Barnwell Industries, Inc. — Q1 FY2015 Form 10-Q
Reporting period: Three months ended December 31, 2014; filed February 13, 2015. The unaudited results cover Barnwell’s oil and gas operations in Canada and Hawaii-based land investment, contract drilling, and residential real estate activities.
Financial results and position
| Metric | Q1 FY2015 | Prior-year period / comparison |
|---|---|---|
| Revenue | $6.032 million | $7.201 million, down 16% |
| Net loss attributable to Barnwell | $467,000; $0.06 per share | $989,000; $0.12 per share |
| Net loss, consolidated | $283,000 | $1.000 million |
| Operating cash flow | $(1.556) million | $999,000 provided |
| Investing cash flow | $479,000 provided | $(5.632) million used |
| Cash at December 31 | $14.188 million | $16.104 million at September 30, 2014 |
| Working capital | $9.708 million | Prior comparable figure not stated in the filing text |
| Total debt | $10.697 million | $11.099 million at September 30, 2014 |
- Gross revenue fell chiefly as oil and gas revenue declined 44% to $2.972 million, reflecting lower production and realized prices. Contract drilling revenue rose 20% to $1.933 million; net land-sale revenue rose to $1.032 million from $120,000.
- Loss attributable to Barnwell improved by $522,000. Land investment operating profit before G&A increased $912,000, and contract drilling operating profit increased $118,000. These gains were partly offset by a $181,000 decline in oil and gas operating profit and a $419,000 increase in G&A.
- Oil and gas segment operating profit before G&A was $466,000, versus $647,000. Production volumes fell 21% for natural gas, 54% for oil, and 5% for liquids. Average realized oil and gas prices were $62.81 per barrel and $2.93 per Mcf, respectively.
- Consolidated operating margin is not presented as a filing metric. Segment operating profit before G&A totaled $1.888 million; after G&A and other items, Barnwell recorded a pretax loss of $372,000.
- Cash declined by $1.916 million during the quarter. The company attributed the operating cash-flow deterioration mainly to working-capital changes and lower oil and gas revenue. Oil and gas capital expenditures, including accruals, were $323,000, versus $1.756 million.
- At December 31, current assets were $24.057 million and current liabilities were $14.349 million. Debt comprised a $7.000 million Canadian revolving facility and a $3.697 million real estate loan; $5.697 million was classified as current.
Outlook, risks, and unusual items
- Credit facility: After quarter-end, Barnwell projected the Canadian facility’s capacity would fall from C$11.8 million to C$6.5 million at its April 2015 review, largely because of lower bank commodity-price forecasts. The company estimated a repayment of about $2.0 million and no remaining availability absent further repayments. This was a projection, not a completed renewal.
- Liquidity and commodity exposure: Management said cash, working capital, and expected land proceeds should fund operations and planned needs, but warned that weaker oil and gas prices or production, lower property-sale proceeds, further borrowing-base reductions, or covenant issues could materially harm liquidity and financial condition. Lower prices may also reduce economic production, reserves, and oil and gas asset carrying values. Planned oil and gas capital spending was reduced pending improved pricing.
- Capital spending: Management estimated fiscal 2015 oil and gas capital expenditures and potential property acquisitions of $2 million to $4 million, subject to cash flow and market conditions.
- Spill: A January 2015 oil and salt-water spill at an operated Alberta property was expected to require about $880,000 in cleanup costs. Barnwell’s working interest is 58%; it expected recoveries from other owners and notified its insurer. The company estimated its cost at the approximately $220,000 insurance deductible, but recoveries and final costs were uncertain. The financial impact was expected in the quarter ending March 31, 2015.
- Land-sale timing: Barnwell received a $640,000 percentage-of-sales payment on January 30, 2015, to be reflected in the March 2015 quarter. Future lot sales and development timing remain uncertain.
- Other contingencies: Barnwell had accrued $460,000 for environmental remediation at Canadian properties. It was also jointly and severally liable under indemnification relating to $4.830 million of partnership performance bonds; the company considered a material call remote. Maximum loss exposure associated with the relevant land-development partnerships was estimated at $9.576 million, including the investment carrying value.
- The real estate loan was amended in January 2015 to require interest-only monthly payments effective February 1; principal and accrued interest remain due April 1, 2018. The loan contains financial covenants. Barnwell reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether the April 2015 Canadian credit-facility renewal occurred on the projected terms, including the repayment amount and remaining borrowing availability.
- The spill’s final cleanup cost, insurance and co-owner recoveries, and resulting net expense.
- Subsequent oil and gas prices, production, cash generation, and any impairment or ceiling-test effects.
- Whether the $2 million to $4 million fiscal 2015 capital-spending estimate changed, and how spending affects reserves and production.
- Real estate loan covenant compliance, repayment requirements, and proceeds from home or parcel sales; also monitor the uncertain timing and amount of future land-sale receipts.