Australia’s only ASX listed vehicle providing investors with direct access to water

ASX: D2O NAV $1.51
Change   Net Asset Value per Share as at 30 June 2024

Duxton Water owns and actively manages a diverse portfolio of water assets, primarily located in the Southern Murray Darling Basin (”SMDB”) region of Australia. In order to meet the needs of the irrigative community, the team at Duxton Water take a holistic approach to providing the irrigator with as much or as little assistance as they need with determining their optimal supply strategy.

This often comprises a mix of different products which is dependent on the individual irrigator’s risk profile, and capital vs operational expense preferences. With the maturation of the Australian water market, there are now different water products available to irrigators.

The perpetual right to a particular volume of the water resource. It is this ‘entitlement’ asset which receives an annual allocation of usable water. There are varying entitlement types, each with their own characteristics such as security (priority of allocation), carryover capability and capital value.

The leasing of an entitlement; the lease rate is usually structured as a % of the entitlement cost, and lease terms are generally anywhere from 1 to 10 years in length.
Here the allocation risk (i.e. weather risk) lies with the lessee,
not the entitlement owner.
Consider this a OPEX not CAPEX product.

The seller agrees to provide a specified volume of water to a buyer, in the future, at a price agreed upon today. The price is fixed at the time the agreement is entered into, and may be at a premium to current prices when future prices are expected to be higher. Forward allocation products are considered an operating expense, and is the only product which guarantees the delivery of a certain volume on a set date.

Ownership of some water entitlements also provides the capacity to ‘bank’ allocation water and carry it over from one water year to the next. Generally, if allocation is not used or carried over, it expires.
Pricing for carryover space is largely driven by demand, however in some cases utilising carryover capability can prove to be an affordable water management tool.
Carryover capability is an operating expense. Ownership of ‘general security’ entitlements that allow carryover, often come at a lower capital cost than ‘high security’ entitlements.

Water users can therefore take varying approaches to their water management and risk mitigation strategies.

Animation Transcript

In the past, irrigators received a permit to access water based on their plantings; permanent crops like vines or nut trees needed a higher security of supply than annual growers who could scale their production up or down each year dependent on the available resource. In the 1990s, it was realised that further issue of water permits was not sustainable, so a cap was placed on the further issuance. To allow water-users to continue to develop, grow and change their production, the Government developed a trade capability, by recognising the permit as a perpetual right to the resource, and by separating this asset from the land. So, one can own water without land and land without water.

Today these rights are called water entitlements; these are a perpetual right to a particular volume of water. Each year, the entitlement holder receives an allocation based on their entitlement and its particular characteristics. In some years it may be a full allocation (i.e. they receive 100% of their entitlement) and in other years it may be as low as 0% for some entitlements. Exchange platforms and brokers were introduced to facilitate trade of these two assets; entitlements, and the annual usable volume of water (allocation).