10-Q: Barnwell Industries Reports Net Loss in Q1 2024 Amidst Lower Oil and Gas Prices

Barnwell Industries experienced a net loss in the first quarter of 2024, primarily due to decreased oil and natural gas prices and reduced contract drilling activity.

Summary

• Barnwell Industries reported a net loss of $664,000 for the quarter ended December 31, 2023, a significant decrease compared to the net earnings of $1,089,000 in the same period of 2022.
• The company's oil and natural gas segment saw a decrease in operating results by $1,105,000 due to lower commodity prices, despite increased production volumes.
• Equity in income from affiliates decreased by $538,000, and land investment segment operating results decreased by $265,000 due to no lot sales in the current period compared to one lot sale in the prior year.
• Contract drilling revenues decreased by 49% and costs decreased by 37% due to less water well drilling activity.
• General and administrative expenses decreased by $845,000 due to lower professional fees, accrued bonus expense, and share-based compensation.
• The company's oil and natural gas capital expenditures were $495,000 for the quarter, a significant decrease from $5,928,000 in the same period last year.
• Barnwell estimates that investments in oil and natural gas properties for fiscal 2024 will range from $4,000,000 to $6,000,000.

Sentiment

Score: 3

Explanation: The document indicates a negative sentiment due to the net loss, decreased revenues, and challenges in multiple segments. The termination of the Water Resources sale and the cancellation of a significant drilling contract further contribute to the negative outlook.

Positives

• General and administrative expenses decreased by $845,000, indicating cost control measures.
• The company increased production of natural gas by 26%, oil by 21%, and natural gas liquids by 80% compared to the same period last year.
• The company has fixed the price of a portion of its oil and gas production to mitigate price volatility.

Negatives

• The company experienced a net loss of $664,000, a significant decrease from the net earnings of $1,089,000 in the same period of 2022.
• Oil and natural gas revenues decreased by 2% due to lower commodity prices.
• Contract drilling revenues decreased by 49% due to less water well drilling activity.
• Equity in income from affiliates decreased by $538,000 due to no lot sales in the current period compared to one lot sale in the prior year.
• A significant well drilling contract with an estimated revenue backlog of $2,400,000 was cancelled in January 2024.

Risks

• The company is exposed to fluctuations in oil and natural gas prices, which can significantly impact revenue and profitability.
• The company's contract drilling segment is highly dependent on the timing and quantity of contracts awarded, which can lead to volatile results.
• The company's land investment segment is subject to the risk that development plans may not materialize, impacting future revenue.
• There is a risk of a potential ceiling test impairment in the second quarter ending March 31, 2024, due to changes in commodity prices.
• The company's operations are subject to foreign currency translation and transaction gains and losses due to fluctuations of the exchange rates between the Canadian dollar and the U.S. dollar.

Future Outlook

Barnwell estimates that investments in oil and natural gas properties for fiscal 2024 will range from $4,000,000 to $6,000,000. The company is also investigating strategies regarding Water Resources' future, including potential sale or wind-down.

Management Comments

• Management believes the plumbness deviation in a contract drilling well is not impactful to the performance of the submersible pumps.
• Management estimates that contracts in backlog for Water Resources will be completed in December 2024 or soon thereafter.

Industry Context

The decrease in oil and gas prices has negatively impacted Barnwell's financial results, reflecting a broader trend in the energy sector. The company's contract drilling segment is also facing challenges, which may be indicative of a slowdown in the construction and infrastructure sectors in Hawaii.

Comparison to Industry Standards

• Barnwell's performance is below industry standards for oil and gas companies, as many are reporting profits despite lower commodity prices due to hedging and cost-cutting measures. Companies such as Devon Energy and EOG Resources have reported strong earnings despite price volatility.
• The contract drilling segment's performance is significantly below industry standards, as companies like Patterson-UTI Energy and Helmerich & Payne are reporting stable or growing revenues due to increased drilling activity in other regions.
• The land investment segment's performance is also below industry standards, as other real estate development companies in Hawaii are reporting stable or growing revenues due to increased demand for housing and commercial properties. Companies such as Alexander & Baldwin and Howard Hughes Corporation are reporting strong earnings in the region.

Legal Proceedings

• The company is routinely involved in disputes with third parties that occasionally require litigation.
• A contract drilling segment well did not meet contract specifications for plumbness, but the company believes the deviation is not impactful to the performance of the submersible pumps.

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 will be negatively impacted by the net loss and decreased revenues.
• Employees may be impacted by the potential sale or wind-down of Water Resources.
• Customers of the contract drilling segment may experience delays or changes in service due to the operational issues and potential sale or wind-down of Water Resources.
• Suppliers and creditors may be impacted by the company's financial performance and potential changes in operations.

Next Steps

• The company will continue to investigate strategies regarding Water Resources' future, including potential sale or wind-down.
• The company will complete contracts in backlog for Water Resources, estimated to be completed in December 2024 or soon thereafter.
• The company will monitor the oil and natural gas market and adjust capital expenditures as needed.

Key Dates

Keywords

Oil and Natural Gas, Contract Drilling, Land Investment, Financial Results, Net Loss, Commodity Prices, Production Volumes, Capital Expenditures, Hawaii, Canada, Texas, Oklahoma