10-Q: Barnwell Industries Reports Net Loss for Q1 2025 Amidst Oil and Gas Downturn

Barnwell Industries reports a net loss attributable to the company of $1.917 million for the quarter ended December 31, 2024, compared to a net loss of $664,000 for the same period in 2023, primarily due to decreased oil and natural gas revenues and a non-cash ceiling test impairment.

Summary

• Barnwell Industries, Inc. reported a net loss attributable to the company of $1.917 million for the three months ended December 31, 2024, compared to a net loss of $664,000 for the same period in 2023.
• The decrease in operating results was primarily due to a $997,000 decrease in oil and natural gas segment operating results, including a $613,000 non-cash ceiling test impairment.
• Oil and natural gas revenues decreased by $1.233 million (24%) due to lower production volumes and decreased prices for natural gas, oil, and natural gas liquids.
• Contract drilling revenues and costs decreased by $450,000 (45%) and $449,000 (38%), respectively, due to less activity.
• General and administrative expenses decreased by $123,000 (9%) due to lower professional fees and a credit loss recovery.
• The company incurred a $351,000 foreign currency loss compared to a $126,000 gain in the prior year due to fluctuations in the Canadian dollar against the U.S. dollar.
• The company's latest Canadian well, which is 100%-owned and operated, started producing in mid-September 2024 and contributed approximately 107 net barrels of equivalent per day for a total of approximately 10,000 net barrels of equivalent during the three months ended December 31, 2024.
• At December 31, 2024, the Company had three contract drilling jobs with original expected durations of greater than one year, for which 100% of the remaining performance obligation of $208,000 is expected to be recognized as revenue in the next twelve months.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the increased net loss, decreased revenues, and impairment of assets. However, there are some positives such as decreased general and administrative expenses and the new Canadian well contributing to production.

Positives

• General and administrative expenses decreased by $123,000 (9%) due to lower professional fees and a credit loss recovery.
• The company's latest Canadian well, which is 100%-owned and operated, started producing in mid-September 2024 and contributed approximately 107 net barrels of equivalent per day for a total of approximately 10,000 net barrels of equivalent during the three months ended December 31, 2024.
• In February 2025, the drilling rig and ancillary equipment was delivered and the legal title was transferred to the buyer, and as a result, the Company will recognize a gain, net of costs, on the sale of the drilling rig and ancillary equipment in the quarter ending March 31, 2025.

Negatives

• The company reported a net loss attributable to the company of $1.917 million, a significant increase from the $664,000 loss in the same period of 2023.
• Oil and natural gas revenues decreased by 24% due to lower production and prices.
• A non-cash ceiling test impairment of $613,000 was incurred for U.S. oil and natural gas properties.
• The contract drilling segment experienced a 45% decrease in revenues and a 38% decrease in costs due to reduced activity.
• The company recognized a $351,000 foreign currency loss due to fluctuations in the Canadian dollar.

Risks

• Declines in the 12-month historical rolling average first-day-of-the-month prices used in the ceiling test calculation in future periods could result in impairment write-downs in future periods.
• The company is reliant upon sufficient operating cash inflows from its oil and natural gas segment, which in turn will be largely determined by prices and production levels.
• A certain level of oil and natural gas capital expenditures will be necessary to grow reserves and production or at a minimum replace declining production from aging wells, which may require external funding that may not be feasible or sufficient.
• Actions of activist stockholders could impact the pursuit of our business strategies and adversely affect our results of operations, financial condition and/or share price.

Future Outlook

Management estimates that investments in oil and natural gas properties for fiscal 2025 will range from $1,500,000 to $3,000,000, which may increase or decrease as dictated by cash flows and management's assessment of the oil and natural gas environment and prospects.

Management Comments

• Management estimates that, barring any significant unforeseen events, it is more likely than not that there is sufficient cash on hand, cash flows from contract drilling segment asset sales and cash flows from oil and natural gas segment operations to continue as a going concern for the twelve months from the filing of this report.

Industry Context

The report reflects the challenges faced by oil and gas companies due to fluctuating commodity prices and production levels, impacting revenue and profitability. The company's diversification into land investment and contract drilling provides some offset, but these segments also face their own challenges.

Comparison to Industry Standards

• It is difficult to compare Barnwell's results directly to industry standards without knowing the specific geographic regions and types of oil and gas operations they are involved in.
• However, the decrease in revenue and profitability due to lower commodity prices and production is a common trend in the oil and gas industry.
• Companies like Chesapeake Energy and Southwestern Energy have also faced challenges due to fluctuating natural gas prices.
• The impairment of oil and natural gas properties is also a common occurrence in the industry when commodity prices decline.
• The adoption of a shareholder rights plan is a defensive measure often taken by companies facing potential activist investor activity, similar to actions taken by companies like Seaworld and Papa John's in the past.

Corporate Governance

Related Party Transactions

• Kaupulehu Developments is entitled to receive payments from the sales of lots and/or residential units by KD I and KD II, which are part of the Kukio Resort Land Development Partnerships in which Barnwell holds indirect non-controlling ownership interests.

Stakeholder Impact

• Shareholders are negatively impacted by the increased net loss and decreased revenues.
• Employees may be impacted by the potential winding down of Water Resources after all contracts in backlog are completed.
• The company's ability to invest in oil and natural gas properties may be limited by its financial performance.

Next Steps

• The company will continue to investigate strategies regarding Water Resources' future, including potential opportunities for a sale of its stock or assets.
• Management estimates that its three remaining contracts in backlog at December 31, 2024 will be completed in March 2025 or soon thereafter.
• The company will recognize a gain, net of costs, on the sale of the drilling rig in the quarter ending March 31, 2025.
• The company is currently evaluating the impact of new accounting standards on Barnwell's consolidated financial statements.

Key Dates