From Afterthought to Asset: Water Takes Center Stage

Delek’s back-to-back water deals show produced water is no longer a side issue but a core pillar of Permian operations

19 Jan 2026

Water management is becoming one of the main constraints on shale production in the Permian Basin, where oil output continues to rise but volumes of produced water are growing even faster. What was once a background operational issue is now shaping investment decisions across the midstream sector.

Delek Logistics Partners has moved early to position itself for that shift. Its acquisition of H2O Midstream in September 2024 went beyond a conventional midstream transaction, signalling a strategy to treat water infrastructure as a core asset rather than an ancillary service.

The pressures are structural. Many wells in the Permian generate several barrels of water for each barrel of oil, placing strain on disposal systems. At the same time, regulators have increased scrutiny of disposal activity amid concerns about seismic risks. These dynamics have made reliable water handling infrastructure central to maintaining production levels.

By integrating H2O Midstream’s pipelines, storage, recycling and disposal assets into its existing logistics network, Delek brought oil and water operations together. The combined system reduces reliance on trucking, lowers operating costs and simplifies compliance for producers facing tighter environmental oversight. It also established a dedicated produced water platform rather than a standalone acquisition.

That platform was expanded further in January 2025 with the purchase of Gravity Water. The deal extended Delek’s water footprint across the Permian and strengthened its ability to offer integrated services alongside crude transportation.

The strategy reflects a broader recalibration across the industry. Large producers, including Diamondback, have increasingly prioritised long-term water agreements to support predictable drilling programmes. As operators seek to streamline their supplier base, midstream groups that can bundle services are better placed to secure contracts.

Challenges remain. Water infrastructure requires significant capital, regulatory frameworks continue to evolve and the economics of recycling vary across basins. Even so, the direction of travel is clear. In the Permian today, water management has moved from the margins of shale development to the centre of its economics.