Delek Logistics Partners, LP Announces Closing of Gravity Water Midstream Acquisition

Rhea-AI Summary

Delek Logistics Partners (NYSE: DKL) has completed its acquisition of Gravity Water Intermediate Holdings for a total consideration of $285 million, comprising $200 million in cash and approximately 2.175 million DKL units. The acquisition strengthens DKL's position in the Permian Basin, particularly in Howard County's Midland Basin.

The Gravity operations include integrated full-cycle water systems in the Permian Basin and produced water gathering and transportation assets in the Bakken. This acquisition, combined with DKL's recent H2O Midstream purchase, enhances the company's ability to provide integrated crude and water services. Following this transaction, DKL will derive more than 70% of its EBITDA from third-party sources.

The acquisition is expected to create synergies through cost and commodity sale optimization, complementing DKL's integrated crude and produced water gathering and disposal services in the Midland Basin.

Positive

• Strategic expansion in Permian Basin water midstream services
• Increases third-party EBITDA contribution to >70%
• Expected synergies through cost and commodity sale optimization
• Strengthens integrated service offering combining crude and water services

Negative

• Significant cash outlay of $200 million
• Potential dilution from issuance of ~2.175 million DKL units

Insights

Financial Analyst

The $285 million Gravity acquisition marks a strategic expansion of DKL's water midstream capabilities, comprising $200 million cash and approximately 2.175 million DKL units. This deal strengthens DKL's position in the lucrative Permian Basin, particularly in Howard County's Midland Basin. The transaction's structure, combining cash and equity, helps maintain balance sheet flexibility while giving Gravity stakeholders skin in the game through unit ownership. Most notably, DKL's EBITDA composition will shift to >70% from third-party sources, reducing parent-company dependence and potentially leading to improved valuation multiples. The synergistic benefits with the recent H2O Midstream acquisition should drive operational efficiencies and enhance margins through cost optimization and improved commodity sales strategies. For a company with a $2.15 billion market cap, this represents a significant growth initiative that could materially impact future cash flows.

Energy Infrastructure Specialist

This acquisition positions DKL as a comprehensive midstream service provider in both the Permian and Bakken regions. The integration of Gravity's water systems with DKL's existing infrastructure creates a robust full-cycle water management platform. The strategic value lies in the ability to offer integrated crude and water services, which is increasingly important as produced water handling becomes a critical component of oil & gas operations. The Permian Basin location is particularly valuable, as it remains one of North America's most active drilling regions with substantial produced water volumes. The operational synergies between Gravity and H2O Midstream assets should create meaningful cost efficiencies and enhance service capabilities, potentially leading to increased market share and improved customer retention.

Market Research Analyst

This deal represents a significant evolution in DKL's business model, transitioning from primarily servicing its parent company to becoming a major independent midstream player. The increased third-party revenue diversification should resonate well with investors who typically assign higher valuations to companies with more diverse customer bases. The water midstream sector is experiencing rapid consolidation and this acquisition puts DKL at the forefront of this trend. The combination of yielding MLP characteristics with growth potential from water infrastructure assets creates a compelling investment case. The timing is strategic, as environmental regulations and water scarcity issues are driving increased demand for professional water management services in key oil & gas regions.

 

BRENTWOOD, Tenn.--(BUSINESS WIRE)-- Delek Logistics Partners, LP (NYSE: DKL) (“Delek Logistics”) announced today the closing of the previously announced acquisition of Gravity Water Intermediate Holdings LLC (“Gravity”).

“The Gravity acquisition represents another significant step in DKL’s commitment of being a full suite crude, gas and water midstream services provider in the Permian Basin. Gravity’s primary operations are in Howard County in the Midland Basin, and along with our recent H2O Midstream acquisition, provide a strong opportunity for integrated crude and water services to DKL’s customers. We believe Delek Logistics continues to provide the best combination of yield and growth in the midstream sector. As previously indicated, DKL will be approaching greater than 70% of its EBITDA coming from third-party sources. We are excited about the prospects for DKL and the value it continues to bring to all of its stakeholders,” said Avigal Soreq, President at Delek Logistics.

The Gravity operations include integrated full-cycle water systems in the Permian Basin, in addition to produced water gathering, and transportation assets in the Bakken. Total consideration for the transaction is $285 million comprising of $200 million in cash (excluding customary closing adjustments) and ~2.175 million DKL units.

The acquisition is synergistic to DKL’s recent acquisition of H2O Midstream and supplements DKL's integrated crude and produced water gathering and disposal offering in the Midland Basin. The acquisition also presents an opportunity to extract significant synergies through cost and commodity sale optimization.

About Delek Logistics Partners, LP

Delek Logistics Partners, LP is a midstream energy master limited partnership headquartered in Brentwood, Tennessee. Through its owned assets and joint ventures located primarily in and around the Permian Basin, including both the Midland and the Delaware Basins, and other select areas in the Gulf Coast region, Delek Logistics provides gathering, pipeline, transportation, and other services for its customers in crude oil, intermediates, refined products, natural gas, storage, wholesale marketing, terminalling, water disposal, and recycling. Delek US Holdings, Inc. (NYSE: DK) (“Delek US”) owns the general partner interest as well as a majority limited partner interest in Delek Logistics Partners, LP, and is also a significant customer.

Safe Harbor Provisions Regarding Forward-Looking Statements

This press release contains forward-looking statements that are based upon current expectations and involve a number of risks and uncertainties. Statements concerning current estimates, expectations and projections about future results, performance, prospects, opportunities, plans, actions and events and other statements, concerns, or matters that are not historical facts are “forward-looking statements,” as that term is defined under the federal securities laws. Investors are cautioned that important factors may affect these forward-looking statements, as described in Delek US’s and Delek Logistics’ filings with the SEC, including risks disclosed in their respective Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and other filings and reports with the SEC.

Forward-looking statements should not be read as a guarantee of future performance or results and will not be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management's good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Neither Delek US nor Delek Logistics undertakes any obligation to update or revise any such forward-looking statements to reflect events or circumstances that occur, or which they become aware of, after the date hereof, except as required by applicable law or regulation.

View source version on businesswire.com: https://www.businesswire.com/news/home/20250102287313/en/

Investor Relations and Media/Public Affairs Contact:

investor.relations@delekus.com

Source: Delek Logistics Partners, LP

FAQ

What is the total value of DKL's Gravity Water Midstream acquisition?

The total consideration for the Gravity Water Midstream acquisition is $285 million, consisting of $200 million in cash and approximately 2.175 million DKL units.

How will the Gravity acquisition affect DKL's third-party EBITDA percentage?

Following the Gravity acquisition, DKL will derive more than 70% of its EBITDA from third-party sources.

What are the main operational areas of the Gravity acquisition for DKL?

Gravity's primary operations are located in Howard County in the Midland Basin (Permian Basin), with additional water gathering and transportation assets in the Bakken.

What synergies does DKL expect from the Gravity acquisition?

DKL expects to extract significant synergies through cost and commodity sale optimization, particularly in combination with their recent H2O Midstream acquisition.

How does the Gravity acquisition complement DKL's recent H2O Midstream purchase?

The Gravity acquisition complements the H2O Midstream purchase by enhancing DKL's integrated crude and water services capabilities in the Midland Basin, creating a full suite crude, gas, and water midstream services provider.