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Long-Term Water Assets
 6 Months Ended
Jun. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Long-Term Water Assets LONG-TERM WATER ASSETS
Long-term water 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 and by the Tejon-Castac Water District (TCWD) in the Kern Water Banks.
The Company has secured State Water Project, or SWP, entitlement under long-term SWP water contracts within the Tulare Lake Basin Water Storage District, or Tulare Lake Basin, and the Dudley-Ridge Water District, or Dudley-Ridge, totaling 3,444 acre-feet of SWP entitlement annually, subject to SWP allocations. These contracts extend through 2035 and have been transferred to the Antelope Valley East Kern Water Agency, or AVEK, for 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 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 2020 is $793 per acre-foot. The purchase cost is subject to annual cost increases based on the greater of the consumer price index or 3%.
Water purchases will ultimately be used in the development of the Company’s land for commercial/industrial real estate development, resort/residential real estate development, and farming. Interim uses may include the sale of portions of this water to third-party users on an annual basis until this water is fully allocated to Company uses, as just described.
Water revenues and cost of sales were as follows ($ in thousands):
 
June 30, 2020
 
June 30, 2019
Acre-Feet Sold
4,625

 
4,445

 
 
 
 
Revenues
$
5,471

 
$
3,980

Cost of sales
3,264

 
3,194

Profit
$
2,207

 
$
786


The costs assigned to water assets held for future use were as follows ($ in thousands):
 
June 30, 2020
 
December 31, 2019
Banked water and water for future delivery
$
28,091

 
$
25,265

Transferable water
3,211

 
3,054

Total water held for future use at cost
$
31,302

 
$
28,319



Intangible Water Assets
The Company's carrying amounts of its purchased water contracts were as follows ($ in thousands):
 
June 30, 2020
 
December 31, 2019
 
Costs
 
Accumulated Depreciation
 
Costs
 
Accumulated Depreciation
Dudley-Ridge water rights
$
11,581

 
$
(4,584
)
 
$
11,581

 
$
(4,342
)
Nickel water rights
18,740

 
(4,283
)
 
18,740

 
(3,962
)
Tulare Lake Basin water rights
6,479

 
(2,778
)
 
6,479

 
(2,660
)
 
$
36,800

 
$
(11,645
)
 
$
36,800

 
$
(10,964
)
Net cost of purchased water contracts
25,155

 
 
 
25,836

 
 
Total cost water held for future use
31,302

 
 
 
28,319

 
 
Net investments in water assets
$
56,457

 
 
 
$
54,155

 
 


Water contracts with the Wheeler Ridge Maricopa Water Storage District, or WRMWSD, and TCWD are also in place, but were entered into with each district at the inception of the respective contracts, were 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 both recurring and one-time usage, are:
(in acre-feet, unaudited)
June 30, 2020
 
December 31, 2019
Water held for future use
 
 
 
Company water bank
50,349

 
50,349

Transferable water
6,272

 
3,252

Total water held for future use
56,621

 
53,601

Purchased water contracts
 
 
 
Water Contracts (Dudley-Ridge, Nickel and Tulare)
10,137

 
10,137

WRMWSD - Contracts with the Company
15,547

 
15,547

TCWD - Contracts with the Company
5,749

 
5,749

TCWD - Banked water owned by the Company
61,054

 
60,555

Total purchased water contracts
92,487

 
91,988

Total water held for future use and purchased water contracts
149,108

 
145,589


The Company entered into a Water Supply Agreement with Pastoria Energy Facility, L.L.C. (PEF) in 2015. PEF is a current lessee of the Company under a power plant lease. Pursuant to the Water Supply Agreement, PEF may purchase from the Company up to 3,500 acre-feet of water per year until July 31, 2030, with an option to extend the term. PEF is under no obligation to purchase water from the Company in any year, but is required to pay the Company an annual option payment equal to 30% of the maximum annual payment. The price of the water under the Water Supply Agreement for 2020 is $1,154 per acre-foot, 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 that, are typical for agreements of this type. The Company's commitments to sell water can be met through current water assets.