EXCLUSIVE US oil producer EP Energy is trying to save the deal from regulatory sources

The FTC headquarters in Washington, U.S. REUTERS/Yuri Gripas

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February 15 (Reuters) – EP Energy is considering a sale of Utah oil acreage it hopes is a challenge by a US antitrust authority to private equity firm EnCap’s agreed $1.5 billion takeover Investments LP, people familiar with the matter said.

The Federal Trade Commission (FTC) has privately notified EP Energy and EnCap that it would sue to block their deal if they proceed with it, the sources said. The regulator is concerned that EnCap — which owns XCL Resources, another Utah oil producer — could become too dominant a player in Utah’s Uinta Basin, the sources added.

The FTC has rarely opposed mergers of oil and gas producers, with the last challenge more than 20 years ago. It took the view that energy prices are driven by global supply and demand rather than regional consolidation.

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His rejection of the sale of EP Energy marks a possible shift in stance and comes amid mounting pressure on President Joe Biden’s administration to respond to consumer fears about gasoline prices, which have risen by 40 percent over the past year, according to US Labor Department figures % have increased.

EP Energy, which emerged from bankruptcy in 2020 and is owned by former creditors, has engaged an investment bank to find a buyer for its assets in Uinta, the sources said. It added that the 155,000 net acres are likely to be valued in the high hundreds of millions of dollars.

The sources asked for anonymity as the matter is confidential. The FTC and EnCap declined to comment. EP Energy and XCL did not respond to requests for comment.

EP Energy and XCL together accounted for about a third of Uinta oil production’s 92,000 barrels per day in October, according to data provider Enverus. Rival Ovintiv Inc (OVV.N) also produced a third, with 16 others making up the remainder.

In rejecting the deal, the FTC addressed concerns that Salt Lake City refineries that produce gasoline and other petroleum products for Utah and other western states could pay more to buy oil if competition from EP Energy is eliminated, it said the sources.

The grade of oil extracted from Uinta is unlike any other crude oil found in the United States, with a waxy consistency and high paraffin content, according to Utah’s Department of Environmental Quality.

Local refiners purchase this crude at a discount compared to other blends due to lower transportation costs. Reduced competition could impede this dynamic, and reconfiguring plants to process a different grade of oil is expensive and time-consuming.

There are five refineries in Salt Lake owned by Chevron Corp (CVX.N), Marathon Petroleum Corp (MPC.N), HollyFrontier Corp (HFC.N), Silver Eagle Refining and Big West Oil of Berkshire Hathaway (BRKa.N). .

Chevron and Marathon declined to comment. HollyFrontier, Silver Eagle and Big West did not respond to requests for comment.

The Utah Petroleum Association (UPA) wrote to the FTC earlier this month to argue for the sale of EP Energy to EnCap. According to a copy of the Feb. 1 UPA letter obtained by Reuters, the lobby group said the combined company will produce more oil thanks to more efficient production techniques and lower costs in a bid to drive down energy prices.

XCL and all five refiners are senior members, according to the UPA website, with EP Energy also in the group.

The UPA told Reuters that it supported the transaction but had no direct interactions with the FTC, adding that it could not discuss issues related to individual members.

MORE INVESTIGATION

The White House has already angered the oil and gas industry by making climate change a priority on its administrative agenda. It temporarily halted the awarding of new drilling leases on federal land and proposed ending some fossil fuel subsidies. Energy companies argue that these moves will increase energy costs. Continue reading

The last major merger of oil and gas producers contested by the FTC was BP Plc’s $27 billion acquisition of Atlantic Richfield Co in 2000.

The FTC sued to block the deal and only agreed to drop its objections after BP offered to divest Alaskan oil acreage.

The White House has clamored for the FTC to act as economies reopen in the wake of the COVID-19 pandemic, fueling energy use. Brian Deese, director of the National Economic Council, wrote to FTC Chairwoman Lina Khan in August asking her to investigate rising energy prices.

Khan responded that the FTC will look at consolidation among service station operators, but will also look more broadly at dealmaking in the energy industry. Continue reading

Last year, the FTC extended the approval process for at least five oil and gas mergers and acquisitions, including EP Energy-EnCap, Reuters reported. Continue reading

The FTC has flexed its antitrust muscles in many sectors since Biden became president last year. Deals set to be blocked in recent weeks include US defense contractor Lockheed Martin’s (LMT.N) $4.4 billion agreement to buy rocket engine maker Aerojet Rocketdyne Holdings Inc (AJRD.N) and the US chip supplier Nvidia Corp (NVDA.O). $40 billion acquisition of semiconductor design provider Arm Ltd. Read more

(Corrected this story to reflect that crude oil is high in paraffin, not high in sulfur, paragraph 9)

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Reporting by David French in New York and Laura Sanicola in Washington Additional reporting by Diane Bartz in Washington Editing by Greg Roumeliotis and Matthew Lewis

Our standards: The Thomson Reuters Trust Principles.

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