8-K: Delek Logistics Expands Permian Basin Footprint with Water Acquisition and Acid Gas Injection Project

Delek Logistics Partners announces a strategic acquisition of Gravity Water Midstream for $285 million and the development of acid gas injection capabilities at its Libby 2 gas processing plant, enhancing its midstream service offerings in the Permian Basin.

Summary

• Delek Logistics Partners, LP (DKL) is acquiring Gravity Water Midstream for $285 million, consisting of $200 million in cash and $85 million in DKL units.
• The acquisition is expected to close in the first quarter of 2025 and is immediately accretive to DKL's free cash flow, EBITDA, and leverage.
• The acquired company is being valued at an EBITDA multiple below 5.5x, excluding synergies.
• DKL is also developing acid gas injection (AGI) capabilities at its Libby 2 gas processing plant, expected to be operational in the second half of 2025.
• This AGI project will allow customers to access all six benches of the Delaware Basin and is expected to add significant economic value to the Libby complex.
• DKL has secured an additional 34,000 acres of dedication in the Midland Basin, bringing the total acreage dedication to approximately 400,000 acres.
• The company's liquidity is over $700 million, allowing it to pursue these opportunities without needing external capital.

Sentiment

Score: 8

Explanation: The document conveys a strong positive sentiment due to the strategic acquisition, the development of new infrastructure, and the company's strong financial position. The language used is confident and forward-looking, indicating a positive outlook for the company's future.

Positives

• The acquisition of Gravity Water Midstream is immediately accretive to DKL's free cash flow, EBITDA, and leverage.
• The AGI project at Libby 2 will enable access to all six benches of the Delaware Basin, enhancing DKL's service offerings.
• The additional acreage dedication in the Midland Basin improves overall economics and opens up cross-commodity opportunities.
• DKL has sufficient liquidity to fund these initiatives without external capital.
• The acquisition is synergistic to DKL's recent acquisition of H2O Midstream.

Risks

• The AGI project is still under development and may face delays or cost overruns.
• The integration of Gravity Water Midstream may present challenges.
• The company is subject to risks and uncertainties as described in Delek US's and Delek Logistics' filings with the SEC.

Future Outlook

DKL expects the Gravity Water Midstream acquisition to close in Q1 2025 and the AGI capabilities at Libby 2 to be operational in the second half of 2025. The company anticipates continued growth and value creation in the Permian Basin.

Management Comments

• We are committed to executing our strategy of being the preferred oil, gas and water midstream services provider in the Permian Basin.
• Delek Logistics continues to provide the best combination of yield and growth in the midstream sector.
• We are determined to showcase the value DKL has created in the Permian Basin and are confident that our strategy will continue to yield benefits for the stakeholders of Delek Logistics.
• The announcements today are a testament to the high-quality growth opportunities we are seeing in and around our existing assets.
• DKLs current liquidity of over $700 million allows DKL to pursue these opportunities without the need for incremental external capital while prudently managing our leverage and distribution coverage.

Industry Context

This announcement reflects a trend of midstream companies expanding their service offerings and consolidating assets in key basins like the Permian. The focus on water management and sour gas treatment highlights the increasing complexity and environmental considerations in oil and gas production.

Comparison to Industry Standards

• The acquisition multiple of below 5.5x EBITDA is competitive within the midstream sector, suggesting a value-accretive deal for DKL.
• The development of AGI capabilities is a strategic move to address a bottleneck in the Delaware Basin, similar to other midstream companies investing in infrastructure to support production growth.
• The acreage dedication of 400,000 acres in the Midland Basin is a significant commitment, comparable to other large midstream players in the region.
• Companies like Plains All American Pipeline and Enterprise Products Partners also focus on integrated midstream solutions, including crude, natural gas, and water services.

Stakeholder Impact

• Shareholders will benefit from the accretive acquisition and the potential for increased cash flow and growth.
• Customers will gain access to enhanced midstream services, including sour gas treatment and water disposal.
• Employees of the acquired company will transition to DKL, with comparable compensation and benefits.
• Suppliers and other business partners will see continued business opportunities with the expanded DKL operations.

Next Steps

• The acquisition of Gravity Water Midstream is expected to close in Q1 2025.
• The acid gas injection capabilities at Libby 2 are expected to be operational in the second half of 2025.
• DKL will continue to integrate the acquired assets and develop its infrastructure in the Permian Basin.

Key Dates

Keywords

Delek Logistics, Gravity Water Midstream, acid gas injection, Permian Basin, midstream, acquisition, EBITDA, acreage dedication, Libby 2, water disposal, recycling