Woodside Petroleum is to meet with the Papua New Guinean government to consider whether to sweeten a US$8.2 billion dollar bid for Oil Search.
The PNG based energy producer says the offer grossly undervalues it.
Woodside's chief executive, Peter Coleman, is set to hold talks with the PNG Prime Minister Peter O'Neill this week.
The government holds a 10 per cent stake in Oil Search and has significant sway over whether a deal could proceed, given it also owns 17 per cent in PNG's foundation LNG gas project.
It had offered one Woodside share for four Oil Search shares, suggesting a 14 per cent premium, but Fairfax reports Oil Search would want up to 30 per cent as a premium before it would come to the negotiating table.
Some analysts are predicting Woodside will up its bid while there are reports ExxonMobil - the operator and largest shareholder in the LNG project - could emerge as a rival bidder.