XML 65 R10.htm IDEA: XBRL DOCUMENT v3.25.0.1
Acquisitions
 12 Months Ended
Dec. 31, 2024
Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]  
Acquisitions Acquisitions
Gravity Acquisition
On December 11, 2024, we entered into an agreement (the "Gravity Purchase Agreement") to acquire 100% of the limited liability company interests in Gravity Water Intermediate Holdings LLC from Gravity Water Holdings LLC (the "Seller") related to the Seller's water disposal and recycling operations in the Permian Basin and the Bakken (the “Gravity Acquisition”) for a preliminary purchase price of $301.2 million, subject to customary adjustments for net working capital. The purchase price was comprised of $209.3 million in cash and 2,175,209 of common units. Upon execution of the Gravity Purchase Agreement, we made a cash deposit of $22.8 million, recorded in other current assets in the consolidated balance sheets, which was credited to the sale upon closing. The Gravity Acquisition closed on January 2, 2025.
H2O Midstream Acquisition
On September 11, 2024, we completed the acquisition of in which we acquired 100% of the limited liability company interests in H2O Midstream Intermediate, LLC, H2O Midstream Permian LLC, and H2O Midstream LLC ("H2O Midstream Acquisition") from H2O Midstream Holdings, LLC. The H2O Midstream Acquisition included water disposal and recycling operations in the Midland Basin in Texas, for total consideration of $229.7 million, subject to customary adjustments for net working capital. The purchase price was comprised of $159.7 million in cash and $70.0 million of Preferred Units (as defined in Note 12). The cash portion was financed through a combination of cash on hand and borrowings under the DKL Credit Facility (as defined in Note 10 ).
For the year ended December 31, 2024, we incurred $7.4 million in incremental direct acquisition and integration costs that principally consist of legal, advisory and other professional fees. Such costs are included in general and administrative expenses in the accompanying consolidated statements of income and comprehensive income.
Our consolidated financial and operating results reflect the H2O Midstream Acquisition operations beginning September 11, 2024. Our results of operations included revenue and net income of $19.5 million and $8.3 million, respectively, for the period from September 11, 2024 through December 31, 2024 related to these operations.
This acquisition was accounted for using the acquisition method of accounting, whereby the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed based on their fair values.
Determination of Purchase Price
The table below presents the estimated purchase price (in thousands):
Base purchase price:$230,000 
Less: Adjusted Net Working Capital (as defined in the H2O Midstream Acquisition Agreement)
(2,596)
Plus: various closing adjustments
2,331 
Adjusted purchase price$229,735 
Cash paid $159,735 
Fair value of Preferred Units issued70,000 
Preliminary purchase price$229,735 
Purchase Price Allocation
The following table summarizes the preliminary fair values of assets acquired and liabilities assumed in the H2O Midstream Acquisition as of September 11, 2024 (in thousands):
Assets acquired:
Accounts receivables$6,644 
Inventories2,448 
Other current assets879 
Property, plant and equipment174,548 
Operating lease right-of-use assets2,058 
Customer relationship intangible (1)
24,229 
Other intangibles (1)
33,268 
Other non-current assets21 
Total assets acquired244,095 
Liabilities assumed:
Accounts payable1,833 
Accrued expenses and other current liabilities7,178 
Current portion of operating lease liabilities278 
Asset retirement obligations4,852 
Operating lease liabilities, net of current portion219 
Total liabilities assumed14,360 
Fair value of net assets acquired$229,735 
(1)The acquired intangible assets amount includes the following identified intangibles:
•Customer relationship intangible that is subject to amortization with a preliminary fair value of $24.2 million, which will be amortized over an 13.4 years useful life.
•Rights-of-way intangibles valued at $28.5 million, which have an indefinite life.
•Favorable supply contract intangible that is subject to amortization with a preliminary fair value of $4.8 million which will be amortized over a 4.8 years useful life.
These fair value estimates are preliminary and therefore, the final fair value of assets acquired and liabilities assumed and the resulting effect on our financial position may change once all necessary information has become available and we finalize our valuations. To the extent possible, estimates have been considered and recorded, as appropriate, for the items above based on the information available as of December 31, 2024. We will continue to evaluate these items until they are satisfactorily resolved and adjust our purchase price allocation accordingly, within the allowable measurement period (not to exceed one year from the date of acquisition), as defined by ASC 805.
The fair value of property, plant and equipment was based on the combination of the cost and market approaches. Key assumptions in the cost approach include determining the replacement cost by evaluating recently published data and adjusting replacement cost for physical deterioration, functional and economic obsolescence. We used the market approach to measure the value of certain assets through an analysis of recent sales or offerings of comparable properties.
Customer relationships were valued using the income approach, with essential assumptions including projected revenues from these relationships, attrition rates, operating margins, and discount rates.
The fair values discussed above were based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements. For all other current assets and payables, their fair values were considered equivalent to their carrying amounts due to their short-term nature.
Unaudited Pro Forma Financial Information
The following table summarizes the unaudited pro forma financial information of the Partnership assuming the H2O Midstream Acquisition had occurred on January 1, 2023. The unaudited pro forma financial information has been adjusted to give effect to certain pro forma adjustments that are directly related to this acquisition based on available information and certain assumptions that management believes are factually supportable. The most significant pro forma adjustments relate to (i) incremental interest expense associated with revolving credit facility borrowings incurred in connection with this acquisition, (ii) incremental depreciation resulting from the estimated fair values of acquired property, plant and equipment, (iii) incremental amortization resulting from the estimated fair value of the acquired customer relationship intangible and, (iv) transaction costs. The unaudited pro forma financial information excludes any expected cost savings or other synergies as a result of this acquisition. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have been achieved had this acquisition been effective as of the date presented, nor is it indicative of future operating results of the combined company. Actual results may differ significantly from the unaudited pro forma financial information.
Year Ended December 31,
20242023
(in thousands)
Net sales$985,232 $1,107,103 
Net income attributable to partners$156,238 $142,376 
Wink to Webster Pipeline Investment Acquisition
On August 5, 2024, the Partnership acquired Permian Pipeline Holdings, LLC, which holds 50% equity interests in Wink to Webster Holdings, LLC ("W2W Holdings"), from a wholly owned subsidiary of Delek Holdings. W2W Holdings includes our 15.6% indirect interest in the Wink to Webster Pipeline, LLC joint venture ("Wink to Webster"), and related joint venture indebtedness. Wink to Webster owns and operates a long-haul crude oil pipeline system with origin points at Wink and Midland in the Permian Basin and delivery points at multiple Houston area locations. Total consideration was comprised of $83.9 million in cash (including $2.7 million post-closing adjustment), forgiveness of a $60.0 million receivable from Delek Holdings and 2,300,000 of common units representing limited partnership interest in us.
This acquisition was considered a transaction between entities under common control. Accordingly, the equity interests acquired were recorded at amounts based on Delek Holdings' historical carrying value as of the acquisition date. The carrying value of the equity interests as of the acquisition date was $81.1 million. Pursuant to common control guidance, we recorded a reduction to equity of $62.8 million, included in contributions in the accompanying consolidated statements of partners' equity (deficit), representing the net carrying amount of the equity interest acquired less the consideration paid. No value was assigned to the 2,300,000 common units issued. Prior periods have not been recast as these assets do not constitute a business in accordance with ASC 805.
Delaware Gathering Acquisition
On April 8, 2022, DKL Delaware Gathering, LLC, a subsidiary of the Partnership, entered into a Membership Interest Purchase Agreement with 3 Bear Energy – New Mexico LLC (the “Seller”) to purchase 100% of the limited liability company interests in 3 Bear Delaware Holding – NM, LLC, related to crude oil and natural gas gathering, processing and transportation businesses, as well as water disposal and recycling operations, in the Delaware Basin of New Mexico (the “Delaware Gathering Acquisition”). We completed the Delaware Gathering Acquisition on June 1, 2022. The purchase price for the Delaware Gathering Acquisition was $628.3 million, which was financed through a combination of cash on hand and borrowings under the DKL Credit Facility.
The Delaware Gathering Acquisition was accounted for using the acquisition method of accounting, whereby the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed based on their fair values. The excess of the consideration paid over the fair value of the net assets acquired was recorded as goodwill.