Cadiz Inc. is showing it can pump up a great deal.

Last week, the L.A. company that wants to draw water out of an aquifer in the middle of the Mojave Desert secured a 96-mile pipeline segment at a huge discount through an exchange agreement with Kinder Morgan Inc., a Houston pipeline and fossil fuel transmission company.

Cadiz held an option to buy a pipeline from Kinder Morgan. But that company decided it wanted to use a segment of the pipeline for oil or natural gas. So Cadiz agreed to give up its option on that segment and, in exchange, Kinder Morgan sold Cadiz the other segment for a symbolic dollar.

The deal gives Cadiz a crucial pipeline to export its water once it wins its approvals. The pipeline would serve a water company in the Apple Valley and Barstow area. But it could also serve as an alternative route for deliveries to the rest of Southern California if its main route gets tied up in negotiations with the Metropolitan Water District of Southern California.

Since Cadiz earlier made option payments to buy the pipeline, it means the company is making the purchase for a total outlay of just over $1 million, more than 90 percent off the presumed value of about $17 million just two years ago.

What’s more, Cadiz stands to receive a windfall of $10 million should Kinder Morgan choose to use its adjoining 124-mile segment of the same pipeline, meaning Cadiz could score a nearly $9 million profit from the entire deal.

“We now have a very real opportunity to connect the Colorado River and Northern California sources through the project … at a monumental savings,” Cadiz President Scott Slater said in a press release announcing the deal last week. “This is pipe that’s already in the ground, can be used without disturbing the environment and terminates near California’s central water delivery system.”

Complex deal

The deal with Kinder Morgan came in two steps.

The process began in 2010, when Cadiz procured an option to purchase from El Paso Natural Gas Co. a 220-mile pipeline from the Cadiz Valley to Wheeler Ridge, about 20 miles south of Bakersfield, for $40 million. Kinder Morgan acquired El Paso Natural Gas earlier this year.

Since then, Cadiz has made nearly $1.1 million in option payments, first to El Paso and then to Kinder Morgan.

Last week, Cadiz announced that it had reached the agreement to pay Kinder Morgan $1 for the eastern 96-mile segment of the pipeline from Cadiz Valley to Barstow. That segment would be worth about $17 million based on the $40 million price for the 220-mile pipeline in 2010.

In exchange, Cadiz gives the rights to the 124-mile western segment of the pipeline to Kinder Morgan, which wants to use it to convey natural gas or oil between Texas and California.

Kinder Morgan also agreed to pay Cadiz an additional $10 million if it makes a regulatory filing for use of the 124-mile western segment.

If Cadiz receives that payment, it would be a windfall for a company that has spent tens of millions of dollars trying to get its water plan approved.

Kinder Morgan, meanwhile, has not made clear how it plans to transmit oil or gas through the state, nor it is clear how its section of the pipeline would help in any plans.

Pumping plan

Cadiz acquired 47,000 acres of desert property east of Twentynine Palms in the 1980s and has been trying to monetize the underground aquifer ever since. In 2002, a deal to have the Metropolitan Water District of Southern California pay Cadiz $150 million over 30 years to store water in the reservoir collapsed under political pressure and environmental opposition.

Cadiz has since come back with a scaled-down version of the plan, which received approval earlier this year from Orange County’s Santa Margarita Water District and the San Bernardino County Board of Supervisors. Under this new plan, Cadiz would capture natural runoff and store the water in the aquifer under the Cadiz Valley. It would pump out the water and sell it to at least six Southern California water providers.

Cadiz would transmit most of its water by building a $200 million, 43-mile underground pipeline south of its aquifer to connect to the Colorado River Aqueduct, which is owned and operated by the Metropolitan Water District of Southern California. The aqueduct supplies water to much of Southern California.

But before it can ship water along the aqueduct, Cadiz has to negotiate rates with the MWD, and that could prove challenging, given the rocky relations between the two parties. After the MWD rejected Cadiz’s first plan a decade ago, Cadiz filed suit to recover its costs. Cadiz won a round in court, but dropped the suit anyway.

“This gives Cadiz more leverage and flexibility in dealing with the MWD,” said Larry Kosmont, an L.A. economic development consultant. Kosmont was on the MWD board in the late 1990s as Cadiz was in negotiations with the wholesale water agency over the first plan to bank and sell its aquifer water.

“Who knows? This pipeline could end up being their main plan if negotiations with the MWD don’t go well and they can’t find anything else,” he said.