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Long Term Water Assets
12 Months Ended
Dec. 31, 2015
Long Term Water Assets [Abstract]  
Long Term Water Assets
LONG-TERM WATER ASSETS
Long-term assets consist of water and water contracts held for future use or sale. The water is held at cost which includes the price paid for the water and the cost to pump and deliver the water from the California aqueduct into the water bank. Water is currently held in a water bank on Company land in southern Kern County. Company banked water costs also include costs related to the right to receive additional acre feet of water in the future from the Antelope Valley East Kern Water Agency, or AVEK. The Company has also banked water within an AVEK owned water bank.
In recent years we have also been purchasing water for our future use or sale. In 2008 we purchased 8,393 acre-feet of transferable water and in 2009 we purchased an additional 6,393 acre-feet of transferable water, all of which is currently held on our behalf by AVEK. We also have secured State Water Project, or SWP, entitlement under long-term SWP water contracts within the Tulare Lake Basin Water Storage District and the Dudley-Ridge Water District, totaling 3,444 acre-feet of SWP entitlement annually, subject to SWP allocations. These contracts extend through 2035 and now have been transferred to AVEK for our use in the Antelope Valley. On November 6, 2013, the Company acquired from DMB Pacific, or DMB, a contract to purchase water that obligates the Company to purchase 6,693 acre feet of water each year from the Nickel Family, LLC, or Nickel, a California limited liability company that is located in Kern County. The aggregate purchase price was approximately $18,700,000 and was paid one-half in cash and one-half in shares of Company Common Stock. The number of shares of Common Stock delivered was determined based on the volume weighted average price of Common Stock for the ten trading days that ended two days prior to closing, which calculated to be 251,876 shares of Common Stock.
This Nickel water purchase is similar to other transactions the Company has completed over the last several years as the Company has been building its water assets for internal needs as well as for investment purposes due to the limited water supply within California.
The initial term of the water purchase agreement with Nickel runs through 2044 and includes a Company option to extend the contract for an additional 35 years. The purchase cost of water in 2015 was $675 per acre-foot. Purchase costs in 2016 and beyond are subject to annual cost increases based on the greater of the consumer price index and 3%, resulting in a 2016 purchase cost of $695 per acre-foot.
The water purchased under the contract with Nickel will ultimately be used in the development of the Company’s land for commercial/industrial development, residential development, and farming. Interim uses may include the sale of portions of this water to third party users on an annual basis until this water is fully allocated to Company uses, as just described.
These contracts are being amortized using the straight line method over that period. Annual amortization for the next five years will be $1,351,000 per year.
In 2015, we sold 7,922 acre feet of water totaling $10,165,000 with a cost of $5,483,000, which cost is recorded in the mineral resources segment on the Consolidated Statements of Operations.
Water contracts with the Wheeler Ridge Maricopa Water Storage District, or WRMWSD, and the Tejon-Castac Water District, or TCWD, are also in place, but were entered into with each district at inception of the contract and not purchased later from third parties, and do not have a related financial value on the books of the Company. Therefore there is no amortization expense related to these contracts. Water assets consist of the following:
(in acre feet, unaudited)
December 31, 2015
 
December 31, 2014
Banked water and water for future delivery
 
 
 
   AVEK water bank
13,033

 
13,033

   Company water bank
8,700

 
8,700

   AVEK water for future delivery
2,362

 
2,362

Total Company and AVEK banked water
24,095

 
24,095

   Transferable water *
14,786

 
15,229

   Water Contracts
10,137

 
10,137

Total purchased water - third parties
49,018

 
49,461

   WRMWSD - Contracts with Company
15,547

 
15,547

   TCWD - Contracts with Company
5,749

 
5,749

   TCWD - Banked water contracted to Company
34,496

 
38,401

Total purchased and contracted water sources in acre feet
104,810

 
109,158

*14,786 acre-feet of transferable water with AVEK will be returned to the Company at a 1.5 to 1 factor giving the Company use of a total of 22,179 feet.
($ in thousands)
December 31, 2015
 
December 31, 2014
Banked water and water for future delivery
$
4,779

 
$
4,779

Transferable water
9,117

 
9,309

Water Contracts
31,261

 
32,612

Total long-term assets
45,157

 
46,700

less: Current portion
(1,351
)
 
(1,351
)
 
$
43,806

 
$
45,349



The Company also has an agreement to sell 500 acre-feet of water to a local water district during the first quarter of 2016.

On August 6, 2015, Tejon Ranchcorp, or Ranchcorp, a wholly-owned subsidiary of Tejon Ranch Co., entered into a Water Supply Agreement with Pastoria Energy Facility, L.L.C., or PEF. PEF is the current lessee under the power plant lease. Pursuant to the Water Supply Agreement, on January 1, 2016, PEF may purchase from Ranchcorp up to 2,000 acre-feet of water and from January 1, 2017 through July 31, 2030, PEF may purchase from Ranchcorp up to 3,500 acre-feet of water per year, with an option to extend the term. PEF is under no obligation to purchase water from Ranchcorp in any year, but is required to pay Ranchcorp an annual option payment equal to 30% of the maximum annual payment. The price of the water under the Water Supply Agreement is $1,025 per acre foot of annual water, subject to 3% annual increases commencing January 1, 2017. The Water Supply Agreement contains other customary terms and conditions, including representations and warranties, which are typical for agreements of this type. The Company's commitments to sell water can be met through current water assets.