Crescent Point Energy has agreed to acquire rival Canadian upstream oil and gas company Hammerhead Energy in a cash and stock deal worth around C$2.55bn ($1.86bn).

The consideration includes around C$455m of net debt of Hammerhead Energy, which is an oil and liquids-rich producer in the Montney Formation in Alberta, Canada.

As per the terms of the deal, shareholders of the Toronto Stock Exchange (TSX) and Nasdaq-listed Hammerhead Energy will be paid C$21 per share. This comprises C$15.5 of cash consideration and C$5.5 worth of shares of Crescent Point Energy, which is listed on the TSX and New York Stock Exchange (NYSE).

Hammerhead Energy president and CEO Scott Sobie said: “A combination of asset quality, exceptional people and a solid business plan has positioned the company to be an attractive acquisition target that will benefit from a lower cost of capital inside of a larger enterprise.

“Since going public in early 2023, we have delivered attractive equity returns for our shareholders, and the ability to maintain a share position in Crescent Point provides our shareholders with the ability to benefit from the continued growth of the business.”

The deal is expected to create the seventh-largest exploration and production (E&P) company in Canada, with a production portfolio in which oil and liquids will account for 65%.

It will enable Crescent Point Energy to integrate around 105,000 net acres of land with Montney rights. The acreage to be added via the acquisition is situated in close proximity to the company’s existing holdings in the Alberta Montney region at Gold Creek and Karr.

Additionally, it brings in roughly 800 net Montney drilling sites to strengthen Crescent Point Energy’s portfolio of assets that yield rapid returns.

When considering the pro-forma figures, Crescent Point Energy’s anticipated production is set to exceed 200,000 barrels of oil equivalent per day (boe/d) in 2024.

Through the deal, the company will immediately assume the position of the largest landowner within the oil-rich region of Alberta Montney to further solidify its standing as the predominant owner of land in the condensate-rich Kaybob Duvernay play.

The increased operational scale is expected to result in ongoing enhancements to Crescent Point Energy’s cost of capital.

Crescent Point Energy president and CEO Craig Bryksa said: “This transaction is expected to be immediately accretive to our per share metrics and to enhance our return of capital profile for shareholders.

“Upon completion of the transaction, Crescent Point will have a dominant position in both the Alberta Montney and Kaybob Duvernay plays, which are complemented by our low-decline, long-cycle assets in Saskatchewan.

“Moving forward, our strategic priorities will focus on continued operational execution, balance sheet strength and increasing our return of capital to shareholders.”

The transaction has received unanimous approval from the boards of directors of both companies, and is subject to pending court, TSX, and other stock exchange and regulatory approvals, as well as adherence to customary closing conditions.

Certain affiliates of Riverstone, in addition to a group of directors and all officers, collectively holding approximately 82% of Hammerhead Energy’s shares, are backing the deal.

Crescent Point Energy is receiving financial advisory services from BMO Capital Markets and RBC Capital Markets for this transaction, while Peters & Co. is serving as the financial advisor to the special committee of Hammerhead Energy’s board of directors.