There would seem to be precious little water in the sun-baked Permian Basin of arid west Texas, where the tumbleweeds and oil pumps outnumber the people. For hundreds of miles, there are no lakes and just one river. Yet here in America’s biggest oil field, the center of world fracking production, there is water everywhere. That is, if you know where to look, explains David Capobianco, the 57-year-old cofounder of private equity outfit Five Point. Every day, the region produces 7 million barrels of oil and 25 million barrels of water—the equivalent of 1 billion gallons, as much water as all of New York City uses in a day.

“Without water . . . they can’t move any oil; that machine stops,” says Capobianco, who has made this water the linchpin of his multipronged strategy to lure AI data centers to oil country.

Much of that water comes from aquifers, and a lot of it is used for hydraulic fracturing (a.k.a. fracking). But even more water comes out of the wells from the same reservoir rocks as oil. That water is gross: It’s saturated with salt, minerals and chemicals. Historically, after skimming off the oil, operators have paid to haul it away and inject it miles deep underground. That’s where Capobianco comes in: His companies handle 6 million barrels of wastewater per day, moving it through more than 5,000 miles of pipelines and more than 300 water processing and disposal facilities he has accumulated across Texas and New Mexico.

“It’s a waste product, but there’s so much of it. Water in a place that is short of water—it has to have some value,” Capobianco says. “We bought the optionality that others couldn’t see.” In other words, he was betting that there would eventually be big profits in doing something with that water other than simply hauling it away.

Now, with thousands of data centers already operating or proposed across the country—including nearly 400 in Texas alone—each guzzling obscene amounts of water, his option is in the money. Even better, West Texas has two other things data centers need in spades: low-cost land and the world’s cheapest natural gas. Altogether, his firms have spent roughly $2.5 billion, with plans to pour in up to another $5 billion in the next five years on this Texas-sized gamble. Scott Mitchell, CEO of Deep Blue, one of Five Point’s portfolio companies, says of Capobianco’s strategy: “It’s like if Levi’s figured out how to sell the jeans, picks, shovels, all the stuff. You’ll have to make one phone call and you have everything you need to build a massive data center.”

While Capobianco started sharpening this strategy only three years ago, its roots stretch back to 2003, when he moved to Seattle to work for Microsoft cofounder Paul Allen’s Vulcan Capital. The Rhode Island high school tennis champion and Duke graduate had worked as an investment........

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