By Pat Hinds
January 6, 2025

Permian Resources has taken another significant step in optimizing its portfolio by divesting a key portion of its Reeves County midstream assets to Kinetik Holdings. The $180 million transaction is part of the company’s ongoing strategy to streamline operations and focus on its core exploration and production (E&P) business in the Delaware Basin.

This move follows Permian Resources’ acquisition of $817 million in Delaware Basin assets from Occidental Petroleum last summer, which included 29,500 net acres, 9,900 net royalty acres, and a fully integrated midstream system in the Barilla Draw region.

Here’s a breakdown of the key details of the transaction and what it means for both companies and the broader Delaware Basin midstream market.

Key Details of the Transaction

Permian Resources is selling the following assets to Kinetik Holdings:

Approximately 100 miles of oil and gas gathering systems in Reeves County, primarily in the Barilla Draw area.
More than 250 million cubic feet per day (Mmcf/d) of electric compression capacity, with ownership of a private electric distribution system.
Natural gas gathering, compression, and processing services for approximately 60,000 gross operated acres under long-term, fixed-fee agreements.
Projected gathered volumes in 2025: 150 Mmcf/d of natural gas and 25,000 barrels per day of crude oil.

The deal does not include Permian Resources’ water midstream assets, which consist of 10 saltwater disposal wells, 13 frac ponds, 13 water wells, and a water recycling facility.

Permian Resources’ Strategic Focus

According to James Walter, co-CEO of Permian Resources, the sale of the midstream assets aligns with the company’s goal of becoming the Delaware Basin’s lowest-cost operator.

“We are excited to announce another divestiture of non-core assets at a price that is accretive over both the short and long term, further streamlining our business and driving value for investors,” said Walter.

This move allows Permian Resources to focus on its core E&P activities and proceed with development plans for its Barilla Draw assets. The company currently operates 12 rigs and has set a production growth target of between 0% and 10% for the coming year.

The retained water midstream assets will support the company’s broader sustainability goals by reducing the costs associated with water sourcing and disposal. This also provides an environmental benefit through water recycling efforts.

Why This Deal Makes Sense for Kinetik Holdings

For Kinetik Holdings, this acquisition strengthens its position as a leading midstream player in the Permian Basin. The deal brings several benefits:

Long-term, fixed-fee contracts with Permian Resources for natural gas and crude oil gathering services.
Control over residue gas and natural gas liquids (NGLs) through system optimization and integration with existing assets.
Upside potential through additional midstream capacity and new gathering agreements.

Kinetik’s CEO highlighted the strategic alignment of the deal with the company’s investment criteria, noting that the acquired assets will enhance Kinetik’s high-quality, organic growth pipeline.

Market Implications

This transaction highlights a growing trend in the Permian Basin: E&P companies are divesting non-core infrastructure assets to focus on their primary business operations, while midstream operators are capitalizing on these opportunities to expand their footprint.

The Delaware Basin remains a critical growth area for both oil and gas production and midstream infrastructure. With increasing takeaway capacity from new pipelines like the Matterhorn Express, companies like Permian Resources are better positioned to access higher Gulf Coast pricing for natural gas, reducing their exposure to the volatile Waha pricing.

Opportunities for Oilfield Service Companies

This deal also opens new opportunities for oilfield service companies operating in the Delaware Basin. With Kinetik taking over the midstream assets, there will likely be demand for:

Pipeline maintenance and integrity services
Compression and processing equipment
Crude oil and gas gathering infrastructure upgrades
Water management solutions

Additionally, service companies with expertise in electric compression and private electric distribution systems could see new business opportunities as Kinetik integrates these assets.

Looking Ahead

The Permian Basin remains a hotspot for both E&P and midstream activity, and this latest transaction underscores the dynamic nature of the market. As more companies streamline their operations and divest non-core assets, midstream operators will continue to play a pivotal role in ensuring the efficient transport of oil and gas to market.

For Permian Resources, this divestiture is a step toward becoming a more focused, low-cost operator in the Delaware Basin. For Kinetik Holdings, the deal represents an opportunity to enhance its midstream capabilities and capture additional market share.

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