# Exxon Corp., et al.; Analysis To Aid Public Comment

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URL: https://www.frixlaw.com/law-library/documents/fr%3A99-31563

## Record

- **Collection:** Federal Register
- **Document type:** Notice
- **Published:** December 6, 1999
- **Citation:** 64 FR 68101

## Text

FEDERAL TRADE COMMISSION

[File No. 991 0077]

Exxon Corp., et al.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair or deceptive acts or
practices or unfair methods of competition. The attached Analysis to
Aid Public Comment describes both the allegations in the draft
compliant that accompanies the consent agreement and the terms of the
consent order--embodied in the consent agreement--that would settle
these allegations.

DATES: Comments must be received on or before January 31, 2000.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 600 Pennsylvania Ave., NW, Washington, DC 20580.

[[Page 68102]]

FOR FURTHER INFORMATION CONTACT: Richard Parker or Richard Liebeskind,
FTC/H-374, 600 Pennsylvania Ave., NW, Washington, DC 20580. (202) 326-
2574 or 326-2441.

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 complaint. An electronic copy of the full text of
the consent agreement package can be obtained from the FTC Home Page
(for November 30, 1999), on the World Wide Web, at ``http://
www.ftc.gov/os/actions97.htm.'' A paper copy can be obtained from the
FTC Public Reference Room, Room H-130, 600 Pennsylvania Avenue, NW,
Washington, DC 20580, either in person or by calling (202) 326-3627.
Public comment is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania Ave., NW,
Washington, DC 20580. Two paper copies of each comment should be filed,
and should be accompanied, if possible, by a 3\1/2\ inch diskette
containing an electronic copy of the comment. 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.(b)(6)(ii) of the Commission's rules of practice (16 CFR
4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

I. Introduction

The Federal Trade Commission (``Commission'' or ``FTC'') has issued
a complaint (``Complaint'') alleging that the proposed merger of Exxon
Corp. (``Exxon'') and Mobil Corp. (``Mobil'') (collectively
``Respondents'') would violate section 7 of the Clayton Act, 15 U.S.C.
18, and section 5 of the Federal Trade Commission Act, 15 U.S.C. 45,
and has entered into an agreement containing consent orders
(``Agreement Containing Consent Orders'') pursuant to which Respondents
agree to have entered and be bound by a proposed consent order
(``Proposed Order'') and a hold separate order that requires
Respondents to hold separate and maintain certain assets pending
divestiture (``Order to Hold Separate''). The Proposed Order remedies
the likely anticompetitive effects arising from Respondents' merger, as
alleged in the Complaint. The Order to Hold Separate preserves
competition in the markets for refining and marketing of gasoline, and
in other markets, pending divestiture.

II. Description of the Parties and the Transaction

Exxon, which is headquartered in Irving, Texas, is one of the
world's largest integrated oil companies. Among its other business,
Exxon operates petroleum refineries that make various grades of
gasoline and lubricant base stock, among other petroleum products, and
sells these products to intermediaries, retailers and consumers. Exxon
owns four refineries in the United States; those four refineries can
process approximately 1.1 million barrels of crude oil and other
feedstocks daily.\1\ Exxon owns or leases approximately 2,049 gasoline
stations nationally and sells gasoline to distributors or dealers that
operate another 6,475 retail outlets throughout the United States.
During fiscal year 1998, Exxon had worldwide revenues of approximately
$115 billion and net income of approximately $6 billion.
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\1\ A ``barrel'' is an oil industry measure equal to 42 gallons.
``MBD'' means thousands of barrels per day.
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Mobile, which is headquartered in Fairfax, Virginia, is another of
the world's largest integrated oil companies. Among its other
businesses, Mobile operates petroleum refineries in the United States,
which make gasoline, lubricant base stock, and other petroleum
products, and sells those products throughout the United States. Mobil
operates four refineries in the United States, which can process
approximately 800 thousand barrels of crude oil and other feedstocks
per day. About 7,400 retail outlets sell Mobil-branded gasoline
throughout the United States. During fiscal year 1998, Mobil had
worldwide revenues of approximately $52 billion and net income of
approximately $2 billion.
On or about December 1, 1998, Exxon and Mobil entered into an
agreement to merge the two corporations into a corporation to be known
as Exxon Mobil Corp. This merger is one of several consolidations in
this industry in recent years, including the combination of British
Petroleum Co. plc and Amoco Corp. into BP Amoco plc; the pending
combination of BP Amoco plc and Atlantic Richfield Co. (which is the
subject of pending investigation by the Commission); the combination of
the refining and marketing businesses of Shell Oil Co., Texaco Inc.,
and Star Enterprises; the combination of the refining and marketing
businesses of Marathon Oil Co. and Ashland Oil Co., and the acquisition
of the refining and marketing businesses of Unocal Corp. by Tosco Corp.

III. The Investigation and the Complaint

The Complaint alleges that consummation of the merger would violate
section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and section 5
of the Federal Trade Commission Act, as amended, 15 U.S.C. 45. The
Complaint alleges that the merger will lessen competition in each of
the following markets: (1) The marketing of gasoline in the
Northeastern and Mid-Atlantic United States (including the States of
Maine, New Hampshire, Vermont, Massachusetts, Rhode Island,
Connecticut, and New York (collectively ``the Northeast''), and the
States of New Jersey, Pennsylvania, Delaware, Maryland, Virginia, and
the District of Columbia (collectively the ``Mid-Atlantic''), and
smaller areas contained therein); (2) the marketing of gasoline in five
metropolitan areas in the State of Texas; (3) the marketing of gasoline
in Arizona; (4) the refining and marketing of ``CARB'' gasoline
(specially formulated gasoline required in California) in the State of
California; (5) the bidding for and refining of jet fuel for the U.S.
Navy on the West Coast; (6) the terminaling of light petroleum products
in the Boston, Massachusetts, and Washington, DC, metropolitan areas;
(7) the terminaling of light petroleum products in the Norfolk,
Virginia, metropolitan area; (8) the transportation of refined light
petroleum products to the inland portions of the States of Mississippi,
Alabama, Georgia, South Carolina, North Carolina, Virginia, and
Tennessee (i.e., the portions more than 50 miles from ports such as
Savannah, Charleston, Wilmington and Norfolk) (``inland Southeast'');
(9) the transportation of crude oil from the north slope of the State
of Alaska via the Trans Alaska Pipeline System (``TAPS''); (10) the
importation, terminaling and marketing of gasoline and diesel fuel in
the Territory of Guam; (11) the refining and marketing of paraffinic
lubricant base oils in the United States and Canada; and (12) the
worldwide manufacture and sale of jet turbine lubricants.
To remedy the alleged anticompetitive effects of the merger, the
Proposed Order requires Respondents to divest or otherwise surrender
control of: (1) All of Mobil's gasoline marketing in the Mid-Atlantic

[[Page 68103]]

(New Jersey, Pennsylvania, Delaware, Maryland, Virginia, and the
District of Columbia), and all of Exxon's gasoline marketing in the
Northeast (Maine, New Hampshire, Vermont, Massachusetts, Rhode Island,
Connecticut, and New York); (2) Mobil's gasoline marketing in the
Austin, Bryan/College Station, Dallas, Houston and San Antonio, Texas,
metropolitan areas; (3) Exxon's option to repurchase retail gasoline
stores from Tosco Corp. in Arizona; (4) Exxon's refinery located in
Benicia, California (``Exxon Benicia Refinery''), and all of Exxon's
gasoline marketing in California; (5) the terminal operations of Mobil
in Boston and in the Washington, D.C. area, and the ability to exclude
a terminal competitor from using Mobil's wharf in Norfolk; (6) either
Mobil's interest in the Colonial pipeline or Exxon's interest in the
Plantation pipeline; (7) Mobil's interest in TAPS; (8) the terminal and
retail operations of Exxon on Guam; (9) a quality of paraffinic
lubricant base oil equivalent to the amount of paraffinic lubricant
base oil refined in North America that is controlled by Mobil; and (10)
Exxon's jet turbine oil business. The terms of the divestitures and
other provisions of the Proposed Order are discussed more fully in
Section IV below.
The Commission's decision to issue the Complaint and enter into the
Agreement Containing Consent Orders was made after an extensive
investigation in which the Commission examined competition and the
likely effects of the merger in the markets alleged in the Complaint
and in several other markets, including the worldwide markets for
exploration, development and production of crude oil; markets for crude
oil exploration and production in the United States and in parts of the
United States; markets for natural gas in the United States; markets
for a variety of petrochemical products; and markets for pipeline
transportation, terminaling or marketing of gasoline or other fuels in
sections of the country other than those alleged in the Complaint. The
Commission has not found reason to believe that the merger would result
in likely anticompetitive effects in markets other than the markets
alleged in the Complaint.
The Commission conducted the investigation leading to the Complaint
in coordination with the Attorneys General of the States of Alaska,
California, Connecticut, Maryland, Massachusetts, New Jersey, New York,
Oregon, Pennsylvania, Texas, Vermont, Virginia and Washington. As a
result of that joint effort, Respondents have entered into agreements
with the States of Alaska, California, Delaware, Maryland,
Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Rhode
Island, Texas, Vermont, Virginia and Washington, and the District of
Columbia, settling charges that the merger would violate both state and
federal antitrust laws.
The Complaint alleges in 12 counts that the merger would violate
the antitrust laws in several different lines of business and sections
of the country, each of which is discussed below. The analysis applied
in each market generally follows the analysis set forth in the FTC and
U.S. Department of Justice Horizontal Merger Guidelines (1997)
(``Merger Guidelines''). The efficiency claims of the Respondents, to
the extent they relate to the markets alleged in the Complaint, are
small and speculative compared to the magnitude and likelihood of the
potential harm, and would not restore the competition lost as a result
of the merger even if the efficiencies were achieved.
A. Count I--Marketing of Gasoline in the Northeast and Mid-Atlantic
Exxon and Mobil today are two of the largest marketers of gasoline
from Maine to Virginia, and would be the largest marketer of gasoline
in this region after the merger, but for the remedy specified in the
Proposed Order. The merging companies are direct and significant
competitors in at least 39 metropolitan areas in the Northeast and Mid-
Atlantic; \2\ in each of these areas, and in each of the States in the
Northeast and Mid-Atlantic, the merger would result in a market that is
at least moderately concentrated and would significantly increase
concentration in that market.\3\ Nineteen of these 39 metropolitan
areas would be highly concentrated as a result of this merger.\4\ On
average, the four top firms in each metropolitan area would have 73% of
sales; the top four firms in the Northeast and Mid-Atlantic as a whole
(Exxon Mobil, Motiva,\5\ BP Amoco, and Sunoco) would on average have
66% of each of these metropolitan areas.
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\2\ Hartford, New Haven-Bridgeport-Stamford-Waterbury-Danbury,
New London-Norwich, CT; Dover, Wilmington-Newark, DE; Washington,
DC; Bangor, Lewiston-Auburn, Portland, ME; Baltimore, MD;
Barnstable-Yarmouth, Boston-Worcester-Lawrence-Lowell-Brockton, MA;
Atlantic-Cape May, Bergen-Passaic, Jersey City, Middlesex-Somerset-
Hunterdon, Monmouth-Ocean, Newark, Trenton, Vineland-Millville-
Bridgeton, NJ; Albany-Schenectady-Troy, Duchess, Nassau-Suffolk, New
York, Newburgh, NY; Allentown-Bethlehem-Easton, Altoona, Harrisburg-
Lebanon-Carlisle, Johnstown, Lancaster, Philadelphia, Reading,
Scranton-Wilkes Barre-Hazelton, State College, York, PA; Providence-
Warwick-Pawtucket, RI; Norfolk-Virginia Beach-Newport News,
Richmond-Petersburg, VA; Burlington, VT. These areas are defined,
variously, as ``Metropolitan Statistical Areas'' (``MSAs''),
``Primary Metropolitan Statistical Areas'' (``PMSAs''), and ``New
England County Metropolitan Areas'' (``NECMAs'') by the Census
Bureau.
\3\ The Commission measures market concentration using the
Herfindahl-Hirschman Index (``HHI''), which is calculated as the sum
of the squares of the shares of all firms in the market. Merger
Guidelines Sec. 1.5. Markets with HHIs between 1000 and 1800 are
deemed ``moderately concentrated,'' and markets with HHIs exceeding
1800 are deemed ``highly concentrated.'' Where the HHI resulting
from a merger exceeds 1000 and the merger increases the HHI by at
least 100, the merger ``potentially raise[s] significant competitive
concerns depending on the factors set forth in Sections 2-5 of the
Guidelines.'' Merger Guidelines Sec. 1.51.
\4\ Hartford, New London-Norwich, CT; Dover, Wilmington-Newark,
DE; Washington, DC; Bangor, Portland, ME; Barnstable-Yarmouth, MA;
Bergen-Passaic, Jersey City, Monmouth-Ocean, Trenton, NJ; Albany-
Schenectady-Troy, Newburgh, NY; Allentown-Bethlehem-Easton, Altoona,
Johnstown, State College, PA; Burlington, VT. In each of these MSAs,
the increase in concentration exceeds 100 HHI points. ``Where the
post-merger HHI exceeds 1800, it will be presumed that mergers
producing an increase in the HHI of more than 100 points are likely
to create or enhance market power or facilitate its exercise. The
presumption may be overcome by a showing that factors set forth in
Sections 2-5 of the Guidelines make it unlikely that the merger will
create or enhance market power or facilitate its exercise, in light
of market concentration and market shares.'' Merger Guidelines
Sec. 1.51.
\5\ Motiva LLC is the refining and marketing joint venture
between Shell Oil Co., Texaco Inc. and Saudi Aramco, and sells
gasoline under the ``Shell'' and ``Texaco'' names in the Eastern
United States. Equilon LLC, a refining and marketing joint venture
between Shell and Texaco, sells gasoline under the ``Shell'' and
``Texaco'' names in the Western United States.
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The Complaint alleges that the marketing of gasoline is a relevant
product market, and that metropolitan areas and areas contained within
them are relevant geographic markets. The Commission used metropolitan
statistical areas (``MSAs'') as a reasonable approximation of
geographic markets for gasoline marketing in Shell Oil Co., C-3803
(1998), and British Petroleum Co., C-3868 (1999). As described below,
the evidence in this investigation suggests that pricing and consumer
search patterns may indicate smaller geographic markets than MSAs as
defined by the Census Bureau. To that extent, using MSAs or counties to
define geographic markets likely understates the relevant levels of
concentration.\6\
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\6\ Exxon and Mobil compete in at least 134 counties in 39 MSAs
in the Northeast and Mid-Atlantic; 61 of those counties are highly
concentrated with significant increases in concentration; 56 are
moderately concentrated with significant increases in concentration;
and in only five counties (if defined as geographic markets) would
the merger not result in increases in concentration exceeding
Guidelines thresholds. See FTC v. PPG Industries, Inc., 798 f.2d
1500, 1505 (D.C. Cir. 1986) (use of data in broader market to
calculate market concentration is acceptable where market of concern
would be more concentrated).
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The Commission has found reason to believe that the merger would

[[Page 68104]]

significantly reduce competition in the moderately and highly
concentrated markets that would result from this merger. A general
understanding of the channels of trade in gasoline marketing is
necessary to understand the Commission's analysis of the competitive
issues and of the Proposed Order. Gasoline is sold to the general
public through retail gas stations of four types: (1) Company-operated
stores, where the branded oil company owns the site and operates it
using its own employees; (2) lessee dealer stores, where the branded
company owns the site but leases it to a franchised dealer; (3) open
dealers, who own their own stations but purchase gasoline at a DTW
price from the branded company; and (4) ``jobber'' or distributor
stores, which are supplied by a distributor.
Branded oil companies set the retail prices of gasoline at the
stores they operate, and sometimes set those prices on a station-by-
station basis. Lessee dealers and open dealers generally purchase from
the branded company at a delivered price (``dealer tank wagon'' or
``DTW'') that the branded supplier likewise might set on a station-by-
station basis. In Northeast and Mid-Atlantic, DTW prices charged by
Exxon, Mobil and their major competitors are typically set using
``price zones'' established by the supplier. Price zones, and the
prices used within them, take account of the competitive conditions
faced by particular stations or groups of stations. There might be 10
or more price zones established by an individual oil company in a
metropolitan area.
Distributors or jobbers typically purchase branded gasoline from
the branded company at a terminal (paying a terminal ``rack'' price),
and deliver the gasoline themselves to jobber-supplied stations at
prices or transfer prices set by the distributor.\7\
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\7\ The Commission has found evidence in its investigations in
this industry indicating that some branded companies have
experimented with rebates and discounts to jobbers based on the
location of particular stations, thereby replicating the effect of
price zone in the jobber class of trade.
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In much of the Northeast and Mid-Atlantic, Exxon, Mobil and their
principal competitors (Motiva, BP Amoco, and Sunoco) use delivered
pricing and price zones to set DTW prices based on the level of
competition in the immediately surrounding area. These DTW prices
generally are unrelated to the cost of hauling fuel from the terminal
to the retail store. Gasoline is a homogeneous product, and retail
prices are observable (wholesale prices and retail sales volumes are
also frequently known to firms in the industry). By monitoring the
retail prices (and volumes) of their competitors in the immediate area,
branded companies can and do adjust their DTW prices in order to take
advantage of higher prices in some neighborhoods, without having to
raise price throughout a metropolitan area as a whole.
The use of price zones in the manner described above indicates that
these competitors set their prices on the basis of their competitors'
prices, rather than on the basis of their own costs. This is an earmark
of oligopolistic market behavior. Thus, Exxon, Mobil and their
principal competitors have some ability to raise their prices
profitably, and have a greater ability to do so when they face fewer
and less price-competitive firms in highly local markets. The effects
of oligopolistic market structures (where firms base their pricing
decisions on their rivals' prices, and recognize that their prices
affect their sales volume) have been recognized in this industry. See
Petroleum Products Antitrust Litigation, 906 F.2d 432, 443, 444 (9th
Cir. 1990) (examining California gasoline market from 1968 to 1973),
cert. denied sub nom. Chevron Corp. v. Arizona, 500 U.S. 959 (1991):

* * * (A)s the number of firms in a market declines, the
possibilities for interdependent pricing increase substantially. In
determining whether to follow a unilateral price increase by a
competitor, a firm in a relatively concentrated market will
recognize that, because its pricing and output decisions have an
effect on market conditions and will generally be watched by its
competitors, there is less likelihood that any shading would go
undetected or be ignored. * * * On the other hand, the firm may
recognize that the higher price (charged by its competitor) is one
that would produce higher profits. It may therefore decide to follow
the price increase, knowing that the other firms will likely see
things the same way * * *

We recognize that such interdependent pricing may often produce
economic consequences that are comparable to those of classic cartels.
Exxon and Mobil are each other's principal competitors in many of
these markets, and the elimination of Mobil as an independent
competitor is likely to result in higher prices.\8\
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\8\ In finding reason to believe that this merger likely would
reduce competition, the Commission has not, in the context of this
investigation, concluded that these practices of themselves violate
the antitrust laws or constitute unfair methods of competition
within the meaning of section 5 of the FTC Act. Rather, evidence of
market behavior provides the Commission with reason to believe that
these moderately and highly concentrated markets are not fully
competitive even prior to the merger, and therefore that the merger
likely would reduce competition in these markets whether or not the
post-merger was highly concentrated.
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Market incumbents also use price zones to target entrants without
having to lower price throughout a broader marketing area. With a large
and dispersed network of stores, an incumbent can target an entrant by
cutting price at a particular store, without cutting prices throughout
a metropolitan area. By targeting price-cutting competitors, incumbents
can (and have) deterred entrants from making significant investments in
gasoline stations (which are specialized, sunk cost facilities) and
thus from expanding to a scale at which the entrant could affect price
throughout the broader metropolitan area.
While branded distributors historically have moderated the effects
of zone pricing through arbitrage, distributors' ability to do so is
increasingly limited to the Northeast and Mid-Atlantic by major branded
companies' efforts to limit their distribution to direct channels,
especially in major metropolitan areas. The merger would reduce
interbrand competition through the elimination of one independent
supplier; the Commission evaluated the effect of that reduction in
interbrand competition in the context of the contemporaneous reduction
in intrabrand competition that it found in these markets.
Entry appears likely to constrain noncompetitive behavior in the
Northeast and Mid-Atlantic. New gas stations sites are difficult to
obtain in the Northeast and Mid-Atlantic, and the evidence in this
investigation suggests that entry through the construction of new
stations is unlikely to occur in a manner sufficient to constrain price
increases by incumbents. As in British Petroleum Co., C-3868, the
Commission has not seen substantial evidence that jobbers or open
dealers are likely to switch to new entrants in the event of a small
price increase. Therefore, the Commission has found it unlikely that a
new entrant might enter a market by converting such stations in a
manner that would meaningfully constrain the behavior of incumbents.
The merger is likely to reduce competition in Northeastern and Mid-
Atlantic gasoline markets and could result in a price increase of 1% or
more. A 1% price increase on gasoline sold in the Northeast and Mid-
Atlantic (and in the Texas and Arizona markets discussed below) would
cost consumers approximately $240 million annually. As described below,
the Proposed Order seeks to preserve competition by requiring
Respondents to divest all branded stations of Exxon or Mobil throughout
the Northeast and Mid-Atlantic: (1) All Exxon branded gas

[[Page 68105]]

stations (company operated, lessee dealer, open dealer and jobber) in
Maine, New Hampshire, Vermont, Rhode Island, Connecticut, and New York,
and (2) all Mobil branded stations in New Jersey, Pennsylvania,
Delaware, Maryland, Virginia and the District of Columbia.
B. Count II--Marketing of Gasoline in Metropolitan Areas in Texas
Exxon and Mobil compete in the marketing of gasoline in several
metropolitan areas in Texas, and in five of those metropolitan areas
(Austin, Bryan/College Station, Dallas, Houston and San Antonio) the
merger would result in a moderately or highly concentrated market. The
evidence collected in the investigation indicates that market
conditions in these Texas markets resemble those found in the Northeast
and Mid-Atlantic, particularly in the use of delivered pricing and zone
pricing to coordinate prices and deter entry. The Proposed Order
therefore required Respondents to divest and assign Mobil's gasoline
marketing business in these areas, as described below.
C. Count III--Marketing of Gasoline in Arizona
Mobile markets motor gasoline in Arizona. Exxon gasoline is
marketed in Arizona by Tosco Corporation, which acquired Exxon's
Arizona marketing assets and the businesses and the right to sell Exxon
branded gasoline in 1994. Gasoline marketing in Arizona is moderately
concentrated.
Pursuant to the agreement under which Exxon sold its Arizona assets
to Tosco, Exxon retains the option of repurchasing the retail gasoline
stores sold to Tosco in the event Tosco were to convert the stations
from the ``Exxon'' brand to another brand (including another brand
owned by Tosco). The merger creates the risk that competition between
the merged company and Tosco (selling Exxon branded gasoline) could be
reduced by restricting Tosco's incentive and ability to compete against
Mobil by converting the stores to a brand owned by Tosco. The Proposed
Order terminates Exxon's option to repurchase these stations.
D. Count IV--Refining and Marketing of CARB Gasoline
Exxon and Mobil both refine motor gasoline for use in California,
which requires that motor gasoline used in that State meet particularly
stringent pollution specifications mandated by the California Air
Resources Board (``CARB,'' hence ``CARB gasoline''). More than 95% of
the CARB gasoline sold in California is refined by seven firms
(Chevron, Tosco, Equilon, ARCO, Exxon, Mobil and Ultramar Diamond
Shamrock), all of which operate refineries in California. Those seven
firms also control more than 90% of retail sales of gasoline in
California through gas stations under their brands.
The Complaint alleges that the refining and marketing of CARB
gasoline is a product market and line of commerce. Motorists of
gasoline-fueled automobiles are unlikely to switch to other fuels in
response to a small but significant and nontransitory increase in the
price of CARB gasoline, and only CARB gasoline may be sold for use in
California. As described below, the refining and marketing of gasoline
in California is tightly integrated; refiners that lack marketing in
California, and marketers that lack refineries on the West Coast, do
not effectively constrain the price and output decisions of incumbent
refiner-marketers.
California is a section of the country and geographic market for
CARB gasoline refining and marketing because the refiner-marketers in
California can profitably raise prices by a small but significant and
nontransitory amount without losing significant sales to other
refiners. The next closest refineries, located in the U.S. Virgin
Islands and in Texas and Louisiana, do not supply CARB gasoline to
California except during supply disruptions at California refineries,
and are unlikely to supply CARB gasoline to California in response to a
small but significant and nontransitory increase in price because of
the price volatility risks associated with opportunistic shipments and
the small number of independent retail outlets that might purchase from
an out-of-market firm attempting to take advantage of a price increase
by incumbent refiner-marketers.
To a much greater extent than in many other parts of the country,
the seven refiner-marketers in California own their stations, and
operate through company-operated stations, lessee dealers and open
dealers, rather than through distributors.\9\ The marketing practices
described in the Northeast and Mid-Atlantic, see Section III.A above,
are employed in California and are reinforced by the refiner-marketers'
more complete control of the marketing channel. One effect of the close
integration between refining and marketing in California in that
refiners outside the West Coast cannot easily find outlets for imported
cargoes of CARB gasoline, since nearly all the outlets are controlled
by incumbent refiner-marketers. Likewise, the extensive integration of
refining and marketing makes it more difficult for the few non-
integrated marketers to turn to imports as a source of supply, since
individual independents lack the scale to import cargoes economically
and thus must rely on California refiners for their usual supply. The
Commission's investigation indicated that vertical integration and the
resulting lack of independent import customers, rather than the cost of
imports, is the principal barrier to supply from outside the West
Coast.
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\9\ Exxon is unique among these firms in operating primarily
through jobbers in California. Exxon also differs from its
competitors in that a substantial portion of its refinery output is
not sold under the Exxon name, but is sold to non-integrated
marketers and through other channels.
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As measured by refinery capacity, the merger will increase the HHI
for CARB gasoline refining capacity on the West Coast by 171 points to
1699, at the high end of the ``moderately concentrated'' range of the
Merger Guidelines. The Guidelines' ``numerical divisions [of HHI
ranges] suggest greater precision than is possible with the available
economic tools and information. Other things being equal, cases falling
just above and just below a threshold present comparable competitive
issues.'' Id. Sec. 1.5.
CARB gasoline is a homogeneous product, and (as in the Northeast
and Mid-Atlantic) wholesale and retail prices are publicly available
and widely reported to the industry. Integrated refiner-marketers
carefully monitor the prices charged by their competitors' retail
outlets, and therefore readily can identify firms that deviate from a
coordinated or collusive price.
Entry by a refiner or marketer is unlikely to be timely, likely,
and sufficient to defeat an anticompetitive price increase because new
refining capacity requires substantial sunk costs. Retail entry is
likewise difficult and costly, particularly at a scale that would
support supply from an out-of-market refinery.
The merger could raise the costs of CARB gasoline substantially, a
1% price increase would cost California consumers more than $100
million annually. To remedy the harm, the Proposed Order requires the
Respondents to divest Exxon's Benecia refinery, which refines CARB
gasoline, and Exxon's marketing in California, as described more fully
below. This divestiture will eliminate the refining overlap in the West
Coast market otherwise presented by the merger.

[[Page 68106]]

E. Count V--Navy Jet Fuel on the West Coast
The U.S. Navy requires a specific formulation of jet fuel that
differs from commercial jet fuel and jet fuel used in other military
applications. Three refiners, including Exxon and Mobil, have bid to
supply the Navy on the West Coast in recent years. The merger will
eliminate one of these forms as an independent bidder, raising the
likelihood that the incumbents could raise prices by at least a small
amount, since other bidders are unlikely to enter the market. The
divestiture of Exxon's Benecia refinery, described below, resolves this
concern.
F. Count VI--Terminaling of Light Petroleum Products in Metropolitan
Boston and Washington
Petroleum terminals are facilities that provide temporary storage
of gasoline and other petroleum products received from a pipeline or
marine vessel, and then redelivers these products from the terminal's
storage tanks into trucks or transport trailers for ultimate delivery
to retail gasoline stations or other buyers. Terminals provide an
important link in the distribution chain for gasoline between
refineries and retail service stations. There are no substitutes for
petroleum terminals for providing terminaling services.
Count VI of the Complaint identifies two metropolitan areas that
are relevant sections of the country (i.e., geographic markets) in
which to analyze the effects of the merger on terminaling: Metropolitan
Boston, Massachusetts and Washington, DC. Exxon and Mobil both operate
terminals that supply both of these metropolitan areas with gasoline
and other light petroleum products.
The Complaint charges that the terminaling of gasoline and other
light petroleum products in each of these metropolitan areas is highly
concentrated, and would become significantly more concentrated as a
result of the merger. Entry into the terminaling of gasoline and other
light petroleum products in each of these metropolitan areas is
difficult and would not be timely, likely, or sufficient to prevent
anticompetitive effects that may result from the merger.\10\ Paragraphs
VII and VIII of the Proposed Order therefore require Respondents to
divest Mobil's Boston and Manassas, Virginia, terminals.
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\10\ The Commission has found reason to believe that terminal
mergers would be anticompetitive on prior occasions. E.g., British
Petroleum Co., C-3868; Shell Oil Co.; Texaco Inc., 104 F.T.C. 241
(1984); Chevron Corp., 104 F.T.C. 597 (1984).
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G. Count VII--Terminaling of Gasoline in Norfolk, Virginia
The Complaint charges that terminaling of gasoline and other light
petroleum products is highly concentrated in the Norfolk, Virginia
area. Exxon currently terminals gasoline in Norfolk, although Mobil
does not. Mobil does terminal other light petroleum products there, and
another terminaling firm, TransMontaigne, on occasion uses Mobil's
wharf to receive gasoline shipments. Since TransMontaigne terminals
gasoline in competition with Exxon, the merger would create or enhance
Mobil's incentive to deny TransMontaigne access to Mobile's dock or
increase the cost of such access, thereby limiting TransMontaigne's
ability to compete against Exxon in the terminaling of gasoline. The
Proposed Order remedies this effect of the merger.
H. Count VIII--Transportation of Refined Light Petroleum Products to
the Inland Southeast
The inland Southeast receives essentially all of its refined light
petroleum products (including gasoline, diesel fuel and jet fuel) from
either the Colonial pipeline or the Plantation pipeline. These two
pipelines largely run parallel to each other from Louisiana to
Washington, DC, and directly compete to provide petroleum product
transportation services to the inland Southeast. Mobil owns
approximately 11 percent of Colonial and has representation on the
Colonial Board of Directors. Exxon owns approximately 49 percent of
Plantation, is one of Plantation's two shareholders, and has
representation on Plantation's Board.
The proposed transaction would put the merged entity in a position
to participate in the governance of both pipelines, and to receive
confidential competitive information of each pipeline. Through its
position as one of Plantation's two shareholders, Respondents could
prevent Plantation from taking actions to compete with Colonial. As a
result, the merger is likely substantially to lessen competition,
including price and service competition, between the two pipelines. The
Commission has twice previously recognized that control of overlapping
interests in these two pipelines might substantially reduce competition
in the market for transportation of light petroleum products to this
section of the country. Shell Oil Co., C-3803; Chevron Corp., 104
F.T.C. 597, 601, 603. To prevent competitive harm from the merger,
Section IX of the Proposed Order requires Respondents to divest to a
third party or parties the Exxon or Mobil pipeline interest.
I. Count IX--Transportation of Alaska North Slope Crude Oil
Exxon and Mobil are two of the seven owners of the Trans Alaska
Pipeline System (``TAPS''), which is the only means of transporting
crude oil from the Alaska North Slope (``ANS'') to port in Valdez,
Alaska. ANS crude is shipped primarily (but not exclusively) to
refineries in California and Washington State. A relatively small
amount of ANS crude is used within Alaska, and some ANS is sold to
refineries in Asia. Exxon owns 20% of TAPS, while Mobil owns 3%. The
owners of TAPS are entitled to capacity on the pipeline (which they can
resell) in proportion to their ownership interests. Some TAPS owners--
Mobil, in particular--have discounted their tariffs in an effort to
attract additional shippers.
Exxon and Mobil both have available capacity on TAPS, i.e.,
capacity not needed to carry their own production. Based on available
capacity, the merger would increase the HHI by 268, to 5103. The merger
would eliminate Mobil, a significant discounter on TAPS, as an
independent firm, and reduce Exxon's incentives to discount TAPS
tariffs. Entry is unlikely to defeat this price increase, since a
second crude oil pipeline is highly unlikely to be built. In the
absence of the Proposed Order, the merger could raise costs to
purchasers of ANS crude oil by $3.5 million annually. The Proposed
Order eliminates this risk by requiring the Respondents to divest
Mobil's interest in TAPS.
J. Count X--Terminaling and Marketing of Gasoline and other Light
Petroleum Products in Guam
Gasoline and diesel fuel are supplied into Guam, primarily from
Singapore, into terminals on Guam owned by Mobil, Exxon and Shell, who
are the principal marketers of gasoline on Guam. Terminal capacity is
essential to light petroleum products marketing on Guam. Consumers of
gasoline have no alternative but to buy gasoline on Guam. Accordingly,
the relevant market to analyze the transaction is the importation,
terminaling and marketing of gasoline on Guam. Mobil and Exxon are the
two largest marketers on Guam. The market is highly concentrated. The
merger will raise the HHI by more than 2800 points to 7400, measured by
station count; Exxon Mobil would have 36 of Guam's 43 stations, or 84%
of stations.

[[Page 68107]]

The market is subject to coordination. There are three companies,
and the merger would reduce their number to two. The product is
homogeneous, and prices are readily observed. New entry is unlikely to
defeat an anticompetitive price increase. An entrant would require
sufficient terminal capacity and enough retail outlets to be able to
buy gasoline at the tanker-load level, or 350,000 barrels. Terminal
capacity of this scale is unavailable in Guam. In 1988 a firm attempted
to enter Guam relying on publicly available terminaling; it exited
within seven years, and sold its four stations to Mobil.
Section III of the Proposed Order restores competition by requiring
Respondents to divest Exxon's terminal and retail assets on Guam.
L. Count XI--Paraffinic Base Oil in the United States and Canada
Paraffinic base oil is a refined petroleum product that forms the
foundation of most of the world's finished lubricants. Base oil is
mixed with chemical additives and forms finished lubricants, such as
motor oil and automatic transmission fluid. Most base oil is used to
make products that lubricate engines, but base oil can be mixed with
additives to create a large variety of finished products like newspaper
ink or hydraulic fluid.\11\
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\11\ Other types of base oil, including naphthenic and synthetic
base oils, are not substitutes for paraffinic base oil because the
users of paraffinic base oil would not switch to other base oils in
the event of a small but significant, nontransitory increase in
price for paraffinic base oils.
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Currently Exxon produces 45.9 MBD of paraffinic base oil in North
America. Mobil controls 23.8 MBD of base oil production. A combined
Exxon-Mobil would control 35 percent of the base oil produced in North
America. As the largest base oil producer in the United States and
Canada, Exxon already dominates the base oil market. With the addition
of Mobil's sizeable capacity, Exxon would have even greater control
over base oil pricing.
Exxon is the price leader in base oil in the United States and
Canada. Other base oil producers do not expand production to take
advantage of Exxon price increases. Imports do not increase when United
States prices increase because transportation costs are too great.
Entry into the base oil market requires large capital investments and
would be unlikely to have any effect within the next two years.
The Proposed Order remedies the likely effects of the likely merger
by requiring Respondents to surrender control of a quantity of base oil
production equivalent to Mobil's production in the United States.
M. Count XII--Jet Turbine Oil
Jet turbine oil (also known as ester-based turbine oil) is used to
lubricate the internal parts of jet engines used to power aircraft.
Exxon and Mobil dominate the sales of jet turbine oil, with
approximately equal shares that, combined, account for 75% of the
worldwide market (defined broadly), and approach 90% of worldwide sales
to commercial airlines.
Entry into the development, production and sale of jet turbine oil
is not likely to occur on a timely basis, in light of the time required
to develop a jet turbine oil and to obtain the necessary approvals and
qualifications from the appropriate military and civilian
organizations. The merger would eliminate the direct competition
between Exxon and Mobil, and create a virtual monopoly in sales to
commercial airlines. The Proposed Order remedies the effect of the
merger by requiring Respondents to divest Exxon's jet turbine oil
business.

IV. Resolution of the Competitive Concerns

On November 30, 1999, the Commission provisionally entered into the
Agreement Containing Consent Orders with Exxon and Mobil in settlement
of a Complaint. The Agreement Containing Consent Orders contemplates
that the Commission would issue the Complaint and enter the Proposed
Order and the Order to Hold Separate.
A. General Terms
Each divestiture or other disposition required by the Proposed
Order must be made to an acquirer that receives the prior approval of
the Commission and in a manner approved by the Commission, and must be
completed within nine months of executing the Agreement Containing
Consent Orders (except that the divestiture of the Benicia Refinery and
Exxon marketing in California must be completed within twelve months of
executing the Agreement Containing Consent Orders).
Respondents are required to provide the Commission with a report of
compliance with the Proposed Order every sixty (60) days until the
divestitures are completed, and annually for a period of 20 years.
In the event Respondents fail to complete the required divestitures
and other obligations in a timely manner, the Proposed Order authorizes
the Commission to appoint a trustee or trustees to negotiate the
divestiture of either the divestiture assets or of ``crown jewels,''
alternative asset packages that are broader than the divestiture
assets. The crown jewel for the Exxon Northeastern Marketing Assets is
Mobil's marketing in the same area; for the Mobil Mid-Atlantic
Marketing Assets, Exxon's marketing in the same area; \12\ for the
Exxon California Refining and Marketing Assets, the Mobil California
Refining and Marketing Assets; for the Mobil Texas Marketing Assets,
the Exxon Texas Marketing Assets; for Mobil's interest in TAPS, Exxon's
interest in TAPS; for the paraffinic base oil to be sold, Mobil's
Beaumont Refinery; and for Exxon's Jet Turbine Oil Business, Mobil's
Jet Turbine Oil Business. In each case, the crown jewel is a
significantly larger asset package than the divestiture assets.
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\12\ The ``crown jewel'' divestiture would include the exclusive
right to use the Exxon or Mobil name (as the case may be) in the
pertinent States for at least 20 years. If Respondents fail to
divest both the Exxon Northeast Marketing Assets and the Mobil Mid-
Atlantic Marketing Assets, the Commission may direct the trustee to
divest all of Exxon's marketing from Maine to Virginia.
---------------------------------------------------------------------------

Respondents have also agreed to the entry of an Order to Hold
Separate and Maintain Assets, and the Commission has entered that
Order. Under the terms of that Order, until the divestitures of the
Benicia Refinery, marketing assets, base oil production and jet turbine
oil business have been completed, Respondents must maintain Mobil's
Northeastern, Mid-Atlantic and Texas fuels marketing businesses,
Mobil's California refining and marketing businesses, and Exxon's ester
based turbine oil business as separate, competitively viable
businesses, and not combine them with the operations of the merged
company. Under the terms of the Proposed Order, Respondents must also
maintain the assets to be divested in a manner that will preserve their
viability, competitiveness and marketability, and must not cause their
wasting or deterioration, and cannot sell, transfer, or otherwise
impair the marketability or viability of the assets to be divested. The
Proposed Order and the Hold Separate Order specify these obligations in
greater detail.
To avoid conflicts between the Proposed Order and the State consent
decrees, the Commission has agreed to extend the time for divesting
particular assets if all of the following conditions are satisfied: (1)
Respondents have fully complied with the Proposed Order; (2)
Respondents submit a complete application in support of the divestiture
of the assets and businesses to be divested; (3) the Commission has in
fact approved a divestiture; but (4)

[[Page 68108]]

Respondents have certified to the Commission within ten days after the
Commission's approval of a divestiture that a State has not approved
that divestiture. If these conditions are satisfied, the Commission
will not appoint a trustee or impose penalties for an additional sixty
days, in order to allow Respondents either to satisfy the State's
concerns or to produce an acquirer acceptable to the Commission and the
State.\13\ If at the end of that additional period, the State remains
unsatisfied, the Commission may appoint a trustee and seek penalties
for noncompliance.
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\13\ The consent decree between Respondents and the States of
Connecticut, Maryland, Massachusetts, New Jersey, New York,
Pennsylvania, Vermont and Virginia provides that a State that
objects to a proposed acquirer must petition the court before which
the decree is pending to rule on the suitability of the proposed
acquirer. In the event such a motion is made, Respondents' time to
divest under the Proposed Order is tolled until the matter is
resolved.
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B. Gasoline Marketing in the Northeast and Mid-Atlantic
Sections IV and V of the Proposed Order are intended to preserve
competition in gasoline marketing in the Northeast and Mid-Atlantic by
requiring Respondents to divest to an acquirer approved by the
Commission all retail gasoline stations owned by Exxon (or leased by
Exxon from another person) in Maine, Massachusetts, New Hampshire,
Vermont, Rhode Island, Connecticut, and New York (Proposed Order para.
IV.A), and to assign to the acquirer of those stations all dealer
leases and franchise agreements and all supply contracts with branded
jobbers (para. IV.B). The Proposed Order defines ``Existing Lessee
Agreements'' and ``Existing Supply Agreements'' broadly, to include the
totality of the relationship between Respondents and the dealers and
distributors to be assigned.\14\ Respondents will divest and assign
similar interests in all Mobil stations in New Jersey, Pennsylvania,
Delaware, Maryland, Virginia and the District of Columbia (Paras. V.A-
B). The assignment of dealer leases and franchise agreements is
intended not to effect a material change in the rights and obligations
of the parties to those leases and franchise agreements. Exxon and
Mobil will divest approximately 676 owned or leased stores and assign
supply agreements for 1,064 additional stores in the Northeast and Mid-
Atlantic.
---------------------------------------------------------------------------

\14\ The assigned relationship does not include business format
franchises for the sale of ancillary products (e.g., restaurant
franchises) other than gasoline and diesel fuel.
---------------------------------------------------------------------------

To effectuate the divestiture of stations and assignment of
franchise agreements, Respondents shall enter into an agreement with
the acquirer under which Respondents shall allow the acquirer to use
the Exxon or Mobil name, as the case may be, for up to 10 years (with
the possibility of further use of the name by mutual agreement
thereafter) (Paras. IV.C, V.C.). Pursuant to that agreement, the
acquirer will have the exclusive right to use the Exxon or Mobil name,
as the case may be, in connection with the sale of branded gasoline and
diesel fuel in these states, and will have the right to accept Exxon or
Mobil credit cards and to sell other Exxon or Mobil branded products
(e.g., motor oil) at gas stations in these states. The acquirer will
have the right to expand the Exxon or Mobil network in these states, as
the case may be, by opening new stores or converting stores to the
Exxon or Mobil branch (Paras. IV.C, IV.F, V.C, V.F).
It is the Commission's contemplation that the acquirers will seek
to transition the existing Exxon and Mobil networks to their own
brands.\15\ The Proposed Order requires the respective Exxon and Mobil
packages to be divested to a single acquirer (although both packages
may be divested to the same acquirer). The divestiture and assignment
of large packages of retail gasoline stations should allow the acquirer
the ability to efficiently advertise a brand, develop credit card and
other marketing programs, persuade distributors to market the
acquirer's brand, and otherwise compete in the sale of branded
gasoline.
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\15\ For that reason, the agreement entered into between
Respondents and the acquirer(s) may provide for an increasing fee
for the use of the name after five years. The terms of that
agreement will be subject to Commission approval.
---------------------------------------------------------------------------

The acquirer will nonetheless be allowed to continue to offer the
Exxon or Mobil name, as the case may be, to dealers and jobbers in
order to allow the acquirer to preserve the network to the greatest
extent feasible and to comply with the requirements of the Petroleum
Marketing Practices Act, 15 U.S.C. 2801 et seq. (``PMPA''). Thus, the
acquirer will be able to continue to offer Exxon or Mobil branded fuel,
as the case may be, to dealers and jobbers that are today selling Exxon
or Mobil branded fuel and displaying those brands. Over time, the
acquirer in its business judgment may choose to convert the business it
acquires to its own brand name, subject to the requirements of law or
with the consent of the dealers and jobbers in question.
To effectuate the divestiture and allow the acquirers an
opportunity to convert dealers and jobbers to a new brand, the Proposed
Order prohibits Respondents from using the pertinent brand in the sale
of gasoline for at least five (5) and as much as twelve (12) years from
the date of divestiture in the region in question (i.e., Respondents
will not be able to sell gasoline under the Exxon name in New York or
New England, where they are divesting and assigning Exxon stations,
dealers and jobbers). In addition, Respondents will be prohibited from
offering to sell branded fuels for resale at divested or assigned sites
for a period of seven (7) years (Paras. IV.G, V.G).
Respondents' obligations to preserve the assets to be divested and
assigned include the obligation to maintain the relationships with
dealers and jobbers pending divestiture or assignment. Respondents have
agreed to meet this obligation by, among other things, establishing a
fund of $30 million to be paid to distributors who accept assignment of
their supply agreements to the acquirer. The terms of that incentive
program are set forth in Appendix A to the Proposed Order.
C. Marketing of Gasoline in Texas
To remedy the reduction in competition in the five metropolitan
areas in Texas alleged in Count II of the Complaint, Paragraph VI of
the Proposed Order requires Respondents to divest and assign Mobil's
marketing businesses in those five metropolitan areas. Mobil's
marketing assets in those metropolitan areas include interests of Mobil
in partnerships with TETCO Inc. and Southland Corp. The Proposed Order
requires that Respondents divest Mobil's interest in its partnership
with TETCO to TETCO or to another acquirer approved by the Commission,
in either event only in a manner approved by the Commission. The
Proposed Order also requires Respondents to assign their Existing
Supply Agreements to Assignees approved by the Commission, on the same
terms as discussed with regard to Northeastern and Mid-Atlantic
marketing, Part IV.B above. Respondents will divest approximately 10
owned or leased Mobil stores and assign supply agreement for Mobil's
distributor-supplies stores in Texas.
D. Marketing of Gasoline in Arizona
To remedy the reduction in competition in the marketing of gasoline
in Arizona alleged in Count III of the Complaint, Paragraph XI of the
Proposed Order requires Exxon to surrender its right to reacquire
stores sold to Tosco.

[[Page 68109]]

E. Refining and Marketing of CARB Gasoline for California and Navy Jet
Fuel for the West Coast
To remedy the reduction in competition in the refining and
marketing of CARB gasoline and navy jet fuel alleged in Counts IV and V
of the Complaint, Paragraph II of the Proposed Order requires
Respondents to divest Exxon's Benicia refinery and Exxon's owned gas
stations in California, and to assign Exxon's lessee contracts and
jobber supply contracts in California to an acquirer approved by the
Commission (Paras. II.A, II.B). The divestiture of Exxon's Benicia
refinery, with Exxon's California marketing, will not significantly
reduce the amount of gasoline available to non-integrated marketers,
since the refinery likely will continue to produce that gasoline and
need outlets for its sale. Respondents will divest approximately 85
owned or leased Exxon stores and assign supply agreements for
approximately 275 additional stores in California.
As part of its divestiture of the refinery, Respondents shall (at
the acquirer's option) enter into a supply contract with the acquirer
for a ratable quantity of Alaska North Slope (``ANS'') crude oil up to
100 thousand barrels per day (an amount equivalent to the refinery's
historic usage). Exxon is one of the three principal producers of ANS
crude oil (the other two are BP Amoco and ARCO).
The divestiture and assignment of the Exxon stations is generally
under the same terms as described regarding the Northeast and Mid-
atlantic, see Section IV.B above, except that in four PMSAs (San
Francisco, Oakland, San Jose and Santa Rosa) Respondents will terminate
their dealers' contracts and divest the real estate to the acquirer
without authorizing the acquirer to use the Exxon name. Because Mobil
does not market branded gasoline in these PMSAs, Exxon can effectuate a
``market withdrawal'' in these MSAs under the PMPA, 15 U.S.C. 2801 et
seq.
In considering an application to divest and assign Exxon's
California refining and marketing businesses to an acquirer, the
Commission will consider the acquirer's ability and incentive to invest
and compete in the businesses in which Exxon was engaged in California.
The Commission will consider, inter alia, whether the acquirer has the
business experience, technical judgment and available capital to
continue to invest in the refinery in order to maintain CARB gasoline
production even in the event of changing environmental regulation.
F. Count VI--Terminaling of Light Petroleum Products in Metropolitan
Boston and Washington
To remedy the reduction of competition in terminaling of light
petroleum products in metropolitan Boston and Washington, Paragraphs
VII and VIII require Respondents to divest Mobil's East Boston,
Massachusetts, and Manassas, Virginia, light petroleum products
terminals, thereby eliminating the effect of the merger in these
markets.
G. Count VII--Terminaling of Light Petroleum Products in the Norfolk,
Virginia Area
To remedy the reduction of competition in terminaling of light
petroleum products in metropolitan Norfolk, Virginia, Paragraph IX
requires Respondents to continue to offer TransMontaigne access to
Mobil's wharf on the same terms as have been offered historically, for
as long as Respondents own the wharf.
H. Count VIII--Transportation of Light Petroleum Products to the Inland
Southeast
To remedy the reduction of competition in transportation of light
petroleum products to the inland Southeast, the Proposed Order requires
Respondents to divest either Exxon's interest in Plantation or Mobil's
interest in Colonial, and, pending divestiture, not to exercise their
voting rights in connection with ownership or board representation on
Colonial, thereby eliminating the effect of this merger in this market.
I. Count IX--Transportation of Crude Oil from the Alaska Slope
To remedy the reduction of competition in transportation of crude
oil from the Alaska North Slope to Valdez, Alaska, and intermediate
points, Paragraph X of the Proposed Order requires Respondents to
divest Mobil's interest in TAPS (including Mobil's interest in terminal
storage at Valdez and, at the acquirer's option, Mobil's interest in
the Prince William Sound Oil Spill Response Corporation), thereby
eliminating the effect of this merger in this market.
J. Count X--Importation, Terminaling and Marketing of Light Petroleum
Products in Guam
To remedy the reduction in competition in the importation,
terminaling and marketing of light petroleum products in Guam,
Paragraph III of the Proposed Order requires Respondents to divest
Exxon's terminal and marketing in Guam. Essentially all of Exxon's
gasoline marketing in Guam consists of approximately 11 company-
operated retail gasoline stores, which can be divested without the
right to use the Exxon's brand. The Proposed Order therefore does not
provide for the use of the ``Exxon'' brand in Guam. The Proposed Order
does provide that the divestiture of the terminal include Exxon's
rights in its joint terminaling arrangements with Shell and, at the
acquirer's option, Exxon's liquefied propane gas (``LPG'') storage
facilities. The divestiture would thereby eliminate the effect of this
merger in this market.
K. Count XI--Paraffinic Base Oil
The Proposed Order requires Respondents to relinquish control of an
amount of base oil equivalent to the amount controlled by Mobil, in
order to remedy the effect of combining Exxon's and Mobil's base oil
production. First, Respondents must offer to change several terms in
Mobil's contract with Valero, in order to relinquish control over
Valero's base oil production. The terms Respondents must offer are
confidential, and are contained in a confidential appendix to the
order.
Second, Respondents must enter into a long-term supply agreement
(or agreements) with not more than three firms to supply those firms
with an aggregate of 12 MBD of base oil from the merged firm's three
refineries in the Gulf Coast area. The purchaser(s) of this base oil
would purchase this base oil for ten years, under a price formula
agreed to by the parties (and approved by the Commission) that is not
tied to a United States base oil price (e.g., the formula might be tied
to a benchmark price for crude oil). The purchaser(s) could use the
base oil or resell it. Since the price term will be unrelated to any
U.S. base oil price, Respondents would not be able to influence the
price of this base oil. This sales agreement would put the purchaser(s)
in the same position as competing base oil producers.
By changing Mobil's contract with Valero and entering into a Gulf
off-take agreement, Mobil's share of the base oil market will
effectively be given to Valero and some new entrant(s) in base oil
market or other suitable acquirers. The status quo in the base oil
market will be maintained.
If Respondents do not offer the aforementioned terms to Valero
within six months and do not enter into base oil supply contracts with
suitable entities within nine months, they must divest Mobil's
Beaumont, Texas refinery.\16\
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\16\ A divestiture of Mobil's Beaumont refinery would give the
acquirer six percent of North American base oil production and
complete control of a low-cost base oil refinery. The buyer would be
free to make any capital investments to expand capacity it chose to
make. The Commission does not believe, on the facts of this
investigation, that a divestiture of the refinery is strictly
necessary to maintain competition in the paraffinic base oil market.
The Commission might normally believe that divestiture of a refinery
was necessary in order to allow the acquirer to have the ability to
expand production and develop new products. However, the current
trend toward producing higher grade based oils for use in finished
products that need to be replaced less often (i.e., new products
that significantly reduce drain intervals), suggests that the demand
for base oil is likely to contract, making the need for expansion
less significant on the particular facts here.

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[[Page 68110]]

L. Count XII--Jet Turbine Oil
To remedy the effects of the merger in the market for jet turbine
oil, the Proposed Order requires Respondents to divest Exxon's jet
turbine oil business. The Proposed Order defines Exxon's jet turbine
oil business, which must be divested, to include, among other things,
an exclusive, perpetual license to use identified Exxon patents in the
field of jet turbine oil, other intellectual property, research and
testing equipment, and Exxon's jet turbine oil manufacturing facility
at Bayway, New Jersey.

V. Opportunity for Public Comment

The Proposed Order has been placed on the public record for sixty
(60) days for receipt of comments by interested persons. The
commission, pursuant to a change in its rules of practice, has also
issued its complaint in this matter, as well as the Offer to Hold
Separate. Comments received during this sixty day comment period will
become part of the public record. After sixty days, the Commission will
again review the Proposed Order and the comments received and will
decide whether it should withdraw from the Proposed Order or make final
the agreement's Proposed Order.
By accepting the Proposed Order subject to final approval, the
Commission anticipates that the competitive problems alleged in the
complaint will be resolved. The purpose of this analysis is to invite
public comment on the Proposed Order, including the proposed
divestitures, to aid the Commission in its determination of whether it
should make final the Proposed Order contained in the agreement. This
analysis is not intended to constitute an official interpretation of
the Proposed Order, nor is it intended to modify the terms of the
Proposed Order in any way.

By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 99-31563 Filed 12-3-99; 8:45 am]
BILLING CODE 6750-01-M

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A99-31563. Public record. Not legal advice.