Barnwell Industries, Inc. (NYSE American:BRN) has entered into a definitive agreement to sell its Canadian oil and natural gas business to an Alberta corporation for a base purchase price of C$9 million. The consideration remains subject to working capital and indebtedness adjustments, and completion requires shareholder approval, governmental approvals and other conditions.
#Cash consideration and retained royalty
The proposed consideration comprises C$4 million in cash and a 5% gross overriding royalty valued at C$5 million for transaction purposes. The royalty would apply to the acquired business's interest in future wells drilled on all of Barnwell's Canadian lands.
Royalty income will depend on future drilling and production. After closing, an affiliate of the buyer may purchase the royalty for C$5 million. That option is discretionary and is not assured. Any royalty payments received before the option is exercised would remain with Barnwell and would not reduce the C$5 million purchase price.
Aggregate royalty payments and call-option proceeds exceeding the C$5 million value attributed to the royalty would be subject to tax. Barnwell said the buyer has placed a C$1 million deposit into escrow, which would be credited against the purchase price at closing.
#Transaction structure and obligations
The transaction would involve the sale of shares in Barnwell's Canadian operating company and the assignment of a related intercompany note following a pre-closing reorganization. Barnwell would keep specified assets outside the sale, including excess cash and near-cash assets.
The buyer would assume the Canadian business's future site restoration and abandonment obligations. If the transaction closes, those obligations would be removed from Barnwell's consolidated balance sheet, subject to Barnwell's contractual indemnification obligations under the purchase agreement. Certain representations and warranties would remain in effect for 12 months after closing, subject to specified exceptions.
Barnwell said it expects a limited tax impact on the C$9 million base consideration based on its available Canadian and U.S. tax attributes. The company also said additional terms apply to the transaction, including purchase price adjustments, tax matters, indemnification provisions and other contractual conditions.
#Required approvals and deal protections
Barnwell's Board of Directors has determined that the transaction is in the company's best interests and is recommending that shareholders vote in favour. Closing is subject to approval by holders of a majority of Barnwell's outstanding common shares, completion of the pre-closing reorganization, required governmental approvals and other customary conditions.
Barnwell stated that there can be no assurance that the transaction will close or as to its timing. The agreement bars Barnwell and its representatives from soliciting competing acquisition proposals, although specified exceptions allow the company to consider and, under certain conditions, negotiate unsolicited proposals before shareholder approval.
During that period, Barnwell may terminate the agreement to enter into a definitive agreement for a superior proposal. That right is subject to the Board making the required determinations, compliance with notice and buyer-matching procedures, payment of a C$500,000 termination fee and return of the deposit.
#Barnwell's repositioning plans
The Canadian agreement follows Barnwell's completed sale of its remaining Hawaii development interests in September. The company separately announced its decision to terminate its defined benefit pension plan and the planned reversion of surplus assets after benefit obligations, costs and applicable taxes are satisfied.
Barnwell said these actions are intended to simplify the company, reduce legacy obligations and increase financial flexibility. Management intends to devote the majority of its efforts to identifying opportunities to redeploy Barnwell's capital and public-company platform at greater scale.
The company said it is evaluating strategic investments, acquisitions and potential business combinations, while considering valuation, balance-sheet strength and long-term per-share value creation. These plans remain subject to the availability, terms and completion of potential opportunities and the risks described by Barnwell.
#Key Takeaways
- Barnwell has agreed to sell its Canadian oil and natural gas business for a base purchase price of C$9 million, subject to working capital and indebtedness adjustments.
- The consideration includes C$4 million in cash and a 5% gross overriding royalty valued at C$5 million.
- A buyer affiliate may purchase the royalty for C$5 million after closing, but the option is discretionary and not assured.
- Closing requires majority shareholder approval, completion of the pre-closing reorganization, governmental approvals and other customary conditions.
- The buyer would assume future site restoration and abandonment obligations, subject to Barnwell's contractual indemnification obligations.
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