FTC Should Ignore Chuck Schumer’s Shameful Attack on ‘Big Oil’

Consolidation of the US shale sector has always seemed inevitable to most analysts and seasoned industry observers. The relatively high break-even costs involved in drilling and completing 10,000-foot-deep wells with horizontal laterals spanning 2 to 3 miles place a priority on control of large leased land tracks and the ability to take advantage of economies of scale of scale

So, as time has progressed, companies have sought to buy or merge with competitors operating on land adjacent to their own to help achieve these goals. The guiding principle of the shale patch in recent years has been “bigger is better” and has been the driver of a number of mergers and acquisitions.

In early October, ExxonMobil and Pioneer Natural Resources announced the largest transaction of its kind to date, a $59.5 billion deal in shares in which ExxonMobil will absorb Pioneer, a pure Permian Basin play that is the largest producer and lessee in the Midland subbasin, which makes up the eastern part of the larger region of the Permian The two companies have long been considered a good fit for each other given the high degree of connectivity between their respective operating areas.

Senate Majority Leader Chuck Schumer and 22 Democratic senators, who operate on a political principle of their own, “never miss an opportunity to demagogue Big Oil.” sent a letter to the Federal Trade Commission recently claiming that the Exxon/Pioneer deal, along with the purchase of Hess Corp. of Chevron for $53 billion, “is likely to harm competition, risking higher consumer prices and reducing production in the United States.” This is, to quote the late, great James J. Kilpatrick, a lot of stuff and nonsense, but it’s also a parameter for congressional Democrats motivated by anti-oil and gas activism.

First, there’s the fact that even after adding Pioneer’s operations to its Permian portfolio, ExxonMobil will retain about a 15% position in a region the size of South Carolina in which hundreds of businesses of all shapes and sizes will continue to operate. The Permian Basin has long been the most competitive play area for oil and gas in the world and will continue to be once this deal is finalized.

The case against the Chevron/Hess deal is even more persuasive given that roughly 80% of the value of that deal comes from Hess’s 30% ownership of the Stabroek block development off the small southern nation’s coast -American from Guyana. Chevron isn’t even currently producing at the Bakken play, where all of the Hess shale-related assets are located. In reality, the inclusion of the Chevron/Hess settlement hurts rather than helps Schumer’s case.

The letter alleges that ExxonMobil’s acquisition of Pioneer would harm consumers by exporting much of the oil produced in the Permian overseas. But the truth is that much of the light, sweet crude produced by Pioneer is already exported because of the shortage of refining capacity for this oil grade in the US, and that US exports actually benefit the North consumer -American and help protect energy security by reducing the global price of oil and reducing dependence on OPEC.

Schumer’s letter further asserts that historic mergers in the oil industry have hurt consumers, and as a result, the proposed Exxon-Pioneer and Chevron-Hess deals will also raise gas prices. This claim is based on a GAO Report 2004 on the impacts of oil and gas mergers. Ironically, the FTC’s own review of GAO’s investigation found it to be “fundamentally flawed”.

The US oil and gas industry is dynamic and highly competitive. According to the statistics of IBISWorld, there were approximately 61,945 oil and gas drilling companies operating in the US last year. This figure has remained relatively stable over the past five years despite economic volatility that particularly affected oil and gas companies.

The Permian Basin is particularly competitive. In 2022, there were 24,617 oil and gas drilling and extraction companies operating in Texas alone, with the overwhelming majority active in the Permian.

It was perhaps inevitable that Congressional Democrats would make an effort to demonize these two major mergers, given that “Big Oil” has always been a favorite target for such rank demagoguery. But in reality, this letter is a shameful farce that should simply be ignored by FTC officials, even those appointed by the current anti-oil and gas president.

David Blackmon is a Texas-based energy writer and consultant. He spent 40 years in the oil and gas business, where he specialized in public policy and communications.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.

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