[Federal Register Volume 69, Number 159 (Friday, October 8, 2004)]
[Notices]
[Pages 60394-60397]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-22698]


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FEDERAL TRADE COMMISSION

[File No. 041 0164]


Magellan Midstream Partners, L.P., et al.; Analysis to Aid Public 
Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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[[Page 60395]]

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 
complaint 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 November 1, 2004.

ADDRESSES: Comments should refer to ``Magellan Midstream Partners, 
L.P., et al., File No. 0410164,'' to facilitate the organization of 
comments. A comment filed in paper form should include this reference 
both in the text and on the envelope, and should be mailed or delivered 
to the following address: Federal Trade Commission/Office of the 
Secretary, Room H-159, 600 Pennsylvania Avenue, NW., Washington, DC 
20580. Comments containing confidential material must be filed in paper 
form, as explained in the SUPPLEMENTARY INFORMATION section. The FTC is 
requesting that any comment filed in paper form be sent by courier or 
overnight service, if possible, because U.S. postal mail in the 
Washington area and at the Commission is subject to delay due to 
heightened security precautions. Comments filed in electronic form 
(except comments containing any confidential material) should be sent 
to the following e-mail box: [email protected].

FOR FURTHER INFORMATION CONTACT: Dennis Johnson, FTC, Bureau of 
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 
326-2712.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Section 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 thirty (30) 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 September 29, 2004), on the World Wide Web, at http://www.ftc.gov/os/2004/09/index.htm. A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington, 
DC 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. Written comments must be submitted 
on or before November 1, 2004. Comments should refer to ``Magellan 
Midstream Partners, L.P., et al., File No. 041 0164,'' to facilitate 
the organization of comments. A comment filed in paper form should 
include this reference both in the text and on the envelope, and should 
be mailed or delivered to the following address: Federal Trade 
Commission/Office of the Secretary, Room H-159, 600 Pennsylvania 
Avenue, NW., Washington, DC 20580. If the comment contains any material 
for which confidential treatment is requested, it must be filed in 
paper (rather than electronic) form, and the first page of the document 
must be clearly labeled ``Confidential.'' \1\ The FTC is requesting 
that any comment filed in paper form be sent by courier or overnight 
service, if possible, because U.S. postal mail in the Washington area 
and at the Commission is subject to delay due to heightened security 
precautions. Comments filed in electronic form should be sent to the 
following e-mail box: [email protected].
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    \1\ Commission Rule 4.2(d), 16 CFR 4.2(d). The comment must be 
accompanied by an explicit request for confidential treatment, 
including the factual and legal basis for the request, and must 
identify the specific portions of the comment to be withheld from 
the public record. The request will be granted or denied by the 
Commission's General Counsel, consistent with applicable law and the 
public interest. See Commission Rule 4.9(c), 16 CFR 4.9(c).
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    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments, whether filed 
in paper or electronic form, will be considered by the Commission, and 
will be available to the public on the FTC Web site, to the extent 
practicable, at http://www.ftc.gov. As a matter of discretion, the FTC 
makes every effort to remove home contact information for individuals 
from the public comments it receives before placing those comments on 
the FTC Web site. More information, including routine uses permitted by 
the Privacy Act, may be found in the FTC's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

Analysis of Proposed Agreement Containing Consent Orders to Aid Public 
Comment

    The Federal Trade Commission, subject to its final approval, has 
accepted for public comment an Agreement Containing Consent Orders 
(``Agreement'') with Magellan Midstream Partners, L.P. (``Magellan'') 
and Shell Oil Company (``Shell'') to resolve the anticompetitive 
effects alleged in the Complaint issued by the Commission concerning 
Magellan's acquisition of certain pipeline and terminal assets from 
Shell.
    By purchase and sale agreement dated June 23, 2004, Magellan plans 
to acquire a package of Midwest pipelines and terminals from Shell. 
Included in the assets being acquired is a refined petroleum products 
terminal in Oklahoma City, Oklahoma, that supplies light petroleum 
products, including gasoline and diesel fuel. Magellan already owns and 
operates another refined petroleum products terminal in Oklahoma City, 
and the proposed acquisition would substantially increase concentration 
in the terminaling of light petroleum products in the Oklahoma City 
Metropolitan Area. The Agreement requires that Magellan divest the 
terminal acquired from Shell to a Commission-approved buyer.
    The Agreement has been placed on the public record for 30 days for 
interested persons to comment. Comments received during this 30 day 
period will become part of the public record. After 30 days, the 
Commission will again review the Agreement and the comments received 
and will decide whether it should withdraw the Agreement or make the 
Agreement final.

I. The Parties

    Magellan is a publicly traded limited partnership that is owned 64% 
by public shareholders, and 36% by Magellan Midstream Holdings, L.P. 
(which in turn is owned 50% by Madison Dearborn Partners and 50% by 
Carlyle Group/Riverstone Holdings). Magellan is primarily engaged in 
the storage, transportation, and distribution of refined petroleum 
products and ammonia. Its assets include a petroleum products pipeline 
and terminal system that serves the Mid-continent region of the United 
States, marine terminals along the Gulf Coast and near the New York 
Harbor, inland petroleum products terminals located principally in the 
southeastern United States, and a pipeline system for ammonia in the 
Mid-continent region. For the year ending December 31, 2003, Magellan 
had total annual revenues of

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approximately $485 million and total assets of nearly $1.2 billion.
    Shell Oil Company is the United States operating entity for the 
Royal Dutch/Shell Group of companies, which ultimately is owned 60% by 
Royal Dutch Petroleum Company of the Netherlands and 40% by The Shell 
Transport and Trading Company, p.l.c. of the United Kingdom 
(collectively referred to as ``Shell''). Shell is one of the largest 
integrated petroleum companies in the world, and is engaged in 
virtually all aspects of the energy business, including exploration, 
production, refining, transportation, distribution, and marketing. For 
the year ending December 31, 2003, Shell reported total gross revenues 
of more than $268 billion and total assets of approximately $124 
billion.

II. The Commission's Complaint

    The Commission's Complaint charges that Magellan's agreement to 
acquire the Oklahoma City refined products terminal from Shell violates 
Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 
45, and would, if consummated, 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 a relevant line of commerce in which to 
evaluate the effects of this acquisition is the terminaling of 
gasoline, diesel fuel, and other light petroleum products. Refined 
petroleum product terminals are specialized facilities that provide 
temporary storage for gasoline, diesel fuel, and other light petroleum 
products. Depending on their location, terminals receive deliveries 
from pipelines or marine vessels, store the products in large tanks, 
and redeliver them into tank trucks for ultimate delivery to retail 
gasoline stations or other buyers. There are no substitutes for 
petroleum terminals for providing such terminaling services.
    The Complaint alleges that a relevant section of the country in 
which to evaluate the effects of this acquisition is the Oklahoma City 
Metropolitan Area. Buyers of gasoline, diesel fuel, and other light 
petroleum products in the Oklahoma City Metropolitan Area, such as 
gasoline marketers and others, have no effective alternative to 
terminals located within the Oklahoma City Metropolitan Area. Because 
of costs and delivery logistics, terminals located outside the Oklahoma 
City Metropolitan Area are too far away to supply buyers in that area.
    The Complaint charges that Magellan and Shell are actual and 
potential competitors in the supply of terminaling services for 
gasoline, diesel fuel, and other light petroleum products in the 
Oklahoma City Metropolitan Area. Magellan and Shell have two of only a 
very limited number of terminals that can serve the Oklahoma City area. 
According to the Complaint, the market for terminaling services in the 
Oklahoma City Metropolitan Area is highly concentrated and would become 
significantly more highly concentrated as a result of this acquisition. 
Even if a terminal located 40 miles outside of Oklahoma City is 
included, the pre-merger Herfindahl-Hirschman Index is more than 3,100, 
and would increase by more than 1,200 points to a level exceeding 
4,300. The Complaint further maintains that entry into the relevant 
market is not likely and if entry did occur, it would be neither timely 
nor sufficient to prevent or mitigate the anticompetitive effects of 
the acquisition.
    The Complaint further charges that the proposed acquisition, if 
consummated, may substantially lessen competition in the supply of 
terminaling services for gasoline, diesel fuel, and other light 
petroleum products in the Oklahoma City Metropolitan Area. 
Specifically, the acquisition would (1) eliminate direct competition 
between Magellan and Shell in the supply of terminaling services in the 
Oklahoma City Metropolitan Area, and (2) increase the likelihood of, or 
facilitate, collusion or coordinated interaction in the relevant 
market, each of which increases the likelihood that the prices of 
gasoline, diesel fuel, and other light petroleum products will increase 
in the relevant market.

III. Terms of the Decision and Order and Order to Hold Separate and 
Maintain Assets

    The Decision and Order (``Proposed Order'') effectively remedies 
the acquisition's alleged anticompetitive effects by requiring Magellan 
to divest the overlapping Shell terminal assets. The Shell Oklahoma 
City terminal is to be divested to a Commission-approved buyer and in a 
manner approved by the Commission.
    The Proposed Order requires that Magellan divest the Shell 
terminal, at no minimum price, within six months after Magellan signs 
the Agreement, to a buyer approved by the Commission. The Proposed 
Order includes several additional provisions to ensure the interim 
viability of the subject terminal, to ensure that the acquirer has an 
opportunity to enter into an agreement with Shell for the Shell volumes 
at the terminal, and to remedy the lessening of competition resulting 
from the proposed acquisition. In particular, the Proposed Order 
requires Shell to utilize the subject terminal for all of its branded 
and unbranded refined petroleum product requirements in the Oklahoma 
City Metropolitan Area until three months after divestiture of the 
terminal. It further prohibits Shell and Magellan until three months 
after divestiture from entering into or maintaining, or attempting to 
enter into or maintain, any agreement or understanding relating to the 
movement or transfer of Shell's refined petroleum products volume from 
the subject terminal to any other terminaling facility owned, leased, 
or operated by Magellan. The order further prohibits Shell and Magellan 
from discussing or negotiating with each other any potential agreement 
or understanding relating to such movement or transfer.
    The Proposed Order also provides that should Magellan be unable to 
satisfy all conditions necessary to divest any intangible asset, 
Magellan will: (1) with respect to permits, licenses or other rights 
granted by governmental authorities (other than patents), provide such 
assistance as the acquirer may reasonably request in the acquirer's 
efforts to obtain comparable permits, licenses or rights, and (2) with 
respect to other intangible assets (including patents and contractual 
rights), substitute equivalent assets or arrangements, subject to the 
prior approval of the Commission. A substituted asset or arrangement 
will not be deemed to be equivalent unless it enables the terminal to 
perform the same function at the same or less cost.
    The Proposed Order further provides that if the subject terminal 
has not been divested within the allotted time, a trustee may be 
appointed to sell the terminal to a buyer approved by the Commission.
    Other paragraphs of the Proposed Order contain provisions regarding 
compliance reports, notification of changes that may affect compliance, 
and access to materials that may be necessary to monitor compliance.
    The Order to Hold Separate and Maintain Assets (``Hold Separate 
Order'') contains provisions designed to ensure that the Oklahoma City 
terminal at issue will be maintained separately and apart from Magellan 
pending divestiture.
    The Hold Separate Order provides that Magellan will hold the 
terminal assets separate from its other businesses and continue to 
maintain the terminal assets during the period prior to divestiture. 
Paragraph II also provides that pending divestiture Magellan will

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contract with Shell for Shell to manage the terminal independently from 
Magellan's other operations. Shell will report directly and exclusively 
to a hold separate trustee with respect to the operation of the 
terminal. Shell is required to keep confidential business information 
related to the terminal from Magellan employees, except as permitted by 
the Hold Separate Order.
    Other paragraphs of the Hold Separate Order contain provisions 
regarding compliance reports, notification of changes that may affect 
compliance, and access to materials that may be necessary to monitor 
compliance.
    The Hold Separate Order terminates on the earlier of two dates, 
either (1) three business days after the Commission withdraws its 
acceptance of the consent agreement, or (2) the day after the 
divestiture of the Oklahoma City terminal, as described in and required 
by the Proposed Order, is completed.

IV. Opportunity for Public Comment

    By accepting the Agreement, 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 Agreement, including the proposed divestiture, to 
aid the Commission in its determination of whether it should make the 
Agreement final. This analysis is not intended to constitute an 
official interpretation of the Agreement or modify the terms of the 
Agreement in any way.

    By direction of the Commission, Chairman Majoras recused.
Donald S. Clark,
Secretary.
[FR Doc. 04-22698 Filed 10-7-04; 8:45 am]
BILLING CODE 6750-01-P