FTC Alleges Collusion Between US Oil Executive and OPEC

Scott Sheffield, former CEO of Pioneer Petroleum, has had a long and distinguished career. The AIME described him as “displaying concern for his employees, the community and the environment, while encouraging innovation and making a positive impact on the company and the oil and gas business”. He was CEO for over 31 years, leading a corporation that was consistently ranked as one of the best places to work in America. Indeed.com once named it as the fourth best employer in the entire country. Forbes named it as the “most just” company in the oil and gas industry. And the Dallas Morning News named it as the number one employer in North Texas. There seems to be quite a consensus as to both his acumen and his morality in the industry. Surprisingly, that has now come under attack. More on that later.

Pioneer has been successful, to put it mildly. They had reserves in excess of 10B barrels equivalent of total resources (figures provided prior to the recent Exxon merger), an enterprise value of $32B and approximately 3500 employees. Considered a leader in oil-rich shale plays, Pioneer was ranked among the most active operators in the entire US. Their stated goal was to grow its net production to over 1MM boepd from the Permian Basin alone within the next ten years.

His legend within the Permian Basin will likely never be approached again. Remember, the Permian Basin is so prolific that it, in and by itself, already supplies more oil than Iraq. Success and recognition here is no small feat. Among other awards, he has been recognized with the Top Hand Award, which recognizes individuals with “exceptional leadership within the oil and gas industry and within the Permian Basin”. He is also an inductee into the Permian Basin Petroleum Museum Hall of Fame as well as the Frank Pitts Award for Leadership from SMU. In addition to his industry accolades, Scott is quite a philanthropist, having received the ADL’s Henry Cohn Humanitarian Award in Dallas and the National Multiple Sclerosis Society’s Hope Award in Midland. Quite a fellow, in my book.

Mr. Sheffield has recently been in the news for other reasons though, and they are less than flattering. This all came about during the mega-merger between Pioneer and Exxon which occurred in May. This was a $64.5B purchase by Exxon, one of the few majors large enough to swallow that large a pill. Naturally, it was assumed by all that Scott would assume a major position on the new Board of Directors. How could he not, concerning his performance and credentials?

Well the US Federal Trade Commission is apparently not such a big fan of Mr. Sheffield, barring him from assuming such a role and effectively shutting him out of management for the now incredibly huge exploration company. His crime? The anti-trust agency alleges to have found evidence that Sheffield sought to communicate with OPEC and US peers about oil pricing and output, with the alleged desire to up costs for consumers. They claim to be in possession of hundred of text messages with OPEC representatives and officials seeking to control the oil market. They were pretty blunt about their feelings saying “Mr. Sheffield…should not be anywhere near Exxon’s boardroom. American consumers should not pay unfair prices at the pump simply to pad a corporate executive’s pocketbook”. Tell us how you really feel, would you please?

The FTC order also prevents Sheffield from serving in any advisory capacity at Exxon and prohibits the oil and gas giant from appointing any Pioneer employees or director to its board for five years. Both Exxon and Pioneer expressed surprise at the allegations, but neither made any effort to stop the mega-merger. Despite the news, shares rose for both companies the following day, Exxon by 0.4% and Pioneer by 1.1%. Apparently, investors were far from alarmed.

Pioneer and Sheffield quickly rebutted the FTC’s claims, stating that his efforts were an attempt to “push back against the predatory practices” of OPEC and Russia, which had flooded the market on several occasions in an attempt to wipe out US shale. A disciplined shale sector is necessary to maintain and “sustain a resilient, competitive and economically vibrant oil and gas industry in the United States,” according to a company press release.

Sheffield may not be the only oil executive under suspicion. The Senate Budget Committee announced on June 27 that they had launched their own investigation and were demanding answers from at least 18 oil producers concerning allegations they illegally coordinated with OPEC to raise prices on American consumers and increase costs of the federal government. Senate Budget Committee Chairman Sheldon Whitehouse (D-RI) was quoted as saying “I am concerned about the possibility that oil and gas companies could be engaging in collusive, anti-competitive activities with OPEC that would raise crude oil prices, resulting in higher cost not only for American families, but also for the US Government as it acquires crude oil for the Strategic Petroleum Reserve”.

“In view of the findings against Sheffield, I seek to understand whether other oil producers operating in the US may also have coordinated with OPEC concerning production output, crude oil prices and the relationship between the production and pricing of oil products. Letters of inquiry were reportedly sent to CEO’s of APA Corporation, BP, Chesapeake Energy, Chevron, ConocoPhillips, Continental Resources, Crownquest, Diamondback Energy, Endeavor, EOG Resources, ExxonMobil, Hess, Marathon, Occidental, Ovintiv, Permian Resources, Shell and SM Energy. This could be the biggest thing to hit the oil industry in decades, particularly if indeed involves 18 or more participants.

Sheffield is too wealthy and powerful to take this lying down. He claims he has been “unjustly smeared” and is gearing up to clear his name. He claims comments that he made at conferences and in media about cutting back production was simply a response to investors’ demands. His 23-page response contends that the allegations are false, saying his communications were “misrepresented by the agency” and that he was afforded no due process in order to defend himself. His lawyers claim the FTC “stepped well beyond mandates and unjustly smeared Mr. Sheffield. Its case is built on a false narrative about these statements and a farfetched interpretation of the applicable statutes”.

The Public Citizen, a reporting agency leaning, shall we say, to the liberal side, contends that Sheffield and others have been protected by officials all along. They cite the nearly $6.2M in campaign funds given for Texas and federal offices since 2010 as buying favoritism and protection for the contributors. “Extensive political giving by Big Oil, both in Texas and at the federal level, helped produce an environment of lax state and federal oversight of the oil and gas industry” said Alan Zibel, author of the report and an oil and gas researcher with Public Citizen. Another company representative, Adrian Shelley, added that “When regulators regard corporations as hand-in-glove partners, without skepticism of distance, companies may exploit law enforcement and engage in egregious lawbreaking. The cozy relationship between Texas fossil fuel companies and state regulators had consequences for Texans and the American public.” They even go so far as to claim they are trying to unscrupulously effect the Presidential election by their recent $420,000 contribution to his campaign.

Sheffield can afford the best representation available and you had best believe he has hired such. Recent announcements claim he has procured the services of Brownstein, Hyatt, Farber, Schreck, LLP, among the nation’s most powerful lobbying firm to “lobby on issues related to the FTC”. You can believe this is one and the same as the accusations and litigation discussed in this article. Stay tuned folks, this could be huge for the entire industry, not just Mr. Sheffield himself. It may become the biggest thing to hit the industry since the anti-trust/monopoly hearings that cause John D. Rockefeller to amend his business dealings, and changed the industry forever.