Obsidian Energy Ltd. is forging ahead with its planned takeover of Bonterra Energy Corp., announcing Tuesday it plans to launch a formal bid for the oil and gas exploration company. 

In a release, Obsidian interim president and chief executive officer Stephen Loukas said a business combination would result in significant cost savings between the two companies while creating a major player in Alberta's energy market.

"The combination of our companies creates a 'Cardium Champion' with an improved cost structure, increased capital markets relevance and positions us favourably for further consolidation within the basin,” Loukas said in a statement. 

“The combination would result in significant cost savings and additional synergies, making the transaction accretive to both Obsidian Energy's and Bonterra's free cash flow, funds flow from operations and production on a per-share basis while driving a faster pace of debt repayment."

Under the terms of Obsidian’s proposal, the company will offer two of its shares for each share of Bonterra in a bid to consolidate two mid-market players in Alberta’s Cardium region. The two-for-one exchange offer is currently below Bonterra’s market value, which would be closer to a three-to-one ratio. The deal is valid for Bonterra shareholders to consider for the next 105 days once Obsidian formerly presents its offer to the company, Obsidian said in a statement. 

Obsidian is forecasting up to $100 million in synergies over the course of three years if a deal to merge the two companies is consummated. The companies began talks about a potential tie-up in January 2019, but have been unable to reach an agreement since then. 

Bonterra has thus far been reluctant to strike a deal with Obsidian, opting instead to pursue a credit facility of up to $45 million with the Business Development Bank of Canada to stabilize its financial position. Bonterra confirmed receipt of Obsidian’s proposal on Aug. 31, adding it has no intention of issuing further statements unless a deal has been reached or further disclosures are mandated by regulators.