FOIA Requests Target Scott Sheffield, King of the Frackers, Amid Reports of a Criminal Referral
This week, we’re looking into how antitrust enforcers used their approval of an oil-industry megadeal to send a message about white-collar criminality.
It’s a cautionary tale for companies and executives – and Freedom of Information Act requests to the Federal Trade Commission provide an illuminating subtext to the whole affair.
Here’s what we know:
Depending on who’s talking, the fracking tycoon Scott Sheffield is either one of the shrewdest guys in the Texas oil patch, or a big-time price fixer who ought to be in jail.
The two versions of Sheffield’s story are so discordant, you almost have to believe that somebody’s making one of them up. Sheffield certainly believes that. After all, he can claim the bona fides of an exemplary life: a slew of humanitarian awards; longtime member of the Hall of Fame at the Permian Basin Petroleum Museum.
There’s not much to debate about his business savvy. Sheffield joined his father-in-law’s oil-drilling company as its fifth employee, five years after graduating from the University of Texas with a petroleum engineering degree. He took over the company at age 33 and started making big bets that paid off.
With a wildcatter’s bravado, Sheffield in 1997 merged his company with T. Boone Pickens’ Mesa Petroleum, renamed it Pioneer Energy, and put his focus on an oil field that bigger players had up to then largely ignored: the Permian Basin in West Texas. New technology for hydraulic fracking unlocked vast reserves – and Pioneer struck it rich, with almost a million acres under lease and 711,000 barrels of oil and gas produced each day. No driller had more acreage or got more oil and gas out of the Permian Basin.
Along the way, Sheffield, now 72 years old, got rich. He earned $19 million a year and held Pioneer stock worth $160 million.
Last October, Sheffield decided it was time to sell it all. He cut a deal with Exxon Mobil and sold his company, by then called Pioneer Natural Resources, in May for $64.5 billion. “Not a decision I have made lightly,” Sheffield told his employees in a memo. Sheffield, now officially retired, was promised an Exxon board seat as part of the acquisition.
Naturally, there would be an antitrust investigation. The FTC’s Bureau of Competition lawyers started asking questions and gathering documents, and they questioned Sheffield under oath for four hours in April. A month later, in a surprise, the Commission voted to let the deal go through – but only if Sheffield was barred, by a consent order now pending agency approval, from becoming an Exxon director.
With Sheffield’s board seat the only thing standing in the way of the deal, Exxon took the easy win and kicked Sheffield off its slate. The huge deal closed the next day.
But that wasn’t the worst of it for Sheffield. The FTC, in a 3-2 party-line vote, also went public with its thinking that maybe, just maybe, Sheffield was a price fixer whom the Justice Department should go after.
As the agency put it, Sheffield “attempted to collude with the representatives of the Organization of Petroleum Exporting Countries (OPEC) and a related cartel of other oil-producing countries known as OPEC+ to reduce output of oil and gas, which would result in Americans paying higher prices at the pump, to inflate profits for his company.”
Sheffield has lawyered up for the fight. “They couldn’t find anything wrong with the merger,” he told the Wall Street Journal. “They used me as a scapegoat.”
Exxon’s acquisition of Pioneer stands as the biggest in a recent frenzied wave of M&A activity in the energy industry. As Logan Beirne noted in a Law Street article last month, record cash reserves are driving Big Oil’s consolidation. Already this year, ConocoPhillips announced plans to acquire independent oil and gas producer Marathon Oil for $22.5 billion in an all-stock deal; Crescent Energy acquired SilverBow Resources for $2.1 billion; California Resources spent $2.1 billion to take over Aera Energy; and APA Corporation merged with Callon Petroleum Company in a deal worth $4.5 million.
All those deals carried some measure of antitrust risk, but somehow they slid past regulators as part of what the New York Times recently called the Biden Administration’s “uneasy truce with the oil and gas industry.” President Biden has pointed with pride to U.S. energy self-sufficiency; prices at the gas pump have defied inflation; no other country in the world is pumping more crude. Despite the Administration’s hawkish antitrust policies, the energy giants have been largely left alone, and they’ve gone shopping to spend their record profits.
But the Exxon/Pioneer deal was too big for antitrust enforcers to ignore. After poring over Sheffield’s public statements, text messages, in-person meetings, WhatsApp conversations and other communications while at Pioneer, the Commission concluded that it was Sheffield who needed to be reined in – because, the Commission alleged, Sheffield had tried to align oil production in the Permian Basin with the OPEC interests in order to keep prices up. If true, that was a textbook definition of price fixing.
The agency went after Sheffield in its press release announcing the consent decree: “Sheffield, for example, exchanged hundreds of text messages with OPEC representatives and officials discussing crude oil market dynamics, pricing and output. In discussing his efforts to coordinate with Texas producers under a production cut mandated by the Railroad Commission of Texas, Sheffield said, ‘If Texas leads the way, maybe we can get OPEC to cut production. Maybe Saudi and Russia will follow. That was our plan,’ he said, adding: ‘I was using the tactics of OPEC+ to get a bigger OPEC+ done.’”
As FTC Chair Lina Khan put it, “Staff’s investigation here uncovered troubling evidence of Pioneer CEO Scott Sheffield’s actions and communications, which make clear that he believed and acted as if he could persuade his rivals to join him in colluding to restrict output and raise prices. When market actors speak and act as if they can collude, we should not ignore this direct evidence.”
The agency’s press release also quoted Kyle Mach, deputy director of the FTC’s Bureau of Competition: “Mr. Sheffield’s past conduct makes it crystal clear that he should be nowhere near Exxon’s boardroom. American consumers shouldn’t pay unfair prices at the pump simply to pad a corporate executive’s pocketbook. The FTC will remain vigilant in its enforcement efforts to protect competition in these vital markets.”
Then came the kicker. The same day that the FTC announced it wanted Sheffield barred from the boardroom, media outlets began picking up a scoop from the news website Semafor that the agency intended to refer Sheffield’s alleged international collusion to the Justice Department – for criminal prosecution. When reporters from CNN, the Wall Street Journal, Bloomberg, CNBC, Reuters, and Fast Company jumped on the story and asked the agency for comment, the Commission’s chief spokesman didn’t deny it: “The FTC,” he told the outlets, “has a responsibility to refer potentially criminal behavior and takes that obligation very seriously.”
Next came the FOIA requests, found in PoliScio Analytics’ competitive-intelligence database FOIAengine, which tracks FOIA requests in as close to real-time as their availability allows.
New York-based Joe Ryan of Bloomberg News was the first to make a FOIA request about Sheffield. His May 7 request sought copies of all the emails and texts that the FTC referred to when it spoke of Sheffield’s collusion with OPEC. Bloomberg’s Mitchell Ferman, based in Houston, made a similar request later that month, as did Russell Gold of Texas Monthly. The FTC used a law-enforcement exemption in FOIA to deny all three requests.
Even denials of FOIA requests can provide signals of future actions to come. And, in this case, the stated reason for those denials reinforced the message that Khan wanted to deliver about executive culpability: “When corporate executives’ words or actions reveal, against their interests, a belief that they can collude, we should generally believe them.”
At least one plaintiffs’ law firm has already jumped in. On June 4, Brandon Landt, a lawyer with class-action firm Sharp Law, filed FOIA requests with the FTC for “documents and any information from the FTC investigation, communications, and negotiations with Pioneer Natural Resources Company and Exxon Mobil Corporation (including their subsidiaries) concerning allegations of coordination of production levels,” as well as “documents and any information related to the FTC’s referral of Scott Sheffield to the U.S. Department of Justice for potential criminal investigation.” The agency denied those requests using the same FOIA exemption: law enforcement.
Criminal prosecutions based on referrals from the FTC are rare. But last year, the agency created a new Criminal Liaison Unit led by two former prosecutors from the Justice Department. The announcement from the Bureau of Competition’s then-director, Holly Vedova, about the prospect of more criminal prosecutions carried a portentous headline: “BC’s Criminal Liaison Unit Is Off to the Races.” Soon, the new unit had referred for prosecution at least a dozen instances of potential criminal conduct uncovered in the course of FTC investigations and litigations.
After the FTC negotiated the consent agreement with Exxon and Pioneer, it put the document out for a 30-day public-comment period that recently ended. Of the 14 comments received, the FTC chose to publish two. One was from Anonymous (‘this merger should be blocked”). The other was a 23-page rebuttal from Sheffield, filed on May 28 by his four lawyers at Cleary Gottlieb. The lawyers called the FTC’s allegations untrue, insisting there were innocent explanations for all the texts and emails. They also pointed out that when Sheffield was examined under oath by the agency’s lawyers in April, they didn’t even ask him about the allegedly collusive communications with OPEC and others.
“Sheffield has been harmed by untrue allegations and disparaging statements in this proceeding,” the lawyers said, “and he is being deprived without due process of his right to be appointed by Exxon to a seat on its Board of Directors.”
Now that the comment period is over, the commission’s final sign-off is the last formality. Sheffield’s comment letter made one request that sounded simple, but belied what’s really at stake: “Vacate the proposed consent order without further action.”
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Next: Crime scene: The criminal case against short seller Andrew Left.
FOIAengine access now is available for all professional members of Investigative Reporters and Editors, a non-profit organization dedicated to improving the quality of journalism. IRE is the world’s oldest and largest association of investigative journalists. Following the federal government’s shutdown of FOIAonline.gov last year, FOIAengine is the only source for the most comprehensive, fully searchable archive of FOIA requests across dozens of federal departments and agencies. FOIAengine has more robust functionality and searching capabilities, and standardizes data from different agencies to make it easier to work with. PoliScio Analytics is proud to be partnering with IRE to provide this valuable content to investigative reporters worldwide.
John A. Jenkins, co-creator of FOIAengine, is a Washington journalist and publisher whose work has appeared in The New York Times Magazine, GQ, and elsewhere. He is a four-time recipient of the American Bar Association’s Gavel Award Certificate of Merit for his legal reporting and analysis. His most recent book is The Partisan: The Life of William Rehnquist. Jenkins founded Law Street Media in 2013. Prior to that, he was President of CQ Press, the textbook and reference publishing enterprise of Congressional Quarterly. FOIAengine is a product of PoliScio Analytics (PoliScio.com), a new venture specializing in U.S. political and governmental research, co-founded by Jenkins and Washington lawyer Randy Miller. Learn more about FOIAengine here. To review FOIA requests mentioned in this article, subscribe to FOIAengine.
Write to John A. Jenkins at JAJ@PoliScio.com.