As is typically the case, the acquiring firm tends to trade lower when big deals are announced; Suncor is trading flat to lower today. PetroCanda is, meanwhile, trading sharply higher because the deal effectively offered the company a 27 percent premium to its Friday closing price.

I’ve reviewed the press release and listened to the conference call and question-and-answer session to explain the deal. The bottom line: I see the deal as generally a positive for Suncor and I continue to recommend buying the stock under 30.

The combined firm will have more financial flexibility than Suncor did on its own. Debt ratios will be healthier, and management expects it can generate CAD300 million in annualized cost reductions. The combined firm will also be able to redirect certain planned capital expenditures to higher return potential projects.

Based on comments made during the Q&A session, it seems that the combined firm won’t be using its enhanced financial flexibility to pursue more big deals. Management seemed far more focused on examining existing “shovel-ready” investments at both firms and refocusing investment on the areas with the highest perspective returns on investment.

One of the major justifications for the deal was that Suncor has been cutting its capital spending (CAPEX) intentions in the oil sands region due to low commodity prices. Meanwhile, some of the big international integrated firms–Suncor mentioned Royal Dutch Shell (NYSE: RDS-A) and ExxonMobil (NYSE XOM)–have been expanding rapidly in the area and are able to keep investing even in a low commodity price environment thanks to their pristine balance sheers. This deal will allow the combined firm to invest more effectively in oil sands expansion so it’s ready to benefit in the coming up-cycle.

Suncor is almost totally focused on oil sands, while PetroCanada is far more diversified. PetroCanada’s operations include conventional production in Canada as well as international investments. While management refused to say outright that it might be interested in selling off these assets, they were clear on the call that the combined firm will remain an oil sands-centric play. In fact, there is little doubt in my mind that the combined firm is the premier oil sands play with some of the largest reserves and most experience operating in the region.

It’s also clear that downstream operations–refining and marketing–were as important a part of this deal as simply boosting reserves. PetroCanada is one of the largest refiners in the nation, and many of its facilities will be capable of handling production from the oil sands; integration of heavy oil refining capacity with oil sands production makes sense and should help boost profit margins at the combined firm.

Finally, it’s worth noting that the deal will be subject to what’s likely to be an intense review by Canadian competition authorities. To add an extra wrinkle, PetroCanada was once the country’s state-owned energy champion and is still subject to special restrictions under Canadian law, including a clause that prevents any owner from buying more than 20 percent of the outstanding stock. This has long been seen as a means of preventing the takeover of PetroCanada.

Several call participants asked about these issues, and management downplayed the risk. It’s their position that recent moves by the Canadian government to prevent or at least slow foreign takeovers of Canadian energy companies suggest authorities will regard this “Made in Canada” deal as desirable. At any rate, management is estimating a four- to six-month timetable for completing the deal, which strikes me as ambitious.

On a more mundane note, this deal has been announced right in the middle of the spring break period, when many analysts aren’t at their desks. One analyst was clearly on the beach when he asked his questions, as you could hear seagulls squawking on the background. Another was at a bar or restaurant judging from the steady hum of conversation on his line. My point is that it may take longer than normal for all the analysts to issue research notes commenting on the deal; as a result the normal post-merger reaction in both stocks could be more subdued than usual.

That said, I expect most analysts to take a similarly favorable view of the deal. After all, a consistent theme in recent months among many energy analysts–me included–is that we’d see more mergers and acquisitions activity in the energy patch as larger companies looked to take advantage of depressed prices to shore up their competitive position. This deal fits that theme to a T.