Delek US Holdings, Inc. DK, a U.S.-based oil and gas refining and marketing company, recently announced that its subsidiary, Delek Logistics Partners, LP DKL, completed the acquisition of H2O Midstream, a portfolio company of EIV Capital, LLC. This acquisition, valued at $230 million, includes $160 million in cash and $70 million in convertible preferred redeemable equity. The transaction was funded through a combination of cash and debt financing, a strategic move aimed at strengthening DK's core midstream services in the Permian Basin.
Overview of H2O Midstream and Its Strategic Value for DKL
H2O Midstream is a leading provider of water-related services in the Midland Basin, offering gathering, transportation, recycling, storage and disposal services. This acquisition complements Delek Logistics’ existing operations in the Midland, TX, reinforcing its midstream service solutions for existing and third-party customers.
Key Benefits of the H2O Midstream Acquisition for DKL
The acquisition brings several key advantages:
Synergy Creation and Cost Optimization: H2O Midstream’s operations have a significant overlap with DKL's existing infrastructure in Midland. This overlap presents a unique opportunity for cost optimization and operational synergies. This acquisition allows DK’s subsidiary to streamline the company’s water services and expand cross-product sales in the Midland Basin, an essential area for its midstream business.
Expanding Midstream Service Offerings: DKL’s acquisition of H2O Midstream supports its core strategy of offering full-service midstream solutions. With H2O’s capabilities in water gathering, transportation and disposal, DK’s subsidiary is positioned to offer a broader range of services, especially in the Permian Basin, where water management is crucial for oil and gas operations.
Enhancing Permian Basin Operations: The Permian Basin is one of the most prolific oil-producing regions in the world. Delek Logistics’ enhanced water management capabilities will further set its position in this critical region. This acquisition allows DK’s subsidiary to improve its overall efficiency, reduce operational costs and increase revenues through new service offerings and expanded customer relationships.
Competitive Position and Growth Opportunities for DKL
Delek Logistics Partners’ extensive network of pipelines, storage facilities and joint ventures across the Permian Basin and Gulf Coast will be strengthened by this acquisition. The enhanced service portfolio will position DKL as a leading midstream provider in the region, with significant growth potential driven by strategic acquisitions and operational expansions.
Overall, the acquisition of H2O Midstream is a strategic move for DK. This will strengthen its core midstream services in the Permian Basin, create synergies, expand service offerings, enhance operations and position the company for growth.
Zacks Rank and Key Picks
Currently, DK has a Zacks Rank #3 (Hold), and DKL sports a Zacks Rank #1 (Strong Buy)
Investors interested in the energy sector might look at some other-ranked stocks like MPLX LP MPLX, sporting a Zacks Rank #1 and VAALCO Energy, Inc. EGY, carrying a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here
Findlay, OH-based MPLX LP is valued at $43.71 billion. In the past year, its shares have risen 24.2%. MPLX owns and operates midstream energy infrastructure and logistics assets in the United States. It operates under two segments, namely Logistics and Storage, and Gathering and Processing.
Houston, TX-based Vaalco Energy is valued at $557.10 million. The oil and gas exploration and production company currently pays a dividend of 25 cents per share, or 4.66%, on an annual basis. EGY is an independent energy company principally engaged in the acquisition, exploration, development and production of crude oil and natural gas.
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Delek Logistics Partners, L.P. (DKL) : Free Stock Analysis Report
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