Australian energy giant Woodside Petroleum on Tuesday dropped its estimated Aus$11.6 billion (US$8.4 billion) bid for Oil Search, as energy stocks crashed in Australia on plunging oil prices caused by a global supply glut.
Woodside, Australia's largest oil company, said it informed the board of Oil Search it had "withdrawn its proposal to merge the businesses", without elaborating on the reasons why.
"Woodside is not pursuing any alternative transactions to combine the businesses," the firm added in a statement to the Australian Securities Exchange, three months after the bid in September that would have helped it tap into the Papua New Guinea market.
Oil Search, whose assets are mostly based in the Pacific island nation, repeated its assertion after rejecting the bid in September that the "Woodside proposal grossly undervalued the company".
PNG's government last year bought a 10 percent stake in the company, which is Australia's second-largest oil firm.
Shares in Woodside closed 3.96 percent lower at Aus$26.89 in Sydney, while Oil Search plunged 16.36 percent to Aus$6.29.
Santos, which has a joint venture with Oil Search in a massive PNG gas project and announced a Aus$2.5 billion capital raising in November, saw its shares sink 13.12 percent to Aus$3.31.
"Oil Search's major shareholder is the PNG government... so dislodging them would be quite difficult," Argonaut Securities' oil and gas analyst Philipp M-O Kin told AFP.
"I think also there wasn't that much excitement from the Woodside shareholders as well when the initial bid was announced.
"(With) oil prices where they are now, a lot of the companies are potentially hunkering down and trying to maintain their cash as much as possible to ride out these low oil prices," he added.
The announcement came as stocks in the broader Australian energy sector slumped 6.35 percent, following Friday's decision by the OPEC oil exporters group not to cut output, which weakened expectations of a recovery in the already soft crude prices.