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 March 31, 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 May 14, 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 -
March 31, 1999 and September 30, 1998 (Unaudited)
Consolidated Statements of Operations -
three and six months ended March 31, 1999 and 1998 (Unaudited)
Condensed Consolidated Statements of Cash Flows -
six months ended March 31, 1999 and 1998 (Unaudited)
Consolidated Statements of Stockholders' Equity
and Comprehensive Income (Loss) -
three months ended March 31, 1999 and 1998 (Unaudited)
Consolidated Statements of Stockholders' Equity
and Comprehensive Income (Loss) -
six months ended March 31, 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 March 31,
- ------ 1999 September 30,
(Unaudited) 1998
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 1,795,000 $ 2,178,000
Accounts receivable, net 1,932,000 1,593,000
Other current assets 752,000 855,000
----------- -----------
TOTAL CURRENT ASSETS 4,479,000 4,626,000
----------- -----------
INVESTMENT IN LAND 3,126,000 2,710,000
----------- -----------
OTHER ASSETS 210,000 213,000
----------- -----------
NET PROPERTY AND EQUIPMENT 23,720,000 24,112,000
----------- -----------
TOTAL ASSETS $31,535,000 $31,661,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 2,016,000 $ 2,836,000
Accrued expenses 1,515,000 1,963,000
Other current liabilities 1,165,000 851,000
----------- -----------
TOTAL CURRENT LIABILITIES 4,696,000 5,650,000
----------- -----------
LONG-TERM DEBT 14,011,000 13,630,000
----------- -----------
DEFERRED INCOME TAXES 5,819,000 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 11,361,000 11,281,000
Accumulated other comprehensive loss (3,487,000) (3,672,000)
Treasury stock, at cost, 325,845 shares (4,789,000) (4,789,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 7,009,000 6,744,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $31,535,000 $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 Six months ended
March 31, March 31,
-------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Revenues:
<S> <C> <C> <C> <C>
Oil and natural gas $ 2,070,000 $ 2,110,000 $ 4,420,000 $ 5,040,000
Contract drilling 580,000 480,000 1,330,000 660,000
Gas processing and other 190,000 300,000 390,000 560,000
----------- ----------- ----------- -----------
2,840,000 2,890,000 6,140,000 6,260,000
----------- ----------- ----------- -----------
Costs and expenses:
Oil and natural gas operating 688,000 868,000 1,505,000 1,676,000
Contract drilling operating 479,000 683,000 1,055,000 942,000
General and administrative 662,000 1,053,000 1,426,000 1,845,000
Depreciation, depletion and
amortization 623,000 616,000 1,317,000 1,412,000
Interest expense 193,000 170,000 399,000 327,000
Write-down of assets - 2,280,000 - 2,280,000
----------- ----------- ----------- -----------
2,645,000 5,670,000 5,702,000 8,482,000
----------- ----------- ----------- -----------
Earnings (loss)
before income taxes 195,000 (2,780,000) 438,000 (2,222,000)
Income tax provision 165,000 150,000 358,000 588,000
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) $ 30,000 $(2,930,000) $ 80,000 $(2,810,000)
=========== =========== =========== ===========
BASIC AND DILUTED EARNINGS (LOSS)
PER COMMON SHARE $ 0.02 $ (2.22) $ 0.06 $ (2.13)
=========== =========== =========== ===========
<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)
Six months ended
March 31,
----------------------------
1999 1998
----------- -----------
Cash Flows from Operating Activities:
<S> <C> <C>
Net earnings (loss) $ 80,000 $(2,810,000)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation, depletion, and amortization 1,317,000 1,412,000
Deferred income taxes 30,000 265,000
Write-down of assets - 2,280,000
----------- -----------
1,427,000 1,147,000
Decrease from changes
in current assets and liabilities (1,153,000) (1,066,000)
----------- -----------
Net cash provided by operating activities 274,000 81,000
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures - oil and natural gas (503,000) (3,392,000)
Additions to investment in land (416,000) (359,000)
Capital expenditures - contract drilling and other (162,000) (194,000)
Proceeds from sale of oil and natural gas properties 70,000 -
Decrease in other assets 3,000 5,000
----------- -----------
Net cash used in investing activities (1,008,000) (3,940,000)
----------- -----------
Cash Flows from Financing Activities:
Long-term debt borrowings 546,000 965,000
Repayments of long-term debt (200,000) -
----------- -----------
Net cash provided by financing activities 346,000 965,000
----------- -----------
Effect of exchange rate
changes on cash and cash equivalents 5,000 (78,000)
----------- -----------
Net decrease in cash and cash equivalents (383,000) (2,972,000)
Cash and cash equivalents at beginning of period 2,178,000 4,402,000
----------- -----------
Cash and cash equivalents at end of period $ 1,795,000 $ 1,430,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 440,000 $ 119,000
=========== ===========
Income taxes $ 52,000 $ 485,000
=========== ===========
<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 March 31, 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 December 31, 1997 $821,000 $3,103,000 $15,291,000 $ (2,614,000) $ (4,705,000) $ 11,896,000
Comprehensive loss:
Net loss $ (2,930,000) (2,930,000) (2,930,000)
-------------
Other comprehensive
loss, net of income taxes:
Foreign currency
translation adjustments (33,000)
Unrealized holding
loss on securities (13,000)
-------------
Other comprehensive loss (46,000) (46,000) (46,000)
-------------
Total comprehensive loss $ (2,976,000)
-------- ---------- ============= ----------- ------------- ------------- -------------
Balances at March 31, 1998 $821,000 $3,103,000 $12,361,000 $ (2,660,000) $ (4,705,000) $ 8,920,000
======== ========== =========== ============= ============= =============
Balances at December 31, 1998 $821,000 $3,103,000 $11,331,000 $ (3,688,000) $ (4,789,000) $ 6,778,000
Comprehensive income:
Net earnings $ 30,000 30,000 30,000
Other comprehensive income,
net of income taxes -
Foreign currency
translation adjustments 201,000 201,000 201,000
-------------
Total comprehensive income $ 231,000
-------- ---------- ============= ----------- ------------- ------------- -------------
Balances at March 31, 1999 $821,000 $3,103,000 $11,361,000 $ (3,487,000) $ (4,789,000) $ 7,009,000
======== ========== =========== ============= ============= =============
<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)
Six months ended March 31, 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 $ (2,810,000) (2,810,000) (2,810,000)
Other comprehensive loss,
net of income taxes -
Foreign currency
translation adjustments (420,000) (420,000) (420,000)
-------------
Total comprehensive loss $ (3,230,000)
-------- ---------- ============= ----------- ------------- ------------- -------------
Balances at March 31, 1998 $821,000 $3,103,000 $12,361,000 $ (2,660,000) $ (4,705,000) $ 8,920,000
======== ========== =========== ============= ============= =============
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 $ 80,000 80,000 80,000
Other comprehensive income,
net of income taxes -
Foreign currency
translation adjustments 185,000 185,000 185,000
-------------
Total comprehensive income $ 265,000
-------- ---------- ============= ----------- ------------- ------------- -------------
Balances at March 31, 1999 $821,000 $3,103,000 $11,361,000 $ (3,487,000) $ (4,789,000) $ 7,009,000
======== ========== =========== ============= ============= =============
<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 March 31, 1999, the
Consolidated Statements of Operations for the three and six months ended March
31, 1999 and 1998, the Condensed Consolidated Statements of Cash Flows for the
six months ended March 31, 1999 and 1998, and the Consolidated Statements of
Stockholders' Equity and Comprehensive Income (Loss) for the three and six
months ended March 31, 1999 and 1998 have been prepared by Barnwell Industries,
Inc. (referred to herein together with its subsidiaries as "Barnwell" or the
"Company") and are unaudited. 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 March 31, 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 March 31, 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 six months ended March 31, 1999, and
1,322,052 for the three and six months ended March 31, 1998.
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 six months ended March 31, 1999, and
1,322,052 for the three and six months ended March 31, 1998.
Assumed conversion of common stock options was excluded from the
computation of diluted EPS for the three and six months ended March 31, 1999 and
1998 because their inclusion would be antidilutive. As of March 31, 1999,
options to acquire 55,000 shares of the Company's common stock were outstanding.
Assumed conversion of the convertible debentures to 90,000 and 100,000
shares of common stock was excluded from the computation of diluted EPS for the
three and six months ended March 31, 1999 and 1998, respectively, because their
inclusion would be antidilutive.
8
<PAGE>
3. INCOME TAXES
------------
The components of the provision for income taxes for the three and six
months ended March 31, 1999 and 1998 are as follows:
Three months ended Six months ended
March 31, March 31,
------------------------- ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Current - U.S. $ - $ - $ - $ -
Current - Foreign 150,000 26,000 328,000 323,000
--------- --------- --------- ---------
Total - Current 150,000 26,000 328,000 323,000
--------- --------- --------- ---------
Deferred - U.S. 15,000 25,000 30,000 50,000
Deferred - Foreign - 99,000 - 215,000
--------- --------- --------- ---------
Total - Deferred 15,000 124,000 30,000 265,000
--------- --------- --------- ---------
$ 165,000 $ 150,000 $ 358,000 $ 588,000
========= ========= ========= =========
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.
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. 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.
9
<PAGE>
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
for the six months ended March 31, 1999, as compared to the same period in the
prior year, by $280,000 (24%), 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.
At March 31, 1999, the Company had $1,795,000 in cash and cash
equivalents, approximately $890,000 of available credit under its credit
facility with a Canadian bank, and approximately $589,000 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 invested $292,000 and $503,000 in oil and natural gas
properties (all in Canada) for the three and six months ended March 31, 1999,
respectively, as compared to $1,818,000 ($1,641,000 in Canada and $177,000 in
the U.S.) and $3,392,000 ($2,974,000 in Canada and $418,000 in the U.S.) for the
three and six months ended March 31, 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.
During the three months ended March 31, 1999, the Company participated in
the drilling of 3 successful wells 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 - - - 3.00 - 1.00 - 4.00
Net - - - 0.13 - 0.07 - 0.20
10
<PAGE>
During the six months ended March 31, 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 6.00 - 1.00 1.00 7.00
Net - - 0.10 0.41 - 0.07 0.10 0.48
During the three months ended March 31, 1999, the Company also
participated in the recompletion of 5 gross wells (0.50 net wells) in Alberta,
Canada.
In April 1999, the County of Hawaii granted final zoning approval for a
residential, golf and commercial project on approximately 1,000 acres of
property held by Kaupulehu Developments, a 50.1% owned joint venture. In order
to proceed with the Company's plans for development of this area, several steps
must be completed, including the resolution of a legal challenge to a prior
approval for this project which is before the Hawaii Supreme Court. This recent
approval, however, affirms the County of Hawaii's support for the project and
allows the Company to proceed with final design work in the interim.
During the six months ended March 31, 1999, the Company invested $416,000,
including $98,000 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 summer 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 six months ended March 31, 1999 and 1998 were not significant and
were expensed as incurred.
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.
11
<PAGE>
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 Natural Gas
- -------------------
SELECTED OPERATING STATISTICS
-----------------------------
Average Prices
-----------------------------------------------
Three months ended Increase
March 31, (Decrease)
---------------------- -----------------
1999 1998 $ %
------ ------ ------ ----
Oil (Bbls)* $11.04 $14.54 $(3.50) (24%)
Liquids (Bbls)* $ 7.32 $13.18 $(5.86) (44%)
Gas (MCF)** $ 1.48 $ 1.29 $ 0.19 15%
Six months ended Increase
March 31, (Decrease)
---------------------- -----------------
1999 1998 $ %
------ ------ ------ ----
Oil (Bbls)* $11.63 $15.89 $(4.26) (27%)
Liquids (Bbls)* $ 7.87 $14.31 $(6.44) (45%)
Gas (MCF)** $ 1.45 $ 1.39 $ 0.06 4%
Net Sales Volumes
-----------------------------------------------
Three months ended Increase
March 31, (Decrease)
---------------------- ------------------
1999 1998 Units %
------- ------- ------- ----
Oil (Bbls)* 51,000 52,000 (1,000) (2%)
Liquids (Bbls)* 19,000 17,000 2,000 12%
Gas (MCF)** 793,000 846,000 (53,000) (6%)
Six months ended Increase
March 31, (Decrease)
---------------------- ------------------
1999 1998 Units %
--------- --------- -------- ----
Oil (Bbls)* 108,000 100,000 8,000 8%
Liquids (Bbls)* 37,000 35,000 2,000 6%
Gas (MCF)** 1,683,000 1,819,000 (136,000) (7%)
*Bbls = stock tank barrel equivalent to 42 U.S. gallons
**MCF = 1,000 cubic feet
Oil and natural gas revenues remained relatively constant, decreasing by
$40,000 (2%) for the three months ended March 31, 1999, as compared to the same
period in 1998. For the six months ended March 31, 1999, oil and gas natural gas
revenues decreased 12%, as compared to the same period in 1998, due to price
decreases of 27% and 45% for oil and natural gas liquids, respectively, and a 7%
decrease in natural gas production. These decreases were partially offset by a
4% increase in natural gas prices and 8% and 6% increases in oil and natural gas
liquids production, respectively.
12
<PAGE>
Oil and natural gas operating expenses decreased $180,000 (21%) and
$171,000 (10%) for the three and six months ended March 31, 1999, respectively,
as compared to the same periods in 1998. These decreases were due primarily to a
decrease in the Canadian dollar to U.S. dollar exchange rates for the current
year periods, as compared to same periods in the prior year.
Contract Drilling
- -----------------
Contract drilling revenues increased $100,000 (21%) and contract drilling
operating expenses decreased $204,000 (30%) for the three months ended March 31,
1999, as compared to the same period in 1998. Contract drilling revenues
increased as three drilling rigs were operating at various times in the current
year period, whereas there was only one rig operating in the same period in
1998. Contract drilling operating expenses declined as much 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 last year.
Accordingly, operating results before depreciation increased $304,000 to an
operating profit before depreciation of $101,000 for the three months ended
March 31, 1999, as compared to an operating loss before depreciation of $203,000
in the same period in 1998.
Contract drilling revenues and operating expenses increased $670,000
(102%) and $113,000 (12%), respectively, for the six months ended March 31,
1999, as compared to the same period in 1998, as there were two more rigs
operating 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. Operating results before depreciation, therefore, increased $557,000
to an operating profit before depreciation of $275,000 for the six months ended
March 31, 1999, as compared to an operating loss before depreciation of $282,000
for the same period in 1998.
This increase in operating profit before depreciation is expected to
continue for the remainder of the year as the Company secured and started a
significant new contract in the quarter 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. The Company expects to be working on
this contract for another six months.
Gas Processing and Other
- ------------------------
Gas processing and other income decreased $110,000 (37%) and $170,000
(30%) for the three and six months ended March 31, 1999, respectively, as
compared to the same periods in 1998, due to a decrease in sharing of a gas
pipeline and a decrease in interest income as a result of lower average cash
balances.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses decreased $391,000 (37%) and $419,000
(23%) for the three and six months ended March 31, 1999, respectively, as
compared to the same periods in 1998, as the prior year periods 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.
13
<PAGE>
Interest Expense
- ----------------
Interest expense increased $23,000 (14%) and $72,000 (22%) for the three
and six months ended March 31, 1999, respectively, as compared to the same
periods 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
$170,000 of land and land improvement costs related to a contract drilling yard
and $40,000 related to available-for-sale securities to adjust these assets for
declines in market values in the three months ended March 31, 1998.
There were no write-downs of assets in the three and six months ended
March 31, 1999.
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: May 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Barnwell Industries Inc.'s 1999 second quarter 10QSB and is qualified in
its entirety by reference to such 10QSB.
</LEGEND>
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