Centennial Resource Development Sells Off Permian Water Assets For $225 Million

Centennial Resource Development Inc. agreed to divest produced water infrastructure in the Permian Basin in a $225 million sale to WaterBridge Resources LLC.

The divested water infrastructure assets, located in the southern Delaware Basin, currently dispose of approximately half of the company’s gross produced water in Texas. Centennial has roughly 80,100 net acres in the Delaware Basin located in Reeves County, Texas, and New Mexico’s Lea County.

“This transaction represents a significant premium to Centennial’s current trading valuation and will essentially offset any outspend this year, assuming current prices,” said Centennial CEO Mark Papa in a statement on Feb. 24. “It also significantly reduces the amount of infrastructure capex needed to maintain and grow these assets in the future.”

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WaterBridge, described as a long-standing partner of Centennial’s in its news release, already has historically disposed of nearly half of the company’s produced water volumes in Reeves County.

Centennial expects the combination of the divested assets with WaterBridge’s broader southern Delaware system will provide significant flexibility and additional capacity to service the company’s water disposal needs. The company said it will pay a market disposal rate on incremental water volumes that WaterBridge does not already gather and dispose, and these incremental costs are incorporated into Centennial’s 2020 lease operating expense guidance.

The divested assets expand WaterBridge’s produced water network in the southern Delaware Basin to nearly 2 million barrels per day of handling capacity, according to a separate release by WaterBridge on Feb. 25.

WaterBridge is backed by Five Point Energy LLC, which sold a 20% minority equity stake in the company to affiliates of Singapore’s sovereign wealth fund GIC in May 2019. Though the terms of the transaction weren’t disclosed, the Houston-based private equity firm said the transaction’s purchase price implied a roughly $2.8 billion enterprise value of WaterBridge.

“In 2016, Five Point Energy funded the formation of WaterBridge with a well-defined strategy of being a first mover in progressively addressing the produced water needs of the Permian Basin,” said David Capobianco, CEO of Five Point and chairman of the WaterBridge board, in a statement. “With the addition of Centennial’s produced water handling assets to WaterBridge’s network, the company has expanded the capabilities of its system and firmly established itself as the largest pure-play water midstream company in the industry.”

Upon closing of the transaction, WaterBridge will have over 600,000 acres operated by over 23 blue-chip producers under long-term dedication in the southern Delaware Basin. WaterBridge's extensive integrated water infrastructure network includes 1,140 miles of large-diameter pipelines and 87 handling facilities.

Payment for Centennial’s assets consists of $150 million in cash at closing and an additional $75 million payable to Centennial on a deferred basis upon meeting certain incentive thresholds. Centennial said it plans to use proceeds from the sale to repay borrowings under its revolving credit facility.

Barclays acted as exclusive financial adviser to Centennial in connection with the transaction. Winston & Strawn LLP served as WaterBridge’s legal adviser.