Australia's Santos and Papua New Guinea's Oil Search have agreed to extend by one week the due diligence they are performing on each other as part of the initial step in their proposed all-share merger.

Oil Search said today the due diligence period will extend until 13 September.

“Subject to each party completing due diligence on the other to its satisfaction, and the entry into of a merger implementation agreement, the Oil Search board intends to unanimously recommend shareholders vote in favour of the revised proposal, in the absence of a superior proposal and subject to the conclusion of an independent expert that the revised proposal is in the best interests of Oil Search shareholders,” said the PNG operator.

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Oil Search clarified there was no certainty that the merger proposal would result in a transaction.

The merger will see Santos acquire all of the shares in Oil Search for 0.6275 new Santos shares for each Oil Search share via a scheme of arrangement.

Oil Search is the operator of all PNG's producing oilfields, and Santos has a significant business in PNG too; the pair are co-owners of the PNG LNG asset, and part owners of the proposed P'nyang development.

Santos chief executive Kevin Gallagher said last month the potential merger “represents a compelling combination of two industry leaders to create an unrivalled regional champion of size and scale with a unique diversified portfolio of long-life, low-cost oil and gas assets".

The combined company would have a pro-forma market capitalisation of about A$21 billion; 2021 production of 116 million barrels of oil equivalent.

It would also have proven plus probable, and best estimate contingent resources, of about 4.9 billion barrels of oil equivalent, as well as an investment grade balance sheet with more than US$5.5 billion of liquidity to self-fund development projects.