UPDATE 1-Three small Canadian oil companies agree to merge
* Share-exchange aimed at boosting market value
* Focus to be on light oil in Alberta
* AvenEx shares drop, Pace and Charger gain
* Dividends to paid monthly
CALGARY, Alberta, Dec 20 (Reuters) - A trio of small oil and gas companies said on Thursday they have agreed to combine to form a mid-sized Canadian producer, hoping a focus on light crude and monthly dividend policy will generate more value for investors than they were garnering individually.
Pace Oil and Gas Ltd, AvenEx Energy Corp and Charger Energy Corp said they would offer new shares in a combined operation known as Spyglass Resources Corp that will produce about 18,000 barrels of oil equivalent a day in various regions of Alberta.
Based on the values of the companies' shares as spelled out in the agreement, the combined operation would have a market capitalization of about C$425 million ($430 million).
It will be led by former Provident Energy executives, Tom Buchanan as chief executive and Dan O'Byrne as president, the companies said.
Buchanan said each of the companies has been undervalued despite having assets in many of the regions currently producing light crude, a grade that is not getting slapped with the deep discounts that Canadian heavy oil is currently fetching.
Pace, the largest of the three, was having trouble funding its growth plans; AvenEx was a diversified company with a marketing arm that will now be put up for sale; and Charger was over-indebted for the current market conditions, Buchanan said.
"So when you put all three companies together, while we all had our warts, we sort of take care of each other's challenges," he said in a conference call. "By putting the three companies together, we create a platform that we think is very strong."
A big draw is that the combined firm will have low rates of production decline, which lends itself to paying a healthy dividend, Buchanan said.
Spyglass will initially set a monthly dividend of 3 Canadian cents a share, equaling 35 percent to 45 percent of cash flow, the companies said. Buchanan said that will be reviewed monthly and will be based on factors such as commodity prices, hedging polices and operational performance.
The properties are in Alberta geological zones such as Halkirk-Provost Viking, Randell Slave Point and Gilwood and the Pembina Cardium, where companies are using horizontal drilling and hydraulic fracturing techniques to unlock light oil reserves from tight rock formations.
Under the deal, 1.3 Spyglass shares would be exchanged for each Pace share, one Spyglass share for each AvenEx share, and 0.18 Spyglass shares for each Charger share.
The transaction values Pace shares at C$4.32 each, AvenEx shares at C$3.32 each, and Charger shares at 60 Canadian cents each, the firms said.
AvenEx investors were less certain. Its shares sank 44 Canadian cents, or 13 percent, to C$2.88 on the Toronto Stock Exchange.
Pace was up 17 Canadian cents, or 5 percent, at C$3.57, and Charger's shares on the TSX Venture Exchange surged 43 percent to 48.5 Canadian cents.
Along with the amalgamation, AvenEx agreed to sell its Elbow River Marketing business for C$80 million.
Capital spending for 2013 is budgeted at C$80 million to C$90 million.
The companies said they would hold meetings for their shareholders in February to vote on the transaction. Two-thirds of each company's shareholders must approve the deal for it to proceed, they said.
The deal is expected to close in February.
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