UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
For the quarterly period ended June 30, 1999
Transition Report Pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
COMMISSION FILE NUMBER 1-5103
BARNWELL INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 72-0496921
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 ALAKEA STREET, SUITE 2900, HONOLULU, HAWAII 96813
(Address of principal executive offices) (Zip code)
(808) 531-8400
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of August 11, 1999 there were 1,316,952 shares of common stock, par value
$0.50, outstanding.
Transitional Small Business Disclosure Format Yes No X
--- ---
1
<PAGE>
BARNWELL INDUSTRIES, INC.
-------------------------
AND SUBSIDIARIES
----------------
INDEX
-----
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1999 and September 30, 1998 (Unaudited)
Consolidated Statements of Operations -
three and nine months ended June 30, 1999 and 1998 (Unaudited)
Condensed Consolidated Statements of Cash Flows -
nine months ended June 30, 1999 and 1998 (Unaudited)
Consolidated Statements of Stockholders' Equity
and Comprehensive Income (Loss) -
three months ended June 30, 1999 and 1998 (Unaudited)
Consolidated Statements of Stockholders' Equity
and Comprehensive Income (Loss) -
nine months ended June 30, 1999 and 1998 (Unaudited)
Notes to Condensed Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION:
Item 6. Exhibits and reports on Form 8-K
2
<PAGE>
BARNWELL INDUSTRIES, INC.
-------------------------
AND SUBSIDIARIES
----------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
ASSETS June 30,
- ------ 1999 September 30,
(Unaudited) 1998
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 2,223,000 $ 2,178,000
Accounts receivable, net 1,995,000 1,593,000
Other current assets 845,000 855,000
------------ ------------
TOTAL CURRENT ASSETS 5,063,000 4,626,000
------------ ------------
INVESTMENT IN LAND 3,311,000 2,710,000
------------ ------------
OTHER ASSETS 209,000 213,000
------------ ------------
NET PROPERTY AND EQUIPMENT 23,982,000 24,112,000
------------ ------------
TOTAL ASSETS $ 32,565,000 $ 31,661,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,699,000 $ 2,836,000
Accrued expenses 1,643,000 1,963,000
Current portion, long-term debt 1,521,000 400,000
Other current liabilities 1,117,000 451,000
------------ ------------
TOTAL CURRENT LIABILITIES 5,980,000 5,650,000
------------ ------------
LONG-TERM DEBT 13,066,000 13,630,000
------------ ------------
DEFERRED INCOME TAXES 6,075,000 5,637,000
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, par value $.50 per share:
Authorized, 4,000,000 shares
Issued, 1,642,797 shares 821,000 821,000
Additional paid-in capital 3,103,000 3,103,000
Retained earnings 11,461,000 11,281,000
Accumulated other comprehensive loss (3,152,000) (3,672,000)
Treasury stock, at cost, 325,845 shares (4,789,000) (4,789,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 7,444,000 6,744,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 32,565,000 $ 31,661,000
============ ============
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
BARNWELL INDUSTRIES, INC.
-------------------------
AND SUBSIDIARIES
----------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
Three months ended Nine months ended
June 30, June 30,
------------------------- --------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Oil and natural gas $ 2,370,000 $ 2,240,000 $ 6,790,000 $ 7,280,000
Contract drilling 1,210,000 390,000 2,540,000 1,050,000
Gas processing and other 160,000 220,000 550,000 780,000
----------- ----------- ----------- -----------
3,740,000 2,850,000 9,880,000 9,110,000
----------- ----------- ----------- -----------
Costs and expenses:
Oil and natural gas operating 738,000 788,000 2,243,000 2,464,000
Contract drilling operating 944,000 387,000 1,999,000 1,329,000
General and administrative 794,000 730,000 2,220,000 2,575,000
Depreciation, depletion and
amortization 691,000 646,000 2,008,000 2,058,000
Interest expense 194,000 185,000 593,000 512,000
Write-down of assets - 700,000 - 2,980,000
----------- ----------- ----------- -----------
3,361,000 3,436,000 9,063,000 11,918,000
----------- ----------- ----------- -----------
Earnings (loss) before income taxes 379,000 (586,000) 817,000 (2,808,000)
Income tax provision 279,000 334,000 637,000 922,000
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) $ 100,000 $ (920,000) $ 180,000 $(3,730,000)
=========== =========== =========== ===========
BASIC AND DILUTED
EARNINGS (LOSS) PER COMMON SHARE $ 0.08 $ (0.70) $ 0.14 $ (2.82)
=========== =========== =========== ===========
<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
BARNWELL INDUSTRIES, INC.
-------------------------
AND SUBSIDIARIES
----------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
Nine months ended
June 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings (loss) $ 180,000 $(3,730,000)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation, depletion, and amortization 2,008,000 2,058,000
Deferred income taxes 103,000 633,000
Write-down of assets - 2,980,000
----------- -----------
2,291,000 1,941,000
Decrease from changes
in current assets and liabilities (1,195,000) (475,000)
----------- -----------
Net cash provided by operating activities 1,096,000 1,466,000
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures - oil and natural gas (863,000) (5,457,000)
Additions to investment in land (601,000) (570,000)
Capital expenditures - contract drilling and other (207,000) (191,000)
Proceeds from sale of oil and natural gas properties 124,000 -
Decrease in other assets 4,000 6,000
----------- -----------
Net cash used in investing activities (1,543,000) (6,212,000)
----------- -----------
Cash Flows from Financing Activities:
Long-term debt borrowings 756,000 2,338,000
Repayments of long-term debt (300,000) -
Purchases of common stock for treasury - (84,000)
----------- -----------
Net cash provided by financing activities 456,000 2,254,000
----------- -----------
Effect of exchange rate
changes on cash and cash equivalents 36,000 (60,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents 45,000 (2,552,000)
Cash and cash equivalents at beginning of period 2,178,000 4,402,000
----------- -----------
Cash and cash equivalents at end of period $ 2,223,000 $ 1,850,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 613,000 $ 354,000
=========== ===========
Income taxes $ 73,000 $ 547,000
=========== ===========
<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
Three months ended June 30, 1999 and 1998
(Unaudited)
Accumulated
Additional Comprehensive Other Total
Common Paid-In Income Retained Comprehensive Treasury Stockholders'
Stock Capital (Loss) Earnings Loss Stock Equity
-------- ---------- ----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1998 $821,000 $3,103,000 $12,361,000 $ (2,660,000) $ (4,705,000) $ 8,920,000
Comprehensive loss:
Net loss $ (920,000) (920,000) (920,000)
Other comprehensive loss,
net of income taxes -
Foreign currency
translation adjustments (516,000) (516,000) (516,000)
-----------
Total comprehensive loss $(1,436,000)
===========
Purchases of common
stock for treasury (84,000) (84,000)
-------- ---------- ----------- ------------- ------------ ------------
Balances at June 30, 1998 $821,000 $3,103,000 $11,441,000 $ (3,176,000) $ (4,789,000) $ 7,400,000
======== ========== =========== ============= ============ ============
Balances at March 31, 1999 $821,000 $3,103,000 $11,361,000 $ (3,487,000) $ (4,789,000) $ 7,009,000
Comprehensive income:
Net earnings $ 100,000 100,000 100,000
Other comprehensive income,
net of income taxes -
Foreign currency
translation adjustments 335,000 335,000 335,000
-----------
Total comprehensive income $ 435,000
-------- ---------- =========== ----------- ------------- ------------ ------------
Balances at June 30, 1999 $821,000 $3,103,000 $11,461,000 $ (3,152,000) $ (4,789,000) $ 7,444,000
======== ========== =========== ============= ============ ============
<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
Nine months ended June 30, 1999 and 1998
(Unaudited)
Accumulated
Additional Comprehensive Other Total
Common Paid-In Income Retained Comprehensive Treasury Stockholders'
Stock Capital (Loss) Earnings Loss Stock Equity
-------- ---------- ----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
September 30, 1997 $821,000 $3,103,000 $15,171,000 $ (2,240,000) $ (4,705,000) $ 12,150,000
Comprehensive loss:
Net loss $(3,730,000) (3,730,000) (3,730,000)
-----------
Other comprehensive
loss, net of income taxes:
Foreign currency
translation adjustments (925,000)
Unrealized holding
loss on securities (11,000)
-----------
Other comprehensive loss (936,000) (936,000) (936,000)
-----------
Total comprehensive loss $(4,666,000)
===========
Purchases of common
stock for treasury (84,000) (84,000)
-------- ---------- ----------- ------------- ------------ ------------
Balances at June 30, 1998 $821,000 $3,103,000 $11,441,000 $ (3,176,000) $ (4,789,000) $ 7,400,000
======== ========== =========== ============= ============ ============
Balances at
September 30, 1998 $821,000 $3,103,000 $11,281,000 $ (3,672,000) $ (4,789,000) $ 6,744,000
Comprehensive income:
Net earnings $ 180,000 180,000 180,000
Other comprehensive income,
net of income taxes -
Foreign currency
translation adjustments 520,000 520,000 520,000
-----------
Total comprehensive income $ 700,000
-------- ---------- =========== ----------- ------------- ------------ ------------
Balances at June 30, 1999 $821,000 $3,103,000 $11,461,000 $ (3,152,000) $ (4,789,000) $ 7,444,000
======== ========== =========== ============= ============ ============
<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
7
<PAGE>
BARNWELL INDUSTRIES, INC.
-------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
The Condensed Consolidated Balance Sheet as of June 30, 1999, the
Consolidated Statements of Operations for the three and nine months ended June
30, 1999 and 1998, the Condensed Consolidated Statements of Cash Flows for the
nine months ended June 30, 1999 and 1998, and the Consolidated Statements of
Stockholders' Equity and Comprehensive Income (Loss) for the three and nine
months ended June 30, 1999 and 1998 have been prepared by Barnwell Industries,
Inc. (referred to herein together with its subsidiaries as "Barnwell" or the
"Company") without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at June 30, 1999 and
for all periods presented have been made. The Condensed Consolidated Balance
Sheet as of September 30, 1998 has been derived from audited financial
statements.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's September 30, 1998 annual report to
stockholders. The results of operations for the period ended June 30, 1999 are
not necessarily indicative of the operating results for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and the disclosure of contingent assets and liabilities. Actual
results could differ significantly from those estimates.
2. EARNINGS (LOSS) PER COMMON SHARE
--------------------------------
Basic earnings per share ("EPS") excludes dilution and is computed by
dividing net earnings (loss) by the weighted-average number of common shares
outstanding for the period. The weighted-average number of common shares
outstanding was 1,316,952 for the three and nine months ended June 30, 1999. The
weighted-average common shares outstanding for the three and nine months ended
June 30, 1998 was 1,317,849 and 1,320,651, respectively.
Diluted EPS includes the potentially dilutive effect of outstanding common
stock options and securities which are convertible to common shares. The
weighted-average number of common and potentially dilutive common shares
outstanding was 1,316,952 for the three and nine months ended June 30, 1999, and
1,317,849 and 1,320,651 for the three and nine months ended June 30, 1998,
respectively.
Assumed conversion of common stock options was excluded from the
computation of diluted EPS for the three and nine months ended June 30, 1999 and
1998 because their inclusion would be antidilutive. As of June 30, 1999, options
to acquire 50,000 shares of the Company's common stock were outstanding.
8
<PAGE>
Assumed conversion of convertible debentures to 85,000 and 100,000 shares
of common stock was excluded from the computation of diluted EPS for the three
and nine months ended June 30, 1999 and 1998, respectively, because their
inclusion would be antidilutive.
3. INCOME TAXES
------------
The components of the provision for income taxes for the three and nine
months ended June 30, 1999 and 1998 are as follows:
Three months ended Nine months ended
June 30, June 30,
------------------------- ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Current - U.S. $ - $ - $ - $ -
Current - Foreign 206,000 (34,000) 534,000 289,000
---------- ---------- ---------- ----------
Total - Current 206,000 (34,000) 534,000 289,000
---------- ---------- ---------- ----------
Deferred - U.S. 73,000 25,000 103,000 75,000
Deferred - Foreign - 343,000 - 558,000
---------- ---------- ---------- ----------
Total - Deferred 73,000 368,000 103,000 633,000
---------- ---------- ---------- ----------
$ 279,000 $ 334,000 $ 637,000 $ 922,000
========== ========== ========== ==========
4. FUTURE ACCOUNTING CHANGES
-------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement provides
guidance for public business enterprises in reporting information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports to shareholders. This statement also establishes standards for
related disclosures about products and services, geographic areas and major
customers. This statement is effective for fiscal years beginning after December
15, 1997. SFAS No. 131 need not be applied to interim financial statements in
the initial year of its application. The Company will adopt the provisions of
SFAS No. 131 in its fiscal 1999 year-end consolidated financial statements.
Management does not expect adoption of SFAS No. 131 will have a material effect
on the Company's reported financial information.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which amends the disclosure
requirements of SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." This statement
standardizes the disclosure requirements of SFAS No.'s 87 and 106 to the extent
practicable and recommends a parallel format for presenting information about
pensions and other postretirement benefits. SFAS No. 132 addresses disclosure
only and does not change any of the measurement or recognition provisions
provided for in SFAS No.'s 87, 88 or 106. This statement is effective for
financial statements for periods beginning after December 15, 1997. The Company
will adopt the provisions of SFAS No. 132 in its fiscal 1999 year-end
consolidated financial statements. Management does not expect adoption of SFAS
No. 132 will have a material effect on the Company's reported financial
information.
9
<PAGE>
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities and requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
provisions of SFAS No. 133 are effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. In July 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133, an Amendment of FASB Statement No.
133," which defers the effective date of SFAS No. 133 to be effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. Management does
not expect adoption of SFAS No. 133 will have a material effect on the Company's
financial condition, results of operations or liquidity.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
FORWARD-LOOKING STATEMENTS
- --------------------------
This Form 10-QSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including various forecasts, projections of the Company's
future performance, statements of the Company's plans and objectives or other
similar types of information. Although the Company believes that its
expectations are based on reasonable assumptions, it cannot assure that the
expectations contained in such forward-looking statements will be achieved. Such
statements involve risks, uncertainties and assumptions which could cause actual
results to differ materially from those contained in such statements. These
forward-looking statements speak only as of the date of filing of this Form
10-QSB, and the Company expressly disclaims any obligation or undertaking to
publicly release any updates or revisions to any forward-looking statements
contained herein.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flows from operations before working capital adjustments increased
$350,000 (18%) for the nine months ended June 30, 1999, as compared to the same
period in the prior year, due primarily to an increase in operating profit
generated by the Company's contract drilling segment, partially offset by a
decrease in operating profit generated by the Company's oil and natural gas
segment. Cash flows from operations after working capital adjustments decreased
$370,000 (25%), due primarily to fluctuations in the timing of accounts payable
payments.
At June 30, 1999, the Company had $2,223,000 in cash and cash equivalents,
approximately $1,100,000 of available credit under its credit facility with a
Canadian bank, and approximately $439,000 of available credit under Kaupulehu
Developments' (a 50.1% owned joint venture) land rezoning credit facility with a
Hawaii bank. The credit facility with the Canadian bank is currently undergoing
its annual review; the facility may be extended one year with no required debt
repayments for one year or converted to a 5-year term loan by the bank. If the
facility is converted to a 5-year term loan, the Company has agreed to the
following repayment schedule of the then outstanding loan balance: year 1-30%;
year 2-27%; year 3-16%; year 4-14% and year 5-13%. The Company believes the
Canadian bank will, as it has done in the past, extend the term of the credit
facility. Accordingly, the Company has classified outstanding borrowings under
the facility as long-term debt. There is no assurance that the bank will in fact
extend the term of the facility, nor is there assurance that the facility will
be renewed at its current amount.
10
<PAGE>
The Company invested $360,000 and $863,000 in oil and natural gas
properties (all in Canada) for the three and nine months ended June 30, 1999,
respectively, as compared to $2,065,000 ($1,875,000 in Canada and $190,000 in
the U.S.) and $5,457,000 ($4,849,000 in Canada and $608,000 in the U.S.) for the
three and nine months ended June 30, 1998, respectively. Capital expenditures
have decreased as several development projects were completed in fiscal 1998,
there were no capital expenditures in the U.S. in fiscal 1999, and because of a
decrease in the Company's oil and natural gas capital expenditures budget for
fiscal 1999, as compared to the level of capital expenditures for fiscal 1998,
due to the decline in oil prices in late 1998.
During the three months ended June 30, 1999, the Company participated in
the drilling of 1 successful well in Alberta, Canada, as follows:
Productive Productive
Oil Wells Gas Wells Dry Holes Total Wells
------------- ------------- ------------- -------------
Exp. Dev. Exp. Dev. Exp. Dev. Exp. Dev.
---- ---- ---- ---- ---- ---- ---- ----
Gross - - - 1.00 - - - 1.00
Net - - - 0.13 - - - 0.13
During the nine months ended June 30, 1999, the Company participated in
the drilling of 7 successful wells, one with two producing zones, and one dry
hole in Alberta, Canada, as follows:
Productive Productive
Oil Wells Gas Wells Dry Holes Total Wells
------------- ------------- ------------- -------------
Exp. Dev. Exp. Dev. Exp. Dev. Exp. Dev.
---- ---- ---- ---- ---- ---- ---- ----
Gross - - 1.00 7.00 - 1.00 1.00 8.00
Net - - 0.10 0.54 - 0.07 0.10 0.61
During the nine months ended June 30, 1999, the Company also participated
in the recompletion of 9 gross wells (0.65 net wells) in Alberta, Canada.
During the nine months ended June 30, 1999, the Company invested $601,000,
including $152,000 of interest costs capitalized, towards the rezoning of the
North Kona, Hawaii property held by Kaupulehu Developments.
The Company's computer systems are in the process of being upgraded. The
Company expects to complete its information systems upgrades, which are
represented to be Year 2000 compliant by respective vendors, by the fall of
1999. The Company estimates that the total combined internal and external cost
of upgrading information systems specifically for Year 2000 compliance to be
less than $30,000, and expects to fund these costs by utilizing cash flows from
operations. Analysis of embedded technology issues, including, but not limited
to, such items as microprocessors in petroleum and water pump controls, and
potential impacts relating to third parties with which the Company has a
material relationship is ongoing and to date has not brought to light evidence
of potential negative impacts. Expenditures related to Year 2000 compliance in
the three and nine months ended June 30, 1999 and 1998 were not significant and
were expensed as incurred.
11
<PAGE>
No amount of preparation and testing can guarantee Year 2000 compliance.
Accordingly, the Company is developing contingency plans to overcome the most
reasonably likely worst case scenarios which may result from failure by the
Company or third parties to complete their Year 2000 initiatives on a timely
basis. The Company expects to complete its contingency plans by September 1999.
Such contingency plans may include using alternative processes, such as manual
procedures or work-around applications to substitute for non-compliant systems;
arranging for alternate marketers, operators, and suppliers and service
providers; and developing procedures internally and in collaboration with
significant third parties to address compliance issues as they arise. There is
particular difficulty in the assessment of Year 2000 compliance of third
parties. Accordingly, the Company considers the potential disruptions caused by
such parties to present the most reasonably likely worst case scenarios. Adverse
effects on the Company could include business disruption, increased costs,
delays of sales and other similar ramifications.
The costs to address Year 2000 issues, the dates on which the Company
believes that it will complete activities to address such issues and the
Company's evaluation of third-party effects are estimates and subject to change.
Actual results could differ from those currently anticipated. Factors that could
cause such differences include, but are not limited to, the availability of key
Year 2000 project personnel, the ability of systems vendors to meet their
represented specifications and timetables, the Company's ability to respond to
unforeseen Year 2000 complications, the readiness of third parties, the accuracy
of third party assurances regarding Year 2000 compliance and similar
uncertainties.
RESULTS OF OPERATIONS
- ---------------------
Oil and Gas
- -----------
SELECTED OPERATING STATISTICS
-----------------------------
Average Prices
-------------------------------------------------
Three months ended Increase
June 30, (Decrease)
----------------------- -------------------
1999 1998 $ %
-------- -------- --------- ---
Oil (Bbls)* $ 15.11 $ 11.20 $ 3.91 35%
Liquids (Bbls)* $ 9.35 $ 9.60 $(0.25) (3%)
Gas (MCF)** $ 1.57 $ 1.27 $ 0.30 24%
Nine months ended Increase
June 30, (Decrease)
----------------------- -------------------
1999 1998 $ %
-------- -------- --------- ---
Oil (Bbls)* $ 12.67 $ 14.19 $(1.52) (11%)
Liquids (Bbls)* $ 8.33 $ 12.79 $(4.46) (35%)
Gas (MCF)** $ 1.49 $ 1.35 $ 0.14 10%
Net Sales Volumes
-------------------------------------------------
Three months ended Increase
June 30, (Decrease)
----------------------- -------------------
1999 1998 Units %
s -------- -------- --------- ---
Oil (Bbls)* 46,000 53,000 (7,000) (13%)
Liquids (Bbls)* 17,000 14,000 3,000 21%
Gas (MCF)** 809,000 885,000 (76,000) (9%)
Nine months ended Increase
June 30, (Decrease)
----------------------- -------------------
1999 1998 Units %
--------- --------- --------- ---
Oil (Bbls)* 154,000 153,000 1,000 1%
Liquids (Bbls)* 54,000 50,000 4,000 8%
Gas (MCF)** 2,492,000 2,704,000 (212,000) (8%)
*Bbls = stock tank barrel equivalent to 42 U.S. gallons
**MCF = 1,000 cubic feet
12
<PAGE>
Oil and natural gas revenues increased $130,000 (6%) for the three months
ended June 30, 1999 as compared to the same period in 1998, due primarily to 35%
and 24% increases in oil and natural gas prices, respectively. The increase was
partially offset by decreases in oil and natural gas volumes sold, respectively,
as compared to the same period in 1998. The decrease in natural gas production
of 76,000 MCF (9%) for the three months ended June 30, 1999, as compared to the
same period in 1998, was due to the annual gas plant/facilities "turnaround" at
Dunvegan in June 1999. This turnaround is a major maintenance program in which
the gas processing facilities are temporarily shut down. Although this is an
annual event, the prior year's turnaround was very short, approximately
one-third of the duration of this year's turnaround. In addition, the Nova
pipeline, which services the Dunvegan area, and which was shut in for its annual
maintenance program in conjunction with the Dunvegan turnaround, required
additional work not originally anticipated by Nova. Therefore, this pipeline was
shut in for an additional week, which in turn shut in Dunvegan's natural gas
production for the same period of time. The Nova pipeline has now been restored
to full service.
The decrease in oil production of 7,000 Bbls (13%) was due primarily to
the Company shutting in production at its Provost property due to high operating
costs. The Company is currently evaluating various options for the future for
this property, including its sale to third parties.
Oil and natural gas revenues decreased $490,000 (7%) for the nine months
ended June 30, 1999, as compared to the same period in 1998, due primarily to
price decreases of 35% and 11% for natural gas liquids and oil, respectively,
and an 8% decrease in natural gas volumes sold (also see discussion above about
the three month production decline). The decrease was partially offset by a 10%
increase in natural gas prices, as compared to the same period in 1998.
Contract Drilling
- -----------------
Contract drilling revenues have increased substantially from last year,
for both the three and nine months ended June 30, 1999, due primarily to the
Company's attainment and performance thereunder of a contract for the Hawaii
Scientific Drilling Project. The Company's work on this contract has been around
the clock, 24 hours a day, seven days a week, since the Company spudded the well
on March 15, 1999. By operating 24 hours per day, this one rig is effectively
generating revenues equal to three drilling rigs. We expect to complete the work
under this contract by year end.
Contract drilling revenues and operating expenses increased $820,000
(210%) and $557,000 (144%), respectively, for the three months ended June 30,
1999, as compared to the same period in 1998, as there were two more rigs, one
around the clock, operating at various times in the current year period as
compared to the same period in the prior year. Accordingly, operating profit
before depreciation increased to $266,000 for the three months ended June 30,
1999, as compared to an operating profit before depreciation of $3,000 in the
same period in 1998.
13
<PAGE>
Contract drilling revenues and operating expenses increased $1,490,000
(142%) and $670,000 (50%), respectively, for the nine months ended June 30,
1999, as compared to the same period in 1998, as there were two more rigs, one
around the clock, operating at various times in the current year period as
compared to the same period in the prior year. The increase in operating
expenses was lower than the increase in revenues due to the fixed nature of some
operating expenses such as lease rent on yards, and the fact that a portion of
the prior year period's activity was generated by a large pump installation
contract on which the Company was the general contractor; pump installation
contracts typically have lower margins than well drilling contracts, and this
was the case in the prior year. Operating results before depreciation,
therefore, increased $820,000 to an operating profit before depreciation of
$541,000 for the nine months ended June 30, 1999, as compared to an operating
loss before depreciation of $279,000 for the same period in 1998.
This increase in operating profit before depreciation is expected to
continue for the remainder of the fiscal year as the Company continues to
perform drilling and coring operations for the Hawaii Scientific Drilling
Project. The Hawaii Scientific Drilling Project's purpose is to study the
long-term history of the Hawaiian volcanic system by drilling an 11,000-foot
continuous core of earth on the flank of the Mauna Kea volcano in Hilo, Hawaii.
As of early August 1999, the Hawaii Scientific Drilling Project had retrieved
more than 7,200 feet of core.
Gas Processing and Other
- ------------------------
Gas processing and other income decreased $60,000 (27%) and $230,000 (29%)
for the three and nine months ended June 30, 1999, respectively, as compared to
the same periods in 1998, due to a decrease in gas processed by the Company's
interest in the Stolberg pipeline and a decrease in interest income as a result
of lower average cash balances.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses decreased $355,000 (14%) for the nine
months ended June 30, 1999, as compared to the same period in 1998, as the prior
year period included costs associated with a change in management of the
Company's oil and natural gas segment. In May 1998, the Company hired a new
executive in charge of oil and natural gas operations. In addition, management
has continued to achieve positive results in reducing expenses.
Interest Expense
- ----------------
Interest expense increased $81,000 (16%) for the nine months ended June
30, 1999, as compared to the same period in 1998, due to higher average loan
balances.
Write-down of Assets
- --------------------
Under the full cost method of accounting, the amount of oil and natural
gas properties' capitalized costs less accumulated depletion is subject to a
ceiling test limitation that requires any excess over the discounted present
value of estimated future net cash flows from proved reserves to be expensed.
Due to disappointing exploratory results from the Company's Michigan, North
Dakota and Louisiana prospects, capitalized oil and natural gas properties'
costs in the United States exceeded the full cost ceiling test limitation as of
March 31, 1998. Accordingly, the Company recorded a write-down of $2,070,000 for
the three months ended March 31, 1998. In addition, the Company wrote down
$210,000 of other assets in the quarter ended March 31, 1998.
Due to further declines in oil prices and disappointing results in North
Dakota, the Company recorded an additional write-down of oil and gas properties
amounting to $660,000 in the three months ended June 30, 1998. Additionally, a
$40,000 write-down of available-for-sale securities was recorded during the
three months ended June 30, 1998 due to a decline in market value.
There were no write-downs of assets in the three and nine months ended
June 30, 1999.
14
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
None.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BARNWELL INDUSTRIES, INC.
- -------------------------
(Registrant)
/s/ Russell M. Gifford
- ----------------------
Russell M. Gifford
Executive Vice President and
Chief Financial Officer
Date: August 12, 1999
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This schedule contains summary financial information extracted from
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its entirety by reference to such 10-QSB.
</LEGEND>
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