Perth-based global energy giant Woodside has backed away from a merger deal with Santos that would have been worth a reported $80 billion.
In December, the two companies revealed they were in talks to merge into an expansive global oil and gas business.
The combined business would reportedly have had an LNG (liquefied natural gas) capacity of 16 million tonnes a year.
In a statement to the ASX on Wednesday morning, Woodside advised the market it has ended the talks.
Woodside chief executive officer Meg O'Neill said the company "continuously assesses a range of organic and inorganic growth opportunities" and it "will only pursue a transaction that is value accretive for its shareholders."
"We continue to be disciplined in our approach to mergers and acquisitions and capital management to create and deliver value for shareholders," she said in the statement.
"While the discussions with Santos did not result in a transaction, Woodside considers that the global LNG sector provides significant potential for value creation."
Santos is yet to make a public statement.
It's not the first time the two have worked to consolidate the sector. Woodside bought BHP's petroleum business two years ago, while Santos similarly acquired Oil Search.
Woodside being cautious: expert
Independent corporate analyst Peter Strachan attributed the decision to Woodside being risk-averse in relation to Santos's LNG project in Papua New Guinea.
"I just don't think they want to go helter-skelter into Papua New Guinea and then find that five years down the track, there's all sorts of problems as the country's rapid population growth, and the fairly febrile political situation there, starts to boil over," he said.
Mr Strachan said the merger would have been a logical step for Woodside to expand its liquefied natural gas production, and domestic gas supply.
"What Woodside was eyeing was perhaps getting a bigger portfolio of liquefied natural gas into a market which is going to see demand rising quite dramatically," he said.
"As more and more gas is used in China, and throughout South-East Asia, in India, they'll be importing a lot more liquefied natural gas there as well."
While the merger would have amounted to substantial portfolio growth, Mr Strachan said it did not necessarily equate to bigger profits.
"There's no point getting bigger if it doesn't make you more profitable on every barrel or shipload of LNG," he said.
In a statement, the Australasian Centre for Corporate Responsibility declared the merger "dead" and said it was time for a "new vision" for both companies.
"While consolidation is a common strategy in a declining market, that doesn't mean every deal makes sense," the centre's special advisor Harriet Kater said.
"In the case of Woodside and Santos investors have struggled to see any strategic rationale for a merger."
LNG is considered by some as an important transition fuel source as the world moves to decarbonise.
Woodside shares have risen on the news, currently up more than a per cent in lunchtime trade, to $32.70.
Santos shares have fallen more than 5 per cent today, trading about $7.40 as at 12.25pm AEDT.
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