10-K: Barnwell Industries Reports FY25 Loss Amid Asset Sales

Barnwell Industries reported a significant net loss for fiscal year 2025, driven by decreased oil and natural gas revenues, asset sales, and substantial legal expenses, despite a recent capital raise.

Summary

• Barnwell Industries reported a net loss from continuing operations of $7.115 million for fiscal year 2025, an increase from $4.105 million in fiscal year 2024.
• Oil and natural gas revenues decreased by $3.833 million (22%) to $13.563 million in fiscal 2025, primarily due to production declines and lower oil prices.
• The company sold all its U.S. oil and natural gas interests for $2.3 million on August 8, 2025, recognizing a $636,000 loss.
• Proved oil and natural gas reserves decreased by 1,043,000 Boe (43%) in fiscal 2025, largely due to the U.S. asset sale (425,000 Boe) and production.
• General and administrative expenses increased by $1.807 million (35%) to $6.937 million, primarily due to $1.958 million in legal and advisory fees related to a shareholder consent solicitation and proxy contest.
• The company successfully raised approximately $2.443 million in gross proceeds through a private placement offering in November 2025, which alleviated substantial doubt about its ability to continue as a going concern.
• A Delaware Chancery Court ruled in favor of the company and its board regarding a lawsuit against the Sherwood Group, validating the board's application of bylaws in a proxy contest.
• The contract drilling segment (Water Resources International, Inc.) was sold on March 14, 2025, for $1.05 million, and its results are now classified as discontinued operations.
• Barnwell's corporate headquarters will relocate from Honolulu, Hawaii, to co-head offices in Houston, Texas, and Calgary, Alberta, in early calendar year 2026 to streamline operations and reduce G&A expenses.
• The company's land investment segment saw no lot sales in fiscal 2025, compared to $500,000 in sales in fiscal 2024, with future revenues from Increment II remaining highly uncertain.

Sentiment

Score: 3

Explanation: The company experienced a significant increase in net loss, substantial decline in reserves, and higher G&A expenses due to legal battles. While a capital raise addressed going concern issues and a legal dispute was resolved in the company's favor, the core financial performance and future uncertainties in land development and potential impairments indicate a challenging period.

Positives

• The company successfully raised approximately $2.443 million in a private placement offering in November 2025, resolving substantial doubt about its ability to continue as a going concern.
• A Delaware Chancery Court ruled in favor of the company and its board in a lawsuit against the Sherwood Group, validating the board's actions and procedures.
• Strategic divestment of U.S. oil and natural gas assets and certain Canadian legacy properties allows for increased focus on the profitable Twining area in Alberta, Canada.
• The Twining field, representing 86% of fiscal 2025 production, has operated oil wells with annual decline rates below 15%, supporting lower capital investment requirements.
• Barnwell's assessment under the AER's Licensee Capability Assessment Program is currently favorable with Tier 1 or Tier 2 overall rankings in all six factor groups.
• The company has reduced its abandonment and reclamation obligations by divesting low-productivity assets and actively closing wells and sites, with 25 Barnwell-operated sites certified as fully reclaimed or exempt since 2016.

Negatives

• Net loss from continuing operations increased significantly to $7.115 million in fiscal 2025 from $4.105 million in fiscal 2024.
• Oil and natural gas revenues decreased by 22% to $13.563 million in fiscal 2025, primarily due to lower production volumes and decreased oil prices.
• Proved oil and natural gas reserves declined by 43% (1,043,000 Boe) in fiscal 2025, mainly due to asset sales and natural production declines.
• General and administrative expenses surged by 35% to $6.937 million, largely due to $1.958 million in legal and advisory fees related to shareholder activism.
• The company recognized a $636,000 loss on the sale of its U.S. oil and natural gas properties.
• Equity in income from affiliates decreased by $1.071 million, and land investment segment operating results decreased by $500,000 due to no lot sales in fiscal 2025.
• A foreign currency loss of $192,000 was recorded in fiscal 2025 due to the strengthening U.S. dollar against the Canadian dollar.
• The company may incur a further impairment charge in the first quarter of fiscal 2026 due to likely lower oil prices used in the ceiling test calculation.
• Uncertainty remains regarding the development and future sales from Increment II of the Kaupulehu Lot 4A area, with no definitive development plans made by KD II.

Risks

• Ability to continue as a going concern depends on sufficient oil and natural gas operating cash flows, which are highly dependent on volatile commodity prices.
• Continued actions by activist shareholders may negatively impact business strategies, attract/retain directors and employees, disrupt relationships, and increase stock price volatility.
• Stockholders may be significantly diluted through future financing efforts, issuance of securities, or use of stock as consideration in transactions.
• Operations are subject to currency rate fluctuations between the U.S. dollar and the Canadian dollar, which can adversely affect results.
• Adverse changes in actuarial assumptions for retirement plans or lower returns on plan assets could negatively affect financial results and condition.
• Declines in the price of common stock could adversely affect the value of the 'Asset for retirement benefits' on the balance sheet and stockholders' equity.
• Failure to retain key personnel could hurt operations due to competition in highly skilled labor markets and personal liability risks for Canadian officers/directors related to well clean-up costs.
• Acquisitions or discoveries of additional reserves are needed to increase oil and natural gas segment operating results and cash flow, requiring significant future capital expenditures that may not be feasible or sufficient.
• Drilling for oil and natural gas involves numerous risks, including not encountering commercially productive reservoirs and not recovering investment.
• The inability of working interest partners to meet their obligations may adversely affect financial results, potentially leading to significant financial losses or increased operating/abandonment expenses.
• Material costs may be incurred to comply with health, safety, and environmental laws and regulations, including mandatory annual minimum expenditures for decommissioning and reclamation obligations.
• The company is not fully insured against certain environmental risks, particularly long-term pollution, which could lead to substantial losses.
• Failure to fully identify potential problems or properly estimate reserves in acquired properties could lead to material write-downs.
• If oil and natural gas prices decline and remain low, the company may be required to take write-downs of the carrying values of its oil and natural gas properties.
• The oil and natural gas industry is highly competitive, with many competitors having greater technical and financial resources.
• Limited influence over operations of non-operated oil and natural gas properties can affect the pace of exploration/development, capital expenditures, and abandonment costs.
• Actual reserves will vary from reserve estimates due to inherent uncertainties and assumptions in the estimation process.
• Results of drilling are subject to drilling and completion technique risks, and enhanced recovery methods may not yield anticipated results.
• Delays in business operations, such as payment by purchasers or operators, could adversely affect the amount and timing of cash inflows.
• The oil and natural gas market exposes the company to potential liabilities not covered by insurance, including personal injury, loss of life, or environmental damage.
• Operations are affected by political developments and laws/regulations in Canada and the U.S., including restrictions on production, taxes, royalties, and environmental protection controls.
• Changes in U.S. trade policy, including tariffs, could adversely affect the Canadian oil and natural gas business.
• Legislation, regulation, and other government actions related to greenhouse gas emissions and climate change could increase operational costs and reduce demand for oil and natural gas.
• Compliance with foreign tax and other laws may adversely affect operations due to inconsistent interpretations or changes in legislation.
• Unforeseen title defects in resource assets or property could result in a loss of entitlement to production and reserves.
• Receipt of future payments from KD II and cash distributions from Kukio Resort Land Development Partnerships is dependent upon developers' continued efforts and ability to develop the property, which is uncertain.
• The land investment business is concentrated in Hawaii, making financial results dependent on the economic growth and health of Hawaii, particularly the island of Hawaii.
• The occurrence of natural disasters in Hawaii could have a material adverse effect on land investments and increase insurance costs.

Future Outlook

The company anticipates potential future impairment charges in the first quarter of fiscal 2026 due to likely lower oil prices used in the ceiling test calculation. Future revenues from the land investment segment, particularly from Increment II, remain highly uncertain with no definitive development plans currently in place. The company intends to continue development of the Twining oil pool with more horizontal wells as commodity prices permit and will continue to explore for oil and natural gas opportunities in the U.S. despite recent divestments. Corporate headquarters will relocate in early 2026 to streamline operations and reduce G&A expenses.

Management Comments

• Current expectations are based on reasonable assumptions, but cannot assure that the expectations contained in such forward-looking statements will be achieved.
• Expressly disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statements contained herein.
• The company believes there are potential undeveloped reserves for which significant future capital expenditures will be needed to convert those potential undeveloped reserves into developed reserves.
• The company intends to continue development of the pool with more horizontal wells as commodity prices permit.
• Barnwell remains active in evaluating market opportunities to further divest remaining legacy assets along with acquisition opportunities to expand our production and development portfolio.
• Management has determined that there is no longer substantial doubt regarding the Company's ability to continue as a going concern for one year from the filing of this Annual Report on Form 10-K, due to the gross proceeds of $2,443,000 raised in the private placement offering in November 2025.
• The decision to relocate corporate headquarters reflects the Company's ongoing efforts to streamline operations and reduce general and administrative expenses.

Industry Context

The oil and natural gas industry continues to experience volatile commodity prices, impacting revenues and cash flows. Improved pipeline egress in Canada contributed to more favorable realized pricing for Canadian oil production in 2025, contrasting with significantly discounted natural gas prices at the Waha Hub in Texas due to limited egress. The Hawaii real estate market, which affects the land investment segment, is influenced by the broader U.S. and world economies, as well as local factors like tourism and building costs. The company operates as a minor participant in both highly competitive industries, facing larger competitors with greater resources.

Comparison to Industry Standards

• Barnwell's operated oil wells in the Twining field have annual decline rates below 15%, which is favorable and supports lower capital investment requirements to maintain production levels, potentially outperforming some industry averages for mature fields.
• The company's Licensee Capability Assessment (LCA) Program ranking of Tier 1 or Tier 2 overall in all six factor groups indicates a strong corporate health and liability management position compared to peer operators in Alberta, Canada.

Management Changes

Corporate Governance

Legal Proceedings

• On March 26, 2025, the company commenced a lawsuit against the Sherwood Group in the Delaware Chancery Court, seeking declaratory judgment that the Sherwood Group's purported notice to nominate directors was invalid and injunctive relief.
• On April 21, 2025, the Sherwood Group filed an answer, counterclaims, and a third-party complaint against Alexander Kinzler, Kenneth Grossman, and Joshua Horowitz, alleging breach of fiduciary duties.
• After a trial, on May 21, 2025, the Delaware Chancery Court ruled in favor of the company and the Board of Directors, holding that the Sherwood nomination notice was invalid and that Mr. Kinzler, Mr. Grossman, and Mr. Horowitz did not breach their fiduciary duties. The Sherwood Group did not appeal this decision.

Related Party Transactions

• Kaupulehu Developments is entitled to receive payments from KD I and KD II (entities in which Barnwell holds indirect non-controlling ownership interests) from the sale of lots and/or residential units. No lots were sold in fiscal 2025, but $500,000 was received in fiscal 2024.
• Kaupulehu Developments is obligated to pay Nearco Enterprises Ltd. 10.4% (net of non-controlling interests' share) of its gross receipts from real estate transactions for promotion and marketing services.
• Kaupulehu Developments is obligated to pay its external real estate legal counsels 1.2% (net of non-controlling interests' share) of all Increment II payments received for services related to the Increment II transaction.
• Kaupulehu Developments is obligated to pay 0.72% and 0.20% of KD II's cumulative net profits to KD Development and a pool of individuals (partners of KKM and unrelated to Barnwell) as compensation for admitting a new development partner for Increment II.
• On September 29, 2025, the Board approved a common stock grant of 65,000 shares each to directors Kenneth Grossman and Joshua Horowitz, valued at $177,000, for their services related to legal actions and the 2025 shareholder proxy contest.
• The Barnwell Industries, Inc. Employees Pension Plan Trust purchased shares of Barnwell common stock in the quarter ended June 30, 2025, resulting in the Pension Plan owning more than 5% of the company's common shares outstanding. As of September 30, 2025, the Pension Plan held 666,077 shares of Barnwell common stock.
• In November 2025, Kaupulehu Developments entered into an agreement with Mr. David Johnston, the son of Mr. Terry Johnston (a partner in Kaupulehu Developments), to surrender remaining rights for Increment II for $2,000,000. A $70,000 payment was received, and the purchaser has the right to extend closing by up to two years with additional payments.
• Subsequent to fiscal 2025, KDK (in which Barnwell holds a 19.6% interest) agreed to sell its interests in Increment II to Mr. David Johnston for $2,109,000, subject to due diligence.

Stakeholder Impact

• Shareholders: Experienced significant net losses, dilution from the recent capital raise, and increased stock price volatility due to shareholder activism. The legal victory against the activist shareholder may provide some stability, but future returns are uncertain given reserve declines and land development risks.
• Employees: The company is relocating its corporate headquarters to streamline operations and reduce G&A expenses, which may impact employees in Hawaii. Key personnel retention is a concern in a competitive labor market.
• Customers: Oil and natural gas customers are affected by commodity price volatility, but the company's short-term contracts and diversified marketing mitigate dependence on single purchasers.
• Creditors: The successful private placement offering has alleviated immediate going concern doubts, improving the company's financial stability for creditors.
• Suppliers: The company's ability to fund capital expenditures for oil and natural gas development impacts demand for services from drilling and equipment suppliers.

Next Steps

• File an initial registration statement covering the resale of shares and warrant shares from the private placement offering no later than 45 days after the November 28, 2025 closing date.
• Relocate corporate headquarters from Honolulu, Hawaii, to co-head offices in Houston, Texas, and Calgary, Alberta, in early calendar year 2026.
• Continue to evaluate market opportunities to further divest remaining legacy oil and natural gas assets and pursue acquisition opportunities to expand the production and development portfolio.
• Continue development of the Twining oil pool with more horizontal wells as commodity prices permit.
• Commence construction of improvements within 90 days of the transfer of four single-family residential lots in phases subsequent to Phase 2A of Increment II, as a condition of transfer.
• Address potential impairment charge in the first quarter of fiscal 2026 due to likely lower oil prices in the ceiling test calculation.

Key Dates

Recommendation

Barnwell Industries faces significant headwinds, including a substantial net loss, declining oil and natural gas reserves, and ongoing uncertainties in its land investment segment. While the recent capital raise and legal victory against an activist shareholder provide some stability and strategic clarity, the core business segments show weakness. The company's reliance on volatile commodity prices and the speculative nature of its Hawaii land development, coupled with potential future impairments, suggest a cautious approach. The strategic shift to focus on the Twining area in Canada is positive, but its impact on overall profitability and reserve replacement needs time to materialize. Investors should hold, awaiting clearer signs of sustained operational improvement and successful execution of its revised strategy.

Keywords

Oil and Natural Gas, Energy, Canada, Alberta, Twining field, Land Investment, Hawaii Real Estate, SEC Filing, 10-K, Financial Results, Shareholder Activism, Capital Raise, Asset Sales, Proved Reserves, Commodity Prices, Corporate Governance, Environmental Regulations, Going Concern