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Barnwell Industries always on lookout for opportunities

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                                Barnwell Industries President and CEO Alex Kinzler, at his office in Honolulu, says his company benefits from being a “niche player.”


    Barnwell Industries President and CEO Alex Kinzler, at his office in Honolulu, says his company benefits from being a “niche player.”

Barnwell Industries Inc., a small publicly traded conglomerate based in Honolulu, has its roots in Louisiana and its operations in parts of the U.S. and Canada.

It only has about 35 employees and trades on the lesser-known NYSE American stock exchange.

But what the company lacks in size, it makes up for in its ability to scope out opportunities.

Barnwell generates more than three-quarters of its revenue from oil and natural gas operations in Alberta, and has additional ventures in that sector in Oklahoma and Texas. The company is also a partner in a Hawaii island real estate development and conducts water drilling statewide.

The company lost money for three straight fiscal years — 2018 to 2020 — before turning its finances around at a time when COVID-19 was decimating businesses around the world. In the past two years, the company earned profits of $6.3 million and $5.5 million, respectively, for the 12-month periods that ended Sept. 30, and a profit of $1.1 million in its fiscal first quarter of 2023.

“We’re debt free, which helped us get through the pandemic,” CEO Alex Kinzler, 65, said in a recent interview. “All companies were affected in a negative way, but we were able to actually reinvest in oil and gas. … We’ve always been kind of a niche player. Once the majors are gone, then we can fill in the gaps and find things. And that’s what’s happening here. During the middle and post-COVID period, bigger companies all pulled out. All the private equity money pulled out of U.S. oil and gas investment. As a result, there’s a lot of opportunities.”

Kinzler took over as CEO for his father, Morton, who had served in that role for 45 years, from 1971 to 2016, and had been a director for 62 years. Morton was the chairman emeritus of the company when he died in June 2018 at the age of 93. Besides being CEO, Kinzler still retains the titles of president, chief operating officer and general counsel.

“We have longtime roots in Hawaii,” Kinzler said of the 40-plus years that Barnwell has been in Honolulu after being founded in 1956 in Shreveport, La. “We plan to stay here and keep our main operation here for the foreseeable future even if we invest in other places. We love the life here. The people and the staff we have here are great.”

Kinzler said the company has repositioned itself and had about $12.8 million in cash on its balance sheet as of Sept. 30. Barnwell had $6.7 million in cash as of Dec. 31 following an investment of over $5 million in a Texas oil and gas opportunity in December.

“We have significant cash coming in and we’re looking at opportunities in both oil and gas and other businesses,” he said. “We might well invest in something different if it has the right structure for us and the right people involved. We’ll rely on their expertise. In a sense, we are a holding company with investments in several businesses.”

Until recently, the company had a long-running feud with a dissident investor, Ned Sherwood, who together with his entities owns 19.6% of Barnwell’s outstanding shares.

“He’s consistently said we should get out of Canadian oil and gas, up until it became very valuable,” Kinzler said. “Now that it’s working really well, he agrees that it’s an appropriate investment for the company.”

In January, Barnwell reached an agreement with its two largest stockholders, Kinzler, who owns 9.3% of the company, and Sherwood, to avert a proxy fight ahead of the company’s April 17 annual meeting of stockholders. The agreement allowed for the appointment of Joshua Horowitz and Laurance Narbut as independent board directors.

Horowitz, a portfolio manager at Palm Management (US) LLC, has a background in management and investments, giving him significant insight into corporate operations, investment opportunities, commodities and business issues facing the company.

Narbut, an expert in oil and gas exploration and investment, is founder and managing partner of private equity firm Acceleration Resources, which focuses on the lower and middle market energy sector.

In 2021, Barnwell entered into a joint venture with two private operators in Oklahoma, with the first of eight oil wells coming online in May of that year. The investment produced about 10% of the company’s oil and gas revenue for the first fiscal quarter that ended Dec. 31.

“We were approached by guys that needed to get a deal done for various reasons and there was room for smaller players,” Kinzler said. “We got in and we’ve gotten all our money back, maybe close to double now, in the period of two years. So it’s been a very good investment for us. We’re looking at other opportunities.”

Since then, Barnwell purchased a stake in a Texas oil venture.

Kinzler said the spike in oil and natural gas prices during the pandemic and in the wake of the Russia-­Ukraine war has boosted the company’s coffers.

“If you’re selling a product and it suddenly can be sold at 50% more,” Kinzler said, his voice tailing off. “Remember, the price of oil and natural gas fell to about $40 a barrel. Now oil is about $74 a barrel. It hit about $120 a barrel. So even though your cost fluctuates, you’re still looking at a much greater margin for the same thing you’re selling.

“Now some companies are heavily hedged, meaning they’ve got presale agreements so they don’t get the full price of the spike, but we saw the spike coming and we didn’t hedge it. We just said, ‘Let’s get as much as we can while we can.’ Some might say, ‘Well, that’s not fair. You’re making more than you should.’ But I would say, ‘I didn’t see a lot of charity from those people when the price was $20 a barrel. They didn’t say let’s bail out the oil companies.’ So it comes around and goes around. It rises and falls.”

Kinzler said the same principle applies to real estate.

“My dad used to make a joke that this is what keeps the soda jerks out of the oil business because once in awhile the price of oil or gas corrects way down, and if you have a lot of debt you cannot survive,” Kinzler said. “That’s why there’s all these amalgamations and business combinations that occur when low prices occur because they can’t survive. Most of the peers we had as midsize or small Canadian companies 20 years ago are gone. They’ve either flamed out or merged into somebody else.”

In January 2020, Barnwell announced that it was informed by the NYSE American that the company had not met the stockholders equity conditions for maintaining its stock listing on the exchange. The company submitted a plan the following month addressing how it intended to regain compliance and was given until July 2021 to comply. In March 2021, the company raised cash through a stock offering to help bridge the gap.

“At the same time, we had significant profits from our water well and land development arms, so we were able to meet and surmount the listing issue. And now we’re many years away from ever having that kind of issue again, because we’ve had two very profitable years, and it has to do with the amount of stockholders equity (more assets than liabilities). Our stockholders equity fell below $2 million in 2020. Now it’s about $20.2 million.”

Barnwell, which reinstated its quarterly dividend last year and now pays a modest 1.5 cents a share, closed Wednesday at $2.15 a share.

Kinzler said the company’s involvement in different businesses complicates accounting and compliance issues, but he said those industries can act as a hedge to offset the company’s gains and losses.

“There was a time when in a year that the oil price went up, the lands didn’t do as well,” he said. “And when the oil price went down, people bought land. So they seemed to naturally hedge each other for many years. Then there was a period where neither did well, but now we’ve seen both do extremely well for the last two years. So it’s worked out well.

“But we’re looking at rationalizing different opportunities. We’ve planning to probably invest more in U.S. oil. We’re still looking at Hawaii opportunities.”

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