As we predicted in recent updates, scrutiny of the oil and gas sector is heating up.1 On June 20, 2011, Jon Leibowitz, Chairman of the Federal Trade Commission (“FTC” or “Commission”), sent a letter to Senator John Rockefeller notifying him that the FTC has opened an investigation of oil and gas markets to determine whether they were affected by anti-competitive conduct or price manipulation. No targets were identified and the letter says only that the FTC will use compulsory process to seek information from “certain oil producers, refiners, transporters, marketers, physical or financial traders, or others” in order to determine whether they have engaged in practices that have lessened competition or have provided false or misleading information related to the wholesale price of crude oil or petroleum to a federal agency, in violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, as amended; the Commission’s Prohibition of Energy Market Manipulation Rule, 16 C.F.R. Part 317; or Section 811 or Section 812 of the Energy Independence and Security Act of 2007, 42 U.S.C. §§ 17301, 17302.2  

The Commissioner’s letter does not cite specific evidence of wrongdoing, but does cite a recent report from the Energy and Information Administration (“EIA”) stating that “as of early May, U.S. refiners’ refining margins had increased more than 90 percent since the beginning of 2011, and U.S. refiners at that time were only using 81.7 percent of their capacity, representing a seven percent reduction from the same period in 2010.”3

As we noted in our previous updates, however, crude oil production and refining are highly fragmented with many participants. Moreover, public information from a sample of refining companies shows that some companies have increased their production over the last year, often dramatically, while others’ production has declined. That sort of non-parallel behavior generally suggests independent decision-making and counters any inference of collusion.

FTC investigations can be lengthy and costly. The “compulsory process” referenced by Chairman Leibowitz is likely to include subpoenas for documents, data and testimony from multiple industry participants at all levels. Investigations often last a year or more, although Commissioner Leibowitz’s letter suggests an urgency that may lead the investigation to progress more quickly.4 At the end of the investigation, the Commission votes on whether to file a complaint — which would generally be an administrative complaint.

The Chairman’s letter concludes by saying that the Commission will continue to assist the Oil and Gas Price Fraud Working Group, established by the Attorney General to identify civil or criminal violations in the oil and gasoline markets.5 In particular, we expect to see close coordination between the FTC and the Commodity Futures Trading Commission as this investigation unfolds.


This week’s development further suggests that companies at all levels of the energy industry should continue to expect additional scrutiny and could potentially be drawn into the FTC’s investigation. We also continue to believe that private lawsuits may be next and suggest that companies perform a diagnostic check on their compliance programs.