Laura Sanicola and David French

(Reuters] – EP Energy has begun to explore the sale of its oil-producing acreage within Utah. It hopes that this will prevent a U.S. antitrust regulatory challenge to EnCap Investments LP’s $1.5billion takeover, according people who are familiar with the matter.

Sources said that the Federal Trade Commission has told EP Energy and EnCap privately it was going to sue them to block their deal. Sources said that EnCap, which also owns XCL Resources in Utah, is worried about becoming too dominant in Utah’s Uinta basin.

FTC mergers of oil and gas producers have been rare, the most recent challenge being more than twenty years ago. According to the FTC, energy prices are determined by global demand and supply rather than regional consolidation.

EP Energy’s sale is opposed by the group. This comes amid increasing pressure from President Joe Biden to address consumer anger over rising gasoline prices.

Sources said that EP Energy (which emerged from bankruptcy in 2020) has hired an investment bank to help find a buyer of its Uinta assets. The 155,000 acres of net worth are expected to be in the hundreds of millions.

Sources requested anonymity due to the confidential nature of this matter. EnCap and FTC have declined to comment. EP Energy, XCL and EnCap did not respond.

Enverus data shows that EP Energy, XCL and XCL combined accounted to about a quarter of the Uinta’s oil production at 92,000 barrels/day in October. Rival Ovintiv, (NYSE:) Inc produced a third of the total production. The rest was contributed by 16 other companies.

The FTC opposed the agreement because it was concerned that Salt Lake City’s refiners, who produce gasoline and other products for Utah, might have to pay more for oil if there is no competition from EP Energy, sources claimed.

According to Utah’s Department of Environmental Quality, the Uinta oil is a unique crude oil with high levels of sulfur and waxy consistency.

Because of lower transportation costs, local refiners can purchase the crude at a reduced price than other blends. The possibility of reduced competition may hinder this dynamic. Furthermore, reconfiguring facilities for another oil can be costly and time-consuming.

Five refineries are located in Salt Lake. Chevron Corp (NYSE :), Marathon Petroleum Corp (NYSE :), HollyFrontier Corp, Silver Eagle Refining & Berkshire Hathaway – Big West Oil (NYSE :).

Marathon and Chevron both declined to comment. HollyFrontier Silver Eagle and Big West didn’t respond to our comment requests.

An earlier letter from the Utah Petroleum Association to FTC arguing for EnCap to buy EP Energy was sent to them by UPA. According to a copy UPA’s February 1, 2001 letter to Reuters, they claimed the new company would produce more oil and help to drive down energy costs.

According to UPA’s website, XCL and the five refiners constitute senior members. EP Energy is also included in this group.

Reuters was told by the UPA that while it supports the transaction, it hasn’t had direct interaction with the FTC. The UPA also stated it cannot speak for individual members.

MORE SCUTINY

Already, the White House made climate change an administrative priority and has upset the industry. Temporarily, it stopped issuing new leases on federal land for drilling and suggested ending fossil fuel subsidies. These moves are argued by energy companies as increasing energy prices.

FTC challenged the last big oil-and gas producer merger in 2000, when BP (NYSE) Plc acquired Atlantic Richfield Co for $27 billion.

FTC tried to block the deal. However, BP only accepted to let go of Alaskan oil production acreage after it had made an offer to dole out its objections.

White House vocally requested that FTC be involved in opening up economies following the COVID-19 outbreak. This has led to an increase in energy consumption. Brian Deese (director of the National Economic Council) wrote in August to Lina Khan, asking for an investigation into the soaring prices.

Khan replied that while the FTC would scrutinize gas station operator consolidation, it will also examine energy sector dealmaking in a wider context.

The FTC granted approval for five more oil and gas mergers last year. Reuters reported.

Since Biden’s election last year, the FTC is flexing its antitrust muscle in many industries. In recent weeks, the FTC has been suing to block deals in U.S. defense contractors Lockheed Martin (NYSE): Aerojet Rocketdyne Holdings is being bought by (NYSE):) Inc. (NASDAQ:) Corp has acquired Arm Ltd., a semiconductor design company for $40 billion.