BARNWELL INDUSTRIES INC (Form: 10-Q, Received: 08/13/2009 16:05:13)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2009

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 1-5103

BARNWELL INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

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

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

(808) 531-8400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.

T Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o		Accelerated filer o
Non-accelerated filer	o (Do not check if a smaller reporting company)		Smaller reporting company T

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.

o Yes T No

As of August 10, 2009 there were 8,240,160 shares of common stock, par value $0.50, outstanding.

BARNWELL INDUSTRIES, INC.

AND SUBSIDIARIES

INDEX

PART I.	FINANCIAL INFORMATION:

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets - June 30, 2009 and September 30, 2008 (Unaudited)	3

	Condensed Consolidated Statements of Operations - three and nine months ended June 30, 2009 and 2008 (Unaudited)	4

	Condensed Consolidated Statements of Cash Flows - nine months ended June 30, 2009 and 2008 (Unaudited)	5

	Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive (Loss) Income - three months ended June 30, 2009 and 2008 (Unaudited)	6

	Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive (Loss) Income - nine months ended June 30, 2009 and 2008 (Unaudited)	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 4T.	Controls and Procedures	45

PART II.	OTHER INFORMATION:

Item 1A.	Risk Factors	45

Item 6.	Exhibits	46

	Signature	46

	Index to Exhibits	47

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30,				September 30,
	2009				2008
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	7,445,000			$	13,618,000
Accounts receivable, net of allowance for doubtful accounts of:
$736,000 at June 30, 2009 and $1,078,000 at September 30, 2008		4,150,000				7,524,000
Deferred income taxes		774,000				2,134,000
Current taxes receivable		499,000				975,000
Real estate held for sale		6,931,000				-
Other current assets		2,157,000				1,411,000
TOTAL CURRENT ASSETS		21,956,000				25,662,000
DEPOSITS ON RESIDENTIAL PARCELS		-				200,000
RESIDENTIAL LOTS UNDER DEVELOPMENT		6,307,000				8,876,000
INVESTMENT IN RESIDENTIAL PARCELS		4,681,000				4,708,000
INVESTMENT IN JOINT VENTURES		2,940,000				2,776,000
INVESTMENT IN LAND INTERESTS		1,450,000				1,450,000
PROPERTY AND EQUIPMENT		195,511,000				207,672,000
ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION		(146,381,000		)		(118,982,000		)
PROPERTY AND EQUIPMENT, NET		49,130,000				88,690,000
TOTAL ASSETS		$	86,464,000			$	132,362,000

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	3,299,000			$	6,516,000
Accrued capital expenditures		508,000				3,071,000
Accrued liabilities		3,694,000				7,514,000
Payable to joint interest owners		961,000				1,581,000
Income taxes payable		345,000				3,506,000
Current portion of long-term debt		6,931,000				-
Other current liabilities		393,000				645,000
TOTAL CURRENT LIABILITIES		16,131,000				22,833,000

LONG-TERM DEBT		24,780,000				26,217,000
LIABILITY FOR RETIREMENT BENEFITS		2,312,000				2,041,000
ASSET RETIREMENT OBLIGATION		4,262,000				4,565,000
DEFERRED INCOME TAXES		330,000				14,375,000
MINORITY INTEREST		1,022,000				1,067,000
STOCKHOLDERS’ EQUITY:
Common stock, par value $0.50 per share; Authorized, 20,000,000 shares:
8,403,060 issued at June 30, 2009 and September 30, 2008		4,202,000				4,202,000
Additional paid-in capital		1,227,000				1,222,000
Retained earnings		35,054,000				54,862,000
Accumulated other comprehensive (loss) income, net		(594,000		)		3,143,000
Treasury stock, at cost:
162,900 shares at June 30, 2009; 150,200 shares at September 30, 2008		(2,262,000		)		(2,165,000		)
TOTAL STOCKHOLDERS’ EQUITY		37,627,000				61,264,000
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	86,464,000			$	132,362,000

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended							Nine months ended
	June 30,							June 30,
	2009				2008			2009				2008
Revenues:
Oil and natural gas		$	5,927,000			$	14,646,000		$	19,187,000			$	36,239,000
Contract drilling		1,420,000				2,674,000			3,643,000				7,267,000
Sale of interest in leasehold land, net		-				402,000			201,000				1,111,000
Sale of development rights, net		-				1,664,000			833,000				4,161,000
Gas processing and other		121,000				970,000			697,000				1,545,000

		7,468,000				20,356,000			24,561,000				50,323,000
Costs and expenses:
Oil and natural gas operating		2,140,000				2,607,000			7,036,000				7,539,000
Contract drilling operating		1,070,000				2,166,000			3,187,000				5,943,000
General and administrative		2,086,000				4,193,000			6,073,000				10,476,000
Bad debt (recovery) expense		(129,000		)		608,000			465,000				608,000
Depreciation, depletion, and amortization		2,636,000				3,730,000			9,184,000				11,109,000
Reduction of carrying value of oil and natural gas properties		4,260,000				-			26,348,000				-
Interest expense, net		247,000				257,000			601,000				834,000
Minority interest in (losses) earnings		(40,000		)		486,000			105,000				1,045,000

		12,270,000				14,047,000			52,999,000				37,554,000

(Loss) earnings before income taxes		(4,802,000		)		6,309,000			(28,438,000		)		12,769,000

Income tax (benefit) provision		(1,567,000		)		2,776,000			(8,630,000		)		4,232,000

NET (LOSS) EARNINGS		$	(3,235,000	)		$	3,533,000		$	(19,808,000	)		$	8,537,000

BASIC NET (LOSS) EARNINGS
PER COMMON SHARE		$	(0.39	)		$	0.43		$	(2.40	)		$	1.04

DILUTED NET (LOSS) EARNINGS
PER COMMON SHARE		$	(0.39	)		$	0.42		$	(2.40	)		$	1.01

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
BASIC		8,240,160				8,269,460			8,240,539				8,242,311
DILUTED		8,240,160				8,438,038			8,240,539				8,447,209

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months ended
	June 30,
	2009				2008
Cash flows from operating activities:
Net (loss) earnings		$	(19,808,000	)		$	8,537,000
Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating activities:
Reduction of carrying value of oil and natural gas properties		26,348,000				-
Depreciation, depletion, and amortization		9,184,000				11,109,000
Bad debt expense		465,000				608,000
Retirement benefits expense		378,000				360,000
Accretion of asset retirement obligation		202,000				206,000
Minority interest in earnings		105,000				1,045,000
Retirement benefits contribution		-				(450,000		)
Share-based compensation payments		-				(458,000		)
Asset retirement obligation payments		(128,000		)		(48,000		)
Share-based compensation benefit		(370,000		)		(87,000		)
Sale of interest in leasehold land, net		(201,000		)		(1,111,000		)
Sale of development rights, net		(833,000		)		(4,161,000		)
Deferred income tax benefit		(8,362,000		)		(1,332,000		)
Additions to residential lots under development		(4,338,000		)		(2,760,000		)
(Decrease) increase from changes in current assets and liabilities		(7,078,000		)		1,439,000

Net cash (used in) provided by operating activities		(4,436,000		)		12,897,000

Cash flows from investing activities:
Proceeds from sale of development rights, net of fees paid		833,000				4,161,000
Proceeds from sale of interest in leasehold land, net of fees paid		201,000				1,085,000
Refund of deposits on residential parcels		200,000				-
Proceeds from gas over bitumen royalty adjustments		162,000				166,000
Investment in joint ventures		(164,000		)		(5,000		)
Capital expenditures - oil and natural gas		(7,494,000		)		(9,939,000		)
Capital expenditures - all other		(19,000		)		(708,000		)
Additions to investment in residential parcels		-				(222,000		)

Net cash used in investing activities		(6,281,000		)		(5,462,000		)

Cash flows from financing activities:
Proceeds from long-term debt borrowings		6,093,000				2,264,000
Repayments of long-term debt		(603,000		)		(121,000		)
Contributions from minority interest partner		31,000				-
Proceeds from exercise of stock options		-				145,000
Payment of dividends		-				(1,238,000		)
Payment of loan commitment fee		(60,000		)		(100,000		)
Purchases of common stock for treasury		(97,000		)		(1,596,000		)
Distributions to minority interest partners		(181,000		)		(968,000		)

Net cash provided by (used in) financing activities		5,183,000				(1,614,000		)

Effect of exchange rate changes on cash and cash equivalents		(639,000		)		(101,000		)

Net (decrease) increase in cash and cash equivalents		(6,173,000		)		5,720,000
Cash and cash equivalents at beginning of period		13,618,000				10,107,000

Cash and cash equivalents at end of period		$	7,445,000			$	15,827,000

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE (LOSS) INCOME

Three months ended June 30, 2009 and 2008

(Unaudited)

																	Accumulated
						Additional											Other								Total
	Shares		Common			Paid-In			Comprehensive				Retained				Comprehensive				Treasury				Stockholders’
	Outstanding		Stock			Capital			(Loss) Income				Earnings				(Loss) Income				Stock				Equity

Balance at March 31, 2008		8,269,460		$	4,197,000		$	1,003,000						$	49,168,000			$	3,815,000			$	(1,869,000	)		$	56,314,000

Share-based compensation costs							7,000																			7,000

Tax benefit from employee stock option transactions							60,000																			60,000

Dividends declared, $0.05 per share														(414,000		)										(414,000		)

Comprehensive income:
Net earnings										$	3,533,000			3,533,000												3,533,000
Other comprehensive income:
Foreign currency translation adjustments, net of $146,000 of taxes										337,000								337,000								337,000
Retirement plans - amortization of accumulated other comprehensive loss into net periodic benefit cost, net of $14,000 of taxes										27,000								27,000								27,000
Total comprehensive income										$	3,897,000

At June 30, 2008		8,269,460		$	4,197,000		$	1,070,000						$	52,287,000			$	4,179,000			$	(1,869,000	)		$	59,864,000


Balance at March 31, 2009		8,240,160		$	4,202,000		$	1,227,000						$	38,289,000			$	(3,467,000	)		$	(2,262,000	)		$	37,989,000

Comprehensive loss:
Net loss										$	(3,235,000	)		(3,235,000		)										(3,235,000		)
Other comprehensive income:
Foreign currency translation adjustments, net of $154,000 of taxes										2,850,000								2,850,000								2,850,000
Retirement plans - amortization of accumulated other comprehensive loss into net periodic benefit cost, net of $12,000 of taxes										23,000								23,000								23,000
Total comprehensive loss										$	(362,000	)

At June 30, 2009		8,240,160		$	4,202,000		$	1,227,000						$	35,054,000			$	(594,000	)		$	(2,262,000	)		$	37,627,000

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE (LOSS) INCOME

Nine months ended June 30, 2009 and 2008

(Unaudited)

																		Accumulated
							Additional											Other								Total
	Shares			Common			Paid-In			Comprehensive				Retained				Comprehensive				Treasury				Stockholders’
	Outstanding			Stock			Capital			(Loss) Income				Earnings				(Loss) Income				Stock				Equity

Balance at September 30, 2007		8,268,160			$	4,140,000		$	738,000						$	44,988,000			$	4,933,000			$	(195,000	)		$	54,604,000

Exercise of stock options, 113,000 shares net of 5,200 shares tendered and placed in treasury		107,800			57,000			166,000															(78,000		)		145,000

Share-based compensation costs								28,000																			28,000

Tax benefit from employee stock option transactions								138,000																			138,000

Purchases of 106,500 common shares for treasury		(106,500	)																				(1,596,000		)		(1,596,000		)

Dividends declared, $0.15 per share															(1,238,000		)										(1,238,000		)

Comprehensive income:
Net earnings											$	8,537,000			8,537,000												8,537,000
Other comprehensive loss - foreign currency translation adjustments, net of $513,000 tax benefit											(837,000		)						(837,000		)						(837,000		)
Other comprehensive income - retirement plans - amortization of accumulated other comprehensive loss into net periodic benefit cost, net of $43,000 of taxes											83,000								83,000								83,000
Total comprehensive income											$	7,783,000

At June 30, 2008		8,269,460			$	4,197,000		$	1,070,000						$	52,287,000			$	4,179,000			$	(1,869,000	)		$	59,864,000


Balance at September 30, 2008		8,252,860			$	4,202,000		$	1,222,000						$	54,862,000			$	3,143,000			$	(2,165,000	)		$	61,264,000

Share-based compensation costs								5,000																			5,000

Purchases of 12,700 common shares for treasury		(12,700	)																				(97,000		)		(97,000		)

Comprehensive loss:
Net loss											$	(19,808,000	)		(19,808,000		)										(19,808,000		)
Other comprehensive loss - foreign currency translation adjustments, net of $2,924,000 tax benefit											(3,807,000		)						(3,807,000		)						(3,807,000		)
Other comprehensive income - retirement plans - amortization of accumulated other comprehensive loss into net periodic benefit cost, net of $36,000 of taxes											70,000								70,000								70,000
Total comprehensive loss											$	(23,545,000	)

At June 30, 2009		8,240,160			$	4,202,000		$	1,227,000						$	35,054,000			$	(594,000	)		$	(2,262,000	)		$	37,627,000

See Notes to Condensed Consolidated Financial Statements

BARNWELL INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

Basis of Consolidation

The condensed consolidated financial statements include the accounts of Barnwell Industries, Inc. and all majority-owned subsidiaries, including an indirect 77.6%-owned land investment general partnership and two 80%-owned joint ventures (collectively referred to herein as “Barnwell,” “we,” “our,” “us,” or the “Company”). All significant intercompany accounts and transactions have been eliminated. Investments in companies over which Barnwell has the ability to exercise significant influence, but not control, are accounted for using the equity method.

Unless otherwise indicated, all references to “dollars” in this Form 10-Q are to U.S. dollars.

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements and notes have been prepared by Barnwell in accordance with the rules and regulations of the United States Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the company believes that the disclosures made are adequate to make the information not misleading. These condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in Barnwell’s September 30, 2008 Annual Report on Form 10-K. The Condensed Consolidated Balance Sheet as of September 30, 2008 has been derived from audited consolidated financial statements.

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at June 30, 2009, results of operations for the three and nine months ended June 30, 2009 and 2008, and cash flows for the nine months ended June 30, 2009 and 2008, have been made. The results of operations for the period ended June 30, 2009 are not necessarily indicative of the operating results for the full year.

Use of Estimates

The preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires management of Barnwell 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 Accounting Policies

Real Estate Held for Sale, Residential Lots Under Development, Investment in Residential Parcels, and Deposits on Residential Parcels

Real estate held for sale, residential lots under development, investment in residential parcels, and deposits on residential parcels are reported at the lower of the asset carrying value or fair value. The recorded balances are evaluated for impairment whenever events or changes in circumstances indicate that the balance may not be fully recoverable.

The costs of acquiring land, development and construction costs, interest, property taxes and general and administrative expenses related to the development of land and home construction, are capitalized. Costs that relate to a specific lot or home are assigned to that lot or home while common costs related to multiple lots or homes will be allocated to each in proportion to their anticipated sales value.

Barnwell capitalizes interest costs during development and construction and includes these costs in cost of sales when homes are sold.

Barnwell classifies its residential real estate in one of the following categories:

·	Real estate held for sale, which includes completed assets or land for sale in its present condition, that meet all of the criteria set forth in paragraph 30 of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”;

·	Residential lots under development (current), which includes real estate that we are in the process of developing that is expected to be completed and disposed of within one year of the balance sheet date;

·	Residential lots under development (non-current), which includes real estate that we are in the process of developing that is expected to be completed and disposed of more than one year from the balance sheet date; or

·	Investment in residential parcels (non-current), which consists of land held for speculative purposes and on which development activities have not commenced, and which is not expected to be disposed of within one year of the balance sheet date.

Other

Barnwell’s other significant accounting policies are described in the Notes to Consolidated Financial Statements included in Item 8 of the Company’s most recently filed Annual Report on Form 10-K.

Reclassifications

Certain prior year amounts within this Form 10-Q have been reclassified to conform to the presentation adopted in the current year.

2. (LOSS) EARNINGS PER COMMON SHARE

Reconciliations between net (loss) earnings and common shares outstanding of the basic and diluted net (loss) earnings per share computations for the three and nine months ended June 30, 2009 and 2008 are as follows:

	Three months ended June 30, 2009
	Net Loss				Shares		Per-Share
	(Numerator)				(Denominator)		Amount
Basic net loss per share		$	(3,235,000	)		8,240,160		$	(0.39	)

Effect of dilutive securities -
common stock options		-				-

Diluted net loss per share		$	(3,235,000	)		8,240,160		$	(0.39	)

	Nine months ended June 30, 2009
	Net Loss				Shares		Per-Share
	(Numerator)				(Denominator)		Amount
Basic net loss per share		$	(19,808,000	)		8,240,539		$	(2.40	)

Effect of dilutive securities -
common stock options		-				-

Diluted net loss per share		$	(19,808,000	)		8,240,539		$	(2.40	)

	Three months ended June 30, 2008
	Net Earnings				Shares		Per-Share
	(Numerator)				(Denominator)		Amount
Basic net earnings per share		$	3,533,000			8,269,460		$	0.43

Effect of dilutive securities -
common stock options		-				168,578

Diluted net earnings per share		$	3,533,000			8,438,038		$	0.42

	Nine months ended June 30, 2008
	Net Earnings				Shares		Per-Share
	(Numerator)				(Denominator)		Amount
Basic net earnings per share		$	8,537,000			8,242,311		$	1.04

Effect of dilutive securities -
common stock options		-				204,898

Diluted net earnings per share		$	8,537,000			8,447,209		$	1.01

Potential dilutive shares consist of the common shares issuable upon the exercise of outstanding stock options (both vested and non-vested) using the treasury stock method. Potential dilutive shares are excluded from the computation of (loss) earnings per share if their effect is antidilutive. Options to purchase 718,000 shares of common stock were excluded from the computation of diluted shares for the three and nine months ended June 30, 2009 as their inclusion would have been antidilutive given the net loss generated during the periods.

3. SHARE-BASED PAYMENTS

The Company’s share-based compensation expense (benefit) and the related income tax effects for the three and nine months ended June 30, 2009 and 2008 are as follows:

	Three months ended								Nine months ended
	June 30,								June 30,
	2009				2008				2009				2008
Share-based compensation
expense (benefit)		$	46,000			$	582,000			$	(370,000	)		$	(87,000	)

Income tax effect -
(benefit) provision		$	(16,000	)		$	(198,000	)		$	127,000			$	39,000

As of June 30, 2009, there was $160,000 of total unrecognized compensation cost related to nonvested equity-classified and liability-classified share options. That cost is expected to be recognized over 2.7 years. Total share-based compensation expense related to the vesting of awards in the three and nine months ended June 30, 2009 was $35,000 and $140,000, respectively, as compared to $164,000 and $347,000 during the same periods of the prior year.

Equity-classified Awards

A summary of the activity in Barnwell’s equity-classified share options as of the beginning and end of the three and nine months ended June 30, 2009 is presented below:

	Three months ended June 30, 2009
						Weighted-
						Average
			Weighted-			Remaining
			Average			Contractual		Aggregate
			Exercise			Term		Intrinsic
Options	Shares		Price			(in years)		Value
Outstanding at April 1, 2009		222,000		$	7.83
Granted		-
Exercised		-
Forfeited/Expired		-
Outstanding at June 30, 2009		222,000		$	7.83		1.8		$	83,000

Exercisable at June 30, 2009		222,000		$	7.83		1.8		$	83,000

	Nine months ended June 30, 2009
						Weighted-
						Average
			Weighted-			Remaining
			Average			Contractual		Aggregate
			Exercise			Term		Intrinsic
Options	Shares		Price			(in years)		Value
Outstanding at October 1, 2008		222,000		$	7.83
Granted		-
Exercised		-
Forfeited/Expired		-
Outstanding at June 30, 2009		222,000		$	7.83		1.8		$	83,000

Exercisable at June 30, 2009		222,000		$	7.83		1.8		$	83,000

Total share-based compensation expense for equity-classified awards vested in the three and nine months ended June 30, 2009 was nil and $5,000, respectively, as compared to $7,000 and $28,000 during the three and nine months ended June 30, 2008, respectively. There was no impact on income taxes as the expense relates to qualified options.

During the three and nine months ended June 30, 2009, no equity options were exercised. Additionally, no equity options were exercised during the three months ended June 30, 2008. The total intrinsic value of equity options exercised during the nine months ended June 30, 2008 was $1,047,000.

There was no disqualification of stock options in the three or nine months ended June 30, 2009. Barnwell recorded tax benefits of $60,000 and $138,000 in the three and nine months ended June 30, 2008, respectively, related to employees’ disqualification of qualified stock options. The tax benefits are reflected as increases in additional paid-in capital in the three and nine months ended June 30, 2008.

Liability-classified Awards

The following assumptions were used in estimating fair value for all liability-classified share options outstanding during the three and nine months ended June 30, 2009 and 2008:

	Three and nine months ended June 30 ,
	2009	2008

Expected volatility range	45.8% to 57.1%	34.9% to 39.5%
Weighted-average volatility	49.5%	36.4%
Expected dividends	0.4% to 0.7%	1.8%
Expected term (in years)	5.4 to 8.9	6.4 to 9.9
Risk-free interest rate	2.9% to 3.4%	3.5% to 4.0%
Expected forfeitures	None	None

The application of alternative assumptions could produce significantly different estimates of the fair value of share-based compensation, and consequently, the related costs reported in the Condensed Consolidated Statements of Operations.

A summary of the activity in Barnwell’s liability-classified share options as of the beginning and end of the three and nine months ended June 30, 2009 is presented below:

	Three months ended June 30, 2009
						Weighted-
						Average
			Weighted-			Remaining
			Average			Contractual		Aggregate
			Exercise			Term		Intrinsic
Options	Shares		Price			(in years)		Value
Outstanding at April 1, 2009		496,000		$	10.89
Granted		-
Exercised		-
Forfeited/Expired		-
Outstanding at June 30, 2009		496,000		$	10.89		7.7		$	-

Exercisable at June 30, 2009		199,000		$	10.10		6.8		$	-

	Nine months ended June 30, 2009
						Weighted-
						Average
			Weighted-			Remaining
			Average			Contractual		Aggregate
			Exercise			Term		Intrinsic
Options	Shares		Price			(in years)		Value
Outstanding at October 1, 2008		496,000		$	10.89
Granted		-
Exercised		-
Forfeited/Expired		-
Outstanding at June 30, 2009		496,000		$	10.89		7.7		$	-

Exercisable at June 30, 2009		199,000		$	10.10		6.8		$	-

Total share-based compensation expense (benefit) for liability-classified awards and the related income tax effects for the three and nine months ended June 30, 2009 and 2008 are as follows:

	Three months ended								Nine months ended
	June 30,								June 30,
	2009				2008				2009				2008
Share-based compensation
expense (benefit)		$	46,000			$	575,000			$	(375,000	)		$	(115,000	)

Income tax effect -
(benefit) provision		$	(16,000	)		$	(198,000	)		$	127,000			$	39,000

Included in share-based compensation for liability-classified awards for the three and nine months ended June 30, 2009 were $35,000 and $135,000, respectively, of compensation expense related to shares that vested during each respective period and an $11,000 expense and a $510,000 benefit, respectively, due to remeasurement at June 30, 2009 of the fair value of previously vested shares. Included in share-based compensation for liability-classified awards for the three and nine months ended June 30, 2008 were $157,000 and $318,000, respectively, of compensation expense related to shares that vested during each respective period and a $418,000 expense and a $433,000 benefit, respectively, due to remeasurement at June 30, 2008 of the fair value of previously vested shares.

4. REAL ESTATE HELD FOR SALE, DEPOSITS ON RESIDENTIAL PARCELS, RESIDENTIAL LOTS UNDER DEVELOPMENT AND INVESTMENT IN RESIDENTIAL PARCELS

Kaupulehu 2007, LLLP (“Kaupulehu 2007”) is a Hawaii limited liability limited partnership 80%-owned by Barnwell and 20%-owned by Nearco, Inc. (“Nearco”), a company controlled by a former director of Barnwell and minority interest owner in certain of Barnwell’s business ventures (see further discussion on related party interests at Note 7 below).

Kaupulehu 2007 develops luxury turnkey residences for sale and invests in residential lots in the Lot 4A Increment I area located approximately six miles north of the Kona International Airport in the North Kona District of the island of Hawaii, adjacent to Hualalai Resort at Historic Ka’upulehu, between the Queen Kaahumanu Highway and the Pacific Ocean. At June 30, 2009, one luxury residence was complete and classified as real estate held for sale, a second home was nearing completion and classified as a residential lot under development, and two parcels were held for investment and classified as investment in residential parcels.

In December 2008, Kaupulehu 2007 assigned its last remaining right to purchase an additional lot in the Lot 4A Increment I area to an unrelated party. As this assignment relieved Kaupulehu 2007 of its obligation to purchase the aforementioned parcel, Kaupulehu 2007 received a refund of its original $200,000 deposit for the lot in December 2008.

Kaupulehu 2007 capitalizes interest costs during development and construction and includes these costs in cost of sales when homes are sold. Interest capitalized for the three and nine months ended June 30, 2009 totaled $30,000 and $253,000, respectively, and interest capitalized for the three and nine months ended June 30, 2008 totaled $98,000 and $286,000, respectively.

Kaupulehu 2007 has an agreement with Mr. David Johnston, the son of a former director of Barnwell and minority interest owner in certain of Barnwell’s ventures (see further discussion on related party interests at Note 7 below), under which Mr. David Johnston serves as Kaupulehu 2007’s project manager. Kaupulehu 2007 also has an agreement with an independent building contractor for home building services for Kaupulehu 2007’s lots. A significant provision of these agreements is that in addition to a fixed monthly fee, Mr. David Johnston and the building contractor will each receive 20% of the sales profit which is contingent on the sale of each of the two homes constructed by Kaupulehu 2007.

In accordance with SFAS No. 144, the Company records impairment losses on real estate held for sale, residential lots under development and residential parcels held for investment when events and circumstances indicate that the assets may be impaired and when the cash flows estimated to be generated by those assets are less than their carrying amounts. If economic conditions worsen in the future or if difficult market conditions extend beyond the Company’s expectations resulting in a decrease in the fair value of the aforementioned assets below carrying value, the Company will be required to record an impairment loss.

5. INVESTMENT IN JOINT VENTURES

Kaupulehu Investors, LLC, a limited liability company 80%-owned by Barnwell and 20%-owned by Nearco, a company controlled by a former director of Barnwell and minority interest owner in certain of Barnwell’s business ventures (see further discussion on related party interests at Note 7 below), owns a 1.5% passive minority interest in Hualalai Investors JV, LLC and Hualalai Investors II, LLC, owners of Hualalai Resort, and Kona Village Investors, LLC, owner of Kona Village Resort. Kaupulehu Investors, LLC, accounts for its 1.5% passive investments under the cost method. These investments are classified as investment in joint ventures at June 30, 2009 and September 30, 2008.

The Company recognizes impairment losses on its investment in joint ventures when a decrease in value of the investments has occurred that is other than temporary. If economic conditions worsen in the future or if difficult market conditions extend beyond the Company’s expectations, resulting in declines in the fair value of the aforementioned assets below carrying value that are other than temporary, the Company will be required to record an impairment loss.

6. INVESTMENT IN LAND INTERESTS

In June 2009, Kaupulehu Developments, a general partnership in which Barnwell has a 77.6% controlling interest, closed a real estate transaction with WB KD Acquisition, LLC (“WB”) and WB KD Acquisition II, LLC (“WBKD”), entities unrelated to Barnwell, that modified the parties’ 2006 agreement for the development of the Increment II portion of the approximately 870 leasehold acre Lot 4A area located adjacent to Kona Village Resort and Hualalai Resort at Kaupulehu, North Kona, Hawaii (“Increment II”). Increment II is currently planned for approximately 400 residential units. The modified agreement reduces Kaupulehu Developments’ stated percentages to be received from the sale of residential lots or units. Pursuant to the modified agreement, Kaupulehu Developments will be entitled to receive future payments from WBKD based on a percentage of the sales prices of the residential lots or units, ranging from 8% to 10% of the price of improved or unimproved lots or 2.60% to 3.25% of the price of units constructed on a lot, to be determined in the future depending upon a number of variables, including whether the lots are sold prior to improvement. The modified agreement contains a new provision by which Kaupulehu Developments is entitled to receive up to $8,000,000 in additional payments once the members of WBKD have received distributions equal to the capital they invested in the project. There was no financial statement impact resulting from the June 2009 modification of the 2006 agreement. Any future payments from WBKD under this agreement are contingent future profits which will be recognized when they are realized.

As a result of the modified agreement, WB and/or WBKD’s exclusive right to negotiate with Kaupulehu Developments with respect to Lot 4C has been extended until June 2015. However, this right to negotiate will terminate in June 2013 if WB and/or WBKD have not completed any and all environmental assessments and surveys reasonably required to support a petition to the Hawaii State Land Use Commission for reclassification of Lot 4C.

The land interests held by Barnwell at June 30, 2009 through Kaupulehu Developments include development rights under option, rights to receive payments from WB and WBKD resulting from the sale of lots and/or residential units within approximately 870 acres in the Kaupulehu area by WB and WBKD, and approximately 1,000 acres of vacant leasehold land zoned conservation (“Lot 4C”) which is under a right of negotiation with WBKD. Barnwell also holds lot acquisition rights in agricultural-zoned leasehold land in the upland area of Kaupulehu (“Mauka Lands”) through Kaupulehu Mauka Investors, LLC, a limited liability company wholly-owned by Barnwell. There is no assurance that any future payments will be received, nor is there any assurance that WB and/or WBKD will enter into an agreement with Kaupulehu Developments regarding Lot 4C. Furthermore, there is no assurance that the required land use reclassification and rezoning from regulatory agencies will be obtained nor is there any assurance that the necessary development terms and agreements will be successfully negotiated for the Mauka Lands. If the developer of the Mauka Lands is unable to obtain such required land use changes, development terms and agreements with respect to the Mauka Lands, and Barnwell is therefore unable to fully recover its investment in the Mauka Lands, we will incur an expense resulting from a write-off of the lot acquisition rights. Barnwell’s cost of land interests is included under the caption investment in land interests and consists of the following amounts:

	June 30 ,			September 30,
	2009			2008
Leasehold land zoned conservation – Lot 4C		$	50,000		$	50,000
Lot acquisition rights – Mauka Lands		1,400,000			1,400,000

Total investment in land interests		$	1,450,000		$	1,450,000

In accordance with SFAS No. 144, the Company records impairment losses on its investment in leasehold land and lot acquisition rights when events and circumstances indicate that the investments may be impaired and when the cash flows estimated to be generated by those assets are less than their carrying amounts. If economic conditions worsen in the future or if difficult market conditions extend beyond the Company’s expectations resulting in a decrease in the fair value of the aforementioned assets below carrying value, the Company will be required to record an impairment loss.

7. RELATED PARTY TRANSACTIONS

This section discusses certain direct and indirect relationships and transactions involving Barnwell and Mr. Terry Johnston, a minority interest owner in certain of Barnwell’s business ventures and director of Barnwell until March 2, 2009, when his term ended.

Mr. Johnston and his affiliated entities indirectly own 19.3% of Kaupulehu Developments, a general partnership in which Barnwell has a 77.6% controlling interest. The development rights and percentage of sales payment proceeds received during the nine months ended June 30, 2009 were reduced by fees of $53,000 and $13,000, respectively; these fees were paid to Nearco, a company controlled by Mr. Johnston. There were no such fees paid during the three months ended June 30, 2009. The development rights proceeds received during the three and nine months ended June 30, 2008 were reduced by fees to Nearco of $106,000 and $265,000, respectively, and the percentage of sales payment proceeds received during the three and nine months ended June 30, 2008 were reduced by fees to Nearco of $26,000 and $71,000, respectively. Under agreements entered into in 1987, prior to Mr. Johnston’s election to Barnwell’s Board of Directors, Barnwell’s wholly-owned subsidiary, Barnwell Hawaiian Properties, Inc., a 50.1% partner of Kaupulehu Developments, is obligated to pay Nearco 2% of Kaupulehu Developments’ gross receipts from real estate transactions, and Cambridge Hawaii Limited Partnership, a 49.9% partner of Kaupulehu Developments in which Barnwell purchased a 55.2% interest in April 2001, is obligated to pay Nearco 4% of Kaupulehu Developments’ gross receipts from real estate transactions. The fees represent compensation for promotion and marketing of Kaupulehu Developments’ property and were determined at that time based on the estimated fair value of such services.

Nearco has a 20% ownership interest in Kaupulehu 2007, a limited liability limited partnership that acquires house lots for investment and constructs turnkey single-family homes. As noted in Note 4 above, Kaupulehu 2007 has an agreement with Mr. David Johnston, the son of Mr. Terry Johnston, under which Mr. David Johnston serves as Kaupulehu 2007’s project manager. A significant provision of this agreement is that in addition to a fixed monthly fee, Mr. David Johnston will receive 20% of the sales profit which is contingent on the sale of each of the two homes constructed by Kaupulehu 2007. Kaupulehu 2007 paid $32,000 and $94,000 in project management fees to Nearco for project management services during the three and nine months ended June 30, 2009, respectively, as compared to $32,000 and $62,000 during the three and nine months ended June 30, 2008, respectively. Project management fees are capitalized as they are associated with the development and construction of a real estate project.

Kaupulehu 2007 has borrowings under a credit facility that is guaranteed jointly and severally by Barnwell and Mr. Terry Johnston, with Mr. Johnston’s guarantee limited to 20% (see further discussion regarding the credit facility at Note 8 below).

General and administrative expenses include fees paid to Nearco for services related to Kaupulehu Developments’ leasehold land. Fees paid to Nearco by Kaupulehu Developments totaled $9,000 and $35,000, before minority interest, during the three and nine months ended June 30, 2009, respectively, and $9,000 and $54,000, before minority interest, during the three and nine months ended June 30, 2008, respectively.

8. LONG-TERM DEBT

A summary of Barnwell’s long-term debt as of June 30, 2009 and September 30, 2008 is as follows:

	June 30 ,				September 30,
	2009				2008
Canadian revolving credit facility		$	16,075,000			$	15,000,000
Real estate revolving credit facility		15,636,000				11,217,000

		31,711,000				26,217,000

Less: current portion		(6,931,000		)		-

Total long-term debt		$	24,780,000			$	26,217,000

The facility is available in U.S. dollars at the London Interbank Offer Rate plus 3.5%, at U.S. prime plus 2.5%, or in Canadian dollars at Canadian prime plus 2.5%. A standby fee of 1.0% per annum is charged on the unused facility balance. Additionally, Barnwell paid a fee of $70,000 Canadian dollars as a condition to renew the facility. Under the financing agreement with Royal Bank of Canada, the facility is reviewed annually, with the next review planned for April 2010. Subject to that review, the facility may be extended one year with no required debt repayments for one year or converted to a two-year term loan by the bank. If the facility is converted to a two-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). Based on the terms of the existing agreement, if Royal Bank of Canada were to convert the facility to a two-year term loan upon its next review in April 2010, Barnwell would be obligated to make quarterly principal and interest repayments beginning in July 2010. As no debt repayments will be required on or before June 30, 2010, the entire outstanding loan balance at June 30, 2009 is classified as long-term debt.

A decline in the rate of exchange of the Canadian dollar to the U.S. dollar could result in Barnwell reaching the maximum amount of credit available under the Canadian revolving credit facility of $20,000,000 Canadian dollars. If exchange rates decline to the extent we exceed the maximum amount of credit available under the Canadian revolving credit facility, we will be required to make debt repayments to Royal Bank of Canada in the amount of the excess.

Barnwell, through its 80%-owned real estate joint venture, Kaupulehu 2007, has a credit facility with a Hawaii financial institution providing a $16,000,000 revolving line of credit with which Kaupulehu 2007 finances four parcels and the costs of home construction. Under the terms of the facility, financing for home construction is limited to a maximum of two unsold homes under construction at any given time. The term of the loan is 36 months and advances may not exceed: (i) 75% of the appraised as-is value of each parcel, or (ii) 80% of the appraised value of the completed home and parcel for each home under construction. The interest rate available for borrowings under this facility is a floating rate equal to the financial institution’s floating base rate or the one-month London Interbank Offer Rate plus 2.50%.

Kaupulehu 2007 will be required to make a principal payment upon the sale of a home and lot in an amount equal to 100% of the net sales proceeds of the home and lot; the loan agreement defines net sales proceeds as the gross sales price of the home and lot, less reasonable real estate commissions, closing costs, and fees of the building contractor and project manager, as approved by the financial institution. The credit facility, which is fully guaranteed by Barnwell and guaranteed 20% by Mr. Terry Johnston, is collateralized by, among other things, a first mortgage lien on the parcels and homes to be built. Borrowings under the facility are subject to a loan advance limitation based on the appraised value of the underlying security. The loan advance limitation may be reduced as a result of a decrease in appraised value of the underlying security. If borrowings under the facility exceed the loan advance limitation, Barnwell will be required to make debt repayments in the amount of the excess. At June 30, 2009, borrowings under Kaupulehu 2007’s revolving credit facility were $15,636,000 and unused credit available under this facility was approximately $364,000. The facility expires in December 2010. One turnkey home is currently available for sale and is reflected as a current asset, and an equivalent amount of debt has been classified as a current liability. The remainder of the borrowings under Kaupulehu 2007’s revolving facility is classified as long-term debt.

Kaupulehu 2007 capitalizes interest costs on residential lots under development while development and construction is in progress and includes these costs in cost of sales when homes are sold. Interest costs for the three and nine months ended June 30, 2009 and 2008 are summarized as follows:

	Three months ended						Nine months ended
	June 30,						June 30,
	2009			2008			2009			2008
Interest costs incurred		$	277,000		$	355,000		$	854,000		$	1,120,000
Less interest costs capitalized on residential lots under development and real estate held for sale		30,000			98,000			253,000			286,000

Interest expense		$	247,000		$	257,000		$	601,000		$	834,000

9. SEGMENT INFORMATION

Barnwell operates four segments: 1) exploring for, developing, producing and selling oil and natural gas in Canada (oil and natural gas); 2) investing in leasehold land and other real estate interests in Hawaii (land investment); 3) drilling wells and installing and repairing water pumping systems in Hawaii (contract drilling); and 4) acquiring property for investment and development of homes for sale in Hawaii (residential real estate).

The following is certain financial information related to Barnwell’s reporting segments. All revenues reported are from external customers with no intersegment sales or transfers.

	Three months ended								Nine months ended
	June 30,								June 30,
	2009				2008				2009				2008
Revenues:
Oil and natural gas		$	5,927,000			$	14,646,000			$	19,187,000			$	36,239,000
Land investment		-				2,066,000				1,034,000				5,272,000
Contract drilling		1,420,000				2,674,000				3,643,000				7,267,000
Residential real estate		-				443,000				-				443,000
Other		116,000				466,000				624,000				921,000
Total before interest income		7,463,000				20,295,000				24,488,000				50,142,000
Interest income		5,000				61,000				73,000				181,000
Total revenues		$	7,468,000			$	20,356,000			$	24,561,000			$	50,323,000

Depreciation, depletion, and amortization:
Oil and natural gas		$	2,496,000			$	3,578,000			$	8,763,000			$	10,682,000
Contract drilling		102,000				107,000				307,000				287,000
Other		38,000				45,000				114,000				140,000
Total depreciation, depletion, and amortization		$	2,636,000			$	3,730,000			$	9,184,000			$	11,109,000

Reduction of carrying value of oil and natural gas properties:
Oil and natural gas		$	4,260,000			$	-			$	26,348,000			$	-

Operating (loss) profit (before general and administrative expenses):
Oil and natural gas		$	(2,969,000	)		$	8,461,000			$	(22,960,000	)		$	18,018,000
Land investment, net of minority interest		-				1,614,000				808,000				4,119,000
Contract drilling		248,000				401,000				149,000				1,037,000
Residential real estate, net of minority interest		-				354,000				-				354,000
Other		78,000				421,000				510,000				781,000
Total operating (loss) profit		(2,643,000		)		11,251,000				(21,493,000		)		24,309,000

General and administrative expenses, net of minority interest		(2,065,000		)		(4,147,000		)		(5,982,000		)		(10,308,000		)
Bad debt recovery (expense)		129,000				(608,000		)		(465,000		)		(608,000		)
Interest expense, net of minority interest		(228,000		)		(248,000		)		(571,000		)		(805,000		)
Interest income		5,000				61,000				73,000				181,000
(Loss) earnings before income taxes		$	(4,802,000	)		$	6,309,000			$	(28,438,000	)		$	12,769,000

10. INCOME TAXES

The components of the income tax (benefit) provision for the three and nine months ended June 30, 2009 and 2008 are as follows:

	Three months ended							Nine months ended
	June 30,							June 30,
	2009				2008			2009				2008
Current		$	11,000			$	2,730,000		$	(268,000	)		$	5,564,000
Deferred		(1,578,000		)		46,000			(8,362,000		)		(1,332,000		)

		$	(1,567,000	)		$	2,776,000		$	(8,630,000	)		$	4,232,000

Barnwell’s effective consolidated income tax benefit rate for the three and nine months ended June 30, 2009 was approximately 33% and 30%, respectively. This rate is lower than the expected statutory U.S. rate of 35% as it reflects the estimation that it is not more likely than not that Barnwell will realize an incremental U.S. tax benefit over the foreign tax benefit related to temporary differences arising from depletion of Canadian oil and natural gas properties.

Included in the income tax provision for the nine months ended June 30, 2008 is a $909,000 reduction of the net deferred tax liability due to a reduction in Canadian federal tax rates. During the first quarter of fiscal 2008, the Canadian government enacted reductions in the corporate tax rate from 20.5%, 20.0%, 19.0%, 18.5% and 18.5% in calendar years 2008, 2009, 2010, 2011 and 2012, respectively, to 19.5%, 19.0%, 18.0%, 16.5% and 15.0%, respectively. Excluding the impact of the decrease in Canadian federal tax rates, Barnwell’s effective consolidated income tax rate for the nine months ended June 30, 2008 was approximately 40%. There was no reduction in Canadian federal tax rates in the three and nine months ended June 30, 2009 or three months ended June 30, 2008.

In January 2008, the U.S. Internal Revenue Service notified Barnwell that it would examine Barnwell’s U.S. consolidated income tax return for fiscal 2006. That examination has been concluded with no changes to the return.

There were no significant changes in unrecognized tax benefits in the three and nine months ended June 30, 2009. Unrecognized tax benefits consist primarily of Canadian federal and provincial audit issues that involve the timing of oil and natural gas capital expenditure deductions and transfer pricing adjustments. Because of a lack of clarity and uniformity regarding allowable transfer pricing valuations by differing jurisdictions, it is reasonably possible that the total amount of unrecognized tax benefits and any offsetting foreign tax credit benefits may significantly increase or decrease within the next 12 months, and the estimated range of any such variance is not currently estimable based upon facts and circumstances as of June 30, 2009.

Included below is a summary of the tax years, by jurisdiction, that remain subject to examination by taxing authorities:

Jurisdiction		Fiscal Years Open
U.S. federal		2006 – 2008
Various U.S. states		2006 – 2008
Canada federal		2001 – 2008
Various Canadian provinces		2001 – 2008

11. RETIREMENT PLANS

Barnwell sponsors a noncontributory defined benefit pension plan (“Pension Plan”) covering substantially all of its U.S. employees. Additionally, Barnwell sponsors a Supplemental Employee Retirement Plan (“SERP”), a noncontributory supplemental retirement benefit plan which covers certain current and former employees of Barnwell for amounts exceeding the limits allowed under the defined benefit pension plan and a postretirement medical insurance benefits plan (“Postretirement Medical”) covering eligible U.S. employees.

The following tables detail the components of net periodic benefit cost for Barnwell’s retirement plans for the three and nine months ended June 30, 2009 and 2008:

	Pension Plan								SERP						Postretirement Medical
	Three months ended June 30,
	2009				2008				2009			2008			2009				2008
Service cost		$	45,000			$	51,000			$	7,000		$	9,000		$	2,000			$	2,000
Interest cost		75,000				70,000				12,000			10,000			12,000				13,000
Expected return on plan assets		(63,000		)		(76,000		)		-			-			-				-
Amortization of prior service cost		2,000				1,000				1,000			1,000			34,000				34,000
Amortization of net actuarial loss (gain)		6,000				5,000				-			2,000			(6,000		)		(1,000		)

Net periodic benefit cost		$	65,000			$	51,000			$	20,000		$	22,000		$	42,000			$	48,000

	Pension Plan								SERP						Postretirement Medical
	Nine months ended June 30,
	2009				2008				2009			2008			2009				2008
Service cost		$	134,000			$	151,000			$	21,000		$	25,000		$	6,000			$	7,000
Interest cost		225,000				209,000				34,000			32,000			38,000				39,000
Expected return on plan assets		(186,000		)		(229,000		)		-			-			-				-
Amortization of prior service cost		4,000				4,000				3,000			3,000			102,000				102,000
Amortization of net actuarial loss (gain)		17,000				15,000				-			5,000			(20,000		)		(3,000		)

Net periodic benefit cost		$	194,000			$	150,000			$	58,000		$	65,000		$	126,000			$	145,000

Barnwell did not make a contribution to the Pension Plan during the three and nine months ended June 30, 2009 and estimates that it will contribute approximately $250,000 to the Pension Plan during the fourth quarter of fiscal 2009. The SERP and Postretirement Medical plans are unfunded and Barnwell will fund benefits when payments are made. Barnwell does not expect to make any benefit payments under the Postretirement Medical plan during fiscal 2009 and expected payments under the SERP for fiscal 2009 are not significant.

12. SHARE REPURCHASE PROGRAM

In August 2008, the Board of Directors authorized the Company to acquire in the open market, from time-to-time commencing on August 18, 2008 and ending on December 31, 2008, and in accordance with applicable laws, rules and regulations, up to 150,000 shares of the Company’s common stock. During the three months ended December 31, 2008, Barnwell repurchased 12,700 shares of its common stock for $97,000, or approximately $7.65 per share. There was no share repurchase authorization, and accordingly no shares repurchased, during the second and third quarters of fiscal 2009.

13. FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and payables to joint interest owners approximate their carrying values due to the short-term nature of the 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.

14. OIL AND NATURAL GAS PROPERTIES

Under the full cost method of accounting, we are required to perform quarterly ceiling test calculations. At June 30, 2009, net capitalized costs exceeded the ceiling limitation. As such, during the third quarter of fiscal 2009, Barnwell reduced the carrying value of its oil and natural gas properties by $4,260,000, which reduced net earnings by $3,000,000. The current quarter’s reduction of the carrying value of oil and natural gas properties, combined with the second quarter’s reduction of $22,088,000 (approximately $15,556,000 net of income taxes), resulted in a reduction of $26,348,000 (approximately $18,556,000 net of income taxes) for the nine months ended June 30, 2009. No such reduction was recorded during the three and nine months ended June 30, 2008.

The following table summarizes the market prices, adjusted for market differentials, used to calculate the ceiling value of Barnwell’s reserves at June 30, 2009, March 31, 2009, and September 30, 2008:

	June 30,			March 31,			September 30,
	2009			2009			2008
Natural Gas (MCF)*		$	2.64		$	2.94		$	5.94
Oil (Bbls)**		$	60.02		$	46.36		$	92.76
Liquids (Bbls)**		$	40.39		$	34.45		$	56.59

* MCF = 1,000 cubic feet. Natural gas price per unit is net of pipeline charges.

** Bbl = stock tank barrel equivalent to 42 U.S. gallons

The reduction of the carrying value of oil and natural gas properties is reported in the Condensed Consolidated Statements of Operations. Changes in oil and natural gas prices, as well as changes in production rates, levels of reserves, future development costs and the market value of unproved properties, impact the determination of the maximum carrying value of oil and natural gas properties. Further declines in oil, natural gas and natural gas liquids prices from June 30, 2009 levels will result in additional future reductions in the carrying value of our oil and natural gas properties in the absence of offsetting changes.

15. FAIR VALUE MEASUREMENTS AND RECENT ACCOUNTING PRONOUNCEMENTS

Effective October 1, 2008, Barnwell adopted the provisions of SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value as the amount that would be received from the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants at the measurement date and establishes a three-level hierarchy for measuring fair value. SFAS No. 157 requires fair value measurements be classified and disclosed in one of the following categories:

· Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities in active markets and have the highest priority.

· Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

· Level 3: Unobservable inputs for the financial asset or liability and have the lowest priority.

The adoption of SFAS No. 157 for financial assets and liabilities did not have an impact on Barnwell’s financial statements.

In February 2008, the Financial Accounting Standards Board (the “FASB”) issued FASB Staff Position (“FSP”) FAS 157-2, “Effective Date of FASB Statement No. 157.” This FSP defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). We have elected to utilize this deferral and accordingly, we will apply SFAS No. 157 to our nonfinancial assets and liabilities that are measured at fair value on a nonrecurring basis in the quarter ending December 31, 2009. Barnwell is currently evaluating the impact that the application of SFAS No. 157 to nonfinancial assets and liabilities that are measured at fair value on a nonrecurring basis will have on its consolidated financial position, results of operations and cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115.” SFAS No. 159 provides companies with an option to report selected financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. Upfront costs and fees related to items for which the fair value option is elected are recognized in earnings as incurred. Although SFAS No. 159 was effective for our fiscal year beginning October 1, 2008, we do not currently have any financial assets or financial liabilities for which the provisions of SFAS No. 159 have been elected. However, in the future, we may elect to measure certain financial instruments at fair value in accordance with this standard.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment to Accounting Research Bulletin No. 51.” SFAS No. 160 establishes accounting and reporting standards that require the ownership interest in subsidiaries held by parties other than the parent be clearly identified and presented in the Consolidated Balance Sheets within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and the noncontrolling interest be clearly identified and presented on the face of the

Consolidated Statements of Operations; and changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. This statement is effective for fiscal years beginning on or after December 15, 2008. Barnwell’s management is currently evaluating the impact of these provisions on Barnwell’s results of operations, financial condition and liquidity.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles. SFAS No. 162 became effective for the Company on November 15, 2008. The adoption of SFAS No. 162 did not have a material impact on the Company’s consolidated financial statements. In June 2009, SFAS No. 162 was replaced by SFAS No. 168. See further discussion below.

In December 2008, the FASB issued FSP FAS 132(R)-1, “Employers Disclosures about Postretirement Benefit Plan Assets.” This FSP provides additional guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. FSP FAS 132(R)-1 is effective for financial statements issued for fiscal years ending after December 15, 2009. Barnwell’s management is currently evaluating the impact of adopting these provisions on the consolidated financial statements.

In December 2008, the Securities and Exchange Commission (“SEC”) adopted revisions to its required oil and natural gas reporting disclosures. The revisions are intended to provide investors with a more meaningful and comprehensive understanding of oil and natural gas reserves. In the three decades that have passed since adoption of the original disclosure requirements, there have been significant changes in the oil and natural gas industry. The amendments are designed to modernize and update the oil and natural gas disclosure requirements to align them with current practices and changes in technology. In addition, the amendments concurrently align the SEC’s full cost accounting rules with the revised disclosures. The revised disclosure requirements must be incorporated in annual reports on Form 10-K for fiscal years ending on or after December 31, 2009. A company may not apply the new rules to disclosures in quarterly reports prior to the first annual report in which the revised disclosures are required. Barnwell’s management is currently evaluating the impact of adopting these provisions on the consolidated financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board (“APB”) Opinion No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP requires publicly traded companies to include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. Additionally, we will be required to provide quantitative and qualitative information about fair value estimates for all financial instruments not measured in the Condensed Consolidated Balance Sheets at fair value. FSP FAS 107-1 and APB 28-1 is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. FSP 107-1 and APB 28-1 became effective for the Company on April 1, 2009. The adoption of FSP 107-1 and APB 28-1 did not have a material impact on Barnwell’s consolidated financial statements.

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This FSP clarifies the methodology used to determine fair value when there is no active market or where the price inputs being used represent distressed sales.

FSP FAS 157-4 also reaffirms the objective of fair value measurement, as stated in FAS No. 157, “Fair Value Measurements,” which is to reflect how much an asset would be sold for in an orderly transaction. It also reaffirms the need to use judgment to determine if a formerly active market has become inactive, as well as to determine fair values when markets have become inactive. FSP FAS 157-4 is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. FSP FAS 157-4 became effective for the Company on April 1, 2009. The adoption of FSP FAS 157-4 did not have a material impact on Barnwell’s consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, SFAS No. 165 sets forth (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This statement became effective for the Company during the current quarter. The adoption of SFAS No. 165 did not have a material impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles.” This standard replaces SFAS No. 162 and establishes only two levels of U.S. generally accepted accounting principles (“GAAP”), authoritative and nonauthoritative. SFAS No. 168 establishes the FASB Accounting Standards Codification (“Codification”) as the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under federal securities laws are also sources of authoritative GAAP for SEC registrants. All nongrandfathered non-SEC accounting literature not included in the Codification will be deemed nonauthoritative. This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. As the Codification is not intended to change or alter existing U.S. GAAP, adoption of SFAS No. 168 is not expected to have any impact on our consolidated financial position or results of operations. However, upon implementation of SFAS No. 168, all references made to U.S. GAAP will use the new Codification numbering system prescribed by the FASB.

16. INFORMATION RELATING TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine months ended
	June 30,
	2009			2008
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized		$	608,000		$	763,000
Income taxes		$	2,637,000		$	2,349,000

Supplemental disclosure of non-cash investing and financing activities:
Interest financed and not paid in cash		$	-		$	68,000
Long-term debt borrowings refinanced		$	-		$	6,600,000
Debt assumed in purchase of residential parcel held for investment		$	-		$	2,178,000
Reduction in related party loan with corresponding increase in minority interest liability		$	-		$	382,000
Reduction in deposits on residential parcels with corresponding increase in accounts receivable		$	-		$	400,000
Reduction in deposits on residential parcels with corresponding increase in investment in residential parcels		$	-		$	200,000

During the nine months ended June 30, 2008, 40,000 stock options were exercised by tendering 5,200 shares of Barnwell stock at a market value of $14.95 per share plus $1,000 of cash, resulting in a $20,000 increase in common stock, a $59,000 increase in additional paid-in capital and a $78,000 increase in treasury stock.

During the nine months ended June 30, 2009 and 2008, capital expenditure accruals related to oil and natural gas asset retirement obligations increased $26,000 and $239,000, respectively. Additionally, capital expenditure accruals related to oil and natural gas exploration and development decreased $2,177,000 and increased $3,038,000 during the nine months ended June 30, 2009 and 2008, respectively.

During the nine months ended June 30, 2009 and 2008, accruals related to residential lots under development increased $24,000 and $793,000, respectively.

17. SUBSEQUENT EVENTS

The Company’s management evaluated subsequent events through the date this Quarterly Report on Form 10-Q was issued and filed with the SEC, which was August 13, 2009. There were no subsequent events that required recognition or disclosure.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Relevant to Forward-Looking Information

For the Purpose Of “Safe Harbor” Provisions Of The

Private Securities Litigation Reform Act of 1995

This Form 10-Q, and the documents incorporated herein by reference, contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. A forward-looking statement is one which is based on current expectations of future events or conditions and does not relate to historical or current facts. These statements include various estimates, forecasts, projections of Barnwell’s future performance, statements of Barnwell’s plans and objectives, and other similar statements. Forward-looking statements include phrases such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “predicts,” “estimates,” “assumes,” “projects,” “may,” “will,” “will be,” “should,” or similar expressions. Although Barnwell believes that its current expectations are based on reasonable assumptions, it cannot assure that the expectations contained in such forward-looking statements will be achieved. Forward-looking statements involve risks, uncertainties and assumptions which could cause actual results to differ materially from those contained in such statements. The risks, uncertainties and other factors that might cause actual results to differ materially from Barnwell’s expectations are set forth in the “Forward-Looking Statements” and “Risk Factors” sections of Barnwell’s Annual Report on Form 10-K for the year ended September 30, 2008. Investors should not place undue reliance on these forward-looking statements, as they speak only as of the date of filing of this Form 10-Q, and Barnwell expressly disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statements contained herein.

Critical Accounting Policies and Estimates

Management has determined that our most critical accounting policies are those related to the evaluation of recoverability of assets, depletion of our oil and natural gas properties, income taxes and asset retirement obligation. We continue to monitor our accounting policies to ensure proper application of current rules and regulations.

The Company evaluates the recoverability of assets to determine whether or not a reduction in the carrying value of such assets is required. Such evaluations require subjective judgments, estimates and assumptions, and actual results could differ significantly from those estimates. Oil and natural gas properties are evaluated quarterly utilizing a “ceiling” limitation test. Real estate assets and land investments are evaluated to determine whether or not events or circumstances indicate that the carrying amount may not be recoverable. Investments in joint ventures are evaluated for impairment whenever there is evidence of a loss in value which is other than temporary.

Evaluation of the fair value of real estate assets and land investments requires management to make assumptions and utilize judgments to estimate factors such as, but not limited to, the timing and amount of future cash flows, uncertainty about future events, changes in economic conditions and operating performance, and other relevant information. Evaluation of the fair value of investments in joint ventures include the above as well as the ability and intent to hold the asset for a sufficient period of time to allow for anticipated recovery in fair value.

Further discussions of our critical accounting policies and estimates are contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2008, or elsewhere in this Form 10-Q.

Impact of Recently Issued Accounting Standards

See Note 15 in the “Notes to Condensed Consolidated Financial Statements” for a summary of new accounting standards.

Overview

Barnwell is engaged in the following lines of business: 1) exploring for, developing, producing and selling oil and natural gas in Canada (oil and natural gas segment), 2) investing in leasehold land and other real estate interests in Hawaii (land investment segment), 3) acquiring property for investment and development of homes for sale in Hawaii (residential real estate segment), and 4) drilling wells and installing and repairing water pumping systems in Hawaii (contract drilling segment).

Oil and Natural Gas Segment

Barnwell sells substantially all of its oil and natural gas liquids production under short-term contracts with marketers of oil. 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, oil and natural gas liquids is freely negotiated between the buyers and sellers. Oil and natural gas prices are determined by many factors that are outside of our control. Market prices for petroleum products are dependent upon factors such as, but not limited to, changes in market supply and demand, which are impacted by overall economic activity, changes in weather, pipeline capacity constraints, inventory storage levels, and output. Oil and natural gas prices are very difficult to predict and fluctuate significantly. Natural gas prices tend to be higher in the winter than in the summer due to increased demand, although this trend has become less pronounced due to the increased use of natural gas to generate electricity for air conditioning in the summer and increased natural gas storage capacity in North America.

Oil and natural gas exploration, development and operating costs generally follow trends in product market prices, thus in times of higher product prices the cost of exploration, development and operation of oil and natural gas properties will tend to escalate as well. Barnwell’s oil and natural gas operations make capital expenditures in the exploration, development, and production of oil and natural gas. Cash outlays for capital expenditures are largely discretionary; however, a minimum level of capital expenditures is required to replace depleting reserves. Due to the nature of oil and natural gas exploration and development, significant uncertainty exists as to the ultimate success of any drilling effort.

Land Investment Segment

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, within and adjacent to Hualalai Resort at Historic Ka’upulehu, between the Queen Kaahumanu Highway and the Pacific Ocean. A former director of Barnwell and minority interest owner in certain of Barnwell’s business ventures and his affiliated entities indirectly own 19.3% of Kaupulehu Developments. Refer to Note 7 of the “Notes to Condensed Consolidated Financial Statements” for further discussion on related party interests.

Kaupulehu Developments’ interests include the following:

· Development rights for residentially-zoned leasehold land within and adjacent to the Hualalai Golf Club which are under option to a developer. As of June 30, 2009, the development rights are under option for $5,312,000, comprised of two payments of $2,656,000 due on December 31, 2009 and December 31, 2010.

· The right to receive payments resulting from the sale of lots and/or residential units within approximately 870 acres in the Kaupulehu area by other developers.

· Approximately 1,000 acres of vacant leasehold land zoned conservation in the Kaupulehu area located adjacent to the 870 acres described above. Kaupulehu Developments has an agreement which provides a potential developer with the exclusive right to negotiate with Kaupulehu Developments with respect to these 1,000 acres. This right expires in June 2015 or, in June 2013 if the developer has not completed any and all environmental assessments and surveys reasonably required to support a petition to the Hawaii State Land Use Commission for reclassification of the 1,000 acres.

Kaupulehu Mauka Investors, LLC, a limited liability company wholly-owned by Barnwell, holds 14 lot acquisition rights as to lots within approximately 5,000 acres of agricultural-zoned leasehold land in the upland area of Kaupulehu (“Mauka Lands”) situated between the Queen Kaahumanu Highway and the Mamalahoa Highway at Kaupulehu, North Kona, island and state of Hawaii. The 14 lot acquisition rights give Barnwell the right to acquire 14 residential lots, each of which is currently estimated to be two to five acres in size, which may be developed on the Mauka Lands. These lands are currently classified as agricultural by the state of Hawaii and, accordingly, the developer of these lands will need to pursue both state and county of Hawaii approvals for reclassification and rezoning to permit a residential subdivision and negotiate development terms.

Residential Real Estate Segment

Barnwell owns an 80% controlling interest in Kaupulehu 2007, LLLP (“Kaupulehu 2007”), a Hawaii limited liability limited partnership, which acquires house lots for investment and constructs turnkey single-family homes for sale. A former director of Barnwell and minority interest owner in certain of Barnwell’s business ventures and his affiliates have a 20% interest in Kaupulehu 2007. Refer to Note 7 of the “Notes to Condensed Consolidated Financial Statements” for further discussion on related party interests.

Contract Drilling Segment

Barnwell drills water, water monitoring and geothermal wells and installs and repairs water pumping systems in Hawaii. Contract drilling results are highly dependent upon the quantity, dollar value and timing of contracts awarded by governmental and private entities and can fluctuate significantly.

Investment in Joint Ventures

Barnwell owns an 80% interest in Kaupulehu Investors, LLC, which owns a 1.5% passive minority interest in three joint ventures, Hualalai Investors JV, LLC, Hualalai Investors II, LLC and Kona Village Investors, LLC, which own Hualalai Resort and Kona Village Resort.

Business Environment

Our primary operations are concentrated in the state of Hawaii and in Canada. Accordingly, our business performance is directly affected by macroeconomic conditions in those areas, as well as general economic conditions of the U.S. and world economies.

Widespread national and international concern over instability in the credit and capital markets continued during recent months with unprecedented market volatility and disruption in the U.S. and world economies. The current recession that we are now experiencing differentiates recent months from years past with higher unemployment levels, steep declines in the stock market, collapses and government bail-outs of financial institutions, further deterioration in consumer confidence, and reduced consumer spending. All of the Company’s business segments have been adversely impacted by these changes.

According to the State of Hawaii Department of Business, Economic Development and Tourism’s (“DBEDT”) 2nd Quarter 2009 Quarterly Statistical & Economic Report, Hawaii’s economy continued to slow through the first quarter of 2009, primarily due to worsening national economic conditions and the decline of visitor industry activity. DBEDT expects that the remainder of 2009 will bring reduced visitor counts and spending, increased unemployment rates, and slower construction activity. The aforementioned factors have had, and will presumably continue to have, an unfavorable impact on Barnwell’s operations through fiscal 2009 and into fiscal 2010.

To combat the tough economic conditions, the Company has implemented cost containment programs including reductions in capital expenditures, management and staff compensation costs, and other general and administrative expenditures.

Oil and Natural Gas Segment

Our revenue, profitability, and future rate of growth are substantially dependent on existing oil and natural gas prices. Historically, oil and natural gas prices have been extremely volatile. Oil and natural gas prices hit historic high levels in recent years and during the latter half of fiscal 2008. Beginning in the fourth quarter of fiscal 2008 through the date of this filing, oil and natural gas prices have fallen sharply from their record levels. Natural gas prices for Barnwell, based on quarterly averages during the three years ended June 30, 2009, have ranged from a low of $3.19 per thousand cubic feet (the average price for the current quarter) to a high of $9.70 per thousand cubic feet (the average price for the quarter ended June 30, 2008). Oil prices for Barnwell, based on quarterly averages for the period discussed above, ranged from a low of $35.20 per barrel (the average price for

the quarter ended March 31, 2009) to a high of $117.22 per barrel (the average price for the quarter ended June 30, 2008). Although oil prices have increased from March 2009 levels, natural gas prices have continued to be weak during the three months ended June 30, 2009 and into July 2009. Continued or extended declines in prices for oil and natural gas could have a material adverse effect on our financial condition, results of operations, liquidity and cash flows.

In response to the significant declines in oil and natural gas prices and general economic conditions, the Company has significantly reduced oil and natural gas capital expenditures and expects to hold such capital expenditures at reduced levels through the remainder of fiscal 2009 and possibly into fiscal 2010. Reduced capital expenditures, if significant and/or continued, will likely result in a reduction in reserve volumes and oil and natural gas production.

Land Investment and Residential Real Estate Segments

In prior years, Hawaii’s economy experienced positive growth and the South Kohala/North Kona area of the island of Hawaii, the area in which Kaupulehu Developments’ leasehold interests are located and Kaupulehu 2007 is building homes, experienced strong demand for high end residential real estate. However, beginning in fiscal 2008 and into fiscal 2009, the economic recession caused sales prices and activity within the Kaupulehu area to be significantly lower than original expectations. Due to sharp declines in demand for luxury real estate, we expect revenues from real estate sales through 2010 to be lower than in previous years. This may adversely affect our operating results, financial condition, and liquidity and cash flows. Additionally, the value of the Mauka Lands is impacted by development activity and real estate values in the surrounding area. If declines in development activity, development feasibility or real estate values in the surrounding area result in a decline in the value of the Company’s lot acquisition rights within the Mauka Lands to below its carrying value, the Company will be required to record an impairment loss.

One of Kaupulehu 2007’s two turnkey luxury homes is complete and available for sale, and the second home currently under construction is anticipated to be completed in September 2009. Our ability to sell the completed residences and/or lots held for investment is contingent upon the strength of the luxury real estate market. Because of the economic recession we are currently facing, it may take an extended period of time to sell the homes and/or lots and sales prices could be lower than our current estimates. Barnwell will have cash outflows such as interest, maintenance, property taxes, and other holding costs until the homes and lots are sold.

Barnwell’s $16,000,000 real estate revolving credit facility expires in December 2010. If the economy remains weak or worsens and we are unable to sell the homes and/or lots by the time the facility becomes due, it is possible that we will be unable to meet our debt obligations. If that is the case, we may be required to refinance the debt, secure alternative financing, reduce fiscal 2010 oil and natural gas capital expenditures, liquidate assets, or take other necessary actions in order to make any required repayments. Such actions could have negative impacts on our operations and financial condition.

Contract Drilling Segment

Demand for water well drilling and/or pump installation services is volatile and dependent upon land development activities within the state of Hawaii. According to the DBEDT 2nd Quarter 2009 Quarterly Statistical & Economic Report, substantial declines in the number of construction jobs, value of private building authorizations, value of government contracts awarded, median sales prices for both single family homes and condominiums, and the number of single family and condominium units sold during the first quarter of 2009 indicate slower construction activity.

Investment in Joint Ventures

As mentioned above, no growth is expected for Hawaii’s economy during 2009. This is highlighted by such factors as reduced visitor counts and spending, increased unemployment rates, and slower construction activity.

According to DBEDT’s 2nd Quarter 2009 Quarterly Statistical & Economic Report, tourism activity in Hawaii declined sharply during the quarter ended March 31, 2009 as compared to the quarter ended March 31, 2008. Both number of visitor arrivals and hotel occupancy rates were down. Visitor arrivals, visitor days and visitor spending are forecasted to decline through 2009. In addition, beginning in fiscal 2008 and into fiscal 2009, the economic recession caused real estate sales within the Hualalai Resort area to be lower than original expectations. Further deterioration of these conditions and continued reduced tourism and real estate sales activity could result in a sustained decrease in the value of our investment in these joint ventures, which may require us to record a write-down of these investments.

Results of Operations

Summary

In the three and nine months ended June 30, 2009, Barnwell recorded non-cash reductions of the carrying value of oil and natural gas properties of $4,260,000 (approximately $3,000,000 net of income taxes) and $26,348,000 (approximately $18,556,000 net of income taxes), respectively. The reductions were primarily due to a significant decline in the price of natural gas. At June 30, 2009, natural gas prices declined even further from March 31, 2009 prices. This decrease was partially offset by an increase in the price for oil and to a lesser extent an increase in the price for natural gas liquids for the same period.

	June 30,	March 31,	September 30,
	2009	2009	2008
Natural Gas (MCF)*	$ 2.64	$ 2.94	$ 5.94
Oil (Bbls)**	$ 60.02	$ 46.36	$ 92.76
Liquids (Bbls)**	$ 40.39	$ 34.45	$ 56.59

*	MCF = 1,000 cubic feet. Natural gas price per unit is net of pipeline charges.
**	Bbl = stock tank barrel equivalent to 42 U.S. gallons

Under the full cost method of accounting, prices as of the end of the quarter are used to determine the maximum carrying value of oil and natural gas properties. The full cost method assumes constant prices over the productive life of the underlying oil and natural gas reserves, and its results do not necessarily reflect the true fair value of the underlying reserves as commodity prices are volatile and subject to changes in economic conditions and market forces over time. Changes in oil and natural gas prices, as well as changes in production rates, levels of reserves, future development costs and the market value of unproved properties, impact the determination of the maximum carrying value of oil and natural gas properties. Further declines in oil, natural gas and natural gas liquids prices from June 30, 2009 levels will result in additional reductions in the carrying value of our oil and natural gas properties in the absence of offsetting changes. If oil and natural gas prices do not increase sufficiently from the levels of the quarter ended June 30, 2009, and if there are no or insufficient revenues from land investment segment sales or other sources, the Company will incur additional losses during the fourth quarter.

For the three months ended June 30, 2009, Barnwell reported a net loss totaling $3,235,000, a $6,768,000 decrease from net earnings of $3,533,000 for the three months ended June 30, 2008. This decrease was largely attributable to the following items:

·	The aforementioned non-cash reduction of the carrying value of oil and natural gas properties of $4,260,000 (approximately $3,000,000 net of income taxes); and

·	Decrease of $7,170,000 before taxes in oil and natural gas segment operating profit (excluding the impact of the reduction in carrying value of oil and natural gas properties discussed above), due primarily to lower prices received for all petroleum products.

The aforementioned items were partially offset by a $2,107,000 decrease, before income taxes, in general and administrative expenses.

For the nine months ended June 30, 2009, Barnwell reported a net loss totaling $19,808,000, a $28,345,000 decrease from net earnings of $8,537,000 for the nine months ended June 30, 2008. This decrease was largely due to the following items:

·	The aforementioned non-cash reduction of the carrying value of oil and natural gas properties of $26,348,000 (approximately $18,556,000 net of income taxes);

·	Decrease of $14,630,000 before taxes in oil and natural gas segment operating profit (excluding the impact of the reduction in carrying value of oil and natural gas properties discussed above), due primarily to lower prices received for all petroleum products;

·	Decreased land investment segment operating profits before income taxes of $3,311,000 due to decreased receipts of development rights option payments and percentage of sales payments; and

·	The prior year period included a deferred income tax benefit of $909,000 resulting from a decrease in Canadian federal income tax rates; there was no such benefit in the current year period.

The aforementioned items were partially offset by a $4,403,000 decrease, before income taxes, in general and administrative expenses.

General

In addition to U.S. operations, Barnwell conducts operations in Canada. Consequently, Barnwell is subject to foreign currency translation and transaction gains and losses due to fluctuations of the exchange rates between the Canadian dollar and the U.S. dollar.

The average exchange rate of the Canadian dollar to the U.S. dollar decreased 13% and 17% in the three and nine months ended June 30, 2009, respectively, as compared to the same periods in the prior year, and the exchange rate of the Canadian dollar to the U.S. dollar increased 8% and decreased 9% at June 30, 2009 as compared to March 31, 2009 and September 30, 2008, respectively. Accordingly, the assets, liabilities, stockholders’ equity and revenues and expenses of Barnwell’s subsidiaries operating in Canada have been adjusted to reflect the change in the exchange rates. Barnwell’s Canadian dollar assets are greater than its Canadian dollar liabilities; therefore, increases or decreases in the value of the Canadian dollar to the U.S. dollar generate other comprehensive income or losses, respectively. Other comprehensive income and losses are not included in net (loss) earnings. The other comprehensive income due to foreign currency translation adjustments, net of taxes, for the three months ended June 30, 2009 was $2,850,000, a $2,513,000 increase from the $337,000 other comprehensive income due to foreign currency translation adjustments, net of taxes, for the same period in the prior year. The other comprehensive loss due to foreign currency translation adjustments, net of taxes, for the nine months ended June 30, 2009 was $3,807,000, a $2,970,000 increase from the $837,000 other comprehensive loss due to foreign currency translation adjustments, net of taxes, for the same period in the prior year.

Foreign currency transaction gains and losses were not material in the three and nine months ended June 30, 2009 and 2008 and are reflected in general and administrative expenses.

The impact of fluctuations of the exchange rates between the Canadian dollar and the U.S. dollar may be material from period to period. Barnwell cannot accurately predict future fluctuations between the Canadian and U.S. dollar.

Oil and natural gas

The following tables set forth Barnwell’s average prices per unit of production and net production volumes for the three and nine months ended June 30, 2009 as compared to the same periods of the prior year. Production amounts reported are net of royalties.

	Average Price Per Unit
	Three months ended
	June 30,		Decrease
	2009	2008	$	%
Natural Gas (MCF)*	$ 3.19	$ 9.70	$ (6.51)	(67%)
Oil (Bbls)**	$ 51.77	$ 117.22	$ (65.45)	(56%)
Liquids (Bbls)**	$ 20.95	$ 66.08	$ (45.13)	(68%)

	Average Price Per Unit
	Nine months ended
	June 30,		Decrease
	2009	2008	$	%
Natural Gas (MCF)*	$ 4.18	$ 7.72	$ (3.54)	(46%)
Oil (Bbls)**	$ 44.84	$ 96.18	$ (51.34)	(53%)
Liquids (Bbls)**	$ 23.57	$ 57.04	$ (33.47)	(59%)

	Net Production
	Three months ended		Increase
	June 30,		(Decrease)
	2009	2008	Units		%
Natural Gas (MCF)*	895,000	832,000	63,000		8	%
Oil (Bbls)**	43,000	41,000	2,000		5	%
Liquids (Bbls)**	20,000	24,000	(4,000	)	(17	%)

	Net Production
	Nine months ended		Increase
	June 30,		(Decrease)
	2009	2008	Units		%
Natural Gas (MCF)*	2,630,000	2,530,000	100,000		4	%
Oil (Bbls)**	130,000	119,000	11,000		9	%
Liquids (Bbls)**	74,000	82,000	(8,000	)	(10	%)

*	MCF = 1,000 cubic feet. Natural gas price per unit is net of pipeline charges.
**	Bbl = stock tank barrel equivalent to 42 U.S. gallons

On October 25, 2007, the Alberta Government announced a New Royalty Framework (“NRF”) that took effect on January 1, 2009. The NRF changes royalty rates on conventional oil and natural gas production to be both price-sensitive and production-sensitive, and may increase up to a maximum of 50%. The price-sensitive maximum is reached for oil when oil is selling at or above $120.00 Canadian dollars per barrel and for natural gas when natural gas is selling at or above $17.50 Canadian dollars per MCF. Approximately 99% of Barnwell’s gross revenues are derived from properties located within Alberta.

Oil and natural gas revenues decreased $8,719,000 (60%) for the three months ended June 30, 2009, as compared to the same period in the prior year, primarily due to significant decreases in natural gas, oil and natural gas liquids prices, which decreased 67%, 56% and 68%, respectively, as compared to the same period in the prior year.

Oil and natural gas revenues decreased $17,052,000 (47%) for the nine months ended June 30, 2009, as compared to the same period in the prior year, primarily due to significant decreases in natural gas, oil and natural gas liquids prices, which decreased 46%, 53% and 59%, respectively, as compared to the same period in the prior year.

Net natural gas production for the three and nine months ended June 30, 2009 increased 8% and 4%, respectively, as compared to the same periods in the prior year. The increases were due to decreases in royalty rates resulting from lower prices and the NRF, as well as favorable annual royalty adjustments received from the Alberta government. Gross natural gas production for the three and nine months ended June 30, 2009 decreased 5% and 2%, respectively, as compared to the same periods in the prior year.

Net oil production increased 5% and 9% for the three and nine months ended June 30, 2009, respectively, as compared to the same periods in the prior year due primarily to decreases in royalty rates resulting from lower prices and the NRF. Gross oil production for the three and nine months ended June 30, 2009 decreased 4% and increased 5%, respectively, as compared to the same periods in the prior year.

In November 2008, the Alberta Government announced a one-time option of selecting new transitional rates or NRF rates when drilling a new natural gas or conventional oil well 1,000 to 3,500 meters in depth. All wells drilled between 2009 and 2013 that adopt the transitional rates will be required to shift to the NRF on January 1, 2014. All current wells were moved to the NRF on January 1, 2009 as previously scheduled.

Oil and natural gas operating expenses decreased $467,000 (18%) and $503,000 (7%) for the three and nine months ended June 30, 2009, respectively, as compared to the same periods in the prior year. The decrease for the three month period was due primarily to a 13% decrease in the average exchange rate of the Canadian dollar to the U.S. dollar. The decrease for the nine month period was due to a 17% decrease in the average exchange rate of the Canadian dollar to the U.S. dollar, partially offset by higher utility costs and higher than usual workover activity which resulted in higher repairs and maintenance costs.

Sale of development rights, Sale of interest in leasehold land, and Minority interest in earnings

Revenues, minority interest in earnings and operating profit related to sales of development rights under option for the three and nine months ended June 30, 2009 and 2008 are summarized as follows:

	Three months ended						Nine months ended
	June 30,						June 30,
	2009			2008			2009			2008
Sale of development rights under option:
Proceeds		$	-		$	1,770,000		$	886,000		$	4,426,000
Fees		-			106,000			53,000			265,000
Revenues - sale of development rights, net		-			1,664,000			833,000			4,161,000
Minority interest in earnings		-			364,000			182,000			910,000

Operating profit - Sale of development rights, net		$	-		$	1,300,000		$	651,000		$	3,251,000

There were no sales of development rights in the three months ended June 30, 2009.

The decrease in proceeds from the sale of development rights during the three and nine months ended June 30, 2009 as compared to the same periods in the prior year is due to the timing of receipt of proceeds of scheduled development right options. In the prior year, $1,770,000 of the $2,656,000 development rights option due on December 31, 2008 was received early, in May 2008. Accordingly, only the remaining portion of $886,000 was received in the first quarter of fiscal 2009. During the nine months ended June 30, 2008, in addition to the early receipt of the aforementioned $1,770,000, the entire $2,656,000 development rights option due on December 31, 2007 was received in the first quarter of fiscal 2008.

All capitalized costs associated with Kaupulehu Developments’ development rights were expensed in previous years. The total amount of remaining future option receipts, if all options are fully exercised, is $5,312,000 as of June 30, 2009, comprised of two payments of $2,656,000 due on December 31, 2009 and December 31, 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.

The following table summarizes the sales proceeds received from WB KD Acquisition, LLC (“WB”), an unrelated entity, and related minority interest in earnings and operating profit for the three and nine months ended June 30, 2009 and 2008:

	Three months ended						Nine months ended
	June 30,						June 30,
	2009			2008			2009			2008
Sale of interest in leasehold land:
Proceeds		$	-		$	428,000		$	214,000		$	1,182,000
Fees		-			26,000			13,000			71,000
Revenues - sale of interest in leasehold land, net		-			402,000			201,000			1,111,000
Minority interest in earnings		-			88,000			44,000			243,000

Operating profit - Sale of interest in leasehold land, net		$	-		$	314,000		$	157,000		$	868,000

WB sold one single-family lot in Increment I in the nine months ended June 30, 2009 and paid Kaupulehu Developments a percentage of sales payment of $214,000. There were no sales of single-family lots, and accordingly no percentage of sales payment proceeds received, during the three months ended June 30, 2009. In the three and nine months ended June 30, 2008, WB sold two and four lots, respectively, and paid Kaupulehu Developments percentage of sales payments of $428,000 and $1,182,000, respectively. There is no assurance that any future payments will be received.

Contract drilling

Contract drilling revenues and costs decreased $1,254,000 (47%) and $1,096,000 (51%), respectively, for the three months ended June 30, 2009, as compared to the same period in the prior year. The contract drilling segment generated a $248,000 operating profit before general and administrative expenses in the three months ended June 30, 2009, a decrease of $153,000 as compared to the same period of the prior year, primarily due to decreased well drilling activity in the current quarter.

Contract drilling revenues and costs decreased $3,624,000 (50%) and $2,756,000 (46%), respectively, for the nine months ended June 30, 2009, as compared to the same period in the prior year. The contract drilling segment generated a $149,000 operating profit before general and administrative expenses in the nine months ended June 30, 2009, a decrease of $888,000 as compared to the same period of the prior year, primarily due to decreased well drilling activity in the current year period.

Contract drilling revenues and costs are not seasonal in nature, but can fluctuate significantly based on the awarding and timing of contracts, which are determined by contract drilling customer demand.

Gas processing and other

Gas processing and other income decreased $849,000 (88%) and $848,000 (55%) for the three and nine months ended June 30, 2009, respectively, as compared to the same periods in the prior year. The prior year periods included gains of $443,000 from the sale of lot purchase rights by the residential real estate segment and $260,000 which represented insurance proceeds received on the involuntary conversion of an incapacitated drill rig that had been fully depreciated; no such revenues were received in the current year periods.

General and administrative expenses

General and administrative expenses decreased $2,107,000 (50%) for the three months ended June 30, 2009, as compared to the same period in the prior year. The decrease was primarily attributable to i) an $892,000 decrease in current compensation costs due to reductions in compensation for both management and staff, ii) a $556,000 decrease in long-term incentive plan costs, iii) a $343,000 decrease in professional services, and iv) a $310,000 decrease due to a 13% decrease in the average exchange rate of the Canadian dollar to the U.S. dollar.

General and administrative expenses decreased $4,403,000 (42%) for the nine months ended June 30, 2009, as compared to the same period in the prior year. The decrease was primarily attributable to i) a $2,125,000 decrease in current compensation costs due to reductions in compensation for both management and staff, ii) a $686,000 decrease in professional services, iii) a $530,000 decrease due to a 17% decrease in the average exchange rate of the Canadian dollar to the U.S. dollar, iv) a $454,000 decrease in long-term incentive plan costs, and v) a $244,000 decrease in travel and entertainment costs.

Bad debt expense

Bad debt expense decreased $737,000 (121%) for the three months ended June 30, 2009, as compared to the same period in the prior year. The decrease was attributable to a $608,000 bad debt expense recorded in the prior year period associated with the bankruptcy of SemGroup, L.P. as compared to the recovery of $129,000 during the current year period.

Bad debt expense decreased $143,000 (24%) for the nine months ended June 30, 2009, as compared to the same period in the prior year, due to the recovery of $234,000 of previously reserved receivables, partially offset by an increase in bad debt provisions, in the current year period.

Depreciation, depletion, and amortization

Depreciation, depletion, and amortization decreased $1,094,000 (29%) for the three months ended June 30, 2009, as compared to the same period in the prior year, due primarily to a 13% decrease in the average exchange rate of the Canadian dollar to the U.S. dollar coupled with a 27% decrease in the depletion rate.

Depreciation, depletion, and amortization decreased $1,925,000 (17%) for the nine months ended June 30, 2009, as compared to the same period in the prior year, due primarily to a 17% decrease in the average exchange rate of the Canadian dollar to the U.S. dollar coupled with a 4% decrease in the depletion rate.

The lower depletion rate for both the three and nine months ended June 30, 2009 is due to the current year reduction of the carrying value of oil and natural gas properties. The reduction of the carrying value of oil and natural gas properties for the nine months ended June 30, 2009 is estimated to result in a lower depletion rate during the fourth quarter as compared to the first nine months of the fiscal year in the absence of any offsetting impacts resulting from future activity or revisions of reserve volumes.

Reduction of carrying value of oil and natural gas properties

Under the full cost method of accounting, we are required to perform quarterly ceiling test calculations.

At June 30, 2009, net capitalized costs exceeded the ceiling limitation. As such, during the third quarter of fiscal 2009, Barnwell reduced the carrying value of its oil and natural gas properties by $4,260,000, which reduced net earnings by $3,000,000. The current quarter’s reduction of the carrying value of oil and natural gas properties, combined with the second quarter’s reduction of $22,088,000 (approximately $15,556,000 net of income taxes), resulted in a reduction of $26,348,000 (approximately $18,556,000 net of income taxes) for the nine months ended June 30, 2009. No such reduction was recorded during the three and nine months ended June 30, 2008.

The reductions were due to a significant decline in prices. The following table summarizes the market prices, adjusted for market differentials, used to calculate the ceiling value of Barnwell’s reserves at June 30, 2009, March 31, 2009, and September 30, 2008:

	June 30,		March 31,		September 30,
	2009		2009		2008
Natural Gas (MCF)*	$	2.64	$	2.94	$	5.94
Oil (Bbls)**	$	60.02	$	46.36	$	92.76
Liquids (Bbls)**	$	40.39	$	34.45	$	56.59

* MCF = 1,000 cubic feet. Natural gas price per unit is net of pipeline charges.

** Bbl = stock tank barrel equivalent to 42 U.S. gallons

Under the full cost method of accounting, prices as of the end of the quarter are used to determine the maximum carrying value of oil and natural gas properties. The full cost method assumes constant prices over the productive life of the underlying oil and natural gas reserves, and its results do not necessarily reflect the true fair value of the underlying reserves as commodity prices are volatile and subject to changes in economic conditions and market forces over time. Changes in oil and natural gas prices, as well as changes in production rates, levels of reserves, future development costs and the market value of unproved properties, impact the determination of the maximum carrying value of oil and natural gas properties. Further declines in oil, natural gas and natural gas liquids prices from June 30, 2009 levels will result in additional future reductions in the carrying value of our oil and natural gas properties in the absence of offsetting changes.

Interest expense

Interest expense decreased $10,000 (4%) for the three months ended June 30, 2009 as compared to the same period in the prior year. Interest incurred decreased primarily due to lower average interest rates, partially offset by higher average loan balances. This decrease was also partially offset by a decrease in the amount of interest capitalized due to the completion of development of residential homes in the current quarter, leaving interest expense essentially unchanged.

Interest expense decreased $233,000 (28%) for the nine months ended June 30, 2009 as compared to the same period in the prior year. Interest incurred decreased primarily due to lower average interest rates, partially offset by higher average loan balances. This decrease was also partially offset by a decrease in the amount of interest capitalized due to the completion of development of residential homes in the current quarter, leaving a $233,000 decrease in interest expense.

Interest costs for the three and nine months ended June 30, 2009 and 2008 are summarized as follows:

	Three months ended						Nine months ended
	June 30,						June 30,
	2009			2008			2009			2008
Interest costs incurred		$	277,000		$	355,000		$	854,000		$	1,120,000
Less interest costs capitalized on residential lots under development and real estate held for sale		30,000			98,000			253,000			286,000
Interest expense		$	247,000		$	257,000		$	601,000		$	834,000

The majority of Barnwell’s debt is denominated in U.S. dollars. Therefore, the decrease in the average exchange rate of the Canadian dollar to the U.S. dollar had a minimal impact on interest expense.

Income taxes

There were no significant changes in unrecognized tax benefits in the three and nine months ended June 30, 2009. Included below is a summary of the tax years, by jurisdiction, that remain subject to examination by taxing authorities:

Jurisdiction		Fiscal Years Open
U.S. federal		2006 – 2008
Various U.S. states		2006 – 2008
Canada federal		2001 – 2008
Various Canadian provinces		2001 – 2008

Liquidity and Capital Resources

Barnwell’s primary sources of liquidity are internally generated cash flows from operations, land investment segment proceeds and borrowings on its credit facilities. At June 30, 2009, Barnwell had $7,445,000 in cash and cash equivalents, approximately $1,129,000 of available credit under its credit facility with its Canadian bank, and approximately $364,000 of available credit under its credit facility with its Hawaii bank; the Hawaii bank facility is restricted in its use to the construction of homes and financing of lots by Kaupulehu 2007. At June 30, 2009, we maintained positive working capital of $5,825,000 as compared to positive working capital of $2,829,000 at September 30, 2008. Barnwell’s future liquidity and ability to fund capital expenditures is dependent upon operating cash flows, existing working capital, unused credit facilities and ability to access debt and equity markets.

We believe our current cash balances, future operating cash flows, land investment segment proceeds, residential home and lot sales, and available credit will be sufficient to fund our operations, planned future capital expenditures, scheduled debt repayments and related interest, and settle incentive compensation liabilities in cash, if necessary. However, in recent months, the U.S. and international credit markets have experienced significant disruption. These disruptions have resulted in greater volatility, less liquidity, and limited availability of financing. Therefore we cannot predict whether Barnwell’s Canadian revolving credit facility will be reduced below the current level of borrowings under the facility because of significant decreases in the rate of exchange of the Canadian dollar to the U.S. dollar or upon the April 2010 review. Furthermore, we cannot predict whether our real estate revolving credit facility’s loan advance limitation will be reduced below borrowed amounts due to a decrease in appraised values of the underlying security, or whether the turnkey homes and residential lots will be sold before December 17, 2010, the facility’s expiration date. Continued long-term disruption in the credit markets could make financing more expensive or unavailable, which could have a material adverse effect on our operations, liquidity, cash flows, and financial condition.

Oil and natural gas prices, land investment segment proceeds, and residential real estate home and lot sales are driven by market supply and demand factors which are impacted by the overall state of the economy. Oil and natural gas prices have historically been volatile and the timing and amount of land investment segment proceeds are unpredictable, sporadic, and not under Barnwell’s control. Development rights proceeds, on the other hand, are scheduled, but there is no assurance that future monies will be received. If oil and natural gas prices continue to decline and land investment segment proceeds and residential real estate home and lot sales are less than current expectations, we will be faced with reduced operating cash flows. In response to significant declines in oil and natural gas prices and resulting decreases in cash inflows, the Company has significantly reduced oil and natural gas capital expenditures and expects to hold such capital expenditures at reduced levels through the remainder of fiscal 2009 and possibly into fiscal 2010. In the event the reduction in capital

expenditures is not sufficient to fund our operating cash flows, we will need to seek alternative sources of financing or liquidate investments and/or operating assets to make any required cash outflows. Reduced capital expenditures, if significant and/or continued, will likely result in a reduction in reserve volumes and oil and natural gas production.

Cash Flows

Cash flows used in operations totaled $4,436,000 for the nine months ended June 30, 2009, as compared to $12,897,000 of cash flows provided by operations for the same period in the prior year. The $17,333,000 decrease in cash flows was primarily due to a decrease in operating profit generated by Barnwell’s oil and natural gas segment resulting from declines in the market prices for oil and natural gas during the current year, an increase in residential real estate home development costs, and changes in working capital primarily due to fluctuations in the timing and amount of payments of accrued taxes and accrued bonuses in the current year period as compared to the same period in the prior year.

Net cash used in investing activities totaled $6,281,000 during the nine months ended June 30, 2009, as compared to $5,462,000 during the same period of the prior year. The increase in net cash used was primarily attributable to decreased proceeds from land investment segment sales, offset in part by reduced capital expenditures, during the nine months ended June 30, 2009, as compared to the same period of the prior year.

Cash flows provided by financing activities totaled $5,183,000 for the nine months ended June 30, 2009, as compared to $1,614,000 of cash used in financing activities during the same period of the prior year. The increase in cash inflows was primarily due to increased long-term debt borrowings and reduced Barnwell stock repurchases and dividend payments during the nine months ended June 30, 2009, as compared to the same period of the prior year.

Residential Real Estate Capitalized Costs

Construction of two turnkey luxury residences commenced in January 2008. Capitalized expenditures related to construction of the two residences, including accrued construction costs and capitalized interest, totaled $1,035,000 and $4,362,000 for the three and nine months ended June 30, 2009, respectively. As of the date of the filing, the first home, on Lot 35, is complete and listed for sale at $9,400,000. The second home is scheduled to be completed in September 2009.

Oil and Natural Gas Capital Expenditures

Barnwell’s oil and natural gas capital expenditures, including accrued capital expenditures, totaled $418,000 and $5,343,000 for the three and nine months ended June 30, 2009, respectively, as compared to $3,919,000 and $13,284,000 during the three and nine months ended June 30, 2008, respectively. Due to sharp declines in oil and natural gas prices, projected spending for fiscal 2009 has been significantly reduced from previous estimates. Management expects that oil and natural gas capital expenditures in fiscal 2009 will range from $6,000,000 to $7,000,000. This estimated amount may increase or decrease as dictated by cash flows and management’s assessment of the oil and natural gas environment and prospects. The Company is currently unable to estimate when it will increase its oil and natural gas exploration and development activity as such a determination will depend upon future oil and natural gas prices and a strengthening of general economic conditions. Reduced capital expenditures, if significant and/or continued, will likely result in a reduction in reserve volumes and oil and natural gas production.

Barnwell did not participate in the drilling of any wells during the three months ended June 30, 2009. During the three months ended June 30, 2008, Barnwell participated in the drilling of 10 gross (2.7 net) wells. During the nine months ended June 30, 2009, Barnwell participated in the drilling of a total of 7 gross (1.0 net) wells of which 5 gross (0.7 net) wells appear to be successful or are currently being evaluated and 2 gross (0.3 net) wells were not successful. 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 0.5 net well. The gross figure includes interests owned of record by Barnwell and, in addition, the portion owned by others.

Credit Arrangements

Barnwell’s credit facility at Royal Bank of Canada, a Canadian bank, was renewed in April 2009 for $20,000,000 Canadian dollars, unchanged from the prior year amount, or approximately US$17,204,000 at the June 30, 2009 exchange rate. At June 30, 2009, borrowings under this facility were US$16,075,000 and Barnwell had approximately $1,129,000 of unused credit available. The facility is available in U.S. dollars at the London Interbank Offer Rate plus 3.5%, at U.S. prime plus 2.5%, or in Canadian dollars at Canadian prime plus 2.5%. A standby fee of 1.0% per annum is charged on the unused facility balance. Additionally, Barnwell paid a fee of $70,000 Canadian dollars as a condition to renew the facility.

As also discussed in Note 8 in the “Notes to Condensed Consolidated Financial Statements,” Kaupulehu 2007 has a credit facility with a Hawaii financial institution providing a $16,000,000 revolving line of credit with which Kaupulehu 2007 finances four parcels and the costs of home construction. Under the terms of the facility, financing for home construction is limited to a maximum of two unsold homes under construction at any given time. One of the two turnkey homes is complete and available for sale and the second home currently under construction is anticipated to be completed in September 2009. The real estate revolving credit facility pertaining to the turnkey homes and lots held for investment is due on December 17, 2010. We cannot predict whether our real estate revolving credit facility’s loan advance limitation will be reduced below borrowed amounts due to a decrease in appraised values of the underlying security, or whether the turnkey homes and residential lots will be sold before the facility’s expiration date. If Barnwell is unable to sell the homes and lots held for investment within a reasonable timeframe, Barnwell will be required to refinance the debt, secure alternative financing, reduce fiscal 2010 oil and natural gas capital expenditures, liquidate assets, or take other necessary actions in order to make any required repayments. In addition, Barnwell will have cash outflows such as interest, maintenance, property taxes, and other holding costs until the homes and lots are sold.

Contractual Obligations

Kaupulehu 2007 has an agreement with Mr. David Johnston, the son of a former director of Barnwell and minority interest owner in certain of Barnwell’s business ventures (see further discussion on related party interests at Note 7 in the “Notes to Condensed Consolidated Financial Statements”), under which Mr. David Johnston serves as Kaupulehu 2007’s project manager. Kaupulehu 2007 also has an agreement with an independent building contractor for home building services for Kaupulehu 2007’s lots. A significant provision of these agreements is that Mr. David Johnston and the building contractor will each receive 20% of the sales profit, which is contingent on the sale of each of the two homes constructed by Kaupulehu 2007.

Additionally, please see the “Notes to Consolidated Financial Statements” in Barnwell’s Annual Report on Form 10-K for the year ended September 30, 2008 for discussion on other contractual obligations and commitments.

Share Repurchase Program

ITEM 4T. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that material information relating to Barnwell, including its consolidated subsidiaries, is made known to the officers who certify Barnwell’s financial reports and to other members of executive management and the Board of Directors.

As of June 30, 2009, an evaluation was carried out by Barnwell’s Chief Executive Officer and Chief Financial Officer of the effectiveness of Barnwell’s 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 (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective as of June 30, 2009 to ensure that information required to be disclosed by Barnwell in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Act of 1934 and the rules thereunder.

Changes in Internal Control Over Financial Reporting

There was no change in Barnwell’s internal control over financial reporting during the quarter ended June 30, 2009, that materially affected, or is reasonably likely to materially affect, Barnwell’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in our most recent Annual Report on Form 10-K.

ITEM 6. EXHIBITS

Exhibit Number		Description

	10.1	Agreement dated May 27, 2009 which became effective June 23, 2009 by and between Kaupulehu Developments and WB KD Acquisition, LLC and WB KD Acquisition II, LLC.

	31.1	Certification of Chief Financial Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certification of Chief Executive Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002.

	32	Certification Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BARNWELL INDUSTRIES, INC.
	(Registrant)


Date: August 13, 2009	/s/ Russell M. Gifford
	Russell M. Gifford
	Chief Financial Officer,
	Executive Vice President,
	Treasurer and Secretary

INDEX TO EXHIBITS

Exhibit Number		Description

	10.1	Agreement dated May 27, 2009 which became effective June 23, 2009 by and between Kaupulehu Developments and WB KD Acquisition, LLC and WB KD Acquisition II, LLC.

	31.1	Certification of Chief Financial Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certification of Chief Executive Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002.

	32	Certification Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit No. 10.1

AMENDED AND RESTATED

AGREEMENT

AS TO LOT 4A, INCREMENT 2

By and Among

KAUPULEHU DEVELOPMENTS,

a Hawaii general partnership,

WB KD ACQUISITION, LLC,

a Delaware limited liability company,

and

WB KD ACQUISITION II, LLC,

a Delaware limited liability company,

May 27, 2009

TABLE OF CONTENTS

					Page


ARTICLE 1		THE PROPERTY				3

1.1	Increment 2					3

1.2	Step In Rights					3

1.3	Intentionally Omitted					3

1.4	Appurtenant and Other Interests					3

1.5	Further Assurances					3

ARTICLE 2		PURCHASE PRICE; PAYMENTS; MEMBERSHIPS				3

2.1	Purchase Price for KD’s Retained Rights					3

2.2	Intentionally Omitted					3

2.3	Payment of Purchase Price					3

	(a)		Closing Payment			3

	(b)		Percentage Payments			4

			(i)	Sales of Improved Lots		4

			(ii)	Sales of Unimproved Areas or Lots		4

			(iii)	Vertical Construction		4

			(iv)	Intentionally Omitted		4

			(v)	Payment Procedure		4

			(vi)	Release		5

			(vii)	Bona Fide Sales		5

	(c)		Reimbursement			5

	(d)		Intentionally Omitted			6

	(e)		Distribution Payments			6

	(f)		Additional Distributions			6

	(g)		Reports			6

	(h)		No Payments for Non-Residential Areas in Increment 2 or Otherwise			6

2.4	Beach Club					6

2.5	Club Memberships					7

2.6	Kona Village Room Nights					7

ARTICLE 3		INTENTIONALLY OMITTED				7

-i-

TABLE OF CONTENTS

(continued)

			Page


ARTICLE 4		INTENTIONALLY OMITTED		7

ARTICLE 5		CLOSING		7

5.1	Closing			7

5.2	Amended and Restated Side Letter Agreement			7

ARTICLE 6		REPRESENTATIONS, WARRANTIES AND COVENANTS OF KD		8

6.1	Organization, Powers, Qualification and Authority			8

6.2	No Conflicts			8

6.3	Title to Property			8

6.4	Compliance with Other Instruments			9

6.5	Litigation, etc.			9

6.6	Foreign or Nonresident Person			9

6.7	Accurate Information			9

6.8	No Further Negotiation			9

6.9	Prior Notice			9

ARTICLE 7		REPRESENTATIONS, WARRANTIES AND COVENANTS OF WBKD		9

7.1	Organization, Powers, Qualification and Authority			10

7.2	WBKD’s Due Diligence			10

ARTICLE 8		INTENTIONALLY OMITTED		10

ARTICLE 9		INTENTIONALLY OMITTED		10

ARTICLE 10		LOT 4C		10

10.1	Right of Negotiation			10

10.2	Water Rights			10

10.3	Other Rights			11

ARTICLE 11		KD’S RETAINED RIGHTS AND DUTIES WITH RESPECT TO THE PROPERTY POST-CLOSING		11

11.1	Prior Agreement Provisions Which Survived Closing and Survive this Agreement			11

11.2	KD to Provide Planning Assistance			11

11.3	KD to Retain Interest in the Property			12

11.4	KD’s Right to Review Changes in Concept Plan			12

TABLE OF CONTENTS

(continued)

			Page


11.5	KD’s Rights under the Step-In Agreement			13

11.6	KD’s Retained Rights			13

ARTICLE 12		INTENTIONALLY OMITTED		13

ARTICLE 13		MISCELLANEOUS		13

13.1	Notices			13

13.2	Brokers and Finders			14

13.3	Successors and Assigns			14

13.4	Amendments			15

13.5	Interpretation			15

13.6	Governing Law			15

13.7	Attorneys’ Fees			15

13.8	Article 12 of Increment 1 Purchase Agreement; Prior Agreement			16

13.9	Specific Performance			16

13.10	Relationship			16

13.11	Authority			16

13.12	Counterparts			16

13.13	Time of the Essence			16

13.14	Approval or Consent			16

13.15	Good Faith Negotiations			17

13.16	Cooperation			17

13.17	Partial Invalidity			17

13.18	Further Acts			17

13.19	Confidentiality			17

ARTICLE 14		DEFINITIONS		17

Exhibit(s)

Exhibit A:	Concept Plan
Exhibit B:	Estimated Area Values
Exhibit C:	Pro Forma
Exhibit D:	Form of Amended and Restated Side Letter Agreement

AMENDED AND RESTATED AGREEMENT

AS TO LOT 4A, INCREMENT 2

THIS AMENDED AND RESTATED AGREEMENT AS TO LOT 4A, INCREMENT 2 (this “ Agreement ”) is made and entered as of May 27, 2009, by and among KAUPULEHU DEVELOPMENTS, a Hawaii general partnership (“ KD ”), WB KD ACQUISITION, LLC, a Delaware limited liability company (“ WBKD 1 ”) and WB KD ACQUISITION II, LLC, a Delaware limited liability company (“ WBKD 2 ”).

R E C I T A L S:

A. Capitalized terms used herein shall have the meanings set forth in the text or in Article 14 of this Agreement.

B. WBKD 1 purchased KD’s leasehold interest in Lot 4A on terms and conditions set forth in that certain Purchase and Sale Agreement dated as of February 13, 2004 (the “ Increment 1 Purchase Agreement ”).

C. At the closing under the Increment 1 Purchase Agreement, KD surrendered its leasehold interest in Lot 4A to KS, and KS issued a new lease of Lot 4A (KS Lease No. 29,032) to WBKD 1 (“ Lot 4A Lease ”).

D. The Increment 1 Purchase Agreement provided that (1) WBKD 1 would subdivide Lot 4A into two development increments, Increment 1 and Increment 2, and (2) WBKD 1 would proceed with the development of Increment 1, with KD and WBKD 1 agreeing to negotiate further with regards to the sale of KD’s interest in, and subsequent development of, Increment 2; the development of both Increments 1 and 2 to be in accordance with a June 9, 2003 project concept plan attached as Exhibit C to the Increment 1 Purchase Agreement, which plan has subsequently been amended from time to time in accordance with the terms of the Increment 1 Purchase Agreement. WBKD 1 has assigned its rights under the Increment 1 Purchase Agreement with respect to the development and sale of Increment 2 to its affiliate, WBKD 2.

E. WBKD 1 has completed the subdivision of Lot 4A into (i) Lots 1-38, 43, 45, 48 and 49 as shown on File Plan 2393; and (ii) Lots 1 to 47 and Road Lots R-1 and R-2 as shown on File Plan 2438.

F. The concept plan has been updated by WBKD 1 in the form attached hereto as Exhibit A, the concept plan as updated being referred to below as the “ Concept Plan ”. Increment 1 includes 80 single family residential lots, the Beach Club (Phase I), the Interpretive Center, coastal planning areas and roadway lots, all as shown on the Concept Plan. Increment 2 means and includes all of Lot 4A not included in Increment 1 including, without limitation, (i) the areas shown on the Concept Plan as Areas F, H, K, L, M, N, O and P; upon

which WBKD 2 may construct commercial and single-family units and multi-family units that will comprise the residential subdivisions and mixed use developments to be developed on Increment 2, (ii) the area designated as “Golf Course and Landscaping” on the Concept Plan, upon which WBKD 2 may construct a golf course and golf clubhouse, and (iii) common areas consisting of roads, sidewalks, utility areas and other areas appurtenant to Increment 2.

G. On June 2, 2006, the parties hereto entered into that certain Agreement as to Lot 4A, Increment 2 (the “ Prior Agreement ”), which Prior Agreement set forth the terms and conditions upon which KD agreed to sell and convey its residual rights in Increment 2 to WBKD 2, including, without limitation, certain of its rights as to Increment 2 under that certain Agreement re Step In Rights of Kaupulehu Developments Under Lot 4A Lease dated as of February 13, 2004 by and among KS, KD, WBKD 1 and Farallon Enclave, LLC (the “ Step In Agreement ”).

H. KS and WBKD 1 have executed a partial cancellation and surrender of the Lot 4A Lease with respect to Increment 2 and KS has issued a new lease with respect to Increment 2 to WBKD 2 (“ Increment 2 Lease ”).

I. WBKD 2 intends to further subdivide the residential areas shown on the Concept Plan within Increment 2 (referred to herein as “ Residential Areas ” or simply “ Areas ”) into smaller single-family residential lots and/or to construct condominium units or fractional/interval ownership units or projects within such Residential Areas. Such condominium units or interests in fractional/interval ownership units are herein below sometimes referred to as “ Residential Units ” or simply “ Units ”. Those Residential Areas or Residential Units remaining unsold from time to time during the term of this Agreement are herein below referred to as the “ Remaining Residential Areas ” and the “ Remaining Residential Units ” respectively.

J. The approximate area of each Residential Area within Increment 2 is shown on the Concept Plan. All residential components within Increment 2 (i.e., all single-family lots, multi-family units and fractional/interval ownerships) will be sold in fee simple. The non-residential components (e.g., Golf Course and Club House) will remain in leasehold with KS, all pursuant to the terms of the Increment 2 Lease, except that the roadways and common areas may be conveyed to WBKD 2 and/or the community association(s) in fee simple.

K. KD and WBKD intend and agree that the parties’ respective rights, duties and obligations with respect to Increment 2 under the Increment 1 Purchase Agreement shall be replaced and superseded in their entirety by the terms of this Agreement, including, without limitation, the provisions of Article 12 thereof.

L. KD and WBKD intend and agree to amend, update and restate the Prior Agreement in its entirety to read as set forth below.

A G R E E M E N T:

NOW, THEREFORE, IN CONSIDERATION of the foregoing and the mutual agreements herein set forth, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, KD and WBKD agree as follows:

ARTICLE 1
THE PROPERTY

On the Closing Date, KD assigned, sold and conveyed to WBKD 2 and WBKD 2 purchased and accepted from KD, subject to the terms and conditions set forth herein, the following:

1.1 Increment 2 . Any and all right, title and interest retained by KD with respect to Increment 2 under Article 12 of the Increment 1 Purchase Agreement.

1.2 Step In Rights . Except as set forth in Section 11.5, any and all right, title and interest of KD with respect to Increment 2 under the Step In Agreement, the Lot 4A Lease and/or any other related documents.

1.3 Intentionally Omitted .

1.4 Appurtenant and Other Interests . Any and all of KD’s rights, title, interest, privileges and appurtenances in any way related to Lot 4A which have any use in connection with the acquisition, ownership, leasing, management, development, improvement, or operation of Increment 2.

All of the items described in this Section 1 above are hereinafter collectively referred to as the “ Property .”

1.5 Further Assurances . At WBKD 2’s reasonable request from time to time, KD shall execute and deliver any documents or instruments and take any other steps necessary, in each case, to more fully effectuate the transfer and conveyance to WBKD 2 of any and all Property described or referenced above and as may be reasonably requested in connection with the transfer of the Property to the Increment 2 Lease, including, without limitation, documents similar to those executed and delivered in connection with the Lot 4A Lease.

ARTICLE 2
PURCHASE PRICE; PAYMENTS; MEMBERSHIPS

2.1 Purchase Price for KD’s Retained Rights . Upon the execution and delivery of the Prior Agreement, WBKD 2 paid KD the amount of TEN MILLION and NO/100 DOLLARS ($10,000,000.00) (the “ Closing Payment ”). The Closing Payment, plus all payments and fees paid and to be paid by WBKD 2 pursuant to Section 2.3 below, are referred to herein as the “ Purchase Price ”.

2.2 Intentionally Omitted .

2.3 Payment of Purchase Price .

(a) Closing Payment . WBKD 2 has previously paid KD the Closing Payment in full as required by this Section.

(b) Percentage Payments . WBKD 2 will make payments (the “ Percentage Payments ”) to KD from any and all Gross Proceeds from the initial sales of Lots from Increment 2, as follows:

(i) Sales of Improved Lots . From the sale of Improved Lots, KD will receive a Percentage Payment equal to 8% of the Gross Proceeds from the sale by WBKD 2 of each Lot;

(ii) Sales of Unimproved Areas or Lots . From the sale of any unimproved Area or Lot prior to the time the vertical improvements constituting the Units have been constructed thereon, other than a sale under Section 2.3(b)(i) above or Section 2.3(b)(iii) below, KD, in its sole discretion, may elect to receive either: (A) 8% of the Gross Proceeds from the sale by WBKD 2 of the Lot or Area, or (B) 8% of the Gross Proceeds from the sale of Units constructed on the Area or Lot to the ultimate user. KD shall give written notice of its election to WBKD 2 not later than ten (10) days after KD’s receipt of the notice of sale and other materials which WBKD 2 is required to provide to KD under Section 2.3(b)(v) below, which election shall be irrevocable upon delivery of such written notice to WBKD 2.

(iii) Vertical Construction . In the event WBKD 2 elects to construct vertical improvements on a Lot, KD will receive a Percentage Payment equal to 8% of the estimated value of such Lot (without improvements thereon) as set forth in WBKD 2’s current budget, which Percentage Payment shall be paid to KD prior to the commencement of construction; provided, however, that if such estimated value is less than eighty percent (80%) of the estimated value as of the date hereof (as set forth on Exhibit B attached hereto), then KD will have the right to elect to instead receive a Percentage Payment equal to 8% of the Gross Proceeds from the sale of Units constructed on the Area or Lot to the ultimate user. KD shall give written notice of its election to WBKD 2 not later than ten (10) days after KD’s receipt of the notice of construction from WBKD 2, which election shall be irrevocable upon delivery of such written notice to WBKD 2. WBKD 2 shall have the right to amend, from time to time, the estimated value of any Lot or Area as shown on Exhibit B to reflect the then prevailing market conditions, provided that any amendment which results in a value that is less than eighty percent (80%) of the estimated value shown on Exhibit B as of the date hereof shall require the consent of KD, which consent shall not be unreasonably withheld, delayed or conditioned.

(iv) Intentionally Omitted .

(v) Payment Procedure . With respect to sales described in Section 2.3(b)(i), WBKD 2 shall use commercially reasonable efforts to provide KD written notice of each sale not less than five (5) business days prior to its closing and shall instruct the escrow for each such sale to pay the Percentage Payment directly to KD at closing. With respect to sales described in Section 2.3(b)(ii), WBKD 2 shall use commercially reasonable efforts to provide KD written notice of each sale not less than five (5) business days after the execution of the sale agreement and shall, where applicable, instruct the escrow for each such sale to pay the

Percentage Payment directly to KD at closing. WBKD 2’s notice of sale shall include a copy of the sale agreement between WBKD 2 and the purchaser together with such additional information concerning the Units to be constructed and sold by the purchaser on the Lot or Area as may be reasonably requested by KD. If WBKD 2 provides purchase money financing to the purchaser of an Area or Lot, then WBKD 2 may either, at WBKD 2’s option, (1) pay all of the applicable Percentage Payment at closing of the sale, or (2) pay to KD the Percentage Payment with respect to the cash portion of the purchase price received by WBKD 2 from the purchaser of an Area or Lot at the closing and pay to KD the Percentage Payment with respect to the sales price financed and the interest thereon paid by the purchaser within 10 days after WBKD 2’s receipt of payment from the purchaser. For example, assume that WBKD 2 sells an Area or Lot for the price of $5,000,000.00 by providing $2,000,000.00 in purchase money financing to the purchaser payable pursuant to the terms of a promissory note, and that one year after the sale closes receives payment of $1,000,000.00 plus $180,000.00 in interest pursuant to the promissory note. In such case, (i) upon the initial closing, WBKD 2 shall pay to KD the Percentage Payment based on the $3,000,000.00 received by WBKD 2 at closing, (ii) within 10 days after receiving the $1,180,000.00 payment of principal and interest, WBKD 2 shall make the Percentage Payment applicable to the $1,180,000.00, and (iii) within 10 days after receiving subsequent payments under the promissory note, the applicable Percentage Payment shall be made to KD. WBKD 2 shall promptly provide KD with copies of any note, mortgage or other document used by WBKD 2 to finance the purchase of any Area or Lot, and any amendments thereto. WBKD 2 shall also provide KD with copies of the monthly loan statements issued to each purchaser/mortgagor financed by WBKD 2 or with a separate statement containing the same or substantially the same information with respect to each loan.

(vi) Release . KD shall provide an executed partial release in recordable form releasing all of its interest in a particular Lot or Area or portion thereof within five (5) business days of WBKD 2’s request therefor. To avoid any situation where the closing of a sale cannot occur due to KD’s untimely execution of the partial release mentioned above, and within five (5) business days of WBKD 2’s written request therefor, KD shall execute and deposit with the escrow designated by WBKD 2 partial releases with respect to any sale of a Lot or Area or portion thereof which WBKD 2 anticipates closing within sixty (60) days of the request, together with instructions authorizing escrow to release such Lot or Area or portion thereof from KD’s interest at closing, conditioned on payment to KD at closing of the applicable Percentage Payment from such sale.

(vii) Bona Fide Sales . All sales of Units to ultimate users and all other sales of Areas, Lots or Units with respect to which KD is entitled to receive any Percentage Payment, shall be for a fair market value and be bona fide sales negotiated in good faith at arm’s length. In addition, each sale shall divest WBKD 2 of all direct or indirect right, title and interest in the Area or Lot sold and shall be at a fixed price which (x) includes all consideration paid or to be paid by the purchaser for the Area or Lot, including any consideration paid or to be paid for the infrastructure which supports the Area or Lot, but excluding any consideration paid or to be paid for memberships in the Beach Club, Golf Club or other amenity club or facilities situated on Increment 1 or 2, and (y) is not contingent on the amount of any profit, price or proceeds to be received with respect to the subsequent sale of Units within the Area or Lot.

(c) Reimbursement . If WBKD 2 makes any Percentage Payment to KD with respect to any sale of an Area or Lot which is subsequently rescinded or modified, and if WBKD 2 refunds all or part of the Gross Proceeds from the sale of the Area or Lot on which the Percentage Payment to KD was based to the purchaser of the Area or Lot, then KD will promptly repay such Percentage Payment, or portion thereof allocable to the Gross Proceeds returned to the purchaser, to WBKD 2.

(d) Intentionally Omitted .

(e) Distribution Payments . If and when the members in WBKD 2, taken as a whole, have received cash dividends or other cash distributions from WBKD 2 in their respective capacities as members of WBKD 2 (collectively, “ Distributions ”) equal to 100% of their capital contributions, KD shall then be entitled to receive payments (collectively, “ Distribution Payments ”) equal to fifty percent (50%) of all subsequent Distributions, as and when, and to the extent any such Distributions are made (the amount and timing of all Distributions to be in the sole and absolute discretion of WBKD 2), until the aggregate amount of such Distribution Payments paid to KD equals EIGHT MILLION and NO/100 DOLLARS ($8,000,000.00). Notwithstanding the foregoing, in the event additional cash capital contributions are made by members of WBKD 2, payment of the Distribution Payments shall cease until the members of WBKD 2, taken as a whole, have received Distributions equal to 100% of such additional capital contributions.

(f) Additional Distributions . Commencing on the date on which (i) the members of WBKD 2 have received aggregate Distributions in amount equal to (A) 100% of their capital contributions (including any additional capital contributions) plus (B) aggregate Distributions (not including the Distributions described in clause (A)) in an amount of not less than THIRTY MILLION and NO/100 DOLLARS ($30,000,000.00), and (ii) KD has received Distribution Payments equal to not less than EIGHT MILLION and NO/100 DOLLARS ($8,000,000.00), all Percentage Payments thereafter payable by WBKD 2 to KD pursuant to Section 2.3(b) above shall be increased from 8% to 10% of Gross Proceeds.

(g) Reports . WBKD 2 shall provide to KD copies of such financial reports as are provided to KS under the Increment 2 Lease. WBKD 2 shall certify to KD on a semi-annual basis the aggregate amount of all capital contributions to WBKD 2 and all Distributions to members. Dividends or other distributions from WBKD 2 to its members shall count as “ Distributions ” so long as the dividend payments or distributions are made to such members in their capacity as members of WBKD 2 and irrespective of how such payments are classified for tax or accounting purposes. WBKD 2 shall also provide to KD, prior to or contemporaneously with WBKD 2’s filing with the County of Hawaii of any plan approval or subdivision applications as to portions of Increment 2, copies of such applications together with the then-current project plans and proforma project financial information and projections (which shall be substantially in the form attached as set forth in Exhibit C).

(h) No Payments for Non-Residential Areas in Increment 2 or Otherwise . Except as set forth above, no other payments shall be due to KD in connection with the Property.

2.4 Beach Club . WBKD 2 agrees to grant to the retail purchasers of each Residential Unit to be developed on Increment 2, but subject to the membership rules, rates and regulations then in effect, as they may be amended from time to time, the same or substantially the same rights granted to the purchasers from WBKD 1 of Residential Units in Increment 1 to join and use the facilities of the Lot 4A Beach Club, the rights to be granted either through memberships or by use rights through a community or homeowners association.

2.5 Club Memberships . If WBKD 2 issues club memberships in the Beach Club and/or Golf Club, WBKD 2 shall grant KD or its nominees five (5) non-transferable and non-assignable club memberships in the Beach Club and/or Golf Club, all of which shall be “founder” memberships (if available). The “founder” memberships shall have substantially the same rights and obligations as the other “founder” memberships in the Beach Club and/or Golf Club and shall remain in effect until such time as the designated user relinquishes such memberships or until the later of twenty (20) years from the commencement date of each membership grant or the designated user’s death, subject to the rights of KS in the event of the termination of the Increment 2 Lease or the ground lease for the Beach Club. Each of the memberships shall otherwise be on substantially the same terms and conditions as set forth in that certain Ancillary Benefits Agreement dated on or about February 13, 2004 by and between KD and WBKD 1.

2.6 Kona Village Room Nights . Commencing on the effective date of the Increment 2 Lease and continuing for a period of seven (7) years thereafter, not counting, however, any period of time during which Kona Village is closed for renovations making room nights unavailable, WBKD 2 shall, within fifteen (15) business days after request from KD, pay to KD an amount equal to best available kama’aina or other rate at Kona Village less TWO HUNDRED and NO/100 DOLLARS ($200.00) against the cost of room nights at Kona Village, for up to a total of twenty (20) room nights at Kona Village per year in the aggregate (to the extent rooms are available). Such room nights shall be non-assignable other than to directors, officers, employees, affiliates and consultants of KD or KD’s partners. Payments shall be made by WBKD 2 only as such room nights are actually used. WBKD 2 shall have the option to make such payments directly to the owner of Kona Village to be credited against such room nights. There shall be no carry over of any unused credits from year to year.

ARTICLE 3
INTENTIONALLY OMITTED

ARTICLE 4
INTENTIONALLY OMITTED

ARTICLE 5
CLOSING

5.1 Closing . “ Closing ” under the Prior Agreement occurred on June 2, 2006 (“ Closing Date ”).

5.2 Amended and Restated Side Letter Agreement . Concurrent with the execution of this Agreement, and as a condition to the effectiveness hereof, the applicable parties hereto shall execute and deliver (or cause to be executed and delivered) to each of the other parties hereto the Amended and Restated Side Letter Agreement in the form attached hereto as Exhibit D.

ARTICLE 6
REPRESENTATIONS, WARRANTIES AND COVENANTS OF KD

As an inducement to WBKD to enter into this Agreement and consummate the transaction contemplated hereby, KD hereby represents and warrants to and agrees with WBKD as follows:

6.1 Organization, Powers, Qualification and Authority . KD is a Hawaii general partnership, duly organized, validly existing, and in good standing under the laws of the State of Hawaii, has all requisite partnership power and authority to own its properties and assets and carry on its business as now conducted; and has all requisite power and authority to enter into and perform and carry out this Agreement. The sole general partners of KD are Barnwell Hawaiian Properties, Inc., a Delaware corporation, and Cambridge Hawaii Limited Partnership, a Hawaii limited partnership, the sole general partner of which is Barnwell Kona Corporation, a Hawaii corporation. This Agreement has been duly approved by the boards of directors of Barnwell Hawaiian Properties, Inc. and Barnwell Kona Corporation. No consent of the limited partners of Cambridge Hawaii Limited Partnership is required to enter into this Agreement, or, if required, it has been obtained. Neither the execution nor the delivery of this Agreement, nor the compliance with and fulfillment of the terms and provisions hereof: (a) will result in the breach of any term or provision of, or constitute a default under or conflict with, the general partnership agreement of KD, as the same may have been amended from time to time, or any agreement or instrument to which KD is a party or by which it is bound, or (b) is prohibited by or requires any notification, consent, authorization, approval or registration under any law, rule or regulation, or any judgment, order, writ, injunction, or decree which is binding upon KD or the terms of any contract to which KD is a party or bound, or may give rise to the cancellation of any contract to which KD is a party or bound.

6.2 No Conflicts . Neither the execution and delivery of this Agreement nor the performance by KD of its obligations hereunder will conflict with or result in a breach of (i) any of KD’s organizational documents or (ii) result in a conflict with, breach or violation of, or default (or event that with the giving of notice or passage of time or both would constitute a default) under, require any consent or approval which has not been obtained with respect to, any agreement or other instrument or obligation by which KD, KD’s general partners or the Property is bound, or (iii) result in the imposition of a lien upon the Property.

6.3 Title to Property . KD has all requisite power and authority to own and hold the Property. No mortgage, pledge, lien, encumbrance, charge or security interest encumbers the Property, except for any lien or encumbrance created or caused by WBKD 1 on the lessee’s interest under the Lot 4A Lease including, without limitation, any mortgage held by Farallon Enclave, LLC, and KD has not previously transferred or assigned the Property or any interest therein. Except for KS and Farallon Enclave, LLC, the interests of which KD has previously disclosed to WBKD, and the claims of record of Kaupulehu Makai Venture and Kona Village Associates, which claims have previously been disclosed by KD to WBKD, no other party owns, holds or claims any interest in the Property, other than KD.

6.4 Compliance with Other Instruments . KD is not in violation of or in default with respect to any material term or provision of (i) its general partnership agreement; (ii) any indenture, contract, agreement or instrument to which it may be a party or by which it may be bound; (iii) any judgment, order, writ, injunction or decree of any court or of any federal, state, territorial, municipal or other commission, board or other administrative or governmental agency or authority, or (iv) to the best of its knowledge, any federal, state, municipal or other governmental statute, rule, or regulation applicable to it or by which it may be bound, which involves directly or indirectly the Property.

6.5 Litigation, etc . KD is not a party to or affected by any pending, and has no notice or knowledge of any threatened, action, suit, proceeding, or investigation, at law or in equity or otherwise, in, before or by any court or any governmental board, commission, agency, department or officer, which involves directly or indirectly the Property.

6.6 Foreign or Nonresident Person . KD is not a “foreign person”, as that term is used in Section 1445(b)(2) of the Internal Revenue Code of 1986, as amended, or a “nonresident person”, as that term is used in Section 235-68, Hawaii Revised Statutes, as amended, and the related regulations.

6.7 Accurate Information . To the best of KD’s knowledge, all statements made herein are true and correct, do not and will not contain any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or omits to state any material fact necessary in order to make any such statement not false or misleading in any material respect.

6.8 No Further Negotiation . KD hereby covenants to WBKD that KD shall not, directly or indirectly, solicit, encourage or participate in any discussions or negotiations with, or provide any non-public information to, any person, entity or group with any potential competing offer to acquire any of the Property unless and until KS affirmatively terminates WBKD’s rights with respect to Increment 2 under the Lot 4A Lease or the Increment 2 Lease because of WBKD’s election not to further perform, or WBKD’s default in performing, its obligations under such lease.

6.9 Prior Notice . KD agrees that this Agreement satisfies any right of KD to prior notice or consent to the assignment by WBKD 1 of its right, title and interest in, to and under the Increment 1 Purchase Agreement, the Lot 4A Lease and/or Increment 2 to WBKD 2.

The representations and warranties set forth in this Article 6 shall survive for a period of two (2) years following the date hereof.

ARTICLE 7
REPRESENTATIONS, WARRANTIES AND COVENANTS OF WBKD

As an inducement to KD to enter into this Agreement and consummate the transaction contemplated hereby, WBKD hereby represents and warrants to and agrees with KD as follows:

7.1 Organization, Powers, Qualification and Authority . Each of WBKD 1 and WBKD 2 is a Delaware limited liability company, duly organized, validly existing, and in good standing under the laws of the State of Delaware; has all requisite corporate power and authority to own its properties and assets and carry on its business as now conducted; and has all requisite power and authority to enter into and perform and carry out this Agreement. This Agreement has been duly approved by the members of WBKD 1 and WBKD 2. Neither the execution nor the delivery of this Agreement, nor the compliance with and fulfillment of the terms and provisions hereof: (a) will result in the breach of any term or provision of, or constitute a default under or conflict with, the Certificate of Formation of WBKD 1 or WBKD 2, as the same may have been amended from time to time, or any agreement or instrument to which WBKD 1 or WBKD 2 is party or by which it is bound (excluding any agreement or instrument to which WBKD 1 and Farallon Enclave, LLC are parties), or (b) is prohibited by or requires any notification, consent, authorization, approval or registration under any law, rule or regulation, or any judgment, order, writ, injunction, or decree which is binding upon WBKD 1 or WBKD 2 or the terms of any contract to which WBKD 1 or WBKD 2 is party or bound, or may give rise to the cancellation of any contract to which WBKD 1 or WBKD 2 is party or bound (in each case, excluding any agreement or instrument to which WBKD 1 and Farallon Enclave, LLC are parties).

7.2 WBKD’s Due Diligence . Prior to the Closing, WBKD independently investigated all issues with respect to the Property which WBKD deemed necessary or desirable to determine the suitability of the Property for development in its intended use.

The representations and warranties set forth in this Article 7 shall survive for a period of two (2) years following the Closing.

ARTICLE 8
INTENTIONALLY OMITTED

ARTICLE 9
INTENTIONALLY OMITTED

ARTICLE 10
LOT 4C

10.1 Right of Negotiation . WBKD shall have the exclusive right to negotiate with KD with respect to Lot 4C (as defined in the Increment 1 Purchase Agreement) for a period of six (6) years from the date hereof; provided, however, that such exclusive right to negotiate shall

terminate if WBKD, within four (4) years from the date of this Agreement, has not completed any and all environmental assessments and surveys reasonably required to support a petition to the State Land Use Commission for reclassification of Lot 4C.

10.2 Water Rights . WBKD shall have the right to drill such wells on Lot 4C as it deems reasonably necessary to provide non-potable water for the benefit of Lot 4A (including, without limitation, Increment 1 and Increment 2), subject, however, to KD’s approval of the design and location of such non-potable water system, which approval will not be unreasonably withheld, conditioned or delayed. WBKD shall have the right to render non-potable water obtained from Lot 4C potable (whether through desalination or otherwise), subject, however, to KD’s approval of the design, location and other matters relating to the extraction and delivery of the water, which approval will not be unreasonably withheld, conditioned or delayed. WBKD shall be responsible for obtaining all approvals for such processing, including a conditional use permit from the State of Hawaii; provided, however, that to the extent that any approvals from KS are required, KD shall use commercially reasonable efforts to assist WBKD to obtain such approvals from KS. At such time as WBKD completes the development of Increments 1 and 2 and the sale of all Units, Lots and Area in each such increment, WBKD shall reassign to KD, for use on Lot 4C or otherwise, all of its right, title and interest in and to the Water Rights to the extent such rights include water that is in excess of (a) the amounts then committed by WBKD to any portion of Increment 1 and Increment 2 and (b) the amounts reasonably needed by WBKD to develop and operate Increments 1 and 2 substantially in accordance with the Concept Plan.

10.3 Other Rights . So long as Lease 12,260 between KS and KD (which now covers Lot 4C), the Lot 4A Lease and the Increment 2 Lease have not been terminated, WBKD shall have the right to use a portion of Lot 4C not to exceed ten (10) acres in such location as mutually agreed upon between WBKD and KD, subject to any required third party approvals including, without limitation, any permits or approvals (including from KS, if applicable) required because Lot 4C is classified as “conservation” land, in connection with the development and maintenance of Lot 4A, including as a staging area (including parking) and for related storage. Upon the request of, and to the extent reasonably required by, WBKD, KD shall] cooperate with WBKD in securing all third party approvals required for use of Lot 4C for such purposes; provided, however, that WBKD shall pay any third party costs and expenses incurred by KD in connection therewith.

ARTICLE 11
KD’S RETAINED RIGHTS AND DUTIES WITH
RESPECT TO THE PROPERTY POST-CLOSING

11.1 Prior Agreement Provisions Which Survived Closing and Survive this Agreement . The terms of Article 1 (The Property), Sections 2.1, 2.3, 2.4 and 2.6 of Article 2 (Purchase Price; Payments; Memberships; Memorandum of Agreement), Article 10 (Lot 4C), Article 11 (KD’s Retained Rights and Duties With Respect to the Property Post-Closing), Article 13 (Miscellaneous) and Article 14 (Definitions), of the Prior Agreement survived the Closing and this Agreement and remain in full force and effect as of the date hereof (unless the context clearly indicates otherwise). Any claim for breach of any representations and warranties given by KD and WBKD in Article 6 and Article 7 must be brought within two (2) years following the date hereof.

11.2 KD to Provide Planning Assistance . For a period of four (4) years from the date of this Agreement, KD shall continue to provide the following assistance to WBKD without charge:

(a) Upon the request of and to the extent reasonably required by WBKD, KD shall consult with WBKD regarding any aspect of the entitlement, planning and development, financing, construction and operation of the Property, the precise scope of the assistance to be determined in each instance by WBKD, including, without limitation, negotiations with KS for the leasing and development of Increment 2; and

(b) Upon the request of and to the extent reasonably required by WBKD, KD shall assist WBKD in presentations before public agencies at both public and private meetings which relate to or affect the Property, and in dealings with governmental entities, the press, community leaders, developers of adjacent property, the Kaupulehu Development Monitoring Committee, and other parties directly or indirectly involved with the Property or with any interest which may affect the success of the Property.

KD shall be reimbursed for reasonable out-of-pocket expenses for any travel or other expenses incurred in connection with providing assistance, provided that the same are approved in advance by WBKD in WBKD’s sole and absolute discretion. Whether or not WBKD requests any planning assistance from KD, WBKD shall keep KD informed on a current basis of significant developments relating to the entitlement, planning, development, financing, construction, and operation of the Property.

KD agrees to indemnify and hold WBKD and its managers, members, officers, directors, shareholders, partners, employees, agents and affiliates (each an “ Indemnified Party ”) harmless from and against any and all costs, expenses, reasonable attorneys’ fees, suits, liabilities, damages, or claim for damages, to the extent attributable to the willful misconduct (including, without limitation, fraud and bad faith) of KD, its agents or employees arising from or in any way connected to the performance by KD of its obligations under this Section 11.2. If any action or proceeding is brought against WBKD with respect to which indemnity may be sought under this paragraph, KD, upon written notice from the Indemnified Party, shall assume the investigation and defense thereof, including the employment of counsel (which shall be reasonably satisfactory to the Indemnified Party) and payment of all expenses. The Indemnified Party shall have the right to employ separate counsel in any such action or proceeding and to participate in the defense thereof, but KD shall not be required to pay the fees and expenses of such separate counsel unless such separate counsel is employed with the written approval and consent of the KD, which shall not be withheld or refused if the counsel selected by KD has a disqualifying conflict of interest. The indemnity in this paragraph shall survive the expiration or termination of this Agreement.

11.3 KD to Retain Interest in the Property . WBKD 2 shall hold title to each Remaining Residential Area and each Remaining Residential Unit in Increment 2 subject to the KD’s Retained Rights (as defined below) at all times from and after the Closing Date, and continuing for each Remaining Residential Area or Remaining Residential Unit, until WBKD 2 has sold the Area or Lot and paid KD the applicable Percentage Payment.

11.4 KD’s Right to Review Changes in Concept Plan . It is recognized that WBKD 2 will revise and refine the Concept Plan from time to time as WBKD 2’s planning process progresses. KD shall have the right to review and consult with WBKD 2 concerning any substantial changes in the Concept Plan, including, for example, substantial changes in the location, area, use or Unit type or count of any Remaining Residential Area designated thereon. Notwithstanding the foregoing, KD shall not have any approval rights over any changes to the Concept Plan.

11.5 KD’s Rights under the Step-In Agreement . KD’s Retained Rights with respect to the Property shall include only the rights defined in Sections 11.3 and 11.4 above and KD’s rights to receive Percentage Payments pursuant to the Increment 1 Purchase Agreement and not any other rights granted it under the Step In Agreement. Notwithstanding anything to the contrary herein, in the Increment 1 Purchase Agreement, the Lot 4A Lease, the Step In Agreement, the Increment 2 Lease, or any other document to which KD and WBKD are a party, and except for the rights described in Sections 11.3 and 11.4 above and KD’s rights to receive Percentage Payments pursuant to the Increment 1 Purchase Agreement, in no event shall KD have any right to step in and assume WBKD’s right, title and interest under the KS Agreements (whether under the Increment 1 Purchase Agreement, the Lot 4A Lease, the Increment 2 Lease, the Step In Agreement or otherwise), and KD’s Retained Rights under the Step In Agreement are hereby terminated in full.

11.6 KD’s Retained Rights . The rights, remedies and ownership interests retained by KD under Sections 11.3 and 11.4 of this Agreement, which include KD’s rights to be paid Percentage Payments under Section 2.3(b) of this Agreement, and KD’s rights to receive Percentage Payments pursuant to the Increment 1 Purchase Agreement are referred to herein collectively as KD’s “ Retained Rights ”.

ARTICLE 12
INTENTIONALLY OMITTED

ARTICLE 13
MISCELLANEOUS

13.1 Notices . Any notice required or permitted to be given under this Agreement shall be in writing and personally delivered or sent by United States mail, registered or certified mail, postage prepaid, return receipt requested, or sent by Federal Express or similar nationally recognized overnight courier service, and addressed as follows, and shall be deemed to have been given upon the date of delivery (or refusal to accept delivery) at the address specified below as indicated on the return receipt or air bill:

If to KD:	Alexander C. Kinzler, President
	Barnwell Hawaiian Properties, Inc.
	Kaupulehu Developments
	1100 Alakea Street, Suite 2900
	Honolulu, HI 96813
	Facsimile: (808) 531-7181

with a copy to:	John Jubinsky, Esq.
	235 Queen Street, 7th Floor
	Honolulu, HI 96813
	Facsimile: (808) 533-5840

If to WBKD:	c/o Westbrook Real Estate Partners L.L.C.
	13155 Noel Road/LB 54, Suite 700
	Dallas, TX 75240
	Attn: Patrick K. Fox, Esq.
	Facsimile: (972) 934-8333

with copies to:	Westbrook Real Estate Partners L.L.C.
	One Bush Street, Suite 1450
	San Francisco, CA 94104
	Attn: Mr. Aric Shalev
	Facsimile: (415) 438-7921

and:	Discovery Land Company
	301 North Canon Drive, Suite 328
	Beverly Hills, CA 90210
	Attn: Mr. Michael Meldman
	Facsimile: (310) 859-0705

with a copy to:	Gibson, Dunn & Crutcher LLP
	333 South Grand Avenue
	Los Angeles, CA 90071
	Attn: Jesse Sharf, Esq.
	Facsimile: (213) 229-7520

or such other address as either party may from time to time specify in writing to the other in the manner aforesaid.

13.2 Brokers and Finders . WBKD and KD each hereby represents and warrants that no broker was involved in this Agreement or the transactions contemplated hereby. In the event of a claim for a broker’s fee, finder’s fee, commission or other similar compensation in connection herewith, (i) WBKD, if such claim is based upon any agreement alleged to have been made by WBKD, hereby agrees to indemnify, defend, protect and hold KD harmless against any and all liability, loss, cost, damage or expense (including reasonable attorneys’ and paralegals’ fees and costs) which KD may sustain or incur by reason of such claim and (ii) KD, if such claim is based upon any agreement alleged to have been made by KD, hereby agrees to indemnify, defend, protect and hold WBKD harmless against any and all liability, loss, cost, damage or expense (including reasonable attorneys’ and paralegals’ fees and costs) which WBKD may sustain or incur by reason of such claim. The provisions of this Section 13.2 shall survive the Closing.

13.3 Successors and Assigns .

(a) Except as specifically stated otherwise in this Agreement, this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns, except that neither KD nor WBKD may assign its interest under this Agreement or otherwise encumber or transfer the same whether voluntarily, involuntarily, by operation of law or otherwise, without the prior reasonable written consent of the other. KD may reasonably withhold its consent to any assignee of WBKD’s interest in the Increment 2 Lease proposed by WBKD whose qualifications, experience, capabilities, track record and financial strength are not reasonably comparable to those possessed by WBKD. Notwithstanding the above, WBKD may assign this Agreement (and the Increment 2 Lease) to any assignee described in Section 4.24 of the Increment 2 Lease with not less than fifteen (15) days prior written notice to KD and to any other assignee, with the consent of KD, not to be unreasonably withheld, provided such assignee satisfies or is deemed to satisfy the “ Qualifications ”, as such term is defined in said Section 4.24, in KD’s reasonable determination, provided, further, that such prior written notice or consent shall not be required in connection with an assignment to (i) any leasehold mortgagee in connection with an exercise of its remedies as mortgagee, (ii) an affiliate of WBKD or (iii) to a joint venture between (A) an affiliate of WBKD 2’s sole member and (B) Discovery Land Company or an affiliate of Discovery Land Company. WBKD shall not be required to pay any premium, additional rent or other consideration in connection with obtaining any consent required of KD hereunder. Notwithstanding anything to the contrary in this Agreement, KD’s consent to any assignment by WBKD or its successors and assigns of any Beach Club or Restricted Parcel lease shall not be required. Any assignment of this Agreement (and the Increment 2 Lease) by WBKD 2 shall be expressly conditioned on the assumption by the assignee of WBKD 2’s obligations to make Percentage Payments to KD in accordance with the terms of Section 2.3(b).

13.4 Amendments . This Agreement may be amended or modified only by a written instrument executed by the party asserted to be bound thereby. If this Agreement or any of WBKD’s rights hereunder are assigned or otherwise made available in whole or in part to a person or entity (an “ Assignee ”) as permitted by Section 13.3, KD agrees to amend this Agreement to make such changes hereto as may be requested by such Assignee in good faith, provided that such changes shall not affect the Purchase Price or other economic aspects of the transaction contemplated hereby.

13.5 Interpretation . Whenever used herein, the term “including” shall be deemed to be followed by the words “without limitation.” Words used in the singular number shall include the plural, and vice-versa, and any gender shall be deemed to include each other gender. The captions and headings of the Articles and Sections of this Agreement are for convenience of reference only, and shall not be deemed to define or limit the provisions hereof.

13.6 Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Hawaii.

13.7 Attorneys’ Fees . In the event of any action or proceeding at law or in equity between WBKD and KD to enforce or interpret any provision of this Agreement or to protect or establish any right or remedy of either WBKD or KD hereunder, the unsuccessful party to such action or proceeding shall pay to the prevailing party all reasonable costs and expenses, including, without limitation, reasonable attorneys’ and paralegals’ fees and expenses (including, without limitation, fees, costs and expenses of experts and consultants), incurred in such action or proceeding and in any appeal in connection therewith by such prevailing party, whether or not such action, proceeding or appeal is prosecuted to judgment or other final determination, together with all costs of enforcement and/or collection of any judgment or other relief. The term “prevailing party” shall include, without limitation, a party who obtains legal counsel or brings an action against the other by reason of the other’s breach or default and obtains substantially the relief sought, whether by compromise, settlement or judgment. If such prevailing party shall recover judgment in any such action, proceeding or appeal, such costs, expenses and attorneys’ and paralegals’ and others’ fees shall be included in and as a part of such judgment.

13.8 Article 12 of Increment 1 Purchase Agreement; Prior Agreement . KD and WBKD intend and agree that the parties’ respective rights, duties and obligations with respect to Increment 2 under the Increment 1 Purchase Agreement, including, without limitation, Article 12 thereof, shall be restated and replaced in their entirety by the terms of this Agreement. KD and WBKD intend and agree that the Prior Agreement shall be amended and restated in its entirety by this Agreement.

13.9 Specific Performance . The parties understand and agree that the Property is unique and for that reason, among others, WBKD will be irreparably damaged in the event that this Agreement is not specifically enforced. Accordingly, in the event of any breach or default in or of this Agreement or any of the warranties, terms or provisions hereof by KD, WBKD shall have, in addition to a claim for damages for such breach or default, and in addition and without prejudice to any right or remedy available at law or in equity, the right to demand and have specific performance of this Agreement.

13.10 Relationship . It is not intended by this Agreement to, and nothing contained in this Agreement shall, create any partnership, joint venture, financing arrangement or other agreement between WBKD and KD. No term or provision of this Agreement is intended to be, or shall be, for the benefit of any person, firm, organization or corporation not a party hereto, and no such other person, firm, organization or corporation shall have any right or cause of action hereunder.

13.11 Authority . The individuals signing below represent and warrant that they have the requisite authority to bind the entities on whose behalf they are signing.

13.12 Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument.

13.13 Time of the Essence . Time is of the essence in this Agreement and with respect to all of its terms.

13.14 Approval or Consent . This Agreement and all documents and agreements to be executed in connection with this Agreement shall be subject to the following or a similar provision: Unless otherwise provided herein, no approval or consent of a party required by any provision hereof shall be unreasonably or arbitrarily withheld or delayed nor shall a party require as a condition of such approval or consent the payment of any money other than the reasonable costs of review of such party’s attorneys and a reasonable service charge. Each party shall use its commercially reasonable efforts to cooperate with the other party in expediting all requests for approval or consent and if such approval or consent is refused, the party shall so state in writing and give its reasons therefor. If a party shall fail to approve or disapprove with the reasons therefor any requested approval or consent within thirty (30) days after such party shall have received from a party all documents or information reasonable necessary for such party to determine such matter, then and in any such event such request by such party shall be deemed approved.

13.15 Good Faith Negotiations . If, at any time during the effectiveness of this Agreement, or after the termination thereof, any dispute, difference or conflict shall arise, and before any step to commence arbitration or litigation is taken, the parties shall first negotiate in good faith to resolve such controversy.

13.16 Cooperation . The parties agree to execute any and all documents at or following the Closing which may reasonably be required to carry out the purposes of this Agreement.

13.17 Partial Invalidity . In case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect which is not material to the transactions contemplated hereunder, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein.

13.18 Further Acts . In addition to the acts recited in this Agreement to be performed by KD and WBKD, KD and WBKD agree to perform or cause to be performed any and all such further acts as may be reasonably necessary to consummate the transactions contemplated hereby. KD shall cooperate with WBKD and exercise commercially reasonable efforts to obtain all consents from KS, any third party and any governmental or regulatory authority which are required pursuant to any contract or applicable laws in connection with the development of Increment 2 as contemplated by the terms of this Agreement.

13.19 Confidentiality . KD and WBKD acknowledge that the terms of this Agreement, to the extent not already publicly available or publicly disclosed pursuant to authorization by both KD and WBKD, are confidential and proprietary information and agree to keep confidential the terms of this Agreement, except (i) as necessary to comply with applicable law, including the disclosure obligations of Barnwell Industries, Inc., the parent of KD’s managing general partner, under the securities laws of the United States, (ii) as necessary to consummate the transactions contemplated hereby, (iii) to their respective attorneys, agents and advisors who are instructed to maintain a similar confidence and (iv) to lenders, prospective lenders, partners, members, investors, prospective members and prospective investors.

ARTICLE 14
DEFINITIONS

“ Area ” means the residential, recreation and other areas, e.g., archaeological preserve, outlined and labeled as to proposed use on the Concept Plan.

“ Beach Club ” means the beach club to be constructed in two phases and approximately located in the area labeled “ Beach Club ” on the Concept Plan. “ Phase I Beach Club ” means a beach club which includes a minimum of (w) 5,000 square feet of indoor and outdoor social area (of which not less than 2,500 square feet will be covered), and will include but not be limited to areas for casual dining, bar, restroom and showers; (x) pool; (y) parking in satisfaction of the County requirements for the Phase I Beach Club (together with designated space for the creation of parking sufficient to satisfy the County requirements for the Phase II Beach Club), including required handicapped stalls; and (z) 130,000 square feet of landscape/hardscape area, to be constructed within Increment 1. The overall quality of construction and finish of the Phase I Beach Club will be comparable to the class of facilities at the Hualalai and Kukio Resorts as of the date of the Increment 1 Purchase Agreement. “ Phase II Beach Club ” means the expansion of the Phase I Beach Club within Increment 1, to be constructed by the developer of Increment 2 pursuant to a separate or amended lease agreement for Increment 2. The overall quality of construction and finish of the Phase II Beach Club will be comparable to the class of facilities at the Hualalai and Kukio Resorts as of the date of the Increment 1 Purchase Agreement.

“ Golf Club ” means any private or semi-private membership club that operates a golf clubhouse or golf course established on Lot 4A.

“ Gross Proceeds ” means one hundred percent (100%) of the actual and full consideration paid by the purchaser for the applicable Area, Lot or Unit, being the amount subject to the conveyance tax imposed by HRS §247-2; provided, however, and notwithstanding the above, Gross Proceeds from the sale of any Unit in any vertical, multi-family or fractional ownership project within Increment 2 shall mean thirty-two and one-half percent (32.5%) of the Gross Proceeds from the sale of such Unit. Gross Proceeds shall include all consideration paid or to be paid by the purchaser for the Area or Lot, including any consideration paid or to be paid for the infrastructure which supports the Area or Lot, but excluding any consideration paid or to be paid for memberships in the Beach Club, Golf Club or other amenity club or facilities situated on Increment 1 or 2.

“ Improved Lot ” means a Lot as to which: either (A) (i) a graded pad has been substantially completed and (ii) infrastructure, roadway access and stubouts for utilities have been substantially completed to the Lot’s boundary or (B) the purchaser of such Lot has purchased such Lot subject to the completion of the items in clause (A) by WBKD.

“ KS ” means Kamehameha Schools and also known as the Trustees of the Estate of Bernice Pauahi Bishop, the fee owner of Lot 4.

“ Lot ” means each parcel of real property on Increment 2, excluding any vertical improvements located thereon, but including all of WBKD 2’s rights, privileges and easements appurtenant to and for the benefit of such parcel, including, without limitation, all minerals, oil, gas and other hydrocarbon substances on and under such parcel, as well as all development rights, including, but not limited to, all development agreements affecting such parcel and all entitlements, air rights, water, water rights and water stock relating to such parcel and any and all easements, rights-of-way or appurtenances leased to WBKD 2 and used in connection with the beneficial operation, use and enjoyment of such parcel, together with all rights of WBKD 2 in and to roadways or easement areas adjacent thereto or used in connection therewith.

“ Water Rights ” means all of KD’s rights and privileges with respect to water, water rights and water stock with respect to or relating to Lot 4, including, without limitation, all right, title and interest of KD in the Water Agreement and the Exploratory Well Contribution Agreement dated as of February 13, 2004 by and among KD, KMV, KS and PIA-Kona Limited Partnership.

“ WBKD ” means WBKD 1 and/or WBKD 2, as the context may require.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, KD and WBKD have executed this Agreement as of the date first above written.

“KD”

“WBKD 1”

KAUPULEHU DEVELOPMENTS,

WB KD ACQUISITION, LLC,

a Hawaii general partnership

a Delaware limited liability company

By:

BARNWELL HAWAIIAN
PROPERTIES, INC. a Delaware
corporation, General Partner

By: WB KD Member, LLC, a Delaware limited liability company, its sole member

By:

/s/ Alexander C. Kinzler

By: WB Kaupulehu, LLC, a Delaware
limited liability company, its sole member

Alexander C. Kinzler

President

By:

/s/ Patrick K. Fox

Name:

Patrick K. Fox

By:

CAMBRIDGE HAWAII LIMITED PARTNERSHIP, a Hawaii limited
partnership

Title:

“WBKD 2”

Secretary

By: BARNWELL KONA
CORPORATION, a Hawaii
corporation, General Partner

WB KD ACQUISITION II, LLC,
a Delaware limited liability company

By:

WB Kaupulehu, LLC, its Member

By:

/s/ Alexander C. Kinzler

Alexander C. Kinzler

By:

/s/ Patrick K. Fox

President

Name:

Patrick K. Fox

Title:

Secretary

EXHIBIT A

CONCEPT PLAN

[See attached.]

Exhibit B

ESTIMATED PRICING FOR LOT VALUES IN INCREMENT 2

Price Group	land Plan Area	Units	Unit Price	Total Base Revenue

Single Family I	F	4	4,000	16,000

Single Family II	K-ocean	5	2400	12,000
	P	30	2400	72,000
		35	2400	84,000

Single Family III	F	34	1200	40,800
	L-ocean	14	1200	16,800
		48	1200	57,600

Single Family IV	K-golf	15	600	9,000
	L-mauka	14	600	8,400
	N	42	600	25,200
	O	23	600	13,800
		94	600	56,400

Single Family V	M	18	640	11,520

MF/Fractional
MF-Whole	H	125	500	62,500
MF-Whole	M	46	500	23,000
MF-Whole	M	25	500	12,500
		196	500	98,000
Grand Total		395	819	323,520

KD-Kona, HI Increment II

Base Case - 395 units



Project Summary ($’s in 000’s)		Base Case

Gross Lot Revenues (from above)		$375,212
Gross Membership Revenues		$40,773
Total Gross Rev.		$415,985
Less:
Residential Sales Comm. & Mgmt Fee		$21,387
Membership Sales Comm.		$1,223
KD/KS Participation Pmts		$0
Subtotal, Selling Costs, Fees et al		$22,610
Net Sales Revenues		$393,375
Development Costs
Upfront KD/KS Payment		$0
Core Infrastructure		$39,467
Onsite Improvements		$91,319
Golf Course & Clubhouse		$77,776
Soft Costs - Design, Entitle, & FEES		$19,926
Mktg, Admin & O/H		$18,178
Contingency		$17,576
Subtotal, Dev. Costs Before Club Subsidy		$264,243

Club Subsidy		$15,197
Dev. Mgmt Fee - Monthly		$600
Subtotal Development Costs		$280,039
Net Profits		$113,335
Financing Costs		$0
Net Levered Profits		$113,335

EXHIBIT C

PRO FORMA

[See attached.]

KD- Kona, HI, Increment II

Base Case Assumptions


Absorption Schedule:	Cls 12/31	YR 1	YR 2	YR 3	YR 4	YR 5	YR 6	YR 7	YR 8	YR 9	YR 10	YR 11	YR 12
Lots	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	Total
Single Family I	-	-	2	1	1	-	-	-	-	-	-	-	-	4
Single Family II	-	-	-	13	12	10	-	-	-	-	-	-	-	35
Single Family III	-	-	-	-	15	14	11	8	-	-	-	-	-	48
Single Family IV	-	-	-	-	-	25	21	18	15	9	6	-	-	94
Single Family V	-	-	-	-	-	-	4	4	4	3	3	-	-	18
MF/Fractional - Fractional Ownership	-	-	-	-	-	-	-	-	-	-	-	-	-	-
MF/Fractional - Whole Ownership	-	-	-	-	-	18	18	50	43	30	20	17	-	196
Total Lots	-	-	2	14	28	67	54	80	62	42	29	17	-	395
Avg. Price Single Family I	$4,000	$4,000	$4,120	$4,244	$4,371	$4,502	$4,637	$4,776	$4,919	$5,067	$5,219	$5,376	$5,537
Avg. Price Single Family II	$2,400	$2,400	$2,472	$2,546	$2,623	$2,701	$2,782	$2,866	$2,952	$3,040	$3,131	$3,225	$3,322
Avg. Price Single Family III	$1,200	$1,200	$1,236	$1,273	$1,311	$1,351	$1,391	$1,433	$1,476	$1,520	$1,566	$1,613	$1,661
Avg. Price Single Family IV	$640	$640	$659	$679	$699	$720	$742	$764	$787	$811	$835	$860	$886
Avg. Price Single Family V
Avg. Price MF/Fractional - Fraction	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0
Avg. Price MF/Fractional - Whole O	$500	$500	$515	$530	$546	$563	$580	$597	$615	$633	$652	$672	$692
Escalation		3.0%	3.0%	3.0%	3.0%	3.0%	3.0%	3.0%	3.0%	3.0%	3.0%	3.0%	3.0%

EXHIBIT D

Form of Amended and Restated Side Letter Agreement

May 27, 2009

Kaupulehu Developments

1100 Alakea Street, Suite 2900

Honolulu, HI 96813

Re: Amended and Restated Side Letter Agreement

Gentlemen:

WB KD Acquisition, LLC, WB KD Acquisition II, LLC (“ WBKD 2 ”) and Kaupulehu Developments (“ KD ”) have entered into that certain Amended and Restated Agreement as to Lot 4A, Increment 2 dated May 27, 2009 (the “ Increment 2 Agreement ”), and, pursuant to the terms and conditions thereof, WBKD 2 and KD have agreed to, among other things, execute and deliver to each of the other parties to the Increment 2 Agreement this Amended and Restated Side Letter Agreement (this “ Agreement ”), which Agreement amends and restates in its entirety that certain letter agreement dated as of June 2, 2006 by and between WBKD 2 and KD, concerning the grant of certain Increment 2 lots.

The parties hereto hereby agree as follows:

Subject to the terms of the Increment 2 Agreement, WBKD 2 has agreed to convey to KD or its nominees (herein collectively “ KD ”) and KD has agreed to accept three (3) single family residential lots within Increment 2, on the following terms and conditions:

1. Each lot will have location, view, size, orientation and value attributes not materially less favorable than the average lot being sold in Increment 2, not including ocean-front lots or lots in close proximity to the ocean.

2. Each lot will be selected by mutual agreement between WBKD 2 and KD and conveyed to KD upon the later to occur of (i) when the pad for that lot and infrastructure with respect thereto is completed such that a building permit could be issued to permit residential construction on the lot or (ii) 180 days after the release of lots in the “first phase” of Increment 2 for sale or marketing.

3. To assist WBKD 2 in its sales and marketing efforts as to Increment 2, KD agrees (1) to promptly construct a residence upon each lot in compliance with the covenants, conditions and restrictions and any other agreements applicable to Increment 2 lots being sold to the general public (and to commence such construction within 6 months of delivery of such lot to KD,

subject to obtaining all necessary permits and approvals), and (2) to permit the showing of such completed residence by WBKD 2’s sales force to prospective buyers of other lots within Increment 2 for a reasonable time period following the grant of an occupancy permit for the residence in question and while the residence is still owned by KD. WBKD 2 agrees to give KD reasonable advance notice for any permitted showing.

4. The transfer of each lot shall be at KD’s sole cost and expense, including all customary closing costs (but there will be no sales commissions or similar fees) incurred in connection with the conveyance of each lot; provided, however, that if and to the extent that any release payments are required to be made by WBKD 2 to KS in connection with the transfer of such lot, WBKD 2 shall pay up to $60,000 per lot of such release payments.

5. If there is litigation or other disputes between the parties, the prevailing party shall be entitled to its attorney’s fees and expenses from the other party.

If the foregoing accurately reflects our agreement, please execute and return the enclosed copy of this letter.

Very truly yours,

WB KD ACQUISITION II, LLC

By:	WB Kaupulehu, LLC, its Member

	By:
	Name:	Patrick K. Fox
	Title:	Secretary

Accepted and agreed to as
of the date first above written.


KAUPULEHU DEVELOPMENTS,
a Hawaii general partnership

By:	BARNWELL HAWAIIAN
	PROPERTIES, INC., General Partner


	By:
		Alexander C. Kinzler
		President


By:	CAMBRIDGE HAWAII LIMITED
	PARTNERSHIP

	By:	BARNWELL KONA
		CORPORATION, General Partner


		By:
			Alexander C. Kinzler
			President

Exhibit No. 31.1

Certifications

I, Russell M. Gifford, certify that:

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

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 13, 2009	/s/ Russell M. Gifford
	Russell M. Gifford
	Chief Financial Officer

Exhibit No. 31.2

Certifications

I, Morton H. Kinzler, certify that:

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

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 13, 2009	/s/ Morton H. Kinzler
	Morton H. Kinzler
	Chief Executive Officer

Exhibit No. 32

Barnwell Industries, Inc.

Certification Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Barnwell Industries, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2009 as filed with the Securities and Exchange Commission (the “Report”), each of the undersigned officers of the Company does hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 13, 2009	/s/ Morton H. Kinzler
	Name: Morton H. Kinzler
	Title: Chief Executive Officer


Dated: August 13, 2009	/s/ Russell M. Gifford
	Name: Russell M. Gifford
	Title: Chief Financial Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-Q or as a separate disclosure document.

A signed original of the written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.