An American oil boss has been barred from ExxonMobil’s board of directors over his alleged involvement in a price-fixing scheme now facing numerous lawsuits.
The United States Federal Trade Commission (FTC) moved to prevent founder and former CEO of Pioneer Natural Resources Scott Sheffield from gaining a seat on Exxon’s board or serving the company in an advisory capacity after it acquired Pioneer, the agency said in a news release. The condition for the merger “seeks to prevent Pioneer’s Sheffield from engaging in collusive activity that would potentially raise crude oil prices, leading American consumers and businesses to pay higher prices for gasoline, diesel fuel, heating oil and jet fuel.”
Sheffield’s past conduct “makes it crystal clear that he should be nowhere near Exxon’s boardroom,” said Kyle Mach, deputy director of the FTC’s Bureau of Competition. “American consumers shouldn’t pay unfair prices at the pump simply to pad a corporate executive’s pocketbook.”
The order is intended to resolve antitrust concerns regarding the merger, which will increase consolidation in the oil and gas industry. Sheffield, and CEOs of several other oil companies, allegedly sidestepped U.S. antitrust legislation to cooperate with the Organization of the Petroleum Exporting Countries (OPEC) to inflate prices. Their actions cost Americans around $2,100 per person in 2021 and accounted for roughly 27% of inflation from corporate profits that same year, according to one estimate.
OPEC members have historically controlled global oil prices by cooperating to collectively increase or decrease production. But it is illegal for U.S. producers to do this under federal legislation, the Sherman and Clayton Acts, preventing anti-competitive business practices.
The alleged collusion with OPEC undermined the competition between the U.S. and OPEC countries which has defined the global oil market since early 2000s, when the “shale revolution” turned the U.S. into a leading oil exporter, the FTC said. At that time, technological advances in hydraulic fracking and horizontal drilling gave U.S. companies, led by Sheffield’s Pioneer, access to vast reserves of shale oil. This enabled the U.S. to compete with OPEC, constraining global oil prices by American antitrust laws rather than the cartel activity of other oil producers.
OPEC attempted to respond by taking on new members and creating an expanded OPEC+ with countries like Russia, but it was unable to regain its substantial influence in the market. Then, in 2020, a sudden decline in fossil fuel demand followed the COVID-19 pandemic, leading to oversupply and a drastic price drop, with the value of a barrel of oil briefly falling to -US$37.63. After that, the FTC asserts that at least six U.S. companies named in a complaint filed April 15—including Pioneer, Occidental, Diamondback Energy, and others—began communicating with OPEC countries about ending their price war. Hundreds of texts, WhatsApp messages, and in-person communications from Sheffield to OPEC leaders show them coordinating to affect oil pricing and production, the FTC says.
This communication evolved into collaboration to scale down production and keep the price of crude oil artificially high, the agency adds. Though the strong market for oil at the time would normally entice companies to ramp up their output, Sheffield and others held back, citing supply “discipline.”
“There’s no change for us,” Sheffield told investors on a public earnings call in February 2022. “$100 oil, $150 oil, we’re not going to change our growth rate.”
The price-fixing plan was spearheaded by independent producers and was not pursued by oil majors like Exxon and Chevron, which seized the opportunity to expand their shale oil production while other companies limited supply.
Still, the FTC’s actions have reportedly “rattled” the oil and gas industry, prompting other companies with pending deals to re-evaluate their strategies to avoid similar orders. The evidence cited by the agency has also prompted a slew of class-action lawsuits seeking damages related to the price fixing scheme.
The FTC order comes as oil and gas companies are increasingly under pressure from Democratic lawmakers, who are adopting a hard line against fossil fuels as President Joe Biden campaigns for re-election this November. Meanwhile, Biden’s opponent in the election—Donald Trump—has been actively courting fossil fuel companies, asking for $1 billion in campaign funding in return for executive orders to roll back environmental regulations affecting the industry, reports Politico.
The companies seem unsure of making such a deal—possibly over concerns that Trump’s erratic foreign policies would undermine their business—but they are also reportedly drafting executive orders for Trump to sign if he enters office next year.
