FTC's Attack on Pioneer Sends Ripples Through Shale Industry

• The Federal Trade Commission last week gave the green light to Exxon’s acquisition of Pioneer Natural Resources.
• The FTC alleged that Sheffield had colluded with OPEC and OPEC+ members to limit production and increase oil prices.
• In a response to the FTC allegations, the company defended its founder, saying he had always had the U.S. oil industry’s best interest at heart.

The Federal Trade Commission last week gave the green light to Exxon’s acquisition of Pioneer Natural Resources. There was one condition attached to the approval of the $60-billion deal: that Scott Sheffield, the former CEO of Pioneer, does not join the combined company’s board.

The FTC alleged that Sheffield had colluded with OPEC and OPEC+ members to limit production and increase oil prices. The allegations shook the shale oil world, where several large consolidation deals are awaiting the trade watchdog’s approval. Now, the consolidation drive that has marked the last year in U.S. shale may have to slow down.

First, the allegations. According to a news release from last week, the Federal Trade Commission had informed Exxon that it would only approve the merger with Pioneer if Sheffield, who was going to become an Exxon board member as part of the deal, stayed out of it.

“Mr. Sheffield’s past conduct makes it crystal clear that he should be nowhere near Exxon’s boardroom. American consumers shouldn’t pay unfair prices at the pump simply to pad a corporate executive’s pocketbook,” the deputy director of the FTC’s Bureau of Competition, Kyle Mach, said in the release.

“Through public statements and private communications, Pioneer founder and former CEO Scott D. Sheffield has campaigned to organize anticompetitive coordinated output reductions between and among U.S. crude oil producers, and others, including the Organization of Petroleum Exporting Countries (“OPEC”), and a related cartel of other oil-producing countries known as OPEC+,” the Commission in a formal complaint.

The regulator then went on to motivate the attachment of its condition to the Exxon-Pioneer deal approval, saying that it sought “to prevent Pioneer’s Sheffield from engaging in collusive activity that would potentially raise crude oil prices, leading American consumers and businesses to pay higher prices for gasoline, diesel fuel, heating oil and jet fuel.”

Naturally, Pioneer had something to say about the allegations. In a response to the FTC allegations, the company defended its founder, saying he had always had the U.S. oil industry’s best interest at heart. The response also suggested that any communication Sheffield may have conducted with OPEC and OPEC+ members had been to the same end—to protect the U.S. shale industry.

“Mr. Sheffield and Pioneer believe that the FTC’s Complaint reflects a fundamental misunderstanding of the U.S. and global oil markets and misreads the nature and intent of Mr. Sheffield’s actions,” the response said.

The actions in question were conversations with OPEC and OPEC+ officials in 2020, when pandemic lockdowns decimated global oil demand, pushing U.S. oil prices briefly below zero. At the time, Sheffield was an advocate of production cuts in the shale patch as well, in a bid to minimize the damage that the demand drop was already causing the industry, Pioneer also said.

It didn’t make any difference, however. The FTC had already made up its mind and acted on it. As a result, Bloomberg and the Financial Times are reporting that shale executives are getting spooked about future mergers in case they get caught in the crosshairs of the regulator, which has not exactly been a fan of the oil industry since 2020.

“The implications go far beyond Sheffield,” James Lucier, an analyst at Capital Alpha Partners, said in a note to clients following the news, as quoted by the Financial Times. “The FTC has not to date taken an adversarial approach toward oil industry mergers . . . This relative hands-off policy is no more.”

In a sense, the FTC’s move against Sheffield is the other shoe dropping as far as the oil industry is concerned. The regulator has been looking for a way to interfere with the consolidation drive prompted by strong financial results and limited untapped inventory. Until recently, it has been unable to find one. But now, it seems, it has.

Not everyone agrees the FTC’s attack on Sheffield needs to be taken particularly seriously. “This is the government trying to save some face — it’s irrelevant to the whole issue of antitrust,” the managing director of investment bankers Roth MKM, Leo Mariani, told Bloomberg. “This whole thing is just politics ultimately. In an election year it helps to be tough on Big Oil.”

President Biden and his fellow Democrats have repeatedly made it clear that the anti-oil lobby is a key voter demographic and they have been busy tending to its needs. Earlier this year, Biden’s White House paused approval of new LNG export capacity as part of these efforts. Then, just this month, Democrats in Congress announced the completion of an investigation into Big Oil that, while it did not contain anything in the way of a revelation, sought to reinforce an image of the industry as the hydrocarbon equivalent of Big Tobacco, deserving of an identical treatment.

Whether any of this will help Biden win the November vote remains to be seen, but judging by the latest in his approval ratings, there may be a possibility that most Americans have bigger problems than climate change and oil.

By Irina Slav for Oilprice.com

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