Phillips 66 to cash out 25% Gulf Coast Express Pipeline stake to ArcLight for $865m

Phillips 66 has reached an agreement to sell its 25% non-operated equity stake in the Gulf Coast Express Pipeline to an affiliate of ArcLight Capital Partners for $865 million in pre-tax cash proceeds. The deal, which is expected to close in January 2025, underscores the energy company’s strategic focus on asset optimization, reducing debt, and maximizing shareholder returns. This transaction is also significant given its valuation, reflecting a 10.6x enterprise value-to-EBITDA multiple based on projected earnings for 2025.

What is the Gulf Coast Express Pipeline?

The Gulf Coast Express Pipeline (GCX) is a critical piece of infrastructure for natural gas transportation in the United States. Spanning approximately 500 miles, it delivers up to 2 billion cubic feet per day (Bcf/d) of natural gas from the prolific Permian Basin—one of the most significant natural gas production regions globally—to the Agua Dulce market near Corpus Christi, Texas. The pipeline became fully operational in October 2019 following construction led by Kinder Morgan, its operator. With long-term contracts ensuring steady utilization, the pipeline plays an essential role in connecting natural gas supply to key demand centers in Texas energy markets and beyond.

ArcLight Capital Partners Expands Its Energy Portfolio

The buyer, ArcLight Capital Partners, has been strategically expanding its presence in the energy infrastructure sector, particularly through acquisitions involving the Gulf Coast Express Pipeline. This latest deal follows its June 2024 acquisition of a 16% equity interest in the pipeline from Kinetik Holdings for $510 million in upfront cash, with an additional $30 million contingent on capacity expansion decisions. Additionally, ArcLight first entered the GCX ownership in 2022 when it purchased a 25% stake from Targa Resources for $857 million.

By consolidating its ownership in one of the nation’s most critical natural gas transportation networks, ArcLight positions itself to capitalize on the rising demand for natural gas in Texas energy markets and across the U.S.

Kinder Morgan Expands Gulf Coast Express Pipeline Capacity

The Gulf Coast Express Pipeline is also undergoing significant expansion to accommodate increased production from the Permian Basin pipeline network. In October 2024, Kinder Morgan announced a $455 million project to boost the pipeline’s capacity by an additional 570 million cubic feet per day (MMcf/d). Once completed, the expansion will enhance the pipeline’s ability to meet growing demand for natural gas transportation in South Texas markets. The upgraded infrastructure is expected to be operational by mid-2026, reinforcing GCX’s role as a vital asset for Permian Basin pipeline capacity.

Why is Phillips 66 Selling Its Stake?

For Phillips 66, this divestment marks another step in its broader strategy to optimize its portfolio and prioritize shareholder returns. Over the past year, the company has actively pursued asset sales to reduce debt and strengthen its financial position. With this deal, Phillips 66 has now exceeded its $3 billion asset divestiture target.

Notably, the company recently announced the sale of its 25% stake in the Rockies Express Pipeline to Tallgrass Energy for $1.275 billion. These moves highlight Phillips 66’s ongoing efforts to unlock value from non-core assets while improving capital efficiency.

Phillips 66’s CEO, Mark Lashier, has emphasized the company’s commitment to balancing capital spending with initiatives that deliver stronger returns for investors. The Gulf Coast Express Pipeline divestment aligns with this goal by monetizing a non-operated stake at an attractive valuation.

Impact on Natural Gas Infrastructure in Texas

The sale of Phillips 66’s stake in the Gulf Coast Express Pipeline does not alter its operations. Kinder Morgan, as the operator, will continue to oversee the pipeline’s daily activities, ensuring that it remains a reliable conduit for natural gas from the Permian Basin pipeline system to Texas markets.

The ongoing expansion project also ensures that the GCX pipeline will remain well-positioned to support rising demand for natural gas transportation, particularly as U.S. energy markets experience growing natural gas production and exports.

Strategic Importance of the Permian Basin Pipeline Network

The Permian Basin is one of the most important oil and natural gas production regions in North America, contributing significantly to U.S. energy supply. As production increases, pipelines like the Gulf Coast Express are essential for ensuring that natural gas reaches key markets efficiently.

By expanding GCX capacity, Kinder Morgan aims to address bottlenecks in the region’s pipeline infrastructure, offering producers greater access to South Texas demand centers, industrial hubs, and export terminals. This is particularly important given the increasing global demand for U.S. liquefied natural gas (LNG).

A Strategic Win for All Parties

Phillips 66’s decision to divest its 25% interest in the Gulf Coast Express Pipeline to ArcLight Capital Partners highlights the company’s strategic focus on portfolio optimization. The $865 million deal reflects strong demand for reliable energy infrastructure and positions ArcLight to strengthen its foothold in the natural gas transportation sector.

Meanwhile, the pipeline’s upcoming capacity expansion reinforces its significance within the Permian Basin pipeline network, ensuring it continues to meet growing demand in Texas energy markets and beyond. With Kinder Morgan leading the expansion, GCX will remain a vital link between natural gas production and consumption hubs, supporting energy stability and economic growth.