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Light oil producer Pinecrest Energy Inc. (PRY-X) will buy Spartan Oil Corp. (STO-T) for about $427 million to raise its output from reserves in Alberta and Saskatchewan.
Pinecrest will offer 2.738 shares for each Spartan share, valuing each Spartan share at $5.12, the price it closed at on Tuesday on the Toronto Stock Exchange.
Several small-sized Canadian energy companies have merged in all-share deals for little or no premium to bulk up and cut costs. In August, Guide Exploration Ltd agreed to be sold to WestFire Energy Ltd. for a discounted price of about $198.2 million.
Pinecrest will own 51 percent of the yet-to-be-named new company, which will be managed by its existing executive team and will focus on the cardium light oil resource field in central Alberta.
"Given the asset quality of these two companies, this will be one of the premier names over the next few years," said AltaCorp Capital analyst Jeremy McCrea.
Pinecrest estimated the combined company's average pro forma 2013 production at between 9,200 barrels of oil equivalent per day (boe/d) and 9,600 (boe/d). Pinecrest's second-quarter production averaged 2,951 boe/d.
"We were looking for another one that has very similar geological risks, same high netback but different geography so we can diversify," Pinecrest Chief Executive Wade Becker said on conference call with analysts.
Dundee Securities is the lead financial adviser to Pinecrest, while TD Securities is acting as financial adviser to Spartan.
The termination fee for the deal, which is anticipated to close in January 2013, is set at $12.5 million.