FTC Alleges Pioneer CEO Conspired to Raise Oil Prices; Exxon to Close $65 Billion Acquisition Anyway

This week it received clearance from the Federal Trade Commission to complete its $65 billion acquisition of Pioneer Natural Resources.

The FTC was not particularly concerned about how the deal would make Exxon the biggest player in West Texas’ booming Permian Basin, with combined production there of 1.3 million barrels per day, 10% of domestic supply. But the commission did insist on one condition: Pioneer CEO Scott Sheffield would not be allowed to serve on Exxon’s board of directors.

Why not? Because Sheffield, the FTC alleges, illegally “campaigned to organize coordinated, anticompetitive production reductions among U.S. crude oil producers and others,” including members of the OPEC cartel, with the intent of increasing industry profits. oil company “at the expense of American homes and homes.” business”.

It sounds serious. The FTC will reportedly refer the matter to the Department of Justice to initiate criminal proceedings. The allegations will be red meat for class action attorneys.

An ExxonMobil spokesperson in a statement today says the allegations against Sheffield “are totally inconsistent with the way we do business” and that the FTC, after analyzing more than a million documents, “raised no concerns with our business practices.” . Exxon has entered into a consent decree with the FTC that will not add Sheffield to its board of directors when the deal closes on Friday, May 3.

So what is the evidence? The FTC cites a long list of public and private statements Sheffield has made over the years and even references redacted WhatsApp messages that Sheffield, 72, allegedly exchanged with OPEC ministers.

Some highlights of the complaint:

In 2017, Sheffield attended a private dinner for senior executives of American shale fracking companies hosted by then-OPEC secretary general Mohammed Barkindo. According to the FTC, Sheffield said at the time: “I am seeing a series of meetings in which OPEC is reaching out and spending more time with American independents than I have seen in my entire career.”

In 2020, Sheffield urged American oil companies to reduce their drilling and restrict production, and even pressured the Texas Railroad Commission to impose restrictions on the amount of oil Texas companies could pump. The FTC quotes Sheffield: “If Texas leads the way, maybe we can get OPEC to cut production. Perhaps Saudi Arabia and Russia will follow in their footsteps. “That was our plan.” And he added: “He was using OPEC+ tactics to achieve a bigger OPEC+.”

In 2021, Sheffield publicly rebuked oil companies, saying that if they did not limit their drilling, investors would punish them. “Everyone is going to be disciplined,” he said. “Every shareholder I’ve talked to said if anyone grows again, they will punish those companies.”

In 2022, according to the complaint, Sheffield said in an interview that the strategy was working and that “independent audiences are being kept at bay.” And less than a month ago he said: “Even if oil hits $200 a barrel, independent producers will be disciplined.”

The optics are not good. The FTC says that regardless of whether Sheffield’s “coordination efforts were successful, the attempts alone suggest that Mr. Sheffield’s appointment to Exxon’s board of directors may make successful coordination more likely in the future.”

tTo be sure, there are many extenuating circumstances that the FTC does not address in its complaint. It is worth remembering that from 2014 to the end of 2015 the price of oil fell from $100 a barrel to $25. The reason was simple: American oil frackers had been too successful in perfecting the magic combination of directional drilling and hydraulic fracturing to unlock the oil bonanza trapped in layers of shale rock that previously couldn’t be drilled two miles deep. Between 2010 and 2015, domestic oil production increased by 70% to 9.4 million bpd. A miracle.

Unfortunately, OPEC decided not to make room in the market for American frackers, and falling prices drove dozens of companies out of business. Which is what OPEC was after. As Saudi Oil Minister Ali Al-Naimi said at the time: “OPEC producers are not interested in cutting their production, whatever the price.” He added: “Is it reasonable for a highly efficient producer to reduce production, while the poorly efficient producer continues to produce? That is twisted logic. If I reduce, what happens to my market share? The price will rise and the producers “Russians, Brazilians and Americans of shale oil will get my share.”

Oil prices recovered somewhat, to $70 a barrel in 2018, but then collapsed to zero in early 2020 as pandemic shutdowns emptied the roads, eliminating demand for gasoline. For a brief time, as oil storage tanks filled to capacity, the price even turned negative.

Sheffield was far from the only oil boss who wanted American oilmen to stop drilling. In 2015, billionaire Harold Hamm of Continental Resources told me that the biggest surprise to him was seeing how unified the industry had become with massive, across-the-board cuts to capital spending. “All of these publicly traded companies are responding in the same way. It is not a question of collusion, it is a question of cohesionHamm said. In 2017, speaking at the annual CERAweek conference, Hamm warned the industry against getting too excited about starting drilling again. “It will have to be done in a measured way, or else we will kill the market.”

cAre common sense statements considered collusion? No matter, says Ed Hirs, an energy economist and professor at the University of Houston: “Sheffield may have been begging OPEC for his life while they cut off the legs of him and many others, but he knows better. Do not do this. You do not meet to even give the appearance of collusion. “The structure of the entire oil patch is based on antitrust enforcement, thanks to John D. Rockefeller.”

In fact, for 30 years Rockefeller fought dozens of lawsuits challenging the legality of his monopoly over oil transportation and refining in the United States until in 1911 the Supreme Court finally sided with federal prosecutors and ordered it dissolved. of the Standard Oil trust. No longer would one man be allowed to control 90% of the country’s oil supply. Successors and acquirers of the Rockefeller companies include ConocoPhillips.
BP and Union Tank Car Company (now owned by Berkshire Hathaway
). Chevron
and Saudi Aramco, both started as Standard Oil of California companies. And, of course, Standard Oil of New York became what is today ExxonMobil.

Regardless of what the FTC and the Department of Justice decide to do with these allegations, Sheffield, who formed Pioneer in 1997 by merging Parker & Parsley Petroleum with T. Boone Pickens’ Mesa Petroleum, will be remembered in the industry as one of the founding fathers of the shale revolution. .

However, for the rest of this election season let’s hope for a resurgence on the campaign trail, as Team Biden will be happy to blame high gas prices on “Big Oil collusion.”

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