[Federal Register Volume 90, Number 60 (Monday, March 31, 2025)]
[Notices]
[Pages 14257-14264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-05498]
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FEDERAL TRADE COMMISSION
[Docket No. C-4760]
Petition of EnCap Investments L.P., et al., To Reopen and Modify
Order
AGENCY: Federal Trade Commission.
ACTION: Announcement of petition; request for comment.
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SUMMARY: EnCap Investments L.P. (``EnCap''), EnCap Energy Capital Fund
XI, L.P., Verdun Oil Company II LLC (``Verdun''), XCL Resources
Holdings, LLC (``XCL''), and EP Energy LLC (``EP Energy'') have asked
the Federal Trade
[[Page 14258]]
Commission (``FTC'' or ``Commission'') to reopen and set aside the
Commission's Decision and Order entered on September 13, 2022, to
remove certain prior approval requirements. Publication of their
petition is not intended to affect its legal status or its final
disposition.
DATES: Comments must be received on or before April 30, 2025.
ADDRESSES: Interested parties may file comments online or on paper, by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Please write: ``EnCap et al.
Petition to Reopen; Docket No. C-4760'' on your comment and file your
comment online at www.regulations.gov by following the instructions on
the web-based form. If you prefer to file your comment on paper, please
mail your comment to the following address: Federal Trade Commission,
Office of the Secretary, 600 Pennsylvania Avenue NW, Mail Stop H-144
(Annex P), Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT: Maribeth Petrizzi (202-326-2564),
Bureau of Competition, Federal Trade Commission, 600 Pennsylvania
Avenue NW, Washington, DC 20580.
SUPPLEMENTARY INFORMATION: Pursuant to section 6(g) of the Federal
Trade Commission Act, 15 U.S.C. 46(g), and FTC Rule 2.51, 16 CFR 2.51,
notice is hereby given that the above-captioned petition has been filed
with the Secretary of the Commission and is being placed on the public
record for a period of 30 days. After the period for public comments
has expired and no later than 120 days after the date of the filing of
the request, the Commission shall determine whether to reopen the
proceeding and modify the Order as requested. In making its
determination, the Commission will consider, among other information,
all timely and responsive comments submitted in connection with this
notification.
The public, redacted version of the petition is provided below.
Confidential and/or competitively sensitive information has been
removed at places where the notation ``[redacted text]'' appears. An
electronic copy of the filed petition and any public exhibits attached
to it can be obtained from the FTC website at this URL: https://www.ftc.gov/legal-library/browse/cases-proceedings/2110158-encapep-energy-matter.
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before April 30, 2025.
Write ``EnCap et al. Petition to Reopen; Docket No. C-4760'' on your
comment. Your comment--including your name and your State--will be
placed on the public record of this proceeding, including, to the
extent practicable, on the www.regulations.gov website.
Because of the agency's heightened security screening, postal mail
addressed to the Commission will be subject to delay. We strongly
encourage you to submit your comments online through the
www.regulations.gov website. If you prefer to file your comment on
paper, write ``EnCap et al. Petition to Reopen; Docket No. C-4760'' on
your comment and on the envelope, and mail your comment to the
following address: Federal Trade Commission, Office of the Secretary,
600 Pennsylvania Avenue NW, Mail Stop H-144 (Annex P), Washington, DC
20580. If possible, submit your paper comment to the Commission by
overnight service.
Because your comment will be placed on the publicly accessible
website at www.regulations.gov, you are solely responsible for making
sure that your comment does not include any sensitive or confidential
information. Your comment should not include any sensitive personal
information, such as your or anyone else's Social Security number; date
of birth; driver's license number or other State identification number,
or foreign country equivalent; passport number; financial account
number; or credit or debit card number. You are also solely responsible
for making sure your comment does not include any sensitive health
information, such as medical records or other individually identifiable
health information. In addition, your comment should not include any
``trade secret or any commercial or financial information which . . .
is privileged or confidential''--as provided by section 6(f) of the FTC
Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2)--
including in particular competitively sensitive information such as
costs, sales statistics, inventories, formulas, patterns, devices,
manufacturing processes, or customer names.
Comments containing material for which confidential treatment is
requested must be filed in paper form, must be clearly labeled
``Confidential,'' and must comply with FTC Rule 4.9(c). In particular,
the written request for confidential treatment that accompanies the
comment must include the factual and legal basis for the request and
must identify the specific portions of the comment to be withheld from
the public record. See FTC Rule 4.9(c). Your comment will be kept
confidential only if the General Counsel grants your request in
accordance with the law and the public interest. Once your comment has
been posted on www.regulations.gov--as legally required by FTC Rule
4.9(b)--we cannot redact or remove your comment from that website,
unless you submit a confidentiality request that meets the requirements
for such treatment under FTC Rule 4.9(c), and the General Counsel
grants that request.
Visit the FTC website at https://www.ftc.gov to read this document
and the news release describing this matter. The FTC Act and other laws
that the Commission administers permit the collection of public
comments to consider and use in this proceeding, as appropriate. The
Commission will consider all timely and responsive public comments that
it receives on or before April 30, 2025. For information on the
Commission's privacy policy, including routine uses permitted by the
Privacy Act, see https://www.ftc.gov/site-information/privacy-policy.
Authority: 15 U.S.C. 46, 5 U.S.C. 552.
April J. Tabor,
Secretary.
Text of Petition of EnCap Investments L.P., et al., To Reopen and
Modify the Decision and Order
Pursuant to section 5(b) of the Federal Trade Commission Act, 15
U.S.C. 45(b), and section 2.51 of the Federal Trade Commission's Rules
of Practice, 16 CFR 2.51, Respondents EnCap Investments L.P.
(``EnCap''), EnCap Energy Capital Fund XI, L.P., Verdun Oil Company II
LLC (``Verdun''), XCL Resources Holdings, LLC (``XCL''), and EP Energy
LLC (``EP Energy'') \1\ (collectively, ``Respondents'') respectfully
request that the Commission reopen and modify the Decision and Order
entered on September 13, 2022 in Docket No. C-4760 (``Order'') to
remove the prior approval requirements in Section X.
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\1\ EP Energy Corporation has been dissolved. EP Energy LLC is
now owned by Verdun.
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The Order's purpose was to prevent the potential elimination of
``substantial head-to-head competition between EnCap and [EP Energy]''
due to Verdun's proposed acquisition of EP Energy (the
``Acquisition'').\2\ See Ex. 1, Complaint ] 24; Ex. 2, Decision and
Order (``Order'') Sec. XV. That purpose was fulfilled when Respondents
divested EP Energy's Uinta Basin assets to Crescent Energy Company
(``Crescent'') on March 30, 2022, resolving any concern that the
Acquisition would substantially lessen
[[Page 14259]]
competition. See Ex. 3, Crescent Energy Closes $690 Million Acquisition
of EP Energy Uinta Assets, Hart Energy (Mar. 30, 2022), https://www.hartenergy.com/exclusives/crescent-energy-closes-690-million-acquisition-ep-energy-uinta-assets-199505.
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\2\ EnCap Energy Capital Fund XI, L.P. is, and was at the time
of the Acquisition, the ultimate parent entity of Verdun Oil Company
II, LLC and XCL Resources Holdings, LLC.
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EnCap and XCL have since exited the production of crude oil and
natural gas in the Uinta Basin. In October 2024, XCL sold its Uinta
Basin crude oil and natural gas assets to SM Energy Company (``SM
Energy'') and Northern Oil and Gas, Inc. Ex. 4, Press Release, SM
Energy Announces Closing of Uinta Acquisitions--Significantly Expanding
Its Top-Tier Portfolio (Oct. 2, 2024); Ex. 5, Press Release, NOG Closes
Uinta Basin Acquisition (Oct. 2, 2024). The Respondents no longer
operate any oil- or gas-producing assets in the area covered by the
Order (the ``Relevant Area'').\3\ Ex. 7, Declaration of Bryan Stahl in
Support of Petition of Respondents EnCap, Verdun, and XCL to Reopen and
Modify Decision and Order (``Stahl Decl.'') ] 8; see generally Ex. 2,
Order Sec. I.DD (```Relevant Area' means the following counties in
Utah: Duchesne, Uintah, Utah, Grand, Emery, Carbon, and Wasatch.'').
Still, Respondents cannot acquire material interests in the Relevant
Area without the Commission's prior approval.
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\3\ [redacted text]. Ex. 6, Declaration of Nicholas Barham in
Support of Petition of Respondents EnCap, Verdun, and XCL to Reopen
and Modify Decision and Order (``Barham Decl.'') ] 12.
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The Order's prior approval provision harms competition and should
be removed. It impedes investment by Respondents' knowledgeable,
efficient, and conscientious operators who could make the most of the
Relevant Area's natural resources and increase U.S. crude oil and
natural gas production. This problem is not hypothetical: Because of
the uncertainty and delay associated with prior approval, XCL recently
lost a [redacted text], HSR-reportable acquisition. Ex. 6, Barham Decl.
]] 13-15. It also incurred significant costs related to obtaining prior
approval to purchase Altamont Energy, LLC (``Altamont''), a small
operator with no active drilling rigs at the time of purchase. Id. ]]
7-8, 10-11; Ex. 8, Petition for Prior Approval of XCL Resources
Holdings, LLC's Proposed Acquisition of Altamont Energy, LLC, at 4
(``Altamont Prior Approval Petition'').
Prior approval provisions tend to do more harm than good. See Ex.
9, Dissenting Statement of Comm'r Noah Joshua Phillips Regarding the
Commission's Withdrawal of the 1995 Policy Statement Concerning Prior
Approval and Prior Notice Provisions in Merger Cases, at 3-4 (July 21,
2021) (``Dissenting Statement of Phillips''). In 1995, the Commission
rejected its policy of routinely requiring prior approval provisions in
orders addressing mergers, finding that the HSR Act strikes a better
balance between detecting anticompetitive mergers and imposing costs on
parties. See Ex. 10, Notice and Request for Comment Regarding Statement
of Policy Concerning Prior Approval and Prior Notice Provisions in
Merger Cases, 60 FR 39745, 39745-46 (Aug. 3, 1995) (``1995 Policy
Statement''). Yet, in October 2021, the Commission instituted a blanket
policy requiring prior approvals in orders addressing mergers,
indicating that they would generally be imposed on both the merging
parties and divestiture buyers for a minimum of ten years. Ex. 11,
Statement of the Comm'n on Use of Prior Approval Provisions in Merger
Orders (Oct. 25, 2021) (``2021 Policy Statement''). It adopted this
policy based on the votes of two Democratic Commissioners and a
``zombie'' vote by a third who had already left the Commission. Ex. 12,
Dissenting Statement of Comm'rs Christine S. Wilson and Noah Joshua
Phillips Regarding the Statement of the Comm'n on Use of Prior Approval
Provisions in Merger Orders (Oct. 29, 2021) (``Dissenting Statement of
Wilson and Phillips''). The policy is a needless, punitive, and
selectively applied tax on business that harms competition by hindering
the transfer of assets to those who can use them most effectively. See
id. at 1 n.2, 4. Respondents have experienced the negative effects of
this bad policy.
The Order's prior approval provision is set to remain in place
until September 2032--nearly eight more years--regardless of changes in
the Relevant Area or in hydrocarbon production and consumption. See Ex.
2, Order Sec. XVI. But in just the two and a half years since the
Order's enactment, there have been significant changes within and
outside of the Relevant Area. XCL no longer operates assets in the
Relevant Area. Uinta Basin waxy crude oil production has increased by
roughly 50% to around 170,000 barrels per day,\4\ driven in large part
by XCL's expansion activity prior to the sale of its assets.
Historically smaller producers in the Relevant Area have grown, and new
producers have entered. Ex. 8, Altamont Prior Approval Petition at 8-
10. Increasing the domestic energy supply has become a national
priority, and so has reducing regulatory impediments to crude oil and
natural gas production: Agency heads have been asked to ``review all
existing regulations, orders, guidance documents, policies,
settlements, consent orders, and any other agency actions . . . to
identify those agency actions that impose an undue burden on the
identification, development, or use of domestic energy resources,''
including crude oil and natural gas. Ex. 13, Executive Order 14154 of
January 20, 2025, Unleashing American Energy, 90 FR 8353, 8354 (Jan.
29, 2025).
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\4\ See Oil & Gas Well Production Volumes, Utah Division of Oil
Gas and Mining, https://oilgas.ogm.utah.gov/oilgasweb/live-data-search/lds-prod/prod-lu.xhtml (last visited Feb. 14, 2025) (Set
search criteria to ``County Name'' and ``Report Date,'' limit to
counties in Relevant Area and years 2022-2024, and calculate
percentage increase from September 2022 to September 2024.).
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In light of these changed circumstances and harm to the public
interest, the Order should be modified to remove the prior approval
requirements in Section X.
I. Background
A. EP Energy Acquisition
Pursuant to a July 26, 2021 purchase agreement, Verdun agreed to
acquire EP Energy in a transaction subject to review under the HSR Act.
Stahl Decl. ] 4. EP Energy had emerged from bankruptcy less than one
year prior. Ex. 14, Shariq Khan & David French, Buyout firm EnCap
Investments agrees $1.5 bln purchase of EP Energy-sources, Reuters
(Aug. 11, 2021), https://www.reuters.com/business/energy/buyout-firm-encap-investments-agrees-15-bln-purchase-ep-energy-sources-2021-08-11/.
Following the Acquisition, Verdun intended to operate EP Energy's Eagle
Ford, Texas assets and transfer EP Energy's Uinta Basin assets to XCL.
The FTC reviewed the Acquisition and asserted that it would
``eliminate substantial head-to-head competition . . . for the
development, production, and sale of Uinta Basin waxy crude to targeted
Salt Lake City area refiners.'' Ex. 1, Complaint ] 24. Respondents
disagreed and believed they had a strong record on which to defend the
Acquisition, but after a seven-month investigation, EnCap faced a
difficult choice: Accept the FTC's proposed order with prior approval
requirements or lose the opportunity to acquire EP Energy's Texas
assets within the timeframe allowed by the purchase agreement. Ex. 7,
Stahl Decl. ] 7. Confronted with this ultimatum, Respondents accepted
the Order.
B. Decision and Order
When the Commission published notification of the Order in the
Federal Register, Ex. 15, EnCap/EP Energy; Analysis of Agreement
Containing
[[Page 14260]]
Consent Orders to Aid Public Comment, 87 FR 19090 (Apr. 1, 2022) (``FTC
Analysis to Aid Public Comment''), it received nearly 30 comments
expressing significant concern about the Order's effect.\5\ For
example:
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\5\ XCL also expressed concerns in its February 15, 2022 and May
23, 2022 letters to Commission staff. Ex. 16, Letter from EnCap and
XCL to Commission Staff (Feb. 15, 2022); Ex. 17, Letter from XCL to
Commission Staff (May 23, 2022).
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Big West Oil, a Salt Lake City refiner, commented that the
prior approval restriction ``seems to put XCL in an unfair competitive
position with other producers'' and ``could have a negative impact to
healthy, competitive growth and development of Uinta Basin resources
which could harm the potential crude supply to Salt Lake Refiners and
development opportunities for small producers and non-operating working
interest owners in the Uinta Basin.'' Ex. 18, Public Comments, Big West
Oil Comment (May 2, 2022) to FTC Analysis to Aid Public Comment,
https://www.regulations.gov/comment/FTC-2022-0024-0022.
Silver Eagle Refining, another Salt Lake City refiner,
commented, ``SER is very concerned that overly burdensome oversight by
the FTC of XCL could discourage the ongoing investment and development
of the Uinta Basin thus threatening SER's ability to source the
necessary yellow wax crude oil we need. The FTC's proposed actions to
oversee XCL may have the opposite effect than intended, rather than
protecting SLC refiner's interests it will lead to reduced investment
in the Uinta Basin thus leading to lower crude production driving
prices higher.'' Ex. 18, Public Comments, Silver Eagle Refining, Inc.
Comment (Apr. 25, 2022) to FTC Analysis to Aid Public Comment, https://www.regulations.gov/comment/FTC-2022-0024-0004.
The Duchesne County Commission stated, ``When prices drop
or Federal regulators provide uncertainty or additional regulatory
burdens, energy producers are too quick to relocate their investments
to more stable markets. The issuance of the proposed Order will simply
exacerbate this problem.'' Ex. 18, Public Comments, Duchesne County,
Utah Comment (Apr. 29, 2022) to FTC Analysis to Aid Public Comment,
https://www.regulations.gov/comment/FTC-2022-0024-0013 (``Duchesne
County Comment'').
Nevertheless, the Commission approved the Order on September 13,
2022.
The Order required Respondents to divest EP Energy's Uinta Basin
assets to Crescent within 10 days of consummating the Acquisition. Ex.
2, Order Sec. II.A. Respondents complied with that requirement on
March 30, 2022. The Order also required Respondents to provide
transitional assistance to Crescent for a period of time post-
divestiture. Id. Sec. IV. As described in the compliance reports
submitted pursuant to Section XII of the Order detailing Respondents'
compliance, Respondents promptly fulfilled all of their transitional
assistance obligations and have complied with all other requirements of
the Order.
The Order still requires EnCap, Verdun, and XCL to obtain the
Commission's approval before consummating certain transactions.\6\ Id.
Sec. X. Specifically, the Order requires prior approval for direct or
indirect acquisitions of (1) any interest in any Relevant Area producer
``that has produced or sold, on average over the six months prior to
the acquisition, more than 2,000 barrels per day of waxy crude in the
Relevant Area'' or (2) any ``ownership or leasehold interest in lands
located in the Relevant Area'' that would ``result[] in an increase (or
net increase, in the case of an acreage swap) in Respondent's land
interests in the Relevant Area of more than 1,280 acres.'' Id. These
thresholds are very low. Two thousand barrels per day is only about one
percent of the Relevant Area's current daily production, and 1,280
acres is the size of just one ``drilling spacing unit.'' Ex. 6, Barham
Decl. ] 4.
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\6\ The Order also requires Crescent to obtain the Commission's
prior approval before selling, licensing, or conveying the divested
assets to any Relevant Area producer. Ex. 2, Order Sec. XI. This
reduces the likelihood that the divestiture assets will be maximally
productive for the same reasons that the prior approval provision
applied to Respondents reduces the likelihood that Relevant Area
assets will be maximally productive.
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C. XCL Resources
When it entered the Uinta Basin in 2019, XCL Resources jumpstarted
the region's crude oil and natural gas production. It was the first
operator in the area to deploy modern drilling and completion
techniques at a reasonable cost. Id. ]] 3, 6. To reduce costs, XCL
invested in novel resource development strategies, including multi-well
pad development, electric completion crews, co-development of multiple
formations, and recycling produced water for operations, among other
examples. Id. ]] 3-6; see also, e.g., Ex. 18, Public Comments, Liberty
Pioneer Energy Source, Inc. Comment (May 3, 2022) to FTC Analysis to
Aid Public Comment, https://www.regulations.gov/comment/FTC-2022-0024-0025 (acknowledging XCL's ``cost-effective and often cutting-edge
drilling program'') (``Liberty Pioneer Energy Source Comment''). This
inspired other operators to do the same, which expanded the productive
potential of the entire region--not just XCL's acreage. See Ex. 6,
Barham Decl. ] 6.
XCL was also instrumental in developing new customers for Uinta
Basin crude. Ex. 19, Declaration of Kit Pfeiffer in Support of Petition
of Respondents EnCap, Verdun, and XCL to Reopen and Modify Decision and
Order (``Pfeiffer Decl.'') ]] 6-7. This required sophisticated and
complex supply chain systems that no other producer had ever
sustainably developed at scale. Id. Expanding the Uinta Basin's
customer base incentivized production. See, e.g., Ex. 18, Public
Comments, Duchesne County Comment (``The lack of alternative buyers
outside the Salt Lake market resulted in Uinta Basin production being
capped by Salt Lake demand and depressed pricing. . . . Additional
demand therefore supports additional expansion of production in the
Uinta Basin.''). Previously, operators could not profitably produce
more crude oil than Salt Lake City refineries could process. See id.;
Ex. 19, Pfeiffer Decl. ] 7. But with more outlets for their production
as a result of XCL's efforts, operators produced more.
Combining the technical and commercial talents of its people, XCL
was able to increase the production of its assets from 8,000 barrels
per day to 60,000 barrels per day in just a few years. Id. ] 5. This
explosive growth led to the employment of hundreds of Utah residents
and hundreds of millions in local, Tribal, and State revenues. See,
e.g., Ex. 18, Public Comments, Star Point Enterprises, Inc. Comment
(Apr. 29, 2022) to FTC Analysis to Aid Public Comment, https://www.regulations.gov/comment/FTC-2022-0024-0009 (commenting that XCL
``has been and remains a consistent and reputable addition to the
Uintah Basin since 2019 employing an enormous workforce of Utah local
employees and subcontractors'').
XCL achieved this growth using low-emission designs. It installed
vapor recovery units, built gas pipeline infrastructure, and deployed
the first electric hydraulic fracturing fleet in Utah. Ex. 6, Barham
Decl. ] 5. It also built robust water recycling facilities to nearly
eliminate draws on freshwater resources. Id. XCL's total investment in
infrastructure alone approached [redacted text]. Id. Through these
efforts, XCL was one of the lowest-emission operators in the Uinta
Basin.
[[Page 14261]]
Id. ] 6; see also, e.g., Ex. 18, Public Comments, Utah Royalty Owners
Ass'n Comment (April 25, 2022) to FTC Analysis to Aid Public Comment,
https://www.regulations.gov/comment/FTC-2022-0024-0003 (commenting that
``XCL has proven to be one of the most responsible oil & gas producing
companies when [it] comes to drilling and completing wells, protecting
the environment, using less water and reducing emissions'').
By investing approximately [redacted text] into Utah over the past
five years, Ex. 6, Barham Decl. ] 5, XCL began a development wave that
benefitted the entire region. Its efforts led to lower oil prices for
its customers and lasting benefits for the Uinta Basin. Without the
burden of prior approval, XCL would be better placed to apply its
innovative, pro-growth, pro-competition, and pro-consumer methods to
opportunities for years to come. Id. ] 16.
II. Changed Conditions of Fact Require the Order To Be Modified
The Commission must reopen an order to consider whether it should
be modified when a respondent makes a satisfactory showing that changed
conditions of law or fact so require. 15 U.S.C. 45(b); 16 CFR 2.51. A
showing is satisfactory when respondent identifies ``significant
changes in circumstances'' that ``eliminate the need for the order or
make continued application of it inequitable or harmful to
competition.'' In re Entergy Corp., Dkt. No. C-3998, Order Reopening
and Setting Aside Order, at 3 (F.T.C. July 1, 2005). The Commission may
also reopen and modify an order on the independent ground that it is in
the public interest. In re The Stop & Shop Cos., Dkt. No. C-3649, Order
Reopening and Modifying Order, at 4 (F.T.C. June 20, 1997).
A. Respondents Have Exited the Relevant Area
When the Order was executed, EnCap and XCL had crude oil and
natural gas exploration and production operations in the Relevant Area.
XCL sold its operations on October 1, 2024 and, as a result, none of
EnCap, XCL, or Verdun operate any oil- or gas-producing assets in the
Relevant Area.\7\ Ex. 6, Barham Decl. ] 12; Ex. 7, Stahl Decl. ] 8.
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\7\ Verdun has never operated oil- or gas-producing assets in
the Uinta Basin. Ex. 7, Stahl Decl. ] 9.
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The sale of XCL's assets constitutes a changed circumstance
sufficient to support modifying the Order. The Commission has found on
numerous occasions that exiting the area covered by an order eliminates
the continuing need for the order's requirements. See, e.g., In re DTE
Energy Co., Dkt. No. C-4691, Order Reopening and Modifying Order, at 3
(F.T.C. Nov. 23, 2021) (modifying order because respondent no longer
had relevant business interests in the area covered by the order); In
re AEA Investors 2006 Fund L.P., Dkt. No. C-4297, Order Reopening and
Modifying Final Order, at 4 (F.T.C. Apr. 30, 2013) (same); In re Duke
Energy Corp., Dkt. No. C-3932, Order Reopening and Modifying Order, at
4 (F.T.C. Sept. 26, 2007) (same); In re Koninklijke Ahold, N.V., Dkt.
No. C-4027, Order Reopening and Modifying Order, at 4-5 (F.T.C. July
10, 2007) (same) and Order Reopening and Modifying Order, at 4-5
(F.T.C. July 21, 2006) (same); In re Entergy Corp., Dkt. No. C-3998,
Order Reopening and Setting Aside Order, at 3 (F.T.C. July 1, 2005)
(same).
The possibility that Respondents might reenter the Relevant Area
does not justify continued application of the Order's prior approval
provision. Reentry into the Relevant Area would be procompetitive and
should be encouraged. Verdun has significant experience in expanding
production outside of the Relevant Area. Ex. 20, Verdun Oil Company,
https://verdunoilco.com/company/ (last visited Mar. 4, 2025) (showing
production growth from roughly 2,000 barrels of oil equivalent per day
to more than 80,000 barrels of oil equivalent per day, a fortyfold
increase in approximately seven years). EnCap and XCL have considerable
experience in expanding production within the Relevant Area. Prior to
the SM Energy acquisition, XCL drilled nearly 200 horizontal wells and
invested approximately [redacted text] in its properties in just five
years. Ex. 6, Barham Decl. ] 3, 5. These efforts grew the production of
its assets by more than 500%. See Ex. 19, Pfeiffer Decl. ] 5. Between
2021 and 2023, XCL drilled approximately 80 more new wells than any
other producer in the Relevant Area. Ex. 6, Barham Decl. ] 6. Because
of XCL's innovative techniques and experience, these wells were more
efficient than those drilled by competitors. See id. Respondents'
reentry into the Basin would benefit consumers. See, e.g., Ex. 18,
Public Comments, Liberty Pioneer Energy Source Comment (commenting that
the prior approval restriction ``hamstring[s] one of the most nimble,
forward-thinking, and results driven operators in the basin''); Ex. 18,
Public Comments, Rig II, LLC Comment (Apr. 25, 2022) to FTC Analysis to
Aid Public Comment, https://www.regulations.gov/comment/FTC-2022-0024-0005 (describing XCL as ``the most active driller in Utah'' and a
``good and reputable operator''); Ex. 18, Public Comments, Roger Doxey
Comment (May 2, 2022) to FTC Analysis to Aid Public Comment, https://www.regulations.gov/comment/FTC-2022-0024-0015 (``Without question, the
most reliable and productive oil relationship we have had in all of our
years in the Uinta Basin, has been the one we have with XCL
Resources.'') (emphasis in original); Ex. 18, Public Comments, Craig
Peterson Comment (Apr. 29, 2022) to FTC Analysis to Aid Public Comment,
https://www.regulations.gov/comment/FTC-2022-0024-0010 (``XCL Resources
entered the Uinta Basin in late 2019 after purchasing Axia Energy's
assets, and today they are the most active producer (currently running
3 large horizontal rigs).''); Ex. 18, Public Comments, Hyrum Winterton
Comment (May 3, 2022) to FTC Analysis to Aid Public Comment, https://www.regulations.gov/comment/FTC-2022-0024-0024 (``AXIA only drilled
three wells in three different sections that we had [ ] interests in.
XCL has drilled at least 12 in one section and they are planning to
drill many more. XCL is the ultimate long-term operator.''); Ex. 18,
Public Comments, Duchesne County Comment, at 2 (``EnCap's production
outperforms its peers with lower per-barrel costs than EP and other
peer producers. EnCap is concerned about our air quality issues and is
. . . reduc[ing] emissions.'').
Speculation that Respondents might engage in future anticompetitive
transactions does not justify the Order either. There is no evidence
that Respondents have a propensity for harmful deals. And there are no
examples of Respondents attempting an anticompetitive transaction. In
its submissions to the FTC, Respondents provided substantial evidence
that even the EP Energy acquisition would not have led to a reduction
in competition. See, e.g., Ex. 21, EnCap White Paper (Jan. 14, 2022)
(``White Paper''). There is also no evidence that future Relevant Area
transactions below the HSR thresholds are likely to harm competition.
In fact, during the review of the EP Energy acquisition, the FTC viewed
the largest producers as the only meaningful competitors in the Uinta
Basin, see, e.g., Ex. 1, Complaint ] 24, suggesting that the
acquisition of smaller producers or acreage would be unlikely to raise
competitive concerns.
Congress designed the HSR Act to detect anticompetitive mergers,
and as the Commission has previously recognized, it has ``proven to be
an effective means of investigating and
[[Page 14262]]
challenging most anticompetitive transactions before they occur.'' Ex.
10, 1995 Policy Statement at 39,745. The Commission should modify the
Order and allow the democratically enacted merger review process to
work as intended. See In re Koninklijke Ahold, N.V., Dkt. No. C-4027,
Order Reopening and Modifying Order, at 4-5 (F.T.C. July 10, 2007)
(setting aside a prior approval provision where the respondent exited
the relevant markets and an acquisition ``of any competitively
significant supermarket operation in the relevant markets likely would
be reportable under the Hart-Scott-Rodino Act'').
B. The Relevant Area Has Become More Competitive
Since the Order's enactment, competition in the Relevant Area has
intensified. Waxy crude oil production has increased and competitors
have entered and grown. These changes to the competitive landscape
undermine the core factual premise of the Order that further
concentration of Uinta Basin producers would incentivize them to reduce
supply below Salt Lake City refinery demand. See Ex. 1, Complaint ] 24.
For this reason alone, the Order should be modified. See, e.g., In re
Toys ``R'' Us Inc., Dkt. No. C-9278, Order Reopening and Modifying
Order, at 4 (F.T.C. Apr. 11, 2014) (finding that Toys ``R'' Us' reduced
importance in the marketplace required order modification).
When the Commission was investigating the Acquisition, there were
roughly 35 active producers in the Uinta Basin, including XCL. Ex. 21,
White Paper at 1. Collectively, they produced an average of less than
100,000 barrels per day of waxy crude oil.\8\ The Salt Lake City
refineries' maximum capacity to process it was about 80,000 barrels per
day. Ex. 1, Complaint ] 21. In that context, the Commission was
concerned that the Acquisition might enable producers to raise prices
for waxy crude oil by strategically reducing its supply to Salt Lake
refiners. Ex. 15, FTC Analysis to Aid Public Comment at 19,091 (``Uinta
Basin producers have received higher realized prices when Uinta Basin
waxy crude production falls short of demand from Salt Lake
refiners.'').
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\8\ See Oil & Gas Well Production Volumes, Utah Division of Oil
Gas and Mining, https://oilgas.ogm.utah.gov/oilgasweb/live-data-search/lds-prod/prod-lu.xhtml (last visited Feb. 22, 2025) (Set
search criteria to ``County Name'' and ``Report Date,'' limit to
counties in Relevant Area and August 2021 through March 2022,
calculate average daily production.).
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The Salt Lake City refineries' maximum capacity to process waxy
crude oil has not materially changed,\9\ but Utah producers have
expanded production by more than 50% to over 170,000 barrels per
day.\10\ The Relevant Area's waxy crude production is now roughly
double Salt Lake City refinery demand, and the likelihood that future
transactions by Respondents could reduce waxy crude supply below Salt
Lake City refinery demand is vanishingly small, particularly for
transactions that do not meet the HSR Act's minimum size thresholds.
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\9\ See Ex. 22, U.S. Energy Information Administration (EIA),
Number and Capacity of Petroleum Refineries in Utah, (June 14,
2024), https://www.eia.gov/dnav/pet/pet_pnp_cap1_dcu_SUT_a.htm
(catalytic cracking and catalytic hydro-cracking capacity in terms
of barrels per calendar day increased from 82,490 in 2022 to 84,890
in 2024). Catalytic cracking capacity determines the amount of waxy
crude oil the Salt Lake City refineries process because these units
are required to turn the waxy crude into consumer fuels. See, e.g.,
Ex. 23, Utah Department of Environmental Quality, Petroleum (Aug.
20, 2021), https://deq.utah.gov/general/petroleum; Ex. 24, Housley
Carr, I Believe in Miracles . . . Where're You From, You Waxy
Thing--Uinta Basin's Waxy Crude Is On A Roll, RBN Energy LLC: Daily
Blog (Feb. 20, 2023), https://rbnenergy.com/i-believe-in-miracles-wherere-you-from-you-waxy-thing-uinta-basins-waxy-crude-on-a-roll
(explaining that waxy crude oil is ``useful to refineries with a
high proportion of fluid catalytic cracker (FCC) capacity'').
\10\ See Oil & Gas Well Production Volumes, Utah Division of Oil
Gas and Mining, https://oilgas.ogm.utah.gov/oilgasweb/live-data-search/lds-prod/prod-lu.xhtml (last visited Feb. 22, 2025) (Set
search criteria to ``County Name'' and ``Report Date,'' limit to
counties in Relevant Area and years 2022-2024, and calculate
percentage increase from September 2022 to September 2024.).
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Salt Lake City refiners' access to alternative crude oils has also
increased. Around the time the FTC reviewed the Acquisition and entered
the Order, Holly Energy Partners' Frontier Aspen Pipeline and MPLX's
SLC Core Pipeline expanded. Ex. 19, Pfeiffer Decl. ] 9. Salt Lake City
refiners now have direct pipeline access to the major supply hub of
Guernsey, Wyoming, where crude oils from a variety of locations,
including Canada, Wyoming, and North Dakota, are available. Id.; see
also Ex. 25, Kristy Oleszek, Small WY Town Carries Big Weight in Crude
Logistics, East Daley, https://www.eastdaley.com/media-and-news/small-wy-town-carries-big-weight-in-crude-logistics (last visited Feb. 24,
2025). As Respondents explained in their January 14, 2022 white paper
to Commission staff, crude oils from outside of the Uinta Basin
substitute for, compete with, and price constrain waxy crude oil. Ex.
21, White Paper Sec. II. Therefore, the expanded availability of
alternative crude oils in the Salt Lake City area further diminishes
the probability that Uinta Basin producers could somehow harm their
local customers.
Finally, waxy crude oil producers have continued to enter and
expand since the Order became effective. For example, Scout Energy
Partners and Wasatch Energy Management, which was formerly a marketing
company with no production capabilities, have entered and drilled new
wells.\11\ Anschutz Corporation has increased its production nearly
twentyfold since 2022.\12\ And KODA Resources drilled nine wells in
2023 after drilling no wells from 2020 to 2022. Ex. 8, Altamont Prior
Approval Petition at 10. More generally, operators have continued to
explore geological formations since the Order's enactment, leading to
new development in previously unexplored depths and regions. Ex. 26,
Chris Matthews, Early Innings: Uinta's Oily Stacked Pay Exploration
Only Just Starting, Hart Energy (Mar. 4, 2025), https://www.hartenergy.com/exclusives/early-innings-uintas-oily-stacked-pay-exploration-only-just-starting-212175.
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\11\ See Oil & Gas Well Production Volumes, Utah Division of Oil
Gas and Mining, https://oilgas.ogm.utah.gov/oilgasweb/live-data-search/lds-prod/prod-lu.xhtml (last visited Feb. 24, 2025) (Set
search criteria to ``County Name,'' ``Operator,'' and ``Report
Date,'' limit to counties in Relevant Area, Operator values of
``WEM'' and ``Scout,'' and years 2021-2024.).
\12\ See Oil & Gas Well Production Volumes, Utah Division of Oil
Gas and Mining, https://oilgas.ogm.utah.gov/oilgasweb/live-data-search/lds-prod/prod-lu.xhtml (last visited Feb. 24, 2025) (Set
search criteria to ``County Name,'' ``Operator,'' and ``Report
Date,'' limit to counties in Relevant Area, Operator value of
``Anschutz,'' and years 2021-2024.).
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Expanded production, new supply, and new entry in the Relevant Area
over the past three years is evidence of healthy competition.
Respondents should not be subjected to an inflexible Order that
prevents them from fully participating in this ever-changing
marketplace for eight more years.
III. The Public Interest Requires the Order To Be Modified
The public interest independently requires the Order's
modification. Modifying an Order serves the public interest when it
would ``relieve any impediment to effective competition.'' In re The
Stop & Shop Cos., Dkt. No. C-3649, Order Reopening and Modifying Order,
at 4 (F.T.C. June 20, 1997). Here, the Order's prior approval provision
impedes effective competition by acting as a ``gratuitous tax on M&A
activity'' for only some competitors, stacking the deck against them
even with respect to legal and procompetitive transactions. See Ex. 12,
Dissenting Statement of Wilson and Phillips at 4. Respondents have
concrete examples of this effect. Consistent with its 1995 bipartisan
[[Page 14263]]
policy statement rejecting prior approval provisions except in rare
cases, the Commission should reject the prior approval provision here.
In re Occidental Petroleum Corp., Dkt. No. 9205, 120 F.T.C. 944, 945-46
(F.T.C. Nov. 16, 1995) (modifying order to remove prior approval
provision because the 1995 policy statement established a ``rebuttable
presumption that the public interest requires reopening of the order
and modification of the prior approval requirement'').
The prior approval process is vague and uncertain. A party must
submit an application ``fully describ[ing] the terms of the
transaction'' and ``set[ting] forth why [it] merits Commission
approval.'' 16 CFR 2.41(f). This ambiguous guidance ``flips the burden
of proof on its head,'' placing the onus on the petitioning party to
prove that its ordinary business activity is legal under the antitrust
laws. See Ex. 12, Dissenting Statement of Wilson and Phillips at 3.
After submitting an application, a party must wait for the Commission
to post the application for public comment, wait for the 30-day public
comment period to end, and then wait for the Commission to make a
decision. See 16 CFR 2.41(f). There is no limit on how long a party
must wait. Id. If the Commission does not grant prior approval, the
transaction is all but dead: The only recourse is to challenge the
agency's decision as arbitrary and capricious, a difficult challenge to
win. See generally Ex. 12, Dissenting Statement of Wilson and Phillips
at 3 (``A lengthy investigation can be a death knell for many deals as
financing runs out, suppliers and customers hesitate to do business
with the merging parties whose futures remain uncertain, and the
parties hemorrhage employees in the face of uncertainty.'').
Prior approval subverts the merger review process Congress
designed. See id. at 7. Under the HSR Act, parties know within 30 days
of submitting their HSR filings whether their transaction will be
cleared or investigated further. 15 U.S.C. 18a(b)(1)(B). Any further
investigation is also time-limited, 15 U.S.C. 18a(e)(2), and the
investigating agency must ultimately sue in court to block the
transaction, where the agency will bear the burden of proof and the
parties can make their case before an impartial judge. See, e.g., FTC
v. Tempur Sealy Int'l, Inc., No. 24-cv-02508, 2025 WL 384493, at *13
(S.D. Tex. Jan. 31, 2025) (``[T]o grant injunctive relief under the
Clayton Act, the Court must conclude that the Government has introduced
evidence sufficient to show that the challenged transaction is likely
to lessen competition substantially.'' (alteration and emphasis in
original) (quoting United States v. AT & T Inc., 310 F. Supp. 3d 161,
189 (D.D.C. 2018), aff'd, 916 F.3d 1029 (D.C. Cir. 2019))).
The uncertainty associated with prior approval makes transactions
less efficient and more expensive, sometimes prohibitively so. Sellers
are hesitant to enter a sale process in which a government agency has
total discretion over the closing date. See Ex. 9, Dissenting Statement
of Phillips at 3. A buyer subject to prior approval is either excluded
from a sale process altogether or forced to compensate the target
company for the increased risk. Id.; see Ex. 6, Barham Decl. ]] 7-8,
10-11, 14-15. For the same reason, no buyer wants to pay full price for
a company with a prior approval requirement it might inherit. See id. A
company subject to prior approval is hamstrung relative to its
competitors, even if it is the best counterparty for an obviously
procompetitive transaction. See id. Lengthy approval timelines could
also lead to lower production if sellers reduce their activity levels
between signing and closing.
The Order's prior approval provision has already disadvantaged
EnCap and XCL relative to its rivals. When XCL acquired Altamont,
[redacted text]. Barham Decl. ] 7. XCL then had to [redacted text]
during the months-long prior approval process, which would not have
been necessary except for the prior approval process. Id. ] 10.
More recently, the prior approval provision caused EnCap and XCL to
lose a [redacted text], HSR-reportable transaction. Despite having
exited the Relevant Area, being the highest bid in a marketed process,
and spending hundreds of hours and millions of dollars negotiating the
transaction, the seller ultimately chose a different buyer because of
the uncertainty associated with prior approval. Id. ]] 13-14. This
opportunity included the [redacted text] in the Relevant Area, and had
there been a level playing field, the acreage would have been developed
by the most active and experienced operator in the Uinta Basin's
history. Id. ] 15. The opportunity related to this business will not
come again: once land is drilled, it cannot be restored to its original
state.
IV. The Commission Has Previously Rejected Prior Approval Provisions as
Unduly Burdensome
In 1995, in light of years of experience with the HSR Act, the
Commission ended its policy of routinely requiring prior approval in
orders addressing mergers. Ex. 10, 1995 Policy Statement at 39,745-46.
The Commission determined that the HSR Act would ``adequately protect
the public interest in effective merger enforcement, without being
unduly burdensome,'' and that future orders would only require prior
approval for a transaction involving ``essentially the same relevant
assets that were involved in the challenged transaction.'' Id. at
39,746.
More than a quarter century later, in July 2021, the Commission
abruptly reversed course. It rescinded the 1995 policy with ``the
minimum notice required by law, virtually no public input, and no
analysis or guidance.'' Ex. 9, Dissenting Statement of Phillips at 1.
Two months later, two Democrat Commissioners, with the aid of a
``zombie'' vote from another Democrat Commissioner who had already left
the FTC, implemented a blanket prior approval policy without soliciting
public comment. Ex. 12, Dissenting Statement of Wilson and Phillips at
1, 9 (``The majority's closed-door process starkly contrasts with the
transparency previously employed by the FTC in this area--when a
bipartisan Commission issued the 1995 Policy Statement, public comments
were invited.'').
The October 2021 prior approval policy does not serve the public
interest and should not remain in force. In fact, it achieves none of
its stated objectives of preventing ``facially anticompetitive''
transactions, detecting anticompetitive transactions below the HSR
thresholds, or preserving Commission resources. See Ex. 11, 2021 Policy
Statement at 1.
Preventing ``facially anticompetitive'' transactions. Prior
approval provisions are not necessary to prevent ``facially
anticompetitive'' transactions. To the extent any transaction is
``facially anticompetitive,'' it is likely to be a large transaction
subject to HSR reporting requirements. See Ex. 9, Dissenting Statement
of Phillips at 4. The policy's real aim is deterrence: ``Too many deals
that should have died in the boardroom get proposed because merging
parties are willing to take the risk that they can `get their deal
done' with minimal divestitures. . . . Parties pursuing facially
anticompetitive deals should now know that they are at risk of being
subject to a prior approval provision.'' See Ex. 11, 2021 Policy
Statement at 1; Ex. 12, Dissenting Statement of Wilson and Phillips at
9. But parties do not pursue transactions that they think will face the
risk of undue delay, and they should be permitted to attempt
transactions that they believe will be beneficial to their customers
and stakeholders. If a transaction results in a divestiture, that is
not evidence of bad faith: It is evidence that a portion of the
[[Page 14264]]
transaction was very likely procompetitive. See Ex. 12, Dissenting
Statement of Wilson and Phillips at 6.
Detecting anticompetitive transactions below the HSR thresholds.
This objective rests on the premise that ``merging parties with a
history of attempting anticompetitive transactions'' are more likely to
engage in harmful transactions below HSR thresholds, but the policy
provides no support for this premise. See Ex. 11, 2021 Policy Statement
at 2. Furthermore, the suggestion that prior approvals are only applied
to parties with a ``history'' of attempting anticompetitive
transactions is belied by the Commission's undiscriminating policy of
requiring prior approval provisions in all orders addressing mergers.
Id. at 1. To the extent transactions below HSR thresholds are
anticompetitive, the solution is for Congress to lower the thresholds,
not to use prior approval provisions to affect an end-run around the
HSR Act for select companies. See Ex. 27, John Yun, Going Backwards:
The FTC's New Prior Approval Policy, Competition Policy Int'l (Mar. 8,
2022).
Preserving Commission resources. The concerns that the Commission
might have to ``re-review[ ] the same transaction on numerous
occasions'' or ``review[ ] a similar transaction by one of the merging
parties in the same market'' are also unpersuasive. Ex. 11, 2021 Policy
Statement at 1. In their remarks on the recission of the 1995 policy,
former Chair Khan and Commissioner Chopra cite few examples of the
Commission purportedly reviewing the same transaction more than once,
revealing that parties rarely attempt ``the same transaction on
numerous occasions,'' and that if they do, ``the proposed deals are
frequently separated by a decade or two,'' during which time
competitive conditions might well have changed. Ex. 12, Dissenting
Statement of Wilson and Phillips at 8. As for the assertion that all
future transactions by ``one of the merging parties'' in the ``same
market'' are likely to be anticompetitive, the policy statement
contains no evidence that this is true. See Ex. 11, 2021 Policy
Statement at 1. Without more evidence supporting the policy's claims,
it is hard to believe that the justification of ``preserving Commission
resources'' is anything other than a pretext for avoiding the
``strictures of the [HSR Act], where the merging parties can force a
Commission decision to sue.'' Id. Using prior approvals for this
purpose is an abdication of duty. See Ex. 12, Dissenting Statement of
Wilson and Phillips at 4 (``God forbid we should do our job of
analyzing deals notified pursuant to the HSR Act.'').
The flimsy justifications offered in the Commission's 2021 Policy
Statement are not good reasons to mandate prior approval in any
transaction, particularly where, as here, the factual circumstances
have changed and Respondents have suffered tangible harm.
V. Request for Confidential Treatment
This petition and its attachments contain commercially and
competitively sensitive business information related to Respondents'
businesses and business practices. Public disclosure of this
information would prejudice Respondents. It also contains third-party
information subject to paywalls. Accordingly, pursuant to sections
2.51(c) and 4.9(c) of the Federal Trade Commission's Rules of Practice,
16 CFR 2.51(c) & 4.9(c), Respondents request confidential treatment of
the confidential version of this petition, including its attachments.
The confidential version of this petition should be afforded such
confidential treatment under 5 U.S.C. 552(b), including paragraphs
(b)(3), (4), and (9); 16 CFR 4.10(a), including paragraphs (a)(2) and
(a)(7); 15 U.S.C. 18a(h); 15 U.S.C. 46(f); and 15 U.S.C. 57b-2. If a
determination is made that material marked as confidential does not
merit confidential treatment, Respondents request prompt notice of and
an adequate opportunity to appeal the determination.
VI. Conclusion
For the foregoing reasons, the Respondents respectfully request
that the Commission reopen and modify the Order to remove the prior
approval requirements in Section X.
Dated: March 7, 2025.
Respectfully submitted,
/s/ Jeremy Calsyn,
Jeremy Calsyn,
Cleary Gottlieb Steen & Hamilton LLP, 2112 Pennsylvania Avenue NW,
Washington, DC 20037, 202-974-1522.
Counsel for Respondents.
[FR Doc. 2025-05498 Filed 3-28-25; 8:45 am]
BILLING CODE 6750-01-P