WASHINGTON—In what it says is a blow to corporate collusion, the Federal Trade Commission (FTC) permanently kicked Scott Sheffield, an oil magnate and the man who controls the biggest U.S. oil production area, off the board of a monster merger he crafted between his firm, Pioneer Natural Resources, and ExxonMobil, the nation’s #1 oil company.
Why? Sheffield, for years, engineered collusion between Pioneer—represented by himself—and the Organization of Petroleum Exporting Countries, OPEC, to fix U.S. petroleum prices by artificially limiting oil supplies, thus keeping retail gasoline prices higher than they should have been.
But what the FTC did not do is stop the deal itself, valued between $60 billion and $64.5 billion. The agency promised, however, to keep investigating the impact of the merger and the collusion, and to bring another case if it finds continued price-rigging. Those probes will take more time, FTC said.
“The commission will continue to investigate mergers and acquisitions activity in the oil and gas industry and its risks to competition, as well as problematic unilateral signaling and coordination and attempted coordination among market participants,” its filing last month explained.
“When corporate executives’ words or actions reveal…a belief that they can collude, we should generally believe them,” FTC Chair Lena Kahn said in announcing the commission’s decision.
One member not satisfied
That didn’t satisfy at least one FTC member, Alvaro Bedoya. He compared Sheffield to infamous oil tycoon John D. Rockefeller, founder of Jersey Standard, the ancestral company of ExxonMobil, more than a century ago. Teddy Roosevelt’s trust-busters broke up Jersey Standard.
“This merger would have put an oilman of John Rockefeller’s persuasions on the board of a direct successor to Mr. Rockefeller’s oil company–which also happens to be the single largest company in the American oil industry. I fail to see how this merger agreement…would keep him off the board,” Bedoya said.
The merger of Pioneer with ExxonMobil just heightens the oligopolistic concentration of economic power in the hands of a few giant firms—a key feature of modern capitalism. Even the FTC said so.
All of this happens as the fossil fuel giants, including the oil companies, are bathing in profits from the war in Ukraine. The longer that war goes on, the more money the oil magnates pile up. Europe is forced to buy oil from them since the U.S. government, influenced by big oil, has imposed sanctions against countries using Russian oil, as did most of Europe before the war.
Not for nothing are the Big Oil companies that controlled most Western oil production called “The Seven Sisters.” Pioneer, though little known, controls production in the U.S.’s Permian Basin, which covers parts of New Mexico and almost all of southwest Texas.
Permian oil shot the U.S. to the top of world oil output in recent years, even ahead of Saudi Arabia, the FTC says. It used Sheffield’s words as witnesses: “We competed with OPEC” when shale oil output soared, and crude oil prices dropped $20-$30 a barrel. Investors, Sheffield said, didn’t like that.
That type of corporate cabal the FTC described is present in more industries than just oil, though.
A footnote in the commission’s filing says the FTC will not only continue probing the ExxonMobil deal but that Big Pharma is a target, too. Other industries with such oligopolies include meat-packing, cars, cereals, cigarettes (89% controlled by four firms), airlines, and railroads.
Airline and railroad concentration is so high that the AFL-CIO Transportation Trades Department, among others, has been urging federal probes and action for years.
The ExxonMobil-Pioneer merger, OKd at the end of May, is conditioned on the new ExxonMobil board—the name of the combined company—banning Sheffield forever. It also bans the firm from consulting him on anything. The agreement the two firms signed with the feds lasts a decade.
The FTC’s case against Sheffield makes it very clear he conspired for years with the Organization of Petroleum Exporting Countries (OPEC) to rig production and thus prices in the U.S.
Constantly met with OPEC
While Sheffield controlled Permian oil production, he constantly met, e-mailed, and negotiated with the OPEC nations, a group stretching from Mexico to Russia, to limit production and thus keep gasoline prices at the pump artificially high. He also wasn’t shy about saying so. The commission didn’t like what its investigators found.
“The proposed acquisition will further enlarge Exxon–already the largest multinational supermajor oil company–and make Exxon by far the largest producer of crude oil in the Permian Basin, the United States’ top oil-producing region,” the FTC’s summary admits.
“Through public statements and private communications, Pioneer founder and former CEO Scott Sheffield campaigned to organize anticompetitive coordinated output reductions”—rigged cuts, in plain English—“between and among U.S. crude oil producers, and others, including the Organization of Petroleum Exporting Countries, and a related cartel of other oil-producing countries, OPEC+.”
Sheffield went even further than just colluding with OPEC to keep production down and prices high, though. He publicly warned competitors they would be “disciplined” if they didn’t “stay in line…If anybody goes back to growth, they will get punished.” Shades of John D. Rockefeller, again.
“Rather than seeking to compete against OPEC and OPEC+ through independent competitive decision-making, Sheffield’s goal in recent years at Pioneer has been to align U.S. oil production with OPEC and OPEC+ country output agreements, thereby cementing the cartel’s position and sharing in the spoils of its market power.”
“The purpose of the consent agreement” which the two firms signed with the commission “is to remedy the anticompetitive effects that otherwise would result” from ExxonMobil buying Pioneer.
The FTC says it’s trying to curb corporate greed maximized
“Sheffield’s communications were designed to pad Pioneer’s bottom line—as well as those of oil companies in OPEC and OPEC+ member states—at the expense of U.S. households and businesses,” the FTC says.
When ExxonMobil and Pioneer signed their deal last year, they agreed to put Sheffield on the new joint company’s board. No way, says the FTC.
“Giving Sheffield a larger platform with which to pursue his anticompetitive schemes—as well as decision-making input and access to competitively sensitive information of Exxon—the proposed acquisition violates” anti-trust law “because it would meaningfully increase the likelihood of coordination, and thereby harm competition in… development, production, and sale of crude oil.
“Increases in crude oil prices are passed on to Americans through higher gasoline, diesel, heating oil, and jet fuel prices.”
Tyson Slocum, who monitors Big Oil for Public Citizen, lauded the FTC for bouncing Sheffield but said the problem extends far beyond Sheffield and OPEC colluding to limit Permian and foreign oil output. He urged Congress to probe “Seven Sister” firms and their role in output- and price-fixing.
A broader conspiracy?
“Congress must not only investigate Pioneer’s alleged role in conspiring with OPEC but whether there existed a broader conspiracy by U.S. oil companies to collude with OPEC. Big Oil must be held accountable for any conspiracy by or among American oil companies and OPEC members,” he said.
Senate Democrats, seeing a campaign issue—here’s why your price at the pump is so high—jumped at it. So did Democratic President Joe Biden’s press secretary, Karine Jean-Pierre.
Majority Leader Charles Schumer, D-N.Y., led 21 Democratic colleagues in a letter to Attorney General Merrick Garland asking for a DOJ probe of Big Oil.
“From pre-pandemic times to the current day, industry collusion may have contributed to the 49% decrease in the U.S. oil production growth rate,” the senators wrote. “Pioneer’s and its co-conspirators’ collusion may have cost the average American household $500 per car in increased annual fuel costs–an unwelcome tax that is particularly burdensome for lower-income families.
“Meanwhile, Western oil majors collectively earned more than $300 billion in profits over the last two years, a surge many market experts believe cannot be explained away by increased production costs from the pandemic or inflation. Corporate malfeasance must be confronted, or it will proliferate.
“These alleged offenses do not simply enrich corporations. Hardworking Americans end up paying the price through higher costs for gas, fuel, and related consumer products. The DOJ must protect consumers, small businesses, and the public from petroleum-market collusion.”
“The president has made clear that any illegal collusion between big corporations is unacceptable and rips off hardworking families, including if it raises prices at the pump,” Jean-Pierre declared
The American Petroleum Institute—the infamous and influential oil lobby—basically called the FTC allegations lies. It said U.S. oil producers “answered the call to meet growing energy demand.”
The Republicans, defenders of the oil industry, so far have shut up. But their presumed presidential nominee Donald Trump convened a cabal of oil company executives behind closed doors at his Mar-a-Lago estate last month.
There, he virtually promised a quid pro quo: Give me a billion bucks for my campaign and I’ll give you more deregulation and even lower taxes.
There was no word if Sheffield, who retired as Pioneer CEO at the end of last year, but is still on its board until the merger goes through, was at the Mar-a-Lago meeting, or whether he plans to either donate or “bundle” oil execs checks for Trump. Campaign finance records show he hasn’t given, yet.
But in a statement, Sheffield said the commission created “a false narrative.” His lawyers demanded the agency dump the settlement.
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