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U.S. shale producers have been preaching and practicing capital discipline since the price crash of 2020 and haven’t deviated from their pledge to focus on shareholder returns instead of oil production growth since then.
Some of the biggest independent U.S. shale firms may have started to finally please investors with meaningful returns, but they have angered consumers.
Some of these consumers of retail gasoline, diesel, and marine fuels allege that the ‘discipline’ in capital allocation has actually been a collusion to boost the price of oil and pad oil firms’ bottom lines by withholding production to the market, not too different from what OPEC is doing with crude supply.
And these consumers are taking some of the top U.S. shale producers to court where the companies are called to answer allegations of fixing and keeping oil prices elevated by constraining domestic production.
The class action lawsuits were filed months before the Federal Trade Commission (FTC) barred early this month Pioneer Natural Resources’ former CEO Scott Sheffield from gaining a seat on Exxon’s board of directors or serving in an advisory capacity at Exxon once it acquires Pioneer.
The FTC alleges in a complaint that Sheffield has, through public statements and private communications, attempted to collude with OPEC and OPEC+ “to reduce output of oil and gas, which would result in Americans paying higher prices at the pump, to inflate profits for his company.”
Pioneer defended Sheffield and his actions, which, the company said, were “neither the intent nor an effect of Mr. Sheffield’s communications to circumvent the laws and principles protecting market competition.”
“On the contrary, Mr. Sheffield focused on legitimate topics” including “unfair foreign practices that threatened to undermine U.S. energy security; and, through dialogue with government officials, the need to sustain a resilient, competitive and economically vibrant oil and gas industry in the United States.”
While most of the lawsuits alleging anti-competitive behavior in the sector preceded the regulator’s move, the FTC complaint against Sheffield rattled the U.S. shale industry.
This FTC complaint could now serve as a starting point for lawyers in class action lawsuits to seek to unearth evidence of collusion in the industry, legal experts told the Financial Times.
US Shale Slapped with Class Action Lawsuits
The latest class action antitrust litigation lawsuit was filed earlier this month in the U.S. District Court for the District of New Mexico, in which Permian Resources, ExxonMobil, Pioneer Natural Resources, Centennial Resource Development, Chesapeake Energy, Continental Resources, Diamondback Energy, EOG Resources, Hess Corporation, and Occidental Petroleum were named as defendants.
This isn’t the first time consumers have sued major shale producers alleging anticompetitive behavior.
In January this year, residents of Nevada, Hawaii, and Maine filed a lawsuit against nine U.S. producers accusing them of padding their profits and ripping off consumers by engaging in anticompetitive behavior and collusion to withhold oil production and boost oil prices.
The class action complaint filed in a Nevada court says that “This action arises from Defendants’ conspiracy to coordinate, and ultimately constrain, domestic shale oil production, which has had the effect of fixing, raising, and maintaining the price of retail gasoline (gasoline purchased by consumers at gas stations) in and throughout the United States of America.”
In 2022, when oil rallied after the Russian invasion of Ukraine, the defendants – being “agile swing producers” whose breakeven prices “have never been lower and who operate in regions with a wealth of profitable opportunities” had the perfect market conditions to aggressively increase production, the plaintiffs said.
“But Defendants did not take advantage of this market opportunity. Rather, departing from their historical practice and rational independent self-interest, each Defendant limited their domestic shale production growth,” the lawsuit alleges.
The plaintiffs brought this class action complaint “to recover treble damages, injunctive relief, and/or other relief as appropriate, based on violations of the Sherman Act and numerous state antitrust and consumer protection laws” by the defendants.
More class action lawsuits could emerge in the wake of the FTC complaint against Pioneer’s Sheffield, and plaintiffs and their legal representatives in the existing and new lawsuits will seek to unearth evidence of collusion.
However, it’s not clear if statements in conference calls, or other communications could be actual evidence of collusion, legal experts have told FT.
“Private class-action lawyers will no doubt try and follow those FTC breadcrumbs in discovery in their own cases,” Eric Grannon, an antitrust lawyer at White & Case, told FT.
The FTC complaint against Pioneer’s Sheffield does not have any legal effect or bearing in the class action lawsuits and it’s not certain it is actual evidence of collusion, Grannon noted.
“A unilateral statement by an executive, even to their competitors, that it’s in their common interest to raise prices or cut output is not a violation of the antitrust laws,” Grannontold FT.
“It’s only a violation if there’s agreement.”
At any rate, the lawsuits show that the ‘disciplined spending’ touted by U.S. shale producers is seen by consumers and plaintiffs as a conscious attempt to drive up oil prices.
