Surging oil and gas output in the Permian Basin is driving heated demand for midstream assets and capacity in the top U.S. oil field. With midstream operators in the Permian ramping up capital spending to build out networks to move production to market and private equity firms holding record levels of capital looking for deals, we could see a marked increase in midstream mergers and acquisitions in 2018.

If the upstream space is a leading indicator, M&A activity in the midstream could be significant. The Permian Basin holds 60 billion to 70 billion barrels of untapped oil, according to IHS Markit. In 2017, there were 39 upstream deals in the Permian with a total transaction value of $30.3 billion. The lower production costs of the Permian relative to other onshore basins has led to deal mania in the Permian, or “Permania.” Rig activity is robust. Production is growing. Deals are on the rise.

Amid this flurry of activity, it is important for buyers to pay special attention to the structure of their transactions. One important issue that midstream investors should consider when leading deals is the concept of an effective date, which can have important tax and cash flow implications.