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Higher Oil Prices Lift US E&Ps, Fuel M&A Discussions, RBC Says

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US oil producers are using higher crude prices to strengthen shareholder returns and debt plans as merger interest grows, RBC Capital Markets said in a Friday note.

Oil prices reached a three-week high of $87 per barrel after President Donald Trump announced a "crushing economic operation" against Iran, RBC said.

Despite higher prices, public US producers have shown little interest in sharply increasing output because structural demand growth remains limited.

Instead, stronger oil prices have prompted producers to focus on debt repayment and shareholder returns, while some companies are also considering opportunistic hedging strategies.

Trump also signaled potential support for reviving the Keystone XL pipeline, which could transport 830,000 barrels per day of heavy crude from Canada and the Bakken to Nebraska pipeline facilities before reaching Gulf Coast refineries.

RBC said uncertainty remains over how Keystone XL would compete with rising Venezuelan crude volumes at US refineries as US producers prepare to sign supply contracts with Venezuela's state-owned oil company.

Over the week, oil-weighted exploration and production companies gained 10%, while gas-weighted exploration and production companies rose 2%; large-cap and small- to mid-cap producers each advanced 7%, RBC said

The SPDR S&P Oil & Gas Exploration & Production ETF rose 5%, while WTI gained 6% and Henry Hub natural gas increased 1% over the week, according to RBC.

Merger discussions remained a key investor theme, with Exxon Mobil (XOM), Chevron (CVX), APA (APA), ConocoPhillips (COP), Diamondback Energy (FANG), Devon Energy (DVN) and EOG Resources (EOG) cited as potential buyers or targets.

Antero Resources (AR), EQT (EQT), Ovintiv (OVV), Matador Resources (MTDR), Permian Resources (PR) and Infinity Natural Resources (INR) were also among the names investors identified in merger discussions, RBC said.

Generalist investor interest in energy increased as WTI approached $90/bbl, while investors also raised questions about budgets and rising oilfield-services costs at higher crude prices, RBC said.

Near-term catalysts include Devon Energy's plans to sell assets, Expand Energy's (EXE) new chief executive, and Tamboran Resources' (TBN) first gas sales.

Price: $166.00, Change: $-0.15, Percent Change: -0.09%

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