Calgary-based Petrobank Energy and Resources Ltd. agreed to buy cross-town junior explorer Peerless Energy Inc. in a friendly deal valued at about C$334 million.

The transaction is expected to strengthen Petrobank’s stake in the emerging Bakken unconventional oil and gas play in southeastern Saskatchewan, the companies said in a joint statement. About 1,900 boe/d of Peerless’ current production is from the Bakken and is located within Petrobank’s core properties in southeast Saskatchewan. Combined, the producers’ Bakken output would be around 7,900 boe/d.

Peerless produces about 4,250 boe/d in Canada. Peerless also produces natural gas in Alberta and British Columbia, and it has more than 100,000 net acres of undeveloped land.

“This acquisition further strengthens Petrobank’s Bakken growth potential by adding 18 net sections of undeveloped land and current production of approximately 1,900 boe/d,” the companies said in a joint statement. “The Peerless assets will complement Petrobank’s Bakken facility and infrastructure plans, allowing us to recover natural gas and liquids production while minimizing operating costs.”

Following the acquisition, Petrobank would be 64% weighted to light oil and 36% to natural gas. Petrobank would have a Bakken drilling inventory of 600 (565 net) well locations, based on a future well density of only four wells per prospective section. Once merged, Petrobank said it plans to operate seven rigs within the Bakken play, which would allow more than 110 (100% working interest) horizontal wells to be drilled during 2008. The Bakken play is expected to be Petrobank’s primary Canadian focus area in 2008 and “for years to come,” the company said.

As part of the arrangement, each class A share of Peerless will be exchanged for C90 cents cash and 0.08 of one Petrobank common share and each class B share of Peerless will be exchanged for C$10 cash. Based on the five-day weighted average share price of Petrobank ending on Nov. 22 of C$54.33 per share, the effective price per Peerless class A share is C$5.25, the companies said.

The information circular for the transaction is expected to be mailed to Peerless shareholders in late December, and a special meeting of Peerless’ shareholders will be held in January. The completion of the transaction is subject to shareholder approval. Both companies’ boards of directors have unanimously approved the deal.

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