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NGL Energy buys Mesquite’s produced water assets for $890 million

Integrated energy services company NGL Energy Partners announced on July 2 that it had closed an $892.5 million transaction…

Integrated energy services company NGL Energy Partners announced on July 2 that it had closed an $892.5 million transaction with New Mexico-based saltwater disposal firm Mesquite Disposals Unlimited to combine their oilfield water assets.

NGL’s Water Solutions arm acquired Mesquite’s 35 saltwater disposal wells (SWDs) and water transportation pipelines, filling in the former’s network between Eddy and Lea counties in New Mexico and expanding its coverage in Loving County, Texas. Under the deal, Mesquite will continue to operate its own assets. The acquired SWDs have a total disposal capacity of more than 1 million bbl/d of produced water and will roughly double NGL’s existing capacity.

According to a statement, the transaction was funded partly by the issuance of $100 million in preferred stock to Mesquite’s owners, and partly by the sale of equity securities to EIG Global Energy Partners and FS Energy and Power Fund for $400 million.

In its Q4 earnings report, ending March 31 of this year, NGL said the deal with Mesquite was an example of how the company aims to continue expanding through acquisitions, as well as through organic growth.Recent transactions targeting Permian assets, including the NGL-Mesquite deal, are a reflection of the general consolidation trend in the sector and of the building of areas of market dominance. That’s certainly what Gabe Collins, Baker Botts Fellow in Energy and Environmental Regulatory Affairs at Rice Baker Institute for Public Policy, believes.

Speaking to Water in Oil, he said, “I think in particular, the Delaware Basin is going to be the prime area they are targeting because the water cuts are higher. We see NGL building a huge position in the northern Delaware and we see WaterBridge building a similarly large position in the southern Delaware.”

The acquisition follows NGL’s cash sales of its South Pecos water disposal assets to WaterBridge Resources for a net total of $232.2 million in February and its NGL Water Solutions Bakken business to Tallgrass Energy for a net total of $85 million in November last year. Both deals, along with the Mesquite acquisition, are aimed at strengthening NGL’s portfolio of core assets in the Delaware Basin, as well as its financial position.

For the fiscal year ending March 31, 2019, NGL’s total revenues for its Water Solutions business amounted to about $301.7 million, and its operating income for the same period was $210.5 million (including $141.3 million from the sales of its South Pecos and Bakken disposal businesses). When compared to last year’s figures, $229.1 million in revenues and a loss of $24.2 million in operating income, it is clear that revenues are expanding, though at least some of that growth can be attributed to recent transactions.

In each of the main basins where it operates, NGL has also seen a spike in daily volumes of wastewater processed with 2018/2019 totals representing a nearly 34% increase over 2017/2018 figures. The largest contributor to this increase was the Permian Basin, where processing rose by 172,096 bbl/d to 461,456 bbl/d.

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