brn-20231231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2023

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 1-5103

BARNWELL INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)


Delaware						72-0496921
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1100 Alakea Street, Suite 500, Honolulu, Hawaii						96813
(Address of principal executive offices)						(Zip code)

(808) 531-8400
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.50 par value	BRN	NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of February 7, 2024 there were 10,028,090 shares of common stock, par value $0.50, outstanding.

BARNWELL INDUSTRIES, INC.

AND SUBSIDIARIES

INDEX


PART I.	FINANCIAL INFORMATION:
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets - December 31, 2023 and September 30, 2023	3
	Condensed Consolidated Statements of Operations - three months ended December 31, 2023 and 2022	4
	Condensed Consolidated Statements of Comprehensive (Loss) Income - three months ended December 31, 2023 and 2022	5
	Condensed Consolidated Statements of Equity - three months ended December 31, 2023 and 2022	6
	Condensed Consolidated Statements of Cash Flows - three months ended December 31, 2023 and 2022	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 4.	Controls and Procedures	33
PART II.	OTHER INFORMATION:
Item 6.	Exhibits	34
	Signature	35
	Index to Exhibits	36

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	December 31, 2023		September 30, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	3,223,000	$	2,830,000

Accounts and other receivables, net of allowance for credit losses of: $334,000 at December 31, 2023; $284,000 at September 30, 2023	3,278,000		3,246,000


Other current assets	2,622,000		3,009,000
Total current assets	9,123,000		9,085,000


Asset for retirement benefits	4,561,000		4,471,000

Operating lease right-of-use assets	34,000		54,000
Property and equipment:
Proved oil and natural gas properties (full cost method)	83,348,000		80,851,000
Drilling rigs and other property and equipment	7,231,000		7,223,000
Total property and equipment	90,579,000		88,074,000
Accumulated depletion, impairment, depreciation, and amortization	(69,292,000)		(66,263,000)
Total property and equipment, net	21,287,000		21,811,000
Total assets	$	35,005,000	$	35,421,000

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1,344,000	$	881,000
Accrued capital expenditures	587,000		1,099,000
Accrued compensation	673,000		726,000
Accrued operating and other expenses	1,747,000		1,747,000



Current portion of asset retirement obligation	1,825,000		1,536,000

Other current liabilities	469,000		609,000
Total current liabilities	6,645,000		6,598,000

Operating lease liabilities	36,000		47,000
Liability for retirement benefits	1,687,000		1,664,000
Asset retirement obligation	8,416,000		8,297,000
Deferred income tax liabilities	56,000		58,000
Total liabilities	16,840,000		16,664,000
Commitments and contingencies
Equity:
Common stock, par value $0.50 per share; authorized, 40,000,000 shares: 10,168,006 issued at December 31, 2023; 10,158,678 issued at September 30, 2023	5,084,000		5,079,000
Additional paid-in capital	7,747,000		7,687,000
Retained earnings	5,496,000		6,160,000
Accumulated other comprehensive income, net	2,113,000		2,104,000
Treasury stock, at cost: 167,900 shares at December 31, 2023 and September 30, 2023	(2,286,000)		(2,286,000)
Total stockholders' equity	18,154,000		18,744,000
Non-controlling interests	11,000		13,000
Total equity	18,165,000		18,757,000
Total liabilities and equity	$	35,005,000	$	35,421,000

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended December 31,
	2023		2022
Revenues:
Oil and natural gas	$	5,130,000	$	5,226,000
Contract drilling	993,000		1,948,000
Sale of interest in leasehold land	—		265,000
Gas processing and other	32,000		72,000
	6,155,000		7,511,000
Costs and expenses:
Oil and natural gas operating	2,791,000		2,444,000
Contract drilling operating	1,169,000		1,857,000
General and administrative	1,404,000		2,249,000
Depletion, depreciation, and amortization	1,511,000		840,000

Foreign currency gain	(126,000)		(78,000)
Interest expense	2,000		—
Gain on sale of assets	—		(551,000)
	6,751,000		6,761,000
(Loss) earnings before equity in income of affiliates and income taxes	(596,000)		750,000
Equity in income of affiliates	—		538,000
(Loss) earnings before income taxes	(596,000)		1,288,000
Income tax provision	66,000		79,000
Net (loss) earnings	(662,000)		1,209,000
Less: Net earnings attributable to non-controlling interests	2,000		120,000
Net (loss) earnings attributable to Barnwell Industries, Inc.	$	(664,000)	$	1,089,000
Basic and diluted net (loss) earnings per common share attributable to Barnwell Industries, Inc. stockholders	$	(0.07)	$	0.11
Weighted-average number of common shares outstanding:
Basic and diluted	9,996,760		9,956,687

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)


	Three months ended December 31,
	2023		2022
Net (loss) earnings	$	(662,000)	$	1,209,000
Other comprehensive income (loss):
Foreign currency translation adjustments, net of taxes of $0	30,000		2,000
Retirement plans:
Amortization of accumulated other comprehensive gain into net periodic benefit cost, net of taxes of $0	(21,000)		(20,000)


Total other comprehensive income (loss)	9,000		(18,000)
Total comprehensive (loss) income	(653,000)		1,191,000
Less: Comprehensive income attributable to non-controlling interests	(2,000)		(120,000)
Comprehensive (loss) income attributable to Barnwell Industries, Inc.	$	(655,000)	$	1,071,000

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Three months ended December 31, 2023 and 2022

(Unaudited)


	Shares Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income		Treasury Stock		Non-controlling Interests		Total Equity
Balance at September 30, 2022	9,956,687	$	5,062,000	$	7,351,000	$	7,720,000	$	1,294,000	$	(2,286,000)	$	20,000	$	19,161,000
Net earnings	—	—		—		1,089,000		—		—		120,000		1,209,000
Foreign currency translation adjustments, net of taxes of $0	—	—		—		—		2,000		—		—		2,000
Distributions to non-controlling interests	—	—		—		—		—		—		(108,000)		(108,000)
Share-based compensation	—	—		115,000		—		—		—		—		115,000

Dividends declared, $0.015 per share	—	—		—		(149,000)		—		—		—		(149,000)
Retirement plans:
Amortization of accumulated other comprehensive gain into net periodic benefit cost, net of taxes of $0	—	—		—		—		(20,000)		—		—		(20,000)


Balance at December 31, 2022	9,956,687	$	5,062,000	$	7,466,000	$	8,660,000	$	1,276,000	$	(2,286,000)	$	32,000	$	20,210,000

Balance at September 30, 2023	9,990,778	$	5,079,000	$	7,687,000	$	6,160,000	$	2,104,000	$	(2,286,000)	$	13,000	$	18,757,000
Net (loss) earnings	—	—		—		(664,000)		—		—		2,000		(662,000)
Foreign currency translation adjustments, net of taxes of $0	—	—		—		—		30,000		—		—		30,000
Distributions to non-controlling interests	—	—		—		—		—		—		(4,000)		(4,000)
Share-based compensation	—	—		65,000		—		—		—		—		65,000

Issuance of common stock for restricted stock units vested	9,328	5,000		(5,000)		—		—		—		—		—

Retirement plans:
Amortization of accumulated other comprehensive gain into net periodic benefit cost, net of taxes of $0	—	—		—		—		(21,000)		—		—		(21,000)
Balance at December 31, 2023	10,000,106	$	5,084,000	$	7,747,000	$	5,496,000	$	2,113,000	$	(2,286,000)	$	11,000	$	18,165,000

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three months ended December 31,
	2023		2022
Cash flows from operating activities:
Net (loss) earnings	$	(662,000)	$	1,209,000
Adjustments to reconcile net (loss) earnings to net cash
provided by operating activities:
Depletion, depreciation, and amortization	1,511,000		840,000
Equity in income of affiliates	—		(538,000)

Gain on sale of assets	—		(551,000)
Sale of interest in leasehold land, net of fees paid	—		(233,000)
Distributions of income from equity investees	—		319,000
Retirement benefits income	(86,000)		(63,000)
Accretion of asset retirement obligation	200,000		194,000

Non-cash rent income	(7,000)		(5,000)
Deferred income tax benefit	(2,000)		(12,000)
Asset retirement obligation payments	(160,000)		(76,000)
Share-based compensation expense	65,000		115,000

Retirement plan contributions and payments	(1,000)		(1,000)
Credit loss expense	37,000		18,000
Foreign currency gain	(126,000)		(78,000)
Increase (decrease) from changes in current assets and liabilities	606,000		(241,000)
Net cash provided by operating activities	1,375,000		897,000
Cash flows from investing activities:

Distribution from equity investees in excess of earnings	—		219,000
Proceeds from sale of interest in leasehold land, net of fees paid	—		233,000



Capital expenditures - oil and natural gas	(1,018,000)		(3,870,000)
Capital expenditures - all other	(1,000)		(9,000)
Advances to operators for capital expenditures	—		(3,464,000)
Net cash used in investing activities	(1,019,000)		(6,891,000)
Cash flows from financing activities:




Distributions to non-controlling interests	(4,000)		(108,000)

Net cash used in financing activities	(4,000)		(108,000)
Effect of exchange rate changes on cash and cash equivalents	41,000		34,000
Net increase (decrease) in cash and cash equivalents	393,000		(6,068,000)
Cash and cash equivalents at beginning of period	2,830,000		12,804,000
Cash and cash equivalents at end of period	$	3,223,000	$	6,736,000

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Barnwell Industries, Inc. and all majority-owned subsidiaries (collectively referred to herein as “Barnwell,” “we,” “our,” “us,” or the “Company”), including a 77.6%-owned land investment general partnership (Kaupulehu Developments), a 75%-owned land investment partnership (KD Kona 2013 LLLP), and a variable interest entity (Teton Barnwell Fund I, LLC) for which the Company is deemed to be the primary beneficiary. All significant intercompany accounts and transactions have been eliminated.

Undivided interests in oil and natural gas exploration and production joint ventures are consolidated on a proportionate basis. Barnwell’s investments in both unconsolidated entities in which a significant, but less than controlling, interest is held and in variable interest entities in which the Company is not deemed to be the primary beneficiary are accounted for by the equity method.

Unless otherwise indicated, all references to “dollars” in this Form 10-Q are to U.S. dollars.

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements and notes have been prepared by Barnwell in accordance with the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. These condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in Barnwell’s September 30, 2023 Annual Report on Form 10-K, as amended by our Form 10-K/A Amendment No. 1 (our “2023 Annual Report”). The Condensed Consolidated Balance Sheet as of September 30, 2023 has been derived from audited consolidated financial statements.

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at December 31, 2023, results of operations, comprehensive (loss) income, equity and cash flows for the three months ended December 31, 2023 and 2022, have been made. The results of operations for the period ended December 31, 2023 are not necessarily indicative of the operating results for the full year.

Use of Estimates in the Preparation of Condensed Consolidated Financial Statements

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management of Barnwell to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ significantly from those estimates. Significant assumptions are required in the

valuation of deferred tax assets, asset retirement obligations, contract drilling estimated costs to complete, proved oil and natural gas reserves, and the carrying value of other assets, and such assumptions may impact the amount at which such items are recorded.

Significant Accounting Policies

Other than as set forth below, there have been no changes to Barnwell's significant accounting policies as described in the Notes to Consolidated Financial Statements included in Item 8 of the Company's 2023 Annual Report.

Accounts and Other Receivables

Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for credit losses is Barnwell’s best estimate of the amount of current expected credit losses in Barnwell’s existing accounts receivable and is based on the aging of the receivable balances, analysis of historical credit loss rates, and current and future economic conditions affecting collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Barnwell does not have any off-balance sheet credit exposure related to its customers.

Derivative Instruments

Barnwell utilizes physical forward commodity contracts to mitigate market price risk on its oil and natural gas output when deemed appropriate. Purchase and sale contracts with a fixed price determined at inception are recorded on the consolidated balance sheet as derivative financial instruments if such contracts are readily convertible to cash - unless the contracts are eligible for and elected as the normal purchases and normal sales exception (“NPNS”); in which case, the contracts are recorded on an accrual basis and the Company recognizes the amounts relating to such transactions during the period when the commodities are physically delivered. The Company generally applies the NPNS exception to eligible oil and natural gas contracts to purchase or sell quantities it expects to use or sell in the normal course of business. The Company has not traded in any derivative contracts other than where the NPNS exception is applied, and it does not apply hedge accounting.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss model with an expected loss model referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including but not limited to trade receivables. The FASB has subsequently issued other related ASUs which amend ASU 2016-13 to provide clarification and additional guidance. The Company adopted the provisions of this ASU effective October 1, 2023. The adoption of this update did not have an impact on Barnwell’s consolidated financial statements.

2. (LOSS) EARNINGS PER COMMON SHARE

Basic (loss) earnings per share is computed using the weighted-average number of common shares outstanding for the period. Diluted (loss) earnings per share is calculated using the treasury stock method to reflect the assumed issuance of common shares for all potentially dilutive securities, which consist of outstanding stock options and nonvested restricted stock units. Potentially dilutive shares are excluded from the computation of diluted (loss) earnings per share if their effect is anti-dilutive.

Options to purchase 465,000 shares of common stock and 76,336 restricted stock units were excluded from the computation of diluted shares for the three months ended December 31, 2023, as their inclusion would have been anti-dilutive. Options to purchase 615,000 shares of common stock were excluded from the computation of diluted shares for the three months ended December 31, 2022, as their inclusion would have been anti-dilutive.

Reconciliations between net (loss) earnings attributable to Barnwell stockholders and common shares outstanding of the basic and diluted net (loss) earnings per share computations are detailed in the following tables:


	Three months ended December 31, 2023
	Net Loss (Numerator)		Shares (Denominator)	Per-Share Amount
Basic net loss	$	(664,000)	9,996,760	$	(0.07)
Effect of dilutive securities -
common stock options and restricted stock units	—		—
Diluted net loss	$	(664,000)	9,996,760	$	(0.07)


	Three months ended December 31, 2022
	Net Earnings (Numerator)		Shares (Denominator)	Per-Share Amount
Basic net earnings	$	1,089,000	9,956,687	$	0.11
Effect of dilutive securities -
common stock options	—		—
Diluted net earnings	$	1,089,000	9,956,687	$	0.11

3. INVESTMENTS

Investment in Kukio Resort Land Development Partnerships

On November 27, 2013, Barnwell, through a wholly-owned subsidiary, entered into two limited liability limited partnerships, KD Kona 2013 LLLP (“KD Kona”) and KKM Makai, LLLP (“KKM”), and indirectly acquired a 19.6% non-controlling ownership interest in each of KD Kukio Resorts, LLLP, KD Maniniowali, LLLP and KD Kaupulehu, LLLP (“KDK”) for $5,140,000. These entities, collectively referred to hereinafter as the “Kukio Resort Land Development Partnerships,” own certain real estate and development rights interests in the Kukio, Maniniowali and Kaupulehu portions of Kukio Resort, a private residential community on the Kona coast of the island of Hawaii, as well as Kukio Resort’s real estate sales office operations. KDK holds interests in KD Acquisition, LLLP (“KD I”) and KD Acquisition II,

LP, formerly KD Acquisition II, LLLP (“KD II”). KD I is the developer of Kaupulehu Lot 4A Increment I (“Increment I”), and KD II is the developer of Kaupulehu Lot 4A Increment II (“Increment II”). Barnwell's ownership interests in the Kukio Resort Land Development Partnerships is accounted for using the equity method of accounting.

In March 2019, KD II admitted a new development partner, Replay Kaupulehu Development, LLC (“Replay”), a party unrelated to Barnwell, in an effort to move forward with development of the remainder of Increment II at Kaupulehu. KDK and Replay hold ownership interests of 55% and 45%, respectively, of KD II and Barnwell has a 10.8% indirect non-controlling ownership interest in KD II through KDK, which is accounted for using the equity method of accounting. Barnwell continues to have an indirect 19.6% non-controlling ownership interest in KD Kukio Resorts, LLLP, KD Maniniowali, LLLP, and KD I.

The partnerships derive income from the sale of residential parcels in Increment I, of which only two lots remain to be sold as of December 31, 2023, as well as from commissions on real estate sales by the real estate sales office and revenues resulting from the sale of private club memberships.

Increment II is not yet under development, and there is no assurance that development of such acreage will occur. No definitive development plans have been made by KD II, the developer of Increment II, as of the date of this report.

Barnwell has the right to receive distributions from the Kukio Resort Land Development Partnerships via its non-controlling interests in KD Kona and KKM, based on its respective partnership sharing ratios of 75% and 34.45%, respectively. No cash distributions were received during the three months ended December 31, 2023. During the three months ended December 31, 2022, Barnwell received cash distributions $538,000 from the Kukio Resort Land Development Partnerships resulting in a net amount of $478,000, after distributing $60,000 to non-controlling interests.

Equity in income of affiliates was nil for the three months ended December 31, 2023, as compared to equity in income of affiliates of $538,000 for the three months ended December 31, 2022.

Summarized financial information for the Kukio Resort Land Development Partnerships is as follows:


	Three months ended December 31,
	2023		2022
Revenue	$	1,886,000	$	3,712,000
Gross profit	$	817,000	$	2,422,000
Net earnings	$	354,000	$	1,307,000

In the quarter ended June 30, 2021, the Company received cumulative distributions from the Kukio Resort Land Development Partnerships in excess of our investment balance and in accordance with applicable accounting guidance, the Company suspended its equity method earnings recognition and the Kukio Resort Land Development Partnership investment balance was reduced to zero with the distributions received in excess of our investment balance recorded as equity in income of affiliates because the distributions are not refundable by agreement or by law and the Company is not liable for the obligations of or otherwise committed to provide financial support to the Kukio Resort Land Development

Partnerships. The Company will record future equity method earnings only after our share of the Kukio Resort Land Development Partnership’s cumulative earnings in excess of distributions during the suspended period exceeds our share of the Kukio Resort Land Development Partnership’s income recognized for the excess distributions, and during this suspended period any distributions received will be recorded as equity in income of affiliates. Accordingly, no equity in income of affiliates was recognized during the three months ended December 31, 2023.

Cumulative distributions received from the Kukio Resort Land Development Partnerships in excess of our investment balance was $630,000 at December 31, 2023 and $708,000 at September 30, 2023.

Sale of Interest in Leasehold Land

Kaupulehu Developments has the right to receive payments from KD I and KD II resulting from the sale of lots and/or residential units within Increment I and Increment II by KD I and KD II (see Note 15).

With respect to Increment I, Kaupulehu Developments is entitled to receive payments from KD I based on 10% of the gross receipts from KD I’s sales of single-family residential lots in Increment I. No lots were sold during the three months ended December 31, 2023 and two single-family lots, of the 80 lots developed within Increment I, remained to be sold as of December 31, 2023.

The following table summarizes the Increment I revenues from KD I and the amount of fees directly related to such revenues:


	Three months ended December 31,
	2023		2022
Sale of interest in leasehold land:
Revenues - sale of interest in leasehold land	$	—	$	265,000
Fees - included in general and administrative expenses	—		(32,000)
Sale of interest in leasehold land, net of fees paid	$	—	$	233,000

There is no assurance with regards to the amounts of future payments from Increment I or Increment II to be received, or that the remaining acreage within Increment II will be developed. No definitive development plans have been made by KD II, the developer of Increment II, as of the date of this report.

Investment in Leasehold Land Interest - Lot 4C

Kaupulehu Developments holds an interest in an area of approximately 1,000 acres of vacant leasehold land zoned conservation located adjacent to Lot 4A, which currently has no development potential without both a development agreement with the lessor and zoning reclassification. The lease terminates in December 2025.

4. CONSOLIDATED VARIABLE INTEREST ENTITY

In February 2021, Barnwell Industries, Inc. established a new wholly-owned subsidiary named BOK Drilling, LLC (“BOK”) for the purpose of indirectly investing in oil and natural gas exploration and

development in Oklahoma. BOK and Gros Ventre Partners, LLC (“Gros Ventre”) entered into the Limited Liability Agreement (the “Teton Operating Agreement”) of Teton Barnwell Fund I, LLC (“Teton Barnwell”), an entity formed for the purpose of directly entering into such oil and natural gas investments. Under the terms of the Teton Operating Agreement, the profits of Teton Barnwell are split between BOK and Gros Ventre at 98% and 2%, respectively, and as the manager of Teton Barnwell, Gros Ventre is paid an annual asset management fee equal to 1% of the cumulative capital contributions made to Teton Barnwell as compensation for its management services. BOK is responsible for 100% of the capital contributions made to Teton Barnwell.

The Company has determined that Teton Barnwell is a variable interest entity (“VIE”) as the entity is structured with non-substantive voting rights and that the Company is the primary beneficiary. This is due to the fact that even though Teton Barnwell has a unanimous consent voting structure, BOK is responsible for 100% of the capital contributions required to fund Teton Barnwell’s future oil exploration and development investments pursuant to the Teton Operating Agreement and thus, BOK has the power to steer the decisions that most significantly impact Teton Barnwell’s economic performance and has the obligation to absorb any potential losses that could be significant to Teton Barnwell. As BOK is the primary beneficiary of the VIE, Teton Barnwell’s operating results, assets and liabilities are consolidated by the Company.

The following table summarizes the carrying value of the assets and liabilities of Teton Barnwell that are consolidated by the Company. Intercompany balances are eliminated in consolidation and thus, are not reflected in the table below.


	December 31, 2023		September 30, 2023
ASSETS
Cash and cash equivalents	$	84,000	$	83,000
Accounts and other receivables	147,000		175,000
Property and equipment:
Proved oil and natural gas properties, net (full cost method)	522,000		544,000

Total assets	$	753,000	$	802,000

LIABILITIES
Accounts payable	$	12,000	$	10,000

Accrued operating and other expenses	13,000		15,000
Total liabilities	$	25,000	$	25,000

5. OIL AND NATURAL GAS PROPERTIES

Fiscal 2023 Investments and Acquisitions

In December 2022, Barnwell Texas, LLC (“Barnwell Texas”), a new wholly-owned subsidiary of the Company, entered into a purchase and sale agreement with an independent third party whereby Barnwell Texas acquired a 22.3% non-operated working interest in oil and natural gas leasehold acreage in the Permian Basin in Texas for cash consideration of $806,000. Additionally, in connection with the purchase of such leasehold interests, Barnwell Texas acquired a 15.4% non-operated working interest in two oil wells in the Wolfcamp Formation in Loving and Ward Counties, Texas and had paid $4,293,000 for its share of the costs to drill, complete, and equip the wells in the three months ended December 31, 2022.

Impairment of Oil and Natural Gas Properties

Under the full cost method of accounting, the Company performs quarterly oil and natural gas ceiling test calculations. There were no reductions to the carrying value of our oil and natural gas properties during the three months ended December 31, 2023 and 2022. Changes in the 12-month rolling average first-day-of-the-month prices for oil, natural gas and natural gas liquids prices, the value of reserve additions as compared to the amount of capital expenditures to obtain them, and changes in production rates and estimated levels of reserves, future development costs and the market value of unproved properties, impact the determination of the maximum carrying value of oil and natural gas properties. Based on the 12-month rolling average first-day-of-the-month prices for January and February 2024, it is reasonably possible that we will incur a ceiling test impairment in the Company's second quarter ending March 31, 2024. The Company is currently unable to estimate a range of the amount of any potential future reduction in carrying value as variables that impact the ceiling limitation are dependent upon actual results through the end of March 2024.

6. RETIREMENT PLANS

Barnwell sponsors a noncontributory defined benefit pension plan (“Pension Plan”) covering substantially all of its U.S. employees and a noncontributory Supplemental Executive Retirement Plan (“SERP”), which covers certain current and former employees of Barnwell for amounts exceeding the limits allowed under the Pension Plan. Effective December 31, 2019, the accrual of benefits for all participants in the Pension Plan and SERP was frozen and the plans were closed to new participants from that point forward.

The following table details the components of net periodic benefit (income) cost for Barnwell’s retirement plans:


	Pension Plan				SERP
	Three months ended December 31,
	2023		2022		2023		2022

Interest cost	$	103,000	$	102,000	$	24,000	$	22,000
Expected return on plan assets	(192,000)		(167,000)		—		—

Amortization of net actuarial gain	—		—		(21,000)		(20,000)

Net periodic benefit (income) cost	$	(89,000)	$	(65,000)	$	3,000	$	2,000

The net periodic benefit (income) cost is included in “General and administrative” expenses in the Company's Condensed Consolidated Statements of Operations.

Currently, no contributions are planned to be made to the Pension Plan during fiscal 2024. The SERP plan is unfunded and Barnwell funds benefits when payments are made. Expected payments under the SERP for fiscal 2024 are not material. Fluctuations in actual equity market returns as well as changes in general interest rates will result in changes in the market value of plan assets and may result in increased or decreased retirement benefits costs and contributions in future periods.

7. INCOME TAXES

The components of (loss) earnings before income taxes, after adjusting the (loss) earnings for non-controlling interests, are as follows:


	Three months ended December 31,
	2023		2022
United States	$	(689,000)	$	18,000
Canada	91,000		1,150,000
	$	(598,000)	$	1,168,000

The components of the income tax provision are as follows:


	Three months ended December 31,
	2023		2022
Current	$	68,000	$	91,000
Deferred	(2,000)		(12,000)
	$	66,000	$	79,000

Consolidated taxes do not bear a customary relationship to pretax results due primarily to the fact that the Company is taxed separately in Canada based on Canadian source operations and in the U.S. based on consolidated operations, and essentially all deferred tax assets, net of relevant offsetting deferred tax liabilities, are not estimated to have a future benefit as tax credits or deductions. The Company operates two subsidiaries in Canada, one of which is a U.S. corporation operating as a branch in Canada that is treated as a non-resident for Canadian tax purposes and thus has operating results that cannot be offset against or combined with the other Canadian subsidiary that files as a resident for Canadian tax purposes. Income from our non-controlling interest in the Kukio Resort Land Development Partnerships is treated as non-unitary for state of Hawaii unitary filing purposes, thus unitary Hawaii losses provide limited sheltering of such non-unitary income. Income from our investment in the Oklahoma oil venture is 100% allocable to Oklahoma. As such, Barnwell receives no benefit from consolidated or unitary losses and, therefore, is subject to Oklahoma state taxes. Our operations in Texas are subject to a franchise tax assessed by the state of Texas, however no significant amounts have been incurred to date.

8. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

The following tables provides information about disaggregated revenue by revenue streams, reportable segments, geographical region, and timing of revenue recognition for the three months ended December 31, 2023 and 2022.


		Three months ended December 31, 2023
		Oil and natural gas		Contract drilling		Land investment		Other		Total
Revenue streams:
	Oil	$	3,892,000	$	—	$	—	$	—	$	3,892,000
	Natural gas	712,000		—		—		—		712,000
	Natural gas liquids	526,000		—		—		—		526,000
	Drilling and pump	—		993,000		—		—		993,000

	Other	—		—		—		17,000		17,000
	Total revenues before interest income	$	5,130,000	$	993,000	$	—	$	17,000	$	6,140,000
Geographical regions:
	United States	$	754,000	$	993,000	$	—	$	1,000	$	1,748,000
	Canada	4,376,000		—		—		16,000		4,392,000
	Total revenues before interest income	$	5,130,000	$	993,000	$	—	$	17,000	$	6,140,000
Timing of revenue recognition:
	Goods transferred at a point in time	$	5,130,000	$	—	$	—	$	17,000	$	5,147,000
	Services transferred over time	—		993,000		—		—		993,000
	Total revenues before interest income	$	5,130,000	$	993,000	$	—	$	17,000	$	6,140,000

Three months ended December 31, 2022

Oil and natural gas

Contract drilling

Land investment

Other

Total

Revenue streams:

Oil

SEC Form 10-Q filed by Barnwell Industries Inc.