Barnwell Industries, Inc. — Q1 FY2016 10-Q
Reporting period: Three months ended December 31, 2015. Unaudited consolidated results cover oil and natural gas operations in Canada and land investment, contract drilling, and residential real estate activities in Hawaii.
Financial performance
| Metric | Q1 FY2016 | Q1 FY2015 |
|---|---|---|
| Revenue | $1.853 million | $6.032 million |
| Operating loss before affiliate income and taxes | $1.672 million | $0.460 million |
| Net loss attributable to Barnwell | $1.409 million | $0.467 million |
| Loss per share | $0.17 | $0.06 |
| Cash used in operating activities | $2.420 million | $1.556 million |
- Revenue declined about 69%, led by the September 2015 sale of the Dunvegan properties, lower oil and gas prices, and fewer land-lot sales. Oil and gas revenue was $0.848 million, contract drilling revenue $0.832 million, and net land-sale revenue $0.129 million.
- Oil and gas segment operating results before general and administrative expenses shifted to a $0.165 million loss from $0.466 million profit. Contract drilling generated $0.221 million operating profit, down from $0.337 million; land investment operating profit was $0.129 million, down from $1.032 million.
- General and administrative expense decreased 19% to $1.841 million, principally from cost reductions. Equity income from affiliates rose to $0.163 million from $0.088 million.
- Oil prices averaged $31.72 per barrel, down 49%; natural gas averaged $1.69 per Mcf, down 42%. Natural gas production fell 70% and liquids production 89%, largely reflecting the Dunvegan divestiture.
Financial position and liquidity
- At December 31, cash and cash equivalents were $5.837 million; restricted cash was $7.291 million. Current assets were $21.989 million and current liabilities $8.402 million, producing reported working capital of $13.587 million.
- Total assets were $38.047 million and total liabilities $20.243 million. The $3.440 million real estate loan was classified as current; revolving-credit borrowings were zero. The Canadian facility had $0.690 million available after letters of credit, subject to the bank’s review.
- Cash declined $2.634 million during the quarter. Investing activities used $0.216 million; financing activities provided $0.027 million.
- Liquidity is materially constrained despite positive working capital: $6.904 million of Dunvegan sale proceeds remained in escrow pending Canada Revenue Agency determination. Management said operating cash from the oil and gas segment is projected to be negative at current prices and production levels and that liquidity depends on escrow release and uncertain land-development proceeds or distributions.
Outlook, risks, and unusual items
- Management estimated fiscal 2016 oil and gas capital expenditures and potential acquisitions of $0.8 million to $1.5 million, subject to cash flows and conditions. Contract drilling revenue and operating results were expected to decline significantly for the rest of fiscal 2016 absent new contracts.
- In February 2016, the Alberta Energy Regulator’s liability ratio fell below the required threshold following a well-license transfer. Barnwell said an approximately $0.130 million deposit was required and estimated fiscal 2016 deposits could total as much as $3.0 million; the ultimate amount is uncertain. Noncompliance could lead to operating restrictions or shut-in orders.
- The company warned it may lack sufficient cash beyond the short term if escrow funds or land-related receipts are delayed or insufficient. Potential responses include accelerated asset sales, bridge financing, and spending or operating reductions; availability and proceeds are not assured. If liquidity problems persist beyond one year, management said its ability to continue as a going concern would need reassessment.
- An Alberta pipeline release had estimated gross probable remediation costs of $2.3 million. The company reported $1.103 million of insurance proceeds collected and an accrued liability of $0.072 million at quarter-end; future remediation costs remain uncertain.
- Barnwell was jointly and severally liable under indemnities for approximately $4.144 million of Kukio partnership performance bonds. Management considered a material call remote; disclosed maximum exposure, including its $6.401 million investment, was approximately $10.545 million.
- Other notable items: foreign-currency translation reduced other comprehensive income by $0.156 million; the company recorded an additional $0.053 million valuation allowance on Canadian deferred tax assets. No material subsequent events were disclosed.
Key facts for investors to verify
- Timing and amount of the release of the $6.904 million Canadian tax escrow, and any tax reserve ultimately required.
- Actual Alberta regulator security deposits, including whether the estimated potential $3.0 million requirement changes.
- Quarterly cash burn, cash availability excluding restricted or escrowed balances, and the company’s ability to fund operations and asset-retirement obligations.
- Progress on Kukio lot and residence sales, related cash distributions, and contract drilling backlog versus management’s expected decline.
- Whether low commodity prices, falling production, or environmental remediation create further impairment, liquidity, or going-concern concerns.