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The US shale oil industry faces a barrage of lawsuits alleging some of the largest companies in the sector colluded to curb output and raise prices, after similar claims were made by US antitrust regulators.
ExxonMobil, Occidental Petroleum and Diamondback Energy are among the companies named in at least 10 class actions alleging they conspired to co-ordinate and constrain shale oil production, which had the effect of raising US retail petrol prices.
The most recent lawsuit was filed on Monday in the district court for New Mexico, just days after the Federal Trade Commission accused Scott Sheffield, the former boss of Pioneer Natural Resources, of trying to collude with Opec to drive up oil prices.
The lawsuits take aim at the industry’s model of capital discipline, in which producers have pivoted from rapidly building up production in response to high prices in recent years in favour of funnelling cash back to investors.
Plaintiffs in New Mexico alleged the group’s collective failure to open the taps as crude prices soared in the wake of Russia’s invasion of Ukraine was a departure “from their historical practice and rational independent self-interest”.
The lawsuits have been thrust into the spotlight by the FTC’s bombshell findings last week, in which it alleged Sheffield attempted to co-ordinate production levels with the Opec cartel and other US producers to “pad Pioneer’s bottom line . . . at the expense of US households and businesses” and barred him from the Exxon board after the close of the companies $60bn merger.
Pioneer, now owned by Exxon, said it disagreed with the FTC’s complaint, which it said “reflects a fundamental misunderstanding of the US and global oil markets” and “misreads the nature and intent of Mr Sheffield’s actions”. In a separate statement, Exxon said the FTC’s allegations regarding Sheffield are “entirely inconsistent with how we do business”.
Six other companies named in the class actions — Permian Resources, Chesapeake Energy, Continental Resources, Diamondback, Hess and EOG — did not respond to requests for comment. Occidental said it believes the claims are “baseless” and it intends “to defend the company vigorously.”
Thomas Burt, partner at Wolf Haldenstein, a law firm representing plaintiffs in the New Mexico case, said he expected more lawsuits to follow. He is representing drivers in Illinois, Colorado, Nevada and Massachusetts, who allege they paid higher prices for petrol because of the conspiracy.
“Not for the first time, people in the oil business made a mess that will take a lot to clean up,” Burt said. “Damages are significant. The class is likely to encompass roughly four years of gasoline sales to two-thirds of American consumers.”
Most of the class actions filed against shale companies predate last week’s FTC decision on Sheffield and have relied mainly on public comments by oil executives and media articles to make their arguments. The FTC action will encourage lawyers to mine evidence unearthed by the agency during its Exxon-Pioneer merger investigation, say legal experts.
Eric Grannon, an antitrust lawyer at White & Case law firm, said the FTC allegations of collusive behaviour in the Exxon-Pioneer order did not carry any legal effect in the class-action lawsuits. But he said it would probably lead to copycat cases and provide some clues for them on where to look for evidence.
“Private class-action lawyers will no doubt try and follow those FTC breadcrumbs in discovery in their own cases,” he said.
This week lawyers representing plaintiffs in the Nevada cases asked a judge to force Pioneer to hand over WhatsApp messages and other communications by Sheffield, some of which are detailed in the FTC order. Pioneer had initially refused this request.
Stuart Gross, an attorney at law firm Gross Klein PC, said: “We now know a consolidated body of evidence exists and that it has been identified and organised. So the defendants will have a hard time arguing that we are not entitled to it.”
Gross is representing commercial fishermen in a class action suit filed in Nevada against the same eight shale oil companies. The case alleges the companies colluded with Opec to artificially raise the price of marine fuel, citing “exclusive dinners” held with members of the cartel, private calls and meetings.
“Opec members are open about their cartel behaviour, confident that sovereign immunity will protect them from answering for it in US courts. These US oil companies enjoy no such protection and will be held to account,” Gross said.
The class actions allege the shale companies violated the Sherman Act — a federal law designed to promote competition by prohibiting companies from colluding or merging to form a monopoly — as well as state antitrust and consumer protection laws.
But legal experts said the allegations levelled at Sheffield in the FTC order had not been tested in court and it was not yet known whether the agency would refer the matter to the Department of Justice for further investigation.
Grannon said it was far from clear that the statements gathered by the FTC are evidence of collusion. “A unilateral statement by an executive, even to their competitors, that it’s in their common interest to raise prices or cut output is not a violation of the antitrust laws. It’s only a violation if there’s agreement,” he said.