Water Handling and Recycling is a BIG DEAL in the Permian Basin.
Diamondback Energy, Inc. (FANG) and private equity firm Five Point Energy LLC announced the formation of a new joint venture entity — Deep Blue Midland Basin LLC. With significant additional capacity in place to explore third-party growth, this strategic joint venture establishes the largest independent water infrastructure platform in the region.
Per the agreement, FANG has entered into a 15-year dedication for its produced water and supply water within a 12-county area of mutual interest in the Midland Basin. In return, FANG will retain a 30% equity interest in Deep Blue and has already received approximately $500 million in upfront cash proceeds, with the potential for more cash proceeds through performance-based earnouts over the next 24 months.
Moreover, Diamondback and Five Point Energy plan to collectively contribute an additional $500 million in follow-on equity capital, earmarked for future growth projects and acquisitions.
Deep Blue executed long-term acreage dedications with two investment-grade customers, encompassing more than 20,000 acres. These dedications are projected to yield produced water volumes surpassing 75,000 barrels per day by 2024, setting the stage for substantial growth in the years to come.
Scott Mitchell, CEO of Deep Blue, expressed enthusiasm for the partnership, highlighting the venture's potential to revolutionize sustainably produced water management. He emphasized that in addition to aiding Diamondback's long-term growth plans and advancing their reuse objectives, Deep Blue intends to expand its footprint while promoting the advancement of technological solutions for customers.
Kaes Van’t Hof, president and CFO of Diamondback, underlined the joint venture's capacity to deliver significant value to FANG stockholders. He emphasized the strategic timing of this move, leveraging a decade-long investment in water infrastructure to seize the market's potential.
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