Barnwell Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2023; comparative periods ended June 30, 2022. The filing was signed August 14, 2023. Barnwell operates oil and natural gas, Hawaii contract drilling, and Hawaii land investment businesses.
Key financial results
| Metric | Three months ended June 30, 2023 | Nine months ended June 30, 2023 |
|---|---|---|
| Revenue | $5.675 million, down 29% year over year | $18.425 million, down 9% |
| Net income (loss) attributable to Barnwell | $(717,000), versus $2.531 million income | $(865,000), versus $5.656 million income |
| Basic and diluted EPS | $(0.07), versus $0.25 | $(0.09), versus $0.59 |
| Operating cash flow | Not presented for the quarter | $157,000, versus $5.669 million |
| Investing cash flow | Not presented for the quarter | $(9.875) million, including $10.022 million oil and gas capital expenditures |
At June 30, cash and cash equivalents were $2.572 million, versus $12.804 million at September 30, 2022. Working capital was $1.581 million. Current assets were $9.147 million and current liabilities $7.566 million. Long-term debt was zero; the company reported a $45,000 Canadian CEBA loan within other current liabilities. Total liabilities were $17.067 million and total equity $18.068 million.
Material changes and operating drivers
- Oil and natural gas revenue fell 38% for the quarter and 18% year to date. Lower realized prices were the principal drag: quarterly natural gas, oil, and NGL prices declined 72%, 37%, and 46%, respectively. Higher oil and gas production partly offset price declines.
- Oil and gas segment operating profit before corporate G&A declined to $287,000 for the quarter and $2.974 million year to date, from $4.123 million and $8.121 million, respectively. Higher operating costs and depletion also weighed on results.
- Contract drilling improved: revenue increased to $1.134 million for the quarter and $4.583 million year to date, with segment operating profit before G&A of $5,000 and $110,000, respectively. Results benefited from higher activity and higher-value water-well work.
- Equity income from affiliates was $538,000 year to date, versus $3.4 million. Kukio partnership activity included one lot sale versus six in the prior-year period; only one Increment I lot remained at June 30. No quarter-period equity income was recorded.
- Cash declined by $10.232 million over the nine-month period, primarily as investing outlays substantially exceeded operating cash generation. Capital spending funded drilling and development, including new Texas production and wells in Alberta’s Twining area.
Outlook, risks, and unusual items
- Management estimated fiscal 2023 oil and gas property investment of $10.2 million to $10.5 million, subject to cash flows and its assessment of commodity markets and prospects. The filing provides no earnings or revenue guidance.
- Commodity prices remain volatile and are not reasonably predictable. Barnwell does not hedge foreign currency exposure; exchange-rate movements can affect results. Water-well contract availability and margins are uncertain, and drilling activity may fluctuate.
- Increment II land development has no definitive development plan, and there is no assurance it will proceed or that future land-sale payments will be received. The remaining Increment I lot was not expected to sell in fiscal 2023.
- The company recorded a $551,000 gain on sale of a fully depreciated drilling rig and a $201,000 foreign-currency gain in the nine-month period. Out-of-period corrections increased the nine-month net loss by a net $41,000; management concluded the adjustments were not material to the current or previously issued periods.
- A contract-drilling well did not meet a contractual gyroscopic plumbness test. Barnwell and the customer arranged remedial work; management recorded costs for specified work but no additional contingent liability, stating further costs were not probable or estimable.
- Governance-related cooperation agreement reimbursements and special director fees contributed to higher stockholder costs. The company reported $339,000 of reimbursements and $150,000 of one-time special director fees in the nine-month period.
- The board declared a further $0.015-per-share dividend in August 2023, payable September 11, 2023. Management stated disclosure controls were effective as of June 30, 2023, with no material change in internal control during the quarter.
Important facts for investors to verify
- Whether cash generation and liquidity can support the stated fiscal 2023 capital-investment range, given low operating cash flow and the substantial cash decline.
- Commodity-price sensitivity, production trends, and the economics of new Texas and Alberta wells as production ramps.
- Expected contract-drilling backlog conversion, contract margins, and any additional costs related to the well-plumbness matter.
- Timing and likelihood of Kukio land sales, distributions, and any Increment II development; partnership income and cash distributions are not assured.
- Cash requirements for asset-retirement obligations, including the $1.607 million current portion, and the CEBA loan repayment or forgiveness terms before December 31, 2023.
- The impact of the disclosed out-of-period accounting corrections and related-party broker fees, and whether future dividends remain sustainable.