Investors responded by sending Oil Search shares up by 13 per cent, and Woodside shares down by four per cent.

Woodside Petroleum Ltd, Australia’s biggest independent oil and gas producer, has approached smaller rival Oil Search Ltd with an $8 billion all-share takeover plan, which Oil Search said on Tuesday it was considering.

Oil Search shares jumped 13 percent to A$7.60 after the offer was announced, trading above the implied value of the offer as Woodside’s shares fell 4 percent, suggesting investors expect Woodside will have to raise its bid. Woodside was down nearly 1% to $30.58.

“While Oil Search will consider the proposal, it should be noted that Oil Search has a material equity position in the world class PNG LNG project and attractive, low cost, LNG development opportunities”, the company said in a statement.

Both parties advise that Oil Seach has received a non-binding indicative proposal from the Australian oil and gas company.

Woodside, which has been keen to make acquisitions, is seen as taking advantage of lower crude oil prices, which have slid over the past year.

Woodside being satisfied the transaction is likely to be supported by the PNG Government on acceptable terms.

Mr Coleman said it may take another one or two quarters of low commodity prices before acquisitions of the quality Woodside is targeting, with near-term production potential, come up for sale and the gap closes between bid and offer prices.

The company is being advised by Merrill Lynch, while Oil Search has appointed Morgan Stanley as its financial adviser.