Rattler IPO raises $765 million amid rapid growth

US water, oil and gas services company Rattler Midstream successfully raised $764.8 million in an initial public offering...
US water, oil and gas services company Rattler Midstream successfully raised $764.8 million in an initial public offering (IPO) in May 2019 after selling 38 million common units and an additional 5.7 million optional units, at a price of $17.50 per share. Its share price has since risen to $19.63 as Water in Oil went to press, valuing the company at around $2.8 billion.
Created to provide its parent company, E&P operator Diamondback Energy, with midstream services in the Delaware and Midland Basins, Rattler has a saltwater disposal capacity of 2.72 million-bbl/d. The company also transports 575,000 bbl/d of fresh water, 232,000 bbl/d of oil and 150 mmcf/d of natural gas. Altogether, the company operates about 781 miles of transportation pipelines across both basins, including 414 miles dedicated to gathering produced water and transporting it to its disposal facilities.
In a May SEC filing prior to the offering, Rattler noted that Diamondback’s production footprint in the Permian area was expanding, which is expected to contribute to its own growth. Rattler generated annual EBITDA of $105.5 million in 2018 on total revenues of $184.5 million. Its Q1 2019 revenues, meanwhile, were $95.2 million, up from $33.9 million during the same period in 2018.
A main driver of Rattler’s recent growth has been its saltwater services, which alone brought in $72.4 million last year – a nearly 160% increase from 2017. In the first three months of 2019, that division added $58.8 million in revenues.
Diamondback’s water recycling program for its operations in the Midland and Delaware basins is also expected to boost Rattler’s saltwater services margins. The upstream company aims to have 10–30% of water for well completions sourced from produced water.
With a 71% stake in Rattler following the closing of the IPO, Diamondback is currently the company’s only customer. It is free to provide its services to other players, however.
For the parent company, the benefits of the IPO “may be about controlling costs, but also having flow assurance,” Gabe Collins, Baker Botts Fellow in Energy and Environmental Regulatory Affairs at Rice University’s Baker Institute for Public Policy, told Water in Oil. “They want to be able to retain some of the longer-term economic upside that may come with owning an actual equity stake, essentially owning what’s almost like a captive subsidiary that investors are allowed to buy into, as opposed to just selling it outright the way Halcón or PDC have.”
Rattler is one of the few midstream companies with significant water exposure to have successfully completed an IPO in recent years. WaterBridge Resources previously filed a confidential S-1 document ahead of a possible IPO in June 2018, but this month the company announced that it has withdrawn the filing after its private equity backer, Five Point Energy, sold a 20% equity stake in the company to Singaporean sovereign wealth fund GIC.
According to Collins, while additional stock market listings are considered unlikely within the next year, future IPOs may be possible for midstream companies that handle large water volumes of at least 450,000 bbl/d. “If there are firms that are going to be able to reach IPO-scale volumes and have enough long-term growth and volume maintenance potential to interest public investors, I think the Permian is the logical place to look for that because you have big volumes now, a real prospect that those water volumes are going to grow significantly in the future, and a resource base that is unmatched anywhere else in the United States, and really, in most parts of the world.”



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