Flying Under the Federal Radar: Deals Under the HSR Filing Threshold Provide Scrutiny-Free Opportunities for Operators

Oil and Gas mergers HSR

 

Oil and Gas Mergers and Acquistions: A $100 Billion Shift

As happens periodically, consolidation mania has once again seized the oilpatch.  There have been multiple oil and gas acquisitions totaling over $100 billion by some of the top producing oil and gas companies – including, among others, Chevron, ExxonMobil, Occidental Petroleum (“Oxy”). First, ExxonMobil announced its deal with Pioneer Natural Resources, following Chevron’s announcement that it would acquire Hess Corporation.  Later, Oxy announced their blockbuster acquisition of CrownRock.  Just before the publication of this article, the news broke that Chesapeake Energy would be merging with Southwestern Energy to create the largest natural gas production in the U.S.

Antitrust Regulations in the Oil and Gas Industry

These types of large acquisitions often implicate federal antitrust laws that prohibit anticompetitive mergers and acquisitions.  One of the main federal antitrust laws is the Clayton Act, originally passed by Congress in 1914.  Specifically, the Clayton Act, as amended, governs mergers and acquisitions where the effect “may be substantially to lessen competition, or tend to create a monopoly.”[1]  Additionally, the Hart-Scott-Rodino (“HSR”) Act established the federal premerger notification program, which requires companies planning to engage in a large merger or acquisition to notify the government of their planned deal prior to its completion by completing an HSR Form, also called a “Notification and Report Form for Certain Mergers and Acquisitions.” [2]  The parties may not close their deals until the waiting period outlined in the HSR Act has passed, or the government has granted early termination of the waiting period.[3]  These Acts provide the basis for the Federal Trade Commission (“FTC”) and the Department of Justice to investigate and potentially block mergers and acquisitions if found to be anticompetitive.

FTC Investigations and Industry Response

Currently, the FTC has sent investigative requests to Chevron, Hess, Pioneer, and ExxonMobil.  Pioneer and ExxonMobil are seemingly cooperating with the investigation, and both expect their deals to close in 2024.  There has been no evidence of the FTC investigating the Oxy/CrownRock merger, but this merger is of lesser value than the others.  Further, the FTC has discretion to initiate the investigation.

HSR Filing Requirements and Threshold Tests

There are three tests that must be met in order for the HSR filing to be required: (1) the commerce test, (2) the size-of-transaction test, and (3) the size-of-person test.  The commerce test is met if either party is engaged in commerce or in any activity affecting commerce.  The size of transaction test is slightly more complex because there are rules to determine the value of the transaction.  If the transaction is valued above $111.4 million[4] but is $445.5 million (as adjusted) or less, only those transactions that also meet the size-of-person test require a filing.  If the transaction is valued in excess of $445.5 million, (as adjusted), and no exemption applies, an HSR filing must be completed, and parties must wait until the statutory waiting period has expired before closing their deal.  The size-of-person test is necessary if the transaction is valued in excess of $111.4 million (as adjusted) but is $445.5 million (as adjusted) or less.  The basic “size-of-person test” established by Section 7A(a)(2) of the HSR Act requires a filing in transactions valued in excess of $111.4 million (as adjusted) but at $445.5 million (as adjusted) or less only where at least one of the persons involved in the transaction has $222.7 million (as adjusted) or more in annual net sales or total assets, and the other has $22.3 million (as adjusted) or more.[5]  Thus, parties do not need to complete an HRS filing if the size thresholds are not met. The discussed large oil and gas acquisitions required premerger notifications because the transactions all had values exceeding $445.5 million.

For a full review of the revised 2024 Merger Guidelines issued by the Department of Justice and the Federal Trade Commission, please click here: Merger Guidelines (ftc.gov).

This update was authored by Patrick Schenkel and Kate Brasseux.

Tailored Solutions for Oil and Gas Transactions

Oliva Gibbs is a boutique oil and gas firm that has a great deal of experience with asset deals valued under $115 million that do not require federal scrutiny or an HSR filing.  We can often provide cost-effective alternatives to the big firms in these smaller cap deals.  Our services include negotiating and drafting letters of intent, letter agreements, purchase and sale agreements, due diligence, and post-closing issues.[6]

We also routinely partner with large firms to advise on PSA issues, defects, valuations, and diligence, and serve as local counsel on large, market-leading transactions.

References

[1] 15 U.S.C.A. § 18 (West).

[2] Hart-Scott-Rodino Premerger Notification Program Introductory Guide II: To File or Not to File, FTC.gov/BC/HSR.

[3] Id.

[4] Thresholds adjusted on Feb 27, 2023, remain in effect until early 2024.

[5] Id.

[6] We note that Oliva Gibbs does not handle tax issues, SEC filings, or related matters.

Patrick represents clients on acquisitions and divestitures, complex mineral titles, pooling issues, lease analysis, joint operating agreements, surface use issues and title curative.

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