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SMASHED: Why the Oil Search Limited share price sank 16% today

What: Shares in Papua New Guinea-focussed oil and gas producer Oil Search Limited (ASX: OSH) are trading down 16% at $6.32 today after suitor Woodside Petroleum Limited (ASX: WPL) withdrew its proposal to merge with Oil Search.

So What: According to Oil Search’s Board of Directors, the indicative proposal from Woodside “grossly undervalued the Company.”

In a statement responding to the withdrawal, Oil Search’s Managing Director went on to note that: “Oil Search remains focused on delivering value for its shareholders, by continuing to produce from its low cost assets and progressing the development of its world class growth projects.”

Now What: It’s a tough day today for oil and gas investors with most major oil-exposed stocks experiencing declines in response to another drop in the oil price overnight and reports from last week’s OPEC meeting that excess supply won’t be curbed.

By mid-afternoon trade on Tuesday Santos Ltd (ASX: STO), AWE Limited (ASX: AWE) and Liquefied Natural Gas Ltd (ASX: LNG) were all trading between 9% and 15% lower.

The failure of Oil Search to attract an improved offer from Woodside has obviously added pressure to the stock’s share price and it’s likely a period of weakness in Oil Search’s share price will now continue for some time.

Meanwhile, investor attention will no doubt turn to speculating on just what Woodside may do next. As the largest ASX listed oil and gas producer, there is an expectation that the company will make use of the current crisis to acquire attractively priced assets.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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