[Federal Register Volume 64, Number 233 (Monday, December 6, 1999)]
[Notices]
[Pages 68101-68110]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-31563]


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FEDERAL TRADE COMMISSION

[File No. 991 0077]


Exxon Corp., et al.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
compliant that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before January 31, 2000.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 600 Pennsylvania Ave., NW, Washington, DC 20580.


[[Page 68102]]


FOR FURTHER INFORMATION CONTACT: Richard Parker or Richard Liebeskind, 
FTC/H-374, 600 Pennsylvania Ave., NW, Washington, DC 20580. (202) 326-
2574 or 326-2441.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 2.34 of the 
Commission's rules of practice (16 CFR 2.34), notice is hereby given 
that the above-captioned consent agreement containing a consent order 
to cease and desist, having been filed with and accepted, subject to 
final approval, by the Commission, has been placed on the public record 
for a period of sixty (60) days. The following Analysis to Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for November 30, 1999), on the World Wide Web, at ``http://
www.ftc.gov/os/actions97.htm.'' A paper copy can be obtained from the 
FTC Public Reference Room, Room H-130, 600 Pennsylvania Avenue, NW, 
Washington, DC 20580, either in person or by calling (202) 326-3627.
    Public comment is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania Ave., NW, 
Washington, DC 20580. Two paper copies of each comment should be filed, 
and should be accompanied, if possible, by a 3\1/2\ inch diskette 
containing an electronic copy of the comment. Such comments or views 
will be considered by the Commission and will be available for 
inspection and copying at its principal office in accordance with 
Sec. 4.(b)(6)(ii) of the Commission's rules of practice (16 CFR 
4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'' or ``FTC'') has issued 
a complaint (``Complaint'') alleging that the proposed merger of Exxon 
Corp. (``Exxon'') and Mobil Corp. (``Mobil'') (collectively 
``Respondents'') would violate section 7 of the Clayton Act, 15 U.S.C. 
18, and section 5 of the Federal Trade Commission Act, 15 U.S.C. 45, 
and has entered into an agreement containing consent orders 
(``Agreement Containing Consent Orders'') pursuant to which Respondents 
agree to have entered and be bound by a proposed consent order 
(``Proposed Order'') and a hold separate order that requires 
Respondents to hold separate and maintain certain assets pending 
divestiture (``Order to Hold Separate''). The Proposed Order remedies 
the likely anticompetitive effects arising from Respondents' merger, as 
alleged in the Complaint. The Order to Hold Separate preserves 
competition in the markets for refining and marketing of gasoline, and 
in other markets, pending divestiture.

II. Description of the Parties and the Transaction

    Exxon, which is headquartered in Irving, Texas, is one of the 
world's largest integrated oil companies. Among its other business, 
Exxon operates petroleum refineries that make various grades of 
gasoline and lubricant base stock, among other petroleum products, and 
sells these products to intermediaries, retailers and consumers. Exxon 
owns four refineries in the United States; those four refineries can 
process approximately 1.1 million barrels of crude oil and other 
feedstocks daily.\1\ Exxon owns or leases approximately 2,049 gasoline 
stations nationally and sells gasoline to distributors or dealers that 
operate another 6,475 retail outlets throughout the United States. 
During fiscal year 1998, Exxon had worldwide revenues of approximately 
$115 billion and net income of approximately $6 billion.
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    \1\ A ``barrel'' is an oil industry measure equal to 42 gallons. 
``MBD'' means thousands of barrels per day.
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    Mobile, which is headquartered in Fairfax, Virginia, is another of 
the world's largest integrated oil companies. Among its other 
businesses, Mobile operates petroleum refineries in the United States, 
which make gasoline, lubricant base stock, and other petroleum 
products, and sells those products throughout the United States. Mobil 
operates four refineries in the United States, which can process 
approximately 800 thousand barrels of crude oil and other feedstocks 
per day. About 7,400 retail outlets sell Mobil-branded gasoline 
throughout the United States. During fiscal year 1998, Mobil had 
worldwide revenues of approximately $52 billion and net income of 
approximately $2 billion.
    On or about December 1, 1998, Exxon and Mobil entered into an 
agreement to merge the two corporations into a corporation to be known 
as Exxon Mobil Corp. This merger is one of several consolidations in 
this industry in recent years, including the combination of British 
Petroleum Co. plc and Amoco Corp. into BP Amoco plc; the pending 
combination of BP Amoco plc and Atlantic Richfield Co. (which is the 
subject of pending investigation by the Commission); the combination of 
the refining and marketing businesses of Shell Oil Co., Texaco Inc., 
and Star Enterprises; the combination of the refining and marketing 
businesses of Marathon Oil Co. and Ashland Oil Co., and the acquisition 
of the refining and marketing businesses of Unocal Corp. by Tosco Corp.

III. The Investigation and the Complaint

    The Complaint alleges that consummation of the merger would violate 
section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and section 5 
of the Federal Trade Commission Act, as amended, 15 U.S.C. 45. The 
Complaint alleges that the merger will lessen competition in each of 
the following markets: (1) The marketing of gasoline in the 
Northeastern and Mid-Atlantic United States (including the States of 
Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, 
Connecticut, and New York (collectively ``the Northeast''), and the 
States of New Jersey, Pennsylvania, Delaware, Maryland, Virginia, and 
the District of Columbia (collectively the ``Mid-Atlantic''), and 
smaller areas contained therein); (2) the marketing of gasoline in five 
metropolitan areas in the State of Texas; (3) the marketing of gasoline 
in Arizona; (4) the refining and marketing of ``CARB'' gasoline 
(specially formulated gasoline required in California) in the State of 
California; (5) the bidding for and refining of jet fuel for the U.S. 
Navy on the West Coast; (6) the terminaling of light petroleum products 
in the Boston, Massachusetts, and Washington, DC, metropolitan areas; 
(7) the terminaling of light petroleum products in the Norfolk, 
Virginia, metropolitan area; (8) the transportation of refined light 
petroleum products to the inland portions of the States of Mississippi, 
Alabama, Georgia, South Carolina, North Carolina, Virginia, and 
Tennessee (i.e., the portions more than 50 miles from ports such as 
Savannah, Charleston, Wilmington and Norfolk) (``inland Southeast''); 
(9) the transportation of crude oil from the north slope of the State 
of Alaska via the Trans Alaska Pipeline System (``TAPS''); (10) the 
importation, terminaling and marketing of gasoline and diesel fuel in 
the Territory of Guam; (11) the refining and marketing of paraffinic 
lubricant base oils in the United States and Canada; and (12) the 
worldwide manufacture and sale of jet turbine lubricants.
    To remedy the alleged anticompetitive effects of the merger, the 
Proposed Order requires Respondents to divest or otherwise surrender 
control of: (1) All of Mobil's gasoline marketing in the Mid-Atlantic

[[Page 68103]]

(New Jersey, Pennsylvania, Delaware, Maryland, Virginia, and the 
District of Columbia), and all of Exxon's gasoline marketing in the 
Northeast (Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, 
Connecticut, and New York); (2) Mobil's gasoline marketing in the 
Austin, Bryan/College Station, Dallas, Houston and San Antonio, Texas, 
metropolitan areas; (3) Exxon's option to repurchase retail gasoline 
stores from Tosco Corp. in Arizona; (4) Exxon's refinery located in 
Benicia, California (``Exxon Benicia Refinery''), and all of Exxon's 
gasoline marketing in California; (5) the terminal operations of Mobil 
in Boston and in the Washington, D.C. area, and the ability to exclude 
a terminal competitor from using Mobil's wharf in Norfolk; (6) either 
Mobil's interest in the Colonial pipeline or Exxon's interest in the 
Plantation pipeline; (7) Mobil's interest in TAPS; (8) the terminal and 
retail operations of Exxon on Guam; (9) a quality of paraffinic 
lubricant base oil equivalent to the amount of paraffinic lubricant 
base oil refined in North America that is controlled by Mobil; and (10) 
Exxon's jet turbine oil business. The terms of the divestitures and 
other provisions of the Proposed Order are discussed more fully in 
Section IV below.
    The Commission's decision to issue the Complaint and enter into the 
Agreement Containing Consent Orders was made after an extensive 
investigation in which the Commission examined competition and the 
likely effects of the merger in the markets alleged in the Complaint 
and in several other markets, including the worldwide markets for 
exploration, development and production of crude oil; markets for crude 
oil exploration and production in the United States and in parts of the 
United States; markets for natural gas in the United States; markets 
for a variety of petrochemical products; and markets for pipeline 
transportation, terminaling or marketing of gasoline or other fuels in 
sections of the country other than those alleged in the Complaint. The 
Commission has not found reason to believe that the merger would result 
in likely anticompetitive effects in markets other than the markets 
alleged in the Complaint.
    The Commission conducted the investigation leading to the Complaint 
in coordination with the Attorneys General of the States of Alaska, 
California, Connecticut, Maryland, Massachusetts, New Jersey, New York, 
Oregon, Pennsylvania, Texas, Vermont, Virginia and Washington. As a 
result of that joint effort, Respondents have entered into agreements 
with the States of Alaska, California, Delaware, Maryland, 
Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Rhode 
Island, Texas, Vermont, Virginia and Washington, and the District of 
Columbia, settling charges that the merger would violate both state and 
federal antitrust laws.
    The Complaint alleges in 12 counts that the merger would violate 
the antitrust laws in several different lines of business and sections 
of the country, each of which is discussed below. The analysis applied 
in each market generally follows the analysis set forth in the FTC and 
U.S. Department of Justice Horizontal Merger Guidelines (1997) 
(``Merger Guidelines''). The efficiency claims of the Respondents, to 
the extent they relate to the markets alleged in the Complaint, are 
small and speculative compared to the magnitude and likelihood of the 
potential harm, and would not restore the competition lost as a result 
of the merger even if the efficiencies were achieved.
A. Count I--Marketing of Gasoline in the Northeast and Mid-Atlantic
    Exxon and Mobil today are two of the largest marketers of gasoline 
from Maine to Virginia, and would be the largest marketer of gasoline 
in this region after the merger, but for the remedy specified in the 
Proposed Order. The merging companies are direct and significant 
competitors in at least 39 metropolitan areas in the Northeast and Mid-
Atlantic; \2\ in each of these areas, and in each of the States in the 
Northeast and Mid-Atlantic, the merger would result in a market that is 
at least moderately concentrated and would significantly increase 
concentration in that market.\3\ Nineteen of these 39 metropolitan 
areas would be highly concentrated as a result of this merger.\4\ On 
average, the four top firms in each metropolitan area would have 73% of 
sales; the top four firms in the Northeast and Mid-Atlantic as a whole 
(Exxon Mobil, Motiva,\5\ BP Amoco, and Sunoco) would on average have 
66% of each of these metropolitan areas.
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    \2\ Hartford, New Haven-Bridgeport-Stamford-Waterbury-Danbury, 
New London-Norwich, CT; Dover, Wilmington-Newark, DE; Washington, 
DC; Bangor, Lewiston-Auburn, Portland, ME; Baltimore, MD; 
Barnstable-Yarmouth, Boston-Worcester-Lawrence-Lowell-Brockton, MA; 
Atlantic-Cape May, Bergen-Passaic, Jersey City, Middlesex-Somerset-
Hunterdon, Monmouth-Ocean, Newark, Trenton, Vineland-Millville-
Bridgeton, NJ; Albany-Schenectady-Troy, Duchess, Nassau-Suffolk, New 
York, Newburgh, NY; Allentown-Bethlehem-Easton, Altoona, Harrisburg-
Lebanon-Carlisle, Johnstown, Lancaster, Philadelphia, Reading, 
Scranton-Wilkes Barre-Hazelton, State College, York, PA; Providence-
Warwick-Pawtucket, RI; Norfolk-Virginia Beach-Newport News, 
Richmond-Petersburg, VA; Burlington, VT. These areas are defined, 
variously, as ``Metropolitan Statistical Areas'' (``MSAs''), 
``Primary Metropolitan Statistical Areas'' (``PMSAs''), and ``New 
England County Metropolitan Areas'' (``NECMAs'') by the Census 
Bureau.
    \3\ The Commission measures market concentration using the 
Herfindahl-Hirschman Index (``HHI''), which is calculated as the sum 
of the squares of the shares of all firms in the market. Merger 
Guidelines Sec. 1.5. Markets with HHIs between 1000 and 1800 are 
deemed ``moderately concentrated,'' and markets with HHIs exceeding 
1800 are deemed ``highly concentrated.'' Where the HHI resulting 
from a merger exceeds 1000 and the merger increases the HHI by at 
least 100, the merger ``potentially raise[s] significant competitive 
concerns depending on the factors set forth in Sections 2-5 of the 
Guidelines.'' Merger Guidelines Sec. 1.51.
    \4\ Hartford, New London-Norwich, CT; Dover, Wilmington-Newark, 
DE; Washington, DC; Bangor, Portland, ME; Barnstable-Yarmouth, MA; 
Bergen-Passaic, Jersey City, Monmouth-Ocean, Trenton, NJ; Albany-
Schenectady-Troy, Newburgh, NY; Allentown-Bethlehem-Easton, Altoona, 
Johnstown, State College, PA; Burlington, VT. In each of these MSAs, 
the increase in concentration exceeds 100 HHI points. ``Where the 
post-merger HHI exceeds 1800, it will be presumed that mergers 
producing an increase in the HHI of more than 100 points are likely 
to create or enhance market power or facilitate its exercise. The 
presumption may be overcome by a showing that factors set forth in 
Sections 2-5 of the Guidelines make it unlikely that the merger will 
create or enhance market power or facilitate its exercise, in light 
of market concentration and market shares.'' Merger Guidelines 
Sec. 1.51.
    \5\ Motiva LLC is the refining and marketing joint venture 
between Shell Oil Co., Texaco Inc. and Saudi Aramco, and sells 
gasoline under the ``Shell'' and ``Texaco'' names in the Eastern 
United States. Equilon LLC, a refining and marketing joint venture 
between Shell and Texaco, sells gasoline under the ``Shell'' and 
``Texaco'' names in the Western United States.
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    The Complaint alleges that the marketing of gasoline is a relevant 
product market, and that metropolitan areas and areas contained within 
them are relevant geographic markets. The Commission used metropolitan 
statistical areas (``MSAs'') as a reasonable approximation of 
geographic markets for gasoline marketing in Shell Oil Co., C-3803 
(1998), and British Petroleum Co., C-3868 (1999). As described below, 
the evidence in this investigation suggests that pricing and consumer 
search patterns may indicate smaller geographic markets than MSAs as 
defined by the Census Bureau. To that extent, using MSAs or counties to 
define geographic markets likely understates the relevant levels of 
concentration.\6\
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    \6\ Exxon and Mobil compete in at least 134 counties in 39 MSAs 
in the Northeast and Mid-Atlantic; 61 of those counties are highly 
concentrated with significant increases in concentration; 56 are 
moderately concentrated with significant increases in concentration; 
and in only five counties (if defined as geographic markets) would 
the merger not result in increases in concentration exceeding 
Guidelines thresholds. See FTC v. PPG Industries, Inc., 798 f.2d 
1500, 1505 (D.C. Cir. 1986) (use of data in broader market to 
calculate market concentration is acceptable where market of concern 
would be more concentrated).
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    The Commission has found reason to believe that the merger would

[[Page 68104]]

significantly reduce competition in the moderately and highly 
concentrated markets that would result from this merger. A general 
understanding of the channels of trade in gasoline marketing is 
necessary to understand the Commission's analysis of the competitive 
issues and of the Proposed Order. Gasoline is sold to the general 
public through retail gas stations of four types: (1) Company-operated 
stores, where the branded oil company owns the site and operates it 
using its own employees; (2) lessee dealer stores, where the branded 
company owns the site but leases it to a franchised dealer; (3) open 
dealers, who own their own stations but purchase gasoline at a DTW 
price from the branded company; and (4) ``jobber'' or distributor 
stores, which are supplied by a distributor.
    Branded oil companies set the retail prices of gasoline at the 
stores they operate, and sometimes set those prices on a station-by-
station basis. Lessee dealers and open dealers generally purchase from 
the branded company at a delivered price (``dealer tank wagon'' or 
``DTW'') that the branded supplier likewise might set on a station-by-
station basis. In Northeast and Mid-Atlantic, DTW prices charged by 
Exxon, Mobil and their major competitors are typically set using 
``price zones'' established by the supplier. Price zones, and the 
prices used within them, take account of the competitive conditions 
faced by particular stations or groups of stations. There might be 10 
or more price zones established by an individual oil company in a 
metropolitan area.
    Distributors or jobbers typically purchase branded gasoline from 
the branded company at a terminal (paying a terminal ``rack'' price), 
and deliver the gasoline themselves to jobber-supplied stations at 
prices or transfer prices set by the distributor.\7\
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    \7\ The Commission has found evidence in its investigations in 
this industry indicating that some branded companies have 
experimented with rebates and discounts to jobbers based on the 
location of particular stations, thereby replicating the effect of 
price zone in the jobber class of trade.
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    In much of the Northeast and Mid-Atlantic, Exxon, Mobil and their 
principal competitors (Motiva, BP Amoco, and Sunoco) use delivered 
pricing and price zones to set DTW prices based on the level of 
competition in the immediately surrounding area. These DTW prices 
generally are unrelated to the cost of hauling fuel from the terminal 
to the retail store. Gasoline is a homogeneous product, and retail 
prices are observable (wholesale prices and retail sales volumes are 
also frequently known to firms in the industry). By monitoring the 
retail prices (and volumes) of their competitors in the immediate area, 
branded companies can and do adjust their DTW prices in order to take 
advantage of higher prices in some neighborhoods, without having to 
raise price throughout a metropolitan area as a whole.
    The use of price zones in the manner described above indicates that 
these competitors set their prices on the basis of their competitors' 
prices, rather than on the basis of their own costs. This is an earmark 
of oligopolistic market behavior. Thus, Exxon, Mobil and their 
principal competitors have some ability to raise their prices 
profitably, and have a greater ability to do so when they face fewer 
and less price-competitive firms in highly local markets. The effects 
of oligopolistic market structures (where firms base their pricing 
decisions on their rivals' prices, and recognize that their prices 
affect their sales volume) have been recognized in this industry. See 
Petroleum Products Antitrust Litigation, 906 F.2d 432, 443, 444 (9th 
Cir. 1990) (examining California gasoline market from 1968 to 1973), 
cert. denied sub nom. Chevron Corp. v. Arizona, 500 U.S. 959 (1991):

    * * * (A)s the number of firms in a market declines, the 
possibilities for interdependent pricing increase substantially. In 
determining whether to follow a unilateral price increase by a 
competitor, a firm in a relatively concentrated market will 
recognize that, because its pricing and output decisions have an 
effect on market conditions and will generally be watched by its 
competitors, there is less likelihood that any shading would go 
undetected or be ignored. * * * On the other hand, the firm may 
recognize that the higher price (charged by its competitor) is one 
that would produce higher profits. It may therefore decide to follow 
the price increase, knowing that the other firms will likely see 
things the same way * * *

    We recognize that such interdependent pricing may often produce 
economic consequences that are comparable to those of classic cartels.
    Exxon and Mobil are each other's principal competitors in many of 
these markets, and the elimination of Mobil as an independent 
competitor is likely to result in higher prices.\8\
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    \8\ In finding reason to believe that this merger likely would 
reduce competition, the Commission has not, in the context of this 
investigation, concluded that these practices of themselves violate 
the antitrust laws or constitute unfair methods of competition 
within the meaning of section 5 of the FTC Act. Rather, evidence of 
market behavior provides the Commission with reason to believe that 
these moderately and highly concentrated markets are not fully 
competitive even prior to the merger, and therefore that the merger 
likely would reduce competition in these markets whether or not the 
post-merger was highly concentrated.
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    Market incumbents also use price zones to target entrants without 
having to lower price throughout a broader marketing area. With a large 
and dispersed network of stores, an incumbent can target an entrant by 
cutting price at a particular store, without cutting prices throughout 
a metropolitan area. By targeting price-cutting competitors, incumbents 
can (and have) deterred entrants from making significant investments in 
gasoline stations (which are specialized, sunk cost facilities) and 
thus from expanding to a scale at which the entrant could affect price 
throughout the broader metropolitan area.
    While branded distributors historically have moderated the effects 
of zone pricing through arbitrage, distributors' ability to do so is 
increasingly limited to the Northeast and Mid-Atlantic by major branded 
companies' efforts to limit their distribution to direct channels, 
especially in major metropolitan areas. The merger would reduce 
interbrand competition through the elimination of one independent 
supplier; the Commission evaluated the effect of that reduction in 
interbrand competition in the context of the contemporaneous reduction 
in intrabrand competition that it found in these markets.
    Entry appears likely to constrain noncompetitive behavior in the 
Northeast and Mid-Atlantic. New gas stations sites are difficult to 
obtain in the Northeast and Mid-Atlantic, and the evidence in this 
investigation suggests that entry through the construction of new 
stations is unlikely to occur in a manner sufficient to constrain price 
increases by incumbents. As in British Petroleum Co., C-3868, the 
Commission has not seen substantial evidence that jobbers or open 
dealers are likely to switch to new entrants in the event of a small 
price increase. Therefore, the Commission has found it unlikely that a 
new entrant might enter a market by converting such stations in a 
manner that would meaningfully constrain the behavior of incumbents.
    The merger is likely to reduce competition in Northeastern and Mid-
Atlantic gasoline markets and could result in a price increase of 1% or 
more. A 1% price increase on gasoline sold in the Northeast and Mid-
Atlantic (and in the Texas and Arizona markets discussed below) would 
cost consumers approximately $240 million annually. As described below, 
the Proposed Order seeks to preserve competition by requiring 
Respondents to divest all branded stations of Exxon or Mobil throughout 
the Northeast and Mid-Atlantic: (1) All Exxon branded gas

[[Page 68105]]

stations (company operated, lessee dealer, open dealer and jobber) in 
Maine, New Hampshire, Vermont, Rhode Island, Connecticut, and New York, 
and (2) all Mobil branded stations in New Jersey, Pennsylvania, 
Delaware, Maryland, Virginia and the District of Columbia.
B. Count II--Marketing of Gasoline in Metropolitan Areas in Texas
    Exxon and Mobil compete in the marketing of gasoline in several 
metropolitan areas in Texas, and in five of those metropolitan areas 
(Austin, Bryan/College Station, Dallas, Houston and San Antonio) the 
merger would result in a moderately or highly concentrated market. The 
evidence collected in the investigation indicates that market 
conditions in these Texas markets resemble those found in the Northeast 
and Mid-Atlantic, particularly in the use of delivered pricing and zone 
pricing to coordinate prices and deter entry. The Proposed Order 
therefore required Respondents to divest and assign Mobil's gasoline 
marketing business in these areas, as described below.
C. Count III--Marketing of Gasoline in Arizona
    Mobile markets motor gasoline in Arizona. Exxon gasoline is 
marketed in Arizona by Tosco Corporation, which acquired Exxon's 
Arizona marketing assets and the businesses and the right to sell Exxon 
branded gasoline in 1994. Gasoline marketing in Arizona is moderately 
concentrated.
    Pursuant to the agreement under which Exxon sold its Arizona assets 
to Tosco, Exxon retains the option of repurchasing the retail gasoline 
stores sold to Tosco in the event Tosco were to convert the stations 
from the ``Exxon'' brand to another brand (including another brand 
owned by Tosco). The merger creates the risk that competition between 
the merged company and Tosco (selling Exxon branded gasoline) could be 
reduced by restricting Tosco's incentive and ability to compete against 
Mobil by converting the stores to a brand owned by Tosco. The Proposed 
Order terminates Exxon's option to repurchase these stations.
D. Count IV--Refining and Marketing of CARB Gasoline
    Exxon and Mobil both refine motor gasoline for use in California, 
which requires that motor gasoline used in that State meet particularly 
stringent pollution specifications mandated by the California Air 
Resources Board (``CARB,'' hence ``CARB gasoline''). More than 95% of 
the CARB gasoline sold in California is refined by seven firms 
(Chevron, Tosco, Equilon, ARCO, Exxon, Mobil and Ultramar Diamond 
Shamrock), all of which operate refineries in California. Those seven 
firms also control more than 90% of retail sales of gasoline in 
California through gas stations under their brands.
    The Complaint alleges that the refining and marketing of CARB 
gasoline is a product market and line of commerce. Motorists of 
gasoline-fueled automobiles are unlikely to switch to other fuels in 
response to a small but significant and nontransitory increase in the 
price of CARB gasoline, and only CARB gasoline may be sold for use in 
California. As described below, the refining and marketing of gasoline 
in California is tightly integrated; refiners that lack marketing in 
California, and marketers that lack refineries on the West Coast, do 
not effectively constrain the price and output decisions of incumbent 
refiner-marketers.
    California is a section of the country and geographic market for 
CARB gasoline refining and marketing because the refiner-marketers in 
California can profitably raise prices by a small but significant and 
nontransitory amount without losing significant sales to other 
refiners. The next closest refineries, located in the U.S. Virgin 
Islands and in Texas and Louisiana, do not supply CARB gasoline to 
California except during supply disruptions at California refineries, 
and are unlikely to supply CARB gasoline to California in response to a 
small but significant and nontransitory increase in price because of 
the price volatility risks associated with opportunistic shipments and 
the small number of independent retail outlets that might purchase from 
an out-of-market firm attempting to take advantage of a price increase 
by incumbent refiner-marketers.
    To a much greater extent than in many other parts of the country, 
the seven refiner-marketers in California own their stations, and 
operate through company-operated stations, lessee dealers and open 
dealers, rather than through distributors.\9\ The marketing practices 
described in the Northeast and Mid-Atlantic, see Section III.A above, 
are employed in California and are reinforced by the refiner-marketers' 
more complete control of the marketing channel. One effect of the close 
integration between refining and marketing in California in that 
refiners outside the West Coast cannot easily find outlets for imported 
cargoes of CARB gasoline, since nearly all the outlets are controlled 
by incumbent refiner-marketers. Likewise, the extensive integration of 
refining and marketing makes it more difficult for the few non-
integrated marketers to turn to imports as a source of supply, since 
individual independents lack the scale to import cargoes economically 
and thus must rely on California refiners for their usual supply. The 
Commission's investigation indicated that vertical integration and the 
resulting lack of independent import customers, rather than the cost of 
imports, is the principal barrier to supply from outside the West 
Coast.
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    \9\ Exxon is unique among these firms in operating primarily 
through jobbers in California. Exxon also differs from its 
competitors in that a substantial portion of its refinery output is 
not sold under the Exxon name, but is sold to non-integrated 
marketers and through other channels.
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    As measured by refinery capacity, the merger will increase the HHI 
for CARB gasoline refining capacity on the West Coast by 171 points to 
1699, at the high end of the ``moderately concentrated'' range of the 
Merger Guidelines. The Guidelines' ``numerical divisions [of HHI 
ranges] suggest greater precision than is possible with the available 
economic tools and information. Other things being equal, cases falling 
just above and just below a threshold present comparable competitive 
issues.'' Id. Sec. 1.5.
    CARB gasoline is a homogeneous product, and (as in the Northeast 
and Mid-Atlantic) wholesale and retail prices are publicly available 
and widely reported to the industry. Integrated refiner-marketers 
carefully monitor the prices charged by their competitors' retail 
outlets, and therefore readily can identify firms that deviate from a 
coordinated or collusive price.
    Entry by a refiner or marketer is unlikely to be timely, likely, 
and sufficient to defeat an anticompetitive price increase because new 
refining capacity requires substantial sunk costs. Retail entry is 
likewise difficult and costly, particularly at a scale that would 
support supply from an out-of-market refinery.
    The merger could raise the costs of CARB gasoline substantially, a 
1% price increase would cost California consumers more than $100 
million annually. To remedy the harm, the Proposed Order requires the 
Respondents to divest Exxon's Benecia refinery, which refines CARB 
gasoline, and Exxon's marketing in California, as described more fully 
below. This divestiture will eliminate the refining overlap in the West 
Coast market otherwise presented by the merger.

[[Page 68106]]

E. Count V--Navy Jet Fuel on the West Coast
    The U.S. Navy requires a specific formulation of jet fuel that 
differs from commercial jet fuel and jet fuel used in other military 
applications. Three refiners, including Exxon and Mobil, have bid to 
supply the Navy on the West Coast in recent years. The merger will 
eliminate one of these forms as an independent bidder, raising the 
likelihood that the incumbents could raise prices by at least a small 
amount, since other bidders are unlikely to enter the market. The 
divestiture of Exxon's Benecia refinery, described below, resolves this 
concern.
F. Count VI--Terminaling of Light Petroleum Products in Metropolitan 
Boston and Washington
    Petroleum terminals are facilities that provide temporary storage 
of gasoline and other petroleum products received from a pipeline or 
marine vessel, and then redelivers these products from the terminal's 
storage tanks into trucks or transport trailers for ultimate delivery 
to retail gasoline stations or other buyers. Terminals provide an 
important link in the distribution chain for gasoline between 
refineries and retail service stations. There are no substitutes for 
petroleum terminals for providing terminaling services.
    Count VI of the Complaint identifies two metropolitan areas that 
are relevant sections of the country (i.e., geographic markets) in 
which to analyze the effects of the merger on terminaling: Metropolitan 
Boston, Massachusetts and Washington, DC. Exxon and Mobil both operate 
terminals that supply both of these metropolitan areas with gasoline 
and other light petroleum products.
    The Complaint charges that the terminaling of gasoline and other 
light petroleum products in each of these metropolitan areas is highly 
concentrated, and would become significantly more concentrated as a 
result of the merger. Entry into the terminaling of gasoline and other 
light petroleum products in each of these metropolitan areas is 
difficult and would not be timely, likely, or sufficient to prevent 
anticompetitive effects that may result from the merger.\10\ Paragraphs 
VII and VIII of the Proposed Order therefore require Respondents to 
divest Mobil's Boston and Manassas, Virginia, terminals.
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    \10\ The Commission has found reason to believe that terminal 
mergers would be anticompetitive on prior occasions. E.g., British 
Petroleum Co., C-3868; Shell Oil Co.; Texaco Inc., 104 F.T.C. 241 
(1984); Chevron Corp., 104 F.T.C. 597 (1984).
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G. Count VII--Terminaling of Gasoline in Norfolk, Virginia
    The Complaint charges that terminaling of gasoline and other light 
petroleum products is highly concentrated in the Norfolk, Virginia 
area. Exxon currently terminals gasoline in Norfolk, although Mobil 
does not. Mobil does terminal other light petroleum products there, and 
another terminaling firm, TransMontaigne, on occasion uses Mobil's 
wharf to receive gasoline shipments. Since TransMontaigne terminals 
gasoline in competition with Exxon, the merger would create or enhance 
Mobil's incentive to deny TransMontaigne access to Mobile's dock or 
increase the cost of such access, thereby limiting TransMontaigne's 
ability to compete against Exxon in the terminaling of gasoline. The 
Proposed Order remedies this effect of the merger.
H. Count VIII--Transportation of Refined Light Petroleum Products to 
the Inland Southeast
    The inland Southeast receives essentially all of its refined light 
petroleum products (including gasoline, diesel fuel and jet fuel) from 
either the Colonial pipeline or the Plantation pipeline. These two 
pipelines largely run parallel to each other from Louisiana to 
Washington, DC, and directly compete to provide petroleum product 
transportation services to the inland Southeast. Mobil owns 
approximately 11 percent of Colonial and has representation on the 
Colonial Board of Directors. Exxon owns approximately 49 percent of 
Plantation, is one of Plantation's two shareholders, and has 
representation on Plantation's Board.
    The proposed transaction would put the merged entity in a position 
to participate in the governance of both pipelines, and to receive 
confidential competitive information of each pipeline. Through its 
position as one of Plantation's two shareholders, Respondents could 
prevent Plantation from taking actions to compete with Colonial. As a 
result, the merger is likely substantially to lessen competition, 
including price and service competition, between the two pipelines. The 
Commission has twice previously recognized that control of overlapping 
interests in these two pipelines might substantially reduce competition 
in the market for transportation of light petroleum products to this 
section of the country. Shell Oil Co., C-3803; Chevron Corp., 104 
F.T.C. 597, 601, 603. To prevent competitive harm from the merger, 
Section IX of the Proposed Order requires Respondents to divest to a 
third party or parties the Exxon or Mobil pipeline interest.
I. Count IX--Transportation of Alaska North Slope Crude Oil
    Exxon and Mobil are two of the seven owners of the Trans Alaska 
Pipeline System (``TAPS''), which is the only means of transporting 
crude oil from the Alaska North Slope (``ANS'') to port in Valdez, 
Alaska. ANS crude is shipped primarily (but not exclusively) to 
refineries in California and Washington State. A relatively small 
amount of ANS crude is used within Alaska, and some ANS is sold to 
refineries in Asia. Exxon owns 20% of TAPS, while Mobil owns 3%. The 
owners of TAPS are entitled to capacity on the pipeline (which they can 
resell) in proportion to their ownership interests. Some TAPS owners--
Mobil, in particular--have discounted their tariffs in an effort to 
attract additional shippers.
    Exxon and Mobil both have available capacity on TAPS, i.e., 
capacity not needed to carry their own production. Based on available 
capacity, the merger would increase the HHI by 268, to 5103. The merger 
would eliminate Mobil, a significant discounter on TAPS, as an 
independent firm, and reduce Exxon's incentives to discount TAPS 
tariffs. Entry is unlikely to defeat this price increase, since a 
second crude oil pipeline is highly unlikely to be built. In the 
absence of the Proposed Order, the merger could raise costs to 
purchasers of ANS crude oil by $3.5 million annually. The Proposed 
Order eliminates this risk by requiring the Respondents to divest 
Mobil's interest in TAPS.
J. Count X--Terminaling and Marketing of Gasoline and other Light 
Petroleum Products in Guam
    Gasoline and diesel fuel are supplied into Guam, primarily from 
Singapore, into terminals on Guam owned by Mobil, Exxon and Shell, who 
are the principal marketers of gasoline on Guam. Terminal capacity is 
essential to light petroleum products marketing on Guam. Consumers of 
gasoline have no alternative but to buy gasoline on Guam. Accordingly, 
the relevant market to analyze the transaction is the importation, 
terminaling and marketing of gasoline on Guam. Mobil and Exxon are the 
two largest marketers on Guam. The market is highly concentrated. The 
merger will raise the HHI by more than 2800 points to 7400, measured by 
station count; Exxon Mobil would have 36 of Guam's 43 stations, or 84% 
of stations.

[[Page 68107]]

    The market is subject to coordination. There are three companies, 
and the merger would reduce their number to two. The product is 
homogeneous, and prices are readily observed. New entry is unlikely to 
defeat an anticompetitive price increase. An entrant would require 
sufficient terminal capacity and enough retail outlets to be able to 
buy gasoline at the tanker-load level, or 350,000 barrels. Terminal 
capacity of this scale is unavailable in Guam. In 1988 a firm attempted 
to enter Guam relying on publicly available terminaling; it exited 
within seven years, and sold its four stations to Mobil.
    Section III of the Proposed Order restores competition by requiring 
Respondents to divest Exxon's terminal and retail assets on Guam.
L. Count XI--Paraffinic Base Oil in the United States and Canada
    Paraffinic base oil is a refined petroleum product that forms the 
foundation of most of the world's finished lubricants. Base oil is 
mixed with chemical additives and forms finished lubricants, such as 
motor oil and automatic transmission fluid. Most base oil is used to 
make products that lubricate engines, but base oil can be mixed with 
additives to create a large variety of finished products like newspaper 
ink or hydraulic fluid.\11\
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    \11\ Other types of base oil, including naphthenic and synthetic 
base oils, are not substitutes for paraffinic base oil because the 
users of paraffinic base oil would not switch to other base oils in 
the event of a small but significant, nontransitory increase in 
price for paraffinic base oils.
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    Currently Exxon produces 45.9 MBD of paraffinic base oil in North 
America. Mobil controls 23.8 MBD of base oil production. A combined 
Exxon-Mobil would control 35 percent of the base oil produced in North 
America. As the largest base oil producer in the United States and 
Canada, Exxon already dominates the base oil market. With the addition 
of Mobil's sizeable capacity, Exxon would have even greater control 
over base oil pricing.
    Exxon is the price leader in base oil in the United States and 
Canada. Other base oil producers do not expand production to take 
advantage of Exxon price increases. Imports do not increase when United 
States prices increase because transportation costs are too great. 
Entry into the base oil market requires large capital investments and 
would be unlikely to have any effect within the next two years.
    The Proposed Order remedies the likely effects of the likely merger 
by requiring Respondents to surrender control of a quantity of base oil 
production equivalent to Mobil's production in the United States.
M. Count XII--Jet Turbine Oil
    Jet turbine oil (also known as ester-based turbine oil) is used to 
lubricate the internal parts of jet engines used to power aircraft. 
Exxon and Mobil dominate the sales of jet turbine oil, with 
approximately equal shares that, combined, account for 75% of the 
worldwide market (defined broadly), and approach 90% of worldwide sales 
to commercial airlines.
    Entry into the development, production and sale of jet turbine oil 
is not likely to occur on a timely basis, in light of the time required 
to develop a jet turbine oil and to obtain the necessary approvals and 
qualifications from the appropriate military and civilian 
organizations. The merger would eliminate the direct competition 
between Exxon and Mobil, and create a virtual monopoly in sales to 
commercial airlines. The Proposed Order remedies the effect of the 
merger by requiring Respondents to divest Exxon's jet turbine oil 
business.

IV. Resolution of the Competitive Concerns

    On November 30, 1999, the Commission provisionally entered into the 
Agreement Containing Consent Orders with Exxon and Mobil in settlement 
of a Complaint. The Agreement Containing Consent Orders contemplates 
that the Commission would issue the Complaint and enter the Proposed 
Order and the Order to Hold Separate.
A. General Terms
    Each divestiture or other disposition required by the Proposed 
Order must be made to an acquirer that receives the prior approval of 
the Commission and in a manner approved by the Commission, and must be 
completed within nine months of executing the Agreement Containing 
Consent Orders (except that the divestiture of the Benicia Refinery and 
Exxon marketing in California must be completed within twelve months of 
executing the Agreement Containing Consent Orders).
    Respondents are required to provide the Commission with a report of 
compliance with the Proposed Order every sixty (60) days until the 
divestitures are completed, and annually for a period of 20 years.
    In the event Respondents fail to complete the required divestitures 
and other obligations in a timely manner, the Proposed Order authorizes 
the Commission to appoint a trustee or trustees to negotiate the 
divestiture of either the divestiture assets or of ``crown jewels,'' 
alternative asset packages that are broader than the divestiture 
assets. The crown jewel for the Exxon Northeastern Marketing Assets is 
Mobil's marketing in the same area; for the Mobil Mid-Atlantic 
Marketing Assets, Exxon's marketing in the same area; \12\ for the 
Exxon California Refining and Marketing Assets, the Mobil California 
Refining and Marketing Assets; for the Mobil Texas Marketing Assets, 
the Exxon Texas Marketing Assets; for Mobil's interest in TAPS, Exxon's 
interest in TAPS; for the paraffinic base oil to be sold, Mobil's 
Beaumont Refinery; and for Exxon's Jet Turbine Oil Business, Mobil's 
Jet Turbine Oil Business. In each case, the crown jewel is a 
significantly larger asset package than the divestiture assets.
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    \12\ The ``crown jewel'' divestiture would include the exclusive 
right to use the Exxon or Mobil name (as the case may be) in the 
pertinent States for at least 20 years. If Respondents fail to 
divest both the Exxon Northeast Marketing Assets and the Mobil Mid-
Atlantic Marketing Assets, the Commission may direct the trustee to 
divest all of Exxon's marketing from Maine to Virginia.
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    Respondents have also agreed to the entry of an Order to Hold 
Separate and Maintain Assets, and the Commission has entered that 
Order. Under the terms of that Order, until the divestitures of the 
Benicia Refinery, marketing assets, base oil production and jet turbine 
oil business have been completed, Respondents must maintain Mobil's 
Northeastern, Mid-Atlantic and Texas fuels marketing businesses, 
Mobil's California refining and marketing businesses, and Exxon's ester 
based turbine oil business as separate, competitively viable 
businesses, and not combine them with the operations of the merged 
company. Under the terms of the Proposed Order, Respondents must also 
maintain the assets to be divested in a manner that will preserve their 
viability, competitiveness and marketability, and must not cause their 
wasting or deterioration, and cannot sell, transfer, or otherwise 
impair the marketability or viability of the assets to be divested. The 
Proposed Order and the Hold Separate Order specify these obligations in 
greater detail.
    To avoid conflicts between the Proposed Order and the State consent 
decrees, the Commission has agreed to extend the time for divesting 
particular assets if all of the following conditions are satisfied: (1) 
Respondents have fully complied with the Proposed Order; (2) 
Respondents submit a complete application in support of the divestiture 
of the assets and businesses to be divested; (3) the Commission has in 
fact approved a divestiture; but (4)

[[Page 68108]]

Respondents have certified to the Commission within ten days after the 
Commission's approval of a divestiture that a State has not approved 
that divestiture. If these conditions are satisfied, the Commission 
will not appoint a trustee or impose penalties for an additional sixty 
days, in order to allow Respondents either to satisfy the State's 
concerns or to produce an acquirer acceptable to the Commission and the 
State.\13\ If at the end of that additional period, the State remains 
unsatisfied, the Commission may appoint a trustee and seek penalties 
for noncompliance.
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    \13\ The consent decree between Respondents and the States of 
Connecticut, Maryland, Massachusetts, New Jersey, New York, 
Pennsylvania, Vermont and Virginia provides that a State that 
objects to a proposed acquirer must petition the court before which 
the decree is pending to rule on the suitability of the proposed 
acquirer. In the event such a motion is made, Respondents' time to 
divest under the Proposed Order is tolled until the matter is 
resolved.
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B. Gasoline Marketing in the Northeast and Mid-Atlantic
    Sections IV and V of the Proposed Order are intended to preserve 
competition in gasoline marketing in the Northeast and Mid-Atlantic by 
requiring Respondents to divest to an acquirer approved by the 
Commission all retail gasoline stations owned by Exxon (or leased by 
Exxon from another person) in Maine, Massachusetts, New Hampshire, 
Vermont, Rhode Island, Connecticut, and New York (Proposed Order para. 
IV.A), and to assign to the acquirer of those stations all dealer 
leases and franchise agreements and all supply contracts with branded 
jobbers (para. IV.B). The Proposed Order defines ``Existing Lessee 
Agreements'' and ``Existing Supply Agreements'' broadly, to include the 
totality of the relationship between Respondents and the dealers and 
distributors to be assigned.\14\ Respondents will divest and assign 
similar interests in all Mobil stations in New Jersey, Pennsylvania, 
Delaware, Maryland, Virginia and the District of Columbia (Paras. V.A-
B). The assignment of dealer leases and franchise agreements is 
intended not to effect a material change in the rights and obligations 
of the parties to those leases and franchise agreements. Exxon and 
Mobil will divest approximately 676 owned or leased stores and assign 
supply agreements for 1,064 additional stores in the Northeast and Mid-
Atlantic.
---------------------------------------------------------------------------

    \14\ The assigned relationship does not include business format 
franchises for the sale of ancillary products (e.g., restaurant 
franchises) other than gasoline and diesel fuel.
---------------------------------------------------------------------------

    To effectuate the divestiture of stations and assignment of 
franchise agreements, Respondents shall enter into an agreement with 
the acquirer under which Respondents shall allow the acquirer to use 
the Exxon or Mobil name, as the case may be, for up to 10 years (with 
the possibility of further use of the name by mutual agreement 
thereafter) (Paras.  IV.C, V.C.). Pursuant to that agreement, the 
acquirer will have the exclusive right to use the Exxon or Mobil name, 
as the case may be, in connection with the sale of branded gasoline and 
diesel fuel in these states, and will have the right to accept Exxon or 
Mobil credit cards and to sell other Exxon or Mobil branded products 
(e.g., motor oil) at gas stations in these states. The acquirer will 
have the right to expand the Exxon or Mobil network in these states, as 
the case may be, by opening new stores or converting stores to the 
Exxon or Mobil branch (Paras.  IV.C, IV.F, V.C, V.F).
    It is the Commission's contemplation that the acquirers will seek 
to transition the existing Exxon and Mobil networks to their own 
brands.\15\ The Proposed Order requires the respective Exxon and Mobil 
packages to be divested to a single acquirer (although both packages 
may be divested to the same acquirer). The divestiture and assignment 
of large packages of retail gasoline stations should allow the acquirer 
the ability to efficiently advertise a brand, develop credit card and 
other marketing programs, persuade distributors to market the 
acquirer's brand, and otherwise compete in the sale of branded 
gasoline.
---------------------------------------------------------------------------

    \15\ For that reason, the agreement entered into between 
Respondents and the acquirer(s) may provide for an increasing fee 
for the use of the name after five years. The terms of that 
agreement will be subject to Commission approval.
---------------------------------------------------------------------------

    The acquirer will nonetheless be allowed to continue to offer the 
Exxon or Mobil name, as the case may be, to dealers and jobbers in 
order to allow the acquirer to preserve the network to the greatest 
extent feasible and to comply with the requirements of the Petroleum 
Marketing Practices Act, 15 U.S.C. 2801 et seq. (``PMPA''). Thus, the 
acquirer will be able to continue to offer Exxon or Mobil branded fuel, 
as the case may be, to dealers and jobbers that are today selling Exxon 
or Mobil branded fuel and displaying those brands. Over time, the 
acquirer in its business judgment may choose to convert the business it 
acquires to its own brand name, subject to the requirements of law or 
with the consent of the dealers and jobbers in question.
    To effectuate the divestiture and allow the acquirers an 
opportunity to convert dealers and jobbers to a new brand, the Proposed 
Order prohibits Respondents from using the pertinent brand in the sale 
of gasoline for at least five (5) and as much as twelve (12) years from 
the date of divestiture in the region in question (i.e., Respondents 
will not be able to sell gasoline under the Exxon name in New York or 
New England, where they are divesting and assigning Exxon stations, 
dealers and jobbers). In addition, Respondents will be prohibited from 
offering to sell branded fuels for resale at divested or assigned sites 
for a period of seven (7) years (Paras.  IV.G, V.G).
    Respondents' obligations to preserve the assets to be divested and 
assigned include the obligation to maintain the relationships with 
dealers and jobbers pending divestiture or assignment. Respondents have 
agreed to meet this obligation by, among other things, establishing a 
fund of $30 million to be paid to distributors who accept assignment of 
their supply agreements to the acquirer. The terms of that incentive 
program are set forth in Appendix A to the Proposed Order.
C. Marketing of Gasoline in Texas
    To remedy the reduction in competition in the five metropolitan 
areas in Texas alleged in Count II of the Complaint, Paragraph VI of 
the Proposed Order requires Respondents to divest and assign Mobil's 
marketing businesses in those five metropolitan areas. Mobil's 
marketing assets in those metropolitan areas include interests of Mobil 
in partnerships with TETCO Inc. and Southland Corp. The Proposed Order 
requires that Respondents divest Mobil's interest in its partnership 
with TETCO to TETCO or to another acquirer approved by the Commission, 
in either event only in a manner approved by the Commission. The 
Proposed Order also requires Respondents to assign their Existing 
Supply Agreements to Assignees approved by the Commission, on the same 
terms as discussed with regard to Northeastern and Mid-Atlantic 
marketing, Part IV.B above. Respondents will divest approximately 10 
owned or leased Mobil stores and assign supply agreement for Mobil's 
distributor-supplies stores in Texas.
D. Marketing of Gasoline in Arizona
    To remedy the reduction in competition in the marketing of gasoline 
in Arizona alleged in Count III of the Complaint, Paragraph XI of the 
Proposed Order requires Exxon to surrender its right to reacquire 
stores sold to Tosco.

[[Page 68109]]

E. Refining and Marketing of CARB Gasoline for California and Navy Jet 
Fuel for the West Coast
    To remedy the reduction in competition in the refining and 
marketing of CARB gasoline and navy jet fuel alleged in Counts IV and V 
of the Complaint, Paragraph II of the Proposed Order requires 
Respondents to divest Exxon's Benicia refinery and Exxon's owned gas 
stations in California, and to assign Exxon's lessee contracts and 
jobber supply contracts in California to an acquirer approved by the 
Commission (Paras.  II.A, II.B). The divestiture of Exxon's Benicia 
refinery, with Exxon's California marketing, will not significantly 
reduce the amount of gasoline available to non-integrated marketers, 
since the refinery likely will continue to produce that gasoline and 
need outlets for its sale. Respondents will divest approximately 85 
owned or leased Exxon stores and assign supply agreements for 
approximately 275 additional stores in California.
    As part of its divestiture of the refinery, Respondents shall (at 
the acquirer's option) enter into a supply contract with the acquirer 
for a ratable quantity of Alaska North Slope (``ANS'') crude oil up to 
100 thousand barrels per day (an amount equivalent to the refinery's 
historic usage). Exxon is one of the three principal producers of ANS 
crude oil (the other two are BP Amoco and ARCO).
    The divestiture and assignment of the Exxon stations is generally 
under the same terms as described regarding the Northeast and Mid-
atlantic, see Section IV.B above, except that in four PMSAs (San 
Francisco, Oakland, San Jose and Santa Rosa) Respondents will terminate 
their dealers' contracts and divest the real estate to the acquirer 
without authorizing the acquirer to use the Exxon name. Because Mobil 
does not market branded gasoline in these PMSAs, Exxon can effectuate a 
``market withdrawal'' in these MSAs under the PMPA, 15 U.S.C. 2801 et 
seq.
    In considering an application to divest and assign Exxon's 
California refining and marketing businesses to an acquirer, the 
Commission will consider the acquirer's ability and incentive to invest 
and compete in the businesses in which Exxon was engaged in California. 
The Commission will consider, inter alia, whether the acquirer has the 
business experience, technical judgment and available capital to 
continue to invest in the refinery in order to maintain CARB gasoline 
production even in the event of changing environmental regulation.
F. Count VI--Terminaling of Light Petroleum Products in Metropolitan 
Boston and Washington
    To remedy the reduction of competition in terminaling of light 
petroleum products in metropolitan Boston and Washington, Paragraphs 
VII and VIII require Respondents to divest Mobil's East Boston, 
Massachusetts, and Manassas, Virginia, light petroleum products 
terminals, thereby eliminating the effect of the merger in these 
markets.
G. Count VII--Terminaling of Light Petroleum Products in the Norfolk, 
Virginia Area
    To remedy the reduction of competition in terminaling of light 
petroleum products in metropolitan Norfolk, Virginia, Paragraph IX 
requires Respondents to continue to offer TransMontaigne access to 
Mobil's wharf on the same terms as have been offered historically, for 
as long as Respondents own the wharf.
H. Count VIII--Transportation of Light Petroleum Products to the Inland 
Southeast
    To remedy the reduction of competition in transportation of light 
petroleum products to the inland Southeast, the Proposed Order requires 
Respondents to divest either Exxon's interest in Plantation or Mobil's 
interest in Colonial, and, pending divestiture, not to exercise their 
voting rights in connection with ownership or board representation on 
Colonial, thereby eliminating the effect of this merger in this market.
I. Count IX--Transportation of Crude Oil from the Alaska Slope
    To remedy the reduction of competition in transportation of crude 
oil from the Alaska North Slope to Valdez, Alaska, and intermediate 
points, Paragraph X of the Proposed Order requires Respondents to 
divest Mobil's interest in TAPS (including Mobil's interest in terminal 
storage at Valdez and, at the acquirer's option, Mobil's interest in 
the Prince William Sound Oil Spill Response Corporation), thereby 
eliminating the effect of this merger in this market.
J. Count X--Importation, Terminaling and Marketing of Light Petroleum 
Products in Guam
    To remedy the reduction in competition in the importation, 
terminaling and marketing of light petroleum products in Guam, 
Paragraph III of the Proposed Order requires Respondents to divest 
Exxon's terminal and marketing in Guam. Essentially all of Exxon's 
gasoline marketing in Guam consists of approximately 11 company-
operated retail gasoline stores, which can be divested without the 
right to use the Exxon's brand. The Proposed Order therefore does not 
provide for the use of the ``Exxon'' brand in Guam. The Proposed Order 
does provide that the divestiture of the terminal include Exxon's 
rights in its joint terminaling arrangements with Shell and, at the 
acquirer's option, Exxon's liquefied propane gas (``LPG'') storage 
facilities. The divestiture would thereby eliminate the effect of this 
merger in this market.
K. Count XI--Paraffinic Base Oil
    The Proposed Order requires Respondents to relinquish control of an 
amount of base oil equivalent to the amount controlled by Mobil, in 
order to remedy the effect of combining Exxon's and Mobil's base oil 
production. First, Respondents must offer to change several terms in 
Mobil's contract with Valero, in order to relinquish control over 
Valero's base oil production. The terms Respondents must offer are 
confidential, and are contained in a confidential appendix to the 
order.
    Second, Respondents must enter into a long-term supply agreement 
(or agreements) with not more than three firms to supply those firms 
with an aggregate of 12 MBD of base oil from the merged firm's three 
refineries in the Gulf Coast area. The purchaser(s) of this base oil 
would purchase this base oil for ten years, under a price formula 
agreed to by the parties (and approved by the Commission) that is not 
tied to a United States base oil price (e.g., the formula might be tied 
to a benchmark price for crude oil). The purchaser(s) could use the 
base oil or resell it. Since the price term will be unrelated to any 
U.S. base oil price, Respondents would not be able to influence the 
price of this base oil. This sales agreement would put the purchaser(s) 
in the same position as competing base oil producers.
    By changing Mobil's contract with Valero and entering into a Gulf 
off-take agreement, Mobil's share of the base oil market will 
effectively be given to Valero and some new entrant(s) in base oil 
market or other suitable acquirers. The status quo in the base oil 
market will be maintained.
    If Respondents do not offer the aforementioned terms to Valero 
within six months and do not enter into base oil supply contracts with 
suitable entities within nine months, they must divest Mobil's 
Beaumont, Texas refinery.\16\
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    \16\ A divestiture of Mobil's Beaumont refinery would give the 
acquirer six percent of North American base oil production and 
complete control of a low-cost base oil refinery. The buyer would be 
free to make any capital investments to expand capacity it chose to 
make. The Commission does not believe, on the facts of this 
investigation, that a divestiture of the refinery is strictly 
necessary to maintain competition in the paraffinic base oil market. 
The Commission might normally believe that divestiture of a refinery 
was necessary in order to allow the acquirer to have the ability to 
expand production and develop new products. However, the current 
trend toward producing higher grade based oils for use in finished 
products that need to be replaced less often (i.e., new products 
that significantly reduce drain intervals), suggests that the demand 
for base oil is likely to contract, making the need for expansion 
less significant on the particular facts here.

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[[Page 68110]]

L. Count XII--Jet Turbine Oil
    To remedy the effects of the merger in the market for jet turbine 
oil, the Proposed Order requires Respondents to divest Exxon's jet 
turbine oil business. The Proposed Order defines Exxon's jet turbine 
oil business, which must be divested, to include, among other things, 
an exclusive, perpetual license to use identified Exxon patents in the 
field of jet turbine oil, other intellectual property, research and 
testing equipment, and Exxon's jet turbine oil manufacturing facility 
at Bayway, New Jersey.

V. Opportunity for Public Comment

    The Proposed Order has been placed on the public record for sixty 
(60) days for receipt of comments by interested persons. The 
commission, pursuant to a change in its rules of practice, has also 
issued its complaint in this matter, as well as the Offer to Hold 
Separate. Comments received during this sixty day comment period will 
become part of the public record. After sixty days, the Commission will 
again review the Proposed Order and the comments received and will 
decide whether it should withdraw from the Proposed Order or make final 
the agreement's Proposed Order.
    By accepting the Proposed Order subject to final approval, the 
Commission anticipates that the competitive problems alleged in the 
complaint will be resolved. The purpose of this analysis is to invite 
public comment on the Proposed Order, including the proposed 
divestitures, to aid the Commission in its determination of whether it 
should make final the Proposed Order contained in the agreement. This 
analysis is not intended to constitute an official interpretation of 
the Proposed Order, nor is it intended to modify the terms of the 
Proposed Order in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 99-31563 Filed 12-3-99; 8:45 am]
BILLING CODE 6750-01-M