U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB


     X      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
    ---     SECURITIES EXCHANGE ACT OF 1934

              For the fiscal year ended September 30, 2002


            TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
    ---     SECURITIES EXCHANGE ACT OF 1934


                          Commission File Number 1-5103

                            BARNWELL INDUSTRIES, INC.
                 (Name of small business issuer in its charter)

        DELAWARE                                                 72-0496921
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

           1100 Alakea Street, Suite 2900, Honolulu, Hawaii 96813-2833
             (Address of principal executive offices)       (Zip code)

                                 (808) 531-8400
                           (Issuer's telephone number)

         Securities registered under Section 12(b) of the Exchange Act:

   Title of each class                 Name of each exchange on which registered
   -------------------                 -----------------------------------------
Common Stock, par value                          American Stock Exchange
     $0.50 per share                             Toronto Stock Exchange

       Securities registered under Section 12(g) of the Exchange Act: None

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.

                              Yes    X       No
                                   -----         -----

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B, and no disclosure will be contained, to the best of registrant's
knowledge,  in  definitive  proxy  or  information  statements  incorporated  by
reference in Part III of this Form 10-KSB or any  amendment to this Form 10-KSB.
[X]

 Issuer's revenues for the fiscal year ended September 30, 2002: $15,880,000

The aggregate market value of the voting stock held by  non-affiliates  (641,197
shares) of the  Registrant  on December 23, 2002,  based on the closing price of
$20.20 on that date on the American Stock Exchange, was $12,952,000.

As of December 23, 2002 there were 1,314,510  shares of common stock,  par value
$0.50, outstanding.

                       Documents Incorporated by Reference
                       -----------------------------------

    1. Proxy  statement to be forwarded to  shareholders on or about January 16,
       2003 is incorporated by reference in Part III hereof.

Transitional Small Business Disclosure Format   Yes         No     X
                                                     -----       -----

<PAGE>


                                TABLE OF CONTENTS

PART I

   Discussion of Forward-Looking Statements
   Item 1.  Description of Business
                 General Development of Business
                 Financial Information about Industry Segments
                 Narrative Description of Business
                 Financial Information about Foreign and
                    Domestic Operations and Export Sales
   Item 2.  Description of Property
             Oil and Natural Gas Operations
                 General
                 Well Drilling Activities
                 Oil and Natural Gas Production
                 Productive Wells
                 Developed Acreage and Undeveloped Acreage
                 Reserves
                 Estimated Future Net Revenues
                 Marketing of Oil and Natural Gas
                 Governmental Regulation
                 Competition
             Contract Drilling Operations
                 Activity
                 Competition
             Land Investment Operations
                 Activity
                 Competition
   Item 3.  Legal Proceedings
   Item 4.  Submission of Matters to a Vote of Security Holders

PART II
   Item 5.  Market For Common Equity and Related Stockholder Matters
   Item 6.  Management's Discussion and Analysis or Plan of Operation
                 Liquidity and Capital Resources
                 Results of Operations
   Item 7.  Financial Statements
   Item 8.  Changes in and Disagreements with Accountants
             on Accounting and Financial Disclosure

PART III

   Item 9.  Directors, Executive Officers, Promoters and Control Persons,
             Compliance With Section 16(a) of the Exchange Act
   Item 10. Executive Compensation
   Item 11. Security Ownership of Certain Beneficial Owners and Management
   Item 12. Certain Relationships and Related Transactions
   Item 13. Exhibits and Reports on Form 8-K
   Item 14. Controls and Procedures

<PAGE>

                                     PART I

Forward-Looking Statements
--------------------------

      This Form 10-KSB,  and the  documents  incorporated  herein by  reference,
contains  forward-looking  statements  within the  meaning of Section 27A of the
Securities Act of 1933, as amended,  and Section 21E of the Securities  Exchange
Act of 1934, as amended,  including various  forecasts,  projections of Barnwell
Industries,  Inc.'s  (referred  to  herein  together  with its  subsidiaries  as
"Barnwell")  future  performance,  statements of Barnwell's plans and objectives
and other  similar types of  information.  Although  Barnwell  believes that its
expectations  are based on  reasonable  assumptions,  it cannot  assure that the
expectations contained in such forward-looking statements will be achieved. Such
statements  involve risks,  uncertainties  and assumptions,  including,  but not
limited to, those relating to the factors  discussed below, in other portions of
this Form 10-KSB,  in the Notes to  Consolidated  Financial  Statements,  and in
other  documents  filed by Barnwell with the Securities and Exchange  Commission
from time to time,  which could cause actual results to differ  materially  from
those contained in such statements.  These forward-looking statements speak only
as of the date of filing of this Form 10-KSB, and Barnwell  expressly  disclaims
any obligation or  undertaking  to publicly  release any updates or revisions to
any forward-looking statements contained herein.

      Barnwell's  oil and natural gas  operations  are  affected by domestic and
international political, legislative, regulatory and legal actions. Such actions
may include changes in the policies of the  Organization of Petroleum  Exporting
Countries or other developments involving or affecting oil-producing  countries,
including  military  conflict,  embargoes,  internal  instability  or actions or
reactions  of the  government  of the  United  States in  anticipation  of or in
response to such developments.  Domestic and international  economic conditions,
such as recessionary trends, inflation,  interest costs, monetary exchange rates
and labor costs,  as well as changes in the  availability  and market  prices of
crude oil,  natural  gas and  petroleum  products,  may also have a  significant
effect on Barnwell's oil and natural gas  operations.  While Barnwell  maintains
reserves for  anticipated  liabilities  and carries various levels of insurance,
Barnwell  could be affected by civil,  criminal,  regulatory  or  administrative
actions,   claims  or  proceedings.   In  addition,   climate  and  weather  can
significantly  affect Barnwell in several of its operations.  Barnwell's oil and
gas  operations  are  also  affected  by  political  developments  and  laws and
regulations,  particularly in the United States and Canada, such as restrictions
on production, restrictions on imports and exports, the maintenance of specified
reserves,  tax increases and retroactive tax claims,  expropriation of property,
cancellation   of   contract   rights,    environmental   protection   controls,
environmental compliance requirements and laws pertaining to workers' health and
safety.  Costs of compliance with environmental laws are ingrained in Barnwell's
expenses and not distinguished from other costs and expenses.

      In  Alberta,  a producer  of oil or natural  gas is  entitled  to a credit
against the royalties  payable to the Crown by virtue of the Alberta Royalty Tax
Credit  program.  The government of Alberta has considered  limiting the Alberta
Royalty Tax Credit on some basis, as yet  undetermined,  to entities that invest
in oil and natural gas in Alberta.  Barnwell  currently does such investing.  In
fiscal  2002,  Barnwell's  Alberta  Royalty  Tax  Credit  totaled  approximately
$317,000.  If the Alberta  Royalty Tax Credit is not continued,  it will have an
adverse effect on Barnwell.

      Barnwell's land investment  business  segment is affected by the condition
of Hawaii's  real estate  market.  The Hawaii real estate  market is affected by
Hawaii's  economy in general and Hawaii's  tourism  industry in particular.  Any
future cash flows from  Barnwell's land  development  activities are subject to,
among other factors,  the level of real estate  activity and prices,  the demand
for new housing and second  homes on the Island of Hawaii,  the rate of increase
in the cost of building  materials and labor,  the introduction of building code
modifications,  changes to zoning laws, and the level of consumer  confidence in
Hawaii's economy.

<PAGE>

      Barnwell's contract drilling operations,  which are located in Hawaii, are
also indirectly  affected by the factors  discussed in the preceding  paragraph.
Barnwell's contract drilling operations are materially  dependent upon levels of
activity in land  development  in Hawaii.  Such activity  levels are affected by
both  short-term  and  long-term  trends in Hawaii's  economy.  In prior  years,
Hawaii's economy has experienced very slow growth, and as events during previous
years have demonstrated,  any prolonged  reduction or lack of growth in Hawaii's
economy will depress the demand for Barnwell's contract drilling services.  Such
a decline could have a material adverse effect on Barnwell's  contract  drilling
revenues and profitability.

Item 1.  Description of Business
         -----------------------
      (a)   General Development of Business
            -------------------------------

      Barnwell  was  incorporated  in  Delaware  in 1956.  During its last three
fiscal  years,  Barnwell  was  engaged in 1) oil and  natural  gas  exploration,
development,  production  and sales  primarily  in Canada  (oil and  natural gas
segment),  2) investment in leasehold land in Hawaii (land investment  segment),
and 3) water  and  exploratory  well  drilling,  contract  labor  servicing  for
geothermal  well drilling and workovers,  and water pumping system  installation
and repair in Hawaii (contract drilling segment).

      Barnwell's  oil and natural gas activities  comprise its largest  business
segment.  Approximately  71% of  Barnwell's  revenues  for the fiscal year ended
September  30, 2002 were  attributable  to its oil and  natural gas  activities.
Barnwell's contract drilling activities accounted for 22% of Barnwell's revenues
in fiscal 2002, land investment activities comprised 1% of fiscal 2002 revenues,
and gas  processing  and other  revenues  comprised 6% of fiscal 2002  revenues.
Approximately 81% of Barnwell's  capital  expenditures for the fiscal year ended
September 30, 2002, were attributable to oil and natural gas activities,  17% to
land investment and 2% to contract drilling and other activities.

      (i)   Oil and Natural Gas Activities.
            -------------------------------

      Barnwell's  wholly-owned  subsidiary,   Barnwell  of  Canada,  Limited, is
involved in the acquisition,  exploration and development of oil and natural gas
properties,   principally  in  Alberta,  Canada.  Barnwell  of  Canada,  Limited
participates in exploratory and developmental operations for oil and natural gas
on  property  in which it has an  interest,  and  evaluates  proposals  by third
parties  with regard to  participation  in such  exploratory  and  developmental
operations elsewhere.  Barnwell's oil and natural gas segment derived 76% of its
oil and natural gas revenues in fiscal 2002 from five  individually  significant
customers,  ProGas Limited, Plains Marketing Ltd., AltaGas Services Inc., Engage
Energy Canada L.P., and Petrogas Marketing Ltd.

      (ii)  Contract  Drilling.
            -------------------

      Barnwell's wholly-owned subsidiary, Water Resources  International,  Inc.,
drills water,  geothermal and  exploratory  wells and installs and repairs water
pumping systems in Hawaii. Water Resources International, Inc. owns and operates
four rotary drill rigs, one rotary  drill/workover  rig, pump  installation  and
service  equipment,  and  maintains  drilling  materials  and pump  inventory in
Hawaii. Water Resources International,  Inc.'s contracts are usually fixed price
per lineal foot drilled or day rate  contracts that are either  negotiated  with
private  entities or are  obtained  through  competitive  bidding  with  various
private  entities or local,  state and  federal  agencies.  Barnwell's  contract
drilling  subsidiary  derived 70%, 49% and 70% of its contract drilling revenues
in fiscal  2002,  2001 and 2000,  respectively,  pursuant to  Federal,  State of
Hawaii and county contracts.

      (iii) Land  Investment.
            -----------------

      Barnwell owns a 77.6%  controlling  interest in Kaupulehu  Developments, a
Hawaii  general  partnership.  Between  1986 and  1989,  Kaupulehu  Developments
obtained the state and county zoning changes necessary to permit  development by
an affiliate of Kajima  Corporation of Japan of the Four Seasons Resort Hualalai
at Historic  Ka'upulehu,  the Hualalai Golf Club, to include two golf courses on
leasehold  land, and single and multiple family  residential  units on leasehold
land  acquired  from  Kaupulehu  Developments  in the North Kona District of the
Island of Hawaii.  Between 1996 and 2001,  Kaupulehu  Developments  obtained the

<PAGE>

state and county zoning  changes  necessary to permit  development of single and
multi-family  residential  units, a golf course and a limited commercial area on
870  leasehold  acres located  adjacent to and north of the Four Seasons  Resort
Hualalai at Historic Ka'upulehu.

      Kaupulehu  Developments  currently owns the leasehold  rights in these 870
acres and leasehold  rights in approximately  1,100 acres of  conservation-zoned
land,  located  adjacent  to  and  contiguous  with  the  870  acres.  Kaupulehu
Developments also owns development rights in residentially  zoned leasehold land
adjacent to and  interspersed  within the Hualalai Golf Club golf course and the
second golf course  currently under  construction.  The  development  rights are
under  option to the  owner of the Four  Seasons  Resort  Hualalai  at  Historic
Ka'upulehu.

      (b)  Financial Information about Industry Segments
           ---------------------------------------------

      Revenues of each industry segment for the fiscal years ended September 30,
2002,  2001  and  2000  are  summarized  as  follows  (all  revenues  were  from
unaffiliated customers with no intersegment sales or transfers):

                            2002                2001                 2000
                     -----------------   ------------------   -----------------
Oil and natural gas  $11,320,000   71%   $19,870,000    82%   $15,270,000   57%
Contract drilling      3,480,000   22%     3,290,000    14%     3,520,000   13%
Land investment          120,000    1%         -         -      6,540,000   25%
Other                    698,000    4%       601,000     3%       891,000    4%
                     -----------  ----   -----------   ----   -----------  ----
Revenues from
  segments            15,618,000   98%    23,761,000    99%    26,221,000   99%
Interest income          262,000    2%       329,000     1%       349,000    1%
                     -----------  ----   -----------   ----   -----------  ----
  Total revenues     $15,880,000  100%   $24,090,000   100%   $26,570,000  100%
                     ===========  ====   ===========   ====   ===========  ====

      For further  discussion see Note 11 (SEGMENT AND  GEOGRAPHIC  INFORMATION)
and Note 13 (CONCENTRATIONS OF CREDIT RISK) of "Notes to Consolidated  Financial
Statements" in Item 7.

      (c)  Narrative Description of Business
           ---------------------------------

      See the  table  above in Item  1(b)  detailing  revenue  of each  industry
segment and  description of each industry  segment of Barnwell's  business under
Item 2.

      As of September 30, 2002, Barnwell employed 49 employees,  46 of which are
on a full-time basis. 23 are employed in contract  drilling  activities,  15 are
employed in oil and natural gas activities,  and 11 are members of the corporate
and administrative staff.

      For further  discussion see  "Governmental  Regulation" and  "Competition"
sections in Item 2 hereof.

      (d)  Financial  Information  about Foreign  and  Domestic  Operations  and
           ---------------------------------------------------------------------
           Export Sales
           ------------

      Revenues  and  long-lived  assets by  geographic  area for the three years
ended  and as of  September  30,  2002,  2001 and 2000 are set  forth in Note 11
(SEGMENT  AND  GEOGRAPHIC  INFORMATION)  of  "Notes  to  Consolidated  Financial
Statements" in Item 7.

Item 2.  Description of Property
         -----------------------

      OIL AND NATURAL GAS OPERATIONS
      ------------------------------

General
-------

      Barnwell's  investments  in oil and  natural  gas  properties  consist  of
investments  in Canada,  principally  in the  Province  of  Alberta,  with minor
holdings in  Saskatchewan  and British  Columbia.  These property  interests are
principally  held  under  governmental  leases or  licenses.  Under the  typical

<PAGE>

Canadian  provincial  governmental  lease,  Barnwell  must  perform  exploratory
operations and comply with certain other conditions.  Lease terms vary with each
province,  but, in general,  the terms grant  Barnwell  the right to remove oil,
natural gas and related substances subject to payment of specified  royalties on
production.

      Barnwell participates in exploratory and developmental  operations for oil
and natural gas on property in which it has an interest. Barnwell also evaluates
proposals  by  third  parties  for   participation  in  other   exploratory  and
developmental  opportunities.  All exploratory and developmental  operations are
overseen by Barnwell's Calgary, Alberta staff along with independent consultants
as  necessary.   In  fiscal  2002,  Barnwell  participated  in  exploratory  and
developmental  operations  in the  Canadian  Provinces  of Alberta  and  British
Columbia,  although Barnwell does not limit its consideration of exploratory and
developmental operations to these areas.

      Barnwell's  producing  natural gas properties  are located  principally in
Alberta. A small number of producing  properties are located in British Columbia
and  Saskatchewan.  The  Province of Alberta  determines  its  royalty  share of
natural gas by using a reference  price that  averages  all natural gas sales in
Alberta.  Royalty rates are  calculated on a sliding scale basis,  increasing as
prices increase.  Additionally,  Barnwell pays gross  overriding  royalties on a
portion of its natural gas sales to other parties.

      In  fiscal  2002,  the  weighted  average  rate of all  royalties  paid to
governments  and  others  on  natural  gas from the  Dunvegan  Unit,  Barnwell's
principal oil and natural gas property,  before the Alberta  Royalty Tax Credit,
was  approximately  28%. The weighted  average rate of royalties  paid on all of
Barnwell's   natural  gas  was   approximately   26%  in  fiscal  2002,   versus
approximately  30% in fiscal 2001. The decrease in the weighted  average royalty
rate was  primarily  due to lower  average  annual gas prices in fiscal 2002, as
compared to fiscal 2001.

      In fiscal  2002,  virtually  all of  Barnwell's  oil  production  was from
properties  located in Alberta.  The Province of Alberta  determines its royalty
share of oil by using a reference  price that averages all oil sales in Alberta.
Royalty  rates are  calculated  on a sliding  scale basis,  increasing as prices
increase.  Additionally,  Barnwell pays gross overriding royalties and leasehold
royalties  on a portion of its oil sales to parties  other than the  Province of
Alberta.  In fiscal 2002 and 2001, the weighted average royalty rate paid on oil
was approximately 25% and 27%, respectively.

      Prices of natural  gas are  typically  higher in the winter  than at other
times due to demand for  heating.  Prices of oil are also  subject  to  seasonal
fluctuations,  but to a lesser  degree.  Unit sales of oil and  natural  gas are
based on the quantity  produced  from the  properties  by the operator  based on
sound petroleum  practices and applicable rules and regulations.  During periods
of low demand for natural gas the operator of the Dunvegan  property can and may
re-inject  natural gas into  underground  storage  facilities  for delivery at a
future date.

Well Drilling Activities
------------------------

      During  fiscal  2002,   Barnwell   participated  in  the  drilling  of  11
development  wells and five  exploratory  wells,  of which  Barnwell  management
believes 12 should be capable of production.  Barnwell also  participated in the
recompletion of six wells. The most significant  drilling  operations took place
in the Progress and Red Earth areas.  New drilling  operations took place in the
Chigwell, Boundary Lake, Wizard Lake and Pollockville areas.

      The  Dunvegan  Unit,  which is  Barnwell's  principal  oil and natural gas
property and is located in Alberta,  Canada, has 109 natural gas wells producing
from 112 well  zones.  Barnwell  holds an 8.9%  interest in the  Dunvegan  Unit;
capital expenditures have decreased substantially this year as no new wells were
drilled  and only four  (0.36 net wells)  recompletions  were  performed.  Total
capital  expenditures  at Dunvegan  were  $325,000 in fiscal 2002 as compared to
$696,000 and $630,000 in fiscal 2001 and 2000, respectively.

<PAGE>

      In fiscal 2002 in the Progress area,  located in Northwest  Alberta,  just
South of the Dunvegan property, Barnwell spent $500,000. Barnwell tied-in to the
natural gas pipelines one gas well drilled in late fiscal 2001 in which Barnwell
has a 50% working interest and is the operator of. Barnwell also drilled two gas
wells (0.75 net wells),  one of which  commenced  production in October 2002 and
the other,  initially  brought  on line in March  2002,  experienced  production
difficulties  and was worked over in September 2002,  which was unsuccessful and
suspended.

      Red  Earth  capital   expenditures   totaled   $787,000   where   Barnwell
participated in drilling one gross (0.50 net) oil well, one water injection well
for use in the Red Earth water flood and one recompletion (0.27 net).

      At Chigwell,  a new area,  Barnwell spent $283,000 and participated in one
gross (0.35 net) gas well that commenced production in March 2002.

      At another new area,  Boundary Lake,  Barnwell's  capital  expenditures in
fiscal  2002  totaled  $241,000  and  participated  in one gross  well (0.25 net
wells),  which was completed in March 2002 as a successful sour oil well. Due to
the  complexities  of producing  sour oil, the well is expected to be tied-in in
December 2002. This well has tested at production rates of 100 gross barrels per
day, 25 gross barrels (19 net barrels) to Barnwell's working interest.

      In September 2002,  Barnwell  drilled two wells,  one gross (0.25 net) oil
well at Wizard  Lake,  Alberta,  on a prospect  generated  internally  and to be
operated  by  Barnwell,  and one  gross  (0.38  net) gas  well at  Pollockville,
Alberta.  Both wells have been cased and are included as successful wells in the
table below.

      Barnwell's  net interest in wells  drilled in 2002 rose to 34.1%,  up from
19.3%  in 2001  and 2000 as  Barnwell  has  endeavored  to take  larger  working
interest  in wells  that it  participates  in and to  internally  generate  more
prospects.

      The following table sets forth more detailed  information  with respect to
the number of exploratory  ("Exp.") and  development  ("Dev.") wells drilled for
the fiscal years ended  September  30, 2002,  2001,  and 2000 in which  Barnwell
participated:

                                           Total
           Productive    Productive     Productive
            Oil Wells     Gas Wells        Wells       Dry Holes    Total Wells
           -----------   -----------    -----------   -----------   ------------
           Exp.   Dev.   Exp.   Dev.    Exp.   Dev.   Exp.   Dev.   Exp.    Dev.
           ----   ----   ----   ----    ----   ----   ----   ----   ----    ----
2002
----
Gross*     3.00   3.00   1.00   5.00    4.00   8.00   1.00   3.00   5.00   11.00
Net*       0.57   1.09   0.25   2.28    0.82   3.37   0.12   1.15   0.94    4.52

2001
----
Gross*      -    11.00   1.00  11.00    1.00  22.00   3.00   4.00   4.00   26.00
Net*        -     1.50   0.20   1.50    0.20   3.00   1.20   1.40   1.40    4.40

2000
----
Gross*     1.00  16.00   5.00  12.00    6.00  28.00   2.00   4.00   8.00   32.00
Net*       0.50   1.60   1.30   2.20    1.80   3.80   0.80   1.30   2.60    5.10

---------------------------------
*  The term "Gross"  refers to the total number of wells in which  Barnwell owns
   an interest,  and "Net" refers to Barnwell's  aggregate interest therein. For
   example, a 50% interest in a well represents 1 gross well, but 0.50 net well.
   The gross  figure  includes  interests  owned of record by  Barnwell  and, in
   addition, the portion owned by others.

Oil and Natural Gas Production
------------------------------

      The following table  summarizes (a) Barnwell's net unit production for the
last three fiscal years,  based on sales of crude oil,  natural gas,  condensate
and other  natural gas liquids,  from all wells in which  Barnwell has or had an
interest, and (b) the average sales prices and average production costs for such

<PAGE>

production  during the same  periods.  Production  amounts  reported  are net of
royalties  and the  Alberta  Royalty  Tax Credit.  Barnwell's  net production in
fiscal 2002,  2001 and  2000 was derived primarily from the Province of Alberta.
All dollar amounts in this table are in U.S. dollars.

                                              Year Ended September 30,
                                      ---------------------------------------
                                        2002           2001           2000
                                      ---------      ---------      ---------
Annual net production:
       Natural gas liquids (BBLS)*       94,000         98,000        104,000
       Oil (BBLS)*                      148,000        174,000        187,000
       Natural gas (MCF)*             3,277,000      3,269,000      3,501,000

Annual average sale price
  per unit of production:
       BBL of liquids**                  $12.46         $22.60         $16.91
       BBL of oil**                      $21.28         $25.44         $26.15
       MCF of natural gas**              $ 2.12         $ 4.02         $ 2.41

Annual average production cost
  per MCFE produced***                   $ 0.66         $ 0.72         $ 0.60

Annual average depletion cost
  per MCFE produced***                   $ 0.71         $ 0.70         $ 0.60

-----------------------
*     When used in this  report,  "MCF" means 1,000 cubic feet of natural gas at
      14.65  pounds  per  square  inch  absolute  and 60  degrees F and the term
      "BBL(S)" means stock tank barrel(s) of oil equivalent to 42 U.S. gallons.
**    Calculated  on  revenues  before  royalty  expense  and royalty tax credit
      divided by gross production.
***   Natural gas liquids, oil and natural gas units were combined by converting
      barrels of natural gas liquids  and oil to an MCF  equivalent  ("MCFE") on
      the basis of 1 BBL = 5.8 MCF.

      The average  production cost per MCFE produced for fiscal 2002 includes an
oil and  natural gas  operating  expense  credit for  overcharges  of  operating
expenses  for fiscal  years 1998  through 2001 from the operator of the Dunvegan
property totaling $470,000. Without this credit, the average production cost per
MCFE produced for fiscal 2002 would have been $0.76.  There were no such credits
in fiscal years 2001 and 2000.

      In fiscal  2002,  approximately  62%,  28% and 10% of  Barnwell's  oil and
natural gas revenues  were from the sale of natural gas, the sale of oil and the
sale of natural gas liquids,  respectively.  In fiscal 2001,  approximately 66%,
23% and 11% of  Barnwell's  oil and natural gas  revenues  were from the sale of
natural gas, the sale of oil and the sale of natural gas liquids, respectively.

       In fiscal 2002, Barnwell's net production after royalties for natural gas
averaged  8,980 MCF per day,  comparable  to 8,950  MCF per day in fiscal  2001.
Gross natural gas production  declined 5% as natural  declines in gas production
at Barnwell's more mature  properties and the watering out of wells at Sunnynook
and Pembina were only partially offset by recent  development and new production
from the Progress and Pollockville  areas.  However,  natural gas production was
relatively unchanged on a net basis due to a decrease in royalties  attributable
to  decreased  natural gas prices.  Dunvegan  contributed  approximately  47% of
Barnwell's net natural gas production in fiscal 2002.

      Barnwell's major oil producing  properties are the Red Earth,  Chauvin and
Manyberries  areas in Canada. In fiscal 2002, net production after royalties for
oil  averaged 400 barrels per day, a decrease of 17% from 480 barrels per day in
fiscal  2001.  This  decrease  was due to natural  declines in  production  from
certain of Barnwell's older oil properties.

<PAGE>

      In fiscal 2002,  net  production  after  royalties  for natural gas liquid
averaged  260  barrels  per day, a decrease  of 4% from 270  barrels  per day in
fiscal 2001.  This decrease was due to declines in production  from the Dunvegan
and Pembina areas.

      In fiscal  2001,  approximately  66%,  23% and 11% of  Barnwell's  oil and
natural gas revenues  were from the sale of natural gas, the sale of oil and the
sale of natural gas liquids, respectively.

      In fiscal 2001,  Barnwell's net production after royalties for natural gas
averaged  8,950 MCF per day, a  decrease  of 6% from 9,560 MCF per day in fiscal
2000.  This decrease was due to higher  royalty  percentage  rates due to higher
prices.  The Province of Alberta takes its royalty share of production  based on
commodity prices with the royalty percentage  increasing as prices increase;  as
natural  gas prices were  significantly  higher in fiscal  2001,  as compared to
fiscal 2000,  more  reserves  were deducted for royalties in fiscal 2001 than in
fiscal 2000.  Production  from newer areas such as Progress  and Pembina  offset
declines  in  production  from  Barnwell's  more  mature  properties.   Dunvegan
contributed approximately 42% of Barnwell's net natural gas production in fiscal
2001.

      In fiscal  2001,  net  production  after  royalties  for oil  averaged 480
barrels per day, a decrease of 6% from 510 barrels per day in fiscal 2000.  This
decrease was due to natural declines in production in the Red Earth area, one of
Barnwell's more mature areas.  Oil production  declines were partially offset by
development drilling at Manyberries and Chauvin.

      In fiscal 2001,  net  production  after  royalties for natural gas liquids
averaged  270  barrels  per day, a decrease  of 4% from 280  barrels  per day in
fiscal 2000.  This decrease was due to higher  royalty  percentage  rates due to
higher prices.

      The  following  table sets  forth the gross and net  number of  productive
wells Barnwell has an interest in as of September 30, 2002.

Productive Wells
----------------

                                 Productive  Wells*
                              ------------------------
                               Gross**        Net**
                              ---------    -----------
Location                      Oil   Gas    Oil    Gas
------------------            ---   ---    ----   ----
Canada
------
  Alberta                     169   435    27.0   45.0
  Saskatchewan                  2    14     0.2    2.4
  British Columbia              -     1       -    0.5
                              ---   ---    ----   ----
Total                         171   450    27.2   47.9
                              ===   ===    ====   ====

-----------------------------
*     Seventy-two gross natural gas wells have dual or multiple  completions and
      six gross oil wells have dual completions.
**    Please see note (2) on the following table.

<PAGE>

Developed Acreage and Undeveloped Acreage
-----------------------------------------

      The following table sets forth certain information with respect to oil and
natural gas properties of Barnwell as of September 30, 2002:
<TABLE>
<CAPTION>

                                                                    Developed and
                            Developed           Undeveloped          Undeveloped
                            Acreage(1)           Acreage(1)           Acreage(1)
                        -----------------    -----------------    ------------------
Location                Gross(2)    Net(2)   Gross(2)    Net(2)    Gross(2)    Net(2)
-------------------     -------    ------    -------    ------    --------    ------
Canada
------
<S>                     <C>        <C>       <C>        <C>        <C>        <C>
  Alberta               251,719    31,335    133,026    36,896     384,745    68,231
  British Columbia        1,350       455      4,804     1,753       6,154     2,208
  Saskatchewan            3,696       543        200        11       3,896       554
                        -------    ------    -------    ------    --------    ------
Total                   256,765    32,333    138,030    38,660     394,795    70,993
                        =======    ======    =======    ======    ========    ======
<FN>
------------------------------
(1) "Developed  Acreage"  includes the acres  covered by leases upon which there
    are  one or more  producing  wells.  "Undeveloped  Acreage"  includes  acres
    covered by leases  upon  which  there are no  producing  wells and which are
    maintained in effect by the payment of delay rentals or the  commencement of
    drilling thereon.

(2) "Gross" also refers to the total number of acres in which  Barnwell  owns an
    interest,  and "Net" refers to Barnwell's  aggregate  interest therein.  For
    example,  a 50% interest in a 320 acre lease  represents 320 Gross Acres and
    160 Net Acres.  The gross acreage figures include  interests owned of record
    by Barnwell and, in addition, the portion owned by others.
</FN>
</TABLE>

      Barnwell's  leasehold interests in its undeveloped acreage expire over the
next five fiscal years, if not developed,  as follows:  38% expire during fiscal
2003;  11% expire during fiscal 2004;  16% expire during fiscal 2005; 15% expire
during fiscal 2006 and 20% expire during fiscal 2007.  There can be no assurance
that Barnwell  will be  successful  in renewing its  leasehold  interests in the
event of expiration.

      Barnwell's  undeveloped acreage includes major  concentrations in Alberta,
at Thornbury  (5,723 net acres),  Foley Lake (5,600 net acres),  Gere (3,706 net
acres) and Red Earth (2,516 net acres).

Reserves
--------

      The amounts set forth in the table below,  prepared by Paddock Lindstrom &
Associates  Ltd.,  Barnwell's  independent  reservoir  engineering  consultants,
summarize the estimated net quantities of proved  developed  producing  reserves
and proved developed reserves of crude oil (including condensate and natural gas
liquids)  and  natural  gas as of  September  30,  2002,  2001  and  2000 on all
properties  in  which  Barnwell  has an  interest.  These  reserves  are  before
deductions for indebtedness  secured by the properties and are based on constant
dollars.  No estimates of total proved net oil or natural gas reserves have been
filed with or  included  in reports to any  federal  authority  or agency  since
October 1, 1980.

<PAGE>

Proved Producing Reserves
-------------------------

                                               September 30,
                                  ---------------------------------------
                                     2002          2001          2000
                                  -----------   -----------   -----------
Oil - barrels (BBLS)
   (including condensate and
   natural gas liquids)             1,303,000     1,327,000     1,508,000
Natural gas - thousand
   cubic feet (MCF)                19,612,000    21,847,000    20,594,000


Total Proved Reserves
  (Includes Proved Producing Reserves)
--------------------------------------
                                               September 30,
                                  ---------------------------------------
                                     2002          2001           2000
                                  -----------   -----------   -----------
Oil - barrels (BBLS)
   (including condensate and
   natural gas liquids)             1,527,000     1,536,000     1,781,000
Natural gas - thousand
   cubic feet (MCF)                27,166,000    28,371,000    29,796,000

      As of September 30, 2002,  essentially all of Barnwell's  proved producing
and total proved  reserves  were located in the Province of Alberta,  with minor
volumes located in the Provinces of Saskatchewan and British Columbia.

      During fiscal 2002, Barnwell's total net proved reserves, including proved
producing  reserves,  of oil,  condensate  and natural gas liquids  decreased by
9,000  barrels,  and total net proved  reserves  of  natural  gas  decreased  by
1,205,000 MCF. The change in oil,  condensate  and natural gas liquids  reserves
was the net  result  of  production  during  the year of  242,000  barrels,  the
addition of 49,000  barrels  from the  drilling  of  productive  wells,  and the
independent   engineer's  184,000  barrel  upward  revision  of  Barnwell's  oil
reserves.  Barnwell's  proved natural gas reserves  decreased as a net result of
production  during the year of 3,277,000 MCF, the addition of 1,087,000 MCF from
the drilling of productive  natural gas wells,  and the  independent  engineer's
985,000 MCF upward revision of Barnwell's natural gas reserves.

      Barnwell's   working   interest  in  the  Dunvegan   area   accounted  for
approximately 66% and 65%, of its total proved natural gas reserves at September
30, 2002 and 2001,  respectively,  and approximately 41% and 45% of total proved
oil and condensate reserves at September 30, 2002 and 2001, respectively.

      The following table sets forth  Barnwell's oil and natural gas reserves at
September 30, 2002, by property name,  based on information  prepared by Paddock
Lindstrom  &  Associates  Ltd.  Gross  reserves  are  before  the  deduction  of
royalties;  net reserves are after the deduction of royalties net of the Alberta
Royalty  Tax  Credit.  This table is based on  constant  dollars  where  reserve
estimates are based on sales prices,  costs and statutory tax rates in existence
at the date of the projection. Oil, which includes natural gas liquids, is shown
in thousands of barrels  ("MBBLS") and natural gas is shown in millions of cubic
feet ("MMCF").

<PAGE>
<TABLE>
<CAPTION>

                 OIL AND NATURAL GAS RESERVES AT SEPTEMBER 30, 2002

                              Total Proved Producing           Total Proved
                            --------------------------- ---------------------------
                             Oil & NGL's       Gas       Oil & NGL's       Gas
                            ------------- ------------- ------------- -------------
                              Gross  Net    Gross  Net    Gross  Net    Gross  Net
Property Name                  (MBBLS)       (MMCF)        (MBBLS)       (MMCF)
                            ------------- ------------- ------------- -------------
<S>                          <C>    <C>   <C>    <C>     <C>    <C>   <C>    <C>
Dunvegan                       665    489 16,702 13,494    854    624 22,037 17,965
Red Earth                      527    461     50     43    550    479     60     52
Pouce Coupe                     36     30  1,367  1,035     36     30  1,367  1,035
Thornbury                        -      -  1,244  1,029      -      -  1,491  1,240
Hillsdown                       22     16    957    766     41     31  1,122    901
Sunnynook                        -      -     17     13      -      -     17     13
Medicine River                  57     42  1,008    656     65     48  1,117    730
Barrhead                         -      -    348    305      -      -    348    305
Belloy                           -      -    160    121      -      -    272    211
Charlotte Lake                  26     23    403    367     26     23    803    717
Chauvin                        164    143     19     15    178    153     20     16
Clive                            -      -     17     16      -      -     17     16
Coyote                           -      -     17     17      -      -     17     17
Drumheller                       -      -     99     80      -      -     99     80
Faith                            -      -      -      -      -      -  1,011    772
Gilby                            4      3     67     56      4      3     67     56
Highvale                         3      3     51     47      3      3     51     47
Hilda                            -      -     43     40      -      -     43     40
Leduc                            -      -      -      -      -      -    204    166
Malmo                            -      -     61     51      -      -     61     51
Manyberries                     28     25      4      3     28     25      4      3
Mikwan                           -      -     29     26      -      -     29     26
Mitsue                           -      -     40     35      -      -     40     35
Pembina                         26     21    299    242     26     21    299    242
Pollockville                     -      -    221    165      -      -    340    245
Progress                         7      4    864    598     13      8  1,445  1,068
Staplehurst                     13     12      -      -     17     16      -      -
Tomahawk                         -      -      -      -     18     15    442    335
Wood River                       9      8    168    139      9      8    168    139
Zama                            25     20    149     97     26     21    600    392
Boundary Lake,
   British Columbia              -      -      -      -     19     16    109     95
Hatton, Saskatchewan             -      -    218    156      -      -    218    156
Webb-Beverley, Saskatchewan      3      3      -      -      3      3      -      -
                            ------ ------ ------ ------ ------ ------ -----  ------
TOTAL                        1,615  1,303 24,622 19,612  1,916  1,527 33,918 27,166
                            ====== ====== ====== ====== ====== ====== ====== ======
<FN>

             Properties are located in Alberta, Canada unless otherwise noted.
</FN>
</TABLE>

<PAGE>

Estimated Future Net Revenues
-----------------------------

      The following table sets forth Barnwell's  "Estimated Future Net Revenues"
from total proved oil, natural gas and condensate reserves and the present value
of Barnwell's  "Estimated  Future Net Revenues"  (discounted at 10%).  Estimated
future net revenues for total proved  reserves are net of estimated  development
costs.  Net revenues have been calculated  using current sales prices and costs,
after deducting all royalties net of the Alberta  Royalty Tax Credit,  operating
costs, future estimated capital expenditures, and income taxes.

                                      Proved Producing      Total Proved
                                          Reserves            Reserves
                                      ----------------      ------------
Year ending September 30,

                   2003                  $ 6,340,000        $ 6,210,000
                   2004                    5,918,000          6,835,000
                   2005                    4,916,000          5,747,000
                   Thereafter             24,925,000         33,414,000
                                         -----------        -----------
                                         $42,099,000        $52,206,000
                                         ===========        ===========

Present value (discounted at 10%)
  at September 30, 2002                  $26,303,000        $32,619,000
                                         ===========        ===========

Marketing of Oil and Natural Gas
--------------------------------

      Barnwell  sells  substantially  all of its oil and  condensate  production
under short-term contracts between itself and marketers of oil. The price of oil
is freely negotiated between the buyers and sellers.

      Natural gas sold by Barnwell is generally  sold under both  long-term  and
short-term  contracts with prices indexed to market prices. The price of natural
gas and natural gas liquids is freely negotiated between buyers and sellers.  In
2002, 2001 and 2000,  Barnwell took virtually all of its oil and natural gas "in
kind" where  Barnwell  markets the products  instead of having the operator of a
producing property market the products on Barnwell's behalf.

      In  fiscal  2002,  natural  gas  production  from  the  Dunvegan  Unit was
responsible for approximately 45% of Barnwell's natural gas revenues as compared
to  40%  in  fiscal  2001.  In  fiscal  2002,  Barnwell  had  five  individually
significant  customers  that accounted for 76% of Barnwell's oil and natural gas
revenues.  A substantial  portion of Barnwell's  Dunvegan natural gas production
and natural gas  production  from other  properties is sold to  aggregators  and
marketers under various  short-term and long-term  contracts,  with the price of
natural gas determined by  negotiations  between the  aggregators  and the final
purchasers.  In fiscal  2002,  Barnwell  continued  to  increase  the volumes of
natural gas sold into spot markets,  reaching  approximately  43% of natural gas
volumes,  to take advantage of new pipeline access to premium markets and higher
prices.

Governmental Regulation
-----------------------

      The  jurisdictions in which the oil and natural gas properties of Barnwell
are located have regulatory  provisions  relating to permits for the drilling of
wells,  the  spacing of wells,  the  prevention  of oil and  natural  gas waste,
allowable  rates of production and other matters.  The amount of oil and natural
gas produced is subject to control by  regulatory  agencies in each province and
state that  periodically  assign allowable rates of production.  The Province of
Alberta and Government of Canada also monitor and regulate the volume of natural
gas that may be removed from the province and the conditions of removal.

      There is no current government regulation of the price that may be charged
on the sale of Canadian  oil or natural  gas  production.  Canadian  natural gas
production  destined  for  export is priced by market  forces  subject to export

<PAGE>

contracts meeting certain criteria  prescribed by Canada's National Energy Board
and the Government of Canada.

      The right to  explore  for and  develop  oil and  natural  gas on lands in
Alberta,  Saskatchewan  and British Columbia is controlled by the governments of
each of those  provinces.  Changes in  royalties  and other terms of  provincial
leases,  permits and  reservations  may have a substantial  effect on Barnwell's
operations.  In addition to the foregoing,  in the future,  Barnwell's  Canadian
operations may be affected from time to time by political developments in Canada
and by Canadian  Federal,  provincial  and local laws and  regulations,  such as
restrictions  on  production  and export,  oil and natural  gas  allocation  and
rationing,   price   controls,   tax  increases,   expropriation   of  property,
modification or cancellation of contract rights,  and  environmental  protection
controls.  Furthermore,  operations may also be affected by United States import
fees and restrictions.

      Different  royalty rates are imposed by the  provincial  governments,  the
Government of Canada and private  interests  with respect to the  production and
sale of crude oil, natural gas and liquids. In addition,  provincial governments
receive  additional  revenue  through the  imposition  of taxes on crude oil and
natural  gas  owned by  private  interests  within  the  province.  Essentially,
provincial  royalties  are  calculated  as a  percentage  of  revenue,  and vary
depending on production volumes, selling prices and the date of discovery.

      Canadian taxpayers are not permitted to deduct royalties,  taxes,  rentals
and similar  levies paid to the Federal or provincial  governments in connection
with oil and natural gas production in computing income for purposes of Canadian
Federal income tax. However,  they are allowed to deduct a "Resource  Allowance"
which is 25% of the taxpayer's "Resource Profits for the Year" (essentially, net
income from the production of oil,  natural gas or minerals) in computing  their
taxable income.

      In  Alberta,  a producer  of oil or natural  gas is  entitled  to a credit
against the royalties  payable to the Crown by virtue of the Alberta Royalty Tax
Credit   program.   The   Alberta   Royalty  Tax  Credit  rate  is  based  on  a
price-sensitive  formula  and varies  between  75% at prices  below a  specified
royalty tax credit reference price decreasing to 25% at prices above a specified
royalty  tax credit  reference  price.  The  Alberta  Royalty Tax Credit will be
applied to a maximum  annual  amount of $2,000,000  Canadian  dollars of Alberta
Crown  royalties  payable for each  producer or  associated  group of producers.
Crown   royalties  on  production  from  producing   properties   acquired  from
corporations  claiming  maximum  entitlements to Alberta Royalty Tax Credit will
generally  not  be  eligible  for  Alberta  Royalty  Tax  Credit.  The  rate  is
established  quarterly based on the average royalty tax credit  reference price,
as  determined  by the  Alberta  Department  of Energy.  The  royalty tax credit
reference price is based on a weighted average oil and gas price.

      The Province of Alberta has stated that changes in the Alberta Royalty Tax
Credit will be announced  three years in advance.  The government of Alberta has
considered  limiting  the  Alberta  Royalty  Tax  Credit on some  basis,  as yet
undetermined,  to  entities  that  invest  in oil and  natural  gas in  Alberta.
Barnwell  currently does such investing.  The Alberta Royalty Tax Credit program
has been in effect in various forms since 1974 and Barnwell  anticipates that it
will be  continued  in some form for the  foreseeable  future.  In fiscal  2002,
Barnwell's  Alberta Royalty Tax Credit totaled  approximately  $317,000.  If the
Alberta  Royalty Tax Credit is not continued,  it will have an adverse effect on
Barnwell.

Competition
-----------

      The  majority  of  Barnwell's  natural  gas sales take  place in  Alberta,
Canada. Natural gas prices in Alberta are generally competitive with other major
North American areas due to increased  pipeline capacity into the United States.
Barnwell's  oil and  natural  gas  liquids  are  sold  in  Alberta  with  prices
determined by the world price for oil.

      Barnwell  competes  in the  sale of oil and  natural  gas on the  basis of
price, and on the ability to deliver products.  The oil and natural gas industry

<PAGE>

is  intensely  competitive  in all phases,  including  the  exploration  for new
production and reserves and the  acquisition of equipment and labor necessary to
conduct  drilling  activities.  The  competition  comes from numerous  major oil
companies  as  well as  numerous  other  independent  operators.  There  is also
competition  between the oil and natural gas  industry and other  industries  in
supplying  the  energy  and fuel  requirements  of  industrial,  commercial  and
individual  consumers.  Barnwell  is a minor  participant  in the  industry  and
competes in its oil and natural gas activities with many other companies  having
far greater financial and other resources.

      CONTRACT DRILLING OPERATIONS
      ----------------------------

      Barnwell owns 100% of Water  Resources  International,  Inc.  which drills
water and  exploratory  wells and installs and repairs water pumping  systems in
Hawaii.   Water   Resources   International,   Inc.   owns  and  operates   four
Spencer-Harris  portable  rotary  drill rigs ranging in drilling  capacity  from
3,500  feet to  7,000  feet,  and one  IDECO  H-35  rotary  drill/workover  rig.
Additionally, Water Resources International, Inc. owns a two acre parcel of real
estate in an industrial  park 11 miles south of Hilo,  Hawaii.  Water  Resources
International,  Inc. also leases a three-quarter of an acre maintenance facility
in Honolulu and a one acre  maintenance  and storage  facility with 2,800 square
feet of interior  space in  Kawaihae,  Hawaii,  and  maintains  an  inventory of
drilling  and  pump  supplies.   As  of  September  30,  2002,  Water  Resources
International,  Inc. employed 23 drilling,  pump and  administrative  employees,
none of whom are union members.

      Water  Resources   International,   Inc.  drills  water,   geothermal  and
exploratory  wells of varying depths in Hawaii.  Water Resources  International,
Inc.  also  installs  and  repairs  water  pumps  and is the  State of  Hawaii's
distributor  for Floway  pumps and  equipment.  The  demand for Water  Resources
International,  Inc.'s  services is primarily  dependent  upon land  development
activities in Hawaii. Water Resources  International,  Inc. markets its services
to land developers and government  agencies,  and identifies potential contracts
through public notices,  its officers'  involvement in community  activities and
referrals.  Contracts  are  usually  fixed  price  per  lineal  foot or day rate
contracts  and  are  negotiated  with  private   entities  or  obtained  through
competitive  bidding  with  private  entities or with  local,  state and Federal
agencies.  Contract  revenues  are not  dependent  upon the  discovery of water,
geothermal  production zones or other,  similar  targets,  and contracts are not
subject to  renegotiation  of  profits or  termination  at the  election  of the
governmental  entities involved.  Contracts provide for arbitration in the event
of disputes.

      Barnwell's  contract drilling  subsidiary  derived 70%, 49% and 70% of its
contract drilling revenues in fiscal 2002, 2001 and 2000, respectively, pursuant
to  Federal,  State of Hawaii and  county  contracts.  At  September  30,  2002,
Barnwell had accounts  receivable  from the State of Hawaii and county  entities
totaling  approximately  $736,000.  Barnwell has lien rights on  contracts  with
Federal, State of Hawaii, county and private entities.

      Barnwell's  contract drilling segment currently  operates in Hawaii and is
not subject to seasonal fluctuations.

Activity
--------

      In fiscal 2002,  Water Resources  International,  Inc.  started three well
drilling contracts and three pump installation  contracts and completed six well
drilling  contracts  and  three  pump  installation  contracts.  Five of the six
completed  well  contracts and two of the three  completed  pump  contracts were
started in the prior year.  Eighty-one  percent  (81%) of well drilling and pump
installation  jobs,  representing  70% of total  contract  drilling  revenues in
fiscal 2002, have been pursuant to government contracts.

      At September 30, 2002, Water Resources  International,  Inc. had a backlog
of six well drilling  contracts and six pump  installation and repair contracts,
two and four of which, respectively, were in progress as of September 30, 2002.

<PAGE>

      The dollar  amount of  Barnwell's  backlog of firm well  drilling and pump
installation and repair contracts at November 30, 2002 and 2001 is as follows:

                                            2002             2001
                                         ----------       ----------
      Well drilling                      $1,700,000       $1,400,000
      Pump installation and repair          100,000          300,000
                                         ----------       ----------
                                         $1,800,000       $1,700,000
                                         ----------       ----------

      All of the  contracts  in backlog at November  30, 2002 are expected to be
completed within fiscal year 2003.

Competition
-----------

      Water  Resources  International,  Inc.  utilizes  rotary  drill  rigs  and
competes with other  drilling  contractors  in Hawaii which use cable tool rigs,
which  require less labor to operate but generally  drill  slower,  rotary drill
rigs similar to Water Resources International, Inc.'s drilling rigs and top head
rotary  drilling  rigs that drill as quickly as Water  Resources  International,
Inc.'s equipment but require less labor.  These  competitors are also capable of
installing and repairing  vertical turbine and submersible water pumping systems
in  Hawaii.   These   contractors   compete   actively   with  Water   Resources
International,  Inc. for government and private contracts. Pricing is Barnwell's
major  method of  competition;  reliability  of  service  is also a  significant
factor.

      The  number  of  available  water  well  drilling  jobs  has  not  changed
significantly from the prior year. Barnwell expects competitive pressures within
the industry to remain high as demand for well drilling and pump installation in
Hawaii is not expected to increase in fiscal year 2003 and may decrease.

      LAND INVESTMENT OPERATIONS
      --------------------------

      Barnwell owns a 77.6% controlling  interest in Kaupulehu  Developments,  a
Hawaii  general  partnership.  Between  1986 and  1989,  Kaupulehu  Developments
obtained the state and county zoning changes necessary to permit  development of
the Four Seasons Resort Hualalai at Historic  Ka'upulehu and Hualalai Golf Club,
which  opened in 1996,  a second golf  course,  and single and  multiple  family
residential  units on land acquired  from  Kaupulehu  Developments  by Kaupulehu
Makai  Venture,   an  affiliate  of  Kajima   Corporation   of  Japan,   located
approximately  six miles  north of the Kona  International  Airport in the North
Kona District of the Island of Hawaii.

Activity
--------

      The leasehold  land  interests  held  by  Kaupulehu  Developments  are for
approximately  870 acres of land zoned for  resort/residential  development  and
approximately 1,000 acres of land zoned conservation.  These approximately 1,870
acres are located  adjacent to and north of the Four Seasons Resort  Hualalai at
Historic Ka'upulehu,  between the Queen Kaahumanu Highway and the Pacific Ocean.
Kaupulehu Developments is negotiating with an independent third party interested
in developing the approximately 870 acres of resort/residential  leasehold land,
of  which  approximately  186  acres  were  designated  by the  State  Land  Use
Commission as preservation areas with no residential or golf course development,
and continues to make  significant  progress  negotiating a revised  development
agreement and residential fee simple purchase prices with the lessor. Management
cannot predict the outcome of these negotiations.

      Kaupulehu  Developments also holds  developments  rights for residentially
zoned  leasehold land within and adjacent to the Hualalai Golf Club. In November
2001,   Kaupulehu   Developments   and  Kaupulehu  Makai  Venture  agreed  to  a
restructuring  of  Kaupulehu  Makai  Venture's  option  to  purchase   Kaupulehu
Developments'  residential  development rights, thereby enabling Kaupulehu Makai
Venture to develop residential units on the applicable acreage.  Under the terms
of the new agreement,  Kaupulehu Developments transferred its leasehold interest
in  approximately  230 of its  approximately  1,100 acres of  resort/residential

<PAGE>

zoned land to  Kaupulehu  Makai  Venture and the amount of  residential  acreage
under the option was increased to  approximately  130 acres. The total amount of
the option  proceeds,  if fully  exercised,  remained  unchanged at $25,500,000,
however the timing of the option  payments  were  restructured  as follows:  two
payments of  $2,125,000;  one was paid  December  31, 2001 and the second is due
December 31, 2002;  and eight payments of $2,656,250 are due on each December 31
of years  2003 to 2010.  If any  annual  option  payment  is not made,  the then
remaining  development right options will expire. There is no assurance that any
portion of the remaining options will be exercised.

      On December 31, 2001, Kaupulehu Makai Venture exercised the portion of its
development  rights  option  due on that  date and paid  Kaupulehu  Developments
$2,125,000,  reducing  the  acreage  under  option to  approximately  120 acres.
Barnwell  accounts  for sales of  development  rights under option by use of the
cost recovery  method.  Under the cost recovery  method,  no operating profit is
recognized  until cash received  exceeds the cost and the estimated future costs
related to development rights sold. Accordingly, in consolidation, approximately
$1,877,000 of the proceeds from the sales of development  rights were applied to
reduce the carrying value of the  underlying  investment in land in fiscal 2002.
Additionally,  sales of development  rights were further  reduced by $128,000 of
fees paid to Nearco, Inc. (an entity controlled by Mr. Johnston, a member of the
Board of Directors of Barnwell)  related to the sale. The remaining  $120,000 of
sales proceeds is recorded in the Consolidated Statements of Operations as "Sale
of development rights, net."

      Barnwell  did not  receive  any  revenues  in fiscal  2001  related to its
interest in Kaupulehu  Developments.  In fiscal 2000,  Kaupulehu  Makai  Venture
exercised a portion of the option granted in 1990 by Kaupulehu  Developments for
the  development of residential  parcels within the Four Seasons Resort Hualalai
at Historic Ka'upulehu on the Island of Hawaii.  Barnwell recognized revenues of
$6,540,000,  net of costs associated with the  transaction,  from the receipt of
the option monies.

      On January 31, 2002,  Barnwell  paid the remaining  $2,209,000  due on the
April 2001 purchase of an additional  27.5% interest in Kaupulehu  Developments.
Also, on January 31, 2002, Nearco,  Inc. repaid $100,000 of its notes receivable
to Barnwell and  Barnwell  extended  the due date of the  $1,381,000  balance of
Nearco,  Inc.'s  original  $1,481,000  receivable to December 31, 2002. The note
bears interest at 10%, payable quarterly,  from February 1, 2002, and is secured
by an approximately  22.0% interest in Kaupulehu  Developments and an assignment
of commissions earned by Nearco, Inc. on Kaupulehu  Developments' gross receipts
from the sale of real estate interests.  Barnwell's revised note receivable from
Nearco,  Inc.  is  subordinated  to a $600,000,  10% note due January 31,  2003,
Nearco,  Inc.  made with a third party on January 31, 2002,  to pay a portion of
the remaining monies due on its April 2001 purchase of an additional interest in
Kaupulehu Developments.

      Management  believes  that  Nearco,  Inc.  will  repay its note.  Barnwell
estimates that the current value of Nearco, Inc.'s pledged interest in Kaupulehu
Developments  is  significantly  in excess of the combined  value of its note to
Barnwell and Nearco,  Inc.'s $600,000 note to a third party to which  Barnwell's
note is subordinated.

Competition
-----------

      Barnwell's  land investment  segment is subject to intense  competition in
all phases of its operations  including the acquisition of new  properties,  the
securing of approvals necessary for land rezoning,  and the search for potential
buyers of  property  interests  presently  owned.  The  competition  comes  from
numerous independent land development companies and other industries involved in
land  investment  activities.  The  principal  methods  of  competition  are the
location  of  the  project  and  pricing.  Kaupulehu  Developments  is  a  minor
participant in the land development industry and competes in its land investment
activities  with many other  entities  having far  greater  financial  and other
resources.

      For the past several years,  Hawaii's economy has experienced little or no
growth and the real estate market has been slow. However, the South Kohala/North
Kona area of the island of  Hawaii,  the area in which  Kaupulehu  Developments'
property is located,  has experienced  strong demand in recent years. This trend

<PAGE>

continued  through fiscal 2002 and is not expected to decline  significantly  in
the near  term,  although  there can be no  assurance  this  trend  will in fact
continue.

Item 3.  Legal Proceedings
         -----------------

      Barnwell is occasionally  involved in routine litigation and is subject to
governmental  and  regulatory  controls  that are  incidental  to the  business.
Barnwell's  management  believes that routine  claims and  litigation  involving
Barnwell  are not  likely to have a  material  adverse  effect on its  financial
position, results of operations or liquidity.

Item 4.  Submission of Matters to a Vote of Security Holders
         ---------------------------------------------------

      None.

                                     PART II

Item 5.  Market For Common Equity and Related Stockholder Matters
         --------------------------------------------------------

      The principal market on which  Barnwell's  common stock is being traded is
the American Stock Exchange. The following tables present the quarterly high and
low sales prices,  on the American Stock Exchange,  for Barnwell's  common stock
during the periods indicated:

Quarter Ended           High     Low    Quarter Ended          High     Low
-------------------    ------   ------  ------------------    ------   ------
December 31, 2000      $21.00   $16.88  December 31, 2001     $20.75   $17.90
March 31, 2001          20.94    17.85  March 31, 2002         20.60    19.75
June 30, 2001           22.20    18.30  June 30, 2002          20.75    20.00
September 30, 2001      20.00    18.50  September 30, 2002     20.05    19.40


      As of December 2, 2002,  there were 1,314,510  shares of common stock, par
value $0.50,  outstanding.  There were  approximately  400 holders of the common
stock of the registrant as of December 2, 2002.

      In August 2000,  Barnwell  declared a dividend of $0.10 per share  payable
September 18, 2000, to stockholders of record September 1, 2000.

      In December 2000,  Barnwell declared a dividend of $0.15 per share payable
January 3, 2001, to stockholders of record December 12, 2000.

      In March 2001,  Barnwell  declared a dividend  of $0.20 per share  payable
March 30, 2001, to stockholders of record March 16, 2001.

      In September 2001, Barnwell declared a dividend of $0.15 per share payable
October 17, 2001, to stockholders of record October 2, 2001.

      In November 2001,  Barnwell declared a dividend of $0.15 per share payable
January 2, 2002, to stockholders of record December 17, 2001.

<PAGE>

Item 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
            ---------------------------------------------------------

      The following discussion is intended to assist in the understanding of the
consolidated  balance  sheets of  Barnwell  Industries,  Inc.  and  subsidiaries
(collectively  referred to herein as  "Barnwell")  as of September  30, 2002 and
2001,  and the related  consolidated  statements  of  operations,  stockholders'
equity and comprehensive  income (loss), and cash flows for each of the years in
the three-year  period ended September 30, 2002. This discussion  should be read
in conjunction with the Consolidated  Financial  Statements and related Notes To
Consolidated Financial Statements included in this report.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
-----------------------------------------------------------

      The  preparation  of financial  statements in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the reported amounts of
assets,  liabilities,  revenues and expenses and the  disclosure  of  contingent
assets and  liabilities.  Actual results could differ  significantly  from those
estimates.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
------------------------------------------

      In  response  to U.S.  Securities  and  Exchange  Commission  Release  No.
33-8040,  "Cautionary  Advice  Regarding  Disclosure  About Critical  Accounting
Policies,"  Barnwell  has  identified  certain  of  its  policies  as  being  of
particular importance to the understanding of its financial position and results
of  operations  and which require the  application  of  significant  judgment by
management.

Oil and natural gas properties
------------------------------

      Barnwell  uses the full cost  method of  accounting  under which all costs
incurred in the acquisition,  exploration and development of oil and natural gas
reserves,  including  unsuccessful wells, are capitalized until such time as the
aggregate of such costs,  on a country by country  basis,  equals the discounted
present  value (at 10%) of  Barnwell's  estimated  future  net cash  flows  from
estimated  production of proved oil and natural gas  reserves,  as determined by
independent   petroleum   engineers,   less  related  income  tax  effects.  Any
capitalized  costs,  net of oil and gas related deferred income taxes, in excess
of the  discounted  present value of proved  properties and the lower of cost or
estimated fair value of unproved properties are charged to expense. Depletion of
all such costs, except costs related to major development  projects, is provided
by the unit-of-production  method based upon proved oil and natural gas reserves
of  all  properties  on  a  country  by  country  basis.  Investments  in  major
development  projects  are  not  amortized  until  either  proved  reserves  are
associated with the projects or impairment has been determined. At September 30,
2002,  Barnwell  had no  investments  in major oil and natural  gas  development
projects that were not being amortized. General and administrative costs related
to oil and natural gas  operations  are expensed as incurred.  Estimated  future
site  restoration and  abandonment  costs are charged to earnings at the rate of
depletion  and  are  included  in   accumulated   depreciation,   depletion  and
amortization.  Proceeds from the  disposition of minor producing oil and natural
gas properties are credited to the cost of oil and natural gas properties. Gains
or losses are recognized on the  disposition of significant  oil and natural gas
properties.

Investment in land and revenue recognition
------------------------------------------

      Barnwell's  investment in land is comprised of interests in leasehold land
under development and development rights under option.

      Investment in leasehold land under development is evaluated for impairment
whenever  events  or  changes  in  circumstances   indicate  that  the  recorded
investment balance may not be fully recoverable.

      Development  rights  under  option are  reported at the lower of the asset
carrying value or fair value,  less costs to sell.  Sales of development  rights
under option are accounted for under the cost  recovery  method.  Under the cost

<PAGE>

recovery  method,  no operating profit is recognized until cash received exceeds
the cost and the estimated future costs related to the development rights sold.

Contract drilling
-----------------

      Revenues,  costs and profits applicable to contract drilling contracts are
included in the  consolidated  statements of operations  using the percentage of
completion  method,  principally  measured by the  percentage  of labor  dollars
incurred to date for each  contract to total  estimated  labor  dollars for each
contract.  Contract  losses are  recognized in full in the period the losses are
identified.  The performance of drilling contracts may extend over more than one
year and, in the interim periods,  estimates of total contract costs and profits
are used to determine  revenues and profits  earned for reporting the results of
the  contract  drilling  operations.  Revisions  in the  estimates  required  by
subsequent   performance   and  final  contract   settlements  are  included  as
adjustments  to the  results of  operations  in the period  such  revisions  and
settlements occur. Contracts are normally less than one year in duration.

Income taxes
------------

      Deferred income taxes are determined using the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated  future tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases.  Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those  temporary  differences are expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment date.

      A valuation  allowance  is  provided  when it is more likely than not that
some portion or all of the deferred tax asset will not be realized. Barnwell has
established a valuation  allowance primarily for the U.S. tax effect of deferred
Canadian taxes,  foreign tax credits,  accrued  expenses and state of Hawaii net
operating  loss  carryforwards  which may not be  realizable  in future years as
there can be no assurance  of any specific  level of earnings or that the timing
of U.S.  earnings  will  coincide  with the payment of Canadian  taxes to enable
Canadian taxes to be fully deducted (or recoverable) for U.S. tax purposes.

      At September  30, 2002,  net deferred tax assets of  $1,910,000  consisted
primarily of $1,263,000 of deferred tax assets related to the excess of the cost
basis of  investment  in land for tax purposes over the cost basis of investment
in land for book purposes.  This deferred tax asset will be realized through the
deduction  of the cost  basis of  investment  in land for tax  purposes  against
future proceeds from sales of interests in leasehold land under  development and
development  rights  under  option.  The  amount of  deferred  income tax assets
considered  realizable  may be reduced if estimates of future taxable income are
reduced.

Pension Plan
------------

      Barnwell sponsors a noncontributory  defined benefit pension plan covering
substantially all of its U.S. employees, with benefits based on years of service
and the employee's  highest  consecutive  five-year average  earnings.  Barnwell
accounts for its defined  benefit  pension plan in accordance  with Statement of
Financial  Accounting  Standards No. 87,  "Employers'  Accounting for Pensions,"
which requires that amounts recognized in financial  statements be determined on
an actuarial basis.  Statement of Financial Accounting Standards No. 87 requires
that the effects of the  performance of the pension plan's assets and changes in
pension  liability  discount  rates on Barnwell's  computation of pension income
(expense) be amortized over future periods.  Any variances in the future between
the  assumed  rates  utilized  for  actuarial  purposes  and  the  actual  rates
experienced by the plan may materially affect  Barnwell's  results of operations
or financial condition.

      During and as of the end of fiscal  2002,  Barnwell  assumed  an  expected
long-term  rate of return on plan  assets  of 8%. In fiscal  2002 and 2001,  the

<PAGE>

plan's  actual  rate of  return on plan  assets  fell  below  8%. If this  trend
continues, Barnwell would be required to reconsider its assumed expected rate of
return on plan  assets.  If  Barnwell  were to lower this rate,  future  pension
expense  would  increase.  The  expected  rate  of  future  annual  compensation
increases utilized during and as of the end of fiscal 2002 was 5%.

      At the end of each year,  Barnwell determines the discount rate to be used
to calculate  the present  value of plan  liabilities.  The discount  rate is an
estimate of the current interest rate at which the pension  liabilities could be
effectively  settled at the end of the year. In estimating  this rate,  Barnwell
looks to rates of return on high-quality, fixed-income investments. At September
30, 2002, Barnwell determined this rate to be 6.50%.

      At September 30, 2002,  Barnwell's accrued benefit cost was $244,000.  For
the year ended September 30, 2002,  Barnwell  recognized a net periodic  benefit
cost of $93,000. Barnwell currently estimates that the net periodic benefit cost
will double in fiscal 2003, as compared to fiscal 2002.

CONTRACTUAL OBLIGATIONS
-----------------------

      The  following  table lists the scheduled  maturities  of long-term  debt,
estimating that Barnwell's credit facility with the Royal Bank of Canada will be
renewed on each annual renewal date,  currently April 30, and scheduled  minimum
rental  payments  of  non-cancelable  operating  leases  for  office  space  and
leasehold land:
<TABLE>
<CAPTION>

                                            Payments Due by Fiscal Year
                           -------------------------------------------------------------
Contractual Obligations       2003     2004-2005   2006-2007   After 2007       Total
-----------------------    ---------   ---------   ---------   -----------   -----------
<S>                        <C>         <C>         <C>         <C>           <C>
Long-term debt             $ 360,000   $   -       $   -       $ 9,961,000   $10,321,000
Operating leases             495,000     577,000     248,000     1,326,000     2,646,000
                           ---------   ---------   ---------   -----------   -----------

Total                      $ 855,000   $ 577,000   $ 248,000   $11,287,000   $12,967,000
                           =========   =========   =========   ===========   ===========
</TABLE>

      There is no  assurance  that the bank will in fact  extend the term of the
facility  on each  renewal  date or that the  facility  will be  renewed  at its
current amount. The following table lists the scheduled  maturities of long-term
debt assuming that the facility will not be renewed on the next renewal date and
that Barnwell then elects to convert the revolving  facility to term status, and
scheduled minimum rental payments of non-cancelable  operating leases for office
space and leasehold land:
<TABLE>
<CAPTION>

                                             Payments Due by Fiscal Year
                          -----------------------------------------------------------------
Contractual Obligations      2003       2004-2005     2006-2007   After 2007       Total
-----------------------   ----------   ------------   ---------   -----------   -----------
<S>                       <C>          <C>            <C>         <C>           <C>
Long-term debt            $  858,000   $  9,463,000   $   -       $     -       $10,321,000
Operating leases             495,000        577,000     248,000     1,326,000     2,646,000
                          ----------   ------------   ---------   -----------   -----------

Total                     $1,353,000   $ 10,040,000   $ 248,000   $ 1,326,000   $12,967,000
                          ==========   ============   =========   ===========   ===========
</TABLE>


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

Cash Flows, Debt and Available Credit
-------------------------------------

      Cash flows from operations  were $1,448,000 in fiscal 2002, as compared to
$10,158,000 in fiscal 2001, a decrease of  $8,710,000.  This decrease was due to
lower net earnings  generated by Barnwell's oil and natural gas segment,  due to
significantly  lower  petroleum  prices and lower  volumes  of oil sold,  and to
differences in the amount and timing of payments of income taxes. Significantly,
in November 2001, the first quarter of fiscal 2002,  Barnwell paid $2,367,000 in
Canadian  federal and  provincial  income  taxes  related to fiscal 2001 income.
Making this payment on its due date deferred it from fiscal 2001 to fiscal 2002,
increasing  cash  flows  from  operations  in  fiscal  2001  by  $2,367,000  and
decreasing  cash flows from  operations in fiscal 2002 by  $2,367,000,  and thus
accounting for  $4,734,000,  or 54%, of the  $8,710,000  decrease in cash flows.

<PAGE>

      Cash flows used in investing activities totaled $3,547,000 in fiscal 2002,
a $6,118,000 decrease from $9,665,000 of cash flows used in investing activities
in fiscal 2001. The decrease is due to the following differences:  i) cash flows
from investing activities in fiscal 2002 included $1,997,000 of proceeds, net of
related  fees,  from the partial  exercise of an option to purchase  development
rights;  there were no such  proceeds  in fiscal  2001,  and ii) cash flows from
investing activities in fiscal 2001 included two transactions that occurred only
in fiscal 2001:  $2,791,000 of disbursements  and a $1,481,000 loan to a related
party,  both  related to the  acquisition  of an  additional  27.5%  interest in
Kaupulehu  Developments,  as discussed in more detail below; there were no loans
issued by Barnwell  in fiscal  2002 and the  payment of notes  payable in fiscal
2002 for the balance of the prior year's  acquisition of an additional  interest
in Kaupulehu Developments is reported as a financing activity.

      Cash flows used in financing  activities  amounted to $1,540,000 in fiscal
2002, a $674,000  increase  from  $866,000 of cash flows used in fiscal 2001. In
fiscal 2002,  Barnwell  paid the  $2,209,000  of notes  payable due on the prior
year's acquisition of an additional 27.5% interest in Kaupulehu Developments and
made $278,000 of  distributions  to Kaupulehu  Developments'  minority  interest
partners;  there were no note  payments or  distributions  to minority  interest
partners in fiscal 2001.  Partially  offsetting  these  financing uses in fiscal
2002 were borrowings under the Royal Bank of Canada facility of $1,711,000.

      At September 30, 2002, Barnwell had consolidated cash and cash equivalents
of $1,489,000, a working capital deficit of $457,000, and available credit under
the  Royal  Bank  of  Canada's   revolving   credit  facility  of  approximately
$2,000,000.  The  Company's  working  capital  deficit at September 30, 2001 was
$1,786,000.

      The  Royal  Bank  of  Canada  renewed   Barnwell's   credit   facility  at
approximately  $12,000,000,  unchanged  from the prior year,  and  extended  the
revolving period one year to April 30, 2003. Barnwell restructured the repayment
schedule  of the loan to a  two-year  period if  Barnwell  elects to change  the
facility  from a revolving  loan to a term loan.  If the loan is  converted to a
term loan, the new term period  payments are as follows:  first year of the term
period - 20% (5% per  quarter),  and in the second year of the term period - 80%
(5% per  quarter  for the first three  quarters  and 65% in the final  quarter).
Outstanding  borrowings  under this facility were  $9,961,000  and $8,267,000 at
September 30, 2002 and 2001, respectively, and are included in long-term debt.

      The bank  represented  that it will not require any  repayments  under the
facility on or before September 30, 2003.  Accordingly,  Barnwell has classified
outstanding borrowings under the facility as long-term debt.

      Barnwell has $360,000 of  convertible  notes  outstanding at September 30,
2002  that  are  payable  in four  consecutive,  equal  quarterly  installments.
Interest  is payable  quarterly  at a rate to be  adjusted  each  quarter to the
greater of 10% per annum or 1% over the prime rate of  interest.  Barnwell  paid
interest on these notes at an average  rate of 10.00% per annum in fiscal  2002.
For more  information on Barnwell's  long-term debt, see Note 6 of "Notes to the
Consolidated Financial Statements."

      Barnwell  believes  its  current  cash  balances,  future  cash flows from
operations, land segment sales, collection of receivables,  and available credit
will  be  sufficient  to fund  its  estimated  capital  expenditures,  make  the
scheduled  repayments on its debentures,  and meet the repayment schedule on its
Royal Bank of Canada facility, should Barnwell or the Royal Bank of Canada elect
to  convert  the  facility  to a term  loan.  However,  if oil and  natural  gas
production  remains at or declines  from  current  levels or oil and natural gas
prices decline from current levels,  current  working capital  balances and cash
flows generated by operations may not be sufficient to fund  Barnwell's  current
projected  level of oil and  natural  gas  capital  expenditures,  in which case
Barnwell  may fund  capital  expenditures  with funds  generated by land segment
sales,  long-term debt  borrowings,  or it may reduce future oil and natural gas
capital  expenditures.  Additionally,  if  Barnwell's  credit  facility  with  a

<PAGE>

Canadian  bank is  reduced  below  the  current  level of  borrowings  under the
facility  after  the April  2003  review,  Barnwell  may be  required  to reduce
expenditures  or seek  alternative  sources of  financing  to make any  required
payments under the facility.

Restructuring and Partial Exercise of Development Rights Option
---------------------------------------------------------------

      In November 2001,  Kaupulehu  Developments and Kaupulehu Makai Venture, an
unrelated entity that is an affiliate of Kajima Corporation of Japan,  agreed to
a  restructuring  of  Kaupulehu  Makai  Venture's  option to purchase  Kaupulehu
Developments'  residential  development rights, thereby enabling Kaupulehu Makai
Venture to develop residential units on the applicable acreage.  Under the terms
of the new agreement,  Kaupulehu Developments transferred its leasehold interest
in  approximately  230 of its  approximately  1,100 acres of  resort/residential
zoned land to Kaupulehu Makai Venture and the amount of acreage under the option
was  increased  to  approximately  130  acres.  The total  amount of the  option
proceeds,  if fully exercised,  remained  unchanged at $25,500,000,  however the
timing of the option  payments  were  restructured  as follows:  two payments of
$2,125,000;  one was paid  December  31, 2001 and the second is due December 31,
2002; and eight payments of $2,656,250 are due on each December 31 of years 2003
to  2010.  If  any  annual  option  payment  is not  made,  the  then  remaining
development right options will expire. There is no assurance that any portion of
the remaining options will be exercised.

      On December 31, 2001, Kaupulehu Makai Venture exercised the portion of its
development  rights  option  due on that  date and paid  Kaupulehu  Developments
$2,125,000,  reducing the amount of acreage  under option to  approximately  120
acres.  Barnwell accounts for sales of development rights under option by use of
the cost recovery method. Under the cost recovery method, no operating profit is
recognized  until cash received  exceeds the cost and the estimated future costs
related to development rights sold. Accordingly, in consolidation, approximately
$1,877,000 of the proceeds from the sales of development  rights were applied to
reduce the carrying value of the underlying investment in land in the year ended
September  30,  2002.  Additionally,  sales of  development  rights were further
reduced by $128,000 of fees paid to Nearco,  Inc. (an entity  controlled  by Mr.
Johnston,  a member of the Board of Directors of Barnwell)  related to the sale.
The  remaining  $120,000  of sales  proceeds  is  recorded  in the  Consolidated
Statements of Operations as "Sale of development rights, net."

Reissuance of Development Entitlements
--------------------------------------

      In  October  2001,  the State  Land Use  Commission  unanimously  approved
Kaupulehu  Developments'  petition for  reclassification  of approximately 1,100
acres of leasehold land into zoning which allows resort/residential development.
This followed a remand procedure at the State Land Use Commission which resulted
from an order of the Supreme Court of the State of Hawaii.  Approximately 230 of
the approximately  1,100  reclassified acres were transferred to Kaupulehu Makai
Venture  under  the  terms  of  the  November  2001  development  rights  option
restructuring  agreement discussed above.  Kaupulehu Developments is negotiating
with an independent third party interested in developing the remaining 870 acres
of  resort/residential  leasehold acreage, of which approximately 186 acres were
designated  by the State  Land Use  Commission  as  preservation  areas  with no
residential  or golf  course  development,  and  continues  to make  significant
progress in the negotiation of a revised  development  agreement and residential
fee simple  purchase  prices  with the  lessor.  Management  cannot  predict the
outcome of these negotiations.

Acquisition of Additional Interest In Kaupulehu Developments
------------------------------------------------------------

      On April 12, 2001, Barnwell Kona Corporation, a wholly owned subsidiary of
Barnwell,  and Nearco,  Inc.  concurrently  acquired  84.1% of Cambridge  Hawaii
Limited  Partnership.  Cambridge Hawaii Limited  Partnership is a Hawaii limited
partnership  whose only  significant  asset is the 49.9%  minority  interest  in
Kaupulehu  Developments.  Mr.  Johnston  previously  indirectly  owned  14.9% of
Cambridge  Hawaii  Limited  Partnership  and was the president  and  controlling
shareholder  of  the  former  general   partner  of  Cambridge   Hawaii  Limited

<PAGE>

Partnership.  Barnwell  Kona  Corporation  is now the sole  general  partner  of
Cambridge Hawaii Limited  Partnership.  Barnwell  Hawaiian  Properties,  Inc., a
wholly owned subsidiary of Barnwell,  presently owns the 50.1% majority interest
in Kaupulehu Developments.

      Barnwell Kona  Corporation and Nearco,  Inc.  purchased 55.2% and 28.9% of
Cambridge Hawaii Limited Partnership, respectively. The interests were purchased
from three limited partnerships and several individual investors,  each of which
held  partnership   interests  in  Cambridge  Hawaii  Limited  Partnership  (the
"Sellers").  Barnwell and Mr.  Johnston  negotiated  the purchase price with the
Sellers based on an internal assessment of the value of Kaupulehu  Developments'
leasehold and  development  rights.  Barnwell Kona  Corporation  agreed to pay a
total of $4,803,000 for 55.2% of Cambridge Hawaii Limited Partnership at $87,000
for each percentage point, and Nearco,  Inc. agreed to pay a total of $2,518,000
for 28.9% of Cambridge Hawaii Limited Partnership at $87,000 for each percentage
point.  Barnwell Kona  Corporation and Nearco,  Inc. also agreed to pay $300,000
($197,000 and $103,000,  respectively) to Cambridge  Hawaii Limited  Partnership
for pre-closing expenses related to this transaction.

      Barnwell Kona Corporation and Nearco,  Inc. each paid approximately 54% of
their purchase price and the $300,000 referred to above for pre-closing expenses
in cash at closing.  Barnwell Kona  Corporation  paid  $2,791,000 at closing and
signed non-interest bearing promissory notes totaling $2,209,000 due January 31,
2002 for the remaining  approximately 46% of its purchase price. Barnwell loaned
Nearco,  Inc.  $1,463,000  for its  portion  of the  cash  payment  at  closing.
Barnwell's loan to Nearco, Inc. was non-interest  bearing and was originally due
January 31, 2002. Nearco, Inc. also signed non-interest bearing promissory notes
to the Sellers  totaling  $1,158,000,  due January 31, 2002,  for the  remaining
approximately 46% of its purchase price.

      Subsequent to April 12, 2001, Nearco, Inc. purchased an additional 0.4% of
Cambridge Hawaii Limited Partnership; Barnwell loaned Nearco, Inc. an additional
$18,000 for the 54% cash payment of this purchase.

      As  a  result  of  these   transactions,   Mr.  Johnston  indirectly  owns
approximately  44.2% of Cambridge  Hawaii Limited  Partnership and Barnwell owns
approximately  55.2% of Cambridge Hawaii Limited  Partnership.  Barnwell's newly
acquired  interest  in  Cambridge  Hawaii  Limited  Partnership,  together  with
Barnwell's  current 50.1% indirect  interest in Kaupulehu  Developments  held by
Barnwell  Hawaiian  Properties,  Inc.,  results in Barnwell  owning an aggregate
indirect interest of 77.6% in Kaupulehu Developments.  The accounts of Cambridge
Hawaii Limited  Partnership  are included in Barnwell's  consolidated  financial
statements from the acquisition  date (April 12, 2001) using the purchase method
of accounting.

      The purchase  price paid of  $5,000,000  was  allocated to land,  and on a
consolidated  basis  increased the  investment in land by $3,748,000 and reduced
the minority interest by $1,252,000.

      On January 31, 2002,  Barnwell  paid the remaining  $2,209,000  due on the
April 2001 purchase of the additional 27.5% interest in Kaupulehu  Developments.
Also, on January 31, 2002, Nearco,  Inc. repaid $100,000 of its notes receivable
to Barnwell and Barnwell extended the due date of the $1,381,000  balance of its
original $1,481,000  receivable to December 31, 2002. The note bears interest at
10%,  payable   quarterly,   from  February  1,  2002,  and  is  secured  by  an
approximately  22.0%  interest in Kaupulehu  Developments  and an  assignment of
commissions  earned by Nearco,  Inc. on Kaupulehu  Developments'  gross receipts
from the sale of real estate interests.  Barnwell's revised note receivable from
Nearco,  Inc.  is  subordinated  to a $600,000,  10% note due January 31,  2003,
Nearco,  Inc.  made with a third party on January 31, 2002,  to pay a portion of
the remaining monies due on its April 2001 purchase of an additional interest in
Kaupulehu Developments.

      Management  believes  that  Nearco,  Inc.  will  repay its note.  Barnwell
estimates that the current value of Nearco, Inc.'s pledged interest in Kaupulehu

<PAGE>

Developments  is  significantly  in excess of the combined  value of its note to
Barnwell and Nearco,  Inc.'s $600,000 note to a third party to which  Barnwell's
note is subordinated.

Capital Expenditures
--------------------

      The following table sets forth Barnwell's capital expenditures for each of
the last three fiscal years:

                                       2002            2001             2000
                                   -----------      -----------      -----------
Oil and natural gas                $ 4,581,000      $ 4,240,000      $ 5,003,000
Land investment                        944,000        5,954,000          631,000
Contract drilling                       77,000           84,000          393,000
Other                                   42,000          180,000          222,000
                                   -----------      -----------      -----------
  Total capital expenditures       $ 5,644,000      $10,458,000      $ 6,249,000
                                   ===========      ===========      ===========

Increase (decrease) in oil
  and natural gas capital
  expenditures from prior year     $   341,000      $  (763,000)     $ 3,250,000
                                   ===========      ===========      ===========

      Land investment  capital  expenditures in 2001 include  $5,000,000 for the
purchase of the additional  27.5% interest in Kaupulehu  Developments.  Barnwell
paid $2,791,000 in cash and $2,209,000 in non-interest bearing promissory notes.

      In fiscal 2002,  Barnwell  participated  in drilling 16 wells, 12 of which
were successful,  and the recompletion of 6 wells (0.91 net wells), and replaced
20% of oil  production  (including  natural gas  liquids) and 33% of natural gas
production.

      The  following  table  sets  forth the gross  and net  numbers  of oil and
natural gas wells  Barnwell  participated  in drilling and purchased for each of
the last three fiscal years:

                                        2002            2001            2000
                                    ------------    ------------    ------------
                                    Gross   Net     Gross   Net     Gross   Net
                                    -----   ----    -----   ----    -----   ----
Exploratory oil and natural
  gas wells drilled                    5    0.94       4    1.40       8    2.60

Development oil and natural
  gas wells drilled                   11    4.52      26    4.40      32    5.10

Successful oil and natural
  gas wells drilled                   12    4.19      23    3.20      34    5.60

      Barnwell  estimates  that oil and  natural gas  capital  expenditures  for
fiscal 2003 will range from $5,500,000 to $6,500,000.  This estimated amount may
increase or decrease as dictated by  management's  assessment of the oil and gas
environment and prospects.

      In  fiscal  2002,   $944,000  of  Barnwell's  capital   expenditures  were
applicable  to  investment  in land  project  planning  and  development.  These
expenditures were primarily  comprised of legal,  consulting,  and planning fees
and  capitalized  interest,  and were funded by existing  cash balances and cash
flow  from  operations.   In  fiscal  2001,   $954,000  of  Barnwell's   capital
expenditures  were  applicable  to rezoning of  leasehold  land and  capitalized
interest.

<PAGE>

RESULTS OF OPERATIONS
---------------------

Summary
-------

      Barnwell had net earnings of $40,000 in fiscal  2002,  a $3,790,000  (99%)
decrease from net earnings of $3,830,000 in fiscal 2001. The decrease is largely
attributable  to  significant  decreases  in  petroleum  prices  and  lower  oil
production in fiscal 2002,  as compared to fiscal 2001.  Net earnings for fiscal
2002 includes an oil and natural gas operating  expense  credit  recorded in the
fourth  quarter for the  settlement  of  overcharges  of operating  expenses for
fiscal years 1998 through 2001 from the operator of the Dunvegan  property  that
contributed  $250,000,  net of  income  taxes,  to  operations.  There  were  no
significant operating expense credits recorded in fiscal 2001.

      If Barnwell's  oil and natural gas  production or the petroleum  prices it
receives do not  increase  from that of fiscal 2002 and  Barnwell  does not have
earnings from its land investment segment, Barnwell would incur a loss in fiscal
2003.

      Barnwell reported net earnings of $3,830,000 in fiscal 2001, a decrease of
$1,180,000  (24%) from fiscal 2000.  The decrease in net earnings was the result
of a  decrease  in  land  segment  pretax  operating  profits,  net of  minority
interest,  of $3,240,000 in the U.S.  partially offset by an increase in oil and
gas segment  pretax  operating  profits of  $3,924,000  in Canada.  Land segment
operating profits decreased as there were sales of development  rights in fiscal
2000,  whereas  there were none in fiscal  2001.  Oil and  natural  gas  segment
operating  profit  increased  in fiscal 2001,  as compared to fiscal  2000,  due
primarily to a 67% increase in natural gas prices.

Oil and Natural Gas Revenues
----------------------------

Selected Operating Statistics

      The following tables set forth Barnwell's annual net production and annual
average price per unit of production for fiscal 2002 as compared to fiscal 2001,
and fiscal 2001 as compared to fiscal 2000.  Production amounts reported are net
of royalties and the Alberta Royalty Tax Credit.

Fiscal 2002 - Fiscal 2001
-------------------------

                                        Annual Net Production
                        ---------------------------------------------------
                                                             Increase
                                                            (Decrease)
                                                      ---------------------
                           2002          2001           Units           %
                        ----------    ----------      ---------       -----
  Liquids (Bbl)*            94,000        98,000         (4,000)        (4%)
  Oil (Bbl)*               148,000       174,000        (26,000)       (15%)
  Natural gas (MCF)**    3,277,000     3,269,000          8,000          -


                                   Annual Average Price Per Unit
                        ---------------------------------------------------
                                                             Decrease
                                                      ---------------------
                           2002          2001             $             %
                        ----------    ----------      ---------       -----
  Liquids (Bbl)*            $12.46        $22.60        $(10.14)       (45%)
  Oil (Bbl)*                $21.28        $25.44        $ (4.16)       (16%)
  Natural gas (MCF)**       $ 2.12        $ 4.02        $ (1.90)       (47%)

<PAGE>



Fiscal 2001 - Fiscal 2000
-------------------------

                                        Annual Net Production
                        ---------------------------------------------------
                                                             Decrease
                                                      ---------------------
                           2001          2000           Units           %
                        ----------    ----------      ---------       -----
  Liquids (Bbl)*            98,000       104,000         (6,000)        (6%)
  Oil (Bbl)*               174,000       187,000        (13,000)        (7%)
  Natural gas (MCF)**    3,269,000     3,501,000       (232,000)        (7%)


                                   Annual Average Price Per Unit
                        ---------------------------------------------------
                                                             Increase
                                                            (Decrease)
                                                      ---------------------
                           2001          2000             $             %
                        ----------    ----------      ---------       -----
  Liquids (Bbl)*            $22.60        $16.91         $ 5.69         34%
  Oil (Bbl)*                $25.44        $26.15         $(0.71)        (3%)
  Natural gas (MCF)**       $ 4.02        $ 2.41         $ 1.61         67%


       *Bbl = stock tank barrel equivalent to 42 U.S. gallons
      **MCF = 1,000 cubic feet

      Oil and natural gas revenues  decreased  $8,550,000 (43%) from $19,870,000
in fiscal 2001 to $11,320,000 in fiscal 2002, due primarily to 47%, 45%, and 16%
decreases in natural gas, natural gas liquids, and oil prices, respectively. Net
natural gas production  increased  less than one percent,  however gross natural
gas production  declined 6% as gas production declines at Barnwell's more mature
properties  were only partially  offset by production  from recent  development.
However, a decrease in royalties, due to decreased natural gas prices, mitigated
this  decline and left  natural gas  production  relatively  unchanged  on a net
basis. Oil net production  decreased 15% due to declines in production from some
of Barnwell's more mature oil properties.

      Oil and natural gas revenues increased $4,600,000 or 30% in fiscal 2001 to
$19,870,000,  as  compared to  $15,270,000  in fiscal  2000,  due to 67% and 34%
increases in the average price received for natural gas and natural gas liquids,
respectively.  The increase was partially  offset by 7% decreases in natural gas
and oil volumes and a 6% decrease in natural gas liquids  volumes.  The decrease
in natural gas volumes was due to higher royalty percentage rates, due to higher
prices in fiscal 2001 as compared to fiscal 2000.  Gross natural gas  production
declines at Barnwell's  more mature  properties  were offset by production  from
recent  development.  Oil volumes  decreased due to a decline in production from
Barnwell's more mature properties.

Oil and Natural Gas Operating Expenses
--------------------------------------

      Operating  expenses  decreased  to  $3,108,000  in fiscal 2002, a $401,000
(11%)  decrease from  $3,509,000  in fiscal 2001,  due to an oil and natural gas
operating  expense  credit  recorded in the fourth quarter for the settlement of
overcharges  of  operating  expenses for fiscal years 1998 through 2001 from the
operator of the Dunvegan property totaling $470,000.  Partially  offsetting this
credit were higher  gathering and processing fees in fiscal 2002, as compared to
fiscal 2001.

      Operating  expenses  increased  to  $3,509,000  in fiscal 2001, a $381,000
(12%)  increase from  $3,128,000 in fiscal 2000, due to increases in the cost of
electricity, propane, contract labor, repairs, operators overhead, and gathering
and processing fees, which are due in part to a higher demand for these services
because of the higher product prices  received by the industry for its petroleum
products in fiscal 2001.

<PAGE>

Contract Drilling
-----------------

      Contract  drilling  revenues  and costs are  associated  with water  well,
geothermal  well and  exploratory  well drilling,  and water pump  installation,
replacement and repair in Hawaii.

      Contract  drilling  revenues and operating  expenses  remained  relatively
constant in fiscal 2002, as compared to fiscal 2001.  Contract drilling revenues
increased  $190,000 (6%) to $3,480,000 in fiscal 2002, as compared to $3,290,000
in fiscal 2001, and contract drilling  operating expenses decreased $85,000 (3%)
to  $2,821,000  in fiscal  2002,  as  compared  to  $2,906,000  in fiscal  2001.
Operating profit before  depreciation  increased $275,000 (72%) from $384,000 in
fiscal 2001 to  $659,000  in fiscal  2002 due to an  increase  in well  drilling
activity,  partially offset by a decrease in pump  installation  activity;  well
drilling  contracts   generally  have  higher  margins  than  pump  installation
contracts.

      At September 30, 2002,  WRI had a backlog of six well  drilling  contracts
and  six  pump  installation  and  repair  contracts,  two and  four  of  which,
respectively, were in progress as of September 30, 2002. The backlog of contract
drilling revenues as of November 30, 2002 was approximately $1,800,000.

      Contract drilling revenues decreased $230,000 (7%) to $3,290,000 in fiscal
2001, as compared to $3,520,000 in fiscal 2000, and contract drilling  operating
expenses  increased  $165,000  (6%) to $2,906,000 in fiscal 2001, as compared to
$2,741,000 in fiscal 2000.  Contract drilling revenues decreased as Barnwell had
to reduce its bid prices due to competitive  forces, and as fiscal 2000 drilling
activity  included  work on a  geothermal  contract;  there  was no  significant
geothermal work performed in fiscal 2001.  Contract drilling  operating expenses
increased because the decrease in well drilling activity was more than offset by
an  increase  in  pump  installation  activity,  largely  attributable  to  work
performed under a large pump installation  general contract in fiscal 2001. Pump
installation   contracts   generally  have  lower  margins  than  well  drilling
contracts. As a result,  operating profit before depreciation decreased $395,000
to  $384,000  for  fiscal  2001,  as  compared  to an  operating  profit  before
depreciation of $779,000 for fiscal 2000.

Gas Processing and Other Income
-------------------------------

      Gas processing  and other income was  relatively  unchanged in fiscal 2002
(increased $30,000 or 3%), as compared to fiscal 2001.

      Gas  processing and other income  decreased  $310,000 (25%) to $930,000 in
fiscal 2001, as compared to $1,240,000 in fiscal 2000, as fiscal 2000 included a
$238,000 gain on the sale of equity securities; there was no such gain in fiscal
2001.  The  remaining  decrease  was  due to  lower  interest  rates  and  lower
interest-bearing cash and cash equivalents balances.

General and Administrative Expenses
-----------------------------------

      General and administrative  expenses increased $223,000 (5%) to $4,344,000
in fiscal  2002,  as compared to  $4,121,000  in fiscal  2001,  due to legal and
consulting  costs  related to land segment  sales  negotiations  in fiscal 2002;
there were no such costs in fiscal 2001.

      General and administrative expenses increased $651,000 (19%) to $4,121,000
in  fiscal  2001,  as  compared  to  $3,470,000  in fiscal  2000,  due to higher
personnel costs and general inflationary increases.

Depreciation, Depletion and Amortization
----------------------------------------

      Depreciation,  depletion and amortization  expense decreased $106,000 (3%)
to $3,648,000  in fiscal 2002, as compared to $3,754,000 in fiscal 2001,  due to
decreased  production,  partially offset by a slightly higher depletion rate per
MCF equivalent in fiscal 2002, as compared to fiscal 2001.

<PAGE>

      Depreciation,  depletion and amortization  expense increased $182,000 (5%)
to $3,754,000  in fiscal 2001,  as compared to  $3,572,000  in fiscal 2000,  due
primarily to a 17% increase in the depletion rate per MCF equivalent. The higher
depletion  rate is because a  significant  amount of Barnwell's  recent  capital
expenditures  have  been to  convert  proved  non-producing  reserves  to proved
producing reserves.  Accordingly,  these capital  expenditures did not result in
reserve additions.

Interest Expense
----------------

      Interest  expense  decreased  $91,000 (24%) to $296,000 in fiscal 2002, as
compared to interest expense of $387,000 in fiscal 2001. The decrease was due to
lower average  interest rates,  partially  offset by higher average  outstanding
borrowings and a decrease in  capitalized  interest.  The average  interest rate
incurred  during  fiscal 2002 on  Barnwell's  borrowings  from the Royal Bank of
Canada  decreased  to 4.24%,  as compared to 6.62% in fiscal  2001,  whereas the
weighted average balance of outstanding borrowings from the Royal Bank of Canada
increased  from  approximately   $8,300,000  in  fiscal  2001  to  approximately
$10,300,000 in fiscal 2002. The average outstanding debentures balance decreased
from  $950,000  in fiscal  2001 to  $507,000  in fiscal  2002 while the  average
interest rate on the  debentures  remained  essentially  unchanged.  Capitalized
interest  decreased  $76,000 from  $278,000 in fiscal 2001 to $202,000 in fiscal
2002 primarily due to lower interest rates,  partially  offset by an increase in
the  capitalization  base as  Barnwell  carried a 77.6%  interest  in  Kaupulehu
Developments'  leasehold  interest in land under  development for a full year in
fiscal  2002,  as compared to  approximately  one-half  year in fiscal 2001 (the
additional  27.5%  interest in  Kaupulehu  Developments  was  purchased in April
2001).

      Interest expense  decreased  $426,000 (52%) to $387,000 in fiscal 2001, as
compared to interest expense of $813,000 in fiscal 2000. The decrease was due to
an increase in capitalized interest,  lower average outstanding borrowings,  and
lower  average  interest  rates.  The weighted  average  balance of  outstanding
borrowings  from  the  Royal  Bank  of  Canada   decreased  from   approximately
$10,076,000  in fiscal 2000 to  approximately  $8,300,000  in fiscal 2001 due to
repayments   during   fiscal  2000.   In  addition,   borrowings   on  Kaupulehu
Developments'  credit  facility,  $1,250,000 at September  30, 1999,  were fully
repaid in January 2000,  and $400,000 of annual  repayments  on the  convertible
notes were made during  fiscal  2001 and 2000.  Capitalized  interest  increased
$185,000 as a result of Barnwell's increased ownership interest in investment in
land as of April  2001 and  other  land  investment  capital  expenditures.  The
average interest rate incurred during fiscal 2001 on Barnwell's  borrowings from
the Royal Bank of Canada  decreased  to 6.62%,  as  compared  to 7.00% in fiscal
2000, and the average interest rate on the convertible  notes in fiscal 2001 was
comparable to that of fiscal 2000.

Foreign Currency Fluctuations
-----------------------------

      Barnwell conducts foreign operations in Canada. Consequently,  Barnwell is
subject to foreign currency  transaction gains and losses due to fluctuations of
the exchange  rates  between the Canadian  dollar and the U.S.  dollar.  Foreign
currency transaction gains and losses were not material in fiscal 2002 and 2001.
Barnwell  incurred  realized  foreign currency  transaction  losses amounting to
$420,000 in fiscal 2000.  Barnwell cannot accurately predict future fluctuations
between the Canadian and U.S. dollars.

Income Taxes
------------

      Included in the provision  for deferred  income taxes for fiscal 2002 is a
U.S.  deferred  tax benefit of  $376,000  related to the  temporary  difference,
created by the excess of expenses  recognized under the cost recovery method for
books over expenses  deductible  for tax purposes,  attributable  to the sale of
land  development  rights in December  2001.  There were no deferred  income tax
benefits related to land sales in fiscal 2001 or fiscal 2000.

      During  fiscal  2001,  the  Province  of Alberta  reduced  the  province's
corporate tax rate from 15.5% to 13.5%  effective  April 1, 2001. As a result of

<PAGE>

this reduction,  Barnwell recorded an approximately $300,000 deferred income tax
benefit in fiscal  2001;  there was no such  benefit  recorded in fiscal 2002 or
fiscal 2000.

      In April 2002, the legislative  assembly of the Province of Alberta held a
first  reading  and  passed at second  reading a bill to reduce  the  province's
corporate tax rate from 13.5% to 13.0%, effective April 1, 2002. On November 19,
2002,  the bill passed on third  reading and was enacted into law on December 4,
2002;  the  reduction in the tax rate will reduce income tax  liabilities  by an
estimated $75,000 in December 2002.

      In fiscal  2002 and 2001 the  provision  for  income  taxes did not bear a
normal  relationship to earnings because Canadian taxes were payable on Canadian
operations and losses from U.S. operations provide no foreign tax benefits.

Environmental Matters
---------------------

      Federal,  state,  and  Canadian  governmental  agencies  issue  rules  and
regulations  and  enforce  laws to  protect  the  environment  which  are  often
difficult  and costly to comply with and which carry  substantial  penalties for
failure to comply, particularly in regard to the discharge of materials into the
environment.  The  regulatory  burden on the oil and gas industry  increases its
cost of doing business.  These laws, rules and regulations affect the operations
of  Barnwell  and could have a material  adverse  effect  upon the  earnings  or
competitive position of Barnwell. Although Barnwell's experience has been to the
contrary, there is no assurance that this will continue to be the case.

Inflation
---------

      The effect of  inflation on Barnwell  has  generally  been to increase its
cost of operations,  interest cost (as a substantial  portion of Barnwell's debt
is at variable  short-term rates of interest which tend to increase as inflation
increases),  general and  administrative  costs and direct costs associated with
oil and natural gas production and contract drilling operations.  In the case of
contract drilling,  Barnwell has not been able to increase its contract revenues
to fully  compensate  for increased  costs.  In the case of oil and natural gas,
prices realized by Barnwell are  essentially  determined by world prices for oil
and western Canadian/Midwestern U.S. prices for natural gas.

Recent Accounting Pronouncements
--------------------------------

      In June 2001, the Financial Accounting Standards Board issued Statement of
Financial  Accounting Standards No. 142, "Goodwill and Other Intangible Assets."
Statement  of  Financial  Accounting  Standards  No. 142  addresses  the initial
recognition  and measurement of intangible  assets  acquired  individually or as
part of a group of other  assets  not  constituting  a  business.  Statement  of
Financial  Accounting  Standards  No.  142  also  addresses,  regardless  of how
acquired,  the subsequent  accounting and measurement of goodwill and intangible
assets.  Statement  of Financial  Accounting  Standards  No. 142  requires  that
goodwill  and  intangible  assets  with  indefinite  useful  lives no  longer be
amortized,  but instead  tested for  impairment at least  annually in accordance
with the  provisions  of Statement of Financial  Accounting  Standards  No. 142.
Statement  of  Financial   Accounting  Standards  No.  142  also  requires  that
intangible  assets with definite useful lives be amortized over their respective
estimated  useful lives to their  estimated  residual  values,  and reviewed for
impairment in accordance  with Statement of Financial  Accounting  Standards No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to Be Disposed Of." Statement of Financial  Accounting  Standards No. 142
is  effective  for fiscal years  beginning  after  December  15, 2001.  Barnwell
currently has no goodwill or intangible  assets.  Barnwell adopted  Statement of
Financial  Accounting  Standards  No. 142 on October 1, 2002.  The  adoption  of
Statement  of  Financial  Accounting  Standards  No. 142 did not have a material
effect on Barnwell's financial condition, results of operations or liquidity.

      In June 2001, the Financial Accounting Standards Board issued Statement of
Financial  Accounting  Standards  No.  143,  "Accounting  for  Asset  Retirement

<PAGE>

Obligations,"  which  requires  that the fair value of a liability  for an asset
retirement  obligation  be recognized in the period in which it is incurred if a
reasonable  estimate of fair value can be made. The associated  asset retirement
costs would be  capitalized  as part of the  carrying  amount of the  long-lived
asset and depreciated  over the life of the asset.  The liability is accreted at
the end of each period through charges to operating  expense.  If the obligation
is settled for other than the carrying  amount of the  liability,  Barnwell will
recognize a gain or loss on settlement. The provisions of Statement of Financial
Accounting Standards No. 143 are effective for fiscal years beginning after June
15, 2002. Barnwell adopted Statement of Financial  Accounting  Standards No. 143
on October 1, 2002.  Adoption will increase oil and natural gas  properties  and
long-term  liabilities by approximately  $500,000 as of October 1, 2002 and will
not have a material effect on results of operations or liquidity.

      In August 2001, the Financial  Accounting Standards Board issued Statement
of Financial  Accounting  Standards No. 144,  "Accounting  for the Impairment or
Disposal  of  Long-Lived  Assets."  For  long-lived  assets to be held and used,
Statement of Financial  Accounting Standards No. 144 retains the requirements of
Statement  of  Financial  Accounting  Standards  No.  121  to (a)  recognize  an
impairment  loss  only if the  carrying  amount  of a  long-lived  asset  is not
recoverable from its undiscounted  cash flows and (b) measure an impairment loss
as the difference between the carrying amount and fair value. Further, Statement
of Financial Accounting Standards No. 144 eliminates the requirement to allocate
goodwill  to  long-lived  assets  to  be  tested  for  impairment,  describes  a
probability-weighted  cash flow  estimation  approach to deal with situations in
which  alternative  courses  of  action  to  recover  the  carrying  amount of a
long-lived asset are under  consideration or a range is estimated for the amount
of possible  future cash flows,  and establishes a  "primary-asset"  approach to
determine the cash flow estimation  period. For long-lived assets to be disposed
of other than by sale (e.g.,  assets  abandoned,  exchanged  or  distributed  to
owners in a  spinoff),  Statement  of  Financial  Accounting  Standards  No. 144
requires  that such  assets  be  considered  held and used  until  disposed  of.
Further,  an  impairment  loss  should  be  recognized  at the  date an asset is
exchanged for a similar  productive  asset or distributed to owners in a spinoff
if the  carrying  amount  exceeds its fair value.  For  long-lived  assets to be
disposed of by sale, Statement of Financial Accounting Standards No. 144 retains
the  requirement  of  Statement  of Financial  Accounting  Standards  No. 121 to
measure  a  long-lived  asset  classified  as held for sale at the  lower of its
carrying  amount  or fair  value  less  cost to sell and to cease  depreciation.
Discontinued  operations  would no longer be measured on a net realizable  value
basis,  and future  operating  losses would no longer be recognized  before they
occur.  Statement  of  Financial  Accounting  Standards  No.  144  broadens  the
presentation  of  discontinued  operations  to include a component of an entity,
establishes  criteria to  determine  when a  long-lived  asset is held for sale,
prohibits  retroactive  reclassification  of the  asset  as held for sale at the
balance  sheet date if the  criteria  are met after the  balance  sheet date but
before issuance of the financial  statements,  and provides  accounting guidance
for the  reclassification  of an asset  from "held for sale" to "held and used."
The  provisions  of  Statement  of Financial  Accounting  Standards  No. 144 are
effective for fiscal years beginning after December 15, 2001.  Barnwell  adopted
Statement  of Financial  Accounting  Standards  No. 144 on October 1, 2002.  The
adoption of Statement of Financial  Accounting  Standards No. 144 did not have a
material  effect on  Barnwell's  financial  condition,  results of operations or
liquidity.

      In April 2002, the Financial  Accounting  Standards Board issued Statement
of Financial  Accounting  Standards No. 145, "Rescission of Financial Accounting
Standards Board Statements No. 4, 44 and 64,  Amendment of Financial  Accounting
Standards  Board  Statement  No. 13, and  Technical  Corrections."  Statement of
Financial   Accounting   Standards  No.  145  rescinds  Statement  of  Financial
Accounting  Standards No. 4, "Reporting Gains and Losses from  Extinguishment of
Debt," Statement of Financial Accounting  Standards No. 64,  "Extinguishments of
Debt Made to Satisfy  Sinking-Fund  Requirements,"  and  Statement  of Financial
Accounting  Standards  No.  44,  "Accounting  for  Intangible  Assets  of  Motor
Carriers."  Statement  of  Financial  Accounting  Standards  No. 145 also amends
Statement of Financial  Accounting Standards No. 13, "Accounting for Leases," to
eliminate an inconsistency  between the required  accounting for  sale-leaseback
transactions and the required  accounting for certain lease  modifications  that
have economic effects that are similar to sale-leaseback transactions. Statement

<PAGE>

of  Financial   Accounting   Standards  No.  145  also  amends  other   existing
authoritative  pronouncements  to make various  technical  corrections,  clarify
meanings,  or  describe  their  applicability  under  changed  conditions.   The
provisions of Statement of Financial Accounting Standards No. 145 related to the
rescission  of Statement of Financial  Accounting  Standards No. 4 are effective
for fiscal years  beginning  after May 15, 2002.  The provisions of Statement of
Financial  Accounting  Standards  No. 145  related  to  Statement  of  Financial
Accounting  Standards No. 13 are effective for transactions  occurring after May
15, 2002. All other  provisions of Statement of Financial  Accounting  Standards
No. 145 are effective for financial  statements issued on or after May 15, 2002.
Early  application  of the  provisions  of  Statement  of  Financial  Accounting
Standards  No. 145 is  encouraged  and may be as of the  beginning of the fiscal
year  or as of the  beginning  of the  interim  period  in  which  Statement  of
Financial  Accounting  Standards  No.  145  was  issued.  Barnwell  adopted  the
provisions of Statement of Financial  Accounting Standards No. 145 during fiscal
2002.  Adoption of Statement of Financial  Accounting  Standards No. 145 did not
have a material effect on Barnwell's financial condition,  results of operations
or liquidity.

      In July 2002, the Financial Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 146,  "Accounting for Costs Associated with
Exit or Disposal  Activities."  Statement of Financial  Accounting Standards No.
146  requires  companies  to recognize  costs  associated  with exit or disposal
activities  when they are incurred rather than at the date of a commitment to an
exit or disposal plan.  Examples of costs covered by the standard  include lease
termination costs and certain employee  severance costs that are associated with
a  restructuring,  discontinued  operation,  plant  closing,  or  other  exit or
disposal activity.  Previous accounting guidance was provided by Emerging Issues
Task Force (EITF) Issue No. 94-3,  "Liability  Recognition for Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs Incurred in a Restructuring)." Statement of Financial Accounting Standards
No.  146  replaces  EITF  Issue No.  94-3.  Statement  of  Financial  Accounting
Standards No. 146 is to be applied  prospectively to exit or disposal activities
initiated  after December 31, 2002.  Barnwell will adopt  Statement of Financial
Accounting  Standards  No. 146 on January 1, 2003.  The adoption of Statement of
Financial Accounting Standards No. 146 is not expected to have a material effect
on Barnwell's financial condition, results of operations or liquidity.

<PAGE>

Item 7.     FINANCIAL STATEMENTS
            --------------------




                          Independent Auditors' Report
                          ----------------------------



The Board of Directors
Barnwell Industries, Inc.:

We have audited the consolidated balance sheets of Barnwell Industries, Inc. and
subsidiaries  as of September  30, 2002 and 2001,  and the related  consolidated
statements of operations,  stockholders' equity and comprehensive income (loss),
and cash flows for each of the years in the  three-year  period ended  September
30, 2002. These consolidated  financial statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Barnwell Industries,
Inc.  and  subsidiaries  as of September  30, 2002 and 2001,  and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended  September  30, 2002,  in  conformity  with  accounting  principles
generally accepted in the United States of America.

/s/ KPMG LLP

Honolulu, Hawaii
December 20, 2002

<PAGE>
<TABLE>
<CAPTION>


                   BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

ASSETS                                                              September 30,
------                                                      ----------------------------
                                                               2002             2001
CURRENT ASSETS:                                             -----------      -----------
<S>                                                         <C>              <C>
  Cash and cash equivalents                                 $ 1,489,000      $ 5,154,000
  Accounts receivable, net (Notes 3 and 13)                   3,031,000        2,422,000
  Note receivable (Note 4)                                    1,381,000        1,481,000
  Costs and estimated earnings in excess of
    billings on uncompleted contracts (Note 3)                  174,000          380,000
  Deferred income taxes (Note 7)                                210,000          160,000
  Prepaid expenses and other current assets                     821,000          505,000
                                                            -----------      -----------
    TOTAL CURRENT ASSETS                                      7,106,000       10,102,000

INVESTMENT IN LAND (Notes 4 and 6)                            7,740,000        8,677,000

PROPERTY AND EQUIPMENT, NET (Notes 5 and 6)                  25,828,000       24,892,000
                                                            -----------      -----------
TOTAL ASSETS                                                $40,674,000      $43,671,000
                                                            ===========      ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
  Accounts payable                                          $ 2,995,000      $ 3,061,000
  Accrued expenses                                            3,367,000        3,361,000
  Notes payable (Note 4)                                          -            2,209,000
  Billings in excess of costs and estimated
    earnings on uncompleted contracts (Note 3)                  114,000          208,000
  Payable to joint interest owners                              727,000          326,000
  Income taxes payable (Note 7)                                   -            2,323,000
  Current portion of long-term debt (Note 6)                    360,000          400,000
                                                            -----------      -----------
    TOTAL CURRENT LIABILITIES                                 7,563,000       11,888,000
                                                            -----------      -----------

LONG-TERM DEBT (Note 6)                                       9,961,000        8,667,000
                                                            -----------      -----------

DEFERRED INCOME TAXES (Note 7)                                7,429,000        7,007,000
                                                            -----------      -----------

MINORITY INTEREST (Note 4)                                      800,000        1,016,000
                                                            -----------      -----------

COMMITMENTS AND CONTINGENCIES (Notes 4, 8, 9 and 10)

STOCKHOLDERS' EQUITY (Notes 6 and 9):
 Common stock, par value $0.50 per share:
    Authorized, 4,000,000 shares
    Issued, 1,642,797 shares
    Outstanding, 1,314,510 shares at September 30, 2002
     and 1,310,952 shares at September 30, 2001                 821,000          821,000
  Additional paid-in capital                                  3,139,000        3,105,000
  Retained earnings                                          19,698,000       19,855,000
  Accumulated other comprehensive loss -
    foreign currency translation adjustments                 (3,883,000)      (3,797,000)
  Treasury stock, at cost,
    328,287 shares at September 30, 2002,
    and 331,845 shares at September 30, 2001                 (4,854,000)      (4,891,000)
                                                            -----------      -----------
      TOTAL STOCKHOLDERS' EQUITY                             14,921,000       15,093,000
                                                            -----------      -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                  $40,674,000      $43,671,000
                                                            ===========      ===========
<FN>

                       See Notes to Consolidated Financial Statements
</FN>
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                          BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
                            CONSOLIDATED STATEMENTS OF OPERATIONS

                                                         Year ended September 30,
                                               ---------------------------------------------
                                                  2002             2001             2000
                                               -----------      -----------      -----------
Revenues:
<S>                                            <C>              <C>              <C>
  Oil and natural gas                          $11,320,000      $19,870,000      $15,270,000
  Contract drilling                              3,480,000        3,290,000        3,520,000
  Gas processing and other                         960,000          930,000        1,240,000
  Sale of development rights, net (Note 4)         120,000            -            6,540,000
                                               -----------      -----------      -----------
                                                15,880,000       24,090,000       26,570,000
                                               -----------      -----------      -----------
Costs and expenses:
  Oil and natural gas operating                  3,108,000        3,509,000        3,128,000
  Contract drilling operating                    2,821,000        2,906,000        2,741,000
  General and administrative                     4,344,000        4,121,000        3,470,000
  Depreciation, depletion and amortization       3,648,000        3,754,000        3,572,000
  Interest expense, net (Note 6)                   296,000          387,000          813,000
  Minority interest in earnings (Note 4)            62,000            8,000        3,308,000
  Foreign exchange losses                            -                -              420,000
                                               -----------      -----------      -----------

                                                14,279,000       14,685,000       17,452,000
                                               -----------      -----------      -----------

Earnings before income taxes                     1,601,000        9,405,000        9,118,000

Provision for income taxes (Note 7)              1,561,000        5,575,000        4,108,000
                                               -----------      -----------      -----------

NET EARNINGS                                   $    40,000      $ 3,830,000      $ 5,010,000
                                               ===========      ===========      ===========

BASIC EARNINGS PER COMMON SHARE                $      0.03      $      2.92      $      3.81
                                               ===========      ===========      ===========
DILUTED EARNINGS PER COMMON SHARE              $      0.03      $      2.82      $      3.67
                                               ===========      ===========      ===========
WEIGHTED AVERAGE NUMBER OF
  COMMON SHARES OUTSTANDING:
    BASIC                                        1,313,915        1,310,952        1,315,312
                                               ===========      ===========      ===========

    DILUTED                                      1,357,181        1,390,798        1,388,540
                                               ===========      ===========      ===========
<FN>

                    See Notes to Consolidated Financial Statements
</FN>
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                           BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                              Year ended September 30,
                                                        -------------------------------------
                                                           2002         2001         2000
                                                        -----------  -----------  -----------
Cash flows from operating activities:
<S>                                                     <C>          <C>          <C>
  Net earnings                                          $    40,000  $ 3,830,000  $ 5,010,000
  Adjustments to reconcile net earnings
    to net cash provided by operating activities:
      Depreciation, depletion and amortization            3,648,000    3,754,000    3,572,000
      Deferred income taxes                                 405,000      154,000    1,036,000
      Minority interest in earnings                          62,000        8,000    3,308,000
      Sale of development rights, net                      (120,000)       -       (6,540,000)
      Foreign exchange losses                                 -            -          420,000
      Gain on sale of equity securities                       -            -         (238,000)
                                                        -----------  -----------  -----------

                                                          4,035,000    7,746,000    6,568,000
      Decrease (increase) from changes in
        current assets and liabilities (Note 14)         (2,587,000)   2,412,000    1,626,000
                                                        -----------  -----------  -----------

  Net cash provided by operating activities               1,448,000   10,158,000    8,194,000
                                                        -----------  -----------  -----------

Cash flows from investing activities:
  Proceeds from sale of development rights, net           1,997,000        -        6,540,000
  Proceeds from collection of notes receivable              100,000        -            -
  Capital expenditures                                   (5,644,000)  (5,458,000)  (6,249,000)
  Investment in Cambridge Hawaii Limited Partnership          -       (2,791,000)       -
  Cash advanced in exchange for notes receivable              -       (1,481,000)       -
  Proceeds from sale of property and equipment                -            8,000      142,000
  Decrease (increase) in other assets                         -           57,000       (9,000)
  Proceeds from sale of marketable securities                 -            -          379,000
                                                        -----------  -----------  -----------

  Net cash (used in)
     provided by investing activities                    (3,547,000)  (9,665,000)     803,000
                                                        -----------  -----------  -----------

Cash flows from financing activities:
  Repayments of notes payable                            (2,209,000)       -            -
  Payment of dividends                                     (394,000)    (459,000)    (131,000)
  Repayments of long-term debt                             (370,000)    (400,000)  (4,766,000)
  Distribution to minority interest partners               (278,000)       -         (873,000)
  Long-term debt borrowings                               1,711,000        -           50,000
  Purchases of common stock for treasury                      -          (20,000)     (93,000)
  Proceeds from exercise of stock options                     -           13,000        -
                                                        -----------  -----------  -----------

  Net cash used in financing activities                  (1,540,000)    (866,000)  (5,813,000)
                                                        -----------  -----------  -----------

  Effect of exchange rate
    changes on cash and cash equivalents                    (26,000)    (174,000)     (60,000)
                                                        -----------  -----------  -----------

  Net (decrease) increase in
    cash and cash equivalents                            (3,665,000)    (547,000)   3,124,000

  Cash and cash equivalents at beginning of year          5,154,000    5,701,000    2,577,000
                                                        -----------  -----------  -----------

  Cash and cash equivalents at end of year              $ 1,489,000  $ 5,154,000  $ 5,701,000
                                                        ===========  ===========  ===========
<FN>

                        See Notes to Consolidated Financial Statements
</FN>
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                          BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
                                        Years ended September 30, 2002, 2001, and 2000

                                                                                        Accumulated
                                             Additional                                    Other                         Total
                                  Common       Paid-In    Comprehensive    Retained     Comprehensive    Treasury    Stockholders'
                                   Stock       Capital        Income       Earnings         Loss          Stock         Equity
                                 ---------   -----------   ------------   -----------   ------------   ------------   -----------
Balance at
<S>                              <C>         <C>           <C>            <C>           <C>            <C>            <C>
   September 30, 1999            $ 821,000   $ 3,103,000                  $11,801,000   $ (3,130,000)  $ (4,789,000)  $ 7,806,000

Purchase of 6,000
  common shares for treasury                                                                                (93,000)      (93,000)

Dividends declared
  ($0.10 per share)                                                          (131,000)                                   (131,000)

Comprehensive income:
  Net earnings                                             $  5,010,000     5,010,000                                   5,010,000
  Other comprehensive loss,
    net of income taxes -
    foreign currency
      translation adjustments                                  (205,000)                    (205,000)                    (205,000)
                                                           ------------
Total comprehensive income                                 $  4,805,000
                                                           ============
Foreign exchange
  losses realized -
  net of income taxes                                                                        287,000                      287,000
                                 ---------   -----------                  -----------   ------------   ------------   -----------
   At September 30, 2000         $ 821,000   $ 3,103,000                  $16,680,000   $ (3,048,000)  $ (4,882,000)  $12,674,000
                                 =========   ===========                  ===========   ============   ============   ===========
<FN>

                                                     (continued on next page)
</FN>
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                             BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
                                           Years ended September 30, 2002, 2001, and 2000

                                                                                        Accumulated
                                             Additional                                    Other                         Total
                                  Common       Paid-In    Comprehensive    Retained     Comprehensive    Treasury    Stockholders'
                                   Stock       Capital        Income       Earnings         Loss          Stock         Equity
                                 ---------   -----------   ------------   -----------   ------------   ------------   -----------

Balance at
<S>                              <C>         <C>           <C>            <C>           <C>            <C>            <C>
   September 30, 2000            $ 821,000   $ 3,103,000                  $16,680,000   $ (3,048,000)  $ (4,882,000)  $12,674,000

Exercise of stock
   options, 1,000 shares                           2,000                                                     11,000        13,000

Purchase of 1,000
   common shares for treasury                                                                               (20,000)      (20,000)

Dividends declared
   ($0.50 per share)                                                         (655,000)                                   (655,000)

Comprehensive income:
  Net earnings                                             $  3,830,000     3,830,000                                   3,830,000
  Other comprehensive loss,
   net of income taxes -
   foreign currency
     translation adjustments                                   (749,000)                    (749,000)                    (749,000)
                                                           ------------
Total comprehensive income                                 $  3,081,000
                                 ---------   -----------   ============   -----------   ------------   ------------   -----------
   At September 30, 2001         $ 821,000   $ 3,105,000                  $19,855,000   $ (3,797,000)  $ (4,891,000)  $15,093,000
                                 =========   ===========                  ===========   ============   ============   ===========
<FN>

                                                    (continued on next page)
</FN>
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                             BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
                                           Years ended September 30, 2002, 2001, and 2000

                                                 (continued from previous page)

                                                                                        Accumulated
                                             Additional                                    Other                         Total
                                  Common       Paid-In    Comprehensive    Retained     Comprehensive    Treasury    Stockholders'
                                   Stock       Capital        Income       Earnings         Loss          Stock         Equity
                                 ---------   -----------   ------------   -----------   ------------   ------------   -----------

Balance at
<S>                              <C>         <C>           <C>            <C>           <C>            <C>            <C>
   September 30, 2001            $ 821,000   $ 3,105,000                  $19,855,000   $ (3,797,000)  $ (4,891,000)  $15,093,000

Conversion of debentures
   to common stock at
   $20.00 per share                               34,000                                                     37,000        71,000

Dividends declared
   ($0.15 per share)                                                         (197,000)                                   (197,000)

Comprehensive loss:
  Net earnings                                             $     40,000        40,000                                      40,000
  Other comprehensive loss,
   net of income taxes -
   foreign currency
     translation adjustments                                    (86,000)                     (86,000)                     (86,000)
                                                           ------------
Total comprehensive loss                                   $    (46,000)
                                 ---------   -----------   ============   -----------   ------------   ------------   -----------

   At September 30, 2002         $ 821,000   $ 3,139,000                  $19,698,000   $ (3,883,000)  $ (4,854,000)  $14,921,000
                                 =========   ===========                  ===========   ============   ============   ===========
<FN>

                                          See Notes to Consolidated Financial Statements
</FN>
</TABLE>

<PAGE>


                            BARNWELL INDUSTRIES, INC.
                            -------------------------
                                AND SUBSIDIARIES
                                ----------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                  YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000
                  ---------------------------------------------


1. DESCRIPTION OF THE REPORTING ENTITY AND BUSINESS
   ------------------------------------------------

      The  consolidated  financial  statements  include the accounts of Barnwell
Industries,  Inc.  and all  majority-owned  subsidiaries,  including an indirect
77.6%-owned  land development  general  partnership,  (collectively  referred to
herein as "Barnwell").  All significant  intercompany  accounts and transactions
have been eliminated.

      During its last three fiscal years, Barnwell was engaged in exploring for,
developing,  producing  and selling oil and natural gas in Canada,  investing in
leasehold land in Hawaii,  and drilling wells and installing and repairing water
pumping  systems in Hawaii.  Barnwell's oil and natural gas activities  comprise
its largest business segment.  Approximately 71% of Barnwell's  revenues and 81%
of Barnwell's capital  expenditures for the fiscal year ended September 30, 2002
were  attributable  to its oil and natural gas activities.  Barnwell's  contract
drilling  activities  accounted for 22% of Barnwell's fiscal 2002 revenues,  gas
processing  and other revenues  comprised 6% of fiscal 2002  revenues,  and land
investment activities comprised 1% of fiscal 2002 revenues.

2. SIGNIFICANT ACCOUNTING POLICIES
   -------------------------------

Cash and cash equivalents
-------------------------

      Cash and  cash  equivalents  include  cash on hand,  demand  deposits  and
short-term investments with original maturities of three months or less.

Oil and natural gas properties
------------------------------

      Barnwell  uses the full cost  method of  accounting  under which all costs
incurred in the acquisition,  exploration and development of oil and natural gas
reserves,  including  unsuccessful wells, are capitalized until such time as the
aggregate of such costs,  on a country by country  basis,  equals the discounted
present  value (at 10%) of  Barnwell's  estimated  future  net cash  flows  from
estimated  production of proved oil and natural gas  reserves,  as determined by
independent   petroleum   engineers,   less  related  income  tax  effects.  Any
capitalized  costs,  net of oil and gas related deferred income taxes, in excess
of the  discounted  present value of proved  properties and the lower of cost or
estimated fair value of unproved properties are charged to expense. Depletion of
all such costs, except costs related to major development  projects, is provided
by the unit-of-production  method based upon proved oil and natural gas reserves
of  all  properties  on  a  country  by  country  basis.  Investments  in  major
development  projects  are  not  amortized  until  either  proved  reserves  are
associated with the projects or impairment has been determined. At September 30,
2002,  Barnwell  had no  investments  in major oil and natural  gas  development
projects that were not being amortized. General and administrative costs related
to oil and natural gas  operations  are expensed as incurred.  Estimated  future
site  restoration and  abandonment  costs are charged to earnings at the rate of
depletion  and  are  included  in   accumulated   depreciation,   depletion  and
amortization.  Proceeds from the  disposition of minor producing oil and natural
gas properties are credited to the cost of oil and natural gas properties. Gains
or losses are recognized on the  disposition of significant  oil and natural gas
properties.

<PAGE>

Investment in land and revenue recognition
------------------------------------------

      Barnwell's  investment  in land  is  comprised  of  leasehold  land  under
development and development rights under option.

      Investment in land under development is evaluated for impairment  whenever
events or changes in circumstances indicate that the recorded investment balance
may not be fully recoverable.

      Development  rights  under  option are  reported at the lower of the asset
carrying value or fair value,  less costs to sell.  Sales of development  rights
under option are accounted for under the cost  recovery  method.  Under the cost
recovery  method,  no operating profit is recognized until cash received exceeds
the cost and the estimated future costs related to the development rights sold.

      Barnwell's cost, including  capitalized  interest, of leasehold land under
development and development  rights under option is included in the consolidated
balance sheets under the caption "Investment in Land."

Contract drilling
-----------------

      Revenues,  costs and profits applicable to contract drilling contracts are
included in the  consolidated  statements of operations  using the percentage of
completion  method,  principally  measured by the  percentage  of labor  dollars
incurred to date for each  contract to total  estimated  labor  dollars for each
contract.  Contract  losses are  recognized in full in the period the losses are
identified.  The performance of drilling contracts may extend over more than one
year and, in the interim periods,  estimates of total contract costs and profits
are used to determine  revenues and profits  earned for reporting the results of
the  contract  drilling  operations.  Revisions  in the  estimates  required  by
subsequent   performance   and  final  contract   settlements  are  included  as
adjustments  to the  results of  operations  in the period  such  revisions  and
settlements occur. Contracts are normally less than one year in duration.

Long-lived assets
-----------------

      Long-lived  assets to be held and used,  other  than oil and  natural  gas
properties,   are  evaluated  for  impairment  whenever  events  or  changes  in
circumstances  indicate  that the  carrying  amount of an asset may not be fully
recoverable.  If the future cash flows  expected to result from use of the asset
(undiscounted and without interest charges) are less than the carrying amount of
the asset, an impairment loss is recognized. Such impairment loss is measured as
the amount by which the carrying  amount of the asset  exceeds the fair value of
the asset.  Long-lived assets to be disposed of are reported at the lower of the
asset carrying value or fair value, less cost to sell.

Drilling rigs, other property and equipment
-------------------------------------------

      Drilling   rigs,   other  property  and  equipment  are  stated  at  cost.
Depreciation  is computed  using the  straight-line  method  based on  estimated
useful lives ranging from three to ten years.

Inventories
-----------

      Inventories  are  comprised  of drilling  materials  and are valued at the
lower of weighted average cost or market value.

<PAGE>

Environmental
-------------

      Barnwell is subject to extensive environmental laws and regulations. These
laws,  which are constantly  changing,  regulate the discharge of materials into
the environment and maintenance of surface  conditions and may require  Barnwell
to remove or mitigate  the  environmental  effects of the disposal or release of
petroleum or chemical  substances at various sites.  Environmental  expenditures
are  expensed  or  capitalized  depending  on  their  future  economic  benefit.
Expenditures that relate to an existing  condition caused by past operations and
that have no future economic benefits are expensed. Liabilities for expenditures
of a  noncapital  nature  are  recorded  when  environmental  assessment  and/or
remediation is probable, and the costs can be reasonably estimated.

Income taxes
------------

      Deferred income taxes are determined using the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated  future tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases.  Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those  temporary  differences are expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment date.

Earnings per common share
-------------------------

      Basic earnings per share excludes dilution and is computed by dividing net
earnings by the  weighted-average  number of common shares  outstanding  for the
period.  Diluted earnings per share includes the potentially  dilutive effect of
outstanding  common stock options and securities which are convertible to common
shares.

      Reconciliations  between the  numerator and  denominator  of the basic and
diluted earnings per share  computations for the years ended September 30, 2002,
2001 and 2000 are as follows:

                                                September 30, 2002
                                     -----------------------------------------
                                     Net Earnings        Shares       Per-Share
                                     (Numerator)     (Denominator)     Amount
                                     -----------       ----------       ------
Basic earnings per share             $    40,000        1,313,915       $ 0.03
Effect of dilutive securities -                                         ======
   common stock options                    -               43,266
                                     -----------       ----------
Diluted earnings per share           $    40,000        1,357,181       $ 0.03
                                     ===========       ==========       ======


                                                September 30, 2001
                                     -----------------------------------------
                                     Net Earnings        Shares       Per-Share
                                     (Numerator)     (Denominator)     Amount
                                     -----------       ----------       ------
Basic earnings per share             $ 3,830,000        1,310,952       $ 2.92
Effect of dilutive securities:                                          ======
   Common stock options                    -               39,846
   Convertible debentures                 98,000           40,000
                                     -----------        ---------
Diluted earnings per share           $ 3,928,000        1,390,798       $ 2.82
                                     ===========        =========       ======

<PAGE>

                                                September 30, 2000
                                     -----------------------------------------
                                     Net Earnings        Shares       Per-Share
                                     (Numerator)     (Denominator)     Amount
                                     -----------       ----------       ------
Basic earnings per share             $ 5,010,000        1,315,312       $ 3.81
                                                                        ======
Effect of dilutive securities:
   Common stock options                    -               13,228
   Convertible debentures                 90,000           60,000
                                     -----------       ----------
Diluted earnings per share           $ 5,100,000        1,388,540       $ 3.67
                                     ===========       ==========       ======


      Assumed  conversion of convertible  debentures to acquire 18,000 shares of
common stock at September 30, 2002 were excluded from the computation of diluted
earnings per share for the year ended September 30, 2002 because their inclusion
would have been  antidilutive.  Assumed  conversion  of common stock  options to
acquire  20,000 and 50,000  shares of  Barnwell's  stock was  excluded  from the
computation of diluted earnings per share for the years ended September 30, 2001
and 2000, respectively, because their inclusion would have been antidilutive.

Foreign currency translation
----------------------------

      Assets  and  liabilities  of  foreign   operations  and  subsidiaries  are
translated  at the year-end  exchange rate and  resulting  translation  gains or
losses are accounted for in a stockholders' equity account entitled "accumulated
other comprehensive loss - foreign currency translation  adjustments." Operating
results of foreign  subsidiaries are translated at average exchange rates during
the  period.  Realized  foreign  currency  transaction  gains or losses were not
material in fiscal years 2002 and 2001.  Realized foreign  currency  transaction
losses  amounting to $420,000 for the fiscal year ended  September  30, 2000 are
reflected in the accompanying consolidated statements of operations.

Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------

      The  preparation  of financial  statements in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the reported amounts of
assets,  liabilities,  revenues and expenses and the  disclosure  of  contingent
assets and  liabilities.  Actual results could differ  significantly  from those
estimates. Significant assumptions are required in the valuation of deferred tax
assets and proved oil and natural gas reserves,  and such assumptions may impact
the amount at which  deferred tax assets and oil and natural gas  properties are
recorded.

Reclassification
----------------

      Certain  reclassifications  have  been  made  to the  September  30,  2001
consolidated  balance sheet to conform to classifications  used in the September
30, 2002 consolidated balance sheet.

3. RECEIVABLES AND CONTRACT COSTS
   ------------------------------
      Accounts receivable,  current, are net of allowances for doubtful accounts
of $17,000 and $26,000 as of September 30, 2002 and 2001, respectively. Included
in accounts  receivable are contract retainage balances of $129,000 and $248,000
as of September 30, 2002 and 2001, respectively.  These balances are expected to
be  collected  within  one  year,  generally  within 45 days  after the  related
contracts have received final acceptance and approval.

      Costs and estimated earnings on uncompleted contracts are as follows:

<PAGE>


                                                           September 30,
                                                    ---------------------------
                                                       2002             2001
                                                    ----------       ----------
Costs incurred on uncompleted contracts             $2,200,000       $1,591,000
Estimated earnings                                     309,000          206,000
                                                    ----------       ----------
                                                     2,509,000        1,797,000
Less billings to date                                2,449,000        1,625,000
                                                    ----------       ----------
                                                    $   60,000       $  172,000
                                                    ==========       ==========

      Costs and estimated earnings on uncompleted  contracts are included in the
consolidated balance sheets under the following captions:

                                                           September 30,
                                                    ---------------------------
                                                       2002             2001
                                                    ----------       ----------
Costs and estimated earnings
  in excess of billings on uncompleted contracts    $  174,000       $  380,000
Billings in excess of costs
  and estimated earnings on uncompleted contracts     (114,000)        (208,000)
                                                    ----------       ----------
                                                    $   60,000       $  172,000
                                                    ==========       ==========


4. INVESTMENT IN LAND
   ------------------

      Barnwell owns a 77.6% controlling  interest in Kaupulehu  Developments,  a
Hawaii  general   partnership   which  owns  interests  in  leasehold  land  and
development  rights for property  located  approximately  six miles north of the
Kona  International  Airport in the North Kona District of the Island of Hawaii.
In previous years,  between 1986 and 1989, Kaupulehu  Developments  obtained the
state and county  zoning  changes  necessary to permit  development  of the Four
Seasons Resort  Hualalai at Historic  Ka'upulehu  and Hualalai Golf Club,  which
opened in 1996, a second golf course, and single and multiple family residential
units.   These   projects  were   developed  on  land  acquired  from  Kaupulehu
Developments  by  Kaupulehu  Makai  Venture,  an  unrelated  entity  that  is an
affiliate of Kajima Corporation of Japan.

      The  leasehold  land  interests  held by  Kaupulehu  Developments  are for
approximately  870 acres of land zoned for  resort/residential  development  and
approximately   1,000  acres  of  land  zoned   conservation   district.   These
approximately  1,870 acres are located adjacent to and north of the Four Seasons
Resort Hualalai at Historic Ka'upulehu,  between the Queen Kaahumanu Highway and
the Pacific Ocean.  Kaupulehu  Developments  is negotiating  with an independent
third  party   interested  in  developing   the   approximately   870  acres  of
resort/residential  leasehold  acreage,  of which  approximately  186 acres were
designated  by the State  Land Use  Commission  as  preservation  areas  with no
residential  or golf  course  development,  and  continues  to make  significant
progress negotiating a revised development  agreement and residential fee simple
purchase prices with the lessor.  Management cannot predict the outcome of these
negotiations.

      The   development   rights  held  by   Kaupulehu   Developments   are  for
residentially  zoned  leasehold  land within and adjacent to the  Hualalai  Golf
Club. In November  2001,  Kaupulehu  Developments  and  Kaupulehu  Makai Venture
agreed to a  restructuring  of  Kaupulehu  Makai  Venture's  option to  purchase
Kaupulehu  Developments'  residential development rights. Under the terms of the
new agreement,  Kaupulehu  Developments  transferred  its leasehold  interest in
approximately 230 of its approximately 1,100 acres of  resort/residential  zoned
land to Kaupulehu Makai Venture and the amount of residential  acreage under the
option was increased to approximately  130 acres. The total amount of the option
proceeds,  if fully exercised,  remained  unchanged at $25,500,000,  however the

<PAGE>

timing of the option  payments  were  restructured  as follows:  two payments of
$2,125,000;  one was paid  December  31, 2001 and the second is due December 31,
2002; and eight payments of $2,656,250 are due on each December 31 of years 2003
to  2010.  If  any  annual  option  payment  is not  made,  the  then  remaining
development right options will expire. There is no assurance that any portion of
the remaining options will be exercised.

      On December 31, 2001, Kaupulehu Makai Venture exercised the portion of its
development  rights  option  due on that  date and paid  Kaupulehu  Developments
$2,125,000  reducing  the amount of acreage  under option to  approximately  120
acres.  Barnwell accounts for sales of development rights under option by use of
the cost recovery method. Under the cost recovery method, no operating profit is
recognized  until cash received  exceeds the cost and the estimated future costs
related to development rights sold. Accordingly, in consolidation, approximately
$1,877,000 of the proceeds from the sales of development  rights were applied to
reduce the carrying value of the  underlying  investment in land in fiscal 2002.
Additionally,  sales of development  rights were further  reduced by $128,000 of
fees paid by Barnwell and Cambridge  Hawaii Limited  Partnership  related to the
sale. The remaining  $120,000 of sales proceeds is recorded in the  Consolidated
Statements of Operations as "Sale of development rights, net."

      The aforementioned $128,000 in fees ($89,000, net of minority interest) on
the $2,125,000  development rights proceeds were paid in January 2002 to Nearco,
Inc. (a company controlled by Mr. Terry Johnston,  a director of Barnwell and an
indirect 21.8% owner of Kaupulehu Developments). Under an agreement entered into
in 1987 (prior to Mr.  Johnston's  election to Barnwell's  Board of  Directors),
Barnwell is obligated to pay Nearco,  Inc. 2% of Kaupulehu  Developments'  gross
receipts from the sale of real estate interests.  In addition,  Cambridge Hawaii
Limited  Partnership  (a 49.9%  partner  of  Kaupulehu  Developments),  in which
Barnwell  purchased  a 55.2%  interest  in April  2001,  is  obligated  under an
agreement entered into in 1987 to pay Nearco, Inc. 4% of Kaupulehu Developments'
gross  receipts  from  the sale of real  estate  interests.  The fees  represent
compensation for promotion and marketing of Kaupulehu Developments' property and
were  determined  based on the estimated fair value of such  services.  Barnwell
believes the fees are fair and reasonable compensation for such services.

      In fiscal 2001,  Barnwell Kona  Corporation,  a wholly owned subsidiary of
Barnwell,  and Nearco,  Inc.  concurrently  acquired  84.1% of Cambridge  Hawaii
Limited  Partnership.  Cambridge Hawaii Limited  Partnership is a Hawaii limited
partnership  whose  only  significant  asset  is a 49.9%  minority  interest  in
Kaupulehu  Developments,  a Hawaii general partnership.  Mr. Johnston previously
indirectly  owned 14.9% of  Cambridge  Hawaii  Limited  Partnership  and was the
president and controlling shareholder of the former general partner of Cambridge
Hawaii Limited  Partnership.  Barnwell Kona  Corporation is now the sole general
partner of Cambridge Hawaii Limited  Partnership.  Barnwell Hawaiian Properties,
Inc., a wholly owned  subsidiary of Barnwell,  presently owns the 50.1% majority
interest in Kaupulehu Developments.

      Barnwell Kona Corporation and Nearco,  Inc.  concurrently  purchased 55.2%
and 28.9% of Cambridge Hawaii Limited Partnership,  respectively.  The interests
were purchased from three limited partnerships and several individual investors,
each of which held partnership interests in Cambridge Hawaii Limited Partnership
(the  "Sellers").  Barnwell and Mr. Johnston  negotiated the purchase price with
the  Sellers  based  on  an  internal  assessment  of  the  value  of  Kaupulehu
Developments' leasehold and development rights. Barnwell Kona Corporation agreed
to pay a total of $4,803,000 for 55.2% of Cambridge  Hawaii Limited  Partnership
at $87,000 per percent, and Nearco, Inc. agreed to pay a total of $2,518,000 for
28.9% of Cambridge Hawaii Limited  Partnership at $87,000 per percent.  Barnwell
Kona  Corporation  and Nearco,  Inc.  also agreed to pay $300,000  ($197,000 and
$103,000,  respectively) to Cambridge Hawaii Limited Partnership for pre-closing
expenses related to this transaction.

<PAGE>

      Barnwell Kona Corporation and Nearco,  Inc. each paid approximately 54% of
their purchase price and the $300,000 referred to above for pre-closing expenses
in cash at closing.  Barnwell Kona  Corporation  paid  $2,791,000 at closing and
signed non-interest bearing promissory notes totaling $2,209,000 due January 31,
2002 for the remaining  approximately 46% of its purchase price. Barnwell loaned
Nearco,  Inc.  $1,463,000  for its  portion  of the  cash  payment  at  closing.
Barnwell's loan to Nearco, Inc. was non-interest bearing and was due January 31,
2002.  Nearco,  Inc. also signed  non-interest  bearing  promissory notes to the
Sellers   totaling   $1,158,000,   due  January  31,  2002,  for  the  remaining
approximately 46% of its purchase price.

      Subsequent to April 12, 2001, Nearco, Inc. purchased an additional 0.4% of
Cambridge Hawaii Limited Partnership; Barnwell loaned Nearco, Inc. an additional
$18,000 for the 54% cash payment of this purchase.

      As  a  result  of  these   transactions,   Mr.  Johnston  indirectly  owns
approximately  44.2% of Cambridge  Hawaii Limited  Partnership and Barnwell owns
approximately  55.2% of Cambridge Hawaii Limited  Partnership.  Barnwell's newly
acquired  interest  in  Cambridge  Hawaii  Limited  Partnership,  together  with
Barnwell's  current 50.1% indirect  interest in Kaupulehu  Developments  held by
Barnwell  Hawaiian  Properties,  Inc.,  results in Barnwell  owning an aggregate
indirect interest of 77.6% in Kaupulehu Developments.  The accounts of Cambridge
Hawaii Limited  Partnership  are included in Barnwell's  consolidated  financial
statements from the acquisition  date (April 12, 2001) using the purchase method
of accounting.

      The purchase  price paid of  $5,000,000  was  allocated to land,  and on a
consolidated  basis  increased the  investment in land by $3,748,000 and reduced
the minority interest by $1,252,000.

      On January 31, 2002,  Barnwell  paid the remaining  $2,209,000  due on the
April 2001 purchase of an additional  27.5% interest in Kaupulehu  Developments.
Also, on January 31, 2002, Nearco,  Inc. repaid $100,000 of its notes receivable
to Barnwell and Barnwell extended the due date of the $1,381,000  balance of its
original $1,481,000  receivable to December 31, 2002. The note bears interest at
10%,  payable   quarterly,   from  February  1,  2002,  and  is  secured  by  an
approximately  22.0%  interest in Kaupulehu  Developments  and an  assignment of
commissions  earned by Nearco,  Inc. on Kaupulehu  Developments'  gross receipts
from the sale of real estate interests.  Barnwell's revised note receivable from
Nearco,  Inc.  is  subordinated  to a $600,000,  10% note due January 31,  2003,
Nearco,  Inc.  made with a third party on January 31, 2002,  to pay a portion of
the remaining monies due on its April 2001 purchase of an additional interest in
Kaupulehu Developments.

      Management  believes  that  Nearco,  Inc.  will  repay its note.  Barnwell
estimates that the current value of Nearco, Inc.'s pledged interest in Kaupulehu
Developments  is  significantly  in excess of the combined  value of its note to
Barnwell and Nearco,  Inc.'s $600,000 note to a third party to which  Barnwell's
note is subordinated.

      Barnwell  did not  receive  any  revenues  in fiscal  2001  related to its
interest in Kaupulehu  Developments.  In fiscal 2000,  Kaupulehu  Makai  Venture
exercised a portion of the option granted in 1990 by Kaupulehu  Developments for
the  development of residential  parcels within the Four Seasons Resort Hualalai
at Historic Ka'upulehu on the Island of Hawaii.  Barnwell recognized revenues of
$6,540,000,  net of costs associated with the  transaction,  from the receipt of
the option monies.

      Costs  related  to  the  land  under  development  and  costs  related  to
development rights under option are capitalized and included in the consolidated
balance  sheets  under the  caption,  "Investment  in Land."  Costs  related  to

<PAGE>

leasehold land under  development and costs related to development  rights under
option were $6,460,000 and $1,280,000, respectively, at September 30, 2002.

5. PROPERTY AND EQUIPMENT
   ----------------------

      Barnwell's property and equipment is detailed as follows:

                                                    Accumulated
                                                   Depreciation,
                                                  Depletion and
                                      Gross        Amortization        Net
                                   ------------    ------------    ------------

  At September 30, 2002:
  ----------------------
  Land                             $    465,000    $     -         $    465,000
  Oil and natural gas properties
   (full cost accounting)            58,108,000     (33,796,000)     24,312,000
  Drilling rigs and equipment         4,340,000      (4,081,000)        259,000
  Other property and equipment        2,783,000      (1,991,000)        792,000
                                   ------------    ------------    ------------
   Total                           $ 65,696,000    $(39,868,000)   $ 25,828,000
                                   ============    ============    ============


  At September 30, 2001:
  ----------------------
  Land                             $    465,000    $     -         $    465,000
  Oil and natural gas properties
   (full cost accounting)            53,820,000     (30,663,000)     23,157,000
  Drilling rigs and equipment         4,627,000      (4,349,000)        278,000
  Other property and equipment        2,765,000      (1,773,000)        992,000
                                   ------------    ------------    ------------
   Total                           $ 61,677,000    $(36,785,000)   $ 24,892,000
                                   ============    ============    ============



6. LONG-TERM DEBT
   --------------

      Barnwell  has a credit  facility  at the Royal Bank of Canada,  a Canadian
bank, for approximately $12,000,000 at September 30, 2002. Borrowings under this
facility  were  $9,961,000  and  $8,267,000  at  September  30,  2002 and  2001,
respectively,  and are  included in  long-term  debt.  At  September  30,  2002,
Barnwell  had unused  credit  available  under this  facility  of  approximately
$2,000,000.

      The facility is available in U.S.  dollars at the London  Interbank  Offer
Rate plus  1-3/4%,  at U.S.  prime plus 1%, or in  Canadian  dollars at Canadian
prime plus 1%. A standby  fee of 1% per annum is charged on the unused  facility
balance. Under the financing agreement,  the facility is reviewed annually, with
the next review planned for April 2003. Subject to that review, the facility may
be extended one year with no required debt  repayments for one year or converted
to a 2-year term loan by the bank. If the facility is converted to a 2-year term
loan,  Barnwell  has  agreed to the  following  repayment  schedule  of the then
outstanding loan balance:  first year of the term period - 20% (5% per quarter),
and in the second  year of the term  period - 80% (5% per  quarter for the first
three quarters and 65% in the final quarter).

      Barnwell has the option to change the currency  denomination  and interest
rate applicable to the loan at periodic  intervals  during the term of the loan.
During the year ended  September  30,  2002,  Barnwell  paid  interest  at rates
ranging from 2.81% to 5.25%.  The weighted average interest rate on the facility
at September 30, 2002 was 3.54%.  The facility is  collateralized  by Barnwell's
interests in its major oil and natural gas properties  and a negative  pledge on
its remaining oil and natural gas properties.  The facility is reviewed annually

<PAGE>

with a  primary  focus on the  future  cash  flows  that  will be  generated  by
Barnwell's  Canadian  oil and  natural  gas  properties.  No  compensating  bank
balances are required for this facility.

      The bank  represented  that it will not require any  repayments  under the
facility on or before September 30, 2003.  Accordingly,  Barnwell has classified
outstanding borrowings under the facility as long-term debt.

      In June 1995,  Barnwell issued $2,000,000 of convertible notes due July 1,
2003.  $1,950,000  of such notes were  purchased  by an  officer/shareholder,  a
director/shareholder,  and certain other shareholders of Barnwell. The notes are
payable in 20 consecutive  equal quarterly  installments  which began in October
1998. Interest is payable quarterly at a rate to be adjusted each quarter to the
greater of 10% per annum or 1% over the prime rate of  interest.  Barnwell  paid
interest on these  convertible  notes at an average  rate of 10.00% per annum in
2002,  10.28%  per annum in 2001 and  10.13%  per  annum in 2000.  The notes are
unsecured  and  convertible  at any time at the  holder's  option into shares of
Barnwell's  common stock at a price of $20.00 per share,  subject to  adjustment
for certain events including a stock split of, or stock dividend on,  Barnwell's
common  stock.  The notes are  redeemable,  at the option of  Barnwell,  without
premium.  In December 2001,  approximately  $71,000 of  convertible  debentures,
including accrued  interest,  were converted to 3,558 shares of Barnwell's stock
at $20 per share;  these shares were issued from  Barnwell's  treasury stock. At
September 30, 2002, the balance of the remaining  convertible  notes of $360,000
is included in the current portion of long-term debt.

      Barnwell  capitalizes interest on costs related to its investment in land.
Interest  costs  for the  years  ended  September  30,  2002,  2001 and 2000 are
summarized as follows:

                                            2002          2001           2000
                                         ----------    ----------     ----------
Interest costs incurred                  $  498,000    $  665,000     $  906,000
Less interest costs
   capitalized on investment in land        202,000       278,000         93,000
                                         ----------    ----------     ----------
Interest expense                         $  296,000    $  387,000     $  813,000
                                         ==========    ==========     ==========


7. TAXES ON INCOME
   ---------------

      The components of earnings before income taxes are as follows:

                                              Year ended September 30,
                                      ----------------------------------------
                                         2002           2001          2000
                                      -----------    -----------   -----------
Earnings (loss)
  before income taxes in:
United States                         $(1,811,000)   $(1,586,000)  $ 1,780,000
Canada                                  3,412,000     10,991,000     7,338,000
                                      -----------    -----------   -----------
                                      $ 1,601,000    $ 9,405,000   $ 9,118,000
                                      ===========    ===========   ===========

<PAGE>

      The  components  of the  provision  for income taxes  related to the above
earnings are as follows:

                                              Year ended September 30,
                                      ----------------------------------------
                                         2002           2001          2000
                                      -----------    -----------   -----------
Current provision:
  United States - Federal             $    21,000    $   160,000   $    50,000
  Canadian                              1,135,000      5,261,000     3,022,000
                                      -----------    -----------   -----------
    Total current                       1,156,000      5,421,000     3,072,000
                                      -----------    -----------   -----------

Deferred provision:
  United States                            42,000         44,000       916,000
  Canadian                                363,000        110,000       120,000
                                      -----------    -----------   -----------
    Total deferred                        405,000        154,000     1,036,000
                                      -----------    -----------   -----------
                                      $ 1,561,000    $ 5,575,000   $ 4,108,000
                                      ===========    ===========   ===========

      Included in the  provision  for  deferred  income taxes for the year ended
September 30, 2002 is a U.S. deferred tax benefit of $376,000 as a result of the
temporary  difference,  created by the excess of expenses  recognized  under the
cost  recovery  method  for books over  expenses  deductible  for tax  purposes,
applicable to the sale of land  development  rights in December 2001. There were
no  deferred  income  tax  benefits  related  to land  sales in the years  ended
September 30, 2001 and 2000.

      During  fiscal  2001,  the  Province  of Alberta  reduced  the  province's
corporate tax rate from 15.5% to 13.5%  effective  April 1, 2001. As a result of
this reduction,  Barnwell recorded an approximately $300,000 deferred income tax
benefit in fiscal  2001;  there was no such  benefit  recorded in fiscal 2002 or
fiscal 2000.

      In April 2002, the legislative  assembly of the Province of Alberta held a
first  reading  and  passed at second  reading a bill to reduce  the  province's
corporate tax rate from 13.5% to 13.0%, effective April 1, 2002. On November 19,
2002,  the bill passed on third  reading and was enacted into law on December 4,
2002;  the  reduction in the tax rate will reduce income tax  liabilities  by an
estimated $75,000 in December 2002.

      A reconciliation  between the reported  provision for income taxes and the
amount  computed by  multiplying  the earnings  before  income taxes by the U.S.
federal tax rate of 35% is as follows:

                                               Year ended September 30,
                                      -----------------------------------------
                                         2002           2001           2000
                                      -----------    -----------    -----------
Tax expense computed
  by applying statutory rate          $   560,000    $ 3,292,000    $ 3,191,000

Effect of the foreign tax
  provision on the
  total tax provision                   1,060,000      2,264,000        906,000
State net operating
  losses utilized (generated)             (22,000)        18,000         83,000
Other                                     (37,000)         1,000        (72,000)
                                      -----------    -----------    -----------
                                      $ 1,561,000    $ 5,575,000    $ 4,108,000
                                      ===========    ===========    ===========

<PAGE>

      The tax effects of  temporary  differences  that give rise to  significant
portions of the deferred tax assets and  deferred tax  liabilities  at September
30, 2002 and 2001 are as follows:

Deferred income tax assets:                              2002         2001
                                                      -----------  -----------
  U.S. tax effect of deferred Canadian taxes          $ 2,391,000  $ 2,279,000
  Foreign tax credit carryforwards                      4,313,000    3,524,000
  Tax basis in investment
    in land in excess of book basis                     1,263,000      873,000
  Write-down of assets not deducted for tax               355,000      355,000
  Alternative minimum tax credit carryforwards            372,000      351,000
  State of Hawaii net operating loss carryforwards        264,000      242,000
  Expenses accrued for books but not for tax              547,000      625,000
  Other                                                     -           61,000
                                                      -----------  -----------
    Total gross deferred tax assets                     9,505,000    8,310,000
    Less-valuation allowance                           (7,595,000)  (6,865,000)
                                                      -----------  -----------
  Net deferred income tax assets                        1,910,000    1,445,000
                                                      -----------  -----------
Deferred income tax liabilities:
  Property and equipment accumulated
    tax depreciation and depletion
    in excess of book under Canadian tax law           (7,033,000)  (6,703,000)
  Property and equipment accumulated
    tax depreciation and depletion
    in excess of book under U.S. tax law               (1,768,000)  (1,270,000)
  Other                                                  (328,000)    (319,000)
                                                      -----------  -----------
  Total deferred income tax liabilities                (9,129,000)  (8,292,000)
                                                      -----------  -----------

Net deferred income tax liability                     $(7,219,000) $(6,847,000)
                                                      ===========  ===========


      The total valuation allowance increased $730,000, $1,849,000 and $906,000,
for the  years  ended  September  30,  2002,  2001 and 2000,  respectively.  The
increases relate primarily to foreign tax credit  carryforwards  for which it is
more  likely  than not that such  carryforwards  will not be  utilized to reduce
Barnwell's U.S. tax obligation.

      A valuation  allowance  is  provided  when it is more likely than not that
some portion or all of the deferred tax asset will not be realized. Barnwell has
established a valuation  allowance primarily for the U.S. tax effect of deferred
Canadian taxes,  foreign tax credits,  accrued  expenses and state of Hawaii net
operating  loss  carryforwards  which may not be  realizable  in future years as
there can be no assurance  of any specific  level of earnings or that the timing
of U.S.  earnings  will  coincide  with the payment of Canadian  taxes to enable
Canadian taxes to be fully deducted (or recoverable) for U.S. tax purposes.

      Net deferred tax assets of $1,910,000  consists primarily of $1,263,000 of
deferred  tax assets  related to the excess of the cost basis of  investment  in
land  for tax  purposes  over  the cost  basis  of  investment  in land for book
purposes.  This deferred tax asset will be realized through the deduction of the
cost basis of investment in land for tax purposes  against future  proceeds from
sales of interests in leasehold land and land development  rights. The amount of
deferred income tax assets considered  realizable may be reduced if estimates of
future taxable income are reduced.

      At  September  30,  2002,  Barnwell  had  alternative  minimum  tax credit
carryforwards  of $372,000  which are  available to reduce  future U.S.  federal
regular income taxes, if any, over an indefinite period.

<PAGE>

8. PENSION PLAN
   ------------

      Barnwell sponsors a noncontributory  defined benefit pension plan covering
substantially all of its U.S. employees, with benefits based on years of service
and the employee's highest  consecutive  five-year average earnings.  Barnwell's
funding  policy is intended to provide for both  benefits  attributed to service
to-date and for those  expected  to be earned in the future.  The plan assets at
September  30, 2002 were invested as follows:  9% in cash and cash  equivalents,
39% listed government mortgages and 52% common stocks and equity mutual funds.

      The funded  status of the pension plan and the amounts  recognized  in the
consolidated financial statements are as follows:

                                                             September 30,
                                                      ------------------------
                                                         2002          2001
                                                      ----------    ----------
Change in Benefit Obligation
  Benefit obligation at beginning of year             $2,197,000    $2,094,000
  Service cost                                            94,000        94,000
  Interest cost                                          161,000       152,000
  Actuarial loss (gain)                                  421,000        (4,000)
  Benefits paid                                         (120,000)     (139,000)
                                                      ----------    ----------

  Benefit obligation at end of year                    2,753,000     2,197,000
                                                      ----------    ----------

Change in Plan Assets
  Fair value of plan assets at beginning of year       2,146,000     2,500,000
  Actual return on plan assets                          (171,000)     (215,000)
  Employer contribution                                    -             -
  Benefits paid                                         (120,000)     (139,000)
                                                      ----------    ----------

  Fair value of plan assets at end of year             1,855,000     2,146,000
                                                      ----------    ----------

  Funded status                                         (898,000)      (51,000)
  Unrecognized net asset                                   -            (1,000)
  Unrecognized prior service cost                         18,000        23,000
  Unrecognized actuarial loss (gain)                     636,000      (122,000)
                                                      ----------    ----------

  Accrued benefit cost                                $ (244,000)   $ (151,000)
                                                      ==========    ==========

Weighted-Average Assumptions as of September 30,         2002          2001
                                                      ----------    ----------
  Discount rate                                            6.50%         7.50%
  Expected return on plan assets                           8.00%         8.00%
  Rate of compensation increase                            5.00%         5.00%

                                               Year ended September 30,
                                         -------------------------------------
                                           2002          2001          2000
                                         ---------     ---------     ---------
Net Periodic Benefit Cost for the Year
  Service cost                           $  94,000     $  94,000     $  78,000
  Interest cost                            161,000       152,000       145,000
  Expected return on plan assets          (167,000)     (195,000)     (180,000)
  Amortization of net asset                 (1,000)       (1,000)       (1,000)
  Amortization of prior service cost         6,000         6,000         6,000
  Amortization of net actuarial gain         -           (13,000)      (12,000)
                                         ---------     ---------     ---------

  Net periodic benefit cost              $  93,000     $  43,000     $  36,000
                                         =========     =========     =========

<PAGE>

9. STOCK OPTIONS
   -------------

      In March 1995,  Barnwell  granted  20,000  stock  options to an officer of
Barnwell  under a  non-qualified  plan at a purchase  price of $19.625 per share
(market  price on date of grant),  with 4,000 of such options  vesting  annually
commencing  one  year  from  the  date  of  grant.   These  options  have  stock
appreciation  rights  that  permit  the  holder  to  receive  stock,  cash  or a
combination  thereof equal to the amount by which the fair market value,  at the
time of exercise of the option, exceeds the option price. The options expire ten
years from the date of grant.  Barnwell  recognized  $6,000 of compensation cost
relating to these options in the year ended  September 30, 2002. No compensation
cost has been  recognized  for these  options for the years ended  September 30,
2001 and 2000.

      In June  1998,  Barnwell  granted  30,000  stock  options to an officer of
Barnwell's oil and gas segment under a non-qualified plan at a purchase price of
$15.625 per share  (market  price on date of grant),  with 6,000 of such options
vesting annually  commencing one year from the date of grant. These options have
stock  appreciation  rights that permit the holder to receive  stock,  cash or a
combination  thereof equal to the amount by which the fair market value,  at the
time of exercise of the option, exceeds the option price. The options expire ten
years from the date of grant.  Barnwell recognized $43,000,  $38,000 and $46,000
of compensation costs relating to these options in the years ended September 30,
2002, 2001 and 2000, respectively.

      In December  1999,  Barnwell  granted  qualified  stock options to certain
employees of Barnwell to acquire  68,000  shares and 29,000 shares of Barnwell's
common stock with an exercise  price per share of $11.875  (market price at date
of grant) and  $13.063  (110% of market  price at date of grant),  respectively.
These options vest annually over four years commencing one year from the date of
grant.  The $11.875 per share  options  expire ten years from the date of grant,
and the $13.063 per share options  expire five years from the date of grant.  No
compensation cost was recognized for these options for the years ended September
30, 2002, 2001 and 2000.  36,000 shares were available for grant under this plan
at September 30, 2002.

      Barnwell applies the provisions of Accounting Principles Board Opinion No.
25 in accounting for stock-based  compensation  and adopted the  disclosure-only
provisions of Statement of Financial  Accounting  Standards No. 123, "Accounting
for Stock-Based Compensation",  effective October 1, 1996. Had compensation cost
for the stock  options  granted in June 1998 and December  1999 been  determined
based on the fair value method of measuring stock-based  compensation provisions
of Statement of Financial  Accounting  Standards No. 123,  Barnwell's net (loss)
earnings  and basic and  diluted  (loss)  earnings  per share would have been as
follows:

                                             Years ended September 30,
                                        ------------------------------------
                                           2002         2001         2000
                                        ----------  -----------  -----------
Pro-forma net (loss) earnings           $  (55,000) $ 3,645,000  $ 4,750,000
                                        ==========  ===========  ===========

Pro-forma basic
  (loss) earnings per share             $    (0.04) $      2.78  $      3.61
                                        ==========  ===========  ===========

Pro-forma diluted
  (loss) earnings per share             $    (0.04) $      2.69  $      3.49
                                        ==========  ===========  ===========

      Fair  value  measurement  of these  options  was based on a  Black-Scholes
option-pricing  model which included  assumptions of a weighted average expected
life of 5.97 years,  expected  volatility  of 30%,  weighted  average  risk-free
interest rate of 6.12%, and an expected  dividend yield of 0%. The pro-forma net
earnings reflect only options granted since October 1, 1995. Therefore, the full
impact of  calculating  compensation  cost for stock options under  Statement of

<PAGE>

Financial  Accounting  Standards  No.  123 is  not  reflected  in the  pro-forma
earnings reported above because compensation cost is reflected over the options'
vesting  periods and  compensation  cost for options granted prior to October 1,
1995 is not considered.

      During  the year  ended  September  30,  2002,  3,000  options  to acquire
Barnwell's  stock at  $11.875  per share were  forfeited.  During the year ended
September  30, 2001,  1,000 options to acquire  Barnwell's  stock at $11.875 per
share were exercised.

      Stock options at September 30, 2002 were as follows:

                               Options outstanding          Options exercisable
                       ----------------------------------  --------------------
                                    Weighted
                                     Average     Weighted               Weighted
                                    Remaining    Average                 Average
       Range of         Number of  Contractual   Exercise   Number of   Exercise
    exercise prices      Shares       Life        Price      Shares       Price
    ---------------    ----------  -----------  ---------  ----------   --------
   $11.875 - $15.625      123,000   5.6 years      $13.07      70,500     $13.40
        $19.625            20,000   2.4 years      $19.63      20,000     $19.63
                       ----------                          ----------

   $11.875 - $19.625      143,000   5.2 years      $13.99      90,500     $14.77
                       ==========                          ==========


      Stock options at September 30, 2001 were as follows:

                               Options outstanding          Options exercisable
                       ----------------------------------  --------------------
                                    Weighted
                                     Average     Weighted               Weighted
                                    Remaining    Average                 Average
       Range of         Number of  Contractual   Exercise   Number of   Exercise
    exercise prices      Shares       Life        Price      Shares       Price
    ---------------    ----------  -----------  ---------  ----------   --------
   $11.875 - $15.625      126,000   6.7 years      $13.04      41,250     $13.72
        $19.625            20,000   3.4 years      $19.63      20,000     $19.63
                       ----------                          ----------

   $11.875 - $19.625      146,000   6.2 years      $13.94      61,250     $15.65
                       ==========                          ==========


      Stock options at September 30, 2000 were as follows:

                               Options outstanding          Options exercisable
                       ----------------------------------  --------------------
                                    Weighted
                                     Average     Weighted               Weighted
                                    Remaining    Average                 Average
       Range of         Number of  Contractual   Exercise   Number of   Exercise
    exercise prices      Shares       Life        Price      Shares       Price
    ---------------    ----------  -----------  ---------  ----------   --------
   $11.875 - $15.625      127,000   7.7 years      $13.03      12,000     $15.63
        $19.625            20,000   4.4 years      $19.63      20,000     $19.63
                       ----------                          ----------

   $11.875 - $19.625      147,000   7.2 years      $13.93      32,000     $18.13
                       ==========                          ==========


      In  December  2001,   approximately  $71,000  of  convertible  debentures,
including accrued interest, was converted to 3,558 shares of Barnwell's stock at
$20 per share; these shares were issued from Barnwell's  treasury stock.  During
the year ended  September  30, 2001,  Barnwell  repurchased  1,000 shares of its

<PAGE>

common stock from an employee  arising  from the  exercise of stock  options for
$19,750 at the then  prevailing  market  price under a March 2000 stock  buyback
plan  authorizing the repurchase of up to 100,000 shares.  During the year ended
September 30, 2000, Barnwell repurchased 6,000 shares of its common stock on the
open market for $93,000 (average price of $15.50 per share) under the March 2000
stock buyback plan. Barnwell plans to repurchase  additional shares from time to
time in the open market or in privately  negotiated  transactions,  depending on
market conditions.  At September 30, 2002, Barnwell could purchase an additional
93,000 shares under the March 2000 repurchase authorization.

10. COMMITMENTS AND CONTINGENCIES
    -----------------------------

      Barnwell  has  committed  to  compensate  its Vice  President  of Canadian
Operations  pursuant  to an  incentive  compensation  plan,  the  value of which
directly  relates to Barnwell's oil and natural gas segment's net income and the
change  in the  value  of  Barnwell's  oil  and gas  reserves  since  1998  with
adjustments for changes in natural gas and oil prices and subject to other terms
and conditions. Barnwell recognized a $48,000 benefit pursuant to this incentive
plan in fiscal  2002 and  $288,000  of  compensation  expense  pursuant  to this
incentive  plan in fiscal  2000;  there was no  compensation  expense or benefit
recognized in fiscal 2001.

      Barnwell  has also  committed to  compensate  certain  Canadian  personnel
pursuant to an incentive  compensation plan, the value of which directly relates
to  Barnwell's  oil and  natural  gas  segment's  net  income  and the  value of
Barnwell's  oil and gas reserves  discovered,  commencing  in fiscal  2002,  for
projects  developed  by such  personnel.  Barnwell  recognized  no  compensation
expense pursuant to this plan in fiscal 2002.

      Barnwell has several non-cancelable  operating leases for office space and
leasehold  land.  Rental  expense  was  $467,000  in 2002,  $460,000 in 2001 and
$406,000 in 2000.  Barnwell is committed  under these leases for minimum  rental
payments summarized by fiscal year as follows: 2003 - $495,000, 2004 - $363,000,
2005 - $214,000, 2006 - $124,000, 2007 - $124,000 and thereafter through 2026 an
aggregate of $1,326,000.

      Barnwell is occasionally  involved in routine litigation and is subject to
governmental and regulatory  controls that are incidental to the ordinary course
of  business.  Barnwell's  management  believes  that all claims and  litigation
involving  Barnwell  are not  likely to have a  material  adverse  effect on its
financial statements taken as a whole.

11. SEGMENT AND GEOGRAPHIC INFORMATION
    ----------------------------------

      Barnwell operates three segments: exploring for, developing, producing and
selling oil and natural gas (oil and natural gas);  investing in leasehold  land
in Hawaii (land  investment);  and drilling  wells and  installing and repairing
water  pumping  systems in Hawaii  (contract  drilling).  Barnwell's  reportable
segments  are  strategic  business  units  that  offer  different  products  and
services.  They  are  managed  separately  as each  segment  requires  different
operational methods, operational assets and marketing strategies, and operate in
different geographical locations.

<PAGE>

      Barnwell does not allocate general and administrative  expenses,  interest
expense,  interest  income  or  income  taxes  to  segments,  and  there  are no
transactions between segments that affect segment profit or loss.
<TABLE>
<CAPTION>

                                                   Year ended September 30,
                                        ---------------------------------------------
                                            2002            2001             2000
                                        -----------      -----------      -----------
Revenues:
<S>                                     <C>              <C>              <C>
  Oil and natural gas                   $11,320,000      $19,870,000      $15,270,000
  Contract drilling                       3,480,000        3,290,000        3,520,000
  Land investment                           120,000            -            6,540,000
  Other                                     698,000          601,000          891,000
                                        -----------      -----------      -----------
  Total before interest income           15,618,000       23,761,000       26,221,000
  Interest income                           262,000          329,000          349,000
                                        -----------      -----------      -----------
  Total revenues                        $15,880,000      $24,090,000      $26,570,000
                                        ===========      ===========      ===========

Depreciation, depletion and amortization:
  Oil and natural gas                   $ 3,315,000      $ 3,416,000      $ 3,121,000
  Contract drilling                         118,000          116,000          176,000
  Other                                     215,000          222,000          275,000
                                        -----------      -----------      -----------
  Total                                 $ 3,648,000      $ 3,754,000      $ 3,572,000
                                        ===========      ===========      ===========

Operating profit (loss)
  (before general and
  administrative expenses):
  Oil and natural gas                   $ 4,897,000      $12,945,000      $ 9,021,000
  Contract drilling                         541,000          268,000          603,000
  Land investment,
    net of minority interest                 58,000           (8,000)       3,232,000
  Other                                     483,000          379,000          616,000
                                        -----------      -----------      -----------
  Total                                   5,979,000       13,584,000       13,472,000

     General and
       administrative expenses           (4,344,000)      (4,121,000)      (3,470,000)
     Interest income                        262,000          329,000          349,000
     Interest expense                      (296,000)        (387,000)        (813,000)
     Foreign exchange losses                  -                -             (420,000)
                                        -----------      -----------      -----------
       Earnings before income taxes     $ 1,601,000      $ 9,405,000      $ 9,118,000
                                        ===========      ===========      ===========

Capital expenditures:
  Oil and natural gas                   $ 4,581,000      $ 4,240,000      $ 5,003,000
  Land investment                           944,000        5,954,000          631,000
  Contract drilling                          77,000           84,000          393,000
  Other                                      42,000          180,000          222,000
                                        -----------      -----------      -----------
  Total                                 $ 5,644,000      $10,458,000      $ 6,249,000
                                        ===========      ===========      ===========
<FN>

      Depletion  per 1,000  cubic feet  ("MCF") of natural  gas and  natural gas
equivalent  ("MCFE"),  converted  at a rate of one barrel of oil and natural gas
liquids to 5.8 MCFE, was $0.71 in fiscal 2002, $0.70 in fiscal 2001 and $0.60 in
fiscal 2000.
</FN>
</TABLE>

      Land investment  capital  expenditures in 2001 include  $5,000,000 for the
purchase of the additional  27.5% interest in Kaupulehu  Developments.  Barnwell
paid $2,791,000 in cash and $2,209,000 in non-interest bearing promissory notes.

<PAGE>
<TABLE>
<CAPTION>

ASSETS BY SEGMENT:
------------------
                                                    September 30,
                              -----------------------------------------------------------
                                    2002                 2001                 2000
                              -----------------    -----------------    -----------------
<S>                           <C>          <C>     <C>          <C>     <C>          <C>
  Oil and natural gas (1)     $ 27,113,000  66%    $ 24,973,000  57%    $ 25,686,000  66%
  Contract drilling (2)          1,931,000   5%       2,128,000   5%       1,925,000   5%
  Land investment (2)            7,740,000  19%       8,677,000  20%       3,975,000  10%
  Other:
    Cash and
      cash equivalents           1,489,000   4%       5,154,000  12%       5,701,000  15%
    Corporate and other          2,401,000   6%       2,739,000   6%       1,373,000   4%
                              ------------ ----    ------------ ----    ------------ ----
Total                         $ 40,674,000 100%    $ 43,671,000 100%    $ 38,660,000 100%
                              ============ ====    ============ ====    ============ ====
<FN>
(1) Primarily located in the Province of Alberta, Canada.
(2) Located in Hawaii.
</FN>
</TABLE>

LONG-LIVED ASSETS BY GEOGRAPHIC AREA:
-------------------------------------

                                          September 30,
                    -----------------------------------------------------------
                          2002                 2001                 2000
                    -----------------    -----------------    -----------------
United States       $  8,962,000  27%    $ 10,075,000  30%    $  5,383,000  18%
Canada                24,606,000  73%      23,494,000  70%      23,940,000  82%
                    ------------ ----    ------------ ----    ------------ ----
Total               $ 33,568,000 100%    $ 33,569,000 100%    $ 29,323,00  100%
                    ============ ====    ============ ====    ============ ====


REVENUE BY GEOGRAPHIC AREA:
---------------------------
                                               Year ended September 30,
                                      ------------------------------------------
                                         2002           2001            2000
                                      -----------    -----------     -----------
   United States                      $ 3,766,000    $ 3,397,000     $10,175,000
   Canada                              11,852,000     20,364,000      16,046,000
                                      -----------    -----------     -----------
   Total (excluding interest income)  $15,618,000    $23,761,000     $26,221,000
                                      ===========    ===========     ===========


12. FAIR VALUE OF FINANCIAL INSTRUMENTS
    -----------------------------------

      The carrying amounts of cash and cash  equivalents,  accounts  receivable,
notes  receivable,  accounts  payable and notes payable  approximate  fair value
because  of the short  maturity  of these  instruments.  The  carrying  value of
long-term debt approximates  fair value as the terms approximate  current market
terms for similar debt instruments of comparable risk and maturities.

      The  differences  between the estimated fair values and carrying values of
Barnwell's financial instruments are not material.

13. CONCENTRATIONS OF CREDIT RISK
    -----------------------------

      Barnwell's oil and natural gas segment  derived 76% of its oil and natural
gas revenues in fiscal 2002 from five individually significant customers, ProGas
Limited,  Plains  Marketing Ltd.,  AltaGas  Services Inc.,  Engage Energy Canada
L.P., and Petrogas Marketing Ltd. At September 30, 2002, Barnwell had a total of
$943,000 in  receivables  from these five  customers.  In fiscal  2001  Barnwell
derived  83%  of its  oil  and  natural  gas  revenues  from  four  individually
significant customers.

<PAGE>

      Barnwell's  contract drilling  subsidiary  derived 70%, 49% and 70% of its
contract drilling revenues in fiscal 2002, 2001 and 2000, respectively, pursuant
to  Federal,  State of Hawaii and  county  contracts.  At  September  30,  2002,
Barnwell had accounts  receivables from the Federal,  State of Hawaii and county
entities totaling approximately $736,000.  Barnwell has lien rights on contracts
with the Federal, State of Hawaii, and county governments.

      Historically,  Barnwell has not incurred significant credit related losses
on its trade  receivables,  and management does not believe  significant  credit
risk related to these trade receivables exists at September 30, 2002.

14. SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
    -------------------------------------------------

      The  following  details  the  effect of  changes  in  current  assets  and
liabilities  on  the  consolidated   statements  of  cash  flows,  and  presents
supplemental cash flow information:
<TABLE>
<CAPTION>

                                                    Year ended September 30,
                                            ---------------------------------------
                                                2002          2001          2000
                                            -----------    ----------    ----------
(Decrease) increase from changes in:

<S>                                         <C>            <C>           <C>
  Receivables                               $  (622,000)   $   80,000    $   82,000
  Costs and estimated earnings in excess
    of billings on uncompleted contracts        206,000       116,000      (324,000)
  Inventories                                    18,000       (29,000)       25,000
  Other current assets                         (356,000)     (185,000)     (233,000)
  Accounts payable                              148,000       551,000       (42,000)
  Accrued expenses                               21,000       667,000     1,454,000
  Billings in excess of costs and
    estimated earnings on uncompleted
    contracts                                   (94,000)     (142,000)      211,000
  Payable to joint interest owners              403,000      (436,000)      148,000
  Income taxes payable                       (2,311,000)    1,790,000       305,000
                                            -----------    ----------    ----------
    (Decrease) increase from changes
    in current assets and liabilities       $(2,587,000)   $2,412,000    $1,626,000
                                            ===========    ==========    ==========

Supplemental disclosure of cash flow information:

Cash paid during the year for:
  Interest (net of amounts capitalized)     $   303,000    $  423,000    $  848,000
                                            ===========    ==========    ==========

  Income taxes                              $ 3,812,000    $3,705,000    $2,817,000
                                            ===========    ==========    ==========
</TABLE>

Supplemental disclosure of Non-cash Investing and Financing Activities:

    In December 2001, approximately $71,000 of convertible debentures, including
    accrued  interest,  was converted to 3,558 shares of Barnwell's stock at $20
    per share; these shares were issued from Barnwell's treasury stock.

    In  April  2001,  Barnwell  purchased  55.2%  of  Cambridge  Hawaii  Limited
    Partnership  for  $5,000,000.  $2,791,000  was paid  upon  closing,  and the
    remaining  balance of $2,209,000 was financed by non-interest  bearing notes
    payable. The $2,209,000 of notes payable was paid in fiscal 2002.

<PAGE>

15. SUPPLEMENTARY OIL AND NATURAL GAS INFORMATION (UNAUDITED)
    ---------------------------------------------------------

      The following tables summarize  information relative to Barnwell's oil and
natural gas  operations,  which are  substantially  conducted in Canada.  Proved
reserves are the estimated  quantities of crude oil,  condensate and natural gas
which geological and engineering  data demonstrate with reasonable  certainty to
be recoverable in future years from known reservoirs under existing economic and
operating  conditions.  Proved developed  producing oil and natural gas reserves
are reserves that can be expected to be recovered  through  existing  wells with
existing equipment and operating  methods.  The estimated net interests in total
proved  developed  and  proved  developed  producing  reserves  are  based  upon
subjective engineering judgments and may be affected by the limitations inherent
in such estimations.  The process of estimating reserves is subject to continual
revision as additional  information  becomes  available as a result of drilling,
testing,  reservoir  studies and production  history.  There can be no assurance
that such estimates will not be materially revised in subsequent periods.

(A)   Oil and Natural Gas Reserves
      ----------------------------

      The  following  table,  based  on  information   prepared  by  independent
petroleum engineers,  Paddock Lindstrom & Associates Ltd., summarizes changes in
the estimates of Barnwell's net interests in total proved  reserves of crude oil
and  condensate  and natural gas ("MCF"  means 1,000 cubic feet of natural  gas)
which are all in Canada:

                                                     OIL              GAS
                                                  (Barrels)          (MCF)
                                                  ---------       ----------
Balance at September 30, 1999                     2,138,000       36,879,000

  Increase in royalty rates*                       (131,000)      (5,699,000)
  Revisions of previous estimates                    (7,000)        (300,000)
  Extensions, discoveries and other additions        72,000        2,417,000
  Less production                                  (291,000)      (3,501,000)
                                                  ---------       ----------
Balance at September 30, 2000                     1,781,000       29,796,000

  Decrease in royalty rates*                        104,000        2,482,000
  Revisions of previous estimates                  (111,000)      (1,695,000)
  Extensions, discoveries and other additions        34,000        1,057,000
  Less production                                  (272,000)      (3,269,000)
                                                  ---------       ----------
Balance at September 30, 2001                     1,536,000       28,371,000

  Revisions of previous estimates                   184,000          985,000
  Extensions, discoveries and other additions        49,000        1,087,000
  Less production                                  (242,000)      (3,277,000)
                                                  ---------       ----------
Balance at September 30, 2002                     1,527,000       27,166,000
                                                  =========       ==========

*  The deduction or addition of reserve units due to royalty rates is the result
   of Alberta's  royalties being  calculated on a sliding scale basis,  with the
   royalty  percentage  increasing as prices  increase.  The Province of Alberta
   takes its royalty  share of  production  based on  commodity  prices;  as all
   commodity prices were significantly higher at September 30, 2000, as compared
   to September 30, 1999,  significantly more reserves were deducted for royalty
   volumes at September 30, 2000, as compared to September 30, 1999. Conversely,
   as all commodity  prices were  significantly  lower at September 30, 2001, as
   compared to September 30, 2000, significantly less reserves were deducted for
   royalty volumes at September 30, 2001, as compared to September 30, 2000.

<PAGE>

                                                     OIL            GAS
Proved producing reserves at:                      (Barrels)       (MCF)
                                                   ---------     ----------
September 30, 1999                                 1,759,000     25,908,000
                                                   =========     ==========
September 30, 2000                                 1,508,000     20,594,000
                                                   =========     ==========
September 30, 2001                                 1,327,000     21,847,000
                                                   =========     ==========
September 30, 2002                                 1,303,000     19,612,000
                                                   =========     ==========


(B)   Capitalized Costs Relating to Oil and Natural Gas Producing Activities
      ----------------------------------------------------------------------

                                                 September 30,
                                  -------------------------------------------
                                     2002            2001            2000
                                  -----------     -----------     -----------
Proved properties                 $56,959,000     $51,668,000     $50,271,000
Unproved properties                 1,149,000       2,152,000       2,191,000
                                  -----------     -----------     -----------
  Total capitalized costs          58,108,000      53,820,000      52,462,000
Accumulated depletion
  and depreciation                 33,796,000      30,663,000      28,945,000
                                  -----------     -----------     -----------
Net capitalized costs             $24,312,000     $23,157,000     $23,517,000
                                  ===========     ===========     ===========


(C)   Costs  Incurred in Oil and Natural Gas Property  Acquisition,  Exploration
      --------------------------------------------------------------------------
      and Development
      ---------------

                                            Year ended September 30,
                                  -------------------------------------------
                                     2002            2001            2000
                                  -----------     -----------     -----------
Acquisition of properties:
  Unproved, Canadian              $   262,000     $   468,000     $   540,000
                                  ===========     ===========     ===========

Exploration costs:
  Canadian                        $ 1,007,000     $   431,000     $   813,000
  United States                        -              172,000         167,000
                                  -----------     -----------     -----------
                                  $ 1,007,000     $   603,000     $   980,000
                                  ===========     ===========     ===========

Development costs, Canadian       $ 3,312,000     $ 3,169,000     $ 3,483,000
                                  ===========     ===========     ===========


(D)   The Results of Operations of  Barnwell's Oil and Natural  Gas  Producing
      ------------------------------------------------------------------------
      Activities
      ----------
                                            Year ended September 30,
                                  -------------------------------------------
                                     2002             2001            2000
                                  -----------     -----------     -----------
Gross revenues:

  Canada                          $14,824,000     $27,615,000     $19,054,000
  United States                        72,000          80,000         103,000
                                  -----------     -----------     -----------
Total gross revenues               14,896,000      27,695,000      19,157,000
Royalties, net of credit            3,576,000       7,825,000       3,887,000
                                  -----------     -----------     -----------
Net revenues                       11,320,000      19,870,000      15,270,000
Production costs                    3,108,000       3,509,000       3,128,000
Depletion and depreciation          3,315,000       3,416,000       3,121,000
                                  -----------     -----------     -----------
Pre-tax results of operations*      4,897,000      12,945,000       9,021,000
Estimated income tax expense        2,450,000       6,398,000       4,271,000
                                  -----------     -----------     -----------
Results of operations*            $ 2,447,000     $ 6,547,000     $ 4,750,000
                                  ===========     ===========     ===========

*  Before general and  administrative  expenses,  interest expense,  and foreign
   exchange losses.

<PAGE>

(E)   Standardized Measure, Including Year-to-Year Changes Therein, of Estimated
      --------------------------------------------------------------------------
      Discounted Future Net Cash Flows
      --------------------------------

      The following tables have been developed pursuant to procedures prescribed
by Statement  of  Financial  Accounting  Standards  69, and utilize  reserve and
production data estimated by petroleum engineers.  The information may be useful
for  certain  comparison  purposes  but  should  not be  solely  relied  upon in
evaluating Barnwell or its performance.  Moreover, the projections should not be
construed  as  realistic   estimates  of  future  cash  flows,  nor  should  the
standardized measure be viewed as representing current value.

      The  estimated  future cash flows are based on sales  prices,  costs,  and
statutory  income  tax  rates in  existence  at the  dates  of the  projections.
Material revisions to reserve estimates may occur in the future, development and
production  of the oil and  natural  gas  reserves  may not occur in the periods
assumed and actual  prices  realized and actual  costs  incurred are expected to
vary  significantly  from  those  used.  Management  does  not  rely  upon  this
information  in  making  investment  and  operating  decisions;   rather,  those
decisions  are  based  upon a wide  range of  factors,  including  estimates  of
probable  reserves  as well as proved  reserves  and price and cost  assumptions
different than those reflected herein.

Standardized Measure of Estimated Discounted Future Net Cash Flows
------------------------------------------------------------------

                                             As of September 30,
                                ----------------------------------------------
                                    2002             2001             2000
                                ------------     ------------     ------------
Future cash inflows             $101,448,000     $ 82,347,000     $159,328,000

Future production costs          (30,537,000)     (28,883,000)     (32,309,000)

Future development costs          (1,263,000)      (1,216,000)      (1,397,000)
                                ------------     ------------     ------------
Future net cash
  flows before income taxes       69,648,000       52,248,000      125,622,000

Future income tax expenses       (17,442,000)     (18,783,000)     (51,516,000)
                                ------------     ------------     ------------
Future net cash flows             52,206,000       33,465,000       74,106,000

10% annual discount
  for timing of cash flows       (19,587,000)     (12,192,000)     (31,606,000)
                                ------------     ------------     ------------
Standardized measure of
  estimated discounted
  future net cash flows         $ 32,619,000     $ 21,273,000     $ 42,500,000
                                ============     ============     ============

<PAGE>

Changes  in  the Standardized  Measure of  Estimated Discounted  Future Net Cash
--------------------------------------------------------------------------------
Flows
-----

                                                  Year ended September 30,
                                      -----------------------------------------
                                         2002           2001           2000
                                      -----------    -----------    -----------
Beginning of year                     $21,273,000    $42,500,000    $28,757,000
                                      -----------    -----------    -----------
Sales of oil and natural gas
  produced, net of production costs    (8,210,000)   (16,281,000)   (12,142,000)

Net changes in prices and
  production costs, net of
  royalties and wellhead taxes         12,469,000    (25,205,000)    33,265,000

Extensions and discoveries              1,989,000      1,438,000      6,132,000

Revisions of previous
  quantity estimates                    2,657,000         29,000         38,000

Net change in Canadian
  dollar translation rate                 (41,000)    (1,640,000)      (358,000)

Changes in the timing of
  future production and other          (1,224,000)    (1,152,000)    (1,755,000)

Net change in income taxes              1,957,000     18,178,000    (14,166,000)

Accretion of discount                   1,749,000      3,406,000      2,729,000
                                      -----------    -----------    -----------

Net change                             11,346,000    (21,227,000)    13,743,000
                                      -----------    -----------    -----------

End of year                           $32,619,000    $21,273,000    $42,500,000
                                      ===========    ===========    ===========


Item 8.     Changes in and Disagreements  with Accountants on Accounting and
            ----------------------------------------------------------------
            Financial Disclosure
            --------------------

            None.

                                    PART III

Item 9.     Directors,  Executive  Officers,  Promoters  and   Control  Persons,
            --------------------------------------------------------------------
            Compliance With Section 16(a) of the Exchange Act -- See Note (A)
            -----------------------------------------------------------------

Item 10.    Executive Compensation -- see Note (A)
            --------------------------------------

Item 11.    Security Ownership of Certain Beneficial Owners  and Management - -
            --------------------------------------------------------------------
            see Note (A)
            ------------
<PAGE>
Equity Compensation Plan Information
------------------------------------

      The following table provides  information  about  Barnwell's  common stock
that may be issued upon  exercise of options and rights under all of  Barnwell's
existing equity compensation plans as of September 30, 2002:

                                  (a)              (b)              (c)
                                                            Number of securities
                               Number of        Weighted-   remaining available
                              securities         average    for future issuance
                           to be issued upon     price of       under equity
                              exercise of      outstanding   compensation plans
                              outstanding        options,  (excluding securities
                           options, warrants     warrants      reflected in
Plan Category                  and rights       and rights       column (a))
-------------------------  -----------------   ------------   ----------------
Equity compensation plans
  approved by
  security holders               93,000           $12.25            36,000
Equity compensation plans
  not approved by
  security holders               50,000           $17.23              -
                                -------                             ------
   Total                        143,000           $13.99            36,000
                                =======                             ======

      Equity compensation plans not approved by security holders is comprised of
the following plans:

      In March 1995,  Barnwell  granted  20,000  stock  options to an officer of
Barnwell  under a  non-qualified  plan at a purchase  price of $19.625 per share
(market  price on date of grant),  with 4,000 of such options  vesting  annually
commencing  one  year  from  the  date  of  grant.   These  options  have  stock
appreciation  rights  that  permit  the  holder  to  receive  stock,  cash  or a
combination  thereof equal to the amount by which the fair market value,  at the
time of exercise of the option, exceeds the option price. The options expire ten
years from the date of grant.

      In June  1998,  Barnwell  granted  30,000  stock  options to an officer of
Barnwell's oil and gas segment under a non-qualified plan at a purchase price of
$15.625 per share  (market  price on date of grant),  with 6,000 of such options
vesting annually  commencing one year from the date of grant. These options have
stock  appreciation  rights that permit the holder to receive  stock,  cash or a
combination  thereof equal to the amount by which the fair market value,  at the
time of exercise of the option, exceeds the option price. The options expire ten
years from the date of grant.

Item 12.    Certain Relationships and Related Transactions -- see Note (A)
            --------------------------------------------------------------

      Note (A) -- Item 9, Item 10, the security ownership  information  required
by Item 11, and Item 12 are  omitted  pursuant to General  Instructions  E.3. of
Form 10-KSB,  since the Registrant will file its definitive  proxy statement for
the 2002 Annual Meeting of Stockholders  not later than 120 days after the close
of  its  fiscal  year  ended  September  30,  2002,  which  proxy  statement  is
incorporated herein by reference.

Item 13.    Exhibits, List and Reports on Form 8-K
            --------------------------------------

(A)   Financial Statements

      The  following  consolidated  financial statements of Barnwell Industries,
      Inc. and its subsidiaries are included in Part II, Item 7:

      Independent Auditors' Report - KPMG LLP

      Consolidated Balance Sheets - September 30, 2002 and 2001

      Consolidated Statements of Operations -
         for the three years ended September 30, 2002

      Consolidated Statements of Cash Flows -
         for the three years ended September 30, 2002

      Consolidated Statements of Stockholders' Equity and Comprehensive Income
         (Loss) for the three years ended September 30, 2002

<PAGE>

      Notes to Consolidated Financial Statements


      Schedules  have  been  omitted  because  they  were  not  applicable,  not
      required,  or the  information is included in the  consolidated  financial
      statements or notes thereto.

(B)   Reports on Form 8-K

      There  were no reports on Form 8-K filed  during  the three  months  ended
      September 30, 2002.

(C)   Exhibits

      No. 3.1  Certificate of Incorporation(1)

      No. 3.2  Amended and Restated By-Laws(1)

      No. 4.0  Form of the  Registrant's  certificate of common stock, par value
               $.50 per share.(2)

      No. 10.1 The  Barnwell  Industries, Inc. Employees' Pension Plan (restated
               as of October 1, 1989).(3)

      No. 10.2 Phase I Makai Development  Agreement  dated June 30, 1992, by and
               between Kaupulehu Makai Venture and Kaupulehu Developments.(4)

      No. 10.3 KD/KMV  Agreement  dated June  30, 1992 by  and between Kaupulehu
               Makai Venture and Kaupulehu Developments.(4)

      No. 10.4 Barnwell Industries, Inc.'s  letter to  Warren D. Steckley  dated
               May 6, 1998, regarding certain terms of employment.(5)

      No. 21   List of Subsidiaries.(6)

      No. 99.1 Certification  of  Chief  Executive  Officer  and Chief Financial
               Officer Pursuant to 18 U.S.C. Section 1350, as Adopted by Section
               906 of the Sarbanes-Oxley Act of 2002

---------------------------
(1)Incorporated  by reference  to the  Registrant's  Form S-8 dated  November 8,
   1991.
(2)Incorporated  by  reference  to  the  registration   statement  on  Form  S-1
   originally  filed by the Registrant  January 29, 1957 and as amended February
   15, 1957 and February 19, 1957.
(3)Incorporated  by  reference  to Form 10-K for the year  ended  September  30,
   1989.
(4)Incorporated by reference to Form 10-K for the year ended September 30, 1992.
(5)Incorporated  by reference  to Form  10-KSB for  the year ended September 30,
   2000.
(6)Incorporated by reference to Form 10-KSB for the year
   ended September 30, 1998.

Item 14.    Controls and Procedures
            -----------------------

      Within the 90-day period prior to the filing of this report, an evaluation
was carried  out by  Barnwell's  Chief  Executive  Officer  and Chief  Financial
Officer, of the effectiveness of our disclosure  controls and procedures.  Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that  Barnwell's  disclosure  controls and procedures are effective to
ensure that information  required to be disclosed by Barnwell in reports that it
files or submits  under the  Securities  and  Exchange  Act of 1934 is recorded,
processed,  summarized  and  reported  within  the  time  periods  specified  in
Securities and Exchange  Commission  rules and forms.  Subsequent to the date of
their  evaluation,  there were no  significant  changes in  Barnwell's  internal
controls or in other  factors  that could  significantly  affect the  disclosure
controls,   including  any   corrective   actions  with  regard  to  significant
deficiencies and material weaknesses.

<PAGE>

                                   SIGNATURES

      In  accordance  with  Section  13 or  15(d)  of the  Securities  Act,  the
registrant  has this  report  to be signed  on its  behalf  by the  undersigned,
thereunto duly authorized.

BARNWELL INDUSTRIES, INC.
(Registrant)



      /s/Russell M. Gifford
------------------------------------
By:  Russell M. Gifford
     Chief Financial Officer,
     Executive Vice President and
     Treasurer

Date: December 5, 2002

      In  accordance  with  Exchange Act the report has been signed below by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated.


      /s/Morton H. Kinzler
------------------------------------
MORTON H. KINZLER
Chief Executive Officer,
President and
Chairman of the Board
Date: December 5, 2002


      /s/Martin Anderson                         /s/Daniel Jacobson
------------------------------------      ------------------------------------
MARTIN ANDERSON, Director                 DANIEL JACOBSON, Director
Date: December 5, 2002                    Date: December 5, 2002


      /s/Murray C. Gardner                       /s/Terry Johnston
------------------------------------      ------------------------------------
MURRAY C. GARDNER, Director               TERRY JOHNSTON, Director
Date: December 5, 2002                    Date: December 5, 2002


      /s/Erik Hazelhoff-Roelfzema                /s/Alexander C. Kinzler
------------------------------------      ------------------------------------
ERIK HAZELHOFF-ROELFZEMA, Director        ALEXANDER C. KINZLER
Date: December 6, 2002                    Executive Vice President,
                                          Secretary, General Counsel and
                                          Director
                                          Date: December 5, 2002
      /s/Alan D. Hunter
------------------------------------
ALAN D. HUNTER, Director
Date: December 5, 2002

<PAGE>


                                 CERTIFICATIONS

I, Russell M. Gifford, certify that:


1. I have  reviewed  this annual  report on Form 10-KSB of Barnwell  Industries,
   Inc.;

2. Based on my  knowledge,  this  annual  report  does not  contain  any  untrue
   statement of a material  fact or omit to state a material  fact  necessary to
   make the  statements  made,  in light of the  circumstances  under which such
   statements  were made, not  misleading  with respect to the period covered by
   this annual report;

3. Based  on  my  knowledge,  the  financial  statements,  and  other  financial
   information  included in this annual  report,  fairly present in all material
   respects the financial condition, results of operations and cash flows of the
   registrant as of, and for, the periods presented in this annual report;

4. The  registrant's  other  certifying  officers  and  I  are  responsible  for
   establishing and maintaining  disclosure  controls and procedures (as defined
   in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

   a) designed such  disclosure  controls and procedures to ensure that material
      information  relating  to  the  registrant,   including  its  consolidated
      subsidiaries,  is  made  known  to us by  others  within  those  entities,
      particularly  during  the  period  in which  this  annual  report is being
      prepared;

   b) evaluated the  effectiveness of the registrant's  disclosure  controls and
      procedures  as of a date  within 90 days prior to the filing  date of this
      annual report (the "Evaluation Date"); and

   c) presented in this annual report our conclusions about the effectiveness of
      the disclosure  controls and procedures  based on our evaluation as of the
      Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
   most recent evaluation,  to the registrant's auditors and the audit committee
   of  registrant's  board of directors (or persons  performing  the  equivalent
   functions):

   a) all  significant  deficiencies  in the  design or  operation  of  internal
      controls which could adversely affect the registrant's  ability to record,
      process,  summarize and report  financial data and have identified for the
      registrant's auditors any material weaknesses in internal controls; and

   b) any fraud,  whether or not  material,  that  involves  management or other
      employees  who  have  a  significant  role  in the  registrant's  internal
      controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
   annual report whether there were significant  changes in internal controls or
   in other factors that could significantly affect internal controls subsequent
   to the date of our most recent  evaluation,  including any corrective actions
   with regard to significant deficiencies and material weaknesses.

Date: December 5, 2002
----------------------

      /s/Russell M. Gifford
------------------------------------
Russell M. Gifford
Chief Financial Officer

<PAGE>

I, Morton H. Kinzler, certify that:


1. I have  reviewed  this annual  report on Form 10-KSB of Barnwell  Industries,
   Inc.;

2. Based on my  knowledge,  this  annual  report  does not  contain  any  untrue
   statement of a material  fact or omit to state a material  fact  necessary to
   make the  statements  made,  in light of the  circumstances  under which such
   statements  were made, not  misleading  with respect to the period covered by
   this annual report;

3. Based  on  my  knowledge,  the  financial  statements,  and  other  financial
   information  included in this annual  report,  fairly present in all material
   respects the financial condition, results of operations and cash flows of the
   registrant as of, and for, the periods presented in this annual report;

4. The  registrant's  other  certifying  officers  and  I  are  responsible  for
   establishing and maintaining  disclosure  controls and procedures (as defined
   in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

   a) designed such  disclosure  controls and procedures to ensure that material
      information  relating  to  the  registrant,   including  its  consolidated
      subsidiaries,  is  made  known  to us by  others  within  those  entities,
      particularly  during  the  period  in which  this  annual  report is being
      prepared;

   b) evaluated the  effectiveness of the registrant's  disclosure  controls and
      procedures  as of a date  within 90 days prior to the filing  date of this
      annual report (the "Evaluation Date"); and

   c) presented in this annual report our conclusions about the effectiveness of
      the disclosure  controls and procedures  based on our evaluation as of the
      Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
   most recent evaluation,  to the registrant's auditors and the audit committee
   of  registrant's  board of directors (or persons  performing  the  equivalent
   functions):

   a) all  significant  deficiencies  in the  design or  operation  of  internal
      controls which could adversely affect the registrant's  ability to record,
      process,  summarize and report  financial data and have identified for the
      registrant's auditors any material weaknesses in internal controls; and

   b) any fraud,  whether or not  material,  that  involves  management or other
      employees  who  have  a  significant  role  in the  registrant's  internal
      controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
   annual report whether there were significant  changes in internal controls or
   in other factors that could significantly affect internal controls subsequent
   to the date of our most recent  evaluation,  including any corrective actions
   with regard to significant deficiencies and material weaknesses.

Date: December 5, 2002
----------------------

     /s/Morton H. Kinzler
------------------------------------
Morton H. Kinzler
Chief Executive Officer

<PAGE>

                                                                Exhibit No. 99.1

                            Barnwell Industries, Inc.

                  Certification of Chief Executive Officer and
                       Chief Financial Officer Pursuant to
                             18 U.S.C. Section 1350,
                                  as Adopted by
                  Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the  Sarbanes-Oxley  Act of 2002 (subsections (a) and
(b) of Section  1350,  Chapter 63 of Title 18,  United  Stated Code) each of the
undersigned  officers of Barnwell Industries,  Inc. (the "Company"), does hereby
certify, to such officer's knowledge that:

The Annual  Report on Form 10-KSB for the year ended  September  30, 2002 of the
Company fully  complies with the  requirements  of section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and the information contained in the Form 10-KSB
fairly presents, in all material respects,  the consolidated financial condition
as of September 30, 2002 and  consolidated  results of operations for the fiscal
year ended September 30, 2002 of the Company and its subsidiaries.

Dated: December 5, 2002                  /s/Morton H. Kinzler
-----------------------             ------------------------------------
                                    Name: Morton H. Kinzler
                                    Title: Chief Executive Officer

Dated: December 5, 2002                  /s/Russell M. Gifford
-----------------------             ------------------------------------
                                    Name: Russell M. Gifford
                                    Title: Chief Financial Officer

<PAGE>