LONG-TERM WATER ASSETS

9 Months Ended

Sep. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

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 TCWD in the Kern Water Banks.

The Company has secured SWP entitlements 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 AVEK for the Company's 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 2023 is $928 per acre-foot. The purchase cost is subject to annual cost 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 described.

Water revenues and cost of sales were as follows for the nine months ended ($ in thousands):


	September 30, 2023		September 30, 2022
Acre-Feet Sold	4,020		9,600

Revenues	$	6,615	$	13,635
Cost of sales	4,015		8,944
Profit	$	2,600	$	4,691

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


	September 30, 2023		December 31, 2022
Banked water and water for future delivery	$	31,469	$	23,855
Transferable water	326		1,455
Total water held for future use at cost	$	31,795	$	25,310

Intangible Water Assets

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


	September 30, 2023				December 31, 2022
	Costs		Accumulated Depreciation		Costs		Accumulated Depreciation
Dudley-Ridge water rights	$	11,581	$	(6,152)	$	11,581	$	(5,790)
Nickel water rights	18,740		(6,372)		18,740		(5,890)
Tulare Lake Basin water rights	6,479		(3,564)		6,479		(3,385)
	$	36,800	$	(16,088)	$	36,800	$	(15,065)
Net cost of purchased water contracts	20,712				21,735
Total cost of water held for future use	31,795				25,310
Net investments in water assets	$	52,507			$	47,045

Water contracts with the WRMWSD, and 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 both recurring and one-time usage, are:


(in acre-feet, unaudited)	September 30, 2023	December 31, 2022

Water held for future use
TCWD - Banked water owned by the Company	62,379	52,554
Company water bank	52,631	50,349
Transferable water	3,097	2,548
Recharged project water	6,590	—
Total water held for future use	124,697	105,451
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
Total purchased water contracts	31,433	31,433
Total water held for future use and purchased water contracts	156,130	136,884

Tejon Ranchcorp, or Ranchcorp, a wholly-owned subsidiary of Tejon Ranch Co., entered into a Water Supply Agreement with PEF in 2015. PEF is the current lessee of the Company in a land lease for the operation of a power plant. Pursuant to the Water Supply Agreement, PEF may purchase from the Company 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 by three additional five-year periods. 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 2023 is $1,261 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.