Increased Antitrust Scrutiny of Oil and Gas

What Happened: The Federal Trade Commission agreed to a White House request to investigate the divergence between oil prices and the cost of gasoline at the pump.

The Bottom Line: This is likely to result in increased antitrust investigations that could affect clients in the oil and gas space.  Even if they are not the targets of these investigations, clients may still be pulled in as third parties.

The Full Story:

President Joe Biden’s request to address rising gas prices is a tradition of sorts. Prior administrations under Presidents Obama, George W. Bush, and Clinton all made similar requests of the Federal Trade Commission (“FTC”), and the FTC has issued annual reports on ethanol market concentration to Congress and the Environmental Protection Agency. However, this time the FTC’s staff is being directed to explore new ways to challenge retail gas mergers.

In a letter sent to the White House, FTC Chair Lina Khan signaled that the agency’s review of gas retailer mergers has been too narrow and may have enabled “increased consolidation at the national level.”

Khan proposed to fix this, in part, by:

• Scrutinizing divestiture processes;
• Requiring prior approval on future transactions for oil and gas companies proposing an unlawful merger; and
• Asking staff to investigate abuses in the franchise market.

These measures will likely lead to more antitrust scrutiny in the oil and gas space where suppliers and midstream operators may also be served with subpoenas and civil investigative demands as third parties.

Khan also mentioned that the current consolidated market has created conditions “ripe for price coordination and other collusive practices.” This could signal an uptick in non-merger enforcement targeting competitor agreements and conspiracies under the Sherman Act. Again, those companies active in the oil and gas space may become targets or called as witnesses in such investigations.

Conclusion

Clients contemplating transactions in the oil and gas space should reach out to antitrust counsel early in the process, especially for deals between competitors. Clients aware of problematic activity should also reach out to counsel given the likelihood of being contacted as third parties.  Federal Trade Commission information requests can often be burdensome and costly.  Hunton Andrews Kurth has experience negotiating and complying with these requests.