Delek Logistics Partners, LP (NYSE: DKL) has officially closed the previously announced acquisition of Gravity Water Intermediate Holdings LLC (“Gravity”). This strategic acquisition is an important milestone in Delek Logistics’ ongoing efforts to expand its capabilities and services in the midstream sector, particularly within the high-demand Permian Basin. With this acquisition, Delek Logistics further strengthens its position as a comprehensive provider of crude, gas, and water midstream services, which are crucial to the energy industry’s operational efficiency and growth.
A Strategic Expansion in the Permian Basin
According to Avigal Soreq, the President of Delek Logistics, Partners the acquisition of Gravity aligns with the company’s broader strategy to offer integrated midstream services that span across crude, natural gas, and water. He emphasized that the Permian Basin, and specifically Howard County in the Midland Basin, are key operational areas for Gravity, which Delek Logistics will continue to develop and expand. By integrating Gravity’s operations into its portfolio, Delek Logistics is poised to deliver an enhanced suite of services to its customers. This expansion is complemented by Delek Logistics’ recent acquisition of H2O Midstream, reinforcing the company’s ability to provide full-cycle water systems in the Permian Basin, including produced water gathering, transportation, and disposal services.
The Permian Basin, which spans across parts of West Texas and southeastern New Mexico, has long been a focal point of U.S. oil production. As the demand for energy continues to rise, the need for efficient midstream services—particularly those related to water management—has become increasingly important. Water usage and disposal are critical concerns in the basin, as the extraction of oil and gas requires substantial amounts of water for hydraulic fracturing, and the disposal of produced water is a regulatory necessity. Delek Logistics’ ability to offer these services in tandem with its crude and gas operations presents a compelling value proposition for its customers.
Financial Details of the Acquisition
The total consideration for the acquisition of Gravity is $285 million, which consists of a combination of cash and Delek Logistics Partners units. Specifically, the purchase price includes $200 million in cash (subject to customary closing adjustments) along with approximately 2.175 million DKL units. This acquisition structure underscores the company’s commitment to utilizing both its financial resources and equity to drive growth while maintaining a balanced capital structure.
Delek Logistics Partners, LP Completes Acquisition of Gravity Water Midstream $285 million
Delek Logistics’ Partners approach to funding this transaction highlights its strategic focus on creating value for shareholders, while also ensuring that its operations remain well-positioned for future growth. The inclusion of units in the deal also demonstrates the company’s confidence in its ability to generate sustainable value for its stakeholders. By offering a mix of cash and units, Delek Logistics Partners is fostering a sense of shared ownership with Gravity’s stakeholders, aligning their interests with those of the company’s broader investor base.
Synergies with H2O Midstream
One of the most significant aspects of this acquisition is its synergies with Delek Logistics’ recent acquisition of H2O Midstream. Together, Gravity and H2O Midstream enhance Delek Logistics’ ability to offer integrated services, combining crude oil, natural gas, and water management in the Permian Basin and beyond. This creates a more efficient and streamlined approach to midstream services, which can ultimately lower costs, reduce environmental impacts, and optimize resource use.
The integration of Gravity’s assets, particularly its produced water gathering and transportation infrastructure in the Midland Basin, augments Delek Logistics’ Partners capabilities and allows for a more cohesive service offering to its customers. As the demand for water management in oil and gas extraction continues to grow, the ability to offer these services in conjunction with crude oil transportation and natural gas gathering becomes an increasingly attractive proposition.
The combination of Gravity’s operations and Delek Logistics’ existing infrastructure also presents significant opportunities for cost synergies. By leveraging existing assets and optimizing the transportation and disposal of produced water, Delek Logistics Partners can reduce operating expenses and enhance profitability. Additionally, by combining the two operations, the company can optimize commodity sales, further enhancing the financial performance of its midstream segment.
A Bright Future for Delek Logistics
Delek Logistics has made clear its intent to transition toward a more diversified and robust revenue model. As highlighted by Soreq, the company is on track to have over 70% of its earnings before interest, taxes, depreciation, and amortization (EBITDA) come from third-party sources. This is a significant shift from previous years, where a higher percentage of earnings were derived from internal operations. This move not only reduces the company’s reliance on a single customer or revenue stream but also positions Delek Logistics Partners to benefit from the broader growth of the midstream sector.
By focusing on third-party sources of EBITDA, Delek Logistics Partners is positioning itself as a key player in the broader energy supply chain. The company’s integrated approach, offering services across crude oil, gas, and water, enables it to capture a larger share of the value chain and capitalize on the growth of energy production and transportation. The expansion into water services through the Gravity and H2O Midstream acquisitions enhances Delek Logistics’ competitive edge and allows it to serve a broader customer base, including both large producers and smaller, independent operators.
Soreq’s statement reflects a sense of optimism about the future prospects for Delek Logistics. With the combination of organic growth and strategic acquisitions, the company is well-positioned to generate strong returns for its investors while continuing to enhance the value it provides to stakeholders across the energy sector. The acquisitions of Gravity and H2O Midstream are just the latest examples of Delek Logistics’Partners commitment to its growth strategy, and they signal that the company is poised for continued success in the coming years.
Conclusion
The closing of the Gravity acquisition is an important development for Delek Logistics Partners, LP as it expands its service offerings in the Permian Basin and strengthens its position as a leading midstream services provider. The acquisition aligns with the company’s strategy to diversify its operations and enhance its ability to serve customers across the crude oil, natural gas, and water sectors. The synergy between Gravity’s operations and Delek Logistics’ recent acquisition of H2O Midstream further solidifies the company’s position as an integrated provider of critical midstream services in one of the most prolific oil and gas regions in the world.
As Delek Logistics continues to focus on third-party sources of revenue and growth opportunities, the company is well-positioned to benefit from the ongoing expansion of the midstream sector. With an eye on operational efficiency, cost optimization, and delivering value to stakeholders, Delek Logistics is poised for continued success in the years to come. The acquisition of Gravity is a strategic move that will help drive the company’s long-term growth and ensure that it remains at the forefront of the rapidly evolving energy landscape.