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The Federal Trade Commission has found more room for consolidation in the oil patch. In a massive study of the petroleum industry, the FTC concludes that many competitors exist in the exploration, refining and marketing segments of the industry. That leaves the door open to more deals. “Most sectors of the petroleum industry at the national, regional or state level generally remain moderately unconcentrated,” the agency said Friday in announcing its findings. The long-awaited report, the third time since 1982 that the FTC has undertaken a review of oil industry competition, is already sparking complaints from critics who have accused the agency of permitting too many oil industry mergers. The Government Accountability Office recently issued a report finding that anti-competitive mergers have raised gas prices as much as 7 cents per gallon in California. That followed a Consumer Federation of America study linking consolidation to higher prices at the pump. “This is basically a political move to give President Bush cover,” said Mark Cooper, director of research at the CFA, adding that the FTC report fails to analyze why gas prices have soared. The FTC also fails to recognize that the market is especially susceptible to anti-competitive conduct because consumers cannot stop buying gas just because prices rise, he said. Such critiques have gotten the attention of West Coast lawmakers. Citing his concerns over oil industry consolidation, Sen. Ron Wyden, D-Ore., held up the confirmation of Deborah Majoras as the next FTC chairman, forcing the president to make a rare recess appointment. A spokesman for Wyden did not return a call for comment. FTC General Counsel William Kovacic said the agency’s finding contradicts the GAO and CFA studies, especially those that focused on the retail sale of gasoline. “We don’t find evidence that structural changes have increased concentration,” he said at a briefing. “We continue to observe a significant amount of dynamism in the field.” Kovacic said that means there might be some markets where more mergers are possible, while in other markets the agency would block further consolidation. “It would depend heavily on the nature of the transaction being proposed,” he said. According to the FTC, one segment completely open to dealmaking is exploration and production. U.S. companies have lost about 20 percent of their global share of this business since 1990, the agency found. The only deal the FTC challenged in this area involved BP Amoco plc’s acquisition of Atlantic Richfield Co. because both were major producers in Alaska’s North Slope. On the refining side, the FTC concluded that since 1980, refineries have become larger and more sophisticated. That makes them more efficient, which made the smaller refineries obsolete. That explains why so many of the smaller refineries are out of business. Retail competition also has changed since 1990. The FTC said the development of hypermarkets — the presence of gas pumps at outlets such as Wal-Mart Stores Inc., for example — puts enormous downward pressure on prices. In addition, the agency found that major oil companies are selling assets roughly as fast as they are acquiring them. The merger wave of the late 1990s followed a period of massive divestitures in the early 1990s, the FTC said. The $998 billion in acquisitions since 1985 is only $24 billion more than the $974 billion in divestitures, the agency said. The FTC also found that oil companies are less vertically integrated today than in 1989, when it last did its study. This means refiners are less likely to own retail outlets or exploration and extraction companies. In defending its record policing oil industry deals, the agency paints an overall picture of aggressive enforcement. The FTC has challenged 15 major petroleum mergers since 1981 and secured significant structural relief in all of them. The agency also tends to challenge oil industry mergers at much lower levels of concentration than it does in other industries. But William Vigdor, a partner at law firm Vinson & Elkins in Washington and a former FTC official, said the agency focused the report too much on how the industry operates nationally rather than on problems with specific local markets. “Their conclusions and summaries of national markets say nothing on antitrust enforcement,” Vigdor said. “Antitrust enforcement in petroleum is local in nature.” Copyright �2004 TDD, LLC. All rights reserved.

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