Company Quick10K Filing
Barnwell Industries
Price0.59 EPS-1
Shares8 P/E-0
MCap5 P/FCF-2
Net Debt-5 EBIT-13
TEV0 TEV/EBIT-0
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-13
10-Q 2020-03-31 Filed 2020-06-29
10-Q 2019-12-31 Filed 2020-02-12
10-K 2019-09-30 Filed 2019-12-23
10-Q 2019-06-30 Filed 2019-08-13
10-Q 2019-03-31 Filed 2019-05-14
10-Q 2018-12-31 Filed 2019-02-13
10-K 2018-09-30 Filed 2018-12-20
10-Q 2018-06-30 Filed 2018-08-13
10-Q 2018-03-31 Filed 2018-05-14
10-Q 2017-12-31 Filed 2018-02-12
10-K 2017-09-30 Filed 2017-12-21
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-05-11
10-Q 2016-12-31 Filed 2017-02-09
10-K 2016-09-30 Filed 2016-12-20
10-Q 2016-06-30 Filed 2016-08-11
10-Q 2016-03-31 Filed 2016-05-12
10-Q 2015-12-31 Filed 2016-02-12
10-K 2015-09-30 Filed 2015-12-16
10-Q 2015-06-30 Filed 2015-08-12
10-Q 2015-03-31 Filed 2015-05-13
10-Q 2014-12-31 Filed 2015-02-13
10-K 2014-09-30 Filed 2014-12-18
10-Q 2014-06-30 Filed 2014-08-12
10-Q 2014-03-31 Filed 2014-05-12
10-Q 2013-12-31 Filed 2014-02-14
10-K 2013-09-30 Filed 2013-12-16
10-Q 2013-06-30 Filed 2013-08-13
10-Q 2013-03-31 Filed 2013-05-14
10-Q 2012-12-31 Filed 2013-02-13
10-K 2012-09-30 Filed 2012-12-12
10-Q 2012-06-30 Filed 2012-08-10
10-Q 2012-03-31 Filed 2012-05-11
10-Q 2011-12-31 Filed 2012-02-10
10-K 2011-09-30 Filed 2011-12-13
10-Q 2011-06-30 Filed 2011-08-12
10-Q 2011-03-31 Filed 2011-05-13
10-Q 2010-12-31 Filed 2011-02-11
10-K 2010-09-30 Filed 2010-12-15
10-Q 2010-06-30 Filed 2010-08-11
10-Q 2010-03-31 Filed 2010-05-14
10-Q 2009-12-31 Filed 2010-02-12
8-K 2020-08-11 Earnings, Exhibits
8-K 2020-07-08 Accountant, Exhibits
8-K 2020-06-23
8-K 2020-05-14
8-K 2020-04-14
8-K 2020-04-03
8-K 2020-04-02
8-K 2020-04-02
8-K 2020-02-26
8-K 2020-02-11
8-K 2020-01-13
8-K 2020-01-10
8-K 2019-12-16
8-K 2019-12-03
8-K 2019-08-12
8-K 2019-05-13
8-K 2019-03-19
8-K 2019-03-07
8-K 2019-03-05
8-K 2019-02-13
8-K 2018-12-19
8-K 2018-11-15
8-K 2018-08-29
8-K 2018-08-10
8-K 2018-07-19
8-K 2018-05-14
8-K 2018-03-05
8-K 2018-02-12
8-K 2018-02-06

BRN 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
Part II - Other Information
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 exhibit311_063020.htm
EX-31.2 exhibit312_063020.htm
EX-32 exhibit32_063020.htm

Barnwell Industries Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
705642281402012201420172020
Assets, Equity
10.07.14.21.2-1.7-4.62012201420172020
Rev, G Profit, Net Income
10.06.02.0-2.0-6.0-10.02012201420172020
Ops, Inv, Fin

10-Q 1 brn10q06302020.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q 
[X]              Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2020
or
[   ]              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 2900, 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.          x Yes   o 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).                     x Yes   o 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
o
 
Accelerated filer
o
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
x
 
 
 
Emerging growth company
o

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. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).                                  o Yes   x No
 
As of August 7, 2020 there were 8,277,160 shares of common stock, par value $0.50, outstanding.




BARNWELL INDUSTRIES, INC.
AND SUBSIDIARIES
 
INDEX 
 
 
 
 
 
 
 
 
 
 
 





PART I - FINANCIAL INFORMATION


ITEM 1.    FINANCIAL STATEMENTS

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
June 30,
2020
 
September 30,
2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
4,106,000

 
$
4,613,000

Accounts and other receivables, net of allowance for doubtful accounts of:
$329,000 at June 30, 2020; $44,000 at September 30, 2019
2,245,000

 
1,884,000

Income taxes receivable
468,000

 
386,000

Other current assets
1,321,000

 
1,821,000

Total current assets
8,140,000

 
8,704,000

Income taxes receivable, net of current portion

 
230,000

Asset for retirement benefits
1,593,000

 

Investments
801,000

 
980,000

Operating lease right-of-use assets
272,000

 

Property and equipment
73,628,000

 
72,522,000

Accumulated depletion, depreciation, and amortization
(68,449,000
)
 
(64,134,000
)
Property and equipment, net
5,179,000

 
8,388,000

Total assets
$
15,985,000

 
$
18,302,000


 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,877,000

 
$
1,223,000

Accrued capital expenditures
689,000

 
287,000

Accrued compensation
199,000

 
205,000

Accrued operating and other expenses
1,199,000

 
1,079,000

Current portion of operating lease liabilities
107,000

 

Current portion of asset retirement obligation
664,000

 
330,000

Other current liabilities
1,714,000

 
1,644,000

Total current liabilities
6,449,000

 
4,768,000

Deferred rent

 
193,000

Long-term debt
83,000

 

Operating lease liabilities
171,000

 

Liability for retirement benefits
4,675,000

 
5,785,000

Asset retirement obligation
5,878,000

 
6,059,000

Deferred income tax liabilities
161,000

 
168,000

Total liabilities
17,417,000

 
16,973,000

Commitments and contingencies


 


Equity:
 
 
 
Common stock, par value $0.50 per share; authorized, 20,000,000 shares:
8,445,060 issued at June 30, 2020 and September 30, 2019
4,223,000

 
4,223,000

Additional paid-in capital
1,350,000

 
1,350,000

(Accumulated deficit) retained earnings
(4,525,000
)
 
859,000

Accumulated other comprehensive loss, net
(274,000
)
 
(2,917,000
)
Treasury stock, at cost: 167,900 shares at June 30, 2020 and September 30, 2019
(2,286,000
)
 
(2,286,000
)
Total stockholders (deficit) equity
(1,512,000
)
 
1,229,000

Non-controlling interests
80,000

 
100,000

Total (deficit) equity
(1,432,000
)
 
1,329,000

Total liabilities and equity
$
15,985,000

 
$
18,302,000


See Notes to Condensed Consolidated Financial Statements

3



BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three months ended 
 June 30,
 
Nine months ended 
 June 30,
 
2020
 
2019
 
2020
 
2019
Revenues:
 

 
 

 
 
 
 
Oil and natural gas
$
830,000

 
$
1,688,000

 
$
4,881,000

 
$
4,844,000

Contract drilling
3,040,000

 
1,689,000

 
8,279,000

 
3,839,000

Sale of interest in leasehold land

 

 

 
165,000

Gas processing and other
114,000

 
32,000

 
256,000

 
119,000

 
3,984,000

 
3,409,000

 
13,416,000

 
8,967,000

Costs and expenses:
 

 
 

 
 
 
 
Oil and natural gas operating
981,000

 
1,314,000

 
3,479,000

 
3,900,000

Contract drilling operating
1,967,000

 
1,242,000

 
5,552,000

 
3,789,000

General and administrative
1,248,000

 
1,352,000

 
4,775,000

 
4,361,000

Depletion, depreciation, and amortization
478,000

 
731,000

 
1,870,000

 
2,308,000

Impairment of assets
2,689,000

 

 
4,326,000

 
2,413,000

Interest expense
1,000

 

 
1,000

 
4,000

Gain on sale of asset

 

 
(1,336,000
)
 

 
7,364,000

 
4,639,000

 
18,667,000

 
16,775,000

Loss before equity in loss of affiliates and income taxes
(3,380,000
)
 
(1,230,000
)
 
(5,251,000
)
 
(7,808,000
)
Equity in loss of affiliates
(111,000
)
 
(259,000
)
 
(179,000
)
 
(545,000
)
Loss before income taxes
(3,491,000
)
 
(1,489,000
)
 
(5,430,000
)
 
(8,353,000
)
Income tax benefit
(24,000
)
 
(91,000
)
 
(26,000
)
 
(231,000
)
Net loss
(3,467,000
)
 
(1,398,000
)
 
(5,404,000
)
 
(8,122,000
)
Less: Net loss attributable to non-controlling interests
(11,000
)
 
(33,000
)
 
(20,000
)
 
(32,000
)
Net loss attributable to Barnwell Industries, Inc.
$
(3,456,000
)
 
$
(1,365,000
)
 
$
(5,384,000
)
 
$
(8,090,000
)
Basic and diluted net loss per common share attributable to Barnwell Industries, Inc. stockholders
$
(0.42
)
 
$
(0.16
)
 
$
(0.65
)
 
$
(0.98
)
Weighted-average number of common shares outstanding:
 

 
 

 
 
 
 
Basic and diluted
8,277,160

 
8,277,160

 
8,277,160

 
8,277,160

 
See Notes to Condensed Consolidated Financial Statements


4



BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
 
 
Three months ended 
 June 30,
 
Nine months ended 
 June 30,
 
2020
 
2019
 
2020
 
2019
Net loss
$
(3,467,000
)
 
$
(1,398,000
)
 
$
(5,404,000
)
 
$
(8,122,000
)
Other comprehensive (loss) income:
 

 
 

 


 


Foreign currency translation adjustments, net of taxes of $0
(125,000
)
 
89,000

 
(36,000
)
 
(194,000
)
Retirement plans:
 
 
 
 
 
 
 
Amortization of accumulated other comprehensive loss into net periodic benefit cost, net of taxes of $0
20,000

 
9,000

 
100,000

 
42,000

Net actuarial gains arising during the period, net of taxes of $0

 

 
880,000

 

Curtailment gain, net of taxes of $0

 

 
1,699,000

 

Total other comprehensive (loss) income
(105,000
)
 
98,000

 
2,643,000

 
(152,000
)
Total comprehensive loss
(3,572,000
)
 
(1,300,000
)
 
(2,761,000
)
 
(8,274,000
)
Less: Comprehensive loss attributable to non-controlling interests
(11,000
)
 
(33,000
)
 
(20,000
)
 
(32,000
)
Comprehensive loss attributable to Barnwell Industries, Inc.
$
(3,561,000
)
 
$
(1,267,000
)
 
$
(2,741,000
)
 
$
(8,242,000
)
 
See Notes to Condensed Consolidated Financial Statements


5



BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)
Nine months ended June 30, 2020 and 2019
(Unaudited)
 
 
Shares
Outstanding
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings (Accumulated Deficit)
 
Accumulated
Other
Comprehensive Loss
 
Treasury
Stock
 
Non-controlling
Interests
 
Total
Equity (Deficit)
Balance at September 30, 2018
8,277,160

 
$
4,223,000

 
$
1,350,000

 
$
13,253,000

 
$
(514,000
)
 
$
(2,286,000
)
 
$
213,000

 
$
16,239,000

Cumulative impact from the adoption of ASU No. 2014-09

 

 

 
20,000

 

 

 

 
20,000

Distributions to non-controlling interests

 

 

 

 

 

 
(110,000
)
 
(110,000
)
Net loss

 

 

 
(8,090,000
)
 

 

 
(32,000
)
 
(8,122,000
)
Foreign currency translation adjustments, net of taxes of $0

 

 

 

 
(194,000
)
 

 

 
(194,000
)
Retirement plans - amortization of accumulated other comprehensive loss into net periodic benefit cost, net of taxes of $0

 

 

 

 
42,000

 

 

 
42,000

Balance at June 30, 2019
8,277,160

 
$
4,223,000

 
$
1,350,000

 
$
5,183,000

 
$
(666,000
)
 
$
(2,286,000
)
 
$
71,000

 
$
7,875,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at September 30, 2019
8,277,160

 
$
4,223,000

 
$
1,350,000

 
$
859,000

 
$
(2,917,000
)
 
$
(2,286,000
)
 
$
100,000

 
$
1,329,000

Net loss

 

 

 
(5,384,000
)
 

 

 
(20,000
)
 
(5,404,000
)
Foreign currency translation adjustments, net of taxes of $0

 

 

 

 
(36,000
)
 

 

 
(36,000
)
Retirement plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of accumulated other comprehensive loss into net periodic benefit cost, net of taxes of $0

 

 

 

 
100,000

 

 

 
100,000

Net actuarial gains arising during the period, net of taxes of $0

 

 

 

 
880,000

 

 

 
880,000

Curtailment gain, net of taxes of $0

 

 

 

 
1,699,000

 

 

 
1,699,000

Balance at June 30, 2020
8,277,160

 
$
4,223,000

 
$
1,350,000

 
$
(4,525,000
)
 
$
(274,000
)
 
$
(2,286,000
)
 
$
80,000

 
$
(1,432,000
)

See Notes to Condensed Consolidated Financial Statements


6



BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) 
 
Nine months ended 
 June 30,
 
2020
 
2019
Cash flows from operating activities:
 

 
 

Net loss
$
(5,404,000
)
 
$
(8,122,000
)
Adjustments to reconcile net loss to net cash
 

 
 

provided by (used in) operating activities:
 

 
 

Equity in loss of affiliates
179,000

 
545,000

Depletion, depreciation, and amortization
1,870,000

 
2,308,000

Gain on sale of asset
(1,336,000
)
 

Impairment of assets
4,326,000

 
2,413,000

Retirement benefits (income) expense
(18,000
)
 
133,000

Income tax receivable, noncurrent

 
(31,000
)
Non-cash rent expense
48,000

 
65,000

Accretion of asset retirement obligation
415,000

 
452,000

Deferred income tax benefit
(7,000
)
 
(134,000
)
Asset retirement obligation payments
(457,000
)
 
(310,000
)
Share-based compensation benefit

 
(31,000
)
Retirement plan contributions and payments
(6,000
)
 
(121,000
)
Bad debt expense
280,000

 

Sale of interest in leasehold land, net of fees paid

 
(124,000
)
Increase from changes in current assets and liabilities
582,000

 
1,326,000

Net cash provided by (used in) operating activities
472,000

 
(1,631,000
)
Cash flows from investing activities:


 
 

Proceeds from the maturity of certificates of deposit

 
741,000

Distribution from equity investees in excess of earnings

 
352,000

Net proceeds from sale of interest in leasehold land

 
124,000

Proceeds from sale of oil and natural gas assets
608,000

 
1,519,000

Proceeds from the sale of asset
1,100,000

 

Payments to acquire oil and natural gas properties

 
(355,000
)
Capital expenditures - oil and natural gas
(2,509,000
)
 
(58,000
)
Capital expenditures - all other
(315,000
)
 
(1,221,000
)
Issuance of note receivable

 
(300,000
)
Net cash (used in) provided by investing activities
(1,116,000
)
 
802,000

Cash flows from financing activities:
 

 
 

Borrowings on long-term debt
147,000

 

Distributions to non-controlling interests

 
(110,000
)
Net cash provided by (used in) financing activities
147,000

 
(110,000
)
Effect of exchange rate changes on cash and cash equivalents
(10,000
)
 
9,000

Net decrease in cash and cash equivalents
(507,000
)
 
(930,000
)
Cash and cash equivalents at beginning of period
4,613,000

 
5,965,000

Cash and cash equivalents at end of period
$
4,106,000

 
$
5,035,000

 
See Notes to Condensed Consolidated Financial Statements

7



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) and a 75%-owned land investment partnership (KD Kona 2013 LLLP). 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 (“SEC”). 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, 2019 Annual Report on Form 10-K, as amended by our Form 10-K/A Amendment No. 1 and Form 10-K/A Amendment No. 2. The Condensed Consolidated Balance Sheet as of September 30, 2019 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 June 30, 2020, results of operations and comprehensive loss for the three and nine months ended June 30, 2020 and 2019, and equity (deficit) and cash flows for the nine months ended June 30, 2020 and 2019, have been made. The results of operations for the period ended June 30, 2020 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, share-based payment arrangements, obligations for

8



retirement plans, 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 the accounting policies implemented in connection with the adoption of Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” discussed in Note 13, 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 most recently filed Annual Report on Form 10-K, as amended by our Form 10-K/A Amendment No. 1 and Form 10-K/A Amendment No. 2.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, “Leases (Topic 842),” which requires an entity to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with terms greater than 12 months at the lease commencement date. The Company adopted the provisions of this ASU effective October 1, 2019. See Note 13 “Leases and Gain on Sale of Asset.”

In February 2018, the FASB issued ASU No. 2018-02, “Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income,” which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The Company adopted the provisions of this ASU effective October 1, 2019. The adoption of this update did not have an impact on Barnwell's consolidated financial statements.

In July 2018, the FASB issued ASU No. 2018-09, “Codification Improvements,” which provides further clarification to the codification literature. The Company adopted the provisions of this ASU effective October 1, 2019. The adoption of this update did not have an impact on Barnwell's consolidated financial statements.

Impact of COVID-19

On March 11, 2020, the World Health Organization declared the coronavirus (“COVID-19”) outbreak a global pandemic and the United States and Canadian governments declared the virus a national emergency shortly thereafter. As a result, the normal operations of many businesses have been disrupted, including the temporary closure or scale-back of business operations and/or the imposition of either quarantine or remote work or meeting requirements for employees, either by government order or on a voluntary basis. The global economy, our markets and our business have been materially and adversely affected by COVID-19.
    
The COVID-19 outbreak has caused significant reductions in demand for oil and oil prices, which has caused the Company to suspend the development of proved undeveloped reserves and has impacted the Company’s financial condition and outlook. While the Company’s contract drilling segment continues to work, the impact of COVID-19 on the ability or desire for customers to continue such work is uncertain, and any discontinuation of contracts currently in backlog would result in a material adverse impact to the Company’s financial condition and outlook. Both the health and economic aspects of the COVID-19 pandemic are highly fluid and the future course of each is uncertain. We cannot foresee whether the outbreak of COVID-19 will be effectively contained on a sustained basis, nor can we predict the severity and duration of its impact. If the outbreak of COVID-19 is not effectively and timely controlled, our business operations and financial condition may continue to be materially and adversely affected as a result of the deteriorating

9



market outlook, the global economic recession, weakened liquidity or factors that we cannot foresee. Any of these factors and other factors beyond our control could have an adverse effect on the overall business environment, cause uncertainties in the regions where we conduct business, cause our business to suffer in ways that we cannot predict and materially and adversely impact our business, financial condition and results of operations.

2.    GOING CONCERN
 
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business for the twelve-month period following the date of issuance of these condensed consolidated financial statements.

Our ability to sustain our business in the future will depend on sufficient oil and natural gas operating cash flows, which are highly sensitive to potentially volatile oil and natural gas prices, sufficient contract drilling operating cash flows, which are subject to potentially large changes in demand, and sufficient future land investment segment proceeds and distributions from the Kukio Resort Land Development Partnerships, the timing of which are both highly uncertain and not within Barnwell’s control. A sufficient level of such cash inflows are necessary to fund discretionary oil and natural gas capital expenditures, which must be economically successful to provide sufficient returns, as well as fund our non-discretionary outflows such as oil and natural gas asset retirement obligations and ongoing operating and general and administrative expenses.

We have experienced a trend of losses and negative operating cash flows in recent years. Due to the additional impacts of the COVID-19 pandemic, we now face a greater uncertainty about our cash inflows as described above, which in turn leads to substantial doubt regarding our ability to make the required discretionary cash outflows for the capital expenditures necessary to convert our proved undeveloped reserves to proved developed reserves. Furthermore, because of the greater uncertainty about our cash inflows described above, there is substantial doubt about our ability to fund our non-discretionary cash outflows and thus substantial doubt about our ability to continue as a going concern for one year from the date of the filing of this report.

The Company is investigating potential sources of funding, including non-core oil and natural gas property sales, however, no probable sources of such funding have yet been secured. Alternatively, management has the ability to sell its corporate office on the 29th floor of a commercial office building in downtown Honolulu, Hawaii, to generate liquidity without impacting operations significantly, in order to mitigate the substantial doubt about our ability to continue as a going concern. However, the Company’s ability to sell its corporate office at an appropriate time or for a sufficient price is outside of the Company's control and is therefore not probable. Because of this uncertainty as well as uncertainties regarding the potential duration and depth of the impacts of the COVID-19 pandemic on our business as described above, substantial doubt about our ability to continue as a going concern for one year from the date of the filing of this report exists. These financial statements do not include any adjustments that might result from the outcome of these uncertainties.


10



3.    LOSS PER COMMON SHARE
 
Basic loss per share is computed using the weighted-average number of common shares outstanding for the period. Diluted loss 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. Potentially dilutive shares are excluded from the computation of diluted loss per share if their effect is anti-dilutive.

Options to purchase 60,000 and 318,750 shares of common stock were excluded from the computation of diluted shares for the three and nine months ended June 30, 2020 and 2019, respectively, as their inclusion would have been anti-dilutive.
 
Reconciliations between net loss attributable to Barnwell stockholders and common shares outstanding of the basic and diluted net loss per share computations are detailed in the following tables:
 
Three months ended June 30, 2020
 
Net Loss
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
Basic net loss per share
$
(3,456,000
)
 
8,277,160

 
$
(0.42
)
Effect of dilutive securities -
 

 
 

 
 

common stock options

 

 
 

Diluted net loss per share
$
(3,456,000
)
 
8,277,160

 
$
(0.42
)
 
Nine months ended June 30, 2020
 
Net Loss
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
Basic net loss per share
$
(5,384,000
)
 
8,277,160

 
$
(0.65
)
Effect of dilutive securities -
 

 
 

 
 

common stock options

 

 
 

Diluted net loss per share
$
(5,384,000
)
 
8,277,160

 
$
(0.65
)
 
Three months ended June 30, 2019
 
Net Loss
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
Basic net loss per share
$
(1,365,000
)
 
8,277,160

 
$
(0.16
)
Effect of dilutive securities -
 

 
 

 
 

common stock options

 

 
 

Diluted net loss per share
$
(1,365,000
)
 
8,277,160

 
$
(0.16
)

11



 
Nine months ended June 30, 2019
 
Net Loss
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
Basic net loss per share
$
(8,090,000
)
 
8,277,160

 
$
(0.98
)
Effect of dilutive securities -
 

 
 

 
 

common stock options

 

 
 

Diluted net loss per share
$
(8,090,000
)
 
8,277,160

 
$
(0.98
)

4.    INVESTMENTS
 
A summary of Barnwell’s non-current investments is as follows:
 
June 30,
2020
 
September 30,
2019
Investment in Kukio Resort Land Development Partnerships
$
751,000

 
$
930,000

Investment in leasehold land interest – Lot 4C
50,000

 
50,000

Total non-current investments
$
801,000

 
$
980,000

 
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 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. The partnerships derive income from the sale of residential parcels, of which 19 lots remain to be sold at Increment I as of June 30, 2020, as well as from commissions on real estate sales by the real estate sales office.

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. Effective March 7, 2019, KDK and Replay hold ownership interests of 55% and 45%, respectively, of KD II. Accordingly, Barnwell has a 10.8% indirect non-controlling ownership interest in KD II through KDK as of that date that will continue to be 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.

There were no cash distributions from the Kukio Resort Land Development Partnerships for the nine months ended June 30, 2020. During the nine months ended June 30, 2019, Barnwell received net cash distributions in the amount of $314,000 from the Kukio Resort Land Development Partnerships after distributing $38,000 to non-controlling interests.


12



Barnwell has the right to receive distributions from its non-controlling interest in KKM in proportion to its partner capital sharing ratio of 34.45%. Barnwell is entitled to a 100% preferred return up to $1,000,000 from KKM on any allocated equity in income of the Kukio Resort Land Development Partnerships for cumulative distributions to all of its partners in excess of $45,000,000 from those partnerships. Cumulative distributions from the Kukio Resort Land Development Partnerships have reached the $45,000,000 threshold. However, because we have no control over the distributions from the Kukio Resort Land Development Partnerships and the ability of the Kukio Resort Land Development Partnerships to make such distributions is dependent upon their future sales of lots, we have not recorded any estimated potential preferred return from KKM in our equity in income to date. However, if sufficient distributions are made by the Kukio Resort Land Development Partnerships in the future, Barnwell will have equity in income of affiliates for the recognition of the preferred return. There is no assurance that any future distributions and resulting preferred returns will occur.

Equity in loss of affiliates was $111,000 and $179,000 for the three and nine months ended June 30, 2020, respectively, and $259,000 and $545,000 for the three and nine months ended June 30, 2019, respectively. The equity in the underlying net assets of the Kukio Resort Land Development Partnerships exceeds the carrying value of the investment in affiliates by approximately $291,000 as of June 30, 2020, which is attributable to differences in the value of capitalized development costs and a note receivable. The basis difference will be recognized as the partnerships sell lots and recognize the associated costs and sell memberships for the Kuki`o Golf and Beach Club for which the receivable relates. The basis difference adjustments of $5,000 and $11,000 for the nine months ended June 30, 2020 and 2019, respectively, increased equity in income of affiliates.
 
Summarized financial information for the Kukio Resort Land Development Partnerships is as follows:
 
Three months ended June 30,
 
2020
 
2019
Revenue
$
496,000

 
$
575,000

Gross profit
$
140,000

 
$
45,000

Net loss
$
(501,000
)
 
$
(1,190,000
)
 
Nine months ended June 30,
 
2020
 
2019
Revenue
$
3,486,000

 
$
2,894,000

Gross profit
$
1,587,000

 
$
896,000

Net loss
$
(804,000
)
 
$
(2,252,000
)

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 16).
 
With respect to Increment I, Kaupulehu Developments is entitled to receive payments from KD I based on the following percentages of the gross receipts from KD I’s sales of single-family residential lots in Increment I: 10% of such aggregate gross proceeds greater than $100,000,000 up to $300,000,000; and 14% of such aggregate gross proceeds in excess of $300,000,000. The total amount of gross proceeds from single-family lots sales was $216,400,000 through June 30, 2020. No single-family lots were sold during

13



the nine months ended June 30, 2020 and 19 single-family lots, of the 80 lots developed within Increment I, remained to be sold as of June 30, 2020.

Under the terms of the former Increment II agreement with KD II, Kaupulehu Developments was entitled to receive payments from KD II resulting from the sale of lots and/or residential units by KD II within Increment II. Through March 6, 2019, the payments were based on a percentage of gross receipts from KD II's sales ranging from 8% to 10% of the price of improved or unimproved lots or 2.60% to 3.25% of the price of units constructed on a lot, to be determined in the future depending upon a number of variables, including whether the lots are sold prior to improvement. Two ocean front parcels approximately two to three acres in size fronting the ocean were developed within Increment II by KD II, of which one was sold in fiscal 2017 and one was sold in fiscal 2016. The remaining acreage within Increment II is not yet under development.

Through March 6, 2019, Kaupulehu Developments was also entitled to receive 50% of distributions otherwise payable from KD II to its members after the members of KD II have received distributions equal to the original basis of capital invested in the project, up to $8,000,000. Through March 6, 2019, a cumulative total of $3,500,000 was received from KD II under this arrangement, out of the $8,000,000 maximum. The former arrangement also included the rights to three single-family residential lots in Phase 2 of Increment II when developed, at no cost to Barnwell, with a commitment by Barnwell to begin to construct a residence upon each lot within six months of transfer.

Concurrent with the transaction whereby KD II admitted Replay as a new development partner, Kaupulehu Developments entered into new agreements with KD II whereby the aforementioned terms of the former Increment II arrangement were eliminated and Kaupulehu Developments will instead be entitled to 15% of the distributions of KD II, the cost of which is to be solely borne by KDK out of its 55% ownership interest in KD II, plus a priority payout of 10% of KDK’s cumulative net profits derived from Increment II sales subsequent to Phase 2A, up to a maximum of $3,000,000 as to the priority payout. Such interests are limited to distributions or net profits interests and Barnwell will not have any partnership interests in KD II or KDK through its interest in Kaupulehu Developments. The new arrangement also gives Barnwell rights to three single-family residential lots in Phase 2A of Increment II, and four single-family residential lots in phases subsequent to Phase 2A when such lots are developed by KD II, all at no cost to Barnwell. Barnwell is committed to commence construction of improvements within 90 days of the transfer of the four lots in the phases subsequent to Phase 2A as a condition of the transfer of such lots. Also, in addition to Barnwell’s existing obligations to pay professional fees to certain parties based on percentages of its gross receipts, Kaupulehu Developments is now also obligated to pay an amount equal to 0.72% and 0.2% of the cumulative net profits of KD II to KD Development, LLC and a pool of various individuals, respectively, all of whom are partners of KKM and are unrelated to Barnwell, in compensation for the agreement of these parties to admit the new development partner for Increment II. Such compensation will be reflected as the obligation becomes probable and the amount of the obligation can be reasonably estimated. The new agreements also specify that Kaupulehu Developments was to be paid $1,000,000 by KD II prior to admission of Replay as a partner. This $1,000,000 payment had already been received in June 2018 and is included in the $3,500,000 cumulative total as of March 6, 2019 discussed above.

The Increment I percentage of sales arrangement between Barnwell and KD I remains unchanged.


14



The following table summarizes the Increment I and Increment II revenues from KD I and KD II and the amount of fees directly related to such revenues:
 
Three months ended 
 June 30,
 
Nine months ended 
 June 30,
 
2020
 
2019
 
2020
 
2019
Sale of interest in leasehold land:
 
 
 

 
 
 
 
Revenues - sale of interest in leasehold land
$

 
$

 
$

 
$
165,000

Fees - included in general and administrative expenses

 

 

 
(20,000
)
Sale of interest in leasehold land, net of fees paid
$

 
$

 
$

 
$
145,000


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. 

5.    OIL AND NATURAL GAS PROPERTIES

Dispositions

In October 2019, Barnwell entered into a purchase and sale agreement with an independent third party and sold its interests in properties located in the Progress area of Alberta, Canada. The sales price per the agreement was adjusted for customary purchase price adjustments to $594,000 in order to, among other things, reflect an economic effective date of October 1, 2019. The final determination of the customary adjustments to the purchase price has not yet been made however it is not expected to result in a material adjustment. The proceeds were credited to the full cost pool, with no gain or loss recognized, as the sale did not result in a significant alteration of the relationship between capitalized costs and proved reserves.

There were no oil and natural gas property dispositions during the nine months ended June 30, 2019. The $1,519,000 of proceeds from sale of oil and natural gas properties included in the Condensed Consolidated Statement of Cash Flows for the nine months ended June 30, 2019 primarily represents the refund of income taxes previously withheld from what otherwise would have been proceeds on the previous years' oil and natural gas property sales.

Acquisitions

There were no significant amounts paid for oil and natural gas property acquisitions during the nine months ended June 30, 2020.

In the quarter ended December 31, 2018, Barnwell acquired additional working interests in oil and natural gas properties located in the Wood River and Twining areas of Alberta, Canada for cash consideration of $355,000. The purchase prices per the agreements were adjusted for customary purchase price adjustments to reflect the economic activity from the effective date to the closing date. The customary adjustments to the purchase prices were finalized during the quarter ended June 30, 2019 and resulted in an immaterial

15



adjustment. There were no other oil and natural gas property acquisitions during the nine months ended June 30, 2019.

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 was a ceiling test impairment of $2,689,000 and $4,326,000 during the three and nine months ended June 30, 2020, respectively. There was no ceiling test impairment during the three months ended June 30, 2019 and there was a ceiling test impairment of $2,413,000 during the nine months ended June 30, 2019.

Changes in the mandated 12-month historical 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 estimated market value of unproved properties, impact the determination of the maximum carrying value of oil and natural gas properties. Prior to the quarter ended March 31, 2020, the ceiling test calculation included management’s estimation that the Company had the ability to fund the approximately $12,000,000 of future capital expenditures necessary over the next five years to develop proved undeveloped reserves in the Twining area of Alberta, Canada. However, due to the impact on oil prices and the extreme uncertainties created by the COVID-19 pandemic on the Company's financial outlook, management is no longer reasonably certain that the Company will have the financial resources necessary to make any of the approximately $12,000,000 of capital expenditures necessary to develop the proved undeveloped reserves. Therefore, the proved undeveloped reserves continue to be excluded from the quarterly ceiling test calculations subsequent to December 31, 2019.

As discussed above, the ceiling test mandates the use of the 12-month historical rolling average first-day-of-the-month prices. If oil prices remain at current levels or decline further, it is more likely than not that the Company will incur further impairment write-downs in future periods in the absence of any offsetting factors that are not currently known or projected.

6.    RETIREMENT PLANS
 
Barnwell sponsors a noncontributory defined benefit pension plan (“Pension Plan”) covering substantially all of its U.S. employees. Additionally, Barnwell sponsors a Supplemental Employee Retirement Plan (“SERP”), a noncontributory supplemental retirement benefit plan which covers certain current and former employees of Barnwell for amounts exceeding the limits allowed under the Pension Plan, and a postretirement medical insurance benefits plan (“Postretirement Medical”) covering eligible U.S. employees.
 

16



The following tables detail the components of net periodic benefit (income) cost for Barnwell’s retirement plans:
 
Pension Plan
 
SERP
 
Postretirement Medical
 
Three months ended June 30,
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
Service cost
$

 
$
41,000

 
$

 
$
6,000

 
$

 
$

Interest cost
73,000

 
92,000

 
16,000

 
16,000

 
20,000

 
25,000

Expected return on plan assets
(173,000
)
 
(165,000
)
 

 

 

 

Amortization of prior service cost (credit)

 
2,000

 

 
(2,000
)
 

 

Amortization of net actuarial loss

 
(3,000
)
 

 
(1,000
)
 
20,000

 
13,000

Net periodic benefit (income) cost
$
(100,000
)
 
$
(33,000
)
 
$
16,000

 
$
19,000

 
$
40,000

 
$
38,000

 
Pension Plan
 
SERP
 
Postretirement Medical
 
Nine months ended June 30,
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
Service cost
$
50,000

 
$
141,000

 
$
3,000

 
$
24,000

 
$

 
$

Interest cost
228,000

 
279,000

 
49,000

 
58,000

 
60,000

 
75,000

Expected return on plan assets
(508,000
)
 
(486,000
)
 

 

 

 

Amortization of prior service cost (credit)
1,000

 
5,000

 
(1,000
)
 
(4,000
)
 

 

Amortization of net actuarial loss
35,000

 
1,000

 
5,000

 
1,000

 
60,000

 
39,000

Curtailment cost (income)
53,000

 

 
(53,000
)
 

 

 

Net periodic benefit (income) cost
$
(141,000
)
 
$
(60,000
)
 
$
3,000

 
$
79,000

 
$
120,000

 
$
114,000


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

On December 12, 2019, the Company’s Board of Directors approved a resolution to freeze all future benefit accruals for all participants under the Company’s Pension Plan and SERP effective December 31, 2019. Accordingly, the Company remeasured the projected benefit obligation of the Pension Plan and SERP as of December 31, 2019. As a result of the remeasurement, the Company recorded an $880,000 actuarial gain in accumulated other comprehensive loss during the quarter ended December 31, 2019. The actuarial gain was primarily due to an increase in the market value of Pension Plan assets as well as an increase in the discount rate for both plans during the period. The impact of the Pension Plan and SERP plan freeze resulted in a $1,699,000 reduction in unrecognized pension benefit costs that were previously included in accumulated other comprehensive loss, with a corresponding benefit in other comprehensive income which was recorded in the first quarter ended December 31, 2019. No remeasurement was required in the quarters ended March 31, 2020 and June 30, 2020.

Currently, no contributions are expected to be made to the Pension Plan during fiscal 2020. The SERP and Postretirement Medical plans are unfunded, and Barnwell funds benefits when payments are made. Expected payments under the Postretirement Medical plan and the SERP for fiscal 2020 are not material. Fluctuations in actual equity market returns as well as changes in general interest rates will result in changes

17



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 before income taxes, after adjusting the loss for non-controlling interests, are as follows:
 
Three months ended 
 June 30,
 
Nine months ended 
 June 30,
 
2020
 
2019
 
2020
 
2019
United States
$
163,000

 
$
(637,000
)
 
$
717,000

 
$
(3,059,000
)
Canada
(3,643,000
)
 
(819,000
)
 
(6,127,000
)
 
(5,262,000
)
 
$
(3,480,000
)
 
$
(1,456,000
)
 
$
(5,410,000
)
 
$
(8,321,000
)

The components of the income tax benefit are as follows:
 
Three months ended 
 June 30,
 
Nine months ended 
 June 30,
 
2020
 
2019
 
2020
 
2019
Current
$
(26,000
)
 
$
(63,000
)
 
$
(19,000
)
 
$
(97,000
)
Deferred
2,000

 
(28,000
)
 
(7,000
)
 
(134,000
)
 
$
(24,000
)
 
$
(91,000
)
 
$
(26,000
)
 
$
(231,000
)

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. 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.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law to provide economic relief to businesses that were negatively impacted by the COVID-19 pandemic. Key tax provisions of the CARES Act currently impacting the Company include the modification of rules related to alternative minimum tax (“AMT”) credits and net operating losses (“NOL”). Other provisions of the CARES Act are currently inapplicable to the Company and/or do not impact the Company’s U.S. federal current and deferred income taxes.

Under previous legislation, 50% of the total AMT credit carryover was refundable upon the filing of the Company's U.S. federal income tax return for the year ended September 30, 2019 and was reclassified to current taxes receivable as of September 30, 2019. The CARES Act provides for an election, which the Company has made, to take the entire refundable credit in the Company’s U.S. federal income tax return for the year ended September 30, 2019. As such, the Company reclassified the remaining 50% from non‑current income taxes receivable to current income taxes receivable as of March 31, 2020 as a result of the CARES Act.


18



Under previous legislation, the utilization of NOLs generated in tax years beginning after December 31, 2017, which was the Company's fiscal year ended September 30, 2019, was restricted to 80% of taxable income. The CARES Act suspended this restriction through the 2020 tax year (the Company’s fiscal year ending September 30, 2021). This limitation will be reinstated effective for tax years beginning on or after January 1, 2021.

In the three months ended June 30, 2020, the Government of Alberta announced a reduction of its corporate income tax rate from 10% to 8% effective July 1, 2020. However, this tax rate reduction had not been enacted as of June 30, 2020, and therefore, is not included in the Company's tax provision for the current period. Additionally, because our Canadian operations are currently generating losses and net Canadian deferred tax assets have a full valuation allowance, the reduction in the tax rate is not expected to have an impact on results of operations.

8.    REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

The following tables provide information about disaggregated revenue by revenue streams, reportable segments, geographical region, and timing of revenue recognition for the three and nine months ended June 30, 2020 and 2019.
 
 
Three months ended June 30, 2020
 
 
Oil and natural gas
 
Contract drilling
 
Land investment
 
Other
 
Total
Revenue streams:
 
 
 
 
 
 
 
 
 
 
Oil
$
624,000

 
$

 
$

 
$

 
$
624,000

 
Natural gas
192,000

 

 

 

 
192,000

 
Natural gas liquids
14,000

 

 

 

 
14,000

 
Drilling and pump

 
3,040,000

 

 

 
3,040,000

 
Other

 

 

 
113,000

 
113,000

 
Total revenues before interest income
$
830,000

 
$
3,040,000

 
$

 
$
113,000

 
$
3,983,000

Geographical regions:
 
 
 
 
 
 
 
 
 
 
United States
$

 
$
3,040,000

 
$

 
$

 
$
3,040,000

 
Canada
830,000

 

 

 
113,000

 
943,000

 
Total revenues before interest income
$
830,000

 
$
3,040,000

 
$

 
$
113,000

 
$
3,983,000

Timing of revenue recognition:
 
 
 
 
 
 
 
 
 
 
Goods transferred at a point in time
$
830,000

 
$

 
$

 
$
113,000

 
$
943,000

 
Services transferred over time

 
3,040,000

 

 

 
3,040,000

 
Total revenues before interest income
$
830,000

 
$
3,040,000

 
$

 
$
113,000

 
$
3,983,000



19



 
 
Three months ended June 30, 2019
 
 
Oil and natural gas
 
Contract drilling
 
Land investment
 
Other
 
Total
Revenue streams:
 
 
 
 
 
 
 
 
 
 
Oil
$
1,419,000

 
$

 
$

 
$

 
$
1,419,000

 
Natural gas
152,000

 

 

 

 
152,000

 
Natural gas liquids
117,000

 

 

 

 
117,000

 
Drilling and pump

 
1,689,000

 

 

 
1,689,000

 
Other

 

 

 
15,000

 
15,000

 
Total revenues before interest income
$
1,688,000

 
$
1,689,000

 
$

 
$
15,000

 
$
3,392,000

Geographical regions:
 
 
 
 
 
 
 
 
 
 
United States
$

 
$
1,689,000

 
$

 
$

 
$
1,689,000

 
Canada
1,688,000

 

 

 
15,000

 
1,703,000

 
Total revenues before interest income
$
1,688,000

 
$
1,689,000

 
$

 
$
15,000

 
$
3,392,000

Timing of revenue recognition:
 
 
 
 
 
 
 
 
 
 
Goods transferred at a point in time
$
1,688,000

 
$

 
$

 
$
15,000

 
$
1,703,000

 
Services transferred over time

 
1,689,000

 

 

 
1,689,000

 
Total revenues before interest income
$
1,688,000

 
$
1,689,000

 
$

 
$
15,000

 
$
3,392,000



 
 
Nine months ended June 30, 2020
 
 
Oil and natural gas
 
Contract drilling
 
Land investment
 
Other
 
Total
Revenue streams:
 
 
 
 
 
 
 
 
 
 
Oil
$
3,827,000

 
$

 
$

 
$

 
$
3,827,000

 
Natural gas
821,000

 

 

 

 
821,000

 
Natural gas liquids
233,000

 

 

 

 
233,000

 
Drilling and pump

 
8,279,000

 

 

 
8,279,000

 
Other

 

 

 
239,000

 
239,000

 
Total revenues before interest income
$
4,881,000

 
$
8,279,000

 
$

 
$
239,000

 
$
13,399,000

Geographical regions:
 
 
 
 
 
 
 
 
 
 
United States
$

 
$
8,279,000

 
$

 
$
7,000

 
$
8,286,000

 
Canada
4,881,000

 

 

 
232,000

 
5,113,000

 
Total revenues before interest income
$
4,881,000

 
$
8,279,000

 
$

 
$
239,000

 
$
13,399,000

Timing of revenue recognition:
 
 
 
 
 
 
 
 
 
 
Goods transferred at a point in time
$
4,881,000

 
$

 
$

 
$
239,000

 
$
5,120,000

 
Services transferred over time

 
8,279,000

 

 

 
8,279,000

 
Total revenues before interest income
$
4,881,000

 
$
8,279,000

 
$

 
$
239,000

 
$
13,399,000


20




 
 
Nine months ended June 30, 2019
 
 
Oil and natural gas
 
Contract drilling
 
Land investment
 
Other
 
Total
Revenue streams:
 
 
 
 
 
 
 
 
 
 
Oil
$
3,792,000

 
$

 
$

 
$

 
$
3,792,000

 
Natural gas
650,000

 

 

 

 
650,000

 
Natural gas liquids
402,000

 

 

 

 
402,000

 
Drilling and pump

 
3,839,000

 

 

 
3,839,000

 
Contingent residual payments

 

 
165,000

 

 
165,000

 
Other

 

 

 
69,000

 
69,000

 
Total revenues before interest income
$
4,844,000

 
$
3,839,000

 
$
165,000

 
$
69,000

 
$
8,917,000

Geographical regions:
 
 
 
 
 
 
 
 
 
 
United States
$

 
$
3,839,000

 
$
165,000

 
$
1,000

 
$
4,005,000

 
Canada
4,844,000

 

 

 
68,000

 
4,912,000

 
Total revenues before interest income
$
4,844,000

 
$
3,839,000

 
$
165,000

 
$
69,000

 
$
8,917,000

Timing of revenue recognition:
 
 
 
 
 
 
 
 
 
 
Goods transferred at a point in time
$
4,844,000

 
$

 
$
165,000

 
$
69,000

 
$
5,078,000

 
Services transferred over time

 
3,839,000

 

 

 
3,839,000

 
Total revenues before interest income
$
4,844,000

 
$
3,839,000

 
$
165,000

 
$
69,000

 
$
8,917,000


Contract Balances

The following table provides information about accounts receivables, contract assets and contract liabilities from contracts with customers:
 
June 30, 2020
 
September 30, 2019
Accounts receivables from contracts with customers
$
2,017,000

 
$
1,322,000

Contract assets
324,000

 
344,000

Contract liabilities
1,638,000

 
1,633,000


Accounts receivables from contracts with customers are included in “Accounts and other receivables, net of allowance for doubtful accounts,” and contract assets, which includes costs and estimated earnings in excess of billings and retainage, are included in “Other current assets.” Contract liabilities, which includes billings in excess of costs and estimated earnings are included in “Other current liabilities” in the accompanying Condensed Consolidated Balance Sheets.

Retainage, included in contract assets, represents amounts due from customers, but where payments are withheld contractually until certain construction milestones are met. Amounts retained typically range from 5% to 10% of the total invoice, up to contractually-specified maximums. The Company classifies as a current asset those retainages that are expected to be collected in the next twelve months.

Contract assets represent the Company’s rights to consideration in exchange for services transferred to a customer that have not been billed as of the reporting date. The Company’s rights are generally unconditional at the time its performance obligations are satisfied.

When the Company receives consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract, the Company records deferred revenue, which represents a contract liability. Such deferred revenue typically

21



results from billings in excess of costs and estimated earnings on uncompleted contracts. As of June 30, 2020 and September 30, 2019, the Company had $1,638,000 and $1,633,000, respectively, included in “Other current liabilities” on the balance sheets for those performance obligations expected to be completed in the next twelve months.

During the nine months ended June 30, 2020 and 2019, the amount of revenue recognized that was previously included in contract liabilities as of the beginning of the respective period was $707,000 and $25,000, respectively.
    
Contracts are sometimes modified for a change in scope or other requirements. The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of the Company’s contract modifications are for goods and services that are not distinct from the existing performance obligations. The effect of a contract modification on the transaction price, and the measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase or decrease) on a cumulative catchup basis.

Performance Obligations

The Company’s remaining performance obligations for drilling and pump installation contracts (hereafter referred to as “backlog”) represent the unrecognized revenue value of the Company’s contract commitments. The Company’s backlog may vary significantly each reporting period based on the timing of major new contract commitments. In addition, our customers have the right, under some infrequent circumstances, to terminate contracts or defer the timing of the Company’s services and their payments to us. Nearly all of the Company's contract drilling segment contracts have original expected durations of one year or less. At June 30, 2020, the Company had three contract drilling jobs with original expected durations of greater than one year. For these contracts, approximately 21% of the remaining performance obligation of $2,427,000 is expected to be recognized in the next twelve months and the remaining, thereafter.

Contract Fulfillment Costs

Preconstruction costs, which include costs such as set-up and mobilization, are capitalized and allocated across all performance obligations and deferred and amortized over the contract term on a progress towards completion basis. As of June 30, 2020 and September 30, 2019, the Company had $216,000 and $296,000, respectively, in unamortized preconstruction costs related to contracts that were not completed. During the three and nine months ended June 30, 2020, the amortization of preconstruction costs related to contracts were not material and were included in the accompanying Condensed Consolidated Statements of Operations. During the three and nine months ended June 30, 2019, the amortization of preconstruction costs related to contracts was $80,000 and $129,000, respectively. Additionally, no impairment charges in connection with the Company’s preconstruction costs were recorded during the three and nine months ended June 30, 2020 and 2019.

Water Well Re-drill

In the quarter ended December 31, 2019, the Company experienced the failure of a hole opener which broke apart leaving pieces in the bottom of a water well being drilled in Hawaii. Efforts to remove the items from the well were unsuccessful through the quarter ended March 31, 2020 and subsequently, the Company determined that the well should be abandoned and a new well drilled at no incremental cost to the customer as per the terms of the contract. Accordingly, all the costs to drill and abandon the first well, which are all wasted costs, were excluded from the measurement of progress toward contract completion and all such costs

22



were fully accrued in the quarter ended March 31, 2020, as this contract was determined to be a loss job. As a result, $733,000 of revenue previously recognized was reversed in the nine months ended June 30, 2020 and the Company recognized a decrease of approximately $670,000 in the estimated margin of this contract in the nine months ended June 30, 2020.


23



9.    SEGMENT INFORMATION
 
Barnwell operates the following segments: 1) acquiring, developing, producing and selling oil and natural gas in Canada (oil and natural gas); 2) investing in land interests in Hawaii (land investment); and 3) drilling wells and installing and repairing water pumping systems in Hawaii (contract drilling).
 
The following table presents certain financial information related to Barnwell’s reporting segments. All revenues reported are from external customers with no intersegment sales or transfers.