Combination of Natural Gas Gathering and Processing Businesses Valued at $6 Billion
The Federal Trade Commission has accepted a consent order, subject to final Commission approval, that addresses the anticompetitive effects raised by Duke Energy Corporation's (Duke) and Phillips Petroleum Company's (Phillips) proposed merger of their natural gas gathering and processing businesses under a new company called Duke Energy Field Services, L.L.C. (DEFS), and Duke's proposed acquisition of gas gathering and processing assets in central Oklahoma that are currently owned by Conoco Inc. (Conoco) and Mitchell Energy & Development Corporation (Mitchell). Under the order, which concerns transactions with a total value of more than $6 billion, Duke, which would become the majority owner of DEFS after the merger with Phillips becomes final, would be required to divest approximately 2,780 miles of gas gathering pipeline in Kansas, Oklahoma and Texas.
"This agreement again illustrates the FTC's commitment to ensuring that consolidation in the energy industry - particularly in the areas of oil and gas - does not adversely affect the competitive environment within the industry," said Richard Parker, Director of the FTC's Bureau of Competition.
According to the Commission's complaint in this matter, Phillips and Duke agreed on December 16, 1999, to transfer their natural gas gathering and processing businesses to DEFS. On December 21, 1999, Duke agreed to acquire Conoco and Mitchell's jointly held Oklahoma gas gathering and processing assets. Gas gathering involves the pipeline transportation of natural gas from a wellhead or central delivery point to a gas transmission pipeline or processing plant.
Following an investigation of the proposed transactions, the FTC determined that both the merger and acquisition could lead to competitive concerns in several counties in Kansas, Oklahoma and Texas. Accordingly, the complaint alleges that the transactions, if completed as proposed, would violate Section 5 of the Federal Trade Commission Act, as well as Section 7 of the Clayton Act, as amended.
The Commission identified seven relevant markets where gas producers were limited in their choice of gas gathering services, and were only able to turn to Phillips or Duke (or, at most, one other gatherer). In these areas, according to the complaint, the proposed merger and acquisition would reduce competition in the provision of gas gathering services, and would likely lead to anticompetitive increases in gathering rates and an overall reduction in drilling operations and production. It is unlikely, the FTC said, that such anticompetitive effects could be remediated by new entry into the gas gathering market in the relevant areas.
To remedy these concerns, under the terms of the consent order Duke would be required to divest a total of 2,787 miles of its pipeline systems in these markets. Of the assets to be sold under the order, 2,250 miles of pipeline would be divested to Duke's joint venture partners. In February of this year, Duke divested its interest in 800 miles of pipeline in the Westana area of Oklahoma to Western, a co-owner of the Westana Gathering Company. Duke has also agreed to divest its interest in 1,450 miles of pipe in the Austin Chalk area of Texas to Mitchell, a co-owner of Ferguson-Burleson County Gas Gathering System. The remaining 537 miles of pipeline would be sold to Commission-approved buyers under the terms of the order.
To satisfy the terms of the order, Duke must divest the assets within 120 days of its final acceptance by the Commission. If it fails to sell the 537 miles of pipe for which a buyer is not currently identified, Duke would be required to offer additional assets for sale ("crown jewels"), and if these additional assets are not sold, or if the sale to Mitchell is not completed, by the deadline, the Commission may appoint a trustee to sell the assets. As part of the order, Duke has also entered into an Asset Maintenance Agreement under which it has agreed to maintain the assets being divested (as well as the crown jewel assets) in their current condition, and provide gas gathering services on the same terms and conditions available to customers on March 1 of this year, until the assets are sold.
A summary of the consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 30 days, until May 1, 2000, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.
The Commission vote to accept the proposed consent agreement was 4-0, with Commissioner Thomas B. Leary recused.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.
Copies of the complaint, proposed consent agreement, and an analysis of the proposed consent order to aid public comment, are 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; 877-FTC-HELP (877-382-4357); 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. 001-0080)
Office of Public Affairs
FTC Southwest Region
Gary D. Kennedy