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.

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 or has been placed in the Company's water bank. 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 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 through 2044 and includes a Company option to extend the contract for an additional 35 years. The purchase cost of water in 2017 was $717 per acre-foot. Purchase costs are subject to annual cost increases based on the greater of the consumer price index and 3%, resulting in a 2018 purchase cost of $738 per acre-foot.

The water contracts purchased above 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.

Annual amortization for these contracts is $1,351,000 per year.

In 2017, we sold 939 acre-feet of water totaling $1,254,000 with a cost of $765,000, which cost is recorded in the mineral resources segment on the Consolidated Statements of Operations. In 2016, we sold 7,285 acre feet of water totaling $9,601,000 with a cost of $5,925,000, which cost is recorded in the mineral resources segment on the Consolidated Statements of Operations. 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.

Costs assigned to water assets held for future use were as follows ($ in thousands):



	December 31, 2017		December 31, 2016
Banked water and water for future delivery	$	5,220	$	4,779
Transferable water	13,351		9,075
Total water held for future use at cost	$	18,571	$	13,854

Intangible Water Assets

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



	December 31, 2017					December 31, 2016
	Costs		Accumulated Depreciation			Costs		Accumulated Depreciation
Dudley Ridge water rights	$	12,203	$	(3,377	)	$	12,203	$	(2,895	)
Nickel water rights	18,740		(2,678		)	18,740		(2,218		)
Tulare Lake Basin water rights	5,857		(2,186		)	5,857		(1,777		)
	$	36,800	$	(8,241	)	$	36,800	$	(6,890	)
Net cost of purchased water contracts	28,559					29,910
Total cost water held for future use	18,571					13,854
Net investments in water assets	$	47,130				$	43,764

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. Total water resources both recurring and one-time usage:



(in acre feet, unaudited)	December 31, 2017	December 31, 2016
Water held for future use
AVEK water bank	13,033	13,033
Company water bank	31,497	17,287
AVEK water for future delivery	—	2,362
Transferable water *	6,169	9,062
Total water held for future use	50,699	41,744
Purchased water contracts
Water Contracts (Dudley-Ridge, Nickel and Tulare)	10,137	10,137
WRMWSD - Contracts with Company	15,547	15,547
TCWD - Contracts with Company	5,749	5,749
TCWD - Banked water contracted to Company	49,184	33,390
Total purchased water contracts	80,617	64,823
Total water held for future use and purchased water contracts	131,316	106,567

*of the 6,169 acre-feet of transferable water, 1,452 acre-feet will be returned by AVEK to the Company at a 1.5 to 1 factor giving the Company use of a total of 2,137 (1,452 X 1.5) acre-feet as of December 31, 2017.

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.