Woodside confirms Oil Search bid is over

Oil Search had already rejected Woodside's all-scrip offer as insufficient and opportunistic and Woodside has now confirmed it has abandoned its bid.

Woodside Petroleum has formally abandoned its attempted takeover of rival energy company Oil Search. (AAP)

Woodside Petroleum has formally abandoned its attempted takeover of rival energy company Oil Search by withdrawing its $11.6 billion bid.

Oil Search in September rejected Woodside's all-scrip offer as insufficient and opportunistic, and Woodside on Tuesday confirmed it had decided against raising its bid.

"Woodside advises that it has informed the Oil Search board that it has withdrawn its proposal to merge the businesses," Woodside said in a statement to the Australian Stock Exchange.

"Woodside is not pursuing any alternative transactions to combine the businesses."

Oil Search reacted to the announcement in the same language it employed when rejecting the bid.

"The Oil Search board concluded that the indicative Woodside proposal grossly undervalued the company," the Papua New Guinea-focused company said in a statement.

The PNG government holds a 10 per cent stake in Oil Search and PNG Prime Minister Peter O'Neill met with Woodside chief executive Peter Coleman in Port Moresby in September following Woodside's offer of one of its shares for every four Oil Search shares.

While Mr O'Neill said his government would not get involved in talks, it reportedly wanted an improved cash offer rather than the all-scrip deal that valued Oil Search shares at about $7.42 each.

Both companies' shares nosedived on Tuesday following an announcement made against a backdrop of falling oil prices.

Woodside shares dropped $1.11, or 3.96 per cent, to $26.89.

Oil Search shares, which had held up during the past year's decline in the oil market, also fell $1.23 on the news, to $6.29.

The smaller company's lower valuation means that represents a 15.69 per cent fall and wipes out the 12 per cent gain since Woodside's interest was first reported.

Oil prices have plunged to their lowest level in nearly seven years, hurting the shares of major oil companies on Wall Street as a global supply glut shows no signs of abating.

West Texas Intermediate crude dropped almost six per cent overnight to under $38 a barrel, its lowest in nearly seven years.