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 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 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. The purchase cost of water in 2018 is $738 per acre-foot. The purchase cost is subject to annual increases based on the greater of the consumer price index or 3%.

The water purchased above will ultimately be used in the development of the Company’s land for commercial/industrial real estate development, resort/residential real estate 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.

During the three months ended March 31, 2018, we sold 7,442 acre-feet of water to three different customers totaling $7,992,000 with a cost of $3,679,000, which was recorded in the mineral resources segment on the unaudited Consolidated Statements of Operations.

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



	March 31, 2018		December 31, 2017
Banked water and water for future delivery	$	5,280	$	5,220
Transferable water	15,977		13,351
Total tangible water	$	21,257	$	18,571

Intangible Water Assets

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



	March 31, 2018					December 31, 2017
	Costs		Accumulated Depreciation			Costs		Accumulated Depreciation
Dudley Ridge water rights	$	12,203	$	(3,498	)	$	12,203	$	(3,377	)
Nickel water rights	18,740		(2,838		)	18,740		(2,678		)
Tulare Lake Basin water rights	5,857		(2,243		)	5,857		(2,186		)
	$	36,800	$	(8,579	)	$	36,800	$	(8,241	)
Net intangible water assets	28,221					28,559
Total tangible water assets	21,257					18,571
Net investments in water assets	$	49,478				$	47,130

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 including recurring annual contract water were as follows:



(in acre-feet, unaudited)	March 31, 2018	December 31, 2017
Water held for future use
AVEK water bank	13,033	13,033
Company water bank	33,111	31,497
Transferable water*	5,747	6,169
Total water held for future use	51,891	50,699
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 with Company	49,184	49,184
Total purchased water contracts	80,617	80,617
Total water held for future use and purchased water contracts	132,508	131,316
*of the 5,747 acre-feet of transferable water, 349 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 523 (349 X 1.5) acre-feet as of March 31, 2018.

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 in 2015. 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 2018 is $1,088 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.