OPINION: When US independents Cabot Oil & Gas and Cimarex announced this week they are to merge in an all-stock deal worth $7.4 billion, they were reading from an old playbook.

Cimarex is an oil producer active in the Permian and Anadarko basins, while Cabot is a gas producer in the Marcellus shale.

The Permian is largely in Texas, while the Anadarko is in Texas and Oklahoma. The Marcellus, on the other hand, is in Pennsylvania.

In other words, they have nothing in common in proximity or geology.


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The best argument for this merger it is that the combined company will have a diversified asset base of oil and gas, theoretically allowing it to thrive if either hydrocarbon source enters a downturn.

But such an approach has not worked out for others in the past.

In the early days of the shale boom, producers bought up assets anywhere they could. Many followed the belief — pushed by Chesapeake Energy's then chief executive Aubrey McClendon — that a diverse asset base would strengthen the company.

Unfortunately, the opposite occurred.

McClendon’s vision of a Chesapeake active in virtually every major shale play ended up a disaster, as the debt accumulated eventually landed the company in Chapter 11 bankruptcy.

Very few independents, if any, have followed this approach since. Until now.

Can Cimarex and Cabot bring back the good old days in US shale? The market will be keeping a keen eye on how the merged player performs.

(This is an Upstream opinion article.)