Schumer, Senate Democrats Target ‘Big Oil’ CEOs One More Time

Senate Majority Leader Chuck Schumer asked the justice department last week to investigate big oil companies over allegations of price fixing and collusion. Schumer was joined by 22 Democratic senators in a letter making the demands, which stem in part from allegations levelled by FTC Chair Lina Khan last month at former Pioneer Natural Resources CEO Scott Sheffield.

In an editorial headlined “Hang the Oil and Gas CEOs,” the Wall Street Journal editorial board says Schumer’s letter contains “no evidence of wrongdoing, let alone criminal acts, other than the FTC’s dubious allegations,” adding that “Democrats need an inflation scapegoat heading into the November election.” Indeed, leveling accusations of collusion and price fixing and calling oil company CEOs to Capitol Hill for hearings has been a routine used by congressional Democrats during election years since the Jimmy Carter presidency, a fact I’ve written about here in the past. It is important to note that none of those previous efforts have uncovered a single instance in which allegations of collusion and price-fixing proved accurate.

In issuing the FTC’s final sign-off on ExxonMobil’s buyout of Pioneer, the Commission claimed to have uncovered “troubling evidence” Sheffield had engaged in collusion not just with fellow oil company CEOs but also the OPEC+ cartel during the COVID pandemic of 2020 to restrain production in order to raise oil prices. The FTC also points to an effort by Sheffield and others to convince the Texas Railroad Commission to invoke a procedure called “prorationing” in Texas to help restore oil prices after the price for West Texas Intermediate had actually dropped below zero on May 29 that year.

In a letter sent to Khan and other FTC commissioners last week, Sheffield strongly denies any wrongdoing, refuting the allegations point-by-point. In light of his letter, the FTC’s claims appear to amount to a smear based on suspicions and not much else.

The allegation related to the prorationing question is especially bizarre, given that it is nothing more than a conservation tool designed to prevent waste of valuable mineral resources. It was first invoked by the RRC in the early 1930s, when the discovery of the giant East Texas Field flooded oil markets, causing prices to drop to less than 2 cents per barrel. A brief history of the RRC published at the agency’s website says, “By limiting production in East Texas and elsewhere, commissioners succeeded both in supporting oil prices and in conserving the state's resources.”

Had the FTC engaged in 2-3 minutes of web search, it could have known that. Another minute or two of Googling might have revealed to Ms. Khan and her fellow commissioners that prorationing is not unique to Texas and has in fact been invoked many times in the past in other oil producing states like New Mexico, Louisiana, North Dakota, and Kansas. Indeed, the tool was in effect for natural gas volumes in Texas as recently as the 1990s, and thus is not some archaic concept.

In any event, as the Wall Street Journal’s editorial correctly points out, none of the allegations made by the FTC have anything to do with the prices for oil and gasoline at the pump today, which aren’t even unusually high in historic context. In fact, Sheffield’s own company, as the biggest oil producer in the prolific Permian Basin, has been at the forefront of raising US domestic production to record levels over the last three years. These very same “big oil” companies targeted by Schumer and his fellow senate Democrats have managed to do this in spite of a withering flood of heavy new regulations on their operations from the Biden administration.

In doing so, the US industry has placed increasing pressure on OPEC+ to invoke more and more stringent production cuts in its own efforts to maintain oil prices at its target levels. That cartel’s ministers are meeting today to consider whether they need to invoke even more cuts to their own exports due to this pressure from Pioneer, ExxonMobil, and the rest of the US industry.

The Bottom Line

This brand of political gamesmanship is one of the most tiresome and counterproductive aspects of the job of being a CEO at one of these large oil and gas companies. Anyone who agrees to take that job knows that at some point they will be targeted by powerful committee chairs, speakers of the House, or Senate majority leaders with allegations like those in this latest Senate letter that have little or no basis in reality.

I know from personal experience how much needless work such actions from congress and regulators turn on within these companies, as dozens of employees are forced to spend time refuting the allegations, time that would have otherwise been put to far more productive use. Companies have no choice but to take even un-serious letters like this one very seriously for their own protection.