Oil Search plans to boost liquefied natural gas development in Papua New Guinea after striking a $US2.2 billion ($A3.04 billion) deal to buy PNG-focused InterOil.
The proposed acquisition offers shareholders "compelling financial and strategic upside potential" as it aligns two PNG entities, Oil Search said.
It will lead to co-operation and integration of the undeveloped Papua LNG Project, in which InterOil holds a 36.5 per cent stake, and the PNG LNG project, Oil Search's main asset, chief executive Peter Botten said.
"It gives us the platform for further growth, it aligns our interest with a major and allows us an ability to an agreed process to co-operate across our portfolio," he told investors.
"It's an outstanding deal and one that I'm sure our shareholders will like."
Oil Search's interest in the Papua LNG project will increase to 29 per cent, as it plans to sell 62 per cent of InterOil's exploration assets to French oil major Total, plus a 60 per cent interest in an InterOil petroleum retention licence.
Total is the main stakeholder and operator of the Papua LNG project.
Oil Search's InterOil purchase will be approximately 60 per cent funded by the onsale of assets to Total.
The deal has the backing of the PNG government and the InterOil board, Mr Botten said.
Shareholders in New York-listed InterOil would hold an interest in Oil Search's asset base and dividend stream, he said.
Oil Search will also consider a dual listing in either New York or Toronto as its international shareholder base expands, he added.
"It's certainly something we'll look at very closely," Mr Botten said.
Port Moresby-based Oil Search, which has fended off a takeover off from Woodside Petroleum, expects to complete the transaction in the third quarter of 2016.
Oil Search shares dropped eight cents, or 1.2 per cent, to $6.83.
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