MADRID (Dec 16): Spanish oil company Repsol said on Tuesday it had reached a deal to buy Talisman Energy, Canada's fifth-largest independent oil producer, for $13 billion.

The proposed acquisition will boost Repsol's exploration and production arm and fill a funding gap after the seizure of its Argentine business in 2012. It will also help to reduce the firm's reliance on high-risk oil producing areas such as Libya.

The oil price drop has lowered price tags on producers like Talisman, spurring interest from Repsol which has been on the search for oil and gas targets in North America or other countries with stable regulation.

Repsol will pay $8.3 billion for 100 percent of Talisman shares which represents a 56 percent premium to the Calgary-based company's market value of $5.33 billion on Monday. Repsol will also take on $4.7 billion of debt.

The Spanish company said the acquisition would boost its oil production by 76 percent to 680,000 barrels per day while its reserves would increase 55 percent.

It also said the acquisition would bring annual benefits worth $220 million and would be neutral for its earnings in 2016 and become accretive in 2017.

The board of Talisman has approved the transaction and recommended shareholders accept it, Repsol said in a statement to Spain's stock market regulator.

Repsol shares were 2.6 pct lower at 15.28 euros.

Previous merger talks between the two companies broke down last summer because of Talisman's underperforming North Sea operations, much of which are in a joint venture with China's Sinopec.

Much of Talisman's western hemisphere operations were profitable while oil prices were high, but its North Sea businesses have weighed on results because maintenance work on aging platforms has made production targets unreliable and decommissioning obligations have increased.

The company said earlier this year that it could take a charge against its operations in the region, which would be recorded in the fourth quarter if needed.

Talisman had valued the North Sea operations at $637 million but has warned that the size of potential impairments could result in a material reduction in the value of the company's investment.

Repsol was advised by JP Morgan while Talisman was advised by Nomura and Goldman Sachs.