Source: Wall Street News

The relationship between US regulators and the oil and gas industry has become increasingly strained.

On Thursday, the Federal Trade Commission (FTC) accused Scott Sheffield (Sheffield), the former president of shale oil giant Pioneer Natural Resources (Pioneer Natural Resources), of trying to “collude” with OPEC to raise energy prices with the intention of “adding security to Pioneer's profits... at the expense of American households and businesses.”

The background of this allegation is the largest merger and acquisition of ExxonMobil in the oil and gas industry in 20 years. The FTC announced approval of the acquisition on the same day the allegation was issued.

As a result, this pioneer accusation shocked the entire industry and was thought to target not only the individual executive, but also all possible acquisitions and the oil and gas industry as a whole. Furthermore, industry insiders are concerned that regulators may have more extensive crackdown before the November presidential election.

In his report to clients, James Lucier, an analyst at Capital Alpha Partners, stated:

The impact of this issue extends far beyond the individual in Sheffield.

Until now, the FTC has not been hostile to oil industry mergers and acquisitions... but this relatively laissez-faire policy is a thing of the past.

Any CEO considering a merger will have to worry about being targeted like Sheffield.

The influence that scowls the FTC

Current FTC Chairman Lina Khan (Lina Khan) was appointed by Biden, and under her leadership, the FTC has taken a more aggressive stance to protect competition and consumer rights.

In the past two weeks alone, it banned non-compete clauses for employees and tried to block a $8.5 billion luxury industry takeover through lawsuits, arguing that the deal “threatens consumers' right to enjoy affordable handbag competition.”

In response to the acquisition of ExxonMobil this time, the FTC made a decision to approve ExxonMobil's acquisition of Pioneer as a precondition, which is to ban Sheffield from joining the supercompany's board of directors as anticipated in the merger agreement.

The FTC's move targets a veteran of the US shale oil and gas revolution. Over the past 20 years, he developed Pioneer into the largest oil producer in Texas and developed it in the vast Permian Basin.

The charges mainly focus on Sheffield's efforts to curb production during the sharp drop in oil prices in early 2020, which brought many US producers to the brink of bankruptcy. At the time, Sheffield took the lead in urging Texas regulators to implement supply restrictions and called on OPEC+ Group members, including Saudi Arabia and Russia, to reduce production.

Pioneer's response to the incident was that 71-year-old Sheffield, who has experienced six industry downturns, simply “expressed concerns aimed at raising awareness about this issue and encouraging action by state, federal, and international governments.” Sheffield declined to be interviewed.

However, while reviewing the ExxonMobil takeover, the FTC combed through hundreds of SMS and WhatsApp messages and public statements, saying that it had “begun a series of efforts to coordinate production levels, artificially maintain low production” and “direct communication between the Permian Basin and OPEC rivals.”

The FTC said that having Sheffield join ExxonMobil's board of directors could “enhance the influence of his public remarks and the effectiveness of his private contacts with OPEC.”

One evidence cited by the agency was a dinner attended by Sheffield along with other US producers, hosted by the late OPEC Secretary General Mohammed Barkindo (Mohammed Barkindo) in 2017. In recent years, such dinners have become a regular industry event, usually held during the annual CeraWeek Energy Conference in Houston.

Participants said that in recent years, as memories of cartel efforts to sink the US shale oil industry by injecting oil into the market have faded, these gatherings have become increasingly close. However, according to media reports, no other participants at the dinner have commented on the accusations so far.

Will the investigation be extended to the entire industry?

Industry executives and analysts say Sheffield is paying the price for being outspoken and has fallen victim to the Federal Trade Commission (FTC)'s efforts to take a tough stand on the industry. A key executive described the agency's approach as “a bit excessive.”

Dan Pickering (Dan Pickering) of consulting group Pickering Energy Partners said:

Needless to say, Sheffield has always been one of the ambassadors of America's upstream oil industry, and apparently he has received some criticism for this.

Given the high-profile nature of this deal, they need to take some action. I think a lot of people who don't want this deal to be successful will loudly protest if the deal goes smoothly without any changes.

There are opinions that the Biden administration will make this move because they are worried that rising oil prices will have an impact on the election. There are concerns in the industry that the FTC will launch a broader, industry-wide investigation into so-called “collusion” before the election, considering that the FTC has collected a large number of documents and private communication records from energy companies during the mergers and acquisitions boom.

In addition to the $60 billion Exxon-Pioneer deal, the FTC also sent a second request for information to at least four other companies pending acquisitions. The total value of these transactions is over $100 billion, mainly including:

Chevron (Chevron) and Hess (Hess);

Diamondback Energy (Diamondback Energy) and Endeavor Energy (Endeavor Energy);

Occidental Petroleum (Occidental) and CrownRock (CrownRock);

Chesapeake Energy (Chesapeake Energy) and Southwestern Energy (Southwestern Energy).

However, according to media reports, up to now, the FTC has declined to comment on whether it will launch an extensive industry investigation into the conspiracy allegations.

Editor/jayden