Cadiz Signs Northern Pipeline Delivery Agreement with Santa Margarita Water District

Rhea-AI Summary

Cadiz has signed a definitive agreement with Santa Margarita Water District (SMWD) for the delivery of 5,000 acre-feet per year (AFY) of water through its Northern Pipeline. This 50-year take or pay contract, approved unanimously by SMWD's board on June 5th, sets a price cap at $1,650 per acre-foot, covering all costs. This agreement follows a term sheet signed in February 2024. The contract will support infrastructure financing for the pipeline, expected to be operational by 2026. The agreement allows SMWD to diversify water sources, reducing reliance on the Colorado River and State Water Project resources. SMWD already holds rights to acquire up to 15,000 AFY from the Cadiz Project via the Colorado River Aqueduct. Currently, Cadiz has contracts covering 65% of the Northern Pipeline's capacity and is negotiating for the remaining capacity.

Positive

• Cadiz signed a 50-year take or pay agreement with SMWD for 5,000 AFY of water.
• The price cap is set at $1,650 per AFY, inclusive of all costs.
• The contract supports infrastructure financing for the Northern Pipeline.
• The pipeline is expected to be operational by 2026.
• SMWD's agreement allows for diversification of water sources and reduced reliance on Colorado River and State Water Project resources.
• Cadiz has contracts for 65% of the Northern Pipeline's capacity.

Negative

• None.

Financial Analyst

Cadiz's new agreement with Santa Margarita Water District (SMWD) to deliver $1,650 per acre-foot for 5,000 AFY introduces a significant revenue stream that can enhance the company's financial health. This take-or-pay agreement, which ensures a consistent income for 50 years, provides a stable cash flow and supports infrastructure financing for the pipeline. For investors, this long-term commitment is a strong indicator of future revenue and reduced risk.

The pricing cap of $1,650 per AFY is worth noting. Relative to current water market rates in California, it can be considered competitive, especially when factoring in the inclusive cost coverage such as capital, operating and maintenance expenses. This can imply relatively healthy profit margins for Cadiz, provided that operational efficiencies are maintained.

Short term, the announcement might boost investor confidence, considering the secured revenue stream and the significant coverage (now 65%) of the pipeline's capacity. Long term, the sustained delivery and fulfillment of the agreement will be key in maintaining this sentiment. Investors should keep an eye on Cadiz's capacity to uphold this agreement and the progression of additional contracts for the remaining capacity.

In summary, this agreement illustrates strength in the company's business model and its potential for long-term stability, a reassuring sign for stakeholders.

Water Resources Expert

Santa Margarita Water District's decision to diversify its water supply through the Cadiz Northern Pipeline highlights a strategic move to mitigate water scarcity risks. The 5,000 AFY agreement leverages existing infrastructure, reducing the dependency on traditional Colorado River and State Water Project resources, which are under increasing strain due to climate change.

This diversification ensures a more resilient and reliable water supply for the region, which is important given the growing unpredictability in water availability. From a sustainability perspective, integrating groundwater banks along the 220-mile pipeline not only maximizes resource utilization but also supports regional water management goals.

For investors, the integration of this agreement into the broader water supply strategy underscores the critical alignment of Cadiz's operations with regional water security needs. This strategic fit can be seen as a positive indicator of the project's long-term viability and community support.

Nevertheless, the implementation and operational aspects of the pipeline will need continuous evaluation to ensure that projected benefits are realized without unforeseen disruptions or increased costs.

Market Research Analyst

The alignment of Cadiz's agreement with the Santa Margarita Water District will likely influence the water market dynamics in California. By securing a substantial portion of the Northern Pipeline's capacity, Cadiz can position itself as a major player in the regional water supply market. This enhances its market presence and could make it more attractive for future partnerships.

From a market standpoint, the strategic 50-year commitment not only enhances Cadiz's long-term business prospects but potentially increases its valuation given the predictable revenue streams. The pricing mechanism also sets a benchmark that could influence future contracts and pricing strategies within the industry.

Investors should consider how this agreement might position Cadiz relative to competitors. If successfully implemented, this could lead to further market share gains and strengthen the company's competitive edge. However, any delays or execution issues could impact market perception negatively.

Overall, the agreement signifies a strong market positioning move that could yield substantial long-term benefits for the company and its shareholders.

SMWD, Cadiz sign agreement for 5,000 AFY of water via Northern Pipeline with price cap of $1,650 AFY

LOS ANGELES, June 20, 2024 /PRNewswire/ -- Cadiz, Inc. (NASDAQ: CDZI / CDZIP) ("Cadiz" or the "Company"), a California water solutions company, today announced that the Company signed a definitive agreement with Santa Margarita Water District ("SMWD") to deliver water from the Cadiz Water Supply and Storage Project in the Mojave Desert through the Company's Northern Pipeline. SMWD's board of directors approved the agreement by unanimous vote at the agency's board meeting on June 5^th.  The 50-year take or pay agreement with SMWD follows the previously announced term sheet entered into with SMWD in February 2024. 

SMWD's decision to contract for delivery of water through Cadiz's Northern Pipeline provides key revenue streams expected to support infrastructure financing for the pipeline project. Under the agreement Cadiz is expected to deliver 5,000 acre-feet per year to groundwater banks located along the 220-mile pipeline in the High Desert in exchange for water that can be delivered to SMWD by State Water Contractors with local water suppliers.  In accordance with the agreement the price per acre-foot of water from Cadiz, inclusive of all capital, operating and maintenance costs, will not exceed $1,650 per AFY.

"Santa Margarita has been a leader in conservation and efficiency for the last two decades," said Susan Kennedy, Chairman and Chief Executive Officer of Cadiz. "Santa Margarita's agreement to take delivery of water via the Northern Pipeline will help us meet an aggressive construction schedule to have the pipeline online in 2026."

"The Cadiz project will help us diversify our water supply portfolio and reduce our dependence on Colorado River and State Water Project resources," said SMWD board member, Frank Ury.  "Utilizing Cadiz' Northern Pipeline will allow us to diversify faster, keep costs down and build resilience at a regional level."

SMWD holds existing contractual rights that enable it to acquire up to 15,000 AFY from the Cadiz Project by delivery through the Colorado River Aqueduct.  Now this agreement allows SMWD to obtain delivery of up to 5,000 AFY of that quantity through the Northern Pipeline without having to wait for the construction of a completely new pipeline. 

Currently, the Company has signed water supply agreements for 65% of the capacity of the Northern Pipeline and is in late-stage discussions with additional agencies for the remaining capacity.

For additional information regarding the terms and conditions of the agreement with SMWD, please refer to our Current Report on Form 8-K filed on March 4, 2024.    

About Cadiz, Inc.
Founded in 1983, Cadiz, Inc. (NASDAQ: CDZI/ CDZIP) is a California water solutions company dedicated to providing access to clean, reliable and affordable water for people through a unique combination of water supply, storage, pipeline and treatment solutions. With 45,000 acres of land in California, 2.5 million acre-feet of water supply, 220 miles of pipeline assets and the most cost-effective water treatment filtration technology in the industry, Cadiz offers a full suite of solutions to address the impacts of climate change on clean water access.  

For more information, please visit www.cadizinc.com.

FORWARD LOOKING STATEMENTS: This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, the expected benefits to be derived from our agreements with SMWD and the projected timeline for construction and operation of the Northern Pipeline, which are subject to risks and uncertainties, many of which are beyond the control of the Company, including the Company's ability to fulfill the required contractual conditions and complete the needed construction for water delivery to occur. Although the Company believes that the expectations reflected in our forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct.  Factors that could cause actual results or events to differ materially from those reflected in the Company's forward-looking statements include potential delays in the supply chain for materials, whether the parties to the agreement with SMWD described in this release will be able to obtain the grant funding contemplated by the agreement, and other factors detailed in the Company's Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the year ended December 31, 2023 and subsequent quarterly and current reports. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

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SOURCE Cadiz, Inc.

FAQ

What is the recent agreement Cadiz signed with Santa Margarita Water District?

Cadiz signed a 50-year contract with Santa Margarita Water District to deliver 5,000 acre-feet of water per year through the Northern Pipeline.

What is the price cap for the water delivery from Cadiz to SMWD?

The price cap for water delivery from Cadiz to SMWD is set at $1,650 per acre-foot per year.

When did SMWD's board approve the agreement with Cadiz?

SMWD's board approved the agreement with Cadiz on June 5th, 2024.

When is Cadiz's Northern Pipeline expected to be operational?

Cadiz's Northern Pipeline is expected to be operational by 2026.

How much of the Northern Pipeline's capacity is currently contracted?

Currently, 65% of the Northern Pipeline's capacity is contracted.

How does SMWD's agreement with Cadiz impact its water source diversification?

The agreement allows SMWD to diversify its water sources, reducing reliance on the Colorado River and State Water Project resources.

How much water can SMWD acquire from the Cadiz Project through the Colorado River Aqueduct?

SMWD holds rights to acquire up to 15,000 acre-feet per year from the Cadiz Project through the Colorado River Aqueduct.