Australia's biggest oil and gas producer, Woodside Petroleum, has made an $11.6 billion bid for number two player Oil Search.
Woodside confirmed in a statement to the ASX it would offer one of its shares for every four shares in the Papua New Guinea-focused Oil Search.
Before the offer Oil Search had a market capitalisation of $10.24 billion, while Woodside was valued at $25.2 billion.
The offer represented an approximately 13 per cent premium on Oil Search's pre-bid price.
Oil Search shares surged more than 14 per cent on the news to $7.70, while Woodside had fallen back by 2.8 per cent to $29.74 at 12pm (AEST).
The bid flowed through to other energy stocks, with Santos jumping 8 per cent to $4.53 and Origin Energy up 4 per cent to $7.78.
Oil Search said it "intends to review the proposal and will update the market in due course".
Any deal would be subject to a number of conditions including the support of the PNG government, which is joint stakeholder in the PNG LNG project.
Oil Search holds a 29 per cent stake in the project, which is regarded as one of the lowest-cost new LNG developments in the world.
Oil Search has been caught up in the general sell-off of energy stocks, with the price of oil halving since June last year.
Oil Search's share price has tumbled almost 30 per cent over the past 12 months, although it has not been hit as hard as many producers since its PNG production came online late last year.
Earlier this month analysts at Goldman Sachs raised Oil Search's rating to a "buy", noting it was a quality company with robust production assets including the Exxon-Mobil operated PNG LNG project, which has a current production capacity of 7.1 million tonnes per annum, as well as other growth projects in the PNG highlands.
Oil Search is regarded as being in a comfortable position to service its debt and maintain dividends at oil prices as low as $US40 a barrel.
Woodside has been open in its ambitions to buy "growth" in a market where asset prices have been tumbling.
It has a robust balance sheet — with gearing at a modest 19 per cent — and a strong cash flow from existing oil and gas fields.
Oil Search said its development opportunities, combined with low-cost operating assets, significant discovered reserves and extensive exploration acreages, put the company in a good position to capitalise from a recovery in the oil price.
"Clearly Oil Search shareholders are entitled to an offer which adequately reflects this value potential," the company said in a statement to the ASX.
Woodside said while it was currently engaging with Oil Search in relation to the proposal, "there is no certainty that these discussions will result in a transaction".
"The proposal is consistent with Woodside's strategy of delivering superior shareholder returns by maximising the value of our core assets, leveraging our capabilities and growing our portfolio," Woodside said.