Barnwell Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2013. The company operates in Canadian oil and gas, Hawaiian land investments, contract drilling, and residential real estate. Financial statements are unaudited.
Financial performance and position
| Metric | Three months ended March 31, 2013 | Six months ended March 31, 2013 |
|---|---|---|
| Revenue | $6.769 million, down 6% from $7.166 million | $13.320 million, down 15% from $15.668 million |
| Net loss attributable to Barnwell | $2.944 million; $0.36 per share | $5.690 million; $0.69 per share |
| Operating cash flow | Six-month inflow of $1.508 million, versus $3.027 million in the prior-year period |
- For the six months, oil and gas revenue fell 21% to $11.245 million; contract drilling revenue rose to $1.420 million from $0.706 million. Land-sale revenue was $0.282 million versus $0.353 million.
- Oil and gas production declined year over year: six-month natural gas volume fell 17%, oil 12%, and liquids 2%. Six-month average oil and liquids prices fell 18% and 13%, respectively; natural gas price rose 11%.
- Six-month costs and expenses were $20.365 million versus $18.850 million. The increase chiefly reflects a $4.506 million non-cash oil-and-gas asset carrying-value reduction, compared with a $1.854 million real-estate write-down in the prior period.
- At March 31, cash was $8.316 million; working capital was $4.037 million. Current assets were $19.272 million and current liabilities $15.235 million.
- Total debt was $16.903 million, including $4.903 million current and $12.000 million long-term. Total liabilities were $39.391 million and total equity $23.691 million.
- Six-month investing cash outflow was $1.823 million, including $2.127 million of oil-and-gas capital expenditures. Financing cash outflow was $0.139 million. Cash decreased $0.529 million during the period.
Changes, outlook, and key risks
- Six-month net loss attributable to Barnwell increased to $5.690 million from $3.263 million. Lower oil and gas prices and production, higher estimated remediation costs, and the oil-and-gas impairment drove weaker results; stronger contract drilling activity partly offset them. The three-month attributable loss was slightly lower than the prior-year quarter.
- Management expects fiscal 2013 oil-and-gas capital expenditures of $5 million to $6 million, subject to cash flows and its assessment of industry conditions. The filing gives no earnings or revenue guidance.
- The Canadian revolving credit facility was renewed through April 2014 at C$20 million (about US$19.692 million at period-end exchange rates). Borrowings were US$12 million, with US$7.692 million available; the stated rate was 2.70%. The bank reviews the facility annually and may renew it or convert it to a term loan.
- The real-estate loan had a 3.57% rate at March 31, adjusted to 3.53% effective April 1. The full $4.903 million balance was classified current because the collateralized home was for sale. The company reported compliance with loan covenants.
- Management said liquidity sources were expected to cover operations, planned capital spending, scheduled debt payments, and interest. It cautioned that lower commodity prices or production, weaker land or home sales, reduced credit availability, or covenant issues could materially harm liquidity and financial condition. Without higher oil or gas prices, operating cash flow may not fund capital spending needed to maintain production and reserves.
- A $0.696 million accrual was recorded for probable remediation of recently discovered soil contamination at the Dunvegan and Wood River properties. Further environmental costs remain uncertain.
- Oil-and-gas ceiling-test impairment risk remains: further write-downs may result if commodity prices, reserves, production, or exploration outcomes deteriorate. Certain gas wells were previously shut in for economic or operational reasons; no additional shut-ins had occurred since August 2012, but lower prices could prompt more.
- Other risks include volatile contract drilling demand and potential future cost reductions or equipment sales, Canadian/U.S. currency movements, and a Canadian tax authority examination of fiscal 2010 and 2011 returns. No material subsequent events were reported.
- On May 9, 2013, the board amended the bylaws, including raising the stockholder threshold to call a special meeting from 10% to 25% and adding advance-notice requirements for nominations and proposals.
Most important facts for investors to verify
- Whether oil and gas prices, production, and reserve additions support the carrying value of the properties and avoid further ceiling-test impairments.
- Actual remediation costs and scope at the affected Canadian properties, and whether additional environmental issues emerge.
- Renewal or conversion terms for the Canadian credit facility at its April 2014 review, as well as continued covenant compliance and access to liquidity.
- Progress and proceeds from Hawaiian land and home sales, including the status of the Lot 4C negotiations and the home securing the real-estate loan.
- Whether planned capital spending and drilling activity can sustain production and reserves while operating cash flow remains pressured.