|Tiny Float, Seeking Acquisitions, Tightening up the Balance Sheets Barnwell Industries (NYSE American: BRN)
2021 asset sales of non-core properties could lead to the acquisition of more drilling rights in the U.S.A. adding to the BRN portfolio
Good day everyone,
After opening yesterday’s session at $2.55/share, Barnwell Industries, Inc. (NYSE American: BRN) closed the Monday session at $2.71/share (+6.27%).
Why I like BRN:
Tiny share structure (9.45M outstanding and 4.68M in the float)
Price to sales ratio of 1.33X
Price to earnings ratio of 3.84X
Trending prices in the oil patch
High insider ownership (48.17%)
Shares appear to be undervalued
Good potential for near term acquisitions
Consider that ARC Resources, a larger company operating in the Canadian oilpatch has a P/E ratio of 19X. If BRN, a smaller company was valued using the same P/E ratio the shares would be at $13.87 each. Conoco Philips, a large American oil company has a P/E ration of 26.5X. A like ratio at BRN would yield a price of $19.34/share. Even if BRN had a modest P/E ratio of 13.0X it would still be at $9.49/share. These are the data that lead me to say BRN could double its market cap and still be a value.
Oil prices of $40 bbl don’t create much excitement or investment in the oil patch and that’s where oil prices were at the beginning of 2021. Today the price of WTI Crude was $88.31 bbl and the investment in the oil patch is starting to flow. Should the price of oil get over $100 bbl or even higher as some forecasters are saying the oil patch investments will flow like water on a fire. Barnwell is no exception.
The sale of a Honolulu office and oil property generated proceeds of $2,385,000 in Q421. BRN has expressed a desire to seek out acquisitions. The company already owns drilling rights to properties found in the US (Oklahoma) and I wouldn’t be surprised if they expand their oil patch portfolio.
I want to take a deeper look at the Barnwell operating sectors, the company has several subsidiaries mentioned below:
OIL AND NATURAL GAS (58% of revenues)
Historically, the largest segment of Barnwell Industries, Inc. has been oil and natural gas exploration. Oil and gas activities in Canada are managed exclusively by subsidiaries Barnwell of Canada, Limited (BOCL) and Octavian Oil Limited based in Calgary, Alberta, Canada. BOCL has conducted operations in Canada for over 50 years.
The Company’s core Canadian asset is located at Twining, Alberta, about seventy miles north of Calgary and encompasses 10,000 acres. The field is low decline, primarily oil-bearing, and currently produces approximately 700 barrels of oil equivalent (BOE) per day gross production from a mixture of vertical and horizontal wells.
The Twining area has been producing since 1962, with an estimated 935 mmbbl of oil in place. The Company has recently improved its position at Twining by optimizing existing wells and facilities, acquiring new lands, and undertaking new shale-style horizontal drilling. Multiple highly economic investment opportunities exist in both horizontal new-drills and capital work overs. Oil patch analysts are forecasting higher prices in 2022.
WATER WELL DRILLING (32% of revenues)
Water Resources International, Inc. (WRI) explores and develops groundwater resources for government, commercial and private clients. WRI is the largest and highest quality well drilling firm in Hawaii and has successfully completed over $200 million in contracts over the past 50 years for public and private clients throughout the State of Hawaii.
Drilling rigs owned and operated by WRI are designed for deep well drilling. The company’s large equipment inventory currently includes four portable, truck-mounted deep well drilling rigs with complete support equipment, which can be modified to meet the demands of various water development projects.
WRI is licensed in the State of Hawaii and services all Hawaiian Islands from facilities on the islands of Oahu and Hawaii. WRI’s customer mix is roughly 50% Municipal and County Governments and 50% private industry, commercial, industrial, agriculture, golf courses, etc. Of the contracts in backlog as of December 1, 2021, $5,900,000 is expected to be recognized in fiscal 2022.
LAND INVESTMENT (10% of revenues)
Barnwell, through several subsidiaries, has held a 10-20% minority interest in oceanside developments in the North Kona District of the Big Island of Hawaii for many years. This resort area is anchored by the ultra-luxury Kūkiʻo, and Hualalai Resorts and the 877-acre development parcel is next to the Four Seasons Resort Hualalai at Historic Kaupulehu.
Buyers of the first 80-lots can apply for membership to the exclusive Kūkiʻo Golf and Beach Club. In addition to some of the most luxurious real estate in Hawaii, the private Kūkiʻo Club includes multiple recreation opportunities, including pools, four tennis courts, a full basketball court, world-class spa and ﬁtness facility, dining, and bar pavilions, a 10-hole Tom Fazio-designed short course, and an unmatched ocean sports program. The Kūkiʻo 18-Hole Tom Fazio-designed championship golf course sits above on the slopes of Mt. Hualalai.
To date 82 home sites have been developed and 73 of these sold, with prices ~$2M per acre yielding approximately $90M net to Barnwell’s interest since inception. The remaining 420 develop-able acres are entitled for and can support up to 350 more home sites. These sites further benefit from adjacent infrastructure to support platting and development. The island presents high barriers to new competitors given regulatory hurdles, difficult terrain, and land prices. The resulting supply/demand imbalance strongly suggests that such a ready-to-build project will command significant value and future cash flow.
I think the diversity of the BRN operational portfolio acts as a buffer against a decline in any of the above industries even though all of them are looking strong for the current fiscal year. Rising oil prices and the potential for acquisitions make for exciting times at BRN.
The Traders News Group
original analysis below
Good day everyone,
After opening today’s session at $2.55/share, Barnwell Industries, Inc. (NYSE American: BRN) shares showed early gains rising as high as $2.84 today. Trading volume has been brisk, with 66,890 shares traded in the first 30 minutes following market open. I remind you that BRN shares hit a high of $3.24/share just 11 days ago.
Current price $2.61/share (+2.6% as of 10:22am EST January 31, 2022)
The price of Canadian crude oil is currently at or near $73 – $84 bbl, depending on the blend, a price range that has nearly doubled over the past year. Virtually all oil analysts are forecasting further increases in oil prices for 2022.
Natural gas futures expiring in March surged 12% on Friday to $4.79 per million British thermal units but the price of February contracts saw a recent spike as high as $7.35. Natural gas prices tend to fluctuate with the seasons and the current winter has been frigid. For the colder regions in North America January has been colder than usual, much colder, and February is typically the coldest month of the year.
These are influential figures for BRN as 55% of their FYE21 revenues were generated from this sector. The company is already operating in its 22Q2 so the gains in natural gas and oil prices may have a positive impact on their 2022 results.
Stay tuned for our full report on BRN coming soon.
The Traders News Group
original report below
Barnwell Industries, Inc. (NYSE American: BRN) is an Oil & Natural Gas Company That Has Recently Reported Strong Financial Results, Insider Buying
Good day everyone,
Today I want to talk about Barnwell Industries, Inc. (NYSE American: BRN), a company that has a lot of factors indicating potential for a near term bounce. Unlike other companies we are looking at, BRN didn’t take a big hit during the market correction this month, rather, the company value didn’t go up like I think it should have and I will explain below.
Current price $2.55/share (as of market close 1-28-22)
The company stock chart indicates BRN shares are trading 8% below their 20 SMA and 4% below the 50 SMA. There have been three recent spikes in the share price ranging from $3.00 to $3.50 on October 4th, December 22nd, and most recently on January 20th at $3.24/share. These spikes correspond roughly to the dates of news/SEC filings.
I believe BRN may be oversold because for a small company (market cap $24M) they are a financial powerhouse. A return just to their level 10 days ago ($3.24) would represent a 21% gain and I believe BRN shares could be worth much more than that.
Before I get into some of the metrics that I think make BRN a financial powerhouse, I want to point out their tiny share structure with 9.45M shares outstanding and a float of 4.68M shares. Insiders own 48.17% of the shares. There has been a lot of insider buying over the last six months or so.
BRN has a FYE of September 30, and on December 20, last year they filed their 10-K reporting their FYE results. Two figures stood out to me immediately:
Revenues were $18.1M indicating an extremely low price to sales ratio of 1.33X
Net profit was $6.25M indicating a very low price to earnings (PE) ratio of 3.84X
Those two ratios above could go up by triple digits and still represent a value stock but there was more good news in that recent 10-K filing. At FYE 2021 BRN had $11.2M in cash and on November 30, 2021, before the filing, cash had increased to $12.8M without a public cash raise initiative. The company balance sheet reflected $47K in long term liabilities. A copy of the BRN 10-K for FYE September 30, 2021, is available on the company website.
The news about BRN gets even better. The company generates revenues through three verticals, and we will discuss them in more detail in our full report:
OIL AND NATURAL GAS
Engaging in oil and natural gas exploration, development, production, and sales in Canada. BRN generated $10M of its $18M in FYE21 revenues from this segment. Both oil and natural gas prices have been strong over the past six months and could continue the trend making the BRN income statement stronger in the near term.
Investing in leasehold interests in real estate in Hawaii. The company reported $1.7M in FYE21 revenues from this segment. Barnwell, through several subsidiaries, has held a 10-20% minority interest in oceanside developments in the North Kona District of the Big Island of Hawaii for many years.
WATER WELL DRILLING
Providing well drilling services and water pumping system installation and repairs in Hawaii. BRN reported $5.8M (32% of revenues) from this segment. Their subsidiary Water Resources International, Inc. is the largest and highest quality well drilling firm in Hawaii and has successfully completed over $200 million in contracts for public and private clients throughout the State of Hawaii.
Though it has major operations in Canada, BRN is headquartered in Honolulu, HI. Barnwell has been operating for several decades. This small company has stayed under the radar of many investors, and I say that not just because the company value may not reflect their financial metrics but also because the BRN trading volume is, on average, 80K shares per day. Take a good look at BRN because a near term bounce may be ahead.
Stay tuned for a more in-depth analysis on BRN.
The Traders News Source