Suncor Energy CEO Rick George, left, shakes hands with Petro-Canada president and CEO Ron Brenneman after a news conference on Monday announcing a merger to create Canada's largest oil company. (CBC)

Appealing to Canadian nationalism, Suncor Energy Inc. and Petro-Canada said Monday that a proposed merger between the two oil players would create the country's largest energy company and provide the oil patch with protection against potential foreign buyouts.

"I don't know if it is a marriage made in heaven. But it is a match made in Canada," said Suncor's president and CEO Rick George in announcing the all-stock deal to create a $43 billion behemoth.

"This will truly be a flagship Canadian corporation," he said at a Calgary news conference.

The proposed arrangement, announced Monday, would see Petro-Canada equity holders receive 1.28 shares in the new company for each Petro-Canada share, resulting in existing investors getting a 40 per cent piece of the merged entity.

The stock deal gives Petro-Canada investors a 25 per cent premium compared with the share price over the past 30 days, the two companies estimated.

Suncor shareholders would own the remaining 60 per cent of the new firm.

Chopping costs

The deal also would allow the two companies to cut $1.3 billion in annual costs through reduced capital spending and job reductions, said George and Petro-Canada president and CEO Ron Brenneman.

Although shy on exact numbers, George said some employees will lose their jobs.

As well, analysts have speculated that Suncor and Petro-Canada, both of which have extensive gas station networks, could reduce the number of outlets across Canada, saving more money.

As a result of these moves, the Suncor and Petro-Canada combination will be a more efficient player in Canada's oil patch, George said, insulating the new Canadian firm from potential foreign takeovers.

Attractive oilsands

Suncor pumps 228,000 barrels of oil per day from its oilsands properties in Alberta and has another 15 billion barrels of the sticky liquid still in the ground, making the company one of Canada's largest oilsands producers.

Petro-Canada also has oilsands production and potential reserves.

Foreign countries, especially China, have expressed an interest in getting access to Canada's oilsands properties, a crude source equal to Saudi Arabia's conventional reserves but expensive to produce.

Analysts say a fully integrated oilsands project, in which the oil is both extracted and processed, needs oil prices of anywhere from $75 US to $100 per barrel to be economically viable. Crude prices nudged over the $50 mark last week, but have been much lower in recent months.

Suncor and Petro-Canada are among the many Canadian energy firms to put off building massive oilsands projects due to languishing commodity prices and rattled financial markets.

The larger company will have the financial resources to move ahead with the most promising oilsands plays available to Suncor and Petro-Canada.

Petro-Canada's shares benefit

The deal values Petro-Canada at $19.18 billion based on Friday's closing prices on the Toronto Stock Exchange.

Petro-Canada's shares have traded at a perceived discount to its asset value for months, a situation Brenneman said he could not explain.

Under current law, however, no one shareholder or company can own more than 20 per cent of Petro-Canada's outstanding shares. That legal protection has historical roots, designed to always keep the former Crown corporation in Canadian hands.

Some analysts had viewed the provision as a factor in Petro-Canada's low stock price.

Petro-Canada's legal protection, however, probably will not halt the deal, George said.

"We did not see this [provision] as a big barrier," he said.

The deal is expected to close in the third quarter of 2009.

With files from the Canadian Press