The new company would produce 4 million barrels of oil equivalent in calendar 2008, and have net 2P (proved and probable) reserves of 51.1 MMboe.

In a joint statement this afternoon, the two companies outlined the merger terms, in which Arc is offering 1.175 of its shares for every one share in Anzon.

This deal values Anzon at $708 million, or $1.87 per share – a 55% premium to AZA’s closing price the day before it announced it was up for sale.

Anzon, whose most recent trade was at $1.79 per share, said its board unanimously recommended Arc’s offer in the absence of a superior proposal.

In addition, the board of Anzon’s parent company, AIM-listed Anzon Energy, has confirmed it will vote its majority 53.1% shareholding in favour of the merger.

But it remains to be seen which way Anzon’s second largest shareholder, Nexus Energy, will vote.

Nexus lifted its stake in the company to 17.8% not long after Anzon and Arc announced their intentions on Monday.

After the merger terms were released yesterday, Nexus responded that it would review the offer and announce its decision in the coming days.

"Nexus will review the proposal carefully, but notes that based on the 30 and 90 day VWAP for Arc, the proposal implies a disappointing value of $1.76 and $1.71 per Anzon share," it said.

The company also dismissed media speculation that it was in discussions with Anzon and Arc about a three-way merger.

"Whilst a merger proposal with Anzon was put forward a number of weeks ago, the proposal did not extend to a three-way merger and such a proposal is not under consideration by the board of Nexus," it said.

Arc’s managing director Eric Streitberg said the merger would boost its 2P reserves 218% and its yearly production 64%.

“The merged company will operate both onshore and offshore, have a liquids rich business supported by long-run gas developments and has the critical mass to attract significant institutional shareholder support and continue Arc’s very successful growth story,” he said.

“The merger builds on Arc’s acquisition of the Wandoo portfolio earlier in the year and reinforces Arc’s focus on developing a balanced portfolio of assets in the stable and commercially attractive Australian operating environment.”

Anzon’s executive chairman Steven Koroknay said the merger would help drive further growth, which was limited by the company's single asset exposure and its “inefficient” corporate structure. (Anzon is 53%-owned by a UK parent company).

“Such benefits include improved scale, liquidity and exposure to a diversified portfolio of quality assets and outstanding future growth potential,” he said.

If all goes to plan, the companies plan to have wrapped-up the merger by February 2008.

Arc intends to fund the transaction via a mixture of cash reserves and debt facilities from BOS International and the Commonwealth Bank of Australia.