CORENERGY INFRASTRUCTURE TRUST, INC., 10-Q filed on 11/3/2020
Quarterly Report
v3.20.2
Cover Page - shares
9 Months Ended
Sep. 30, 2020
Nov. 02, 2020
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2020  
Document Transition Report false  
Entity File Number 001-33292  
Entity Registrant Name CORENERGY INFRASTRUCTURE TRUST, INC.  
Entity Incorporation, State or Country Code MD  
Entity Tax Identification Number 20-3431375  
Entity Address, Address Line One 1100 Walnut, Ste. 3350  
Entity Address, City or Town Kansas City,  
Entity Address, State or Province MO  
Entity Address, Postal Zip Code 64106  
City Area Code (816)  
Local Phone Number 875-3705  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   13,651,521
Entity Central Index Key 0001347652  
Amendment Flag false  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
Current Fiscal Year End Date --12-31  
Common Stock, par value $0.001 per share    
Title of 12(b) Security Common Stock, par value $0.001 per share  
Trading Symbol CORR  
Security Exchange Name NYSE  
7.375% Series A Cumulative Redeemable Preferred Stock    
Title of 12(b) Security 7.375% Series A Cumulative Redeemable Preferred Stock  
Trading Symbol CORRPrA  
Security Exchange Name NYSE  
v3.20.2
Consolidated Balance Sheets - USD ($)
Sep. 30, 2020
Dec. 31, 2019
Assets    
Property and equipment, net of accumulated depreciation $ 105,510,927 $ 106,855,677
Financing notes and related accrued interest receivable, net of reserve of $600,000 and $600,000 1,202,960 1,235,000
Cash and cash equivalents 104,221,404 120,863,643
Deferred rent receivable 0 29,858,102
Accounts and other receivables 3,103,170 4,143,234
Deferred costs, net of accumulated amortization of $1,979,058 and $1,956,710 1,229,159 2,171,969
Prepaid expenses and other assets 1,861,017 804,341
Deferred tax asset, net 4,367,933 4,593,561
Goodwill 1,718,868 1,718,868
Total Assets 289,336,945 651,455,794
Liabilities and Equity    
Secured credit facilities, net of debt issuance costs of $0 and $158,070 0 33,785,930
Unsecured convertible senior notes, net of discount and debt issuance costs of $3,206,295 and $3,768,504 114,843,705 118,323,496
Asset retirement obligation 8,646,065 8,044,200
Accounts payable and other accrued liabilities 3,760,287 6,000,981
Management fees payable 969,756 1,669,950
Unearned revenue 6,053,376 6,891,798
Total Liabilities 134,273,189 174,716,355
Equity    
Series A Cumulative Redeemable Preferred Stock 7.375%, $125,270,350 and $125,493,175 liquidation preference ($2,500 per share, $0.001 par value), 10,000,000 authorized; 50,108 and 50,197 issued and outstanding at September 30, 2020 and December 31, 2019, respectively 125,270,350 125,493,175
Capital stock, non-convertible, $0.001 par value; 13,651,521 and 13,638,916 shares issued and outstanding at September 30, 2020 and December 31, 2019 (100,000,000 shares authorized) 13,652 13,639
Additional paid-in capital 342,734,629 360,844,497
Retained deficit (312,954,875) (9,611,872)
Total Equity 155,063,756 476,739,439
Total Liabilities and Equity 289,336,945 651,455,794
Assets Leased to Others    
Assets    
Property and equipment, net of accumulated depreciation 66,121,507 379,211,399
Property, Plant and Equipment, Other Types    
Assets    
Property and equipment, net of accumulated depreciation $ 105,510,927 $ 106,855,677
v3.20.2
Consolidated Balance Sheets (Parenthetical) - USD ($)
9 Months Ended 12 Months Ended
Sep. 30, 2020
Dec. 31, 2019
Accumulated depreciation, property and equipment $ 21,815,093 $ 19,304,610
Reserve for financing notes 600,000 600,000
Accumulated amortization, deferred costs 1,979,058 1,956,710
Secured debt, debt issuance costs $ 0 $ 158,070
Capital stock non-convertible, par value (in dollars per share) $ 0.001 $ 0.001
Capital stock non-convertible, shares issued (in shares) 13,651,521 13,638,916
Capital stock non-convertible, shares outstanding (in shares) 13,651,521 13,638,916
Capital stock non-convertible, shares authorized (in shares) 100,000,000 100,000,000
7.375% Series A Cumulative Redeemable Preferred Stock    
Preferred stock interest rate 7.375% 7.375%
Preferred stock, liquidation preference $ 125,270,350 $ 125,493,175
Preferred stock, liquidation preference (in dollars per share) $ 2,500 $ 2,500
Preferred stock, par value (in dollars per share) $ 0.001 $ 0.001
Preferred stock, shares authorized (in shares) 10,000,000 10,000,000
Preferred stock, shares issued (in shares) 50,108 50,197
Preferred stock, shares outstanding (in shares) 50,108 50,197
Convertible Debt    
Unamortized discount and debt issuance costs $ 3,206,295 $ 3,768,504
Assets Leased to Others    
Accumulated depreciation, property and equipment 5,631,017 105,825,816
Property, Plant and Equipment, Other Types    
Accumulated depreciation, property and equipment $ 21,815,093 $ 19,304,610
v3.20.2
Consolidated Statements of Operations - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Revenue        
Lease revenue $ 20,126 $ 16,984,903 $ 21,320,998 $ 50,338,489
Deferred rent receivable write-off 0 0 (30,105,820) 0
Total Revenue 4,625,380 21,081,244 5,459,858 64,236,085
Expenses        
Transportation and distribution expenses 1,438,443 1,116,194 4,035,807 3,866,092
General and administrative 2,793,568 2,494,240 10,195,635 8,104,502
Depreciation, amortization and ARO accretion expense 2,169,806 5,645,342 11,479,799 16,935,688
Loss on impairment of leased property 0 0 140,268,379 0
Loss on impairment and disposal of leased property 0 0 146,537,547 0
Loss on termination of lease 0 0 458,297 0
Total Expenses 6,401,817 9,255,776 312,975,464 28,906,282
Operating Income (Loss) (1,776,437) 11,825,468 (307,515,606) 35,329,803
Other Income (Expense)        
Net distributions and other income 29,654 360,182 449,512 902,056
Interest expense (2,247,643) (2,777,122) (8,053,650) (7,582,199)
Gain (loss) on extinguishment of debt 0 (28,920,834) 11,549,968 (33,960,565)
Total Other Income (Expense) (2,217,989) (31,337,774) 3,945,830 (40,640,708)
Loss before income taxes (3,994,426) (19,512,306) (303,569,776) (5,310,905)
Taxes        
Current tax expense (benefit) (2,431) (1,270) (399,505) 352,474
Deferred tax expense (benefit) (72,897) (91,436) 225,628 64,854
Income tax expense (benefit), net (75,328) (92,706) (173,877) 417,328
Net Loss attributable to CorEnergy Stockholders (3,919,098) (19,419,600) (303,395,899) (5,728,233)
Preferred dividend requirements 2,309,672 2,313,780 6,880,137 6,941,688
Net Loss attributable to Common Stockholders $ (6,228,770) $ (21,733,380) $ (310,276,036) $ (12,669,921)
Loss Per Common Share:        
Basic (in dollars per share) $ (0.46) $ (1.65) $ (22.73) $ (0.98)
Diluted (in dollars per share) $ (0.46) $ (1.65) $ (22.73) $ (0.98)
Weighted Average Shares of Common Stock Outstanding:        
Basic (in shares) 13,651,521 13,188,546 13,650,449 12,870,357
Diluted (in shares) 13,651,521 13,188,546 13,650,449 12,870,357
Dividends declared per share (in dollars per share) $ 0.050 $ 0.750 $ 0.850 $ 2.250
Cost, product and service [Extensible List] corr:TransportationAndDistributionMember corr:TransportationAndDistributionMember corr:TransportationAndDistributionMember corr:TransportationAndDistributionMember
Transportation and distribution revenue        
Revenue        
Revenue from contracts with customers $ 4,573,155 $ 4,068,338 $ 14,156,361 $ 13,808,064
Financing revenue        
Revenue        
Revenue from contracts with customers $ 32,099 $ 28,003 $ 88,319 $ 89,532
v3.20.2
Consolidated Statements of Equity - USD ($)
Total
Capital Stock
Preferred Stock
Additional Paid-in Capital
Retained Earnings (Deficit)
Beginning balance (in shares) at Dec. 31, 2018   11,960,225      
Beginning balance at Dec. 31, 2018 $ 455,011,305 $ 11,960 $ 125,555,675 $ 320,295,969 $ 9,147,701
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net loss 3,866,441       3,866,441
Series A preferred stock dividends (2,313,780)       (2,313,780)
Preferred stock repurchases [1] (60,550)   (62,500) 2,195 (245)
Common stock dividends (9,597,948)     0 (9,597,948)
Common stock issued upon exchange of convertible notes (in shares)   837,040      
Common stock issued upon exchange of convertible notes 28,869,509 $ 837   28,868,672  
Reinvestment of dividends paid to common stockholders (in shares)   11,076      
Reinvestment of dividends paid to common stockholders 403,831 $ 11   403,820  
Ending balance (in shares) at Mar. 31, 2019   12,808,341      
Ending balance at Mar. 31, 2019 476,178,808 $ 12,808 125,493,175 349,570,656 1,102,169
Beginning balance (in shares) at Dec. 31, 2018   11,960,225      
Beginning balance at Dec. 31, 2018 455,011,305 $ 11,960 125,555,675 320,295,969 9,147,701
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net loss (5,728,233)        
Ending balance (in shares) at Sep. 30, 2019   13,534,856      
Ending balance at Sep. 30, 2019 475,971,448 $ 13,535 125,493,175 369,884,338 (19,419,600)
Beginning balance (in shares) at Mar. 31, 2019   12,808,341      
Beginning balance at Mar. 31, 2019 476,178,808 $ 12,808 125,493,175 349,570,656 1,102,169
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net loss 9,824,926       9,824,926
Series A preferred stock dividends (2,313,780)       (2,313,780)
Common stock dividends (9,606,255)     (992,940) (8,613,315)
Common stock issued upon conversion of convertible notes (in shares)   17,690      
Common stock issued upon conversion of convertible notes 588,202 $ 18   588,184  
Ending balance (in shares) at Jun. 30, 2019   12,826,031      
Ending balance at Jun. 30, 2019 474,671,901 $ 12,826 125,493,175 349,165,900 0
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net loss (19,419,600)       (19,419,600)
Series A preferred stock dividends (2,313,780)     (2,313,780)  
Common stock dividends (10,148,688)     (10,148,688)  
Common stock issued upon exchange of convertible notes (in shares)   703,432      
Common stock issued upon exchange of convertible notes 33,001,793 $ 703   33,001,090  
Common stock issued upon conversion of convertible notes (in shares)   5,393      
Common stock issued upon conversion of convertible notes 179,822 $ 6   179,816  
Ending balance (in shares) at Sep. 30, 2019   13,534,856      
Ending balance at Sep. 30, 2019 $ 475,971,448 $ 13,535 125,493,175 369,884,338 (19,419,600)
Beginning balance (in shares) at Dec. 31, 2019 13,638,916 13,638,916      
Beginning balance at Dec. 31, 2019 $ 476,739,439 $ 13,639 125,493,175 360,844,497 (9,611,872)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net loss (162,042,368)       (162,042,368)
Series A preferred stock dividends (2,313,780)     (2,313,780)  
Preferred stock repurchases [2] (161,997)   (222,825) 7,932 52,896
Common stock dividends (10,238,640)     (10,238,640)  
Common stock issued upon exchange of convertible notes (in shares)   12,605      
Common stock issued upon exchange of convertible notes 419,129 $ 13   419,116  
Ending balance (in shares) at Mar. 31, 2020   13,651,521      
Ending balance at Mar. 31, 2020 $ 302,401,783 $ 13,652 125,270,350 348,719,125 (171,601,344)
Beginning balance (in shares) at Dec. 31, 2019 13,638,916 13,638,916      
Beginning balance at Dec. 31, 2019 $ 476,739,439 $ 13,639 125,493,175 360,844,497 (9,611,872)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net loss $ (303,395,899)        
Ending balance (in shares) at Sep. 30, 2020 13,651,521 13,651,521      
Ending balance at Sep. 30, 2020 $ 155,063,756 $ 13,652 125,270,350 342,734,629 (312,954,875)
Beginning balance (in shares) at Mar. 31, 2020   13,651,521      
Beginning balance at Mar. 31, 2020 302,401,783 $ 13,652 125,270,350 348,719,125 (171,601,344)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net loss (137,434,433)       (137,434,433)
Series A preferred stock dividends (2,309,672)     (2,309,672)  
Common stock dividends (682,576)     (682,576)  
Ending balance (in shares) at Jun. 30, 2020   13,651,521      
Ending balance at Jun. 30, 2020 161,975,102 $ 13,652 125,270,350 345,726,877 (309,035,777)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net loss (3,919,098)       (3,919,098)
Series A preferred stock dividends (2,309,672)     (2,309,672)  
Common stock dividends $ (682,576)     (682,576)  
Ending balance (in shares) at Sep. 30, 2020 13,651,521 13,651,521      
Ending balance at Sep. 30, 2020 $ 155,063,756 $ 13,652 $ 125,270,350 $ 342,734,629 $ (312,954,875)
[1] In connection with the repurchases of Series A Preferred Stock during 2019, the addition to preferred dividends of $245 represents the premium in the repurchase price paid compared to the carrying amount derecognized.
[2] In connection with the repurchase of Series A Preferred Stock during 2020, the deduction from preferred dividends of $52,896 represents the discount in the repurchase price paid compared to the carrying amount derecognized.
v3.20.2
Consolidated Statements of Equity (Parenthetical) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Stockholders' Equity [Abstract]    
Addition to (deduction from) preferred dividends $ (52,896) $ 245
v3.20.2
Consolidated Statements of Cash Flows - USD ($)
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2020
Mar. 31, 2020
Sep. 30, 2019
Mar. 31, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Operating Activities              
Net loss $ (3,919,098) $ (162,042,368) $ (19,419,600) $ 3,866,441 $ (303,395,899) $ (5,728,233)  
Adjustments to reconcile net loss to net cash provided by operating activities:              
Deferred income tax, net         225,628 64,854  
Depreciation, amortization and ARO accretion         12,441,775 17,828,773  
Loss on impairment of leased property 0   0   140,268,379 0  
Loss on impairment and disposal of leased property 0   0   146,537,547 0  
Loss on termination of lease 0   0   458,297 0  
Deferred rent receivable write-off, noncash 0   0   30,105,820 0  
(Gain) loss on extinguishment of debt 0   28,920,834   (11,549,968) 33,960,565  
Gain on sale of equipment         (3,542) (1,800)  
Changes in assets and liabilities:              
Increase in deferred rent receivable         (247,718) (3,656,655)  
Decrease in accounts and other receivables         1,040,064 2,081,674  
Increase in financing note accrued interest receivable         (11,293) 0  
Increase in prepaid expenses and other assets         (1,056,726) (26,026)  
Decrease in management fee payable         (700,194) (166,587)  
Increase (decrease) in accounts payable and other accrued liabilities         (2,551,374) 3,449,442  
Decrease in unearned revenue         (838,422) (40,477)  
Net cash provided by operating activities         10,722,374 47,765,530  
Investing Activities              
Purchases of property and equipment, net         (885,711) (311,566)  
Proceeds from sale of property and equipment         7,500 0  
Principal payment on note receivable         0 5,000,000  
Principal payment on financing note receivable         43,333 32,500  
Net cash provided by (used in) investing activities         (834,878) 4,720,934  
Financing Activities              
Debt financing costs         0 (161,963)  
Net offering proceeds on convertible debt         0 116,355,125  
Repurchases of preferred stock         (161,997) (60,550)  
Dividends paid on Series A preferred stock         (6,933,124) (6,941,340)  
Dividends paid on common stock         (11,603,792) (28,949,060)  
Cash paid for extinguishment of convertible notes         (1,316,250) (78,939,743)  
Cash paid for maturity of convertible notes         (1,676,000) 0  
Cash paid for settlement of Pinedale Secured Credit Facility         (3,074,572) 0  
Principal payments on secured credit facilities         (1,764,000) (2,646,000)  
Net cash used in financing activities         (26,529,735) (1,343,531)  
Net Change in Cash and Cash Equivalents         (16,642,239) 51,142,933  
Cash and Cash Equivalents at beginning of period   $ 120,863,643   $ 69,287,177 120,863,643 69,287,177 $ 69,287,177
Cash and Cash Equivalents at end of period $ 104,221,404   $ 120,430,110   104,221,404 120,430,110 $ 120,863,643
Supplemental Disclosure of Cash Flow Information              
Interest paid         9,066,335 5,893,078  
Income taxes paid (net of refunds)         (466,382) 282,786  
Non-Cash Investing Activities              
Proceeds from sale of leased property provided directly to secured lender         18,000,000 0  
Purchases of property, plant and equipment in accounts payable and other accrued liabilities         313,859 0  
Non-Cash Financing Activities              
Change in accounts payable and accrued expenses related to debt financing costs         0 197,227  
Reinvestment of distributions by common stockholders in additional common shares         0 403,831  
Common stock issued upon exchange and conversion of convertible notes         419,129 62,639,326  
Proceeds from sale of leased property used in settlement of Pinedale Secured Credit Facility         $ (18,000,000) $ 0  
v3.20.2
Introduction and Basis of Presentation
9 Months Ended
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
INTRODUCTION AND BASIS OF PRESENTATION INTRODUCTION AND BASIS OF PRESENTATION
Introduction
CorEnergy Infrastructure Trust, Inc. ("CorEnergy" or "the Company"), was organized as a Maryland corporation and commenced operations on December 8, 2005. The Company's common shares are listed on the New York Stock Exchange ("NYSE") under the symbol "CORR" and its depositary shares representing Series A Preferred Stock are listed on the NYSE under the symbol "CORR PrA".
The Company is primarily focused on acquiring and financing real estate assets within the U.S. energy infrastructure sector. Historically, the Company has focused primarily on entering into long-term triple-net participating leases with energy companies, and also has provided other types of capital, including loans secured by energy infrastructure assets. Targeted assets include pipelines, storage tanks, transmission lines, and gathering systems, among others. These sale-leaseback or real property mortgage transactions can provide the energy company with a source of capital that is an alternative to other sources such as corporate borrowing, bond offerings, or equity offerings. The Company's leases have typically contained participation features in the financial performance or value of the underlying infrastructure real property asset. The triple-net lease structure requires that the tenant pay all operating expenses of the business conducted by the tenant, including real estate taxes, insurance, utilities, and expenses of maintaining the asset in good working order. CorEnergy's Private Letter Rulings enable the Company to invest in a broader set of revenue contracts within its REIT structure, including the opportunity to not only own but also operate infrastructure assets. CorEnergy considers its investments in these energy infrastructure assets to be a single business segment and reports them accordingly in its financial statements.
Basis of Presentation
The accompanying consolidated financial statements include CorEnergy accounts and the accounts of its wholly-owned subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") set forth in the Accounting Standards Codification ("ASC"), as published by the Financial Accounting Standards Board ("FASB"), and with the Securities and Exchange Commission ("SEC") instructions to Form 10-Q, and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the Company's financial position, results of operations, and cash flows for the periods presented. There were no adjustments that, in the opinion of management, were not of a normal and recurring nature. All intercompany transactions and balances have been eliminated in consolidation.
The FASB issued ASU 2015-02 "Consolidations (Topic 810) - Amendments to the Consolidation Analysis" ("ASU 2015-02"), which amended previous consolidation guidance, including introducing a separate consolidation analysis specific to limited partnerships and other similar entities. Under this analysis, limited partnerships and other similar entities are considered a variable interest entity ("VIE") unless the limited partners hold substantive kick-out rights or participating rights. Management determined that Pinedale LP and Grand Isle Corridor LP are VIEs under the amended guidance because the limited partners of both partnerships lack both substantive kick-out rights and participating rights. However, based on the general partners' roles and rights as afforded by the partnership agreements and its exposure to losses and benefits of each of the partnerships through its significant limited partner interests, management determined that CorEnergy is the primary beneficiary of both Pinedale LP and Grand Isle Corridor LP. Based upon this evaluation and the Company's 100 percent ownership of the limited partnership interest in both Pinedale LP and Grand Isle Corridor LP, the consolidated financial statements presented include full consolidation with respect to both partnerships.
Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or any other interim or annual period. These consolidated financial statements and Management's Discussion and Analysis of the Financial Condition and Results of Operations should be read in conjunction with CorEnergy's Annual Report on Form 10-K, for the year ended December 31, 2019, filed with the SEC on February 27, 2020 (the "2019 CorEnergy 10-K").
v3.20.2
Recent Accounting Pronouncements
9 Months Ended
Sep. 30, 2020
Accounting Policies [Abstract]  
RECENT ACCOUNTING PRONOUNCEMENTS RECENT ACCOUNTING PRONOUNCEMENTS
In June of 2016, the FASB issued ASU 2016-13 "Financial Instruments - Credit Losses" ("ASU 2016-13"), which introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. The new model, referred to as the current expected credit losses ("CECL model"), will apply to financial assets subject to credit losses and measured at amortized cost, and certain off-balance sheet credit exposures. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In November of 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates, which deferred the effective dates of these standards for certain entities. Based on the guidance for smaller reporting companies, the effective date of ASU 2016-13 is deferred for the Company until fiscal year 2023 with early adoption permitted, and the Company has elected to defer adoption of this standard.
Although the Company has elected to defer adoption of ASU 2016-13, it will continue to evaluate the potential impact of the standard on its consolidated financial statements. As part of its ongoing assessment work, the Company has formed an implementation team, completed training on the CECL model and has begun developing policies, processes and internal controls.
In December of 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes (Topic 740)" ("ASU 2019-12"), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years; however, early adoption is permitted for all entities. The Company continues to assess the impact of adopting ASU 2019-12 but does not believe it will have a material impact on its consolidated financial statements.
In March of 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)" ("ASU 2020-04"). In response to concerns about structural risks of interbank offered rates including the risk of cessation of the London Interbank Offered Rate (LIBOR), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable and less susceptible to manipulation. The provisions of ASU 2020-04 are elective and apply to all entities, subject to meeting certain criteria, that have debt or hedging contracts, among other contracts, that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04, among other things, provides optional expedients and exceptions for a limited period of time for applying U.S. GAAP to these contracts if certain criteria are met to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating its contracts that reference LIBOR and the optional expedients and exceptions provided by the FASB.
v3.20.2
Leased Properties and Leases
9 Months Ended
Sep. 30, 2020
Leases [Abstract]  
LEASED PROPERTIES AND LEASES LEASED PROPERTIES AND LEASES
The Company primarily acquires mid-stream and downstream assets in the U.S. energy sector such as pipelines, storage terminals, and gas and electric distribution systems and, historically, has leased many of these assets to operators under triple-net leases. These leases typically include a contracted base rent with escalation clauses and participating rents that are tied to contract-specific criteria. Base rents under the Company's leases are structured on an estimated fair market value rent structure over the initial term, which includes assumptions related to the terminal value of the assets and expectations of tenant renewals. At the conclusion of the initial lease term, the Company's leases may contain fair market value repurchase options or fair market rent renewal terms. These clauses also act as safeguards against the Company's tenants pursuing activities which would undermine or degrade the value of the assets faster than the underlying reserves are depleted. Participating rents are structured to provide exposure to the successful commercial activity of the tenant, and as such, also provide protection in the event that the economic life of the assets is reduced based on accelerated production by the Company's tenants. While the Company is primarily a lessor, certain of its operating subsidiaries are lessees and have entered into lease agreements as discussed further below.
LESSOR - LEASED PROPERTIES
The Company's current leased property is classified as an operating lease and is recorded as leased property in the Consolidated Balance Sheets. Base rent related to the Company's leased property is recognized on a straight-line basis over the term of the lease when collectibility is probable. Participating rent is recognized when it is earned, based on the achievement of specified performance criteria. Base and participating rent are recorded as lease revenue in the Consolidated Statements of Operations. The Company regularly evaluates the collectibility of any deferred rent receivable on a lease by lease basis. The evaluation primarily includes assessing the financial condition and credit quality of the Company's tenants, changes in tenant's payment history and current economic factors. When the collectibility of the deferred rent receivable or future lease payments are no
longer probable, the Company will recognize a write-off of the deferred rent receivable as a reduction of revenue in the Consolidated Statements of Operations.
As of September 30, 2020, following the sale of the Pinedale LGS on June 30, 2020 (refer to "Impairment and Sale of the Pinedale Liquids Gathering System" below), the Company has one significant property located in Louisiana and the Gulf of Mexico leased on a triple-net basis to a major tenant, described in the table below. The major tenant is responsible for the payment of all taxes, maintenance, repairs, insurance, and other operating expenses relating to the leased property. The Company's long-term, triple-net leases generally have an initial term with options for renewals. Lease payments are scheduled to increase at varying intervals during the initial term of the lease. The following table summarizes the significant leased property, major tenant and lease term:
Summary of Leased Property, Major Tenant and Lease Terms
PropertyGrand Isle Gathering System
LocationGulf of Mexico/Louisiana
TenantEnergy XXI GIGS Services, LLC
Asset Description
Approximately 137 miles of offshore pipeline with total capacity of 120 thousand Bbls/d,
including a 16-acre onshore terminal and saltwater disposal system.
Date AcquiredJune 2015
Initial Lease Term11 years
Renewal Option
Equal to the lesser of 9-years or 75 percent of the remaining useful life
Current Monthly Rent Payments
7/1/2019 - 6/30/2020: $3,223,917
7/1/2020 - 6/30/2021: $4,033,583
Estimated Useful Life(1)
15 years
(1) In conjunction with the impairment of the Grand Isle Gathering System discussed below, the remaining estimated useful life of the GIGS asset was adjusted to approximately 15 years beginning in the second quarter of 2020. Additionally, the Company updated the useful life of its asset retirement obligation ("ARO") segments resulting in a change to the timing of the undiscounted cash flows. The timing change resulted in an increase to the ARO asset and liability of approximately $257 thousand.
LEASED PROPERTIES AND TENANT INFORMATION
Substantially all of the lease tenants' financial results are driven by exploiting naturally occurring oil and natural gas hydrocarbon deposits beneath the Earth's surface. As a result, the tenants' financial results are highly dependent on the performance of the oil and natural gas industry, which is highly competitive and subject to volatility. During the terms of the leases, management monitors the credit quality of its tenants by reviewing their published credit ratings, if available, reviewing publicly available financial statements, or reviewing financial or other operating statements, monitoring news reports regarding the tenants and their respective businesses, and monitoring the timeliness of lease payments and the performance of other financial covenants under their leases.
The COVID-19 pandemic-related reduction in energy demand and the uncertainty of production from OPEC members, US producers and other international suppliers caused significant disruptions and volatility in the global oil marketplace during 2020, which have adversely affected our tenants. In response to COVID-19, governments around the world have implemented stringent measures to help reduce the spread of the virus, including stay-at-home and shelter-in-place orders, travel restrictions and other measures. These measures have adversely affected the economies and financial markets of the U.S. and many other countries, resulting in an economic downturn that has negatively impacted global demand and prices for the products handled by the Company's pipelines, terminals and other facilities.
The events and conditions described above adversely impacted the Gulf of Mexico operations of the EGC Tenant, the tenant of the GIGS asset, under the Grand Isle Gathering Lease as discussed under "Energy Gulf Coast/Cox Oil" and "Grand Isle Gathering System" below.
Energy Gulf Coast/Cox Oil
Prior to October 29, 2018, EGC was subject to the reporting requirements of the Exchange Act and was required to file with the SEC annual reports containing audited financial statements and quarterly reports containing unaudited financial statements. So long as EGC remained a public reporting company, the Grand Isle Lease Agreement provided this requirement was fulfilled by EGC making its financial statements and reports publicly available through the SEC’s EDGAR system, in lieu of delivering such information directly to the Company. On October 18, 2018, EGC was acquired by an affiliate of privately-held Cox Oil. Upon the filing by EGC of a Form 15 with the SEC on October 29, 2018, EGC's SEC reporting obligations were suspended and it ceased to file such reports.
EGC's SEC filings prior to October 29, 2018 can be found at www.sec.gov. The Company makes no representation as to the accuracy or completeness of the audited and unaudited financial statements of EGC but has no reason to doubt the accuracy or
completeness of such information. In addition, EGC has no duty, contractual or otherwise, to advise the Company of any events that might have occurred subsequent to the date of such financial statements which could affect the significance or accuracy of such information. None of the information in the public reports of EGC that are filed with the SEC is incorporated by reference into, or in any way form, a part of this filing.
The terms of the Grand Isle Lease Agreement require copies of certain financial statement information be provided that the Company is required to file pursuant to SEC Regulation S-X, as described in Section 2340 of the SEC Financial Reporting Manual. When EGC's financial information ceased to be publicly available, the Company encouraged officials of EGC and Cox Oil and, through Company counsel, the legal counsel to such entities, to satisfy their obligations under the Grand Isle Lease Agreement to provide the required information to the Company for inclusion in its SEC reports. To date, EGC and Cox Oil have refused to fulfill these obligations. The Company sought to enforce the obligations of EGC and Cox Oil and obtained a temporary restraining order ("TRO") from a Texas state court, mandating that they deliver the required EGC financial statements for the year ended December 31, 2018. The TRO was stayed pending an appeal by EGC and Cox Oil and, pursuant to its own terms, had lapsed by the time that appeal was denied on January 6, 2020. The case was remanded to the trial court for further proceedings. In May 2020, the trial court granted the Company's motion for summary judgment mandating the tenant deliver the required financial statements. The Company believes that it is entitled to such relief and while the parties have agreed to stay this case in order to facilitate settlement discussions, the Company will pursue this litigation and all viable options to obtain and file the necessary tenant financial statements if a settlement is not reached. The Company expects to file the financial statement information that is required by Regulation S-X by amendment to its Annual Report on Form 10-K for the year ended December 31, 2019, once such information is made available in accordance with the terms of the lease.
On April 1, 2020, the EGC Tenant, a wholly owned indirect subsidiary of Cox Oil, ceased paying rent due. EGC Tenant is contractually obligated to pay rent and rent continues to accrue whether or not oil is being shipped. EGC Tenant is a special purpose entity engaged solely in activities related to the lease, and it does not own or operate any wells. EGC, parent of the EGC Tenant, owns and operates wells, including those connected to GIGS, and is the guarantor of the EGC Tenant's obligations under the lease. Following EGC Tenant's failure to pay rent due for April of 2020, and following discussions with Cox Oil management concerning its various operations, the Company sent EGC Tenant and EGC a notice of non-payment. After the required two-day cure period, a default occurred under the lease.
The EGC Tenant also failed to make required rent payments from May through November of 2020. As a result, the Company initiated litigation in the State Court of Texas to recover the unpaid rent, plus interest, for April, through July of 2020 from the EGC Tenant. Further, EGC filed an action to attempt to set aside the guarantee obligations of EGC under the lease. The Company intends to enforce its rights under the lease. These cases are currently stayed pending negotiation of a business resolution with EGC and the EGC Tenant. However, if the parties are unable to reach a settlement, the Company will resume these proceedings and will continue to initiate litigation each month for which rent is not paid and seek to enforce the guarantee against EGC.
Grand Isle Gathering System
The Company identified the EGC Tenant's nonpayment of rent discussed above along with the significant decline in the global oil market as indicators of impairment for the GIGS asset. As a result, the Company assessed the GIGS asset for impairment as of March 31, 2020. The Company performed a step 1 impairment assessment on the GIGS asset by estimating the undiscounted contractual cash flows relating to the lease using probability-weighted scenarios, which indicated that the GIGS asset's carrying value was not recoverable. As a result, the fair value of the GIGS asset was estimated through the use of probability-weighted discounted estimated cash flow scenarios to measure the impairment loss. The probability-weighted cash flows used to assess recoverability of the GIGS asset and measure its fair value were developed using assumptions related to the Grand Isle Lease Agreement and near-term crude oil and water price and volume projections reflective of the current environment and management's projections for long-term average prices and volumes. In addition to near and long-term price assumptions, other key assumptions include the timing and collectibility of lease payments, operating costs, timing of incurring such costs and the use of an appropriate discount rate. The Company believes its estimates and models used to determine fair value are similar to what a market participant would use.
The Company engaged specialists and other third-parties to assist with the valuation methodology and analysis of certain underlying assumptions. The fair value measurement of the GIGS asset was based, in part, on significant inputs not observable in the market (as discussed above) and thus represents a Level 3 measurement. The significant unobservable input used includes a discount rate based on an estimated weighted average cost of capital of a theoretical market participant. The Company utilized a weighted average discount rate of 10.0 percent when deriving the fair value of the GIGS asset impaired during the first quarter. The weighted average discount rate reflects management's best estimate of inputs a market participant would utilize. For the nine months ended September 30, 2020, the Company recognized a $140.3 million loss on impairment of leased
property related to the GIGS asset in the Consolidated Statements of Operations. As of September 30, 2020, the carrying value of the GIGS asset is $64.8 million, which is included in leased properties on the Consolidated Balance Sheet.
The Company previously recognized a deferred rent receivable for the Grand Isle Gathering Lease, which primarily represents timing differences between the straight-line revenue recognition and contractual lease receipts over the lease term. Given the EGC's Tenant's nonpayment of rent and the Company's expectations surrounding the collectibility of the contractual lease payments under the lease, the Company does not currently expect the deferred rent receivable to be recoverable. Accordingly, the Company recognized a non-cash write-off of the deferred rent receivable of $30.1 million for the nine months ended September 30, 2020. The non-cash write-off was recognized as a reduction of revenue in the Consolidated Statements of Operations.
Impairment and Sale of the Pinedale Liquids Gathering System
On April 14, 2020, UPL, the parent and guarantor of the lease obligations of the tenant and operator of the Company's Pinedale LGS, announced that its significant indebtedness and extremely challenging current market conditions raised a substantial doubt about its ability to continue as a going concern. The going concern qualification in UPL's financial statements filed in its 2019 10-K resulted in defaults under UPL's credit and term loan agreement. UPL also disclosed that it elected not to make interest payments on certain outstanding indebtedness, triggering a 30-day grace period. If such interest payments were not made by the end of the grace period, an event of default would occur, potentially causing its outstanding indebtedness to become immediately due and payable. UPL further disclosed that if it was unable to obtain sufficient additional capital to repay the outstanding indebtedness and sufficient liquidity to meet its operating needs, it may be necessary for UPL to seek protection from creditors under Chapter 11 of the U.S. Bankruptcy Code.
On May 14, 2020, UPL filed a voluntary petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code. The filing included Ultra Wyoming, the operator of the Pinedale LGS and tenant under the Pinedale Lease Agreement with the Company’s indirect wholly owned subsidiary Pinedale LP. The bankruptcy filing of both the guarantor, UPL, and the tenant constituted defaults under the terms of the Pinedale Lease Agreement. The bankruptcy filing imposed a stay of CorEnergy’s ability to exercise remedies for the foregoing defaults. Ultra Wyoming also filed a motion to reject the Pinedale Lease Agreement, with a request that such motion be effective June 30, 2020. Pending the effective date of the rejection, Section 365 of the Bankruptcy Code generally requires Ultra Wyoming to comply on a timely basis with the provisions of the Pinedale Lease Agreement, including the payment provisions. Accordingly, the Company received the rent payments due on the first day of April, May and June 2020.
Pinedale LP, along with Prudential, the lender under the Amended Pinedale Term Credit Facility discussed in Note 10 ("Debt"), commenced discussions with UPL which resulted in UPL presenting an initial offer to purchase the Pinedale LGS. The Amended Pinedale Term Credit Facility was secured by the Pinedale LGS and was not secured by any assets of CorEnergy or its other subsidiaries.
On June 5, 2020, Pinedale LP filed a motion with the U.S. Bankruptcy Court objecting to Ultra Wyoming's motion to reject the Pinedale Lease Agreement while continuing its negotiations with UPL. Pinedale LP and the Company agreed in principle to terms with Ultra Wyoming to sell the Pinedale LGS for $18.0 million cash as set forth in a non-binding term sheet that was filed with the U.S. Bankruptcy Court in UPL’s Chapter 11 case along with a motion for approval of the transaction on June 22, 2020. A copy of the draft definitive purchase and sale agreement was also filed with the motion.
On June 26, 2020, the U.S. Bankruptcy Court in UPL’s Chapter 11 case approved the sale of the Pinedale LGS. Following such approval, on June 29, 2020, Pinedale LP entered into the purchase and sale agreement (the "Sale Agreement") with Ultra Wyoming. On June 30, 2020, Pinedale LP closed on the sale of the Pinedale LGS to its tenant, Ultra Wyoming, for total cash consideration of $18.0 million, and the Pinedale Lease Agreement was terminated. The sale was completed pursuant to the terms of the Sale Agreement previously approved by the bankruptcy court as discussed above. In connection with the closing of the sale, the Company and Pinedale LP entered into a mutual release of all claims related to the Pinedale LGS and the Pinedale Lease Agreement with UPL and Ultra Wyoming, including a release by Pinedale LP of all claims against UPL and Ultra Wyoming arising from the rejection or termination of the Pinedale Lease Agreement.
In conjunction with the sale of the Pinedale LGS described above, Pinedale LP and the Company entered into a compromise and release agreement (the "Release Agreement") with Prudential related to the Amended Pinedale Term Credit Facility, which had an outstanding balance of approximately $32.0 million, net of $132 thousand of deferred debt issuance costs. Pursuant to the Release Agreement, the $18.0 million sale proceeds from the Sale Agreement were provided by Ultra Wyoming directly to Prudential. The Company also provided the remaining cash available at Pinedale LP of approximately $3.3 million (including $198 thousand for accrued interest) to Prudential in exchange for (i) the release of all liens on the Pinedale LGS and the other assets of Pinedale LP, (ii) the termination of the Company’s pledge of equity interests of the general partner of Pinedale LP, (iii) the termination and satisfaction in full of the obligations of Pinedale LP under the Amended Pinedale Term Credit Facility
and (iv) a general release of any other obligations of Pinedale LP and/or the Company and their respective directors, officers, employees or agents pertaining to the Amended Pinedale Term Credit Facility.
During the negotiation and closing of the sale of the Pinedale LGS to Ultra Wyoming, the Company determined impairment indicators existed as the value to be received from the sale was less than the carrying value of the asset. As a result of these indicators and the sale of the Pinedale LGS, the Company recognized a loss on impairment and disposal of leased property in the Consolidated Statement of Operations of approximately $146.5 million for the nine months ended September 30, 2020. Further, the sale of the Pinedale LGS resulted in the termination of the Pinedale Lease Agreement, and the Company recognized a loss on termination of lease of approximately $458 thousand for the nine months ended September 30, 2020. These losses were partially offset by the settlement of the Amended Pinedale Term Credit Facility with Prudential (as discussed above and in Note 10 ("Debt")), which resulted in a gain on extinguishment of debt of $11.0 million for the nine months ended September 30, 2020.
The table below displays the Company's individually significant leases as a percentage of total leased properties and total lease revenues for the periods presented:
As a Percentage of (1)
Leased PropertiesLease Revenues
As ofFor the Three Months EndedFor the Nine Months Ended
September 30, 2020December 31, 2019September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Pinedale LGS(2)
— %44.4 %— %40.0 %52.0 %39.3 %
Grand Isle Gathering System(3)
98.0 %55.3 %— %59.8 %47.7 %60.6 %
(1) Insignificant leases are not presented; thus, percentages may not sum to 100%.
(2) Pinedale LGS lease revenues include variable rent of $0 and $28 thousand for the three and nine months ended September 30, 2020, respectively, compared to $1.4 million and $3.5 million for the three and nine months ended September 30, 2019, respectively. The Pinedale LGS was sold to Ultra Wyoming and the Pinedale Lease Agreement was terminated on June 30, 2020, as discussed above.
(3) The Grand Isle Gathering System's percentage of leased properties increased as a result of the sale of the Pinedale LGS on June 30, 2020. For the nine months ended September 30, 2020, the Grand Isle Gathering System's percentage of lease revenues is exclusive of the deferred rent receivable write-off discussed above.
The following table reflects the depreciation and amortization included in the accompanying Consolidated Statements of Operations associated with the Company's leases and leased properties:
For the Three Months EndedFor the Nine Months Ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Depreciation Expense
GIGS$1,190,911 $2,440,791 $4,822,410 $7,322,372 
Pinedale— 2,217,360 3,695,599 6,652,080 
United Property Systems9,837 9,831 29,499 29,286 
Total Depreciation Expense$1,200,748 $4,667,982 $8,547,508 $14,003,738 
Amortization Expense - Deferred Lease Costs
GIGS$7,641 $7,641 $22,923 $22,923 
Pinedale— 15,342 30,684 46,026 
Total Amortization Expense - Deferred Lease Costs$7,641 $22,983 $53,607 $68,949 
ARO Accretion Expense
GIGS$116,514 $110,992 $345,199 $332,977 
Total ARO Accretion Expense$116,514 $110,992 $345,199 $332,977 
The following table reflects the deferred costs that are included in the accompanying Consolidated Balance Sheets associated with the Company's leased properties:
September 30, 2020December 31, 2019
Net Deferred Lease Costs
GIGS$175,832 $198,755 
Pinedale— 488,981 
Total Deferred Lease Costs, net$175,832 $687,736 
LESSEE - LEASED PROPERTIES
The Company's operating subsidiaries currently lease single-use office space with remaining lease terms of approximately two years, some of which may include renewal options. These leases are classified as operating leases and immaterial to the consolidated financial statements. The Company recognizes lease expense in the Consolidated Statements of Operations on a straight-line basis over the remaining lease term.
LEASED PROPERTIES AND LEASES LEASED PROPERTIES AND LEASES
The Company primarily acquires mid-stream and downstream assets in the U.S. energy sector such as pipelines, storage terminals, and gas and electric distribution systems and, historically, has leased many of these assets to operators under triple-net leases. These leases typically include a contracted base rent with escalation clauses and participating rents that are tied to contract-specific criteria. Base rents under the Company's leases are structured on an estimated fair market value rent structure over the initial term, which includes assumptions related to the terminal value of the assets and expectations of tenant renewals. At the conclusion of the initial lease term, the Company's leases may contain fair market value repurchase options or fair market rent renewal terms. These clauses also act as safeguards against the Company's tenants pursuing activities which would undermine or degrade the value of the assets faster than the underlying reserves are depleted. Participating rents are structured to provide exposure to the successful commercial activity of the tenant, and as such, also provide protection in the event that the economic life of the assets is reduced based on accelerated production by the Company's tenants. While the Company is primarily a lessor, certain of its operating subsidiaries are lessees and have entered into lease agreements as discussed further below.
LESSOR - LEASED PROPERTIES
The Company's current leased property is classified as an operating lease and is recorded as leased property in the Consolidated Balance Sheets. Base rent related to the Company's leased property is recognized on a straight-line basis over the term of the lease when collectibility is probable. Participating rent is recognized when it is earned, based on the achievement of specified performance criteria. Base and participating rent are recorded as lease revenue in the Consolidated Statements of Operations. The Company regularly evaluates the collectibility of any deferred rent receivable on a lease by lease basis. The evaluation primarily includes assessing the financial condition and credit quality of the Company's tenants, changes in tenant's payment history and current economic factors. When the collectibility of the deferred rent receivable or future lease payments are no
longer probable, the Company will recognize a write-off of the deferred rent receivable as a reduction of revenue in the Consolidated Statements of Operations.
As of September 30, 2020, following the sale of the Pinedale LGS on June 30, 2020 (refer to "Impairment and Sale of the Pinedale Liquids Gathering System" below), the Company has one significant property located in Louisiana and the Gulf of Mexico leased on a triple-net basis to a major tenant, described in the table below. The major tenant is responsible for the payment of all taxes, maintenance, repairs, insurance, and other operating expenses relating to the leased property. The Company's long-term, triple-net leases generally have an initial term with options for renewals. Lease payments are scheduled to increase at varying intervals during the initial term of the lease. The following table summarizes the significant leased property, major tenant and lease term:
Summary of Leased Property, Major Tenant and Lease Terms
PropertyGrand Isle Gathering System
LocationGulf of Mexico/Louisiana
TenantEnergy XXI GIGS Services, LLC
Asset Description
Approximately 137 miles of offshore pipeline with total capacity of 120 thousand Bbls/d,
including a 16-acre onshore terminal and saltwater disposal system.
Date AcquiredJune 2015
Initial Lease Term11 years
Renewal Option
Equal to the lesser of 9-years or 75 percent of the remaining useful life
Current Monthly Rent Payments
7/1/2019 - 6/30/2020: $3,223,917
7/1/2020 - 6/30/2021: $4,033,583
Estimated Useful Life(1)
15 years
(1) In conjunction with the impairment of the Grand Isle Gathering System discussed below, the remaining estimated useful life of the GIGS asset was adjusted to approximately 15 years beginning in the second quarter of 2020. Additionally, the Company updated the useful life of its asset retirement obligation ("ARO") segments resulting in a change to the timing of the undiscounted cash flows. The timing change resulted in an increase to the ARO asset and liability of approximately $257 thousand.
LEASED PROPERTIES AND TENANT INFORMATION
Substantially all of the lease tenants' financial results are driven by exploiting naturally occurring oil and natural gas hydrocarbon deposits beneath the Earth's surface. As a result, the tenants' financial results are highly dependent on the performance of the oil and natural gas industry, which is highly competitive and subject to volatility. During the terms of the leases, management monitors the credit quality of its tenants by reviewing their published credit ratings, if available, reviewing publicly available financial statements, or reviewing financial or other operating statements, monitoring news reports regarding the tenants and their respective businesses, and monitoring the timeliness of lease payments and the performance of other financial covenants under their leases.
The COVID-19 pandemic-related reduction in energy demand and the uncertainty of production from OPEC members, US producers and other international suppliers caused significant disruptions and volatility in the global oil marketplace during 2020, which have adversely affected our tenants. In response to COVID-19, governments around the world have implemented stringent measures to help reduce the spread of the virus, including stay-at-home and shelter-in-place orders, travel restrictions and other measures. These measures have adversely affected the economies and financial markets of the U.S. and many other countries, resulting in an economic downturn that has negatively impacted global demand and prices for the products handled by the Company's pipelines, terminals and other facilities.
The events and conditions described above adversely impacted the Gulf of Mexico operations of the EGC Tenant, the tenant of the GIGS asset, under the Grand Isle Gathering Lease as discussed under "Energy Gulf Coast/Cox Oil" and "Grand Isle Gathering System" below.
Energy Gulf Coast/Cox Oil
Prior to October 29, 2018, EGC was subject to the reporting requirements of the Exchange Act and was required to file with the SEC annual reports containing audited financial statements and quarterly reports containing unaudited financial statements. So long as EGC remained a public reporting company, the Grand Isle Lease Agreement provided this requirement was fulfilled by EGC making its financial statements and reports publicly available through the SEC’s EDGAR system, in lieu of delivering such information directly to the Company. On October 18, 2018, EGC was acquired by an affiliate of privately-held Cox Oil. Upon the filing by EGC of a Form 15 with the SEC on October 29, 2018, EGC's SEC reporting obligations were suspended and it ceased to file such reports.
EGC's SEC filings prior to October 29, 2018 can be found at www.sec.gov. The Company makes no representation as to the accuracy or completeness of the audited and unaudited financial statements of EGC but has no reason to doubt the accuracy or
completeness of such information. In addition, EGC has no duty, contractual or otherwise, to advise the Company of any events that might have occurred subsequent to the date of such financial statements which could affect the significance or accuracy of such information. None of the information in the public reports of EGC that are filed with the SEC is incorporated by reference into, or in any way form, a part of this filing.
The terms of the Grand Isle Lease Agreement require copies of certain financial statement information be provided that the Company is required to file pursuant to SEC Regulation S-X, as described in Section 2340 of the SEC Financial Reporting Manual. When EGC's financial information ceased to be publicly available, the Company encouraged officials of EGC and Cox Oil and, through Company counsel, the legal counsel to such entities, to satisfy their obligations under the Grand Isle Lease Agreement to provide the required information to the Company for inclusion in its SEC reports. To date, EGC and Cox Oil have refused to fulfill these obligations. The Company sought to enforce the obligations of EGC and Cox Oil and obtained a temporary restraining order ("TRO") from a Texas state court, mandating that they deliver the required EGC financial statements for the year ended December 31, 2018. The TRO was stayed pending an appeal by EGC and Cox Oil and, pursuant to its own terms, had lapsed by the time that appeal was denied on January 6, 2020. The case was remanded to the trial court for further proceedings. In May 2020, the trial court granted the Company's motion for summary judgment mandating the tenant deliver the required financial statements. The Company believes that it is entitled to such relief and while the parties have agreed to stay this case in order to facilitate settlement discussions, the Company will pursue this litigation and all viable options to obtain and file the necessary tenant financial statements if a settlement is not reached. The Company expects to file the financial statement information that is required by Regulation S-X by amendment to its Annual Report on Form 10-K for the year ended December 31, 2019, once such information is made available in accordance with the terms of the lease.
On April 1, 2020, the EGC Tenant, a wholly owned indirect subsidiary of Cox Oil, ceased paying rent due. EGC Tenant is contractually obligated to pay rent and rent continues to accrue whether or not oil is being shipped. EGC Tenant is a special purpose entity engaged solely in activities related to the lease, and it does not own or operate any wells. EGC, parent of the EGC Tenant, owns and operates wells, including those connected to GIGS, and is the guarantor of the EGC Tenant's obligations under the lease. Following EGC Tenant's failure to pay rent due for April of 2020, and following discussions with Cox Oil management concerning its various operations, the Company sent EGC Tenant and EGC a notice of non-payment. After the required two-day cure period, a default occurred under the lease.
The EGC Tenant also failed to make required rent payments from May through November of 2020. As a result, the Company initiated litigation in the State Court of Texas to recover the unpaid rent, plus interest, for April, through July of 2020 from the EGC Tenant. Further, EGC filed an action to attempt to set aside the guarantee obligations of EGC under the lease. The Company intends to enforce its rights under the lease. These cases are currently stayed pending negotiation of a business resolution with EGC and the EGC Tenant. However, if the parties are unable to reach a settlement, the Company will resume these proceedings and will continue to initiate litigation each month for which rent is not paid and seek to enforce the guarantee against EGC.
Grand Isle Gathering System
The Company identified the EGC Tenant's nonpayment of rent discussed above along with the significant decline in the global oil market as indicators of impairment for the GIGS asset. As a result, the Company assessed the GIGS asset for impairment as of March 31, 2020. The Company performed a step 1 impairment assessment on the GIGS asset by estimating the undiscounted contractual cash flows relating to the lease using probability-weighted scenarios, which indicated that the GIGS asset's carrying value was not recoverable. As a result, the fair value of the GIGS asset was estimated through the use of probability-weighted discounted estimated cash flow scenarios to measure the impairment loss. The probability-weighted cash flows used to assess recoverability of the GIGS asset and measure its fair value were developed using assumptions related to the Grand Isle Lease Agreement and near-term crude oil and water price and volume projections reflective of the current environment and management's projections for long-term average prices and volumes. In addition to near and long-term price assumptions, other key assumptions include the timing and collectibility of lease payments, operating costs, timing of incurring such costs and the use of an appropriate discount rate. The Company believes its estimates and models used to determine fair value are similar to what a market participant would use.
The Company engaged specialists and other third-parties to assist with the valuation methodology and analysis of certain underlying assumptions. The fair value measurement of the GIGS asset was based, in part, on significant inputs not observable in the market (as discussed above) and thus represents a Level 3 measurement. The significant unobservable input used includes a discount rate based on an estimated weighted average cost of capital of a theoretical market participant. The Company utilized a weighted average discount rate of 10.0 percent when deriving the fair value of the GIGS asset impaired during the first quarter. The weighted average discount rate reflects management's best estimate of inputs a market participant would utilize. For the nine months ended September 30, 2020, the Company recognized a $140.3 million loss on impairment of leased
property related to the GIGS asset in the Consolidated Statements of Operations. As of September 30, 2020, the carrying value of the GIGS asset is $64.8 million, which is included in leased properties on the Consolidated Balance Sheet.
The Company previously recognized a deferred rent receivable for the Grand Isle Gathering Lease, which primarily represents timing differences between the straight-line revenue recognition and contractual lease receipts over the lease term. Given the EGC's Tenant's nonpayment of rent and the Company's expectations surrounding the collectibility of the contractual lease payments under the lease, the Company does not currently expect the deferred rent receivable to be recoverable. Accordingly, the Company recognized a non-cash write-off of the deferred rent receivable of $30.1 million for the nine months ended September 30, 2020. The non-cash write-off was recognized as a reduction of revenue in the Consolidated Statements of Operations.
Impairment and Sale of the Pinedale Liquids Gathering System
On April 14, 2020, UPL, the parent and guarantor of the lease obligations of the tenant and operator of the Company's Pinedale LGS, announced that its significant indebtedness and extremely challenging current market conditions raised a substantial doubt about its ability to continue as a going concern. The going concern qualification in UPL's financial statements filed in its 2019 10-K resulted in defaults under UPL's credit and term loan agreement. UPL also disclosed that it elected not to make interest payments on certain outstanding indebtedness, triggering a 30-day grace period. If such interest payments were not made by the end of the grace period, an event of default would occur, potentially causing its outstanding indebtedness to become immediately due and payable. UPL further disclosed that if it was unable to obtain sufficient additional capital to repay the outstanding indebtedness and sufficient liquidity to meet its operating needs, it may be necessary for UPL to seek protection from creditors under Chapter 11 of the U.S. Bankruptcy Code.
On May 14, 2020, UPL filed a voluntary petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code. The filing included Ultra Wyoming, the operator of the Pinedale LGS and tenant under the Pinedale Lease Agreement with the Company’s indirect wholly owned subsidiary Pinedale LP. The bankruptcy filing of both the guarantor, UPL, and the tenant constituted defaults under the terms of the Pinedale Lease Agreement. The bankruptcy filing imposed a stay of CorEnergy’s ability to exercise remedies for the foregoing defaults. Ultra Wyoming also filed a motion to reject the Pinedale Lease Agreement, with a request that such motion be effective June 30, 2020. Pending the effective date of the rejection, Section 365 of the Bankruptcy Code generally requires Ultra Wyoming to comply on a timely basis with the provisions of the Pinedale Lease Agreement, including the payment provisions. Accordingly, the Company received the rent payments due on the first day of April, May and June 2020.
Pinedale LP, along with Prudential, the lender under the Amended Pinedale Term Credit Facility discussed in Note 10 ("Debt"), commenced discussions with UPL which resulted in UPL presenting an initial offer to purchase the Pinedale LGS. The Amended Pinedale Term Credit Facility was secured by the Pinedale LGS and was not secured by any assets of CorEnergy or its other subsidiaries.
On June 5, 2020, Pinedale LP filed a motion with the U.S. Bankruptcy Court objecting to Ultra Wyoming's motion to reject the Pinedale Lease Agreement while continuing its negotiations with UPL. Pinedale LP and the Company agreed in principle to terms with Ultra Wyoming to sell the Pinedale LGS for $18.0 million cash as set forth in a non-binding term sheet that was filed with the U.S. Bankruptcy Court in UPL’s Chapter 11 case along with a motion for approval of the transaction on June 22, 2020. A copy of the draft definitive purchase and sale agreement was also filed with the motion.
On June 26, 2020, the U.S. Bankruptcy Court in UPL’s Chapter 11 case approved the sale of the Pinedale LGS. Following such approval, on June 29, 2020, Pinedale LP entered into the purchase and sale agreement (the "Sale Agreement") with Ultra Wyoming. On June 30, 2020, Pinedale LP closed on the sale of the Pinedale LGS to its tenant, Ultra Wyoming, for total cash consideration of $18.0 million, and the Pinedale Lease Agreement was terminated. The sale was completed pursuant to the terms of the Sale Agreement previously approved by the bankruptcy court as discussed above. In connection with the closing of the sale, the Company and Pinedale LP entered into a mutual release of all claims related to the Pinedale LGS and the Pinedale Lease Agreement with UPL and Ultra Wyoming, including a release by Pinedale LP of all claims against UPL and Ultra Wyoming arising from the rejection or termination of the Pinedale Lease Agreement.
In conjunction with the sale of the Pinedale LGS described above, Pinedale LP and the Company entered into a compromise and release agreement (the "Release Agreement") with Prudential related to the Amended Pinedale Term Credit Facility, which had an outstanding balance of approximately $32.0 million, net of $132 thousand of deferred debt issuance costs. Pursuant to the Release Agreement, the $18.0 million sale proceeds from the Sale Agreement were provided by Ultra Wyoming directly to Prudential. The Company also provided the remaining cash available at Pinedale LP of approximately $3.3 million (including $198 thousand for accrued interest) to Prudential in exchange for (i) the release of all liens on the Pinedale LGS and the other assets of Pinedale LP, (ii) the termination of the Company’s pledge of equity interests of the general partner of Pinedale LP, (iii) the termination and satisfaction in full of the obligations of Pinedale LP under the Amended Pinedale Term Credit Facility
and (iv) a general release of any other obligations of Pinedale LP and/or the Company and their respective directors, officers, employees or agents pertaining to the Amended Pinedale Term Credit Facility.
During the negotiation and closing of the sale of the Pinedale LGS to Ultra Wyoming, the Company determined impairment indicators existed as the value to be received from the sale was less than the carrying value of the asset. As a result of these indicators and the sale of the Pinedale LGS, the Company recognized a loss on impairment and disposal of leased property in the Consolidated Statement of Operations of approximately $146.5 million for the nine months ended September 30, 2020. Further, the sale of the Pinedale LGS resulted in the termination of the Pinedale Lease Agreement, and the Company recognized a loss on termination of lease of approximately $458 thousand for the nine months ended September 30, 2020. These losses were partially offset by the settlement of the Amended Pinedale Term Credit Facility with Prudential (as discussed above and in Note 10 ("Debt")), which resulted in a gain on extinguishment of debt of $11.0 million for the nine months ended September 30, 2020.
The table below displays the Company's individually significant leases as a percentage of total leased properties and total lease revenues for the periods presented:
As a Percentage of (1)
Leased PropertiesLease Revenues
As ofFor the Three Months EndedFor the Nine Months Ended
September 30, 2020December 31, 2019September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Pinedale LGS(2)
— %44.4 %— %40.0 %52.0 %39.3 %
Grand Isle Gathering System(3)
98.0 %55.3 %— %59.8 %47.7 %60.6 %
(1) Insignificant leases are not presented; thus, percentages may not sum to 100%.
(2) Pinedale LGS lease revenues include variable rent of $0 and $28 thousand for the three and nine months ended September 30, 2020, respectively, compared to $1.4 million and $3.5 million for the three and nine months ended September 30, 2019, respectively. The Pinedale LGS was sold to Ultra Wyoming and the Pinedale Lease Agreement was terminated on June 30, 2020, as discussed above.
(3) The Grand Isle Gathering System's percentage of leased properties increased as a result of the sale of the Pinedale LGS on June 30, 2020. For the nine months ended September 30, 2020, the Grand Isle Gathering System's percentage of lease revenues is exclusive of the deferred rent receivable write-off discussed above.
The following table reflects the depreciation and amortization included in the accompanying Consolidated Statements of Operations associated with the Company's leases and leased properties:
For the Three Months EndedFor the Nine Months Ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Depreciation Expense
GIGS$1,190,911 $2,440,791 $4,822,410 $7,322,372 
Pinedale— 2,217,360 3,695,599 6,652,080 
United Property Systems9,837 9,831 29,499 29,286 
Total Depreciation Expense$1,200,748 $4,667,982 $8,547,508 $14,003,738 
Amortization Expense - Deferred Lease Costs
GIGS$7,641 $7,641 $22,923 $22,923 
Pinedale— 15,342 30,684 46,026 
Total Amortization Expense - Deferred Lease Costs$7,641 $22,983 $53,607 $68,949 
ARO Accretion Expense
GIGS$116,514 $110,992 $345,199 $332,977 
Total ARO Accretion Expense$116,514 $110,992 $345,199 $332,977 
The following table reflects the deferred costs that are included in the accompanying Consolidated Balance Sheets associated with the Company's leased properties:
September 30, 2020December 31, 2019
Net Deferred Lease Costs
GIGS$175,832 $198,755 
Pinedale— 488,981 
Total Deferred Lease Costs, net$175,832 $687,736 
LESSEE - LEASED PROPERTIES
The Company's operating subsidiaries currently lease single-use office space with remaining lease terms of approximately two years, some of which may include renewal options. These leases are classified as operating leases and immaterial to the consolidated financial statements. The Company recognizes lease expense in the Consolidated Statements of Operations on a straight-line basis over the remaining lease term.
v3.20.2
Transportation and Distribution Revenue
9 Months Ended
Sep. 30, 2020
Revenue from Contract with Customer [Abstract]  
TRANSPORTATION AND DISTRIBUTION REVENUE TRANSPORTATION AND DISTRIBUTION REVENUE
The Company's contracts related to transportation and distribution revenue are primarily comprised of a mix of natural gas supply, transportation and distribution performance obligations, as well as limited performance obligations related to system maintenance and improvement. Based on the nature of the agreements, revenue for all but one of the Company's natural gas supply, transportation and distribution performance obligations is recognized on a right to invoice basis as the performance obligations are met, which represents what the Company expects to receive in consideration and is representative of value delivered to the customer. System maintenance and improvement contracts are specific and tailored to the customer's needs, have no alternative use and have an enforceable right to payment as the services are provided. Revenue is recognized on an input method, based on the actual cost of service as a measure of the performance obligation satisfaction. Differences between amounts invoiced and revenue recognized under the input method are reflected as an asset or liability on the Consolidated Balance Sheets. The costs of system improvement projects are recognized as a financing arrangement in accordance with guidance in the lease standard while the margin is recognized in accordance with the revenue standard as discussed above.
The Company has a contract with Spire that has fixed pricing which varies over the contract term. For this specific contract, the transaction price has been allocated ratably over the contractual performance obligation. Based on a downward revision of the rate during the Company's long-term natural gas transportation contract with Spire, ASC 606 requires the Company to record the contractual transaction price, and therefore aggregate revenue, from the contract ratably over the term of the contract. Following the November 2018 rate decline, recognized performance obligations exceeded amounts invoiced and the contract liability began to decline at a rate of approximately $138 thousand per quarter and will continue to decline at the same rate through the end of the contract in October 2030. As of September 30, 2020, the revenue allocated to the remaining performance obligation under this contract is approximately $54.1 million.
During the fourth quarter of 2020, MoGas entered into a new long-term firm transportation services agreement with Spire, its largest customer. Upon completion of the STL interconnect project as described in Note 7 ("Property And Equipment"), the agreement will increase Spire’s firm capacity from 62,800 dekatherms per day to 145,600 dekatherms per day through October 2030 and replace the previous firm transportation agreement. In accordance with ASC 606, the Company will account for the contract modification in the fourth quarter of 2020 as a termination of the existing transportation contract and a creation of a new transportation contract with Spire that will be accounted for prospectively.
The table below summarizes the Company's contract liability balance related to its transportation and distribution revenue contracts as of September 30, 2020:
Contract Liability(1)
September 30, 2020December 31, 2019
Beginning Balance January 1$6,850,790 $6,522,354 
Unrecognized Performance Obligations 198,935 887,916 
Recognized Performance Obligations (1,017,097)(559,480)
Ending Balance$6,032,628 $6,850,790 
(1) The contract liability balance is included in unearned revenue in the Consolidated Balance Sheets.
The Company's contract asset balance was $1.0 million and $206 thousand as of September 30, 2020 and December 31, 2019, respectively. As of September 30, 2020, the contract asset primarily relates to an incremental cost for a transportation performance obligation contract. The contract asset balance is included in prepaid expenses and other assets in the Consolidated Balance Sheets.
The following is a breakout of the Company's transportation and distribution revenue for the three and nine months ended September 30, 2020 and 2019:
For the Three Months EndedFor the Nine Months Ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Natural gas transportation contracts64.6 %52.7 %67.2 %57.5 %
Natural gas distribution contracts26.0 %39.2 %25.3 %36.2 %
v3.20.2
Financing Notes Receivable
9 Months Ended
Sep. 30, 2020
Receivables [Abstract]  
FINANCING NOTES RECEIVABLE FINANCING NOTES RECEIVABLE
Financing notes receivable are presented at face value plus accrued interest receivable and deferred loan origination costs, and net of related direct loan origination income. Each quarter the Company reviews its financing notes receivable to determine if the balances are realizable based on factors affecting the collectability of those balances. Factors may include credit quality, timeliness of required periodic payments, past due status, and management discussions with obligors. The Company evaluates the collectability of both interest and principal of each of its loans to determine if an allowance is needed. An allowance will be recorded when, based on current information and events, the Company determines it is probable that it will be unable to collect all amounts due according to the existing contractual terms.
Four Wood Financing Note Receivable
On December 12, 2018, Four Wood Corridor granted SWD Enterprises, LLC, the previous debtor, approval to sell the assets securing the SWD loans to Compass SWD, LLC ("Compass SWD") in exchange for Compass SWD executing a new loan agreement with Four Wood Corridor for $1.3 million (the "Compass REIT Loan"). On June 12, 2019, Four Wood Corridor entered into an amended and restated Compass REIT Loan. The amended note had a two-year term maturing on June 30, 2021 with monthly principal payments of approximately $11 thousand and interest accruing on the outstanding principal at an annual rate of 8.5 percent. The amended and restated Compass REIT Loan is secured by real and personal property that provides saltwater disposal services for the oil and natural gas industry and pledged ownership interests of Compass SWD members.
On May 22, 2020, the terms of the Compass REIT Loan were amended (i) to extend the maturity date from June 30, 2021 to November 30, 2024 and (ii) to reduce payments to interest only through December 31, 2020. Additionally, the amended Compass REIT Loan will continue to accrue interest at an annual rate of 8.5 percent through May 31, 2021. Subsequent to May 31, 2021 interest will accrue at an annual rate of 12.0 percent. Monthly principal payments of approximately $11 thousand will resume on January 1, 2021 and increase annually beginning on June 30, 2021 through the maturity date. As of September 30, 2020 and December 31, 2019, the Compass REIT Loan was valued at $1.2 million.
v3.20.2
Income Taxes
9 Months Ended
Sep. 30, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting and tax purposes. Components of the Company's deferred tax assets and liabilities as of September 30, 2020 and December 31, 2019, are as follows:
Deferred Tax Assets and Liabilities
September 30, 2020December 31, 2019
Deferred Tax Assets:
Deferred contract revenue$1,423,587 $1,529,473 
Net operating loss carryforwards6,405,270 5,622,052 
Accrued liabilities— 424,604 
Capital loss carryforward92,418 104,595 
Other6,184 6,184 
Sub-total$7,927,459 $7,686,908 
Valuation allowance(92,418)(104,595)
Sub-total$7,835,041 $7,582,313 
Deferred Tax Liabilities:
Cost recovery of leased and fixed assets$(3,418,387)$(2,953,319)
Other(48,721)(35,433)
Sub-total$(3,467,108)$(2,988,752)
Total net deferred tax asset$4,367,933 $4,593,561 
As of September 30, 2020, the total deferred tax assets and liabilities presented above relate to the Company's TRSs. The Company recognizes the tax benefits of uncertain tax positions only when the position is "more likely than not" to be sustained upon examination by the tax authorities based on the technical merits of the tax position. The Company's policy is to record interest and penalties on uncertain tax positions as part of tax expense. Tax years subsequent to the year ended December 31, 2015 remain open to examination by federal and state tax authorities.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss ("NOL") carryovers and carrybacks to offset 100 percent of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs originating in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of
previously paid income taxes. Certain of the Company’s TRSs have NOLs totaling approximately $1.2 million that are eligible for carryback under the CARES Act. The benefit of these carrybacks has been recorded as an increase to income taxes receivable and a reduction to deferred tax assets. Certain NOLs which were initially measured at the current corporate income tax rate of 21 percent are being carried back to offset taxable income that was taxed at a pre-Tax Cuts and Jobs Act of 2017 rate of 34 percent. The benefit received from the rate differential is reflected in the income tax provision for the three and nine months ended September 30, 2020.
For the year ended December 31, 2019, the Company generated a capital loss carryforward resulting from the liquidation of Lightfoot. The capital loss decreased upon receipt of the final 2019 K-1's in the first quarter of 2020. The amount of the carryforward for tax purposes was approximately $440 thousand and $500 thousand as of September 30, 2020 and December 31, 2019, respectively, and if not utilized, this carryforward will expire as of December 31, 2024. Management assessed the available evidence and determined that it is more likely than not that the capital loss carryforward will not be utilized prior to expiration. Due to the uncertainty of realizing this deferred tax asset, a valuation allowance of $92 thousand and $105 thousand was recorded equal to the amount of the tax benefit of this carryforward at September 30, 2020 and December 31, 2019, respectively. In the future, if the Company concludes, based on existence of sufficient evidence, that it should realize more or less of its deferred tax assets, the valuation allowance will be adjusted accordingly in the period such conclusion is made.
Total income tax expense (benefit) differs from the amount computed by applying the federal statutory income tax rate of 21 percent percent for the three and nine months ended September 30, 2020 and 2019 to income (loss) from operations and other income and expense for the periods presented, as follows:
Income Tax Expense (Benefit)
For the Three Months EndedFor the Nine Months Ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Application of statutory income tax rate$(838,829)$(4,097,584)$(63,749,653)$(1,115,290)
State income taxes, net of federal tax expense(9,494)(19,632)15,717 503,932 
Federal Tax Attributable to Income of Real Estate Investment Trust773,927 3,984,180 63,720,129 1,044,600 
Other(932)40,330 (160,070)(15,914)
Total income tax expense (benefit)$(75,328)$(92,706)$(173,877)$417,328 
The components of income tax expense (benefit) include the following for the periods presented:
Components of Income Tax Expense (Benefit)
For the Three Months EndedFor the Nine Months Ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Current tax expense (benefit)
Federal$(2,431)$— $(414,505)$216,093 
State (net of federal tax expense (benefit))— (1,270)15,000 136,381 
Total current tax expense (benefit)$(2,431)$(1,270)$(399,505)$352,474 
Deferred tax expense (benefit)
Federal$(63,403)$(73,074)$224,911 $(302,697)
State (net of federal tax expense (benefit))(9,494)(18,362)717 367,551 
Total deferred tax expense (benefit)$(72,897)$(91,436)$225,628 $64,854 
Total income tax expense (benefit), net$(75,328)$(92,706)$(173,877)$417,328 
v3.20.2
Property and Equipment
9 Months Ended
Sep. 30, 2020
Property, Plant and Equipment [Abstract]  
PROPERTY AND EQUIPMENT PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Property and Equipment
September 30, 2020December 31, 2019
Land$605,070 $605,070 
Natural gas pipeline124,618,840 124,614,696 
Construction work in progress1,153,873 — 
Vehicles and trailers679,678 671,962 
Office equipment and computers268,559 268,559 
Gross property and equipment$127,326,020 $126,160,287 
Less: accumulated depreciation(21,815,093)(19,304,610)
Net property and equipment$105,510,927 $106,855,677 
Depreciation expense was $845 thousand and $2.5 million for the three and nine months ended September 30, 2020, and $843 thousand and $2.5 million for the three and nine months ended September 30, 2019. As of September 30, 2020, the Company has $1.2 million in construction work in progress primarily related to the STL Interconnect project, which will allow gas to be delivered by STL Pipeline LLC and received by MoGas. The project is expected to be completed in the fourth quarter of 2020.
v3.20.2
Management Agreement
9 Months Ended
Sep. 30, 2020
Agreements [Abstract]  
MANAGEMENT AGREEMENT MANAGEMENT AGREEMENT
The Company pays its manager, Corridor, pursuant to a Management Agreement as described in the 2019 CorEnergy 10-K. During the three months ended March 31, 2020, the Manager voluntarily recommended, and the Company agreed, that the Manager would waive all of the $171 thousand incentive fee that would otherwise be payable under the provisions of the Management Agreement with respect to dividends paid on the Company's common stock.
During the three months ended June 30, 2020 and September 30, 2020, the Company did not earn the incentive fee that would otherwise be payable under the provisions of the Management Agreement with respect to dividends paid on the Company's common stock.
In reviewing the application of the quarterly management fee provisions of the Management Agreement to the net proceeds received from the offering of 5.875% Convertible Notes, which closed on August 12, 2019, the Manager waived any incremental management fee due as of the end of the first three quarters of 2020 based on such proceeds (other than the cash portion of such proceeds that was utilized in connection with the exchange of the Company’s 7.00% Convertible Notes).
Further, in reviewing the application of the quarterly management fee provisions of the Management Agreement to the sale of the Pinedale LGS, termination of the Pinedale Lease Agreement and settlement of the Amended Pinedale Term Credit Facility, which occurred on June 30, 2020 (collectively, the "Pinedale Transaction"), the Manager and the Company agreed that the incremental management fee attributable to the assets involved in the Pinedale Transaction should be paid for the second quarter of 2020 as such assets were under management for all but the last day of the period.
Fees incurred under the Management Agreement for the three and nine months ended September 30, 2020 were $932 thousand and $4.1 million compared to $1.6 million and $5.2 million for the three and nine months ended September 30, 2019. Fees incurred under the Management Agreement are reported in the general and administrative line item on the Consolidated Statements of Operations.
The Company pays its administrator, Corridor, pursuant to an Administrative Agreement. Fees incurred under the Administrative Agreement for the three and nine months ended September 30, 2020 were $37 thousand and $166 thousand compared to $64 thousand and $200 thousand for the three and nine months ended September 30, 2019. Fees incurred under the Administrative Agreement are reported in the general and administrative line item on the Consolidated Statements of Operations.
v3.20.2
Fair Value
9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
FAIR VALUE FAIR VALUE
Valuation Techniques and Unobservable Inputs
The following section describes the valuation methodologies used by the Company for estimating fair value for financial instruments not recorded at fair value, but fair value is included for disclosure purposes only, as required under disclosure guidance related to the fair value of financial instruments.
Cash and Cash Equivalents — The carrying value of cash, amounts due from banks, federal funds sold and securities purchased under resale agreements approximates fair value.
Financing Notes Receivable — The financing notes receivable are valued on a non-recurring basis. The financing notes receivable are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Financing notes with carrying values that are not expected to be recovered through future cash flows are written-down to their estimated net realizable value. Estimates of realizable value are determined based on unobservable inputs, including estimates of future cash flow generation and value of collateral underlying the notes.
Secured Credit Facilities — The fair value of the Company's long-term variable-rate and fixed-rate debt under its secured credit facilities approximates carrying value.
Unsecured Convertible Senior Notes — The fair value of the unsecured convertible senior notes is estimated using quoted market prices from either active (Level 1) or generally active (Level 2) markets.
Carrying and Fair Value Amounts
 Level within fair value hierarchySeptember 30, 2020December 31, 2019
Carrying
    Amount (1)
Fair Value
Carrying
    Amount (1)
Fair Value
Financial Assets:
Cash and cash equivalentsLevel 1$104,221,404 $104,221,404 $120,863,643 $120,863,643 
Financing notes receivable (Note 5)Level 31,202,960 1,202,960 1,235,000 1,235,000 
Financial Liabilities:
Secured credit facilitiesLevel 2$— $— $33,785,930 $33,785,930 
7.00% Unsecured Convertible Senior Notes
Level 1— — 2,084,178 2,820,832 
5.875% Unsecured Convertible Senior Notes
Level 2114,843,705 84,957,044 116,239,318 122,508,000 
(1) The carrying value of debt balances are presented net of unamortized original issuance discount and debt issuance costs.
v3.20.2
Debt
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
DEBT DEBT
The following is a summary of the Company's debt facilities and balances as of September 30, 2020 and December 31, 2019:
Total Commitment
or Original Principal
Quarterly Principal PaymentsSeptember 30, 2020December 31, 2019
Maturity
Date
Amount OutstandingInterest
Rate
Amount OutstandingInterest
Rate
CorEnergy Secured Credit Facility:
CorEnergy Revolver$160,000,000 $— 7/28/2022$— 2.90 %$— 4.51 %
MoGas Revolver1,000,000 — 7/28/2022— 2.90 %— 4.51 %
Omega Line of Credit1,500,000 — 4/30/2021— 4.15 %— 5.76 %
Pinedale Secured Credit Facility:
Amended Pinedale Term Credit Facility (1)
41,000,000 882,000 12/29/2022— — %33,944,000 6.50 %
7.00% Unsecured Convertible Senior Notes
115,000,000 — 6/15/2020— 7.00 %2,092,000 7.00 %
5.875% Unsecured Convertible Senior Notes
120,000,000 — 8/15/2025118,050,000 5.875 %120,000,000 5.875 %
Total Debt$118,050,000 $156,036,000 
Less:
Unamortized deferred financing costs(2)
$405,949 $635,351 
Unamortized discount on 7.00% Convertible Senior Notes
— 6,681 
Unamortized discount on 5.875% Convertible Senior Notes
2,800,346 3,284,542 
Total Debt, net of deferred financing costs$114,843,705 $152,109,426 
Debt due within one year$— $5,612,178 
(1) The Amended Pinedale Term Credit Facility was settled during the second quarter of 2020 in connection with the sale of the Pinedale LGS asset. Refer to the "Amended Pinedale Term Credit Facility" section below.
(2) Unamortized deferred financing costs related to the Company's revolving credit facilities are included in Deferred Costs in the Assets section of the Consolidated Balance Sheets. Refer to the "Deferred Financing Costs" paragraph below.
CorEnergy Credit Facility
On July 28, 2017, the Company entered into an amendment and restatement of the CorEnergy Credit Facility with Regions Bank, as lender and administrative agent for other participating lenders (collectively, with the Agent, the "Lenders"). The amended facility provides for borrowing commitments of up to $161.0 million, consisting of (i) $160.0 million on the CorEnergy Revolver, subject to borrowing base limitations, and (ii) $1.0 million on the MoGas Revolver.
The amended facility has a 5-year term maturing on July 28, 2022. Borrowings under the credit facility will generally bear interest on the outstanding principal amount using a LIBOR pricing grid that is expected to equal a LIBOR rate plus an applicable margin of 2.75 percent to 3.75 percent, based on the Company's senior secured recourse leverage ratio. Total availability is subject to a borrowing base. The CorEnergy Credit Facility contains, among other restrictions, certain financial covenants including the maintenance of certain financial ratios, as well as default and cross-default provisions customary for transactions of this nature (with applicable customary grace periods).
Effective May 14, 2020, the Company entered into a Limited Consent with the Lenders under the CorEnergy Revolver that is part of the CorEnergy Credit Facility, pursuant to which the Lenders agreed to extend the required date for delivery of the Company's financial statements for the fiscal quarter ended March 31, 2020 to coordinate with the Company's previously announced extension of the filing date for its first quarter Form 10-Q pursuant to applicable SEC relief (which filing and delivery occurred within the permitted extension period). The Limited Consent also documented notice previously provided by the Company to the Agent that certain events of default occurred under the Company’s lease for its GIGS asset, as a result of the tenant under the Grand Isle Lease Agreement having failed to pay the rent due for April and May 2020. The Limited Consent is subject to the Company’s continued compliance with all of the other terms of the CorEnergy Revolver, and includes the Company’s agreement with the Lenders that the borrowing base value of the GIGS asset for purposes of the CorEnergy Revolver shall be zero, effective as of the Company’s March 31, 2020 balance sheet date. The Company also provided written notification to the Lenders of the EGC Tenant's nonpayment of rent in June, July and August 2020 and will provide any further required notices on a quarterly basis.
As of September 30, 2020, the Company was in compliance with all covenants of the CorEnergy Credit Facility, and the Company had no borrowings outstanding. The Company had approximately $57.9 million and $1.0 million of availability under the CorEnergy Revolver and MoGas Revolver, respectively.
Amended Pinedale Term Credit Facility
On December 29, 2017, Pinedale LP entered into the Amended Pinedale Term Credit Facility with Prudential and a group of lenders affiliated with Prudential as the sole lenders and Prudential serving as administrative agent. Under the terms of the Amended Pinedale Term Credit Facility, Pinedale LP was provided with a 5-year $41.0 million term loan facility, bearing interest at a fixed rate of 6.5 percent, which was scheduled to mature on December 29, 2022. Principal payments of $294 thousand, plus accrued interest, were payable monthly. Outstanding balances under the facility were secured by the Pinedale LGS assets.
As previously discussed in Note 3 ("Leased Properties And Leases"), UPL's bankruptcy filing constituted a default under the terms of the Pinedale Lease Agreement with Pinedale LP. Such default under the Pinedale Lease Agreement was an event of default under the Amended Pinedale Term Credit Facility, which was secured by the Pinedale LGS. Among other things, an event of default could give rise to a Cash Control Period (as defined in the Amended Pinedale Term Credit Facility), which impacted Pinedale LP's ability to make distributions to the Company. During such a Cash Control Period, which was triggered May 14, 2020, by the bankruptcy filing of Ultra Wyoming and its parent guarantor, UPL, distributions by Pinedale LP to the Company were permitted to the extent required for the Company to maintain its REIT qualification, so long as Pinedale LP's obligations under the Amended Pinedale Term Credit Facility were not accelerated following an Event of Default (as defined in the Amended Pinedale Term Credit Facility).
Effective May 8, 2020, Pinedale LP entered into a Standstill Agreement with Prudential. The Standstill Agreement anticipated Pinedale LP’s notification to Prudential of two Events of Default under the Amended Pinedale Term Credit Facility (the “Specified Events of Default”) as a result of the occurrence of either (i) any bankruptcy filing by UPL or Ultra Wyoming and (ii) any resulting impact on Pinedale LP’s net worth covenant under the Amended Pinedale Term Credit Facility due to any accounting impairment of the assets of Pinedale LP triggered by any such bankruptcy filing of Ultra Wyoming. Under the Standstill Agreement, Prudential agreed to forbear through September 1, 2020, or the earlier occurrence of a separate Event of Default under the Amended Pinedale Term Credit Facility (the “Standstill Period”) from exercising any rights they may have had to accelerate and declare the outstanding balance under the credit facility immediately due and payable as a result of the occurrence of either of the Specified Events of Default, provided that there were no other Events of Default and Pinedale LP continued to meet its obligations under all of the other terms of the Amended Pinedale Term Credit Facility. The Standstill Agreement also required that Pinedale LP not make any distributions to the Company during the Standstill Period and that interest was to accrue and be payable from the effective date of such agreement at the Default Rate of interest provided for in the Amended Pinedale Term Credit Facility, which increased the effective interest rate to 8.50 percent.
As previously discussed in Note 3 ("Leased Properties And Leases"), Pinedale LP and the Company entered into the Release Agreement with Prudential related to the Amended Pinedale Term Credit Facility, which had an outstanding balance of approximately $32.0 million, net of $132 thousand of deferred debt issuance costs. Pursuant to the Release Agreement, the
$18.0 million sale proceeds were provided by Ultra Wyoming directly to Prudential at closing of the Pinedale LGS sale transaction on June 30, 2020. The Company also provided all cash available at Pinedale LP of approximately $3.3 million (including $198 thousand for accrued interest) to Prudential in exchange for (i) the release of all liens on the Pinedale LGS and the other assets of Pinedale LP, (ii) the termination of the Company’s pledge of equity interests of the general partner of Pinedale LP, (iii) the termination and satisfaction in full of the obligations of Pinedale LP under the Amended Pinedale Term Credit Facility and (iv) a general release of any other obligations of Pinedale LP and/or the Company and their respective directors, officers, employees or agents pertaining to the Amended Pinedale Term Credit Facility. The Release Agreement resulted in a gain on extinguishment of debt of approximately $11.0 million for the nine months ended September 30, 2020.
Deferred Financing Costs
A summary of deferred financing cost amortization expenses for the three and nine months ended September 30, 2020 and 2019 is as follows:
For the Three Months EndedFor the Nine Months Ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
CorEnergy Credit Facility$143,636 $143,635 $430,906 $430,906 
Amended Pinedale Term Credit Facility— 13,205 26,410 39,616 
Total Deferred Debt Cost Amortization Expense (1)(2)
$143,636 $156,840 $457,316 $470,522 
(1) Amortization of deferred debt issuance costs is included in interest expense in the Consolidated Statements of Operations.
(2) For the amount of deferred debt cost amortization relating to the convertible notes included in the Consolidated Statements of Operations, refer to the Convertible Note Interest Expense table below.
CorEnergy Credit Facilities
Prior to the July 28, 2017 credit facility amendment and restatement, previously existing deferred financing costs related to the CorEnergy Credit Facility were approximately $1.8 million, of which approximately $1.6 million continue to be deferred and amortized under the amended and restated facility. Additionally, the Company incurred approximately $1.3 million in new debt issuance costs which have been deferred and are being amortized over the term of the new facility. Total deferred financing costs of $2.9 million are being amortized on a straight-line basis over the 5-year term of the amended and restated CorEnergy Credit Facility.
Convertible Debt
7.00% Convertible Notes
On June 29, 2015, the Company completed a public offering of $115.0 million aggregate principal amount of 7.00% Convertible Senior Notes Due 2020 (the "7.00% Convertible Notes"). The 7.00% Convertible Notes had a maturity date of June 15, 2020 and bore interest at a rate of 7.00 percent per annum, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2015. The 7.00% Convertible Notes were convertible into common stock at a rate of 30.3030 shares of common stock per $1,000 principal amount of 7.00% Convertible Notes, equivalent to a conversion price of $33.00 per share of common stock.
On January 16, 2019, the Company agreed with three holders of its 7.00% Convertible Notes, pursuant to privately negotiated agreements, to exchange $43.8 million face amount of such notes for an aggregate of 837,040 shares of the Company's common stock, par value $0.001 per share, plus aggregate cash consideration of $19.8 million, including $315 thousand of interest expense. The Company's agent and lenders under the CorEnergy Credit Facility provided a consent for the convertible note exchange. The Company recorded a loss on extinguishment of debt of approximately $5.0 million in the Consolidated Statements of Operations for the first quarter of 2019. The loss on extinguishment of debt included the write-off of a portion of the underwriter's discount and deferred debt costs of $409 thousand and $27 thousand, respectively.
On August 15, 2019, the Company used a portion of the net proceeds from the offering of the 5.875% Convertible Notes discussed further below, together with shares of its common stock, to exchange $63.9 million face amount of its 7.00% Convertible Notes pursuant to privately negotiated agreements with three holders. The total cash and stock consideration for the exchange was valued at approximately $93.2 million. This included an aggregate of 703,432 shares of common stock plus cash consideration of approximately $60.2 million, including $733 thousand of interest expense. The Company recorded a loss on extinguishment of debt of approximately $28.9 million in the Consolidated Statements of Operations for the third quarter of 2019. The loss on extinguishment of debt included the write-off of a portion of the underwriter's discount and deferred debt costs of $360 thousand and $24 thousand, respectively. Collectively, for the two exchange transactions described above, the Company recorded a loss on extinguishment of debt of $34.0 million for the year ended December 31, 2019.
Additionally, during the first quarter of 2020, certain holders elected to convert $416 thousand of 7.00% Convertible Notes for approximately 12,605 shares of common stock. On June 12, 2020, the Company paid $1.7 million in aggregate principal and $59 thousand in accrued interest upon maturity of the 7.00% Convertible Notes to extinguish the remaining debt outstanding.
5.875% Convertible Notes
On August 12, 2019, the Company completed a private placement offering of $120.0 million aggregate principal amount of 5.875% Convertible Senior Notes due 2025 (the "5.875% Convertible Notes") to the initial purchasers of such notes for cash in reliance on an exemption from registration provided by Section 4(a)(2) of the Securities Act. The initial purchasers then resold the 5.875% Convertible Notes for cash equal to 100 percent of the aggregate principal amount thereof to qualified institutional buyers, as defined in Rule 144A under the Securities Act, in reliance on an exemption from registration provided by Rule 144A. The 5.875% Convertible Notes mature on August 15, 2025 and bear interest at a rate of 5.875 percent per annum, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2020.
The 5.875% Convertible Notes were issued with an initial purchasers' discount of $3.5 million, which is being amortized over the life of the notes. The Company also incurred approximately $508 thousand of deferred debt costs in issuing the 5.875% Convertible Notes, which are also being amortized over the life of the notes.
Holders may convert all or any portion of their 5.875% Convertible Notes into shares of the Company's common stock at their option at any time prior to the close of business on the business day immediately preceding the maturity date. The initial conversion rate for the 5.875% Convertible Notes is 20.0 shares of common stock per $1,000 principal amount of the 5.875% Convertible Notes, equivalent to an initial conversion price of $50.00 per share of the Company's common stock. Such conversion rate will be subject to adjustment in certain events as specified in the Indenture.
The Indenture for the 5.875% Convertible Notes specifies events of default, including default by the Company or any of its subsidiaries with respect to any debt agreements under which there may be outstanding, or by which there may be secured or evidenced, any debt in excess of $25.0 million in the aggregate of the Company and/or any such subsidiary, resulting in such indebtedness becoming or being declared due and payable prior to its stated maturity.
On April 29, 2020, the Company repurchased approximately $2.0 million face amount of its 5.875% Convertible Notes for approximately $1.3 million, including $24 thousand of accrued interest. The repurchase resulted in a gain on extinguishment of debt of $576 thousand for the nine months ended September 30, 2020. Subsequent to the transaction, the Company has $118.1 million aggregate principal amount of 5.875% Convertible Notes outstanding.
Convertible Note Interest Expense
The following is a summary of the impact of convertible notes on interest expense for the three and nine months ended September 30, 2020 and 2019:
Convertible Note Interest Expense
For the Three Months EndedFor the Nine Months Ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
7.00% Convertible Notes:
Interest Expense$— $632,189 $55,331 $3,265,626 
Discount Amortization— 62,030 6,681 312,079 
Deferred Debt Issuance Amortization— 4,051 1,141 20,382 
Total 7.00% Convertible Notes
$— $698,270 $63,153 $3,598,087 
5.875% Convertible Notes:
Interest Expense$1,733,859 $959,583 $5,239,129 $959,583 
Discount Amortization143,607 79,478 433,932 79,478 
Deferred Debt Issuance Amortization20,818 10,623 62,905 10,623 
Total 5.875% Convertible Notes
$1,898,284 $1,049,684 $5,735,966 $1,049,684 
Total Convertible Note Interest Expense$1,898,284 $1,747,954 $5,799,119 $4,647,771 
Including the impact of the convertible debt discount and related deferred debt issuance costs, (i) the effective interest rate on the 7.00% Convertible Notes is approximately 7.7 percent for each of the three and nine months ended September 30, 2019, and (ii) the effective interest rate on the 5.875% Convertible Notes is approximately 6.4 percent for each of the three and nine months ended September 30, 2020 and 2019, respectively.
Debt Covenant Considerations
In accordance with GAAP, when preparing financial statements for each annual and interim reporting period, management evaluates whether there are conditions or events that, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. In making its assessment, management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows and conditional and unconditional obligations due over the next twelve months. As discussed in this footnote, the Company was in compliance with its debt covenants under the CorEnergy Credit Facility as of September 30, 2020.
The Company has considered the projected impact of COVID-19 and the significant disruptions and volatility in the global energy markets on the ability of its EGC Tenant to pay rent, which represents a significant portion of the Company's lease revenues and operating cash flows. Based on its analysis of future compliance with its financial covenants, management has determined that the Company may violate certain financial covenants under the CorEnergy Credit Facility starting in the fourth quarter of 2020 if covenant waivers are not obtained. If the Company were to violate one or more financial covenants, the lenders could declare the Company in default and could accelerate the amounts due under a portion or all of the Company’s outstanding debt under the CorEnergy Credit Facility. Further, a default under one debt agreement could trigger cross-default provisions within certain of the Company's other debt agreements. While these conditions raise substantial doubt about the Company's ability to continue as a going concern within one year after the financial statements are issued, management has concluded that such doubt is mitigated by the considerations discussed below, which lead to a conclusion that the Company will continue to be able to fund current obligations as they become due one year from the date of issuance of these financial statements.
The Company is in the process of working with its lenders and believes it will receive waivers with respect to the affected financial covenants before any covenants are violated. However, any waivers would be granted at the sole discretion of the lenders, and there can be no assurance that the Company will be able to obtain such waivers. Additionally, the Company currently has no borrowings or expected future borrowings on its CorEnergy Credit Facility, which mitigates the cross-default provision described above under the Company's 5.875% Convertible Notes. In any event, should negotiations with the Company's lenders concerning additional waivers prove unsuccessful, the Company would have sufficient liquidity to pay fees that would be due in connection with any termination of the CorEnergy Credit Facility, while also continuing to fund current obligations as they become due one year from the date of issuance of these financial statements. As a result, the accompanying unaudited consolidated financial statements and related notes have been prepared assuming that the Company will continue as a going concern.
v3.20.2
Stockholder's Equity
9 Months Ended
Sep. 30, 2020
Equity [Abstract]  
STOCKHOLDERS' EQUITY STOCKHOLDERS' EQUITY
The Company's Board of Directors authorized a securities repurchase program for the Company to buy up to the remaining amount of its 7.00% Convertible Notes prior to maturity on June 15, 2020 and up to $5.0 million of its common stock and 7.375% Series A Preferred Stock, which commenced March 21, 2020. Purchases were made through the program until it expired on August 20, 2020.
PREFERRED STOCK
As of September 30, 2020, the Company has a total of 5,010,814 depository shares outstanding, or approximately 50,108 whole shares of its 7.375% Series A Preferred Stock. On March 30, 2020, the Company repurchased 8,913 depository shares of Series A Preferred Stock for approximately $162 thousand in cash.
See Note 13 ("Subsequent Events") for further information regarding the declaration of a dividend on the 7.375% Series A Preferred Stock.
COMMON STOCK
As of September 30, 2020, the Company has 13,651,521 of common shares issued and outstanding. See Note 13 ("Subsequent Events") for further information regarding the declaration of a dividend on the common stock.
SHELF REGISTRATION STATEMENTS
On October 30, 2018, the Company filed a shelf registration statement with the SEC, pursuant to which it registered 1,000,000 shares of common stock for issuance under its dividend reinvestment plan. As of September 30, 2020, the Company has issued 22,003 shares of common stock under its dividend reinvestment plan pursuant to the shelf, resulting in remaining availability (subject to the current limitation discussed below) of approximately 977,997 shares of common stock.
On November 9, 2018, the Company had a new shelf registration statement declared effective by the SEC replacing the Company's previously filed shelf registration statement, pursuant to which it may publicly offer additional debt or equity securities with an aggregate offering price of up to $600.0 million. As described elsewhere in this Report, EGC and Cox Oil have refused to provide the financial statement information concerning EGC required to be filed by the Company pursuant to SEC Regulation S-X. At least until it is able to file these EGC financial statements, the Company does not expect to be able to use this shelf registration statement, or the shelf registration statement filed for its dividend reinvestment plan, to sell its securities. As previously disclosed in the Company's Current Report on Form 8-K filed on April 24, 2019, the Company has suspended its dividend reinvestment plan.
The Company has engaged in dialogue with the staff of the SEC in an effort to shorten the period during which it does not use its registration statements. The Company does not expect this period to be shortened until the EGC financial statement information has been received and filed.
v3.20.2
Earnings (Loss) Per Share
9 Months Ended
Sep. 30, 2020
Earnings Per Share [Abstract]  
Earnings (Loss) Per Share EARNINGS (LOSS) PER SHARE
Basic loss per share data is computed based on the weighted-average number of shares of common stock outstanding during the periods. Diluted loss per share data is computed based on the weighted-average number of shares of common stock outstanding, including all potentially issuable shares of common stock. Diluted loss per share for the three and nine months ended September 30, 2020 and 2019 excludes the impact to income and the number of shares outstanding from the conversion of the 7.00% Convertible Notes and the 5.875% Convertible Notes, as applicable, because such impact is antidilutive. The remaining 7.00% Convertible Notes matured on June 15, 2020.
Under the if converted method, the 5.875% Convertible Notes would result in an additional 2,361,000 common shares outstanding for the three and nine months ended September 30, 2020. For the three and nine months ended September 30, 2019, under the if-converted method, the 7.00% Convertible Notes and 5.875% Convertible Notes would have resulted in an additional 2,567,454 common shares outstanding.
For the Three Months EndedFor the Nine Months Ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Net Loss attributable to CorEnergy Stockholders$(3,919,098)$(19,419,600)$(303,395,899)$(5,728,233)
Less: preferred dividend requirements2,309,672 2,313,780 6,880,137 6,941,688 
Net Loss attributable to Common Stockholders$(6,228,770)$(21,733,380)$(310,276,036)$(12,669,921)
Weighted average shares - basic13,651,521 13,188,546 13,650,449 12,870,357 
Basic loss per share$(0.46)$(1.65)$(22.73)$(0.98)
Net Loss attributable to Common Stockholders (from above)$(6,228,770)$(21,733,380)$(310,276,036)$(12,669,921)
Add: After tax effect of convertible interest— — — — 
Loss attributable for dilutive securities$(6,228,770)$(21,733,380)$(310,276,036)$(12,669,921)
Weighted average shares - diluted13,651,521 13,188,546 13,650,449 12,870,357 
Diluted loss per share$(0.46)$(1.65)$(22.73)$(0.98)
v3.20.2
Subsequent Events
9 Months Ended
Sep. 30, 2020
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS SUBSEQUENT EVENTS
The Company performed an evaluation of subsequent events through the date of the issuance of these financial statements and determined that no additional items require recognition or disclosure, except for the following:
Common Stock Dividend Declaration
On October 27, 2020 the Company's Board of Directors declared a 2020 third quarter dividend of $0.05 per share for CorEnergy common stock. The dividend is payable on November 30, 2020 to stockholders of record on November 16, 2020. As previously disclosed in the Company's Current Report on Form 8-K filed on October 27, 2020, the Company will pay this quarter's common stock dividend entirely in cash.
Preferred Stock Dividend Declaration
On October 27, 2020, the Company's Board of Directors also declared a dividend of $0.4609375 per depositary share for its 7.375% Series A Preferred Stock. The preferred stock dividend is payable on November 30, 2020 to stockholders of record on November 16, 2020.
MoGas Transportation AgreementDuring the fourth quarter of 2020, MoGas entered into a new long-term firm transportation services agreement with Spire, its largest customer. Refer to Note 4 ("Transportation And Distribution Revenue") for further information.
v3.20.2
Recent Accounting Pronouncements (Policies)
9 Months Ended
Sep. 30, 2020
Accounting Policies [Abstract]  
Basis of Presentation
Basis of Presentation
The accompanying consolidated financial statements include CorEnergy accounts and the accounts of its wholly-owned subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") set forth in the Accounting Standards Codification ("ASC"), as published by the Financial Accounting Standards Board ("FASB"), and with the Securities and Exchange Commission ("SEC") instructions to Form 10-Q, and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the Company's financial position, results of operations, and cash flows for the periods presented. There were no adjustments that, in the opinion of management, were not of a normal and recurring nature. All intercompany transactions and balances have been eliminated in consolidation.
The FASB issued ASU 2015-02 "Consolidations (Topic 810) - Amendments to the Consolidation Analysis" ("ASU 2015-02"), which amended previous consolidation guidance, including introducing a separate consolidation analysis specific to limited partnerships and other similar entities. Under this analysis, limited partnerships and other similar entities are considered a variable interest entity ("VIE") unless the limited partners hold substantive kick-out rights or participating rights. Management determined that Pinedale LP and Grand Isle Corridor LP are VIEs under the amended guidance because the limited partners of both partnerships lack both substantive kick-out rights and participating rights. However, based on the general partners' roles and rights as afforded by the partnership agreements and its exposure to losses and benefits of each of the partnerships through its significant limited partner interests, management determined that CorEnergy is the primary beneficiary of both Pinedale LP and Grand Isle Corridor LP. Based upon this evaluation and the Company's 100 percent ownership of the limited partnership interest in both Pinedale LP and Grand Isle Corridor LP, the consolidated financial statements presented include full consolidation with respect to both partnerships.
Recent Accounting Pronouncements RECENT ACCOUNTING PRONOUNCEMENTS
In June of 2016, the FASB issued ASU 2016-13 "Financial Instruments - Credit Losses" ("ASU 2016-13"), which introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. The new model, referred to as the current expected credit losses ("CECL model"), will apply to financial assets subject to credit losses and measured at amortized cost, and certain off-balance sheet credit exposures. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In November of 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates, which deferred the effective dates of these standards for certain entities. Based on the guidance for smaller reporting companies, the effective date of ASU 2016-13 is deferred for the Company until fiscal year 2023 with early adoption permitted, and the Company has elected to defer adoption of this standard.
Although the Company has elected to defer adoption of ASU 2016-13, it will continue to evaluate the potential impact of the standard on its consolidated financial statements. As part of its ongoing assessment work, the Company has formed an implementation team, completed training on the CECL model and has begun developing policies, processes and internal controls.
In December of 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes (Topic 740)" ("ASU 2019-12"), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years; however, early adoption is permitted for all entities. The Company continues to assess the impact of adopting ASU 2019-12 but does not believe it will have a material impact on its consolidated financial statements.
In March of 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)" ("ASU 2020-04"). In response to concerns about structural risks of interbank offered rates including the risk of cessation of the London Interbank Offered Rate (LIBOR), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable and less susceptible to manipulation. The provisions of ASU 2020-04 are elective and apply to all entities, subject to meeting certain criteria, that have debt or hedging contracts, among other contracts, that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04, among other things, provides optional expedients and exceptions for a limited period of time for applying U.S. GAAP to these contracts if certain criteria are met to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating its contracts that reference LIBOR and the optional expedients and exceptions provided by the FASB.
v3.20.2
Leased Properties and Leases (Tables)
9 Months Ended
Sep. 30, 2020
Leases [Abstract]  
Significant Leased Properties, Major Tenants and Lease Terms The following table summarizes the significant leased property, major tenant and lease term:
Summary of Leased Property, Major Tenant and Lease Terms
PropertyGrand Isle Gathering System
LocationGulf of Mexico/Louisiana
TenantEnergy XXI GIGS Services, LLC
Asset Description
Approximately 137 miles of offshore pipeline with total capacity of 120 thousand Bbls/d,
including a 16-acre onshore terminal and saltwater disposal system.
Date AcquiredJune 2015
Initial Lease Term11 years
Renewal Option
Equal to the lesser of 9-years or 75 percent of the remaining useful life
Current Monthly Rent Payments
7/1/2019 - 6/30/2020: $3,223,917
7/1/2020 - 6/30/2021: $4,033,583
Estimated Useful Life(1)
15 years
(1) In conjunction with the impairment of the Grand Isle Gathering System discussed below, the remaining estimated useful life of the GIGS asset was adjusted to approximately 15 years beginning in the second quarter of 2020. Additionally, the Company updated the useful life of its asset retirement obligation ("ARO") segments resulting in a change to the timing of the undiscounted cash flows. The timing change resulted in an increase to the ARO asset and liability of approximately $257 thousand.
Schedule of Significant Leases
The table below displays the Company's individually significant leases as a percentage of total leased properties and total lease revenues for the periods presented:
As a Percentage of (1)
Leased PropertiesLease Revenues
As ofFor the Three Months EndedFor the Nine Months Ended
September 30, 2020December 31, 2019September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Pinedale LGS(2)
— %44.4 %— %40.0 %52.0 %39.3 %
Grand Isle Gathering System(3)
98.0 %55.3 %— %59.8 %47.7 %60.6 %
(1) Insignificant leases are not presented; thus, percentages may not sum to 100%.
(2) Pinedale LGS lease revenues include variable rent of $0 and $28 thousand for the three and nine months ended September 30, 2020, respectively, compared to $1.4 million and $3.5 million for the three and nine months ended September 30, 2019, respectively. The Pinedale LGS was sold to Ultra Wyoming and the Pinedale Lease Agreement was terminated on June 30, 2020, as discussed above.
(3) The Grand Isle Gathering System's percentage of leased properties increased as a result of the sale of the Pinedale LGS on June 30, 2020. For the nine months ended September 30, 2020, the Grand Isle Gathering System's percentage of lease revenues is exclusive of the deferred rent receivable write-off discussed above.
Schedule of Depreciation, Amortization and Accretion
The following table reflects the depreciation and amortization included in the accompanying Consolidated Statements of Operations associated with the Company's leases and leased properties:
For the Three Months EndedFor the Nine Months Ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Depreciation Expense
GIGS$1,190,911 $2,440,791 $4,822,410 $7,322,372 
Pinedale—