Dive Brief:

• Three oil producers are paying a record $5.6 million to settle a Federal Trade Commission lawsuit that their management engaged in pre-merger coordination and failed to observe the mandatory antitrust review period after concluding their $1.4 billion sale agreement.
• The settlement announced Tuesday involved illegal “gun jumping” in the July 2021 sale agreement of EP Energy LLC to two Houston-based oil firms, XCL Resources Holdings and Verdun Oil Company II LLC. XCL and Verdun shared common management at the time, according to the FTC’s complaint, which covered coordination for 94 days from the date the sale was announced in July 2021, violating the Hart-Scott-Rodino Act.
• The FTC and Justice Department have 30 days after a transaction has been reported to investigate and issue a request for additional information in reviewing whether the proposed deal harms competition and if the government will contest it. “It is generally illegal to finalize an acquisition during this investigatory period,” the FTC noted in a statement announcing the settlement.

Dive Insight:

The term “gun-jumping” derives from the colloquialism “jumping the gun,” or proceeding with the assumption of management duties that are prohibited until an antitrust review period, such as prescribed by the 1976 HSR Act, has ended. The civil settlement is the largest amount paid to date for a “gun jumping” violation, the FTC said in its news release. 

XCL Resources and Verdun Oil did not respond to messages from Legal Dive seeking comment. Contacts for EP Energy could not be located.

“Upon executing the transaction agreement, EP allowed Verdun and its sister company, XCL, to assume operational and decisionmaking control over significant aspects of EP’s day-to-day business operations,” the FTC said in its complaint. 

“This was no mere technical violation; the Defendants’ conduct effectively allowed one competitor to acquire beneficial ownership, including control over key competitive decisions of the other, before the transaction closed,” the FTC said.

Verdun, which produced crude oil in the Eagle Ford shale region of Texas, shared common management with XCL Resources, which operated in the Uinta Basin of Utah. Verdun’s July 2021 deal for EP would give it additional production capacity in both states given that EP produced oil in the same regions.

The $1.4 billion deal triggered the HSR review, and in March 2022 the FTC and the parties reached a consent agreement requiring the companies to divest EP’s Utah operations to address the FTC’s concerns about reduced competition.

However, according to the complaint, the purchase agreement transferred immediate control of “key aspects” of EP’s business to the buyers, including approval rights of EP’s ongoing and planned oil development and production activities and many of EP’s expenditures.

Among several management decisions during the review period, the coordination contributed to a supply shortage for EP customers in September and October 2021 after XCL halted EP’s crude exploration activities for several weeks, according to the complaint.

The Commission voted 4-0 to accept the settlement, with Commissioner Melissa Holyoak recused. The companies’ settlement with the FTC is subject to a 60-day public comment period.