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Oil and gas producer Forest Oil Corp. has agreed to acquire Houston Exploration Co. for US $1.5 billion in cash and stock.

With an estimated value of $52.47 per share, the deal represents a 7.8% premium over Houston Exploration's Friday closing price of $48.69.

The combined company would have estimated proved reserves of about 2 Tcf of natural gas equivalents — about 70% of which would be natural gas — and daily production of 520 MMcfe.

The deal will strengthen Forest Oil's North American asset base with some 3,200 additional drill sites, Forest Chief Executive Officer and President H. Craig Clark said in a statement. Houston Exploration sold most of its Gulf of Mexico assets last year to become a primarily onshore operator.

Forest Oil also said it plans to divest its Alaska business this year to reduce its debt and narrow its geographic focus. Houston Exploration's drill sites are found largely in Arkansas, South Texas and the Rocky Mountains.

Houston Exploration said the takeover represents a successful conclusion to a strategic review begun last year.

The purchase price includes 23.6 million shares and $740 million in cash. Houston Exploration shareholders will receive 0.84 of a Forest share and $26.25 in cash for each share of Houston Exploration they own.

Forest Oil will also assume about $100 million in Houston Exploration debt in the deal.

The boards of both companies have approved the transaction, which still requires shareholder and regulatory approvals. Jana Partners, a private investment firm that holds about 14.7% of Houston Exploration's outstanding shares, has agreed to vote in favor of the deal.

After the deal's expected close in the second quarter, Forest Oil shareholders would about 73% of the combined company, with Houston Exploration shareholders holding the remaining 27% stake.

Forest management and directors are expected to continue in their current positions, and the company plans to create a new, Houston-based business unit.

Source: Forest Oil

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