Oil and gas producer Australian Worldwide Exploration plans to buy oil firm Arc Energy for A$508 million (US$479 million) in a cash and share deal, a source familiar with negotiations said on Thursday.
"It's a cash and share deal which will value Arc at about A$1.58 a share," said the source, who declined to be identified because he was not authorised to speak on the matter.
Shares in AWE and Arc Energy were placed on a trading halt on Thursday ahead of an announcement about a proposed transaction.
AWE gave no details of the planned deal in a brief statement to the Australian stock exchange.
Oil minnow Arc Energy said on April 14 it was in talks with AWE about a possible takeover bid by AWE. Shares in Arc have surged 45 percent since the announcement to close at A$1.54 on Wednesday, while shares in AWE closed 3.3 percent higher at A$3.78.
AWE's proposed acquisition comes on the heels of a flurry of corporate activity in recent months, with junior oil and gas firms seeking mergers to boost production profiles amid rocketing oil prices, which struck an all-time high of $119.90 on Tuesday.
A merger between the two companies would give AWE more exposure to two projects in western and southern Australia in which both companies have stakes.
AWE, which has a market value of about A$1.6 billion, has production assets in Australia, New Zealand and Argentina. It produced 4 million barrels of oil equivalent in 2007.
In February, AWE said a strong increase in revenue and cashflow on the back of robust production rates had left the company with a strong balance sheet and zero debt.
It had cash reserves of A$97.5 million as of Dec. 31, 2007.
Arc Energy has production assets in the Perth Basin off Western Australia and in the Bass Basin off Victoria. It also holds exploration licenses on the onshore Canning Basin of Australia's north-west.
Arc Energy lost out in an attempt to mid-sized producer Nexus Energy buy oil producer Anzon Australia earlier this year.