Shares in Papua New Guinea-focused Oil Search have jumped more than 6 per cent after it confirmed larger rival Santos had made an unsolicited takeover proposal.
Oil Search said it had rejected the approach, made last month, because the terms and value were not in the best interest of its shareholders.
But Santos on Tuesday said it was still hoping to continue talks to create a group that would have a combined market value of $22 billion.
By 1400 AEST, Oil Search shares were up 5.8 per cent at $3.88 despite broader weakness in energy stocks. Santos shares were down 3.8 per cent to $6.57.
Under the proposed offer, Santos would offer 0.589 new shares for each Oil Search share held. Based on Santos' June 24 closing price, this valued Oil Search at $4.25 a share, a 12 per cent premium to its share price at the time.
Santos received a letter from Oil Search on July 9 rejecting the offer, but said it was still keen to pursue talks.
"Santos continues to believe that the merger proposal represents an extremely attractive opportunity to deliver compelling value accretion to both Santos and Oil Search shareholders," it said in a statement.
The company noted that the combined group would hold a "diversified portfolio of high quality, long-life assets across Australia and Papua New Guinea", as well as robust balance sheet with strong liquidity.
Both Santos and Oil Search own stakes in the Exxon Mobil-led PNG LNG project in Papua New Guinea, while Oil Search also holds a stake in the Total-owned Papua LNG project.
The takeover announcement comes a day after Oil Search said its chief executive Keiran Wulff had stepped down after just 17 months in the job, following a whistleblower complaint and due to ill health.
