The Federal Trade Commission will review the proposed acquisition of Mobil Oil by Exxon Corporation in each area where they compete -- exploration and production, refining and marketing -- and against the backdrop of an "ongoing trend of consolidation and concentration" in the industry, according to William J. Baer, Director of the FTC's Bureau of Competition. The Exxon/Mobil merger is the largest industrial merger ever. It would create the largest private oil company worldwide and the largest U.S.-based company of any type.
Testifying on the agency's behalf before the House Commerce Committee Subcommittee on Energy and Power, Baer said that recent mergers in the oil and gas industry - the BP-Amoco merger; the refining and marketing consolidation of Shell, Texaco and Star; Tosco's acquisition of Unocal's California refineries; Ultramar Diamond Shamrock's acquisition of Total's refining and marketing operations; and the Marathon/Ashland consolidation - represents the second wave of consolidation in the industry in the last 20 years. In reviewing mergers in the petroleum sector, Baer said, "The Commission's inquiry is and has been to determine whether a merger would make it substantially likely that the remaining firms in the industry could reduce output and raise prices by even a small amount, to the detriment of consumers and, in this industry in particular, of the competitiveness of the American economy or the economy of any particular region. This is the goal of antitrust enforcement across all industries; its vital role is particularly clear in the petroleum industry, where even small price increases can have a direct and lasting impact on the entire economy."
The testimony says that the Commission has examined every significant petroleum industry merger over the last 20 years. "What we have learned from these and other investigations is that competition is critical to this industry and that concentration, as well as increases in concentration - even to levels that the antitrust agencies call 'moderately concentrated' - can have substantial adverse effects on competition."
Baer said the Commission would look closely at refining competition because even a small reduction of supply in a concentrated market can cause substantial price increases. "California refining markets remain an area of concern to the Commission . . . where the unexpected shutdown of even one refinery can significantly disrupt supply and lead to sharp price increases. According to press reports, the tragic fire at Tosco's Avon refinery last month already has caused a 30 percent wholesale price increase in California, even though that refinery produces only six percent of California's gasoline needs. While the supply disruption caused by that fire obviously does not raise antitrust issues itself, it does show how a small reduction of supply by firms in a concentrated market can provoke huge price increases."
The Commission will also review competition in the marketing of gasoline. The testimony notes that in the past, the Commission has blocked mergers or demanded divestitures to prevent a loss of competition at the terminal or tank farm level, ". . . thus ensuring that there are competitive sources of supply to local marketers. . . . Competition between branded marketers in local markets can be reduced by merger. As a result, a relatively small number of branded marketers in a local gasoline market may have the ability to raise price oligopolistically, without fear that the price increase will be eroded by a small fringe of independent marketers or by new entry." Baer cited required divestiture of retail facilities as a condition for the Shell/Texaco merger to proceed.
The testimony notes that the industry consolidation that occurred in the 1980s does not appear to have given the merging companies the ability to increase the price of crude oil. "That does not necessarily mean that further consolidation in exploration and production will be equally harmless," Baer said. "It may well be that the Exxon/Mobil merger will not reduce competition in the worldwide crude oil market. However, because of the significance of this merger to the industry, creating the world's largest privately owned oil producer, it is important for the Commission to examine carefully its likely effects on the exploration and production sector."
"Our investigation of the Exxon/Mobil merger is still at an early stage, and neither the Commission nor its staff has reached any conclusions about the effects of the merger on competition, or whether the merger violates the antitrust laws in any respect," the testimony says. "We are working closely with the Attorneys General of many of the states in which Exxon and Mobil compete, as well as with our European allies, to understand this merger and its likely effects on competition locally, nationally and internationally.
The Commission vote to approve the testimony was 3-0, with Commissioner Orson Swindle not participating.
Copies of the testimony available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. 991-0077)