What happened 

Shares of Rattler Midstream (RTLR) popped 14% on Monday after the midstream oil and gas company agreed to be acquired by Diamondback Energy (FANG 0.43%)

So what 

Diamondback created Rattler Midstream in 2018 to house its energy-focused infrastructure assets. The limited partnership owns and operates oil and gas pipelines, gathering systems, and processing facilities. 

Now, however, Diamondback CEO and Rattler general partner Travis Stice says the two businesses will be better served by operating under one corporate shell.

"The energy landscape has transformed dramatically since Rattler was taken public in 2019, and we believe this agreement to merge companies is in the best interests of both Diamondback and Rattler stakeholders," Stice said. "This merger will allow both companies to benefit from the simplicity and scale of the combined entity going forward."

The sun is shining on oil pipelines.

Image source: Getty Images.

Diamondback holds a majority of Rattler's units. Under the terms of the deal, the oil and gas exploration and production company would acquire the units it does not already own for roughly $2.2 billion. Rattler unitholders would receive 0.113 of a share of Diamondback's stock for each Rattler unit they own. That translates into a premium of approximately 17% to Rattler's unit price on Friday.

The transaction is projected to close in the third quarter.

Now what

The separation of midstream assets from upstream operations made it easier for investors to own businesses with risk and potential reward profiles better tailored to their individual goals. But limited partnerships can have somewhat more complicated tax reporting requirements for investors than corporations do.

Several major energy companies have repurchased their midstream partnerships in recent years to simplify their operations and the tax reporting obligations of their shareholders. Diamondback is the latest to attempt to do so, but it likely won't be the last.