SoftSearch Holdings, Inc.; GeoQuest International Holdings, Inc.; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 951-0130]

SoftSearch Holdings, Inc.; GeoQuest International Holdings, Inc.;

Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: In settlement of alleged violations of federal law prohibiting

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unfair or deceptive acts or practices and unfair methods of

competition, this consent agreement, accepted subject to final

Commission approval, would require, among other things, Dwight's

EnergyData, Inc., a subsidiary of SoftSearch and the largest supplier

of U.S. gas and oil production data, to license its data to a

Commission-approved buyer, which will operate as an independent

competitor. The agreement settles allegations that Dwight's merger with

its major competitor Petroleum Information Corporation, a subsidiary of

GeoQuest International, could create a monopoly for production and well

history data, in violation of federal antitrust laws.

DATES: Comments must be received on or before February 14, 1997.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 6th St. and Pa. Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: William J. Baer, Federal Trade

Commission, H-374, 6th and Pennsylvania Ave., NW, Washington, DC 20580.

(202) 326-2932.

George Cary, Federal Trade Commission, H-374, 6th and Pennsylvania

Ave., NW, Washington, DC 20580. (202) 326-3741

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Sec. 2.34 of the

Commission's rules of practice (16 CFR 2.34), notice is hereby given

that the above-captioned consent agreement containing a consent order

to cease and desist, having been filed with and accepted, subject to

final approval, by the Commission, has been placed on the public record

for a period of sixty (60) days. The following Analysis to Aid Public

Comment describes the terms of the consent agreement, and the

allegations in the accompanying complaint. An electronic copy of the

full text of the consent agreement package can be obtained from the

Commission Actions section of the FTC Home Page (for December 5, 1996),

on the World Wide Web, at ``http://www.ftc.gov/os/actions/htm.'' A

paper copy can be obtained from the FTC Public Reference Room, Room H-

130, Sixth Street and Pennsylvania Avenue, NW., Washington, DC 20580,

either in person or by calling (202) 326-3627. Public comment is

invited. Such comments or views will be considered by the Commission

and will be available for inspection and copying at its principal

office in accordance with Sec. 4.9(b)(6)(ii) of the Commission's rules

of practice (16 CFR 4.9(b)(6)(ii)).

Analysis To Aid Public Comment on the Provisionally Accepted

Consent Order

The Federal Trade Commission (``Commission'') has accepted for

public comment from SoftSearch Holdings, Inc. (``SoftSearch''), and

GeoQuest International, Inc. (``GeoQuest''), an agreement containing

consent order. This agreement has been placed on the public record for

sixty (60) days for receiving comments from interested persons.

Comments received during this period will become part of the public

record. After sixty (60) days, the Commission will review the agreement

and the comments received, and will decide what additional action to

take.

The proposed merger involving GeoQuest and SoftSearch may be

anticompetitive. Both firms, through Petroleum Information Corporation

(``Petroleum Information'') and Dwight's EnergyData (``Dwight's''),

their respective subsidiaries, collect and distribute certain data to

the petroleum industry relating to oil and gas well drilling and

production. The proposed consent order would require the respondents to

license the Dwight's database to HPDI, L.L.C., (``HPDI''), a Texas

limited liability corporation currently engaged in the collection and

distribution of similar data. HPDI could use Dwight's data to compete

with the merged companies. Should the Commission determine, after the

public comment period, that granting a license to HPDI will not be

effective in maintaining competition after the merger, the Commission

may appoint a trustee to license the data to a purchaser other than

HPDI. The purpose of this analysis is to elicit public comments on all

aspects of the complaint and the proposed remedy.

Dwight's and Petroleum Information are engaged in the business of

selling petroleum data. One type of data, known as ``well data,''

includes a variety of geological and other types of information derived

from, or related to, the drilling of specific oil and gas wells.

Another type of data, known as ``production data,'' deals with volumes

of oil and gas produced over time from specific wells or leases.

Purchasers use this data in a variety of ways, including evaluating

potential production and reserves of geological formations and finding

patterns of oil and gas production for future exploration and

development.

The Commission's Investigation and Concerns

Potential anticompetitive problems in the sale or license of this

data could result from a merger of Dwight's and Petroleum Information.

They are by far the two largest data vendors, and offer the most

thorough sets of petroleum data in the United States. The draft

complaint alleges that the proposed merger would eliminate direct,

ongoing competition between the respondents in the distribution of well

and production data and lead to anticompetitive increases in the prices

charged for well and production data. The proposed complaint also

alleges that substitutes for the data provided by respondents are

economically infeasible, and that the proposed merger would cause

customers to pay more, receive less, or both.

Rivalry in innovation and product quality might deteriorate. The

respondents compete in being the first to the market in offering

product enhancements to meet the changing needs of petroleum data users

and timely delivery of accurate data. The respondents have assembled

their databases from different sources of information. The respondents

presently compete to offer the most complete and accurate information

for a particular customer's needs.

The respondents have asserted that there are efficiencies or cost

reductions from assimilation of separate databases into a common

computer format and reduction of redundant personnel. They also assert

that devoting resources to finding and resolving discrepancies can

improve the accuracy of the data when Dwight's and Petroleum

Information report different data for the same well or lease, and that

such efforts are not feasible absent the merger. Presently, in order to

ensure access to the most complete and accurate data, customers must

buy both companies' products. Finally the respondents claim that many

customers will save substantial resources by reducing their internal

computer support that currently services two sets of data.

Even if the respondents are correct in their analysis, the draft

complaint alleges that the merger as originally proposed presented

risks of increased prices or other anticompetitive behavior. Entry by

others into this business would be unlikely to offset this behavior.

The proposed complaint alleges that entry by others into this business

would be unlikely to offset this behavior. Entry is very difficult

because of the extensive nature of the Dwight's and Petroleum

Information databases. Information for pre-1970s wells, for example,

would be practically impossible to duplicate.

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The Proposed Consent Order

The draft complaint alleges that SoftSearch and GeoQuest violated

Section 5 of the Federal Trade Commission Act by agreeing, in July

1995, to merge the businesses of Dwight's and Petroleum Information and

that the merger, if consummated, would violate section 7 of the Clayton

Act. The draft complaint alleges relevant markets are the provision of

well data and the provision of production data in the United States.

The draft complaint alleges that the merger may substantially lessen

competition by eliminating direct competition between Dwight's and

Petroleum Information; increasing the likelihood that respondents will

unilaterally exercise market power; and increasing the likelihood of,

or facilitating, collusion or coordinated interaction. The draft

complaint alleges that each of these effects increases the likelihood

that the prices of well data and production data will increase, and

services to customers of well data and production data will decrease.

The Agreement Containing Consent Order would, if finally issued by

the Commission, settle charges alleged in the draft Complaint.

The order accepted for public comment contains provisions that

would permit the proposed merger to occur, thus allowing customers to

realize the alleged benefits described above. However, the proposed

order would require the respondents to license a set of complete data

currently sold by Dwight's to a third company, that could resell the

data in competition with the merged Petroleum Information/Dwight's,

thus preserving competition. In addition to obtaining a license to the

complete Dwight's database, the third party would also receive the

right to distribute well coordinate information generated by Tobin Data

Graphs, LLC, a firm affiliated with Dwight's. The purpose of the

proposed order is to create a viable and competitive vendor of data now

sold by the respondents.

The Licensee and Trustee Provisions of the Proposed Order

HPDI has been provisionally approved as the licensee under the

order of Dwight's data. The identification of a specific licensee in

the proposed consent order will allow the public to comment on the

effectiveness of the proposed relief in the context of a specific

proposed licensee (Exhibit A to the proposed consent order). It also

minimizes the delay in restoring competition, allegedly lost as a

result of the transaction and, thus, lessens the risk that the

licensing provision will fail.

HPDI is a Texas limited liability corporation organized on August

24, 1994. HPDI provides limited production data to firms engaged in gas

or oil gathering and transportation. Few, if any, current HPDI

customers use that data to assist in decisions relating to exploration

or production of oil and gas resources.

HPDI, like Dwight's and Petroleum Information, obtains its

production data from governmental agencies. HPDI obtains current

production data from files maintained by the states of Alaska,

Colorado, Kansas, Louisiana, New Mexico, Oklahoma, Oregon, South

Dakota, and Texas. It also obtains data from the Minerals Management

Service for the Gulf Offshore. HPDI converts disparate data formats of

the various government agencies into a single format and provides the

data to users on window-based CD-ROMs. HPDI's database covers only

those years for which the government agencies have put data into a

machine-readable (as opposed to written on paper) format. HPDI's Texas

data, for example, dates from 1974. This means that HPDI lacks

historical production data for many wells, which has impeded HDPI's

expansion into serving the exploration and production segment of the

oil and gas industry, the primary customer base for Dwight's and

Petroleum Information. The license provided by the proposed order would

supply HPDI with this historical data.

Capitol Appraisal Group, Inc. (``CAG''), a Texas corporation, owns

the majority of HPDI. CAG appraises oil and gas leases for Texas

counties and other Texas taxing jurisdictions. In its appraisal

business, CAG uses the Texas state oil production records and processes

oil and gas data on its computer mainframe. CAG supplies HPDI with

office space, computer programming and processing capacity, and

financing.

HPDI is a recent entrant to the business of selling petroleum data.

HPDI has experience collecting, processing, and distributing production

data derived from the computerized records of various state and federal

government agencies. HPDI believes that it could integrate Dwight's

data into its current CD-ROM products within sixty days after the

effective date of a Commission order. HPDI plans to update virtually

all of the Dwight's production and well data that is available from

governmental agencies. In the future, HPDI may collect additional well

data directly from oil companies (so-called ``scouting data''),

although it does not have any experience in collecting and distributing

such scouting data.

If the Commission, after review of the public comments, determines

not to approve HPDI as the licensee, it may appoint a trustee to divest

the data to another person. The proposed order provides for the

appointment of Ben C. Burkett, II, of Burkett Consulting, Dallas,

Texas, as a trustee to license Dwight's database.

Mr. Burkett has for more than fifteen years been an independent

corporate finance and merger/acquisition consultant to clients in the

oil and gas and other industries. Before forming his consulting firm,

Mr. Burkett was a co-founder and director of Lear Petroleum Corp.

Before that time, he was an employee with Mesa Petroleum Co. and

Shamrock Oil and Gas Corp.

As a consultant, Mr. Burkett has managed initial public offerings

of stock, facilitated a variety of mergers and acquisitions, and

managed the restructuring and turnaround of companies in the oil and

gas and chemical industries. In the mid-1980s, Mr. Burkett advised the

prior owners of Dwight's on a financial restructuring of the company.

A separate agreement with SoftSearch (``Asset Maintenance

Agreement'') requires respondents to preserve Dwight's data in the form

now available. SoftSearch has therefore agreed to maintain and update

the data until the Commission accepts or rejects the proposed order.

Solicitation of Public Comments

The purpose of this analysis is to invite public comment concerning

the consent order. The Commission is particularly interested in

receiving comments on the efficacy of the remedy if the Commission

should approve HPDI as the licensee of Dwight's database and on the

expression of interest by alternative potential licensees.

This analysis is not an official interpretation of the agreement

and order and does not modify their terms in any way.

Donald S. Clark,

Secretary.

[FR Doc. 96-31804 Filed 12-13-96; 8:45 am]

BILLING CODE 6750-01-P