Exxon, Chevron mergers face a major test at Biden’s FTC
WASHINGTON — In August 2021, as gasoline prices were soaring and Democrats clamored for action, Lina Khan, chair of the Federal Trade Commission, pointed the White House to a series of recent mergers between oil and gas companies.
In a letter to Brian Deese, President Joe Biden’s top economic adviser, Khan said leniency by regulators in previous administrations, “may have enabled increased consolidation at the national level, creating conditions ripe for price coordination and other collusive practices.”
Oil and gas companies for decades had been allowed to buy and merge within one another under the principle that the global oil market is so large that it makes price manipulation by individual companies impossible. But since the Biden administration came into office almost three years ago, antitrust regulators have cast a more skeptical eye at corporate deal making, worried it places too power much in the hands of too few.
Now, with Exxon Mobil and Chevron looking to acquire industry rivals Pioneer Natural Resources and Hess, respectively, the two oil giants will face the same scrutiny already brought to bear on mergers in the technology and medical technology sectors.
“These mergers represent the largest upstream consolidation in two decades,” said Jeffrey Oliver, a former FTC attorney who now represents companies in energy and other sectors. “There’s lots of pent up desire for antitrust enforcement, so it’s an interesting test case to see how serious these folks are about changing antitrust in this country.”
The Federal Trade Commission did not respond to requests for comment.
Khan, along with Assistant Attorney General for Antitrust Jonathan Kanter, is part of a
new school of attorneys who question the longstanding notion that the goal of U.S. antitrust law is to make markets run more efficiently, said Douglas Ross, a law professor at the University of Washington.
That concept, developed over the last half century, was a reversal from the socalled trustbusting era of the early 1900s when President Teddy Roosevelt broke up monopolies including the railroads and Standard Oil. Instead, regulators steadily allowed corporations to grow increasingly large under the belief they could operate at a lower cost than a multitude of smaller companies — with the caveat they not accumulate too much power in any single market.
“Khan is not a strong believer the goal of the antitrust laws is to increase efficiency or improve economic welfare,” Oliver said. “They think it should be rolled back to where it was in the 1960s, protecting smaller companies — and lots of them — even if they’re inefficient.”
Prior to her appointment to the FTC by Biden, Khan worked for seven years at the Open Markets Institute, a Washington nonprofit dedicated to stopping the expansion of corporate monopolies it says threaten “the free exchange of news, information and ideas.”
Following the announcement of the Exxon and Chevron deals, Barry Lynn, executive director of the group, released a statement urging U.S. regulators to block the sales.
“The two corporations already exercise far too much control over everything from the price of the gasoline in your car and the natural gas in your furnace,” he wrote. “The proposed deals mean higher prices for every American and harder days for U.S. manufacturers and farmers.”
And political pressure from Democrats and Biden himself to slow down corporate consolidation is ramping up.
A group of Democratic senators, led by Senate Majority Leader Chuck Schumer, wrote a letter to Khan last week asking the FTC to block the Exxon and Chevron deals and investigate “whether it’s time to break up today’s anticompetitive oil conglomerates.”
It’s unclear what, if any, moves the FTC might make to hinder the Exxon and Chevron deals.
The commission last year forced Houston-based energy investment firm EnCap Investments to sell off the Utah assets of EP Energy, which it was in the process of buying, so as not to allow it a monopoly on a particular type of oil flowing to Salt Lake City refineries.
“It was an unusual case, in there was concern it was such a small market, but that deal likely would have gone through under prior administrations,” Oliver said.
Forcing Exxon or Chevron to divest some of their assets would likely prove far more difficult in court than the EnCap case, experts say. The oil production they’re buying in West Texas, North Dakota and elsewhere flows all over the country and is exported abroad, making it far more difficult to prove the case that they’d be able to drive up prices through market manipulation.
Exxon, for instance, in its acquisition of Pioneer, which holds large amounts of acreage in the Permian Basin, will still only control 15% of that field’s production, according to analysis by Reuters.
“It’s going to be hard to make the case that’s going to hurt the U.S. market,” said one industry consultant with ties to Exxon and Chevron, who requested anonymity to discuss an open case. “There’s a lot of players in the Permian.”
Exxon, following the release
of Schumer’s letter to the FTC, released a statement saying “for all those concerned about competition, the fact that the two companies combined represent about 5% of US oil production should set their mind at ease.”
Chevron declined to comment.
While the pending deals might have gotten an easy pass in previous administrations, the sense among antitrust attorneys is that the FTC will at a minimum move to slow down the deals, which are set to close next year.
Even if they did seek concessions from the companies, finding a judge willing to allow it would likely be difficult, said Ross, the University of Washington law professor. He pointing to recent losses by the FTC in cases against Facebook and the biotech firm Illumnia — the latter of which the FTC is appealing.
“The courts still think the goal of antitrust law is greater efficiency and better allocation of resources,” he said. “Until a few years ago this whole movement was derided as hipster antitrust, but then Biden wins the election and brings them in, and that all changed.”