On September 11, 2024, Delek Logistics Partners LP (NYSE: DKL) completed its acquisition of H2O Midstream, marking a significant milestone in the company’s growth strategy. This $230 million deal is more than just an expansion; it positions Delek as a full-service midstream leader in the Permian Basin, one of the most prolific oil and gas regions in the United States. By integrating H2O Midstream’s water management services, Delek is strengthening its capabilities to meet the growing demand for sustainable and efficient water solutions in oil and gas production.
Why the Acquisition Matters
H2O Midstream, founded in 2016, has built a reputation as a leading independent provider of full-cycle water management solutions. Operating the largest fully integrated produced water network in the Midland Basin, H2O Midstream offers a comprehensive suite of services, including water gathering, transportation, recycling, storage, treatment, and disposal. Their solutions are designed to help oil and gas producers reduce costs, ensure operational reliability, and improve the long-term sustainability of their operations—key goals for any operator in the Permian Basin.
Delek’s acquisition of H2O Midstream offers significant strategic benefits:
- Enhanced Service Offering: With the integration of water disposal and recycling capabilities, Delek can now offer a more comprehensive suite of midstream services. This allows them to serve their existing customers more effectively and appeal to new clients seeking full-service solutions for both oil and gas logistics and water management.
- Sustainability Focus: Water management is a critical issue in the Permian Basin. The region’s oil and gas production generates large volumes of produced water, which needs to be safely disposed of or recycled. H2O Midstream’s expertise in managing this water aligns with industry-wide trends toward greater sustainability and operational efficiency.
- Cost Synergies and Sales Opportunities: Delek anticipates that the acquisition will unlock new cost synergies by leveraging H2O Midstream’s existing infrastructure and customer base. In addition, the integration opens the door to new sales opportunities, as producers increasingly seek partners who can manage both their product transportation and water needs.
Financial Structure and Strategic Vision
The financial structure of the deal, a mix of cash and convertible preferred equity, reflects Delek’s balanced approach to financing growth while maintaining financial flexibility. This acquisition follows a series of strategic moves by Delek Logistics Partners, which was formed in 2012 to own, operate, and expand crude oil and refined products logistics and marketing assets. A majority of these assets support Delek US Holdings, Inc. (NYSE: DK) and its refining and marketing operations in Tyler, Texas, and El Dorado, Arkansas.
By bringing H2O Midstream into the fold, Delek extends its reach beyond oil and gas logistics into a critical service area that complements its existing operations. As the oil and gas industry faces increasing pressure to manage environmental impacts and improve the sustainability of operations, the demand for effective water management will only continue to grow. Delek’s acquisition of H2O Midstream positions the company to be a leader in providing these essential services.
What This Means for the Permian Basin
The Permian Basin continues to be a hub of energy production in the U.S., and with the rise of activity comes the need for sophisticated infrastructure to support efficient operations. As oil and gas producers in the region look to optimize their production and reduce costs, reliable water management is becoming an increasingly vital part of the equation.
With this acquisition, Delek Logistics Partners is enhancing its ability to meet the evolving needs of producers in the region, providing end-to-end logistics solutions that include both crude oil and refined products transportation as well as water management. This expanded service offering will allow Delek to remain competitive and capitalize on the growing opportunities in the Permian Basin.
Looking Ahead: Delek’s Growth Trajectory
The acquisition of H2O Midstream is just one part of Delek’s broader growth strategy. As the energy industry continues to evolve, Delek is positioning itself as a key player in the midstream market, with an eye on sustainability and operational excellence. By expanding their service offerings and improving efficiency through strategic acquisitions, Delek is well-positioned to capitalize on new opportunities in the years ahead.
This acquisition not only strengthens Delek’s portfolio but also reflects their commitment to adapting to the changing needs of the energy market, particularly in areas like the Permian Basin, where water management is becoming increasingly important.
Delek’s growth-oriented vision and strong financial footing make it a company to watch as it continues to expand its footprint in the midstream sector.
About Delek Logistics Partners, LP
Delek Logistics Partners LP, headquartered in Brentwood, Tennessee, is a publicly traded master limited partnership (MLP) formed by Delek US Holdings, Inc. in 2012. The company owns, operates, and expands crude oil and refined products logistics and marketing assets, primarily supporting Delek’s refineries in Texas and Arkansas. Delek Logistics Partners focuses on growth through strategic acquisitions and asset development, serving the southeastern United States and west Texas. Learn more about the company at DelekUS.com.
About H2O Midstream
Founded in 2016, H2O Midstream provides comprehensive water management solutions to oil and gas producers in the Permian Basin. Their services include water gathering, transportation, recycling, storage, treatment, and disposal. As operators of the largest independent produced water network in the Midland Basin, H2O Midstream plays a vital role in reducing the environmental impact of oil and gas production while improving operational efficiency.
