From Comedy Central to Exxon Mobil-Pioneer, a new FTC is emerging

Given the Federal Trade Commission’s increased scrutiny of mergers and acquisitions and other oil and gas-related deals, Exxon Mobil and Pioneer Natural Resources were likely “very pleased” to receive approval for the merger, according to an antitrust lawyer.

According to Chuck Boyars, an antitrust and antitrust attorney at Kirkland & Ellis, the FTC cleared the deal on one condition: Ban Pioneer’s founding CEO, Scott Sheffield, would not participate in the combined company’s decision-making in the future.

Under the original merger agreement, Sheffield was to serve on Exxon Mobil’s board, representing former Pioneer shareholders.

“The current administration is very negative about what they call ‘remedial measures,'” Boyars told attendees at Hart Energy’s SUPER DUG 2024 Conference and Exhibition in Fort Worth.

Remedies to obtain FTC approval may include the sale of certain assets. “(These) used to be extremely common and extremely accepted,” Boyars said. “Current regulators are deeply opposed (to this).”

However, the FTC has changed its approach.

The commission alleged that Sheffield had contacted U.S. and global producers in the past about stemming the global oil glut.

In the merger, Exxon Mobil acquired Pioneer’s 721,000 boe/d Midland Basin production and future well reserves, increasing Permian Basin production to an average of 1.3 MMboe/d. It expects this to increase to 2 MMboe/d in 2027.

“Pretty Quick”

Boyars was not an advisor to either party in the merger.

“But from the outside I can see that these parties were probably very happy with it because it came to finalization,” he said. “(It’s been) seven months since the deal was signed, which is pretty quick in the (FTC review) schedule.”

The merger agreement between Exxon and Permian Basin producer Pioneer was announced on October 11. The FTC granted approval on one condition on May 2. The merger was finalized the next day.

“And they walked away offering a solution of not selling a single asset or accepting… significant restrictions on their future activities.”

Exxon Mobil agreed to produce compliance reports on one condition “and compliance with the law, which is quite a reasonable decision,” he said.

“Needless to say, this has had some impact on Scott Sheffield as an individual… but I think the growth-first company is very happy with this result.”

The FTC’s review and decision could take up to 11 months or “even longer,” he said.

“Again, countermeasures are not that common these days. So getting it done – with a limited solution – in seven months” is a victory.

Sheffield planned to retire

Sheffield intended to leave Pioneer in 2016. Tim Dove, the company’s chief operating officer, took over as CEO at the end of the year, and Sheffield became executive chairman with a plan to leave the position at the end of 2017 and only serve in a non-executive management role.

However, the board asked Sheffield to return as CEO in 2019.

Before the deal was announced in October, the company’s plan was for Rich Dealy, who had been president and chief operating officer, to become CEO on Jan. 1, with Sheffield serving only as a non-executive board member. Dealy became CEO and Sheffield took over as special advisor to the CEO.

“It’s a difficult environment for the FTC and (Department of Justice),” Boyers said. “I think this is an area that the Biden administration has paid a lot of attention to.

“…It’s kind of on the tip of people’s tongues. We have aggressive regulators. They investigate some transactions deeper than we expected.

“They are examining certain theories of harm… compared to traditional principles of antitrust law.”

One sign of the emergence of a new FTC is CEO Lina Khan’s recent appearance on a Comedy Central talk show, “something we would never expect in the world of antitrust law.”

Case 2022

Until the FTC blocked XCL Resources from acquiring EP Energy’s assets in the Uinta Basin in 2022, an E&P deal had not been blocked since a deal involving Alaska’s North Slope in 2000. Meanwhile, the FTC was involved in midstream and gas station deals .

In the Uinta case, refineries equipped to process the basin’s waxy crude oil found that one operator would be able to oversupply.

The FTC’s ban came as a surprise to the industry. “Perhaps the lesson will be to (not) assume that past practice guarantees future results, and to treat each transaction individually,” Boyars said.

Four more offers

The FTC’s continued scrutiny of the four oil and gas deals isn’t too surprising, however, Boyars, given the size of the deal and the property involved. These include Chesapeake Energy’s merger with Southwestern Energy. The $7.4 billion deal would create a new No. 1 U.S. gas producer with net production of 7.9 Bcf/d.

These are “transactions with a size that sets them apart. … It’s only at this much larger end of the spectrum that we really see things being different in terms of agency interest and response,” Boyars said.

Could the FTC’s scrutiny of oil and gas contracts be part of Biden’s anti-carbon agenda to limit the supply of U.S. oil and gas by preventing operators from increasing efficiency?

“Some people have suggested it,” Boyars said.

“I will say that I have not personally seen evidence of this. … We have not observed any indication that such currents are flowing beneath the surface.”