Clifford Chance

The FTC filed two cases this year challenging oil and gas mergers that simply did not add up, as we previously noted.^[1] In May, a 3-2 majority of the FTC Commissioners sued to block Exxon Mobil Corporation's ("Exxon") acquisition of Pioneer Natural Resources Company ("Pioneer"), and in September, a similarly-split Commission voted to sue Chevron Corporation ("Chevron") over its acquisition of Hess Corporation ("Hess").

Both Complaints acknowledged that the relevant antitrust market—the production and sale of crude oil—is not only global, but highly fragmented. There are thousands of producers in the U.S. alone, and the FTC made no allegation that any of the four producers had any material share or that either merger would trip unilateral or concentration concerns under Clayton Act Section 7 (and neither Complaint called for asset divestitures). The Section 7 claims were, then, a 0 on a scale of 1 to 10.

Instead, the focus of both Complaints was entirely different: they alleged that the CEOs of the target companies, Pioneer's Scott Sheffield and Hess' John Hess, "campaigned to organize anticompetitive coordinated output reductions between and among U.S. crude oil producers, and others" through statements in the press and private conversations with OPEC representatives.^[2]

The Complaints did not allege that either Mr. Sheffield or Mr. Hess consummated an agreement with any other producer to restrict output or raise price in violation of Sherman Act Section 1. On the contrary, both Complaints acknowledged that U.S. crude oil production has reach all-time highs each of the last few years and that the country is, for the first time, the world's largest overall producer. And while the Complaints alleged that Mr. Sheffield and Mr. Hess engaged invitations to collude under FTC Act Section 5, no Section 5 case was brought against either target company or either CEO. The FTC's Section 5 claims were also, then, a 0 on a scale of 1 to 10, and the FTC allowed both transactions to close with a very modest (some might say slap on the wrist) condition that both Exxon and Chevron were willing to fulfill: they simply agreed that Mr. Sheffield and Mr. Hess would not join their post-merger Boards.^[3]

It may seem like a happy ending for Exxon, Pioneer, Chevron and Hess. They were allowed to close their transactions and combine their businesses without having to sacrifice any part of their assets. But the United States is a dual enforcement regime, and all four companies, along with Permian Resources, Chesapeake Energy, Continental Resources, EOG Resources, Diamondback Energy, and Occidental Petroleum, now face more than a dozen nationwide class actions challenging their conduct and alleging it affected downstream markets for retail gasoline, heating oil, and commercial marine fuel.^[4]

The cases, consolidated as In re Shale Oil Antitrust Litigation in federal district court in New Mexico, take the FTC's allegations and go further: they allege that Mr. Sheffield and Mr. Hess not only engaged in "clear signal[ing] that U.S. shale oil producers . . . were ready and willing to play ball with OPEC,"^[5] they forged out-and-out agreements to restrict United States production, and raise the price, of crude oil in violation of Sherman Act Section 1.^[6] The Complaints cite meetings and dinners among defendants, OPEC officers, and others during CERAWeek conferences, and they assert that agreements were reached to lower crude oil production.^[7]

On their face, the Complaints have some weaknesses. None of them wrestles with undisputed facts demonstrating that the shale oil revolution has resulted in unprecedented levels of production in the U.S. that have outpaced production elsewhere around the globe. The Complaints just assert, with no real factual support, that crude oil production levels would have been higher but-for the various conversations with OPEC and that downstream markets were also impacted.

In addition to these merits difficulties, the class allegations seem problematic. Each of these downstream markets has different participants at different levels making different products and, often, more non-defendant participants selling the products in different localities. For example, the marine fuel case will necessarily involve multiple non-defendant refiners and numerous commercial dock operators in different states and myriad localities who sell two types of marine fuel (diesel and gasoline) to different types of customers at different times. That suggests lots of localized price variations which may make it difficult for plaintiffs to meet their burden of showing they can establish antitrust injury with common proof for all absent class members.

Until these thorny issues are sorted out by the courts, however, the defendants will be incurring significant expenses to defend these cases and paying the "class action tax." 

Footnotes:

[1] Joseph Ostoyich, William Lavery & Danielle Morello, FTC Actions in Oil Cases Go Against Its Own Rulemaking, Law360 (Nov. 26, 2024), https://www.law360.com/competition/articles/2263061/ftc-actions-in-oil-cases-go-against-its-own-rulemaking.

[2] Complaint, In the matter of Exxon Mobil Corporation (May 1, 2024), https://www.ftc.gov/system/files/ftc_gov/pdf/2410004exxonpioneercomplaintredacted.pdf.

[3] Decision and Order, In the matter of Exxon Mobil Corporation (May 1, 2024), https://www.ftc.gov/system/files/ftc_gov/pdf/2410004exxonpioneerorderredacted.pdf. 

[4] Adolfo Pesquera, Army of Lawyers Suit Up for Price-Gouging Antitrust Class Actions, ALM Global (June 14, 2024), https://www.law.com/texaslawyer/2024/06/14/army-of-lawyers-suit-up-for-price-gouging-antitrust-class-actions/.

[5] In the matter of Shale Oil Antitrust Litigation, Case No. 1:24md3119 (D.N.M. filed Aug. 15, 2024), https://www.law360.com/cases/66be3729159dc50b1a6aba5f.

[6] Jared Foretek, JPML Greenlights Shale Oil Price-Fixing MDL In New Mexico, LAW360 (Aug. 1, 2024), https://www.law360.com/articles/1864783/jpml-greenlights-shale-oil-price-fixing-mdl-in-new-mexico.

[7] See, e.g., Rosenbaum v. Permian Resources Corp., Case No. 1:24cv850 (D. Nev. filed Jan. 12, 2024); Mellor v. Permian Resources Corp., Case No. 1:24cv851 (D.N.M. filed Feb. 6, 2024); MacDowell v. Permian Resources Corp., Case No. 1:24-cv-00852-MLG-LF (D. Nev. Filed Feb. 15, 2024); Foos v. Permian Resources Corp., Case No. 1:24cv361 (D.N.M. filed Apr. 15, 2024); Brown v. Permian Resources Corp., Case No. 1:24-cv-00430 (D.N.M. filed May 6, 2024).