rule 4-10(c)(6)(i) of Regulation S-X of the rules and regulations of the SEC, which requires an allocation of capitalized costs to the reserves sold and reserves retained on the basis of the relative fair values of the properties as there was a substantial economic difference between the properties sold and those retained.
−Removed: Also included in the gain calculation were asset retirement obligations of $77,000 assumed by the purchaser.
−Removed: In September 2021, the Company’s Honolulu corporate office was sold for approximately $1,864,000, net of related costs, resulting in a gain of $1,164,000, which was recognized in the year ended September 30, 2021.
+Added: In October 2022, the Company completed the sale of a contract drilling segment drilling rig to an independent third party for proceeds of $551,000, net of related costs.
+Added: 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 year ended September 30, 2023.
Equity in income of affiliates
1 unchanged sentence
Barnwell recognized equity in income of affiliates of $758,000 for the year ended September 30, 2023, as compared to equity in income of affiliates of $3,400,000 for the year ended September 30, 2022.
−Removed: The decrease in partnership income is primarily due to the Kukio Resort Land Development Partnerships' sale of eight lots during the prior year period, as compared to six lot sales in the current year period, and $459,000 in preferred return payments received from KKM in the prior year period as compared to none in the current year period.
+Added: 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.
During the year ended September 30, 2023, Barnwell received cash distributions of $758,000 from the Kukio Resort Land Development Partnership resulting in a net amount of $674,000, after distributing $84,000 to non-controlling interests.
−Removed: During the year ended September 30, 2021, Barnwell received net cash distributions in the amount of $6,011,000 from the Kukio Resort Land Development Partnerships after distributing $683,000 to non-controlling interests.
−Removed: Of the $6,011,000 net cash distribution received from the Kukio Resort Land Development Partnerships, $459,000 represented a payment of the preferred return from KKM, as discussed in Note 3 of the Notes to Consolidated Financial Statements.
−Removed: 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.
−Removed: 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.
+Added: During the year ended September 30, 2022, Barnwell received cash distributions of $3,400,000 from the Kukio Resort Land Development Partnership resulting in a net amount of $3,028,000, after distributing $372,000 to non-controlling interests.
+Added: 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
+Added: 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.
+Added: 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 year ended September 30, 2023 was equivalent to the $758,000 of distributions received in that period.
Cumulative distributions received from the Kukio Resort Land Development Partnerships in excess of our investment balance was $708,000 at September 30, 2023 and $958,000 at September 30, 2022.
−Removed: In November 2022, Barnwell received a net cash distribution in the amount of $478,000 from the Kukio Resort Land Development Partnerships.
−Removed: Financial results from this distribution will be reflected in Barnwell's first quarter of fiscal 2023 ending December 31, 2022.
−Removed: Additionally, in November 2022, Kaupulehu Developments received a percentage of sales payment of $265,000 from the sale of one lot within Increment I.
−Removed: Financial results from the receipt of this payment will be reflected in Barnwell's first quarter of fiscal 2023 ending December 31, 2022.
−Removed: Accordingly, with the inclusion of the lot sale subsequent to September 30, 2022, one single-family lot of the 80 lots developed within Increment I remained to be sold as of the date of this report.
−Removed: 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.
−Removed: No definitive development plans have been made by the developer of Increment II as of the date of this report.
−Removed: The components of earnings before income taxes, after adjusting the earnings for non-controlling interests, are as follows:
+Added: The components of (loss) earnings before income taxes, after adjusting the (loss) earnings for non-controlling interests, are as follows:
Year ended September 30,
2 unchanged sentences
$ (1,014,000) $ 5,860,000
−Removed: Barnwell’s effective consolidated income tax rate for fiscal 2022, after adjusting earnings before income taxes for non-controlling interests, was 6% as compared to 5% for fiscal 2021.
+Added: Barnwell’s effective consolidated income tax benefit rate for fiscal 2023, after adjusting loss before income taxes for non-controlling interests, was 5%, as compared to an effective consolidated income tax rate of 6% for fiscal 2022.
Consolidated taxes do not bear a customary relationship to pretax results due primarily to the fact that the Company is taxed separately in Canada based on Canadian source operations and in the U.S.
based on consolidated operations, and essentially all deferred tax assets, net of relevant offsetting deferred tax liabilities, are not estimated to have a future benefit as tax credits or deductions.
+Added: The Company operates two subsidiaries in Canada, one of which is a U.S.
+Added: corporation operating as a branch in Canada that is treated as a non-resident for Canadian tax purposes and thus has operating results that cannot be offset against or combined with the other Canadian subsidiary that files as a resident for Canadian tax purposes.
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.
−Removed: 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.
−Removed: 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.
−Removed: federal and Canadian jurisdictions.
+Added: Income from our investment in the Oklahoma oil venture is 100% allocable to Oklahoma.
+Added: As such, Barnwell receives no benefit from consolidated or unitary losses and, therefore, is subject to Oklahoma state taxes.
+Added: Consolidated taxes also include the impacts of favorable state jurisdiction provision to tax return true-ups.
+Added: Our operations in Texas are subject to a franchise tax assessed by the state of Texas, however no significant amounts have been incurred to date.
+Added: In addition, Canadian jurisdiction net operating loss carryforwards, the benefit of which had not previously been recognized due to the Company's continuing full valuation allowance, were partially utilized in that jurisdiction in the current year.
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.
1 unchanged sentence
federal income tax returns for fiscal years 2019, 2020 and 2021.
−Removed: The Company is in the process of amending its U.S.
−Removed: federal tax returns to include Form 8858 and plans to request abatement of the potential penalties and interest.
−Removed: There was no such expense included in the current income tax provision for the year ended September 30, 2021.
−Removed: On June 28, 2019, the Government of Alberta reduced its corporate income tax rate from 12% to 11%, effective July 1, 2019, with further reductions in the rate by 1% on January 1 of every year until it reaches 8% on January 1, 2022.
−Removed: On June 29, 2020, the Government of Alberta introduced Alberta’s Recovery Plan which will, among other things, reduce Alberta’s general corporate income tax rate to 8% (from 10%) effective July 1, 2020.
−Removed: This reduction was enacted in the quarter ended December 31, 2020.
−Removed: Canadian deferred tax assets and liabilities have been measured using the enacted tax rates in effect for the year in which the differences are expected to reverse.
−Removed: Alberta rate changes had no significant impact to earnings/loss as a result of a full valuation allowance being applied to Canadian deferred tax assets.
+Added: The Company prepared amended U.S.
+Added: federal tax returns for each of these years to include Form 8858 and a statement of reasonable cause.
+Added: The amended returns were filed in September and October 2023 and the Company requested abatement of any potential penalties and interest which could subsequently be assessed.
+Added: The Company is awaiting a response from the IRS and the probability of success of the abatement request remains uncertain.
+Added: No additional expenses related to the potential penalties and interest were included in the current income tax provision for the year ended September 30, 2023.
Net earnings attributable to non-controlling interests
12 unchanged sentences
The FASB has subsequently issued other related ASUs which amend ASU 2016-13 to provide clarification and additional guidance.
−Removed: The Company is currently evaluating the impact of these standards.
+Added: The adoption of this update is not expected to have a material impact on Barnwell’s consolidated financial statements.
Liquidity and Capital Resources
Barnwell’s primary sources of liquidity are cash on hand, cash flow generated by operations, and land investment segment proceeds.
−Removed: Prior to the suspension of the at-the-market offering program (“ATM”) in August 2022, the Company received $2,356,000 in net proceeds from the shares of common stock sold under the ATM in fiscal 2022.
At September 30, 2023, Barnwell had $2,487,000 in working capital.
Cash flows provided by operating activities totaled $1,943,000 for fiscal 2023, as compared to cash flows provided by operating activities of $7,291,000 for the same period in fiscal 2022.
−Removed: This $6,460,000 change in operating cash flows was primarily due to significantly higher operating results for the oil and natural gas segment, which was partially offset by lower operating results for the contract drilling segment and a decrease in distributions from the Kukio Resort Land Development Partnerships in the current year period as compared to the prior year period.
−Removed: The change was also due to fluctuations in working capital.
−Removed: Cash flows used in investing activities totaled $7,112,000 for fiscal 2022, as compared to cash flows provided by investing activities of $3,686,000 for fiscal 2021.
−Removed: This $10,798,000 change in investing cash flows was primarily due to an increase of $1,215,000 in payments to acquire oil and natural gas properties, an increase of $7,084,000 in cash paid for oil and natural gas capital expenditures, a decrease of $1,419,000 received in distributions from equity investees in excess of earnings, and a net decrease of $1,177,000 in proceeds from the sale of assets in the current year period as compared to same period in the prior year.
−Removed: Cash flows provided by financing activities totaled $1,560,000 for fiscal 2022, as compared to cash flows provided by financing activities of $2,192,000 for fiscal 2021.
−Removed: The $632,000 change in financing cash flows was primarily attributed to a decrease of $823,000 in proceeds from issuance of stock, net of costs, related to the Company's ATM offering, a $149,000 increase in dividend payments, and a decrease of $387,000 in distributions to non-controlling interests in the current year period as compared to the same period in the prior year.
−Removed: Cash Dividend
−Removed: In August 2022, the Company's Board of Directors declared a cash dividend of $0.015 per share that was paid on September 6, 2022 to stockholders of record on August 23, 2022.
+Added: This $5,348,000 change in operating cash flows was due to significantly lower operating results for the oil and
+Added: natural gas segment in the current year period as compared to the prior year period.
+Added: 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.
+Added: Cash flows used in investing activities totaled $11,180,000 for fiscal 2023, as compared to cash flows used in investing activities of $7,112,000 for fiscal 2022.
+Added: This $4,068,000 change in investing cash flows was due to an increase of $2,697,000 in cash paid for oil and natural gas capital expenditures, a decrease of $904,000 in proceeds from the sale of interest in leasehold land, net of costs paid, and a decrease of $1,741,000 in proceeds related to the sale of assets in the current year period as compared to same period in the prior year, partially offset by a $1,563,000 decrease in payments to acquire oil and natural gas properties in the current year period as compared to the same period in the prior year.
+Added: Cash flows used in financing activities totaled $786,000 for fiscal 2023, as compared to cash flows provided by financing activities of $1,560,000 for fiscal 2022.
+Added: The $2,346,000 change in financing cash flows was due to a $450,000 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 at-the-market offering in the prior year period, partially offset by a $490,000 decrease in distributions to non-controlling interests in the current year period as compared to the same period in the prior year.
+Added: Cash Dividends
+Added: The following table sets forth the cash dividends paid per share of common stock during fiscal 2023 and 2022.
+Added: Record Date Date of Payment Dividend Paid
+Added: August 24, 2023 September 11, 2023 $0.015
+Added: May 25, 2023 June 12, 2023 $0.015
+Added: February 23, 2023 March 13, 2023 $0.015
+Added: December 27, 2022 January 11, 2023 $0.015
+Added: August 23, 2022 September 6, 2022 $0.015
Canada Emergency Business Account Loan
−Removed: 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.
+Added: In the quarter ended December 31, 2020, the Company’s Canadian subsidiary, Barnwell of Canada, received an interest-free 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 ($45,000) under the program.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Paycheck Protection Program Loan
−Removed: In April 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.
−Removed: 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.
−Removed: 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.
−Removed: As a result of the loan forgiveness, the Company recognized a gain on debt extinguishment of $149,000 during the year ended September 30, 2021.
+Added: The CEBA loan was interest-free with no principal payments required until December 31, 2023 and if the Company repaid 66.7% of the principal amount prior to December 31, 2023, 33.3% of the loan would be forgiven.
+Added: In September 2023, the Company repaid the loan balance of CAD$40,000 and the remaining loan balance of CAD$20,000 was forgiven per the terms of the CEBA loan agreement.
+Added: Accordingly, as a result of the loan forgiveness, the Company recognized a gain on debt extinguishment of $15,000 during the year ended September 30, 2023, which was included in the “Gas processing and other” line item in the accompanying Consolidated Statements of Operations.
At The Market Offering
−Removed: 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.
+Added: 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.
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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During the year ended September 30, 2022, the Company sold 509,467 shares of common stock resulting in net proceeds of $2,356,000 after commissions and fees of $75,000 and ATM-related professional services of $22,000.
−Removed: During the year ended September 30, 2021, the Company sold 1,167,987 shares of common stock resulting in net proceeds of $3,179,000 after commissions and fees of $123,000 and ATM-related professional services of $605,000.
−Removed: As of September 30, 2022, the Company has received $5,535,000 in cumulative net proceeds from the shares sold under the ATM program.
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
−Removed: Barnwell’s oil and natural gas capital expenditures, including accrued capital expenditures and acquisitions of oil and natural gas properties and excluding additions and revisions to estimated asset retirement obligations, increased $8,835,000 from $2,217,000 in fiscal 2021 to $11,052,000 in fiscal 2022.
−Removed: The Company participated in the drilling of six gross (1.7 net) non-operated wells in the Twining area during the year ended September 30, 2022.
+Added: Barnwell’s oil and natural gas capital expenditures, including accrued capital expenditures and acquisitions of oil and natural gas properties and excluding additions and revisions to estimated asset retirement obligations, decreased $323,000 from $11,052,000 in fiscal 2022 to $10,729,000 in fiscal 2023.
+Added: 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.
+Added: 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 has paid $4,293,000 for its share of the costs to drill, complete and equip the wells during the year ended September 30, 2023.
+Added: The two gross (0.3 net) non-operated wells began producing in late April 2023 and the Company’s share of net production from these wells totaled 12,000 barrels of oil, 12,000 barrels of natural gas liquids, and 121,000 Mcf of natural gas during the year ended September 30, 2023.
+Added: In the quarter 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.
+Added: All three wells were completed and began producing during the latter part of the three months ended June 30, 2023.
+Added: Capital expenditures incurred for the drilling of these wells and Twining facilities during the year ended September 30, 2023 totaled approximately $4,770,000.
+Added: In fiscal 2022, the Company participated in the drilling of six gross (1.7 net) non-operated wells in the Twining area.
Capital expenditures incurred by the Company for these non-operated wells totaled $4,366,000 for the year ended September 30, 2022.
−Removed: Five gross (1.4 net) wells were producing at September 30, 2022 and the remaining one gross (0.3 net) well is awaiting tie in and is expected to produce in fiscal 2023.
−Removed: The Company drilled one gross (1.0 net) operated well in the Twining area which was producing at September 30, 2022.
−Removed: Capital expenditures incurred by the Company for this operated well was $2,852,000.
−Removed: The Company did not drill or participate in the drilling of wells in Canada during the year ended September 30, 2021.
−Removed: The Company did not drill or participate in the drilling of wells in Oklahoma during the year ended September 30, 2022.
−Removed: In fiscal 2021, the Company participated in the drilling of seven gross (0.2 net) non-operated wells in Oklahoma.
−Removed: Capital expenditures incurred by the Company for these Oklahoma wells totaled $1,178,000 for the year ended September 30, 2021.
+Added: Additionally, the Company drilled one gross (1.0 net)
+Added: operated well in the Twining area and capital expenditures incurred by the Company for this well was $2,852,000 for the year ended September 30, 2022.
Oil and Natural Gas Property Acquisitions and Dispositions
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.
−Removed: 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.
+Added: In the quarter ended March 31, 2022, Barnwell acquired additional working interests in oil and natural gas properties located in the Twining area of Alberta, Canada for consideration of $1,246,000.
The purchase price per the agreement was adjusted for customary purchase price adjustments to reflect the economic activity from the effective date to the closing date.
−Removed: 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.
Barnwell also assumed $1,500,000 in asset retirement obligations associated with the acquisition.
−Removed: In April 2021, Barnwell acquired additional working interests in oil and natural gas properties located in the Twining area of Alberta, Canada for cash consideration of $348,000.
−Removed: 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.
There were no significant oil and natural gas property dispositions during the year ended September 30, 2022.
−Removed: The $503,000 of proceeds from sale of oil and natural gas properties included in the Consolidated Statement of Cash Flows for the year ended September 30, 2022 primarily represents the
−Removed: refund of income taxes previously withheld from what otherwise would have been proceeds on prior year's oil and natural gas property sales.
−Removed: In April 2021, Barnwell entered into a purchase and sale agreement with an independent third party and sold its interests in properties located in the Hillsdown area of Alberta, Canada.
−Removed: 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.
−Removed: $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.
−Removed: 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.
−Removed: In July 2021, Barnwell 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.
−Removed: 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.
−Removed: Income taxes were withheld by the buyers from Barnwell's net proceeds for potential amounts due to the Canada Revenue Agency related to the sale, and the amount was subsequently refunded to Barnwell in fiscal 2022.
−Removed: The difference in the relationship between capitalized costs and proved reserves of the Spirit River properties sold, as compared to the properties retained by Barnwell, was significant as there was a 93% difference in capitalized costs divided by proved reserves if the gain was recorded versus the gain being credited against the full-cost pool.
−Removed: Accordingly, Barnwell recorded a gain on the sale of Spirit River of $818,000 in the year ended September 30, 2021 in accordance with the guidance in Rule 4-10(c)(6)(i) of Regulation S-X of the rules and regulations of the SEC, which requires an allocation of capitalized costs to the reserves sold and reserves retained on the basis of the relative fair values of the properties as there was a substantial economic difference between the properties sold and those retained.
−Removed: Also included in the gain calculation were asset retirement obligations of $77,000 assumed by the purchaser.
+Added: The $503,000 of proceeds from sale of oil and natural gas properties included in the Consolidated Statement of Cash Flows for the year ended September 30, 2022 primarily represents the refund of income taxes previously withheld from what otherwise would have been proceeds on fiscal 2021’s oil and natural gas property sales.
Asset Retirement Obligation
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The estimated asset retirement obligation for the Company's interest in the wells and facilities in the Manyberries area is included in “Asset retirement obligation” in the Consolidated Balance Sheets.
−Removed: Recently, the OWA created a WIP program for specific areas where there are a significant number of orphaned wells to abandon.
+Added: After the abandonment/closure order was issued for Manyberries, the OWA created a WIP program for specific areas where there are a significant number of orphaned wells to abandon.
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.
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In March 2021, the Company was notified by the OWA that Barnwell’s Manyberries wells were confirmed to be in the WIP program.
−Removed: Under the new agreement with the OWA, the Company is required to pay the abandonment and reclamation costs in advance through a cash deposit.
−Removed: The total cash deposit amount was calculated to be approximately $1,525,000 and the Company paid $888,000 of the total deposit in July and August 2021 and will need to pay the remaining balance of $637,000 by August 2023.
−Removed: The Company revised its
−Removed: Manyberries ARO liability based on the OWA’s revised abandonment and reclamation estimates, which resulted in an increase of approximately $213,000 in the year ended September 30, 2021.
−Removed: The increase in the ARO liability was a result of higher reclamation and remediation costs than anticipated, partially offset by lower abandonment estimates.
+Added: Under the agreement with the OWA, the Company is required to pay the abandonment and reclamation costs in advance through a cash deposit.
+Added: The total cash deposit amount was calculated to be approximately $1,525,000 and the Company paid $888,000 of the total deposit in July and August 2021 and may need to pay the remaining balance of $637,000 by August 2024.
+Added: The Company revised its Manyberries ARO liability based on the OWA’s revised abandonment and reclamation 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.
−Removed: A remaining excess deposit, if any, would ultimately be refunded to the Company upon completion of all of the work.
−Removed: As of September 30, 2022, the Company recognized a cumulative reduction in the deposit balance of $113,000 for work performed under this program.
+Added: A remaining excess deposit, if any, would ultimately be refunded to
+Added: the Company upon completion of all of the work.
+Added: As at September 30, 2023, the Company recognized a cumulative reduction in the deposit balance of $300,000 for work performed under this program.
Contractual Obligations
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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.