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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 March 31, 2021
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-20210331_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 May 7, 2021, the registrant had 13,651,521 common shares outstanding.


CorEnergy Infrastructure Trust, Inc.
FORM 10-Q
FOR THE QUARTER ENDED March 31, 2021
TABLE OF CONTENTS
____________________________________________________________________________________________
Page No.

2

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, 2020.

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 months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ended December 31, 2021 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, 2020.

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.
ARO: the Asset Retirement Obligation liabilities assumed with the acquisition of GIGS and disposed of with the sale of GIGS effective February 1, 2021.
ASC: FASB Accounting Standards Codification.
ASU: FASB Accounting Standard Update.
Bbls: standard barrel containing 42 U.S. gallons.
bpd: Barrels per day
CARES Act: the Coronavirus Aid, Relief, and Economic Security Act.
Cash Available for Distribution or CAFD: the Company's earnings before interest, taxes, depreciation and amortization, less (i) cash interest expense, (ii) preferred dividends, (iii) regularly scheduled debt amortization, (iv) maintenance capital expenditures, (v) reinvestment allocation and plus or minus other adjustments but excluding the impact of extraordinary or nonrecurring expenses unrelated to the operations of Crimson Midstream Holdings, LLC and all of its subsidiaries, as defined in the Articles Supplementary for the Class B Common Stock and effective beginning with the quarter ending June 30, 2021.
Code: the Internal Revenue Code of 1986, as amended.
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, which was terminated on February 4, 2021 in connection with the Crimson Transaction.
CorEnergy Revolver: the Company's $160.0 million secured revolving line of credit facility with Regions Bank, which was terminated on February 4, 2021 in connection with the Crimson Transaction.
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, the holding company of MoGas, United Property Systems and CorEnergy Pipeline Company, LLC and a co-borrower under the Crimson Credit Facility.
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.
CPUC: California Public Utility Commission.
4
GLOSSARY OF DEFINED TERMS (Continued from previous page)
Crimson: Crimson Midstream Holdings, LLC, a CPUC regulated crude oil pipeline owner and operator, of which the Company owns a 49.50 percent interest effective February 1, 2021.
Crimson Credit Facility: the Amended and Restated Credit Agreement with Crimson Midstream Operating and Corridor MoGas as co-borrowers, the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as administrative agent, swingline lender and issuing bank, entered into on February 4, 2021, which provides borrowing capacity of up to $155.0 million, consisting of: a $50.0 million revolving credit facility, an $80.0 million term loan and an uncommitted incremental facility of $25.0 million.
Crimson Midstream Operating: Crimson Midstream Operating, LLC, a wholly-owned subsidiary of Crimson and a co-borrower under the Crimson Credit Facility.
Crimson Revolver: the $50.0 million secured revolving line of credit facility with Wells Fargo Bank, National Association entered into on February 4, 2021.
Crimson Term Loan: the $80.0 million secured term loan with Wells Fargo Bank, National Association entered into on February 4, 2021.
Crimson Transaction: the Company's acquisition of a 49.50 percent interest in Crimson effective February 1, 2021 with the right to acquire the remaining 50.50 percent interest upon receiving CPUC approval.
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 was the tenant under Grand Isle Corridor's triple-net lease of the Grand Isle Gathering System until the lease was terminated on February 4, 2021.
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 until it was provided as partial consideration in connection with the Crimson Transaction effective February 1, 2021.
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 were triple-net leased to EGC Tenant, which terminated on February 4, 2021 upon disposal of GIGS.
Grier and Grier Members: Mr. John D. Grier and certain affiliated trusts of Grier, which own a 50.50 percent interest in Crimson, which is reflected as a non-controlling interest in the Company's financial statements.
Indenture: that certain Base Indenture, dated August 12, 2019, between the Company and U.S. Bank National Association, as Trustee for the 5.875% Convertible Notes.
Internalization: CorEnergy's expected acquisition of its external manager, Corridor, as contemplated in a Contribution Agreement, as described in this Report.
IRS: Internal Revenue Service.
5
GLOSSARY OF DEFINED TERMS (Continued from previous page)
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, and as amended February 4, 2021.
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, which was terminated on February 4, 2021 in connection with the Crimson Transaction.
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, which was terminated on February 4, 2021 in connection with the Crimson Transaction.
NAREIT: National Association of Real Estate Investment Trusts.
NYSE: New York Stock Exchange.
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.
Pipeline Loss Allowance (or PLA): the portion of crude oil provided by or on behalf of each shipper, at no cost to the carrier, (as allowance for losses sustained due to evaporation, measurement and other losses in transit) and retained by the carrier in recognition of loss and shrinkage in carrier's system.
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.
REIT: real estate investment trust.
SEC: Securities and Exchange Commission.
Securities Act: the Securities Act of 1933, as amended.
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.
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GLOSSARY OF DEFINED TERMS (Continued from previous page)
VIE: variable interest entity.

7

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. Any forward-looking statement speaks only as of the date on which it is made and is qualified in its entirety by reference to the factors discussed throughout this Report.
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:
•changes in economic and business conditions in the energy infrastructure sector where our investments are concentrated, including the financial condition of our customers, tenants or borrowers and general economic conditions in the particular sectors of the energy industry served by each of our infrastructure assets;
•pandemics, epidemics or disease outbreaks, such as the COVID-19 pandemic, which may adversely affect local and global economies as well as our or our customers', tenants' or borrowers' business and financial results;
•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;
•competitive and regulatory pressures on the revenues of our California intrastate crude oil transportation business and our interstate natural gas transmission business;
•risks associated with the receipt of CPUC approval for the Company to obtain full operational control and majority ownership over Crimson's CPUC regulated pipeline assets;
•the impact of environmental, pipeline safety and other 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;
•risks associated with the bankruptcy or default of any of our customers, tenants or borrowers, including the exercise of the rights and remedies of bankrupt entities;
•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 covenants in instruments governing our indebtedness;
•the potential impact of greenhouse gas regulation and climate change on our or our tenants' business, financial condition and results of operations;
•Crimson's assets were constructed over many decades, which may increase future inspection, maintenance or repair costs, or result in downtime that could have a material adverse effect on our business 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 leased 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 customers' or tenants' ability to secure adequate insurance and risk of potential uninsured losses, including from natural disasters;
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•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;
•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;
•some of our directors and officers may have conflicts of interest with respect to certain other business interests related to the Crimson Transaction; 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, 2020, filed with the SEC on March 4, 2021, and Part II, Item 1A, "Risk Factors", in this Report.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
corr-20210331_g1.jpg
CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED BALANCE SHEETS
March 31, 2021December 31, 2020
Assets(Unaudited)
Property and equipment, net of accumulated depreciation of $25,260,543 and $22,580,810 (Crimson VIE: $335,865,029, and $0, respectively)
$441,213,095 $106,224,598 
Leased property, net of accumulated depreciation of $227,265 and $6,832,167
1,298,763 64,938,010 
Financing notes and related accrued interest receivable, net of reserve of $600,000 and $600,000
1,183,950 1,209,736 
Cash and cash equivalents (Crimson VIE: $631,776 and $0, respectively)
18,839,994 99,596,907 
Accounts and other receivables (Crimson VIE: $10,828,844 and $0, respectively)
15,275,036 3,675,977 
Due from affiliated companies (Crimson VIE: $827,264 and $0, respectively)
827,264 — 
Deferred costs, net of accumulated amortization of $60,142 and $2,130,334
1,082,205 1,077,883 
Inventory (Crimson VIE: $1,690,158 and $0, respectively)
1,795,688 87,940 
Prepaid expenses and other assets (Crimson VIE: $6,313,679 and $0, respectively)
8,424,488 2,054,804 
Operating right-of-use assets (Crimson VIE: $6,097,344 and $0, respectively)
6,175,414 85,879 
Deferred tax asset, net4,308,976 4,282,576 
Goodwill1,718,868 1,718,868 
Total Assets$502,143,741 $284,953,178 
Liabilities and Equity
Secured credit facilities, net of debt issuance costs of $1,732,515 and $0
$103,267,485 $— 
Unsecured convertible senior notes, net of discount and debt issuance costs of $2,877,445 and $3,041,870
115,172,555 115,008,130 
Asset retirement obligation— 8,762,579 
Accounts payable and other accrued liabilities (Crimson VIE: $14,225,232 and $0, respectively)
17,910,708 4,628,847 
Management fees payable608,246 971,626 
Due to affiliated companies (Crimson VIE: $1,637,540 and $0, respectively)
2,053,170 — 
Operating lease liability (Crimson VIE: $5,752,045 and $0, respectively)
5,800,866 56,441 
Unearned revenue (Crimson VIE $315,000 and $0, respectively)
6,294,359 6,125,728 
Total Liabilities$251,107,389 $135,553,351 
Commitments and Contingencies (Note 10)
Equity
Series A Cumulative Redeemable Preferred Stock 7.375%, $125,270,350 and $125,270,350 liquidation preference ($2,500 per share, $0.001 par value), 10,000,000 authorized; 50,108 and 50,108 issued and outstanding at March 31, 2021 and December 31, 2020, respectively
$125,270,350 $125,270,350 
Common stock, non-convertible, $0.001 par value; 13,651,521 and 13,651,521 shares issued and outstanding at March 31, 2021 and December 31, 2020 (100,000,000 shares authorized)
13,652 13,652 
Additional paid-in capital336,750,132 339,742,380 
Retained deficit(327,926,126)(315,626,555)
Total CorEnergy Equity134,108,008 149,399,827 
Non-controlling interest (Crimson)116,928,344 — 
Total Equity251,036,352 149,399,827 
Total Liabilities and Equity$502,143,741 $284,953,178 
Variable Interest Entity (VIE) (Note 15)
See accompanying Notes to Consolidated Financial Statements.
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CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months Ended
March 31, 2021March 31, 2020
Revenue
Transportation and distribution revenue$21,295,139 $5,200,500 
Pipeline loss allowance subsequent sales1,075,722 — 
Lease revenue474,475 15,746,504 
Deferred rent receivable write-off— (30,105,820)
Other revenue195,162 26,307 
Total Revenue (Loss)23,040,498 (9,132,509)
Expenses
Transportation and distribution expenses10,342,597 1,375,229 
Pipeline loss allowance subsequent sales cost of revenue948,856 — 
General and administrative9,836,793 3,076,143 
Depreciation, amortization and ARO accretion expense2,898,330 5,647,067 
Loss on impairment of leased property— 140,268,379 
Loss on impairment and disposal of leased property5,811,779 — 
Loss on termination of lease165,644 — 
Total Expenses30,003,999 150,366,818 
Operating Loss$(6,963,501)$(159,499,327)
Other Income (Expense)
Other income$63,526 $317,820 
Interest expense(2,931,007)(2,885,583)
Loss on extinguishment of debt(861,814)— 
Total Other Expense(3,729,295)(2,567,763)
Loss before income taxes(10,692,796)(162,067,090)
Taxes
Current tax expense (benefit)27,867 (394,643)
Deferred tax expense (benefit)(26,400)369,921 
Income tax expense (benefit), net1,467 (24,722)
Net loss(10,694,263)(162,042,368)
Less: Net income attributable to non-controlling interest1,605,308 — 
Net loss attributable to CorEnergy Stockholders$(12,299,571)$(162,042,368)
Preferred dividend requirements2,309,672 2,260,793 
Net loss attributable to Common Stockholders$(14,609,243)$(164,303,161)
Loss Per Common Share:
Basic$(1.07)$(12.04)
Diluted$(1.07)$(12.04)
Weighted Average Shares of Common Stock Outstanding:
Basic13,651,521 13,648,293 
Diluted13,651,521 13,648,293 
Dividends declared per share$0.050 $0.750 
See accompanying Notes to Consolidated Financial Statements.
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CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED STATEMENTS OF EQUITY
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 
(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.

Capital StockPreferred StockAdditional
Paid-in
Capital		Retained
Deficit		Non-controlling InterestTotal
SharesAmountAmount
Balance at December 31, 202013,651,521 $13,652 $125,270,350 $339,742,380 $(315,626,555)$— $149,399,827 
Net income (loss)— — — — (12,299,571)1,605,308 (10,694,263)
Series A preferred stock dividends— — — (2,309,672)— — (2,309,672)
Common stock dividends— — — (682,576)— — (682,576)
Equity attributable to non-controlling interest (Note 3)— — — — — 115,323,036 115,323,036 
Balance at March 31, 2021 (Unaudited)13,651,521 $13,652 $125,270,350 $336,750,132 $(327,926,126)$116,928,344 $251,036,352 
See accompanying Notes to Consolidated Financial Statements.
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CorEnergy Infrastructure Trust, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months Ended
March 31, 2021March 31, 2020
Operating Activities
Net loss$(10,694,263)$(162,042,368)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Deferred income tax, net(26,400)369,921 
Depreciation, amortization and ARO accretion3,267,034 5,975,316 
Loss on impairment of leased property— 140,268,379 
Loss on impairment and disposal of leased property5,811,779 — 
Loss on termination of lease165,644 — 
Deferred rent receivable write-off, noncash— 30,105,820 
Loss on extinguishment of debt861,814 — 
Non-cash lease expense 178,542 — 
Loss on sale of equipment— 3,958 
Changes in assets and liabilities:
Deferred rent receivable— (247,718)
Accounts and other receivables(344,371)649,868 
Financing note accrued interest receivable(6,714)— 
Inventory (26,111)— 
Prepaid expenses and other assets(249,081)(108,007)
Due (from) to affiliated companies, net1,225,906 — 
Management fee payable(363,380)3,953 
Accounts payable and other accrued liabilities(1,611,539)(3,030,782)
Operating lease liability (523,652)— 
Unearned revenue(146,369)(180,628)
Net cash (used in) provided by operating activities$(2,481,161)$11,767,712 
Investing Activities
Acquisition of Crimson Midstream Holdings, net of cash acquired(68,094,324)— 
Purchases of property and equipment, net(4,625,511)(13,031)
Proceeds from sale of property and equipment79,600 — 
Proceeds from insurance recovery 60,153 — 
Principal payment on financing note receivable32,500 32,500 
Net cash (used in) provided by investing activities$(72,547,582)$19,469 
Financing Activities
Debt financing costs(2,735,922)— 
Repurchases of Series A preferred stock— (161,997)
Dividends paid on Series A preferred stock(2,309,672)(2,313,780)
Dividends paid on common stock(682,576)(10,238,640)
Advances on revolving line of credit3,000,000 — 
Payments on revolving line of credit(3,000,000)— 
Principal payments on secured credit facilities— (882,000)
Net cash used in financing activities$(5,728,170)$(13,596,417)
Net change in Cash and Cash Equivalents$(80,756,913)$(1,809,236)
Cash and Cash Equivalents at beginning of period99,596,907 120,863,643 
Cash and Cash Equivalents at end of period$18,839,994 $119,054,407 
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For the Three Months Ended
March 31, 2021March 31, 2020
Supplemental Disclosure of Cash Flow Information
Interest paid$4,254,050 $4,334,215 
Income taxes paid (net of refunds)5,026 (467,407)
Non-Cash Investing Activities
In-kind consideration for the Grand Isle Gathering System provided as partial consideration for the Crimson Midstream Holdings acquisition $48,873,169 $— 
Crimson Credit Facility assumed and refinanced in connection with the Crimson Midstream Holdings acquisition 105,000,000 — 
Equity consideration attributable to non-controlling interest holder in connection with the Crimson Midstream Holdings acquisition 115,323,036 — 
Purchases of property, plant and equipment in accounts payable and other accrued liabilities 868,190 — 
Non-Cash Financing Activities
Change in accounts payable and accrued expenses related to debt financing costs$(235,198)$— 
Common stock issued upon exchange and conversion of convertible notes— 419,129 
See accompanying Notes to Consolidated Financial Statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2021
1. INTRODUCTION AND BASIS OF PRESENTATION
Introduction
CorEnergy Infrastructure Trust, Inc. (referred to as "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 owns and operates or leases critical energy midstream infrastructure connecting the upstream and downstream sectors within the industry. The Company currently generates revenue from the transportation, via pipeline, of natural gas and crude oil for its customers in Missouri and California. The pipelines are located in areas where it would be difficult to replicate rights of way or transport natural gas or crude oil via non-pipeline alternatives resulting in the Company's assets providing utility-like criticality in the midstream supply chain for its customers. Prior to 2021, the Company 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. Over the last twelve months, the Company's asset portfolio has undergone significant changes. The Company divested all of its leased assets including the Grand Isle Gathering System ("GIGS") and Pinedale Liquids Gathering System ("Pinedale LGS"), which are described in this Report.
On February 4, 2021, the Company acquired a 49.50 percent interest in Crimson Midstream Holdings, LLC ("Crimson"), a California Public Utilities Commission ("CPUC") regulated crude oil pipeline owner and operator. The acquired assets include four critical infrastructure pipeline systems spanning approximately 2,000 miles (including 1,300 active miles) across northern, central and southern California, connecting desirable native California crude production to in-state refineries producing state-mandated specialized fuel blends, among other products. This interest was acquired effective February 1, 2021 and is referred to throughout this Report as the "Crimson Transaction." The repositioning of the Company's asset portfolio from a focus on non-operated leased assets to one of owned and operated assets is enabled by its U.S. Internal Revenue Service ("IRS") Private Letter Ruling ("PLR") related to qualifying income for operated assets. As a result, all of the Company's current assets are owned and operated which provides it with an opportunity to grow the business organically using its footprint in addition to making acquisitions. 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 and Consolidation

The accompanying consolidated financial statements include CorEnergy accounts and the accounts of its wholly-owned subsidiaries and variable interest entities ("VIEs") for which CorEnergy is the primary beneficiary. The consolidated financial statements 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, and the Company's net earnings have been reduced by the portion of net earnings attributable to non-controlling interests, when applicable.
The Company consolidates a VIE when it is the primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the VIE's economic performance and (ii) through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. In order to determine whether it owns a variable interest in a VIE, the Company performs a qualitative analysis of the entity's design, primary decision makers, key agreements governing the VIE, voting interests and significant activities impacting the VIE's economic performance. The Company continually monitors consolidated VIEs to determine if any events have occurred that could cause the primary beneficiary to change.

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As described above, the Company acquired a 49.50 percent interest in Crimson, which is a legal entity that meets the VIE criteria. As a result of its consolidation analysis more fully described in Note 15 ("Variable Interest Entity"), the Company determined it is the primary beneficiary of Crimson due to its related party relationship with Crimson's 50.50 percent interest holder. Therefore, beginning February 1, 2021, Crimson is consolidated in the Company's consolidated financial statements and the non-controlling interest is presented as a component of equity. Refer to Note 13 ("Stockholders' Equity") for further discussion of the non-controlling interest in Crimson. The consolidated financial statements also include the accounts of any limited partnerships where the Company represents the general partner and, based on all facts and circumstances, controls such limited partnerships, unless the limited partner has substantive participating rights or substantive kick-out rights. Refer to Note 15 ("Variable Interest Entity"), for further discussion of the Company's consolidated VIEs.
Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 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, 2020, filed with the SEC on March 4, 2021 (the "2020 CorEnergy 10-K").
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. The Company adopted ASU 2019-12 as of January 1, 2021, and it did not 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.
In August 2020, the FASB issued ASU 2020-06, "Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity" ("ASU 2020-06"). The new guidance (i) simplifies an issuer's accounting for convertible instruments by eliminating the cash conversion and beneficial conversion feature models in ASC 470-20 that require separate accounting for embedded conversion features, (ii) simplifies the settlement assessment that issuers perform to determine whether a contract in its own equity qualifies for equity classification and (iii) requires entities to use the if-converted method for all convertible instruments and generally requires them to include the effect of share settlement for instruments that may be settled in cash or shares. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021. Early adoption is permitted for fiscal years beginning after December 15, 2020, but an entity must early adopt the guidance at the beginning of the fiscal year. The Company elected
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to early adopt ASU 2020-6 on January 1, 2021 and noted that the standard does not have an impact on the Company's consolidated financial statements.
3. ACQUISITION
Crimson Midstream Holdings, LLC
Effective February 1, 2021, the Company completed the acquisition of a 49.50 percent interest in Crimson (which includes a 49.50 percent voting interest and the right to 100.0 percent of the economic benefit of Crimson's business, after satisfying the distribution rights of the remaining equity holders) for total consideration with a fair value of $343.8 million, and with the right to acquire the remaining 50.50 percent, subject to CPUC approval. The consideration consisted of a combination of cash on hand of $74.6 million (after giving effect to initial working capital adjustments), commitments to issue new common and preferred equity valued at $115.3 million (also after giving effect to the initial working capital adjustments), contribution of the GIGS asset with a fair value of $48.9 million to the sellers and $105.0 million in new term loan and revolver borrowings, all as detailed further below. Crimson is a CPUC regulated crude oil pipeline owner and operator, and its assets include four critical infrastructure pipeline systems spanning approximately 2,000 miles (including 1,300 active miles) across northern, central and southern California, connecting California crude production to in-state refineries.
To effect the Crimson Transaction, on February 4, 2021, the Company entered into and consummated a Membership Interest Purchase Agreement (the "MIPA") with CGI Crimson Holdings, L.L.C. ("Carlyle"), Crimson, and John D. Grier ("Grier"). Pursuant to the terms of the MIPA, the Company acquired all of the Class C Units of Crimson owned by Carlyle, which represents 49.50 percent of all of the issued and outstanding membership interests of Crimson for approximately $66.0 million in cash (net of working capital adjustments) and the transfer to Carlyle of the Company's interest in GIGS (as further described in Note 5 ("Leased Properties And Leases")). Crimson Midstream Operating and Corridor MoGas also entered into a $105.0 million Amended and Restated Credit Agreement with Wells Fargo (as further described below and in Note 12 ("Debt")).
Simultaneously, Crimson, the Company, Grier and certain affiliated trusts of Grier (collectively with Grier, the "Grier Members") entered into the Third Amended and Restated Limited Liability Company Agreement ("Third LLC Agreement”) of Crimson. Pursuant to the terms of the Third LLC Agreement, the Grier Members' outstanding membership interests in Crimson were exchanged for 1,613,202 Class A-1 units of Crimson, 2,436,000 Class A-2 units of Crimson and 2,450,142 Class A- 3 units of Crimson, which, as described in Note 13 ("Stockholders' Equity"), may eventually be exchangeable for shares of the Company's common and preferred stock. The Company received 10,000 Class B-1 units, which represent the Company's economic interest in Crimson. Additionally, 495,000 Class C-1 units (representing 49.50 percent of the voting interests under the Third LLC Agreement) were issued to the Company in exchange for the former Class C units acquired from Carlyle and 505,000 Class C-1 units (representing 50.50 percent of the voting interests under the Third LLC Agreement) were issued to the Grier Members, in exchange for the Class C units held by Grier prior to the Crimson Transaction.
The acquisition is being treated as a purchase in accordance with ASC 805, Business Combinations, which requires allocation of the purchase price to the estimated fair values of assets and liabilities acquired in the transaction. The allocation of purchase price is based on management's judgment after evaluating several factors, including a preliminary valuation assessment. Because the values assigned to assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of this Quarterly Report on Form 10-Q, amounts may be adjusted during the measurement period of up to twelve months from the date of acquisition as further information becomes available. Any changes in the fair values of assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. The allocation of purchase price is preliminary and subject to changes as an appraisal of tangible assets and liabilities including working capital are finalized and purchase price adjustments are completed. The following is a summary of a preliminary allocation of the purchase price:

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Crimson Midstream Holdings, LLCAs of February 1, 2021
Assets Acquired
Cash and cash equivalents$6,554,921 
Accounts and other receivables11,394,441 
Inventory1,681,637 
Prepaid expenses and other assets6,144,932 
Property and equipment332,174,531 
Operating right-of-use asset6,268,077 
Total assets acquired:$364,218,539 
Liabilities Assumed
Accounts payable and other accrued liabilities$13,790,011 
Operating lease liability6,268,077 
Unearned revenue315,000 
Total liabilities assumed:$20,373,088 
Fair Value of Net Assets Acquired:
$343,845,451 
Non-controlling interest at fair value(1)
$115,323,036 
(1) Includes a non-controlling interest for Grier's equity consideration in the A-1, A-2 and A-3 units with a fair value of $115.3 million. Refer to "Fair Value of Non-controlling Interest" below and Note 13 ("Stockholders' Equity") for further details.


Fair Value of Assets and Liabilities Acquired

The fair value of property and equipment was determined from an external valuation performed by an unrelated third party specialist based on the cost methodology. The preliminary fair value measurement of tangible assets is based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value measurement hierarchy. 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 14.0 percent when deriving the fair value of the property and equipment acquired. The weighted average discount rate reflects management's best estimate of inputs a market participant would utilize. In addition, the Company utilized revenue, cost and growth projections in its discounted cash flows to value the assets and liabilities acquired as well as relevant third-party valuation data for the pipeline right of ways. The carrying value of cash and cash equivalents, accounts and other receivables, prepaid expenses and other assets, and accounts payable and other accrued liabilities, approximate fair value due to their short term, highly liquid nature. Inventory was valued based on average crude oil inventory prices, less an applicable discount to sell, at the acquisition date.

Fair Value of Non-controlling Interest

The fair value of the non-controlling interest for each of the A-1, A-2 and A-3 units was determined from an external valuation performed by an unrelated third party specialist. As described in Note 13 ("Stockholders' Equity"), the A-1, A-2 and A-3 units have the right to receive any distributions that the Company's Board of Directors determines would be payable as if they held the shares of Series C Preferred Stock, Series B Preferred Stock and Class B Common Stock, respectively. To determine the fair value of the units on February 1, 2021, the third-party valuation specialists developed a Monte Carlo model to simulate a distribution of future prices underlying the CorEnergy securities associated with the A-1, A-2 and A-3 units. The fair value measurement is based on observable inputs related to the Company's common stock and Series A Preferred Stock, including stock price, historical volatility and dividend yield. The fair value measurement is also based on significant inputs not observable in the market and thus represent Level 3 measurements. The significant unobservable inputs include a discount rate of 11.88 percent for the A-1 units and 11.75 percent for the A-3 units. The valuation for the A-2 units assumes stockholder approval will be received to exchange the A-2 units to Class B Common instead of Series B Preferred Stock. Therefore, the valuation mirrors the assumptions utilized for the A-3 units.

During the three months ended March 31, 2021, the Company incurred transaction costs and financing costs at closing of approximately $2.0 million and $2.8 million, respectively. The Company also incurred due diligence costs and other financing cost of $783 thousand and $235 thousand, respectively, for three months ended March 31, 2021. Total transaction, due diligence and financing costs, including $1.5 million incurred for the year ended December 31, 2020, for the Crimson Transaction were $7.3 million. Transaction and due diligence costs are recorded in general and administrative expenses in the
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Consolidated Statements of Operation. Financing costs were capitalized as deferred debt issuance costs in the Consolidated Balance Sheet. For the period from February 1, 2021 (effective date of the acquisition) to March 31, 2021, revenues for Crimson were $17.3 million and net earnings were $3.2 million.

Pro Forma Results of Operations (Unaudited)

The following selected comparative unaudited pro forma revenue information for the quarter ended March 31, 2021 assumes that the Crimson acquisition occurred at the beginning of 2020, and reflects the full results for the period presented. The pro forma results have been prepared for comparative purposes only and do not purport to indicate the results of operations which would actually have occurred had the combination been in effect on the dates indicated, or which may occur in the future. These amounts have been calculated after applying the Company's accounting policies. The Company has excluded pro forma information related to net earnings (loss) as it is impracticable to provide the information as Crimson was part of a larger entity that was separated via a common control transfer at the closing of the Crimson Transaction. As a result, quarterly financial information has not been carved-out for the Crimson entities acquired in prior quarterly periods.

Pro Forma Three Months Ended
March 31, 2021March 31, 2020
Revenues$31,828,521 $6,639,924 

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, crude oil and natural gas transportation and distribution performance obligations, as well as limited performance obligations related to system maintenance and improvement.
Crude Oil and Natural Gas Transportation and Distribution
Under the Company's (i) natural gas supply, (ii) crude oil and natural gas transportation and (iii) natural gas distribution performance obligations, the customer simultaneously receives and consumes the benefit of the services as the commodity is delivered. Therefore, the transaction price is allocated proportionally over the series of identical performance obligations with each contract, and the Company satisfies performance obligations over time as midstream transportation and distribution services are performed. The transaction price is calculated based on (i) index price, plus a contractual markup in the case of natural gas supply agreements (considered variable due to fluctuations in the index), (ii) CPUC and FERC regulated rates or negotiated rates in the case of transportation agreements and (iii) contracted amounts (with annual CPI escalators) in the case of the Company's distribution agreement.
The Company's crude oil transportation revenue also includes amounts earned for pipeline loss allowance ("PLA"). PLA revenue, recorded within transportation revenue, represents the estimated realizable value of the earned loss allowance volumes received by the Company as applicable under the tariff or contract. As is common in the pipeline transportation industry, as crude oil is transported, the Company earns a small percentage of the crude oil volume transported to offset any measurement uncertainty or actual volumes lost in transit. The Company will settle the PLA with its shippers either in-kind or in cash. PLA received by the Company typically exceeds actual pipeline losses in transit and typically results in a benefit to the Company. For PLA volumes received in-kind, the Company records these in inventory.
When PLA is paid in-kind, the barrels are valued at current market price less standard deductions, recorded as inventory and recognized as non-cash consideration revenue, concurrent with related transportation services. PLA paid in cash is treated in the same way as in-kind, but no inventory is created. In accordance with ASC 606, when control of the PLA volumes have been transferred to the purchaser, the Company records this non-cash consideration as revenue at the contractual sales price within PLA revenue and PLA cost of revenues.
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. 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.
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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, the agreement increased Spire’s firm capacity from 62,800 dekatherms per day to 145,600 dekatherms per day through October 2030 and replaced the previous firm transportation agreement. In accordance with ASC 606, the Company accounted 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 was accounted for prospectively. The remaining contract liability will decline at a rate of approximately $146 thousand per quarter through the end of the contract in October 2030. As of March 31, 2021, the revenue allocated to the remaining performance obligation under this contract is approximately $67.0 million.
System Maintenance & Improvement
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 table below summarizes the Company's contract liability balance related to its transportation and distribution revenue contracts as of March 31, 2021:
Contract Liability(1)
March 31, 2021December 31, 2020
Beginning Balance January 1$6,104,979 $6,850,790 
Unrecognized Performance Obligations 315,000 347,811 
Recognized Performance Obligations (146,369)(1,093,622)
Ending Balance$6,273,610 $6,104,979 
(1) The contract liability balance is included in unearned revenue in the Consolidated Balance Sheets.
The Company's contract asset balance was $330 thousand and $363 thousand as of March 31, 2021 and December 31, 2020, respectively. The Company also recognized deferred contract costs related to incremental costs to obtain a transportation performance obligation contract, which are amortized on a straight-line basis over the remaining term of the contract. As of March 31, 2021, the remaining unamortized deferred contract costs balance was approximately $1.0 million. The contract asset and deferred contract costs balances are 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 months ended March 31, 2021 and 2020:
For the Three Months Ended
March 31, 2021March 31, 2020
Crude oil transportation revenue73.3 %— %
Natural gas transportation revenue17.9 %68.8 %
Natural gas distribution revenue5.6 %23.2 %
5. LEASED PROPERTIES AND LEASES
LESSOR - LEASED PROPERTIES
Prior to 2021, the Company primarily acquired mid-stream and downstream assets in the U.S. energy sector such as pipelines, storage terminals, and gas and electric distribution systems and, historically, leased many of these assets to operators under triple-net leases. The Company's leased property was classified as an operating lease and was recorded as leased property in the Consolidated Balance Sheets. Base rent related to the Company's leased property was recognized on a straight-line basis over the term of the lease when collectability was probable. Participating rent was recognized when it was earned, based on the achievement of specified performance criteria. Base and participating rent were recorded as lease revenue in the Consolidated Statements of Operations. The Company regularly evaluated the collectability of any deferred rent receivable on a lease by lease basis. The evaluation primarily included assessing the financial condition and credit quality of the Company's tenants, changes in tenants' payment history and current economic factors. When the collectability of the deferred rent receivable or
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future lease payments were no longer probable, the Company recognized a write-off of the deferred rent receivable as a reduction of revenue in the Consolidated Statements of Operations.
The Company divested all of its leased assets including (i) GIGS on February 4, 2021 as described further below and (ii) the Pinedale Liquids Gathering System ("Pinedale LGS") on June 30, 2020 in a sale to its tenant, Ultra Wyoming, LLC ("Ultra Wyoming") pursuant to the terms of the sale agreement approved by the U.S. Bankruptcy Court overseeing the bankruptcy proceedings of Ultra Wyoming and its parent company, Ultra Petroleum Corp ("UPL"). The sale of the Pinedale LGS was previously disclosed in the Company's 2020 SEC filings.
Sale and Impairment of the Grand Isle Gathering System
During 2020, the EGC Tenant's nonpayment of rent along with the significant decline in the global oil market triggered indicators of impairment for the GIGS asset. As a result, the Company recognized a $140.3 million loss on impairment of leased property related to the GIGS asset in the Consolidated Statements of Operations for the three months ended March 31, 2020. The Company also previously recognized a deferred rent receivable for the Grand Isle Gathering Lease, which primarily represented 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 collectability of the contractual lease payments under the lease, the Company recognized a non-cash write-off of the deferred rent receivable of $30.1 million. The non-cash write-off was recognized as a reduction of revenue in the Consolidated Statements of Operations for the three months ended March 31, 2020.
As discussed in Note 3 ("Acquisition"), on February 4, 2021, the Company contributed the GIGS asset as partial consideration for the acquisition of its interest in Crimson resulting in its disposal, along with the asset retirement obligation (collectively, the "GIGS Disposal Group"), which was assumed by the sellers. Upon meeting the held for sale criteria in mid-January 2021, the Company ceased recording depreciation on the GIGS asset. The GIGS asset had a carrying value of $63.5 million and the asset retirement obligation had a carrying value of $8.8 million, or a net carrying value of $54.7 million for the GIGS Disposal Group. The GIGS asset had a fair value of approximately $48.9 million at the time of disposal, which was determined by a discounted cash flow model and utilized the forecast of a market participant and their expected operation of the asset. The fair value measurement is also based on significant inputs not observable in the market and thus represent Level 3 measurements. The significant unobservable inputs include a discount rate of 11.75 percent. The contribution of the GIGS Disposal Group resulted in a loss on impairment and disposal of leased property of $5.8 million in the Consolidated Statements of Operations in the first quarter of 2021.
Termination of the Grand Isle Lease Agreement
As described in Note 10 ("Commitments and Contingencies"), in connection with the GIGS disposition, the Company and Grand Isle Corridor entered into a Settlement and Mutual Release Agreement (the "Settlement Agreement") with the EGC Tenant, EGC, and CEXXI, LLC (the "EXXI Entities") related to the previously reported litigation between them and terminated the Grand Isle Lease Agreement. The termination of the Grand Isle Lease Agreement resulted in the write-off of deferred lease costs of $166 thousand, which is recorded as a loss on termination of lease in the Consolidated Statements of Operations for the three months ended March 31, 2021.
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 Ended
March 31, 2021March 31, 2020
Depreciation Expense
GIGS$140,860 $2,440,588 
Pinedale— 2,217,360 
United Property Systems10,314 9,831 
Total Depreciation Expense$151,174 $4,667,779 
Amortization Expense - Deferred Lease Costs
GIGS$2,547 $7,641 
Pinedale— 15,342 
Total Amortization Expense - Deferred Lease Costs$2,547 $22,983 
ARO Accretion Expense
GIGS$40,546 $112,171 
Total ARO Accretion Expense$40,546 $112,171 
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The following table reflects the deferred costs that are included in the accompanying Consolidated Balance Sheets associated with the Company's leased properties:
March 31, 2021December 31, 2020
Net Deferred Lease Costs
GIGS$— $168,191 
Total Deferred Lease Costs, net$— $168,191 
LESSEE - LEASED PROPERTIES
The Company and its subsidiaries currently lease land, corporate office space and single-use office space. During the three months ended March 31, 2021, the Company acquired additional right-of-use assets and lease liabilities in connection with the Crimson Transaction. The Company's leases are classified as operating leases and presented as operating right-of-use asset and operating lease liability on the Consolidated Balance Sheet. The Company recognizes lease expense in the Consolidated Statements of Operations on a straight-line basis over the remaining lease term. The Company noted the following information regarding its operating leases for the three months ended March 31, 2021 and 2020:
For the Three Months Ended
March 31, 2021March 31, 2020
Lease cost:
Operating lease cost$241,182 $12,088 
Short term lease cost102,014 — 
Other Information:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases 586,481 12,088 
Weighted-average remaining lease term - operating leases (in years)10.52.4
Weighted average discount rate - operating leases 7.04 %7.20 %

The following table reflects the undiscounted cash flows for future minimum lease payments under noncancelable operating leases reconciled to the Company's lease liabilities on our Consolidated Balance Sheet as of March 31, 2021:
Operating
For the Years EndingLeases
2021$741,839 
20221,416,102 
2023830,216 
2024419,068 
2025419,068 
Thereafter4,902,398 
Total 8,728,691 
Less: Present Value Discount 2,927,825 
Operating Lease Liabilities $5,800,866 
6. 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
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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 resumed on January 1, 2021 and will increase annually beginning on June 30, 2021 through the maturity date. As of March 31, 2021 and December 31, 2020, the Compass REIT Loan was valued at $1.2 million.
7. 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 March 31, 2021 and December 31, 2020, are as follows:
Deferred Tax Assets and Liabilities
March 31, 2021December 31, 2020
Deferred Tax Assets:
Deferred contract revenue$1,439,599 $1,474,962 
Net operating loss carryforwards6,656,964 6,438,628 
Capital loss carryforward92,418 92,418 
Other420 420 
Sub-total$8,189,401 $8,006,428 
Valuation allowance(92,418)(92,418)
Sub-total$8,096,983 $7,914,010 
Deferred Tax Liabilities:
Cost recovery of leased and fixed assets$(3,730,427)$(3,578,283)
Other(57,580)(53,151)
Sub-total$(3,788,007)$(3,631,434)
Total net deferred tax asset$4,308,976 $4,282,576 
As of March 31, 2021, 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 beginning with the year ended December 31, 2017 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 as of December 31, 2020. 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 was reflected in the income tax provision for the year ended December 31, 2020.
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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 as of both March 31, 2021 and December 31, 2020, 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 $92 thousand was recorded equal to the amount of the tax benefit of this carryforward at both March 31, 2021 and December 31, 2020, respectively. In the future, if the Company concludes, based on existence of sufficient evidence, that it should realize more or less of its deferred tax assets, the valuation allowance will be adjusted accordingly in the period such conclusion is made.
Total income tax expense (benefit) differs from the amount computed by applying the federal statutory income tax rate of 21 percent for the three months ended March 31, 2021 and 2020 to loss from operations and other income and expense for the periods presented, as follows:
Income Tax Expense (Benefit)
For the Three Months Ended
March 31, 2021March 31, 2020
Application of statutory income tax rate$(2,245,487)$(34,034,089)
State income taxes, net of federal tax expense810 34,509 
Federal Tax Attributable to Income of Real Estate Investment Trust2,245,959 34,134,344 
Other185 (159,486)
Total income tax expense (benefit)$1,467 $(24,722)
The components of income tax expense (benefit) include the following for the periods presented:
Components of Income Tax Expense (Benefit)
For the Three Months Ended
March 31, 2021March 31, 2020
Current tax expense (benefit)
Federal$22,740