ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist in the understanding of the Consolidated Balance Sheets of Barnwell Industries, Inc. and subsidiaries (collectively referred to herein as “Barnwell,” “we,” “our,” “us” or the “Company”) as of September 30, 2025 and 2024, and the related Consolidated Statements of Operations, Comprehensive Loss, Equity, and Cash Flows for the years ended September 30, 2025 and 2024. This discussion should be read in conjunction with the consolidated financial statements and related Notes to Consolidated Financial Statements included in this report.
On March 14, 2025, the Company entered into and completed the sale of its wholly-owned subsidiary, Water Resources. Water Resources drills water wells and installs and repairs water pumping systems in Hawaii and represented our contract drilling segment. As a result of the sale, the Company has classified the related assets and liabilities and the results of its contract drilling business as discontinued operations in the consolidated financial statements for all periods presented. Prior to the sale, the Company did not have any assurances that a sale of Water Resources was likely to occur. Unless otherwise noted, the discussions below pertains only to Barnwell’s continuing operations. For information on discontinued operations, refer to Note 3 “Discontinued Operations” in the Notes to Consolidated Financial Statements in Item 8 of this report.
Critical Accounting Policies and Estimates
The Company considers an accounting estimate to be critical if the accounting estimate requires the Company to make assumptions that are difficult or subjective about matters that were highly uncertain at the time that the accounting estimate was made, and changes in the estimate that are reasonably likely to occur in periods subsequent to the period in which the estimate was made, or use of different estimates that the Company could have used in the current period, would have a material impact on the Company’s financial condition or results of operations. The most critical accounting policies inherent in the preparation of the Company’s consolidated financial statements are described below. We continue to monitor our accounting policies to ensure proper application of current rules and regulations.
Oil and Natural Gas Properties - full cost ceiling calculation and depletion
Policy Description
We use the full cost method of accounting for our oil and natural gas properties under which we are required to conduct quarterly calculations of a “ceiling,” or limitation, on the carrying value of oil and natural gas properties . The ceiling limitation is the sum of 1) the discounted present value (at 10%), using average first-day-of-the-month prices during the 12-month period ending as of the balance sheet date held constant over the life of the reserves (except where prices are defined by contractual arrangements), of Barnwell’s estimated future net cash flows from estimated production of proved oil and natural gas reserves, less estimated future expenditures to be incurred in developing and producing the proved reserves but excluding future cash outflows associated with settling asset retirement obligations with the exception of those associated with proved undeveloped reserves from wells that are to be drilled in the future; plus 2) the cost of major development projects and unproven properties not subject to depletion, if any; plus 3) the lower of cost or estimated fair value of unproven properties included in costs subject to depletion; less 4) related income tax effects. If net capitalized costs exceed this limit, the excess is expensed.
All items classified as unevaluated and unproved properties are assessed on a quarterly basis for possible impairment or reduction in value. Properties are assessed on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration of various factors, including, but not limited to, the following: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; assignment of proved reserves; and economic viability of development if proved reserves are assigned. During any period in which these factors indicate an impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and become subject to amortization.
Judgments and Assumptions
The estimate of our oil and natural gas reserves is a major component of the ceiling calculation and represents the component that requires the most subjective judgments. Estimates of reserves are forecasts based on engineering data, historical data, projected future rates of production and the timing of future expenditures. The process of estimating oil and natural gas reserves requires substantial judgment, resulting in imprecise determinations, particularly for new discoveries. Our reserve estimates are prepared at least annually by independent petroleum reserve engineers. The passage of time provides more quantitative and qualitative information regarding estimates of reserves, and revisions are made to prior estimates to reflect updated information. A portion of the revisions are attributable to changes in the rolling 12-month average first-day-of-the-month prices, which impact the economics of producible reserves. In the last three fiscal years, annual revisions to our reserve volume estimates have averaged 18% of the previous year’s estimate, due in large part to the impacts of volatile oil and natural gas prices which change the economic viability of producing such reserves and changes in estimated proved undeveloped reserves which can fluctuate from year to year depending upon the Company's plans and ability to fund the capital expenditures necessary to develop such reserves. There can be no assurance that more significant revisions will not be necessary in the future. If future significant revisions are necessary that reduce previously estimated reserve quantities, such revisions could result in a write-down of oil and natural gas properties.
If reported reserve volumes were revised downward by 5% at the end of fiscal 2025, the ceiling limitation for Canada would have decreased approximately $636,000 which would not have resulted in a ceiling impairment before income taxes due to sufficient room between the ceiling and the carrying value of Canadian oil and natural gas properties at the end of fiscal 2025 of approximately $2,949,000.
In addition to the impact of the estimates of proved reserves on the calculation of the ceiling, estimated proved reserves are also a significant component of the quarterly calculation of depletion expense. The lower the estimated reserves, the higher the depletion rate per unit of production. Conversely, the higher the estimated reserves, the lower the depletion rate per unit of production. If reported reserve volumes were revised downward by 5% as of the beginning of fiscal 2025, depletion for fiscal 2025 would have increased by approximately $122,000.
While the quantities of proved reserves require substantial judgment, the associated prices of oil, natural gas and natural gas liquids reserves are the average first-day-of-the-month prices during the 12-month period ending in the reporting period on a constant basis as prescribed by SEC regulations. Additionally, the applicable discount rate that is used to calculate the discounted present value of the reserves is mandated at 10%. Costs included in future net revenues are determined in a similar manner. As such, the future net revenues associated with the estimated proved reserves are not based on an assessment of future prices or costs.
Income Taxes
Policy Description
Income taxes are determined using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax impacts of differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Deferred income tax assets are routinely assessed for realizability. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax asset will not be realized.
Barnwell recognizes the financial statement effects of tax positions when it is more likely than not that the position will be sustained by a taxing authority.
Judgments and Assumptions
We make estimates and judgments in determining our income tax expense for each reporting period. Significant changes to these estimates could result in an increase or decrease in our tax provision in future periods. We are also required to make judgments about the recoverability of deferred tax assets and when it is more likely than not that all or a portion of deferred tax assets will not be realized, a valuation allowance is provided. We consider available positive and negative evidence and available tax planning strategies when assessing the realizability of deferred tax assets. Accordingly, changes in our business performance and unforeseen events could require a further increase in the valuation allowance or a reversal in the valuation allowance in future periods. This could result in a charge to, or an increase in, income in the period such determination is made, and the impact of these changes could be material.
In addition, Barnwell operates within the U.S. and Canada and is subject to audit by taxing authorities in these jurisdictions. Barnwell records accruals for the estimated outcomes of these audits, and the accruals may change in the future due to new developments in each matter. Tax benefits are recognized when we determine that it is more likely than not that such benefits will be realized. Management evaluates its potential exposures from tax positions taken that have or could be challenged by taxing authorities. These potential exposures result because taxing authorities may take positions that differ from those taken by management in the interpretation and application of statutes, regulations and rules. Management considers the possibility of alternative outcomes based upon past experience, previous actions by taxing authorities (e.g., actions taken in other jurisdictions) and advice from tax experts. Where uncertainty exists due to the complexity of income tax statutes and where the potential tax amounts are significant, we generally seek independent tax opinions to support our positions. If our evaluation of the likelihood of the realization of benefits is inaccurate, we could incur additional income tax and interest expense that would adversely impact earnings, or we could receive tax benefits greater than anticipated which would positively impact earnings, either of which could be material.
Overview
Barnwell is engaged in the following lines of business: 1) acquiring, developing, producing and selling oil and natural gas in Canada and the U.S. (oil and natural gas segment) and 2) leasehold land interests in Hawaii (land investment segment).
Oil and Natural Gas Segment
Barnwell is involved in the acquisition and development of oil and natural gas properties primarily in the Twining area of Alberta, Canada, where we initiate and participate in acquisition and developmental operations for oil and natural gas on properties in which we have an interest, and evaluate proposals by third parties with regard to participation in such exploratory and developmental operations elsewhere. Additionally, through its wholly-owned subsidiaries BOK and Barnwell Texas, Barnwell was, until August 8, 2025, involved in non-operated oil and natural gas investments in Oklahoma and Texas, respectively.
Barnwell sells all of its Canadian and U.S. oil and natural gas under short-term contracts with marketers based on prices indexed to market prices. The price of natural gas, oil and natural gas liquids is freely negotiated between the buyers and sellers. Oil and natural gas prices are determined by many factors that are outside of our control. Market prices for oil and natural gas products are dependent upon factors such as, but not limited to, changes in market supply and demand, which are impacted by overall economic activity, changes in weather, pipeline capacity constraints, inventory storage levels, and output. Oil and natural gas prices are very difficult to predict and fluctuate significantly. Natural gas prices tend to be higher in the winter than in the summer due to increased demand, although this trend has become less pronounced due to the increased use of natural gas to generate electricity for air conditioning in the summer and increased natural gas storage capacity in North America.
Oil and natural gas exploration, development and operating costs generally follow trends in product market prices, thus in times of higher product prices the cost of exploring, developing and operating the oil and natural gas properties will tend to escalate as well. Capital expenditures are required to fund the exploration, development, and production of oil and natural gas. Cash outlays for capital expenditures are largely discretionary, however, a minimum level of capital expenditures is required to replace depleting reserves. Due to the nature of oil and natural gas exploration and development, significant uncertainty exists as to the ultimate success of any drilling effort.
Land Investment Segment
Through Barnwell’s 77.6% interest in Kaupulehu Developments, 75% interest in KD Kona, and 34.45% non-controlling interest in KKM Makai, the Company’s land investment interests include the following:
• The right to receive percentage of sales payments from KD I resulting from the sale of single-family residential lots by KD I, within Increment I of the Kaupulehu Lot 4A area located in the North Kona District of the island of Hawaii. However, in the quarter ended March 31, 2024, the last two remaining single-family lots in Increment I were sold and there are no more lots available for sale in Increment I. Kaupulehu Developments was entitled to receive payments from KD I based on 10% of the gross receipts from KD I’s sales at Increment I. Increment I is an area zoned for approximately 80 single-family lots.
• The right to receive 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. Such interests are limited to distributions or net profits interests and Barnwell does not have any partnership interest in KD II or KDK through its interest in Kaupulehu Developments. Barnwell also has 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 obligated to pay an amount equal to 0.72% and 0.20% 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. The remaining acreage within Increment II is not yet under development, and there is no assurance that development of such acreage will in fact occur. No definitive development plans have been made by KD II, the developer of Increment II, as of the date of this report.
• An indirect 19.6% non-controlling ownership interest in KD Kukio Resorts, LLLP, KD Maniniowali, LLLP and KD I and an indirect 10.8% non-controlling ownership interest in KD II through KDK. These entities 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 was the developer of Kaupulehu Lot 4A Increments I and II. The partnerships derive income from the sale of residential parcels in Increment I, which is now completely sold, as well as from commissions on real estate resales by the real estate sales office and revenues resulting from the sale of private club memberships, a few of which remain available for sale.
The Kukio Resort Land Development Partnerships have remaining Increment I obligations to complete project amenities, infrastructure, beautification, and restoration of certain areas and therefore has yet to fully recognize its deferred profit on the Increment I project as a whole. The Increment I deferred profit at September 30, 2025 for the Kukio Resort Land Development Partnerships as a whole was approximately $4,500,000; the recognition of which is dependent upon the completion of the Increment I obligations. The Kukio Resort Land Development Partnerships have accrued estimated costs of these obligations of approximately $3,000,000. The Kukio Resort Land Development Partnerships currently appears to have the ability to fund those obligations but there are no assurances that it can ultimately do so in the future if unforeseen events occur. The Kukio Resort Land Development Partnerships will recognize the Increment I deferred revenue and costs of sales on a percentage completion basis as the cash outlays to complete the remaining project obligations are made. The Kukio Resort Land Development Partnerships’ deferred profit and accrued costs to complete are not reflected in Barnwell’s Consolidated Balance Sheets as we account for our investment in the Kukio Resort Land Development Partnerships under the equity method of accounting. No percentage of sales payments will be earned by Barnwell on any future recognition of Increment I deferred profit as such payments were already fully earned and received based on cash received by the Kukio Resort Land Development Partnerships as the Increment I lots were sold.
• Approximately 1,000 acres of vacant leasehold land zoned conservation in the Kaupulehu Lot 4C area, which currently has no development potential without both a development agreement with the lessor and zoning reclassification. The lease terminates in December 2025.
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 any and all remaining rights for Increment II for $2,000,000 of which $70,000 was received. Additionally, the purchaser has the right to extend the closing by up to two years by making a $70,000 payment in each of the next two years, with those payments applied against the $2,000,000 purchase price. The closing of this transaction is entirely dependent on the purchaser and therefore may not happen.
Subsequent to fiscal 2025, pursuant to a unit purchase agreement KDK, of which Barnwell holds a 19.6% interest, agreed to sell KDK’s interests in Increment II to Mr. David Johnston for $2,109,000. The unit purchase agreement is subject to due diligence, and there is no certainty that the transaction will close. Furthermore, there is also no assurance on the timing or amounts that the general partner of KDK would distribute upon a closing.
Business Environment
Our operations are located in Canada and in the state of Hawaii and Texas. Accordingly, our business performance is directly affected by macroeconomic conditions in those areas, as well as general economic conditions of the U.S. domestic and world economies.
Oil and Natural Gas Segment
Barnwell realized an average price for oil of $60.49 per barrel during the year ended September 30, 2025, a decrease of 9% from $66.49 per barrel realized during the prior year and realized an average price for natural gas of $1.27 per Mcf during the year ended September 30, 2025, a decrease of 10% from $1.41 per Mcf realized during the prior year. Oil and natural gas prices continue to be volatile over time and thus, the Company is unable to reasonably predict future prices and the impacts future prices will have on the Company.
Land Investment Segment
Future revenues from the sale of interest in leasehold land and any future cash distributions from our investment in the Kukio Resort Land Development Partnerships are dependent upon the potential future development or sale of the remaining portion of Increment II by KD II of Kaupulehu Lot 4A. The amount and timing of future land investment segment proceeds from percentage of sales payments and cash distributions from the Kukio Resort Land Development Partnerships are highly uncertain and out of our control, and there is no assurance with regards to the amounts of future payments from Increment II to be received or that the remaining acreage within Increment II will be developed. No definitive development plans have been made by KD II, the developer of Increment II, as of the date of this report.
Results of Operations
Summary of Results From Continuing Operations
The net loss from continuing operations attributable to Barnwell for fiscal 2025 totaled $7,115,000, a $3,010,000 increase from a net loss from continuing operations attributable to Barnwell of $4,105,000 in fiscal 2024. The following factors affected the results of operations for the current fiscal year as compared to the prior fiscal year:
• General and administrative expenses increased $1,807,000 due to $1,958,000 in new fees and costs incurred, net of $348,000 of estimated accrued insurance recoveries, related to a shareholder consent solicitation, various legal actions between the Sherwood Group and the Company and certain of its directors, and a proxy contest in the current year period as compared to the same period in the prior year;
• Equity in income from affiliates decreased $1,071,000 and land investment segment operating results, before non-controlling interests’ share of such profits, decreased $500,000 due to the Kukio Resort Land Development Partnerships' sale of two lots in the prior year period, whereas there was no lots sold in the current year period;
• A $636,000 loss recognized in the current year period from the sale of all of the U.S. oil and natural gas properties, whereas there was no such loss in the prior year period; and
• A $192,000 foreign currency loss recorded in the current year period due to the effects of the foreign exchange rate changes on intercompany loans and advances as a result of the strengthening of the U.S. dollar against the Canadian dollar.
General
Barnwell conducts operations in the U.S. and Canada. Consequently, Barnwell is 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. Barnwell cannot accurately predict future fluctuations of the exchange rates and the impact of such fluctuations may be material from period to period. To date, we have not entered into foreign currency hedging transactions. Foreign currency gains or losses on intercompany loans and advances that are not considered long-term investments in nature because management intends to settle these intercompany balances in the future are included in our statements of operations.
The average exchange rate of the Canadian dollar to the U.S. dollar decreased 3% in fiscal 2025, as compared to fiscal 2024 and the exchange rate of the Canadian dollar to the U.S. dollar decreased 3% at September 30, 2025, as compared to September 30, 2024. Accordingly, the assets, liabilities, stockholders’ equity and revenues and expenses of Barnwell’s subsidiaries operating in Canada have been adjusted to reflect the change in the exchange rates. Other comprehensive income and losses are not included in net earnings and net loss.
Other comprehensive income due to foreign currency translation adjustments, net of taxes, for fiscal 2025 was $75,000, a $75,000 change from other comprehensive loss due to foreign currency translation adjustments, net of taxes, of nil in fiscal 2024. There were no taxes on other comprehensive
income due to foreign currency translation adjustments in fiscal 2025 and 2024 due to a full valuation allowance on the related deferred tax assets.
Oil and natural gas
Selected Operating Statistics
The following tables set forth Barnwell’s annual average prices per unit of production and annual net production volumes for fiscal 2025 as compared to fiscal 2024. Production amounts reported are net of royalties.
Annual Average Price Per Unit
Increase (Decrease)
Natural gas (Mcf)*
Oil (Bbls)
Natural gas liquids (Bbls)
Annual Net Production
Increase (Decrease)
Units
Natural gas (Mcf)
Oil (Bbls)
Natural gas liquids (Bbls)
* Natural gas price per unit is net of pipeline charges.
The oil and natural gas segment generated a $588,000 operating profit in fiscal 2025 before general and administrative expenses, an increase in operating results of $873,000 as compared to a $285,000 operating loss in fiscal 2024.
The following table sets forth Barnwell’s oil and natural gas segment operating profit (loss) before general and administrative expenses by geographic location:
Year ended September 30,
Operating profit (loss) (before general and administrative expenses)
Canada (1)
United States (2)
Total operating profit (loss)
(1) The operating loss for Canada for the year ended September 30, 2024 includes a non-cash ceiling test impairment of $2,164,000.
(2) The operating (loss) profit for the United States for the years ended September 30, 2025 and 2024 includes non-cash ceiling test impairments of $865,000 and $721,000, respectively.
Oil and natural gas revenues decreased $3,833,000 (22%) from $17,396,000 in fiscal 2024 to $13,563,000 in fiscal 2025, primarily due primarily due to decreases in natural gas, oil, and natural gas liquids production, which decreased 18%, 14%, and 13%, respectively, in the current year period as compared to the same period in the prior year. The decrease in production was primarily the result of
natural declines in production from wells in the Company's Twining area as the wells age, and to a lesser extent due to properties sold in the prior year. Revenues also decreased due to a decrease in oil prices which decreased 9% as compared to the same period in the prior year.
In February 2025, the Company amended certain of its Canadian purchase and sales contracts to change the sales price on 1,055 gross Mcf per day of the Canadian natural gas it will sell during the period from April 1, 2025 to October 31, 2025 to a fixed index price before differentials of $1.95 Canadian dollars per Mcf, with remaining volumes continuing to be sold at spot prices. This per day volume of natural gas under this fixed index price contract was equivalent to approximately 38% of Canadian natural gas gross production per day for the year ended September 30, 2025. Additionally, in September 2025, the Company amended the sales price on 1,583 gross Mcf per day of the Canadian natural gas it will sell during the period from November 1, 2025 to March 31, 2026 to a fixed index price before differentials of $3.03 Canadian dollars per Mcf, with remaining volumes continuing to be sold at spot prices. This per day volume of natural gas under this fixed index price contract that will affect the period from November 1, 2025 to March 31, 2026, is equivalent to approximately 58% of Canadian natural gas gross production per day for the year ended September 30, 2025. These natural gas contracts were eligible for and elected as normal purchase and normal sales exception contracts and were thus excluded from derivative accounting.
In June 2025, the Company amended the sales price on 100 gross barrels per day of the Canadian oil that it will sell during the period from July 1, 2025 to December 31, 2025 to a fixed index price before differentials of $70.35 per net barrel, with remaining volumes continuing to be sold at spot prices. This per day volume of oil under this fixed index price was equivalent to approximately 19% of Canadian oil gross production per day for the year ended September 30, 2025. These oil contracts were eligible for and elected as normal purchase and normal sales exception contracts and were thus excluded from derivative accounting.
Subsequently, in October 2025, the Company amended the sales price on 1,055 gross Mcf per day of the Canadian natural gas it will sell during the period from April 1, 2026 to October 31, 2026 to a fixed index price before differentials of $2.94 Canadian dollars per Mcf, with remaining volumes continuing to be sold at spot prices. This per day volume of natural gas under this fixed index price contract that will affect the period from April 1, 2026 to October 31, 2026, is equivalent to approximately 38% of Canadian natural gas gross production per day for the year ended September 30, 2025.
Oil and natural gas operating expenses decreased $883,000 (9%) from $9,849,000 in fiscal 2024 to $8,966,000 in fiscal 2025, primarily due to decreases in production in the current year, partially offset by an increase in workovers in the current year, as compared to the prior year.
Oil and natural gas segment depletion decreased $1,803,000 (36%) from $4,947,000 in fiscal 2024 to $3,144,000 in fiscal 2025, primarily due to decreases in the depletion rate and due to decreases in production in the current year as compared to the prior year. The depletion rate decreased as a result of a decrease in the depletable base from significant ceiling test impairments between the prior year period and the current year period.
On August 8, 2025, Barnwell entered into an agreement with an independent third party to sell all of its working interests in its U.S. oil and natural gas assets for a sales price of $2,300,000. The sales price per the agreement was adjusted for customary purchase price adjustments to reflect the economic activity from the effective date of July 1, 2025 to the closing date August 8, 2025. The Company recognized a loss on the sale of $636,000 before related income taxes in the year ended September 30, 2025. The U.S. oil and natural gas assets were located in the states of Texas and Oklahoma and were owned by wholly-
owned subsidiaries of Barnwell. As a result of the sale, the Company no longer owns any oil and natural gas assets in the U.S., however, the Company will continue to explore for oil and natural gas opportunities in the U.S.
Sale of interest in leasehold land
Kaupulehu Developments was entitled to receive a percentage of the gross receipts from the sales of lots and/or residential units in Increment I by KD I.
The following table summarizes the revenues received from KD I and the amount of fees directly related to such revenues:
Year ended September 30,
Sale of interest in leasehold land:
Revenues - sale of interest in leasehold land
Fees - included in general and administrative expenses
Sale of interest in leasehold land, net of fees paid
No lots were sold during the year ended September 30, 2025. During the year ended September 30, 2024, Barnwell received $500,000 in percentage of sales payments from KD I from the sale of the last two single-family lots within Increment I.
There is an Increment II owned by KD II in which the Company has a 10.8% indirect non-controlling ownership interest. There is no assurance with regards to the amounts of future sales from Increment II or that the remaining acreage within Increment II will be developed. No definitive development plans have been made by KD II, the developer of Increment II, as of the date of this report.
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 any and all remaining rights for Increment II for $2,000,000 of which $70,000 was. Additionally, the purchaser has the right to extend the closing by up to two years by making a $70,000 payment in each of the next two years, with those payments applied against the $2,000,000 purchase price. The closing of this transaction is entirely dependent on the purchaser and therefore may not happen.
Subsequent to fiscal 2025, pursuant to a unit purchase agreement KDK, of which Barnwell holds a 19.6% interest, agreed to sell KDK’s interests in Increment II to Mr. David Johnston for $2,109,000. The unit purchase agreement is subject to due diligence, and there is no certainty that the transaction will close. Furthermore, there is also no assurance on the timing or amounts that the general partner of KDK would distribute upon a closing.
General and administrative expenses
General and administrative expenses increased $1,807,000 (35%) to $6,937,000 in fiscal 2025, as compared to $5,130,000 in fiscal 2024. The increase was primarily due to $1,958,000 in new fees and costs incurred, net of $348,000 of estimated accrued insurance recoveries receivable, for legal services, proxy solicitation, proxy advisory, and public relations costs related to a shareholder consent solicitation,
various legal actions between the Sherwood Group and the Company and certain of its directors, and a proxy contest in the current year period as compared to the same period in the prior year.
The amount of estimated accrued insurance recoveries receivable aforementioned above is management's best estimate of the probable recoverable amount under the insurance policies. While the insurer has confirmed that certain costs incurred by the Company are eligible for claim under the Company's insurance policies, the amount ultimately recoverable through insurance is dependent upon the insurer's completion of their review of eligible legal costs incurred and the recoverable amount may differ from management's estimate.
Depletion, depreciation, and amortization
Depletion, depreciation, and amortization decreased $1,804,000 (36%) from $4,950,000 in fiscal 2024 to $3,146,000 in fiscal 2025, primarily due to decreases in the depletion rate and decreases in production, as discussed in the “Oil and natural gas” section above.
Impairment of assets
Under the full cost method of accounting, the Company performs quarterly oil and natural gas ceiling test calculations. Changes in the 12-month rolling average first-day-of-the-month prices for oil, natural gas and natural gas liquids prices (except where prices are defined by contractual arrangements), the value of reserve additions as compared to the amount of capital expenditures to obtain them, and changes in production rates and estimated levels of reserves, future development costs and the market value of unproved properties, impact the determination of the maximum carrying value of oil and natural gas properties.
During the year ended September 30, 2025, the Company incurred a non-cash ceiling test impairment for our U.S. oil and natural gas properties of $865,000. During the year ended September 30, 2024, the Company incurred a non-cash ceiling test impairment of $2,885,000, which included impairments for our U.S. and Canadian oil and natural gas properties of $721,000 and $2,164,000, respectively.
As discussed above, the ceiling test uses a 12-month historical rolling average first-day-of-the-month prices. As such, declines in the 12-month historical rolling average first-day-of-the-month prices used in our ceiling test calculation in future periods could result in impairment write-downs in future periods in the absence of any offsetting factors that are not currently known or projected. Based on the oil and gas prices for October 1, November 1 and December 1 of 2025, the oil prices used in the 12-month historical rolling first-day-of-the-month average for the ceiling test at December 31, 2025 are likely to be lower than at September 30, 2025. As such, we may incur a further impairment charge in the first quarter of fiscal 2026 ending December 31, 2025. The Company is currently unable to estimate a range of the amount of any potential future impairment write-downs as variables that impact the ceiling limitation are dependent upon actual results of activity through the end of December 2025.
Foreign currency loss (gain)
Foreign currency loss was $192,000 during the year ended September 30, 2025, as compared to a foreign currency gain of $10,000 during the year ended September 30, 2024, due to the effects of foreign exchange rate changes on intercompany loans and advances as a result of changes in the exchange rate between the U.S. dollar against the Canadian dollar. The foreign currency losses or gains from
intercompany balances are included in our Consolidated Statements of Operations as the intercompany balances were not considered long-term in nature because management estimates that these intercompany balances will be settled in the future.
Loss on sale of assets
On August 8, 2025, Barnwell entered into an agreement with an independent third party to sell all of its working interests in its U.S. oil and natural gas assets for a sales price of $2,300,000. The sales price per the agreement was adjusted for customary purchase price adjustments to reflect the economic activity from the effective date of July 1, 2025 to the closing date August 8, 2025. The Company recognized a loss on the sale of $636,000 before related income taxes in the year ended September 30, 2025.
Equity in income of affiliates
Barnwell’s investment in the Kukio Resort Land Development Partnerships is accounted for using the equity method of accounting. Equity in income of affiliates was nil for the year ended September 30, 2025, as compared to equity in income of affiliates of $1,071,000 for the year ended September 30, 2024. The decrease in partnership income is primarily due to the Kukio Resort Land Development Partnerships' sale of the last two lots in Increment I in the prior year period, whereas there were no lots sold in the current year period.
No cash distributions were received during the year ended September 30, 2025. During the year ended September 30, 2024, Barnwell received cash distributions of $1,071,000 (resulting in a net amount of $953,000, after distributing $118,000 to non-controlling interests) from the Kukio Resort Land Development Partnerships.
In the quarter ended June 30, 2021, the Company received cumulative distributions from the Kukio Resort Land Development Partnerships in excess of our investment balance and in accordance with applicable accounting guidance, the Company suspended its equity method earnings recognition and the Kukio Resort Land Development Partnerships’ investment balance was reduced to zero with the distributions received in excess of our investment balance recorded as equity in income of affiliates because the distributions are not refundable by agreement or by law and the Company is not liable for the obligations of or otherwise committed to provide financial support to the Kukio Resort Land Development Partnerships. The Company will record future equity method earnings only after our share of the Kukio Resort Land Development Partnerships’ cumulative earnings in excess of distributions during the suspended period exceeds our share of the Kukio Resort Land Development Partnerships’ income recognized for the excess distributions, and during this suspended period any distributions received will be recorded as equity in income of affiliates. Accordingly, no equity in income of affiliates was recognized in the year ended September 30, 2025.
Cumulative distributions received from the Kukio Resort Land Development Partnerships in excess of our investment balance was $106,000 at September 30, 2025 and $373,000 at September 30, 2024.
Income taxes
The components of loss from continuing operations before income taxes, after adjusting the loss for non-controlling interests, are as follows:
Year ended September 30,
United States
Canada
Barnwell’s effective consolidated income tax rate from continuing operations for fiscal 2025, after adjusting loss from continuing operations before income taxes for non-controlling interests, was (1)%, as compared to an effective consolidated income tax rate of (5)% for fiscal 2024.
Consolidated taxes do not bear a customary relationship to pretax results due primarily to the fact that the Company is taxed separately in Canada based on Canadian source operations and in the U.S. based on consolidated operations, and essentially all deferred tax assets, net of relevant offsetting deferred tax liabilities, are not estimated to have a future benefit as tax credits or deductions. The Company operates two subsidiaries in Canada, one of which is a U.S. corporation operating as a branch in Canada that is treated as a non-resident for Canadian tax purposes and thus has operating results that cannot be offset against or combined with the other Canadian subsidiary that files as a resident for Canadian tax purposes. Income from our non-controlling interest in the Kukio Resort Land Development Partnerships is treated as non-unitary for state of Hawaii unitary filing purposes, thus unitary Hawaii losses provide limited sheltering of such non-unitary income. Income from our investment in the Oklahoma oil venture is 100% allocable to Oklahoma. As such, Barnwell receives no benefit from consolidated or unitary losses and, therefore, is subject to Oklahoma state taxes. Our operations in Texas are subject to a franchise tax assessed by the state of Texas, however no significant amounts have been incurred to date.
On July 4, 2025, the President of the United States signed into law the One Big Beautiful Bill Act ("OBBBA"). The legislation, among other things, makes permanent, extends or modifies certain provisions under the 2017 Tax Cuts and Jobs Act, including a permanent extension of 100% bonus depreciation for certain capital expenditures. The Company has determined that there are no tax law changes in the OBBBA that significantly impact the Company’s current and deferred income taxes.
Net earnings attributable to non-controlling interests
Earnings and losses attributable to non-controlling interests represent the non-controlling interests’ share of revenues and expenses related to the various partnerships and joint ventures in which Barnwell has controlling interests and consolidates.
Net loss attributable to non-controlling interests totaled $8,000 in fiscal 2025, as compared to net earnings attributable to non-controlling interests of $234,000 in fiscal 2024. The $242,000 (103%) decrease is primarily due to decreases in the amount of equity in income of affiliates and percentage of sales revenue received in the current year period as compared to the same period in the prior year.
Net earnings (loss) from discontinued operations
Net earnings from discontinued operations was $12,000 during the year ended September 30, 2025, as compared to net loss from discontinued operation of $1,460,000 during the year ended September 30, 2024.
On March 14, 2025, the Company completed the sale of Water Resources, which represented the Company’s contract drilling segment. The financial results of the Company’s contract drilling business has been presented as discontinued operations in the consolidated financial statements for all periods presented. See Note 3 “Discontinued Operations” in the Notes to Consolidated Financial Statements in Item 8 of this report for further discussion and additional disclosures related to discontinued operations.
Inflation
The effect of inflation on Barnwell has generally been to increase its cost of operations, general and administrative costs and direct costs associated with oil and natural gas production and contract drilling operations. Oil and natural gas prices realized by Barnwell are essentially determined by world prices for oil and western Canadian/Midwestern U.S. prices for natural gas.
Impact of Recently Issued Accounting Standards on Future Filings
In December 2023, the FASB issued ASU No. 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which requires disclosure of incremental income tax information within the tax rate reconciliation and expanded disclosures of income taxes paid both in the U.S. and foreign jurisdiction, among other disclosure requirements. This ASU is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this standard on Barnwell’s consolidated financial statements .
In November 2024, the FASB issued ASU No. 2024-03 “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses”, which requires public companies to disclose specified information about certain costs and expenses in the notes to the financial statements at interim and annual reporting periods. This ASU is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this standard on Barnwell’s consolidated financial statements.
Liquidity and Capital Resources
The Company has presented cash flows from discontinued operations in the accompanying Consolidated Statements of Cash Flows separately after the presentation of cash flows from operating, investing, and financing activities of continuing operations. See Note 3 “Discontinued Operations” in the Notes to Consolidated Financial Statements in Item 8 of this report for further discussion and additional disclosures related to discontinued operations. The focus of this section, “Liquidity and Capital Resources,” is on the cash flows from continuing operations, which affects future liquidity and capital resources as the Company no longer has any significant continuing involvement with the discontinued operations after the sale.
At September 30, 2025, Barnwell had $504,000 in working capital. Barnwell’s primary sources of liquidity are cash on hand and cash flow generated by our oil and natural gas operations, as cash flow from our land investment segment, if any, are expected to be intermittent and not significant to our liquidity.
Cash Flows From Continuing Operations
Cash flows used in operating activities totaled $1,773,000 for fiscal 2025, as compared to cash flows provided by operating activities of $5,334,000 for fiscal 2024. This $7,107,000 decrease in operating cash flows was primarily due to lower operating results for the oil and natural gas segment in the current year period as compared to the same period in the prior year, higher general and administrative expenses in the current year period due to the shareholder contests, and a distribution of income from the Kukio Resort Land Development Partnerships in the prior year period as compared to none in the current year period. The change was also due to the effect of changes in current assets and liabilities which was an increase of $2,100,000 in the prior year period as compared to $224,000 in the current year period.
Cash flows used in investing activities totaled $352,000 for fiscal 2025, as compared to cash flows used in investing activities of $2,819,000 for fiscal 2024. This $2,467,000 change in investing cash flows was due to an increase of $2,281,000 in proceeds from the sale of oil and natural gas assets and a decrease of $440,000 in cash paid for oil and natural gas capital expenditures in the current year period as compared to the same period in the prior year, partially offset by $439,000 of proceeds received by the land investment segment in the prior year period, as compared to none in the current year period.
Cash flows used in financing activities totaled $168,000 for fiscal 2025, as compared to cash flows used in financing activities of $226,000 for fiscal 2024. The $58,000 change in financing cash flows was due to a decrease of $226,000 in distributions to non-controlling interests, partially offset by $168,000 in repayments for insurance premium financing in the current year period as compared to none the same period in the prior year.
Going Concern
Our ability to sustain our business in the future will depend on sufficient oil and natural gas operating cash flows which are dependent on oil and natural gas prices, which can and in the past have fluctuated significantly, and on oil and natural gas operating expenses which are both variable and fixed. A sufficient level of oil and natural gas operating cash flows are necessary to fund discretionary oil and natural gas capital expenditures which must be economically successful to provide sufficient returns to grow reserves and production or at a minimum replace declining production from aging wells. Such a level of oil and natural gas capital expenditures will require funding from external debt and/or equity sources that are not currently in place, but those sources may not be feasible or sufficient. In addition, we will need sufficient cash flows to fund our non-discretionary outflows such as oil and natural gas asset retirement obligations, ongoing oil and natural gas operating expenses and general and administrative expenses, both those related to our oil and natural gas operations and those related to our being a public company.
In the quarters ended March 31, 2025 and June 30, 2025, continuing uncertainties regarding the sufficiency of our cash balances and future cash inflows due largely to a reduction in oil and natural gas prices and recent shareholder consent solicitation and proxy contest costs incurred, raised substantial doubt about our ability to meet our estimated cash outflows or continue as a going concern. However, due to the gross proceeds of $2,443,000 raised in the private placement offering in November 2025, 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.
Oil and Natural Gas Capital Expenditures
Barnwell’s oil and natural gas capital expenditures, including accrued capital expenditures and acquisitions of oil and natural gas properties and excluding additions and revisions to estimated asset retirement obligations, decreased $3,866,000 from $4,805,000 in fiscal 2024 to $939,000 in fiscal 2025.
The Company did not drill or participate in the drilling of wells during the year ended September 30, 2025. In fiscal 2024, the Company participated in the drilling of one gross (1.0 net) operated development oil well in the Twining area. Capital expenditures incurred for the drilling of this well during the year ended September 30, 2024 totaled approximately $3,183,000.
Oil and Natural Gas Property Dispositions
Fiscal 2025
On August 8, 2025, Barnwell entered into an agreement with an independent third party to sell all of its working interests in its U.S. oil and natural gas assets for a sales price of $2,300,000. The sales price per the agreement was adjusted for customary purchase price adjustments to reflect the economic activity from the effective date of July 1, 2025 to the closing date August 8, 2025. The Company recognized a loss on the sale of $636,000 before related income taxes in the year ended September 30, 2025. The U.S. oil and natural gas assets were located in the states of Texas and Oklahoma and were owned by wholly-owned subsidiaries of Barnwell. As a result of the sale, the Company no longer owns any oil and natural gas assets in the U.S., however, the Company will continue to explore for oil and natural gas opportunities in the U.S.
On August 28, 2025, Barnwell entered into and completed a purchase and sale agreement with an independent third party and sold its interests in certain oil and natural gas properties located in the Medicine River area of Alberta, Canada. The sales price per the agreement was adjusted for customary purchase price adjustments to $288,000 in order to, among other things, reflect an economic closing date of September 30, 2025. 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.
Fiscal 2024
In April 2024, Barnwell entered into and completed a purchase and sale agreement with an independent third party and sold its interests in certain oil and natural gas properties located in the Kaybob area of Alberta, Canada. The sales price per the agreement was adjusted for customary purchase price adjustments to $441,000 in order to, among other things, reflect an economic effective date of May 1, 2024. 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.
In July 2024, Barnwell entered into and completed an agreement with an independent third party to convey interests in certain oil and natural gas properties located in the Bonanza and Balsam areas of Alberta, Canada. In consideration for the sale of the working interests in these properties, Barnwell retained a 4% overriding royalty on these properties and the buyer assumed the asset retirement obligations associated with these properties. There were no cash proceeds from the sale and no gain or loss was recognized on this conveyance as this did not result in a significant alteration of the relationship
between capitalized costs and proved reserves. With the disposition of the working interest, Barnwell reduced the full cost pool and abandonment liabilities associated with the working interests conveyed by approximately $153,000.
In September 2024, Barnwell entered into and completed a purchase and sale agreement with an independent third party and sold its interests in certain oil and natural gas properties located in the Wood River area of Alberta, Canada. The sales price per the agreement was adjusted for customary purchase price adjustments to $292,000 in order to, among other things, reflect an economic effective closing date of September 30, 2024. From the sales proceeds, $38,000 was remitted directly to the Canada Revenue Agency by the buyers for potential amounts due for Barnwell’s Canadian income taxes related to the sale. The proceeds from the sale was credited to our cash in October 2024 and is reflected in the Statement of Cash Flows for the year ended September 30, 2025. No gain or loss was recognized on this disposition as the sale proceeds were credited to the full cost pool and did not result in a significant alteration of the relationship between capitalized costs and proved reserves.
Asset Retirement Obligation
In September 2019, the AER issued an abandonment/closure order for all wells and facilities in the Manyberries area which had been largely operated by LGX, an operating company that went into receivership in 2016. The estimated asset retirement obligation for the Company's interest in the wells and facilities in the Manyberries area is included in “Asset retirement obligation” in the Consolidated Balance Sheets.
After the abandonment/closure order was issued for Manyberries, the OWA created a WIP program for specific areas where there are a significant number of orphaned wells to abandon. The OWA has the ability and expertise to abandon wells using its internal resources and network of service providers resulting in efficiencies that companies such as Barnwell would not be able to obtain on its own. Under the WIP program, the Company would be required to provide payment for only Barnwell’s working interest share, however, all WIP’s would have to participate in the program for the OWA to begin its work. In March 2021, the Company was notified by the OWA that Barnwell’s Manyberries wells were confirmed to be in the WIP program.
Under the agreement with the OWA, the Company was required to pay the abandonment and reclamation costs in advance through a cash deposit. Barnwell has provided $975,000 in cumulative cash deposits to the OWA since the program began in the fall of 2021, and any amount remaining after completion of the abandonments was to be refunded to the Company, and then upon commencement of the reclamation program a new deposit was to be made for those estimated costs. To date, the excess deposits that relate to abandonment work have not yet been refunded but have been used to fund the reclamation part of the program and the Company now estimates that a portion of the unused deposit will instead be applied to future reclamation work over the next several years. The estimated current portion of the unused deposit was $173,000 and $527,000 as of September 30, 2025 and 2024, respectively, and is included in “Other current assets” on the Company’s Consolidated Balance Sheets. The non-current portion of the unused deposit of $222,000 along with $61,000 of non-current receivables at September 30, 2025, is included in “Other non-current assets” on the Company’s Consolidated Balance Sheet at September 30, 2025.
Private Placement Offering
On November 24, 2025, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain investors (the “Purchasers”), including certain directors of the board of directors of the Company pursuant to which the Company agreed to issue and sell an aggregate of: (i) 2,221,141 shares of its common stock, par value $0.50 per share (the “Common Stock”), and (ii) warrants (the “Common Warrants”) to purchase up to 1,029,104 shares of Common Stock (the “Warrant Shares”) in a private placement offering of the Company’s securities (the “Offering”). The directors of the Company participating as Purchasers in the Offering and certain other Purchasers did not receive any Common Warrants.
The price of the shares of Common Stock sold in the private placement was $1.10 per share of Common Stock. The Common Warrants have an exercise price of $1.65 per share.
The Offering closed on November 28, 2025 and the gross proceeds received from the Offering was approximately $2,443,000. The proceeds will be used for general corporate purposes. See Note 21 in the Notes to Consolidated Financial Statements in Item 8 of this report for additional disclosures related to the private placement offering.
Contractual Obligations
Disclosure is not required as Barnwell qualifies as a smaller reporting company.
Contingencies
For a detailed discussion of contingencies, see Note 18 in the “Notes to Consolidated Financial Statements” in Item 8 of this report.
