Pipeline Owners Consider Selling Stakes at Valuation Over $10 Billion

Exploration of Divestment by Colonial Pipeline Owners

In a significant potential shift within the energy sector, some owners of Colonial Pipeline are contemplating selling their stakes, targeting a valuation exceeding $10 billion for the United States' largest fuel transportation network. This consideration emerges amidst escalating U.S. energy consumption, which has, in turn, driven up demand for pipeline capacity. Any transactions arising from these deliberations would serve as a critical test of the company's market value, particularly three years after a substantial cyberattack severely impacted its operations.

Stakeholders Considering Sale

Among the stakeholders, the Canadian pension fund, Caisse de dépôt et placement du Québec (CDPQ), has initiated steps to sell its 16.6% share in Colonial Pipeline. Moreover, discussions are underway among three major co-owners, who hold a combined 55.3% equity in the company, about potentially following suit. These parties include oil giant Shell and investment firms IFM Investors and KKR. Potential buyers on the horizon include infrastructure funds, public pension funds, and sovereign wealth funds. Meanwhile, a subsidiary of Koch Industries, the fourth co-owner, plans to retain its 28.1% stake in the pipeline.

Confidential Deliberations

It is important to note that these deliberations are still in a confidential phase, and the outcome is uncertain. When approached, a representative for Colonial Pipeline directed ownership inquiries to its stakeholders, while CDPQ and KKR chose not to comment. Similarly, requests for comments from IFM, Koch, and Shell went unanswered.

Colonial Pipeline's Strategic Significance

Extending over 5,500 miles from Houston, Texas, to New York's harbor, Colonial Pipeline is essential to U.S. fuel logistics, transporting about 100 million gallons daily, which includes gasoline, jet fuel, diesel, and heating oil. According to information from Colonial's website and credit rating agency Fitch, the pipeline provides the most cost-efficient route for delivering products from production hubs near the Gulf Coast to markets across the Southeast and Eastern Seaboard.

Implications of Past Cyberattack

The pipeline's strategic role was highlighted in 2021 when a major cyberhack led to a prolonged shutdown, significantly impacting fuel availability at numerous filling stations and airports. An investigation by the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration revealed that Colonial's lack of preparedness for a manual restart and shutdown operation exacerbated the situation.

Historical Context and Market Dynamics

Over the last two decades, key shareholders assembled their stakes in Colonial Pipeline. CDPQ acquired its share for $850 million in 2012 from ConocoPhillips. IFM and KKR bought their portions in 2007 and 2010, respectively. Shell consolidated its holding in 2019, while Koch has maintained its current position since 2003.

Recently, North American energy pipelines have become increasingly valuable assets due to rising U.S. energy production and the complexities involved in permitting and constructing new pipelines. This has fueled a surge in deal-making activities within the sector.

Continued Developments

As the unfolding assessments around the potential sale of stakes in Colonial Pipeline progress, they represent a pivotal moment not just for the involved stakeholders but also for the broader energy infrastructure landscape across North America.