(Bloomberg) -- Canadian natural gas producers Seven Generations Energy Ltd. and ARC Resources Ltd. agreed to merge, the latest example of energy industry consolidation in North American as companies seek scale following a years-long downturn.

Seven Generations and ARC, which are both focused on western Canada’s Montney shale formation, said Wednesday evening they had agreed on an all-share transaction. The combination has an equity value of C$2.9 billion ($2.3 billion), according to data compiled Bloomberg.

ARC rose 6.7% to C$7.92 as of 11:11 a.m. in Toronto, while Seven Generations gained 7.6% to C$8.63.

The merger will see ARC shareholders pay a relatively small premium and end up with 49% of the enlarged company, while Seven Generations investors will own the rest. Shares of both companies jumped in Toronto trading Thursday, indicating investors were pleased with the deal.

“In our view, scale is becoming crucial in staying relevant in a shrinking pool of capital for energy equities and adding scale without diluting the asset base is a major win,” analysts at Tudor Pickering Holt & Co. wrote in a note.

Canadian oil and gas producers have struggled in recent years to compete with U.S. shale, while also contending with pipeline capacity constraints and reduced investor appetite for energy following two market crashes since 2014.

The tie-up follows several other Canadian energy deals. In late 2020, Tourmaline Oil Corp. bought rivals Jupiter Resources Ltd. and Modern Resources Inc. That transaction followed a much larger deal in which oil sands producer Cenovus Energy Inc.’s took over Husky Energy Inc.

The merged gas producer will take the ARC name and produce 130,000 barrels of oil equivalent a day, consisting mostly of gas and condensate from the Montney, a shale formation that stretches between Alberta and British Columbia.

The company will have an 11-member board, comprising six directors from ARC and five from Seven Generations. Its chief executive officer will be current ARC CEO Terry Anderson.

According to the two gas producers, the combined company will have an enterprise value of about C$8.1 billion including net debt. The new valuation looks cheap relative to its inventory, and its size should attract institutional investors, said Jeremy McCrea, an analyst at Raymond James.

“I think the merger of balance sheets will improve that leverage profile of how investors see a new combined company,” he said.

(Updates with stock price move in third paragraph)

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