H2O Midstream LLC is one step closer to realizing its goal of becoming the top water midstream provider in the Permian Basin, according to CEO Jim Summers.

The Houston-based company founded on the vision that water should be treated as a commodity, not a waste, said Aug. 21 it added once again to its portfolio with the acquisition of private Permian operator, Sabalo Energy LLC’s, produced water infrastructure in the basin. The terms of the transaction weren’t disclosed.

Concurrent with the Sabalo acquisition, EIV Capital and multiple co-investors “substantially increased” their equity commitment for H2O Midstream to pursue additional growth opportunities throughout the Permian Basin, the company release said.

H2O Midstream’s Sabalo Energy Acquisition Permian Basin Asset Map (Source: H20 Midstream LLC)
H2O Midstream’s Sabalo Energy Acquisition Permian Basin Asset Map (Source: H2O Midstream LLC)

A portfolio company of EnCap Investments LP, Sabalo has assets in the core of the northern Midland Basin. The company’s water assets are adjacent and already pipeline-connected to H2O Midstream’s existing operations in Howard County, Texas.

“The acquisition of Sabalo’s water infrastructure is an important step in realizing our vision of being the premier integrated water midstream provider in the Permian Basin,” Summers said in a statement on Aug. 21.

The acquired assets consist of over 37 miles of pipeline, nine saltwater disposal wells, four Ellenburger saltwater disposal well permits and several third-party interconnects.

H2O Midstream said as result of the acquisition, its system in the Permian will grow to 435,000 barrels per day (bbl/d) of disposal capacity, 240,000 bbl/d of deep disposal permits and 190 total miles of pipeline.

Additionally, H2O Midstream is planning an ongoing buildout to accommodate Sabalo’s development program, plus add 40,000 bbl/d of recycling capacity with the option to expand to 80,000 bbl/d over time.

Since forming in 2016, H2O Midstream has been actively building its water midstream position in the Permian including the acquisition of Encana Corp.’s water assets in the basin. The Sabalo acquisition follows a transaction made by H2O Midstream earlier this year to form a joint venture with University Lands in the Delaware Basin.

“The scale of our produced water ‘supersystem’ in the Midland Basin, coupled with our University Lands partnership in the Delaware Basin, allows us to provide our customers with an unmatched level of service, flexibility and reliability as they have put their trust in our hands,” Summers added in his statement.

Concurrent with the acquisition of its produced water assets, H2O Midstream also entered a 15-year acreage dedication to provide produced water gathering, disposal and recycling services to Sabalo.

Commenting on the transaction with H2O Midstream, Sabalo’s CEO, Barry Clark, said: “Due to the strong working relationship, location of complementary gathering infrastructure and proven reliability demonstrated by H2O Midstream, we determined they were the best team to purchase, operate, and continue the buildout of our integrated water gathering and recycling infrastructure. As a result of this transaction, Sabalo has secured a long-term partnership to gather all of its produced water via pipe and the optionality to scale up produced water recycling operations to meet the needs of an aggressive completion schedule in the future.”

Cadence Bank NA acted as lead arranger and administrative agent to expand H2O Midstream’s revolving credit facility and Jackson Walker LLP served as its legal counsel. Simmons Energy, A Division of Piper Jaffray, served as exclusive financial adviser to Sabalo in the transaction, and Bracewell LLP was the company’s legal counsel.