In exchange trade with Kinder Morgan Cadiz to receive key 96-mile pipeline route for nominal fee; Cadiz also to receive $10 million payment upon Kinder regulatory filing
Transaction results in significant financial gain for Company
Los Angeles CA (December 11, 2012) — Today Cadiz Inc. (NASDAQ: CDZI) (“Cadiz”, “the Company”) announced it has entered into a new agreement with Kinder Morgan, Inc. (NYSE: KMI) (“Kinder Morgan”) securing the Company’s ownership of a 96-mile natural gas pipeline linking its holdings in the Cadiz Valley to the northern and central California water delivery network. The exchange agreement divides 220 miles of pipeline currently under option to the Company, with the Company gaining ownership rights to the 96-mile eastern segment between Barstow and the Cadiz Valley and returning to Kinder Morgan rights to the 124-mile western segment.
In 2010, Cadiz procured an option to purchase the 220-mile pipeline for $40 million from El Paso Natural Gas (“EPNG”), which was subsequently acquired by Kinder Morgan. Kinder Morgan is currently exploring expansion of its oil and gas transportation network between Texas and California and desired to purchase back rights to the western segment of this line. The consideration that Kinder Morgan has paid Cadiz for this agreement has been made by way of a reduction in the purchase price of the 96-mile eastern segment of the pipeline to a nominal amount of $1 (one dollar). In addition, Kinder Morgan will pay the Company a further $10 million cash payment at the time it seeks regulatory approval for use of the western line.
“The agreement promises a quantum improvement in our Water Project’s versatility. We now have a very real opportunity to interconnect the Colorado River and northern California sources through the Project. The conversion of the existing pipeline brings with it the ability to introduce new high quality surplus supplies for storage at Cadiz at a monumental savings,” said Company President Scott Slater. “This is pipe that’s already in the ground, can be used without disturbing the environment, and terminates near California’s central water delivery system giving us new access to additional water customers.”
The conversion of the Cadiz-Barstow segment to water transportation will create significant opportunities for the Company’s Cadiz Valley Water Conservation, Recovery and Storage Project (“Water Project”, “Project”). Once converted to water use, the pipeline can be used to directly connect the project area to northern and central California water sources during its second phase, serving a growing need for additional locations for storage south of the Bay Delta region. In addition, the pipeline would allow Cadiz 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.
Cadiz has evaluated the entire pipeline for its potential to transport water and has identified the 96-mile eastern portion from the Cadiz Valley to Barstow 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. Feasibility assessments and technical analysis indicate that the 30-inch line has excellent potential to convey approximately 20,000 acre-feet of water per year to and from points along the route.
The use of the entire 220-mile pipeline by the Project was examined in the certified Environmental Impact Report as an alternative to the 43-mile route to the Colorado River Aqueduct. The Project would now incorporate both the 43-mile and 96-mile route, with any groundwater extractions by either the 43-mile line or the converted Cadiz-Barstow line conducted in conformity with the Project’s Groundwater Management, Monitoring and Mitigation Plan approved by the San Bernardino County Board of Supervisors in October. The use of the two lines would link the Project to both of the major water delivery systems in Southern California providing flexible opportunities for both supply and storage. The Company expects to initiate analysis of potential storage opportunities for the Project in 2013 as part of the Project’s Phase II environmental review.
About the Project
The Cadiz Project will provide a new, reliable water supply for approximately 400,000 Southern Californians by capturing and conserving groundwater that will otherwise be lost to evaporation from a vast aquifer system beneath Cadiz Inc. property in California’s Mojave Desert. In its first phase, the Project will deliver up to an average of 50,000 acre-feet per year to Southern California water providers. The Arizona & California Railroad Company, which owns and operates the railroad right-of-way to be used by the Project’s proposed water conveyance pipeline, will also receive water from the Project to serve railroad purposes. In its second phase, the Project proposes to offer approximately one million acre-feet of underground aquifer storage to bank excess supplies without the high rates of evaporative loss suffered by local surface reservoirs. All Project facilities, including a wellfield and 43-mile pipeline to the Colorado River Aqueduct, will be built on private land and avoid desert critical habitat.
About Cadiz Inc.
Founded in 1983, Cadiz Inc. is a publicly-held renewable resources company that owns 70 square miles of property with significant water resources and clean energy potential in eastern San Bernardino County, California. The Company is engaged in a combination of water supply and storage and organic farming projects. Cadiz abides by a wide-ranging “Green Compact” focused on environmental conservation and sustainable management practices at its properties. For more information about Cadiz, visit www.cadizinc.com.