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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549 
___________________________________________
FORM 10-Q
 ___________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    
Commission file number: 001-33292
_________________________________________________________
corr-20200930_g1.jpg
CORENERGY INFRASTRUCTURE TRUST, INC.
______________________________________________________________________
(Exact name of registrant as specified in its charter)
Maryland20-3431375
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
1100 Walnut, Ste. 3350Kansas City,MO64106
(Address of Registrant's Principal Executive Offices)(Zip Code)
(816) 875-3705
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange On Which Registered
Common Stock, par value $0.001 per shareCORRNew York Stock Exchange
7.375% Series A Cumulative Redeemable Preferred StockCORRPrANew York Stock Exchange
___________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)     Yes      No  
As of November 2, 2020, the registrant had 13,651,521 common shares outstanding.



CorEnergy Infrastructure Trust, Inc.
FORM 10-Q
FOR THE QUARTER ENDED September 30, 2020
TABLE OF CONTENTS
____________________________________________________________________________________________
Page No.

This Report on Form 10-Q ("Report") should be read in its entirety. No one section of the Report deals with all aspects of the subject matter. It should be read in conjunction with the consolidated financial statements, related notes, and with the Management's Discussion & Analysis ("MD&A") included within, as well as provided in the Annual Report on Form 10-K, for the year ended December 31, 2019.

2


The consolidated unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q, and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of Management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. 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 ended December 31, 2020 or for any other interim or annual period. For further information, refer to the consolidated financial statements and footnotes thereto included in the CorEnergy Infrastructure Trust, Inc. Annual Report on Form 10-K, for the year ended December 31, 2019.

3

GLOSSARY OF DEFINED TERMS
Certain of the defined terms used in this Report are set forth below:
5.875% Convertible Notes: the Company's 5.875% Convertible Senior Notes due 2025.
7.00% Convertible Notes: the Company's 7.00% Convertible Senior Notes due 2020, which matured on June 15, 2020.
Accretion Expense: the expense recognized when adjusting the present value of the GIGS ARO for the passage of time.
Administrative Agreement: the Administrative Agreement dated December 1, 2011, as amended effective August 7, 2012, between the Company and Corridor.
Amended Pinedale Term Credit Facility: Pinedale LP's $41.0 million Second Amended and Restated Term Credit Agreement and Note Purchase Agreement with Prudential as lender, effective December 29, 2017, which was extinguished on June 30, 2020.
ARO: the Asset Retirement Obligation liabilities assumed with the acquisition of GIGS.
ASC: FASB Accounting Standards Codification.
ASU: FASB Accounting Standard Update.
Bbls: standard barrel containing 42 U.S. gallons.
CARES Act: the Coronavirus Aid, Relief, and Economic Security Act.
Company or CorEnergy: CorEnergy Infrastructure Trust, Inc. (NYSE: CORR).
Compass SWD: Compass SWD, LLC, the current borrower under the Compass REIT Loan.
Compass REIT Loan: the financing notes between Compass SWD and Four Wood Corridor.
Convertible Notes: collectively, the Company's 5.875% Convertible Notes and the Company's 7.00% Convertible Notes.
CorEnergy Credit Facility: the Company's upsized $160.0 million CorEnergy Revolver and the $1.0 million MoGas Revolver with Regions Bank.
CorEnergy Revolver: the Company's $160.0 million secured revolving line of credit facility with Regions Bank.
Corridor: Corridor InfraTrust Management, LLC, the Company's external manager pursuant to the Management Agreement.
Corridor MoGas: Corridor MoGas, Inc., a wholly-owned taxable REIT subsidiary of CorEnergy and the holding company of MoGas, United Property Systems and CorEnergy Pipeline Company, LLC.
Corridor Private: Corridor Private Holdings, Inc., an indirect wholly-owned taxable REIT subsidiary of CorEnergy.
COVID-19: Coronavirus disease of 2019; a pandemic affecting many countries globally.
Cox Acquiring Entity: MLCJR LLC, an affiliate of Cox Oil, LLC.
Cox Oil: Cox Oil, LLC.
CPI: Consumer Price Index.
Exchange Act: the Securities Exchange Act of 1934, as amended.
EGC: Energy XXI Ltd, the parent company (and guarantor) of our tenant on the Grand Isle Gathering System lease, emerged from a reorganization under Chapter 11 of the US Bankruptcy Code on December 30, 2016, with the succeeding company named Energy XXI Gulf Coast, Inc. Effective October 18, 2018, EGC became an indirect wholly-owned subsidiary of MLCJR LLC ("Cox Acquiring Entity"), an affiliate of Cox Oil, LLC, as a result of a merger transaction. Throughout this document, references to EGC will refer to both the pre- and post-bankruptcy entities and, for dates on and after October 18, 2018, to EGC as an indirect wholly-owned subsidiary of the Cox Acquiring Entity.
EGC Tenant: Energy XXI GIGS Services, LLC, a wholly-owned operating subsidiary of Energy XXI Gulf Coast, Inc. that is the tenant under Grand Isle Corridor's triple-net lease of the Grand Isle Gathering System.
4

GLOSSARY OF DEFINED TERMS (Continued from previous page)
FASB: Financial Accounting Standards Board.
FERC: Federal Energy Regulatory Commission.
Four Wood Corridor: Four Wood Corridor, LLC, a wholly-owned subsidiary of CorEnergy.
GAAP: U.S. generally accepted accounting principles.
GIGS: the Grand Isle Gathering System, owned by Grand Isle Corridor, LP and triple-net leased to a wholly-owned subsidiary of Energy XXI Gulf Coast, Inc.
Grand Isle Corridor: Grand Isle Corridor, LP, an indirect wholly-owned subsidiary of the Company.
Grand Isle Gathering System: a subsea midstream pipeline gathering system located in the shallow Gulf of Mexico shelf and storage and onshore processing facilities.
Grand Isle Lease Agreement: the June 2015 agreement pursuant to which the Grand Isle Gathering System assets are triple-net leased to EGC Tenant.
IRS: Internal Revenue Service.
Lightfoot: collectively, Lightfoot Capital Partners LP and Lightfoot Capital Partners GP LLC.
Management Agreement: the current management agreement between the Company and Corridor entered into May 8, 2015, effective as of May 1, 2015.
MoGas: MoGas Pipeline LLC, an indirect wholly-owned subsidiary of CorEnergy.
MoGas Pipeline System: an approximately 263-mile interstate natural gas pipeline system in and around St. Louis and extending into central Missouri, owned and operated by MoGas.
MoGas Revolver: a $1.0 million secured revolving line of credit facility at the MoGas subsidiary level with Regions Bank.
Mowood: Mowood, LLC, an indirect wholly-owned subsidiary of CorEnergy and the holding company of Omega Pipeline Company, LLC.
Mowood/Omega Revolver: a $1.5 million revolving line of credit facility at the Mowood subsidiary level with Regions Bank.
NAREIT: National Association of Real Estate Investment Trusts.
Omega: Omega Pipeline Company, LLC, a wholly-owned subsidiary of Mowood, LLC.
Omega Pipeline: Omega's natural gas distribution system in south central Missouri.
OPEC: the Organization of the Petroleum Exporting Countries.
Pinedale LGS: the Pinedale Liquids Gathering System, a system consisting of approximately 150 miles of pipelines and four above-ground central gathering facilities located in the Pinedale Anticline in Wyoming, owned by Pinedale LP and triple-net leased to a wholly-owned subsidiary of Ultra Petroleum until it was sold on June 30, 2020.
Pinedale Lease Agreement: the December 2012 agreement pursuant to which the Pinedale LGS assets were triple-net leased to a wholly owned subsidiary of Ultra Petroleum, which terminated on June 30, 2020 upon sale of the Pinedale LGS.
Pinedale LP: Pinedale Corridor, LP, an indirect wholly-owned subsidiary of CorEnergy.
Pinedale GP: the general partner of Pinedale LP and a wholly-owned subsidiary of CorEnergy.
PLR: the Private Letter Ruling dated November 16, 2018 (PLR 201907001) issued to CorEnergy by the IRS.
Prudential: the Prudential Insurance Company of America.
REIT: real estate investment trust.
SEC: Securities and Exchange Commission.
Securities Act: the Securities Act of 1933, as amended.
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GLOSSARY OF DEFINED TERMS (Continued from previous page)
Series A Preferred Stock: the Company's 7.375% Series A Cumulative Redeemable Preferred Stock, par value $0.001 per share, of which there currently are outstanding approximately 50,108 shares represented by 5,010,814 depositary shares, each representing 1/100th of a whole share of Series A Preferred Stock.
TRS: taxable REIT subsidiary.
UPL: Ultra Petroleum Corp.
Ultra Wyoming: Ultra Wyoming LGS LLC, an indirect wholly-owned subsidiary of Ultra Petroleum.
United Property Systems: United Property Systems, LLC, an indirect wholly-owned subsidiary of CorEnergy, acquired with the MoGas transaction in November 2014.
VIE: variable interest entity.

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this Quarterly Report on Form 10-Q ("Report") may be deemed "forward-looking statements" within the meaning of the federal securities laws. In many cases, these forward-looking statements may be identified by the use of words such as "will," "may," "should," "could," "believes," "expects," "anticipates," "estimates," "intends," "projects," "goals," "objectives," "targets," "predicts," "plans," "seeks," or similar expressions.
Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance or results and we can give no assurance that these expectations will be attained. Our actual results may differ materially from those indicated by these forward-looking statements due to a variety of known and unknown risks and uncertainties. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:
the ability of our tenants and borrowers to make payments under their respective leases and mortgage loans, our reliance on certain major tenants under single tenant leases and our ability to re-lease properties;
the ability and willingness of each of our tenants to satisfy their obligations under the respective lease agreements;
risks associated with the bankruptcy or default of any of our tenants or borrowers, including the exercise of the rights and remedies of bankrupt entities;
changes in economic and business conditions in the energy infrastructure sector where our investments are concentrated, including the financial condition of our tenants or borrowers and general economic conditions in the particular sectors of the energy industry served by each of our infrastructure assets;
the recent outbreak of COVID-19 and certain developments in the global oil markets, including the general decline in business activity and demand affecting our tenants' operations and ability or willingness to pay rent;
the inherent risks associated with owning real estate, including real estate market conditions, governing laws and regulations, including potential liabilities related to environmental matters, and the relative illiquidity of real estate investments;
our continued ability to access the debt and equity markets, including our ability to continue using our SEC shelf registration statements;
our ability to comply with certain debt covenants;
the impact of laws and governmental regulations applicable to certain of our infrastructure assets, including additional costs imposed on our business or other adverse impacts as a result of any unfavorable changes in such laws or regulations;
the potential impact of greenhouse gas regulation and climate change on our or our tenants' business, financial condition and results of operations;
the loss of any member of our management team;
our ability to successfully implement our selective acquisition strategy;
our ability to obtain suitable tenants for our properties;
our ability to refinance amounts outstanding under our credit facilities and our convertible notes at maturity on terms favorable to us;
changes in interest rates under our current credit facilities and under any additional variable rate debt arrangements that we may enter into in the future;
dependence by us and our tenants on key customers for significant revenues, and the risk of defaults by any such tenants or customers;
our or our tenants' ability to secure adequate insurance and risk of potential uninsured losses, including from natural disasters;
the continued availability of third-party pipelines, railroads or other facilities interconnected with certain of our infrastructure assets;
risks associated with owning, operating or financing properties for which the tenants', mortgagors' or our operations may be impacted by extreme weather patterns and other natural phenomena;
our ability to sell properties at an attractive price;
market conditions and related price volatility affecting our debt and equity securities;
competitive and regulatory pressures on the revenues of our interstate natural gas transmission business;
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changes in federal or state tax rules or regulations that could have adverse tax consequences;
our ability to maintain internal controls and processes to ensure all transactions are accounted for properly, all relevant disclosures and filings are timely made in accordance with all rules and regulations, and any potential fraud or embezzlement is thwarted or detected;
changes in federal income tax regulations (and applicable interpretations thereof), or in the composition or performance of our assets, that could impact our ability to continue to qualify as a real estate investment trust for federal income tax purposes; and
risks related to potential terrorist attacks, acts of cyber-terrorism, or similar disruptions that could disrupt access to our information technology systems or result in other significant damage to our business and properties, some of which may not be covered by insurance and all of which could adversely impact distributions to our stockholders.
Forward-looking statements speak only as of the date on which they are made. While we may update these statements from time to time, we are not required to do so other than pursuant to applicable laws. For a further discussion of these and other factors that could impact our future results and performance, see Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 27, 2020, and Part II, Item 1A, "Risk Factors", in this Report.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
corr-20200930_g1.jpg
CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED BALANCE SHEETS
September 30, 2020December 31, 2019
Assets(Unaudited)
Leased property, net of accumulated depreciation of $5,631,017 and $105,825,816
$66,121,507 $379,211,399 
Property and equipment, net of accumulated depreciation of $21,815,093 and $19,304,610
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 equivalents104,221,404 120,863,643 
Deferred rent receivable 29,858,102 
Accounts and other receivables3,103,170 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 assets1,861,017 804,341 
Deferred tax asset, net4,367,933 4,593,561 
Goodwill1,718,868 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
$ $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 obligation8,646,065 8,044,200 
Accounts payable and other accrued liabilities3,760,287 6,000,981 
Management fees payable969,756 1,669,950 
Unearned revenue6,053,376 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 capital342,734,629 360,844,497 
Retained deficit(312,954,875)(9,611,872)
Total Equity155,063,756 476,739,439 
Total Liabilities and Equity$289,336,945 $651,455,794 
See accompanying Notes to Consolidated Financial Statements.
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corr-20200930_g1.jpg
CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months EndedFor the Nine Months Ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Revenue
Lease revenue$20,126 $16,984,903 $21,320,998 $50,338,489 
Deferred rent receivable write-off  (30,105,820) 
Transportation and distribution revenue4,573,155 4,068,338 14,156,361 13,808,064 
Financing revenue32,099 28,003 88,319 89,532 
Total Revenue4,625,380 21,081,244 5,459,858 64,236,085 
Expenses
Transportation and distribution expenses1,438,443 1,116,194 4,035,807 3,866,092 
General and administrative2,793,568 2,494,240 10,195,635 8,104,502 
Depreciation, amortization and ARO accretion expense2,169,806 5,645,342 11,479,799 16,935,688 
Loss on impairment of leased property  140,268,379  
Loss on impairment and disposal of leased property  146,537,547  
Loss on termination of lease  458,297  
Total Expenses6,401,817 9,255,776 312,975,464 28,906,282 
Operating Income (Loss)$(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 $902,056 
Interest expense(2,247,643)(2,777,122)(8,053,650)(7,582,199)
Gain (loss) on extinguishment of debt (28,920,834)11,549,968 (33,960,565)
Total Other Income (Expense)(2,217,989)(31,337,774)3,945,830 (40,640,708)
Loss before income taxes(3,994,426)(19,512,306)(303,569,776)(5,310,905)
Taxes
Current tax expense (benefit)(2,431)(1,270)(399,505)352,474 
Deferred tax expense (benefit)(72,897)(91,436)225,628 64,854 
Income tax expense (benefit), net(75,328)(92,706)(173,877)417,328 
Net Loss attributable to CorEnergy Stockholders(3,919,098)(19,419,600)(303,395,899)(5,728,233)
Preferred dividend requirements2,309,672 2,313,780 6,880,137 6,941,688 
Net Loss attributable to Common Stockholders$(6,228,770)$(21,733,380)$(310,276,036)$(12,669,921)
Loss Per Common Share:
Basic$(0.46)$(1.65)$(22.73)$(0.98)
Diluted$(0.46)$(1.65)$(22.73)$(0.98)
Weighted Average Shares of Common Stock Outstanding:
Basic13,651,521 13,188,546 13,650,449 12,870,357 
Diluted13,651,521 13,188,546 13,650,449 12,870,357 
Dividends declared per share$0.050 $0.750 $0.850 $2.250 
See accompanying Notes to Consolidated Financial Statements.
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corr-20200930_g1.jpg
CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED STATEMENTS OF EQUITY
Capital StockPreferred StockAdditional
Paid-in
Capital
Retained
Earnings (Deficit)
Total
SharesAmountAmount
Balance at December 31, 201811,960,225 $11,960 $125,555,675 $320,295,969 $9,147,701 $455,011,305 
Net income— — — — 3,866,441 3,866,441 
Series A preferred stock dividends— — — — (2,313,780)(2,313,780)
Preferred stock repurchases(1)
— — (62,500)2,195 (245)(60,550)
Common stock dividends— — —  (9,597,948)(9,597,948)
Common stock issued upon exchange of convertible notes837,040 837 — 28,868,672 — 28,869,509 
Reinvestment of dividends paid to common stockholders11,076 11 — 403,820 — 403,831 
Balance at March 31, 2019 (Unaudited)12,808,341 $12,808 $125,493,175 $349,570,656 $1,102,169 $476,178,808 
Net income— — — — 9,824,926 9,824,926 
Series A preferred stock dividends— — — — (2,313,780)(2,313,780)
Common stock dividends— — — (992,940)(8,613,315)(9,606,255)
Common stock issued upon conversion of convertible notes17,690 18 — 588,184 — 588,202 
Balance at June 30, 2019 (Unaudited)12,826,031 $12,826 $125,493,175 $349,165,900 $ $474,671,901 
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 notes703,432 703 — 33,001,090 — 33,001,793 
Common stock issued upon conversion of convertible notes5,393 6 — 179,816 — 179,822 
Balance at September 30, 2019 (Unaudited)13,534,856 $13,535 $125,493,175 $369,884,338 $(19,419,600)$475,971,448 
(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.
Capital StockPreferred StockAdditional
Paid-in
Capital
Retained
Deficit
Total
SharesAmountAmount
Balance at December 31, 201913,638,916 $13,639 $125,493,175 $360,844,497 $(9,611,872)$476,739,439 
Net loss— — — — (162,042,368)(162,042,368)
Series A preferred stock dividends— — — (2,313,780)— (2,313,780)
Preferred stock repurchases(1)
— — (222,825)7,932 52,896 (161,997)
Common stock dividends— — — (10,238,640)— (10,238,640)
Common stock issued upon exchange of convertible notes12,605 13 — 419,116 — 419,129 
Balance at March 31, 2020 (Unaudited)13,651,521 $13,652 $125,270,350 $348,719,125 $(171,601,344)$302,401,783 
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)
Balance at June 30, 2020 (Unaudited)13,651,521 $13,652 $125,270,350 $345,726,877 $(309,035,777)$161,975,102 
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)
Balance at September 30, 2020 (Unaudited)13,651,521 $13,652 $125,270,350 $342,734,629 $(312,954,875)$155,063,756 
(1) In connection with the repurchase of Series A Preferred Stock during 2020, the deduction from preferred dividends of $52,896 represents the discount in the repurchase price paid compared to the carrying amount derecognized.
See accompanying Notes to Consolidated Financial Statements.
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CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Nine Months Ended
September 30, 2020September 30, 2019
Operating Activities
Net loss$(303,395,899)$(5,728,233)
Adjustments to reconcile net loss to net cash provided by operating activities:
Deferred income tax, net225,628 64,854 
Depreciation, amortization and ARO accretion12,441,775 17,828,773 
Loss on impairment of leased property140,268,379  
Loss on impairment and disposal of leased property146,537,547  
Loss on termination of lease458,297  
Deferred rent receivable write-off, noncash30,105,820  
(Gain) loss on extinguishment of debt(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 receivables1,040,064 2,081,674 
Increase in financing note accrued interest receivable(11,293) 
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 $47,765,530 
Investing Activities
Purchases of property and equipment, net(885,711)(311,566)
Proceeds from sale of property and equipment7,500  
Principal payment on note receivable 5,000,000 
Principal payment on financing note receivable43,333 32,500 
Net cash provided by (used in) investing activities$(834,878)$4,720,934 
Financing Activities
Debt financing costs (161,963)
Net offering proceeds on convertible debt 116,355,125 
Repurchases of preferred stock(161,997)(60,550)
Dividends paid on Series A preferred stock(6,933,124)(6,941,340)
Dividends paid on common stock(11,603,792)(28,949,060)
Cash paid for extinguishment of convertible notes(1,316,250)(78,939,743)
Cash paid for maturity of convertible notes(1,676,000) 
Cash paid for settlement of Pinedale Secured Credit Facility(3,074,572) 
Principal payments on secured credit facilities(1,764,000)(2,646,000)
Net cash used in financing activities$(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 period120,863,643 69,287,177 
Cash and Cash Equivalents at end of period$104,221,404 $120,430,110 
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 $ 
Purchases of property, plant and equipment in accounts payable and other accrued liabilities 313,859  
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For the Nine Months Ended
September 30, 2020September 30, 2019
Non-Cash Financing Activities
Change in accounts payable and accrued expenses related to debt financing costs$ $197,227 
Reinvestment of distributions by common stockholders in additional common shares 403,831 
Common stock issued upon exchange and conversion of convertible notes419,129 62,639,326 
Proceeds from sale of leased property used in settlement of Pinedale Secured Credit Facility(18,000,000) 
See accompanying Notes to Consolidated Financial Statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2020
1. 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").
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2. 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.
3. 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
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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
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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
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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
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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 
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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.
4. 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 %
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5. 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.
6. 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 $