Fort Worth oil and gas explorer Range Resources (RRC - Get Report) said Monday it agreed to acquire Memorial Resource Development (MRD) in an all stock deal valued at $3.3 billion, expanding its natural gas position into the Gulf Coast while also lowering its debt load.

The deal will also include the assumption of $1.1 billion in net debt at Houston-based Memorial Resource as of March 31.

Range will exchange 0.375 of a share of its stock for each share of Memorial Resource stock valued at $15.75 per share, a 17% premium over Memorial Resource's closing price on Friday. Stockholders of Memorial Resource will own 31% of Range and will have the right to nominate an independent director to its board.

Range CEO Jeff Venture said in the statement that the deal will give the company properties in the Appalachian and Gulf Coast regions, providing greater marketing capabilities and opportunities with added beneficial exposure to growing natural gas demand.

"The transaction is also accretive to our cash flow, bolsters our credit profile and enhances the overall portfolio," he said. "We believe this combination will create significant value for our existing and new shareholders."

Memorial Resource CEO Jay Graham said the cash flow from its asset base and the all-stock nature of the transaction will allow its shareholders to benefit from the combined assets. "I am confident the combined team, strong balance sheet and premier assets are well-positioned for further success and shareholder value creation," he said.

Range's stock slid 5.5% on the news to $39.71 in morning trading while Memorial Resource's shares jumped 8.7% to $14.62.

The deal has cleared both companies' boards but still needs approval from shareholders as well as regulators. The transaction is expected to close late in the third or early in the fourth quarter.

The transaction should cheer oil and gas investment bankers, who have experienced a dry season for deals during the industry downturn. The only sizeable acquisition recently was Noble Energy's (NBL - Get Report) purchase of Rosetta Resources last year for $2.1 billion.

Range management said on the conference call that merger discussions began with Memorial Resource in February but didn't say whether there were other bidders.

When asked by an analyst why the company bought another company instead of selling shares to pay down its debt, CFO Roger Manny said the company is always looking for ways to boost its operating and its financial position at the same time, noting the company's $4 billion in asset sales over the last decade.

"We saw the opportunity to perform a really accretive transaction from an operating perspective as well as a financial perspective," he said. "The results will be superior because of it."

Venture said the company might sell other properties, including those in the mid-continent, which some analysts think could fetch $125 million. "We always try to do the best thing to be a bigger, stronger company," he said. "This [the acquisition of Memorial Resource] will make us a better, stronger company."

Range's management said it plans to keep all the employees at the operating level.

Analysts at Tudor, Pickering, Holt & Co. said Range is paying slightly above its valuations and the deal will dilute shareholders by 31%, but the transaction makes sense as it improves its balance sheet and boosts its leverage to improving natural gas liquids, or NGL's. "[The combined] entity would be our preferred way to get exposure to an improving NGL market given RRC's first mover advantage in the NE [northeast] and MRD's proximity to the Gulf Coast," they said.

Seaport Global Securities analyst Mike Kelly said the deal is a creative, smart deleveraging play for Range that actually improves its unit economics, diversifies away from the northeast markets (with 25% of production coming from outside Appalachia) and boosts earnings.

"MRD never got full credit for these assets - [the] market was skeptical on the consistency of results, depth of inventory and on general execution," he said. "We believe that investors will have much more confidence and appreciation with the assets under RRC's ownership."

Analysts at the KLR Group said the deal should have a positive value impact assuming Range spends more than $500 million per year in capital spending on Memorial Resource's assets.

Memorial Resource owns properties in the Terryville region of northern Louisiana, which is thought to hold some of the best natural gas assets in North America and is close to the Mont Belvieu, Texas, storage hub. In September it bought acreage next to its operating areas from Quantum Energy Partners-backed Rockcliff Energy LLC and others for $373.8 million.

Just last month it agreed to sell Memorial Production Partners GP to affiliate Memorial Production Partners (MEMP) for $750,000 in cash to better position both entities as independent and separate at a time of lower commodity prices.