What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-14 compared with 2024-02-12 · 148 added, 100 removed, 112 unchanged (69% of the section changed)

14 unchanged sentences

Management has determined that our most critical accounting policies and estimates are those related to the full-cost ceiling calculation and depletion of our oil and natural gas properties, the estimation of our contract drilling segment's revenues and expenses, and the calculation of our income taxes, all of which are discussed in our 2023 Annual Report.

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

There have been no significant changes to these critical accounting policies and estimates during the three and six months ended March 31, 2024.

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

Impact of COVID-19

We face various risks and uncertainties related to public health crises, including the global COVID-19 pandemic, which has disrupted financial markets and significantly impacted worldwide economic activity.

The future impact of the COVID-19 pandemic as well as mandatory and voluntary actions taken to mitigate the public health impact of the pandemic may have a material adverse effect on our financial condition.

The COVID-19 pandemic and social and governmental responses to the pandemic have caused, and may continue to cause, severe economic, market and other disruptions worldwide.

Although the COVID-19 pandemic and related societal and government responses have not, to date, had a material impact on our business or financial results, the extent to which COVID-19 and related actions may, in the future, impact our operations cannot be predicted with any degree of confidence.

As a result, we cannot at this time predict the direct or indirect impact on us of the COVID-19 pandemic, but it could

have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects .

Impact of Recently Issued Accounting Standards on Future Filings

6 unchanged sentences

2023-09 “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures”, which requires disclosure of incremental income tax information within the tax rate reconciliation and expanded disclosures of income taxes paid both in the U.S.

Improvements to Income Tax Disclosures”, which requires disclosure of incremental income tax information within the tax rate reconciliation and expanded disclosures of income taxes paid both in the

and foreign jurisdiction, among other disclosure requirements.

10 unchanged sentences

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

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

Increment I is an area zoned for approximately 80 single-family lots, of which two remained to be sold at December 31, 2023.

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

Increment I is an area zoned for approximately 80 single-family lots.

During the three months ended March 31, 2024, the last two remaining single-family lots in Increment I were sold.

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

3 unchanged sentences

Also, in addition to Barnwell's existing obligations to pay professional fees to certain parties based on percentages of its gross receipts, Kaupulehu Developments is also obligated to pay an amount equal to 0.72% and 0.20% of the cumulative net profits of KD II to KD Development, LLC and a pool of various individuals, respectively, all of whom are partners of KKM and are unrelated to Barnwell.

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

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

The remaining acreage within Increment II is not yet under development, and there is no assurance that

development of such acreage will occur.

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

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

These entities own certain real estate and development rights interests in the Kukio, Maniniowali and Kaupulehu portions of Kukio Resort, a private residential community on the Kona coast of the island of Hawaii, as well as Kukio Resort’s real estate sales office operations.

These entities, collectively referred to as the “Kukio Resort Land Development Partnerships,” own certain real estate and development rights interests in the Kukio, Maniniowali and Kaupulehu portions of Kukio Resort, a private residential community on the Kona coast of the island of Hawaii, as well as Kukio Resort’s real estate sales office operations.

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

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

The partnerships derive income from the sale of residential parcels in Increment I, which is now completely sold, 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.

The Kukio Resort Land Development Partnerships have remaining Increment I obligations to complete project amenities, infrastructure, beautification, and restoration of certain areas and therefore has yet to fully recognize its deferred profit on the Increment I project as a whole.

The Increment I deferred profit at March 31, 2024 for the Kukio Resort Land Development Partnerships as a whole was approximately $4,500,000;

the recognition of which is dependent upon the completion of the Increment I obligations.

The Kukio Resort Land Development Partnerships have accrued estimated costs of these obligations of approximately $3,000,000.

The Kukio Resort Land Development Partnerships currently appears to have the ability to fund those obligations but there are no assurances that it can ultimately do so in the future if unforeseen events occur.

The Kukio Resort Land Development Partnerships will recognize the Increment I deferred revenue and costs of sales on a percentage completion basis as the cash outlays to complete the remaining project obligations are made.

The Kukio Resort Land Development Partnerships’ deferred profit and accrued costs to complete are not reflected in Barnwell’s Condensed Consolidated Balance Sheets as we account for our investment in the Kukio Resort Land Development Partnerships under the equity method of accounting.

No percentage of sales payments will be earned by Barnwell on any future recognition of Increment I deferred profit as such payments were already fully earned and received based on cash received by the Kukio Resort Land Development Partnerships as the Increment I lots were sold.

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

5 unchanged sentences

Results of Operations

The net loss attributable to Barnwell for the three months ended December 31, 2023 totaled $664,000, a $1,753,000 decrease in operating results from net earnings of $1,089,000 for the three months ended December 31, 2022.

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

• A $1,105,000 decrease in oil and natural gas segment operating results, before income taxes, due primarily to significant decreases in natural gas, oil, and natural gas liquid prices, partially offset

by an increase in new production from wells in Texas and from wells in the Twining area in the current period as compared to the same period in the prior year;

• Equity in income from affiliates decreased $538,000 and land investment segment operating results, before non-controlling interests’ share of such profits, decreased $265,000 due to the Kukio Resort Development Partnerships' sale of one lot in the prior year period, whereas there were no lot sales in the current year period;

• A $551,000 gain recognized in the prior year period from the sale of a contract drilling segment drilling rig, whereas there was no such gain in the current period;

• General and administrative expenses decreased $845,000 primarily due to decreases in professional fees, accrued bonus expense, and share-based compensation in the current period as compared to the same period in the prior year.

The net loss attributable to Barnwell for the three months ended March 31, 2024 totaled $1,772,000, a $535,000 decrease in operating results from net loss of $1,237,000 for the three months ended March 31, 2023.

The following factors affected the results of operations for the three months ended March 31, 2024 as compared to the prior year period:

• A $1,906,000 decrease in oil and natural gas segment operating results, before income taxes, primarily attributable to a $1,677,000 non-cash ceiling test impairment in the current year period primarily due to lower 12-month rolling average first-day-of-the-month prices, whereas there was no such ceiling test impairment in the prior year period;

• A $424,000 decrease in contract drilling segment operating results, before income taxes, due to an increase in estimated costs resulting from labor cost increases and operational issues encountered on a job;

• Equity in income from affiliates increased $1,071,000 and land investment segment operating results, before non-controlling interests’ share of such profits, increased $500,000 due to the Kukio Resort Land Development Partnerships' sale of two lots in the current year period, whereas there were no lots sold in the prior year period;

• General and administrative expenses decreased $669,000 primarily due to decreases in stockholders costs and professional fees in the current year period as compared to the same period in the prior year.

The net loss attributable to Barnwell for the six months ended March 31, 2024 totaled $2,436,000, a $2,288,000 decrease in operating results from a net loss of $148,000 for the six months ended March 31, 2023.

The following factors affected the results of operations for the six months ended March 31, 2024 as compared to the prior year period:

• A $3,011,000 decrease in oil and natural gas segment operating results, before income taxes, primarily attributable to a $1,677,000 non-cash ceiling test impairment in the current year period and an increase in oil and natural gas depletion in the current year period as compared to the same period in the prior year;

• A $700,000 decrease in contract drilling segment operating results, before income taxes, due to an increase in estimated costs resulting from labor cost increases and operational issues encountered on jobs;

• Equity in income from affiliates increased $533,000 and land investment segment operating results, before non-controlling interests’ share of such profits, increased $235,000 due to the Kukio Resort Land Development Partnerships' sale of two lots in the current year period, whereas there was one lot sold in the prior year period;

• General and administrative expenses decreased $1,514,000 primarily due to decreases in stockholders costs and professional fees in the current period as compared to the same period in the prior year;

• A $551,000 gain recognized in the prior year period from the sale of a contract drilling segment drilling rig, whereas there was no such gain the current period.

Barnwell conducts operations in the U.S.

4 unchanged sentences

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

dollar remained unchanged in the three months ended December 31, 2023 as compared to the same period in the prior year, and the exchange rate of the Canadian dollar to the U.S.

dollar increased 3% at December 31, 2023 as compared to September 30, 2023.

dollar remained unchanged in the three and six months ended March 31, 2024, respectively, as compared to the same periods in the prior year.

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

dollar also remained unchanged at March 31, 2024, as compared to September 30, 2023.

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

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

Other comprehensive income due to foreign currency translation adjustments, net of taxes, for the three months ended December 31, 2023 was $30,000, a $28,000 change from other comprehensive income due to foreign currency translation adjustments, net of taxes, of $2,000 for the same period in the prior year.

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

Other comprehensive loss due to foreign currency translation adjustments, net of taxes, for the three months ended March 31, 2024 was $22,000, a $22,000 change from other comprehensive loss due to foreign currency translation adjustments, net of taxes, of nil for the same period in the prior year.

Other comprehensive income due to foreign currency translation adjustments, net of taxes, for the six months ended March 31, 2024 was $8,000, a $6,000 change from other comprehensive income due to foreign currency translation adjustments, net of taxes, of $2,000 for the same period in the prior year.

There were no taxes on other comprehensive income (loss) due to foreign currency translation adjustments in the three and six months ended March 31, 2024 and 2023 due to a full valuation allowance on the related deferred tax asset.

Oil and Natural Gas

3 unchanged sentences

Three months ended Increase

December 31, (Decrease)

March 31, (Decrease)

2024 2023 $ %

2 unchanged sentences

Natural gas liquids (Bbls)** $ 30.06 $ 35.13 $ (5.07) (14 %)

Average Price Per Unit

Six months ended Increase

March 31, (Decrease)

2024 2023 $ %

Natural Gas (Mcf)* $ 1.87 $ 3.54 $ (1.67) (47 %)

Oil (Bbls)** $ 64.09 $ 68.68 $ (4.59) (7 %)

Natural gas liquids (Bbls)** $ 29.60 $ 40.09 $ (10.49) (26 %)

Net Production

Three months ended Increase

December 31, (Decrease)

March 31, (Decrease)

2024 2023 Units %

2 unchanged sentences

Natural gas liquids (Bbls)** 16,000 8,000 8,000 100 %

Net Production

Six months ended Increase

March 31, (Decrease)

2024 2023 Units %

Natural Gas (Mcf)* 713,000 527,000 186,000 35 %

Oil (Bbls)** 108,000 91,000 17,000 19 %

Natural gas liquids (Bbls)** 34,000 18,000 16,000 89 %

_______________________________________

2 unchanged sentences

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

The oil and natural gas segment generated an $881,000 operating profit before general and administrative expenses in the three months ended December 31, 2023, a decrease in operating results of $1,105,000 as compared to a $1,986,000 operating profit before general and administrative expenses generated during the same period of the prior year.

The following table sets forth Barnwell’s oil and natural gas segment operating profit before general and administrative expenses by geographic location:

The oil and natural gas segment generated a $1,205,000 operating loss before general and administrative expenses in the three months ended March 31, 2024, a decrease in operating results of $1,906,000 as compared to the $701,000 operating profit before general and administrative expenses generated during the same period of the prior year.

The oil and natural gas segment generated a $324,000 operating loss before general and administrative expenses in the six months ended March 31, 2024, a decrease in operating results of $3,011,000 as compared to the $2,687,000 operating profit before general and administrative expenses generated during the same period of the prior year.

The operating losses for the three and six months ended March 31, 2024 were due to a non-cash ceiling test impairment of $1,677,000.

There was no ceiling test impairment during the three and six months ended March 31, 2023.

The decrease in operating results for both the three and six month periods of the current year were also due to an increase in depletion expense, as further discussed below.

The following table sets forth Barnwell’s oil and natural gas segment operating (loss) profit before general and administrative expenses by geographic location:

Three months ended

Operating profit (before general and administrative expenses)

Canada $ 536,000 $ 1,599,000

Oklahoma 177,000 387,000

Texas 168,000 —

Total operating profit $ 881,000 $ 1,986,000

Oil and natural gas segment revenues decreased $96,000 (2%) for the three months ended December 31, 2023, as compared to the same period in the prior year, primarily due to significant decreases in natural gas, oil, and natural gas liquid prices, which decreased 57%, 7%, and 34%, respectively, as compared to the same period in the prior year.

The decrease was partially offset by increases of 26%, 21%, and 80% in natural gas, oil, and natural gas liquid production, respectively, as compared to the same period in the prior year.

will sell during the period from April 1, 2024 to October 31, 2024 to a fixed price of $2.55 Canadian dollars per Mcf, with remaining volumes continuing to be sold at spot prices.

This per day volume of natural gas under fixed price contract is equivalent to approximately 30% of what Canadian natural gas gross production per day was for the three months ended December 31, 2023.

Additionally, the Company also amended the sales price on 225 gross barrels per day of the Canadian oil that it will sell during the period from January 1, 2024 to June 30, 2024 to a fixed price of $69.46 per net barrel, with remaining volumes continuing to be sold at spot prices.

This per day volume of oil under fixed price contract is equivalent to approximately 30% of what Canadian oil gross production per day was for the three months ended December 31, 2023.

March 31, Six months ended

2024 2023 2024 2023

Operating profit (loss)

(before general and administrative expenses)

$ (1,511,000) $ 489,000 $ (975,000) $ 2,088,000

United States 306,000 212,000 651,000 599,000

Total operating (loss) profit $ (1,205,000) $ 701,000 $ (324,000) $ 2,687,000

________________________

(1) The operating losses for Canada for the three and six months ended March 31, 2024 include a non-cash ceiling test impairment of $1,677,000.

Oil and natural gas revenues increased $458,000 (12%) and $362,000 (4%) for the three and six months ended March 31, 2024, respectively, as compared to the same periods in the prior year.

The increases were primarily due to increases in natural gas, oil, and natural gas liquid production from wells drilled in 2023 in the Twining area and from wells in Texas, partially offset by decreases in the prices of all the commodities in the current year periods as compared to the same periods in the prior year.

In the quarter ended December 31, 2023, the Company amended certain of its Canadian purchase and sales contracts to change the sales price on 1,055 gross Mcf per day of the Canadian natural gas that it will sell during the period from April 1, 2024 to October 31, 2024 to a fixed index price of $2.55 Canadian dollars per Mcf, with remaining volumes continuing to be sold at spot prices.

This per day volume of natural gas under fixed index price contract is equivalent to approximately 34% of what Canadian natural gas gross production per day was for the three months ended March 31, 2024.

Additionally, the Company also amended the sales price on 225 gross barrels per day of the Canadian oil for sale for the period from January 1, 2024 to June 30, 2024 to a fixed index price of $69.46 per net barrel, with remaining volumes continuing to be sold at spot prices.

This per day volume of oil under this fixed index price contract is equivalent to approximately 37% of what Canadian oil gross production per day was for the three months ended March 31, 2024.

These natural gas and oil contracts were eligible for and elected as normal purchase and normal sales exception contracts and were thus excluded from derivative accounting.

Oil and natural gas segment operating expenses increased $347,000 (14%) for the three months ended December 31, 2023, as compared to the same period in the prior year, primarily due to costs associated with new production from wells in Texas and from wells in the Twining area.

Oil and natural gas segment depletion increased $662,000 (83%) for the three months ended December 31, 2023, as compared to the prior year period.

The increase was due to depletion attributable to production in Texas, whereas there was no such depletion in the prior year period, and was due to an increase in the depletion rate for Canadian properties and also new production from those properties, both of which were the result of the drilling of new wells and facilities expansion and upgrade costs, all in the Twining area.

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

There were no reductions to the carrying value of our oil and natural gas properties during the three months ended December 31, 2023 and 2022.

Changes in the 12-month 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 market value of unproved properties, impact the determination of the maximum carrying value of oil and natural gas properties.

Based on the 12-month rolling average first-day-of-the-month prices for January and February 2024, it is reasonably possible that we will incur a ceiling test impairment in the Company's second quarter ending March 31, 2024.

The Company is currently unable to estimate a range of the amount of any potential future reduction in carrying value as variables that impact the ceiling limitation are dependent upon actual results through the end of March 2024.

Oil and natural gas operating expenses increased $63,000 (3%) and $410,000 (9%) for the three and six months ended March 31, 2024, respectively, as compared to the same periods in the prior year, primarily due to costs associated with new production from wells in the Twining area and from wells in Texas.

Oil and natural gas segment depletion increased $624,000 (87%) and $1,286,000 (85%) for the three and six months ended March 31, 2024, respectively, as compared to the same periods in the prior year.

The increases were primarily due to increases in the depletion rate for Canadian properties and also increased production from those properties, both of which were the result of the wells drilled in 2023 and facilities expansion and upgrade costs, all in the Twining area.

The increases were also due to depletion attributable to production in Texas, whereas there was no such depletion in the prior year periods.

Sale of Interest in Leasehold Land

Kaupulehu Developments is entitled to receive a percentage of the gross receipts from the sales of lots and/or residential units in Increment I by KD I.

Kaupulehu Developments was entitled to receive a percentage of the gross receipts from the sales of lots and/or residential units in Increment I by KD I.

The following table summarizes the revenues received from KD I and the amount of fees directly related to such revenues:

Three months ended

March 31, Six months ended

2024 2023 2024 2023

Sale of interest in leasehold land:

2 unchanged sentences

Sale of interest in leasehold land, net of fees paid $ 439,000 $ — $ 439,000 $ 233,000

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

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

As of December 31, 2023, only two single-family lots of the 80 lots developed within Increment I remain to be sold.

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

During the three and six months ended March 31, 2024, Barnwell received $500,000 in percentage of sales payments from KD I from the sale of the last two single-family lots within Increment I.

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

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

There is an Increment II owned by KD II in which the Company has a 10.8% indirect non-controlling ownership interest.

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

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

Contract Drilling

The contract drilling segment generated a $228,000 operating loss before general and administrative expenses in the three months ended December 31, 2023, a decrease in operating results of $276,000 as compared to a $48,000 operating profit during the same period of the prior year.

Contract drilling revenues and contract drilling costs decreased $955,000 (49%) and $688,000 (37%), respectively, for the three months ended December 31, 2023, as compared to the same period in the prior year.

These decreases were primarily due to less water well drilling activity in the current year period as compared to the same period in the prior year;

additionally, contract drilling costs did not decrease as much as contract drilling revenues as additional costs were incurred on one of the well drilling jobs due to operational issues during drilling.

Contract drilling revenues and contract drilling costs decreased $431,000 (29%) and $14,000 (1%), respectively, for the three months ended March 31, 2024, as compared to the same period in the prior year.

The contract drilling segment generated a $367,000 operating loss before general and administrative expenses in the three months ended March 31, 2024, a decrease in operating results of $424,000 as compared to the $57,000 operating profit generated during the same period of the prior year.

Contract drilling revenues and contract drilling costs decreased $1,386,000 (40%) and $702,000 (22%), respectively, for the six months ended March 31, 2024, as compared to the same period in the prior year.

The contract drilling segment generated a $595,000 operating loss before general and administrative expenses in the six months ended March 31, 2024, a decrease in operating results of $700,000 as compared to the $105,000 operating profit generated during the same period of the prior year.

The decreases in contract drilling revenues and contract drilling costs for the three and six months ended March 31, 2024 as compared to the same periods in the prior year were due to less progress made on jobs due to drilling difficulties and increases in estimated costs to complete as a result of these drilling difficulties, and a decrease in revenues and costs recognized from materials deliveries and installations as compared to the same periods in the prior year.

Also, during the quarter ended March 31, 2024, the Company commenced compensation adjustments for contract drilling segment personnel to decrease

potential attrition of workers and enable the Company to complete its drilling obligations.

These factors resulted in contract drilling expenses decreasing less than the decreases in contract drilling revenues.

On December 13, 2023, the Company entered into a stock purchase 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.

On December 27, 2023, the stock purchase agreement was terminated by the buyer prior to closing.

The Company continues to investigate strategies regarding Water Resources' future including, but not limited to, other potential opportunities for a sale of its stock or assets to any other interested parties, or the potential for eventual wind-down after all contracts in backlog are completed along with liquidation of its drilling rigs and equipment.

No definitive plans have been made as of the date of this Quarterly Report as to the future direction of Water Resources.

If no sale of its stock or assets along with contract backlog can be secured, Water Resources will be wound down after all contracts in backlog are completed and any remaining drilling rigs and equipment will be liquidated.

Management estimates that contracts in backlog will be completed in December 2024 or soon thereafter.

1 unchanged sentence

General and Administrative Expenses

General and administrative expenses decreased $845,000 (38%) for the three months ended December 31, 2023, as compared to the same period in the prior year.

The decrease was due to decreases of $694,000 in professional fees primarily related to legal and consulting services, $75,000 in accrued bonus expense, and $50,000 in share-based compensation in the current year period as compared to the same period in the prior year.

General and administrative expenses decreased $669,000 (33%) for the three months ended March 31, 2024 as compared to the same period in the prior year.

The decrease was due to decreases of $153,000 in professional fees and $535,000 in stockholders costs primarily attributed to the cooperation and support agreement and associated fees to certain directors in the prior year period as compared to the same period in the current year.

General and administrative expenses decreased $1,514,000 (35%) for the six months ended March 31, 2024 as compared to the same period in the prior year.

The decrease was due to decreases of $80,000 in share-based compensation, $847,000 in professional fees primarily related to legal and consulting services, and $545,000 in stockholders costs primarily attributed to the cooperation and support agreement and associated fees to certain directors in the prior year period as compared to the same period in the current year.

Depletion, Depreciation, and Amortization

Depletion, depreciation, and amortization increased $671,000 (80%) for the three months ended December 31, 2023, as compared to the same period in the prior year, primarily due to depletion attributable to production in Texas and increases in the depletion rate for Canadian properties and also new production from those properties as discussed in the “Oil and natural gas” section above.

Foreign currency gain

Foreign currency gain was $126,000 and $78,000 during the three months ended December 31, 2023 and 2022, respectively, due to the effects of foreign exchange rate changes on intercompany loans and advances as a result of the weakening of the U.S.

Depletion, depreciation, and amortization increased $631,000 (83%) and $1,302,000 (81%) for the three and six months ended March 31, 2024, respectively, as compared to the same periods in the prior year, primarily due to increases in the depletion rate for Canadian properties and also new production from those properties and due to depletion attributable to production in Texas as discussed in the “Oil and natural gas” section above.

Impairment of Assets

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

During the three and six months ended March 31, 2024, the Company incurred a non-cash ceiling test impairment for our Canadian oil and natural gas propertries of $1,677,000.

There was no ceiling test impairment during the three and six months ended March 31, 2023.

If oil and natural gas prices decline sufficiently from the 12-month historical rolling average first-day-of-the-month prices used in the ceiling test at March 31, 2024, it is more likely than not that the Company will incur further impairment write-downs in future periods in the absence of any offsetting factors that are not currently known or projected.

Foreign Currency Loss (Gain)

Foreign currency loss was $128,000 and $2,000 during the three and six months ended March 31, 2024, respectively, as compared to foreign currency gain of $2,000 and $80,000 during the three and six months ended March 31, 2023, respectively, due to the effects of foreign exchange rate changes on intercompany loans and advances as a result of changes in the U.S.

dollar against the Canadian dollar.

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

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

Gain on Sale of Assets

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

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

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

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

Equity in Income of Affiliates

Equity in income of affiliates was nil for the three months ended December 31, 2023, as compared to $538,000 for the three months ended December 31, 2022.

The decrease in partnership income was primarily due to the Kukio Resort Land Development Partnerships' sale of one lot during the prior year period, whereas there were no lot sales in the current year period.

No cash distributions were received from the Kukio Resort Land Development Partnerships during the three months ended December 31, 2023.

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

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

obligations of or otherwise committed to provide financial support to the Kukio Resort Land Development Partnerships.

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

Accordingly, no equity in income of affiliates was recognized during the three months ended December 31, 2023.

Cumulative distributions received from the Kukio Resort Land Development Partnerships in excess of our investment balance was $630,000 at December 31, 2023 and $708,000 at September 30, 2023.

Barnwell’s effective consolidated income tax rate for the three months ended December 31, 2023, after adjusting earnings before income taxes for non-controlling interests, was (11)%, as compared to an effective income tax rate of 7% for the three months ended December 31, 2022.

Equity in income of affiliates was $1,071,000 during the three and six months ended March 31, 2024, as compared to equity in income of affiliates of nil and $538,000 during the three and six months ended March 31, 2023, respectively.

The increase in partnership income is primarily due to the Kukio Resort Land Development Partnerships' sale of the last two lots in Increment I during the current year period, as compared to one lot sale in the prior year period.

During the six months ended March 31, 2024, Barnwell received cash distributions of $1,071,000 from the Kukio Resort Land Development Partnerships resulting in a net amount of $953,000, after distributing $118,000 to non-controlling interests.

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

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

The Company will record future equity method earnings only after our share of the Kukio Resort Land Development Partnerships’ cumulative earnings in excess of distributions during the

suspended period exceeds our share of the Kukio Resort Land Development Partnerships’ income recognized for the excess distributions, and during this suspended period any distributions received will be recorded as equity in income of affiliates.

Accordingly, the amount of equity in income of affiliates recognized in the six months ended March 31, 2024 was equivalent to the $1,071,000 of distributions received in that period.

Cumulative distributions received from the Kukio Resort Land Development Partnerships in excess of our investment balance was $225,000 at March 31, 2024 and $708,000 at September 30, 2023.

Barnwell’s effective consolidated income tax rate, after adjusting loss before income taxes for non-controlling interests, was (6)% and (7)% for the three and six months ended March 31, 2024, respectively, as compared to nil and (106)% for the three and six months ended March 31, 2023, respectively.

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

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

Net earnings attributable to non-controlling interests for the three months ended December 31, 2023 totaled $2,000, as compared to net earnings attributable to non-controlling interests of $120,000 for the same period in the prior year.

The decrease of $118,000 is primarily due to decreases in the amount of equity in income of affiliates and percentage of sales revenue received in the current year period as compared to the same period in the prior year.

Net earnings attributable to non-controlling interests totaled $222,000 and $224,000 for the three and six months ended March 31, 2024, respectively, as compared to net earnings attributable to non-controlling interests of $2,000 and $122,000 for the same periods in the prior year.

The changes of $220,000 (11,000%) and $102,000 ( 84%) for the three and six months, respectively, are primarily due to increases in the amount of equity in income of affiliates and percentage of sales revenues received in the current year periods as compared to the same periods in the prior year.

Liquidity and Capital Resources

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

At December 31, 2023, Barnwell had $2,478,000 in working capital.

Cash flows provided by operating activities increased $478,000 to $1,375,000 for the three months ended December 31, 2023, as compared to cash flows provided by operating activities of $897,000 for the three months ended December 31, 2022.

This increase was primarily due to the timing of the collection of current assets, partially offset by lower operating results for the oil and natural gas segment in the current year period as compared to the same period in the prior year.

Cash flows used in investing activities totaled $1,019,000 during the three months ended December 31, 2023, as compared to cash flows used in investing activities of $6,891,000 during the same period of the prior year.

This $5,872,000 change in investing cash flows was due to a decrease of $6,316,000 in cash paid for investments in oil and natural gas properties, partially offset by a decrease of $219,000 in distributions from equity investees in excess of earnings and a decrease of $233,000 in proceeds from sale of interest in leasehold land in the current year period as compared to same period in the prior year.

Cash flows used in financing activities totaled $4,000 during the three months ended December 31, 2023, as compared to cash flows used in financing activities of $108,000 for the same period in the prior year.

The $104,000 change in financing cash flows was primarily due to a decrease in distributions to non-controlling interests in the current year period as compared to the same period in the prior year.

Cash Dividend

No dividends were declared or paid during the three months ended December 31, 2023.

During the three months ended December 31, 2022, the Company's Board of Directors declared a cash dividend of $0.015 per share that was paid on January 11, 2023 to stockholders of record on December 27, 2022.

At The Market Offering

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

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

Shares of common stock sold under the ATM are offered pursuant to the Company’s Registration Statement on Form S-3 (File No.

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

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

At March 31, 2024, Barnwell had $3,332,000 in working capital.

Barnwell’s primary sources of liquidity are cash on hand and cash flow generated by our oil and natural gas operations as minimal, if any, cash flow is expected from our land investment segment.

The Company has generated a significant amount of cash inflows from its land investment segment, however, the last lots at Increment I were sold during the quarter ended March 31, 2024 and there are no more lots available for sale in Increment I.

In addition, no definitive development plans have been made by the developer of Increment II as of the date of this report and thus future cash inflows from the land investment segment are uncertain.

Management estimates that cash flows from the sale of the contract drilling segment business or its operating assets will provide some level of liquidity in the near-term.

The Company will primarily be reliant upon sufficient operating cash inflows from its oil and natural gas segment, which in turn will be largely determined by prices and production levels.

A certain level of oil and natural gas capital expenditures will be necessary to grow reserves and production or at a minimum replace declining production from aging wells.

Such a level of oil and natural gas capital expenditures may require funding from external debt or equity sources that are not currently in place.

While management estimates that it is more likely than not that there is sufficient cash on hand, contract drilling segment asset sales and cash flows from oil and natural gas segment operations to continue as a going concern for the twelve months from the filing of this report, the aforementioned factors will influence the Company’s liquidity beyond that twelve month period.

Cash flows provided by operations totaled $2,262,000 for the six months ended March 31, 2024, as compared to cash flows provided by operations of $734,000 for the same period in the prior year.

This $1,528,000 change in operating cash flows was due to an increase in distributions of income from the Kukio Resort Land Development Partnerships and a decrease in general and administrative costs in the current year period as compared to the prior year period, partially offset by lower operating results for the contract drilling segment in the current year period as compared to the same period in the prior year.

Cash flows used in investing activities totaled $1,186,000 during the six months ended March 31, 2024, as compared to cash flows used in investing activities of $7,370,000 during the same period of the prior year.

This $6,184,000 change in investing cash flows was primarily due to a decrease of $6,163,000 in cash paid for investments in oil and natural gas properties in the current year period as compared to the same period in the prior year.

Cash flows used in financing activities totaled $223,000 for the six months ended March 31, 2024, as compared to cash flows used in financing activities of $423,000 for the six months ended March 31, 2023.

The $200,000 change in financing cash flows was due to a decrease of $299,000 in payment of dividends, partially offset by an increase of $99,000 in distributions to non-controlling interests in the current year period as compared to the same period in the prior year.

Cash Dividends

No dividends were declared or paid during the six months ended March 31, 2024.

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

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

Oil and Natural Gas Capital Expenditures

Barnwell’s oil and natural gas capital expenditures, including accrued capital expenditures and excluding additions and revisions to estimated asset retirement obligations, totaled $495,000 for the three months ended December 31, 2023, as compared to $5,928,000 for the same period in the prior year.

Barnwell’s oil and natural gas capital expenditures, including accrued capital expenditures and excluding acquisitions and additions and revisions to estimated asset retirement obligations, totaled $560,000 and $1,055,000 for the three and six months ended March 31, 2024, respectively, as compared to $1,752,000 and $7,680,000 for the same periods in the prior year.

The oil and natural gas capital expenditures for the six months ended March 31, 2024 were primarily for completion, improvement and equipping costs in the Twining area of Alberta, Canada.

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.

Additionally, 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 had paid $4,293,000 for its share of the costs to drill, complete, and equip the wells in the three months ended December 31, 2022.

In the quarter ended March 31, 2023, the Company participated in the drilling of three gross (0.9 net) non-operated wells in the Twining area of Alberta, Canada.

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

Barnwell estimates that investments in oil and natural gas properties for fiscal 2024 will range from $4,000,000 to $6,000,000.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis