Oil and gas leases on federal lands are in question as lawmakers look at shale conspiracy allegations

A dozen Democratic lawmakers on the House Natural Resources Committee want to know whether shale oil companies could have their oil and gas licenses and operations on federal lands suspended amid allegations that the companies may have conspired to inflate oil prices.

“This market manipulation would have a dramatic impact on the price of gas paid by working families across the country,” the lawmakers wrote in a July 9 letter to the Interior Department.

The lawmakers, including Democratic Reps. Raul Grijalva of Arizona and Katie Porter of California, cited evidence uncovered by the Federal Trade Commission during its roughly six-month review of the ultimately successful merger between ExxonMobil and Permian shale giant Pioneer Natural Resources, as well as a class-action lawsuit accusing at least eight major shale producers of violating antitrust laws.

The letter to the Interior Department highlighted federal rules that allow the government to suspend or terminate contracts with companies that commit — or are suspected of committing — a wide range of misconduct, including antitrust violations.

Lawmakers asked Interior Department officials to evaluate whether companies named in the class action lawsuit could be “permanently barred from obtaining future leases” on federal lands.

They also asked whether any of the companies could be “prohibited from not only obtaining future leases but also from conducting business on public lands and waters” if they were found civilly or criminally liable for violating antitrust laws.

Federal regulators have previously suggested that oil and gas leases could potentially be covered by conspiracy convictions, the letter notes. Shortly after the FTC investigation was made public in May, Office of Ocean Energy Management Director Liz Klein was asked about oil and gas leases during a congressional oversight hearing.

“If a company is found guilty of something like collusion, we have laws that prevent them from entering into a lease agreement in the future,” she testified.

The eight defendants in the antitrust lawsuits include Pioneer, which merged with ExxonMobil (NYSE:XOM)) in May, Occidental Petroleum (NYSE:OXY), Hess Corp. (NYSE:HES), EOG Resources (NYSE:EOG), Diamondback Energy (NYSE:FANG), privately held Continental Resources (Private), Chesapeake Energy (NYSE:CHK) and Permian Resources (NYSE:PR).

None of the companies mentioned responded to DeSmog’s request for comment on the allegations or the content of the letter.

The Interior Department did not respond when asked whether it was considering suspending or debarring any oil and gas operators due to antitrust concerns.

Suspicion of committing a crime

Temporary suspensions of government contracts could be imposed “based on suspicion of wrongdoing,” the lawmakers wrote. While investigations are ongoing, regulators need less evidence to act, the letter said, pointing to rules requiring “adequate” evidence rather than the more burdensome “preponderance” of evidence needed to justify “debarment” or a multiyear ban on federal contracts.

The FTC completed its review of the Pioneer deal in early May, allowing the companies to merge but barring former Pioneer CEO Scott Sheffield from serving on ExxonMobil’s board.

Later that month, Sheffield dismissed the FTC’s allegations. “There is no evidence in the record that could fairly be characterized as ‘attempted collusion’ with OPEC,” he wrote in public comments responding to the FTC’s complaint.

But two days later, about two dozen senators asked the Justice Department to investigate the oil industry, citing the FTC’s findings. “At the very least, given the specifics of some of the allegations in the FTC’s complaint, a criminal investigation by the Antitrust Division (DOJ) is a very real possibility,” the National Law Review reported in June.

Meanwhile, a growing number of class-action lawsuits, the first of which was filed in January, have begun to raise similar concerns, alleging that shale oil producers responded to the 2016 price war with OPEC by colluding with each other and with foreign producers or oil cartels to manage oil production and keep oil prices higher.

By the end of 2017, oil producers had collectively spent $280 billion more than they made drilling for shale. Shale industry executives were under enormous pressure to start turning the torrent of oil they had extracted—all the while driving down prices—into profits.

Prohibited collusion

But one important thing that American corporations can’t do in pursuit of profits is collude with each other, under antitrust law. You can’t agree with your competitors that you’ll all cut production to raise prices, or you risk criminal penalties. Global oil markets may be dominated by OPEC and OPEC+, which are well-known for their efforts to shape oil prices — but American companies can’t participate in that.

Nevertheless, in 2017, groups of shale company CEOs and executives began meeting with OPEC officials for private dinners, the meetings now cited in antitrust lawsuits alleging that shale drillers colluded to avoid price wars and boost profits.

These allegations – depending on the Home Office’s response – could soon have implications beyond Sheffield’s mandate on the board.

Federal contracts are often a key part of a company’s revenues—and terminating them can have serious consequences. “The consequences of suspension or debarment can be potentially devastating,” the law firm Arnold & Porter warned in a 2022 memo (long before the shale gas collusion cases emerged), warning that federal prosecutors were stepping up their focus on antitrust violations by government contractors by launching the Procurement Collusion Strike Force.

The congressional letter also requested details about federal oil and gas leases and the actions of the class action defendants, focusing in part on drilling permits that were “approved but not used” between 2017 and 2023. It also requested information about the companies’ “inactive but unrecovered wells,” asking when the wells were idled and when production from those wells resumed.

Moreover — notably, given that some of the collusion allegations relate to the companies’ actions or admissions of guilt during the 2020 COVID-19 disruptions, when Sheffield and other producers asked Texas regulators to intervene and manage oil markets amid falling demand — the letter also asked the Home Office to provide details of any pandemic-era royalty relief granted to the companies in question.