© 2008 37 Water, LLC.  All rights reserved.

 

Water Rights Sales Structure

 

A water right entitles the owner to divert a specific rate of flow and annual volume of water at a diversion point for a beneficial use or uses at place of use during a certain time period.  During the later months of a normal irrigation season (and earlier in a dry year and later in a wet year), the local watermaster cuts off the flow of the more junior water rights to ensure delivery of water to the most senior water right holders.  In Basin 37, the most senior water rights begin in 1880.  More senior priority years are more valuable than more junior years since they are generally delivered for more days each year and are otherwise more reliable.

 

37 Water, LLC (“37 Water”) has a proprietary indexing system that it uses to compare the relative water value of water rights in eight Classes of priority years. 37 Water prices its water rights based on these Classes.  Class 1 is the rarest and the most expensive of the Classes.  37 Water requires any prospective buyer to execute a non-disclosure agreement and to complete a Buyer Questionnaire prior to disclosing the actual Classes, prices, or other terms.

Most current water right holders in Basin 37 own a collection of water rights with different priority years for irrigation of the same land.  Such rights are known as “stacked water rights.”  For example, on an 160-acre quarter-quarter section, the “standard” one miner’s inch per acre (0.02 cfs) would be 3.2 cfs, which might be comprised of the following stacked rights: Class 1 1880 – 1.6 cfs (50% of flow); Class 2 1881 – 0.08 cfs (25% of flow); and Class 3 1882 - 0.08 cfs (25% of flow).  A collection of stacked rights is more valuable to the extent that more of the water is from more senior priority years.  In this example, the Weighted Average Class of these three stacked water rights would be Class 1.75, which would be a rather valuable collection of water rights.

 

In its Water Purchase and Sales Agreements, 37 Water will agree to locate, obtain IDWR approvals, and sell to a buyer certain water rights (corresponding to the right to irrigate a specific number of acres at a specified new location) with a Weighted Average Class equal to or better than a specified Class (e.g. Class 3 or better).

 

37 Water offers two types of Water PSAs: gross and net (Note: this summary describes only a few of the contract terms. Buyers should read and understand the complete PSA and consult professional advisors).

 

A gross PSA assumes that IDWR will require that 20% of the current water right remain at the current place of use as recharge and conveyance mitigation to prevent harm to other water right holders.  The buyer pays the Weighted Class Average acre price multiplied times 80% of the water right acres in question.  The actual amount approved for transfer by the IDWR might be more or less than 80%.  The buyer takes this mitigation risk in exchange for a reduced purchase price.

 

Conversely, in a net PSA, the buyer only pays based on the actual number of acres approved for transfer by the IDWR.  37 Water takes the mitigation risk in exchange for a higher purchase price.

 

Most water right transactions are based in the “aliquot parts” of the Public Land Survey System, e.g. section (640 acres), half-section (1/2) (320 acres), quarter section (1/4) (160 acres), quarter-quarter section (1/16) (40 acres), or quarter-quarter-quarter (1/64) (10 acres).  Because of IDWR resistance to transfers of less than 10 acres and due to the additional marginal costs of such transactions, 37 Water adds a premium to the per acre price for all transfers of less than 10 acres.

 

37 Water requires a deposit when is has located conforming water rights.  A buyer has a right to approve the specific water rights prior to submission of the transfer application to IDWR.  The remaining portion of the purchase price is payable at closing, at which 37 Water will provide IDWR approval and execute a deed in favor of the buyer.  In the interim, 37 Water might be able to lease water to a buyer on annual basis pursuant to a separate water lease agreement.

 

37 Water offers water rights to intended users of water rights and not as an investment.  37 Water make no express or implied representations as to the current or future value of the water rights and/or as to the accuracy of its priority class indexing system.  37 Water encourages all prospective buyers to make their own independent evaluation of the value and suitability of the water rights in question for their intended uses(s) and to consult competent professional advisors.

 

Information for

Water Rights Buyers