Oil Search has rejected the $6.5bn takeover proposal from Australia’s oil and gas producer Santos, which would have created a $16bn (A$22bn) LNG export giant.

The Papua New Guinea-focused oil and gas producer described the offer as ‘too low’ and not in the best interest of its shareholders.

Although the offer has been rejected, Santos and Oil Search will pursue further talks to create an entity that would rival Woodside Petroleum.

In June 2021, the Australian firm made an unsolicited offer for Oil Search shareholders to receive 0.589 new Santos share for each share held.

Based on the closing share price of Santos on 24 June, the transaction has an implied transaction price of A$4.25 per share in Oil Search. This represents a 12% premium to the share price of Oil Search at the time.

Commenting on its offer, Santos said in a statement: “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.

“The combination would create greater alignment in Papua New Guinea supporting the development of key projects including Papua LNG, deliver new jobs and help support the local economy.”

Had the proposal been accepted, Santos’ shareholders would have owned 63% interest in the combined entity while Oil Search shareholders would have held the remaining 37% stake.

Last month, Oil Search’s shareholder UAE’s state-owned Mubadala divested its 4.5% stake in the Papua New Guinea-based firm for $274.82m (A$362.8m).

Mubadala continues to hold a 4.98% stake in Oil Search.