Australian oil and gas company Woodside and its smaller rival Santos are holding initial talks over a potential merger.

The talks were confirmed by both the companies in separate statements.

Woodside said the talks are still “confidential and incomplete”, and there is no guarantee that a deal will materialise.

“As a global energy company, Woodside continuously assesses a range of opportunities to create and deliver value for shareholders,” it added.

Santos said it is “engaged in preliminary discussions with Woodside” for a potential merger and “assessing a range of alternative structural options” to unlock value.

Based in Perth, Woodside is valued at around A$57bn, while Santos, which is based in Adelaide, is valued at about A$22bn.

The talks between Woodside and Santos highlight the growing significance of LNG across the globe.

Last month, during an investor day briefing, Woodside CEO Meg O’Neill said: “The world’s demand for Woodside’s products is expected to be resilient in the coming decades as populations and economies grow, with our target markets in Asia driving primary energy demand.

“Growth in demand for LNG in particular is expected to continue as buyers seek to secure supplies to support renewables in the power mix as they decarbonise. Woodside’s LNG-weighted portfolio is well suited to capitalise on that demand.”

If the deal goes through, it is expected to create a leading LNG producer in Australia and the world.

The talks of a potential merger between Woodside and Santos come amid a flurry of merger activity in the oil and gas industry.

Earlier in October this year, Exxon Mobil signed a definitive agreement to buy Pioneer Natural Resources in an all-stock deal valued at $59.5bn.

Shortly after Exxon’s announcement, Chevron brokered a $53bn deal to acquire oil and gas producer Hess, further consolidating the US oil and gas industry.