(Reuters) - U.S. shale oil producer Diamondback (NASDAQ:FANG) Energy has formed a new joint venture with private equity firm Five Point Energy LLC to create a water infrastructure network in the Midland Basin that is part of the oil-rich Permian in Texas.
The joint venture, Deep Blue Midland Basin LLC, aims to create a sustainable management platform for produced water, the companies said on Monday. Produced water is what comes out of a well with crude oil during oil production.
"We have spent nearly a decade building a differentiated water infrastructure platform in the Midland Basin, and believe this is the opportune time to monetize this business while retaining meaningful upside through our equity ownership," Diamondback President and CFO Kaes Van't Hof said in a statement.
Diamondback will retain a 30% equity interest in the new joint venture. It received a $500 million upfront payment from Five Point and is entitled to more cash proceeds through performance-based earnouts over the next 24 months.
Five Point and Diamondback also expect to collectively contribute $500 million in follow-on equity capital to fund future growth projects and acquisitions.