US regulators have introduced a new point of tension in the federal government’s fractious relationship with the country’s oil industry, accusing one of the sector’s most outspoken executives of attempted collusion to boost energy prices.
The Federal Trade Commission (FTC) on Thursday alleged Scott Sheffield, the former head of Pioneer Natural Resources, had tried to co-ordinate production levels with the Organisation of the Petroleum Exporting Countries (Opec) cartel to “pad Pioneer’s bottom line . . . at the expense of US households and businesses”.
The surprise move by the agency – which came alongside its approval of ExxonMobil’s $60 billion (€55.8 billion) takeover of Pioneer – sent tremors through the industry, leaving insiders wondering how past comments could be scrutinised and fanning fears of a broader crackdown before November’s presidential election.
“The implications go far beyond Sheffield,” James Lucier, an analyst at Capital Alpha Partners, wrote in a note to clients. “The FTC has not to date taken an adversarial approach toward oil industry mergers . . . This relative hands-off policy is no more.
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“Any CEO contemplating a merger will have to worry about being singled out the way Sheffield was,” he added.
Under chair Lina Khan, an appointee of US president Joe Biden, the FTC has taken an aggressive approach to its job of protecting competition and consumers. In the past two weeks alone it has banned employee non-compete agreements and sued to the block an $8.5 billion luxury goods industry takeover, arguing the deal “threatens to deprive consumers of the competition for affordable handbags”.
[ Angola quits Opec amid dispute over oil production quotasOpens in new window ]
As a condition of approving Exxon’s purchase of Pioneer, the FTC took the extraordinary step of barring Mr Sheffield from joining the supermajor’s board as anticipated in the merger agreement. In doing so, the agency took aim at a senior figure in the US shale energy revolution, who built Pioneer over the past two decades into the biggest oil producer in Texas with operations in the sprawling Permian Basin.
The FTC homed in on Mr Sheffield’s efforts to curb production in the middle of a dramatic price crash at the start of the Covid-19 pandemic in 2020, which left many US producers on the brink of bankruptcy.
Mr Sheffield led an effort urging Texas regulators to introduce supply curbs and called on members of the Opec+ group, including Saudi Arabia and Russia, to dial back output.
Pioneer said Mr Sheffield (71) who has lived through six industry downturns, had merely “voiced concerns aimed at raising awareness of the issue and encouraging state, federal and international governments to act”. Mr Sheffield declined to be interviewed.
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But the FTC, which combed through hundreds of text and WhatsApp messages and public statements as it scrutinised the Exxon takeover, said he had “embark[ed] on a series of efforts to co-ordinate output levels to keep production artificially low”, and served to “direct communications between his competitors in the Permian Basin and Opec”.
Sitting on Exxon’s board risked “amplifying his public messaging and the effectiveness of his private contacts with Opec”, the agency said.
Among the evidence the agency cited was a dinner Mr Sheffield attended along with other US producers, hosted by the late Opec secretary-general Mohammed Barkindo, in 2017. Such dinners have become a regular industry feature in recent years, often hosted on the sidelines of the annual CERAWeek energy conference in Houston.
Attendees say the gatherings have become increasingly cordial in recent years as memories fade of the cartel’s efforts to sink the US shale industry by flooding the market with oil.
Among the CEOs who have attended are Occidental Petroleum’s Vicki Hollub, Devon Energy’s Rick Muncrief, Chesapeake Energy’s Nick Dell’Osso and John Hess of Hess. Chesapeake declined to comment, while the other companies did not respond to requests for comment.
Industry executives and analysts said Mr Sheffield was paying a price for being outspoken and had become a casualty of an FTC effort to take a tough stance the sector. One leading executive described the agency’s approach as “a little over the top”.
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“Sheffield has clearly been one of the voices of the US upstream industry and he is obviously in hindsight taking some heat for that,” said Dan Pickering of Pickering Energy Partners, an investment and advisory group.
“Given the high-profile nature of this transaction they needed something. I think you would hear a lot of squawking from a lot of folks who didn’t want this deal to go through if it sailed through with no changes.”
The move comes six months before Americans head to the polls as officials in the Biden administration fret over the electoral impact of rising prices at the pump.
Kevin Book, an analyst at ClearView Energy Partners, said it could point to a “new tactic” by the administration to temper such rises: “implicitly encouraging domestic operators seeking the commission’s approval for transactions to increase their production”.
There are concerns in the industry that the FTC will initiate a broader, sector-wide inquiry into alleged collusion in the run-up to the election as it gathers a huge amount of documentation and private communications from energy companies in the middle of a mergers and acquisitions boom.
Aside from the $60 billion (€55.8 billion) Exxon-Pioneer deal, the FTC has made second requests for information from companies in at least four other pending takeovers with an aggregate value of more than $100 billion: Chevron and Hess; Diamondback Energy and Endeavor Energy; Occidental and CrownRock; and Chesapeake Energy and Southwestern Energy.
[ Exxon surpasses earnings forecasts amid falling oil priceOpens in new window ]
The FTC declined to comment on whether it would launch a sector-wide probe into the allegations of collusion.
But some experts said that notwithstanding the action on Mr Sheffield, the agency’s approval of the Exxon-Pioneer deal – the supermajor’s biggest since its 1999 merger with Mobil – demonstrated it was unlikely to block similar megamergers in the oil patch.
“I think that the outcome is genuinely encouraging for these upstream deals that are currently in front of the agency,” said Jeffrey Oliver, partner at law firm Baker Botts and a former FTC staff attorney. “That’s very helpful to many of these deals that are still in limbo.” – Copyright The Financial Times Limited 2024
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