The Federal Trade Commission will require the divestiture of energy producer EP Energy Corp.’s entire business and assets in Utah. The divestiture will resolve the agency’s allegations that EnCap Energy Capital Fund XI, L.P.’s proposed $1.445 billion acquisition of EP Energy Corp. would eliminate head-to-head competition between two of only four significant producers and otherwise harm competition for the sale of Uinta Basin waxy crude oil to Salt Lake City refiners.
“Without this divestiture, Salt Lake City refiners would likely have faced increased prices for Uinta Basin crude oil, whether from EnCap alone, or as part of a small group – and would likely try to pass on those costs to consumers,” said Bureau of Competition Director Holly Vedova.
According to the complaint, the proposed acquisition could also increase the likelihood of collusion or coordination among the remaining competitors in the Uinta Basin.
EnCap Energy Capital Fund XI, L.P. is a private equity fund headquartered in Texas which operates multiple portfolio companies involved in the exploration, production, transmission, marketing and sale of energy, particularly oil and gas. EP Energy Corp., also headquartered in Texas, has oil and natural gas production operations in the Uinta Basin in Utah and in the Eagle Ford Shale in Texas.
According to the complaint, EP and EnCap, through its subsidiary XCL Resources Holdings, LLC, compete to develop, produce, and sell Uinta Basin yellow and black waxy crude oil to Salt Lake City-area refiners. The proposed acquisition would reduce the number of significant producers from four to three.
Under the proposed settlement, EnCap is required to divest EP’s business and assets in Utah to Crescent Energy Company. Crescent is an experienced operator in crude oil and natural gas production, and it will be a new competitor in the Uinta Basin.
Uinta Basin waxy crude possesses distinct qualities that make it both difficult to transport and especially valuable for producing transportation fuel and other petroleum products, and Salt Lake City-area refiners have invested capital to optimize certain equipment to best utilize Uinta Basin waxy crude. Producers can and do charge higher net prices for Uinta Basin waxy crude sold to Salt Lake City refineries than for sales to other customers. The merger would further raise prices for waxy crude and subsequently for the refined products on which consumers rely.
EnCap subsidiary XCL has acknowledged the likely competitive effects of the acquisition, as its internal analysis and strategy documents – including the below cartoon – demonstrate:
XCL estimated that the acquisition of EP would allow it to increase its estimated market share of waxy crude from 14 percent to approximately 40 percent. An XCL Board member viewed the acquisition as a “defensive move” which would yield an estimated $35-75 million in “marketing synergies,” and internal EnCap documents emphasized the small number of significant players, stating that “… the Uinta is … largely controlled by three operators.”
The proposed consent order requires EnCap to complete the divestiture no later than 10 days after the acquisition is consummated. EnCap is also required to provide transitional assistance and not enforce any employee noncompete or non-solicitation agreements against Crescent. Also under the order:
- EnCap is required for 10 years to obtain prior approval from the Commission before making certain future acquisitions in the seven Utah counties that encompass the Uinta Basin, and
- Crescent is required to obtain prior Commission approval before transferring all the divested assets to any buyer for the first three years after it acquires the divestiture assets. For seven additional years, Crescent is required to obtain prior approval before transferring all the divested assets to a buyer engaged in the development, production, or sale of waxy crude in the Uinta Basin.
Further details about the consent order, which includes an asset maintenance order and appoints a monitor to oversee the parties’ compliance, are set forth in the analysis to aid public comment for this matter.
The Commission vote to issue the complaint and accept the proposed consent order for public comment was 4-0. The FTC will publish the consent agreement package in the Federal Register shortly. Instructions for filing comments appear in the published notice. Comments must be received 30 days after publication in the Federal Register. Once processed, comments will be posted on Regulations.gov.
