TORONTO (AP) -- Suncor Energy Inc. will acquire Petro-Canada for $15.5 billion, uniting two of Canada's biggest oil companies as the nation's energy industry retrenches.
If the deal announced Monday is approved, it would lead to the largest oil company in Canada and have a market capitalization of about $38 billion.
That's much smaller than global heavyweights such as Exxon Mobil and ConocoPhillips, which boast market capitalizations of $326.6 billion and $55.97 billion respectively, but the company would have some of the same benefits of scale.
The companies said they could save $244 million in operating costs and $812 million in capital efficiencies each year.
Both companies have put off projects to develop oil sands in Alberta because oil prices now are too low to make the projects viable. Alberta's once-booming oil sands sector has cooled as every major company has scrapped or delayed some expansion plans as the price of oil has plummeted from its record high last summer.
Suncor reported a fourth quarter loss in January, the first in its history.
"We're in a period here where financial uncertainty is very high on a worldwide basis. We have big time volatility of commodity prices and there's no assurance of where we go from here," said Rick George, president and chief executive officer of Suncor, who will continue in those roles in the new company.
"The super majors, particularly Exxon and Shell, can invest through the bottom part of the cycle and are improving their positions in Canada. We at Suncor have two options. We can pull back, which we obviously did on a capital basis, or we do something that would really strengthen our position and allow us to come out of this cycle stronger than ever."
Analysts say oil prices need to between $75 and $100 per barrel to be make new oil sands projects economically viable. Crude prices were trading at more than $53 Monday, but have been much lower in recent months.
"We're going to invest in the lowest risk, highest return capital projects," George said.
Petro-Canada shares jumped nearly 28 percent, or $6.68, to $30.69. Suncor shares rose 61 cents to $25.90.
Petro-Canada common shareholders would receive 1.28 common shares of the expanded company for each share of Petro-Canada, while Suncor shareholders will receive new shares on a one-for-one basis.
The share exchange represents a 25 percent premium for Petro-Canada shares, based on a 30-day weighted average of the share price. Based on the closing price Friday, the deal values Petro-Canada at $15.5 billion.
Petro-Canada shareholders will hold 40 percent of the enlarged company and Suncor shareholders will hold 60 percent. Both companies are based in Calgary.
The deal is subject to approval by shareholders of both companies and government agencies.
"It's a made in Canada response to the challenges presented by global market uncertainty today," said Ron Brenneman, president and chief executive officer of Petro-Canada. He will become executive vice chairman in the merged company. "This new entity will be the largest energy company in Canada and will take its place on the global stage as one of the largest independent energy companies in the world."
George said the two companies explored a merger nine years ago but that it wasn't a fit at the time.
Suncor, founded in 1953, is the world's second-largest oil sands producer. Both were once state-owned oil companies.
Industry officials estimate the oil sands in northern Alberta could yield as much as 175 billion barrels of oil, making Canada second only to Saudi Arabia in crude oil reserves.