Pembina Pipeline Corp (PPL.TO: Quote) agreed on Monday to buy Provident Energy Ltd (PVE.TO: Quote) for C$3.24 billion ($3.16 billion) in an all-stock deal that will create one of Canada's biggest pipeline and natural gas processing companies.

Calgary-based Pembina, a regional pipeline company operating in Alberta and British Columbia, will pay Provident shareholders 0.425 of a share for each share of Provident.

Pembina will gain Provident's gas fractionation plants, which remove valuable liquids such as propane, butane and other petrochemical feedstocks from the gas, as well as its storage and transportation businesses.

Provident will be happy to get a big source of liquids delivered right to its door and Pembina, instead of dropping off the liquids at Edmonton and someone making the better part of the money off them, can make that money itself, said Steven Paget, an analyst at FirstEnergy Capital.

Pembina says the assets fit well with its own midstream oil and gas processing and pipeline operations, creating an energy infrastructure company with an expected market capitalization of nearly C$8 billion.

We have extremely complementary, but not overlapping businesses, Bob Michaleski, Pembina's chief executive, said on a conference call. This means we will be able to provide a much greater level of service to our customers.

The combined company will have operations in some of the fastest growing oil and gas production regions, including the Marcellus shale gas field in the U.S. Northeast, the Bakken shale oil field in Montana and Saskatchewan, and the Montney shale gas field in northeastern British Columbia.

Pembina also doubles the size of Provident's 65,000 barrel per day Redwater fractionation plant at Fort Saskatchewan, Alberta, with the project slated to begin once it completes the acquisition.

Based on Pembina's closing price of C$27.90 a share on Friday, the offer values Provident's shares at C$11.86, a 25 percent premium to their Friday close of C$9.51 on the Toronto Stock Exchange.

Pembina also said on Monday it will raise its monthly dividend to 13.5 Canadian cents a share from 13 Canadian cents a share once the deal closes.

The deal will also immediately boost Pembina's cash flow per share and create a company with a total enterprise value of C$10 billion, it said.

Pembina shares were down C$1.60 at C$26.29 by midday on the Toronto Exchange while Provident was up C$1.51 at C$11.02.

($1=$1.02 Canadian)