(Reuters) Shell and Phillips 66 are working on a potential sale of their stakes in the company which owns the Explorer refined products pipeline, in a deal that could value the major piece of U.S. energy infrastructure at around $3.5 billion, people familiar with the matter said.
The move reflects how heightened demand for energy infrastructure assets, especially from financial buyers, has boosted valuations and encouraged existing owners to sell and reinvest proceeds in core or higher-growth parts of their businesses.
Shell and Phillips 66 currently hold around 61% ownership of the legal entity which holds the pipeline, which transports gasoline, jet fuel and other fuel products from Texas, through the Midwest, to end points including the outskirts of Chicago.
Investment bankers at Greenhill, a Mizuho affiliate, and RBC Capital Markets, have been retained to run an auction process for the stakes, with deliberations currently at an early stage.
Energy Transfer and MPLX own the rest of Explorer. While prospective buyers are initially being sounded out on the Shell and Phillips 66 pieces, the other stakeholders could ultimately contribute their holdings if strong interest is shown in acquiring the whole pipeline, the sources said.
The sources cautioned there was no guarantee of any deal involving the Explorer stakes, and spoke on condition of anonymity to discuss private negotiations.
Shell, Phillips 66, and MPLX declined comment. Explorer, Energy Transfer, Mizuho and RBC did not respond to comment requests.
Explorer Pipeline serves critical U.S. fuel markets
In service since the early 1970s, Explorer constitutes a pipeline system stretching more than 1,800 miles. The southern portion of the system has a capacity of 660,000 barrels per day, with the northern part capable of handling 450,000 barrels per day, according to Explorer's website.
Alongside the Colonial pipeline, which ships fuel from Texas to the northeast, Explorer is considered among the most important refined products pipelines in the United States.
Colonial was sold last year to Brookfield Infrastructure Partners for around $9 billion. In that sale effort, an initial group of owners put their stakes up for sale before the rest contributed their holdings for an outright deal with the investment firm.
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Pipelines and other energy infrastructure have drawn significant buyer interest in recent years. Industry players are seeking growth, both in assets but also product offerings, and financial buyers love the steady cash flow which midstream assets generate.
