Business

➚ BUY: Fixed pricing: The Fed held interest rates steady, noting a “lack of further progress” on prices. US inflation has been milder but stickier than in Europe, whose central bankers may have no choice but to cut first.

➘ SELL: Price fixing: Antitrust regulators say a former Texas oil CEO pushed to collude with OPEC to keep output down and prices high, and barred him from from sitting on Exxon’s board, Semafor first reported yesterday.

Solid growth expected in US jobs… Powell doesn’t see ‘stag’ or ‘flation’... Russia’s Gazprom posts first loss in 24 years... Brazil’s Embraer plans Boeing 737 rival… Huawei’s hidden hand... Peloton CEO is out… Will Rio Tinto jump into M&A war? … Popping the question at Buffett confab…

Oil exec’s price-fixing case may turn criminal

THE SCOOP

The Federal Trade Commission plans to recommend a potentially criminal case against the former CEO of Pioneer Natural Resources for comments he made to Texas rivals suggesting they coordinate ways to drill less oil, people familiar with the matter said.

The FTC yesterday barred Scott Sheffield, who led Pioneer until the end of 2023 and orchestrated its pending merger with Exxon, from sitting on the combined company’s board as a condition of approving the deal. The agency doesn’t have criminal authority but is looking to refer the matter to the US Justice Department, the people said.

In text messages obtained by the government, Sheffield discussed ways to curtail production and assured officials at OPEC+, the cartel of oil-producing countries that includes Saudi Arabia, Russia, and Venezuela, that Pioneer and its Texas rivals were trying to keep oil output artificially low.

“If Texas leads the way, maybe we can get OPEC to cut production,” Sheffield wrote, according to the government’s redacted complaint. “Maybe Saudi and Russia will follow. That was our plan,” he said, adding: “I was using the tactics of OPEC+ to get a bigger OPEC+ done.”

The government’s complaint “reflects a fundamental misunderstanding of the US and global oil markets and misreads the nature and intent of Mr. Sheffield’s actions,” a spokesman for Pioneer said. “Mr. Sheffield focused on legitimate topics such as investor feedback on independent oil and gas company growth and capital reinvestment frameworks [and] unfair foreign practices that threatened to undermine US energy security.”

The FTC expanded its criminal referral program in 2021 and has worked closely with federal prosecutors on a case against Reckitt Benckiser, for thwarting generic competitors to its opioid-addiction treatment Suboxone.

“At a time when major corporate lawbreakers can treat civil fines as a cost of doing business, government authorities must ensure that criminal conduct is followed by criminal punishment,” FTC Chair Lina Khan, who has made the issue a priority, said at the time.

LIZ’S VIEW

Shale producers competed themselves into financial ruin in the 2010s, spending billions of dollars to drill new wells and acquire acreage. Nobody is eager to do that again, and “capital discipline” has become the industry’s watchword. That’s why Exxon is buying Pioneer — and why Chevron is buying Hess, Diamondback is buying Endeavor, and Occidental is buying CrownRock, all since last September.

“All the shareholders that I’ve talked to said that if anybody goes back to growth, they will punish those companies,” Sheffield said in 2021, when Pioneer announced it would cap its annual production increase at 5%. A Pioneer spokesman said today that Sheffield’s conversations with big investors, including major pension funds, starting in 2019 set him on this belt-tightening path.

The problem isn’t saying those things on earnings calls and in media interviews. It’s saying them to competitors and OPEC officials on WhatsApp, as the government alleges Sheffield did.

What looks like capital discipline to a CEO who doesn’t want to get yelled at by his shareholders can easily look like collusive behavior to prosecutors.

As a merger fix, though, this is pretty strange. As the FTC’s two dissenting commissioners wrote, Sheffield’s past actions have little bearing on Exxon’s future ones, and anyway Pioneer is the disappearing company here. “We fear instead that the Commission is leveraging its merger enforcement authority to extract a consent from Exxon rather than addressing the conduct of one misbehaving executive,” the two commissioners wrote.

But Khan has expanded the FTC’s non-merger enforcement efforts, moving to ban non-competes and give more protections to gig workers. Merger approval is a powerful tool to punish other, unrelated behavior that the government doesn’t like. For example, the Justice Department in 2022 cleared the merger of two chicken-processing companies in exchange for the companies agreeing to an $85 million settlement for suppressing workers’ wages.

One final thought: The FTC has been aggressively swatting down deals, and to the extent this approval bodes well for similar deals like Chevron-Hess, I’m surprised to see it allow a generational consolidation in Big Oil in an election year. Countervailing pressures around energy independence and national security seem to have trumped pocketbook concerns.

CEOs got raises again. A study of 343 big public companies found a 9% bump for the average chief executive, about twice the wage increase of people who work for them. The data, crunched by ISS-Corporate, suggests that 2022, when most companies curbed bonuses after stocks fell, was a blip.

Of that group, just over half (174) did better for themselves than for shareholders, though most did pretty well for both in a year when stocks shrugged off higher interest rates and global unrest. By that metric, Uber’s Dara Khosrowshahi was the most underpaid CEO in America — but he’s making up for it in 2024. The company’s soaring stock price unlocked a share package worth about $120 million today.

Missing from that chart because he broke the scale: Nikesh Arora of Palo Alto Networks, who earned 13 times more in 2023 than in 2022, thanks to stock and options he received when he was hired six years ago. That windfall made Arora, who also landed giant paydays when he was at Google and SoftBank, the rare billionaire who never founded a company.

On the trail: Treasury Secretary Janet Yellen will give a speech tomorrow in Arizona making “the economic case for democracy” and talking up President Joe Biden’s agenda. Early in the administration, Yellen — a wonkish economist who talks like the former Fed official she is — was seen as insufficiently political and a poor messenger for the White House’s economic message. The 2024 campaign trail offers another chance to put on the jersey.

Loan ranger: Apollo said this morning that it made $40 billion of loans last quarter, deploying the money pouring into its life insurance business. Bank of America made $1 billion (using its commercial loan book as a decent proxy for the kind of lending Apollo and other private investment firms do.) The shift of assets away from banks and into credit funds, insurers and other nonbank players is massive and accelerating, and owes entirely to regulatory differences between how banks, with their flighty retail deposits, and private funds, with locked-up institutional money, are treated in Washington. “I like the hand we’re playing,” Apollo CEO Marc Rowan said this morning. (So, it appears, does Blue Owl, whose CEO told the Financial Times he was looking for lending platforms to buy.)

David Zaslav appearing on his own air, on TNT, with unnamed guests (credit to @jmpopa).

The Warner Bros. Discovery chief executive is trying to hold onto his NBA television rights, a key part of TNT’s sports lineup, as NBC prepares a rival bid. Warner Bros. stock fell 9% on the news to an all-time low.

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