LONDON French oil and gas group Total SA is preparing to sell its gas pipeline unit TIGF, three people familiar with the plan said, to help fund expansion in the more lucrative exploration and production business.
The deal could raise about 2.8 billion euros (2.2 billion pounds), the people said, giving Total (TOTF.PA) an edge as its rivals compete to unlock new sources of energy to satisfy global demand such as shale gas and liquefied natural gas.
"The process is at a very early stage. (Total Chairman and Chief Executive) Christophe de Margerie should announce his intention to sell in September," said one of the people.
Large oil and gas firms have also been shedding low-margin transportation, storage, refining and distribution units to focus on their riskier and more lucrative exploration and production, or "upstream," activities.
Goldman Sachs (GS.N) and Lazard (LAZ.N) are vying for mandates to advise Total on the deal, the people said.
Total has set its net investment budget for this year at $20 billion (12.7 billion pounds), 80 percent of which will go to upstream areas where it is seeking to speed up production growth and develop new projects, such as the Tempa Rossa field in Italy.
Royal Dutch Shell (RDSa.L) has also exited its downstream operations across the world, and is planning to spend the bulk of its 2012 $30 billion budget on gas exploration and production in the Middle East, Asia and Northern America.
Parties that could look at TIGF include European funds focused on infrastructure investments, Abu Dhabi's sovereign wealth fund ADIA and China's CIC, the people said.
Legal and staff issues could still delay the sale, a fourth person, who was briefed on the situation, said.
TIGP ownership would have to end up at least partially in national hands because the pipelines - which take up 14 percent of the French network, and host 22 percent of its LNG reserves - are seen as a strategic asset.
"It's a very sensitive dossier," said one of the sources, who is familiar with Total's thinking.
For that reason, French state-owned bank CDC is seen as the most likely participant in any consortium of outside bidders, which are now forming consortiums ahead of bidding, which is due to start after the summer, the people said.
Other funds specialised in energy transport, such as Canada's Inter Pipeline IPL_u.TO and Enbridge , could also be interested, said a banker covering the sector.
"It's not a strategic asset for an oil & gas major, but the recurrent nature of the business would be very appealing to infrastructure funds," the banker added.
China Investment Corporation (CIC.L) is also seen as a well-placed suitor, one of the people said. The Chinese already have a 30 percent stake in the exploration and production division of French utility GDF Suez (GSZ.PA).
Total has not yet identified any target for later stage acquisitions, another person said.
The group has acted as a cautious, moderate consolidator since its mega merger deal with Elf Aquitaine in 2000.
TIGF employs 490 people in France and posted 353 million euros of revenues in 2011.
Total and Lazard declined to comment. TIGF and Goldman Sachs were no available for comment.
(Additional reporting by Caroline Jacobs and Benjamin Mallet in Paris Editing by Douwe Miedema and David Cowell)