Exclusive: U.S. slows down oil and gas mergers-sources
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[October 21, 2021] By
David French and Diane Bartz
NEW YORK/WASHINGTON (Reuters) - U.S.
antitrust regulators have extended the approval process for at least
five oil and gas mergers and acquisitions in the last three months, as
President Joe Biden's administration scrutinizes deals in a bid to
tackle soaring energy prices, according to regulatory filings and
corporate lawyers.
The slowdown comes amid growing pressure on policymakers to respond to
consumer angst over skyrocketing retail gasoline prices, as U.S. crude
futures hit multi-year highs. The White House has been calling U.S. oil
and gas producers to ask how they can help lower prices, Reuters
reported last week.
The move is also emblematic of a new push by the Federal Trade
Commission (FTC) to protect consumers, workers, the environment and
society at large. Under its new chair Lina Khan, the antitrust regulator
has taken a tough stance on deals ranging from technology to healthcare.
Such scrutiny is rare in the oil and gas sector, where deals typically
sail past regulators, more than a dozen industry sources, including
lawyers and bankers advising on energy deals, said in interviews.
This is because these companies sell their output to a global market,
and regional consolidation has no impact on energy prices dictated by
supply and demand worldwide.
Maureen Ohlhausen, chair of antitrust & competition law at Baker Botts
LLP, who served as acting FTC chair from January 2017 until April 2018
under the previous Trump administration, called the scrutiny
unprecedented.
"Even though previous Democratic FTC commissioners wanted active
enforcement, the industry was told what the standards were, deals got
reviewed and things moved along. This is really different," Ohlhausen
said.
"I believe the FTC Chair, effectively, would like to deter mergers."
An FTC spokesperson declined to comment.
The FTC is subjecting more deals to so-called second requests, seeking
additional information and documents, the deal advisers said and the
filings show. Second requests can delay regulatory clearance of deals by
several months.
"I am aware of two mergers in the last couple of months where FTC staff
did not see a need to issue a second request but were overruled by their
management," said Darren Tucker, chair of the antitrust practice at law
firm Vinson & Elkins LLP. He declined to name the two deals.
Among the proposed transactions that received second requests in
September were HollyFrontier Corp's $2.6 billion purchase of Sinclair
Oil and Vertex Energy Inc's $140 million sale of motor oil collection
and recycling assets to Safety-Kleen Systems Inc, the regulatory filings
show.
Private equity firm EnCap Investments' proposed $1.5 billion acquisition
of oil and gas producer EP Energy also received a second request in
recent weeks, according to people familiar with the matter.
EnCap and EP Energy did not respond to comment requests.
Sources indicated there were other transactions which have received
second requests in recent weeks but declined to identify them.
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Dust blows around a
crude oil pump jack and flare burning excess gas at a drill pad in
the Permian Basin in Loving County, Texas, U.S. November 25, 2019.
REUTERS/Angus Mordant
Second requests involving oil and gas producers are rare, and it is more common
for the FTC to scrutinize deals involving pipelines and gas stations. Pipeline
operator Energy Transfer LP said in May it received a second request on its
proposed $7.2 billion takeover of Enable Midstream Partners LP.
DEALMAKING RISKS
The FTC's scrutiny threatens to put the brakes on dealmaking in the oil patch,
which had already dropped to $18.5 billion of mergers and acquisitions between
U.S. oil and gas producers in the third quarter, down from $33.4 billion in the
second quarter, according to data analytics firm Enverus.
Graphic: U.S. oil and gas producer M&A, https://graphics.reuters.com/USA-ENERGY/DEALS-FTC/gdvzywbblpw/chart.png
The White House has been public with its requests for the FTC to act as the
reopening of economies around the world in the aftermath of the COVID-19
pandemic drives up energy consumption. Brian Deese, director of the National
Economic Council, wrote to FTC Chair Khan in August asking her to investigate
soaring energy prices.
Khan responded that the FTC will scrutinize consolidation among gas station
operators, but also look at dealmaking in the energy industry more broadly.
The Biden White House has already irked the oil and gas industry by making
climate change a priority in its administrative agenda. It temporarily halted
the issuance of new leases for drilling on federal land and has proposed to end
some fossil fuel subsidies. Energy companies argue these moves will push up
energy costs.
To be sure, it is not clear whether the FTC will seek to block any of the energy
deals it has subjected to second requests.
The regulator has not challenged a major merger of oil and gas producers since
BP Plc's $27 billion acquisition of Atlantic Richfield Co in 2000. It sued to
block the merger and only agreed to drop its objections after BP offered to
divest oil production acreage in Alaska.
A major test for the FTC will be Royal Dutch Shell Plc's proposed $9.5 billion
acquisition of ConocoPhillips' Permian Basin assets. It was announced last
month, and any FTC second request would be made in the coming weeks.
Shell and ConocoPhillips declined comment.
(Reporting by David French in New York and Diane Bartz in Washington; Additional
reporting by Valerie Volcovici in Washington and Shariq Khan in Bengaluru;
Editing by Greg Roumeliotis and Richard Pullin)
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