Australian energy giant, Woodside Petroleum, has dropped a bid worth an estimated Aus$11.6 billion (USD 8.4 billion) for the Papua New Guinea-based company, Oil Search, after energy stocks crashed in Australia.

Woodside, which is Australia's largest oil company, said on Tuesday that it informed the board of Oil Search that it had "withdrawn its proposal to merge the businesses," without elaborating on the reasons why, AFP reported.

Experts believe that the decision is the result of Australian energy stocks crashing as a consequence of plunging oil prices caused by a global supply glut.

"Woodside is not pursuing any alternative transactions to combine the businesses," the firm added in a statement to the Australian Securities Exchange, three months after the bid was first offered in September that would have helped it tap into the Papua New Guinea market.

Oil Search, whose assets are mostly based in the Pacific island nation, rejected Woodside’s offer in September, noting that the "Woodside proposal grossly undervalued the company."

Later on, the value of Woodside shares dropped 3.66 percent to Aus$26.98 in afternoon trade in Sydney, while Oil Search’s shares plunged 15.82 percent to hit Aus$6.33.

Santos, another company which has a joint venture with Oil Search in a massive Papua New Guinea gas project and announced plans in November to raise its capital to Aus$2.5 billion, also saw its shares sink 12.34 percent in afternoon trade.

"Oil Search's major shareholder is the Papua New Guinea government.... So dislodging them would be quite difficult," Argonaut Securities' oil and gas analyst Philipp M-O Kin told AFP.

"I think also there wasn't that much excitement from the Woodside shareholders as well when the initial bid was announced. (With) oil prices where they are now, a lot of the companies are potentially hunkering down and trying to maintain their cash as much as possible to ride out these low oil prices," he added.

Oil Search, Australia's second-largest oil firm, is a key player in oil and gas developments in Papua New Guinea. The Pacific nation's government last year bought a 10 percent stake in the company.

The announcement came as stocks in the broader Australian energy sector slumped 6.25 percent, following Friday's decision by the OPEC oil exporters group not to cut output, which weakened expectations of a recovery in the already soft crude prices.