These guidelines can help oil and gas operators manage the antitrust risks of collaborations with competitors:
1. Avoid potential per se violations.
Be especially careful when considering any agreement not to compete on price or for any particular business. All such agreements raise the risk of being condemned under rule-of-reason if not per se analysis (and, depending upon the parties' intent, potentially prosecuted criminally).
2. Remember that intent matters.
When entering agreements with competitors, consider carefully whether their true purpose is to increase price, reduce purchase costs, and or eliminate competition or to create some legitimate, procompetitive benefit. Such benefits might include expanding acquisition and development opportunities that might not otherwise exist, substantially enhancing operating efficiencies, opening up marketing channels that might not otherwise exist, or otherwise achieving procompetitive ends that can be expected to ultimately benefit consumers, and not just the parties. If the parties' purpose is not solely or primarily procompetitive, legal advice is in order.
3. Be careful with noncore agreement elements.
Make sure that all terms of the agreement between the competitors that in any way limit competition are reasonably related to the purpose of the venture and reasonably necessary to achieve its procompetitive benefits. That means, for example, that if two companies enter into an arrangement to jointly bid on and develop particular tracts, a related area-of-mutual-interest (AMI) agreement would need to be defended on the grounds that this restriction on the parties' right to bid separately is reasonably related to the underlying agreement and reasonably necessary to achieve the parties' legitimate business goals.
4. Consider the actual and potential competition between the parties.
For example, if two development companies enter into an agreement to jointly bid on available tracts in a particular area, that agreement will be more suspect if the parties had previously bid against each other in that area.
5. Consider the extent of the remaining competition.
If two actual or potential competitors agree to stop competing in any respect, the degree of remaining, relevant competition will be a factor in any analysis of the agreement's competitive effects. For example, if two out of the three historical bidders for lease rights in a particular area agree to bid jointly, that agreement will be much more likely to be struck down as anticompetitive than if there are four remaining viable bidders. Note that the agencies generally will not challenge a competitor collaboration under rule-of-reason analysis where the combined market shares of the parties in the relevant market are lower than 20%.
6. Understand that the agreement's duration is relevant.
The longer any restraint on competition lasts, and the more that it might appear that the restraint lasts longer than necessary, the more likely it is that the agreement will be challenged. In other words, make sure that whatever term is agreed to by the parties can be defended on the grounds that the parties could not have achieved their procompetitive goals in a shorter period.
7. Be careful with information exchanges.
When the parties are continuing to compete outside of the collaboration, be extremely careful about the exchange of information relating to the parties' independent activities, particularly with respect to information relating to price, costs, output, strategic and future business plans, and any other competitively sensitive information. When such information must be exchanged for the collaboration to function properly, consider establishing firewalls to ensure that competitively sensitive information is kept from those collaboration partner employees who might be able to use it in improper ways.
8. Disclose.
An operator can substantially reduce antitrust risk by disclosing to third parties who could be affected by a competitor collaboration the existence of the agreement. Doing so demonstrates that the parties did not believe they were doing anything improper and can draw out any complaints before the potential violation has occurred.
9. Take care with documents.
An operator must be careful in emails and other written communications so as not to inadvertently imply an improper intent or, worse, agreement with a competitor. For example, never reference a goal of lowering bid prices or raising sale prices through an agreement not to compete (better yet, do not have such an agreement if that is the true purpose). Also, in any written agreement with a competitor, it can be helpful to document the procompetitive purposes of the agreement (with phrases such as, "Whereas Party A and Party B could not separately bid for tracts...") as well as provisions that are intended to minimize the agreement's anticompetitive effects. The corollary, of course, is that an operator should never suggest an improper intent in an agreement.
10. Seek counsel where appropriate.
It is of course tempting to avoid incurring the time, costs, and inconvenience associated with consulting an antitrust lawyer, particularly when the chances of anyone complaining seem minuscule. But given that the potential consequences of being investigated for–let alone accused of–a violation of the antitrust laws are so dire, together with the substantially increased focus of the antitrust regulators on the oil and gas industry, the far better course is to resolve any doubts in favor of seeking the advice of an antitrust lawyer before moving forward with a potentially risky agreement.