Shell and Phillips 66 are exploring a potential sale of their controlling stakes in the Explorer Pipeline, a transaction that could value the major U.S. energy infrastructure asset at roughly $3.5 billion, according to people familiar with the matter.

The two energy giants hold a combined 61% ownership stake in the entity behind the refined products network.

Heightened demand for midstream energy assets, particularly from financial and institutional buyers, has pushed valuations higher and prompted energy companies to divest holdings to reinvest proceeds into core or higher-growth business segments.

Investment banking teams at Greenhill, an affiliate of Mizuho, alongside RBC Capital Markets have been retained to manage an auction process for the stakes.

Deliberations remain at an early stage, said the sources, who requested anonymity because the negotiations are private.

Energy Transfer and MPLX own the remaining 39% of the Explorer system.

While prospective buyers are initially being approached regarding the Shell and Phillips 66 holdings, the remaining partners could eventually join the sale if strong interest emerges to purchase the asset in its entirety, the sources added.

In operation since the early 1970s, the Explorer Pipeline stretches more than 1,800 miles.

It serves as a vital energy corridor shipping gasoline, jet fuel, and other refined petroleum products from Texas Gulf Coast refineries through the Midwest to major distribution hubs on the outskirts of Chicago.

According to company data, the southern section of the pipeline network carries a capacity of 660,000 barrels per day, while the northern segment handles up to 450,000 barrels per day.

Alongside the Colonial Pipeline, Explorer is regarded as one of the most essential refined fuel arteries in North America.

The potential transaction mirrors last year's sale of the Colonial Pipeline to Brookfield Infrastructure Partners for approximately $9 billion, where an initial offering by a subgroup of owners ultimately expanded into an outright acquisition of the whole asset.