PROPERTY AND EQUIPMENT AND ASSET RETIREMENT OBLIGATION

12 Months Ended

Sep. 30, 2021

PROPERTY AND EQUIPMENT AND ASSET RETIREMENT OBLIGATION

PROPERTY AND EQUIPMENT AND ASSET RETIREMENT OBLIGATION

Barnwell’s property and equipment is detailed as follows:


	Estimated Useful Lives	Gross Property and Equipment		Accumulated Depletion, Depreciation, Amortization, and Impairment		Net Property and Equipment
At September 30, 2021:

Oil and natural gas properties: (full cost accounting)
Proved properties		$	58,490,000	$	(56,067,000)	$	2,423,000
Unproved properties		962,000		—		962,000
Total oil and natural gas properties		59,452,000		(56,067,000)		3,385,000
Drilling rigs and equipment	3 – 10 years	7,273,000		(6,789,000)		484,000

Other property and equipment	3 – 10 years	687,000		(681,000)		6,000
Total		$	67,412,000	$	(63,537,000)	$	3,875,000


	Estimated Useful Lives	Gross Property and Equipment		Accumulated Depletion, Depreciation, Amortization, and Impairment		Net Property and Equipment
At September 30, 2020:

Oil and natural gas properties: (full cost accounting)
Proved properties		$	64,142,000	$	(61,839,000)	$	2,303,000
Unproved properties		—		—		—
Total oil and natural gas properties		64,142,000		(61,839,000)		2,303,000
Drilling rigs and equipment	3 – 10 years	8,244,000		(6,793,000)		1,451,000

Other property and equipment	3 – 17 years	1,045,000		(1,025,000)		20,000
Total		$	73,431,000	$	(69,657,000)	$	3,774,000

See Note 7 for discussion of acquisitions and divestitures of oil and natural gas properties in fiscal 2021 and 2020.

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:


	Year ended September 30,
	2021		2020
Asset retirement obligation as of beginning of year	$	6,194,000	$	6,389,000
Obligations incurred on new wells drilled or acquired	532,000		227,000
Liabilities associated with properties sold	(375,000)		(169,000)
Revision of estimated obligation	279,000		(279,000)
Accretion expense	580,000		561,000
Payments	(421,000)		(498,000)
Foreign currency translation adjustment	264,000		(37,000)
Asset retirement obligation as of end of year	7,053,000		6,194,000
Less current portion	(713,000)		(647,000)
Asset retirement obligation, long-term	$	6,340,000	$	5,547,000

Asset retirement obligations were reduced by $375,000 and $169,000, in fiscal 2021 and 2020, respectively, for those obligations that were assumed by purchasers of Barnwell's oil and natural gas properties. Asset retirement obligations also increased by $279,000 in fiscal 2021 as compared to a reduction of $279,000 in fiscal 2020 primarily due to upward revisions from acceleration in the estimated timing of future abandonments as a result of changes in the estimated economic life of certain wells and changes in management's discretionary timing of abandonment projects due to an increase in estimated funds available as well as an increase in the estimated cost of abandonments at the Manyberries area, as further discussed below. Asset retirement obligations increased by $532,000 and $227,000 in fiscal 2021 and 2020, respectively, due primarily to our acquisitions (see Note 7 for additional details). The asset retirement obligation reflects the estimated present value of the amount of dismantlement, removal, site reclamation, and similar activities associated with Barnwell's oil and natural gas properties. Barnwell estimates the ultimate productive life of the properties, a credit-adjusted risk-free rate, and an inflation factor in order to determine the current present value of this obligation. The credit-adjusted risk-free rate for the entire asset retirement obligation is a blended rate which ranges from 6% to 13.5%.

In September 2019, the AER issued an abandonment/closure order for all wells and facilities in the Manyberries area which had been largely operated by LGX, an operating company that went into receivership in 2016. The estimated asset retirement obligation for the Company's interest in the wells and facilities in the Manyberries area is included in “Asset retirement obligation” in the Consolidated Balance Sheets.

Recently, the OWA created a WIP program for specific areas where there are a significant number of orphaned wells to abandon. The OWA has the ability and expertise to abandon wells using its internal resources and network of service providers resulting in efficiencies that companies such as Barnwell, would not be able to obtain on its own. Under the WIP program, the Company would be required to provide payment for only Barnwell’s working interest share, however, all WIP’s would have to participate in the program for the OWA to begin its work. In March 2021, the Company was notified by the OWA that Barnwell’s Manyberries wells were confirmed to be in the WIP program.

Under the new agreement with the OWA, the Company is required to pay the abandonment and reclamation costs in advance through a cash deposit. The total cash deposit amount was calculated to be approximately $1,525,000 and the Company paid $888,000 of the total deposit in July and August 2021

and will need to pay the remaining balance of $637,000 by August 2022. The deposit balance at September 30, 2021, less draw-downs by the OWA for OWA-performed abandonments, was $809,000 and is reflected in "Other current assets" in the Consolidated Balance Sheet as of September 30, 2021. There is no right of offset between the deposit with the OWA and the Company's ARO liability balance. The Company revised its Manyberries ARO liability based on the OWA’s revised abandonment and reclamation estimates, which resulted in an increase of approximately $213,000 in the current year. The increase in the ARO liability was a result of higher reclamation and remediation costs than anticipated, partially offset by lower abandonment estimates. A remaining excess deposit, if any, would ultimately be refunded to the Company upon completion of all of the work.