Santos shares have surged after the embattled energy giant revealed it has rejected a $7.1 billion takeover bid.
The offer is the first firm proposal Santos has disclosed after announcing a strategic review in August, effectively putting its assets on the block to cut $8.8 billion in debt.
Santos said it received an indicative, highly conditional and non-binding proposal from overseas fund manager Scepter Partners at $6.88 per share.
Bermuda-headquartered Scepter is an investment fund backed by members of the ruling families of Brunei and the United Arab Emirates.
The firm counts a syndicate of ruling families, sovereign wealth funds and ultra-high net worth industrialists among its backers, with commitments of more than $US14 billion.
Santos said its board decided to reject the proposal as it considered it opportunistic in nature and not reflecting the fair underlying asset value of the company.
"The proposal was also subject to numerous conditions, some of which would be adverse to Santos continued evaluation of other alternatives in its current strategic review process," the company said in a statement on Thursday.
The bid price implies a 26 per cent premium to Santos' closing price of $5.44 on Wednesday. The company's shares have slumped nearly two-thirds in the last 12 months.
Its stock, however, surged more than 20 per cent in early trade on Thursday. Santos shares were up 88 cents, or 16.2 per cent at $6.32 each, at the close.
"We would certainly expect a sweetened bid. The question is by whom," IG's market strategist Evan Lucas said.
"The board would want a minimum of $10 a share, based on the net present value of their assets, but that is unlikely given the current oil prices," he added.
Global crude oil prices have halved over the past year to below $US50 a barrel, amid rising supplies and lacklustre demand.
The decline has battered energy company shares and raised prospects for a spate of mergers and acquisitions.
In September, Papua New Guinea-focused energy producer Oil Search knocked back an $11.6 billion takeover offer from Woodside Petroleum.
Earlier this month, Origin Energy was forced into a $2.5 billion capital raising and another $2.2 billion in savings measures to help cut debt and maintain its credit rating.
Santos has also come under pressure to raise capital in an effort to ride out weak oil prices. In August, it reported an 82 per cent dive in first half profit, forcing it to cut jobs, slash capital expenditure and lose its chief executive.
The company, which recently started production at its Gladstone LNG project in Queensland, holds stakes in oil and gas production in Australia, Indonesia and Vietnam. But its crown jewel is a 13.5 percent stake in the Papua New Guinea LNG project.
On Thursday, the company said its strategic review is ongoing, and it will consider all proposals which deliver appropriate value and certainty for shareholders.
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