Acquisitions

6 Months Ended

Jun. 30, 2025

Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]

Gravity Acquisition

On January 2, 2025, we completed the Gravity Acquisition for a preliminary purchase price of $300.8 million, subject to customary adjustments for net working capital. The purchase price was comprised of $209.3 million in cash consisting of a cash deposit of $22.8 million paid in December 2024 upon execution of the purchase agreement and $186.5 million paid at closing on January 2, 2025, and 2,175,209 of common units.

For the three and six months ended June 30, 2025, we incurred $1.0 million and $4.1 million, respectively, 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 condensed consolidated statements of income and comprehensive income.

Our consolidated financial and operating results reflect the Gravity Acquisition operations beginning January 2, 2025. Our results of operations included revenue and net income of $24.0 million and $8.1 million, respectively for the three months ended June 30, 2025, and $46.8 million and $18.0 million, respectively, for the period from January 2, 2025, through June 30, 2025, related to these operations.

This acquisition was accounted for using the acquisition method of accounting, whereby the purchase price is measured at acquisition date fair value of assets acquired and liabilities assumed.

Determination of Purchase Price

The table below presents the estimated purchase price (in thousands):


Base purchase price:	$	291,561
Less: Adjusted Net Working Capital (as defined in the Gravity Acquisition Agreement)	3,814
Plus: Various closing adjustments	5,433
Adjusted purchase price	$	300,808

Cash paid	$	209,297
Fair value of common units issued (1)	91,511
Preliminary purchase price	$	300,808

(1)The increase from the $85.0 million base purchase price outlined in the purchase agreement for the common unit consideration was driven by an appreciation in the common unit price.

Purchase Price Allocation

The following table summarizes the preliminary fair values of assets acquired and liabilities assumed in the Gravity Acquisition as of January 2, 2025 (in thousands):


Assets acquired:
Cash and cash equivalents	$	5,317
Accounts receivables	16,433
Inventories	1,851
Other current assets	1,681
Property, plant and equipment	192,757
Operating lease right-of-use assets	107
Customer relationship intangible (1)	67,580
Other intangibles (1)	31,921
Other non-current assets	58
Total assets acquired	317,705

Liabilities assumed:
Accounts payable	2,459
Accrued expenses and other current liabilities	5,733
Current portion of operating lease liabilities	54
Asset retirement obligations	8,602
Operating lease liabilities, net of current portion	49
Total liabilities assumed	16,897
Fair value of net assets acquired	$	300,808

(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 $67.6 million, which we estimate to be amortized over 10 to 25 years.

•Rights-of-way intangibles are valued at $31.9 million, the majority of which have an indefinite 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 June 30, 2025. 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.

Fair Value Adjustments

During the three months ended June 30, 2025, the Partnership recorded the following fair value adjustments to the preliminary purchase price allocation, based on new information about facts and circumstances that existed as of the acquisition date:


Balance Sheet Description	Preliminary Value	Adjusted Value	Change
Property, plant and equipment	208,313	192,757	(15,556)
Customer relationship intangible	50,674	67,580	16,906
Asset retirement obligations	7,202	8,602	1,400

Unaudited Pro Forma Financial Information

The following table summarizes the unaudited pro forma financial information of the Partnership assuming the Gravity Acquisition had occurred on January 1, 2024. 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.


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
(in thousands)
Net sales	$	246,350	$	296,728	$	496,280	$	580,503
Net income attributable to partners	$	45,574	$	45,558	$	87,708	$	77,806

H2O Midstream Acquisition

On September 11, 2024, we completed an acquisition 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 (“Preferred Units”). The cash portion was financed through a combination of cash on hand and borrowings under the DKL Credit Facility (as defined in Note 6 ).

For the three and six months ended June 30, 2025, we incurred $0.3 million and $0.4 million, respectively, 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 condensed consolidated statements of income and comprehensive income.

Our results of operations included revenue and net income of $15.3 million and $6.4 million, respectively, for the three months ended June 30, 2025, and $31.8 million and $13.5 million, respectively, for the six months ended June 30, 2025, related to these operations.

This acquisition was accounted for using the acquisition method of accounting, whereby the purchase price is measured at acquisition date fair value of assets acquired and liabilities assumed.

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 issued	70,000
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
Inventories	2,448
Other current assets	879
Property, plant and equipment	172,374
Operating lease right-of-use assets	2,058
Customer relationship intangible (1)	26,270
Other intangibles (1)	33,268
Other non-current assets	21
Total assets acquired	243,962

Liabilities assumed:
Accounts payable	1,833
Accrued expenses and other current liabilities	7,045

Current portion of operating lease liabilities	278
Asset retirement obligations	4,852
Operating lease liabilities, net of current portion	219
Total liabilities assumed	14,227
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 $26.3 million, which will be amortized over a 13.4 years useful life.

•Rights-of-way intangibles are 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 June 30, 2025. There have been no significant adjustments to the preliminary purchase price allocation during the three and six months ended June 30, 2025. 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.

Customer relationships were valued using the income approach, with essential assumptions including projected revenues from these relationships, attrition rates, operating margins, and discount rates.

By acquiring Gravity and H20 Midstream, we intend to increase third-party revenue streams, diversify our customer and product mix, and expand our footprint in the Midland and Bakken basins, aligning with our strategic growth objectives.