Verde Clean Fuels Inc. and Diamondback Energy subsidiary Cottonmouth Ventures have executed a joint development agreement (JDA) for the proposed development, construction and operation of a Permian Basin facility to produce commodity-grade gasoline using Diamondback’s associated natural gas as feedstock, the companies said Feb. 13.

If approved, the project would produce approximately 3,000 bbl/d of fully-refined gasoline utilizing Verde’s patented STG+ process. By consuming natural gas in the pipeline-constrained Permian Basin as feedstock, the proposed project could demonstrate the ability to mitigate the flaring of up to 34 MMcf/d, while also producing a high-value, salable product.

A proposed facility in Martin County, Texas, in the heart of the Permian Basin, could serve as a template for additional natural gas-to-gasoline projects throughout the Permian Basin and other pipeline-constrained basins in the U.S., the companies said. Such facilities could also address flared or stranded natural gas opportunities internationally.

The JDA provides a pathway for the parties to reach final definitive documents and a final investment decision (FID) for the proposed project. The JDA frames the contracts contemplated to be entered into between the parties, including an operating agreement, ground lease agreement, construction agreement, license agreement and financing agreements as well as conditions precedent to close, such as FID.

The agreement follows Cottonmouth, Diamondback’s new ventures subsidiary, making a $20 million equity investment in Houston-based Verde in February 2023.

“The Verde Clean Fuels team is incredibly excited to finalize this JDA with Diamondback Energy with the goal to produce gasoline from natural gas in the Permian Basin,” Verde CEO Ernie Miller said in a Feb. 13 press release. “This arrangement brings compounding economic and environmental benefits to West Texas. We believe that the ability to de-bottleneck midstream constraints along with the potential to reduce flaring of natural gas, while creating less carbon intensive gasoline, is of paramount interest to natural gas producers.”

Diamondback President Kaes Van’t Hof said the agreement, with the first planned project in Martin County, “fits perfectly with Diamondback’s strategy to decarbonize the oil field while ensuring a return for our investors.”

“Additionally, the scalability of the project is incredibly exciting, with similar natural gas-to-gasoline facilities possible across Diamondback’s locations in West Texas. We are proud to partner with Verde to bring this technology to the market,” he said.