In the past, it was relatively rare for deals in the oil and gas industry to undergo scrutiny from the government’s antitrust enforcers. However, several recent decisions by the Federal Trade Commission (FTC) and Department of Justice (DOJ) point toward increasing oversight of transactions in this sector.
On November 10, 2021, the FTC approved a final order settling its investigation into 7-Eleven’s acquisition of Speedway. This transaction had been under scrutiny for its potential to harm competition for the sale of retail fuel in 292 local markets in 20 states. The order resulted in the divestiture of 124 retail fuel outlets to Anabi Oil, 106 outlets to CrossAmerica Partners, and 62 outlets to Jacksons Food Stores. Notably, the final order also “prohibits 7-Eleven from enforcing any noncompete provisions as to any franchisees or employees working at or doing business with the divested assets.” Under previous regimes at the FTC, a noncompete likely would have been permitted under these circumstances.
Similarly, on November 12, 2021, the DOJ announced that S&P Global must divest three of IHS Markit’s price reporting agencies (PRA) in order to resolve antitrust concerns surrounding the companies’ proposed merger. PRAs provide price discovery for commodity markets and are especially helpful in markets that have trades done “off-exchange in private transactions that are not subject to reporting obligations.” S&P Global was required to divest Oil Price Information Services (OPIS), Coals, Metals and Mining (CMM), and PetrochemWire (PCW). One of these entities, OPIS, was also required to end a noncompete agreement with price reporting agency GasBuddy, which had effectively kept GasBuddy out of the retail gas price data market. According to DOJ Acting Assistant Attorney General Richard A. Powers, “[w]ithout these significant divestures, the proposed merger would have led to higher prices and lower quality for PRA customers throughout the United States.”
Further, the FTC has begun to subject more oil and gas sector deals to “second requests.” Through these second requests, the FTC has sought additional information and documents from companies, which in turn can cause several months of delays as entities await regulatory clearance. The following transactions have recently been subject to a second request: HollyFrontier Corp’s purchase of Sinclair Oil; Vertex Energy Inc.’s sale of motor oil collection and recycling assets to Safety-Kleen Systems Inc.; EnCap Investment’s proposed acquisition of EP Energy; and Energy Transfer LP’s takeover of Enable Midstream Partners LP. This increased scrutiny has corresponded with a decrease in mergers and acquisitions between U.S. oil and gas producers between the second and third quarters of this year.
Additionally, the FTC is looking into oil and gas companies at the behest of President Biden, who stated on November 16, 2021 that there was mounting evidence of anti-consumer behavior resulting in the maintenance of elevated gas prices. Over the last month, the price of unfinished gasoline has dropped, but the retail price has continued to rise. In a letter to FTC Chair Lina Khan, President Biden asked that “the Commission further examine what is happening with oil and gas markets, and that you bring all of the Commission’s tools to bear if you uncover any wrongdoing.” The FTC has the power to launch an “open study investigation” which would allow access to data on how companies set gas prices.
Companies dealing in the oil and gas sectors should be aware of these changes to the antitrust enforcement landscape. New policymakers at the FTC and DOJ appear ready to closely scrutinize transactions, require divestiture of significant assets, and challenge noncompete agreements. Companies should take care to ensure all transactions and agreements comply with antitrust laws.