In a significant move within the energy sector, Akin Gump Strauss Hauer & Feld LLP has successfully advised Diamondback Energy, Inc. on the sale of its subsidiary, Environmental Disposal Systems, LLC, to Deep Blue Midland Basin LLC. The deal, valued at $750 million, not only marks a strategic shift for Diamondback but also significantly expands Deep Blue’s operational footprint.

The transaction allows Diamondback to maintain a strategic alignment with Deep Blue, with an agreement to renew a 15-year water dedication spanning a 12-county area in the Midland Basin. Furthermore, Diamondback will retain a 30% equity interest in Deep Blue, securing its involvement in the venture’s future.

From a financial perspective, Diamondback is set to receive approximately $675 million in upfront cash proceeds, alongside the potential for up to $200 million in additional performance-based earnouts through 2028. This influx of capital underscores the deal’s importance and potential return on investment for Diamondback.

For Deep Blue, this acquisition is a game-changer. It establishes the company as the largest independent water infrastructure platform in the Midland Basin. The expansion includes increased capabilities for treatment, disposal, and pipeline services across 780,000 dedicated acres. Scott Mitchell, CEO of Deep Blue, emphasized that this move accelerates their mission to optimize water management in the region, focusing on sustainability and recycling large volumes of produced water for upstream development.

Kaes Van’t Hof, CEO and Director of Diamondback, highlighted the transaction’s dual benefits, offering substantial value to Diamondback while enhancing the system that supports robust development schedules in the Midland Basin.

The legal orchestration by Akin was led by corporate partners John Goodgame and Leana Garipova, with a comprehensive team spanning various specialties contributing to the deal’s smooth execution. Skadden, Arps, Slate, Meagher & Flom LLP, and Vinson & Elkins LLP provided counsel to Deep Blue, further illustrating the high-profile nature of this transaction.

Deep Blue, established in 2023 as a joint venture which includes Diamondback Energy, has quickly ascended as a pivotal player in water infrastructure within the Midland Basin. Similarly, Diamondback Energy, a Fortune 500 company, continues to strengthen its position in the energy sector through strategic initiatives and partnerships.

This transaction not only underscores the intricate dance of corporate partnerships and investments but also highlights the crucial role of specialized legal guidance in navigating and sealing complex deals in the highly competitive and regulated energy market.