The deal will see oil and gas producer, Cenovus buy peer Husky in an all-stock transaction — inclusive of debt — valued at C$23.6bn ($17.97bn, £13.8bn), the companies said in a joint statement.
Under the agreement, Husky shareholders 0.7845 of a Cenovus share plus 0.0651 of a Cenovus share purchase warrant in exchange for each Husky common share, according to the statement.
The merged firm will operate as Cenovus Energy Inc with headquarters in Alberta, Canada and is expected to generate annual synergies of C$1.2bn.
CEO of Cenovus Alex Pourbaix will become as chief executive of the combined company while Jeff Hart, currently Husky’s finance chief, will serve as chief financial officer.
The Boards of Directors of Cenovus and Husky unanimously approved the transaction, which is expected to close in the first quarter of 2021.
Cenovus said the newly formed firm will be Canada’s third biggest natural gas and oil producer with production of 750,000 barrels of oil equivalent per day of low-cost oil and natural gas.
It expects free funds flow to break-even at West Texas Intermediate (WTI) pricing of $36 per barrel (bbl) in 2021, and at less than WTI $33/bbl by 2023.
WTI is a specific grade of crude oil and one of the main three benchmarks in oil pricing, along with Brent and Dubai Crude. The oil is consider to be a light sweet oil because it contains 0.24% sulphur, making it "sweet," and it’s “light” because it has a low density.
It is known as a high quality oil that is easily refined and is the underlying commodity of the New York Mercantile Exchange (CL=F) oil futures contract.
Next week, UK’s two biggest oil firms are set to update shareholders amid a low oil price and a race to reduce emissions. Investors will keen to watch BP’s (BP.L) results on Tuesday, while Royal Dutch Shell (RDSB.L) will present how its third quarter went on Thursday.
The beginning of COVID-19 saw shares in both companies crater, as oil prices fell to record lows.
Sellers were paying buyers as much as $37.63 at one point to take a barrel of WTI oil off their hands, amid fears that storage space would run out for the crude in April.
Meanwhile. Brent crude, the standard that is more commonly used in Britain, never turned negative but dropped to below $19 per barrel.
Watch: Crude oil drops below $50 on coronavirus fears