Tamarack Valley Energy will buy Headwater Exploration in an all-stock deal valued at about CA$10 billion ($7.23 billion), resulting in a combination ranking among leading North American oil producers, Tamarack said in a statement on Tuesday.
The merger of the Toronto-listed companies will position them as the sole publicly-traded pure-play producer of Canada's Clearwater heavy oil as well as the largest producer of those resources, Tamarack said.
Tamarack will provide one of its shares to Headwater investors for each share they hold, requiring Tamarack to issue 237.8 million shares to buy the company outright. Tamarack shareholders will then own 66.5% of the combined company and Headwater shareholders, 33.5%.
Tamarack management will run the combined company which will have run-rate pro forma Clearwater production of more than 80,000 barrels per day, net cash of more than $50 million and available finance of $1.2 billion.
Resulting run-rate synergies are estimated at more than $50 million a year.
Tamarack plans to increase its quarterly dividend by 20% to CA$0.06 up from CA$0.05 from December as a result of the take-over.
Tamarack said the deal unites two leading Clearwater producers with a low cost base and high-margin production. The combined company will have a highly-contiguous core land position spanning Marten Hills, Nipisi and Marten Hills West with 300 million barrels of oil equivalent in proven and probable reserves.
A number of non-core exploration assets will be transferred to Tributary Exploration, a new exploration company that will be run by Headwater management, the statement said.