Annual report pursuant to Section 13 and 15(d)

PROPERTY AND EQUIPMENT

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PROPERTY AND EQUIPMENT
 12 Months Ended
Dec. 31, 2023
Property, Plant and Equipment [Abstract]  
PROPERTY AND EQUIPMENT PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Property and Equipment
December 31, 2023 December 31, 2022
Land $ 22,561,080  $ 24,989,784 
Crude oil pipelines 29,226,307  185,047,367 
Natural gas pipeline —  105,322,987 
Right-of-way agreements 16,922,336  87,206,374 
Pipeline related facilities 5,490,639  42,647,864 
Tanks 6,227,632  33,092,825 
Construction work in progress 98,822  10,495,266 
Vehicles and trailers and other equipment 985,415  2,684,993 
Office equipment and computers 660,718  1,569,698 
Gross property and equipment $ 82,172,949  $ 493,057,158 
Less: accumulated depreciation (87,102) (52,908,191)
Net property and equipment $ 82,085,847  $ 440,148,967 

During the fourth quarter of 2023, as a result of continued declining volumes transported and increasing expenses on the Crimson system, as well as the challenges associated with the implementation of the Company’s tariff rate cases, the Company performed a reassessment of useful lives of its assets and asset groups. As a result, the Company reduced the useful lives of its crude oil pipelines from 35 years to 25 years, thereby increasing depreciation expense subsequent to the change. Depreciation expense was $14.1 million, $16.0 million, and $14.7 million for the years ended December 31, 2023, 2022 and 2021, respectively.

During the fourth quarter of 2023, the Company identified certain impairment indicators associated with its Crimson asset groups, including a severe decline in the Company's outlook and market conditions including continued declining volumes transported and increasing expenses on the Crimson system, as well as challenges associated with the implementation of the Company’s tariff rate cases. The Company also considered disclosures by certain public upstream oil producers that have cited regulatory challenges and obstacles in California that led to identification of impairment indicators. As an operator of midstream assets, the Company’s future results of operations may be materially impacted by direct or indirect factors that influence the Company’s customers that operate upstream assets.
As a result of our impairment review, including the determination that the carrying value of the asset groups were not recoverable, we wrote off the portion of the carrying amount of these long-lived assets that exceeded their fair value. We recognized an impairment loss of $258.3 million, which amount is reflected in “Loss on impairment of long-lived assets” on our Consolidated Statements of Operations. Our estimated fair value of the asset groups, which we consider a Level 3 measurement in the fair value hierarchy, was primarily based on a discounted cash flow approach utilizing various assumptions and the application of a discount rate of approximately 12%, which represents our estimate of the cost of capital of a theoretical market participant for the asset groups. Such assumptions included (but were not limited to) (i) projected volumes transported on the Company's pipelines, (ii) projected tariff rates, (iii) estimated operating costs and (iv) the discount rate applied to the projected cash flows. The Company also utilized across the fence and replacement cost methods to determine fair value for certain asset categories within the asset groups.
Held-for-sale property and equipment consist of the following:
Property and Equipment
December 31, 2023
Land $ 686,330 
Natural gas pipeline 105,387,405 
Right-of-way agreements 22,047,174 
Vehicles, trailers and other equipment 880,447 
Office equipment and computers 268,560 
Construction work in process 38,405 
Gross Property and equipment $ 129,308,321 
Less: accumulated depreciation (30,077,502)
Net property and equipment $ 99,230,819 
Depreciation expense was $775 thousand for the year ended December 31, 2023.