The U.S. Shale Patch Could Be In For Another Wave of Mergers

The U.S. Shale Patch Could Be In For Another Wave of Mergers

After last year saw some huge deals in the U.S. shale space, with ConocoPhillips merging with Concho Resources and Chevron buying Devon Energy, among others, it looks that this year will see a continuation of the M&A trend. Indeed, it is likely that consolidation is the only way forward for the industry.

"It's a better way to ride through the cycles in our business," said the chief executive of Cimarex following the announcement of its all-stock merger with Cabot Oil& Gas Corp earlier this month. "The demands of our sector, in terms of returning free cash flow to our owners, [tell us that] these swings in our cash flow are poison, and this is just a wonderful antidote to volatility," Thomas Jorden said as quoted by the Wall Street Journal.

Shale oil shareholders have indeed become more demanding about returns lately, and the pandemic-driven crisis that shook the industry last year only served to sharpen these demands and prompted shale companies to reorganize their priorities. This time, unlike last time, they seem to be willing to stick with the new agenda. But it requires further consolidation.