NEW YORK (CNNMoney.com) - Anadarko Petroleum Corp. said Friday it is buying two rival energy companies for about $21 billion in cash, a move that will create the nation's fifth largest oil and gas producer.

The Texas-based company said it agreed to buy Colorado-based Western Gas Resources and Oklahoma's Kerr-McGee Corp. in deals under which it will also take on $2.2 billion in debt.

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The deal pays a huge premium for the two firms, and shares of Kerr-McGee (up $18.30 to $68.60, Charts) surged 36 percent in early trading on the New York Stock Exchange while Western (up $18.84 to $59.75, Charts) skyrocketed 46 percent.

Anadarko (down $3.42 to $44.97, Charts) shares slid about 7 percent.

"An all-cash deal, it was unexpected and a very bold move," said Fadel Gheit, an analyst at Oppenheimer. "But I have faith in (Anadarko CEO Jim) Hackett. This is the crown achievement of his career, and he's not likely to buckle."

Gheit cited Kerr-McGee's extensive deepwater drilling expertise, saying the firm could go "head-to-head" with any of the bigger oil companies in the Gulf of Mexico.

"He's buying companies with complementary resources and tremendous upside potential," Gheit added.

Under the deal for Kerr-McGee, Anadarko is paying about $16.4 billion, or about $70.50 a share, plus the assumption of $1.6 billion in debt. Kerr-McGee closed Thursday at $50.30 on the New York Stock Exchange.

Separately, Anadarko is paying $4.7 billion, or $61 a share for Western, which closed at $40.91 Thursday.

Anadarko execs said they weren't bothered by what some called the high price for the companies, saying it was largely due to the recent drop in energy stock prices, meaning the companies being acquired were worth more when negotiations first began.

Neither company was publicly on the auction block when Anadarko approached them, he added.

"The long-term value hasn't become any different," said Hackett during a conference call. "We're very comfortable here. It's a great footprint for our combined operations, and a great growth vehicle."

The deals will be financed with $24 billion in funding provided UBS, Credit Suisse and Citigroup, Anadarko said.

A company spokeswoman said the company would sell some assets following the deal, but that the combined company would be about 50 percent larger, about the same size as Occidental (Charts).

Kerr-McGee was one of the first companies to pioneer deepwater drilling. Its core fields are in the Gulf of Mexico and onshore in Colorado and Utah.

In addition to its domestic operations, Kerr-McGee is exploring and developing fields offshore in China, Brazil, Australia, West Africa and in Alaska's North Slope.

The deal comes after a number of huge oil mergers several years back that formed the nation's biggest oil producers, Exxon Mobil, ChevronTexaco and ConocoPhillips.

But acquisitions have been limited for the last few years. Some lawmakers have blamed high oil and gas prices on a lack of competition in the industry and called for the breakup of some of the biggest oil companies.

Oil executives say they need the economies of scale to compete in an international market against huge state-owned oil companies, some of which are larger than Exxon Mobil, the world's largest publicly traded oil firm.

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