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Diamondback Announces $750M Deal to Divest EDS to Deep Blue
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Key Takeaways
Diamondback agreed to sell Environmental Disposal Systems to Deep Blue in a $750M deal.
FANG will receive $675M upfront, up to $200M more by 2028, and keep a 30% equity stake.
Deep Blue's expanded system will manage over 1.2M bbl/day of water across 783,000 acres.
Diamondback Energy, Inc. (FANG - Free Report) recently announced that it has entered into an agreement to offload Environmental Disposal Systems, LLC (“EDS”) to Deep Blue Midland Basin LLC (Deep Blue) in a transaction valued at approximately $750 million. Once completed, the deal will nearly double Deep Blue’s produced water management capacity across the Midland Basin. It is expected to significantly expand Deep Blue’s ability to recycle, store and dispose of produced water, reinforcing both companies’ commitment to sustainable and scalable water infrastructure.
Strategic Acquisition to Boost Water Management Capacity
Deep Blue’s planned acquisition of EDS represents a key step in consolidating water infrastructure across the Midland Basin. Under the proposed agreement, FANG is expected to receive approximately $675 million in upfront cash, with the potential to earn an additional $200 million based on performance through 2028. Importantly, FANG will retain a 30% equity stake in Deep Blue, ensuring continued strategic alignment and collaboration between the companies.
EDS’ integration into Deep Blue’s platform will expand water management services across 12 key counties. Additionally, FANG has renewed a 15-year dedication agreement to use Deep Blue’s infrastructure for produced and supply water services, further setting its leadership in the region.
Expanding Infrastructure With Unmatched Scale
Once the acquisition is completed, Deep Blue’s infrastructure will operate on an unprecedented scale. The expanded system will have the capacity to treat and recycle 1.2 million barrels of water per day (bbl/day), gather 1.6 million bbl/day and dispose of 3.4 million bbl/day under permitted disposal limits. The network includes 1,871 miles of pipeline infrastructure and covers 783,000 dedicated acres, enabling efficient water collection, treatment, recycling and disposal. This vast infrastructure supports large-scale oil and gas development while maintaining compliance with environmental regulations.
Driving Sustainable Water Solutions for Energy Production
Sustainability lies at the heart of Deep Blue’s strategy. By integrating treatment, recycling and disposal at scale, it aims to minimize the environmental impact of water use in oil and gas operations. The reuse of produced water for hydraulic fracturing reduces freshwater consumption and helps lower the overall carbon footprint of upstream development.
Scott Mitchell, CEO of Deep Blue, emphasized that this transaction will expand its footprint and accelerate the mission to optimize water management in the Midland Basin with an emphasis on environmental stewardship.
FANG’s Strategic Role and Long-Term Commitment
Although planning to divest EDS, FANG will remain closely involved with Deep Blue. Retaining a 30% equity interest and a long-term service agreement ensures FANG’s ongoing operational presence and strategic influence in Deep Blue’s growth.
Kaes Van’t Hof, CEO and director of Diamondback, highlighted that the deal will create meaningful value for it while maintaining a strong partnership and customer relationship with Deep Blue. This approach allows FANG to focus capital on core operations while leveraging Deep Blue’s expertise in water infrastructure management.
Five Point’s Continued Investment in Innovation and Growth
Five Point Infrastructure LLC, a joint venture partner and lead investor in Deep Blue, reaffirms its commitment to innovation and expansion. David Capobianco, CEO of Five Point and chairman of Deep Blue, stated that the latter is setting new industry standards for resource-efficient water management across U.S. energy production. With Five Point’s support, Deep Blue is well-positioned to enhance its services and pursue aggressive growth.
Expert Legal and Financial Support
To navigate the complexity of the transaction, Deep Blue is being advised by legal firms Skadden, Arps, Slate, Meagher & Flom LLP and Vinson & Elkins LLP. Diamondback is receiving legal counsel from Akin Gump Strauss Hauer & Feld LLP and financial advisory from Piper Sandler & Co. This team ensures the deal complies with all regulatory requirements and aligns with both companies’ long-term strategic goals.
Positioned for Growth in the Midland Basin
Since its formation in 2023, Deep Blue has quickly become the Midland Basin’s largest independent water infrastructure platform. The acquisition of EDS will accelerate this growth trajectory, enhance operational reliability and optimize integrated water services.
As production in the Permian Basin intensifies, the demand for reliable, sustainable water management solutions grows. Deep Blue’s scalable infrastructure, including interconnected pipelines and regional water balancing, positions it as a key enabler of upstream development while prioritizing environmental responsibility.
Conclusion: Leading the Future of Water Management in U.S. Energy
This proposed $750 million acquisition by Deep Blue, supported by Diamondback and Five Point Infrastructure, marks a new era for water infrastructure in the Permian Basin. By nearly doubling its scale and integrating industry-leading assets, Deep Blue is setting a new standard for sustainable, efficient water management that balances economic, operational and environmental priorities. Together, these partners are shaping the future of water management in the U.S. oil and gas sector, delivering solutions that support energy growth while protecting valuable natural resources.
Repsol is a global energy company known for its integrated operations spanning exploration, production, refining and marketing of oil and gas. It actively pursues innovation and sustainability initiatives to transition toward cleaner energy solutions while maintaining a strong presence in key international markets. Repsol is valued at $19.17 billion.
Kodiak Gas Services is a leading provider of contract compression services for the oil and gas industry in the United States. The company primarily focuses on providing gas compression equipment and services that help midstream and upstream companies gather and transport natural gas efficiently. Kodiak Gas Services is valued at $3.12 billion.
Vitesse Energy specializes in providing fluid transfer and control products for the energy sector, offering innovative solutions to optimize performance and reliability. The company serves a diverse customer base in oil and gas, industrial and renewable energy markets. Vitesse Energy is valued at $1.01 billion.
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Diamondback Announces $750M Deal to Divest EDS to Deep Blue
Key Takeaways
Diamondback Energy, Inc. (FANG - Free Report) recently announced that it has entered into an agreement to offload Environmental Disposal Systems, LLC (“EDS”) to Deep Blue Midland Basin LLC (Deep Blue) in a transaction valued at approximately $750 million. Once completed, the deal will nearly double Deep Blue’s produced water management capacity across the Midland Basin. It is expected to significantly expand Deep Blue’s ability to recycle, store and dispose of produced water, reinforcing both companies’ commitment to sustainable and scalable water infrastructure.
Strategic Acquisition to Boost Water Management Capacity
Deep Blue’s planned acquisition of EDS represents a key step in consolidating water infrastructure across the Midland Basin. Under the proposed agreement, FANG is expected to receive approximately $675 million in upfront cash, with the potential to earn an additional $200 million based on performance through 2028. Importantly, FANG will retain a 30% equity stake in Deep Blue, ensuring continued strategic alignment and collaboration between the companies.
EDS’ integration into Deep Blue’s platform will expand water management services across 12 key counties. Additionally, FANG has renewed a 15-year dedication agreement to use Deep Blue’s infrastructure for produced and supply water services, further setting its leadership in the region.
Expanding Infrastructure With Unmatched Scale
Once the acquisition is completed, Deep Blue’s infrastructure will operate on an unprecedented scale. The expanded system will have the capacity to treat and recycle 1.2 million barrels of water per day (bbl/day), gather 1.6 million bbl/day and dispose of 3.4 million bbl/day under permitted disposal limits. The network includes 1,871 miles of pipeline infrastructure and covers 783,000 dedicated acres, enabling efficient water collection, treatment, recycling and disposal. This vast infrastructure supports large-scale oil and gas development while maintaining compliance with environmental regulations.
Driving Sustainable Water Solutions for Energy Production
Sustainability lies at the heart of Deep Blue’s strategy. By integrating treatment, recycling and disposal at scale, it aims to minimize the environmental impact of water use in oil and gas operations. The reuse of produced water for hydraulic fracturing reduces freshwater consumption and helps lower the overall carbon footprint of upstream development.
Scott Mitchell, CEO of Deep Blue, emphasized that this transaction will expand its footprint and accelerate the mission to optimize water management in the Midland Basin with an emphasis on environmental stewardship.
FANG’s Strategic Role and Long-Term Commitment
Although planning to divest EDS, FANG will remain closely involved with Deep Blue. Retaining a 30% equity interest and a long-term service agreement ensures FANG’s ongoing operational presence and strategic influence in Deep Blue’s growth.
Kaes Van’t Hof, CEO and director of Diamondback, highlighted that the deal will create meaningful value for it while maintaining a strong partnership and customer relationship with Deep Blue. This approach allows FANG to focus capital on core operations while leveraging Deep Blue’s expertise in water infrastructure management.
Five Point’s Continued Investment in Innovation and Growth
Five Point Infrastructure LLC, a joint venture partner and lead investor in Deep Blue, reaffirms its commitment to innovation and expansion. David Capobianco, CEO of Five Point and chairman of Deep Blue, stated that the latter is setting new industry standards for resource-efficient water management across U.S. energy production. With Five Point’s support, Deep Blue is well-positioned to enhance its services and pursue aggressive growth.
Expert Legal and Financial Support
To navigate the complexity of the transaction, Deep Blue is being advised by legal firms Skadden, Arps, Slate, Meagher & Flom LLP and Vinson & Elkins LLP. Diamondback is receiving legal counsel from Akin Gump Strauss Hauer & Feld LLP and financial advisory from Piper Sandler & Co. This team ensures the deal complies with all regulatory requirements and aligns with both companies’ long-term strategic goals.
Positioned for Growth in the Midland Basin
Since its formation in 2023, Deep Blue has quickly become the Midland Basin’s largest independent water infrastructure platform. The acquisition of EDS will accelerate this growth trajectory, enhance operational reliability and optimize integrated water services.
As production in the Permian Basin intensifies, the demand for reliable, sustainable water management solutions grows. Deep Blue’s scalable infrastructure, including interconnected pipelines and regional water balancing, positions it as a key enabler of upstream development while prioritizing environmental responsibility.
Conclusion: Leading the Future of Water Management in U.S. Energy
This proposed $750 million acquisition by Deep Blue, supported by Diamondback and Five Point Infrastructure, marks a new era for water infrastructure in the Permian Basin. By nearly doubling its scale and integrating industry-leading assets, Deep Blue is setting a new standard for sustainable, efficient water management that balances economic, operational and environmental priorities. Together, these partners are shaping the future of water management in the U.S. oil and gas sector, delivering solutions that support energy growth while protecting valuable natural resources.
FANG's Zacks Rank & Key Picks
Currently, FANG has a Zacks Rank #3 (Hold).
Investors interested in the energy sector might look at some better-ranked stocks like Repsol (REPYY - Free Report) , Kodiak Gas Services, Inc. (KGS - Free Report) and Vitesse Energy, Inc. (VTS - Free Report) , each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Repsol is a global energy company known for its integrated operations spanning exploration, production, refining and marketing of oil and gas. It actively pursues innovation and sustainability initiatives to transition toward cleaner energy solutions while maintaining a strong presence in key international markets. Repsol is valued at $19.17 billion.
Kodiak Gas Services is a leading provider of contract compression services for the oil and gas industry in the United States. The company primarily focuses on providing gas compression equipment and services that help midstream and upstream companies gather and transport natural gas efficiently. Kodiak Gas Services is valued at $3.12 billion.
Vitesse Energy specializes in providing fluid transfer and control products for the energy sector, offering innovative solutions to optimize performance and reliability. The company serves a diverse customer base in oil and gas, industrial and renewable energy markets. Vitesse Energy is valued at $1.01 billion.