NGL Energy Partners LP is stepping up its water disposal plans in the Permian Basin with the acquisition of Mesquite Disposals Unlimited LLC for $890 million.
The purchase announced Tuesday would combine all of the Mesquite assets with NGL Energy’s Water Solutions business. Mesquite SWD Inc. would remain operator and be led by its current management team.
Mesquite has a fully interconnected produced water pipeline transportation and disposal system in New Mexico’s Eddy and Lea counties and in Loving County, TX, which would enable NGL Energy to expand its current system in the Delaware sub-basin of West Texas.
Once combined with NGL Energy’s assets, the system is expected by year’s end to have 35 saltwater disposal wells representing more than 1 million barrels a day of disposal capacity to serve exploration and production (E&P) customers.
"As we have consistently stated in the past, our water strategy is focused on consolidating, integrating and growing our position in central Reeves County, north to the Texas/New Mexico state line and throughout Lea and Eddy counties,” NGL Energy CEO Mike Krimbill said.
“Pro forma for the Mesquite assets, NGL's permitted disposal capacity will nearly double to over 2 million barrels per day in the Delaware Basin. This transaction creates the redundancy required by our producers to manage produced water by connecting a gathering system to multiple 24-inch pipelines."
Most of the Mesquite volumes on the system are contracted under long-term acreage dedications and minimum volume commitments, with 95% of the volumes delivered via pipeline.
NGL Energy expects funding for the deal to be leverage-neutral and accretive to distributable cash flow per unit in fiscal 2020 and beyond.
"The Mesquite acquisition makes NGL the largest water transportation and disposal company in the Delaware Basin, providing multiple transportation, disposal and recycling options to our E&P customers," said NGL’s Doug White, executive vice president of Water Solutions. "The breadth and size of our system and diversity of our product offerings allows NGL to provide customized water solutions for all of our customers' needs."
Mesquite CEO Clay Wilson said the partnership would provide “an enhanced suite of capabilities to our customers by taking advantage of the incredible synergies with the NGL assets and team."
NGL expects the transaction to be completed in July. Barclays is acting as financial adviser to NGL while Winston & Strawn LLP is acting as legal counsel.