Barnwell Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal quarter and six months ended March 31, 2021; comparative periods ended March 31, 2020. Amounts are in U.S. dollars. Barnwell operates Canadian oil and gas properties, Hawaii contract drilling, and Hawaii land investments.
Financial results and liquidity
| Metric | Three months ended March 31, 2021 | Six months ended March 31, 2021 |
|---|---|---|
| Revenue | $4.00 million, versus $4.58 million | $8.39 million, versus $9.43 million |
| Net loss attributable to Barnwell | $856,000 ($0.10 per share), versus $1.514 million ($0.18 per share) | $272,000 ($0.03 per share), versus $1.928 million ($0.23 per share) |
| Net cash used in operating activities | Not separately reported for the quarter | $338,000, versus $252,000 used |
| Cash and cash equivalents | $4.387 million at March 31, 2021, down from $4.584 million at September 30, 2020 |
For the six months, investing activities provided $413,000 and financing activities used $285,000, resulting in a $197,000 net decrease in cash. Working capital was $4.184 million. Total assets were $14.769 million; total liabilities were $17.184 million, and total stockholders’ deficit was $2.419 million. Reported long-term debt was $64,000; the $131,000 current PPP balance was included in other current liabilities. The Canadian emergency loan added approximately $47,000 of borrowing.
Quarter revenue fell 13% year over year and six-month revenue fell 11%. Oil and gas revenue increased, but contract drilling revenue declined materially. Oil and gas prices improved while production volumes generally decreased. Six-month results included a $630,000 oil and gas impairment, compared with $1.637 million in the prior-year period. The prior-year comparison also included a $1.336 million gain on an asset sale; there was no comparable gain in 2021.
Material changes and management commentary
- Oil and gas: Segment operating results before general and administrative expenses improved to profit of $647,000 for the quarter and $274,000 for six months. Higher commodity prices and lower prior-year impairment charges helped, partly offset by lower production and higher operating costs.
- Contract drilling: Revenue declined 46% for the quarter and 36% for six months, primarily because a large well-drilling contract was essentially completed by December 2020. The segment recorded a $153,000 operating loss before general and administrative expenses for the quarter, versus $731,000 profit a year earlier. Management expects contract drilling revenue and costs for the remaining fiscal 2021 quarters to be below the comparable 2020 periods.
- Land investments: Equity-method income from the Kukio Resort Land Development Partnerships was $624,000 for the quarter and $1.678 million for six months, versus losses in both prior-year periods. The six-month amount included a $459,000 preferred-return payment. Barnwell received $2.205 million in net cash distributions from the partnerships during the six months.
- Outlook and funding: Management cited volatile oil and gas prices, uncertain drilling demand, COVID-19 impacts, and uncertain timing of land-sale proceeds and partnership distributions. Oil and gas development spending remains largely suspended, though the company is reviewing drilling opportunities in its core Twining area.
Risks, contingencies, and subsequent events
- Going concern: The filing states there is substantial doubt about the company’s ability to meet estimated cash outflows or continue as a going concern for one year from filing. Barnwell reported a history of losses and negative operating cash flows in three of the last four years. Liquidity plans include a proposed corporate-office sale, an at-the-market offering, and renewed marketing of non-core oil and gas properties; none is assured. No shares had been sold under the ATM by the filing date.
- NYSE American listing: Barnwell reported stockholders’ deficit of $2.419 million and remained subject to a compliance plan with an extension through July 13, 2021. Failure to regain compliance could lead to delisting.
- Asset retirement obligations: Under the Manyberries abandonment program, Barnwell expects to deposit approximately $1.616 million with Canadian regulators, including $936,000 by August 2021 and $680,000 by August 2022. The company noted the deposit estimate may exceed actual costs, but recovery of any excess depends on program completion.
- Other exposures: A $300,000 contingent liability was recorded for a Hawaii water-well regulatory matter. A separate well-plumbness customer matter had no accrual because management said a loss was not probable or estimable.
- Post-quarter developments: The PPP loan and accrued interest of approximately $147,000 were forgiven, with a gain expected in the June 2021 quarter. Barnwell initiated termination of its unfunded postretirement medical plan and estimated a non-cash gain of about $2 million. After quarter-end it received $1.554 million in partnership distributions and $548,000 in lot-sale payments; it also sold Canadian oil and gas properties for an adjusted $138,000 and acquired additional interests for $340,000.
Key facts for investors to verify
- Whether the Honolulu office sale closed and generated expected proceeds, and whether Barnwell sold shares through the ATM.
- Progress against NYSE American listing requirements and the outcome of the July 13, 2021 compliance deadline.
- Funding and timing of Manyberries abandonment deposits, and the effect on available liquidity.
- Whether Kukio partnership distributions and lot sales continue, and whether oil and gas prices and drilling activity support sustainable operating cash flow.
- Recognition and actual amount of the expected PPP-forgiveness and postretirement-plan gains, along with the completed results of the post-quarter property transactions.