[Federal Register Volume 87, Number 63 (Friday, April 1, 2022)]
[Notices]
[Pages 19090-19092]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06945]
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FEDERAL TRADE COMMISSION
[File No. 211 0158/Docket No. C-4760]
EnCap/EP Energy; Analysis of Agreement Containing Consent Orders
To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement; request for comment.
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SUMMARY: The consent agreement in this matter settles alleged
violations of Federal law prohibiting unfair methods of competition.
The attached Analysis of Proposed Consent Orders to Aid Public Comment
describes both the allegations in the complaint and the terms of the
consent orders--embodied in the consent agreement--that would settle
these allegations.
DATES: Comments must be received on or before May 2, 2022.
ADDRESSES: Interested parties may file comments online or on paper, by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Please write: ``EnCap/EP
Energy; File No. 211 0158'' on your comment and file your comment
online at https://www.regulations.gov by following the instructions on
the web-based form. If you prefer to file your comment on paper, please
mail your comment to the following address: Federal Trade Commission,
Office of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610
(Annex D), Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT: Nina Thanawala (202-326-2824), Bureau
of Competition, Federal Trade Commission, 400 7th Street SW,
Washington, DC 20024.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 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 of Agreement Containing Consent Orders 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 website at
this web address: https://www.ftc.gov/news-events/commission-actions.
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before May 2, 2022.
Write ``EnCap/EP Energy; File No. 211 0158'' on your comment. Your
comment--including your name and your state--will be placed on the
public record of this proceeding, including, to the extent practicable,
on the https://www.regulations.gov website.
Due to protective actions in response to the COVID-19 pandemic and
the agency's heightened security screening, postal mail addressed to
the Commission will be delayed. We strongly encourage you to submit
your comments online through the https://www.regulations.gov website.
If you prefer to file your comment on paper, write ``EnCap/EP
Energy; File No. 211 0158'' on your comment and on the envelope, and
mail your comment to the following address: Federal Trade Commission,
Office of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610
(Annex D), Washington, DC 20580.
Because your comment will be placed on the publicly accessible
website at https://www.regulations.gov, you are solely responsible for
making sure your comment does not include any sensitive or confidential
information. In particular, your comment should not include sensitive
personal information, such as your or anyone else's Social Security
number; date of birth; driver's license number or other state
identification number, or foreign country equivalent; passport number;
financial account number; or credit or debit card number. You are also
solely responsible for making sure your comment does not include
sensitive health information, such as medical records or other
individually identifiable health information. In addition, your comment
should not include any ``trade secret or any commercial or financial
information which . . . is privileged or confidential''--as provided by
Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2),
16 CFR 4.10(a)(2)--including competitively sensitive information such
as costs, sales statistics, inventories, formulas, patterns, devices,
manufacturing processes, or customer names.
Comments containing material for which confidential treatment is
requested must be filed in paper form, must be clearly labeled
``Confidential,'' and must comply with FTC Rule 4.9(c). In particular,
the written request for confidential treatment that accompanies the
comment must include the factual and legal basis for the request, and
must identify the specific portions of the comment to be withheld from
the public record. See FTC Rule 4.9(c). Your comment will be kept
confidential only if the General Counsel grants your request in
accordance with the law and the public interest. Once your comment has
been posted on https://www.regulations.gov--as legally required by FTC
Rule 4.9(b)--we cannot redact or remove your comment from that website,
unless you submit a confidentiality request that meets the requirements
for such treatment under FTC Rule 4.9(c), and the General Counsel
grants that request.
Visit the FTC website at https://www.ftc.gov to read this Notice
and the news release describing this matter. The FTC Act and other laws
the Commission administers permit the collection of public comments to
consider and use in this proceeding, as appropriate. The Commission
will consider all timely and responsive public comments it receives on
or before May 2, 2022. For information on the Commission's privacy
policy, including routine uses permitted by the Privacy Act, see
https://www.ftc.gov/site-information/privacy-policy.
Analysis of Agreement Containing Consent Orders To Aid Public Comment
I. Introduction
The Federal Trade Commission (``Commission'') has accepted for
public comment, subject to final approval, an Agreement Containing
Consent Orders (``Consent Agreement'') from EnCap Investments L.P.,
EnCap Energy Capital Fund XI, L.P., Verdun Oil Company II LLC
(``Verdun''), XCL Resources Holdings, LLC (``XCL'') (collectively,
``EnCap''), EP Energy Corporation, and EP Energy LLC (collectively,
``EP Energy'') (together with EnCap, ``Respondents''). The Consent
Agreement is designed to remedy the anticompetitive effects that
otherwise would result from EnCap's acquisition of EP Energy's crude
oil production operations in the Uinta Basin in Utah.
[[Page 19091]]
Under the terms of the proposed Decision and Order (``Order'')
contained in the Consent Agreement, Respondents have agreed to divest
to Crescent Energy Company (``Crescent'') the entirety of EP Energy's
crude oil production operations in the Uinta Basin in Utah. Respondents
must complete the transfer no later than 10 days after EnCap
consummates its acquisition of EP Energy. The Commission has issued,
and Respondents have agreed to comply with, an Order to Maintain Assets
that requires Respondents to operate and maintain the divestiture
assets in the normal course of business through the date the approved
buyer acquires the divested assets.
The Commission has placed the Consent Agreement on the public
record for 30 days to solicit comments from interested persons.
Comments received during this period will become part of the public
record. After 30 days, the Commission will review the comments received
and decide whether it should withdraw, modify, or make the proposed
Order final.
II. The Respondents
Respondent EnCap Investments L.P. is a limited partnership
organized and doing business under the laws of Texas and serves as the
limited partner for various private equity funds. EnCap Energy Capital
Fund XI, L.P. is a private equity fund headquartered in Texas and
operating multiple portfolio companies involved in the exploration,
production, transmission, marketing and sale of energy, particularly
oil and gas. EnCap operates two portfolio companies that are implicated
by this transaction: XCL, a producer of waxy crude oil and natural gas
in the Uinta Basin headquartered in Houston, Texas, and Verdun, a
company also headquartered in Houston, Texas.
Respondent EP Energy Corporation is a corporation organized and
doing business under the laws of Delaware. Respondent EP Energy LLC is
a limited liability company organized, existing, and doing business
under and by virtue of the laws of the State of Delaware, with its
office and principal place of business located in Houston, Texas. EP
Energy has production operations in the Uinta Basin in Utah and in the
Eagle Ford Shale in Texas.
III. The Transaction
Pursuant to the Membership Interest Purchase Agreement dated July
26, 2021, EnCap, through Verdun, has agreed to acquire EP Energy's
crude oil and natural gas production operations in the Uinta Basin in
Utah and in the Eagle Ford Shale in Texas (the ``Transaction'').
The Commission's Complaint alleges that the Transaction violated
Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and that the
Transaction agreement constitutes a violation of Section 5 of the
Federal Trade Commission Act, as amended, 15 U.S.C. 45, by
substantially lessening competition for the development, production,
and sale of Uinta Basin waxy crude to Salt Lake City area refiners.
IV. The Development, Production, and Sale of Uinta Basin Waxy Crude to
Salt Lake City Area Refiners
The Commission alleges that the relevant product market in which to
analyze the Transaction is no broader than the development, production,
and sale of Uinta Basin waxy crude to Salt Lake City area refiners.
Uinta Basin waxy crude is classified as yellow or black. Yellow wax has
lower levels of sulfur and asphalt and, as a result, requires less
processing to refine into petroleum products that meet environmental
standards. A narrower market exists for the development, production,
and sale of Uinta Basin yellow waxy crude to Salt Lake City area
refiners.
Uinta Basin waxy crude possesses distinct characteristics that make
it a desirable crude oil from which to refine petroleum products. Uinta
Basin waxy crude contains high amounts of paraffin and low levels of
sulfur and other undesirable impurities that would otherwise require
greater processing to remove from petroleum wax and transportation
fuels. It is also a relatively ``light'' crude oil, requiring less
processing than other crude oils to make valuable transportation fuels
and other petroleum-based products. Uinta Basin waxy crude's high wax
content also makes it desirable for production of wax products, while
its low percentage of aromatic hydrocarbons renders it useful for
making lubricants. Unlike many other crudes, Uinta Basin waxy crude's
paraffin content makes it almost solid at ambient temperatures,
requiring heat to liquify the resource for transport into or out of
truck, rail, or storage.
Salt Lake City area refiners have made significant investments in
plant and equipment to optimize their refineries to run Uinta Basin
yellow and black waxy crudes. Although other crudes are available to
Salt Lake City area refiners, those crudes would not, in the event of a
small but significant price increase in waxy crude, sufficiently
constrain the price increase to the relevant customers.
The relevant geographic market in which to analyze the Transaction
is no broader than the Uinta Basin. Almost all sales of Uinta Basin
waxy crude to the Salt Lake City area refineries occur in the Uinta
Basin, with customers providing transportation to their locations.
Alternatively, the relevant geographic market is the Salt Lake City
area. Producers currently can, and do, charge higher net prices for
Uinta Basin waxy crude sold to Salt Lake City area refineries than for
sales to other customers. The Salt Lake City area refineries cannot
evade price discrimination because producers sell Uinta Basin waxy
crude to other customers on a delivered basis. High transportation
costs would make it cost prohibitive for a Salt Lake City refiner to
purchase Uinta Basin waxy crude delivered to refineries located outside
the Salt Lake City area.
The Transaction would substantially lessen competition in this
market. Four producers--EP Energy, XCL, Ovintiv, and Uinta Wax/Finley
Resources (Uinta Wax is a joint venture between Finley Resources and
CH4 Energy Six)--account for over 80 percent of all Uinta Basin
production. No other producer accounts for a significant amount of
Uinta Basin development and production.
The Transaction, if consummated, would eliminate substantial head-
to-head competition between EnCap and EP Energy for the development,
production, and sale of Uinta Basin waxy crude to targeted Salt Lake
City area refiners. By dramatically increasing the size of EnCap's
Uinta Basin waxy crude business and taking the market from four
significant players to three, the Transaction would increase the
incentive and ability of EnCap to reduce supply to these refiners and
increase prices.
Producers recognize that consolidation with in-basin peers
materially enhances their leverage with refiners in the Salt Lake City
area. Historically, Uinta Basin producers have received higher realized
prices when Uinta Basin waxy crude production falls short of demand
from Salt Lake refiners. Post-closing, EnCap could increase prices for
Salt Lake City area refiners by slowing development and production, and
by reducing the quantity of waxy crude available to the Salt Lake City
area refineries through strategic exports of waxy crude to Gulf Coast
area refineries.
The Transaction would also eliminate EP Energy's head-to-head
competition with EnCap and other large waxy crude producers and
increase the risk of coordination. Today, EP Energy
[[Page 19092]]
competes aggressively with other Uinta Basin waxy crude producers.
Post-Transaction, the smaller number of Uinta Basin waxy crude
producers could more easily coordinate rail exports, production plans,
and contract terms to increase waxy crude prices for Salt Lake City
area refiners.
XCL's internal, high-level analysis and strategy documents
acknowledged the likely competitive effects from the Transaction from
the beginning of the process up to and including during the
Commission's investigation. During a January 15, 2021 meeting, an XCL
Board member noted that a combination with EPE would create $35-75
million in marketing synergies and that it was a ``[d]efensive move
with EP currently communicating 20+ wells per year to SLC refiners. Go
from 14% of wax supply to 30-40%.'' \1\ A May 18, 2021 XCL Technical
Meeting presentation, attended by most of the XCL Board members, stated
that the Transaction would result in ``Increasing Scale in our Basin--
taking out 1 of 4 major producers, 40%+ of Wax Market, Driver's seat.''
\2\ An August 25, 2021 memorandum to the Advisory Board of EnCap XI
similarly emphasized the small number of significant players, stating
that the ``. . . the Uinta is . . . largely controlled by three
operators.'' \3\
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\1\ ENC-FTC-200034640 (Jan. 17, 2021); see also EnCap 4(c)-4
(Jan. 15, 2021).
\2\ EnCap 4(c)-8 at 63 (May 18, 2021); EnCap Resp. to VRL Req.
12 (Feb. 21, 2022).
\3\ ENC-FTC-201680452, at ENC-FTC-201680453 (Aug. 25, 2021).
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V. The Proposed Order and the Order To Maintain Assets
The proposed Order and the Order to Maintain Assets would remedy
the Transaction's likely anticompetitive effects by requiring EnCap to
divest the entirety of EP Energy business and assets in or relating to
the state of Utah, including the business of oil and gas exploration,
production, research, development, gathering, transportation,
distribution, marketing, and sales in or from the Uinta Basin, to
Crescent. Respondents must also divest additional assets if the
Commission determines that additional assets are necessary to achieve
the purpose of the proposed Order within the first year after the Order
is issued. Crescent is an experienced operator in the development,
production and sale of crude oil and natural gas, and will be a new
entrant in the Uinta Basin. The Commission retains the right to appoint
a Trustee to find another buyer of the divestiture assets if it
determines Crescent is not an acceptable buyer.
The proposed Order requires that the divestiture be completed no
later than 10 days after EnCap consummates the Transaction. The
proposed Order and the Order to Maintain Assets further require EnCap
to operate and maintain the divestiture assets in the ordinary course
of business, including maintaining the economic viability,
marketability, and competitiveness of the divestiture assets until
Crescent completes its acquisition of the divestiture assets.
The proposed Order contains additional provisions designed to
ensure the effectiveness of the relief. For example, the proposed Order
also requires the Respondents to grant Crescent a perpetual license to
use any retained intellectual property, and to obtain all other
consents or authorizations to consummate the sale of the divestiture
assets from all necessary third parties or governmental entities.
Respondents are required to provide Crescent with transitional
assistance for up to 180 days following the divestiture of the assets
and must cooperate with and assist Crescent to evaluate and offer
employment to employees involved in the business and assets subject to
divestiture. Respondents have also agreed not to enforce any employee
noncompete or non-solicitation agreements against Crescent. Finally,
the proposed Order also provides for the appointment of an independent
Monitor to oversee the Respondents' compliance with the requirements of
the Order.
In addition to requiring the asset divestitures, the proposed Order
requires EnCap to obtain prior approval from the Commission before
making certain future acquisitions in the Utah counties that encompass
the Uinta Basin (Duchesne, Uintah, Utah, Grand, Emery, Carbon, and
Wasatch) over the next ten years.
The proposed Order also requires Crescent to obtain prior approval
from the Commission before transferring all or substantially all of the
divested assets to any buyer for the first three years after Crescent
acquires the divestiture assets. For the seven years following the
initial three-year period, the proposed Order requires Crescent to
obtain prior approval from the Commission before transferring all or
substantially all of the divested assets to a buyer engaged in the
development, production, or sale of waxy crude in the Uinta Basin.
The purpose of this analysis is to facilitate public comment on the
Consent Agreement, and the Commission does not intend this analysis to
constitute an official interpretation of the proposed Order or to
modify its terms in any way.
By direction of the Commission.
April J. Tabor,
Secretary.
[FR Doc. 2022-06945 Filed 3-31-22; 8:45 am]
BILLING CODE 6750-01-P