WSJ / Former Pioneer CEO Is Accused of Trying to Collude With OPEC .........................
WSJ
May 2, 2024
Former Pioneer CEO Is Accused of Trying to Collude With OPEC
FTC alleges Scott Sheffield attempted to coordinate on oil production and prices; agency refers the case for potential criminal probe
By Benoît Morenne, Dave Michaels and Collin Eaton
The former CEO of shale oil company Pioneer Natural Resources attempted to collude with OPEC officials to raise oil prices, U.S. antitrust enforcers said in an unusual order that barred the executive from Exxon Mobil’s board and could lead to a criminal probe.
Officials at the Federal Trade Commission have decided to refer the allegations against Scott Sheffield to the Justice Department for a potential criminal investigation, according to people familiar with the matter. It is unclear whether the FTC has contacted the department yet.
The allegations, unveiled by the Federal Trade Commission on Thursday, come as Exxon Mobil struck an agreement with antitrust enforcers not to add Sheffield to its board of directors. The agreement allows Exxon to close a $60 billion stock deal to acquire rival Pioneer as early as this week.
The FTC said the proposed consent order seeks to prevent Sheffield from engaging in collusive activity that would potentially raise crude-oil prices.
“Mr. Sheffield’s past conduct makes it crystal clear that he should be nowhere near Exxon’s boardroom. American consumers shouldn’t pay unfair prices at the pump simply to pad a corporate executive’s pocketbook,” said Kyle Mach, deputy director of the FTC’s Bureau of Competition.
In an eight-page complaint, the FTC cited public statements by Sheffield and private messages the regulator said he sent to OPEC officials and other oil executives. Most of the private messages were redacted.
The accusations are a blow to Sheffield, who as part of the deal with Exxon was set to join that company’s board. Some antitrust experts criticized the move as overreach by the FTC.
“The FTC’s complaint reflects a fundamental misunderstanding of the U.S. and global oil markets and misreads the nature and intent of Mr. Sheffield’s actions,” Pioneer said Thursday. The company said it and Sheffield aren’t taking any steps that would stop Exxon’s acquisition.
Sheffield referred inquiries to Pioneer.
An OPEC representative didn’t respond to a request for comment.
Federal regulators said Sheffield had exchanged hundreds of messages with OPEC representatives and officials discussing crude-market dynamics, pricing and output. They said that through “public statements, text messages, in-person meetings, WhatsApp conversations and other communications while at Pioneer, Sheffield sought to align oil production across the Permian Basin in West Texas and New Mexico with OPEC+.” OPEC+ is the wider group of oil producers that includes OPEC and several others led by Russia.
The appointment of Sheffield to Exxon’s board, the FTC said, would give him a larger platform from which to advocate for greater industry-wide coordination. It said the appointment would also be anticompetitive as Sheffield serves on the board of pipeline company Williams Companies and other businesses that directly overlap with Exxon’s operations.
The FTC didn’t accuse Exxon of wrongdoing.
“We learned about these allegations from the Federal Trade Commission,” an Exxon spokeswoman said. “They are entirely inconsistent with how we do business.”
Exxon said that Richard Dealy, the current Pioneer chief executive, will join the company and that Maria Dreyfus, a Pioneer board member, will join Exxon’s board.
The FTC’s proposed consent order, in addition to barring Sheffield from the board, requires that for a period of five years, Exxon won’t add any additional Pioneer employee or director to its board.
Sheffield for years was the shale industry’s de facto spokesman, regularly opining on market trends. His retirement as Pioneer’s CEO in late 2023 capped a career that saw him build Pioneer from a middling producer into the crown jewel of the Permian Basin.
The FTC’s allegations against Sheffield stem from a months-long review of Exxon’s deal to acquire Pioneer, during which the companies turned over millions of documents.
Eric Grannon, an antitrust lawyer at White & Case, said the FTC appeared to be accusing Sheffield of something akin to price fixing -- without giving him an opportunity to defend himself. Attempts between competitors to fix prices are illegal in the U.S. and can be prosecuted criminally.
Using the merger-review process “to torpedo an executive’s career is not principled antitrust enforcement,” Grannon said. “What’s more, the FTC doesn’t even have criminal enforcement authority.”
OPEC, whose chief purpose is to set production levels among its member nations, is not subject to U.S. antitrust laws. U.S. lawmakers have repeatedly tried and failed to pass legislation to allow the U.S. to sue oil-cartel members for antitrust violations.
For years, OPEC and U.S. shale companies were bitter competitors. A flood of shale oil challenged OPEC’s market dominance starting more than a decade ago. In response, OPEC leader Saudi Arabia flooded the market in 2015 to push down oil prices in a bid to destroy their U.S. competitors. Many shale drillers went bankrupt, but the industry survived.
By 2017, the two sides appeared to reach a detente. OPEC’s secretary-general met with shale CEOs, including Sheffield, at a first-of-its-kind dinner that March, starting a series of meetings. The FTC cited the dinner in its complaint as well as the redacted private messages as evidence of Sheffield’s alleged collusion.
“He is in close contact with top OPEC member state oil ministers and other high-ranking officials representing the cartel, and uses these relationships to encourage OPEC production controls and to discuss U.S. producers’ efforts to maintain capital discipline in order to increase Pioneer’s profits,” the FTC said in its complaint.
Most of the unredacted allegations relate to public comments made by Sheffield, including statements about his efforts to persuade Texas regulators to impose production quotas after crude-oil prices tanked following the onset of the Covid-19 pandemic in 2020. Regulators decided against production cuts. Oil-producing nations eventually agreed to slash crude output after being prodded by then-President Trump.
Pioneer said Sheffield advocated Texas regulators take “legally authorized actions” in an oil bust and that Sheffield’s comments are protected by the First Amendment and Supreme Court doctrine.
Oil producers have rarely run afoul of U.S. antitrust enforcers in past decades. In 2011, the FTC examined trends in the petroleum industry and how they had affected gasoline prices, and concluded that global crude prices were the main driver of prices at the pump.
The Biden administration has been critical of big oil companies for not doing more to alleviate high gasoline prices. It has challenged other big mergers across a range of industries, with mixed results.
The FTC has previously blocked officers from joining a board as a condition of allowing a merger to close.
But in those cases, the FTC based its action on a law that forbids a person from simultaneously serving on the board of companies that compete within the same industry. Allowing the practice could lead to improper coordination between the two companies or disclosure of competitively sensitive information, the FTC has said.
The FTC said that installing Sheffield on Exxon’s board would risk amplifying his attempts to collude.
“During Mr. Sheffield’s career, it was neither the intent nor an effect of his communications to circumvent the laws and principles protecting market competition,” Pioneer said.
Write to Benoît Morenne at benoit.morenne@wsj.com and Collin Eaton at collin.eaton@wsj.com
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