INVESTMENTS IN WATER ASSETS

Tangible Water Assets

Tangible water assets include water assets held for future use within our real estate developments and farming. Tangible water is held at cost, which includes the price paid for the water and the cost incurred to pump and deliver the water. A portion of our water is currently held in a water bank on Company land in southern Kern County. 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 and with TCWD.

We have also purchased water for future company uses or in certain circumstances, 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, the remaining portion of which is held on our behalf by AVEK under an agreement where AVEK will return this water to us at a 1.5 to 1 factor. To date, at the 1.5 to 1 factor, 11,235 acre-feet (7,490 X 1.5) of water has been returned and was placed in our Company water bank.

The costs assigned to tangible water assets were as follows ($ in thousands):



	March 31, 2017		December 31, 2016
Banked water and water for future delivery	$	5,025	$	4,779
Transferable water	13,105		9,075
Total tangible water	$	18,130	$	13,854

Intangible Water Assets

The Company's carrying amounts of its intangible water assets were as follows: ($ in thousands):



	March 31, 2017					December 31, 2016
	Costs		Accumulated Depreciation			Costs		Accumulated Depreciation
Dudley Ridge water rights	$	12,203	$	(3,206	)	$	12,203	$	(2,895	)
Nickel water rights	18,740		(2,195		)	18,740		(2,218		)
Tulare Lake Basin water rights	5,857		(1,827		)	5,857		(1,777		)
	$	36,800	$	(7,228	)	$	36,800	$	(6,890	)
Net intangible water assets	29,572					29,910
Total tangible water assets	18,130					13,854
Net investments in water assets	$	47,702				$	43,764

We have secured State Water Project, or SWP, entitlement under long-term SWP water contracts within the Tulare Lake Basin Water Storage District, or TLBWSD, and the Dudley-Ridge Water District, or DRWD, totaling 3,444 acre-feet of SWP entitlement annually, subject to annual SWP allocations. These contracts extend through 2035 and now have been transferred to AVEK for our use in the Antelope Valley. In 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 initial term of the water purchase agreement with Nickel runs to 2044 and includes a Company option to extend the contract for an additional 35 years. Purchase costs in 2017 were $716 per acre-foot. For future years, the purchase cost is subject to annual increases based on the greater of the consumer price index or 3%.

The water purchased above is expected to 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.

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 carrying cost on the books of the Company. Therefore, there is no amortization expense related to these contracts. These contracts are also subject to annual SWP allocations.

Water assets consist of the following:



(in acre feet, unaudited)	March 31, 2017	December 31, 2016
Tangible water assets
Banked water and water for future delivery
AVEK water bank	13,033	13,033
Company water bank	22,117	17,287
AVEK water for future delivery	5,316	2,362
Transferable water*	13,049	9,062
Total tangible water assets	53,515	41,744
Intangible water assets
Water contracts	10,137	10,137
WRMWSD - Contract[s] with Company	15,547	15,547
TCWD - Contract[s] with Company	5,278	5,749
TCWD - Banked water contracted with Company	36,557	33,390
Total intangible water assets	67,519	64,823
Total water sources in acre feet	121,034	106,567
* Of the 13,049 acre feet of transferable water, 7,295 acre feet of transferable water with AVEK that is used by the Company or returned by AVEK to the Company will be returned at a 1.5 to 1 factor giving the Company use of a total of 10,943 (7,295 x 1.5) acre feet as of March 31, 2017.

Tejon Ranchcorp, or Ranchcorp, a wholly-owned subsidiary of Tejon Ranch Co., has 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, PEF may purchase from Ranchcorp up to 3,500 acre feet of water per year from January 1, 2017 through July 31, 2030, 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 for 2017 is $1,056 per acre foot of annual water, subject to 3% annual increases over the life of the contract. 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.

During the three months ended March 31, 2017, we sold 939 acre feet of water to PEF totaling $1,109,000 with a cost of $765,000, which was recorded in the mineral resources segment on the unaudited Consolidated Statements of Operations.