OIL AND NATURAL GAS PROPERTIES AND ASSET RETIREMENT OBLIGATION

Full cost properties

In October 2017, Barnwell entered into a Purchase and Sale Agreement with an independent third party and sold its oil and natural gas properties located in the Pouce Coupe area of Alberta, Canada. The sales price per the agreement was adjusted to $79,000 for customary purchase price adjustments to reflect the economic activity from the effective date of May 1, 2017 to the closing date. From Barnwell's net proceeds, $37,000 was withheld and remitted by the buyer to the Canada Revenue Agency for potential amounts due for Barnwell’s Canadian income taxes. No gain or loss was recognized on this sale as it did not result in a significant alteration of the relationship between capitalized costs and proved reserves. Proceeds from the disposition were credited to the full cost pool.

In February 2018, Barnwell sold its oil properties located in the Red Earth area of Alberta, Canada to two separate independent third parties. The sales prices per the agreements were adjusted for customary purchase price adjustments to reflect the economic activity from the effective date of October 1, 2017 to the closing date, for a combined adjusted sales price of $1,360,000. The final determination of the customary adjustments to the purchase price has not yet been made however it is not expected to result in a material adjustment. From Barnwell's net proceeds, $752,000 was withheld and remitted by the buyer to the Canada Revenue Agency for potential amounts due for Barnwell’s Canadian income taxes.

The difference in the relationship between capitalized costs and proved reserves of the Red Earth properties sold as compared to the properties retained by Barnwell was significant as there was a 322% difference in capitalized costs divided by proved reserves if the gain was recorded versus the gain being credited against the full-cost pool. Accordingly, Barnwell recorded a gain on the sale of Red Earth of $2,135,000 in the three months ended March 31, 2018 in accordance with the guidance in Rule 4-10(c)(6)(i) of Regulation S-X of the rules and regulations of the SEC, which requires an allocation of capitalized costs to the reserves sold and reserves retained on the basis of the relative fair values of the properties as there was a substantial economic difference between the properties sold and those retained. Also included in the gain calculation were asset retirement obligations of $1,666,000 assumed by the purchaser.

Other properties

In February 2018, Barnwell sold its interest in natural gas transmission lines and related surface facilities in the Stolberg area of Alberta, Canada for $120,000, and we recognized a $115,000 gain on the sale for the quarter ended March 31, 2018.

Asset retirement obligation

Barnwell recognizes the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. The following is a reconciliation of the asset retirement obligation:



	Nine months
	ended
	June 30, 2018
Asset retirement obligation as of beginning of period	$	6,863,000
Obligation incurred on new well drilled	9,000
Liabilities associated with properties sold	(1,752,000		)
Revision of estimated obligation	(323,000		)
Accretion expense	211,000
Payments	(589,000		)
Foreign currency translation adjustment	(200,000		)
Asset retirement obligation as of end of period	4,219,000
Less current portion	(410,000		)
Asset retirement obligation, long-term	$	3,809,000

Asset retirement obligations were reduced by $1,752,000 during the nine months ended June 30, 2018 for those obligations that were assumed by purchasers of certain of Barnwell's oil and natural gas properties.