Pinecrest Energy Inc. and Spartan Oil Corp. are planning to form a single company with a number of light oil projects in Western Canada and a combined enterprise value approaching $1 billion.

Pinecrest is focused on the Red Earth area of north-central Alberta while Spartan is involved in the Cardium light oil play in central Alberta and the Bakken light oil play in southeast Saskatchewan.

Pinecrest's existing executive team, led by Wade Becker, will manage the new entity, which may operate under a new name.

Richard McHardy and Don Archibald, currently members of Spartan's board, are expected to be appointed to the board of the combined company at closing.

Under terms of the deal, Pinecrest is to acquire all of the outstanding common shares of Spartan on the basis of 2.738 common shares of Pinecrest for each outstanding Spartan share.

The exchange ratio represents a deemed price of $5.12 per Spartan share and $1.87 per Pinecrest share, the closing prices on Tuesday.

Shares of both companies rose in early trading Wednesday after tha announcement.

Spartan has some 83.4 million shares outstanding and a market capitalization of just under $427 million as of Tuesday. Pinecrest has some 214.2 million shares and a market cap of just over $400 million as of Tuesday.

Dividend planned

When the deal closes, and prior to a proposed three-for-one share consolidation, the combined company will have approximately 513.4 million shares outstanding with Spartan shareholders owning approximately 49 per cent.

Meanwhile, Pinecrest said its board plans an initial annualized dividend of 0.155 per share, which translates to an annual yield of 8.3 per cent based on its pre-announcement share price.

The deal is subject to approval by at least two-thirds of shareholders of both companies as well as regulatory and court approvals.

Directors and officers of Spartan, who collectively hold approximately 27 per cent of that company's shares have agreed to support the deal as have directors and officers of Pinecrest, who collectively hold approximately 24 per cent.

Both have agreed not to solicit competing bids, have been granted the right to match competing proposals and agreed to $12.5-million non-completion fees under certain circumstances.

Pinecrest is active in the emerging light oil Slave Point carbonate resource play focused in the greater Red Earth area of north-central Alberta.

Spartan Oil Corp. is focused on the Cardium light oil play in central Alberta and the Bakken light oil play in southeast Saskatchewan.

Spartan shares closed down 29 cents, or almost six per cent, at $4.83 on the Toronto Stock Exchange while Pinecrest fell six cents, or more than three per cent, at $1.81 on the TSX Venture Exchange. The two companies were among the most heavily traded on the two markets.