The civil penalty resolves an FTC investigation into the coordination by the parties of certain business decisions, as well as access to competitively sensitive information, prior to satisfying the stand-still requirements of the HSR Act. The HSR Act provides for a penalty for each day that parties to a reportable transaction are in violation of the Act. In this case, the FTC alleges that the parties were in violation of the Act for 94 days, justifying the significant penalty.
Background and timeline to the FTC allegations
Verdun Oil Company II LLC (“Verdun”) and XCL Resources Holdings, LLC (“XCL”) are sister companies under common management that are engaged in crude oil production: Verdun in Eagle Ford, TX and XCL in the Uinta Basin, UT. EP Energy LLC (“EP”) is a company engaged in crude oil production in both Eagle Ford, TX and the Uinta Basin, UT.
On July 26, 2021, XCL and Verdun agreed to acquire EP in a USD1.4 billion transaction that met the reporting requirements of the HSR Act. XCL and Verdun each contributed to the purchase price, triggering notice and waiting period requirements under the HSR Act for both companies. Once the parties submitted their HSR filings, they were subject to the suspensory waiting period requirements of the Act before Verdun and XCL could exert any control over EP. As part of the filings, the parties were required to submit a copy of the purchase agreement.
The agreement, however, 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 as well as EP’s ordinary course expenditures.
Upon receiving the filings, the FTC investigated the proposed transaction due to the concern that it would eliminate head-to-head competition between two of only four significant energy producers in the Uinta Basin, UT. During this extended waiting period, the complaint alleges that the parties also engaged in improper exchange of competitively sensitive information and coordinated on customer supply and pricing.
On October 27, 2021, the parties executed an amendment to the purchase agreement which reverted the control of EP’s ordinary-course business operations back to EP, without XCL and Verdun’s involvement. At this time, the parties also stopped their exchange of competitively sensitive information and ceased their coordination on customer supply and pricing.
Ultimately, on March 25, 2022, the FTC obtained a consent agreement from the parties addressing the FTC’s concerns regarding the competitive impact of the transaction on competition in the development, production, and sale of waxy crude oil in the Uinta Basin, UT. The consent agreement required XCL and Verdun to divest all of EP’s Utah operations to a qualified third-party operator, Crescent Energy.
Under these facts, the agencies concluded that XCL, Verdun, and EP were in violation of the HSR Act for 94 days between July 26 through October 27, 2021.
FTC alleges gun-jumping conduct
The complaint alleges that the purchase agreement itself explicitly limited EP’s ordinary course activities in multiple ways. Beyond the terms of the agreement, the parties also engaged in improper information sharing and coordination of competitive activities. The DOJ and FTC’s joint complaint1 claims the following conduct is indicative of gun-jumping:
- Approval over competitive activities, including termination of planned expansion: The purchase agreement granted XCL and Verdun approval rights over EP's crude oil development and production activities—significant aspects of EP’s business. XCL put an immediate halt to EP’s new well-drilling activities such that XCL could control development and production plans for the business moving forward, and only reverted control back to EP once they realized the FTC was planning to investigate the transaction.
- Competitor collaboration: XCL and EP, direct competitors in the Uinta Basin, worked together to meet EP’s customer supply commitments prior to meeting the requirements of the HSR Act. As part of this concerted action, EP employees effectively reported to XCL, sharing competitively sensitive details on contracts, supply volumes, and pricing terms that would not otherwise have been exchanged.
- Customer sharing: As a result of their collaboration, XCL coordinated with EP’s customers directly to address supply shortages, using its own supplies or spot market purchases to fulfill EP’s commitments.
- Approval for ordinary course expenditures: The purchase agreement required EP to submit expenditures over USD250,000 for XCL's or Verdun’s approval, which applied to many of EP’s ordinary-course expenditures and effectively transferred control over a significant portion of EP’s day-to-day operations. Moreover, the complaint alleges that in practice, XCL and Verdun also approved smaller expenditures well below the USD250,000 threshold.
- Control over ordinary-course business operations: XCL required changes to EP’s ordinary course operations including EP’s well-drilling designs and its leasing and renewal activities.
- Access to information: EP provided XCL with extensive access to its competitively sensitive business information including EP’s site design plans, customer contract and pricing, and daily supply and production reports in the months after signing.
- Coordination on customer contract negotiations: Verdun coordinated with EP on contract negotiations in the Eagle Ford, TX production area, observing that certain EP contracts included below-market prices and directing EP to raise them in the next contracting period, which EP did.
Key takeaways
Companies planning transactions should seek advice from antitrust counsel in advance to ensure that pre-close covenants are well-tailored. Parties to an applicable transaction should take care to avoid any suggestion that they have merged their management or operations before receiving HSR clearance.
Additionally, legal assistance in integration planning is essential to ensure companies continue their regular operations between the signing and closing stages. Specifically, merging companies must remain and operate as independent entities until the applicable waiting period expires. While integration planning is allowed during this period, the parties must ensure that the buyer does not control the seller’s routine business decisions before the waiting period ends.
This action highlights the antitrust agencies’ commitment to ensuring that parties adhere to the suspensory waiting period mandated by the HSR Act. Furthermore, the risk of gun-jumping does not rest only with the buyer, but also with the seller. Parties on both sides of negotiating a deal should take care not to facilitate the disclosure of competitively sensitive information and should put the proper safeguards in place for operational independence so as not to suggest premature closing.
Parties should also be mindful of processes to facilitate appropriate disclosures of information during the due diligence and integration planning stages, including the use of a clean team.
Footnotes
[1] See Complaint, United States v. XCL Resources Holdings, LLC, et al., No. 1:25-cv-00041 (D.D.C. Jan. 7, 2025).