What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-02-14 compared with 2024-08-13 · 90 added, 174 removed, 109 unchanged (71% 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 2024 Annual Report.

There have been no significant changes to these critical accounting policies and estimates during the three and nine months ended June 30, 2024.

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

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

3 unchanged sentences

Improvements to Reportable Segment Disclosures,” which expands reportable segment disclosure requirements on an annual and interim basis, primarily through enhanced disclosures about significant segment expenses.

This ASU is effective for annual reporting periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact of this standard on Barnwell’s consolidated financial statements.

This ASU is effective for annual reporting periods beginning after December 15, 2023 (our fiscal 2025) and interim periods within fiscal years beginning after December 15, 2024 (our fiscal 2026), with early adoption permitted.

The Company is currently evaluating the impact of this standard on Barnwell’s consolidated financial statements but does not expect that the adoption of this update will have a material impact on Barnwell's consolidated financial statements.

In December 2023, the FASB issued ASU No.

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

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.

and foreign jurisdiction, among other disclosure requirements.

1 unchanged sentence

The Company is currently evaluating the impact of this standard on Barnwell’s consolidated financial statements .

In November 2024, the FASB issued ASU No.

2024-03 “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses,” which requires public companies to disclose specified information about certain costs and expenses in the notes to the financial statements at interim and annual reporting periods.

This ASU is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted.

The Company is currently evaluating the impact of this standard on Barnwell’s consolidated financial statements.

Barnwell is engaged in the following lines of business:

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

(oil and natural gas segment), 2) investing in land interests in Hawaii (land investment segment), and 3) drilling wells and installing and repairing water pumping systems in Hawaii (contract drilling segment).

(oil and natural gas segment), 2) leasehold land interests in Hawaii (land investment segment), and 3) drilling wells and installing and repairing water pumping systems in Hawaii (contract drilling segment).

Oil and Natural Gas Segment

4 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.

However, in the quarter ended March 31, 2024, the last two remaining single-family lots of the 80 lots developed within Increment I were sold and there are no more lots available for sale in Increment I.

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.

In the quarter 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.

of $3,000,000.

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

2 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.

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 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, 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.

These entities, collectively referred to hereinafter 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 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 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 resales by the real estate sales office and revenues resulting from the sale of private club memberships, a few of which remain available for sale.

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 June 30, 2024 for the Kukio Resort Land Development Partnerships as a whole was approximately $4,500,000;

The Increment I deferred profit at December 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.

9 unchanged sentences

(“Water Resources”), drills water and water monitoring wells and installs and repairs water pumping systems in Hawaii.

Contract drilling results are highly dependent upon the quantity, dollar value and timing of contracts awarded by governmental and private entities and can fluctuate significantly.

Results of Operations

The net loss attributable to Barnwell for the three months ended June 30, 2024 totaled $1,246,000, a $529,000 decrease in operating results from a net loss of $717,000 for the three months ended June 30, 2023.

The following factors affected the results of operations for the three months ended June 30, 2024 as compared to the prior year period:

• A $599,000 non-cash ceiling test impairment to our oil and natural gas properties in the current year period, whereas there was no such ceiling test impairment in the prior year period;

• A $104,000 decrease in contract drilling segment operating results, before income taxes, primarily resulting from decreased pump installation activity in the current year period as compared to the prior year period;

• A $104,000 increase in general and administrative expenses primarily due to an increase in compensation costs, partially offset by a decrease in professional fees in the current year period as compared to the same period in the prior year;

• A $182,000 increase in negative impacts due to a $61,000 foreign currency loss recorded in the current year period as compared to a $121,000 gain recorded in the prior year period due to the effects of foreign currency exchange rate changes on intercompany loans and advances as a result of changes in the U.S.

The net loss attributable to Barnwell for the three months ended December 31, 2024 totaled $1,917,000, a $1,253,000 decrease in operating results from net loss of $664,000 for the three months ended December 31, 2023.

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

• A $997,000 decrease in oil and natural gas segment operating results, before income taxes, primarily attributable to a $613,000 non-cash ceiling test impairment in the current year period and due to decreases in natural gas, oil, and natural gas liquids prices and production in the current year period as compared to the same period in the prior year;

• A $477,000 increase in negative impacts due to a $351,000 foreign currency loss recorded in the current period as compared to a $126,000 gain recorded in the prior year period due to the effects of foreign currency exchange rate changes on intercompany loans and advances as a result of changes in the U.S.

dollar against the Canadian dollar;

• Partially offsetting these decreases was a $772,000 decrease in oil and natural gas operating expenses in the current year period primarily due to decreases in repairs, electricity and chemical costs and also, due to optimization as a result of certain capital expenditures made earlier in the year as compared to the prior year period.

The net loss attributable to Barnwell for the nine months ended June 30, 2024 totaled $3,682,000, a $2,817,000 decrease in operating results from a net loss of $865,000 for the nine months ended June 30, 2023.

The following factors affected the results of operations for the nine months ended June 30, 2024 as compared to the prior year period:

• A $2,972,000 decrease in oil and natural gas segment operating results, before income taxes, primarily attributable to a $2,276,000 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 $804,000 decrease in contract drilling segment operating results, before income taxes, primarily resulting from decreased activity and a decrease in revenue and costs recognized from material deliveries and installations as compared to the same period in the prior year;

• 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 $1,410,000 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.

• Partially offsetting these decreases was a $123,000 decrease in general and administrative expenses primarily due to a decrease in professional fees in the current year period as compared to the same period in the prior year and a $14,000 credit loss recovery recorded in the current year period as compared to a $37,000 credit loss expense in the prior year period.

Barnwell conducts operations in the U.S.

4 unchanged sentences

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

dollar decreased 2% and 1% in the three and nine months ended June 30, 2024, respectively, as compared to the same periods in the prior year.

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

dollar decreased 1% at June 30, 2024, as compared to September 30, 2023.

dollar decreased 3% in the three months ended December 31, 2024 as compared to the same period in the prior year, and the exchange rate of the Canadian dollar to the U.S.

dollar decreased 6% at December 31, 2024 as compared to September 30, 2024.

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 June 30, 2024 was $12,000, a $3,000 change from other comprehensive income due to foreign currency translation adjustments, net of taxes, of $15,000 for the same period in the prior year.

Other comprehensive income due to foreign currency translation adjustments, net of taxes, for the nine months ended June 30, 2024 was $20,000, a $3,000 change from other comprehensive income due to foreign currency translation adjustments, net of taxes, of $17,000 for the same period in the prior year.

There were no taxes on other comprehensive income due to foreign currency translation adjustments in the three and nine months ended June 30, 2024 and 2023 due to a full valuation allowance on the related deferred tax asset.

Other comprehensive income due to foreign currency translation adjustments, net of taxes, for the three months ended December 31, 2024 was $93,000, a $63,000 change from other comprehensive income due to foreign currency translation adjustments, net of taxes, of $30,000 for the same period in the prior year.

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

Oil and natural gas

3 unchanged sentences

Three months ended Increase

June 30, (Decrease)

2024 2023 $ %

Natural Gas (Mcf)* $ 1.00 $ 1.82 $ (0.82) (45 %)

Oil (Bbls)** $ 70.64 $ 65.96 $ 4.68 7 %

Natural gas liquids (Bbls)** $ 29.81 $ 28.63 $ 1.18 4 %

Average Price Per Unit

Nine months ended Increase

June 30, (Decrease)

December 31, (Decrease)

2024 2023 $ %

4 unchanged sentences

Three months ended Increase

June 30, (Decrease)

2024 2023 Units %

Natural Gas (Mcf)* 348,000 330,000 18,000 5 %

Oil (Bbls)** 50,000 53,000 (3,000) (6 %)

Natural gas liquids (Bbls)** 16,000 16,000 — — %

Net Production

Nine months ended Increase

June 30, (Decrease)

December 31, (Decrease)

2024 2023 Units %

6 unchanged sentences

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

The oil and natural gas segment generated a $326,000 operating profit after depletion and impairment of $1,293,000 and $599,000, respectively, and before general and administrative expenses in the three months ended June 30, 2024, an increase in operating results of $39,000 as compared to the $287,000 operating profit before general and administrative expenses generated during the same period of the prior year.

There was no ceiling test impairment during the three months ended June 30, 2023.

The oil and natural gas segment generated a $2,000 operating profit after depletion and impairment of $4,093,000 and $2,276,000, respectively, and before general and administrative expenses in the nine months ended June 30, 2024, a decrease in operating results of $2,972,000 as compared to the $2,974,000 operating profit before general and administrative expenses generated during the same period of the prior year.

There was no ceiling test impairment during the nine months ended June 30, 2023.

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 an $116,000 operating loss before general and administrative expenses in the three months ended December 31, 2024, a decrease in operating results of $997,000 as compared to a $881,000 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 (loss) profit before general and administrative expenses by geographic location:

Three months ended

June 30, Nine months ended

2024 2023 2024 2023

Operating profit (loss)

(before general and administrative expenses)

$ 292,000 $ (71,000) $ (683,000) $ 2,017,000

Operating (loss) profit (before general and administrative expenses)

Canada $ 402,000 $ 536,000

United States (1)

(518,000) 345,000

Total operating profit $ 326,000 $ 287,000 $ 2,000 $ 2,974,000

________________________

(1) The operating profit (loss) for Canada for the three and nine months ended June 30, 2024 includes non-cash ceiling test impairments of $487,000 and $2,164,000, respectively.

(2) The operating profit for the United States for the three and nine months ended June 30, 2024 include a non-cash ceiling test impairment of $112,000.

Oil and natural gas revenues decreased $51,000 (1%) for the three months ended June 30, 2024 as compared to the same period in the prior year.

Oil and natural gas revenues increased $311,000 (2%) for the nine months ended June 30, 2024, as compared to the same period in the prior year, primarily due to increases in natural gas, oil, and natural gas liquid production and was partially offset by decreases in the prices of all of those commodities in the current year period as compared to the same period 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 sells during the period from April 1, 2024 to October 31, 2024 to a fixed index price before differentials 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 32% of what Canadian natural gas gross production per day was for the nine months ended June 30, 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 before differentials 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 34% of what Canadian oil gross production per day was for the nine months ended June 30, 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.

In July 2024, the Company amended certain of its Canadian purchase and sales contracts to change the sales price on 100 gross barrels per day of the Canadian oil it will sell during the period from August 1, 2024 to December 31, 2024 to a fixed index price before differentials of $79.00 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 15% of what Canadian oil gross production per day was for the nine months ended June 30, 2024.

Additionally, in July 2024, 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 it will sell during the period from November 1, 2024 to March 31, 2025 to a fixed index price before differentials of $2.64 Canadian dollars per Mcf, with remaining volumes continuing to be sold at spot prices.

This per day volume of natural gas under this fixed index price contract is

equivalent to approximately 32% of what Canadian natural gas gross production per day was for the nine months ended June 30, 2024.

Oil and natural gas operating expenses decreased $772,000 (26%) and $362,000 (5%) for the three and nine months ended June 30, 2024, respectively, as compared to the same periods in the prior year, primarily due to decreases in repairs, electricity and chemical costs in the current year periods.

The decreases in oil and natural gas operating expenses for the three and nine months ended June 30, 2024 were also due to optimization as a result of certain capital expenditures made earlier in the year.

Oil and natural gas segment depletion increased $83,000 (7%) and $1,369,000 (50%) for the three and nine months ended June 30, 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 increase for the nine months ended June 30, 2024 was also due to increased depletion from production in Texas, whereas there was only a minor amount of such depletion in the prior year period.

Sale of Interest in Leasehold Land

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

June 30, Nine months ended

Total operating (loss) profit $ (116,000) $ 881,000

________________________

Sale of interest in leasehold land:

Revenues - sale of interest in leasehold land $ — $ — $ 500,000 $ 265,000

Fees - included in general and administrative expenses — — (61,000) (32,000)

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

No lots were sold during the three months ended June 30, 2024 and 2023.

During the nine months ended June 30, 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.

During the nine months ended June 30, 2023, Barnwell received $265,000 in percentage of sales payments from KD I from the sale of one single-family lot within Increment I.

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.

(1) The operating loss for the United States for the three months ended December 31, 2024 includes a non-cash ceiling test impairment of $613,000.

Oil and natural gas segment revenues decreased $1,233,000 (24%) for the three months ended December 31, 2024, as compared to the same period in the prior year, primarily due to decreases in oil, natural gas and natural gas liquids production, which decreased 17%, 21% and 17%, respectively, as compared to the same period in the prior year.

The decrease was also attributable to decreases in natural gas, oil, and natural gas liquids prices, which decreased 40%, 2%, and 8%, respectively, as compared to the same period in the prior year.

The decreases in production are primarily the result of natural declines as the wells age.

The production decreases were also partially due to properties sold and certain wells that were temporarily shut-in for workovers.

The Company's latest Canadian well drilled, which is 100%-owned and operated, started producing in mid-September 2024 and contributed approximately 107 net barrels of equivalent per day for a total of approximately 10,000 net barrels of equivalent during the three months ended December 31, 2024.

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

In July 2024, the Company amended the sales price on 1,055 gross Mcf per day of the Canadian natural gas it will sell during the period from November 1, 2024 to March 31, 2025 to a fixed index price before differentials of $2.64 Canadian dollars per Mcf, with remaining volumes continuing to be sold at spot prices.

This per day volume of natural gas under this fixed index price contract that will affect the period from January 1, 2025 to March 31, 2025, is equivalent to approximately 38% of Canadian natural gas gross production per day for the quarter ended December 31, 2024.

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

In July 2024, the Company amended certain of its Canadian purchase and sales contracts to change the sales price on 100 gross barrels per day of the Canadian oil that it sold during the period from August 1, 2024 to December 31, 2024 to a fixed index price before differentials of $79.00 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 was equivalent to approximately 17% of Canadian oil gross production per day for the quarter ended December 31, 2024.

These 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 decreased $295,000 (11%) for the three months ended December 31, 2024, as compared to the same period in the prior year, due to lower production, partially offset by an increase in workovers and repair costs in the current year, as compared to the same period in the prior year.

Oil and natural gas segment depletion decreased $554,000 (38%) for the three months ended December 31, 2024, as compared to the prior year period.

The decrease was due to both a decrease in the depletion rate and a decrease in production.

The depletion rate decreased as a result of a decrease in the depletable base from significant ceiling test impairments between the prior year period and the current year period.

Contract drilling

Contract drilling revenues decreased $113,000 (10%) and contract drilling costs increased $10,000 (1%) for the three months ended June 30, 2024 as compared to the same period in the prior year.

The contract drilling segment generated a $99,000 operating loss before general and administrative expenses in the three months ended June 30, 2024, a decrease in operating results of $104,000 as compared to the $5,000 operating profit generated during the same period of the prior year.

Contract drilling revenues and contract drilling costs decreased $1,499,000 (33%) and $692,000 (16%), respectively, for the nine months ended June 30, 2024, as compared to the same period in the prior year.

The contract drilling segment generated a $694,000 operating loss before general and administrative expenses in the nine months ended June 30, 2024, a decrease in operating results of $804,000 as compared to the $110,000 operating profit generated during the same period of the prior year.

The decreases in contract drilling revenues and contract drilling costs for the nine months ended June 30, 2024 as compared to the same period in the prior year were primarily due to decreased activity and a decrease in revenues and costs recognized from materials deliveries and installations as compared to the same period in the prior year.

Also, during the current year period, 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 decrease 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.

In January 2024, a significant well drilling contract, which previously had an estimated contract drilling revenue backlog of $2,400,000 and which had not yet started, was cancelled by mutual agreement of Water Resources and the counterparty.

The contract drilling segment generated a $201,000 operating loss before general and administrative expenses in the three months ended December 31, 2024, an increase in operating results of $27,000 as compared to a $228,000 operating loss during the same period of the prior year.

Contract drilling revenues and contract drilling costs decreased $450,000 (45%) and $449,000 (38%), respectively, for the three months ended December 31, 2024, as compared to the same period in the prior year.

These decreases were primarily due to less activity in the current year period as compared to the same period in the prior year.

The contract drilling segment worked on only one water well drilling job in the current year period, as compared to three water well drilling jobs and one pump installation job in the prior year period.

In December 2024, the Company entered into an agreement with an independent third party for the sale of a contract drilling segment drilling rig and related ancillary equipment, which are all fully depreciated, and received a payment of $585,000 from the buyer.

At December 31, 2024, the delivery of the drilling rig and the transfer of the legal title to the buyer had not yet occurred and therefore, the Company did not record a sale during the three months ended December 31, 2024.

The payment received from the buyer was recognized as a deposit and recorded in “Other current liabilities” on the Company's Condensed Consolidated Balance Sheet at December 31, 2024.

In February 2025, the drilling rig was delivered and the legal title was transferred to the buyer and as a result, the Company will recognize a gain, net of costs, on the sale of the drilling rig in the quarter ending March 31, 2025.

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.

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 its three remaining contracts in backlog at June 30, 2024 will be completed in December 2024 or soon thereafter.

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

Management estimates that its three remaining contracts in backlog at December 31, 2024 will be completed in March 2025 or soon thereafter, however it is uncertain as to when the contingent liability related to the required drilling of a monitoring well in satisfaction of a regulatory assessment will be settled (see Note 14 in the “Notes to Consolidated Financial Statements” of this report).

General and administrative expenses

General and administrative expenses increased $104,000 (8%) for the three months ended June 30, 2024 as compared to the same period in the prior year.

General and administrative expenses decreased $1,410,000 (25%) for the nine months ended June 30, 2024 as compared to the same period in the prior year.

The decrease for the nine months ended June 30, 2024 as compared to the prior year period was primarily due to decreases of $924,000 in professional fees primarily related to legal and consulting services and $513,000 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 $123,000 (9%) for the three months ended December 31, 2024, as compared to the same period in the prior year.

The decrease was due to a decrease in professional fees in the current year period as compared to the same period in the prior year and a $14,000 credit loss recovery recorded in the current year period as compared to a $37,000 credit loss expense in the prior year period.

Depletion, depreciation, and amortization

Depletion, depreciation, and amortization increased $65,000 (5%) and $1,367,000 (48%) for the three and nine months ended June 30, 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.

Depletion, depreciation, and amortization decreased $583,000 (39%) for the three months ended December 31, 2024, as compared to the same period in the prior year, primarily due to both a decrease in the depletion rate and a decrease in production, 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 months ended June 30, 2024, the Company incurred a non-cash ceiling test impairment of $599,000, which included impairments for our U.S.

and Canadian oil and natural gas properties of $112,000 and $487,000, respectively.

The impairment to our U.S.

oil and natural gas properties was due to a decline in the historical 12-month rolling average first-day-of-the-month prices, primarily attributed to decreases in natural gas prices for our Texas property which is sold at the Waha hub.

The impairment to our Canadian oil and natural gas properties was primarily due to capital expenditures for which there is insufficient operating history to assign a determinable increase in future cash flows from reserves at period-end.

There was no ceiling test impairment during the three months ended June 30, 2023.

During the nine months ended June 30, 2024, the Company incurred a non-cash ceiling test impairment of $2,276,000, which included impairments for our U.S.

and Canadian oil and natural gas properties of $112,000 and $2,164,000, respectively.

The impairment to our Canadian oil and natural gas properties during the nine months ended June 30, 2024 was primarily due to a decline in the historical 12-month rolling average first-day-of-the-month prices and due to capital expenditures for which there is insufficient operating history to assign a determinable increase in future cash flows from reserves at period-end.

There was no ceiling test impairment during the nine months ended June 30, 2023.

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.

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 June 30, 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.

Changes in the 12-month rolling average first-day-of-the-month prices for oil, natural gas and natural gas liquids prices (except where prices are defined by contractual arrangements), 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.

During the three months ended December 31, 2024, the Company incurred a non-cash ceiling test impairment for our U.S.

oil and natural gas properties of $613,000.

There was no ceiling test impairment during the three months ended December 31, 2023.

As discussed above, the ceiling test uses a 12-month historical rolling average first-day-of-the-month prices.

As such, declines in the 12-month historical rolling average first-day-of-the-month prices used in our ceiling test calculation in future periods could result in 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 $61,000 and $63,000 during the three and nine months ended June 30, 2024, respectively, as compared to foreign currency gain of $121,000 and $201,000 during the three and nine months ended June 30, 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.

During the three months ended December 31, 2024 and 2023, there was a $351,000 foreign currency loss and a $126,000 foreign currency gain, respectively, due to the effects of foreign exchange rate changes on intercompany loans and advances as a result of changes in the exchange rate between the U.S.

dollar against the Canadian dollar.

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 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 nine months ended June 30, 2023.

Equity in Income of Affiliates

Equity in income of affiliates was nil and $1,071,000 during the three and nine months ended June 30, 2024, respectively, as compared to equity in income of affiliates of nil and $538,000 during the three and nine months ended June 30, 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 nine months ended June 30, 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 nine months ended June 30, 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 nine months ended June 30, 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 $300,000 at June 30, 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 (2)% and (5)% for the three and nine months ended June 30, 2024, respectively, as compared to 19% and 9% for the three and nine months ended June 30, 2023, respectively.

The foreign currency losses or gains from intercompany balances are included in our our consolidated statement of operations as the intercompany balances were not considered long-term in nature because management estimates that these intercompany balances will be settled in the future.

Barnwell’s effective consolidated income tax rate for the three months ended December 31, 2024, after adjusting loss before income taxes for non-controlling interests, was nil, as compared to an effective income tax rate of (11)% for the three months ended December 31, 2023.

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

based on consolidated operations, and essentially all deferred tax assets, net of relevant offsetting deferred

tax liabilities, are not estimated to have a future benefit as tax credits or deductions.

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.

4 unchanged sentences

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.

Net Earnings Attributable to Non-controlling Interests

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

Net earnings attributable to non-controlling interests totaled $12,000 and $236,000 for the three and nine months ended June 30, 2024, respectively, as compared to net earnings attributable to non-controlling interests of $2,000 and $124,000 for the same periods in the prior year.

The changes of $10,000 (500%) and $112,000 ( 90%) for the three and nine 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

At June 30, 2024, Barnwell had $3,292,000 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 cash flow from our land investment segment, if any, is expected to be minimal.

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

At December 31, 2024, Barnwell had $642,000 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 cash flow from our land investment segment, if any, are expected to be minimal.

In recent years, the Company generated a significant amount of cash inflows from its land investment segment, however, 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.

Management estimates that cash flows from the sale of the contract drilling segment business or its operating assets may also 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 $3,538,000 for the nine months ended June 30, 2024, as compared to cash flows provided by operations of $157,000 for the same period in the prior year.

This $3,381,000 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.

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

Cash flows used in investing activities totaled $1,731,000 during the nine months ended June 30, 2024, as compared to cash flows used in investing activities of $9,875,000 during the same period of the prior year.

This $8,144,000 change in investing cash flows was primarily due to a $451,000 increase in proceeds from the sale of oil and natural gas properties in the current year period as compared to the prior year period and a decrease of $7,588,000 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 $226,000 for the nine months ended June 30, 2024, as compared to cash flows used in financing activities of $577,000 for the nine months ended June 30, 2023.

The $351,000 change in financing cash flows was due to a decrease of $499,000 in payment of dividends, partially offset by an increase of $98,000 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 nine months ended June 30, 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.

In May 2023, the Company's Board of Directors declared a cash dividend of $0.015 per share that was paid on June 12, 2023 to stockholders of record on May 25, 2023.

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, but those sources may not be feasible or sufficient.

Management estimates that, barring any significant unforeseen events, it is more likely than not that there is sufficient cash on hand, cash flows from 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.

However, the aforementioned factors will influence the Company’s liquidity beyond that twelve month period.

Cash flows used in operating activities totaled $759,000 for the three months ended December 31, 2024, as compared to cash flows provided by operating activities of $1,375,000 for the three months ended December 31, 2023.

This $2,134,000 change in operating cash flows was primarily due to changes in working capital and 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.

The adjustment in operating cash flows due to the effect of changes in current assets and liabilities was a decrease of $793,000 in the current year period as compared to an increase of $606,000 in the prior year period.

Cash flows used in investing activities totaled $1,662,000 during the three months ended December 31, 2024, as compared to cash flows used in investing activities of $1,019,000 during the same period of the prior year.

This $643,000 change in investing cash flows was due to $1,511,000 more in cash

paid for investments in oil and natural gas properties in the current year as compared to the same period in the prior year, partially offset by a $585,000 deposit received for a pending sale of a contract drilling segment drilling rig and $282,000 of proceeds from the sale of oil and natural gas properties in Canada in the current year period;

there were no such amounts in the same period of the prior year.

Oil and Natural Gas Capital Expenditures

Barnwell’s oil and natural gas capital expenditures, including accrued capital expenditures and excluding acquisitions and additions and revisions to estimated asset retirement obligations, totaled $751,000 and $1,806,000 for the three and nine months ended June 30, 2024, respectively, as compared to $2,336,000 and $10,016,000 for the same periods in the prior year.

The oil and natural gas capital expenditures for the nine months ended June 30, 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 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 paid $4,293,000 for its share of the costs to drill, complete, and equip the wells in the nine months ended June 30, 2023.

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 nine months ended June 30, 2023 totaled approximately $4,649,000.

Barnwell’s oil and natural gas capital expenditures, including accrued capital expenditures and excluding additions and revisions to estimated asset retirement obligations, totaled $314,000 for the three months ended December 31, 2024, as compared to $495,000 for the same period in the prior year.

Barnwell estimates that investments in oil and natural gas properties for fiscal 2025 will range from $1,500,000 to $3,000,000.

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

In July 2024, the Company commenced the drilling of one gross (1.0 net) 100%-owned operated development oil well in the Twining area.

Oil and Natural Gas Property Dispositions

In the quarter ended June 30, 2024, Barnwell entered into and completed a purchase and sale agreement with an independent third party and sold its interests in certain natural gas and oil properties located in the Kaybob area of Alberta, Canada.

The sales price per the agreement was adjusted for customary purchase price adjustments to $448,000 in order to, among other things, reflect an economic effective date of May 1, 2024.

The final determination of the customary adjustments to the purchase price has not yet been made, however, it is not expected to result in a material adjustment.

There were no significant oil and natural gas property dispositions during the three months ended December 31, 2024.

The $282,000 of proceeds from sale of oil and natural gas properties included in the Condensed Consolidated Statement of Cash Flows for the three months ended December 31, 2024 represents proceeds that were credited to our cash in October 2024 from a sale of properties that closed in late September 2024.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis