Baker & McKenzie: Oil industry in crisis — Should we expect more or less antitrust enforcement?

By Mark Hamer, Partner (Washington DC office), Baker & McKenzie

The oil and gas industry is undergoing a period of severe economic hardship. It has been reported that over 100,000 layoffs have occurred in the US oil industry since the beginning of 2015 – a loss of more than a fifth of all oil industry workers stateside in just over a year.

In these hard economic times, companies need to be alert to the extra antitrust risks that occur during a recession. This danger is particularly acute for oil and gas companies, who often collaborate with competitors in order to spread the high risk and cost associated with almost every major project.

As a result of the depressed oil and gas prices, business managers are under increasing pressure to save costs and be more efficient. The temptation may be to achieve this through increased collaboration with competitors. Such collaboration, if carefully managed, may not cause competition concerns, but increased contact and communication with competitors may also result in outright per se anticompetitive agreements, which are always illegal.

During an economic crisis, businesses may make the dangerous assumption that antitrust law will be one area of public law enforcement to take a temporary step back. This is not the case, and competition authorities around the world have emphasised that enforcement should not be relaxed in times of crisis.

During the great financial crisis, the then European Commissioner for Competition, Neelie Kroes, said:

"Some people want to hear that we have a free ride or a quick fix for them. That is not true … we are crystal clear that cartels are harmful no matter what current economic growth rates are. They cause billions of direct harm in our economies, and by cracking down hard on one cartel we estimate that we stop another five. So we can't go soft on them. If that sounds like 'tough love' - it is. It is better to have clear and strong rules in the first place and then stick to them - it lifts standards, and markets know what to expect." (March 2009)

Similarly, in the US, Carl Shapiro from the Department of Justice said:

"Keeping markets competitive is no less important during times of economic hardship than during normal times … History teaches us that suppliers, hurting during a sharp economic downturn, will look for ways to avoid competing and thereby trim losses or boost their profits … the Antitrust Division are dedicated to vigorous enforcement of the antitrust laws during these challenging economic times." (May 2009)

The same false perception of reduced enforcement also exists with respect to merger control. At a time of crisis, some companies may assume that mergers between competitors should be more readily allowed. As demonstrated by the recent decision by Halliburton to call off its proposed $34.6bn merger with Baker Hughes as a result of opposition from the US Department of Justice, this is simply not the reality.

In addition, we may be at the start of a trend towards a more stringent approach to merger control in the US. In April 2016, the White House Council of Economic Advisers expressed concerns that "many industries are becoming more concentrated" and announced that it is considering additional regulation in this area, particularly with respect to common stock ownership by index funds or private equity firms.

Similar reviews are also occurring in the EU, and a risk exists that within the next few years more stringent merger control rules will be put in place. It is clear then that the application of antitrust law will not be relaxed, and if anything the rules will be tightened.

Merger control rules have spread from 20 active jurisdictions worldwide 30 years ago to over 120 today, and authorities around the world now impose fines for failure to file and gun-jumping.

Similarly, criminal antitrust enforcement has never been more robust. Fines remain high, and in 2015 companies were fined more than $5bn for antitrust infringements by competition authorities around the world including those in the US, Brazil, EU, India, China and South Korea.

In addition, more than 50 jurisdictions worldwide conducted dawn raids on companies last year, and more than 20 jurisdictions now impose criminal sanctions on individuals for antitrust violations.

With the exacerbated risk of anti-competitive behaviour caused by the economic crisis, and the increase in enforcement activity by competition authorities worldwide, it is more important than ever to ensure that you have an effective compliance programme in place wherever you do business.

Additional insight from Baker & McKenzie Partner Luis Gomez (London) and Associate Paul Johnson (Brussels).