# TO OUR SHAREHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/AMEX_BRN_2020/AMEX_BRN_2020.mmd` · pages 2-8_

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TO OUR SHAREHOLDERS:

Fiscal 2020 was a year of many challenges to our world, our country and our company. The COVID-19 pandemic brought unprecedented uncertainty and disruption to businesses and individuals. Although Barnwell faced numerous challenges, we are pleased to report that the company successfully navigated these challenges and has entered 2021 as a stronger company with more streamlined operations and, we believe, improved cash flow and profitability.

For fiscal 2020, we reported a loss of \(4,756,000, which included non-cash asset impairments of \)4,376,000. However, we are pleased to note that we generated a profit of \(628,000 in the fourth quarter of fiscal 2020, as well as a profit of \)584,000 in the first quarter of fiscal 2021. These improvements came about as we experienced record activity and profitability by our water drilling subsidiary, a significant recovery in oil and gas commodities prices, and improvement in land sales activity at the Big Island project.

Historically low commodity prices earlier in the year negatively impacted the Company's oil and gas operations, notably in the form of impairments of our oil and gas assets. These non-cash write-downs affected both large and small oil and gas companies. The asset write-downs will significantly decrease our future depletion provisions, potentially resulting in higher reported profits.

We continue to consolidate our oil and gas properties in Alberta, and we are in the process of increasing our interest in the Twining field while marketing our older legacy properties. As a reminder, our oil and gas operations have no debt and have weathered a very difficult period for oil and gas companies in Alberta, many of which shut down their operations or sought protection from creditors.

It should be noted that a new well drilled at Twining in early fiscal 2020, which has now been in production for over one year, has continued to show small increases in production and continues to produce approximately 125 barrels per day of oil and over 200 barrel of oil equivalents or BOE per day, including oil, natural gas and natural gas liquids. We are evaluating further drilling at Twining later in the year.

In addition, we recently made an investment in a promising Oklahoma drilling program, in partnership with much larger investors who have substantial experience in, and exposure to, the area. The operator, Paloma, has years of technical and operational exposure in the area. We have recently begun reviewing other investments in the U.S. energy sector as well.

Real estate activity on the Big Island has significantly improved our cash position and enabled us to consider new investments and initiatives to move the company forward. Two developer lots were sold in our fourth quarter of fiscal 2020, which resulted in \(325,000 in revenues and net distributions of \)360,000, which included a preferred return of \(197,000. In addition, another two developer lots were sold in our first quarter of fiscal 2021, which resulted in \)485,000 in revenues, and net distributions of \(1,712,000, which included preferred return payments of \)459,000.

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There has been a trend around the country for golf resorts to see increased sales, in part because of the exodus from major metropolitan urban areas caused by the COVID-19 pandemic. The Kaupulehu project has been a beneficiary of this trend and significant resales of over $100,000,000 have occurred there in only the past 4 months, which have benefited the venture in which we are a minority partner through its ownership of the Kukio Real Estate Sales operation. As a result of these developer lot sales and resale activity, we recognized Equity in Income of Affiliates of $1,054,000 in our fiscal 2021 first quarter.

During fiscal 2020, after a proxy contest, five new members joined our Board of Directors. The Board of Directors held 17 meetings during fiscal 2020 as the new directors tackled a steep learning curve in the midst of the unprecedented operating challenges wrought by the COVID-19 pandemic and historically low oil prices. Your board's efforts went far above and beyond any commitment that could have been anticipated before March 2020.

In summary, Barnwell had a cash balance of \(5,334,000 at December 31, 2020, as compared to a cash balance of \)2,399,000 at December 31, 2019. Barnwell remains debt-free, other than long-term oil and gas abandonment liabilities and small governmental COVID-19 relief loans that may be forgiven. Cash flow break-even for the oil and gas division stands at approximately $36.00 West Texas Intermediate Crude Price ("WTI") per barrel, well below current WTI pricing. Sales trends on the Big Island point to higher realizations for lot sales and the company's future partnership development opportunities.

In closing, we wish to recognize the independent directors who left our Board of Directors in 2020, Mr. James S. Barnwell III and Mr. Kevin K. Takata. We appreciate their years of service to the company and thank them for their contributions in guiding the company through many difficult issues and decisions over many years.

On behalf of the Board of Directors of Barnwell Industries, Inc., we thank you, our shareholders, for your support.

For the Board of Directors,

Keneth S. Grossman
Chairman of the Board

 \( x^{2}+y^{2}=r^{2} \) 

Alexander C. Kinzler
Chief Executive Officer,
President and Director