In a recent move that has stirred the waters in the United States’ oil industry, the Federal Trade Commission (FTC) has accused Scott Sheffield, ex-CEO of Pioneer Natural Resources, of attempting to collude with Opec in order to lift energy prices. This alleged collusion, as per the FTC, was purposed to improve Pioneer’s profits at the cost of US households and businesses.
The unveiled claims of the FTC, which coincided with its green-lighting of ExxonMobil’s £44.5 billion acquisition of Pioneer, has left the industry insiders taken aback. This action has fostered uncertainty about how past comments could be potentially examined and triggered worries about a more extensive clampdown ahead of the upcoming Presidential elections in November.
As the FTC has hitherto remained non-confrontational regarding the oil industry mergers, James Lucier of Capital Alpha Partners noted that this recent aggressive stance was different and could serve as a warning to CEOs considering merging.
Lina Khan, the FTC chair appointed by President Joe Biden, has steered the committee towards a more assertive role in guarding competition and consumers. In just the past fortnight, the FTC has outlawed employee non-compete clauses and sued to stop an £6.4 billion acquisition in the luxury items sector, claiming it could hurt competition in the affordable handbag space.
In an unprecedented move, the FTC, as part of approving the acquisition of Pioneer by Exxon, prohibited Mr Sheffield from joining the board of the oil giant, a move originally expected in the merger agreement. With this action, the FTC has targeted a prominent figure in the American shale energy movement who transformed Pioneer into Texas’ largest oil producer over the past twenty years, with significant operations in the extensive Permian Basin.
The move is especially focused on Sheffield’s attempts to restrict production during the immense price drop at the onset of the 2020 Covid-19 pandemic, a situation that put numerous US producers on the verge of insolvency.
Scott Sheffield took the lead in pushing for Texas regulators to implement supply restrictions and urged Opec+ members, including Russia and Saudi Arabia, to reduce production. According to Pioneer, Sheffield, aged 71 with experience of six industry slumps, was simply pressing the awareness of the matter and promoting action from local, national and global governments. Sheffield chose not to offer an interview.
However, the FTC, in their examination of hundreds of text, Whatsapp messages and public claims regarding the acquisition of Exxon, stated that he had initiated a number of attempts to maintain a low artificial production level. Consequently, he created a direct communication channel between his rivals in the Permian Basin and Opec. As a member of Exxon’s board, he risked intensifying his public messaging and making his private conversations with Opec more effective, the organisation suggested.
The FTC pointed to a dinner attended by Sheffield, along with other US producers, hosted by the late Mohammed Barkindo, the Opec Secretary-General, in 2017. These dinners have become a frequent occurrence within the industry, often held alongside the yearly CERAWeek energy conference in Houston.
The meetings have reportedly become increasingly friendly over the years as memories of the cartel’s attempts to overthrow the US shale industry by saturating the market with oil fade. CEOs who attended include Rick Muncrief of Devon Energy, Vicki Hollub of Occidental Petroleum, John Hess of Hess and Nick Dell’Osso of Chesapeake Energy. Chesapeake opted not to comment, while the other companies did not respond to commentary requests.
Industry leaders and analysts have indicated that Sheffield’s outspokenness had cost him and he had become a victim of the FTC’s endeavour to adopt a strict policy towards the sector. The agency’s tactics were described as “a bit excessive” by a prominent executive. As Dan Pickering of Pickering Energy Partners, an investment and advisory group observed, “Sheffield’s influence in the US upstream industry isundeniable and he is clearly facing repercussions for that in retrospect.”
The significance of this transaction was so great that it required modifications, as many people who disagreed with its approval would have been vocal had it gone through unchanged. The strategy unfolds six months before US citizens vote, as the Biden administration wrestles with the potential electoral implications of increasing fuel costs.
Kevin Book from ClearView Energy Partners suggested the possibility that the “new approach” meant subtly prompting domestic providers to expand their output, particularly those looking for commission’s consent for transactions. There are apprehensions within the sector that the Federal Trade Commission (FTC) may kick off a wider industry-wide investigation, under allegations of pre-election conspiracy. This stems from the collection of a plethora of documents and private correspondence from energy corporations amidst a mergers and acquisitions surge.
In addition to the substantial $60 billion (£44 billion) transaction between Exxon and Pioneer, the FTC has made follow-up inquiries for information regarding at least four additional outstanding takeovers worth over $100 billion. These include Chevron and Hess; Diamondback Energy and Endeavour Energy; Occidental and CrownRock; and Chesapeake Energy and Southwestern Energy.
While the FTC refrained from commenting on the possibility of initiating a broad-scale investigation into collusion allegations, some experts indicated that the agency’s approval of the Exxon-Pioneer deal — the largest of its kind since Exxon’s merger with Mobil in 1999 — showed it wouldn’t likely obstruct similar large-scale consolidations in the oil industry. Jeffrey Oliver, a partner at law firm Baker Botts and a former FTC employee, claimed the approval could be seen as positive for comparable deals, many of which are currently uncertain. The information was from The Financial Times Limited 2024.