Federal Agencies Target ExxonMobil And Chevron Acquisitions

The Securities and Exchange Commission and Federal Trade Commission are evaluating pending oil company consolidations because of antitrust and climate related concerns. The ExxonMobil XOM +1.1% acquisition of Pioneer Natural Resources PXD +0.9% and Chevron’s CVX +1.5% acquisition of Hess are at the top of their list. Senators and Congressmen seeking lower oil prices and lower greenhouse gas emissions are chiming in to stop the deals, but they are working at cross-purposes. Let’s look at their arguments.

In their November 1, 2023, letter to the Federal Trade Commission, twenty-three Senators complain that the ExxonMobil and Chevron make profits, pay dividends, buyback shares, and make acquisitions. That is what corporations do—they pay taxes on profits too. It’s the American way. They return profits to shareholders when they cannot make investments that generate acceptable rates of return. For decades now, the federal government has limited the ability of oil companies to expand development and refinery capacity. The Biden administration has continued to cut access to onshore and offshore lands, raised the cost of permits, and increased the cost of leasing federal lands. More than 2 million barrels per day of domestic refining capacity has closed since 2019, and there are no buyers for those refineries on the market. No one in Congress can be surprised by the dividends, share buybacks, and acquisitions. The dividends and share buybacks provide income to everyday voters too.

In their March 6 letter to the Federal Trade Commission forty-nine Senators and Representatives complain “[a]ccelerating concentration hurts competition, hurts consumers, and hurts the climate.” They have no data to support their arguments. While noting that the combined ExxonMobil and Pioneer will produce 1.2 million barrels of oil per day, they neglect to acknowledge that ExxonMobil needs at least 4 million barrels per day for its refineries. The authors also miss that ExxonMobil’s even larger competitors are foreign, national oil companies in a daily global market that exceeds 100 million barrels per day. ExxonMobil competes with other refiners to acquire crude oil supply. Chevron is in the reverse position with more oil production than oil refining capacity. Chevron competes with oil producers around the world to get its oil into refineries. Neither company can control oil or refined products prices, and each is acutely aware of U.S. antitrust laws.

If the Senators and Representatives are concerned about rising gasoline prices, they can look to the Middle East and Russia. OPEC+ has effectively cut production and is not in a rush to increase supply. The Baker Hughes rig count in the Middle East at the end of March was 344 versus the pre-pandemic level of 440. This lack of reinvestment in the world’s most prolific and lowest cost oilfields has given U.S. companies the economic incentive to take domestic production to new records. In the wake of drawing down the nation’s Strategic Petroleum Reserve by more than 280 million barrels since Russia invaded Ukraine, consolidating acquisitions that lower costs will help both the U.S. consumer and national security.

In their March 5 letter to the SEC, Senators Welch, Merkley, Sanders and Warren state that ExxonMobil’s and Chevron’s announced acquisitions “raise concerns of potential greenwashing.” They cite that both companies have made pledges to reduce greenhouse gas emissions. The Senators assert that by acquiring other oil companies ExxonMobil and Chevron have abandoned their pledge. Middle school debaters can see the hole in that argument. To the extent that duplication is eliminated, the combined companies will have smaller GHG footprints. Scope 3 emissions, those produced by the ultimate consumers, obviously will not be changed by the acquisitions.

The greenwashing argument suffers from the implicit fallacy that by reducing oil and gas production in the U.S. that GHG emissions will be reduced. Until the U.S. consumer reduces hydrocarbon consumption, simply cutting back domestic production will increase U.S. reliance on foreign supplies, offshoring. There will be no net GHG reduction.

The letters signed by Representatives and Senators read like ChatGPT-generated school essays with citations of long-ago newspaper articles describing oil and gas market conditions that no longer exist. They want cheaper oil, cheaper gasoline, and lower GHG emissions. It cannot happen. These conflicting goals will cost the voter with higher taxes or higher fuel prices, and probably both as we are now realizing the full cost of the misnamed Inflation Reduction Act. Restricting oil companies is no way to change consumer behavior, but driving up taxes and fuel prices will incur the wrath of voters across the nation.

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