UPDATE 2-BP mulling IPO of U.S. pipeline assets

(Adds comments, information on other MLPs, background, quotes, additional data, market valuation)

July 18 (Reuters) - BP Plc is looking at spinning off U.S. pipeline assets in the U.S. Gulf and Midwest in an initial public offering, the company said on Tuesday.

If successful, the deal would be a revival of a plan first considered about five years ago before a rout in the oil market caused the company to put the idea on hold.

BP would spin off crude oil, natural gas and fuel pipelines in a master-limited partnership (MLP), a corporate structure frequently used by pipeline companies. BP and its underwriters have retained advisors to explore the sale, according to one person familiar with the talks.

If successful, the deal would likely be one of the largest initial public offerings of the year, the person said, speaking on the condition of anonymity as the talks were private.

BP did not comment on the details or potential valuation of a possible transaction beyond the press release.

Several other large energy companies have in the past spun off their pipeline assets to generate capital. They include rival Royal Dutch Shell Plc, which raised nearly $1 billion in an IPO of its midstream assets in June, 2014, along with independent refiners like Valero Energy Corp, Tesoro Corp, and Marathon Petroleum Corp.

Shell was the first oil major to use this structure to generate cash from its assets.

Previous efforts by BP to sell pipeline assets have not materialized. Last year, BP approached Enbridge Inc to sell some of BP's offshore Gulf of Mexico pipeline network, but the deal fell through, according to a person familiar with that transaction.

BPs potential initial public offering of its MLP comes at a rough time for the U.S. pipeline sector.

While pipeline operators derive profit from long-term contracts not linked to commodity price gyrations, the dip in oil prices in recent years has nonetheless weighed on the sector, said Tamar Essner, director of energy and utilities at Nasdaq Corporate Solutions.

There's this perception in the market that the midstream sector is meant to be insulated from the volatility of the commodity price movement, said Essner. But retail investors have gotten spooked by oil markets.

The price of crude oil has fallen sharply in recent months, with oil overall down nearly 14 percent this year. The Alerian MLP exchange-traded fund, which tracks the performance of more than two dozen midstream companies, has lost more than 4.0 percent in 2017, according to Thomson Reuters data.

The announcement came after the market closed. BP is worth 88 billion GBP ($114.8 billion) and its shares closed on Tuesday in London at 445.80 GBP a share.

BP is still paying down costs from the deadly 2010 Deep Water Horizon rig explosion at its Macondo well in the Gulf of Mexico in 2010. The company is set to pay up to $5.5 billion in cash payments to U.S. authorities this year as part of a settlement.

BP has also sharply reduced its spending over the past three years in the face of a drop in oil prices, but it still requires an oil price of around $60 a barrel in order to pay for all its costs, dividends and penalties. (Reporting By Jessica Resnick Ault in New York, Gary McWilliams and Ernest Scheyder in Houston and Ron Bousso in London; Editing by Cynthia Osterman and David Gregorio)