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Item 8. Financial Statements and Supplementary Data

2023-12-18 compared with 2022-12-29 · 306 added, 338 removed, 1187 unchanged (35% of the section changed)

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We have audited the accompanying consolidated balance sheets of Barnwell Industries, Inc.

and subsidiaries (the Company) as of September 30, 2022 and 2021, and the related consolidated statements of operations, comprehensive income (loss), equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

and subsidiaries (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 then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

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(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters

does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by

communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Estimation of proved reserves impacting the recognition and valuation of depletion expense and impairment of oil and gas properties

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Income taxes receivable 16,000 —

Assets held for sale — 687,000

Other current assets 2,993,000 2,932,000

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Operating lease right-of-use assets 54,000 132,000

Oil and natural gas properties, full cost method of accounting:

Proved properties, net 13,232,000 2,423,000

Unproved properties — 962,000

Total oil and natural gas properties, net 13,232,000 3,385,000

Property and equipment:

Proved oil and natural gas properties, net (full cost method) 21,302,000 13,232,000

Drilling rigs and other property and equipment, net 509,000 369,000

Total property and equipment, net 21,811,000 13,601,000

Total assets $ 35,421,000 $ 37,215,000

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Impairment of assets — 89,000

Foreign currency loss 484,000 —

Foreign currency (gain) loss ( 76,000 ) 484,000

Interest expense 2,000 1,000

Gain on debt extinguishment — ( 149,000 )

Gain on termination of post-retirement medical plan — ( 2,341,000 )

Gain on sale of assets ( 551,000 ) —

26,891,000 25,426,000

Earnings before equity in income of affiliates and income taxes 3,119,000 1,742,000

(Loss) earnings before equity in income of affiliates and income taxes ( 1,622,000 ) 3,119,000

Equity in income of affiliates 758,000 3,400,000

Earnings before income taxes 6,519,000 7,535,000

Income tax provision 347,000 332,000

Net earnings 6,172,000 7,203,000

(Loss) earnings before income taxes ( 864,000 ) 6,519,000

Income tax (benefit) provision ( 53,000 ) 347,000

Net (loss) earnings ( 811,000 ) 6,172,000

Net earnings attributable to non-controlling interests 150,000 659,000

Net earnings attributable to Barnwell Industries, Inc.

Net (loss) earnings attributable to Barnwell Industries, Inc.

stockholders $ ( 961,000 ) $ 5,513,000

Basic net earnings per common share

Basic net (loss) earnings per common share

attributable to Barnwell Industries, Inc.

stockholders $ ( 0.10 ) $ 0.57

Diluted net earnings per common share

Diluted net (loss) earnings per common share

attributable to Barnwell Industries, Inc.

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Year ended September 30,

Net earnings $ 6,172,000 $ 7,203,000

Net (loss) earnings $ ( 811,000 ) $ 6,172,000

Other comprehensive (loss) income:

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Retirement plans:

Amortization of accumulated other comprehensive loss into net periodic benefit cost, net of taxes of $ 0

Amortization of accumulated other comprehensive gain into net periodic benefit cost, net of taxes of $ 0

Net actuarial gain arising during the period, net of taxes of $ 0

891,000 1,302,000

Gain on termination of post-retirement medical plan, net of taxes of $ 0

Total other comprehensive income 810,000 1,262,000

Total comprehensive income 7,434,000 8,670,000

Total comprehensive (loss) income ( 1,000 ) 7,434,000

Comprehensive income attributable to non-controlling interests ( 150,000 ) ( 659,000 )

Comprehensive income attributable to Barnwell Industries, Inc.

Comprehensive (loss) income attributable to Barnwell Industries, Inc.

$ ( 151,000 ) $ 6,775,000

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Capital Retained

Earnings (Accumulated Deficit) Accumulated

Comprehensive Income (Loss) Treasury

Earnings Accumulated

Comprehensive Income Treasury

Stock Non-controlling

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Issuance of common stock for services 1,595 — 3,000 — — — — 3,000

Retirement plans:

Amortization of accumulated other comprehensive loss into net periodic benefit cost, net of taxes of $ 0

Dividends declared, $ 0.015 per share

— — — ( 149,000 ) — — — ( 149,000 )

Retirement plans:

Net actuarial gain arising during the period, net of taxes of $ 0

— — — — 1,302,000 — — 1,302,000

Gain on termination of post-retirement medical plan, net of taxes of $ 0

— — — — 541,000 — — 541,000

Balance at September 30, 2022 9,956,687 5,062,000 7,351,000 7,720,000 1,294,000 ( 2,286,000 ) 20,000 19,161,000

Net earnings — — — 5,513,000 — — 659,000 6,172,000

Net (loss) earnings — — — ( 961,000 ) — — 150,000 ( 811,000 )

Foreign currency translation adjustments, net of taxes of $ 0

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Share-based compensation — — 263,000 — — — — 263,000

Issuance of common stock, net of costs 509,467 255,000 2,101,000 — — — — 2,356,000

Issuance of common stock for services 34,091 17,000 73,000 — — — — 90,000

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Retirement plans:

Amortization of accumulated other comprehensive gain into net periodic benefit cost, net of taxes of $ 0

— — — — ( 79,000 ) — — ( 79,000 )

Net actuarial gain arising during the period, net of taxes of $ 0

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Cash flows from operating activities:

Net earnings $ 6,172,000 $ 7,203,000

Adjustments to reconcile net earnings to net cash provided by operating activities:

Net (loss) earnings $ ( 811,000 ) $ 6,172,000

Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:

Equity in income of affiliates ( 758,000 ) ( 3,400,000 )

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Impairment of assets — 89,000

Gain on sale of oil and natural gas properties — ( 818,000 )

Gain on sale of other assets — ( 1,164,000 )

Gain on sale of assets ( 551,000 ) —

Sale of interest in leasehold land, net of fees paid ( 233,000 ) ( 1,137,000 )

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Accretion of asset retirement obligation 808,000 767,000

Deferred income tax (benefit) expense ( 171,000 ) 165,000

Deferred income tax benefit ( 130,000 ) ( 171,000 )

Asset retirement obligation payments ( 1,005,000 ) ( 942,000 )

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Bad debt expense 38,000 124,000

Foreign currency loss 484,000 —

Foreign currency (gain) loss ( 76,000 ) 484,000

Gain on debt extinguishment ( 15,000 ) —

Gain on termination of post-retirement medical plan — ( 2,341,000 )

Decrease from changes in current assets and liabilities ( 393,000 ) ( 1,027,000 )

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Proceeds from sale of oil and natural gas assets — 503,000

Proceeds from sale of contract drilling and other assets, net of closing costs 687,000 1,864,000

Proceeds from sale of contract drilling assets — 687,000

Deposit for sale of contract drilling asset — 551,000

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Capital expenditures - all other ( 328,000 ) ( 50,000 )

Net cash (used in) provided by investing activities ( 7,112,000 ) 3,686,000

Net cash used in investing activities ( 11,180,000 ) ( 7,112,000 )

Cash flows from financing activities:

Borrowings on long-term debt — 47,000

Repayment of long-term debt

Distributions to non-controlling interests ( 157,000 ) ( 647,000 )

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Payment of dividends ( 599,000 ) ( 149,000 )

Net cash provided by financing activities 1,560,000 2,192,000

Net cash (used in) provided by financing activities ( 786,000 ) 1,560,000

Effect of exchange rate changes on cash and cash equivalents 49,000 ( 214,000 )

Net increase in cash and cash equivalents 1,525,000 6,695,000

Net (decrease) increase in cash and cash equivalents

( 9,974,000 ) 1,525,000

Cash and cash equivalents at beginning of year 12,804,000 11,279,000

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Barnwell is engaged in the following lines of business:

1) acquiring, developing, producing and selling oil and natural gas in Canada and Oklahoma, 2) investing in land interests in Hawaii, and 3) drilling wells and installing and repairing water pumping systems in Hawaii.

1) acquiring, developing, producing and selling oil and natural gas in Canada and the U.S., 2) investing in land interests in Hawaii, and 3) drilling wells and installing and repairing water pumping systems in Hawaii.

Principles of Consolidation

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Actual results could differ significantly from those estimates.

Significant assumptions are required in the valuation of deferred tax assets, asset retirement obligations, share-based payment arrangements, obligations for retirement plans, contract drilling estimated costs to complete, proved oil and natural gas reserves, and the carrying value of other assets, and such assumptions may impact the amount at which such items are recorded.

Significant assumptions are required in the valuation of deferred tax assets, asset retirement obligations, contract drilling estimated costs to complete, and proved oil and natural gas reserves, and such assumptions may impact the amount at which such items are recorded.

Reclassifications

Certain reclassifications of prior period amounts have been made in the Notes to Consolidated Financial Statements to conform to the current period presentations.

Certain reclassifications of prior period amounts have been made in Note 9 to conform to the current period presentations.

These reclassifications had no effect on previously reported net earnings, cash flows, total assets, or stockholders' equity.

Revenue Recognition

Barnwell operates in and derives revenue from the following three principal business segments:

• Oil and Natural Gas Segment - Barnwell engages in oil and natural gas development, production, acquisitions and sales in Canada and Oklahoma.

• Oil and Natural Gas Segment - Barnwell engages in oil and natural gas development, production, acquisitions and sales in Canada and the U.S.

• Land Investment Segment - Barnwell invests in land interests in Hawaii.

• Contract Drilling Segment - Barnwell provides well drilling services and water pumping system installation and repairs in Hawaii.

Oil and Natural Gas - Barnwell’s investments in oil and natural gas properties are located in Alberta, Canada and Oklahoma.

Oil and Natural Gas - Barnwell’s investments in oil and natural gas properties are located in Alberta, Canada, Oklahoma, and Texas.

These property interests are principally held under governmental leases or licenses.

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Share-based Compensation

Share-based compensation cost is measured at fair value.

Barnwell utilizes a closed-form valuation model to determine the fair value of each option award.

Share-based compensation cost for Barnwell’s equity-classified stock options, restricted stock units, and common stock issued for services is measured at fair value and is recognized as an expense over the requisite service period.

For stock options, Barnwell utilizes a closed-form valuation model to determine the fair value of each option award.

Expected volatilities are based on the historical volatility of Barnwell’s stock over a period consistent with that of the expected terms of the options.

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Expected dividends are based on historical dividend payments.

For restricted stock units, Barnwell utilizes the closing market price of the Company’s common stock on the grant date reduced by the present value of the dividends expected to be paid on the underlying shares of common stock during the requisite service period (as these awards are not entitled to receive dividends until vested) to determine the fair value of each restricted stock unit award.

For common stock issued for services, Barnwell utilizes the closing market price of the Company’s common stock on the grant date to determine the fair value of the common stock issued for services.

The Company's policy is to recognize forfeitures as they occur.

Retirement Plans

Barnwell accounts for its defined benefit pension plan, Supplemental Executive Retirement Plan, and post-retirement medical insurance benefits plan, which was terminated in June 2021, by recognizing the over-funded or under-funded status as an asset or liability in its Consolidated Balance Sheets and recognizes changes in that funded status in the year in which the changes occur through comprehensive income.

Barnwell accounts for its defined benefit pension plan and Supplemental Executive Retirement Plan by recognizing the over-funded or under-funded status as an asset or liability in its Consolidated Balance Sheets and recognizes changes in that funded status in the year in which the changes occur through comprehensive income.

See further discussion at Note 8.

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At the end of each year, Barnwell determines the discount rate to be used to calculate the present value of plan liabilities and the net periodic benefit cost.

The discount rate is an estimate of the current

interest rate at which the retirement plan liabilities could be effectively settled at the end of the year.

The discount rate is an estimate of the current interest rate at which the retirement plan liabilities could be effectively settled at the end of the year.

In estimating this rate, Barnwell performs a cash-flow matching discount rate analysis developed using high-quality corporate bonds yield.

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Interest and penalties related to uncertain tax positions are included in income tax expense.

Our operations in Texas are subject to a franchise tax assessed by the state of Texas which is presented as income tax expense.

Environmental

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Operating results of foreign subsidiaries are translated at average exchange rates during the period.

Translation adjustments have no effect on net income and are included in “Accumulated other comprehensive income, net” in stockholders’ equity.

Translation adjustments have no effect on net income and are included in “Accumulated other comprehensive income, net” in the accompanying Consolidated Balance Sheets.

Foreign currency gains or losses on intercompany loans and advances that are not considered long-term investments in nature because management intends to settle these intercompany balances in the future are included in our statements of operations.

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Unobservable inputs for the financial asset or liability and have the lowest priority.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No.

2019-12, “Income Taxes (Topic 740):

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

The Company adopted the provisions of this ASU effective October 1, 2021.

The adoption of this update did not have an impact on Barnwell's consolidated financial statements.

EARNINGS PER COMMON SHARE

Basic earnings per share is computed using the weighted-average number of common shares outstanding for the period.

Diluted earnings per share is calculated using the treasury stock method to reflect the assumed issuance of common shares for all potentially dilutive securities, which consist of outstanding stock options.

Potentially dilutive shares are excluded from the computation of diluted earnings per share if their effect is anti-dilutive.

Options to purchase 615,000 shares were excluded from the computation of diluted shares for the years ended September 30, 2022 and 2021, as their inclusion would have been anti-dilutive.

Reconciliations between net earnings attributable to Barnwell stockholders and common shares outstanding of the basic and diluted net earnings per share computations are detailed in the following tables:

(LOSS) EARNINGS PER COMMON SHARE

Basic (loss) earnings per share is computed using the weighted-average number of common shares outstanding for the period.

Diluted (loss) earnings per share is calculated using the treasury stock method to reflect the assumed issuance of common shares for all potentially dilutive securities, which consist of outstanding stock options and nonvested restricted stock units.

Potentially dilutive shares are excluded from the computation of diluted (loss) earnings per share if their effect is anti-dilutive.

Options to purchase 546,781 shares of common stock and 18,605 restricted stock units were excluded from the computation of diluted shares for the year ended September 30, 2023, as their inclusion would have been anti-dilutive.

Options to purchase 615,000 shares were excluded from the computation of diluted shares for the year ended September 30, 2022, as their inclusion would have been anti-dilutive.

Reconciliations between net (loss) earnings attributable to Barnwell stockholders and common shares outstanding of the basic and diluted net (loss) earnings per share computations are detailed in the following tables:

Year ended September 30, 2023

Net Earnings Shares Per-Share

Net Loss Shares Per-Share

(Numerator) (Denominator) Amount

Basic net earnings per share $ 5,513,000 9,732,936 $ 0.57

Effect of dilutive securities - common stock options — —

Diluted net earnings per share $ 5,513,000 9,732,936 $ 0.57

Basic net loss

$ ( 961,000 ) 9,969,856 $ ( 0.10 )

Effect of dilutive securities - common stock options and restricted stock units — —

Diluted net loss

$ ( 961,000 ) 9,969,856 $ ( 0.10 )

Year ended September 30, 2022

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(Numerator) (Denominator) Amount

Basic net earnings per share $ 6,253,000 8,592,154 $ 0.73

Basic net earnings

$ 5,513,000 9,732,936 $ 0.57

Effect of dilutive securities - common stock options — —

Diluted net earnings per share $ 6,253,000 8,592,154 $ 0.73

Diluted net earnings

$ 5,513,000 9,732,936 $ 0.57

Investment in Kukio Resort Land Development Partnerships

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Barnwell's ownership interests in the Kukio Resort Land Development Partnerships is accounted for using the equity method of accounting.

The partnerships derive income from the sale of residential parcels, of which two lots, one being a large lot that is now a consolidation of two previous separate lots and one being an original size lot, remain to be sold at Increment I as of September 30, 2022, as well as from commissions on real estate sales by the real estate sales office and revenues resulting from the sale of private club memberships.

Two ocean front parcels approximately two to three acres in size fronting the ocean were developed within Increment II by KD II, of which one was sold in fiscal 2017 and one was sold in fiscal 2016.

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

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

In March 2019, KD II admitted a new development partner, Replay, a party unrelated to Barnwell, in an effort to move forward with development of the remainder of Increment II at Kaupulehu.

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Barnwell continues to have an indirect 19.6 % non-controlling ownership interest in KD Kukio Resorts, KD Maniniowali, and KD I.

The partnerships derive income from the sale of residential parcels in Increment I, of which only two lots remain to be sold as of September 30, 2023, as well as from commissions on real estate sales by the real estate sales office and revenues resulting from the sale of private club memberships.

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

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

Barnwell has the right to receive distributions from the Kukio Resort Land Development Partnerships via its non-controlling interests in KD Kona and KKM, based on its respective partnership sharing ratios of 75 % and 34.45 %, respectively.

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

Cumulative distributions from the Kukio Resort Land Development Partnerships reached the $ 45,000,000 threshold, and accordingly, Barnwell received a total of $ 459,000 in preferred return payments in the year ended September 30, 2021.

The payments were reflected as an additional equity pickup in the "Equity in income of affiliates" line item on the accompanying Consolidated Statement of Operations for the year ended September 30, 2021.

Those preferred return payments brought the cumulative preferred return total to $ 656,000 , which was the total amount to which Barnwell was entitled.

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.

During the year ended September 30, 2021, Barnwell received net cash distributions in the amount of $ 6,011,000 from the Kukio Resort Land Development Partnerships after distributing $ 683,000 to non-controlling interests.

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

Equity in income of affiliates was $ 3,400,000 for the year ended September 30, 2022, as compared to equity in income of affiliates of $ 5,793,000 for the year ended September 30, 2021, which includes the $ 459,000 payment of the preferred return from KKM discussed above.

During the year ended September 30, 2022, Barnwell received cash distributions of $ 3,400,000 from the Kukio Resort Land Development Partnerships resulting in a net amount of $ 3,028,000 , after distributing $ 372,000 to non-controlling interests.

Equity in income of affiliates was $ 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.

Summarized financial information for the Kukio Resort Land Development Partnerships is as follows:

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With respect to Increment I, Kaupulehu Developments is entitled to receive payments from KD I based on 10 % of the gross receipts from KD I’s sales of single-family residential lots in Increment I.

Six single-family lots were sold during the year ended September 30, 2022 and two single-family lots, of the 80 lots developed within Increment I, remained to be sold as of September 30, 2022.

One single-family lot was sold during the year ended September 30, 2023 and two single-family lots, of the 80

lots developed within Increment I, remained to be sold as of September 30, 2023.

The developer had consolidated these two remaining lots into one large lot but has since split them back into the original two lots.

Under the terms of the Increment II agreement with KD II, Kaupulehu Developments is entitled to 15 % of the distributions of KD II, the cost of which is to be solely borne by KDK out of its 55 % ownership interest in KD II, plus a priority payout of 10 % of KDK’s cumulative net profits derived from Increment II sales subsequent to Phase 2A, up to a maximum of $ 3,000,000 as to the priority payout.

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

In November 2022, one lot within Increment I was sold and Kaupulehu Developments received a percentage of sales payment of $ 265,000 from the sale, leaving one lot remaining to be sold in Increment I.

Financial results from the receipt of this payment will be reflected in Barnwell's first quarter of fiscal 2023 ending December 31, 2022.

There is no assurance with regards to the amounts of future payments from Increment I or Increment II to be received, or that the remaining acreage within Increment II will be developed.

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

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

Investment in Leasehold Land Interest – Lot 4C

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established a new wholly-owned subsidiary named BOK Drilling, LLC (“BOK”) for the purpose of indirectly investing in oil and natural gas exploration and development in Oklahoma.

BOK and Gros Ventre Partners, LLC (“Gros Ventre”), an entity previously affiliated with the Company (see Note 19 for additional details), entered into the Limited Liability Agreement (the “Teton Operating Agreement”) of Teton Barnwell Fund I, LLC (“Teton Barnwell”), an entity formed for the purpose of directly entering into such oil and natural gas investments.

BOK and Gros Ventre Partners, LLC (“Gros Ventre”) entered into the Limited Liability Agreement (the “Teton Operating Agreement”) of Teton Barnwell Fund I, LLC (“Teton Barnwell”), an entity formed for the purpose of directly entering into such oil and natural gas investments.

Under the terms of the Teton Operating Agreement, the profits of Teton Barnwell are split between BOK and Gros Ventre at 98 % and 2 %, respectively, and as the manager of Teton Barnwell, Gros Ventre is paid an annual asset management fee equal to 1 % of the cumulative capital contributions made to Teton Barnwell as compensation for its management services.

BOK is responsible for 100 % of the capital contributions made to Teton Barnwell and as of September 30, 2022, the Company has made a total of $ 1,250,000 in cumulative capital contributions to Teton Barnwell to fund its initial oil and natural gas investment in Oklahoma and has received a total of $ 2,058,000 in distributions, net of non-controlling interests, from Teton Barnwell out of Teton Barnwell's operating cash flows.

In October 2022, an additional $ 711,000 distribution, net of non-controlling interests, was received from Teton Barnwell.

These contributions and distributions between Teton Barnwell and the Company do not affect our reported consolidated cash flows as Teton Barnwell is a consolidated entity, as discussed further below.

The Company has determined that Teton Barnwell is a VIE as the entity is structured with non-substantive voting rights and that the Company is the primary beneficiary.

BOK is responsible for 100 % of the capital contributions made to Teton Barnwell.

The Company has determined that Teton Barnwell is a variable interest entity (“VIE”) as the entity is structured with non-substantive voting rights and that the Company is the primary beneficiary.

This is due to the fact that even though Teton Barnwell has a unanimous consent voting structure, BOK is responsible for 100 % of the capital contributions required to fund Teton Barnwell’s future oil exploration and development investments pursuant to the Teton Operating Agreement and thus, BOK has the power to steer the decisions that most significantly impact Teton Barnwell’s economic performance and has the obligation to absorb any potential losses that could be significant to Teton Barnwell.

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Proved properties, net 544,000 655,000

Unproved properties — 962,000

Total assets $ 802,000 $ 1,884,000

Accounts payable $ 10,000 $ 15,000

Accrued capital expenditures — 581,000

Accrued operating and other expenses 15,000 26,000

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ASSET HELD FOR SALE

Contract Segment Drilling Rigs and Equipment

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

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

In October 2021, the Company sold the drilling rig and related ancillary equipment for proceeds of $ 687,000 , net of related costs, which was equivalent to its net carrying value.

In September 2022, the Company entered into a purchase and sale agreement with an independent third party for the sale of a contract drilling segment drilling rig and received a payment of $ 551,000 , net of related costs.

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The proceeds received from the buyer was recognized as a deposit and recorded in “Other Current Liabilities” on the Company's Consolidated Balance Sheet at September 30, 2022.

No amount was recorded as assets held for sale at September 30, 2022 as the drilling rig was fully depreciated and therefore had a net book value of zero.

In October 2022, the legal title for the drilling rig was transferred to the buyer and as a result, the Company will recognize a $ 551,000 gain on the sale of the drilling rig in the first quarter of fiscal 2023 ending December 31, 2022.

No amount was recorded as assets held for sale at September 30, 2022 as the drilling rig was fully depreciated and therefore had a net book

value of zero.

In October 2022, the legal title for the drilling rig was transferred to the buyer and as a result, the Company recognized a $ 551,000 gain on the sale of the drilling rig during the year ended September 30, 2023.

OIL AND NATURAL GAS PROPERTIES

Fiscal 2023 Investments and Acquisitions

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 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.

The two Texas wells began producing in late April 2023.

Additionally, in connection with the entry into this agreement, the Company was obligated to pay a broker’s fee of 5.0 % of the capital invested under this arrangement, which expired in November 2023, to Four Pines Exploration LLC - Exploration - Series 1 (“Four Pines”).

Four Pines is controlled by Mr.

Colin O’Farrell who is an affiliate of Teton Barnwell (see Note 19 for additional details).

As of September 30, 2023, the Company has paid $ 255,000 in broker fees to Four Pines related to this arrangement.

Fiscal 2022 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 .

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 .

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.

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.

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

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

There were no significant oil and natural gas property dispositions during the year ended September 30, 2022.

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 prior year's oil and natural gas property sales.

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

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

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

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

In 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.

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.

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.

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

Accordingly, Barnwell recorded a gain on the sale of Spirit River of $ 818,000 in the year ended September 30, 2021 in accordance with the guidance in Rule 4-10(c)(6)(i) of Regulation S-X of the rules and regulations of the SEC, which requires an allocation of capitalized costs to

the reserves sold and reserves retained on the basis of the relative fair values of the properties as there was a substantial economic difference between the properties sold and those retained.

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

Impairment of Oil and Natural Gas Properties

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

There was 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.

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.

PROPERTY AND EQUIPMENT AND ASSET RETIREMENT OBLIGATION

4 unchanged sentences

At September 30, 2023:

Oil and natural gas properties:

(full cost accounting)

Proved properties $ 67,883,000 $ ( 54,651,000 ) $ 13,232,000

Unproved properties — — —

Total oil and natural gas properties 67,883,000 ( 54,651,000 ) 13,232,000

Proved oil and natural gas properties

(full cost method) $ 80,851,000 $ ( 59,549,000 ) $ 21,302,000

Drilling rigs and equipment 3 – 10 years

6 unchanged sentences

At September 30, 2022:

Oil and natural gas properties:

(full cost accounting)

Proved properties $ 58,490,000 $ ( 56,067,000 ) $ 2,423,000

Unproved properties 962,000 — 962,000

Total oil and natural gas properties 59,452,000 ( 56,067,000 ) 3,385,000

Proved oil and natural gas properties

(full cost method) $ 67,883,000 $ ( 54,651,000 ) $ 13,232,000

Drilling rigs and equipment 3 – 10 years

4 unchanged sentences

See Note 6 for discussion of acquisitions and divestitures of oil and natural gas properties in fiscal 2023 and 2022.

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.

Asset Retirement Obligation

12 unchanged sentences

Asset retirement obligation, long-term $ 8,297,000 $ 7,129,000

Asset retirement obligations were reduced by $ 483,000 and $ 375,000 , in fiscal 2022 and 2021, respectively, for those obligations that were assumed by purchasers of Barnwell's oil and natural gas properties.

Asset retirement obligations increased by $ 1,021,000 and $ 279,000 in fiscal 2022 and 2021, respectively, primarily due to upward revisions from acceleration in the estimated timing of future abandonments as a result of changes in the estimated economic life of certain wells and changes in management's discretionary timing of abandonment projects due to an increase in estimated funds available as well as changes to the estimated cost of abandonments at the Manyberries area, as further discussed below.

Asset retirement obligations also increased by $ 1,682,000 and $ 532,000 in fiscal 2022 and 2021, respectively, due primarily to our acquisitions (see Note 6 for additional details).

Asset retirement obligations were reduced by nil and $ 483,000 in fiscal 2023 and 2022, respectively, for those obligations that were assumed by purchasers of Barnwell's oil and natural gas properties.

Asset retirement obligations increased by $ 1,462,000 and $ 1,021,000 in fiscal 2023 and 2022, respectively, primarily due to upward revisions from acceleration in the estimated timing of future abandonments as a result of changes in the estimated economic lives and costs of certain wells due to updated information received and changes in management's discretionary timing of abandonment projects due to an increase in estimated funds available.

Asset retirement obligations also increased by $ 21,000 and $ 1,682,000 in fiscal 2023 and 2022, respectively, due primarily to our wells drilled and acquisitions (see Note 6 for additional details on acquisitions).

The asset retirement obligation reflects the estimated present value of the amount of dismantlement, removal, site reclamation, and similar activities associated with Barnwell's oil and natural gas properties.

3 unchanged sentences

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

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

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.

1 unchanged sentence

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

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

The total cash deposit amount was calculated to be approximately $ 1,525,000 and the Company paid $ 888,000 of the total deposit in July and August 2021 and will need to pay the remaining balance of $ 637,000 by August 2023.

The Company revised its Manyberries ARO liability based on the OWA’s revised abandonment and reclamation estimates, which resulted in an increase of approximately $ 213,000 in the year ended September 30, 2021.

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

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

The total cash deposit amount was calculated to be approximately $ 1,525,000 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.

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.

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Barnwell’s funding policy is intended to provide for both benefits attributed to service to date and for those expected to be earned in the future.

In addition, Barnwell sponsors a Supplemental Executive Retirement Plan (“SERP”), a noncontributory supplemental retirement benefit plan which covers certain current and former employees of Barnwell for amounts exceeding the limits allowed under the Pension Plan, and previously sponsored a post-retirement medical insurance benefits plan (“Post-retirement Medical”) covering officers of Barnwell Industries, Inc., the parent company, who have attained at least 20 years of service of which at least 10 years were at the position of Vice President or higher, their spouses and qualifying dependents.

In June 2021, the Company terminated its Post-retirement Medical plan effective June 4, 2021.

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

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

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

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

Effective December 31, 2019, the accrual of benefits for all participants in the Pension Plan and SERP was frozen and the plans were closed to new participants from that point forward.

The following tables detail the changes in benefit obligations, fair values of plan assets and reconciliations of the funded status of the retirement plans:

Pension SERP Post-retirement Medical

Pension Plan SERP

September 30,

3 unchanged sentences

Interest cost 406,000 290,000 88,000 60,000

Actuarial (gain) loss ( 2,418,000 ) ( 15,000 ) ( 478,000 ) 63,000 — —

Actuarial gain ( 394,000 ) ( 2,418,000 ) ( 66,000 ) ( 478,000 )

Benefits paid ( 432,000 ) ( 306,000 ) ( 3,000 ) ( 3,000 )

Termination of post-retirement medical plan — — — — — ( 2,882,000 )

Benefit obligation at end of year 7,511,000 7,931,000 1,734,000 1,715,000

2 unchanged sentences

Actual return on plan assets 1,098,000 ( 972,000 ) — —

Employer contributions — — — — — 5,000

Benefits paid ( 432,000 ) ( 306,000 ) — —

1 unchanged sentence

Funded status $ 4,471,000 $ 3,385,000 $ ( 1,734,000 ) $ ( 1,715,000 )

Pension SERP Post-retirement Medical

Pension Plan SERP

September 30,

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Amounts recognized in accumulated other comprehensive income before income taxes:

Net actuarial (gain) loss $ ( 353,000 ) $ 471,000 $ ( 343,000 ) $ 135,000 $ — $ —

Accumulated other comprehensive (income) loss $ ( 353,000 ) $ 471,000 $ ( 343,000 ) $ 135,000 $ — $ —

Net actuarial gain $ ( 1,178,000 ) $ ( 353,000 ) $ ( 330,000 ) $ ( 343,000 )

Accumulated other comprehensive income $ ( 1,178,000 ) $ ( 353,000 ) $ ( 330,000 ) $ ( 343,000 )

The accumulated benefit obligation for the Pension Plan was $ 7,511,000 and $ 7,931,000 at September 30, 2023 and 2022, respectively.

1 unchanged sentence

The accumulated benefit obligations are the same as the projected benefit obligations due to the Pension Plan and SERP being frozen as of December 31, 2019.

Currently, no contributions will be made to the Pension Plan during fiscal 2023.

Currently, no contributions are planned to be made to the Pension Plan during fiscal 2024.

The SERP plan is unfunded and Barnwell funds benefits when payments are made.

Expected payments under the SERP for fiscal 2024 is not material.

Fluctuations in actual market returns as well as changes in general interest rates

will result in changes in the market value of plan assets and may result in increased or decreased retirement benefits costs and contributions in future periods.

Fluctuations in actual market returns as well as changes in general interest rates will result in changes in the market value of plan assets and may result in increased or decreased retirement benefits costs and contributions in future periods.

The Pension Plan actuarial gains in fiscal 2023 were primarily due to an increase in the discount rate and actual investment returns that were greater than the assumed rate of return.

The SERP actuarial gains in fiscal 2023 were primarily due to an increase in the discount rate.

The Pension Plan actuarial gains in fiscal 2022 were primarily due to an increase in the discount rate, partially offset by an actuarial loss resulting from actual investment returns that were less than the assumed rate of return.

The SERP actuarial gains in fiscal 2022 were primarily due to an increase in the discount rate.

The Pension Plan actuarial gains in fiscal 2021 were primarily due to an increase in the discount rate and actual investment returns that were greater than the assumed rate of return.

The SERP actuarial losses in fiscal 2021 were primarily due to an updated mortality projection scale and adjustments due to experience, partially offset by an increase in the discount rate.

The following table presents the weighted-average assumptions used to determine benefit obligations and net benefit (income) costs:

Pension SERP Post-retirement Medical

Pension Plan SERP

Year ended September 30,

1 unchanged sentence

Assumptions used to determine fiscal year-end benefit obligations:

Discount rate 5.25 % 2.84 % 5.25 % 2.84 % N/A N/A

Rate of compensation increase N/A N/A N/A N/A N/A N/A

Discount rate 5.62 % 5.25 % 5.62 % 5.25 %

Rate of compensation increase N/A N/A N/A N/A

Assumptions used to determine net benefit costs (years ended):

Discount rate 2.84 % 2.54 % 2.84 % 2.54 % N/A 2.54 % / 3.00 % (1)

Expected return on plan assets 5.00 % 5.00 % N/A N/A N/A N/A

Rate of compensation increase N/A N/A N/A N/A N/A N/A

_______________________________________________

(1) 2.54% as of September 30, 2020 and 3.00% as of May 31, 2021 termination.

Discount rate 5.25 % 2.84 % 5.25 % 2.84 %

Expected return on plan assets 6.00 % 5.00 % N/A N/A

Rate of compensation increase N/A N/A N/A N/A

We select a discount rate by reference to yields available on the ICE Bank of America Merrill Lynch AA-AAA 15+ Index at our consolidated balance sheet date.

1 unchanged sentence

The components of net periodic benefit (income) cost are as follows:

Pension SERP Post-retirement Medical

Pension Plan SERP

Year ended September 30,

3 unchanged sentences

Expected return on plan assets ( 667,000 ) ( 622,000 ) — —

Amortization of net actuarial loss — 39,000 — — — 62,000

Amortization of net actuarial gain — — ( 79,000 ) —

Net periodic benefit (income) cost $ ( 261,000 ) $ ( 332,000 ) $ 9,000 $ 60,000

The benefits expected to be paid under the retirement plans as of September 30, 2023 are as follows:

Pension Plan SERP

Expected Benefit Payments:

6 unchanged sentences

Management communicates periodically with its professional investment advisors to establish investment policies, direct investments and select investment options.

The overall investment objective of the Pension Plan is to attain a diversified combination of investments that provides long-term growth in the assets of the plan to fund future benefit obligations while managing risk in order to meet current benefit obligations.

benefit obligations.

Generally, interest and dividends received provide cash flows to fund current benefit obligations.

17 unchanged sentences

Fixed income securities are valued based upon the closing price reported in the active market in which the security is traded.

All of our plan

assets are categorized as Level 1 assets, and as such, the actual market value is used to determine the fair value of assets.

All of our plan assets are categorized as Level 1 assets, and as such, the actual market value is used to determine the fair value of assets.

The following tables set forth by level, within the fair value hierarchy, pension plan assets at their fair value:

Fair Value Measurements Using:

September 30,

September 30, 2023 Carrying

Amount Quoted

(Level 1) Significant

2 unchanged sentences

Cash $ 263,000 $ 263,000 $ — $ —

Corporate bonds 1,000 1,000 — —

treasury and government securities 709,000 709,000 — —

1 unchanged sentence

Preferred securities 47,000 47,000 — —

Equity securities exchange-traded funds 408,000 408,000 — —

Equities 7,861,000 7,861,000 — —

1 unchanged sentence

Fair Value Measurements Using:

September 30,

September 30, 2022 Carrying

Amount Quoted

(Level 1) Significant

3 unchanged sentences

Corporate bonds 1,000 1,000 — —

treasury and government securities 561,000 561,000 — —

Fixed income exchange-traded funds 3,223,000 3,223,000 — —

3 unchanged sentences

Total $ 11,316,000 $ 11,316,000 $ — $ —

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

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

The components of the income tax provision related to the above earnings are as follows:

The components of the income tax (benefit) provision related to the above (loss) earnings are as follows:

Year ended September 30,

12 unchanged sentences

Total current 77,000 518,000

Deferred (benefit) provision:

Deferred benefit:

United States – State ( 130,000 ) ( 171,000 )

3 unchanged sentences

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.

The Company operates two subsidiaries in Canada, one of which is a U.S.

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.

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.

Consolidated taxes also include the impacts of favorable state jurisdiction provision to tax return true-ups.

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.

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.

Included in the current income tax provision for the year ended September 30, 2022 is a $ 62,000 expense for income tax penalties and interest thereon for the non-filing of IRS Form 8858 in each of our U.S.

federal income tax returns for fiscal years 2019, 2020 and 2021.

The Company is in the process of amending its U.S.

federal tax returns to include Form 8858 and plans to request abatement of the potential penalties and interest.

There was no such expense included in the current income tax provision for the year ended September 30, 2021.

On December 27, 2020, the President signed into law the Consolidated Appropriations Act (the “Act”), an omnibus spending bill to fund the federal government that also includes an array of COVID-related tax relief for individuals and businesses.

The tax-related measures contained in the Act revise and expand provisions enacted earlier in the year by the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act.

The Act also extends a number of expiring tax provisions.

Additionally, the Act provides for a 100% deduction for certain business meals incurred in calendar years 2021 and 2022.

The Company determined that income tax effects related to the passage of the Consolidated Appropriations Act were not material to the financial statements for the years ended September 30, 2021 and 2022.

A reconciliation between the reported income tax expense and the amount computed by multiplying the earnings attributable to Barnwell before income taxes by the U.S.

The Company prepared amended U.S.

federal tax returns for each of these years to include Form 8858 and a statement of reasonable cause.

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.

The Company is awaiting a response from the IRS and the probability of success of the abatement request remains uncertain.

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.

A reconciliation between the reported income tax (benefit) expense and the amount computed by multiplying the (loss) earnings attributable to Barnwell before income taxes by the U.S.

federal tax rate of 21 % is as follows:

Year ended September 30,

Tax provision computed by applying statutory rate $ 1,231,000 $ 1,383,000

Decrease in the valuation allowance ( 1,450,000 ) ( 1,427,000 )

Tax (benefit) provision computed by applying statutory rate $ ( 213,000 ) $ 1,231,000

Increase (decrease) in the valuation allowance 182,000 ( 1,450,000 )

Additional effect of the foreign tax provision on the total tax provision ( 4,000 ) 130,000

state income tax (benefit) provision, net of federal effect ( 9,000 ) 330,000

state provision to tax return adjustments ( 106,000 ) ( 45,000 )

Uncertain tax positions — 62,000

state tax provision, net of federal benefit 285,000 332,000

Other 97,000 89,000

$ ( 53,000 ) $ 347,000

The changes in the valuation allowance shown in the table above exclude the impact of changes in state taxes and foreign tax credit expiries, the valuation allowance impacts of which are incorporated within the respective reconciliation line items elsewhere in the table.

state provision to tax return adjustments in the table above was treated as a separate item in fiscal 2023 due to the significance of its impact on the fiscal 2023 reconciliation, and the corresponding fiscal 2022 amount was reclassified to conform to the current year presentation.

The reclassification had no impact on previously reported net earnings, cash flows, total assets, or stockholders' equity.

Additionally, the changes in the valuation allowance shown in the table above exclude the impact of changes in the valuation allowance of items that are incorporated within the respective reconciliation line items elsewhere in the table.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

8 unchanged sentences

tax law 25,000 26,000

Property and equipment accumulated book depreciation and depletion in excess of tax under Canadian tax law

Property and equipment accumulated book depreciation and depletion in excess of tax under U.S.

tax law 275,000 568,000

Liabilities accrued for books but not for tax under U.S.

Asset retirement obligation accrued for books but not for tax under U.S.

tax law 1,084,000 959,000

Liabilities accrued for books but not for tax under Canadian tax law 2,120,000 1,813,000

Asset retirement obligation accrued for books but not for tax under Canadian tax law 2,461,000 2,120,000

Other liabilities accrued for books but not for tax under U.S.

tax law 612,000 634,000

Foreign currency loss under U.S.

16 unchanged sentences

tax law impact of foreign branch deferred tax asset under Canadian tax law ( 1,655,000 ) ( 1,465,000 )

Retirement plan asset accrued for books but not for tax under U.S.

tax law ( 939,000 ) ( 711,000 )

Other ( 259,000 ) ( 285,000 )

4 unchanged sentences

Net deferred income tax liability $ ( 58,000 ) $ ( 188,000 )

The asset retirement obligation accrued for books but not for tax under U.S.

tax law and the retirement plan asset accrued for books but not for tax under U.S.

tax law amounts in the table above were treated as separate items in fiscal 2023 to provide additional specificity as to the nature of the items, and the corresponding fiscal 2022 amounts were reclassified to conform to the current year presentation.

The reclassifications had no impact on the previously reported valuation allowance or previously reported net earnings, cash flows, total assets, or stockholders' equity.

The total valuation allowance decreased $ 169,000 for the year ended September 30, 2023.

The decrease was due to current fiscal year operational activity that resulted in changes in deferred tax asset

and liability balances, and there were no changes in judgment about the realizability of related deferred tax assets in future years.

Of the total net decrease in the valuation allowance for fiscal 2022, $ 1,614,000 was recognized as an income tax benefit and $ 394,000 was credited to accumulated other comprehensive loss.

Net deferred tax assets at September 30, 2022 of $ 2,697,000 consists of the portion of U.S.

federal consolidated deferred tax assets that are estimated to be partially realized through corresponding reversals of U.S.

federal consolidated deferred tax liabilities related to the Kukio Resort Land Development Partnerships' excess of book income over taxable income, the book basis of property and equipment in excess of tax basis under U.S federal and Canadian tax law, foreign branch deferred taxes and certain other minor deferred tax liabilities.

The decrease was due to current fiscal year operational activity that resulted in changes in deferred tax asset and liability balances, and there were no changes in judgment about the realizability of related deferred tax assets in future years.

Of the total net decrease in the valuation allowance for fiscal 2023, $ 4,000 was recognized as an income tax benefit and $ 165,000 was credited to accumulated other comprehensive income.

Net deferred tax assets at September 30, 2023 of $ 4,819,000 consists of the portion of deferred tax assets that are estimated to be partially realized through corresponding concurrent reversals of deferred tax liabilities related to the Kukio Resort Land Development Partnerships' excess of book income over taxable income, the book basis of property and equipment in excess of tax basis, foreign branch deferred taxes, retirement plan assets accrued for books but not for tax under U.S.

tax law, and certain other minor deferred tax liabilities.

At September 30, 2023, Barnwell had U.S.

2 unchanged sentences

state net operating loss carryovers and Canadian net operating loss carryovers totaling $ 928,000 , $ 44,790,000 , $ 18,387,000 and $ 3,816,000 , respectively.

All four items were fully offset by valuation allowances at September 30, 2022, except for a portion of Hawaii NOLs which is expected to shelter a portion of the reversal of the Company’s Hawaii non-unitary taxable temporary difference related to its investment in Hawaii land development partnerships.

All four items were fully offset by valuation allowances at September 30, 2023.

federal net operating loss carryovers generated through September 30, 2018 expire in fiscal years 2032-2038, the U.S.

14 unchanged sentences

Settlement of any particular position could require the use of cash.

Favorable resolution for an amount less than the amount estimated by Barnwell would be recognized as a decrease in the effective income tax rate in the period of resolution, and unfavorable resolution in excess of the amount estimated by Barnwell would be recognized as an increase in the effective income tax rate in the period of resolution.

by Barnwell would be recognized as an increase in the effective income tax rate in the period of resolution.

Below are the changes in unrecognized tax benefits.

4 unchanged sentences

Balance at end of year $ 62,000 $ 62,000

Uncertain tax positions at September 30, 2022 are related to the potential assessment of penalties and interest for the failure to file certain foreign information forms with each of our U.S.

Uncertain tax positions at September 30, 2023 are related to the potential assessment of penalties and interest for the failure to file a certain foreign information form with each of our U.S.

federal income tax returns for fiscal years 2019, 2020 and 2021.

The Company is in the process of amending its U.S.

federal tax returns to include missing forms and plans to request abatement of the potential penalties and interest.

The Company filed amended U.S.

federal income tax returns which included the missing form and statement of reasonable cause for these years in September and October 2023 and requested abatement of any potential penalties and interest which could subsequently be assessed.

The Company is awaiting a response from the IRS and the probability of success of the abatement request remains uncertain.

Included below is a summary of the tax years, by jurisdiction, that remain subject to examination by taxing authorities at September 30, 2023:

46 unchanged sentences

September 30,

2023 2022 2021

Accounts receivables from contracts with customers $ 2,931,000 $ 4,038,000 $ 2,797,000

1 unchanged sentence

Contract liabilities 377,000 1,087,000 455,000

Accounts receivables from contracts with customers are included in “Accounts and other receivables, net of allowance for doubtful accounts,” and contract assets, which includes costs and estimated earnings in excess of billings and retainage, are included in “Other current assets.” Contract liabilities, which includes billings in excess of costs and estimated earnings are included in “Other current liabilities” in the accompanying Consolidated Balance Sheets.

Accounts receivables from contracts with customers are included in “Accounts and other receivables, net of allowance for doubtful accounts,” in the accompanying Consolidated Balance Sheets and contract assets, which includes costs and estimated earnings in excess of billings and retainage, are included in “Other current assets” in the accompanying Consolidated Balance Sheets.

Contract liabilities, which includes billings in excess of costs and estimated earnings are included in “Other current liabilities” in the accompanying Consolidated Balance Sheets.

Retainage, included in contract assets, represents amounts due from customers, but where payments are withheld contractually until certain construction milestones are met.

17 unchanged sentences

At September 30, 2023, the Company had five contract drilling jobs with original expected durations of greater than one year.

For these contracts, approximately 71 % of the remaining performance obligation of $ 4,890,000 is expected to be recognized in the next twelve months and the remaining, thereafter.

For these contracts, 100 % of the remaining performance obligation of $ 3,587,000 is expected to be recognized in the next twelve months.

Contract Fulfillment Costs

7 unchanged sentences

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.

As of of September 30, 2023 and 2022, uninstalled materials was $ 348,000 and $ 351,000 , respectively.

Uninstalled materials are held in inventory and included in “Other current assets” on the Company’s Consolidated Balance Sheets.

A summary of Barnwell's uninstalled materials is as follows:

September 30, 2022 September 30, 2021

Uninstalled materials $ 351,000 $ 226,000

SEGMENT AND GEOGRAPHIC INFORMATION

Barnwell operates the following segments:

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

1) acquiring, developing, producing and selling oil and natural gas in Canada and the U.S.

(oil and natural gas);

2) investing in land interests in Hawaii (land investment);

16 unchanged sentences

Total depletion, depreciation, and amortization $ 4,457,000 $ 2,778,000

Oil and natural gas $ — $ 630,000

Contract drilling — 38,000

Land investment $ — $ 89,000

10 unchanged sentences

General and administrative expenses ( 6,956,000 ) ( 8,044,000 )

Foreign currency loss ( 484,000 ) —

Foreign currency gain (loss) 76,000 ( 484,000 )

Interest expense ( 2,000 ) ( 1,000 )

Interest income 87,000 18,000

Gain on debt extinguishment — 149,000

Gain on termination of post-retirement medical plan — 2,341,000

Earnings before income taxes $ 6,519,000 $ 7,535,000

(Loss) earnings before income taxes $ ( 864,000 ) $ 6,519,000

Capital Expenditures:

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$ 18,855,000 $ 16,216,000

United States

5,917,000 1,261,000

Contract drilling (1)

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Cash and cash equivalents 2,830,000 12,804,000

Asset for retirement benefits

4,471,000 3,385,000

Corporate and other 248,000 289,000

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______________

(1) L ocated primarily in the province of Alberta, Canada with a minor portion in Oklahoma.

(2) Located in Hawaii.

(1) L ocated in Hawaii.

Long-Lived Assets By Geographic Area:

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Beginning accumulated retirement plans benefit cost 1,072,000 ( 230,000 )

Amortization of net actuarial loss — 101,000

Amortization of net actuarial gain ( 79,000 ) —

Net actuarial gain arising during the period 891,000 1,302,000

Gain on termination of post-retirement medical plan — 541,000

Income taxes — —

Net current period other comprehensive income 812,000 1,302,000

Ending accumulated retirement plans benefit income (cost) 1,072,000 ( 230,000 )

Ending accumulated retirement plans benefit income 1,884,000 1,072,000

Accumulated other comprehensive income, net of taxes $ 2,104,000 $ 1,294,000

The amortization of net actuarial loss for the retirement plans are included in the computation of net periodic benefit (income) cost which is a component of “General and administrative” expenses on the accompanying Consolidated Statements of Operations (see Note 8 for additional details).

The amortization of net actuarial gain for the retirement plans are included in the computation of net periodic benefit (income) cost which is a component of “General and administrative” expenses on the accompanying Consolidated Statements of Operations (see Note 8 for additional details).

FAIR VALUE MEASUREMENTS

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Barnwell estimates the fair value of asset retirement obligations based on the projected discounted future cash outflows required to settle abandonment and restoration liabilities.

Such an estimate requires assumptions and judgments regarding the existence of liabilities, the amount and timing of cash outflows

required to settle the liability, what constitutes adequate restoration, inflation factors, credit adjusted discount rates, and consideration of changes in legal, regulatory, environmental and political environments.

Such an estimate requires assumptions and judgments regarding the existence of liabilities, the amount and timing of cash outflows required to settle the liability, what constitutes adequate restoration, inflation factors, credit adjusted discount rates, and consideration of changes in legal, regulatory, environmental and political

environments.

Abandonment and restoration cost estimates are determined in conjunction with Barnwell’s reserve engineers based on historical information regarding costs incurred to abandon and restore similar well sites, information regarding current market conditions and costs, and knowledge of subject well sites and properties.

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Canada Emergency Business Account Loan

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

In the quarter ended 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.

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.

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 .

Paycheck Protection Program Loan

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 PPP pursuant to the CARES Act that was signed into law in March 2020.

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

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

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

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.

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.

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.

The Company’s right-of-use (“ROU”) assets and lease liabilities at September 30, 2023, primarily relate to non-cancelable operating leases for our Hawaii corporate and Canadian office spaces and our leasehold land interest for Lot 4C held by Kaupulehu Developments.

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therefore, management uses the Company’s incremental borrowing rate to discount lease payments based on information available at lease commencement.

lease terms may include options to extend or terminate the lease when it is reasonably certain we will exercise that option.

Our lease terms may include options to extend or terminate the lease when it is reasonably certain we will exercise that option.

Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease terms.

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A ROU asset and corresponding lease liability is not recorded for leases with an initial term of 12 months or less (short-term leases) as the Company recognizes lease expense for these leases as incurred over the lease term.

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.

As a result, the Company recognized an $ 89,000 right-of-use asset impairment expense during the year ended September 30, 2022.

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.

As a result, the Company recognized an $ 89,000 right-of-use asset impairment expense in the year ended September 30, 2022.

Leases recorded on the balance sheet consist of the following:

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2024 $ 75,000

Thereafter through 2028 —

Total lease payments 124,000

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STOCKHOLDERS' EQUITY

In May 2022, Barnwell’s stockholders approved the amendment to increase the Company’s number of authorized shares of common stock from 20,000,000 to 40,000,000 shares and approved amendments to the Company’s 2018 Equity Incentive Plan which included the amendment to increase the total number of shares of stock authorized for awards from 800,000 to 1,600,000 shares among other amendments.

Share-based Compensation

Share-based Payment Arrangements

2018 Equity Incentive Plan

The Company’s stock option plans are administered by the Compensation Committee of the Board of Directors.

The stockholder-approved 2018 Equity Incentive Plan provides for the issuance of incentive stock options, nonstatutory stock options, stock options with stock appreciation rights, restricted stock, restricted stock units and performance units, qualified performance-based awards, and stock grants to employees, consultants and non-employee members of the Board of Directors.

The stockholder-approved 2018 Equity Incentive Plan is administered by the Compensation Committee of the Board of Directors and provides for the issuance of incentive stock options, nonstatutory stock options, stock options with stock appreciation rights, restricted stock, restricted stock units and performance units, qualified performance-based awards, and stock grants to employees, consultants and non-employee members of the Board of Directors.

1,600,000 shares of Barnwell common stock have been reserved for issuance and as of September 30, 2023, a total of 1,095,000 share options remain available for grant.

Barnwell currently has a policy of issuing new shares to satisfy share option exercises when the optionee requests shares.

Equity-classified Awards

Stock Options

In February 2021, the Board of Directors of the Company granted options to purchase 665,000 shares of common stock, 310,000 shares to independent directors and 355,000 shares to employees.

605,000 shares of the stock options granted have an exercise price equal to the closing market price of

Barnwell’s stock on the date of grant of $ 3.33 , vest annually over three years , and expire in ten years from the date of grant.

605,000 shares of the stock options granted have an exercise price equal to the closing market price of Barnwell’s stock on the date of grant of $ 3.33 , vest annually over three years , and expire in ten years from the date of grant.

60,000 shares of the stock options granted have an exercise price of $ 3.66 (110% of the closing market price on the date of grant for options granted to affiliates), vest annually over three years , and expire in five years from the date of grant.

The following assumptions were used in estimating the fair value for equity-classified share options granted in the year ended September 30, 2021:

The following assumptions were used in estimating the fair value for equity-classified stock options granted in the year ended September 30, 2021:

> 10% Owner-Employee Others

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The application of alternative assumptions could produce significantly different estimates of the fair value of share-based compensation, and consequently, the related costs reported in the “General and administrative” expenses in the Consolidated Statements of Operations.

A summary of the activity in Barnwell’s equity-classified share options from October 1, 2021 through September 30, 2022 is presented below:

The following table summarizes Barnwell’s equity-classified stock options activity from October 1, 2022 through September 30, 2023:

Options Shares Weighted-

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Exercisable at September 30, 2023 310,000 $ 3.37 6.7 $ —

Compensation cost for equity-classified awards is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period.

During the years ended September 30, 2022 and 2021, the Company recognized share-based compensation expense of $ 657,000 and $ 643,000 , respectively.

Compensation cost for stock option awards is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period.

During the years ended September 30, 2023 and 2022, the Company recognized share-based compensation expense related to stock options of $ 164,000 and $ 657,000 , respectively.

There was no impact on income taxes for the years ended September 30, 2023 and 2022 due to a full valuation allowance on the related deferred tax asset.

As of September 30, 2022, the total remaining unrecognized compensation cost related to nonvested share options was $ 348,000 , which is expected to be recognized over the weighted-average remaining requisite service period of 1.4 years.

Cash Dividend

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.

No dividends were declared or paid during fiscal 2021.

As of September 30, 2023, the total remaining unrecognized compensation cost related to nonvested stock options was $ 50,000 , which is expected to be recognized over the weighted-average remaining requisite service period of 0.4 years.

Restricted Stock Units

On June 9, 2023, the Board of Directors of the Company granted a total of 37,312 restricted stock units to the independent directors of the Board as partial payment of fiscal 2023 director fees for their service as members of the Board from the period of April 1, 2023 to September 30, 2023.

The restricted stock units vested and became nonforfeitable on September 30, 2023.

The following table summarizes Barnwell’s restricted stock units activity from October 1, 2022 through September 30, 2023:

Restricted Stock Units Shares Weighted-Average

Nonvested at October 1, 2022 — $ —

Granted 37,312 2.65

( 37,312 ) 2.65

Forfeited — —

Nonvested at September 30, 2023 — $ —

______________

(1) The underlying common stock for these vested restricted stock units were not yet issued as of September 30, 2023;

in November 2023, the Company issued 9,328 shares of common stock for a portion of these vested restricted stock units.

Compensation cost for restricted stock unit awards is measured at fair value and is recognized as an expense over the requisite service period.

During the year ended September 30, 2023, the Company recognized share-based compensation expense related to vested restricted stock units of $ 99,000 .

There was no share-based compensation expense related to restricted stock units recognized during the year ended September 30, 2022.

There was no impact on income taxes for the year ended September 30, 2023 due to a net operating loss and net operating loss carryforwards with a full valuation allowance in the relevant taxing jurisdiction.

Common Stock Issued for Services

In May 2023, the Company issued a total of 34,091 shares of Barnwell common stock to certain independent directors for their services on behalf of the Company and the Board of Directors pertaining to the negotiations of the Cooperation Agreement and the settlement of the potential proxy contest (see Note 19 for additional details).

The total value of the shares issued was $ 90,000 which was valued using the closing price of Barnwell's common stock on May 11, 2023, the date of grant.

There was no impact on income taxes for the year ended September 30, 2023 related to the common stock issued for services due to a net operating loss and net operating loss carryforwards with a full valuation allowance in the relevant taxing jurisdiction.

Cash Dividends

The following table sets forth the cash dividends paid per share of common stock during fiscal 2023 and 2022.

Record Date Date of Payment Dividend Paid

August 24, 2023 September 11, 2023 $ 0.015

May 25, 2023 June 12, 2023 $ 0.015

February 23, 2023 March 13, 2023 $ 0.015

December 27, 2022 January 11, 2023 $ 0.015

August 23, 2022 September 6, 2022 $ 0.015

The Tax Benefits Preservation Plan

On October 17, 2022, the Board of Directors of the Company adopted a Tax Benefits Preservation Plan (the “Tax Plan”) designed to protect the availability of the Company’s existing net operating loss carryforwards and certain other tax attributes.

To implement the Tax Plan, the Board of Directors declared a dividend of one right (a “Right”) for each outstanding share of the Company's common stock.

On January 25, 2023, the Tax Plan was terminated by the Board of Directors and as a result, all Rights distributed to holders of the Company's common stock expired at the time of termination.

At The Market Offering

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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 .

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 .

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.

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Incentive compensation plan

Barnwell established an incentive compensation plan to compensate all Canadian oil and natural gas segment personnel and an incentive compensation plan to compensate Canadian executive officers.

Barnwell established incentive compensation plans to compensate the four oil and natural gas segment Canadian executive officers.

The value of the plans are directly related to our oil and natural gas segment's free cash flows from Canadian properties and the divestiture of Canadian oil and natural gas assets.

As of September 30, 2023, Barnwell has accrued approximately $ 286,000 in bonus compensation under these plans and the amount is reported in “Accrued compensation” on the Consolidated Balance Sheet at September 30, 2023.

Subscription Receipts Agreement

In May 2022, Barnwell Investments LLC, a new wholly-owned subsidiary of Barnwell Industries Inc., entered into an agreement to participate in a private placement offering (the “Offering”) of subscriptions receipts (the “Subscription Agreement”) with 1287398 B.C.

(the “Issuer”) and agreed to purchase 1,724,138 subscription receipts at a price of $ 1.16 per subscription receipt for a total of

$ 2,000,000 from the Issuer.

is a Canadian reporting issuer.

The Offering is subject to regulatory approvals, including the conditional listing approval by the TSX Venture Exchange.

The Subscription Agreement was held in escrow by the Issuer until certain escrow release conditions were met which included the Issuer raising an additional $ 3,000,000 in gross proceeds from other parties under the private placement offering for total minimum gross proceeds of $ 5,000,000 .

As of September 30, 2022, the escrow release condition had not been satisfied and no cash was paid by the Company to the Issuer.

In November 2022, the Subscription Agreement was terminated by the Company and therefore the Company no longer has a commitment with the Issuer.

Environmental Matters

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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.

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.

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 September 30, 2023 for any further costs related to this contract as there is no related probable or estimable contingent liability.

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

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

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

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

Accordingly, the Company recorded a liability of $ 300,000 to accrue for the costs to drill the monitoring well in the year ended September 30, 2020, and no subsequent revision to the accrual has been recorded as of September 30, 2023.

During the year ended September 30, 2023, one of our water well drilling jobs 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.

Other Matters

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Cash paid (received) during the year for:

Income taxes refunded, net $ ( 98,000 ) $ ( 303,000 )

Supplemental disclosure of non-cash investing activities:

Canadian income tax withheld on proceeds from the sale of oil and natural gas properties $ — $ 598,000

Capital expenditure accruals related to oil and natural gas acquisition and development increased $ 882,000 and $ 346,000 during the years ended September 30, 2022 and 2021, respectively.

Income taxes paid (refunded), net $ 100,000 $ ( 98,000 )

Capital expenditure accruals related to oil and natural gas acquisition and development decreased $ 575,000 during the year ended September 30, 2023 and increased $ 882,000 during the year ended September 30, 2022.

Additionally, capital expenditure accruals related to oil and natural gas asset retirement obligations increased $ 1,483,000 and $ 2,703,000 during the years ended September 30, 2023 and 2022, respectively.

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The percentage of sales payments are part of transactions which took place in 2004 and 2006 where Kaupulehu Developments sold its leasehold interests in Increment I and Increment II to KD I's and KD II's predecessors in interest, respectively, which was prior to Barnwell’s affiliation with KD I and KD II which commenced on November 27, 2013, the acquisition date of our ownership interest in the Kukio Resort Land Development Partnerships.

to the arrangement above, effective March 7, 2019, are discussed in Note 3.

Changes to the arrangement above, effective March 7, 2019, are discussed in Note 3.

During the year ended September 30, 2023, Barnwell received $ 265,000 in percentage of sales payments from KD I from the sale of one 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 lots within Increment I.

During the year ended September 30, 2021, Barnwell received $ 1,738,000 in percentage of sales payments from KD I from the sale of eight lots within Increment I.

O'Farrell, formerly a member of the Board of Directors of the Company through March 7, 2022, is the sole member of Four Pines Operating LLC which owns a 25 % interest in Gros Ventre.

O'Farrell, formerly a member of the Board of Directors of the Company from July 7, 2021 to March 7, 2022, is the sole member of Four Pines Operating LLC which owns a 25 % interest in Gros Ventre.

In February 2021, Gros Ventre and BOK, a wholly-owned subsidiary of Barnwell, entered into the Teton Operating Agreement of Teton Barnwell, an entity formed for the purpose of directly investing in oil and natural gas exploration and development in Oklahoma.

Under the terms of the Teton Operating Agreement, Gros Ventre makes no capital contributions and receives 2 % of the profits of Teton Barnwell.

Additionally, as the manager of Teton Barnwell, Gros Ventre is paid an annual asset management fee equal to 1 % of the cumulative capital contributions made to Teton Barnwell as compensation for its management services.

Additionally, as the manager of Teton Barnwell, Gros Venture is paid an annual asset management fee equal to 1 % of the cumulative capital contributions made to Teton Barnwell as compensation for its management services.

Furthermore, as discussed above, Mr.

O'Farrell controls Four Pines, which, as of September 30, 2023, was paid $ 255,000 in broker fees in connection with the oil and natural gas investment discussed in Note 6.

Cooperation and Support Agreement

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”).

The Cooperation Agreement extended for two years the standstill terms of the previous agreement entered into with the MRMP Stockholders in 2021, which ended the potential of a proxy contest at the 2023 annual meeting of stockholders (the “2023 Annual Meeting”), which was held on April 17, 2023.

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 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, although the MRMP Stockholders have agreed to limit their beneficial and economic ownership of the Company to 28 % of the outstanding common stock of the Company for the next 12 months and 30 % for the subsequent 12-month period.

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.

During the year ended September 30, 2023 , $ 202,000 and $ 149,000 in expenses were recorded for reimbursements to MRMP Stockholders and Mr.

Kinzler, respectively, under the Cooperation Agreement.

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 , 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).

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).

SUBSEQUENT EVENTS

Gain on Sale of Drilling Rig

At September 30, 2022, the legal title for the drilling rig had not yet transferred to the buyer and therefore, the Company did not record a sale during the year ended September 30, 2022.

The proceeds received from the buyer was recognized as a deposit and recorded in “Other Current Liabilities” on the Company's Consolidated Balance Sheet at September 30, 2022.

No amount was recorded as assets held for sale at September 30, 2022 as the drilling rig was fully depreciated and therefore had a net book value of zero.

The Tax Benefits Preservation Plan

The Company has generated substantial Tax Benefits, which could potentially be used in certain circumstances to reduce its future income tax obligations.

Utilization of these NOLs and other Tax Benefits depends on many factors, including the Company’s future taxable income.

Additionally, the Company’s ability to use its Tax Benefits would be substantially limited if it were to experience an “ownership change,” as defined under Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”).

In general, a corporation would experience an ownership change if the percentage of the corporation’s stock owned by one or more “5% stockholders,” as defined under Section 382, were to increase by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period (or, if a shorter period, since the Company’s last ownership change).

The purpose of the Tax Plan is to reduce the likelihood that the Company will experience an ownership change under Section 382, which would limit the Company’s future use of its Tax Benefits and, in turn, significantly impair the value of such Tax Benefits.

Absent the adoption of the Tax Plan, the Company would be at a greater risk of experiencing an ownership change under Section 382 in the future as a result of certain changes in its investor base and subsequent shifts in its stock ownership that cannot be predicted or controlled.

If the Company were to undergo an ownership change, limitations would be placed on the Company’s ability to utilize the Tax Benefits in future years in which it has taxable income, and the Company would pay more taxes than if it were able to utilize the Tax Benefits fully.

This could result in a negative impact on the Company’s financial position, results of operations, and cash flows.

The Tax Plan is designed to preserve the Tax Benefits by reducing the risk of an ownership change under Section 382.

The Tax Plan adopted by the Board of Directors is similar to plans adopted by other publicly held companies with substantial Tax Benefits and has a limited duration of three years.

The Tax Plan is not designed to prevent any action that the Board of Directors determines to be in the best interest of the Company and its stockholders.

To implement the Tax Plan, the Board of Directors declared a dividend of one right (a “Right”) for each outstanding share of the Company's common stock.

The Rights will be issued to stockholders of record at the close of business on October 27, 2022 pursuant to the Tax Plan.

The Rights will be exercisable if a person or group of persons acquires 4.95% or more of the Company’s common stock.

The Rights will also be exercisable if a person or group of persons that already owns 4.95% or more of the Company’s common stock acquires an additional share other than as a result of a dividend or a stock split.

Existing stockholders that beneficially own in excess of 4.95% of the Company’s common stock will be “grandfathered in” at their current ownership level.

If the Rights become exercisable, all holders of Rights, other than the person or group of persons triggering the Rights, will be entitled to purchase shares of the Company’s common stock at a 50% discount.

Rights held by the person or group of persons triggering the Rights will become void and will not be exercisable.

The Tax Plan also includes an exchange option.

At any time after any person or group of persons acquires 4.95% or more of the Company’s common stock, but less than 50% or more of the outstanding shares of the Company’s common stock, the Board of Directors, at its option, may exchange the Rights (other than Rights owned by such person or group of persons which will have become void), in whole or in part, at an exchange ratio of three shares of the Company’s common stock per outstanding Right (subject to adjustment).

The Rights will trade with the Company’s common stock and will expire at the close of business on October 17, 2025.

The Rights will expire under other circumstances as described in the Tax Plan, including on the date set by the Board of Directors following a determination that the Tax Plan is no longer necessary or desirable for the preservation of the Tax Benefits or no significant Tax Benefits are available to be carried forward or are otherwise available.

The Board of Directors may terminate the Tax Plan prior to the time the Rights are triggered or may redeem the Rights prior to the Distribution Date, as defined in the Tax Plan.

Kukio Resort Land Development Partnerships and Sale of Interest in Leasehold Land

In November 2022, Kaupulehu Developments received a percentage of sales payment of $ 265,000 from the sale of one lot within Increment I.

Financial results from the receipt of this payment will be reflected in Barnwell's first quarter of fiscal 2023 ending December 31, 2022.

Additionally, in November 2022, Barnwell received a net cash distribution in the amount of $ 478,000 from the Kukio Resort Land Development Partnerships.

Financial results from this distribution will be reflected in Barnwell's first quarter of fiscal 2023 ending December 31, 2022.

Oil and Natural Gas Investment

In December 2022, the Company, through a new wholly-owned subsidiary named Barnwell Texas, LLC, entered into agreements with an independent third party whereby the Company will now own a 22.3 % non-operated working interest in oil and natural gas leasehold acreage and a 15.4 % non-operated working interest in the planned drilling of two oil wells in the Permian Basin in Texas.

The Company paid $ 5,099,000 to the independent third party under these agreements.

In addition, the Company is obligated to pay a broker’s fee of 5 % of the capital invested under this arrangement to Four Pines Exploration LLC - Exploration - Series 1 (“Four Pines”).

Four Pines is controlled by Mr.

Colin O’Farrell who is an affiliate of Teton Barnwell (see Note 19 for additional details).

This transaction will be reflected in Barnwell's first quarter of fiscal 2023 ending December 31, 2022.

Cash Dividend

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

Restricted Stock Units

In November 2023, the Board of Directors of the Company granted a total of 76,366 restricted stock units to the independent directors of the Board as partial payment of director fees for their service as members of the Board.

The restricted stock units vest ratably over a three-year period, subject to the director’s continued service through the applicable vesting date.

Natural Gas and Oil Contracts

In November 2023, 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.

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.

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.

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.

Sale of Water Resources

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.

The sale is expected to close in the first half of our fiscal 2024.

SUMMARY OF SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

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The following tables summarize information relative to Barnwell’s oil and natural gas operations, which are conducted in Canada and in the U.S.

state of Oklahoma.

states of Oklahoma and Texas.

Proved reserves are the estimated quantities of oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.

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The following tables summarizes changes in the estimates of Barnwell’s net interests in total proved reserves of oil and natural gas liquids and natural gas, which are located in Canada and the U.S.

state of Oklahoma.

Proved oil, natural gas liquids and natural gas reserves located in the U.S state of Oklahoma were not significant in fiscal 2021 and was therefore not included in the tables below.

states of Oklahoma and Texas.

All of the information regarding Canadian reserves in this Form 10-K is derived from the report of our independent petroleum reserve engineers, InSite, and is included as an Exhibit to this Form 10-K.

All of the information regarding U.S.

reserves in this Form 10-K is derived from the report of our independent petroleum reserve engineers, Ryder Scott, and is included as an Exhibit to this Form 10-K.

reserves in this Form 10-K is derived from the reports of our independent petroleum reserve engineers, Ryder Scott, and are included as Exhibits to this Form 10-K.

The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries and undeveloped locations are more imprecise than estimates of established proved producing oil and natural gas properties.

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Revisions of previous estimates 154,000 — 154,000

Extensions, discoveries and other additions 285,000 132,000 417,000

Acquisitions of reserves 99,000 — 99,000

Less sales of reserves ( 97,000 ) — ( 97,000 )

Less production ( 188,000 ) ( 42,000 ) ( 230,000 )

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Extensions, discoveries and other additions 199,000 197,000 396,000

Acquisitions of reserves 99,000 — 99,000

Less production ( 210,000 ) ( 46,000 ) ( 256,000 )

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Revisions of previous estimates 968,000 — 968,000

Extensions, discoveries and other additions 1,200,000 658,000 1,858,000

Acquisitions of reserves 223,000 — 223,000

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Extensions, discoveries and other additions 1,079,000 1,078,000 2,157,000

Acquisitions of reserves 223,000 — 223,000

Less sales of reserves ( 13,000 ) — ( 13,000 )

Less production ( 1,023,000 ) ( 240,000 ) ( 1,263,000 )

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Revisions of previous estimates 321,000 — 321,000

Extensions, discoveries and other additions 492,000 245,000 737,000

Acquisitions of reserves 137,000 — 137,000

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Extensions, discoveries and other additions 379,000 377,000 756,000

Acquisitions of reserves 137,000 — 137,000

Less sales of reserves ( 2,000 ) — ( 2,000 )

Less production ( 381,000 ) ( 86,000 ) ( 467,000 )

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Total $ 6,858,000 $ 5,354,000 $ 12,212,000

September 30, 2021

Year ended September 30, 2022

Canada United States Total

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Depletion ( 2,217,000 ) ( 389,000 ) ( 2,606,000 )

Reduction of carrying value of oil and natural gas properties ( 630,000 ) — ( 630,000 )

Pre-tax results of operations (1)

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Estimated income tax expense (2)

— 107,000 107,000

Results of operations (1)

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_________________

(1) Before gain on sale of oil and natural gas properties, general and administrative expenses, interest expense, and foreign exchange gains and losses.

(1) Before general and administrative expenses, interest expense, and foreign exchange gains and losses.

(2) Estimated income tax expense includes changes to the deferred income tax valuation allowance necessary for the portion of Canadian and U.S.

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Moreover, the projections should not be construed as realistic estimates of future cash flows, nor should the standardized measure be viewed as representing current value.

Additionally, proved oil, natural gas liquids and natural gas reserves located in the U.S.

were not significant in fiscal 2021 and was therefore not included in the tables below.

The estimated future cash flows at September 30, 2023 and 2022 were based on average sales prices in effect on the first day of the month for the preceding twelve month period in accordance with SEC Release No.

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Net change due to purchases and sales of minerals in place — 2,451,000

Changes in future development costs ( 2,959,000 ) —

Revisions of previous quantity estimates 2,227,000 4,270,000

7 unchanged sentences

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-K

Item 8. Financial Statements and Supplementary Data