Shell Oil Company to Divest Parts of Gas Pipeline System in Oklahoma and Texas to Resolve FTC Competition Concerns over ANR Acquisition

Shell Oil Company and its subsidiary, Tejas Energy, LLC, have agreed to divest approximately 171 miles of their natural gas pipeline system in Oklahoma and Texas in order to settle Federal Trade Commission charges that the firms' acquisition of gas gathering assets of The Coastal Corporation violates antitrust laws. The FTC charged that the acquisition would substantially reduce competition for natural gas gathering services in western Oklahoma and in the Texas panhandle. The transaction, absent the required divestiture, would likely lead to anticompetitive increases in gas gathering rates and an overall reduction in gas drilling and production in the affected areas, the Commission said.

According to the FTC, Tejas, through its subsidiary, Transok, LLC, proposes to acquire certain gas gathering assets of Coastal's subsidiaries, ANR Field Services Company and ANR Production Company, in western Oklahoma, the Oklahoma and Texas panhandles and southwestern Kansas, as well as a natural gas processing plant in Oklahoma. "Gas gathering" is the transporting of natural gas from the wellhead to a processing plant or to a transmission pipeline. The gas is then typically delivered to local distribution companies, which ultimately distribute it to homes, factories and other end users.

Transok was acquired by Shell as part of its January 1998 acquisition of Tejas. Transok is the largest gatherer and processor of gas in the six areas of concern to the Commission. According to the Commission, as initially proposed, the acquisition would substantially lessen gas gathering competition in portions of Roger Mills, Beckham, Custer, Washita, Caddo and Grady Counties in western Oklahoma and Wheeler County in the Texas panhandle just west of the Oklahoma border. In those areas, without Commission action, gas producers would only be able to turn to Transok or, at most, one other gas gatherer for gas gathering services and therefore the proposed merger would violate antitrust laws, the agency alleged. It is unlikely that the competition eliminated by the proposed acquisition would be replaced by new entry into the gas gathering market in these areas, the Commission added.

Under the proposed consent agreement to settle the FTC charges in this case, Shell and Tejas would be required to divest parts of the ANR pipeline system. The proposed order would require divestiture of six distinct pipeline systems in Wheeler County, Texas, and the Oklahoma Counties of Roger Mills, Beckham, Custer, Washita, Caddo, Grady and Comanche. To make the pipeline marketable and to insure the purchaser will be a viable competitor, the order would require Shell and Tejas to divest approximately 19 miles of pipe in Beckham and Washita Counties and five miles of pipe in Comanche County that are outside the areas of concern.

According to the proposed order, Shell and Tejas would have to divest the assets by January 5, 1999, or thirty days following the consummation of the acquisition, whichever is later. If Shell and Tejas fail to divest the assets by the deadline, the Commission may appoint a trustee to sell the assets. The trustee may include additional pipeline to assure the marketability, viability and competitiveness of the assets. Shell and Tejas also would have to maintain the pipelines that are being divested in their current condition and provide gathering services at existing terms and conditions to customers under contract with ANR until the assets are sold.

The proposed consent agreement also would require Shell and Tejas to give the Commission prior notification before the purchase of any gas gathering assets in the relevant area. The settlement also contains various reporting provisions that would assist the FTC in monitoring Shell and Tejas' compliance.

This matter was handled by the FTC's Dallas Regional Office.

The Commission vote to accept the consent agreement for public comment was 4-0.

A summary of the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.

NOTE:  A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the complaint, proposed consent order and an analysis to aid public comment on the proposed consent order are available from the FTC's web site at: http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. 9810166)