Woodside Energy and Santos have terminated discussions regarding a potential merger that would have formed a oil and gas powerhouse worth approximately A$80bn ($52bn).

The collapse of the talks was attributed to the inability to agree on a valuation, despite nearly two months of due diligence and negotiations, reported Reuters, citing two sources with direct knowledge of the matter.

The talks over a potential merger were confirmed by the two companies in December 2023.

If the talks had been successful, the merger would have positioned the new entity as a significant player in the global liquefied natural gas (LNG) market.

Woodside, however, was under pressure from some shareholders to avoid overpaying for Santos.

Recently, Allan Gray Australia, which holds around a A$700m stake in Woodside, expressed that paying a premium for Santos would not be in the best interests of Woodside’s shareholders.

Woodside CEO Meg O’Neill said: “While the discussions with Santos did not result in a transaction, Woodside considers that the global LNG sector provides significant potential for value creation.”

Allan Gray chief investment officer Simon Mawhinney was quoted by Reuters as saying: "Woodside's decision to walk away is a relief.

"We had hoped this would be the outcome. It was unclear to us where there was much merit in a tie up."

Meanwhile, Santos has indicated that it will continue to explore other avenues to enhance shareholder value.

Santos said in a press statement: “Following an initial exchange of information, sufficient combination benefits were not identified to support a merger that would be in the best interests of Santos shareholders.

“Santos has a clear strategy to deliver long-term shareholder value. We have a strong balance sheet and continue to review options to unlock value for shareholders.”

Last month, a court ruling removed a significant obstacle to Santos’ $4.3bn Barossa natural gas project.