FTC Hits Oil Giants Over Gun-Jumping Violation in Pre-Merger Deal

Crude oil producers XCL Resources Holdings, Verdun Oil Company, and EP Energy will collectively pay a hefty $5.6 million penalty to resolve allegations of illegal coordination prior to a merger, which disrupted oil supply and contributed to rising fuel costs across the U.S.

According to a statement from the Federal Trade Commission (FTC), the trio engaged in unlawful “gun-jumping” activities that violated the Hart-Scott-Rodino (HSR) Act, which mandates that companies notify federal authorities and wait for approval before completing significant transactions. The merger, valued at $1.4 billion, was slated to be overseen by the FTC and the Department of Justice (DOJ) to ensure compliance with antitrust regulations. However, the companies bypassed this procedure by coordinating business decisions prematurely, the FTC noted in its complaint.

Per the complaint, Verdun, which was managed alongside XCL at the time, moved ahead with operational control over EP’s day-to-day operations well before the official merger closure. This coordination reportedly included halting planned drilling activities at EP and engaging in joint management of customer contracts in the Uinta Basin region of Utah. Additionally, Verdun and EP coordinated pricing strategies for EP’s Texas-based customers, ultimately leading to a shortage in crude oil supplies.

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These actions resulted in a significant disruption, exacerbating the oil supply crisis when the U.S. was already facing substantial shortages and surging oil prices. According to the complaint, the unlawful practices directly contributed to higher prices at gas stations, burdening consumers with steep costs.

The FTC’s investigation, launched after the merger agreement was signed in July 2021, revealed major concerns regarding competition in the Uinta Basin, where the transaction could have eliminated crucial competition between two of the few remaining oil producers. In response to these findings, the FTC implemented a remedy that required the divestiture of EP’s operations in Utah.

The coordination between XCL, Verdun, and EP continued until October 2021, when an amendment was made to the deal, allowing EP to operate independently once more. The formal waiting period for the merger ended in March 2022, bringing an end to the violation after 94 days of illegal coordination.

The settlement, which represents the largest fine ever imposed for a gun-jumping violation, was voted on by the FTC with a 4-0-1 outcome. The case has now been forwarded to the DOJ for filing in the U.S. District Court for the District of Columbia.

Source: FTC