US Oil Industry Faces Wave of Antitrust Trouble

There’s oil in them thar shale fields. And maybe some price-fixing and collusion, too.

Following increased scrutiny from antitrust regulators, US shale producers are on the receiving end of a wild well of class-action lawsuits alleging anticompetitive behavior, with the latest suit filed on Monday. And suddenly, the industry’s increasingly cozy relationship with the Organization of the Petroleum Exporting Countries (OPEC) is being called into question.

Shale Game

The frack-happy cowboys down in Texas engaged in a price war with OPEC through most of the 2000s and 2010s, but a post-pandemic truce of sorts has taken hold. When OPEC producers slashed production last year to keep prices high, US producers opted not to step in and fill the vacuum, keeping domestic prices frustratingly elevated. “OPEC and shale are much more on the same team now, with supply discipline on both sides,” Joseph Sykora, a fund manager at Aptus Capital Advisors, told Bloomberg a year ago.

The discipline was good for business. US oil producers slashed their reinvestment rate below their 10-year average for the past couple of years, according to Bloomberg Intelligence, and profits soared. And while the domestic firms claim it’s simply a matter of pivoting toward returning cash to shareholders, others call it collusion: 

• Last week, the Federal Trade Commission alleged that Scott Sheffield, former CEO of Pioneer Oil — a leading producer in the Texas Permian Basin, and soon-to-be subsidiary of Exxon — used his power and position to “align US oil production with OPEC and OPEC+ country output agreements, thereby cementing the cartel’s position and sharing in the spoils of its market power.”
• Along with myriad public statements, the FTC’s claims are based on hundreds of WhatsApp and text messages sent by Sheffield to OPEC leaders. That sparked at least 10 class-action lawsuits brought against Pioneer and other Permian Basin players filed by consumers and other parties who say they were harmed by elevated prices.

“OPEC members are open about their cartel behavior, confident that sovereign immunity will protect them from answering for it in US courts,” Stuart Gross, an attorney at law firm Gross Klein representing Nevada-based commercial fishermen in one of the suits, told the Financial Times. “These US oil companies enjoy no such protection and will be held to account.” For its part, Pioneer said recently that the wave of allegations “reflects a fundamental misunderstanding of the US and global oil markets.”

FTC Me in My Office: The Permian Basin mega-mergers have long been about the only industrial corner receiving a green light from the newly energized FTC. That may be changing. While the FTC formally approved Exxon’s $60 billion Pioneer takeover last week, it barred Sheffield from playing any role in the new company. Meanwhile, Senate Majority Leader Chuck Schumer called on Sunday for the FTC to “pump the brakes” on Chevron’s $53 billion acquisition of Hess. Time to lower the well pump even more.