Strathcona Resources Ltd. announced Tuesday it will go public through a deal to purchase oil and gas exploration company Pipestone Energy Corp. as part of a longer-term expansion push.

Calgary-based oil and gas producer Strathcona said the deal will value the combined business at $8.6 billion, with the new company becoming the fifth largest oil producer in Canada.

Strathcona positioned the all-share deal as a way to give Pipestone shareholders a meaningful ownership stake in a large, low-decline rate, oil-weighted producer. Pipestone shareholders will hold about 9.05 per cent of the pro forma equity in the amalgamated company on a fully-diluted basis.

“We’ve been asked by a lot of folks, ‘Why go public?’” said Adam Waterous, executive chairman of Strathcona’s board of directors, on a conference call.

“When you’re private, it’s a much simpler life. There’s less reporting requirements but I would also say that our view of actually being public is that the sector, in general, is undervalued.”

Waterous said that as the sector consolidates, some acquisition targets have signalled they are interested in partnering with Strathcona but want to take shares in a publicly traded company – “hence our desire to become publicly traded.”

“We’re not going public because we think, ‘Wow, look how great prices are. In fact, quite the opposite,” he said.

“We think that the sector, generally speaking, presents multiple attractive acquisition opportunities for Strathcona.”

Pipestone COO and interim CEO Dustin Hoffman said the combined company will be well-positioned against other large oil-weighted Canadian producers when it comes to production growth rate, operating netbacks and reserve life.

“This business combination creates a new publicly traded, large-scale, long-life, oil-focused company with a strategic direction centred on combining production growth with a significant free cash flow generation,” Hoffman said on the conference call.

“This transaction represents the culmination of an ongoing effort by the Pipestone management and board to uncover the optimal strategic and financial direction for our shareholders.”

The combined company will focus on three core areas: Lloydminster heavy oil assets in Saskatchewan, the Cold Lake thermal area in Alberta and the Montney natural gas basin located in Alberta and B.C.

National Bank analyst Dan Payne said in a note that the acquisition marked “a logical conclusion” for Pipestone, which was formed in January 2019 through the merger of privately owned Pipestone Oil Corp. and Blackbird Energy Inc.

“Exposure to the pro-forma business could offer long-term diversity and option value across the basin, with that value to be better distilled upon close and visibility through guidance,” he said.

Pipestone’s board has already approved the arrangement, but shareholders still need to give their OK for the deal. They are to vote on it at a special meeting in late September, with the deal expected to close in early October.

The acquisition is also subject to other conditions, including the receipt of all required regulatory approvals and the approvals of both the TSX and the Court of King’s Bench of Alberta.

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