Barnwell Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2022. The filing is unaudited; results are not necessarily indicative of the full fiscal year.
Financial performance
| Metric | Three months ended March 31, 2022 | Six months ended March 31, 2022 |
|---|---|---|
| Total revenue | $6.679 million, versus $3.998 million | $12.133 million, versus $8.385 million |
| Net earnings attributable to Barnwell | $2.052 million; $0.21 per diluted share | $3.125 million; $0.33 per diluted share |
| Net cash from operating activities | Six-month amount: $1.699 million, versus cash used of $0.338 million |
- Quarterly revenue rose about 67% year over year; six-month revenue rose about 45%. Oil and natural gas revenue was $5.133 million for the quarter and $9.053 million for six months. Contract drilling revenue declined to $0.818 million and $1.694 million, respectively.
- Oil and natural gas segment operating profit before general and administrative expense was $2.430 million for the quarter and $3.998 million for six months. Contract drilling recorded losses of $0.141 million and $0.292 million, respectively.
- Equity in income of affiliates was $1.760 million for the quarter and $2.967 million for six months, up from $0.624 million and $1.678 million. For the six-month period, recognized affiliate income equaled distributions received because the partnership investment balance had previously been reduced to zero and equity-method earnings recognition was suspended.
- General and administrative expense increased 16% for the quarter and 31% for six months, reflecting higher legal and consulting fees, compensation, and share-based compensation. Six-month depreciation, depletion and amortization was $1.101 million, compared with $0.503 million; there was no current-period impairment, versus $0.630 million in the prior-year six-month period.
Liquidity, capital and balance sheet
- At March 31, 2022, cash and cash equivalents were $9.626 million, down from $11.279 million at September 30, 2021. Working capital was $11.026 million.
- Current assets were $18.256 million and current liabilities $7.230 million. Long-term debt was $48,000; the company also reported $9.563 million of asset retirement obligations, including the current portion.
- Six-month investing cash outflow was $5.141 million, primarily reflecting $5.223 million of oil and gas capital expenditures and $1.563 million of property acquisitions, partly offset by asset-sale proceeds and distributions. Financing cash inflow was $1.799 million, including $2.356 million of net ATM proceeds.
- Under the ATM program, Barnwell sold 509,467 shares for $2.356 million net proceeds. Shares outstanding were 9,956,687 at March 31; the six-month weighted-average diluted share count was 9,507,955.
Changes versus prior period and management commentary
- Management attributed the earnings improvement chiefly to higher oil and gas prices, new Oklahoma production, increased Kukio partnership results, and land-sale receipts. Average realized oil prices and production both increased year over year.
- Six-month contract drilling results deteriorated by $0.897 million, mainly because a high-margin well-drilling contract in the prior-year period had been completed.
- Barnwell acquired additional working interests in Alberta’s Twining area and assumed $1.5 million of asset retirement obligations in connection with one acquisition. Three gross (1.6 net) Twining wells began producing during the quarter.
- Management estimated fiscal 2022 oil and gas property investment of $8.3 million to $13.3 million, subject to cash flows and its assessment of the operating environment. No earnings or revenue guidance was provided.
Risks, contingencies and notable events
- Oil and gas prices are volatile; Oklahoma shale-well production is expected to decline significantly. Oil and gas ceiling-test results depend on commodity prices, reserves and other estimates.
- Water-well drilling demand has been weak and competitive, and contract availability and margins may fluctuate. COVID-19-related disruptions remain a potential risk.
- A drilling well did not meet the contract’s gyroscopic plumbness specification. Costs for proposed remedial equipment were accrued, but no warranty liability was recorded because management did not consider a loss probable or estimable. Management reported no known litigation likely to materially adversely affect results, financial position or liquidity.
- In April 2022, a $400,000 third-party loan was repaid in full. Barnwell also received $385,000 of net Kukio partnership distributions after quarter-end. In May, shareholders approved increasing authorized common shares from 20 million to 40 million and doubling the 2018 equity plan’s share authorization.
- Disclosure controls were assessed as effective as of March 31, 2022, with no material change in internal control reported during the quarter.
Investor facts to verify
- How much future earnings and cash generation depend on Kukio partnership lot sales and distributions, particularly given the zero investment balance and suspended equity-method recognition.
- Whether oil and gas prices and production—especially declining Oklahoma shale production—can sustain current segment performance and the planned capital spending range.
- Contract drilling backlog, utilization, margins and any eventual warranty costs associated with the well that missed its plumbness specification.
- Cash needs and funding capacity after capital spending, asset retirement obligations, and further potential ATM share issuance; consider dilution from the shares already issued and the increased authorized share count.