Cenovus Energy Inc has agreed to buy rival Husky Energy Inc in an all-stock deal valued at C$3.8 billion ($2.9 billion) to create Canada’s No. 3 oil and gas producer as a pandemic-driven demand collapse and weak oil prices force the industry to consolidate.

The deal, announced on Sunday, is the largest in the Canadian energy sector since the start of the pandemic, and follows recent big deals in the United States.

Concho Resources Inc agreed this month to being taken over by ConocoPhillips for $9.7 billion. That followed Chevron Corp’s $4.2 billion purchase of Noble Energy.

Canadian companies have been under stress for six years, dating back to the last downturn, due to congested pipelines and the flight by foreign oil companies and investors due to Canada’s high production costs and emissions.

Cenovus’ deal for Husky is valued at C$23.6 billion, including debt, the companies said in a joint statement.

Cenovus said the deal would create Canada’s third-largest producer based on total company output.

Husky shareholders will receive 0.7845 of a Cenovus share and 0.0651 of a Cenovus share purchase warrant in exchange for each Husky common share, according to the statement.

The combined company is expected to generate annual synergies of C$1.2 billion and will operate as Cenovus Energy Inc with headquarters in Alberta, Canada, the statement said.

Cenovus CEO Alex Pourbaix will serve as chief executive of the merged company with Jeff Hart, currently Husky’s finance chief, becoming chief financial officer.

Cenovus said the combined company will be able to produce 750,000 barrels of oil equivalent per day (BOE/d).

The transaction has been unanimously approved by the boards of directors of Cenovus and Husky and is expected to close in the first quarter of 2021, the companies said.

($1 = 1.3132 Canadian dollars) 

(Reporting by Ann Maria Shibu in Bengaluru; additional reporting by Rod Nickel in Winnipeg Editing by Susan Fenton and Nick Zieminski)

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