Oil and natural gas company Cenovus Energy and integrated energy company Husky Energy have agreed a deal to create a new Canadian integrated oil and gas producer.

The all-stock deal is valued at C$3.8bn ($2.9bn).

The latest move comes as the Covid-19 pandemic-driven crash in fuel demand ‘forces the industry to consolidate’, Reuters reported.

According to Cenovus, the combination is expected to create the third-largest oil and natural gas producer and also the second-largest refiner and upgrader in Canada.

The new integrated oil and natural gas company will have an enterprise value of C$23.6bn ($17.97bn), inclusive of debt.

According to the companies, the combined entity will operate as Cenovus Energy, with headquarters in Calgary, Alberta.

The new entity is expected to produce nearly 750,000 barrels of oil equivalent per day (boepd) and will also go on to have an upgrading and refining capacity of 660,000boepd.

According to Cenovus and Husky, their combination is anticipated to be ‘stronger’, ‘more competitive’, ‘efficient’, as well as more ‘profitable’ than either of the companies operating independently.

Husky Energy operates across Western and Atlantic Canada, the US, and Asia Pacific.

According to Reuters, the oil price crash during coronavirus-induced lockdowns has put more pressure on the Canadian companies, forcing them to cut costs.

In July last year, Cenovus Energy reported that its thermal oil sands operations in northern Alberta collectively produced one billion barrels of oil.