[Federal Register Volume 87, Number 63 (Friday, April 1, 2022)]
[Notices]
[Pages 19090-19092]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06945]


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FEDERAL TRADE COMMISSION

[File No. 211 0158/Docket No. C-4760]


EnCap/EP Energy; Analysis of Agreement Containing Consent Orders 
To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement; request for comment.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of Federal law prohibiting unfair methods of competition. 
The attached Analysis of Proposed Consent Orders to Aid Public Comment 
describes both the allegations in the complaint and the terms of the 
consent orders--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before May 2, 2022.

ADDRESSES: Interested parties may file comments online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Please write: ``EnCap/EP 
Energy; File No. 211 0158'' on your comment and file your comment 
online at https://www.regulations.gov by following the instructions on 
the web-based form. If you prefer to file your comment on paper, please 
mail your comment to the following address: Federal Trade Commission, 
Office of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 
(Annex D), Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Nina Thanawala (202-326-2824), Bureau 
of Competition, Federal Trade Commission, 400 7th Street SW, 
Washington, DC 20024.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, 
notice is hereby given that the above-captioned consent agreement 
containing a consent order to cease and desist, having been filed with 
and accepted, subject to final approval, by the Commission, has been 
placed on the public record for a period of thirty (30) days. The 
following Analysis of Agreement Containing Consent Orders to Aid Public 
Comment describes the terms of the consent agreement and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC website at 
this web address: https://www.ftc.gov/news-events/commission-actions.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before May 2, 2022. 
Write ``EnCap/EP Energy; File No. 211 0158'' on your comment. Your 
comment--including your name and your state--will be placed on the 
public record of this proceeding, including, to the extent practicable, 
on the https://www.regulations.gov website.
    Due to protective actions in response to the COVID-19 pandemic and 
the agency's heightened security screening, postal mail addressed to 
the Commission will be delayed. We strongly encourage you to submit 
your comments online through the https://www.regulations.gov website.
    If you prefer to file your comment on paper, write ``EnCap/EP 
Energy; File No. 211 0158'' on your comment and on the envelope, and 
mail your comment to the following address: Federal Trade Commission, 
Office of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 
(Annex D), Washington, DC 20580.
    Because your comment will be placed on the publicly accessible 
website at https://www.regulations.gov, you are solely responsible for 
making sure your comment does not include any sensitive or confidential 
information. In particular, your comment should not include sensitive 
personal information, such as your or anyone else's Social Security 
number; date of birth; driver's license number or other state 
identification number, or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. You are also 
solely responsible for making sure your comment does not include 
sensitive health information, such as medical records or other 
individually identifiable health information. In addition, your comment 
should not include any ``trade secret or any commercial or financial 
information which . . . is privileged or confidential''--as provided by 
Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 
16 CFR 4.10(a)(2)--including competitively sensitive information such 
as costs, sales statistics, inventories, formulas, patterns, devices, 
manufacturing processes, or customer names.
    Comments containing material for which confidential treatment is 
requested must be filed in paper form, must be clearly labeled 
``Confidential,'' and must comply with FTC Rule 4.9(c). In particular, 
the written request for confidential treatment that accompanies the 
comment must include the factual and legal basis for the request, and 
must identify the specific portions of the comment to be withheld from 
the public record. See FTC Rule 4.9(c). Your comment will be kept 
confidential only if the General Counsel grants your request in 
accordance with the law and the public interest. Once your comment has 
been posted on https://www.regulations.gov--as legally required by FTC 
Rule 4.9(b)--we cannot redact or remove your comment from that website, 
unless you submit a confidentiality request that meets the requirements 
for such treatment under FTC Rule 4.9(c), and the General Counsel 
grants that request.
    Visit the FTC website at https://www.ftc.gov to read this Notice 
and the news release describing this matter. The FTC Act and other laws 
the Commission administers permit the collection of public comments to 
consider and use in this proceeding, as appropriate. The Commission 
will consider all timely and responsive public comments it receives on 
or before May 2, 2022. For information on the Commission's privacy 
policy, including routine uses permitted by the Privacy Act, see 
https://www.ftc.gov/site-information/privacy-policy.

Analysis of Agreement Containing Consent Orders To Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted for 
public comment, subject to final approval, an Agreement Containing 
Consent Orders (``Consent Agreement'') from EnCap Investments L.P., 
EnCap Energy Capital Fund XI, L.P., Verdun Oil Company II LLC 
(``Verdun''), XCL Resources Holdings, LLC (``XCL'') (collectively, 
``EnCap''), EP Energy Corporation, and EP Energy LLC (collectively, 
``EP Energy'') (together with EnCap, ``Respondents''). The Consent 
Agreement is designed to remedy the anticompetitive effects that 
otherwise would result from EnCap's acquisition of EP Energy's crude 
oil production operations in the Uinta Basin in Utah.

[[Page 19091]]

    Under the terms of the proposed Decision and Order (``Order'') 
contained in the Consent Agreement, Respondents have agreed to divest 
to Crescent Energy Company (``Crescent'') the entirety of EP Energy's 
crude oil production operations in the Uinta Basin in Utah. Respondents 
must complete the transfer no later than 10 days after EnCap 
consummates its acquisition of EP Energy. The Commission has issued, 
and Respondents have agreed to comply with, an Order to Maintain Assets 
that requires Respondents to operate and maintain the divestiture 
assets in the normal course of business through the date the approved 
buyer acquires the divested assets.
    The Commission has placed the Consent Agreement on the public 
record for 30 days to solicit comments from interested persons. 
Comments received during this period will become part of the public 
record. After 30 days, the Commission will review the comments received 
and decide whether it should withdraw, modify, or make the proposed 
Order final.

II. The Respondents

    Respondent EnCap Investments L.P. is a limited partnership 
organized and doing business under the laws of Texas and serves as the 
limited partner for various private equity funds. EnCap Energy Capital 
Fund XI, L.P. is a private equity fund headquartered in Texas and 
operating multiple portfolio companies involved in the exploration, 
production, transmission, marketing and sale of energy, particularly 
oil and gas. EnCap operates two portfolio companies that are implicated 
by this transaction: XCL, a producer of waxy crude oil and natural gas 
in the Uinta Basin headquartered in Houston, Texas, and Verdun, a 
company also headquartered in Houston, Texas.
    Respondent EP Energy Corporation is a corporation organized and 
doing business under the laws of Delaware. Respondent EP Energy LLC is 
a limited liability company organized, existing, and doing business 
under and by virtue of the laws of the State of Delaware, with its 
office and principal place of business located in Houston, Texas. EP 
Energy has production operations in the Uinta Basin in Utah and in the 
Eagle Ford Shale in Texas.

III. The Transaction

    Pursuant to the Membership Interest Purchase Agreement dated July 
26, 2021, EnCap, through Verdun, has agreed to acquire EP Energy's 
crude oil and natural gas production operations in the Uinta Basin in 
Utah and in the Eagle Ford Shale in Texas (the ``Transaction'').
    The Commission's Complaint alleges that the Transaction violated 
Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and that the 
Transaction agreement constitutes a violation of Section 5 of the 
Federal Trade Commission Act, as amended, 15 U.S.C. 45, by 
substantially lessening competition for the development, production, 
and sale of Uinta Basin waxy crude to Salt Lake City area refiners.

IV. The Development, Production, and Sale of Uinta Basin Waxy Crude to 
Salt Lake City Area Refiners

    The Commission alleges that the relevant product market in which to 
analyze the Transaction is no broader than the development, production, 
and sale of Uinta Basin waxy crude to Salt Lake City area refiners. 
Uinta Basin waxy crude is classified as yellow or black. Yellow wax has 
lower levels of sulfur and asphalt and, as a result, requires less 
processing to refine into petroleum products that meet environmental 
standards. A narrower market exists for the development, production, 
and sale of Uinta Basin yellow waxy crude to Salt Lake City area 
refiners.
    Uinta Basin waxy crude possesses distinct characteristics that make 
it a desirable crude oil from which to refine petroleum products. Uinta 
Basin waxy crude contains high amounts of paraffin and low levels of 
sulfur and other undesirable impurities that would otherwise require 
greater processing to remove from petroleum wax and transportation 
fuels. It is also a relatively ``light'' crude oil, requiring less 
processing than other crude oils to make valuable transportation fuels 
and other petroleum-based products. Uinta Basin waxy crude's high wax 
content also makes it desirable for production of wax products, while 
its low percentage of aromatic hydrocarbons renders it useful for 
making lubricants. Unlike many other crudes, Uinta Basin waxy crude's 
paraffin content makes it almost solid at ambient temperatures, 
requiring heat to liquify the resource for transport into or out of 
truck, rail, or storage.
    Salt Lake City area refiners have made significant investments in 
plant and equipment to optimize their refineries to run Uinta Basin 
yellow and black waxy crudes. Although other crudes are available to 
Salt Lake City area refiners, those crudes would not, in the event of a 
small but significant price increase in waxy crude, sufficiently 
constrain the price increase to the relevant customers.
    The relevant geographic market in which to analyze the Transaction 
is no broader than the Uinta Basin. Almost all sales of Uinta Basin 
waxy crude to the Salt Lake City area refineries occur in the Uinta 
Basin, with customers providing transportation to their locations. 
Alternatively, the relevant geographic market is the Salt Lake City 
area. Producers currently can, and do, charge higher net prices for 
Uinta Basin waxy crude sold to Salt Lake City area refineries than for 
sales to other customers. The Salt Lake City area refineries cannot 
evade price discrimination because producers sell Uinta Basin waxy 
crude to other customers on a delivered basis. High transportation 
costs would make it cost prohibitive for a Salt Lake City refiner to 
purchase Uinta Basin waxy crude delivered to refineries located outside 
the Salt Lake City area.
    The Transaction would substantially lessen competition in this 
market. Four producers--EP Energy, XCL, Ovintiv, and Uinta Wax/Finley 
Resources (Uinta Wax is a joint venture between Finley Resources and 
CH4 Energy Six)--account for over 80 percent of all Uinta Basin 
production. No other producer accounts for a significant amount of 
Uinta Basin development and production.
    The Transaction, if consummated, would eliminate substantial head-
to-head competition between EnCap and EP Energy for the development, 
production, and sale of Uinta Basin waxy crude to targeted Salt Lake 
City area refiners. By dramatically increasing the size of EnCap's 
Uinta Basin waxy crude business and taking the market from four 
significant players to three, the Transaction would increase the 
incentive and ability of EnCap to reduce supply to these refiners and 
increase prices.
    Producers recognize that consolidation with in-basin peers 
materially enhances their leverage with refiners in the Salt Lake City 
area. Historically, Uinta Basin producers have received higher realized 
prices when Uinta Basin waxy crude production falls short of demand 
from Salt Lake refiners. Post-closing, EnCap could increase prices for 
Salt Lake City area refiners by slowing development and production, and 
by reducing the quantity of waxy crude available to the Salt Lake City 
area refineries through strategic exports of waxy crude to Gulf Coast 
area refineries.
    The Transaction would also eliminate EP Energy's head-to-head 
competition with EnCap and other large waxy crude producers and 
increase the risk of coordination. Today, EP Energy

[[Page 19092]]

competes aggressively with other Uinta Basin waxy crude producers. 
Post-Transaction, the smaller number of Uinta Basin waxy crude 
producers could more easily coordinate rail exports, production plans, 
and contract terms to increase waxy crude prices for Salt Lake City 
area refiners.
    XCL's internal, high-level analysis and strategy documents 
acknowledged the likely competitive effects from the Transaction from 
the beginning of the process up to and including during the 
Commission's investigation. During a January 15, 2021 meeting, an XCL 
Board member noted that a combination with EPE would create $35-75 
million in marketing synergies and that it was a ``[d]efensive move 
with EP currently communicating 20+ wells per year to SLC refiners. Go 
from 14% of wax supply to 30-40%.'' \1\ A May 18, 2021 XCL Technical 
Meeting presentation, attended by most of the XCL Board members, stated 
that the Transaction would result in ``Increasing Scale in our Basin--
taking out 1 of 4 major producers, 40%+ of Wax Market, Driver's seat.'' 
\2\ An August 25, 2021 memorandum to the Advisory Board of EnCap XI 
similarly emphasized the small number of significant players, stating 
that the ``. . . the Uinta is . . . largely controlled by three 
operators.'' \3\
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    \1\ ENC-FTC-200034640 (Jan. 17, 2021); see also EnCap 4(c)-4 
(Jan. 15, 2021).
    \2\ EnCap 4(c)-8 at 63 (May 18, 2021); EnCap Resp. to VRL Req. 
12 (Feb. 21, 2022).
    \3\ ENC-FTC-201680452, at ENC-FTC-201680453 (Aug. 25, 2021).
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V. The Proposed Order and the Order To Maintain Assets

    The proposed Order and the Order to Maintain Assets would remedy 
the Transaction's likely anticompetitive effects by requiring EnCap to 
divest the entirety of EP Energy business and assets in or relating to 
the state of Utah, including the business of oil and gas exploration, 
production, research, development, gathering, transportation, 
distribution, marketing, and sales in or from the Uinta Basin, to 
Crescent. Respondents must also divest additional assets if the 
Commission determines that additional assets are necessary to achieve 
the purpose of the proposed Order within the first year after the Order 
is issued. Crescent is an experienced operator in the development, 
production and sale of crude oil and natural gas, and will be a new 
entrant in the Uinta Basin. The Commission retains the right to appoint 
a Trustee to find another buyer of the divestiture assets if it 
determines Crescent is not an acceptable buyer.
    The proposed Order requires that the divestiture be completed no 
later than 10 days after EnCap consummates the Transaction. The 
proposed Order and the Order to Maintain Assets further require EnCap 
to operate and maintain the divestiture assets in the ordinary course 
of business, including maintaining the economic viability, 
marketability, and competitiveness of the divestiture assets until 
Crescent completes its acquisition of the divestiture assets.
    The proposed Order contains additional provisions designed to 
ensure the effectiveness of the relief. For example, the proposed Order 
also requires the Respondents to grant Crescent a perpetual license to 
use any retained intellectual property, and to obtain all other 
consents or authorizations to consummate the sale of the divestiture 
assets from all necessary third parties or governmental entities. 
Respondents are required to provide Crescent with transitional 
assistance for up to 180 days following the divestiture of the assets 
and must cooperate with and assist Crescent to evaluate and offer 
employment to employees involved in the business and assets subject to 
divestiture. Respondents have also agreed not to enforce any employee 
noncompete or non-solicitation agreements against Crescent. Finally, 
the proposed Order also provides for the appointment of an independent 
Monitor to oversee the Respondents' compliance with the requirements of 
the Order.
    In addition to requiring the asset divestitures, the proposed Order 
requires EnCap to obtain prior approval from the Commission before 
making certain future acquisitions in the Utah counties that encompass 
the Uinta Basin (Duchesne, Uintah, Utah, Grand, Emery, Carbon, and 
Wasatch) over the next ten years.
    The proposed Order also requires Crescent to obtain prior approval 
from the Commission before transferring all or substantially all of the 
divested assets to any buyer for the first three years after Crescent 
acquires the divestiture assets. For the seven years following the 
initial three-year period, the proposed Order requires Crescent to 
obtain prior approval from the Commission before transferring all or 
substantially all of the divested assets to a buyer engaged in the 
development, production, or sale of waxy crude in the Uinta Basin.
    The purpose of this analysis is to facilitate public comment on the 
Consent Agreement, and the Commission does not intend this analysis to 
constitute an official interpretation of the proposed Order or to 
modify its terms in any way.

    By direction of the Commission.
April J. Tabor,
Secretary.
[FR Doc. 2022-06945 Filed 3-31-22; 8:45 am]
BILLING CODE 6750-01-P