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In re Shale Oil Antitrust Litigation considers whether the nation’s largest shale producers conspired to restrain domestic shale oil production to artificially increase the price of crude oil and its derivative products throughout the United States. The U.S. District Court for the District of New Mexico concluded that the allegations against the defendants are plausible, which is sufficient for the case to move forward.
The Court granted in (small) part and denied in (large) part motions to dismiss the 54-count consolidated class action alleging that eight shale oil producers: Permian Resources, Chesapeake (now Expand Energy), Continental Resources, Diamondback Energy, EOG Resources, Hess, Occidental Petroleum, and Pioneer Natural Resources, along with former CEOs Scott Sheffield and John B. Hess, conspired to restrain domestic shale oil production and artificially inflate prices.
The facts
Plaintiffs are end-payors: individuals, businesses, and political subdivisions who purchased gasoline, diesel, heating oil, and other petroleum products at allegedly inflated prices. Their theory: during the “Shale Revolution,” defendants became “swing producers” capable of materially influencing crude oil prices and beginning around 2021 collectively throttled production growth even as prices soared past $120 per barrel and their breakeven costs hovered around $30. Plaintiffs pointed to private dinners between defendants and OPEC officials at the annual CERAWeek conference in Houston, public statements touting “discipline” over growth, and FTC consent decrees that barred Sheffield and John Hess from joining the boards of their companies’ acquirers based on evidence of years-long price-fixing efforts.
The issues and the ruling
Political question and act of state
Defendants argued the case was nonjusticiable because it would require the court to evaluate OPEC’s conduct. The court disagreed, holding that plaintiffs’ central theory targeted a domestic conspiracy among domestic defendants, none of whom are OPEC members or foreign sovereigns.
Parallel conduct and plus factors
The court held that plaintiffs plausibly alleged parallel conduct – not through absolute production cuts, but through reduced relative growth rates compared to pre-pandemic levels. The “plus factors” pushing the claim from possible to plausible included a top-heavy market structure with inelastic demand; interfirm communications and opportunities to collude (CERAWeek dinners, etc.); the FTC investigations; horizontal shareholding through overlapping institutional investors such as BlackRock, Vanguard, and State Street; and actions against economic self-interest, namely withholding production despite falling breakeven costs and rising prices.
Antitrust standing
Defendants argued that end-payors who never purchased crude oil directly from them lacked standing. The court found that plaintiffs plausibly alleged a direct throughline: defendants restrained shale oil production, which inflated crude prices, which predictably inflated gasoline and derivative product prices paid by consumers.
A handful of state-law claims were trimmed. Alabama’s antitrust statute, for example, does not reach interstate conspiracies. The vast majority of claims survived.
Bottom line
The case will move forward. Allegations of coordinated “discipline”, tied to the OPEC dinners, public statements eschewing production growth, and institutional investor overlap survived the motions to dismiss. In considering a motion based on Rule 12(b)(6) the court accepts the allegations as true. So, whether any conspiracy to violate antitrust laws can be proven remains to be seen.
Answer to last week’s quiz
David Duke. Notorious white supremacist, KKK grand wizard, serial political candidate, and target of the “Vote for the crook; it’s important” campaign slogan.
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