Notice2025-01252
United States of America v. XCL Resources Holdings, LLC, Verdun Oil Company II, LLC, and EP Energy LLC; Proposed Final Judgment and Competitive Impact Statement
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 21, 2025
Issuing agencies
Justice DepartmentAntitrust Division
Full Text
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<title>Federal Register, Volume 90 Issue 12 (Tuesday, January 21, 2025)</title>
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[Federal Register Volume 90, Number 12 (Tuesday, January 21, 2025)]
[Notices]
[Pages 7159-7171]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-01252]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States of America v. XCL Resources Holdings, LLC, Verdun
Oil Company II, LLC, and EP Energy LLC; Proposed Final Judgment and
Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment,
Stipulation, and Competitive Impact Statement have been filed with the
United States District Court for the District of
[[Page 7160]]
Columbia in United States of America v. XCL Resources Holdings, LLC,
Verdun Oil Company II, LLC, and EP Energy LLC, Civil Action No. 1:25-
cv-00041. On January 7, 2025, the United States filed a Complaint
alleging that XCL Resources Holdings, LLC (``XCL''), Verdun Oil Company
II, LLC (``Verdun''), and EP Energy LLC (``EP Energy'') (together
``Defendants'') violated the notice and waiting period requirements of
section 7A of the Clayton Act, 15 U.S.C. 18a, commonly known as the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (``HSR Act'' or
``Act'') by transferring beneficial ownership of EP Energy to XCL and
Verdun during the waiting period, which constitutes gun jumping.
The Proposed Final Judgment, filed at the same time as the
Complaint, requires: (i) XCL and Verdun jointly and severally to pay a
civil penalty in the amount of $2,842,188.50, and EP Energy to pay a
civil penalty in the amount of $2,842,188.50 within 30 days of entry of
the Final Judgment; (ii) Defendants to refrain from certain conduct as
laid out in the Final Judgment; and (iii) Defendants to design,
maintain, and operate a compliance program to ensure compliance with
the Final Judgment and the Antitrust Laws, and certify observance of
these compliance provisions to the United States within 60 days of
entry of the Final Judgment.
Copies of the Complaint, proposed Final Judgment, and Competitive
Impact Statement are available for inspection on the Antitrust
Division's website at <a href="http://www.justice.gov/atr">http://www.justice.gov/atr</a> and at the Office of
the Clerk of the United States District Court for the District of
Columbia. Copies of these materials may be obtained from the Antitrust
Division upon request and payment of the copying fee set by Department
of Justice regulations.
Public comment is invited within 60 days of the date of this
notice. Such comments, including the name of the submitter, and
responses thereto, will be posted on the Antitrust Division's website,
filed with the Court, and, under certain circumstances, published in
the Federal Register. Comments in English should be directed to
Maribeth Petrizzi, Special Attorney, United States, c/o Federal Trade
Commission, 600 Pennsylvania Avenue NW, CC-8416, Washington, DC 20580
or by email to <a href="/cdn-cgi/l/email-protection#3a58595955574a56535b54595f7a5c4e59145d554c"><span class="__cf_email__" data-cfemail="3e5c5d5d51534e52575f505d5b7e584a5d10595148">[email protected]</span></a>.
Suzanne Morris,
Deputy Director of Civil Enforcement Operations.
United States District Court for the District of Columbia
United States of America, c/o Department of Justice, Washington,
DC 20530 Plaintiff, v. XCL RESOURCES HOLDINGS, LLC, 600 N. Shepherd
Drive, Suite 390, Houston, TX 77007; VERDUN OIL COMPANY II LLC, 945
Bunker Hill Road, Suite 1300, Houston, TX 77024 and EP ENERGY LLC,
945 Bunker Hill Road, Suite 100, Houston, TX 77024 Defendants. Civil
Action No. 1:25-cv-00041.
Complaint for Civil Penalties and Equitable Relief for Violations of
the Hart-Scott-Rodino Act
The United States of America, acting under the direction of the
Attorney General of the United States, brings this civil antitrust
action for equitable and monetary relief in the form of civil penalties
against the Defendants XCL Resources Holdings, LLC (``XCL''),Verdun Oil
Company II, LLC (``Verdun''), and EP Energy LLC (``EP''), and alleges:
Nature of the Action
1. This case involves violations of federal antitrust obligations
under Section 7A of the Clayton Act, 15 U.S.C. 18A, commonly known as
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (``HSR Act'').
Under the HSR Act, both parties must make a pre-merger notification
filing to the federal antitrust agencies and observe the corresponding
waiting-period obligations before transferring any ownership or control
of the to-be-acquired business to the acquirer. This waiting period
ensures that the parties to a proposed transaction remain as separate,
independent entities during the pendency of the antitrust review. This
suspensory waiting period allows the enforcement agencies the
opportunity to investigate the transaction and, where applicable,
pursue an enforcement action, before consolidation of the businesses
and assets occurs.
2. In this matter, Verdun and EP entered a proposed transaction
that was subject to the HSR Act's notification and waiting-period
requirements, and each Defendant made the required pre-merger
notification filing with the antitrust agencies. The Defendants failed,
however, to satisfy their waiting-period obligations. Instead, upon
executing the transaction agreement, EP allowed Verdun and its sister
company, XCL, to assume operational and decision-making control over
significant aspects of EP's day-to-day business operations. This was no
mere technical violation; the Defendants' conduct effectively allowed
one competitor to acquire beneficial ownership, including control over
key competitive decisions of the other, before the transaction closed,
which is precisely what the HSR Act prohibits.
3. Pursuant to a Membership Interest Purchase Agreement dated July
26, 2021 (``Purchase Agreement''), Verdun agreed to acquire EP, a
company engaged in crude oil production in the Uinta Basin area of Utah
and in the Eagle Ford area of Texas. Verdun is under common management
with XCL, and both companies are engaged in crude oil production:
Verdun in the Eagle Ford area and XCL in the Uinta Basin. The purchase
price for the proposed transaction was approximately $1.4 billion. As
part of the transaction, EP's operations in the Uinta Basin were to be
transferred to XCL, and XCL would pay the portion of the purchase price
attributed to the Uinta Basin assets.
4. The proposed transaction triggered a filing obligation under the
HSR Act. As such, the Defendants were required to make premerger
notification filings with the Federal Trade Commission (``FTC'') and
Department of Justice and to observe the prescribed waiting periods
before transferring ownership of EP to XCL and Verdun. The Defendants'
parent entities made premerger notification filings for the Defendants'
proposed transaction as required by the HSR Act. After receiving the
premerger notification filings, the FTC investigated the proposed
transaction and ultimately obtained a consent agreement addressing the
FTC's concerns about the impact of the transaction on competition in
the market for the development, production, and sale of waxy crude oil
in the Uinta Basin area of Utah. The consent agreement was entered on
March 25, 2022, and required the Defendants to divest all of EP's Utah
operations to a qualified third-party operator, Crescent Energy, to
remedy the potential lessening of competition in the alleged crude oil
market.
5. The HSR Act's waiting-period obligation for this transaction
went into effect on July 26, 2021, the date the Defendants executed the
Purchase Agreement, and continued through March 25, 2022, the date the
FTC accepted the consent agreement and granted termination of the
waiting period.
6. For a portion of this waiting period, however, the Defendants
disregarded their obligations under the HSR Act and
[[Page 7161]]
transferred significant operational control over EP's ordinary-course
business to XCL and Verdun. This conduct violates the HSR Act and is
often referred to as ``gun jumping'' or a ``gun-jumping violation.''
7. Specifically, the Purchase Agreement provided for the immediate
transfer of control over key aspects of EP's business to XCL and
Verdun, including granting XCL and Verdun approval rights over EP's
ongoing and planned crude oil development and production activities and
many of EP's ordinary-course expenditures. Once the Purchase Agreement
was signed, by virtue of these approval rights, XCL and Verdun quickly
began gun jumping by exercising operating control over significant
aspects of EP's business. Indeed, XCL put an immediate halt to EP's new
well-drilling activities, so that XCL--not EP--could control the
development and production plans for EP's drilling assets moving
forward. XCL halted EP's new oil-drilling activities for several weeks,
from approximately July 26, 2021, to approximately August 16, 2021. On
approximately August 17, 2021, after the Defendants realized that the
FTC would investigate the transaction, XCL and Verdun allowed EP to
resume its own well-drilling and planning activities.
8. The Defendants' unlawful gun jumping allowed competitors to
coordinate their activities. Among other things, XCL's temporary
halting of EP's development activities contributed to EP having crude
oil supply shortages in September and October 2021 at a time when the
United States was experiencing significant supply shortages and spiking
crude oil prices due to sudden demand increases as COVID-19
restrictions eased. The Defendants anticipated EP's potential supply
shortages while negotiating the Purchase Agreement, which specifically
provided that XCL and Verdun--not EP--would bear all costs associated
with EP's supply shortages. XCL and EP--direct competitors in the
marketplace--then worked in concert to supply EP's customers in
satisfaction of EP's customer supply commitments. During this period,
EP employees effectively reported to their XCL counterparts and
provided XCL employees with details on customer contracts, supply
volumes, and pricing terms. XCL employees also coordinated directly
with EP's customers to discuss EP's supply shortage and to arrange for
alternative delivery to the customer, which XCL made either from its
own supplies or from purchases it made on the spot market, to fulfill
EP's contractual commitments to the customers. EP's customers began
contacting XCL directly--sometimes excluding EP altogether--to discuss
EP's supply and delivery commitments to each customer under the
relevant EP supply contract.
9. The Purchase Agreement also required EP to submit all
expenditures above $250,000 for XCL's or Verdun's review and approval.
These approval requirements applied to many of EP's ordinary-course
expenditures, and effectively transferred control over a significant
portion of EP's day-to-day operations to XCL and Verdun. Further, XCL
and Verdun received and approved expenditure requests from EP falling
well below the $250,000 threshold outlined in the Purchase Agreement.
10. XCL also required changes to certain of EP's ordinary-course
business operations, such as EP's well-drilling designs and its leasing
and renewal activities. EP also gave XCL almost-unfettered access to
EP's competitively sensitive business information--including EP's site
design plans, customer contract and pricing information, and daily
supply and production reports--in the months after the parties signed
the Purchase Agreement.
11. Verdun also coordinated with EP on EP's contract negotiations
with certain customers in the Eagle Ford production area. Specifically,
Verdun observed that certain EP contracts included below-market prices
and directed EP to raise them in the next contracting period. EP
complied.
12. The illegal conduct detailed above lasted through October 27,
2021, when the Defendants executed an amendment to the Purchase
Agreement, which allowed EP to operate independently once again and in
the ordinary course of business, without XCL's or Verdun's control over
its day-to-day operations. Around this time, XCL and Verdun and EP also
stopped coordinating on customer supply and pricing and ceased
exchanging competitively sensitive information.
13. The Defendants' transfer of operational control over key
aspects of EP's business to XCL and Verdun during the HSR waiting
period was a transfer of beneficial ownership that constitutes a gun-
jumping violation of the HSR Act. The Defendants were in violation of
the HSR Act from when the Purchase Agreement was signed, on July 26,
2021, until the Purchase Agreement was amended, on October 27, 2021, a
period of 94 days.
Jurisdiction, Venue, and Interstate Commerce
14. The United States brings this action under Section 7A of the
Clayton Act, 15 U.S.C. 18a, to recover civil penalties for the
violation of the HSR Act.
15. This Court has jurisdiction over the subject matter of this
action under Section 7A(g) of the Clayton Act, 15 U.S.C. 18a(g), and
under 28 U.S.C. 1331, 1337(a), 1345, and 1355.
16. The Defendants are engaged in--and their activities described
herein substantially affected--interstate commerce.
17. The Defendants have consented to the personal jurisdiction and
venue in the District of Columbia for purposes of this action.
The Defendants
18. Defendant XCL Resources Holdings, LLC is a limited liability
company organized, existing, and doing business under, and by virtue
of, the laws of the State of Delaware, with its office and principal
place of business at 600 N. Shephard Drive, Suite 390 in Houston,
Texas.
19. Defendant Verdun Oil Company II, LLC is a limited liability
company organized, existing, and doing business under, and by virtue
of, the laws of the State of Texas, with its office and principal place
of business at 945 Bunker Hill Road, Suite 1300 in Houston, Texas.
20. Defendant EP Energy LLC is a limited liability company
organized, existing, and doing business under, and by virtue of, the
laws of the State of Delaware, with its office and principal place of
business at 945 Bunker Hill Road, Suite 100 in Houston, Texas.
21. All Defendants are engaged, among other things, in the
development, production, and sale of crude oil in the United States.
The HSR Act and Rules
22. The HSR Act requires certain acquiring persons, and certain
persons whose voting securities or assets are acquired, to file
notifications with the Department of Justice and the FTC (collectively,
the ``federal antitrust agencies'') and to observe a waiting period
before consummating certain acquisitions of voting securities or
assets. 15 U.S.C. 18a(a) and (b). Of relevance here, the notice and
waiting requirements apply if, as a result of the acquisition, the
acquiring person will ``hold'' assets or voting securities above the
HSR Act's size of transaction threshold (which was $368.0 million at
all times relevant to this complaint).
[[Page 7162]]
23. Under the HSR Act, the FTC promulgated rules defining relevant
terms and specifying what information must be included in the required
notification. 16 CFR 801-803. The rules define ``hold'' to mean
``beneficial ownership, whether direct, or indirect through
fiduciaries, agents, controlled entities or other means.'' 16 CFR
801.1(c). While the existence of beneficial ownership will depend on
the facts in a particular case, practical indicia include controlling
ordinary-course business decisions, assuming or rejecting contractual
obligations, obtaining competitively sensitive information, and
partaking in financial gains and losses.
24. Through the HSR Act, Congress intended to provide the federal
antitrust agencies prior notice of, and information about, proposed
transactions. The HSR Act created a process for premerger notification
and investigation that does not require assessing beforehand whether
the proposed transaction is anticompetitive or illegal under the
antitrust laws. Congress created a suspensory waiting period to provide
the federal antitrust agencies with the opportunity to investigate a
proposed transaction and to determine whether to seek an injunction to
prevent its consummation if the investigation shows that the proposed
transaction may violate the antitrust laws. Gun-jumping violations
deprive the enforcement agencies of this opportunity to investigate a
transaction and seek an injunction before a transaction is completed,
after which it may be difficult to completely restore competition and
the acquired company to their pre-transaction states.
The Purchase Agreement
25. Pursuant to the Purchase Agreement, XCL and Verdun agreed to
acquire EP for $1.445 billion, with possible adjustments for specified
conditions. XCL and Verdun each contributed more than $368 million of
the purchase price, triggering notice and waiting requirements under
the HSR Act for both companies.
26. XCL and Verdun's bid to acquire EP's business was contingent on
XCL and Verdun securing immediate approval rights over EP's ordinary-
course development activities; the Defendants memorialized these rights
in the Purchase Agreement they signed. As XCL executives noted during
the Purchase Agreement negotiations, ``[XCL's parent] is providing a
deposit that more than offsets potential damages from 60 days of
delayed production and initial operation planning, we moved materially
on price and included this term in our initial offer sheet, we are
unable to move off this point.'' (emphasis in original).
27. The Purchase Agreement restricted EP's discretion to conduct
its ordinary-course business activities during the period between the
signing of the Purchase Agreement and the closing of the transaction, a
period that included the full duration of the HSR Act's applicable
waiting period.
28. For example, EP committed ``not to propose, agree to, or
commence any individual operation on the Assets anticipated to cost in
excess of Two Hundred Fifty Thousand ($250,000),'' unless XCL or Verdun
first expressly approved the activity, without any exception for
ordinary-course transactions.
29. Further, for the numerous crude oil wells EP was developing, EP
would ``not conduct any operation in connection with'' those plans
``unless such operations are expressly permitted pursuant to'' the
Purchase Agreement ``or are otherwise approved by Purchaser.''
30. The Purchase Agreement thus prevented EP from continuing with
its crude oil well-development activities without XCL's or Verdun's
approval, giving XCL and Verdun control to stop or delay EP from moving
forward with its production plans in the normal course of its business.
31. XCL or Verdun had ``sole discretion'' whether to approve any
actions that were otherwise prohibited by the Purchase Agreement, and
the Purchase Agreement set forth procedures for granting XCL's or
Verdun's approval.
32. In short, these contractual provisions allowed one competitor
to control the other's ordinary-course business activities relating to
crude oil production before the transaction closed--a paradigmatic case
of gun jumping through transfer of beneficial ownership. All this
occurred during a time when the U.S. market as a whole was facing
significant supply shortages and multi-year highs in oil prices,
resulting in Americans paying skyrocketing prices at the pump.
33. The parties also agreed to shift to XCL and Verdun the
financial risk for certain EP business activity, which constitutes
further evidence of gun jumping. The Defendants anticipated that the
Purchase Agreement restrictions on EP's activities would result in
crude supply shortages for EP and its customers in the ensuing months
and could cause EP to breach existing obligations. The Purchase
Agreement therefore required XCL and Verdun to bear all financial risk
and liabilities associated with these provisions and shifted to XCL and
Verdun the financial ramifications of these changes and delays to EP's
development activities. The Purchase Agreement provided that ``failure
of Purchaser to approve such matters shall obligate Purchaser to bear
all risk and liability for any breach or non-compliance under the
Assets as a result of Purchaser's acts or omissions with respect to
such failure to approve.''
34. The Purchase Agreement was eventually amended on October 27,
2021. Among other things, the amendment effectively allowed EP to
resume its well-development activities in the ordinary course of
business without requiring XCL's or Verdun's consent.
The Defendants' Unlawful Conduct Following the Merger Agreement
35. This matter presents a straightforward example of unlawful gun
jumping where two companies agree to coordinate their activities before
a transaction is permitted to close under the HSR Act. The Purchase
Agreement created the contractual obligation for EP to transfer
operating control over key portions of its crude oil production
business to XCL and Verdun, and the Defendants' actions in the weeks
and months after they executed the Purchase Agreement demonstrated that
such a transfer of control from EP to XCL and Verdun did indeed take
place. XCL and Verdun thus gained beneficial ownership of EP's assets
in direct violation of the HSR Act's waiting period requirements.
XCL Required Ep To Suspend its Well-Completion Activities
36. The Defendants' actions abruptly halted EP's crude oil
development activities. Indeed, upon signing the Purchase Agreement,
XCL immediately stopped EP's ordinary-course well-drilling design and
planning activities in Utah. XCL did this so that it--not EP--could
take over the management of EP's development plans and designs moving
forward.
37. An email sent the afternoon the Purchase Agreement was signed
on July 26, 2021, from an EP executive to his counterparts at XCL,
illustrates the Defendants' intentions to transfer operational control
of EP to XCL and Verdun: ``Congratulations on getting the Purchase
Agreement signed and deposit sent! Now we can move forward with your
requested changes. Please confirm that you approve the following: Shut
down all currently planned fracs until after the close. Per the
attached spreadsheet, by shutting down these fracs we have sold more
oil than we will
[[Page 7163]]
be able to deliver and XCL accepts the contractual and reputational
ramifications of not delivering these barrels.''
38. XCL responded in the affirmative. ``XCL Confirmations of EP
Operational Changes . . . . We confirm the request to suspend any
operations related to completions between sign to close.'' (emphasis in
original).
39. In the days after the Defendants signed the Purchase Agreement,
XCL employees began actively supervising EP's well-design and planning
activities, including by requiring changes to EP's site design plans
and vendor-selection process. XCL employed a ``boots on the ground''
approach to taking over EP's operations and design planning, with EP
employees effectively reporting to their XCL counterparts.
40. For instance, in an August 2, 2021, email from an XCL Vice-
President to EP's Chief Operating Officer, the XCL executive states:
``Thanks for taking my call today, and working through operational
planning with us. As discussed, we would like to complete the Moose
Hollow and Bluebell wells as a combined team, where XCL leads on frac
design and vendor selection, and EP teams with XCL to execute the
operations.''
41. The Defendants understood that XCL's halting of EP's ordinary-
course well-development projects would lead to, or contribute to,
production shortfalls for EP and its customers in following months,
given the delay in EP's ability to drill the new wells. In exchange,
XCL agreed to assume the contractual and reputational ramifications of
these shortfalls.
42. The stoppages to EP's ordinary-course well-drilling activities
lasted for several weeks--until approximately August 17, 2021--and
ended only after the Defendants realized that the FTC would conduct a
full investigation into the competitive effects of their transaction.
At that point, XCL allowed EP to resume its well-drilling activities--
though EP would continue to seek XCL's review and approval for its
plans and related expenditures, as required by the Purchase Agreement.
XCL Coordinated With EP on EP's Customer Contracts, Customer
Relationships, and Customer Deliveries
43. The Defendants' unlawful gun jumping delayed introduction of
increased supply in the market. EP faced supply shortages in the Uinta
Basin in the months of September and October 2021 due to XCL halting
EP's well-completion activities in the weeks following the Purchase
Agreement signing. XCL and EP discussed the shortages and XCL's
resulting financial obligation during the subsequent months. For
instance, in an October 2021, email exchange between EP and XCL, an EP
employee wrote, ``However, as XCL has been directing EP Energy's
completions and has agreed to fulfill EP Energy's contractual
commitments between sign and close any shortfall [in EP's ability to
fulfil its supply commitments] would be due to XCL's decisions.''
44. To this end, XCL began conferring and coordinating with EP
about EP's production volumes, customer contracts, and supply
obligations.
45. XCL requested and received from EP detailed information about
EP's actual and projected production volumes, delivery capabilities,
and customer supply obligations--including details about the customers'
contracted volumes and pricing terms.
46. XCL then proceeded to coordinate with EP to manage and direct
EP's fulfillment of its contractual obligations to its customers, with
XCL covering the volume shortages under EP's customer agreements.
47. XCL also engaged directly with EP's customers about EP's supply
and delivery obligations, providing EP's customers with detailed
information about EP's volume projections, supply shortages, and
ability to meet its supply obligations in current and future periods.
48. XCL held itself out to EP's customers, in words or substance,
as coordinating EP's supply and deliveries in the Uinta Basin, and EP's
customers began contacting XCL directly about their EP contracts, EP's
volume projections, and the delivery schedules pursuant to the
contracts.
49. For example, in an email exchange between an EP customer and
XCL from September 2021, the EP customer asks XCL to confirm EP's
supply forecast: ``It was good catching up with you this week. Below is
the forecast from EP Energy. Let me know if you think they'll actually
have these contracted volumes for October or if we'll need to do
another spot deal similar to September.'' The XCL employee responded,
``I do not have an updated EP forecast for October yet but am told it
will come in the next day or two. Once that's in hand we'll be able to
build a plan for October.''
50. Another example, from August 2021, shows an exchange between
XCL and a different EP customer, where the EP customer asks XCL to
provide EP's volume forecast for the following month: ``Just wondering
if you have a feel yet for what Sept will look like (EP volume)? Also,
just to confirm, we're good with the contract volumes for Q4,
correct?'' The XCL employee responds, ``I do have a feel for sept, we
have a planning meeting in the AM to finalize, but directionally
looking better than planned. Potentially no cuts, probably more likely
in the 500bpd range, but will definitely get you a communication on
that tomorrow once I get confirmation. As for Q4, that too is still a
little up in the air as we finalize the development plan and I'll share
more as soon as I can. We are planning on moving things forward to fill
commitments in full, just again needing to confirm all of that.''
51. XCL coordinated with EP and EP's customers regarding EP's
supply and delivery volumes from approximately August 2021 through
approximately October 2021. This coordination ended by November 2021,
when XCL began informing EP's customers that XCL and EP needed to
operate as independent companies for the remainder of the pre-merger
period and that, as a result, XCL would no longer be covering EP's
volume shortfalls.
XCL's and Verdun's Approvals Were Required for EP To Conduct Ordinary-
Course Business Activities and To Make Ordinary-Course Expenditures;
XCL and Verdun Required EP To Make Changes to its Operations
52. In addition to exercising their approval rights over EP's well-
drilling activities, XCL and Verdun exercised their rights under the
Purchase Agreement to review and approve other of EP's ordinary-course
expenditures and business activities.
53. Under the Purchase Agreement, EP needed to secure XCL's or
Verdun's approval before making expenditures above $250,000, which is a
relatively low threshold in the crude development and production
business. As a result, XCL or Verdun approval was required before EP
could perform a range of ordinary-course activities needed to conduct
its business, including, e.g., purchasing supplies for its drilling
operations and entering or extending contracts for drilling rigs.
54. In practice, EP sought and received approval for ordinary-
course expenditures below the low levels established through the
Purchase Agreement. These included approvals to purchase gauges and
other pre-drilling expenses.
55. On top of submitting its expenditures for approval, under the
Purchase Agreement, EP also needed to secure XCL's or Verdun's approval
for other basic activities, such as hiring field-level employees and
contractors necessary to conduct its drilling and production operations
in the ordinary
[[Page 7164]]
course of business. Pursuant to these requirements, EP submitted its
ordinary-course hiring proposals to XCL and Verdun for approval.
56. XCL and Verdun also required EP to make changes to aspects of
its business plans and day-to-day operations. These included changes to
EP's well-drilling and site design plans, modifications to the areas in
Utah and Texas where EP could pursue leasing and renewal activities,
changes regarding EP's selection of vendors, and instructions not to
pursue development opportunities that EP had been exploring in the
ordinary course of business.
Verdun and EP Coordinated Regarding Prices for EP's Customers in the
Eagle Ford Region of Texas
57. The Defendants' gun-jumping activity also included coordination
of prices. In the Eagle Ford region of Texas, employees from Verdun and
EP coordinated on pricing terms that EP would offer to its customers.
EP shared its competitively sensitive information on customer pricing
and supply volumes with Verdun, and then sought Verdun's approval of
the prices it negotiated with the customers.
58. On July 28, 2021, shortly after the Purchase Agreement was
signed, a Verdun employee with responsibility for sales and marketing
contacted his EP counterpart to discuss EP's customer pricing and
contract terms. The Verdun employee used information he had obtained
from the virtual data room set up by EP as part of the sale process to
suggest changes to EP's customer pricing. An EP employee responded and
continued to consult with the Verdun employee as she was negotiating
with the customers. Ultimately, the EP employee sought and obtained the
approval of the Verdun employee for the new contracts with EP's
customers.
EP Exchanged Competitively Sensitive Information With XCL and Verdun
Without Adequate Safeguards To Limit Access Or Prevent Misuse
59. The Defendants' gun jumping also facilitated the exchange of
confidential and granular business information far beyond anything
necessary for transaction due diligence. Upon signing the Purchase
Agreement, XCL and Verdun asked for, and received, competitively
sensitive information about EP's business operations and customers in
Utah and Texas. This information included details on EP's customer
contracts, customer pricing, production volumes, customer dispatches,
business plans, site designs, vendor relationships and contracts,
permitting and surveying information, and other competitively
sensitive, nonpublic information. EP provided some of this information
to XCL and Verdun on a daily or weekly basis.
60. EP took no meaningful steps to resist these requests from XCL
and Verdun. Instead, EP agreed to provide XCL and Verdun employees with
access to its competitively sensitive information in the pre-merger
period, even though EP competed directly with both XCL and Verdun and
the information exchange lacked any legitimate business purposes.
Further, EP made no effort--and XCL and Verdun offered no protections
on its own--to limit the access to, or use of, EP's competitively
sensitive information by XCL's and Verdun's employees.
61. In the days following execution of the Purchase Agreement, XCL
and Verdun requested and received access to EP daily operating reports,
including reports on EP's crude production, dispatches by customers,
and oil sales and loads by counterparty. These materials were provided
to several XCL and Verdun businesspeople responsible for sales,
marketing, and operations.
62. These daily reports provided the employees of XCL and Verdun
with virtually real-time information about EP's operations, output, and
sales. To illustrate, in an August 4, 2021, email from EP's Chief
Operating Officer to a number of XCL and Verdun employees--including
the CEO and head of operations for both XCL and Verdun--the EP
executive writes, ``You will start receiving the attached Operations
Report daily. This report covers drilling, completions, workovers and
production.''
63. XCL also requested and received weekly updates on EP's permits
and sundries, spacing orders, and ongoing regulatory work, as well as
access to EP's site survey logs, geologic reports, geosteering reports,
software communication systems, and various other datasets.
64. Beyond regular reports and updates, XCL and Verdun employees
requested and received information on an ad hoc basis on EP's
development plans, contracts, customers, projections, deliveries, and
seemingly any other aspect of EP's business or operations of interest
to XCL and Verdun business employees.
65. The Defendants had no legitimate business purposes for
exchanging and disseminating EP's competitively sensitive business
information in the pre-merger period and failed to place limits as to
who at XCL and Verdun could access the information or how that
information could be used.
66. Even information provided by EP to XCL and Verdun through the
virtual data room--ostensibly for the legitimate purpose of conducting
due diligence on the proposed transaction--lacked appropriate
safeguards on access and use.
67. Some of EP's confidential information from the due diligence
data room was used by Verdun's operations and sales employees to inform
pricing and contract terms in the pre-merger period when Verdun and EP
were still competitors in the marketplace. As noted in Paragraph 58 of
this complaint, a Verdun employee used information from the virtual
data room to discuss with his counterpart at EP prices for EP's
customers.
68. The information flow from EP to XCL and Verdun continued in
full force through approximately October 2021.
Cause of Action Violation of Section 7A of the Clayton Act
69. Plaintiff alleges and incorporates paragraphs 1 through 68 as
if set forth fully herein.
70. XCL and Verdun's acquisition of EP was subject to Section 7A
premerger notification and waiting-period requirements.
71. XCL and Verdun substituted their business interests and
judgment for those of EP and exercised operational control over key
aspects of EP's business before expiration of the waiting period in
violation of Section 7A.
72. By controlling EP's business operations after having agreed to
acquire EP, XCL and Verdun acquired beneficial ownership of EP's assets
and thus acquired and held those assets within the meaning of Section
7A.
73. The Defendants were continuously in violation of the
requirements of the HSR Act each day beginning on July 26, 2021, until
XCL and Verdun ceased exercising operational control over relevant
aspects of EP's business and the Purchase Agreement was amended on
October 27, 2021.
Request for Relief
Wherefore, the United States requests:
(a) that the Court adjudge and decree that each Defendant violated
the HSR Act and was in violation during the period beginning on July
26, 2021, and ending on October 27, 2021, a total of 94 days;
(b) that the Court order the Defendants pay to the United States an
appropriate civil penalty as provided under Section 7A(g)(1) of the
Clayton Act, 15 U.S.C. 18a(g)(1), and 16 CFR 1.98(a);
[[Page 7165]]
(c) that the Defendants, their officers, directors, agents,
employees, subsidiaries, and successors, and all other persons acting
or claiming to act on their behalf, be enjoined, restrained, and
prohibited for a period of ten years from, in any manner, directly or
indirectly, engaging in any other agreement, combination, or conspiracy
that has the same effect as the alleged violation;
(d) that the Court order such other and further relief as it may
deem just and proper; and
(e) that the Court award the United States its costs of this suit.
Date: 2025
FOR THE PLAINTIFF UNITED STATES OF AMERICA:
Doha Mekki,
Acting Assistant Attorney General, Department of Justice, Antitrust
Division, Washington, DC 20530
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Maribeth Petrizzi, DC Bar No. 435204, Special Attorney
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Jamie R. Towey, DC Bar No. 475969, Special Attorney
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Kenneth A. Libby, Special Attorney
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Paul Frangie, Special Attorney, Federal Trade Commission,
Washington, DC 20580, (202) 326-2564
United States District Court for the District of Columbia
United States of America, Plaintiff, v. XCL RESOURCES HOLDINGS,
LLC, VERDUN OIL COMPANY II LLC, and EP ENERGY LLC, Defendants.
Civil Action No. 1:25-cv-00041.
[Proposed] Final Judgment
WHEREAS the United States of America filed its Complaint on January
7, 2025, alleging that Defendants XCL Resources Holdings, LLC, Verdun
Oil Company II LLC, and EP Energy LLC violated Section 7A of the
Clayton Act, 15 U.S.C. 18a, commonly known as the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the ``Hart-Scott-Rodino Act''), and
the United States and Defendants XCL Resources Holdings, LLC, Verdun
Oil Company II LLC, and EP Energy LLC, by their respective attorneys,
have consented to the entry of this Final Judgment without trial or
adjudication of any issue of fact or law, and without this Final
Judgment constituting any evidence against or an admission by any party
regarding any issue of fact or law;
And Whereas Defendants agree to be bound by the provisions of this
Final Judgment pending its approval by the Court;
Now, Therefore, before any testimony is taken, without trial or
adjudication of any issue of fact or law, and upon the consent of the
parties hereto, it is Ordered, Adjudged, And Decreed:
I. Jurisdiction
The Court has jurisdiction over the subject matter of this action.
The Defendants consent solely for the purpose of this action and the
entry of this Final Judgment that this Court has jurisdiction over each
of the parties to this action. The Complaint states a claim upon which
relief may be granted against the Defendants under Section 7A of the
Clayton Act, 15 U.S.C. 18a.
II. Definitions
A. ``XCL'' means XCL Resources Holdings, LLC, a limited liability
company organized, existing, and doing business under the laws of the
state of Delaware, with its executive offices and principal place of
business located at 600 N. Shepherd Drive, Suite 390, Houston, Texas
77007, including its successors and assigns, and its subsidiaries and
divisions.
B. ``Verdun'' means Verdun Oil Company II LLC, a limited liability
company organized, existing, and doing business under the laws of the
state of Texas, with its executive offices and principal place of
business located at 945 Bunker Hill Road, Suite 1300, Houston, Texas
77024, including its successors and assigns, and its subsidiaries and
divisions.
C. ``EP Energy'' means EP Energy LLC, a limited liability company
organized, existing, and doing business under the laws of the state of
Delaware, with its executive offices and principal place of business
located at 945 Bunker Hill Road, Suite 100, Houston, Texas 77024,
including its successors and assigns, and its subsidiaries and
divisions.
D. ``Agreement'' means any agreement, contract, or mutual
understanding, whether formal or informal, written, or unwritten.
E. ``Antitrust Laws'' means the Federal Trade Commission Act, as
amended, 15 U.S.C. 41 et seq., the Sherman Act, 15 U.S.C. 1 et seq.,
the Clayton Act, 15 U.S.C. 12 et seq., and the Hart-Scott-Rodino Act,
15 U.S.C. 18a.
F. ``Competing Product'' means any product, service, or technology
included in a Reportable Transaction that is offered for sale, license,
or distribution to customers in the same state, or produced in the same
state or geological basin, by a Defendant and any other party to the
Reportable Transaction.
G. ``Farm-in agreement'' or ``Farm-out agreement'' means an
agreement in which the owner or lessee of mineral rights assigns an
interest in such mineral rights to another party, in exchange for such
other party providing specified exploration and/or development
activities, funding for such exploration and/or development activities,
or contributing or swapping mineral acreage, regardless of whether the
owner or lessee retains working interests, overriding royalty
interests, or other types of economic interests. The agreement is
termed a ``Farm-in agreement'' from the viewpoint of the party
acquiring such interest, and a ``Farm-out agreement'' from the
viewpoint of the owner or lessee of the mineral rights assigning such
interest.
H. ``Non-Public Information'' means any information related to the
assets and businesses included in a Reportable Transaction known by the
Defendant or another party to the Reportable Transaction, excluding any
information that was or becomes available to the public through means
other than disclosure by the receiving party.
I. ``Pre-consummation Period'' means the period between the signing
of an agreement or letter of intent for a Reportable Transaction, and
the earlier of the expiration or termination of the applicable waiting
period, and the abandonment of the Reportable Transaction.
J. ``Regulations'' means any rule, regulation, statement, or
interpretation relating to the Hart-Scott-Rodino Act that has binding
legal effect with respect to the implementation or application of the
Hart-Scott-Rodino Act or any section or subsection within 16 CFR 801-
803.
K. ``Reportable Transaction'' means a transaction to which a
Defendant is a party that is reportable under Section 7A the Clayton
Act, 15 U.S.C. 18a, including the rules, regulations and formal
interpretations implementing the section.
III. Applicability
This Final Judgment applies to XCL, Verdun, and EP Energy, as
defined above, and all other persons in active concert or participation
with any of them who receive actual notice of this Final Judgment by
personal service or otherwise.
IV. Civil Penalty
A. Judgment is hereby entered in this matter in favor of Plaintiff
and against Defendants, and, pursuant to Section 7A(g)(1) of the
Clayton Act, 15 U.S.C. 18a(g)(1), the Debt Collection Improvement Act
of 1996, Public Law 104134 Sec. 31001(s) (amending the Federal Civil
Penalties Inflation Adjustment Act of 1990, 28 U.S.C.
[[Page 7166]]
2461), the Federal Civil Penalties Inflation Adjustment Act
Improvements Act of 2015, Public Law 114-74 Sec. 701 (further amending
the Federal Civil Penalties Inflation Adjustment Act of 1990), and
Federal Trade Commission Rule 1.98, 16 CFR 1.98, 89 FR 9764 (February
12, 2024), XCL and Verdun jointly and severally are hereby ordered to
pay a civil penalty in the amount of $2,842,188.50, and EP Energy is
hereby ordered to pay a civil penalty in the amount of $2,842,188.50,
for a total among all Defendants of $5,684,377.00. Payment of the civil
penalty ordered hereby shall be made by wire transfer of funds or
cashier's check. If the payment is to be made by wire transfer, prior
to making the transfer, Defendant will contact the Budget and Fiscal
Section of the Antitrust Division's Executive Office at <a href="/cdn-cgi/l/email-protection#236277710d667b6c0e654a5040424f0e6a4d52564a514a4650635650474c490d444c55"><span class="__cf_email__" data-cfemail="edacb9bfc3a8b5a2c0ab849e8e8c81c0a4839c98849f84889ead989e898287c38a829b">[email protected]</span></a> for instructions. If the payment is made by
cashier's check, the check must be made payable to the United States
Department of Justice--Antitrust Division and delivered to: Chief,
Budget & Fiscal Section, Executive Office, Antitrust Division, United
States Department of Justice, Liberty Square Building, 450 5th Street
NW, Room 3016, Washington, DC 20530.
B. Defendants shall pay the full amount of the civil penalty within
thirty (30) days of entry of this Final Judgment. In the event of a
default or delay in payment, interest at the rate of eighteen (18)
percent per annum shall accrue thereon from the date of the default or
delay to the date of payment.
V. Prohibited Conduct
A. During the Pre-consummation Period for any Reportable
Transaction, the Defendant shall not enter into any Agreement with any
other party to the transaction to:
1. combine, merge, or transfer (in whole or in part) any
operational or decision-making control over any aspect of the business,
assets, or interests that are part of the Reportable Transaction
including (a) the production, marketing, or distribution of any to-be-
acquired product; or (b) any sales, service, or procurement terms for
such products;
2. require one party to the Reportable Transaction to obtain
approval from another party to the Reportable Transaction for any
ordinary-course business activities or expenses, including planned
capital expenditures;
3. delay or suspend ordinary-course sales or development efforts;
or
4. disclose or seek the disclosure of the following information for
any Competing Product:
a. current or future prices or contract offers; or
b. Non-Public Information relating to customers, current or future
drilling and completions, production, sales, or shipments to customers.
Provided, however, that nothing in this Final Judgment prohibits
Defendants from disclosing or seeking information relating to a
Competing Product (i) that is publicly available at the time disclosure
occurs, or (ii) that is necessary to conduct reasonable and customary
due diligence of or integration planning for the proposed transaction,
provided such activity by Defendants are supervised by antitrust
counsel and occurs pursuant to a non-disclosure agreement that (a)
limits use of the information to conducting due diligence or
integration planning (including limiting dissemination of the
information to individuals involved in or supervising due diligence or
integration planning), (b) prohibits disclosure of the information to
any employee of the receiving entity who is directly responsible for
the marketing, pricing, or sales of a Competing Product, and (c)
requires the recipient to delete or destroy the information if the
Reportable Transaction does not close.
VI. Permitted Conduct
Nothing in this Final Judgment prohibits Defendants from:
A. Agreeing that a party to a transaction shall continue to operate
in the ordinary course of business during the Pre-consummation Period;
B. Agreeing that a party to a transaction forgo conduct that would
cause a material adverse change in the value of to-be-acquired assets
during the Pre-consummation Period;
C. Negotiating, agreeing to, or participating in joint operating,
joint development, Farm-in, or Farm-out agreements,
Provided, however, that the joint operating, joint development,
Farm-in, or Farm-out agreements do not relate to assets included as
part of any Reportable Transaction during the Pre-consummation Period;
or
D. Disclosing Non-public Information related to Competing Products
in the context of litigation or settlement discussions if the
disclosure is subject to a protective order.
VII. Compliance
A. Defendants shall design, maintain, and operate an antitrust
compliance program to ensure compliance with this Final Judgment and
the Antitrust Laws, and as part of such program shall:
1. within 30 days of entry of this Final Judgment, appoint or
retain a qualified antitrust compliance officer (``Antitrust Compliance
Officer'') to supervise the design, maintenance, and operation of the
program, and shall authorize the Antitrust Compliance Officer to
perform all tasks necessary to fulfill these obligations. Defendants
may replace the Antitrust Compliance Officer with another qualified
person at any time;
2. within 45 days of entry of this Final Judgment, distribute a
copy of this Final Judgment to each current officer and director, and
each employee, agent, or other person who has responsibility or
authority over sales, marketing, strategic planning, exploration and
development, or mergers and acquisitions;
3. distribute a copy of this Final Judgment to any person who takes
a position described in Paragraph VII(A)(2) within 30 days of the date
the person takes such position;
4. provide in-person or online training concerning Defendants'
obligations under this Final Judgment and the Antitrust Laws as they
apply to Defendants' activities, to each person designated in
Paragraphs VII(A)(2) or (3):
a. no later than 45 days after this Final Judgment is entered;
b. no later than 30 days after a person first takes a position
described in Paragraph VII(A)(2); and
c. at least annually.
Provided, however, that as to any person on extended leave (e.g.,
parental, family, or disability leave), the training for such person
under the above schedule shall be completed within 30 days of the date
the person returns to work;
5. obtain within 60 days from the entry of this Final Judgment, and
annually thereafter, and retain for the duration of this Final
Judgment, a written certification from each person designated in
Paragraphs VII(A)(2) & (3) that the person: (a) has received, read,
understands, and agrees to abide by the terms of this Final Judgment;
(b) understands that failure to comply with this Final Judgment may
result in conviction for criminal contempt of court; and (c) is not
aware of any violation of the Final Judgment; and
6. provide a copy of this Final Judgment (or a hyperlink to a copy
of this Final Judgment) to each party to a Reportable Transaction no
later than signing of the definitive agreement.
B. Within 60 days of entry of this Final Judgment, Defendants shall
certify to Plaintiff that they have (1) designed, established, and are
maintaining an antitrust compliance program; (2) designated an
Antitrust Compliance Officer, specifying their name, business address,
and telephone number; (3) distributed this Final Judgment as required
in Paragraph VII(A)(2); and (4)
[[Page 7167]]
provided training as required in Paragraph VII(A)(4).
C. For the term of this Final Judgment, on or before its
anniversary date, Defendants shall file with Plaintiff an annual
statement verifying that they are complying with the requirements of
this Final Judgment and describing in detail the manner of their
compliance with the provisions of Sections V and VII.
D. If any of Defendants' directors or officers, or the Antitrust
Compliance Officer, learns of any violation of this Final Judgment,
Defendants shall within three (3) business days take appropriate action
to assure continued compliance with this Final Judgment, and shall
notify the Plaintiff in writing of the violation within 10 business
days of learning of the violation.
VIII. Compliance Inspection
A. For the purposes of determining or securing compliance with this
Final Judgment, or of determining whether the Final Judgment should be
modified or vacated, and subject to any legally-recognized privilege,
from time to time authorized representatives of the United States,
including agents and consultants retained by the United States, shall,
upon written request of an authorized representative of the Assistant
Attorney General in charge of the Antitrust Division, and on reasonable
notice to Defendants, be permitted:
(1) access during Defendants' office hours to inspect and copy, or
at the option of the United States, to require Defendants to provide
electronic copies of all books, ledgers, accounts, records, data, and
documents in the possession, custody, or control of Defendants,
relating to any matters contained in this Final Judgment; and
(2) to interview, either informally or on the record, Defendants'
officers, employees, or agents, who may have their individual counsel
present, regarding such matters. The interviews shall be subject to the
reasonable convenience of the interviewee and without restraint or
interference by Defendants.
B. Upon the written request of an authorized representative of the
Assistant Attorney General in charge of the Antitrust Division,
Defendants shall submit written reports or response to written
interrogatories, under oath if requested, relating to any of the
matters contained in this Final Judgment as may be requested.
C. No information or documents obtained pursuant to any provision
of this Final Judgment may be divulged by the United States to any
person other than an authorized representative of the executive branch
of the United States, except in the course of legal proceedings to
which the United States is a party, including grand jury proceedings,
for the purpose of securing compliance with this Final Judgment, or as
otherwise required by law.
D. In the event of a request by a third party, pursuant to the
Freedom of Information Act, 5 U.S.C. 552, for disclosure of information
obtained pursuant to any provision of this Final Judgment, the
Antitrust Division will act in accordance with that statute, and the
Department of Justice regulations at 28 CFR part 16, including the
provision on confidential commercial information, at 28 CFR 16.7.
Designations of confidentiality expire 10 years after submission,
``unless the submitter requests and provides justification for a longer
designation period.'' See 28 CFR 16.7(b).
E. If at the time that Defendants furnish information or documents
to the United States pursuant to any provision of this Final Judgment,
Defendants represent and identify in writing information or documents
for which a claim of protection may be asserted under Rule 26(c)(1)(G)
of the Federal Rules of Civil Procedure, and Defendants mark each
pertinent page of such material, ``Subject to claim of protection under
Rule 26(c)(1)(G) of the Federal Rules of Civil Procedure,'' the United
States must give Defendants 10 calendar days' notice before divulging
the material in any legal proceeding (other than a grand jury
proceeding).
IX. Retention of Jurisdiction
This Court retains jurisdiction to enable any of the parties to
this Final Judgment to apply to this Court at any time for further
orders and directions as may be necessary or appropriate to carry out
or construe this Final Judgment, to modify or terminate any of its
provisions, to enforce compliance, and to punish violations of its
provisions.
X. Enforcement of Final Judgment
A. The United States retains and reserves all rights to enforce the
provisions of this Final Judgment, including the right to seek an order
of contempt from the Court. Defendants agree that in any civil contempt
action, any motion to show cause, or any similar action brought by the
United States regarding an alleged violation of this Final Judgment,
the United States may establish a violation of this Final Judgment and
the appropriateness of any remedy therefor by a preponderance of the
evidence, and Defendants waive any argument that a different standard
of proof should apply.
B. The Final Judgment should be interpreted to give full effect to
the procompetitive purposes of the antitrust laws, including Section 7A
of the Clayton Act and Regulations promulgated thereunder. Defendants
agree that they may be held in contempt of, and that the Court may
enforce, any provision of this Final Judgment that, as interpreted by
the Court in light of these procompetitive principles and applying
ordinary tools of interpretation, is stated specifically and in
reasonable detail, whether or not it is clear and unambiguous on its
face. In any such interpretation, the terms of this Final Judgment
should not be construed against either party as the drafter.
C. In any enforcement proceeding in which the Court finds that a
Defendant has violated this Final Judgment, the United States may apply
to the Court for a one-time extension of this Final Judgment for that
Defendant, together with such other relief as may be appropriate. In
connection with any successful effort by the United States to enforce
this Final Judgment against a Defendant, whether litigated or resolved
prior to litigation, each Defendant agrees to reimburse the United
States for the fees and expenses of its attorneys, as well as any other
costs including experts' fees, incurred in connection with that
enforcement effort, including in the investigation of the potential
violation.
D. For a period of four (4) years after the expiration of this
Final Judgment pursuant to Section XI, if the United States has
evidence that a Defendant violated this Final Judgment before it
expired, the United States may file an action against that Defendant in
this Court requesting that the Court order (1) Defendant to comply with
the terms of this Final Judgment for an additional term of at least
four years following the filing of the enforcement action under this
Section, (2) any appropriate contempt remedies, (3) any additional
relief needed to ensure the Defendant complies with the terms of the
Final Judgment, and (4) fees or expenses as called for in Paragraph
X(C).
XI. Expiration of Final Judgment
Unless this Court grants an extension, this Final Judgment shall
expire ten (10) years from the date of its entry if each Defendant has
paid the civil penalty in full.
XII. Costs
Each party shall bear its own costs of this action.
[[Page 7168]]
XIII. Public Interest Determination
Entry of this Final Judgment is in the public interest. The parties
have complied with the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16, including making copies available to the
public of this Final Judgment, the Competitive Impact Statement, and
any comments thereon and the United States' responses to comments.
Based upon the record before the Court, which includes the Competitive
Impact Statement and any comments and responses to comments filed with
the Court, entry of this Final Judgment is in the public interest.
Dated:
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United States District Judge
United States District Court for the District of Columbia
United States of America, Plaintiff, v. XCL RESOURCES HOLDINGS,
LLC, VERDUN OIL COMPANY II LLC, and EP ENERGY LLC Defendants. Civil
Action No. 1:25-cv-00041.
Competitive Impact Statement
In accordance with the Antitrust Procedures and Penalties Act, 15
U.S.C. 16(b)-(h) (the ``APPA'' or ``Tunney Act''), the United States of
America files this Competitive Impact Statement related to the proposed
Final Judgment filed in this civil antitrust proceeding.
I. Nature and Purpose of Proceedings
On January 7, 2025, the United States filed a Complaint against
Defendants XCL Resources Holdings, LLC (``XCL''), Verdun Oil Company II
LLC (``Verdun''), and EP Energy LLC (``EP'') (together,
``Defendants''), related to XCL and Verdun's acquisition of EP. The
Complaint alleges that Defendants violated Section 7A of the Clayton
Act, 15 U.S.C. 18a, commonly known as the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the ``HSR Act'').
The Complaint alleges that XCL and Verdun acquired EP, through a
transaction in excess of the then-applicable statutory thresholds,
without observing the required HSR Act waiting period. The HSR Act
provides that ``no person shall acquire, directly or indirectly, any
voting securities of any person'' exceeding certain thresholds until
that person has filed pre-acquisition notification and report forms
with the Department of Justice and the Federal Trade Commission
(collectively, the ``federal antitrust agencies'' or ``agencies'') and
the post-filing waiting period has expired. 15 U.S.C. 18a(a). A key
purpose of the notification and waiting period is to protect consumers
and competition from potentially anticompetitive transactions by
providing the agencies an opportunity to conduct an antitrust review of
proposed transactions before they are consummated.
At the same time the Complaint was filed, the United States also
filed a Stipulation and proposed Final Judgment. Under the proposed
Final Judgment, which is explained more fully below, Defendants are
prohibited from engaging in specified conduct during the term of the
order and are required to pay a civil penalty to the United States in
the amount of $5,684,377. The proposed Final Judgment is designed to
deter HSR Act violations by XCL, Verdun, and similarly situated
acquirers.
The United States and Defendants have stipulated that the proposed
Final Judgment may be entered after compliance with the APPA. Entry of
the proposed Final Judgment will terminate this action, except that the
Court will retain jurisdiction to construe, modify, or enforce the
provisions of the proposed Final Judgment and punish violations
thereof.
II. Description of the Events
A. XCL and Verdun's acquisition of EP
On July 26, 2021, XCL and Verdun agreed to acquire EP for
approximately $1.4 billion. Defendants are engaged, among other things,
in the development, production, and sale of crude oil in the United
States. XCL operates in the Uinta Basin of Utah. Verdun operates in the
Eagle Ford area of Texas. EP operates in both the Uinta Basis and the
Eagle Ford area. Shortly thereafter, Defendants' parent entities filed
the pre-acquisition Notification and Report forms required by Section
7A of the Clayton Act. After reviewing the parties' filings, the
Federal Trade Commission (``FTC'') opened an investigation into the
competitive effects of the proposed transaction. XCL and EP were two of
four significant oil and gas development and production companies in
northeast Utah's Uinta Basin. The FTC alleged in its complaint that,
after the acquisition of EP, if XCL reduced the volume of crude oil
that it supplied to Salt Lake City, Salt Lake City area refiners would
be forced to pay more for Uinta Basin waxy crude oil. Ultimately, the
FTC obtained a consent agreement resolving its concerns about the
impact of the transaction on competition in the market for the
development, production, and sale of waxy crude oil in the Uinta Basin
area of Utah. The consent agreement required Defendants to divest all
of EP's Utah operations to a qualified third-party operator, Crescent
Energy. Entry of the consent agreement terminated the HSR Act waiting
period on March 25, 2022. XCL and Verdun consummated the transaction on
March 30, 2022, and EP is now a wholly owned subsidiary of Verdun.
B. Defendants' alleged violation of Section 7A
The HSR Act requirements apply to a transaction if, as a result of
the transaction, the acquirer will ``hold'' assets or voting securities
valued above the thresholds. Under HSR Rule 801.1(c), to ``hold''
assets or voting securities means ``beneficial ownership, whether
direct, or indirect through fiduciaries, agents, controlled entities or
other means.'' 16 CFR 801.1(c). Thus, under the Act, parties must make
an HSR Act filing and observe a waiting period before transferring
beneficial ownership of the assets or voting securities to be acquired.
The Statement of Basis and Purpose accompanying the Rules explains that
beneficial ownership is determined on a case-by-case basis, based on
the indicia of beneficial ownership which include, among others, the
right to obtain the benefit of any increase in value or dividends and
the risk of loss of value. 43 FR 33,449 (July 31, 1978). A firm may
also gain beneficial ownership by obtaining ``operational control'' of
an asset.
The combination of XCL and Verdun's agreement to purchase EP and
their assumption of key ordinary-course functions transferred
beneficial ownership of EP's business to XCL and Verdun before they had
fulfilled their obligations under the HSR Act. Specifically, the July
26, 2021 Purchase Agreement provided for the immediate transfer of
control over key aspects of EP's business to XCL and Verdun, including
granting XCL and Verdun approval rights over EP's ongoing and planned
crude oil development and production activities and many of EP's
ordinary-course expenditures. XCL put an immediate halt to EP's new
well-drilling activities, so that XCL--not EP--could control the
development and production plans for EP's drilling assets moving
forward. Even though XCL and Verdun allowed EP to resume its own well-
drilling and planning activities after Defendants realized that the FTC
would investigate the transaction, the temporary halts resulted in EP
having crude oil supply shortages in the following months. Defendants
predicted these shortages and specifically provided in the Purchase
Agreement that XCL and Verdun--not EP--would
[[Page 7169]]
bear all costs associated with EP's supply shortages.
XCL and Verdun also exercised operational control over EP by, inter
alia, working directly with EP's customers on EP's behalf; requiring EP
to provide competitively sensitive information to XCL and Verdun
businesspeople; requiring approval of ordinary-course expenditures; and
coordinating with EP on EP's contract negotiations with certain
customers in the Eagle Ford production area. The illegal conduct lasted
through October 27, 2021, when the Defendants executed an amendment to
the Purchase Agreement which allowed EP to operate independently once
again and in the ordinary course of business, without XCL's or Verdun's
control over its day-to-day operations. The Defendants were in
violation of the HSR Act for a period of 94 days, from when the
Purchase Agreement was signed, on July 26, 2021, until the Purchase
Agreement was amended, on October 27, 2021. Among other things, XCL's
temporary halting of EP's development activities contributed to EP
having crude oil supply shortages in September and October 2021 at a
time when the United States was experiencing significant supply
shortages and spiking crude oil prices due to sudden demand increases
as COVID-19 restrictions eased. XCL and EP--direct competitors in the
marketplace--then worked in concert to supply EP's customers to satisfy
EP's customer supply commitments. Verdun also coordinated with EP on
EP's contract negotiations with certain customers in the Eagle Ford
production area. Specifically, Verdun observed that certain EP
contracts included below-market prices and directed EP to raise them in
the next contracting period. EP complied.
Agreements that transfer some indicia of beneficial ownership, even
if common in an industry, may violate Section 7A if entered into while
the buyer intends to acquire the asset. Entering into such agreements
before the HSR Act waiting period expires defeats the purpose of the
HSR Act by enabling the acquiring person to direct the acquired
person's business to bring about the effects of an acquisition prior to
completion of the agencies' antitrust review.
III. Explanation of the Proposed Final Judgment
The relief required by the proposed Final Judgment will prevent
future violations of Section 7A of the Clayton Act of the type
Defendants committed and secures a monetary civil penalty for XCL's,
Verdun's, and EP's violation of Section 7A. The proposed Final Judgment
sets forth prohibited and permitted conduct, a compliance program the
Defendants must follow, and procedures available to the United States
to determine and ensure compliance with the Final Judgment. Section XI
provides that these conditions will expire ten years after the entry of
the Final Judgment.
A. Prohibited Conduct
Section V of the proposed Final Judgment is designed to prevent
future HSR Act violations of the sort alleged in the Complaint. During
the ``pre-consummation period'' of any future HSR-reportable
transaction--after executing an agreement or letter of intent for a
transaction subject to the reporting requirements of the HSR Act and
until the expiration of the statutory waiting period or abandonment of
the transaction--the Defendants are prohibited from entering into any
agreement with the other contracting party or parties to combine,
merge, or transfer, in whole or in part, any operational or decision-
making control over businesses, assets, or interests to be acquired.
This injunction applies to all transactions subject to the reporting
requirements of the HSR Act, regardless of the particular products
involved or whether any other party to the transaction competes with
the Defendants. The injunction also prevents an acquirer from obtaining
approval rights or authority over ordinary-course decisions of the to-
be-acquired entity or unrestricted access to certain categories of non-
public information. To be clear, the injunction is not intended to
cover all means of transferring beneficial ownership--which is assessed
on a case-by-case basis depending on a variety of factors--but to
broadly cover the Defendants' conduct in this matter and prevent
recurrence.
B. Permitted Conduct
Section VI of the proposed Final Judgment identifies certain
agreements and conduct that are permitted by the Judgment. Paragraphs
VI(A) and VI(B) ensure that the decree will not be interpreted to
forbid specified ``conduct of business'' covenants that are typically
found in merger agreements. These are customary provisions found in
most merger agreements and are intended to protect the value of the
transaction and prevent a to-be-acquired person from wasting assets.
Paragraph VI(C) ensures that the decree does not prevent certain
ordinary-course agreements in the oil and gas industry. Paragraph VI(D)
recognizes narrow exceptions to the restrictions on access to non-
public information in Paragraph V(A)(4) for certain activities, such as
participating in litigation.
C. Compliance
Sections VII and VIII of the proposed Final Judgment set forth
various compliance procedures. Section VII sets up an affirmative
compliance program directed toward ensuring compliance with the
limitations imposed by the proposed Final Judgment and with the federal
antitrust laws. The compliance program includes the designation of a
qualified antitrust compliance officer who is required to ensure that
the relevant Defendant distributes a copy of the Final Judgment to each
current and succeeding director, office, employee, agent, or other
person with the responsibility over sales, marketing, strategic
planning, exploration and development, or mergers and acquisitions;
briefs each such person regarding compliance with the Final Judgment
and the antitrust laws as they apply to Defendants' activities; and
obtains certification annually from each such person that he or she
understands his or her obligations under the Final Judgment and agrees
to abide by its terms. In addition, Defendants must provide a copy of
the Final Judgment to certain parties entering a merger or acquisition
with a Defendant prior to signing the definitive agreement. Section VII
of the proposed Final Judgment further requires the compliance officer
to certify to the United States that Defendant is in compliance and to
report any violations of the Final Judgment.
To facilitate monitoring of Defendants' compliance with the Final
Judgment, Section VIII grants DOJ access, upon reasonable notice, to
Defendants' records and documents relating to matters contained in the
Final Judgment. Defendants must also make its personnel available for
interviews or depositions regarding such matters. In addition,
Defendants must, upon request, prepare written reports relating to
matter contained in the Final Judgment.
D. Civil Penalties
The proposed Final Judgment imposes a $5,684,377 civil penalty for
Defendants' violation of the HSR Act. The United States adjusted the
penalty downward from the maximum permitted under the HSR Act in part
because the Defendants were willing to resolve the matter by consent
decree and avoid a prolonged investigation and litigation. The relief
will have a beneficial effect on competition because
[[Page 7170]]
it will deter future instances in which parties seek to immediately
acquire control of an independent competitive presence before filing
the required pre-acquisition notifications with the agencies and
observing the required waiting period. At the same time, the penalty
will not have any adverse effect on competition.
IV. Remedies Available to Potential Private Litigants
There is no private antitrust action for HSR Act violations;
therefore, entry of the proposed Final Judgment will neither impair nor
assist the bringing of any private antitrust action.
V. Procedures Available for Modification of the Proposed Final Judgment
The United States and the Defendants have stipulated that the
proposed Final Judgment may be entered by this Court after compliance
with the provisions of the APPA, provided that the United States has
not withdrawn its consent. The APPA conditions entry of the decree upon
this Court's determination that the proposed Final Judgment is in the
public interest.
The APPA provides a period of at least sixty (60) days preceding
the effective date of the proposed Final Judgment within which any
person may submit to the United States written comments regarding the
proposed Final Judgment. Any person who wishes to comment should do so
within sixty (60) days of the date of publication of this Competitive
Impact Statement in the Federal Register, or within sixty (60) days of
the first date of publication in a newspaper of the summary of this
Competitive Impact Statement, whichever is later. All comments received
during this period will be considered by the United States Department
of Justice, which remains free to withdraw its consent to the proposed
Final Judgment at any time prior to the Court's entry of judgment. The
comments and the response of the United States will be filed with this
Court. In addition, comments will be posted on the U.S. Department of
Justice, Antitrust Division's internet website and, under certain
circumstances, published in the Federal Register. Written comments
should be submitted to: Maribeth Petrizzi, Special Attorney, United
States, c/o Federal Trade Commission, 600 Pennsylvania Avenue NW, CC-
8416, Washington, DC 20580, Email: <a href="/cdn-cgi/l/email-protection#d2b0b1b1bdbfa2bebbb3bcb1b792b4a6b1fcb5bda4"><span class="__cf_email__" data-cfemail="a0c2c3c3cfcdd0ccc9c1cec3c5e0c6d4c38ec7cfd6">[email protected]</span></a>.
The proposed Final Judgment provides that this Court retains
jurisdiction over this action, and the parties may apply to this Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. Alternatives to the Proposed Final Judgment
As an alternative to the proposed Final Judgment, the United States
considered a full trial on the merits against the Defendants. The
United States is satisfied, however, that the relief required by the
proposed Final Judgment will remedy the violation alleged in the
Complaint and deter violations by similarly situated entities in the
future. Thus, the proposed Final Judgment achieves all or substantially
all of the relief the United States would have obtained through
litigation but avoids the time, expense, and uncertainty of a full
trial on the merits.
VII. Standard of Review Under the Appa for the Proposed Final Judgment
Under the Clayton Act and APPA, proposed Final Judgments, or
``consent decrees,'' in antitrust cases brought by the United States
are subject to a sixty (60) day comment period, after which the court
shall determine whether entry of the proposed Final Judgment is ``in
the public interest.'' 15 U.S.C. 16(e)(1). In making that
determination, the court, in accordance with the statute as amended in
2004, is required to consider:
(A) the competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration of relief sought, anticipated effects of
alternative remedies actually considered, whether its terms are
ambiguous, and any other competitive considerations bearing upon the
adequacy of such judgment that the court deems necessary to a
determination of whether the consent judgment is in the public
interest; and
(B) the impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and
individuals alleging specific injury from the violations set forth
in the complaint including consideration of the public benefit, if
any, to be derived from a determination of the issues at trial.
Id. Sec. 16(e)(1)(A) & (B). In considering these statutory factors,
the court's inquiry is necessarily a limited one, as the government is
entitled to ``broad discretion to settle with the defendant within the
reaches of the public interest.'' United States v. Microsoft Corp., 56
F.3d 1448, 1461 (D.C. Cir. 1995); United States v, U.S. Airways Group,
Inc., 38 F. Supp. 3d 69, 75 (D.D.C. 2014) (noting the government has
broad discretion of the adequacy of the relief at issue); United States
v. InBev N.V./S.A., No. 08-1965 (JR), 2009-2 Trade Cas. (CCH) ] 76,736,
2009 U.S. Dist. LEXIS 84787, at *3, (D.D.C. Aug. 11, 2009) (noting that
the court's review of a consent judgment is limited and only inquires
``into whether the government's determination that the proposed
remedies will cure the antitrust violations alleged in the complaint
was reasonable, and whether the mechanism to enforce the final judgment
are clear and manageable.'').
As the United States Court of Appeals for the District of Columbia
Circuit has held, under the APPA a court considers, among other things,
the relationship between the remedy secured and the specific
allegations in the government's Complaint, whether the proposed Final
Judgment is sufficiently clear, whether its enforcement mechanisms are
sufficient, and whether it may positively harm third parties. See
Microsoft, 56 F.3d at 1458-62. With respect to the adequacy of the
relief secured by the proposed Final Judgment, a court may not ``make
de novo determination of facts and issues.'' United States v. W. Elec.
Co., 993 F.2d 1572, 1577 (D.C. Cir. 1993) (quotation marks omitted);;
see also Microsoft, 56 F.3d at 1460-62; United States v. Alcoa, Inc.,
152 F. Supp. 2d 37, 40 (D.D.C. 2001); United States v. Enova Corp., 107
F. Supp. 2d 10, 16 (D.D.C. 2000); InBev, 2009 U.S. Dist. LEXIS 84787,
at *3.
Instead, ``[t]he balancing of competing social and political
interests affected by a proposed antitrust decree must be left, in the
first instance, to the discretion of the Attorney General.'' W. Elec.
Co., 993 F.2d at 1577 (quotation marks omitted). ``The court should
also bear in mind the flexibility of the public interest inquiry: the
court's function is not to determine whether the resulting array of
rights and liabilities is the one that will best serve society, but
only to confirm that the resulting settlement is within the reaches of
the public interest.'' Microsoft, 56 F.3d at 1460 (quotation marks
omitted); see also United States v. Deutsche Telekom AG, No. 19-2232
(TJK), 2020 WL 1873555, at *7 (D.D.C. Apr. 14, 2020). More demanding
requirements would ``have enormous practical consequences for the
government's ability to negotiate future settlements,'' contrary to
congressional intent. Microsoft, 56 F.3d at 1456. ``The Tunney Act was
not intended to create a disincentive to the use of the consent
decree.'' Id.
The United States' predictions about the efficacy of the remedy are
to be afforded deference by the Court. See, e.g., Microsoft, 56 F.3d at
1461 (recognizing courts should give ``due respect to the Justice
Department's . . . view of the nature of its case''); United
[[Page 7171]]
States v. Iron Mountain, Inc., 217 F. Supp. 3d 146, 152-53 (D.D.C.
2016) (``In evaluating objections to settlement agreements under the
Tunney Act, a court must be mindful that [t]he government need not
prove that the settlements will perfectly remedy the alleged antitrust
harms[;] it need only provide a factual basis for concluding that the
settlements are reasonably adequate remedies for the alleged harms.''
(internal citations omitted)); United States v. Republic Servs., Inc.,
723 F. Supp. 2d 157, 160 (D.D.C. 2010) (noting ``the deferential review
to which the government's proposed remedy is accorded''); United States
v. Archer-Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) (``A
district court must accord due respect to the government's prediction
as to the effect of proposed remedies, its perception of the market
structure, and its view of the nature of the case.''). The ultimate
question is whether ``the remedies [obtained by the Final Judgment are]
so inconsonant with the allegations charged as to fall outside of the
`reaches of the public interest.''' Microsoft, 56 F.3d at 1461 (quoting
W. Elec. Co., 900 F.2d at 309).
Moreover, the court's role under the APPA is limited to reviewing
the remedy in relationship to the violations that the United States has
alleged in its Complaint and does not authorize the court to
``construct [its] own hypothetical case and then evaluate the decree
against that case.'' Microsoft, 56 F.3d at 1459; see also U.S. Airways,
38 F. Supp. 3d at 75 (noting that the court must simply determine
whether there is a factual foundation for the government's decisions
such that its conclusions regarding the proposed settlements are
reasonable); InBev, 2009 U.S. Dist. LEXIS 84787, at *20 (concluding
that ``the `public interest' is not to be measured by comparing the
violations alleged in the complaint against those the court believes
could have, or even should have, been alleged''). Because the ``court's
authority to review the decree depends entirely on the government's
exercising its prosecutorial discretion by bringing a case in the first
place,'' it follows that ``the court is only authorized to review the
decree itself,'' and not to ``effectively redraft the complaint'' to
inquire into other matters that the United States did not pursue.
Microsoft, 56 F.3d at 1459-60. As this Court confirmed in SBC
Communications, courts ``cannot look beyond the complaint in making the
public interest determination unless the complaint is drafted so
narrowly as to make a mockery of judicial power.'' 489 F. Supp. 2d at
15.
In its 2004 amendments to the APPA, Congress made clear its intent
to preserve the practical benefits of using judgments proposed by the
United States in antitrust enforcement, adding the unambiguous
instruction that ``[n]othing in this section shall be construed to
require the court to conduct an evidentiary hearing or to require the
court to permit anyone to intervene.'' 15 U.S.C. 16(e)(2); see also
U.S. Airways, 38 F. Supp. 3d at 76 (indicating that a court is not
required to hold an evidentiary hearing or to permit intervenors as
part of its review under the Tunney Act). This language explicitly
wrote into the statute what Congress intended when it enacted the
Tunney Act in 1974. As Senator Tunney explained: ``The court is nowhere
compelled to go to trial or to engage in extended proceedings which
might have the effect of vitiating the benefits of prompt and less
costly settlement through the consent decree process.'' 119 Cong. Rec.
24,598 (1973) (statement of Sen. Tunney). ``A court can make its public
interest determination based on the competitive impact statement and
response to public comments alone.'' U.S. Airways, 38 F. Supp. 3d at 76
(citing Enova Corp., 107 F. Supp. 2d at 17).
VIII. Determinative Documents
There are no determinative materials or documents within the
meaning of the APPA that were considered by the United States in
formulating the proposed Final Judgment.
Date: January 7, 2025
Respectfully Submitted,
-----------------------------------------------------------------------
Kenneth A. Libby, Special Attorney, U.S. Department of Justice,
Antitrust Division, c/o Federal Trade Commission, 600 Pennsylvania
Avenue NW, Washington, DC 20580, Phone: (202) 326-2694, Email:
<a href="/cdn-cgi/l/email-protection#bcd7d0d5dedec5fcdac8df92dbd3ca"><span class="__cf_email__" data-cfemail="513a3d38333328113725327f363e27">[email protected]</span></a>.
[FR Doc. 2025-01252 Filed 1-17-25; 8:45 am]
BILLING CODE 4410-11-P
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