Two of Canada's strongest petroleum companies, Alberta Energy and PanCanadian Energy, will merge to create a $27-billion oil and gas giant with a large portfolio of enviable assets domestically and internationally.
The two companies plan to join forces under the new name EnCana Corp., and will continue to be based in Calgary, creating Canada's biggest energy producer and the country's third largest non-financial corporation behind Nortel and BCE.
The merger will likely lead to some job loss initially, but is designed for future growth, said Gwyn Morgan, current AEC chief executive and designated head of EnCana said after the deal was officially announced Sunday.
"This isn't about job cuts, and this isn't about getting smaller and trying to squeeze out costs in the company - there will be some of that," Mr. Morgan told a packed news conference in Calgary.
"But we're talking about one of the highest growth companies - if not the highest growth company - in the business."
The growth plans include putting together an off-shore team, that will develop the massive deposits off Nova Scotia and in the North Sea - both currently owned by PanCanadian.
EnCana also becomes an instant heavyweight in the oilsands of northern Alberta, where there are more energy reserves than in Saudi Arabia. Along with being a stakeholder in oilsands giant Syncrude Canada, the company plans to dramatically expand AEC's revolutionary steam-technology to pump out heavy oil from the ground without open-pit mines.
And the company wants to build a larger international presence, expanding on PanCanadian's current holdings in the North Sea and the Gulf of Mexico, as well as AEC's dominance in Ecuador.
"Everywhere you look in the company, there's going to be new opportunity," said Mr. Morgan. And while he said there were no estimates of job losses, he added EnCana would be an "engine of growth" in the Canadian economy.
David O'Brien, PanCanadian's chief executive and the designated chairman of the new company, said the deal was designed to create a flagship Canadian, world-class independent energy company.
Both company leaders insisted the deal was not a takeover of one over the other, but a true "merger of equals." Upon completion in April, PanCanadian shareholders will own approximately 54 percent of EnCana with AEC shareholders holding 46 per cent.
Mr. O'Brien said EnCana would create greater value for shareholders, and be able to shape its own future in a highly competitive market.
"Canadian-based companies, regardless of the sector in which they operate, face increasing challenges and opportunities both at home and on a global basis," he said.
"As the energy business becomes more capital intensive and more international in nature, size and scale becomes an important determinant of corporate competitiveness and success," said O'Brien.
Only by becoming big enough and growing consistently can companies attract the higher multiples on the stock markets that will in turn reduce their cost of capital and help future growth, said O'Brien.
The company's name, EnCana, incorporates the word energy with its home country of Canada, and an A to represent its home province of Alberta, said Mr. Morgan.
Mr. Morgan and Mr. O'Brien will begin selling the merits of the deal to North American financial centres this week, though the deal is still subject to shareholder and regulatory approval.
The deal will be mailed to shareholders by the end of February, with a general meeting to approve the merger in early April.
The deal includes a $350-million break fee, but neither companies expect any hostile bids to come forward.
"We would not be interested in selling PanCanadian - at the low end of the cycle when the commodity prices have fallen way down - for cash," said Mr. O'Brien. "It would make no sense for such a fine company."
"We are interested though, in building a better company where we think enormous shareholder value can be created over a two- or three-year period."
PanCanadian Energy, which was spun off from the Canadian Pacific conglomerate last fall, had been seen as a potential takeover target for an American or European energy company because it was widely held and was one of the biggest cash generators in the Canadian oilpatch.
Both companies are heavily weighted in natural gas, which has fallen dramatically in price from its record highs of nearly $10 (U.S.) per thousand cubic feet a year ago to the current price near $2 (U.S.).
But Mr. Morgan, who has always been a champion of the bright long-term future of natural gas, said Sunday that prices were bound to recover in time for large-scale production increases by the newly created company.
EnCana would have one of the largest proven reserve bases of any independent energy company in the world. That includes 7.8 trillion cubic feet of natural gas and 1.3 billion barrels of oil and liquids.
The companies plan to create a task-force that would review the consolidated holdings, and possibly sell-off up to $1-billion in non-core assets.