corr-20230930

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, 2023


☐			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

_________________________________________________________

CORENERGY INFRASTRUCTURE TRUST, INC.

______________________________________________________________________

(Exact name of registrant as specified in its charter)


Maryland			20-3431375
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)

1100 Walnut, Ste. 3350

Kansas City,

64106

(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 Class

Trading Symbol(s)

Name of Each Exchange On Which Registered

Common Stock, par value $0.001 per share

CORR

New York Stock Exchange

7.375% Series A Cumulative Redeemable Preferred Stock

CORRPrA

New 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, 2023, the registrant had 15,353,833 shares of Common Stock outstanding and 683,761 shares of Class B Common Stock outstanding.

CorEnergy Infrastructure Trust, Inc.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2023

TABLE OF CONTENTS

____________________________________________________________________________________________


				Page No.
Glossary of Defined Terms				4
Forward-Looking Statements				6
PART I		FINANCIAL INFORMATION		8
	Item 1.	Financial Statements (unaudited)		8
		Consolidated Balance Sheets		8
		Consolidated Statements of Operations		9
		Consolidated Statements of Equity		10
		Consolidated Statements of Cash Flows		12
		Notes to Consolidated Financial Statements		14
		1.	Introduction and Basis of Presentation	14
		2.	Recent Accounting Pronouncements	15
		3.	Held-for-Sale	16
		4.	Transportation and Distribution Revenue	17
		5.	Leases	18

		6.	Financing Notes Receivable	18
		7.	Income Taxes	19
		8.	Property and Equipment	20

		9.	Commitments and Contingencies	21
		10.	Fair Value	22
		11.	Debt	22

		12.	Stockholders' Equity	24
		13.	Earnings (Loss) Per Share	27
		14.	Variable Interest Entity	28
		15.	Related Party Transactions	29

		16.	Subsequent Events	30
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		31
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		51
	Item 4.	Controls and Procedures		51

PART II.		OTHER INFORMATION		53
	Item 1.	Legal Proceedings		53
	Item 1A.	Risk Factors		53
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		53
	Item 3.	Defaults Upon Senior Securities		54
	Item 4.	Mine Safety Disclosures		54
	Item 5.	Other Information		54
	Item 6.	Exhibits		55
Signatures				56

This Report on Form 10-Q should be read in its entirety. No one section of this report deals with all aspects of the subject matter disclosed herein. It should be read in conjunction with the unaudited consolidated financial statements, related notes, and with the Management's Discussion & Analysis included within, as well as provided in the CorEnergy Infrastructure Trust, Inc. Annual Report on Form 10-K, for the year ended December 31, 2022.

The unaudited consolidated 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, 2023 are not necessarily indicative of the results that may be expected for the year ended December 31, 2023 or for any other interim or annual period. For further information, refer to the audited 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, 2022.


Table of Contents			GLOSSARY OF DEFINED TERMS

Certain of the defined terms used in this Report as set forth below:

5.875% Convertible Notes: the Company's 5.875% Unsecured Convertible Senior Notes due 2025.

Adjusted SOFR: SOFR plus an adjustment based on tenor. The adjustment is 0.10% for one-month, 0.15% for three-month and 0.25% for six-month, SOFR rates. The adjustment was implemented when changing to SOFR to make the interest expense using SOFR as a reference rate equivalent to that using LIBOR.

ASC: FASB Accounting Standards Codification.

ASU: FASB Accounting Standard Update.

Bbls: standard barrel containing 42 U.S. gallons.

bpd: Barrels per day.

Cash Available for Distribution, or CAD (a non-GAAP financial measure): the Company's earnings before interest, taxes, depreciation and amortization, less (i) cash interest expense, (ii) preferred dividend requirements, including Crimson Class A-1 Units, (iii) regularly scheduled debt amortization, (iv) maintenance capital expenditures, and (v) reinvestment allocation and plus or minus other adjustments, but excluding the impact of extraordinary or nonrecurring expenses unrelated to the operations of Crimson 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.

Class B Common Stock: the Company's Class B Common Stock, par value $0.001 per share.

Code: the Internal Revenue Code of 1986, as amended.

Common Stock: the Company's Common Stock, par value $0.001 per share.

Company or CorEnergy: CorEnergy Infrastructure Trust, Inc. (NYSE: CORR).

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.

CPUC: California Public Utility Commission.

Crimson: Crimson Midstream Holdings, LLC, the indirect owner of CPUC-regulated crude oil pipeline companies, of which the Company owns a 49.50% voting interest and all of the Class B-1 equity ownership interests.

Crimson Credit Facility: the Amended and Restated Credit Agreement, dated as of February 4, 2021, 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, which provides borrowing capacity of up to $155.0 million, consisting of: the $50.0 million Crimson Revolver, the $80.0 million Crimson 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 and direct owner of CPUC-regulated crude oil pipeline companies.

Crimson Pipeline System: an approximately 2,000-mile crude oil transportation pipeline system, which includes approximately 1,100 active miles, with associated storage facilities located in southern California and the San Joaquin Valley, owned and operated by subsidiaries of Crimson.

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% voting interest in Crimson effective February 1, 2021 with the right to acquire the remaining 50.50% voting interest upon receiving CPUC approval.

Exchange Act: the Securities Exchange Act of 1934, as amended.


Table of Contents			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.

Grier Members: Mr. John D. Grier, Mrs. M. Bridget Grier and certain of their affiliated trusts, which collectively own all of the Class A-1, Class A-2, and Class A-3 equity ownership interests in Crimson, which is reflected as a non-controlling interest in the Company's financial statements. The Grier Members own a 50.5% voting interest in Crimson through their ownership of the Crimson C-1 Units.

Indenture: that certain 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 acquisition of its former external manager, Corridor InfraTrust Management, LLC, which closed July 6, 2021.

IRS: Internal Revenue Service.

LIBOR: the London Interbank Offered Rate, a benchmark rate replaced by SOFR.

MoGas: MoGas Pipeline LLC, an indirect wholly owned subsidiary of CorEnergy.

MoGas Pipeline System: an approximately 263-mile interstate natural gas pipeline system located in and around St. Louis and extending into central Missouri, which is owned and operated by MoGas.

NYSE: New York Stock Exchange.

Omega: Omega Pipeline Company, LLC, a wholly owned subsidiary of Mowood, LLC, which is a wholly owned subsidiary of CorEnergy.

Omega Pipeline System: a 75-mile natural gas distribution system providing unregulated service in south central Missouri, which is owned and operated by Omega.

Omnibus Plan: the CorEnergy Infrastructure Trust, Inc. Omnibus Equity Incentive Plan, which was approved by the Company's stockholders on May 25, 2022.

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.

PLR: the Private Letter Ruling dated November 16, 2018 (PLR 201907001) issued to CorEnergy by the IRS.

REIT: Real Estate Investment Trust.

RSU: Restricted Stock Unit.

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, which is represented by depositary shares, each representing 1/100th of a whole share of Series A Preferred Stock.

SOFR: the Secured Overnight Financing Rate, a benchmark interest rate for dollar-denominated loans that replaced LIBOR. It reflects the pricing of overnight loans that are secured by U.S. Treasury securities.

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.


Table of Contents						Glossary of Defined Terms

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

With the exception of historical information, 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. Therefore, you should not rely on any of these forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and you 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, among others, the following:

•the impact of regulatory actions in California to curtail oil production;

•our ability to complete the sale of our MoGas and Omega Pipeline Systems on terms that will allow us to repay our Crimson Credit Facility and a material portion of our 5.875% Convertible Notes;

•our ability to meet the NYSE continued listing standards, the failure of which would result in our Common Stock being delisted thereby constituting a "fundamental change" under the Indenture governing our 5.875% Convertible Notes and requiring us to repurchase all of our outstanding 5.875% Convertible Notes at a price equal to the principal amount of such notes, plus any accrued and unpaid interest;

•our ability to repurchase our outstanding 5.875% Convertible Notes upon a "fundamental change" under the Indenture governing the notes, the failure of which would constitute a default under the Indenture;

•changes in economic and business conditions in the energy infrastructure sector where our investments are concentrated, including the financial condition of our customers or borrowers and general economic conditions in the U.S. and in the particular sectors of the energy industry served by each of our infrastructure assets, including inflationary and recessionary risks;

•systemic pressures in the banking system, including potential disruptions in credit markets;

•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 operational control 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;

•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 customers' business, financial condition and results of operations;

•risks associated with security breaches through cyber-attacks or acts of cyber terrorism or other cyber intrusions, or any other significant disruptions of our information technology (IT) networks and related systems;


Table of Contents						Glossary of Defined Terms

•risks associated with the age of Crimson's assets, which were constructed over many decades, and 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 refinance amounts outstanding under our credit facilities and our 5.875% Convertible Notes at or prior to maturity on terms favorable to us or at all;

•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;

•our dependence on key customers for significant revenues, and the risk of defaults by any such customers;

•our customers' ability to secure adequate insurance and risk of potential uninsured losses, including from natural disasters;

•the continued availability of third-party pipelines or other facilities interconnected with certain of our infrastructure assets;

•risks associated with owning, operating or financing properties for which our customers' 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 that all transactions are properly accounted for, that all relevant disclosures and filings are timely made in accordance with all rules and regulations, and that 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 REIT for federal income tax purposes;

•conflicts of interest that some of our directors and officers may have with respect to certain other business interests related to the Crimson Transaction;

•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; and

•the loss of crude oil volumes on pipelines indirectly owned by Crimson due to lower than expected oil production in California or changes in customer shipping practices.

Forward-looking statements speak only as of the date on which they are made. Except as otherwise required by law, we undertake no obligation to publicly update or revise any forward-looking statement to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events. 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 CorEnergy's Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 29, 2023, as supplemented by Item 1A - "Risk Factors" in this Report.


Table of Contents						Glossary of Defined Terms

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CorEnergy Infrastructure Trust, Inc.

CONSOLIDATED BALANCE SHEETS


	September 30, 2023		December 31, 2022
Assets	(Unaudited)
Property and equipment, net of accumulated depreciation of $33,417,433 and $52,908,191, respectively (Crimson VIE*: $342,285,452, and $340,205,058, respectively)	$	342,291,489	$	440,148,967
Leased property, net of accumulated depreciation of $— and $299,463, respectively	—		1,226,565

Financing notes and related accrued interest receivable, net of reserve of $50,000 and $600,000, respectively	659,432		858,079


Cash and cash equivalents (Crimson VIE: $2,185,021 and $1,874,319, respectively)	3,048,354		17,830,482
Accounts and other receivables (Crimson VIE: $11,958,653 and $10,343,769, respectively)	11,961,369		14,164,525


Due from affiliated companies (Crimson VIE: $6,250 and $167,743, respectively)	6,250		167,743
Deferred costs, net of accumulated amortization of $964,971 and $726,619, respectively	177,376		415,727




Inventory (Crimson VIE: $1,938,569 and $5,804,776, respectively)	1,938,569		5,950,051

Prepaid expenses and other assets (Crimson VIE: $5,647,976 and $3,414,372, respectively)	6,374,432		9,478,146
Operating right-of-use assets (Crimson VIE: $5,879,124 and $4,452,210, respectively)	6,010,439		4,722,361
Deferred tax asset, net (Crimson VIE: $148,742 and $—, respectively)	148,742		—

Assets held-for-sale	110,306,421		—
Total Assets	$	482,922,873	$	494,962,646
Liabilities and Equity





Secured credit facilities, net of deferred financing costs of $283,965 and $665,547, respectively	$	103,716,035	$	100,334,453
Unsecured convertible senior notes, net of discount and debt issuance costs of $1,233,197 and $1,726,470, respectively	116,816,803		116,323,530

Accounts payable and other accrued liabilities (Crimson VIE: $16,480,857 and $16,889,980, respectively)	19,276,291		26,316,216

Income tax payable (Crimson VIE: $— and $85,437, respectively)	10,965		174,849
Due to affiliated companies (Crimson VIE: $137,525 and $209,750, respectively)	137,525		209,750
Operating lease liability (Crimson VIE: $6,069,038 and $4,454,196, respectively)	6,200,354		4,696,410
Deferred tax liability, net	—		1,292,300
Unearned revenue (Crimson VIE: $498,721 and $203,725, respectively)	498,721		5,948,621
Liabilities held-for-sale	7,160,793		—
Total Liabilities	$	253,817,487	$	255,296,129
Commitments and Contingencies (Note 9)
Equity

Series A Cumulative Redeemable Preferred Stock 7.375%, $136,690,065 liquidation preference at September 30, 2023 and $129,525,675 liquidation preference at December 31, 2022 ($2,500 per share, $0.001 par value); 69,367,000 authorized; 51,810 issued and outstanding at September 30, 2023 and December 31, 2022	$	129,525,675	$	129,525,675
Common stock, non-convertible, $0.001 par value; 15,353,833 and 15,253,958 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively (100,000,000 shares authorized)	15,354		15,254
Class B Common Stock, $0.001 par value; 683,761 shares issued and outstanding at September 30, 2023 and December 31, 2022 (11,896,100 shares authorized)	684		684
Additional paid-in capital	327,183,361		327,016,573
Retained deficit	(346,940,752)		(333,785,097)

Total CorEnergy Equity	109,784,322		122,773,089
Non-controlling interest	119,321,064		116,893,428
Total Equity	229,105,386		239,666,517
Total Liabilities and Equity	$	482,922,873	$	494,962,646
*Variable Interest Entity ("VIE") (Note 14)
See accompanying Notes to Consolidated Financial Statements.


Table of Contents						Glossary of Defined Terms

CorEnergy Infrastructure Trust, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Revenue
Transportation and distribution	$	28,862,539	$	31,273,493	$	86,642,286	$	89,538,121
Pipeline loss allowance subsequent sales	4,077,113		1,477,251		11,087,109		7,283,450



Lease and other revenue	105,035		210,942		311,444		533,902

Total Revenue	33,044,687		32,961,686		98,040,839		97,355,473
Expenses


Transportation and distribution	18,921,495		17,647,673		54,189,582		45,857,193
Pipeline loss allowance subsequent sales cost of revenue	3,806,678		1,385,028		10,857,454		6,016,664
General and administrative	6,601,866		5,743,342		20,820,858		16,162,570





Depreciation and amortization	3,351,238		4,028,800		10,620,391		11,997,781
Loss on impairment of goodwill	—		16,210,020		—		16,210,020




Total Expenses	32,681,277		45,014,863		96,488,285		96,244,228
Operating Income (Loss)	$	363,410	$	(12,053,177)	$	1,552,554	$	1,111,245
Other Income (expense)
Other income (expense)	$	(11,586)	$	76,050	$	325,905	$	332,615



Interest expense	(4,499,316)		(3,483,208)		(13,330,232)		(9,972,969)

Total Other Expense	(4,510,902)		(3,407,158)		(13,004,327)		(9,640,354)
Loss before income taxes	(4,147,492)		(15,460,335)		(11,451,773)		(8,529,109)
Taxes
Current tax expense	2,436		35,187		12,137		343,108
Deferred tax expense (benefit)	160,408		6,182		(785,891)		94,604
Income tax expense (benefit), net	162,844		41,369		(773,754)		437,712
Net Loss	$	(4,310,336)	$	(15,501,704)	$	(10,678,019)	$	(8,966,821)
Less: Net income attributable to non-controlling interest	809,212		809,212		2,427,636		2,427,636
Net Loss attributable to CorEnergy Infrastructure Trust, Inc.	$	(5,119,548)	$	(16,310,916)	$	(13,105,655)	$	(11,394,457)
Preferred dividend requirements	2,388,130		2,388,130		7,164,390		7,164,390
Net Loss attributable to Common Stockholders	$	(7,507,678)	$	(18,699,046)	$	(20,270,045)	$	(18,558,847)









Common Stock
Weighted average shares outstanding - basic	15,353,513		15,089,708		15,325,852		14,999,570
Basic net loss per share	$	(0.47)	$	(1.18)	$	(1.27)	$	(1.18)

Weighted average shares outstanding - diluted	15,818,470		15,554,665		15,790,809		15,464,527
Diluted net loss per share	$	(0.47)	$	(1.20)	$	(1.28)	$	(1.20)

Class B Common Stock
Weighted average shares outstanding - basic and diluted	683,761		683,761		683,761		683,761
Basic and diluted net loss per share	$	(0.47)	$	(1.23)	$	(1.27)	$	(1.33)












Dividends declared per common share	$	—	$	0.050	$	—	$	0.150

See accompanying Notes to Consolidated Financial Statements.


Table of Contents						Glossary of Defined Terms

CorEnergy Infrastructure Trust, Inc.

CONSOLIDATED STATEMENTS OF EQUITY


	Preferred Stock		Common Stock			Class B Common Stock			Additional Paid-in Capital		Retained Deficit		Non-controlling Interest		Total
	Amount		Shares	Amount		Shares	Amount


































Balance at June 30, 2023 (Unaudited)	$	129,525,675	15,350,883	$	15,351	683,761	$	684	$	327,074,755	$	(341,821,204)	$	118,511,852	$	233,307,113
Net (loss) income	—		—	—		—	—		—		(5,119,548)		809,212		(4,310,336)
Shares issued on RSU vesting, net of shares withheld for taxes	—		2,950	3		—	—		(2,263)		—		—		(2,260)
Stock-based compensation, net of forfeitures	—		—	—		—	—		110,869		—		—		110,869
Balance at September 30, 2023 (Unaudited)	$	129,525,675	15,353,833	$	15,354	683,761	$	684	$	327,183,361	$	(346,940,752)	$	119,321,064	$	229,105,386




	Preferred Stock		Common Stock			Class B Common Stock			Additional Paid-in Capital		Retained Deficit		Non-controlling Interest
	Amount		Shares	Amount		Shares	Amount								Total
Balance at December 31, 2022	$	129,525,675	15,253,958	$	15,254	683,761	$	684	$	327,016,573	$	(333,785,097)	$	116,893,428	$	239,666,517
Cumulative effect adjustment for the adoption of ASC 326, Financial Instruments -- Credit Losses	—		—	—		—	—		—		(50,000)		—		(50,000)
Net (loss) income	—		—	—		—	—		—		(13,105,655)		2,427,636		(10,678,019)
Shares issued on RSU vesting, net of shares withheld for taxes	—		99,875	100		—	—		(60,044)		—		—		(59,944)
Stock-based compensation, net of forfeitures	—		—	—		—	—		203,213		—		—		203,213
Common stock, accrued dividend equivalent forfeiture	—		—	—		—	—		23,619		—		—		23,619
Balance at September 30, 2023 (Unaudited)	$	129,525,675	15,353,833	$	15,354	683,761	$	684	$	327,183,361	$	(346,940,752)	$	119,321,064	$	229,105,386


See accompanying Notes to Consolidated Financial Statements.


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	Preferred Stock		Common Stock			Class B Common Stock			Additional Paid-in Capital		Retained Deficit		Non-controlling Interest		Total
	Amount		Shares	Amount		Shares	Amount
















Balance at June 30, 2022 (Unaudited)	$	129,525,675	15,060,857	$	15,060	683,761	$	684	$	332,588,181	$	(316,112,121)	$	116,816,116	$	262,833,595
Net (loss) income	—		—	—		—	—		—		(16,310,916)		809,212		(15,501,704)
Series A preferred stock dividends	—		—	—		—	—		(2,388,130)		—		—		(2,388,130)
Common Stock dividends	—		—	—		—	—		(753,043)		—		—		(753,043)
Reinvestment of dividends paid to common stockholders	—		84,606	85		—	—		197,895		—		—		197,980
Common Stock, accrued dividend equivalent	—		—	—		—	—		(34,145)		—		—		(34,145)
Crimson cash distribution on Class A-1 Units	—		—	—		—	—		—		—		(809,212)		(809,212)
Stock-based compensation	—		31,448	32		—	—		185,291		—		47,701		233,024
Balance at September 30, 2022 (Unaudited)	$	129,525,675	15,176,911	$	15,177	683,761	$	684	$	329,796,049	$	(332,423,037)	$	116,863,817	$	243,778,365


	Preferred Stock		Common Stock			Class B Common Stock			Additional Paid-in Capital		Retained Deficit		Non-controlling Interest		Total
	Amount		Shares	Amount		Shares	Amount
Balance at December 31, 2021	$	129,525,675	14,893,184	$	14,893	683,761	$	684	$	338,302,735	$	(321,028,580)	$	116,816,116	$	263,631,523
Net (loss) income	—		—	—		—	—		—		(11,394,457)		2,427,636		(8,966,821)
Series A preferred stock dividends	—		—	—		—	—		(7,164,390)		—		—		(7,164,390)
Common Stock dividends	—		—	—		—	—		(2,245,733)		—		—		(2,245,733)
Reinvestment of dividends paid to common stockholders	—		221,362	221		—	—		600,963		—		—		601,184
Common Stock, accrued dividend equivalent	—		—	—		—	—		(34,145)		—		—		(34,145)
Crimson cash distribution on A-1 Units	—		—	—		—	—		—		—		(2,427,636)		(2,427,636)
Stock-based compensation	—		62,365	63		—	—		336,619		—		47,701		384,383
Balance at September 30, 2022 (Unaudited)	$	129,525,675	15,176,911	$	15,177	683,761	$	684	$	329,796,049	$	(332,423,037)	$	116,863,817	$	243,778,365

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, 2023		September 30, 2022
Operating Activities
Net loss	$	(10,678,019)	$	(8,966,821)
Adjustments to reconcile net loss to net cash provided by operating activities:
Deferred income tax	(785,891)		94,604
Depreciation and amortization	10,620,391		11,997,781
Amortization of debt issuance costs	1,113,206		1,236,178


Loss on impairment of goodwill	—		16,210,020





Gain on sale of equipment	(1,074)		(39,678)
Stock-based compensation	203,213		384,383







Changes in assets and liabilities:

Accounts and other receivables	36,804		2,715,207

Inventory	3,865,532		(2,050,514)
Prepaid expenses and other assets	3,248,836		1,782,460
Due from affiliated companies, net	89,268		209,943

Accounts payable and other accrued liabilities	(1,515,953)		3,029,625
Income tax payable	(163,884)		344,630

Unearned revenue	(390,533)		151,295
Other changes, net	188,116		(100,855)
Net cash provided by operating activities	$	5,830,012	$	26,998,258

Investing Activities






Purchases of property and equipment	(13,458,018)		(7,759,603)

Proceeds from reimbursable projects	971,770		2,385,858








Other changes, net	(882,956)		186,992



Net cash used in investing activities	$	(13,369,204)	$	(5,186,753)
Financing Activities








Dividends paid on Series A preferred stock	—		(7,164,390)
Dividends paid on Common Stock	—		(1,644,549)





Distributions to non-controlling interest	—		(2,427,636)
Advances on the Crimson Revolver	11,000,000		9,000,000
Payments on the Crimson Revolver	(1,000,000)		(4,000,000)

Principal payments on the Crimson Term Loan	(7,000,000)		(6,000,000)
Dividends paid on Vested RSUs	(16,111)		—
Taxes paid for RSU withholdings	(68,722)		—
Proceeds from financing arrangement	—		1,520,517
Payments on financing arrangement	(3,525,995)		(1,987,382)

Payment on note payable	(437,500)		—


Net cash used in financing activities	$	(1,048,328)	$	(12,703,440)
Net change in Cash and Cash Equivalents	(8,587,520)		9,108,065
Cash and Cash Equivalents at beginning of period	17,830,482		11,540,576
Cash and Cash Equivalents at end of period(1)	$	9,242,962	$	20,648,641


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	For the Nine Months Ended
	September 30, 2023		September 30, 2022

Supplemental Disclosure of Cash Flow Information
Interest paid	$	13,274,159	$	8,802,697
Income taxes paid (net of refunds)	191,000		(12,055)

Non-Cash Investing Activities




Purchases of property, plant and equipment in accounts payable and other accrued liabilities	$	2,122,319	$	2,249,585




Non-Cash Financing Activities

Reinvestment of distributions by common stockholders in additional common shares	$	—	$	601,184




Dividend equivalents accrued on RSUs	—		34,145
Assets acquired under financing arrangement	—		307,312
(1) Cash and Cash Equivalents at the end of the nine months ended September 30, 2023 include $6.2 million held-for-sale. The Consolidated Statement of Cash Flows reflects assets and liabilities classified as held-for-sale that are presented in the Held-for-Sale Balance Sheet in Note 3. ("Held-for-Sale"). See Note 3. ("Held-for-Sale") for further information.
See accompanying Notes to Consolidated Financial Statements.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2023

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 stock, par value $0.001 per share ("Common Stock"), is listed on the New York Stock Exchange ("NYSE") under the symbol "CORR" and its depositary shares representing the Company's 7.375% Series A Cumulative Redeemable Preferred Stock, par value $0.001 per share ("Series A Preferred Stock"), are listed on the NYSE under the symbol "CORR PrA". The Company's Class B Common Stock, par value $0.001 per share ("Class B Common Stock"), is not listed on an exchange.

The Company owns and operates critical energy midstream infrastructure connecting the upstream and downstream sectors within the industry. The Company currently generates revenue from the transportation, via pipeline systems, of crude oil and natural gas for its customers in California and Missouri, respectively. The pipelines are located in areas where it would be difficult to replicate rights-of-way or transport crude oil or natural gas via non-pipeline alternatives, resulting in the Company's assets providing utility-like criticality in the midstream supply chain for its customers.

CorEnergy's Private Letter Rulings ("PLRs") enable the Company to invest in a broader set of revenue contracts within its real estate investment trust ("REIT") structure, including the opportunity to both own and operate infrastructure assets. CorEnergy has determined its investments in these energy infrastructure assets to be a single reportable business segment and reports them accordingly in its consolidated financial statements.

The principal executive offices of the Company are located at 1100 Walnut, Suite 3350, Kansas City, Missouri 64106.

Basis of Presentation and Consolidation

The accompanying unaudited 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 unaudited 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 unaudited 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. Prior reporting period amounts have been recast to conform with the current period presentation. In preparing the unaudited consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates.

Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or any other interim or annual period. Amounts as of December 31, 2022 have been derived from the audited consolidated financial statements as of that date but do not include all of the information and footnotes required by GAAP for complete financial statements and, as a result, should be read in conjunction with the audited consolidated financial statements and the notes thereto included in CorEnergy's Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 29, 2023.

Going Concern

Subsidiaries of the Company and Crimson Midstream Holdings, LLC, a consolidated VIE of the Company ("Crimson"), are co-borrowers under the Amended and Restated Credit Agreement, dated as February 4, 2021, which provides for borrowing capacity of up to $155.0 million (the "Crimson Credit Facility"). The Crimson Credit Facility is scheduled to mature on May 3,


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2024, which is within twelve months of the date of issuance of these financial statements for the period ended September 30, 2023.

On May 25, 2023, the Company announced entry into a definitive agreement to sell the MoGas and Omega pipeline systems to Spire, Inc. for approximately $175.0 million in cash, subject to final working capital adjustments. The transaction is currently expected to close around the end of the calendar year, pending U.S. Federal Trade Commission ("FTC") review and subject to customary closing conditions. The Company is required to use the proceeds from such sale to repay the Crimson Credit Facility in full.

If the MoGas and Omega sale does not occur in early 2024, the Company's operating cash flows may not be sufficient to service our debt instruments or comply with the covenants contained therein in 2024. If the Company is unable to extend the maturity date of the Crimson Credit Facility, or to repay or refinance it by May 3, 2024, or meet the covenants contained therein until such repayment or refinancing, the Company's ability to meet its obligations would be adversely affected. Failure to extend the maturity date or repay the debt prior to its contractual maturity or a default under the applicable debt agreements could result in the potential foreclosure on the collateral securing such debt.

In addition, on September 12, 2023, the Company received a notice (the “Notice”) from the NYSE that it is not in compliance with the NYSE continued listing standards relating to a minimum share price requirement because the average closing price of the Company's common stock was less than $1.00 per share over a consecutive 30 trading-day period. The Company has six months following receipt of the Notice to regain compliance with the minimum share price requirement. The Company intends to regain compliance with the requirement. However, if the Company is unable to maintain the NYSE listing or obtain an alternative listing on another exchange as required under the Indenture governing the 5.875% Convertible Notes, the Company's failure to do so will constitute a "fundamental change" under the Indenture, in which case, the Company must make an offer to repurchase all of the outstanding 5.875% Convertible Notes at a price equal to the principal amount of such notes, plus any accrued and unpaid interest. The Company projects that it will not have sufficient cash on hand or available liquidity to repurchase all of the outstanding 5.875% Convertible Notes in the event that it is required to do so. The Company's failure to make or complete the repurchase offer would result in a default under the Indenture.

The foregoing events and conditions raise substantial doubt about the Company's ability to continue as a going concern. However, the Company’s management believes it is probable the sale of MoGas and Omega will be successful and enable the Company to fully retire the Crimson Credit Facility before its contractual maturity and allow the Company to sufficiently service debt instruments and comply with the covenants contained therein during 2024, although no assurance can be given that the Company will be able to do so. Additionally, the Company believes it is probable that the sale of MoGas and Omega and other available options will allow the Company to regain compliance with the NYSE minimum listing standard and avoid delisting before March 12, 2024 and the requirement to make an offer to repurchase the outstanding 5.875% Convertible Notes as described above, although no assurance can be given that the Company will be able to do so. As a result, the Company has concluded that management's plans are probable of being achieved to alleviate substantial doubt of the Company's ability to continue as a going concern.

The accompanying unaudited consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

MoGas and Omega

During March 2023, the Company determined that the MoGas and Omega pipeline assets have met the criteria of "held-for- sale" accounting, as specified by FASB's ASC 360, "Property, Plant and Equipment." The carrying value of the assets and liabilities of this component is less than the fair value less costs to sell. Therefore, amounts are presented at carrying value within the Company's Consolidated Balance Sheet. Refer to Note 3 ("Held-For-Sale") for further discussion.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In June of 2016, the FASB issued Accounting Standards Update ("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 model ("CECL model"), applies to financial assets subject to credit losses and measured at amortized cost, as well as certain off-balance sheet credit exposures. Consistent with the guidance for smaller reporting companies, the Company has adopted this standard as of January 1, 2023.

Trade receivables - Accounts receivable from the transportation and distribution of crude oil and natural gas are generally settled with counterparties within 60 days of the service month. The Company has a high historical rate of collectability of


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greater than 99% of total revenue and, as such, has adopted an impairment model based on an evaluation of its aging schedule. As of September 30, 2023 the Company's calculated allowance for doubtful accounts was immaterial.

Financing note receivable - Refer to Note 6 ("Financing Notes Receivable") for further discussion.

The Company utilized the modified retrospective approach for implementation and recorded a $50 thousand cumulative-effect adjustment to beginning retained earnings as of January 1, 2023.

3. HELD-FOR-SALE

MoGas Pipeline and Omega Pipeline Systems

As of September 30, 2023, the Company's MoGas and Omega pipeline systems were classified as assets and liabilities held-for-sale. The Company is disposing of these assets to address upcoming debt maturities on the Crimson Credit Facility and to reduce outstanding debt associated with the Company's 5.875% Unsecured Convertible Senior Notes due 2025.

On May 25, 2023, the Company announced entry into a definitive agreement to sell the MoGas and Omega pipeline systems to Spire, Inc. for $175.0 million in cash, subject to final working capital adjustments. On July 3, 2023, the Company received a request for additional information ("Second Request") from the FTC with regard to this proposed acquisition. The Company is fully cooperating with the FTC regarding the Second Request and expects to close around the end of the calendar year subject to receiving FTC approval.

The pre-tax profit from the disposal group held for sale is summarized in the table below for each period the statement of operations is presented:


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Pre-tax profit(1)	$	1,150,591	$	(616,079)	$	3,000,379	$	3,601,156

Allocated interest related to the sale to repay the Crimson Credit Facility	2,601,032		1,584,924		7,635,380		4,278,117
(1) The Company is contractually obligated to use the proceeds from the anticipated sale to repay the Crimson Credit Facility. As such, the aforementioned pre-tax profit includes allocated interest related to the sale and repayment of the Crimson Credit Facility.

Held-for-Sale Balance Sheet


	September 30, 2023
Assets	(Unaudited)
Property and equipment, net of accumulated depreciation of $30,077,502	$	99,237,947

Leased property, net of accumulated depreciation of $309,778	1,216,249



Cash and cash equivalents (1)	6,194,608
Accounts and other receivables	2,579,532








Inventory	145,950
Prepaid expenses and other assets	868,585
Operating right-of-use assets	63,550



Total Assets	$	110,306,421
Liabilities








Accounts payable and other accrued liabilities	1,410,475



Operating lease liability	35,800
Deferred tax liability, net(2)	655,151
Unearned revenue	5,059,367

Total Liabilities	$	7,160,793
















(1) The Company has elected to disclose 100% of the disposal group cash and cash equivalent balance as held for sale, however, the Company only expects a minimal amount of cash necessary for day-to-day operations will ultimately be transferred in the sale.
(2) The deferred tax liability is recorded within certain parent entities that are not part of the disposal group, however, because the liability was generated from the operations of the disposal group, the Company has included it within liabilities held-for-sale on the Consolidated Balance Sheet.


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4. TRANSPORTATION AND DISTRIBUTION REVENUE

The Company's contracts related to transportation and distribution revenue are primarily comprised of a mix of crude oil, natural gas supply 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) crude oil and natural gas transportation, (ii) natural gas supply 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 transportation and distribution services are performed. The transaction price is calculated based on (i) CPUC and Federal Energy Regulatory Commission ("FERC") regulated rates or negotiated rates in the case of transportation agreements, (ii) index price, plus a contractual markup in the case of natural gas supply agreements (considered variable due to fluctuations in the index) and (iii) contracted amounts (with annual Consumer Price Index 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"), which 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.

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, "Revenue from Contracts with Customers" ("ASC 606") when control of the PLA volumes has 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.

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 ASC 842, "Leases," while the margin is recognized in accordance with the ASC 606 revenue standard as discussed above.

The table below summarizes the Company's contract liability balance related to its transportation and distribution revenue contracts:


	Contract Liability(1)
	September 30, 2023		December 31, 2022
Beginning Balance January 1	$	5,927,873	$	5,339,364

Unrecognized Performance Obligations	294,997		1,175,824
Recognized Performance Obligations	(664,782)		(587,315)
Ending Balance (2)	$	5,558,088	$	5,927,873
(1) As of September 30, 2023, the contract liability balance is included in unearned revenue (Crimson portion) and liabilities held-for-sale (MoGas and Omega portion) in the Consolidated Balance Sheets. As of December 31, 2022, the contract liability balance was included in unearned revenue in the Consolidated Balance Sheets.
(2) As of September 30, 2023, the contract liability balance for MoGas and Omega was $5.1 million and is recorded in liabilities held-for-sale on the Consolidated Balance Sheets.

The Company's contract asset balances were immaterial as of both September 30, 2023 and December 31, 2022. 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 September 30, 2023, the remaining


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unamortized deferred contract costs balance was approximately $684 thousand. The contract asset and deferred contract costs balances are included in assets held-for-sale and prepaid expenses and other assets in the Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, respectively.

The following is a breakout of the Company's transportation and distribution revenue for the three and nine months ended September 30, 2023 and 2022:


	For the Three Months Ended								For the Nine Months Ended
	September 30, 2023				September 30, 2022				September 30, 2023				September 30, 2022
Crude oil transportation revenue	$	23,259,963	81	%	$	26,099,075	84	%	$	70,332,482	81	%	$	73,201,850	82	%
Natural gas transportation revenue	3,594,334		12	%	3,572,522		11	%	10,943,272		13	%	11,711,243		13	%
Natural gas distribution revenue	1,269,927		4	%	1,229,040		4	%	3,780,008		4	%	3,663,206		4	%
Other	738,315		3	%	372,856		1	%	1,586,524		2	%	961,822		1	%
Total	$	28,862,539	100	%	$	31,273,493	100	%	$	86,642,286	100	%	$	89,538,121	100	%

5. LEASES

The Company and its subsidiaries currently lease land, corporate office space, single-use office space, and equipment. During 2022, Crimson entered into a new corporate office lease that commenced upon possession of the property on April 15, 2023. No lease payments are due for the first year. During September 2023, the Company extended the lease for the CorEnergy corporate office, which will be effective December 2023 through May 2024. An additional operating right-of-use asset and operating lease liability were recorded for this lease in the amount of $97 thousand each. The Company's leases are classified as operating leases and presented as operating right-of-use assets (assets held-for-sale for MoGas and Omega) and operating lease liabilities (liabilities held-for-sale for MoGas and Omega) on the Consolidated Balance Sheets as of September 30, 2023. The Company's leases are presented as operating right-of-use assets and operating lease liabilities on the Consolidated Balance Sheets as of December 31, 2022. 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 and nine months ended September 30, 2023 and 2022:


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Lease cost:
Operating lease cost	$	319,585	$	446,601	$	1,301,515	$	1,339,803


Other Information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	100,857	$	341,186	$	1,131,383	$	1,441,220


Supplemental disclosure of non-cash leasing activities:
Right-of-use assets obtained in exchange for new operating lease liabilities	$	97,415	$	—	$	2,330,936	$	—

Variable lease costs were immaterial for the three and nine months ended September 30, 2023 and 2022.

The following table reflects the weighted average lease term and discount rate for leases in which the Company is a lessee:



	September 30, 2023		December 31, 2022
Weighted average remaining lease term - operating leases (in years)	10.2		11.0
Weighted average discount rate - operating leases	8.44	%	7.45	%

6. FINANCING NOTES RECEIVABLE

On December 12, 2018, Four Wood Corridor, LLC, a subsidiary of the Company, entered into a $1.3 million note receivable with Compass SWD, LLC related to the sale of real and personal property that provide saltwater disposal services for the oil and natural gas industry (the "Compass REIT Loan"). Subsequent to amendments to the Compass REIT Loan in 2019, 2020 and 2021, the Compass REIT Loan matures on July 31, 2026 and accrues interest at an annual rate of 12.0%, with monthly payments of $24 thousand.


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As of September 30, 2023 and December 31, 2022, the Compass REIT Loan balance was $659 thousand and $858 thousand, respectively, net of reserves of $50 thousand and zero, respectively. The Company uses the discounted cash flow method to estimate expected credit losses and also reviews other factors that may affect the collectability of the balance, including timeliness of required payments, past due status and discussions with obligors. As of September 30, 2023, there were no past due payments associated with the Compass REIT Loan.

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 September 30, 2023 and December 31, 2022, are as follows:


Deferred Tax Assets and Liabilities
	September 30, 2023		December 31, 2022
Deferred Tax Assets:

Deferred contract revenue	$	—	$	1,230,985
Net operating loss carryforwards	148,742		7,027,439





Capital loss carryforward	—		92,418
Other	—		338
Sub-total	$	148,742	$	8,351,180
Valuation allowance	—		(5,168,148)
Sub-total	$	148,742	$	3,183,032
Deferred Tax Liabilities:


Cost recovery of leased and fixed assets	$	—	$	(4,386,744)
Other	—		(88,588)
Sub-total	$	—	$	(4,475,332)
Total net deferred tax asset (liability)	$	148,742	$	(1,292,300)


Deferred Tax Assets and Liabilities - Held-For-Sale
	September 30, 2023
Deferred Tax Assets:

Deferred contract revenue	$	1,104,815
Net operating loss carryforwards	7,169,734





Capital loss carryforward	92,418
Other	317
Sub-total	$	8,367,284
Valuation allowance	(3,663,938)
Sub-total	$	4,703,346
Deferred Tax Liabilities:


Cost recovery of leased and fixed assets	$	(5,256,622)
Other	(101,875)
Sub-total	$	(5,358,497)
Total net deferred tax liability(1)	$	(655,151)
(1) The deferred tax liability is recorded within certain parent entities that are not part of the disposal group, however, because the liability was generated from the operations of the disposal group, the Company has included it within liabilities held-for-sale on the Consolidated Balance Sheet.

The total deferred tax assets and liabilities presented above relate to the Company's taxable REIT subsidiaries ("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. As of September 30, 2023, the Company had no uncertain tax positions. Tax years beginning with the year ended December 31, 2019 remain open to examination by federal and state tax authorities.

As of September 30, 2023 and December 31, 2022, the TRSs had cumulative net operating loss carryforwards ("NOLs") of $30.2 million and $29.2 million, respectively. As of September 30, 2023 and December 31, 2022, NOLs of $27.9 million and $26.4 million, respectively, that were generated during the periods ended September 30, 2023, December 31, 2022, 2021, 2020,


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2019, and 2018 may be carried forward indefinitely, subject to limitation. NOLs generated for years prior to December 31, 2018 may be carried forward for 20 years.

Management assessed the available evidence and determined that it is more likely than not that the capital loss carryforwards 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 September 30, 2023 and December 31, 2022. Additionally, the Company determined that certain of the federal and state NOLs may not be utilized prior to their expiration. Due to the uncertainty of realizing these deferred tax assets, a valuation allowance of $3.6 million and $5.2 million was recorded at September 30, 2023 and December 31, 2022, respectively. In the future, if the Company concludes, based on existence of sufficient evidence, that it should realize more or less of the deferred tax assets, the valuation allowance will be adjusted accordingly in the period such conclusion is made.

The Company provides for income taxes during interim periods based on the estimated effective tax rate for the year and any discrete adjustments. The effective tax rate is subject to change in the future due to various factors such as the operating performance of the TRSs, tax law changes, and future business acquisitions or divestitures. The TRSs’ effective tax rates were (24.9)% and 24.4% for the nine months ended September 30, 2023 and 2022, respectively. The negative tax rate for the current period is a result of the tax benefit received from the lower valuation allowance requirement described in the preceding paragraph.

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				For the Nine Months Ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Current tax expense
Federal	$	2,117	$	31,781	$	10,550	$	238,587
State (net of federal tax expense)	319		3,406		1,587		104,521
Total current tax expense	$	2,436	$	35,187	$	12,137	$	343,108
Deferred tax expense (benefit)
Federal	$	602,142	$	5,004	$	(200,981)	$	77,784
State (net of federal tax expense)	(441,734)		1,178		(584,910)		16,820
Total deferred tax expense (benefit)	$	160,408	$	6,182	$	(785,891)	$	94,604
Total income tax expense (benefit), net	$	162,844	$	41,369	$	(773,754)	$	437,712

8. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:


Property and Equipment
	September 30, 2023		December 31, 2022
Land	$	24,303,454	$	24,989,784
Crude oil pipelines	193,310,961		185,047,366
Natural gas pipeline	—		105,322,987
Right-of-way agreements	65,159,200		87,206,374
Pipeline related facilities	46,958,495		42,647,865
Tanks	35,002,009		33,092,825



Vehicles, trailers and other equipment	1,811,967		2,684,993

Office equipment and computers	1,834,046		1,569,698


Construction work in progress	7,328,790		10,495,266