UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________________________________
FORM 10-Q
___________________________________________
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2023
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission file number: 001-33292
_________________________________________________________
______________________________________________________________________
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | ||||
| (Address of Registrant's Principal Executive Offices) | (Zip Code) | |||||||||||||
| (Registrant's telephone number, including area code) | |||||
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||||||||
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange On Which Registered | ||||||||||||
___________________________________________
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. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||
| ☒ | Smaller reporting company | |||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No ☒
As of November 2, 2023, the registrant had 15,353,833 shares of Common Stock outstanding and 683,761 shares of Class B Common Stock outstanding.
CorEnergy Infrastructure Trust, Inc.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2023
TABLE OF CONTENTS
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Earnings (Loss) Per Share | ||||||||||||||||||||
2
This Report on Form 10-Q should be read in its entirety. No one section of this report deals with all aspects of the subject matter disclosed herein. It should be read in conjunction with the unaudited consolidated financial statements, related notes, and with the Management's Discussion & Analysis included within, as well as provided in the CorEnergy Infrastructure Trust, Inc. Annual Report on Form 10-K, for the year ended December 31, 2022.
The unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q, and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of Management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ended December 31, 2023 or for any other interim or annual period. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the CorEnergy Infrastructure Trust, Inc. Annual Report on Form 10-K, for the year ended December 31, 2022.
3
GLOSSARY OF DEFINED TERMS | ||||||||
Certain of the defined terms used in this Report as set forth below:
5.875% Convertible Notes: the Company's 5.875% Unsecured Convertible Senior Notes due 2025.
Adjusted SOFR: SOFR plus an adjustment based on tenor. The adjustment is 0.10% for one-month, 0.15% for three-month and 0.25% for six-month, SOFR rates. The adjustment was implemented when changing to SOFR to make the interest expense using SOFR as a reference rate equivalent to that using LIBOR.
ASC: FASB Accounting Standards Codification.
ASU: FASB Accounting Standard Update.
Bbls: standard barrel containing 42 U.S. gallons.
bpd: Barrels per day.
Cash Available for Distribution, or CAD (a non-GAAP financial measure): the Company's earnings before interest, taxes, depreciation and amortization, less (i) cash interest expense, (ii) preferred dividend requirements, including Crimson Class A-1 Units, (iii) regularly scheduled debt amortization, (iv) maintenance capital expenditures, and (v) reinvestment allocation and plus or minus other adjustments, but excluding the impact of extraordinary or nonrecurring expenses unrelated to the operations of Crimson and all of its subsidiaries, as defined in the Articles Supplementary for the Class B Common Stock and effective beginning with the quarter ending June 30, 2021.
Class B Common Stock: the Company's Class B Common Stock, par value $0.001 per share.
Code: the Internal Revenue Code of 1986, as amended.
Common Stock: the Company's Common Stock, par value $0.001 per share.
Company or CorEnergy: CorEnergy Infrastructure Trust, Inc. (NYSE: CORR).
Corridor MoGas: Corridor MoGas, Inc., a wholly owned taxable REIT subsidiary of CorEnergy, the holding company of MoGas, United Property Systems and CorEnergy Pipeline Company, LLC and a co-borrower under the Crimson Credit Facility.
CPUC: California Public Utility Commission.
Crimson: Crimson Midstream Holdings, LLC, the indirect owner of CPUC-regulated crude oil pipeline companies, of which the Company owns a 49.50% voting interest and all of the Class B-1 equity ownership interests.
Crimson Credit Facility: the Amended and Restated Credit Agreement, dated as of February 4, 2021, with Crimson Midstream Operating and Corridor MoGas, as co-borrowers, the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as administrative agent, swingline lender and issuing bank, which provides borrowing capacity of up to $155.0 million, consisting of: the $50.0 million Crimson Revolver, the $80.0 million Crimson Term Loan and an uncommitted incremental facility of $25.0 million.
Crimson Midstream Operating: Crimson Midstream Operating, LLC, a wholly owned subsidiary of Crimson and a co-borrower under the Crimson Credit Facility and direct owner of CPUC-regulated crude oil pipeline companies.
Crimson Pipeline System: an approximately 2,000-mile crude oil transportation pipeline system, which includes approximately 1,100 active miles, with associated storage facilities located in southern California and the San Joaquin Valley, owned and operated by subsidiaries of Crimson.
Crimson Revolver: the $50.0 million secured revolving line of credit facility with Wells Fargo Bank, National Association entered into on February 4, 2021.
Crimson Term Loan: the $80.0 million secured term loan with Wells Fargo Bank, National Association entered into on February 4, 2021.
Crimson Transaction: the Company's acquisition of a 49.50% voting interest in Crimson effective February 1, 2021 with the right to acquire the remaining 50.50% voting interest upon receiving CPUC approval.
Exchange Act: the Securities Exchange Act of 1934, as amended.
4
| GLOSSARY OF DEFINED TERMS (Continued from previous page) | |||||
FASB: Financial Accounting Standards Board.
FERC: Federal Energy Regulatory Commission.
Four Wood Corridor: Four Wood Corridor, LLC, a wholly owned subsidiary of CorEnergy.
GAAP: U.S. generally accepted accounting principles.
Grier Members: Mr. John D. Grier, Mrs. M. Bridget Grier and certain of their affiliated trusts, which collectively own all of the Class A-1, Class A-2, and Class A-3 equity ownership interests in Crimson, which is reflected as a non-controlling interest in the Company's financial statements. The Grier Members own a 50.5% voting interest in Crimson through their ownership of the Crimson C-1 Units.
Indenture: that certain Indenture, dated August 12, 2019, between the Company and U.S. Bank National Association, as Trustee for the 5.875% Convertible Notes.
Internalization: CorEnergy's acquisition of its former external manager, Corridor InfraTrust Management, LLC, which closed July 6, 2021.
IRS: Internal Revenue Service.
LIBOR: the London Interbank Offered Rate, a benchmark rate replaced by SOFR.
MoGas: MoGas Pipeline LLC, an indirect wholly owned subsidiary of CorEnergy.
MoGas Pipeline System: an approximately 263-mile interstate natural gas pipeline system located in and around St. Louis and extending into central Missouri, which is owned and operated by MoGas.
NYSE: New York Stock Exchange.
Omega: Omega Pipeline Company, LLC, a wholly owned subsidiary of Mowood, LLC, which is a wholly owned subsidiary of CorEnergy.
Omega Pipeline System: a 75-mile natural gas distribution system providing unregulated service in south central Missouri, which is owned and operated by Omega.
Omnibus Plan: the CorEnergy Infrastructure Trust, Inc. Omnibus Equity Incentive Plan, which was approved by the Company's stockholders on May 25, 2022.
Pipeline Loss Allowance (or PLA): the portion of crude oil provided by or on behalf of each shipper, at no cost to the carrier, (as allowance for losses sustained due to evaporation, measurement and other losses in transit) and retained by the carrier in recognition of loss and shrinkage in carrier's system.
PLR: the Private Letter Ruling dated November 16, 2018 (PLR 201907001) issued to CorEnergy by the IRS.
REIT: Real Estate Investment Trust.
RSU: Restricted Stock Unit.
SEC: Securities and Exchange Commission.
Securities Act: the Securities Act of 1933, as amended.
Series A Preferred Stock: the Company's 7.375% Series A Cumulative Redeemable Preferred Stock, par value $0.001 per share, which is represented by depositary shares, each representing 1/100th of a whole share of Series A Preferred Stock.
SOFR: the Secured Overnight Financing Rate, a benchmark interest rate for dollar-denominated loans that replaced LIBOR. It reflects the pricing of overnight loans that are secured by U.S. Treasury securities.
United Property Systems: United Property Systems, LLC, an indirect wholly owned subsidiary of CorEnergy, acquired with the MoGas transaction in November 2014.
VIE: Variable Interest Entity.
5
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
With the exception of historical information, certain statements included or incorporated by reference in this Quarterly Report on Form 10-Q ("Report") may be deemed "forward-looking statements" within the meaning of the federal securities laws. In many cases, these forward-looking statements may be identified by the use of words such as "will," "may," "should," "could," "believes," "expects," "anticipates," "estimates," "intends," "projects," "goals," "objectives," "targets," "predicts," "plans," "seeks," or similar expressions. Any forward-looking statement speaks only as of the date on which it is made and is qualified in its entirety by reference to the factors discussed throughout this Report.
Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance or results and we can give no assurance that these expectations will be attained. Our actual results may differ materially from those indicated by these forward-looking statements due to a variety of known and unknown risks and uncertainties. Therefore, you should not rely on any of these forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and you should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include, among others, the following:
•the impact of regulatory actions in California to curtail oil production;
•our ability to complete the sale of our MoGas and Omega Pipeline Systems on terms that will allow us to repay our Crimson Credit Facility and a material portion of our 5.875% Convertible Notes;
•our ability to meet the NYSE continued listing standards, the failure of which would result in our Common Stock being delisted thereby constituting a "fundamental change" under the Indenture governing our 5.875% Convertible Notes and requiring us to repurchase all of our outstanding 5.875% Convertible Notes at a price equal to the principal amount of such notes, plus any accrued and unpaid interest;
•our ability to repurchase our outstanding 5.875% Convertible Notes upon a "fundamental change" under the Indenture governing the notes, the failure of which would constitute a default under the Indenture;
•changes in economic and business conditions in the energy infrastructure sector where our investments are concentrated, including the financial condition of our customers or borrowers and general economic conditions in the U.S. and in the particular sectors of the energy industry served by each of our infrastructure assets, including inflationary and recessionary risks;
•systemic pressures in the banking system, including potential disruptions in credit markets;
•competitive and regulatory pressures on the revenues of our California intrastate crude oil transportation business and our interstate natural gas transmission business;
•risks associated with the receipt of CPUC approval for the Company to obtain operational control over Crimson's CPUC-regulated pipeline assets;
•the impact of environmental, pipeline safety and other laws and governmental regulations applicable to certain of our infrastructure assets, including additional costs imposed on our business or other adverse impacts as a result of any unfavorable changes in such laws or regulations;
•our ability to comply with covenants in instruments governing our indebtedness;
•the potential impact of greenhouse gas regulation and climate change on our or our customers' business, financial condition and results of operations;
•risks associated with security breaches through cyber-attacks or acts of cyber terrorism or other cyber intrusions, or any other significant disruptions of our information technology (IT) networks and related systems;
6
•risks associated with the age of Crimson's assets, which were constructed over many decades, and which may increase future inspection, maintenance or repair costs, or result in downtime that could have a material adverse effect on our business and results of operations;
•the loss of any member of our management team;
•our ability to refinance amounts outstanding under our credit facilities and our 5.875% Convertible Notes at or prior to maturity on terms favorable to us or at all;
•changes in interest rates under our current credit facilities and under any additional variable rate debt arrangements that we may enter into in the future;
•our dependence on key customers for significant revenues, and the risk of defaults by any such customers;
•our customers' ability to secure adequate insurance and risk of potential uninsured losses, including from natural disasters;
•the continued availability of third-party pipelines or other facilities interconnected with certain of our infrastructure assets;
•risks associated with owning, operating or financing properties for which our customers' or our operations may be impacted by extreme weather patterns and other natural phenomena;
•our ability to sell properties at an attractive price;
•market conditions and related price volatility affecting our debt and equity securities;
•changes in federal or state tax rules or regulations that could have adverse tax consequences;
•our ability to maintain internal controls and processes to ensure that all transactions are properly accounted for, that all relevant disclosures and filings are timely made in accordance with all rules and regulations, and that any potential fraud or embezzlement is thwarted or detected;
•changes in federal income tax regulations (and applicable interpretations thereof), or in the composition or performance of our assets, that could impact our ability to continue to qualify as a REIT for federal income tax purposes;
•conflicts of interest that some of our directors and officers may have with respect to certain other business interests related to the Crimson Transaction;
•risks related to potential terrorist attacks, acts of cyber-terrorism, or similar disruptions that could disrupt access to our information technology systems or result in other significant damage to our business and properties, some of which may not be covered by insurance and all of which could adversely impact distributions to our stockholders; and
•the loss of crude oil volumes on pipelines indirectly owned by Crimson due to lower than expected oil production in California or changes in customer shipping practices.
Forward-looking statements speak only as of the date on which they are made. Except as otherwise required by law, we undertake no obligation to publicly update or revise any forward-looking statement to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events. For a further discussion of these and other factors that could impact our future results and performance, see Part I, Item 1A, "Risk Factors" in CorEnergy's Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 29, 2023, as supplemented by Item 1A - "Risk Factors" in this Report.
7
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED BALANCE SHEETS
| September 30, 2023 | December 31, 2022 | ||||||||||
| Assets | (Unaudited) | ||||||||||
Property and equipment, net of accumulated depreciation of $ | $ | $ | |||||||||
Leased property, net of accumulated depreciation of $ | |||||||||||
Financing notes and related accrued interest receivable, net of reserve of $ | |||||||||||
Cash and cash equivalents (Crimson VIE: $ | |||||||||||
Accounts and other receivables (Crimson VIE: $ | |||||||||||
Due from affiliated companies (Crimson VIE: $ | |||||||||||
Deferred costs, net of accumulated amortization of $ | |||||||||||
Inventory (Crimson VIE: $ | |||||||||||
Prepaid expenses and other assets (Crimson VIE: $ | |||||||||||
Operating right-of-use assets (Crimson VIE: $ | |||||||||||
Deferred tax asset, net (Crimson VIE: $ | |||||||||||
| Assets held-for-sale | |||||||||||
| Total Assets | $ | $ | |||||||||
| Liabilities and Equity | |||||||||||
Secured credit facilities, net of deferred financing costs of $ | $ | $ | |||||||||
Unsecured convertible senior notes, net of discount and debt issuance costs of $ | |||||||||||
Accounts payable and other accrued liabilities (Crimson VIE: $ | |||||||||||
Income tax payable (Crimson VIE: $ | |||||||||||
Due to affiliated companies (Crimson VIE: $ | |||||||||||
Operating lease liability (Crimson VIE: $ | |||||||||||
| Deferred tax liability, net | |||||||||||
Unearned revenue (Crimson VIE: $ | |||||||||||
| Liabilities held-for-sale | |||||||||||
| Total Liabilities | $ | $ | |||||||||
| Commitments and Contingencies (Note 9) | |||||||||||
| Equity | |||||||||||
Series A Cumulative Redeemable Preferred Stock | $ | $ | |||||||||
Common stock, non-convertible, $ | |||||||||||
Class B Common Stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained deficit | ( | ( | |||||||||
| Total CorEnergy Equity | |||||||||||
| Non-controlling interest | |||||||||||
| Total Equity | |||||||||||
| Total Liabilities and Equity | $ | $ | |||||||||
| *Variable Interest Entity ("VIE") (Note 14) | |||||||||||
| See accompanying Notes to Consolidated Financial Statements. | |||||||||||
8
CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Transportation and distribution | $ | $ | $ | $ | |||||||||||||||||||
| Pipeline loss allowance subsequent sales | |||||||||||||||||||||||
| Lease and other revenue | |||||||||||||||||||||||
| Total Revenue | |||||||||||||||||||||||
| Expenses | |||||||||||||||||||||||
| Transportation and distribution | |||||||||||||||||||||||
| Pipeline loss allowance subsequent sales cost of revenue | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
Loss on impairment of goodwill | |||||||||||||||||||||||
| Total Expenses | |||||||||||||||||||||||
| Operating Income (Loss) | $ | $ | ( | $ | $ | ||||||||||||||||||
| Other Income (expense) | |||||||||||||||||||||||
| Other income (expense) | $ | ( | $ | $ | $ | ||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Total Other Expense | ( | ( | ( | ( | |||||||||||||||||||
| Loss before income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Taxes | |||||||||||||||||||||||
| Current tax expense | |||||||||||||||||||||||
| Deferred tax expense (benefit) | ( | ||||||||||||||||||||||
| Income tax expense (benefit), net | ( | ||||||||||||||||||||||
| Net Loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Less: Net income attributable to non-controlling interest | |||||||||||||||||||||||
| Net Loss attributable to CorEnergy Infrastructure Trust, Inc. | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Preferred dividend requirements | |||||||||||||||||||||||
| Net Loss attributable to Common Stockholders | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Common Stock | |||||||||||||||||||||||
| Weighted average shares outstanding - basic | |||||||||||||||||||||||
| Basic net loss per share | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted average shares outstanding - diluted | |||||||||||||||||||||||
| Diluted net loss per share | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Class B Common Stock | |||||||||||||||||||||||
| Weighted average shares outstanding - basic and diluted | |||||||||||||||||||||||
| Basic and diluted net loss per share | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Dividends declared per common share | $ | $ | $ | $ | |||||||||||||||||||
| See accompanying Notes to Consolidated Financial Statements. | |||||||||||||||||||||||
9
CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED STATEMENTS OF EQUITY
| Preferred Stock | Common Stock | Class B Common Stock | Additional Paid-in Capital | Retained Deficit | Non-controlling Interest | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 (Unaudited) | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Shares issued on RSU vesting, net of shares withheld for taxes | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of forfeitures | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 (Unaudited) | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Class B Common Stock | Additional Paid-in Capital | Retained Deficit | Non-controlling Interest | ||||||||||||||||||||||||||||||||||||||||||||||||
| Amount | Shares | Amount | Shares | Amount | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Shares issued on RSU vesting, net of shares withheld for taxes | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of forfeitures | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock, accrued dividend equivalent forfeiture | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 (Unaudited) | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements. | |||||||||||||||||||||||||||||||||||||||||||||||||||||
10
| Preferred Stock | Common Stock | Class B Common Stock | Additional Paid-in Capital | Retained Deficit | Non-controlling Interest | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 (Unaudited) | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Series A preferred stock dividends | — | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Common Stock dividends | — | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Reinvestment of dividends paid to common stockholders | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock, accrued dividend equivalent | — | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Crimson cash distribution on Class A-1 Units | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 (Unaudited) | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Class B Common Stock | Additional Paid-in Capital | Retained Deficit | Non-controlling Interest | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Series A preferred stock dividends | — | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Common Stock dividends | — | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Reinvestment of dividends paid to common stockholders | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock, accrued dividend equivalent | — | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Crimson cash distribution on A-1 Units | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 (Unaudited) | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
11
CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| For the Nine Months Ended | |||||||||||
| September 30, 2023 | September 30, 2022 | ||||||||||
| Operating Activities | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||
| Deferred income tax | ( | ||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Loss on impairment of goodwill | |||||||||||
| Gain on sale of equipment | ( | ( | |||||||||
| Stock-based compensation | |||||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts and other receivables | |||||||||||
| Inventory | ( | ||||||||||
| Prepaid expenses and other assets | |||||||||||
| Due from affiliated companies, net | |||||||||||
| Accounts payable and other accrued liabilities | ( | ||||||||||
| Income tax payable | ( | ||||||||||
| Unearned revenue | ( | ||||||||||
| Other changes, net | ( | ||||||||||
| Net cash provided by operating activities | $ | $ | |||||||||
| Investing Activities | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Proceeds from reimbursable projects | |||||||||||
| Other changes, net | ( | ||||||||||
| Net cash used in investing activities | $ | ( | $ | ( | |||||||
| Financing Activities | |||||||||||
| Dividends paid on Series A preferred stock | ( | ||||||||||
| Dividends paid on Common Stock | ( | ||||||||||
| Distributions to non-controlling interest | ( | ||||||||||
| Advances on the Crimson Revolver | |||||||||||
| Payments on the Crimson Revolver | ( | ( | |||||||||
| Principal payments on the Crimson Term Loan | ( | ( | |||||||||
| Dividends paid on Vested RSUs | ( | ||||||||||
| Taxes paid for RSU withholdings | ( | ||||||||||
| Proceeds from financing arrangement | |||||||||||
| Payments on financing arrangement | ( | ( | |||||||||
| Payment on note payable | ( | ||||||||||
| Net cash used in financing activities | $ | ( | $ | ( | |||||||
| Net change in Cash and Cash Equivalents | ( | ||||||||||
| Cash and Cash Equivalents at beginning of period | |||||||||||
Cash and Cash Equivalents at end of period(1) | $ | $ | |||||||||
12
| For the Nine Months Ended | |||||||||||
| September 30, 2023 | September 30, 2022 | ||||||||||
| Supplemental Disclosure of Cash Flow Information | |||||||||||
| Interest paid | $ | $ | |||||||||
| Income taxes paid (net of refunds) | ( | ||||||||||
| Non-Cash Investing Activities | |||||||||||
| Purchases of property, plant and equipment in accounts payable and other accrued liabilities | $ | $ | |||||||||
| Non-Cash Financing Activities | |||||||||||
| Reinvestment of distributions by common stockholders in additional common shares | $ | $ | |||||||||
| Dividend equivalents accrued on RSUs | |||||||||||
| Assets acquired under financing arrangement | |||||||||||
| See accompanying Notes to Consolidated Financial Statements. | |||||||||||
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2023
1. INTRODUCTION AND BASIS OF PRESENTATION
Introduction
CorEnergy Infrastructure Trust, Inc. (referred to as "CorEnergy" or "the Company"), was organized as a Maryland corporation and commenced operations on December 8, 2005. The Company's common stock, par value $0.001 per share ("Common Stock"), is listed on the New York Stock Exchange ("NYSE") under the symbol "CORR" and its depositary shares representing the Company's 7.375 % Series A Cumulative Redeemable Preferred Stock, par value $0.001 per share ("Series A Preferred Stock"), are listed on the NYSE under the symbol "CORR PrA". The Company's Class B Common Stock, par value $0.001 per share ("Class B Common Stock"), is not listed on an exchange.
The Company owns and operates critical energy midstream infrastructure connecting the upstream and downstream sectors within the industry. The Company currently generates revenue from the transportation, via pipeline systems, of crude oil and natural gas for its customers in California and Missouri, respectively. The pipelines are located in areas where it would be difficult to replicate rights-of-way or transport crude oil or natural gas via non-pipeline alternatives, resulting in the Company's assets providing utility-like criticality in the midstream supply chain for its customers.
CorEnergy's Private Letter Rulings ("PLRs") enable the Company to invest in a broader set of revenue contracts within its real estate investment trust ("REIT") structure, including the opportunity to both own and operate infrastructure assets. CorEnergy has determined its investments in these energy infrastructure assets to be a single reportable business segment and reports them accordingly in its consolidated financial statements.
The principal executive offices of the Company are located at 1100 Walnut, Suite 3350, Kansas City, Missouri 64106.
Basis of Presentation and Consolidation
Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or any other interim or annual period. Amounts as of December 31, 2022 have been derived from the audited consolidated financial statements as of that date but do not include all of the information and footnotes required by GAAP for complete financial statements and, as a result, should be read in conjunction with the audited consolidated financial statements and the notes thereto included in CorEnergy's Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 29, 2023.
Going Concern
Subsidiaries of the Company and Crimson Midstream Holdings, LLC, a consolidated VIE of the Company ("Crimson"), are co-borrowers under the Amended and Restated Credit Agreement, dated as February 4, 2021, which provides for borrowing capacity of up to $155.0 million (the "Crimson Credit Facility"). The Crimson Credit Facility is scheduled to mature on May 3,
14
2024, which is within twelve months of the date of issuance of these financial statements for the period ended September 30, 2023.
On May 25, 2023, the Company announced entry into a definitive agreement to sell the MoGas and Omega pipeline systems to Spire, Inc. for approximately $175.0 million in cash, subject to final working capital adjustments. The transaction is currently expected to close around the end of the calendar year, pending U.S. Federal Trade Commission ("FTC") review and subject to customary closing conditions. The Company is required to use the proceeds from such sale to repay the Crimson Credit Facility in full.
If the MoGas and Omega sale does not occur in early 2024, the Company's operating cash flows may not be sufficient to service our debt instruments or comply with the covenants contained therein in 2024. If the Company is unable to extend the maturity date of the Crimson Credit Facility, or to repay or refinance it by May 3, 2024, or meet the covenants contained therein until such repayment or refinancing, the Company's ability to meet its obligations would be adversely affected. Failure to extend the maturity date or repay the debt prior to its contractual maturity or a default under the applicable debt agreements could result in the potential foreclosure on the collateral securing such debt.
In addition, on September 12, 2023, the Company received a notice (the “Notice”) from the NYSE that it is not in compliance with the NYSE continued listing standards relating to a minimum share price requirement because the average closing price of the Company's common stock was less than $1.00 per share over a consecutive 30 trading-day period. The Company has six months following receipt of the Notice to regain compliance with the minimum share price requirement. The Company intends to regain compliance with the requirement. However, if the Company is unable to maintain the NYSE listing or obtain an alternative listing on another exchange as required under the Indenture governing the 5.875 % Convertible Notes, the Company's failure to do so will constitute a "fundamental change" under the Indenture, in which case, the Company must make an offer to repurchase all of the outstanding 5.875 % Convertible Notes at a price equal to the principal amount of such notes, plus any accrued and unpaid interest. The Company projects that it will not have sufficient cash on hand or available liquidity to repurchase all of the outstanding 5.875 % Convertible Notes in the event that it is required to do so. The Company's failure to make or complete the repurchase offer would result in a default under the Indenture.
The foregoing events and conditions raise substantial doubt about the Company's ability to continue as a going concern. However, the Company’s management believes it is probable the sale of MoGas and Omega will be successful and enable the Company to fully retire the Crimson Credit Facility before its contractual maturity and allow the Company to sufficiently service debt instruments and comply with the covenants contained therein during 2024, although no assurance can be given that the Company will be able to do so. Additionally, the Company believes it is probable that the sale of MoGas and Omega and other available options will allow the Company to regain compliance with the NYSE minimum listing standard and avoid delisting before March 12, 2024 and the requirement to make an offer to repurchase the outstanding 5.875 % Convertible Notes as described above, although no assurance can be given that the Company will be able to do so. As a result, the Company has concluded that management's plans are probable of being achieved to alleviate substantial doubt of the Company's ability to continue as a going concern.
The accompanying unaudited consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
MoGas and Omega
During March 2023, the Company determined that the MoGas and Omega pipeline assets have met the criteria of "held-for- sale" accounting, as specified by FASB's ASC 360, "Property, Plant and Equipment." The carrying value of the assets and liabilities of this component is less than the fair value less costs to sell. Therefore, amounts are presented at carrying value within the Company's Consolidated Balance Sheet. Refer to Note 3 ("Held-For-Sale") for further discussion.
2. RECENT ACCOUNTING PRONOUNCEMENTS
15
Financing note receivable - Refer to Note 6 ("Financing Notes Receivable") for further discussion.
3. HELD-FOR-SALE
MoGas Pipeline and Omega Pipeline Systems
As of September 30, 2023, the Company's MoGas and Omega pipeline systems were classified as assets and liabilities held-for-sale. The Company is disposing of these assets to address upcoming debt maturities on the Crimson Credit Facility and to reduce outstanding debt associated with the Company's 5.875 % Unsecured Convertible Senior Notes due 2025.
On May 25, 2023, the Company announced entry into a definitive agreement to sell the MoGas and Omega pipeline systems to Spire, Inc. for $175.0 million in cash, subject to final working capital adjustments. On July 3, 2023, the Company received a request for additional information ("Second Request") from the FTC with regard to this proposed acquisition. The Company is fully cooperating with the FTC regarding the Second Request and expects to close around the end of the calendar year subject to receiving FTC approval.
The pre-tax profit from the disposal group held for sale is summarized in the table below for each period the statement of operations is presented:
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||
Pre-tax profit(1) | $ | $ | ( | $ | $ | ||||||||||||||||||
| Allocated interest related to the sale to repay the Crimson Credit Facility | |||||||||||||||||||||||
| (1) The Company is contractually obligated to use the proceeds from the anticipated sale to repay the Crimson Credit Facility. As such, the aforementioned pre-tax profit includes allocated interest related to the sale and repayment of the Crimson Credit Facility. | |||||||||||||||||||||||
Held-for-Sale Balance Sheet
| September 30, 2023 | |||||
| Assets | (Unaudited) | ||||
Property and equipment, net of accumulated depreciation of $ | $ | ||||
Leased property, net of accumulated depreciation of $ | |||||
Cash and cash equivalents (1) | |||||
| Accounts and other receivables | |||||
| Inventory | |||||
| Prepaid expenses and other assets | |||||
| Operating right-of-use assets | |||||
| Total Assets | $ | ||||
| Liabilities | |||||
| Accounts payable and other accrued liabilities | |||||
| Operating lease liability | |||||
Deferred tax liability, net(2) | |||||
| Unearned revenue | |||||
| Total Liabilities | $ | ||||
(1) The Company has elected to disclose 100% of the disposal group cash and cash equivalent balance as held for sale, however, the Company only expects a minimal amount of cash necessary for day-to-day operations will ultimately be transferred in the sale. | |||||
(2) The deferred tax liability is recorded within certain parent entities that are not part of the disposal group, however, because the liability was generated from the operations of the disposal group, the Company has included it within liabilities held-for-sale on the Consolidated Balance Sheet. | |||||
16
4. TRANSPORTATION AND DISTRIBUTION REVENUE
The Company's contracts related to transportation and distribution revenue are primarily comprised of a mix of crude oil, natural gas supply and natural gas transportation and distribution performance obligations, as well as limited performance obligations related to system maintenance and improvement.
Crude Oil and Natural Gas Transportation and Distribution
Under the Company's (i) crude oil and natural gas transportation, (ii) natural gas supply and (iii) natural gas distribution performance obligations, the customer simultaneously receives and consumes the benefit of the services as the commodity is delivered. Therefore, the transaction price is allocated proportionally over the series of identical performance obligations with each contract, and the Company satisfies performance obligations over time as transportation and distribution services are performed. The transaction price is calculated based on (i) CPUC and Federal Energy Regulatory Commission ("FERC") regulated rates or negotiated rates in the case of transportation agreements, (ii) index price, plus a contractual markup in the case of natural gas supply agreements (considered variable due to fluctuations in the index) and (iii) contracted amounts (with annual Consumer Price Index escalators) in the case of the Company's distribution agreement.
The Company's crude oil transportation revenue also includes amounts earned for pipeline loss allowance ("PLA"), which represents the estimated realizable value of the earned loss allowance volumes received by the Company as applicable under the tariff or contract. As is common in the pipeline transportation industry, as crude oil is transported, the Company earns a small percentage of the crude oil volume transported to offset any measurement uncertainty or actual volumes lost in transit. The Company will settle the PLA with its shippers either in-kind or in cash. PLA received by the Company typically exceeds actual pipeline losses in transit and typically results in a benefit to the Company.
When PLA is paid-in-kind, the barrels are valued at current market price less standard deductions, recorded as inventory and recognized as non-cash consideration revenue, concurrent with related transportation services. PLA paid in cash is treated in the same way as in-kind, but no inventory is created. In accordance with ASC 606, "Revenue from Contracts with Customers" ("ASC 606") when control of the PLA volumes has been transferred to the purchaser, the Company records this non-cash consideration as revenue at the contractual sales price within PLA revenue and PLA cost of revenues.
Based on the nature of the agreements, revenue for all but one of the Company's natural gas supply, transportation and distribution performance obligations is recognized on a right-to-invoice basis as the performance obligations are met, which represents what the Company expects to receive in consideration and is representative of value delivered to the customer.
System Maintenance & Improvement
System maintenance and improvement contracts are specific and tailored to the customer's needs, have no alternative use and have an enforceable right to payment as the services are provided. Revenue is recognized on an input method, based on the actual cost of service as a measure of the performance obligation satisfaction. Differences between amounts invoiced and revenue recognized under the input method are reflected as an asset or liability on the Consolidated Balance Sheets. The costs of system improvement projects are recognized as a financing arrangement in accordance with guidance in ASC 842, "Leases," while the margin is recognized in accordance with the ASC 606 revenue standard as discussed above.
The table below summarizes the Company's contract liability balance related to its transportation and distribution revenue contracts:
Contract Liability(1) | |||||||||||
| September 30, 2023 | December 31, 2022 | ||||||||||
| Beginning Balance January 1 | $ | $ | |||||||||
| Unrecognized Performance Obligations | |||||||||||
| Recognized Performance Obligations | ( | ( | |||||||||
Ending Balance (2) | $ | $ | |||||||||
(1) As of September 30, 2023, the contract liability balance is included in unearned revenue (Crimson portion) and liabilities held-for-sale (MoGas and Omega portion) in the Consolidated Balance Sheets. As of December 31, 2022, the contract liability balance was included in unearned revenue in the Consolidated Balance Sheets. | |||||||||||
(2) As of September 30, 2023, the contract liability balance for MoGas and Omega was $ | |||||||||||
The Company's contract asset balances were immaterial as of both September 30, 2023 and December 31, 2022. The Company also recognized deferred contract costs related to incremental costs to obtain a transportation performance obligation contract, which are amortized on a straight-line basis over the remaining term of the contract. As of September 30, 2023, the remaining
17
unamortized deferred contract costs balance was approximately $684 thousand. The contract asset and deferred contract costs balances are included in assets held-for-sale and prepaid expenses and other assets in the Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, respectively.
The following is a breakout of the Company's transportation and distribution revenue for the three and nine months ended September 30, 2023 and 2022:
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Crude oil transportation revenue | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||
| Natural gas transportation revenue | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Natural gas distribution revenue | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Other | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||
5. LEASES
The Company and its subsidiaries currently lease land, corporate office space, single-use office space, and equipment. During 2022, Crimson entered into a new corporate office lease that commenced upon possession of the property on April 15, 2023. No lease payments are due for the first year. During September 2023, the Company extended the lease for the CorEnergy corporate office, which will be effective December 2023 through May 2024. An additional operating right-of-use asset and operating lease liability were recorded for this lease in the amount of $97 thousand each. The Company's leases are classified as operating leases and presented as operating right-of-use assets (assets held-for-sale for MoGas and Omega) and operating lease liabilities (liabilities held-for-sale for MoGas and Omega) on the Consolidated Balance Sheets as of September 30, 2023. The Company's leases are presented as operating right-of-use assets and operating lease liabilities on the Consolidated Balance Sheets as of December 31, 2022. The Company recognizes lease expense in the Consolidated Statements of Operations on a straight-line basis over the remaining lease term. The Company noted the following information regarding its operating leases for the three and nine months ended September 30, 2023 and 2022:
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||
| Lease cost: | |||||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Other Information: | |||||||||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||||||||
| Operating cash flows from operating leases | $ | $ | $ | $ | |||||||||||||||||||
| Supplemental disclosure of non-cash leasing activities: | |||||||||||||||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | $ | $ | $ | |||||||||||||||||||
Variable lease costs were immaterial for the three and nine months ended September 30, 2023 and 2022.
The following table reflects the weighted average lease term and discount rate for leases in which the Company is a lessee:
| September 30, 2023 | December 31, 2022 | |||||||||||||
| Weighted average remaining lease term - operating leases (in years) | ||||||||||||||
| Weighted average discount rate - operating leases | % | % | ||||||||||||
6. FINANCING NOTES RECEIVABLE
18
7. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting and tax purposes. Components of the Company's deferred tax assets and liabilities as of September 30, 2023 and December 31, 2022, are as follows:
| Deferred Tax Assets and Liabilities | |||||||||||
| September 30, 2023 | December 31, 2022 | ||||||||||
| Deferred Tax Assets: | |||||||||||
| Deferred contract revenue | $ | $ | |||||||||
| Net operating loss carryforwards | |||||||||||
| Capital loss carryforward | |||||||||||
| Other | |||||||||||
| Sub-total | $ | $ | |||||||||
| Valuation allowance | ( | ||||||||||
| Sub-total | $ | $ | |||||||||
| Deferred Tax Liabilities: | |||||||||||
| Cost recovery of leased and fixed assets | $ | $ | ( | ||||||||
| Other | ( | ||||||||||
| Sub-total | $ | $ | ( | ||||||||
| Total net deferred tax asset (liability) | $ | $ | ( | ||||||||
| Deferred Tax Assets and Liabilities - Held-For-Sale | |||||
| September 30, 2023 | |||||
| Deferred Tax Assets: | |||||
| Deferred contract revenue | $ | ||||
| Net operating loss carryforwards | |||||
| Capital loss carryforward | |||||
| Other | |||||
| Sub-total | $ | ||||
| Valuation allowance | ( | ||||
| Sub-total | $ | ||||
| Deferred Tax Liabilities: | |||||
| Cost recovery of leased and fixed assets | $ | ( | |||
| Other | ( | ||||
| Sub-total | $ | ( | |||
Total net deferred tax liability(1) | $ | ( | |||
| (1) The deferred tax liability is recorded within certain parent entities that are not part of the disposal group, however, because the liability was generated from the operations of the disposal group, the Company has included it within liabilities held-for-sale on the Consolidated Balance Sheet. | |||||
The total deferred tax assets and liabilities presented above relate to the Company's taxable REIT subsidiaries ("TRSs"). The Company recognizes the tax benefits of uncertain tax positions only when the position is "more likely than not" to be sustained upon examination by the tax authorities based on the technical merits of the tax position. The Company's policy is to record interest and penalties on uncertain tax positions as part of tax expense. As of September 30, 2023, the Company had no uncertain tax positions. Tax years beginning with the year ended December 31, 2019 remain open to examination by federal and state tax authorities.
As of September 30, 2023 and December 31, 2022, the TRSs had cumulative net operating loss carryforwards ("NOLs") of $30.2 million and $29.2 million, respectively. As of September 30, 2023 and December 31, 2022, NOLs of $27.9 million and $26.4 million, respectively, that were generated during the periods ended September 30, 2023, December 31, 2022, 2021, 2020,
19
2019, and 2018 may be carried forward indefinitely, subject to limitation. NOLs generated for years prior to December 31, 2018 may be carried forward for 20 years.
Management assessed the available evidence and determined that it is more likely than not that the capital loss carryforwards will not be utilized prior to expiration. Due to the uncertainty of realizing this deferred tax asset, a valuation allowance of $92 3.6 million and $5.2 million was recorded at September 30, 2023 and December 31, 2022, respectively. In the future, if the Company concludes, based on existence of sufficient evidence, that it should realize more or less of the deferred tax assets, the valuation allowance will be adjusted accordingly in the period such conclusion is made.
The Company provides for income taxes during interim periods based on the estimated effective tax rate for the year and any discrete adjustments. The effective tax rate is subject to change in the future due to various factors such as the operating performance of the TRSs, tax law changes, and future business acquisitions or divestitures. The TRSs’ effective tax rates were (24.9 )% and 24.4 % for the nine months ended September 30, 2023 and 2022, respectively. The negative tax rate for the current period is a result of the tax benefit received from the lower valuation allowance requirement described in the preceding paragraph.
The components of income tax expense (benefit) include the following for the periods presented:
| Components of Income Tax Expense (Benefit) | |||||||||||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||
| Current tax expense | |||||||||||||||||||||||
| Federal | $ | $ | $ | $ | |||||||||||||||||||
| State (net of federal tax expense) | |||||||||||||||||||||||
| Total current tax expense | $ | $ | $ | $ | |||||||||||||||||||
| Deferred tax expense (benefit) | |||||||||||||||||||||||
| Federal | $ | $ | $ | ( | $ | ||||||||||||||||||
| State (net of federal tax expense) | ( | ( | |||||||||||||||||||||
| Total deferred tax expense (benefit) | $ | $ | $ | ( | $ | ||||||||||||||||||
| Total income tax expense (benefit), net | $ | $ | $ | ( | $ | ||||||||||||||||||
8. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
| Property and Equipment | |||||||||||
| September 30, 2023 | December 31, 2022 | ||||||||||
| Land | $ | $ | |||||||||
| Crude oil pipelines | |||||||||||
| Natural gas pipeline | |||||||||||
| Right-of-way agreements | |||||||||||
| Pipeline related facilities | |||||||||||
| Tanks | |||||||||||
| Vehicles, trailers and other equipment | |||||||||||
| Office equipment and computers | |||||||||||
| Construction work in progress | |||||||||||
| Gross property and equipment | $ | $ | |||||||||
| Less: accumulated depreciation | ( | ( | |||||||||
| Net property and equipment | $ | $ | |||||||||
Depreciation expense was $3.4 million and $10.6 million for the three and nine months ended September 30, 2023, respectively. Depreciation expense was $4.0 million and $11.9 million for the three and nine months ended September 30, 2022, respectively.
20
Held-for-sale property and equipment consist of the following:
| Property and Equipment | |||||
| September 30, 2023 | |||||
| Land | |||||
| Natural gas pipeline | |||||
| Right-of-way agreements | |||||
| Vehicles, trailers and other equipment | |||||
| Office equipment and computers | |||||
| Construction work in process | |||||
| Gross Property and equipment | $ | ||||
| Less: accumulated depreciation | ( | ||||
| Net property and equipment | $ | ||||
9. COMMITMENTS AND CONTINGENCIES
Crimson Legal Proceedings
As a transporter of crude oil, the Company is subject to various environmental regulations that could subject the Company to future monetary obligations. Crimson has received notices of violations and potential fines under various federal, state and local provisions relating to the discharge of materials into the environment or protection of the environment. Management believes that if any one or more of these environmental proceedings were decided against Crimson, it would not be material to the Company's financial position, results of operations or cash flows. Additionally, the Company maintains insurance coverage for environmental liabilities in amounts that management believes are appropriate and customary for the Company's business.
The Company is also subject to various other claims and legal proceedings covering a wide range of matters that arose in the ordinary course of business. In the opinion of management, all such matters are without merit or are of such kind, or involve such amounts, as would not have a material adverse effect on the financial position, results of operations or cash flows of the Company.
Restructuring Costs
During the first quarter of 2023, the Company approved a restructuring plan associated with changes in management structure and the corresponding reorganization of Crimson management. The Company recognized restructuring expense of $0 and $2.0 million during the three and nine months ended September 30, 2023, respectively. These costs are recorded in transportation and distribution and in general and administrative within the Consolidated Statement of Operations. The Company does not anticipate additional restructuring-related costs over the remainder of 2023 related to this plan. As of September 30, 2023, the remaining liability related to these restructuring costs was $422 thousand, which is recorded in accounts payable and other accrued liabilities on the Consolidated Balance Sheets.
Long Term Incentive Awards
On March 15, 2023, the Company awarded $2.1 million in "Cash Units" under the Omnibus Plan (as defined below) 2023 Annual Long Term Incentive Awards. Each Cash Unit represents the right to receive $1 at a future date with such amount not tied to the Company’s operating performance or stock price. The Cash Units vest over three years , with 1/3 vesting on March 15th each year. The expense related to these awards was $171 thousand and $370 thousand for the three and nine months ended September 30, 2023, respectively.
California Bonds Indemnification
The Company maintains certain agreements for indemnity and surety bonds with various California regulatory bodies. The total annual premium paid for the bonds currently outstanding is approximately $148 thousand, recorded in general and administrative expense.
21
10. FAIR VALUE
The following section describes the valuation methodologies used by the Company for estimating fair value for financial instruments for disclosure purposes only, as required under disclosure guidance related to the fair value of financial instruments.
Cash and Cash Equivalents — The carrying value of cash, amounts due from banks, federal funds sold and securities purchased under resale agreements approximates fair value.
Financing Notes Receivable — The carrying value of financing notes receivable approximates fair value. The Company uses the discounted cash flow method to estimate expected credit losses and also reviews other factors that may affect the collectability of the balance, including timeliness of required payments, past due status and discussions with obligors. There are no past due payments associated with the loan. Estimates of realizable value are determined based on unobservable inputs, including estimates of future cash flow generation and value of collateral underlying the notes.
Inventory — Inventory primarily consists of crude oil earned as in-kind PLA payments and is valued using an average costing method at the lower of cost or net realizable value.
Secured Credit Facilities — The fair value of the Company's long-term variable-rate debt under its secured credit facilities approximates carrying value.
Unsecured Convertible Senior Notes — The fair value of the 5.875 % Convertible Notes is estimated using quoted market prices from either active (Level 1) or generally active (Level 2) markets.
| Carrying and Fair Value Amounts | |||||||||||||||||||||||||||||
| Level within fair value hierarchy | September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||||
Carrying Amount (1) | Fair Value | Carrying Amount (1) | Fair Value | ||||||||||||||||||||||||||
| Level 2 | $ | $ | $ | $ | |||||||||||||||||||||||||
| (1) The carrying value of debt balances are presented net of unamortized original issuance discount and debt issuance costs. | |||||||||||||||||||||||||||||
11. DEBT
The following is a summary of the Company's debt facilities and balances as of September 30, 2023 and December 31, 2022:
| Total Commitment or Original Principal | Quarterly Principal Payments(2) | September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||||||
| Maturity Date | Amount Outstanding | Interest Rate | Amount Outstanding | Interest Rate | |||||||||||||||||||||||||||||||||||||
| Crimson Credit Facility: | |||||||||||||||||||||||||||||||||||||||||
| Crimson Revolver | $ | $ | 5/3/2024 | $ | % | $ | % | ||||||||||||||||||||||||||||||||||
| Crimson Term Loan | 5/3/2024 | % | % | ||||||||||||||||||||||||||||||||||||||
| Crimson Uncommitted Incremental Credit Facility | 5/3/2024 | % | % | ||||||||||||||||||||||||||||||||||||||
| 8/15/2025 | % | % | |||||||||||||||||||||||||||||||||||||||
| Total Debt | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Less: | |||||||||||||||||||||||||||||||||||||||||
Unamortized deferred financing costs on | $ | $ | |||||||||||||||||||||||||||||||||||||||
Unamortized discount on | |||||||||||||||||||||||||||||||||||||||||
Unamortized deferred financing costs on Crimson Term Loan(1) | |||||||||||||||||||||||||||||||||||||||||
| Total Debt, net of deferred financing costs | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Debt due within one year | $ | $ | |||||||||||||||||||||||||||||||||||||||
| (1) Unamortized deferred financing costs related to the Company's revolving credit facilities are included in Deferred Costs in the Assets section of the Consolidated Balance Sheets. | |||||||||||||||||||||||||||||||||||||||||
(2) The required quarterly principal payments increased from $ | |||||||||||||||||||||||||||||||||||||||||
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Crimson Credit Facility
The Crimson Credit Facility provides borrowing capacity of up to $155.0 million, consisting of: a $50.0 million revolving credit facility ("Crimson Revolver"), an $80.0 million term loan ("Crimson Term Loan") and an uncommitted incremental credit facility of $25.0 million. On September 14, 2022, the Borrowers completed the first amendment to the Amended and Restated Credit Agreement, which replaced the use of a LIBOR reference rate with the Secured Overnight Financing Rate ("SOFR"). On March 6, 2023, the Company completed the second amendment to the Amended and Restated Credit Agreement, which extended the maturity of the Crimson Credit Facility from its maturity on February 4, 2024 to May 3, 2024 and amended the applicable total leverage ratio in the first two quarters of 2023 from 2.50 to 2.75 , as well as increased the required quarterly amortization of the term loan from $2.0 million to $3.0 million beginning in the third quarter of 2023. On August 14, 2023, the parties entered into the third amendment to the Amended and Restated Credit Agreement, which amended the applicable total leverage ratio in the third and fourth quarters of 2023 from 2.50 to 3.75 , which is anticipated to prevent any covenant violations before the completion of the sale of the MoGas and Omega assets around the end of the calendar year, although no such assurance can be given. There were no covenant violations for the third quarter of 2023 and the Company does not expect any covenant violations for the remainder of 2023.
Crimson Credit Facility Contractual Payments
The remaining contractual principal payments as of September 30, 2023 under the Crimson Credit Facility are as follows:
| Year | Crimson Term Loan | Crimson Revolver | Total | |||||||||||||||||
| 2023 | $ | $ | $ | |||||||||||||||||
| 2024 | ||||||||||||||||||||
| Total Remaining Contractual Payments | $ | $ | $ | |||||||||||||||||
Crimson Credit Facility Interest Expense
A summary of the Crimson Credit Facility interest expense and deferred debt cost amortization expense for the three and nine months ended September 30, 2023 and 2022 is as follows:
| Crimson Credit Facility Interest Expense | |||||||||||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||
| Interest Expense | $ | $ | $ | $ | |||||||||||||||||||
Deferred Debt Cost Amortization Expense(1)(2) | |||||||||||||||||||||||
| Less: Capitalized Interest | |||||||||||||||||||||||
| Total Crimson Credit Facility Interest Expense | $ | $ | $ | $ | |||||||||||||||||||
| (1) Amortization of deferred debt issuance costs is included in interest expense in the Consolidated Statements of Operations. | |||||||||||||||||||||||
| (2) For the amount of deferred debt cost amortization relating to the convertible notes included in the Consolidated Statements of Operations, refer to the Convertible Notes Interest Expense table below. | |||||||||||||||||||||||
Convertible Debt Interest Expense
A summary of the 5.875 % Convertible Notes interest expense, discount amortization, and deferred debt issuance amortization expense for the three and nine months ended September 30, 2023 and 2022 is as follows:
| Convertible Note Interest Expense | |||||||||||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||
| Interest Expense | $ | $ | $ | $ | |||||||||||||||||||
| Discount Amortization | |||||||||||||||||||||||
| Deferred Debt Issuance Amortization | |||||||||||||||||||||||
Total | $ | $ | $ | $ | |||||||||||||||||||
Including the impact of the convertible debt discount and related deferred debt issuance costs, the effective interest rate on the 5.875 % Convertible Notes was approximately 6.4
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12. STOCKHOLDERS' EQUITY
STOCK-BASED COMPENSATION
On May 25, 2022, the Company's stockholders approved the CorEnergy Infrastructure Trust, Inc. Omnibus Equity Incentive Plan (the "Omnibus Plan") (3,000,000 shares of Common Stock authorized) which allows the Company to grant equity awards to its employees, non-employee directors, and consultants in its employ or service (or the employ or service of any parent, subsidiary or affiliate). Incentive compensation programs play a pivotal role in the Company's effort to attract and retain key personnel essential to its long-term growth and financial success and align long term interests of recipients with the Company's stockholders. Under the Omnibus Plan, awards may be granted in the form of options, restricted stock, restricted stock units, stock appreciation rights, Common Stock awards, cash-based awards and performance-based awards.
On May 26, 2022, the Company filed a Form S-8 registration statement with the SEC, pursuant to which it registered 3,000,000 shares of Common Stock for issuance under the Omnibus Plan. As of September 30, 2023, the Company had remaining availability of 2,446,080 shares of Common Stock under the plan.
Restricted Stock Units
The Company’s Board of Directors (the "Board") has granted awards of restricted stock units ("RSUs") to certain of the Company’s employees under the Omnibus Plan. The Company did not grant any RSUs during the three and nine months ended September 30, 2023. The Company records stock-based compensation expense on a straight-line recognition method over the requisite service period for the entire award. Each RSU represents the right to receive one share of Common Stock at a future date. The RSUs vest over three years , with 1/3 vesting on March 15th each year. These RSUs will be settled within 30 days of vesting, and will accrue dividend equivalents, when and if declared, over the vesting period, which will be paid to the holder in cash or, at the discretion of the Compensation and Corporate Governance Committee of the Board, in the form of additional shares of Common Stock having a fair market value equal to the amount of such dividends upon vesting of the units. Forfeitures will be accounted for when they occur.
The following tables represent the RSU activity for the nine months ended September 30, 2023 and 2022:
| Restricted Stock Units | Weighted Average Grant Date Fair Value | ||||||||||
| Outstanding at January 1, 2023 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Forfeited | ( | ||||||||||
| Outstanding at September 30, 2023 | $ | ||||||||||
| Expected to vest as of September 30, 2023 | |||||||||||
| Restricted Stock Units | Weighted Average Grant Date Fair Value | ||||||||||
| Outstanding at January 1, 2022 | $ | ||||||||||
| Granted | |||||||||||
| Vested | |||||||||||
| Forfeited | |||||||||||
| Outstanding at September 30, 2022 | $ | ||||||||||
| Expected to vest as of September 30, 2022 | |||||||||||
As of September 30, 2023, the estimated remaining unrecognized compensation cost related to stock-based compensation arrangements was $585 thousand. The weighted average period over which this remaining compensation expense is expected to be recognized is 1.5 years.
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The following table presents the Company's stock-based compensation expense:
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||
| General and administrative expense | $ | $ | $ | $ | |||||||||||||||||||
| Transportation and distribution expense | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
DIVIDENDS
On February 3, 2023, the Board suspended dividend payments on the Company's Common Stock and Series A Preferred Stock. The Series A Preferred Stock dividends are cumulative and will accrue at their stated rate during any period in which dividends are not paid. Any accrued Series A Preferred Stock dividends must be paid prior to the Company resuming common dividend payments. Based on the suspension of dividend payments to CorEnergy’s public equity holders, the Crimson Class A-1, Class A-2 and Class A-3 Units and CorEnergy’s Class B Common Stock will not receive dividend payments. As of September 30, 2023, the Company had $7.2 million in cumulative unpaid dividends related to its Series A Preferred Stock, which will be paid upon declaration by the Board or upon liquidation of the Company. The preferred return on the Crimson A-1 Units are pari passu to the Series A Preferred Stock dividends. As of September 30, 2023, the Company had $2.4 million in cumulative unpaid distributions related to the Crimson Class A-1 Units.
NON-CONTROLLING INTEREST
In February 2021, the Company completed the acquisition of a 49.50 % voting interest in Crimson (the "Crimson Transaction"). John D. Grier, M. Bridget Grier and certain of their affiliated trusts (collectively, the "Grier Members") own the remaining 50.50 % voting interest in Crimson. As part of the Crimson Transaction, the Company and the Grier Members entered into a Third Amended and Restated LLC Agreement of Crimson (the "Third LLC Agreement"). Pursuant to the terms of the Third LLC Agreement, the Grier Members and the Company's interests in Crimson are summarized in the table below:
As of September 30, 2023 | |||||||||||
| Grier Members | CorEnergy | ||||||||||
| (in units, except as noted) | |||||||||||
| Economic ownership interests in Crimson Midstream Holdings, LLC | |||||||||||
| Class A-1 Units | |||||||||||
| Class A-2 Units | |||||||||||
| Class A-3 Units | |||||||||||
| Class B-1 Units | |||||||||||
| Voting ownership interests in Crimson Midstream Holdings, LLC | |||||||||||
| Class C-1 Units | |||||||||||
| Voting interests of C-1 Units (%) | % | % | |||||||||
The Crimson Class A-1, Class A-2 and Class A-3 Units held by the Grier Members and the Crimson Class B-1 Units held by the Company represent economic interests in Crimson while the Crimson Class C-1 Units represent voting interests.
Upon receipt of CPUC approval for a change of control of Crimson's CPUC-regulated assets ("CPUC Approval"), the parties will enter into a Fourth Amended and Restated LLC Agreement of Crimson (the "Fourth LLC Agreement"), which will, among other things, (i) give the Company control of Crimson and its assets in connection with an anticipated further restructuring of the Company's asset ownership structure, and (ii) provide the Grier Members and management members the right to exchange their entire interest in Crimson for securities of the Company as follows:
•Crimson Class A-1 Units will become exchangeable for up to 1,755,579 (which includes the addition of 37,043 shares as a result of the working capital adjustment) of the Company's depositary shares, each representing 1/100th of a share of the Company's Series A Preferred Stock.
•Crimson Class A-2 Units will become exchangeable for up to 8,762,158 shares of the Company's non-listed Class B Common Stock. After the conversion of the Company's Class B Common Stock into Common Stock, the Class A-2 Units will be directly exchangeable for Common Stock.
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•Crimson Class A-3 Units will become exchangeable for up to 2,450,142 shares of the Company's non-listed Class B Common Stock. After the conversion of the Company's Class B Common Stock into Common Stock, the Class A-3 Units will be directly exchangeable for Common Stock.
Class B Common Stock will eventually be converted into the Common Stock of the Company on the occurrence of the earlier of the following: (i) the occurrence of the third anniversary of the closing date of the Crimson Transaction or (ii) the satisfaction of certain conditions related to an increase in the relative dividend rate of the Common Stock.
Prior to exchange of the Crimson Class A-1, Class A-2 and Class A-3 Units into corresponding Company securities (and after giving effect to the changes to the Company securities into which the Crimson Class A-1 and Class A-2 Units may be exchanged, as described above), the Grier Members only have the right to receive distributions to the extent that the Board determines dividends would be payable if they held the shares of Series A Preferred (for the Crimson Class A-1 Units), and Class B Common Stock (for the Crimson Class A-2 Units and Class A-3 Units), respectively, regardless of whether the securities are outstanding. If the respective shares of Series A Preferred and Class B Common Stock are not outstanding, the Board must consider that they would be outstanding when declaring dividends on the Common Stock. Following CPUC Approval, the terms of the Fourth LLC Agreement will provide that such rights will continue until the Grier Members elect to exchange the Crimson Class A-1, Class A-2 and Class A-3 Units for the corresponding securities of the Company. The following table summarizes the distributions payable under the Crimson Class A-1, Class A-2 and Class A-3 Units as if the Grier Members held the respective underlying Company securities. The Crimson Class A-1, Class A-2 and Class A-3 Units are entitled to the distribution regardless of whether the corresponding Company security is outstanding.
| Units | Distribution Rights of CorEnergy Securities | Liquidation Preference | Annual Distribution per Share | |||||||||||||||||
| Class A-1 Units | $ | $ | ||||||||||||||||||
| Class A-2 Units | Class B Common Stock(2)(3) | N/A | Varies(2) | |||||||||||||||||
| Class A-3 Units | Class B Common Stock(2) (3) | N/A | Varies(2) | |||||||||||||||||
(1) The Series A Preferred Stock will accumulate quarterly dividends and will be paid upon declaration by the Board. The liquidation preference is made up of the $ | ||||||||||||||||||||
(2) For each fiscal quarter ending June 30, 2021 through and including the fiscal quarter ending March 31, 2024, each share of Class B Common Stock will be entitled to receive dividends (the "Class B Common Stock Dividends"), subject to Board approval, equal to the quotient of (i) difference of (A) Cash Available for Distribution of the most recently completed quarter and (B) | ||||||||||||||||||||
(3) (A) For the fiscal quarters of the Company ended June 30, 2021, September 30, 2021, December 31, 2021 and March 31, 2022, the Common Stock Base Dividend Per Share was $ | ||||||||||||||||||||
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13. EARNINGS (LOSS) PER SHARE
Basic and diluted loss per share data is computed using the two-class method based on the weighted average number of shares of Common Stock and Class B Common Stock outstanding during the periods. The undistributed earnings and losses are allocated between Common Stock and Class B Common Stock as if all earnings and losses had been distributed during the period. Common Stock and Class B Common Stock have equal rights to undistributed earnings and losses.
The following table sets forth the computation of basic net loss and diluted net loss per share under the two-class method for the three and nine months ended September 30, 2023 and 2022.
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||
| Numerator for basic and diluted loss per Common Stock and Class B Common Stock share: | |||||||||||||||||||||||
| Net Loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Less: Net income attributable to non-controlling interests | |||||||||||||||||||||||
| Net Loss attributable to CorEnergy Infrastructure Trust, Inc. | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Less dividends / distributions: | |||||||||||||||||||||||
| Preferred dividend requirements | $ | $ | |||||||||||||||||||||
| Common Stock dividends | |||||||||||||||||||||||
| Total undistributed loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Common Stock undistributed loss - basic | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Class B Common Stock undistributed loss - basic | ( | ( | ( | ( | |||||||||||||||||||
| Total undistributed loss - basic | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Common Stock undistributed loss - diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Class B Common Stock undistributed loss - diluted | ( | ( | ( | ( | |||||||||||||||||||
| Total undistributed loss - diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Common Stock dividends | $ | $ | $ | $ | |||||||||||||||||||
| Common Stock undistributed loss - basic | ( | ( | ( | ( | |||||||||||||||||||
| Numerator for basic net loss per Common Stock share | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Class B Common Stock dividends | $ | $ | $ | $ | |||||||||||||||||||
| Class B Common Stock undistributed loss - basic | ( | ( | ( | ( | |||||||||||||||||||
| Numerator for basic net loss per Class B Common Stock share | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Common Stock dividends | $ | $ | $ | $ | |||||||||||||||||||
| Common Stock undistributed loss - diluted | ( | ( | ( | ( | |||||||||||||||||||
| Numerator for diluted net loss per Common Stock share | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Class B Common Stock dividends | $ | $ | $ | $ | |||||||||||||||||||
| Class B Common Stock undistributed loss - diluted | ( | ( | ( | ( | |||||||||||||||||||
| Numerator for diluted net loss per Class B Common Stock share | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Denominator for basic net loss per Common Stock and Class B Common Stock share: | |||||||||||||||||||||||
| Common Stock weighted average shares outstanding - basic | |||||||||||||||||||||||
27
| Class B Common Stock weighted average shares outstanding - basic | |||||||||||||||||||||||
| Denominator for diluted net loss per Common Stock and Class B Common Stock share: | |||||||||||||||||||||||
Common Stock weighted average shares outstanding - diluted(1)(2) | |||||||||||||||||||||||
Class B Common Stock weighted average shares outstanding - diluted(3) | |||||||||||||||||||||||
| Basic net loss per share: | |||||||||||||||||||||||
| Common Stock | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Class B Common Stock | ( | ( | ( | ( | |||||||||||||||||||
| Diluted net loss per share: | |||||||||||||||||||||||
| Common Stock | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Class B Common Stock | ( | ( | ( | ( | |||||||||||||||||||
(1) For purposes of the diluted net loss per share computation for Common Stock, all shares of Class B Common Stock are assumed to be converted at a ratio of 1.00 Class B Common Stock share to | |||||||||||||||||||||||
(2) For the three and nine months ended September 30, 2023 and 2022, | |||||||||||||||||||||||
| (3) For purposes of the diluted net loss per share computation for Class B Common Stock, weighted average shares of Class B Common Stock are assumed not converted to Common Stock. | |||||||||||||||||||||||
14. VARIABLE INTEREST ENTITY
Crimson Midstream Holdings
Since February 1, 2021, CorEnergy has held a 49.50 % voting interest in Crimson and the Grier Members have held the remaining 50.50 % voting interest. Crimson is a VIE because the legal entity is structured with non-substantive voting rights resulting from (i) the disproportionality between the voting interests of its members and certain economics of the distribution waterfall in the Third LLC Agreement and (ii) the de facto agent relationship between CorEnergy and Mr. Grier, who was appointed to the Board and as Chief Operating Officer of the Company upon closing of the Crimson Transaction. As a result of this related-party relationship, substantially all of Crimson's activities either involve or are conducted on behalf of CorEnergy, which has disproportionately few voting rights, including Mr. Grier as a de facto agent.
Crimson is managed by the Crimson Board, which is made up of four managers of which the Company and the Grier Members are each represented by two managers. The Crimson Board is responsible for governing the significant activities that impact Crimson's economic performance, including a number of activities managed by an approved budget that requires super-majority approval or joint approval. In assessing the primary beneficiary, the Company determined that power is shared; however, the Company and the Grier Members as a related-party group have characteristics of a primary beneficiary. The Company performed the "most closely associated" test and determined that CorEnergy is the entity in the related-party group most closely associated with the VIE. In performing this assessment, the Company considered, among other factors, (i) its influence over the tax structure of Crimson so its operations could be included in the Company's REIT structure under its PLR, which allows fees received for the usage of storage and pipeline capacity to qualify as rents from real property; (ii) that the activities of the Company are substantially similar in nature to the activities of Crimson as the Company owns existing transportation and distribution assets at MoGas and Omega; (iii) that Crimson's assets represent a substantial portion of the Company's total assets; and (iv) that the Grier Members' interest in Crimson Class A-1, Class A-2 and Class A-3 Units will earn distributions if the Board declares a common or preferred dividend for Series A Preferred Stock and Class B Common Stock. Therefore, CorEnergy is the primary beneficiary and consolidates the Crimson VIE and the Grier Members' equity ownership interest (after the working capital adjustment and paid-in-kind dividends), which is reflected as a non-controlling interest in the consolidated financial statements.
The Company noted that Crimson's assets cannot be used to settle CorEnergy's liabilities, with the exception of quarterly distributions if declared by the Crimson Board. The quarterly distributions are used to fund current obligations, projected working capital requirements, debt service payments and dividend payments. Cash distributions to the Company from the borrowers under the Crimson Credit Facility are subject to certain restrictions, including without limitation, no default or event of default, compliance with financial covenants, minimum undrawn availability and available free cash flow. Further, the Crimson Credit Facility is secured by assets at both Crimson Midstream Operating, LLC and Corridor MoGas, Inc. For the three and nine months ended September 30, 2023, the Company did not
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15. RELATED PARTY TRANSACTIONS
As previously disclosed, Mr. Grier, a director and Chief Operating Officer of the Company, together with the Grier Members, own the Crimson Class A-1, Class A-2, and Class A-3 equity ownership interests in Crimson, which the Company has a right to acquire in the future following receipt of CPUC Approval. The Grier Members also retain equity interests in Crescent Midstream Holdings, LLC ("Crescent Midstream Holdings") which they held prior to the Crimson Transaction, as well as Crescent Louisiana Midstream, LLC ("CLM"), Crimson Renewable Energy, L.P. ("CRE") and Delta Trading, L.P. ("Delta").
As of September 30, 2023, the Company was owed $6 thousand from related parties, including CLM, CRE and Delta, which is included in "due from affiliated companies" in the Consolidated Balance Sheets. These balances are primarily related to payroll, employee benefits and other services discussed below. The amounts billed to CLM are cash-settled and the amounts billed to Crescent Midstream Holdings will reduce a prepaid TSA (as defined below) liability on the Company's books until such time as the TSA liability is reduced to zero. As of September 30, 2023, the prepaid TSA liability related to Crescent Midstream Holdings was $138 thousand and recorded in "due to affiliated companies" in the Consolidated Balance Sheets. For the three and nine months ended September 30, 2023, Crimson billed costs and services related to TSAs and the Services Agreement (each as defined below) to related parties totaling $110 thousand and $363 thousand, respectively. For the three and nine months ended September 30, 2022, Crimson billed costs and services related to TSAs and the Services Agreement to related parties totaling $206 thousand and $890 thousand, respectively.
Total transition services reimbursements for the TSAs discussed below are presented on a net basis in the Consolidated Statements of Operations within transportation and distribution expense and general and administrative expense.
Transition Services Agreements
The subsidiaries of Crescent Midstream Holdings were formerly a part of Crimson prior to the Crimson Transaction and received various business services from Crimson or certain of its subsidiaries. Effective February 4, 2021, Crimson and certain of Crimson's subsidiaries entered into several transition services agreements (collectively, the "Transition Services Agreements" or "TSAs") with Crescent Midstream Holdings to facilitate its transition to operating independently. Each of the TSAs are described in more detail below. Also, effective February 4, 2021, Crimson and certain of its subsidiaries entered into an assignment and assumption agreement (the "Assignment and Assumption Agreement") to assign all of the TSAs to Crimson's direct, wholly owned TRS, Crimson Midstream I Corporation ("Crimson Midstream I"). Crimson and/or certain of its subsidiaries were reimbursed approximately $156 thousand per month for services provided under the TSAs during 2021, for which the billed amount was allocated 50.0 % to Crescent Midstream, LLC ("Crescent Midstream"), a wholly owned subsidiary of Crescent Midstream Holdings, and 50.0 % to CLM, a 70.0 %-owned subsidiary of Crescent Midstream. These TSA agreements ended on February 3, 2022 and Crimson entered into the Services Agreement (as defined below) for some of the business services previously provided, as described below.
Employee TSA - Crimson and Crescent Midstream Holdings entered into a transition services agreement (the "Employee TSA") whereby an indirect, wholly owned subsidiary of Crimson provided payroll, employee benefits and other related employment services to Crescent Midstream Holdings and its subsidiaries. Under the Employee TSA, Crimson's indirect, wholly owned subsidiary made available and assigned to Crescent Midstream Holdings and its subsidiaries certain employees to provide services primarily to Crescent Midstream Holdings and its subsidiaries. While the Employee TSA was in effect, Crescent Midstream Holdings was responsible for the daily supervision of and assignment of work to the employees providing services to Crescent Midstream Holdings and its subsidiaries. Additionally, Crimson's indirect, wholly owned subsidiary, Crimson Midstream Services, entered into an employee sharing agreement with Crimson Midstream I (the "Employee Sharing Agreement") to make available all employees performing services under the Employee TSA to Crimson Midstream I. The Employee Sharing Agreement was effective beginning February 1, 2021. The Employee Sharing Agreement, together with the Assignment and Assumption Agreement described above, effectively bound Crimson Midstream I to the terms of the Employee TSA in the same manner as Crimson's indirect, wholly owned subsidiary. The Employee TSA and the Employee Sharing Agreement ended on February 3, 2022.
Control Center TSA - Crimson Midstream Operating, LLC ("Crimson Midstream Operating"), a wholly owned subsidiary of Crimson, entered into a transition services agreement (the "Control Center TSA") with Crescent Midstream Holdings to provide certain customary control center services and field transition support services necessary to operate a pipeline system. The
29
Control Center TSA was assigned from Crimson Midstream Operating to Crimson Midstream I by the Assignment and Assumption Agreement discussed above. This agreement ended on February 3, 2022.
Services Agreement
Effective February 4, 2022, Crimson Midstream Operating entered into a services agreement (the "Services Agreement") to provide administrative-related services to Crescent Midstream Holdings through February 3, 2023, or upon receipt of Crescent Midstream Holdings' written notice to terminate the Services Agreement prior to February 3, 2023. Under the Services Agreement, Crimson and/or certain of its subsidiaries are reimbursed at a fixed fee of approximately $44 thousand per month.
Effective February 1, 2023, Crimson Midstream Operating entered into a first amendment to the Services Agreement (the "Amended Services Agreement") to provide administrative-related services to Crescent Midstream Holdings through February 1, 2024, or upon receipt of Crescent Midstream Holdings' written notice to terminate the Amended Services Agreement prior to February 1, 2024. Under the Amended Services Agreement, Crimson and/or certain of its subsidiaries are reimbursed at a fixed fee of approximately $13 thousand per month.
16. SUBSEQUENT EVENTS
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this Report on Form 10-Q ("Report") of CorEnergy Infrastructure, Inc. ("the Company," "CorEnergy," "we," "our" or "us"). The forward-looking statements included in this discussion and elsewhere in this Report involve risks and uncertainties, including anticipated financial performance, business prospects, liquidity, capital resources, industry trends, stockholder returns, performance by our customers, and other matters, which reflect management's best judgment based on factors currently known. See "Cautionary Statement Concerning Forward-Looking Statements" which is incorporated herein by reference. Actual results and experience could differ materially from the anticipated results and other expectations expressed in our forward-looking statements as a result of a number of factors, including but not limited to those discussed in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 29, 2023 (the "2022 Annual Report"), as supplemented by Item 1A - "Risk Factors" in this Report.
OVERVIEW
We are a publicly traded REIT focused on energy infrastructure. Our business strategy is to own and operate critical energy midstream infrastructure connecting the upstream and downstream sectors within the industry. We currently generate revenue from the transportation, via pipeline systems, of crude oil and natural gas for our customers in California and Missouri, respectively. These pipelines, consisting of our Crimson, MoGas, and Omega Pipeline Systems, are located in areas where it would be difficult to replicate rights-of-way or transport crude oil or natural gas via non-pipeline alternatives, resulting in our assets providing utility-like criticality in the midstream supply chain for our customers. As primarily regulated assets, the value of our regulated pipelines is supported by revenue derived from a cost-of-service methodology. The cost-of-service methodology is used to establish appropriate transportation rates based on several factors, including expected volumes, expenses, debt and return on equity. The regulated nature of the majority of our assets provides a degree of support for our profitability over the long-term, where the majority of our customers own the products shipped on, or stored in, our facilities. We believe these characteristics provide CorEnergy with the attractive attributes of other globally listed infrastructure companies, including high barriers to entry and predictable revenue streams, while mitigating risks and volatility experienced by other companies engaged in the midstream energy sector. We also believe that our strengths in the hydrocarbon midstream industry can be leveraged to participate in energy transition, such as CO2 transportation for sequestration projects.
For a description of our assets, see Part I, Item 2 of our 2022 Annual Report.
HOW WE GENERATE REVENUE
We earn revenue from transporting or storing crude oil and natural gas for our customers. Our revenue is generated based on a:
•Fixed fee per unit of commodity transported during the period; or
•Fixed fee for reserved capacity.
Crimson Pipeline System
Our Crimson Pipeline System is an approximately 2,000-mile crude oil transportation pipeline system, which includes approximately 1,100 active miles, with associated storage facilities located in southern California and the San Joaquin Valley. The pipeline network provides a critical link between California crude oil production and California refineries. Revenue is primarily generated based on a fixed-fee tariff paid on each barrel of crude oil transported on our pipeline system. Our tariffs are regulated by the CPUC under a cost-of-service methodology. Although the majority of our Crimson pipeline volumes are not contractually obligated to be transported on our pipelines, our pipelines have provided transportation services to the same refineries for decades. Our pipeline system provides a safe, reliable, economical and environmentally sustainable method of transporting crude oil from the California crude oil producers to the California refineries. Furthermore, we are generally the only pipeline providing a connection between such producers and our customers, which are the refineries we serve.
Held-For-Sale
MoGas Pipeline and Omega Pipeline Systems
Our MoGas Pipeline System is a 263-mile interstate natural gas pipeline regulated by the FERC. Our Omega Pipeline System is a 75-mile natural gas distribution system providing unregulated service primarily to the U.S. Army’s Fort Leonard Wood military post. Our MoGas and Omega Pipeline Systems are part of a broader system that provides the critical link between natural gas-producing regions and local customers in Missouri. Our MoGas Pipeline System sources natural gas from three major interstate pipelines, Panhandle Eastern pipeline, Rockies Express pipeline and Mississippi River Transmission pipeline. Our MoGas Pipeline System connects to these three pipelines around the St. Louis area and transports the natural gas to south-central Missouri where it connects to our Omega Pipeline System. Our MoGas Pipeline System supplies several local natural
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gas distribution networks along its path. Our Omega Pipeline System primarily serves as a local natural gas delivery system for Fort Leonard Wood.
Our MoGas Pipeline System generates the majority of its revenue from take-or-pay transportation contracts with investment-grade customers. The majority of the system's revenue is under a long-term contract with a remaining term of approximately seven years. Omega Pipeline System’s revenues are unregulated and are generated under a firm capacity contract for which lease treatment has been applied. The remaining life of the contract is approximately three years. Given the nature of the MoGas and Omega Pipeline Systems' contracts, the revenue generated by these assets is marginally dependent on the actual volume transported.
On May 25, 2023, we announced entry into a definitive agreement to sell the MoGas and Omega pipeline systems to Spire, Inc. for approximately $175.0 million in cash, subject to final working capital adjustments. In connection with the transaction, the parties filed notification and report forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), with the U.S. Federal Trade Commission ("FTC") and the Antitrust Division of the U.S. Department of Justice. On July 3, 2023, the parties each received a request for additional information and documentary materials (the "Second Request") from the FTC in connection with the FTC's review of the transaction. The effect of the Second Request is to extend the waiting period imposed by the HSR Act until 30 days after the parties have substantially complied with the Second Request, unless such period is extended voluntarily by the parties or terminated sooner by the FTC. Both parties intend to continue to work cooperatively with the FTC in its review. Completion of the transaction remains subject to the expiration or termination of the waiting period under the HSR Act and the satisfaction or waiver of the other closing conditions specified in the definitive agreement. The Company currently expects to close around the end of the calendar year subject to receiving FTC approval. There can be no assurance that the Company will complete the sale on this expected timeline or at all. We expect that the sale will generate sufficient net proceeds to repay our Crimson Credit Facility in full. We also expect that the remaining proceeds, combined with a new credit facility or other financing alternatives and operating cash flow, will enable us to retire a material percentage of our outstanding 5.875% Convertible Notes prior to maturity, although no assurance can be given that the Company will be able to do so. The carrying value of the MoGas and Omega systems is included in "assets held-for-sale" and "liabilities held-for-sale" on the Consolidated Balance Sheet as of September 30, 2023.
HOW WE EVALUATE OUR OPERATIONS
Our management uses a variety of financial and operating metrics to analyze our performance. These metrics, which are significant factors in assessing our operating results and profitability, include: (i) volumes; (ii) revenue (including PLA); (iii) total operating and maintenance expenses (including maintenance capital expenses); (iv) Adjusted Net Income (a non-GAAP financial measure); (v) Cash Available for Distribution (a non-GAAP financial measure); and (vi) Adjusted EBITDA (a non-GAAP financial measure). For the definitions and further details on the calculations of non-GAAP financial measures used in this Report, see the section below titled "Non-GAAP Financial Measures."
Volumes and Revenue
Our revenue is primarily generated by transporting either crude oil or natural gas from a supply source to an end customer. Our assets have provided this service for the same customers for many decades.
Crimson Pipeline System
The amount of revenue generated by our Crimson Pipeline System depends on the volume of crude oil transported through our pipelines multiplied by the fixed-fee tariff, or transportation rate, applicable for the specific movement. These volumes are dependent on crude oil production in California because our assets are not directly connected to crude oil import facilities. Volumes may also be impacted by individual refinery decisions regarding crude oil sourcing. The fixed-fee tariff, or transportation rate, is the other major determinate of our revenue. The majority of our tariffs are regulated by the CPUC under a cost-of-service methodology that provides long-term support for our revenue.
In addition to the fixed-fee tariff, we also earn PLA for the majority of the crude oil volume we transport. As is common in the pipeline transportation industry, as crude oil is transported, Crimson receives as PLA between 0.1% and 0.25% of the majority of crude oil volume transported in order to offset any measurement uncertainty or actual volumes lost in transit. We receive payments either in-kind or in cash, at market value for the crude oil, with the majority of the payments being in-kind. For in-kind payments, we record the revenue as Transportation and Distribution revenue at a net realizable market price for the crude oil and place the PLA volumes into inventory. The inventory is subsequently sold, typically within one to two months, and recognized as PLA subsequent sales revenue with an offsetting expense of PLA subsequent sales cost of revenue.
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Tariff Rate Cases
We have pending applications with the CPUC to raise tariffs on our San Pablo Bay, Southern California and KLM pipelines by 36%, 35% and 107%, respectively. All applications are being protested by at least one shipper. As a result, the full increases are currently not effective. However, in accordance with CPUC rules, we increased tariffs by 10% on the San Pablo and KLM pipelines on March 1, 2023 and October 1, 2023, respectively. We increased tariffs by 10% on the Southern California pipeline on August 1, 2022 and an additional 10% on August 1, 2023, for a total increase of approximately 20%. These increases are subject to refund if the CPUC determines that they were not justified. We anticipate implementing an additional 10% tariff increase on our San Pablo pipeline in March 2024, if the current rate case is not resolved before those times. During the nine months ended September 30, 2023, average rates per barrel of throughput on the San Pablo, Southern California and KLM pipelines were $1.71, $1.43, and $1.82, respectively. There can be no assurances as to the ultimate outcome of these pending tariff rate cases.
MoGas and Omega Pipeline Systems
The amount of revenue generated by our MoGas and Omega Pipeline Systems relies on fixed-payment contracts with our customers. These contracts are reservation charges with little dependence on actual volumes transported.
Operations and Maintenance Expenses
Our pipelines have similar fixed and variable operating, maintenance, and regulatory requirements. Our major operations and maintenance expenses consist of:
• labor expenses;
• repairs and maintenance expenses;
• insurance costs (including liability and property coverage); and
• utility costs (including electricity and natural gas).
The majority of our costs remain stable across broad ranges of throughput volumes, but can vary depending upon the level of both planned and unplanned maintenance activity in particular reporting periods. Utility cost is the primary expense that fluctuates based on throughput volumes and also fluctuates based on commodity prices.
California Market Update
As anticipated, oil volumes transported on our pipelines in the third quarter of 2023 continued to be steady, but lower than historically normal levels. Similar volumes are included in our forecast for the remainder of 2023, as well as in our applications with the CPUC to raise tariffs on our San Pablo Bay, Southern California and KLM pipelines.
Kern County’s ability to issue oil and gas drilling permits continues to be suspended, which is affecting crude oil volumes produced in the state. The suspension was granted by a California Court of Appeals on January 26, 2023, due to continued challenges to the County's Environmental Impact Report. Hearings are expected in 2023, but there is currently no known timeline for resolution of the latest stay, which may result in continued oil production declines and could accelerate the decline in volumes on our KLM and San Pablo Bay pipelines.
On October 27, 2023, Phillips 66 reaffirmed its plans to convert its 140,000 bpd San Francisco refinery in Rodeo, California to renewable transportation fuels, with operations expected to commence in the first quarter of 2024. This is despite the Contra Costa County Superior Court order halting of construction of the project on October 12, 2023, citing deficiencies in the County’s environmental impact review of the project. Upon project completion, the refinery will no longer process crude oil, a significant portion of which is currently sourced via a dedicated Phillips 66 pipeline system from the San Joaquin Valley, which is the same source of volumes for the Company's pipelines. Following the conversion, crude oil consumed by Phillips 66 from the San Joaquin Valley will need to be transported elsewhere, which could provide growth in volumes delivered on Crimson pipelines.
In April 2023, a third-party pipeline that previously ruptured off the coast of California in 2021 was restarted and is now providing incremental volume to the Company’s Southern California system. The pipeline is not owned by the Company nor does the Company own or operate any affected offshore platforms or pipelines.
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BASIS OF PRESENTATION
The unaudited consolidated financial statements include CorEnergy Infrastructure Trust, Inc., as of September 30, 2023, and its direct and indirect wholly owned subsidiaries and consolidated VIEs for which CorEnergy is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation, and our net earnings have been reduced by the portion of net earnings attributable to non-controlling interests, when applicable.
RESULTS OF OPERATIONS
As permitted by SEC rules, we present a sequential quarterly analysis of the Company's performance because we believe that comparing current quarter results to those of the immediately preceding fiscal quarter is more useful in identifying current business trends and provides a more relevant analysis of our business results than comparing to the same period in the prior year. Accordingly, we have compared our results of operations for the three months ended September 30, 2023 to our results of operations for the three months ended June 30, 2023, as applicable, throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following data should be read in conjunction with our unaudited consolidated financial statements and the notes thereto included in Part I, Item 1 of this Report. All information in Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations," except for balance sheet data as of December 31, 2022, is unaudited.
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| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | June 30, 2023 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Transportation and distribution | $ | 28,862,539 | $ | 28,540,632 | $ | 86,642,286 | $ | 89,538,121 | |||||||||||||||
| Pipeline loss allowance subsequent sales | 4,077,113 | 7,009,996 | 11,087,109 | 7,283,450 | |||||||||||||||||||
| Lease and other | 105,035 | 103,352 | 311,444 | 533,902 | |||||||||||||||||||
| Total Revenue | $ | 33,044,687 | $ | 35,653,980 | $ | 98,040,839 | $ | 97,355,473 | |||||||||||||||
| Expenses | |||||||||||||||||||||||
| Transportation and distribution | $ | 18,921,495 | $ | 17,787,024 | $ | 54,189,582 | $ | 45,857,193 | |||||||||||||||
| Pipeline loss allowance subsequent sales cost of revenue | 3,806,678 | 7,050,776 | 10,857,454 | 6,016,664 | |||||||||||||||||||
| General and administrative | 6,601,866 | 7,447,410 | 20,820,858 | 16,162,570 | |||||||||||||||||||
| Depreciation and amortization | 3,351,238 | 3,237,526 | 10,620,391 | 11,997,781 | |||||||||||||||||||
| Loss on impairment of goodwill | — | — | — | 16,210,020 | |||||||||||||||||||
| Total Expenses | $ | 32,681,277 | $ | 35,522,736 | $ | 96,488,285 | $ | 96,244,228 | |||||||||||||||
| Operating Income | $ | 363,410 | $ | 131,244 | $ | 1,552,554 | $ | 1,111,245 | |||||||||||||||
| Other Income (expense) | |||||||||||||||||||||||
| Interest expense | $ | (4,499,316) | $ | (4,426,351) | $ | (13,330,232) | $ | (9,972,969) | |||||||||||||||
| Other income (expense) | (11,586) | 195,678 | 325,905 | 332,615 | |||||||||||||||||||
| Income tax benefit (expense), net | (162,844) | 932,079 | 773,754 | (437,712) | |||||||||||||||||||
| Net Loss | $ | (4,310,336) | $ | (3,167,350) | $ | (10,678,019) | $ | (8,966,821) | |||||||||||||||
Other Financial Data (1) | |||||||||||||||||||||||
| Adjusted EBITDA | $ | 4,809,301 | $ | 5,848,769 | $ | 18,057,318 | $ | 30,922,851 | |||||||||||||||
| Adjusted Net Income (Loss) | (3,314,966) | (985,747) | (5,322,764) | 8,130,006 | |||||||||||||||||||
| Cash Available for Distribution | (10,780,520) | (7,702,815) | (24,677,382) | 1,225,664 | |||||||||||||||||||
| Capital Expenditures: | |||||||||||||||||||||||
| Maintenance Capital | $ | 4,234,518 | $ | 2,099,717 | $ | 8,557,183 | $ | 4,098,777 | |||||||||||||||
| Expansion Capital | 451,577 | 584,006 | 1,738,310 | 1,871,681 | |||||||||||||||||||
| Volume: | |||||||||||||||||||||||
| Average quarterly volume (bpd) - Crude oil | 151,953 | 156,078 | 152,927 | 166,556 | |||||||||||||||||||
| (1) Refer to the "Non-GAAP Financial Measures" section within this Item 2 for additional details. | |||||||||||||||||||||||
Three Months Ended September 30, 2023 Compared to the Three Months Ended June 30, 2023
Revenue.
Transportation and distribution. Transportation and distribution revenue increased by $322 thousand during the three months ended September 30, 2023 as compared to the three months ended June 30, 2023 due to higher average transportation rates, partially offset by lower crude oil transportation volume. The Company's weighted average transportation rate increased slightly from $1.47 for three months ended June 30, 2023 to $1.48 for the three months ended September 30, 2023, which contributed $76 thousand to the increase. Crude oil transportation volumes for the three months ended September 30, 2023 were 151,953 bpd as compared to 156,078 bpd for the prior quarter, which contributed a decrease of $330 thousand to the change. The decrease in crude oil transportation volume was primarily due to lower volumes on the Cardinal, SPB, and KLM pipelines, with higher volumes on the Southern California pipelines. Additionally, earned PLA increased $310 thousand for the three months ended September 30, 2023 as compared to the three months ended June 30, 2023, primarily due to slightly higher commodity prices. MoGas and Omega transportation and distribution revenue relies on fixed-payment contracts with our customers and provided $268 thousand of additional revenue during the three months ended September 30, 2023, compared to the three months ended June 30, 2023.
Pipeline loss allowance subsequent sales. Pipeline loss allowance subsequent sales, which represents the revenue on sale of crude oil inventory, decreased by $2.9 million during the three months ended September 30, 2023 as compared to the three months ended June 30, 2023. During the three months ended September 30, 2023 the Company sold 50,000 bbls of PLA at a realized price of $82 per bbl, compared to 91,000 bbls sold during the three months ended June 30, 2023 at a realized price of $77 per bbl. The lower sales volumes in the third quarter contributed $3.3 million to the decrease, partially offset by higher
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sales prices, which contributed an additional $410 thousand. The Company's second quarter sales volumes were generally higher than we would expect for a typical quarter due to the need to draw down unusually high inventory balances that existed prior to the second quarter. The Company would generally expect the sales volume experienced during the third quarter to be representative of a typical quarter.
Expenses.
Transportation and distribution. Transportation and distribution expenses increased by $1.1 million during the three months ended September 30, 2023 as compared to the three months ended June 30, 2023. The increase was primarily due to higher asset maintenance costs of $600 thousand, higher utility costs of $655 thousand, higher regulatory costs of $322 thousand, higher property taxes of $220 thousand and higher right-of-way costs of $171 thousand, partially offset by lower outside service costs of $448 thousand, lower labor and benefit costs of $325 thousand and lower inventory cost adjustments of $263 thousand.
Pipeline loss allowance subsequent sales cost of revenue. Pipeline loss allowance subsequent sales cost of revenue decreased by $3.2 million during the three months ended September 30, 2023 as compared to the three months ended June 30, 2023. During the three months ended September 30, 2023, the Company sold 50,000 bbls of PLA at a cost of $76 per bbl, compared to 91,000 bbls sold during the three months ended June 30, 2023 at a cost of $77 per bbl. The lower sales volumes in the third quarter contributed $3.1 million to the decrease and the lower cost contributed $123 thousand to the decrease.
General and administrative. General and administrative expenses decreased by $846 thousand during the three months ended September 30, 2023 as compared to the three months ended June 30, 2023.
Employee-related costs for the three months ended September 30, 2023 decreased by $334 thousand compared to the three months ended June 30, 2023, primarily due to lower contract labor costs associated with the completion of the reorganization of Crimson management, which began during the first quarter of 2023.
Professional services costs for the three months ended September 30, 2023 decreased by $266 thousand compared to the three months ended June 30, 2023, primarily due to lower costs associated with legal services, the MoGas and Omega asset sale and the Company's ongoing change of control application.
Other general costs for the three months ended September 30, 2023 decreased by $246 thousand compared to the three months ended June 30, 2023 due to decreases in various cost categories, primarily lease and office expenses.
Interest expense. Interest expense increased by $73 thousand during the three months ended September 30, 2023 as compared to the three months ended June 30, 2023, primarily due to higher interest rates.
Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022
Revenue.
Transportation and distribution. Transportation and distribution revenue decreased $2.9 million during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to lower crude oil transportation volume, and lower earned PLA, partially offset by higher average transportation rates. Crude oil transportation volumes for the nine months ended September 30, 2023 were 152,927 bpd as compared to 166,556 bpd for the nine months ended September 30, 2022, which contributed $5.5 million to the decrease. The decrease in crude oil transportation volume was primarily due to third-party operational issues that were alleviated during the first quarter of 2023. Those third-party operational issues altered the sourcing patterns of the refineries served by the Company beginning in the second quarter of 2022 and lasting through January of 2023. The weighted average transportation rate increased from $1.40 to $1.49 due to the impact of rate increases on all pipelines, offset by weighting of volumes transported on lower tariff pipelines. The increase in weighted average transportation rates offset the decrease in revenue by $4.2 million. Additionally, earned PLA decreased $1.6 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to lower commodity prices. MoGas and Omega transportation and distribution revenues rely on fixed-payment contracts with our customers and did not materially change during the referenced periods.
Pipeline loss allowance subsequent sales. Pipeline loss allowance subsequent sales, which represents the revenue on sale of crude oil inventory, increased $3.8 million during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 due to an increase in PLA sales volumes, offset by lower realized sales prices. Sales volumes for the nine months ended September 30, 2023, were 141,000 bbls compared to 71,000 bbls for the nine months ended September 30, 2022, which contributed $5.5 million positively to the change. Additionally, sales prices for the nine months ended September 30, 2023 were $79 per bbl, compared to $103 per bbl during the nine months ended September 30, 2022, which contributed $1.7 million negatively to the change.
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Expenses.
Transportation and Distribution. Transportation and distribution expense increased $8.3 million during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. The increase was primarily due to higher restructuring costs of $1.1 million, higher asset maintenance expense of $2.4 million, higher utilities costs of $1.3 million, higher regulatory compliance and non-recurring pipeline release costs of $1.3 million, higher outside service costs of $679 thousand and higher right-of-way costs of $313 thousand, partially offset by lower property taxes of $460 thousand.
Pipeline loss allowance subsequent sales cost of revenue. Pipeline loss allowance subsequent sales cost of revenue increased $4.8 million during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 due to an increase in PLA sales volumes, offset by lower cost of inventory. Sales volumes for the nine months ended September 30, 2023 were 141,000 bbls compared to 71,000 bbls for the nine months ended September 30, 2022, which contributed $5.4 million in higher costs to the change. Additionally, the cost of inventory for the nine months ended September 30, 2023 was $77 per bbl compared to $85 per bbl during the nine months ended September 30, 2022, which contributed $549 thousand in lower costs to the change.
General and Administrative. General and administrative expenses increased $4.7 million during the nine months ended September 30, 2023 as compared the nine months ended September 30, 2022.
Employee-related costs for the nine months ended September 30, 2023 increased $1.2 million compared to the nine months ended September 30, 2022, primarily due to higher management restructuring costs of $887 thousand and higher contract labor costs of $362 thousand.
Professional services costs for the nine months ended September 30, 2023 increased $3.1 million from the prior-year period, primarily due to higher costs associated with legal services, the MoGas and Omega asset sale and the Company's ongoing change of control application.
Other expenses for the nine months ended September 30, 2023 increased $320 thousand from the prior-year period. The increase in other expenses is due to various cost categories, including system and IT related items, office expenses and certain shared office expense reimbursements that Crimson received in 2022 but did not recur in 2023.
Goodwill impairment. Goodwill impairment expense decreased by $16.2 million during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.
Interest Expense. Interest expense increased $3.4 million during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to higher interest rates.
NON-GAAP FINANCIAL MEASURES
We use certain financial measures in this Report that are not recognized under GAAP. The non-GAAP financial measures used in this Report include Adjusted Net Income (Loss), CAD, and Adjusted EBITDA. These supplemental measures are used by our management team and are presented herein because we believe they help investors understand our business, performance and ability to earn and distribute cash to our stockholders, provide for debt repayments, provide for future capital expenditures and provide for repurchases or redemptions of our preferred stock.
We offer these measures to assist the users of our financial statements in assessing our operating performance under GAAP, but these measures are non-GAAP measures and should not be considered measures of liquidity, alternatives to net income (loss) or indicators of any other performance measure determined in accordance with GAAP. Our method of calculating these measures may be different from methods used by other companies and, accordingly, may not be comparable to similar measures as calculated by other companies. Investors should not rely on these measures as a substitute for any GAAP measure, including net income (loss), and cash flows from operating activities or revenues. Management compensates for the limitations of Adjusted Net Income (Loss), CAD, and Adjusted EBITDA as analytical tools by reviewing the comparable GAAP measures, understanding the differences between non-GAAP measures compared to (as applicable) operating income, net income (loss) and net cash provided by operating activities, and incorporating this knowledge into its decision-making processes. We believe that investors benefit from having access to the same financial measures that our management considers in evaluating our operating results.
Adjusted Net Loss and Cash Available for Distribution
We believe Adjusted Net Income (Loss) is an important performance measure of our profitability as compared to other midstream infrastructure owners and operators. Our presentation of Adjusted Net Income (Loss) for the current year periods represents net loss adjusted for gain on sale of equipment, transaction-related costs and restructuring costs. During the comparable periods of the prior year, our presentation of Adjusted Net Income (Loss) included adjustments for gain on sale of
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equipment, transaction-related costs, restructuring costs, and loss on impairment of goodwill. Adjusted Net Income (Loss) presented by other companies may not be comparable to our presentation, since each company may define these terms differently.
Management considers CAD an important metric for assessing capital discipline, cost efficiency and balance sheet strength. Although CAD is the metric used to assess our ability to make distributions, this measure should not be viewed as indicative of the actual amount of cash available for distributions or planned for distributions for a given period. Instead, CAD should be considered indicative of the amount of cash available for distributions after mandatory debt repayments and other general corporate purposes. Our presentation of CAD represents Adjusted Net Income (Loss) adjusted for depreciation and amortization, amortization of debt issuance costs, stock-based compensation, and deferred tax expense (benefit) less transaction-related costs, restructuring costs, maintenance capital expenditures, preferred dividend requirements and mandatory debt amortization.
Adjusted Net Income (Loss) and CAD should not be considered measures of liquidity and should not be considered alternatives to operating income, net income (loss), cash flows from operations or other indicators of performance determined in accordance with GAAP. The following tables present a reconciliation of Net Loss, as reported in the Consolidated Statements of Operations, to Adjusted Net Income (Loss) and CAD:
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | June 30, 2023 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||
| Net Loss | $ | (4,310,336) | $ | (3,167,350) | $ | (10,678,019) | $ | (8,966,821) | |||||||||||||||
| Add: | |||||||||||||||||||||||
| Loss on impairment of goodwill | — | — | — | 16,210,020 | |||||||||||||||||||
| Transaction costs | 995,147 | 1,857,826 | 3,348,552 | 926,485 | |||||||||||||||||||
| Restructuring costs | 223 | 323,777 | 2,007,777 | — | |||||||||||||||||||
| Less: | |||||||||||||||||||||||
| Gain on the sale of equipment | — | — | 1,074 | 39,678 | |||||||||||||||||||
| Adjusted Net Income (Loss), excluding special items | $ | (3,314,966) | $ | (985,747) | $ | (5,322,764) | $ | 8,130,006 | |||||||||||||||
| Add: | |||||||||||||||||||||||
| Depreciation and amortization | 3,351,238 | 3,237,526 | 10,620,391 | 11,997,781 | |||||||||||||||||||
| Amortization of debt issuance costs | 339,161 | 356,054 | 1,113,207 | 1,236,178 | |||||||||||||||||||
| Stock-based compensation | 110,869 | 102,718 | 203,213 | 384,383 | |||||||||||||||||||
| Deferred tax expense (benefit) | 160,408 | (934,704) | (785,891) | 94,604 | |||||||||||||||||||
| Less: | |||||||||||||||||||||||
| Transaction costs | 995,147 | 1,857,826 | 3,348,552 | 926,485 | |||||||||||||||||||
| Restructuring costs | 223 | 323,777 | 2,007,777 | — | |||||||||||||||||||
| Maintenance capital expenditures | 4,234,518 | 2,099,717 | 8,557,183 | 4,098,777 | |||||||||||||||||||
| Preferred dividend requirements - Series A | 2,388,130 | 2,388,130 | 7,164,390 | 7,164,390 | |||||||||||||||||||
| Preferred dividend requirements - Non-controlling interest | 809,212 | 809,212 | 2,427,636 | 2,427,636 | |||||||||||||||||||
| Mandatory debt amortization | 3,000,000 | 2,000,000 | 7,000,000 | 6,000,000 | |||||||||||||||||||
| Cash Available for Distribution (CAD) | $ | (10,780,520) | $ | (7,702,815) | $ | (24,677,382) | $ | 1,225,664 | |||||||||||||||
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The following tables reconcile net cash provided by operating activities, as reported in the Consolidated Statements of Cash Flow to CAD:
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | June 30, 2023 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||
| Net cash provided by operating activities | $ | 3,202,607 | $ | 5,735,036 | $ | 5,830,012 | $ | 26,998,258 | |||||||||||||||
| Changes in working capital | (3,551,267) | (6,140,792) | (5,358,185) | (6,081,791) | |||||||||||||||||||
| Maintenance capital expenditures | (4,234,518) | (2,099,717) | (8,557,183) | (4,098,777) | |||||||||||||||||||
| Preferred dividend requirements | (2,388,130) | (2,388,130) | (7,164,390) | (7,164,390) | |||||||||||||||||||
| Preferred dividend requirements - non-controlling interest | (809,212) | (809,212) | (2,427,636) | (2,427,636) | |||||||||||||||||||
| Mandatory debt amortization included in financing activities | (3,000,000) | (2,000,000) | (7,000,000) | (6,000,000) | |||||||||||||||||||
| Cash Available for Distribution (CAD) | $ | (10,780,520) | $ | (7,702,815) | $ | (24,677,382) | $ | 1,225,664 | |||||||||||||||
| Other Special Items: | |||||||||||||||||||||||
| Transaction costs | $ | 995,147 | $ | 1,857,826 | $ | 3,348,552 | $ | 926,485 | |||||||||||||||
| Restructuring costs | 223 | 323,777 | 2,007,777 | — | |||||||||||||||||||
| Other Cash Flow Information: | |||||||||||||||||||||||
| Net cash used in investing activities | $ | (5,470,176) | $ | (4,409,007) | $ | (13,369,204) | $ | (5,186,753) | |||||||||||||||
| Net cash used in financing activities | (828,969) | (331,528) | (1,048,328) | (12,703,440) | |||||||||||||||||||
Adjusted EBITDA
We believe the presentation of Adjusted EBITDA provides information useful to investors in assessing our financial condition and results of operations and that Adjusted EBITDA is a widely accepted financial indicator of a company's ability to incur and service debt, fund capital expenditures, and make dividends and distributions. Adjusted EBITDA is a supplemental financial measure that, along with other measures, can be used by management and external users of our consolidated financial statements, such as industry analysts, investors, and commercial banks, to assess the following:
•our operating performance as compared to other midstream infrastructure owners and operators, without regard to financing methods, capital structure, or historical cost basis;
•the ability of our assets to generate cash flow to make distributions; and
•the viability of acquisitions and capital expenditures and the returns on investment of various investment opportunities.
Our presentation of Adjusted EBITDA for the current-year periods represents net loss adjusted for items such as gain on the sale of equipment, transaction costs, restructuring costs, depreciation and amortization, stock-based compensation, income tax benefit and interest expense. During the comparable period of the prior year, our presentation of Adjusted EBITDA included adjustments for gain on the sale of equipment, transaction costs, restructuring costs, depreciation and amortization, stock-based compensation, income tax expense, interest expense and loss on impairment of goodwill. Adjusted EBITDA presented by other companies may not be comparable to our presentation, since each company may define these terms differently. Adjusted EBITDA should not be considered as a measure of liquidity and should not be considered as an alternative to operating income, net income or other indicators of performance determined in accordance with GAAP. The following tables present a reconciliation of Net Loss, as reported in the Consolidated Statements of Operations, to Adjusted EBITDA:
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| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | June 30, 2023 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||
| Net Loss | $ | (4,310,336) | $ | (3,167,350) | $ | (10,678,019) | $ | (8,966,821) | |||||||||||||||
| Add: | |||||||||||||||||||||||
| Loss on impairment of goodwill | — | — | — | 16,210,020 | |||||||||||||||||||
| Transaction costs | 995,147 | 1,857,826 | 3,348,552 | 926,485 | |||||||||||||||||||
| Restructuring costs | 223 | 323,777 | 2,007,777 | — | |||||||||||||||||||
| Depreciation and amortization | 3,351,238 | 3,237,526 | 10,620,391 | 11,997,781 | |||||||||||||||||||
| Stock-based compensation | 110,869 | 102,718 | 203,213 | 384,383 | |||||||||||||||||||
| Income tax expense (benefit), net | 162,844 | (932,079) | (773,754) | 437,712 | |||||||||||||||||||
| Interest expense, net | 4,499,316 | 4,426,351 | 13,330,232 | 9,972,969 | |||||||||||||||||||
| Less: | |||||||||||||||||||||||
| Gain on the sale of equipment | — | — | 1,074 | 39,678 | |||||||||||||||||||
| Adjusted EBITDA | $ | 4,809,301 | $ | 5,848,769 | $ | 18,057,318 | $ | 30,922,851 | |||||||||||||||
DIVIDENDS
We rely on cash flow generated by our portfolio of energy infrastructure real property assets to pay distributions to stockholders. Historically, we have paid dividends based on what we believe was the median long-term cash-generating ability of our assets, adjusted for special items. The primary sources of our stockholder distributions have historically included transportation and distribution revenue from our Crimson, MoGas and Omega Pipeline Systems.
Quarterly, we intend on distributing our CAD less appropriate reserves established at the discretion of our Board of Directors ("Board") which could include, but are not limited to:
•providing for the proper conduct of our business including reserves for future capital expenditures;
•providing for additional debt repayment beyond mandatory amortization;
•providing for repurchases or redemptions of any series of our preferred stock or securities convertible into preferred stock;
•compliance with applicable law or any loan agreement, security agreement, debt instrument or other agreement or obligation; or
•providing additional reserves as determined appropriate by the Board.
Deterioration in the expected cash flows from our Crimson Pipeline System has impacted our ability to fund distributions to stockholders and on February 6, 2023, we announced the suspension of all dividends due to a combination of declining volumes and increased costs in our California systems. There can be no assurances as to our ability to reinstitute dividend payments to stockholders in future periods or the timing or levels thereof. Our Board will continue to evaluate our dividend payments on a quarterly basis.
Distributions to common stockholders are recorded on the ex-dividend date and distributions to preferred stockholders are recorded when declared by our Board. The dividends on our Series A Preferred Stock are cumulative, and any accumulated unpaid dividends must be paid before resuming dividends to the common stockholders. The characterization of any distribution for federal income tax purposes will not be determined until after the end of the taxable year.
A REIT is generally required to distribute during the taxable year an amount equal to at least 90% of the REIT taxable income (determined under Code Section 857(b)(2), without regard to the deduction for dividends paid). We intend to adhere to this requirement in order to maintain our REIT status. The Board will continue to determine the amount, if any, of distributions that we expect to pay our stockholders. Dividend payouts may be affected by cash flow requirements and remain subject to other risks and uncertainties.
The Grier Members hold an economic interest in Crimson via the issuance of Crimson Class A-1, Class A-2 and Class A-3 Units at the closing of the Crimson Transaction. Upon CPUC approval, the Grier Members have the right to convert their Crimson Class A-1, Class A-2 and Class A-3 Units into our securities.
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During February 2023, the Board suspended dividends on all securities. Accordingly, the Crimson Class A-2 and Class A-3 Units will not be eligible for dividends. Dividends will accumulate in the amount of $0.4609375 quarterly, per depositary share, for our Series A Preferred Stock and the Crimson Class A-1 Units.
As of September 30, 2023, each of these securities are convertible as follows: the Crimson Class A-1 Units are convertible into depositary shares representing the Company's Series A Preferred Stock and the Crimson Class A-2 and Class A-3 Units are convertible into the Company's Class B Common Stock. However, prior to conversion, the Crimson Class A-1, Class A-2 and Class A-3 Units receive distributions as if they were the corresponding Company securities. For a description of the dividend rights, redemption rights, voting rights, and exchange and conversion rights of the Crimson Class A-1, Class A-2, and Class A-3 Units, please refer to Part IV, Item 15, Note 16 ("Stockholders' Equity") included in our 2022 Annual Report.
Class B Common Stock
The Class B Common Stock Articles Supplementary establish the terms of the Class B Common Stock, which are substantially similar to the Company’s Common Stock, including voting rights, except that the Class B Common Stock is subordinated to the Common Stock with respect to dividends and will automatically convert into Common Stock under certain circumstances. The Company does not intend to list the Class B Common Stock on any exchange.
Voting Rights. Class B Common Stock will vote together with the holders of Common Stock, voting as a single class, with respect to all matters on which holders of the Common Stock are entitled to vote. The Company may not authorize or issue any additional shares of Class B Common Stock beyond the number authorized in the Class B Common Stock Articles Supplementary without the affirmative vote of at least 66-2/3% of the outstanding shares of Class B Common Stock. Any amendment to the Company’s charter that would alter the rights of the Class B Common Stock must be approved by the affirmative vote of the majority of the outstanding Class B Common Stock.
Dividends. Subject to preferences that may apply to any shares of preferred stock outstanding at the time, holders of the Class B Common Stock are entitled to receive dividends to the extent authorized by the Company’s Board of Directors and declared by the Company pursuant to a formula based on the amount of dividends declared on the Company’s Common Stock. For each fiscal quarter ending June 30, 2021 through and including the fiscal quarter ending March 30, 2024, each share of Class B Common Stock will be entitled to receive dividends (the "Class B Common Stock Dividends"), subject to Board approval, equal to the quotient of (i) the difference of (A) CAD (a non-GAAP financial measure) for the most recently completed quarter and (B) 1.25 multiplied by the Common Stock Base Dividend, divided by (ii) shares of Class B Common Stock issued and outstanding multiplied by 1.25. In no event will the Class B Common Stock Dividend per share be greater than any dividends per share authorized by the Board of Directors and declared with respect to the Common Stock during the same quarter and no Class B Common Stock Dividend will accrue until after April 1, 2021. As is the case for Common Stock, Class B Common Stock Dividends are not cumulative.
Conversion. The shares of Class B Common Stock will convert to Common Stock on a one-for-one basis upon the first to occur of the following:
•the Board authorizes and the Company declares a quarterly dividend per share of outstanding Common Stock in excess of the then-applicable Common Stock Base Dividend;
•the issuance of additional shares of Common Stock other than in connection with: (i) any director or management compensation plan or equity award, (ii) the Company’s Dividend Reinvestment Plan, (iii) any conversion rights of the Company’s existing 5.875% Convertible Notes or Series A Preferred Stock, (iv) any exchange for fair value for the issuance of Common Stock (as determined by the Board), or (v) any stock split, reverse stock split, stock dividend or similar transaction in which the shares of Class B Common Stock share equally; or
•the Board authorizes and the Company declares a quarterly dividend per share to the Class B Common Stock equal to the then-applicable Common Stock Base Dividend for any four consecutive fiscal quarters beginning with the fiscal quarter ending June 30, 2022 through the fiscal quarter ending March 31, 2024.
To the extent conversion does not occur pursuant to the above, then the Class B Common Stock will convert to Common Stock on February 4, 2024 at a ratio equal to the quotient obtained by dividing (i) (A) the quotient of the then-applicable last twelve months CAD (a non-GAAP financial measure) divided by the product of (x) 1.25 and (y) four times (4x) the then-applicable Common Stock Base Dividend per share, less (B) the number of then-outstanding shares of Common Stock; by (ii) the number of then-outstanding shares of Class B Common Stock; provided, however, that the ratio shall not be less than 0.6800 shares of Common Stock per share of Class B Common Stock or greater than 1.000 shares of Common Stock per share of Class B Common Stock. As of September 30, 2023, the Company expects the conversion rate to be 0.6800 shares of Common Stock per share of Class B Common Stock.
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Dividend Declarations
On February 3, 2023, our Board of Directors suspended dividend payments on our Common Stock and Series A Preferred Stock. Our Series A Preferred Stock will accrue dividends during any period in which dividends are not paid. Any accrued Series A Preferred Stock dividends must be paid prior to the Company resuming common dividend payments. Based on the suspension of dividend payments to CorEnergy’s public equity holders, the Crimson A-2 and A-3 Units and CorEnergy’s Class B Common Stock will not receive dividends. During the three quarters of 2023, we accumulated $0.4609375 per depositary share, quarterly, for our Series A Preferred Stock, which will be paid upon declaration by the Board. As of September 30, 2023, the Company had accumulated $7.2 million in unpaid dividends.
Class A-1 Units Distribution
On February 3, 2023, the Company's Board of Directors suspended dividend payments on the Series A Preferred Stock. The preferred return on the Crimson A-1 Units are pari passu to the Series A Preferred Stock preferred return. As of September 30, 2023, the Company had $2.4 million in cumulative unpaid distributions related to the Crimson A-1 Units.
| Common Dividends | Preferred Dividends | Crimson Class A-1 Dividends | |||||||||||||||
| 2023 | |||||||||||||||||
| Third Quarter | $ | — | $ | — | $ | — | |||||||||||
| Second Quarter | — | — | — | ||||||||||||||
| First Quarter | — | — | — | ||||||||||||||
| 2022 | |||||||||||||||||
| Fourth Quarter | $ | 0.05 | $ | 0.4609375 | $ | 0.4609375 | |||||||||||
| Third Quarter | 0.05 | 0.4609375 | 0.4609375 | ||||||||||||||
| Second Quarter | 0.05 | 0.4609375 | 0.4609375 | ||||||||||||||
| First Quarter | 0.05 | 0.4609375 | 0.4609375 | ||||||||||||||
Crimson Class A-2 Units and Class A-3 Units Distribution
During 2022 and through the third quarter of 2023, the Board did not declare a dividend on the Class B Common Stock. Pursuant to the terms of Crimson's Third LLC Agreement, this determination by the Company's Board of Directors resulted in no distribution to the holders of Crimson's Class A-2 Units or Class A-3 Units.
SEASONALITY
We expect that Crimson will have stable revenues throughout the year. Maintenance activities can be performed at any time during the year, however, we may have certain quarters where maintenance expenditures are materially higher than other quarters in the year. Currently, our San Pablo Bay pipeline is operating in blended service, where heavy crude oil is mixed with lighter crude oil. Historically, however, it has also operated as a batched system, which includes a seasonal minimum volume. Such minimum volume is required because heavy crude oil must be heated to be transported via the pipeline, with the lowest allowed minimum volume typically occurring in the months from July to September and the highest allowed minimum volume typically occurring from December to March, with the actual effective periods dependent on the ground temperature. The historical average quarterly crude oil volumes for Crimson are provided in the table below.
| Crimson Midstream Holdings Average Crude Oil Volume for Quarter Ended (bpd): | San Pablo Bay | KLM | Southern California | Cardinal | Total (bpd): | |||||||||||||||||||||||||||
| March 31, 2022 | 87,815 | 11,594 | 48,341 | 27,966 | 175,716 | |||||||||||||||||||||||||||
| June 30, 2022 | 72,185 | 12,674 | 47,185 | 27,158 | 159,202 | |||||||||||||||||||||||||||
| September 30, 2022 | 96,464 | 18,658 | 45,711 | 3,915 | 164,748 | |||||||||||||||||||||||||||
| December 31, 2022 | 97,130 | 21,604 | 45,212 | 817 | 164,763 | |||||||||||||||||||||||||||
| March 31, 2023 | 76,800 | 13,234 | 46,554 | 14,150 | 150,738 | |||||||||||||||||||||||||||
| June 30, 2023 | 73,091 | 10,876 | 50,636 | 21,475 | 156,078 | |||||||||||||||||||||||||||
| September 30, 2023 | 71,200 | 7,509 | 52,750 | 20,494 | 151,953 | |||||||||||||||||||||||||||
The MoGas and Omega Pipeline Systems generally have stable revenues throughout the year and will complete necessary pipeline maintenance during the "non-heating" season, or quarters two and three. Therefore, operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.
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LIQUIDITY AND CAPITAL RESOURCES
Overview
At September 30, 2023, we had liquidity of $14.2 million, comprised of cash of $9.2 million plus revolver availability of $5.0 million. We use cash flows generated from MoGas and Omega operations and cash flows generated from our interest in Crimson's operations that are distributed to us to fund current obligations, projected working capital requirements, debt service payments and dividend payments. Distributions from MoGas, Omega and Crimson are subject to certain limitations as discussed under the "Crimson Credit Facility" below. The Company does not currently expect those restrictions to affect the ability of the Company to meet its cash obligations.
During the first quarter of 2023, the Company retained an advisor to lead a process for the sale of its MoGas and Omega pipeline assets. On May 25, 2023, we announced entry into a definitive agreement to sell the MoGas and Omega pipeline systems to Spire, Inc. for approximately $175.0 million in cash, subject to final working capital adjustments. Completion of the transaction remains subject to the expiration or termination of the waiting period under the HSR Act and the satisfaction or waiver of the other closing conditions specified in the definitive agreement. Although we currently expect to complete the sale around the end of the calendar year, there can be no assurance that we will complete the sale on this expected timeline or at all. We expect that the sale will generate sufficient net proceeds to repay our Crimson Credit Facility in full. We also expect that the remaining proceeds, combined with a new credit facility or other financing alternatives, will enable us to retire a material percentage of our outstanding 5.875% Convertible Notes prior to maturity, although no assurance can be given that the Company will be able to do so.
On September 13, 2023, we announced that we received a notice (the "Notice") from the NYSE indicating that we are no longer in compliance with Section 802.01C of the NYSE Listed Company Manual because the average closing price of our Common Stock was less than $1.00 per share over a consecutive 30 trading-day period. We notified the NYSE of our plans to resolve the stock price deficiency and return to compliance with the continued listing standard. We can regain compliance at any time within the six-month cure period following receipt of the Notice if, on the last trading day of any calendar month during the cure period, our Common Stock has a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month. We will closely monitor our Common Stock price during the period and will, if necessary, consider available alternatives within our control to resolve the stock price non-compliance. Our Common Stock will remain listed and traded on the NYSE during the six-month cure period, subject to our compliance with other NYSE continued listing standards.
Additionally, in order to maintain the NYSE listing of our Common Stock, the market capitalization of our Common Stock, including our Class B Common Stock and Class B common stock issuable upon the conversion of Class A-2 and A-3 units of Crimson, cannot be below $15.0 million for 30 consecutive trading days. This currently equates to a Common Stock share price of $0.55. The market price for our Common Stock has declined significantly. There can be no assurances that we will be able to maintain such listing or obtain an alternative listing on another exchange as required under the Indenture governing our 5.875% Convertible Notes.
If we are unable to maintain the listing of our Common Stock on the NYSE or obtain an alternative listing on another exchange required under the Indenture governing our 5.875% Convertible Notes, our failure to do so will constitute a "fundamental change" under the Indenture, in which case, we must make an offer to repurchase all of the outstanding 5.875% Convertible Notes at a price equal to the principal amount of such notes, plus any accrued and unpaid interest. We project that we will not have sufficient cash on hand or available liquidity to repurchase all of the outstanding 5.875% Convertible Notes in the event that we are required to do so. Our failure to make or complete the repurchase offer would result in an event of default under the Indenture. Any such default would have a material adverse impact on the Company's liquidity and capital resources.
Based on Management's current forecasts, and assuming a successful sale of the MoGas and Omega pipeline assets on our expected timeline and our ability to regain compliance with NYSE continued listing standards, we expect that future operating cash flows, together with current liquidity and proceeds from asset dispositions, will be sufficient to meet our ongoing working capital, operating requirements and debt service for at least the next 12 months. On February 6, 2023, the Company announced a suspension of dividends to further enhance liquidity to address near-term debt maturities and continue its focus on reducing total leverage. If the MoGas and Omega sale does not occur in early 2024, our operating cash flow may not be sufficient to service our debt instruments or comply with the covenants contained therein in 2024. If the Company is unable to extend the maturity date of the Crimson Credit Facility, or to repay or refinance it by May 3, 2024, or meet the covenants contained therein until such repayment or refinancing, the Company's ability to meet its obligations would be adversely affected. Failure to extend the maturity date or repay the debt prior to its contractual maturity or a default under the applicable debt agreements could result in the potential foreclosure on the collateral securing such debt.
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The foregoing events and conditions raise substantial doubt about our ability to continue as a going concern. However, our management believes it is probable the sale of MoGas and Omega will be successful and enable us to fully retire the Crimson Credit Facility before its contractual maturity and allow us to sufficiently service debt instruments and comply with the covenants contained therein in 2024, although no assurance can be given that we will be able to do so. Additionally, we believe it is probable that the sale of MoGas and Omega and other available options will allow us to regain compliance with the NYSE minimum listing standard and avoid delisting and the requirement to make an offer to repurchase the outstanding 5.875% Convertible Notes as described above, although no assurance can be given that we will be able to do so. As a result, we have concluded that management's plans are probable of being achieved to alleviate substantial doubt of our ability to continue as a going concern.
Long-term liquidity requirements consist of maintenance expenditures, debt maturities and capital requirements. We currently believe that we will be able to repay, extend, refinance or otherwise settle our debt maturities as the debt comes due and that we will be able to fund our remaining long-term liquidity requirements and commitments, as necessary. However, there can be no assurance that additional financing or capital will be available, or that terms will be acceptable or advantageous to us. Further, if our ability to access the capital markets is restricted, or if debt or equity capital were unavailable, or unavailable on favorable terms, or at all, our ability to fund acquisition opportunities or to comply with the REIT distribution rules could be adversely affected. We may also fund these liquidity requirements with the proceeds from asset dispositions, however, there can be no assurances that we will be able to consummate any such asset dispositions on terms acceptable or advantageous to us or at all.
Cash Flows - Operating, Investing, and Financing Activities
The following table presents our consolidated cash flows for the periods indicated below:
| For the Nine Months Ended | |||||||||||
| September 30, 2023 | September 30, 2022 | ||||||||||
| (Unaudited) | |||||||||||
| Net cash provided by (used in): | |||||||||||
| Operating activities | $ | 5,830,012 | $ | 26,998,258 | |||||||
| Investing activities | (13,369,204) | (5,186,753) | |||||||||
| Financing activities | (1,048,328) | (12,703,440) | |||||||||
| Net change in cash and cash equivalents | $ | (8,587,520) | $ | 9,108,065 | |||||||
Cash Flows from Operating Activities
Net cash flows provided by operating activities for the nine months ended September 30, 2023 were primarily attributable to $10.7 million in net loss, offset by (i) $5.4 million in working capital changes and (ii) $10.6 million in depreciation and amortization.
Net cash flows provided by operating activities for the nine months ended September 30, 2022 were primarily attributable to $9.0 million in net loss, offset by (i) $16.2 million loss on impairment of goodwill, (ii) $6.1 million in working capital changes and (iii) $13.2 million in depreciation and amortization.
Cash Flows from Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2023 was primarily attributable to the $13.5 million of cash utilized to acquire property and equipment.
Net cash used by investing activities for the nine months ended September 30, 2022 was primarily attributable to $7.8 million of cash utilized to acquire property and equipment, partially offset by $2.4 million in proceeds from reimbursable projects.
Cash Flows from Financing Activities
Net cash used in financing activities for the nine months ended September 30, 2023 was primarily attributable to advances on the Crimson Revolver of $11.0 million, offset by (i) payments on the revolver of $1.0 million, (ii) principal payments of $7.0 million on the Crimson Term Loan and (iii) payments on financing arrangements of $3.5 million.
Net cash used in financing activities for the nine months ended September 30, 2022 was primarily attributable to (i) $2.2 million of common dividends paid, partially offset by $601 thousand of reinvestment of dividends paid to common stockholders, (ii) $7.2 million of preferred stock dividends paid, (iii) $2.4 million of distributions paid to non-controlling interests, (iv) $9.0 million advances on the Crimson Revolver, offset by $4.0 million of payments on the Crimson Revolver, and (v) $6.0 million of principal payments on the Crimson secured credit facility.
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Cumulative Unpaid Dividends
As a result of the existing cumulative unpaid dividends on our Series A Preferred Stock of $7.2 million and the Crimson A-1 Units of $2.4 million, we are currently not eligible to register the offer and sale of securities on a Form S-3 registration statement or utilize our existing Form S-3 registration statements for any such offer or sale. This creates additional limitations on our ability to raise capital in the capital markets, potentially increasing our costs of raising capital in the future. We have been focused on improving operational efficiency and driving stable and increasing cash flows from operations, including by undertaking the sale of assets and completing a thorough review of our business and capital structure and evaluating a wide range of opportunities to further strengthen our balance sheet and financial flexibility.
Asset Maintenance Expense and Capital Expenditures
Crude oil pipeline operations require significant expenditures to maintain, expand, upgrade or enhance existing operations and to meet environmental and operational regulations. Expenditures on pipeline maintenance are either expensed as incurred or capitalized and depreciated. The expensed activities are included in operating expense while the capitalizable expenditures are shown as maintenance capital and deducted when calculating CAD (a non-GAAP financial measure). Examples of expensed activities include in-line pipeline inspections and tank integrity inspections. Examples of maintenance capital expenditures are those made to maintain the existing operating capacity of Crimson's assets and to extend their useful lives or other capital expenditures incurred in maintaining existing system volumes and related cash flows. In contrast, expansion capital expenditures are those made to acquire additional assets to grow Crimson's business, to expand and upgrade Crimson's systems and facilities and to construct or acquire new easements, systems or facilities.
The pipeline regulatory environment in California is one of the most stringent in the world, which generally results in additional operating and maintenance expenditures compared to other regions. The California regulators have increased their activity level in overseeing the pipeline activities in the state. This increased activity level has resulted in additional maintenance expenditures and may continue to increase in the future, but the additional specific financial impact is currently not known. We will continue to work closely with all regulators to ensure compliance with all rules and regulations, both new and existing.
In October 2015, the Governor of California signed the Oil Spill Response: Environmentally and Ecologically Sensitive Areas Bill ("AB-864") which requires new and existing pipelines located near environmentally and ecologically-sensitive areas connected to or located in the coastal zone to use best available technologies to reduce the amount of oil released in an oil spill to protect state waters and wildlife. The California Office of the State Fire Marshal has developed the regulations required by AB-864. The Company submitted recommendations for pipeline segment improvements in December 2021, which were subsequently accepted by the California Office of the State Fire Marshal in 2022. All expenditures are recoverable under the cost-of-service framework. The Company has begun the process of making the recommended modifications and the expenditures will continue into 2024. The Company has submitted a filing with the CPUC to implement a surcharge on existing tariffs to recover the costs associated with the regulation. However, at least one shipper has protested the filing so the surcharge cannot be implemented until the case is ruled on by the CPUC. The CPUC is expected to provide a ruling on the surcharge for AB-864 at the same time as the ruling on the 35% tariff increase on our Southern California pipeline, which is currently expected to occur in the fourth quarter 2023 or first quarter of 2024. This will result in the Company funding these expenses in advance of recovery by surcharge or tariff.
Crimson may incur substantial amounts of capital expenditures in certain periods in connection with large maintenance projects. In 2023, Crimson expects to incur asset maintenance expenses in a range of $8.0 million to $10.0 million and maintenance capital expenditures in a range of $10.0 million to $12.0 million.
| Maintenance Expenditures | ||||||||||||||
| Three Months Ended | Expense | Capital | ||||||||||||
| March 31, 2022 | $ | 744,509 | $ | 1,442,550 | ||||||||||
| June 30, 2022 | 1,443,368 | 1,475,433 | ||||||||||||
| September 30, 2022 | 1,860,100 | 1,180,794 | ||||||||||||
| December 31, 2022 | 2,541,223 | 3,184,699 | ||||||||||||
| March 31, 2023 | 1,138,957 | 2,222,948 | ||||||||||||
| June 30, 2023 | 2,364,554 | 2,099,717 | ||||||||||||
| September 30, 2023 | 2,963,641 | 4,234,518 | ||||||||||||
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Material Cash Requirements
The following table summarizes our material cash requirements and other obligations as of September 30, 2023:
| Notional Value | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||||||||||||
Crimson Term Loan(1) | $ | 59,000,000 | $ | 59,000,000 | $ | — | $ | — | $ | — | |||||||||||||||||||
Interest payments on Crimson Term Loan(2) | 3,597,627 | — | — | — | |||||||||||||||||||||||||
Crimson Revolver(1) | 45,000,000 | 45,000,000 | — | — | — | ||||||||||||||||||||||||
Interest payments on Crimson Revolver(2) | 3,046,925 | — | — | — | |||||||||||||||||||||||||
5.875% Convertible Notes(1) | 118,050,000 | — | 118,050,000 | — | — | ||||||||||||||||||||||||
Interest payments on 5.875% Convertible Notes(1) | 6,935,438 | 6,935,438 | — | — | |||||||||||||||||||||||||
Leases (3)(4) | 814,271 | 1,834,778 | 1,912,279 | 4,864,137 | |||||||||||||||||||||||||
Notes payable(5) | 472,500 | 463,750 | — | — | |||||||||||||||||||||||||
Series A Preferred Stock dividend requirements(6) | — | — | — | — | |||||||||||||||||||||||||
Distributions on Crimson Class A-1 Units(7) | — | — | — | — | |||||||||||||||||||||||||
| Totals | $ | 118,866,761 | $ | 127,283,966 | $ | 1,912,279 | $ | 4,864,137 | |||||||||||||||||||||
(1) See Part I, Item 1, Note 11 ("Debt"). | |||||||||||||||||||||||||||||
(2) Forecasted interest rate between 9% - 11%, See Part I, Item 1 Note 11 ("Debt"). | |||||||||||||||||||||||||||||
(3) See Part I, Item 1, Note 5 ("Leases"). | |||||||||||||||||||||||||||||
| (4) During 2022, Crimson entered into a new lease which commenced upon possession of the property during Q2 2023. No lease payments are due for the first year. | |||||||||||||||||||||||||||||
| (5) Notes payable is included in Accounts Payable and other accrued liabilities on the Consolidated Balance Sheet. | |||||||||||||||||||||||||||||
(6) During the first quarter of 2023, the Company suspended dividend payments on the Series A Preferred Stock, which will accrue dividends annually at $1.84375 per share. Any accumulated Series A Preferred Stock dividends must be paid prior to the Company resuming common dividend payments. As of September 30, 2023, the accumulated $7.2 million in unpaid dividends has not been included in this table as we cannot reasonably determine when or if we will reinstate those dividend payments. | |||||||||||||||||||||||||||||
(7) Based on the suspension of dividend payments on the Company's Series A Preferred Stock, the Crimson Class A-1 Units will not receive dividends. As of September 30, 2023, the Grier Members have an unpaid distribution of $2.4 million that has not been included in this table as we cannot reasonably determine when or if we will declare dividends on the Company's Series A Preferred Stock, such that the Crimson Class A-1 units may be eligible for dividends again. | |||||||||||||||||||||||||||||
Impact of Inflation and Rising Interest Rates
We have experienced significant increases in interest rates and the cost of energy, transportation, and distribution. The Company's effective interest rate on the Crimson Credit facility was approximately 5% for the nine months ended September 30, 2022 as compared to approximately 10% for the nine months ended September 30, 2023, and we expect the effective interest rate on the Crimson Credit Facility to range between 9.0% and 11.0% during the remainder of 2023. These inflationary trends, including increasing interest rates, have and may continue to have a material adverse impact on our business, financial condition and results of operations.
Capital Requirements
Capital spending for our business consists primarily of:
•Maintenance capital expenditures, which include costs required to maintain equipment reliability and safety and to address environmental and other regulatory requirements rather than to generate incremental CAD (a non-GAAP financial measure); and
•Expansion capital expenditures, which are undertaken primarily to generate incremental CAD (a non-GAAP financial measure) and include costs to acquire additional assets to grow our business and to expand or upgrade our existing facilities and to construct new assets, which we refer to collectively as organic growth projects. Organic growth projects include, for example, capital expenditures that increase storage or throughput volumes or develop pipeline connections to new supply sources.
During the nine months ended September 30, 2023, we spent $8.6 million on maintenance capital expenditures and we spent $1.7 million for our expansion capital projects.
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Revolving and Term Credit Facilities
Crimson Credit Facility
On February 4, 2021, in connection with the Crimson Transaction, Crimson Midstream Operating and Corridor MoGas, (collectively, the "Borrowers"), together with Crimson, MoGas Debt Holdco LLC, MoGas, CorEnergy Pipeline Company, LLC, United Property Systems, Crimson Pipeline, LLC and Cardinal Pipeline, L.P. (collectively, the "Guarantors") entered into the Crimson Credit Facility with the lenders from time to time party thereto and Wells Fargo Bank, National Association, as Administrative Agent for such lenders, Swingline Lender and Issuing Bank. The Crimson Credit Facility provides borrowing capacity of up to $155.0 million, consisting of: the $50.0 million Crimson Revolver, the $80.0 million Crimson Term Loan and an uncommitted incremental facility of $25.0 million. Upon closing of the Crimson Transaction, the Borrowers drew the $80.0 million Crimson Term Loan and $25.0 million on the Crimson Revolver. Subsequent to the initial closing, on March 25, 2021, Crimson contributed all of its equity interests in Crimson Midstream Services, LLC and Crimson Midstream I Corporation to Crimson Midstream Operating, and, effective as of May 4, 2021, such subsidiaries became additional Guarantors pursuant to the Amended and Restated Guaranty Agreement and parties to the Amended and Restated Security Agreement and (in the case of Crimson Midstream I Corporation) the Amended and Restated Pledge Agreement.
Outstanding balances under the facility are guaranteed by the Guarantors pursuant to the Amended and Restated Guaranty Agreement and secured by all assets of the Borrowers and Guarantors (including the equity in such parties), other than any assets regulated by the CPUC and other customarily excluded assets, pursuant to an Amended and Restated Pledge Agreement and an Amended and Restated Security Agreement. On September 14, 2022, the parties entered into the first amendment to the Amended and Restated Credit Agreement, which replaced the use of a LIBOR reference rate with SOFR. On March 6, 2023, the parties entered into the second amendment to the Amended and Restated Credit Agreement (the "Second Agreement"), which extended the maturity of the Crimson Credit Facility from February 4, 2024 to May 3, 2024 and amended the applicable total leverage ratio in the first two quarters of 2023 from 2.50 to 2.75. Additionally, the required quarterly amortization of the term loan was increased from $2.0 million to $3.0 million beginning in the third quarter of 2023. Pursuant to the Second Agreement, under certain circumstances, the stock and assets of the Company's Omega Gas Pipeline, LLC and Omega Gas Marketing subsidiaries must be pledged as collateral. Also, under certain circumstances, the proceeds from specified asset sales must be used to repay the term loan and revolving credit facility after which the borrowing availability under the revolving credit facility will be reduced to $30.0 million. Additionally, no distributions may be made from the co-borrowers to their parent until the proceeds of specified asset sales have been used to repay the loans and other financial conditions have been met. The Company's total leverage ratio of 2.80 for the second quarter of 2023 violated the 2.75 covenant requirement and the Company utilized an equity cure as allowed by the original terms of the Amended and Restated Credit Agreement to remedy the violation. On August 14, 2023, the parties entered into the third amendment to the Amended and Restated Credit Agreement (the "Third Agreement"), which amended the applicable total leverage ratio in the third and fourth quarters of 2023 from 2.50 to 3.75, which is anticipated to prevent any additional covenant violations before the completion of the sale of the MoGas and Omega assets around the end of the calendar year, although no such assurance can be given. Cash distributions to us from the Borrowers and co-borrowers are subject to certain restrictions, including without limitation, no default or event of default, compliance with financial covenants, minimum undrawn availability and available free cash flow. The Borrowers and their restricted subsidiaries and co-borrowers are also subject to certain additional affirmative and restrictive covenants customary for credit transactions of this type. The Crimson Credit Facility contains default and cross-default provisions (with applicable customary grace or cure periods) customary for transactions of this type. Upon the occurrence of an event of default, payment of all amounts outstanding under the Crimson Credit Facility may become immediately due and payable at the election of the Required Lenders (as defined in the Crimson Credit Facility).
The loans under the Crimson Credit Facility are scheduled to mature on May 3, 2024. The Crimson Term Loan requires quarterly payments of $2.0 million in arrears on the last business day of March, June, September and December, commencing on June 30, 2021 and increasing to $3.0 million per quarter beginning September 30, 2023. Subject to certain conditions, all loans made under the Credit Agreement, as amended, shall, at the option of the Borrowers, bear interest at either (a) Adjusted SOFR plus a spread of 325 to 450 basis points, or (b) a rate equal to the highest of (i) the prime rate established by the Administrative Agent, (ii) the federal funds rate plus 0.5%, or (iii) the one-month Adjusted SOFR rate plus 1.0%, plus a spread of 225 to 350 basis points. The applicable spread for each interest rate is based on the Total Leverage Ratio (as defined in the Crimson Credit Facility). As of September 30, 2023, the applicable interest rate for the Crimson Term Loan was 10.20%.
For a summary of the additional material terms of the Crimson Credit Facility, please refer to Part IV, Item 15, Note 14 ("Debt") included in our 2022 Annual Report, and Part I, Item 1, Note 11 ("Debt") included in this Report. We were in compliance with all financial and other covenants under the Crimson Credit Facility at September 30, 2023.
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5.875% Convertible Notes
On August 12, 2019, we completed a private placement offering of $120.0 million aggregate principal amount of 5.875% Convertible Notes to the initial purchasers of such notes for cash in reliance on an exemption from registration provided by Section 4(a)(2) of the Securities Act. The initial purchasers then resold the 5.875% Convertible Notes for cash equal to 100% of the aggregate principal amount thereof to qualified institutional buyers, as defined in Rule 144A under the Securities Act, in reliance on an exemption from registration provided by Rule 144A. The 5.875% Convertible Notes mature on August 15, 2025 and bear interest at a rate of 5.875% per annum, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2020.
Holders may convert all or any portion of their 5.875% Convertible Notes into shares of our Common Stock at their option at any time prior to the close of business on the business day immediately preceding the maturity date. The initial conversion rate for the 5.875% Convertible Notes is 20.0 shares of Common Stock per $1,000 principal amount of the 5.875% Convertible Notes, equivalent to an initial conversion price of $50.00 per share of our Common Stock. Such conversion rate will be subject to adjustment in certain events as specified in the Indenture.
The Indenture for the 5.875% Convertible Notes provides that if our Common Stock is not listed on the NYSE (or an alternative stock exchange specified in the Indenture), a "fundamental change" has occurred. Upon the occurrence of a fundamental change, we will be required to make an offer to repurchase the 5.875% Convertible Notes at a price equal to the principal amount of such notes, plus any accrued and unpaid interest. Our failure to make or complete the repurchase offer is a default under the Indenture.
The Indenture for the 5.875% Convertible Notes specifies events of default, including default by the Company or any of its subsidiaries with respect to any debt agreements under which there may be outstanding, or by which there may be secured or evidenced, any debt in excess of $25.0 million in the aggregate of the Company and/or any such subsidiary, resulting in such indebtedness becoming or being declared due and payable prior to its stated maturity.
Refer to Part IV, Item 15, Note 14 ("Debt") included in our 2022 Annual Report and Part I, Item 1, Note 11 ("Debt") included in this Report for additional information concerning the 5.875% Convertible Notes. We were in compliance with all financial and other covenants under the Indenture governing the 5.875% Convertible Notes at September 30, 2023.
Shelf Registration Statements
On October 30, 2018, we registered 1,000,000 shares of Common Stock for issuance under our dividend reinvestment plan ("DRIP") pursuant to a separate shelf registration statement filed with the SEC. As of September 30, 2023, we had issued 386,379 shares of Common Stock under our DRIP pursuant to the shelf resulting in remaining availability of approximately 613,621 shares of Common Stock.
On November 17, 2021, we had a new shelf registration statement declared effective by the SEC, which replaced the previously filed shelf registration statement, pursuant to which we may publicly offer additional debt or equity securities with an aggregate offering price of up to $600.0 million.
On September 16, 2021, we had a resale shelf registration statement declared effective by the SEC, pursuant to which it registered the following securities that were issued in connection with the Internalization transaction: 1,837,607 shares of Common Stock (including both (i) 1,153,846 shares of Common Stock issued at the closing of the Internalization transaction and (ii) up to 683,761 additional shares of Common Stock which may be issuable upon the conversion of outstanding shares of our unlisted Class B Common Stock issued at the closing of the Internalization transaction) and 170,213 depositary shares each representing 1/100th fractional interest of a share of Series A Preferred Stock, issued at the closing of the Internalization transaction.
As a result of the existing cumulative unpaid dividends on the Company's Series A Preferred Stock, the Company is currently not eligible to register the offer and sale of securities on a Form S-3 registration statement or utilize its existing Form S-3 registration statements for any such offer or sale.
Liquidity and Capitalization
Our principal investing activities are acquiring and financing assets within the U.S. energy infrastructure sector. These investing activities have often been financed from the proceeds of our public equity and debt offerings, as well as our credit facilities mentioned above. We have also expanded our business development efforts to include other REIT-qualifying revenue sources. Continued growth of our asset portfolio will depend in part on our continued ability to access funds through additional borrowings and securities offerings. The availability and terms of any such financing will depend upon market and other conditions, as well as our compliance with debt covenants in our credit facilities. Assuming we complete the MoGas and
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Omega sale on our expected timeline and our ability to regain compliance with NYSE continued listing standards, we currently believe that we will be able to repay, extend, refinance or otherwise settle our debt maturities as the debt comes due as well as fund our planned investments, as necessary. However, there can be no assurance that additional financing or capital will be available, or that terms will be acceptable or advantageous to us. Additionally, our liquidity and capitalization may be impacted by the optional redemption of the Series A Preferred Stock. The depositary shares are currently eligible to be redeemed, at our option, in whole or in part, at the $25.00 liquidation preference plus all accrued and unpaid dividends to, but not including, the date of redemption.
The following is our liquidity and capitalization as of September 30, 2023 and December 31, 2022:
| Liquidity and Capitalization | |||||||||||
| September 30, 2023 | December 31, 2022 | ||||||||||
| Cash and cash equivalents | $ | 9,242,962 | $ | 17,830,482 | |||||||
| Revolver availability | $ | 5,000,000 | $ | 15,000,000 | |||||||
| Revolving credit facility | $ | 45,000,000 | $ | 35,000,000 | |||||||
Long-term debt (including current maturities)(1) | 175,532,838 | 181,657,983 | |||||||||
| Stockholders' equity: | |||||||||||
Series A Cumulative Redeemable Preferred Stock 7.375%, $0.001 par value(2) | 129,525,675 | 129,525,675 | |||||||||
| Common Stock, non-convertible, $0.001 par value | 15,354 | 15,254 | |||||||||
| Class B Common Stock, $0.001 par value | 684 | 684 | |||||||||
| Additional paid-in capital | 327,183,361 | 327,016,573 | |||||||||
| Retained deficit | (346,940,752) | (333,785,097) | |||||||||
| Non-controlling interest | 119,321,064 | 116,893,428 | |||||||||
| Total CorEnergy Equity | $ | 229,105,386 | $ | 239,666,517 | |||||||
| Total CorEnergy Capitalization | $ | 449,638,224 | $ | 456,324,500 | |||||||
| (1) Long-term debt is presented net of discount and deferred financing costs. | |||||||||||
(2) Excludes $7.2 million of cumulative unpaid dividends related to the Series A Preferred Stock. The table also excludes $2.4 million of cumulative unpaid dividends related to the Crimson A-1 Units. | |||||||||||
The above table does not give effect to the conversion of the non-controlling interest, representing the Crimson Class A-1, Class A-2, and Class A-3 Units, into our securities. Such conversion is subject to CPUC approval and will be elective by the holder(s) of the non-controlling interest.
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| Prospective Capitalization Table | |||||||||||||||||
| Adjustments | Prospective for Non-Controlling Interest Reorganization and Class B Conversion | ||||||||||||||||
September 30, 2023 Actual(1) | Non-Controlling Interest Reorganization and Class B Conversion(2)(3) | ||||||||||||||||
| Cash and Cash Equivalents | $ | 9,242,962 | $ | — | $ | 9,242,962 | |||||||||||
| Debt | |||||||||||||||||
| Revolving Credit Facility | $ | 45,000,000 | $ | — | $ | 45,000,000 | |||||||||||
Long-Term Debt (including current maturities)(4) | 175,532,838 | — | 175,532,838 | ||||||||||||||
| Total Debt | $ | 220,532,838 | $ | — | $ | 220,532,838 | |||||||||||
| Stockholders' Equity | |||||||||||||||||
Preferred Stock | |||||||||||||||||
| Series A Preferred Stock | $ | 129,525,675 | $ | 39,325,330 | $ | 168,851,005 | |||||||||||
| Total | $ | 129,525,675 | $ | 39,325,330 | $ | 168,851,005 | |||||||||||
| Common Stock | $ | 15,354 | $ | 8,089 | $ | 23,443 | |||||||||||
| Class B Common Stock | 684 | (684) | — | ||||||||||||||
| Additional Paid-In Capital | 327,183,361 | 71,457,379 | 398,640,740 | ||||||||||||||
| Retained Deficit | (346,940,752) | 8,530,950 | (338,409,802) | ||||||||||||||
| Total Equity to Common Shareholders | $ | (19,741,353) | $ | 79,995,734 | $ | 60,254,381 | |||||||||||
Non-controlling interest(4) | 119,321,064 | (119,321,064) | — | ||||||||||||||
| Total Equity | $ | 229,105,386 | $ | — | $ | 229,105,386 | |||||||||||
| Total Capitalization | $ | 449,638,224 | $ | — | $ | 449,638,224 | |||||||||||
| Shares Outstanding | |||||||||||||||||
| Common Stock | 15,353,833 | 8,089,321 | 23,443,154 | ||||||||||||||
| Class B Common Stock | 683,761 | (683,761) | — | ||||||||||||||
| Total Shares Outstanding | 16,037,594 | 7,405,560 | 23,443,154 | ||||||||||||||
| Book Value of Outstanding Shares | $ | (1.23) | $ | 2.57 | |||||||||||||
| (1) The non-controlling interest reflects the Grier Members' equity consideration for the Class A-1, Class A-2 and Class A-3 Units representing the equity ownership interest in Crimson. Subject to CPUC regulatory approval, these units are convertible into certain CorEnergy securities, at the option of the holder, as illustrated in the prospective adjustments above. | |||||||||||||||||
(2) The prospective adjustments reflect the Grier Members' exchange of the non-controlling interest presently represented by their Class A-1, Class A-2 and Class A-3 Units into depositary shares representing Series A Preferred Stock for the Class A-1 Units and Class B Common Stock both Class A-2 and Class A-3 Units. Such exchanges are subject to receiving CPUC approval. Further, we do not expect the holders to exercise their exchange rights all at once due to the income tax consequences arising from such exchanges. We cannot predict when the holders will elect to exchange or if they will elect to exchange at all. Refer to Part I, Item 1, Note 12 ("Stockholders' Equity") for further details on the non-controlling interest. | |||||||||||||||||
(3) The prospective adjustments also reflect the conversion of the Class B Common Stock into Common stock at the lower 0.68:1.00 ratio. The Crimson Class A-2 and Class A-3 Units were initially recorded in non-controlling interest at a fair value of $77.0 million, which assumed a 1:1 conversion ratio and would represent an initial fair value of $53.0 million assuming the lower 0.68:1.00 conversion ratio. | |||||||||||||||||
| (4) Long-term debt is presented net of discount and deferred financing costs. | |||||||||||||||||
CRITICAL ACCOUNTING ESTIMATES
The financial statements included in this Report are based on the selection and application of critical accounting policies, which require management to make significant estimates and assumptions. Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management's most difficult, complex, or subjective judgments. The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, recognition of income, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates.
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A discussion of our critical accounting estimates is presented under the heading "Critical Accounting Estimates" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2022 Annual Report.
Impairment of Long-Lived Assets
We assess our long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Factors that may indicate potential impairment include, but are not limited to, significant underperformance relative to the historical or projected future operating results or a significant negative industry or economic trend. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to the future undiscounted cash flows expected to be generated by that asset. If impairment is indicated, a loss is recognized for any excess of the carrying value over the estimated fair value of the asset. The fair value is estimated based on the discounted future cash flows or comparable market values, if available. As of September 30, 2023, we performed a recoverability assessment for impairment of our crude oil pipeline asset groups and concluded that the asset groups were recoverable based on our projection of undiscounted cash flows over the remaining useful life and thus the assets were not impaired and no loss was recorded during the three and nine months ended September 30, 2023. We utilized certain rate assumptions that are subject to CPUC approval or rate negotiations for each of our asset groups and tested for recoverability with such rates. In the event the actual rate changes are not consistent with the assumptions utilized, the asset groups may be subject to impairment in future periods.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our business activities contain elements of market risk. Debt used to finance our acquisitions may be based on floating or fixed rates. As of September 30, 2023, we had debt with an outstanding balance of $177.1 million, excluding the Crimson Revolver, comprised of $59.0 million associated with the Crimson Term Loan and $118.1 million associated with the 5.875% Convertible Notes. Current maturities under the Crimson Credit Facility amount to $104.0 million related to the Crimson Term Loan and Crimson Revolver. As of September 30, 2023, we had $45.0 million in borrowings under our Crimson Revolver.
Borrowings under the Crimson Credit Facility are variable-rate based on either (a) SOFR pricing spread or (b) a rate equal to the highest of (i) the prime rate, (ii) the federal funds rate plus 0.5%, or (iii) the one-month Adjusted SOFR rate plus 1.0%, plus a pricing spread. The applicable spread for each interest rate is redetermined quarterly based on the Total Leverage Ratio (as defined in the Crimson Credit Facility). Changes in interest rates can cause interest charges to fluctuate on our variable rate debt. A 100 basis point increase or decrease in current SOFR rates would have resulted in a current interest rate of 11.20% or 9.20%, respectively, for the Crimson Credit Facility. Under the Crimson Credit Facility, a 100 basis point increase or decrease in the current SOFR rate would have resulted in an approximately $763 thousand increase or decrease in interest expense for the nine months ended September 30, 2023.
At Crimson, we are exposed to limited market risk associated with fluctuating commodity prices. With the exception of buy/sell arrangements on some of Crimson's pipelines and the retained PLA oil, Crimson does not take ownership of the crude oil that it transports or stores for its customers, and it does not engage in the trading of any commodities. We therefore have limited direct exposure to risks associated with fluctuating commodity prices.
Certain of Crimson's transportation agreements and tariffs for crude oil shipments also include a PLA, as discussed above. As is common in the pipeline transportation industry, Crimson earns a small percentage of the crude oil transported, deemed earned PLA inventory, which it can then sell. The realized PLA volume earned and available for sale is net of differences in measurement and actual volumes gained or lost. This allowance revenue is subject to more volatility than transportation revenue, as it is directly dependent on Crimson's measurement capability and commodity prices. As a result, the income Crimson realizes under its loss allowance provisions will increase or decrease as a result of changes in the mix of product transported, measurement accuracy and underlying commodity prices. As of September 30, 2023, Crimson did not have any open hedging agreements to mitigate its exposure to decreases in commodity prices through its loss allowances; however, it has previously entered into such agreements and may do so in the future.
We consider the management of risk essential to conducting our businesses. Accordingly, our risk management systems and procedures are designed to identify and analyze our risks, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs.
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (our principal executive and principal financial officers, respectively), we have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, as of the end of the period covered by
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this Report. Based on that evaluation, these officers concluded that our disclosure controls and procedures were not effective as of September 30, 2023 because the material weakness discussed below under “Previously Reported Material Weakness” that existed as of December 31, 2022 had not been remediated by the end of the period covered by this Report. This material weakness in the Company’s internal control over financial reporting and the Company’s remediation efforts are described below. Notwithstanding the identified material weakness, management believes that the unaudited consolidated financial statements included in this Report present fairly, in all material respects, our financial position, results of operations, and cash flows as of and for the periods presented in accordance with U.S. GAAP.
Previously Reported Material Weakness
As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, management concluded that, as of December 31, 2022, the Company’s internal control over financial reporting included a material weakness related to the operation of our controls within the financial statement closing process associated with the review and approval of the financial statements. Specifically, the Company's application of the accounting treatment associated with non-routine complex transactions and the classification and presentation of certain accounts and disclosures in the consolidated financial statements were not appropriately evaluated and implemented. This material weakness had not been fully remediated by the end of the period covered by this Report.
Remediation Considerations related to Material Weakness
Management has implemented new processes and controls over financial reporting that will identify non-routine complex transactions during the review process and ensure appropriate evaluation and accounting treatment application. We will not be able to fully remediate this material weakness until these steps have been completed and have been operating effectively for a sufficient period of time. While we believe that these efforts will improve our internal control over financial reporting, the implementation of our remediation is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles.
We believe we are making progress toward achieving the effectiveness of our internal controls and disclosure controls. The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate the material weaknesses in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. We may also conclude that additional measures may be required to remediate the material weaknesses in our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
We are taking actions to remediate the material weaknesses relating to our internal control over financial reporting, as described above. Except as otherwise described herein, there was no change in our internal control over financial reporting that occurred during the period covered by this Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth under the heading "Crimson Legal Proceedings" in Note 9 ("Commitments And Contingencies") to our consolidated financial statements included in Part I of this Report is incorporated by reference into this Item 1.
ITEM 1A. RISK FACTORS
Part I, Item 1A, "Risk Factors" in our 2022 Annual Report sets forth information relating to important risks and uncertainties that could materially adversely affect our business, financial condition, or operating results. Those risk factors continue to be relevant to an understanding of our business, financial condition, and operating results for the quarter ended September 30, 2023. In addition, those risk factors are supplemented by the additional risk factor below.
We are currently out of compliance with the NYSE minimum share price requirement and are at risk of the NYSE delisting our Common Stock, which could negatively affect our Company, the price of our Common Stock and our stockholders' ability to sell our Common Stock and may lead to potential events of default on existing debt instruments.
On September 12, 2023, we received a notice (the "Notice") from the NYSE indicating that we are no longer in compliance with Section 802.01C of the NYSE Listed Company Manual because the average closing price of our Common Stock was less than $1.00 per share over a consecutive 30 trading-day period. We notified the NYSE of our plans to resolve the stock price deficiency and return to compliance with the continued listing standard. We can regain compliance at any time within the six-month cure period following receipt of the Notice if, on the last trading day of any calendar month during the cure period, our Common Stock has a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month. We are closely monitoring our Common Stock price during the period and will, if necessary, consider available alternatives to resolve the stock price non-compliance. While we are working to cure this deficiency and remain in compliance with this continued listing standard, there can be no assurance that we will be able to cure this deficiency or if we will cease to comply with another continued listing standard of the NYSE.
Additionally, our Common Stock could also be delisted if the market capitalization of our Common Stock, including our Class B Common Stock and Class B Common Stock issuable upon the conversion of Class A-2 and A-3 units of Crimson, falls below $15.0 million for 30 consecutive trading days, in which case we would not have an opportunity to cure the deficiency, our common stock would be suspended from trading on the NYSE immediately, and the NYSE would begin the process to delist our Common Stock, subject to our right to appeal under NYSE rules. We cannot assure you that any appeal we undertake in these or other circumstances will be successful.
A delisting of our Common Stock, either as a result of a failure to regain compliance with the NYSE's minimum share price requirement or our failure to satisfy other qualitative or quantitative standards for continued listing on the NYSE, could negatively impact us by, among other things, reducing the liquidity and market price of our Common Stock, reducing the number of investors willing to hold or acquire our Common Stock, and limiting our ability to issue additional securities or obtain financing in the future. In addition, if we are unable to maintain the listing of our Common Stock on the NYSE or obtain an alternative listing on another exchange required under the Indenture governing our 5.875% Convertible Notes, our failure to do so will constitute a "fundamental change" under the Indenture, in which case, we must make an offer to repurchase all of the outstanding 5.875% Convertible Notes at a price equal to the principal amount of such notes, plus any accrued and unpaid interest. There can be no assurance we would have sufficient funds available to repurchase the 5.875% Convertible Notes if required to do so.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Dividends
A REIT is generally required to distribute during the taxable year an amount equal to at least 90.0% of the REIT taxable income (determined under Code section 857(b)(2), without regard to the deduction for dividends paid). We intend to adhere to this requirement in order to maintain our REIT status. The Board will continue to determine the amount of any distribution that we expect to pay our stockholders. Dividend payouts may be affected by cash flow requirements, including cash used to make distributions to outstanding Class A-1, Class A-2, and Class A-3 Units of Crimson, and remain subject to other risks and uncertainties, as discussed under the heading "Dividends" in Part I, Item 2 of this Report. Further, the terms of our Crimson Credit Facility provide that cash distributions to us from the Borrowers are subject to certain restrictions, including without limitation, no default or event of default, compliance with financial covenants, minimum undrawn availability and available free cash flow.
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We did not sell any securities during the quarter ended September 30, 2023 that were not registered under the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The information set forth under the heading "Dividends" in Item 2 of Part I of this Report is incorporated by reference into this Item 3.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
There were no reportable events during the quarter ended September 30, 2023.
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ITEM 6. EXHIBITS
| Exhibit No. | Description of Document | |||||||||||||
31.1* | ||||||||||||||
31.2* | ||||||||||||||
32.1** | ||||||||||||||
| 101** | The following materials from CorEnergy Infrastructure Trust, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements. | |||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||||||||
| * | Filed herewith. | |||||||||||||
| ** | Furnished herewith. | |||||||||||||
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CORENERGY INFRASTRUCTURE TRUST, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CORENERGY INFRASTRUCTURE TRUST, INC. | ||||||||
| (Registrant) | ||||||||
| By: | /s/ Robert L Waldron | |||||||
| Robert L Waldron | ||||||||
| Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
| November 7, 2023 | ||||||||
| By: | /s/ David J. Schulte | |||||||
| David J. Schulte | ||||||||
| Chairman and Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
| November 7, 2023 | ||||||||
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