Permian Basin midstream water player Waterbridge Holdings LLC is adding more produced water infrastructure in West Texas by taking over assets of a subsidiary of Centennial Resource Development Inc.
The $225 million sale by Centennial Resource Production LLC gives WaterBridge a portfolio that spans more than 600,000 acres operated by 23 producers under long-term dedication in the southern Delaware sub-basin.
Midstream-focused private equity Five Point Energy created WaterBridge in 2016. The WaterBridge network provides nearly 2 million barrels/day of water handling capacity via 1,140 miles of large-diameter pipelines and 87 handling facilities.
The divested assets, nearly all in Reeves County, TX, comprise 12 Centennial-operated saltwater disposal (SWD) wells, working interests in four nonoperated wells, 10 SWD permits and extensive associated pipeline infrastructure, Centennial CFO George Glyphis said Tuesday in the fourth quarter results. Of the 10 permits, nine have been approved, with approval pending for the 10th.
“With the addition of Centennial’s produced water handling assets to WaterBridge’s network, the company has expanded the capabilities of its system and firmly established itself as the largest pure play water midstream company in the industry,” said Five Point CEO David Capobianco.
Once the deal is completed, WaterBridge and Centennial have entered into a 15-year produced water management agreement at market rates for Centennial’s operated acreage within an area of mutual interest.
WaterBridge agreed to pay $150 million in cash and would pay an additional $75 million over a three-year period based on Centennial achieving certain incentive thresholds. Pending regulatory approvals and customary closing conditions, the deal is expected to close in March.
“We believe the incentive payments are reasonable to achieve, based on our current Reeves County activity levels,” Glyphis said. The assets provide an outlet for about one-half of Centennial’s disposed water volumes in Texas. Proceeds from the sale would be used repay debt, the CFO added.
Waterbridge has historically disposed of nearly half of Centennial’s produced water volumes in Reeves County, Glyphis said. “The divested assets, combined with Waterbridge’s broader Southern Delaware system, will provide significant flexibility and additional capacity to service Centennial’s water disposal needs.”
WaterBridge in December secured $345 million of equity capital to fund the acquisition of produced water assets in the Delaware.
In a research note published Tuesday, analysts at Tudor, Pickering, Holt & Co. said Centennial’s capital allocation is “heading in the right direction in 2020 as management looks to cut spending to prioritize the balance sheet over growth, with guided capital expenditure coming in at $640 million at the midpoint, well below” analyst consensus of $757-785 million.