Cashed-up Woodside Petroleum is continuing its acquisitive activity, making an $11.65 billion bid for Papua New Guinea producer Oil Search.

Woodside confirmed on Tuesday that it had made a non-binding proposal to Oil Search to merge through a scheme of arrangement under the Papua New Guinea Companies Act.

Under the proposal, Oil Search shareholders would receive all scrip consideration of 0.25 Woodside shares for every Oil Search share and become shareholders in the combined entity.

The proposal, which implies a 13 per cent premium, is subject to numerous conditions, including Papua New Guinea regulatory approval, completing satisfactory due diligence and other customary conditions.

Woodside said the proposal was consistent with its strategy of “delivering superior shareholder returns by maximising the value of our core assets, leveraging our capabilities and growing our portfolio.”

In response to the offer, Oil Search said it would review the proposal and update shareholders in due course.

“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, including the PNG LNG train 3 expansion and the Papua LNG Project,” Oil Search said.

“This, combined with the company’s low operating cost producing assets, reserves upside, significant discovered resources and extensive and high quality exploration acreage position provide substantive scope for capital growth and position the company to capitalise from a recovery in the oil price.”

Oil Search has appointed Morgan Stanley as its financial adviser and Allens as its legal adviser. Woodside is being advised by Merrill Lynch, Gresham and Herbert Smith Freehills in relation to the offer.

The proposal would also be conditional on the parties entering into a binding implementation agreement.

It has been widely speculated that Woodside has been eyeing Oil Search for some time, with the company keen to get a slice of the action in resource-rich PNG. Oil Search has a 29 per cent stake in the ExxonMobil-led, 6.9 Mtpa PNG LNG project.

The low cost development has been a big cash generator for Oil Search, performing ahead of expectations and at a higher annualised rate of 7.1 Mtpa.

Oil Search also has plenty of growth options in PNG, with the potential to expand the PNG LNG development by an addition two trains via commercialisation of the P’nyang and the Elk Antelope fields.

While Oil Search’s near-term growth potential, in addition to cash-producing assets, have no doubt captured Woodside’s attention, the timing of the offer comes at a time of significantly weak oil prices and depressed market conditions.

Acquisitive Woodside is playing a leading role in Australia’s M&A activity, having only wrapped up the US$2.8 billion purchase of Apache Corporation’s Western Australian assets in April.

Woodside still has substantial cash on hand post Apache. The company finished the first half of 2015 with US$200 million in cash in addition to US$3 billion in undrawn facilities.

Shares in Woodside fell 2.2 per cent to $29.89 while Oil Search surged 13.8 per cent to $7.66.

Lauren Barrett can be reached at lbarrett@hartenergy.com

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