Shell and Phillips 66 are considering selling their combined majority stake in Explorer Pipeline, a major US system that transports gasoline, jet fuel, and diesel from the Gulf Coast to the Midwest. Sources told Reuters the early-stage auction could value the pipeline at around $3.5 billion, as demand for midstream infrastructure remains robust.
Explorer Pipeline operates roughly 1,800 miles of pipeline running from Texas through the Midwest, moving refined petroleum products that power vehicles and aircraft across the region. The system earns most of its revenue from fee-based contracts, meaning its income is relatively stable and less tied to volatile fuel prices.
Who owns Explorer Pipeline and what's at stake?
Shell and Phillips 66 together hold about 61% of Explorer Pipeline, according to Reuters sources. The remaining stakes are owned by Energy Transfer, a major US midstream operator, and MPLX, a pipeline company backed by Marathon Petroleum. Greenhill, a Mizuho affiliate, and RBC Capital Markets are advising on the potential sale.
The sale would mark a significant shift for both Shell and Phillips 66, which have been refining their portfolios to focus on core operations. For Shell, the move aligns with its broader strategy to streamline its downstream business and invest more in low-carbon energy. Phillips 66 has also been reshaping its asset base in recent years, including selling off non-core midstream assets.
Why midstream assets are attracting buyers
Midstream energy assets like Explorer Pipeline have become increasingly attractive to investors and infrastructure funds. These pipelines generate predictable, fee-based cash flows that are less exposed to commodity price swings compared to upstream drilling or downstream refining. That stability has kept valuations high even as broader energy markets face uncertainty.
The potential $3.5 billion price tag reflects that premium. For context, similar midstream deals have commanded strong multiples in recent years, as buyers seek long-term, inflation-protected returns. The sale also comes at a time when US fuel demand remains steady, though the long-term shift toward electric vehicles could eventually reduce the need for gasoline pipelines.
What it means for investors
For everyday investors, the Explorer Pipeline sale is a reminder that midstream energy assets can be valuable portfolio components. Pipeline companies often pay steady dividends and have lower volatility than oil producers. However, the sector also faces regulatory risks and the potential for reduced demand as the energy transition accelerates.
Investors holding shares of Shell or Phillips 66 should watch how the proceeds from any sale are used. If the companies use the cash for share buybacks or debt reduction, that could boost shareholder returns. If they reinvest in other areas, such as renewable energy, it could signal a strategic pivot. The sale also highlights the ongoing consolidation in the midstream space, which has seen a wave of mergers and asset sales in recent years.
For those interested in the broader pipeline sector, the Explorer deal could set a benchmark for valuations. If the auction attracts multiple bidders and closes at a high price, it may lift valuations for other midstream companies. Conversely, a lower-than-expected sale could signal cooling demand.
What's next
The auction is still in early stages, and there is no guarantee a deal will be reached. Potential buyers could include infrastructure funds, other midstream operators, or even pension funds seeking stable, long-term cash flows. The outcome will depend on how bidders assess the pipeline's future earnings potential against the backdrop of evolving energy policy and fuel demand trends.
Investors should also keep an eye on regulatory approvals. While pipeline sales typically face less scrutiny than upstream deals, any transaction involving critical fuel infrastructure could attract attention from antitrust authorities. For now, the market will watch for further developments as the sale process unfolds.
