Oil and gas dealmakers may breathe a sigh of relief after a US Federal Trade Commission consent decree allowed Exxon Mobil Corp.'s $68.1 billion purchase of Permian Basin oil producer Pioneer Natural Resources Co. to proceed, but some industry analysts and observers expressed concerns about other oil and gas megadeals that are awaiting approval by the antitrust regulator.
The FTC approved the Exxon-Pioneer deal May 2 with the condition that Pioneer founder and former CEO Scott Sheffield was forbidden from serving on Exxon's boards or advising Exxon after the deal closed. Exxon completed the acquisition the next day.
The FTC alleged that some of Sheffield's public and private communications amounted to collusion to increase profits, particularly during oil's COVID-19 price collapse in spring 2020. Sheffield had urged members of OPEC and the broader OPEC+ cartel to slow oil production in the face of negative oil futures prices. Pioneer and Sheffield denied the accusations, but Sheffield agreed to the FTC's conditions to allow Pioneer to close the deal.
Most deals get approval
Dan Pickering, chief investment officer at Pickering Energy Partners, said the Exxon-Pioneer approval was a positive signal for other US oil and gas deals awaiting approval, including a proposed $7.4 billion merger between Chesapeake Energy Corp. and Southwestern Energy Co. and deals between Chevron Corp. and Hess Corp., Occidental Oil and Gas Corp. and CrownRock LP, and Diamondback Energy Inc. and Endeavor Energy Resources LP.
"That [Exxon deal] was the biggest — it had the most production," Pickering said in an interview. The FTC approval "has to make to make you feel comfortable."
Mizuho Managing Director Nitin Kumar agreed with some caution. "These companies do understand that they have to go through higher scrutiny, which they are ready for and they're complying with," Kumar said. "But so far, the track record has been that most of these deals have gone through."
University of Houston law professor Darren Bush, who previously worked in the FTC's antitrust unit, did not see any special message to the industry. "I wouldn't put too much into the FTC's decision," he said. "I think they have a lot going on and are a bit resource-constrained at the moment. They are woefully underfunded."
Signals from Biden administration
But energy policy analysts at Washington, DC-based ClearView Energy Partners said the FTC decision was a way for the Biden administration to remind oil and gas producers that they may want to heed future calls to increase production when gasoline prices are high.
"Notwithstanding White House officials' consternation at observed divergences between crude oil prices and refined products (and blendstocks), gasoline markets throughout most of the nation appear highly fragmented, and past FTC investigations have found little evidence of wrongdoing," ClearView told clients May 2. "However, in the thick of a merger wave, the commission's authority to review and approve proposed transactions could give the administration leverage over upstream producers."
"To be clear, we do not see anything in the plain text of the press release, consent order or complaint which stipulates this sort of quid pro quo," ClearView wrote. "We do think we may see several hints to that effect, as with the emphasis on end-user price impacts."
The combined Exxon-Pioneer company will have about 11% of production in the Permian Basin, so "the FTC knew that there weren't really any antitrust grounds to hold up this merger," Berman Capital Group founder and principal John Berman said in an email. "But, it is an election year, and environmental groups were making a lot of noise on this, so I think banning Scott Sheffield provides the Biden administration with a little political win they can tout to voters."
Rohan Reddy, director of research at exchange-traded fund manager Global X ETFs, said the politics of the coming election might speed up the oil and gas deal market. "You might see more M&A in the short term, especially due to the upcoming election," Reddy said in an email. "If there are concerns about regulatory shifts and the attitude towards the oil and gas sector, companies might be more receptive to getting transactions done now, which might explain why we've seen a heightened period of energy sector M&A."
