Baytex Energy and Raging River Exploration announced Monday that the two Calgary-based oil and gas producers are merging in an all-stock deal.

Under the terms of the transaction, Raging River shareholders will receive 1.36 Baytex shares for each share held. With 315 million shares expected to be issued in the process the deal has an equity value of $1.6 billion.

The announcement comes more than a year after Raging River disclosed it had retained GMP Securities as an adviser on “potential business alternatives.”

“This combination creates a diversified, well-capitalized oil producer that has an impressive suite of high quality producing assets,” Raging River CEO Neil Roszell said in a release.

“The combination provides a substantial value proposition for all shareholders of Raging River and Baytex incremental to what each company could deliver on its own,” he added. “The combination with Baytex is an excellent outcome to the comprehensive strategic process undertaken by the Raging River Board.”

Roszell will serve as chairman of the combined entity while Baytex President and CEO Edward LaFehr will maintain his titles.

A spokesperson for Baytex confirmed to BNN Bloomberg that Raging River shareholders will own 57 per cent of the combined company when the deal closes.

“The merger creates a company with world class assets and a strong balance sheet while retaining substantial torque to higher crude oil prices,” LaFehr said in a release.

While the deal creates a “more investable” producer with a better balance sheet and a stable of assets stretching from northern Alberta to southern Texas, the all-stock transaction waters down its 2019 cash flow per share by 19 per cent, Greg Pardy, an analyst at Royal Bank of Canada, said in a note. Raging River shareholders also may be “somewhat frustrated” by the deal, since the company’s growth, margins and balance sheet may have been better as a standalone entity, Raymond James analyst Chris Cox said in a note.

Baytex (BTE.TO) shares closed down 63 cents, or 12.35 per cent, at $4.47. Raging River (RRX.TO) ended 63 cents lower, or 10.03 per cent, at $5.65.

After the deal’s expected close in August, Baytex will have heavy and light oil assets across North America, including about 260,000 acres in Canada’s emerging East Duvernay Shale basin and 36,000 barrels of daily production from the Eagle Ford in Texas. Combined with holdings in the Viking, Peace River and Lloydminster plays, total output will be about 100,000 barrels of oil equivalent a day. The deal also brings down Baytex’s debt-to-cash flow.

The deal is subject to approval by both companies’ shareholders. Both companies have the right to match any superior proposal that surfaces and there’s a two-way $50-million break fee in place.

CIBC and Scotiabank served as financial advisers on the deal for Baytex. GMP FirstEnergy and National Bank provided advice to Raging River.

With files from Bloomberg News' Kevin Orland and Brian Eckhouse