Shell, Phillips 66 reportedly weighing sale of Explorer pipeline stakes

Shell and Phillips 66 are reportedly exploring a potential sale of their stakes in the company that owns the Explorer pipeline. Citing sources familiar with the matter, Reuters reported this week that if a deal takes place, it could value the refined products pipeline at around $3.5bn.

Shell and Phillips 66 own around 61% of the company that holds the pipeline. Energy Transfer and MPLX own the remaining 39% in the company. Reuters’ sources said that while prospective buyers were initially being sought for the interests belonging to Shell and Phillips 66, the other participants could also end up contributing their stakes to a sale if there is sufficient interest in acquiring the entire pipeline.

However, as is common with such stories, the sources added that a deal was not guaranteed.

According to the report, investment bankers at Mizuho affiliate Greenhill and at RBC Capital Markets had been retained to run an auction process for the stakes. Deliberations are reported to be at an early stage as of July 29.

Explorer is the second largest transporter of liquid petroleum products in the US, according to its LinkedIn profile. The pipeline comprises a system spanning 1,880 miles (3,026 km) and carries refined products from refineries on the US Gulf Coast to Houston, Dallas, Fort Worth, Tulsa, St. Louis and Chicago.

The pipeline has the capacity to move 660,000 barrels per day (bpd), according to Explorer’s website, with the northern portion of the system capable of handling 450,000 bpd. On its LinkedIn, Explorer says that over 60 shippers move more than 72 different products along the system.

Reuters noted that Explorer is considered to be among the most important refined product pipelines in the US, along with the Colonial pipeline. It is worth noting that Colonial was sold to Brookfield Infrastructure Partners last year for around $9bn.

Now, demand for energy infrastructure assets may be higher still, with energy demand contributing to increased valuations. Midstream assets also tend to benefit from steady cash flow generation, making them an attractive option for companies pursuing growth.

It remains to be seen whether a buyer emerges for the Shell and Phillips 66 stakes in Explorer. However, this looks like it could be a good time to put the stakes on the market.