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Cadiz (CDZI) Agrees With Kinder Morgan (KMI), Gains Pipeline Connecting Project Ownership

 December 11, 2012 02:23 PM

(By Balaseshan) Cadiz Inc. (NASDAQ: CDZI) said it has agreed with Kinder Morgan Inc. (NYSE: KMI) 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.

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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 the 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.

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.

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.

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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 2 environmental review.

CDZI is trading down 0.76% at $7.84 on Tuesday, while KMI trades down 0.09% at $33.62.

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