PROPERTY AND EQUIPMENT AND ASSET RETIREMENT OBLIGATION

12 Months Ended

Sep. 30, 2012

PROPERTY AND EQUIPMENT AND ASSET RETIREMENT OBLIGATION

PROPERTY AND EQUIPMENT AND ASSET RETIREMENT OBLIGATION

7.PROPERTY AND EQUIPMENT AND ASSET RETIREMENT OBLIGATION

Barnwell’s property and equipment is detailed as follows:

					Accumulated
					Depletion,
	Estimated	Gross			Depreciation,				Net
	Useful	Property and			and				Property and
	Lives	Equipment			Amortization				Equipment
At September 30, 2012:
Land			$	863,000		$	-			$	863,000
Oil and natural gas properties
(full cost accounting)			242,433,000			(198,768,000		)		43,665,000
Drilling rigs and equipment	3 – 10 years		6,752,000			(5,152,000		)		1,600,000
Offices	40 years		2,420,000			(264,000		)		2,156,000
Other property and equipment	3 – 17 years		3,685,000			(3,345,000		)		340,000
Total			$	256,153,000		$	(207,529,000	)		$	48,624,000

					Accumulated
					Depletion,
	Estimated	Gross			Depreciation,				Net
	Useful	Property and			and				Property and
	Lives	Equipment			Amortization				Equipment
At September 30, 2011:
Land			$	863,000		$	-			$	863,000
Oil and natural gas properties (full cost accounting)			224,852,000			(175,715,000		)		49,137,000
Drilling rigs and equipment	3 – 10 years		7,020,000			(4,988,000		)		2,032,000
Offices	40 years		2,420,000			(203,000		)		2,217,000
Other property and equipment	3 – 17 years		3,881,000			(3,511,000		)		370,000
Total			$	239,036,000		$	(184,417,000	)		$	54,619,000

Under the full cost method of accounting, we are required to perform quarterly ceiling test calculations.  Barnwell’s net capitalized costs exceeded the ceiling limitation at September 30, 2012.  As such, Barnwell reduced the carrying value of its oil and natural gas properties by $2,551,000 during the year ended September 30, 2012.  No such reduction was necessary during fiscal 2011.  The reduction is included in the Consolidated Statements of Operations under the caption “Reduction of carrying value of assets.”

Based on the impact of first-day-of-the-month oil, natural gas and natural gas liquids prices during the first quarter of fiscal 2013 on the 12-month average first-day-of-the-month trailing prices used in the calculation of the ceiling limitation, the Company may be required to record a reduction in carrying value of its oil and natural gas properties in its first quarter of fiscal 2013.  The Company is unable to estimate a range of the amount of the potential reduction in carrying value as other variables that potentially impact the ceiling limitation are dependent upon results of activity during the first quarter of fiscal 2013, which is not yet complete as of the date of this filing.

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,
	2012			2011
Asset retirement obligation as of beginning of year	$	4,921,000		$	4,869,000
Obligations incurred on new wells drilled	68,000			123,000
Revision of estimated obligation	320,000			(330,000		)
Accretion expense	363,000			341,000
Payments	(324,000		)	(36,000		)
Foreign currency translation adjustment	281,000			(46,000		)
Asset retirement obligation as of end of year	$	5,629,000		$	4,921,000