The offshore energy industry has been awash in conspiracy theories for the past year, many of which go something like this: the Obama administration is trying to destroy the oil business by withholding drilling permits in the Gulf of Mexico.
There’s one area, though, where the administration seems to be giving its support: antitrust clearance for mergers.
“The Obama administration recognizes the hardship that’s been imposed on Gulf businesses,” Tom Fina, an attorney with Baker Botts in Washington, D.C., who specializes in antitrust issues, told me yesterday. “There’s a recognition by the administration that the failing firm defense applies here.”
The failing firm defense is a consideration in antitrust approval that basically justifies a merger if a firm has exhausted all other avenues and will fail without a merger, even if the acquiring company will dominate the market.
So far, there’s only been reports of one such case in the Gulf since the drilling moratorium was enacted last summer: Seahawk Drilling. As I wrote a few months ago, Seahawk had other factors that contributed to its demise. Fina, though, represented the buyer, Hercules Offshore, and said the Justice Department took a very narrow view of the market for shallow-water rigs in considering the antitrust implications.
That narrow view allowed the merger to clear antitrust hurdles. Fina believes the Justice Department’s stance offers some relief to smaller businesses struggling with the effects of the moratorium.
“To the extent that you have Gulf-centric businesses that are either suffering or are basically facing bankruptcy, they may be able to sell themselves to strategic buyers,” he said.
It is, of course, a bitter irony that the government would be so cooperative in aiding failing companies when it has been so inflexible on permitting issues. Mergers among smaller players in the Gulf will result in fewer companies operating there, creating a oligopoly of larger energy firms.
“It’s just had an enormous effect in changing the playing field in ways we still don’t entirely know,” Fina said of the moratorium.