We are a land and water resource development company with 45,000 acres of
land in three areas of eastern San Bernardino County, California. Virtually
all of this land is underlain by high-quality, naturally recharging groundwater
resources, and is situated in proximity to the Colorado River and the Colorado
River Aqueduct (“CRA”), a major source of imported water for Southern
California. Our main objective is to realize the highest and best use of our
land and water resources in an environmentally responsible way.
For more than 20 years, we have maintained an agricultural development at our
34,000-acre property in the Cadiz and Fenner valleys of eastern San Bernardino
County, relying upon groundwater from the underlying aquifer system for irrigation.
In 1993, we secured permits to develop agriculture on up to 9,600 acres of the
Cadiz/Fenner Property and withdraw more than one million acre-feet of groundwater
from the underlying aquifer system. Since that time, we have maintained various
levels of agriculture at the property and this operation has provided our principal
source of revenue.
One acre-foot is equal to approximately 326,000 gallons or the volume of water
that will cover an area of one acre to a depth of one-foot. An acre-foot is
generally considered to be enough water to meet the annual water needs of one
average California household.
The primary factor driving the value of such projects is continuing pressure
on water supplies throughout California which has led Southern California water
providers to actively seek new, reliable supply solutions to plan for both short
and long-term water needs. This includes environmental and regulatory restrictions
on each of the State’s three main water sources: the State Water Project,
which provides water supplies from Northern California to the central and southern
parts of the state, the CRA and the Los Angeles Aqueduct. Southern California’s
water providers rely on imports from these systems for a majority of their water
supplies, but deliveries from all three into the region have been below capacity
over the last several years.
In accordance with the California Environmental Quality Act (“CEQA”),
the Water Project began an environmental review and permitting process in 2011
led by Santa Margarita Water District (“SMWD”), one of the Project
participants. After an extensive review process, the SMWD Board of Directors
certified the Final Environmental Impact Report on July 31, 2012 and became
the first participating agency to convert its option agreement to a Water Purchase
and Sale Agreement for firm supplies from the Water Project. On October 1, 2012,
San Bernardino County (“County”), a Responsible Agency under CEQA,
also adopted CEQA findings and approved the Project’s Groundwater Monitoring,
Management and Mitigation Plan (‘GMMMP”, “Plan”) and
the withdrawal of 50,000 acre-feet (AF) of water per year for 50 years.
Following receipt of these critical approvals, we were named as a real-party-in-interest
in nine lawsuits brought by parties seeking a reconsideration of the environmental
documents and limitation of the Project approvals granted by SMWD and the County.
Three of these cases were subsequently dismissed or otherwise settled and six
lawsuits brought by two petitioners proceeded to trial in Orange County Superior
Court (“Court”) before one judge in December 2013. In September
2014, the Court issued final signed judgments (“Judgments”) formally
denying all claims brought in the six lawsuits. The Judgments upheld the environmental
review and approvals of the Water Project and also awarded costs to SMWD, the
County, Cadiz and Fenner Valley Mutual Water Company as the prevailing parties
in the cases. The Judgments served as the Court’s final actions in the
six cases.
As described above (see “Water Resource Development”), we currently
hold ownership rights to a 96-mile existing idle natural gas pipeline from the
Cadiz/Fenner Property to Barstow, California that would be converted for the
transportation of water.
In September 2011, we entered into an agreement with El Paso Natural Gas (“EPNG”),
a subsidiary of Kinder Morgan Inc., providing us with rights to purchase approximately
220-miles of idle, natural gas pipelines between Bakersfield and Cadiz, California
for $40 million.
Initial feasibility studies indicated that, upon conversion, the 30-inch line
could transport between 20,000 and 30,000 acre-feet of water per year between
the Water Project area and various points along the Central and Northern California
water transportation network. In February 2012, we made a $1 million payment
to EPNG to extend our option to purchase the 220-mile line until April 2013.
In December 2012, we entered into a new agreement with EPNG dividing the 220-mile
pipeline in Barstow, California, with the Company gaining ownership rights to
the 96-mile eastern segment between Barstow and the Cadiz Valley and returning
to EPNG rights to the 124-mile western segment for its own use. The 96-mile
eastern portion from the Cadiz Valley to Barstow was identified as the most
critical segment of the line for accessing the state’s water transportation
infrastructure. The Barstow area serves as a hub for water delivered from northern
and central California to communities in Southern California’s High Desert.
The 96-mile Cadiz-Barstow pipeline creates significant opportunities for our
water resource development efforts. Once converted to water use, the pipeline
can be used to directly connect the Cadiz area to northern and central California
water sources, serving a growing need for additional locations for storage of
water south of the Bay Delta region. In addition, the 96-mile pipeline creates
new opportunities to deliver water, either directly or via exchange, to potential
customers in San Bernardino and Kern Counties, areas which do not currently
have an interconnection point with the Project. When both the 96-mile line and
the 43-mile pipeline to the CRA become operational, Cadiz would link the two
major water delivery systems in California providing flexible opportunities
for both supply and storage.
Within the Cadiz/Fenner Property, 9,600 acres have been zoned for agriculture
and the Company has developed a total of 1,920 acres of the property for agricultural
operations. The infrastructure currently includes six wells that are interconnected
within a portion of this acreage for current agricultural use, and three additional
production wells, with the nine wells together having total annual production
capacity of approximately 20,000 acre-feet of water. Additionally, there are
housing and kitchen facilities that support up to 300 employees. If the entire
9,600 acres were developed and irrigated, total water usage would be approximately
40,000 – 50,000 acre-feet per year depending on the crop mix. The underlying
groundwater, fertile soil, and desert temperatures are well suited for a wide
variety of fruits and vegetables.
We currently derive our agricultural revenues through direct farming and sale
of our products into the market or through the lease of our agricultural properties
to third parties for farming. The entire organic raisin crop grown at the property
is farmed by the Company and we incur all of the costs required to produce and
harvest the crop. The harvested raisins are then sold in bulk to a raisin processing
facility.