Phillips 66 has signed an agreement to acquire Pinnacle Midland Parent LLCfrom Energy Spectrum Capital for $550 million in cash as part of efforts to expand its midstream operations in the Permian basin.
Expected to be completed mid-2024, the transaction would give Houston, Texas-based Phillips 66 the recently built Dos Picos natural gas gathering and processing system. The plant has a processing capacity of 220 million cubic feet per day (MMcfpd), while the gathering pipeline stretches 80 miles.
“The Dos Picos processing complex and related infrastructure is easily scalable toward a second 220 MMcf/d gas plant and integrates well into Phillip 66’s existing downstream infrastructure”, Phillips 66 said in a press release. Pinnacle announced July 11, 2023, it had reached a final investment decision to double Dos Picos’ processing capacity by constructing a second train, expected to start service in the fourth quarter of 2024.
“We are growing our Midstream business in the Permian to further strengthen and expand our service offerings to customers while driving operational and commercial synergies”, Phillips 66 chair and chief executive Mark Lashier, said in a statement. “Pinnacle is a bolt-on asset that advances our wellhead-to-market strategy and complements our diversified and integrated asset portfolio.
“Further, this transaction aligns with our long-term objectives to build out our natural gas liquids value chain, be disciplined with our capital allocation and create sustainable value for our shareholders”.
Phillips 66 noted the transaction is subject to mandatory federal anti-trust review.
It comes on the heels of multibillion-dollar mergers in the United States oil and gas industry that have alarmed lawmakers who expressed concern that lesser competition may give bigger players more power to raise oil and gas prices.
Exxon Mobil Corp. announced May 3 it had completed its $64.5 billion all-stock acquisition of Pioneer Natural Resources Co. having cleared the Federal Trade Commission’s (FTC) “second request” probe under the Hart-Scott-Rodino Antitrust Improvements Act.
The law requires parties in certain acquisitions and mergers to notify the FTC and the Department of Justice of the transactions. The two enforcement agencies then review such a transaction for a period, usually 30 days according to the FTC, before it can be consummated. The FTC makes the second request for transaction details if it finds merit for further investigation. It can initiate a court request for an injunction order if it finds a possible anti-trust violation.
On January 22, the FTC announced it had approved changes meant to toughen scrutiny of acquisitions and mergers under the Antitrust Improvements Act. The changes include raising the size-of-transaction threshold for reporting proposed acquisitions and mergers from $111.4 million to $119.5 million.
Besides ExxonMobil and Pioneer, APA Corp. also said April 1 it had closed its $4.5 billion of Callon Petroleum Co.
Chevron Corp’s $60 billion all-stock purchase of Hess Corp. and Diamondback Energy Inc’s $26 billion cash-and-stock acquisition of Endeavor Energy Resources LP are pending. Both have also been subject to a second request by the FTC.
The announcements of the Chevron and ExxonMobil mergers last year prompted members of the U.S. Senate to ask the FTC to investigate, warning the country’s oil and gas industry was already “too concentrated”.
“By allowing Exxon and Chevron to further integrate their extensive operations into important oil-and-gas fields, these deals are likely to harm competition, risking increased consumer prices and reduced output throughout the United States”, 23 members of the upper house of Congress wrote in the letter sent November 1, 2023.
“At the regional level, the deals threaten to harm small operators and suppress wages”.
The lawmakers recalled, “In the 1990s, over 2,600 mergers occurred throughout all segments of the U.S. petroleum industry”.
“Between 1990 and 2001, the number of major U.S. energy companies plunged by more than half, dropping from 19 to 9, due to merger activity”, they added. “Most notably, Exxon merged with Mobil in 1999; Chevron merged with Texaco in 2001 (after Chevron had already acquired Gulf Oil and Texaco had already bought Getty Oil in the 1980s)”.
“Such consolidation enabled anticompetitive coordination in the industry, and the remaining firms were well aware that they were members of an oligopoly with a ‘small number of companies involved, all of whom share a motivation to recoup costs and not undermine the market’”, the letter said quoting a Senate report May 2002 on how gas prices are determined in the U.S.
Citing a May 2004 investigation, the senators added, “The Government Accountability Office found that five specific mergers from that time period–Marathon-Ashland, Shell-Texaco I (Equilon), BP-Amoco, MAP-UDS, and Exxon-Mobil–led to wholesale gasoline price increases ranging from 0.39 to 5.00 cents per gallon”.
The legislators noted that after the mergers the resulting companies cut back on drilling spending and upstream production at a time of high prices.
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