(Bloomberg) -- Obsidian Energy Ltd. is ready to go the distance to acquire peer oil producer Bonterra Energy Corp.

Calgary-based Obsidian sent a letter to Bonterra chief executive officer George Fink Monday, highlighting the opportunity to cut costs, gain scale, and create a “Cardium Champion.”

Obsidian’s letter stated the two oil drillers have spoken about a friendly merger since at least January 2019. Additionally, Obsidian has been prepared to make a formal combination offer to Bonterra since June.

Citing a failure to “make any meaningful progress” after recent discussions, Obsidian said its board would be prepared to offer an exchange ratio of two common shares of Obsidian per common share of Bonterra, representing total ownership by Bonterra shareholders in the pro forma entity of about 48%.

Meanwhile, Obsidian is prepped to “consider non-preclusive deal protections and to permit a ‘go-shop’ period on customary terms.”

“Given the significant equity appreciation that would result from a combination between our companies, we feel strongly that engaging with Obsidian Energy is a far better outcome for Bonterra shareholders than the pursuit of incremental second-lien debt financing from the Business Development Bank of Canada,” interim CEO Stephen Loukas wrote in Obsidian’s letter to Bonterra.

Loukas’ company is seeking a response from Bonterra on or before Sept. 4.

“The below market offer is unlikely to get support” from Bonterra’s shareholders, Ray Kwan, a Calgary-based analyst at BMO Capital Markets, told clients in a note.

Obsidian’s shares rose as much as 23% in early trading Monday, while Bonterra fell over 3%.

(Updates with analyst comment.)

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