Washington D.C. – The Biden administration would face significant legal hurdles if it tried to block ExxonMobil’s proposed $60 billion acquisition of Pioneer Natural Resources, antitrust experts say. The deal would combine the two largest oil producers in the Permian Basin, raising concerns about increased market concentration.
The White House has been highly critical of Exxon, blaming the oil giant for high gasoline prices and urging them to increase production. But successfully challenging the merger on antitrust grounds would be an uphill battle, according to five antitrust lawyers interviewed by Reuters.
The key issue is that oil and gas prices are dictated by global supply and demand, not just domestic production. Exxon and Pioneer would likely argue that the U.S. market is just one part of the vast global oil industry, limiting the impact of any consolidation.
“This isn’t a refinery deal or a retail deal, which are usually the main drivers of antitrust risk,” said Andre Barlow, an antitrust attorney with Doyle, Barlow and Mazard. “Those are the deals where we see problems. Production and exploration deals are easier to defend.”
The Federal Trade Commission would face intense political pressure from Democrats to block the deal. Sen. Sheldon Whitehouse blasted Exxon for using profits “from gouging” consumers to acquire more assets and increase emissions. But the FTC hasn’t actually blocked an oil production merger since BP’s $27 billion acquisition of Atlantic Richfield in 2000.
Since then, the agency has allowed Chevron’s recent $7.6 billion purchase of PDC Energy, further concentrating production in the Denver-Julesburg Basin. The Exxon-Pioneer deal would make Exxon the largest Permian producer, with a 15% market share. But that’s still less concentration than the Chevron-PDC deal achieved in Colorado.
“The FTC showed tolerance for consolidation recently with the Chevron-PDC merger,” said William Kovacic, former FTC chairman. “So there is a precedent that could help Exxon.”
The Lengthy Review Process
The experts agree that due to the political sensitivities, the Exxon-Pioneer deal would get an extremely close look from regulators, even if an outright rejection is unlikely.
“The Permian Basin is a very significant factor here,” said David Kass, a former FTC economist. “The FTC would have to show it conducted a thorough analysis given how important the region is for U.S. oil production.”
Deals of this size often take 6 months or longer to close while undergoing antitrust scrutiny. Exxon and Pioneer would likely point to the months-long review of the recent Activision Blizzard acquisition by Microsoft as an example of a mega-merger receiving careful regulatory vetting before being approved.
To increase their chances, the companies may preemptively propose divestments and other remedies to address competitive concerns about over-consolidation in the Permian. But ultimately the global nature of the oil market makes blocking the deal entirely very difficult for the FTC to justify in court.
“U.S. regulators have learned they face an uphill battle challenging oil mergers based just on domestic market share,” said BarbSymbols, an antitrust partner at Arnold & Porter. “International supply and demand factors outweigh that.”
Impact on Oil Production
The proposed merger comes as the Biden administration has urged major oil companies to ramp up production in the face of rising gasoline prices. Critics argue the deal could allow Exxon to tighten its grip over Permian oil output.
Currently, Exxon is the fifth largest Permian producer with 6% market share, while Pioneer is number one with 9%. Combined, the merged company would control over 15% of the basin’s production, raising concerns about pricing power and collusion on output.
However, others argue the deal could actually increase production efficiency. “There are potential efficiencies from combining operations that could benefit output,” said Chris Heller, an equity analyst at Wolfe Research.
Bringing together Exxon’s financial resources and Pioneer’s shale expertise could potentially accelerate Permian drilling and volume growth after the merger. But that outcome depends on whether Exxon chooses to heavily invest in expanding Pioneer’s existing operations or not.
Some analysts believe Exxon was more likely motivated by Pioneer’s free cash flow and the low-cost barrels they can harvest from already drilled wells. “I’m not sure this deal leads to a huge increase in drilling activity,” cautioned Pavel Molchanov of Raymond James. “But it should generate substantial cash flow for Exxon from a more concentrated Permian position.”
While the government may struggle to block the acquisition, Exxon could still face political backlash if it’s seen as profiteering rather than using Pioneer’s assets to address high energy costs. But from a pure antitrust perspective, the deal seems likely to survive regulators’ scrutiny and move forward despite the Biden administration’s misgivings.