(Updates with additional quotes and details)

By Steve Gelsi

Suncor Energy Inc. (SU) said Monday it will acquire Petro-Canada (PCZ) for about $15 billion in stock as the two oil-sands companies bulk up to cut costs in the face of lower oil prices and a slowing world economy.

The deal, valued at $18 billion including about $3 billion in Petro-Canada debt, would create the biggest energy company based in Canada and one of the largest in the world in the most vast reservoir of crude oil on the earth outside Saudi Arabia, the companies said.

Petro-Canada's stockholders will receive 1.28 Suncor shares for each of their shares. Based on Friday's closing prices for the shares, Petro-Canada (PCZ) will be bought for the equivalent of $30.73 a share.

U.S.-listed shares of Petro-Canada soared 25% to $30.08 in early action, while Suncor also traded higher, rising nearly 5% to $26.45. Both stocks are off more than 60% from their 52-week highs, reached last May.

The boards of both companies have approved terms of the deal, which requires approvals from shareholders and regulators.

Together, the companies have "the largest oil-sands resource position, a strong Canadian downstream brand, solid conventional exploration and production assets and low-cost production from Canada's East Coast and internationally," said Rick George, currently president and chief executive of Suncor.

On a conference call with analysts, George cited moves by competitors such as Royal Dutch Shell (RDSA) and Exxon Mobil Corp. (XOM) to invest in oil sands during the current down cycle and the need for the combined company to do the same.

"We need to face head on the issue of global competition in a time of economic uncertainty," Petro-Canada CEO Ron Brenneman said. "Joining forces creates the strength we need...in an extremely competitive atmosphere."

As oil prices have fallen, analysts have been predicting a wave of energy-industry mergers.

The dramatic retreat in oil prices since last year has hurt the cash positions of smaller companies, and tight credit has made finding financing for big deals difficult for even well-capitalized companies.

The companies expect the merger to produce $300 million of annual cost savings.

Analysts at Houston-based energy research firm Tudor Pickering said other energy companies may also opt to use their equity instead of sorely-needed cash to get bigger.

"Is it the beginning of a stock-for-stock trend?" Tudor Pickering Holt noted. "Sign of the times with no cash and targeted $300 million annual operating cost savings ...Watch market reaction to this deal as this could signal the beginning of stock-for-stock deals in energy"

Suncor's George will take the posts of president and CEO at the combined firm; Suncor Chairman John Ferguson will head the new board.

The new company will be held 60% by Suncor's holders and 40% by Petro-Canada's.

Closing, which the companies have targeted in the third quarter, is subject to approval by holders of both companies and to conditions including court and regulatory clearance.

Suncor was advised by CIBC World Markets and Morgan Stanley, while Petro-Canada retained RBC Capital Markets and Deutsche Bank as advisers.

The merge could pressure other major players in the Canadian oil sands including EnCana Corp. (ECA), Canadian Natural Resources (CNQ), Chevron (CVX), ConocoPhillips (COP) and Opti Canada .

The Suncor deal marks the fifth-largest global merger and acquisition transaction this year to date, according to Dealogic.

It's also the sixth-largest Canada-targed transaction on record and the 10th-largest oil and gas targeted merger and acquisition on record.

It's the largest energy-sector deal since the Dec. 18, 2006 merger of Norsk Hydro and Statoil ASA to create Statoil Hydro (STO), valued at $30 billion.

Targeted merger and acquisition activity in the oil and gas sector now totals $33.5 billion so far in 2009, down 29% from the $47.4 billion recorded this time a year ago.

-Steve Gelsi; 415-439-6400; AskNewswires@dowjones.com