CELEX: 32014M7316
Language: en
Date: 2014-09-10 00:00:00
Title: Commission Decision of 10/09/2014 declaring a concentration to be compatible with the common market (Case No COMP/M.7316 - DET NORSKE OLJESELSKAP / MARATHON OIL NORGE) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

|[pic]                             |EUROPEAN COMMISSION                                                                                      |
|                                  |Competition DG                                                                                           |
|                                  |                                                                                                         |
|                                  |                                                                                                         |
|                                  |Markets and cases I: Energy and Environment                                                              |

Brussels, 10/09/2014
C(2014) 6487 final

|                                                            |                                                                       |
|                                                            |                                                                       |
|To the notifying party:                                     |                                                                       |
|                                                            |                                                                       |

Dear Sir/Madam,

Subject:    Case M.7316 – DET NORSKE OLJESELSKAP/ MARATHON OIL NORGE
Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004[1]

   1. On 5 August 2014, the European Commission received the notification of a proposed  concentration  pursuant  to  Article  4  of  the  Merger
      Regulation by which the undertaking Det norske oljeselskap ASA ("Det norske", Norway), ultimately controlled by Aker ASA ("Aker",  Norway),
      acquires within the meaning of Article 3(1)(b) of the Merger Regulation control of the whole of Marathon Oil Norge AS (“Marathon”  Norway),
      by way of purchase of shares[2]. Det norske oljeselskap ASA is designated hereinafter as the "Notifying Party" and together  with  Marathon
      Oil Norge AS as "parties to the proposed transaction".

1. THE PARTIES

   2. The Notifying Party is active in the exploration, production and wholesale (“E&P”) of oil  and  gas  on  the  Norwegian  continental  shelf
      ("NCS"). Aker, which controls the Notifying Party, is active - through its subsidiaries Aker Solutions  ASA,  Kvaerner  ASA  and  Align  AS
      (collectively referred to as the "Aker Group") - in the production and sale of specialised equipment for E&P companies on a global level as
      well as in the provision of operation and maintenance services for E&P companies with a focus on the North  Sea.  Aker  Solutions  provides
      Engineering, Procurement, Construction and Installation ("EPCI") services, Maintenance, Modification and Operation ("MMO") services as well
      as subsea light well intervention services, and supplies subsea production systems ("SPS") as well as subsea umbilicals to  E&P  companies.
      Kvaerner provides EPCI services to E&P companies. Align provides operation and maintenance services for safety products and systems to  E&P
      companies.

   3. Marathon is active in exploration, production and sale of oil and gas on the NCS.

2. THE OPERATION AND THE CONCENTRATION

   4. Marathon is currently a wholly-owned subsidiary of Marathon Norway Investment Cooperatief U.A. ("Marathon  Group",  Norway).  The  Marathon
      Group will transfer 100% of the shares in Marathon to the Notifying Party. Following the transaction,  the  Notifying  Party  will  control
      Marathon. The notified operation therefore constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

3. EU DIMENSION

   5. The undertakings concerned had in 2013 a combined aggregate world-wide turnover of more than EUR 5 000 million (Aker: EUR  7  886  million,
      Marathon: EUR 2 392 million).[3] At least two of them had an EU-wide turnover in  excess  of  EUR  250  million  (Aker:  EUR  778  million,
      Marathon: EUR 2 391 million), but they did not achieve more than two-thirds of their aggregate EU-wide turnover within  one  and  the  same
      Member State. The notified operation therefore has an EU dimension pursuant to Article 1(2) of the Merger Regulation.

4. COMPETITIVE ASSESSMENT

1 market definition

      Upstream wholesale of crude oil

   6. The Parties are both active in the upstream wholesale of crude oil (development, production and wholesale of crude oil). The Commission has
      previously considered the wholesale of crude oil as a separate product  market,[4]  which  was  generally  considered  to  be  EEA-wide.[5]
      However, with regard to specific 'difficult to reach' customers such as refineries in certain land-locked EEA countries, the Commission has
      previously considered that the geographic scope could be limited to the crude oil supply pipeline such  as  the  Druzhba  pipeline.[6]  The
      Notifying Party agrees with the product market definition but argues that the scope of the  market  should  be  worldwide.  The  Commission
      considers that the exact scope of the geographic market can be left open as the transaction does not give rise to serious doubts under  the
      narrowest plausible market definition.

      Upstream wholesale of natural gas

   7. The Parties are both active in the upstream wholesale of natural gas (development, production and wholesale of natural gas). The Commission
      has previously defined a separate product market for the upstream wholesale of natural gas,[7] which was considered to be EEA-wide  from  a
      demand-side perspective.[8] However, from a supply-side perspective, the Commission considers that the geographic scope of the market might
      be limited to the relevant pipelines systems and would therefore be rather regional or national.[9] The Notifying Party  agrees  with  this
      product definition but argues that the geographic market should be regional comprising the NCS as well as neighbouring Norway and  the  UK.
      In any case, the Commission considers that the exact scope of the geographic market can be left open as the transaction does not give  rise
      to serious doubts under the narrowest plausible market definition.

      MMO services

   8. Aker Solutions and Kvaerner provide so-called MMO services to the E&P industry. MMO services cover maintenance, modification and  operation
      of existing platforms over the entire lifetime of a developed field. The Commission has in the past considered a separate  NCS-wide  market
      for MMO services for existing platforms which it considered to be distinct from the market for EPCI contracts for the construction  of  new
      platforms.[10] The Notifying Party agrees with the market definition which is retained for the case at hand.

      Subsea production systems

   9. Aker Solutions produces and sells subsea production system ("SPS") to the E&P industry. The Commission has previously considered  that  the
      market for the production and sale of SPS may be further sub-segmented into (1) subsea Christmas trees, which are located on top  of  every
      well, ensuring its integrity and enabling the system operator to control the production, (2) subsea manifold, which consists of a system of
      headers and branched piping that gather or distribute fluids, and (3) subsea control systems,  which  provide  the  means  to  control  and
      monitor a subsea production system from a remote location.[11] According to previous Commission cases, the  geographic  markets  for  these
      products are at least EEA-wide and potentially worldwide in scope.[12] The Notifying Party agrees with the production market definition but
      argues that the relevant geographic market should be considered worldwide in scope. In any case, the Commission considers  that  the  exact
      scope of the geographic market can be left open as the transaction does not give rise to  serious  doubts  under  the  narrowest  plausible
      market definition.

      Subsea umbilicals

  10. Aker Solutions provides subsea umbilicals to the E&P industry. There are no  previous  Commission  precedents  on  the  market  for  subsea
      umbilicals. According to the Notifying Party, the market for subsea umbilicals can be sub-segmented into (1) subsea power umbilicals, which
      transmit power from the platform to the electrical applications of the subsea production  systems  and  (2)  steel  tube  umbilicals  which
      transport hydraulic fluids from the platform to the valves of the subsea production system. The Notifying Party submits that the  scope  of
      both markets is worldwide, because the main producers sell globally, E&P customers purchase globally  and  transport  costs  are  low.  The
      market investigation indicated that the market is at least EEA-wide. This is also  in  line  with  Commission  precedents  regarding  other
      equipment for the E&P industry such as the various products for SPS.[13] The Commission therefore considers the markets  for  subsea  power
      umbilicals and subsea steel umbilicals to be at least EEA-wide and potentially worldwide in scope. The exact scope of the geographic market
      can be left open since the transaction does not give rise to serious doubts under the narrowest  plausible  geographic  market  definition,
      which is the EEA-wide market.

2 Competitive assessment

3 Horizontal overlaps

      Upstream wholesale of crude oil

  11. The Parties' combined share in the EEA-wide upstream wholesale market of crude oil is less than 3% in  2013  by  volume  and  value.  On  a
      worldwide market the parties' combined share is well below 1 % by value and volume. As regards sales via pipeline networks, only Det norske
      transports small quantities of its crude oil via pipeline to the UK, Norway and Denmark,  none  of  which  is  a  landlocked  country.  The
      majority of Det norske's crude oil and all of Marathon's crude oil is transported via shuttle tanker to its destinations. Moreover, the new
      entity will face strong competition from a number of large integrated international oil companies such as Statoil, Exxon and Total.

      Upstream wholesale of natural gas

  12. Both Parties are active in the upstream wholesale market of natural gas on the NCS. However, their combined production  accounts  for  less
      than 1 % of the production on the NCS and even smaller at the North Sea level. As regards national markets, Marathon delivers  all  of  its
      natural gas production via the Scottish Area Gas Evacuation pipeline (“SAGE”) to the UK. DetNorske sells its natural gas  directly  at  the
      field to large international oil companies such as [Customer names] and has no control over where these companies ship their gas.  However,
      even if all of DetNorske's gas were to be sold to the UK, the Parties' combined sales in 2013 would still account for less than 1%  of  the
      UK consumption. Moreover, the new entity would face competition from large integrated gas companies such as Statoil, Shell and Talisman.

      Conclusion on horizontal overlaps

  13. On the basis of the above, the transaction does not raise serious doubts as to its compatibility with the internal market as  a  result  of
      the horizontal overlaps.

   4 Vertical relations

  14. The transaction leads to vertically affected markets with regard to the activity of the Aker Group on the  market  for  MMO  services,  the
      market for subsea production systems ("SPS") and the market for subsea umbilicals on the one hand and the Parties' activity on the upstream
      wholesale markets for crude oil and natural gas on the other hand.

      MMO services / Upstream Wholesale of Crude Oil and Natural Gas

  15. The Aker Group (through Aker Solutions) provides MMO services to E&P companies while the Parties  are  active  in  the  upstream  wholesale
      markets for crude oil and natural gas on the NCS.

  16. However, the Commission considers it unlikely that the Aker Group will have the ability to engage in input foreclosure with regard  to  MMO
      services to the detriment of the E&P competitors of the new entity. Although the share of the Aker Group in the market for the provision of
      MMO services on the NCS amounts to [30-40]% in 2013, it faces strong competition from other significant players such as Aibel ([20-30]%) or
      Apply Sørco ([10-20]%) and there are no indications that these competitors have capacity  constraints  with  regard  to  their  ability  to
      provide MMO services. Furthermore, the Aker Group’s customers are themselves large companies which are able and willing to  purchase  these
      services outside on a global level, should the Aker Group raise its prices or degrade the quality of its services  in  any  other  way.  It
      seems therefore likely that E&P companies would switch to another supplier, if the Aker Group would engage in  any  foreclosure  activities
      with regard to its MMO services on the NCS. This was also confirmed by the Parties’ competitors in the market investigation.

  17. Furthermore, the Commission considers it unlikely that the Aker Group will have the  incentive  to  engage  in  input  foreclosure  to  the
      detriment of the competitors of the new entity. Such a strategy would not enable the new entity to increase its output  by  obtaining  more
      exploration licences, because the Norwegian State grants these licences irrespective of the identity of  the  different  suppliers  of  the
      license taker. In fact, the E&P companies usually tender out supply contracts only after having obtained a licence for a new field.

  18. Moreover, the Commission considers it unlikely that the new entity will have the ability to engage in customer foreclosure to the detriment
      of the competitors of the Aker Group, because the Parties combined shares in 2013 for the markets  for  the  wholesale  of  crude  oil  and
      natural gas did not exceed 3% for the EEA-wide market for crude oil (by volume and value) and 1% for the regional or national  markets  for
      natural gas (by volume and value). Furthermore, the new entity will face competition from large international companies  on  all  of  these
      markets, such as Statoil, Total, ConocoPhilips and others.

      Subsea production systems / Upstream Wholesale of Crude Oil and Natural Gas

  19. Aker Solutions is active in the sale of SPS, which can be sub-segmented into Christmas trees, manifolds and subsea control  systems,  while
      the Parties are active in the markets for development, production and wholesale of crude oil and natural gas.

  20. However, the Commission considers it unlikely that the Aker Group will have the ability to engage in input foreclosure with regard  to  the
      supply of SPS to the detriment of the E&P competitors of the new entity. As regards Christmas trees, the Aker Group had an EEA market share
      of [20-30]% by value between 2011 and 2013, but faces competition from companies such as GE Oil and Gas ([30-40]%), FMC Technologies  ([20-
      30]%) or OneSubsea ([10-20]%) and there are no indications that these competitors have capacity constraints with regard to this product. As
      regards manifolds, the Aker Group had an EEA market share of [40-50]% by value between 2011 and 2013, but faces competition from  companies
      such as FMC Technologies ([30-40]%), OneSubsea ([5-10]%) or GE Oil and Gas ([0-5]%) and there are no  indications  that  these  competitors
      have capacity constraints with regard to this product. As regards subsea control systems, the Aker Group had an EEA market  share  of  [60-
      70]% by value between 2011 and 2013, but faces competition from companies such as GE Oil and Gas ([10-20]%), FMC Technologies ([10-20]%) or
      OneSubsea ([5-10]%) and there are no indications that these competitors have capacity constraints with regard to this product. In addition,
      the market investigation confirmed that the Aker Group’s customers are themselves large companies which are able and  willing  to  purchase
      these services outside on a global level, should the Aker Group engage in input foreclosure (see para. 16).

  21. Furthermore, the Commission considers it unlikely that the Aker Group will have the  incentive  to  engage  in  input  foreclosure  to  the
      detriment of the competitors of the new entity (see para. 17 above).

  22. Moreover, it also seems unlikely that the new entity will have the ability to engage in  customer  foreclosure  to  the  detriment  of  the
      competitors of the Aker Group (see para. 18 above).

      Subsea umbilicals / Upstream Wholesale of Crude Oil and Natural Gas

  23. The Aker Group (through Aker Solutions) provides subsea power umbilicals and subsea steel umbilicals to E&P companies,  while  the  Parties
      are active in the markets for development, production and wholesale of crude oil and natural gas.

  24. However, the Commission considers it unlikely that the Aker Group will have the ability to engage in input foreclosure with regard  to  the
      supply of subsea umbilicals to the detriment of the E&P competitors of the new entity. As regards subsea power umbilicals, the  Aker  Group
      [had a market share of less than 5%] in the EEA between 2011 and 2013, because [number of contracts awarded to Aker  during  this  period].
      Moreover, on a global market, the Aker Group has a market share of only [0-5]% with regard to this product and faces competition from large
      international companies such as Nexans ([60-70]%) and Oceaneering ([30-40]%) and there are  no  indications  that  these  competitors  have
      capacity constraints with regard to this product. As regards subsea steel umbilicals, the Aker Group had an EEA market share of [30-40]% by
      volume between 2011 and 2013, but faces competition from  international  companies  such  as  Nexans  ([30-40]%),  Technip  ([10-20]%)  and
      Oceaneering ([5-10]%) and there are no indications that these competitors have  capacity  constraints  with  regard  to  this  product.  In
      addition, the market investigation confirmed that Aker Group’s customers are themselves large companies  which  are  able  and  willing  to
      purchase these services outside on a global level, should the Aker Group engage in input foreclosure (see para. 16).

  25. Furthermore, the Commission considers it unlikely that the Aker Group will have the  incentive  to  engage  in  input  foreclosure  to  the
      detriment of the competitors of the new entity (see para. 17 above).

  26. Moreover, the Commission considers it unlikely that the new entity will have the ability to engage in customer foreclosure to the detriment
      of the competitors of the Aker Group (see para. 18 above).

      Conclusion on vertical relations

  27. On the basis of the above, the transaction does not raise serious doubts as to its compatibility with the internal market as  a  result  of
      the vertical overlaps.

5. CONCLUSION

  28. For the above reasons, the European Commission has decided not to oppose the notified operation and  to  declare  it  compatible  with  the
      internal market and with the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of the Merger Regulation.

For the Commission
(signed)
Joaquín ALMUNIA
Vice-President

-----------------------
[1]   OJ L 24, 29.1.2004, p. 1 ('the Merger Regulation'). With effect from 1 December 2009, the Treaty on the Functioning of the  European  Union
      ('TFEU') has introduced certain changes, such as the replacement of 'Community' by 'Union' and 'common market' by  'internal  market'.  The
      terminology of the TFEU will be used throughout this decision.
[2]   Publication in the Official Journal of the European Union No C 262,12.08.2014, p. 8.
[3]   Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Commission Consolidated Jurisdictional  Notice  (OJ  C
      95, 16.4.2008, p. 1).
[4]   COMP/M.6801 - Rosneft/TNK-BP; COMP/M.2681 - Conoco/Philipps Petroleum; COMP/M.1532 - BP Amoco/Arco.
[5]   COMP/M.5629 - Normeston/Normeston/Mol/Met JV, para.15; COMP/M.4208 - Petroplus/European Petroleum  Holdings,  para.10;  Case  No.  IV/85  -
      Elf/Occidential, para.8.
[6]   COMP/M.6801 Rosneft/TNK-BP (2013).
[7]   COMP/M.6801 – Rosneft/TNK-BP,  para.12;  COMP/M.4545,  Statoil/Hydro,  para.13-16.  COMP/M.1532,  BP  Amoco/Arco,  para.  14;  COMP/M.1383,
      Exxon/Mobil, para. 16; COMP/M.3440 – EDP/ENI/GDP, COMP/M.3696 – E.ON/MOL; COMP/39315 – ENI.
[8]   COMP/M.1383 Exxon/Mobil (1999), para.18; COMP/M.1532 BP-Amoco/Arco (1999) para.16-17.
[9]   COMP/M.6801 Rosneft/TNK-BP (2013), para.12; COMP/M.4545 Statoil/Hydro (2007), para.13-16.
[10]  COMP/M.2117 – Aker/Kvaerner, para. 52 et seq. and 62 et seq. (not published, but see IP/00/1425).
[11]  COMP/M.6854 – Cameron/Schlumberger/OneSubsea, para.19/23.
[12]  COMP/M.6854 – Cameron/Schlumberger/OneSubsea, para. 26-28.
[13]  COMP/M.6854 – Cameron/Schlumberger/OneSubsea.

-----------------------
 In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC)  No  139/2004
 concerning non-disclosure of business secrets and other confidential information.  The  omissions  are  shown  thus  […].  Where  possible  the
 information omitted has been replaced by ranges of figures or a general description.

                                                                  PUBLIC VERSION

                                                                 MERGER PROCEDURE