Private-equity owned Strathcona Resources has agreed to acquire Pipestone Energy in an all-stock deal to create the fifth-largest liquids producer in Canada with an initial market capitalisation of around C$8.6bn ($6.5bn).

After including around C$2.9bn ($2.2bn) in pro forma debt at the time of the transaction’s completion, the total enterprise value of the expanded company will be approximately C$11.5bn ($8.65bn).

Pipestone Energy was created in 2019 following the merger of privately-owned Pipestone Oil with Blackbird Energy. The company focuses on oil and gas exploration and production, with a primary focus on developing its condensate-rich Montney asset base in the Pipestone region near Grande Prairie, Alberta.

Currently, Pipestone Energy is publicly listed with trading on the Toronto Stock Exchange (TSX). The deal will enable the enlarged Strathcona Resources to go public.

The enlarged Strathcona Resources will have current production of nearly 185,000 barrels of oil equivalent per day (boe/d), of which, 70% is oil/condensate. Its operations will be across three concentrated core areas, which include Cold Lake Thermal with 55,000 barrels per day (bbls/d), Lloydminster Heavy Oil with 55,000bbls/d, and Montney with 75,000boe/d.

Strathcona Resources president and CEO Rob Morgan said: “We are excited about the acquisition of Pipestone, which fits hand-in-glove with our existing condensate-rich Alberta Montney properties and provides a natural hedge to the natural gas and condensate consumed in our Cold Lake Thermal and Lloydminster Heavy Oil operations.

“We look forward to welcoming Pipestone’s public shareholders as our new partners and growing per share value for them.”

Post-closing, current Pipestone Energy’s shareholders will hold approximately 9.05% of the pro forma equity in the enlarged entity. The remaining ownership will be held by existing Strathcona Resources’ shareholders, which include private equity firm Waterous Energy Fund (99.7%) and the former’s employees (0.3%).

Rob Morgan will become the president and CEO of the enlarged Strathcona Resources.

Pipestone Energy board of directors chairman Gord Ritchie said: “We are proud to have grown Pipestone from 152boe/d to 35,162boe/d in just four short years, and now the combination with Strathcona allows Pipestone shareholders to share in future growth and value creation for decades.

“This transaction is the culmination of a thorough strategic review conducted by the special committee of the board of the directors of Pipestone which concluded that the combination with Strathcona created the strongest value creation opportunity for Pipestone shareholders versus both the status quo and other available alternatives.”

The deal is anticipated to complete in early Q4 2023. However, it is subject to Pipestone Energy’s shareholders’ approval, court approval, TSX approval, and other conditions.