Senate Bill Targets Mergers, Acquisitions in Oil Industry

This posting was written by Jeffrey May, editor of CCH Trade Regulation Reporter.

Bi-partisan legislation to require closer scrutiny of mergers and acquisition in the oil industry was introduced on March 14 in the U.S. Senate.

The proposed “Oil Industry Merger Antitrust Enforcement Act” would require merging oil companies to prove that their combination would not substantially lessen competition or tend to create a monopoly.

In addition, the measure (S.B. 878) would direct the FTC and the U.S. Department of Justice to revise antitrust guidelines for the oil industry in order to block mergers and acquisitions that would reduce competition in the fuel marketplace.

Modifications to Merger Guidelines

The legislation, sponsored by Senator Herb Kohl (D-Wisconsin) and Arlen Specter (R-Pennsylvania), would call on the FTC and Department of Justice to jointly review and revise all enforcement guidelines and policies to address the oil industry.

The revisions would be intended to (1) target mergers and acquisitions among the companies involved in the production, refining, distribution, or marketing of oil, gasoline, natural gas, heating oil, or other petroleum-related products and (2) ensure that application of the guidelines and policies will prevent any merger or acquisition in the oil industry that might substantially lessen competition or tend to create a monopoly.

Guidelines would have to be revised to reflect the high inelasticity of demand for oil and petroleum-related products, the ease of gaining market power, supply and refining capacity limits, difficulties of market entry, and unique regulatory requirements.

“Merger Wave”

The legislation is needed to respond to a “merger wave [that] has led to substantially less competition in the oil industry,” according to Senator Kohl, who chairs the Senate Judiciary Committee’s Antitrust, Competition Policy and Consumer Rights subcommittee.

“Led by gigantic mergers such as Exxon/Mobil, BP/Arco, Conoco/Phillips, and Chevron/Texaco, by 2004 the five largest U.S. oil refining companies controlled over 56% of the domestic refining capacity, a greater market share than controlled by the top ten companies a decade earlier,” Senator Kohl remarked.

“NOPEC” Bill

Another bi-partisan measure introduced on March 14 would permit U.S. legal action against the Organization of Petroleum Exporting Countries (OPEC).

The proposed “No Oil Producing and Exporting Cartels Act of 2007” or “NOPEC” would permit the Department of Justice to bring actions against foreign states for collusive practices in setting the price or production of petroleum products, according to Senator Kohl, sponsor of Senate Bill 879.

Nations that participate in oil cartels would not be exempt from basic antitrust laws under the sovereign immunity and act of state doctrines. Similar measures have been introduced, but have stalled, in previous legislative sessions.