By Rachel Adams-Heard
The closely held company has acquired almost 100 miles (161 kilometers) of pipeline and seven disposal wells from Primexx Energy Partners Ltd., Warburg Pincus’s Tall City Exploration III LLC and Blackstone Energy Partners’ Jetta Permian LP, it said Wednesday in a statement.
“When you’re in your early phase of exploiting your resource, it’s very difficult to continue to grow at the pace you want by only drilling what your cash flow will allow,” David Capobianco, chairman of WaterBridge and chief executive officer of Five Point Energy, which backs the company, said in an interview. “It’s pushing these producers to sell their water midstream assets.”
To finance the deals, WaterBridge issued $195 million of common equity to private equity firm Five Point Energy, an affiliate of Singaporean sovereign wealth fund GIC Pte, and to its own management. It also issued $150 million of preferred equity to Magnetar Capital, which has the right to acquire another $100 million.
While drilling activity in the Permian has been cooling in recent months, the business of supplying water to shale producers in the biggest U.S. oil patch — and disposing of the wastewater — continues to attract private equity. Spending on oilfield water management in the U.S. is forecast to average $17 billion per year in 2019 through 2028, according to a recent report from Bluefield Research.
Capobianco estimates about three-quarters of oilfield water management infrastructure is still owned by producers, and said WaterBridge is likely to similar deals to those announced Wednesday, “particularly in areas where we’ve built the dominant networks for midstream water management.“
Despite the anticipated slowdown in the Permian next year, Capobianco sees water volumes in the shale patch rising from about 10 million barrels a day to about 25 million barrels over five years.
“If you track the expectations for the growth in crude oil, you can basically multiply them by four to five in the Delaware and one-and-a-half to two in the Midland,” he said of projected water volumes in the Permian’s two biggest sub-basins.
WaterBridge has previously signed deals with Permian operators including Concho Resources Inc., Halcon Resources Corp. and PDC Energy. GIC acquired a minority stake in WaterBridge earlier this year in a deal that valued the company at about $2.8 billion, a person familiar with the matter said at the time.
The latest acquisitions mean that WaterBridge now has long-term commitments for more than 600,000 acres in the southern portion of the Permian’s Delaware sub-basin.