Carrizo Oil & Gas (CRZO) - Get Report  rose nearly 5% to $12.19 per share Monday after Bloomberg reported that the mid-sized oil company was weighing a merger with U.S. energy explorer SM Energy (SM) - Get Report and that the two companies have engaged in early-stage discussions about a tie-up. 

Shares of (SM) - Get Report Energy were gaining 2.6% to $16.11 on Monday. 

The news comes amid a margin crunch in the energy sector as falling oil and gas prices and rising costs weigh on profitability. 

SM Energy operates in the natural gas rich Permian Basin in a swath of land known as the Midland Basin. Carrizo operates in a different patch of the Permian known as the Delaware Basin. 

Oil prices rose Monday, with international benchmark Brent crude prices gaining 0.55% to $67.53 per barrel while West Texas crude gained 0.96% to $59.08.

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