Executive Summary / Key Takeaways

• Strategic Transformation Amidst Distress: Barnwell Industries is undergoing a radical restructuring, divesting its Contract Drilling and U.S. Oil & Natural Gas segments to focus solely on Canadian E&P and Hawaiian Land Investments. This pivot aims to streamline operations and reduce costs, but comes at a critical juncture marked by a "going concern" warning.
• Severe Liquidity Challenges: The company reported a $1.32 million working capital deficit and a $5.51 million year-over-year decline in operating cash flow for the nine months ended June 30, 2025. While recent asset sales provide some cash, management explicitly states these proceeds are insufficient to resolve the "substantial doubt" about its ability to continue as a going concern for the next year without securing additional, currently unconfirmed, funding.
• Shareholder Activism's Costly Toll: An ongoing proxy contest and related legal battles have significantly inflated General and Administrative (G&A) expenses by $1.31 million year-to-date, draining vital cash and diverting management attention. These costs are expected to persist, exacerbating financial pressures.
• Declining Core Operations & Impairment Risks: The Canadian Oil & Natural Gas segment, now the primary revenue driver, saw revenues decline by 23% year-to-date due to natural production declines and lower oil prices. Further non-cash impairment charges are anticipated in Q4 2025 due to expected lower 12-month average commodity prices.
• Limited Technological Moat; Asset-Based Strategy: Barnwell's competitive strategy is not rooted in proprietary technological differentiation. Instead, its competitive standing relies on its specific asset base in Canadian E&P and its unique, albeit uncertain, Hawaiian land development interests, positioning it as a niche player against larger, more technologically advanced energy companies.

Barnwell Industries: A Strategic Pivot Under the Shadow of Uncertainty

Barnwell Industries, Inc., incorporated in 1956, has a long history of evolving its business interests. From its Honolulu base, the company has historically diversified across oil and natural gas, land investment, and contract drilling. However, Barnwell is currently in the midst of a profound strategic transformation, shedding non-core assets to sharpen its focus on Canadian oil and natural gas exploration and production (E&P) and its Hawaiian land investment segment. This pivot, while strategically sound in principle, is unfolding under the severe pressure of a "going concern" warning and persistent shareholder activism, creating a complex and high-stakes investment narrative.

The energy sector, particularly E&P, is inherently cyclical, influenced by volatile commodity prices and geopolitical factors. Recently imposed tariffs and their impact on the U.S. economy have contributed to reduced oil prices, directly affecting Barnwell's operating cash inflows. This broader industry backdrop, coupled with internal challenges, sets a precarious stage for the company's future. Unlike many larger E&P players that leverage advanced proprietary technologies for enhanced recovery or operational efficiency, Barnwell's competitive strategy is not built upon a unique technological moat. Instead, its competitive standing is derived from its specific asset base in Canada and its long-held, albeit intermittent, land development interests in Hawaii. This positions Barnwell as a niche operator, requiring astute asset management and cost control to compete effectively against larger, more integrated energy firms like Canadian Natural Resources (CNQ) or Suncor Energy (SU), which benefit from scale, diversified operations, and often, greater technological investment.

Strategic Realignment: A Sharper Focus

Barnwell's recent history is defined by a series of strategic divestitures aimed at streamlining its operations. On March 14, 2025, the company completed the sale of Water Resources International, Inc., its wholly-owned subsidiary representing the contract drilling segment, for $1.05 million. This move was explicitly designed to simplify the corporate structure, reduce fixed costs, and allow management to "focus on higher return opportunities" within its oil and natural gas business. The sale also aimed to "simplify the equity story for Barnwell as investors will be able to focus on the significant opportunities the Company has identified in its oil and natural gas business."

Further cementing this strategic shift, Barnwell entered into an agreement on August 8, 2025, to sell all of its working interests in U.S. oil and natural gas assets for $2.30 million. This transaction, which closed shortly after the reporting period, means Barnwell will no longer own any oil and natural gas assets in the U.S., effectively narrowing its energy focus to Canada. U.S. properties represented 10% of the total oil and natural gas segment operating revenues for the nine months ended June 30, 2025. The company expects to incur an estimated loss of $700,000 after related income taxes from this sale in the quarter ending September 30, 2025.

The remaining continuing operations now consist of the Canadian Oil and Natural Gas segment and the Hawaiian Land Investment segment. The Canadian E&P operations involve the acquisition, development, production, and sale of oil and natural gas, primarily in the Twining area. The Land Investment segment holds leasehold land interests in Hawaii, including rights to receive payments from the Kukio Resort Land Development Partnerships and direct rights to certain single-family residential lots upon development. However, the last two single-family lots in Increment I were sold in the quarter ended March 31, 2024, and the remaining Increment II is "not yet under development, and there is no assurance that development of such acreage will in fact occur."

Financial Performance: A Challenging Quarter Amidst Transition

Barnwell's financial performance for the three and nine months ended June 30, 2025, reflects the significant challenges and ongoing transition. The net loss from continuing operations attributable to Barnwell increased to $1.55 million for the three months ended June 30, 2025, a $532,000 increase from the prior year period. For the nine months, the net loss widened to $4.69 million, a $2.01 million increase year-over-year.

A primary driver of this deteriorating profitability was a substantial increase in General and Administrative (G&A) expenses. These expenses surged by $565,000 for the three months and $1.31 million for the nine months ended June 30, 2025, largely due to $1.60 million in legal, proxy solicitation, and public relations costs associated with a shareholder consent solicitation and proxy contest. While the company recorded an estimated accrued insurance recovery receivable of $348,000, these costs represent a significant drain on resources.

The Oil and Natural Gas segment, now the company's core, experienced a 29% revenue decrease for the three months and a 23% decrease for the nine months ended June 30, 2025, compared to the prior year. This decline was primarily attributed to natural production declines from aging wells in the Twining area and lower oil prices. For instance, oil production decreased by 16% for both periods, and natural gas production fell by 17% and 21% respectively. While natural gas prices saw a 39% increase in the three-month period, oil prices declined by 21%. The company did enter into fixed price contracts for approximately 39% of its Canadian natural gas production and 18% of its Canadian oil production for future periods to mitigate price volatility.

Depletion, depreciation, and amortization expenses for the oil and natural gas segment decreased by 35% and 39% for the respective periods, primarily due to a lower depletion rate resulting from significant ceiling test impairments incurred in prior periods. However, the company still recognized non-cash ceiling test impairments of $200,000 for the three months and $865,000 for the nine months ended June 30, 2025, for its U.S. oil and natural gas properties. Management explicitly warned that "oil prices used in the 12-month historical rolling first-day-of-the-month average for the ceiling test at September 30, 2025 are likely to be lower than at June 30, 2025," indicating a potential for further impairment charges in the upcoming quarter.

The Land Investment segment contributed no revenues from the sale of leasehold land interests for the three and nine months ended June 30, 2025, compared to $500,000 in the prior year period, as the last lots in Increment I were sold. Equity in income of affiliates was also nil for these periods, down from $1.07 million in the prior year, reflecting the lack of new lot sales by the Kukio Resort Land Development Partnerships.

Liquidity and the Going Concern Question

Barnwell's liquidity position is a critical concern for investors. At June 30, 2025, the company reported a working capital deficit of $1.32 million. Cash flows used in continuing operations totaled $1.16 million for the nine months ended June 30, 2025, a stark $5.51 million decrease from the cash flows provided by continuing operations in the prior year. This decline was largely due to the lower operating results from the oil and natural gas segment, the surge in G&A expenses from the shareholder contest, and the absence of distributions from the land investment partnerships.

The company's 10-Q filing explicitly states "substantial doubt about our ability to continue as a going concern for one year from the date of the filing of this report." This dire assessment stems from the combined impact of shareholder contest costs, reduced oil prices due to tariffs, and the resulting uncertainty about future cash inflows needed to fund both discretionary capital expenditures (essential for converting proved undeveloped reserves) and non-discretionary outflows like asset retirement obligations and G&A expenses. While the recent sale of U.S. oil and natural gas properties for $2.30 million will provide near-term cash, management cautions that this amount "is not estimated to be sufficient to overcome the substantial doubt for one year from the date of this filing in the absence of other sources of funding, none of which are probable at the date of this filing." Barnwell is actively exploring debt financing, stock issuance, and further sales of its Kukio Resort Land Development Partnerships interests, but no probable timing or amounts have been secured.

Risks and the Path Forward

The path