Woodside Petroleum may consider the creation of an energy venture with Papua New Guinea's National Petroleum Company as it explores new ways to gain a foothold there following a rejected $11.6 billion bid this month for Oil Search.

Woodside chief executive Peter Coleman held a meeting last week in Port Moresby with NPCP chairman Frank Kramer and managing director Wapu Sonk to discuss opportunities in the country's oil and gas sector.

The PNG government holds a 10 per cent stake in Oil Search via NPCP and has significant sway over whether a deal could proceed, as it also owns a 17 per cent holding in the country's foundation PNG LNG gas project.

While Oil Search is often described as PNG's "national champion", the meeting was understood to have canvassed the idea of an international company like Woodside joining the NPCP in new ventures or projects later this decade.

A source with knowledge of the meeting said while talks were only exploratory at this stage, it pointed to a possible entry point for Woodside should it decide not to increase its offer for Oil Search.

"PNG is very committed to building up its own expertise in the oil and gas sector over the longer term and that could involve the entry of new companies like Woodside in addition to producers like Oil Search and ExxonMobil which are already in country," said the source.

NPCP will change its name to Kumul Petroleum Holdings later this year as part of a government strategy to reposition it as PNG's national oil company. The source said it will eventually become involved in exploration and production activities in the country in partnership with oil majors.

In addition to its stake in the PNG LNG project, part-owned by Exxon and Oil Search, it holds the rights to a 20 per cent stake in the Elk-Antelope field, the country's largest undeveloped gas resource.

NPCP could in the future be open to selling a small stake in Elk-Antelope to Woodside, according to the source, given that it will be required to raise funds via debt for its portion of the project in the coming years at a tough time for the PNG government.

PNG will issue a special budget in October to deal with a sharp slump in revenue due to the commodities downturn after cutting its 2015 growth forecast from 15.5 per cent to 11 per cent and conceding the budget deficit will blow out from 2.2 billion kina ($1.1 billion) to K4.8 billion.

Mr Kramer, who has estimated the value of the state-owned enterprise could top $5 billion, has hinted shares in the company could be sold to the PNG public in the future.

Woodside is weighing up its options for PNG due to frustration over the lack of engagement from Oil Search's board to its $7.65 a share offer tabled on September 3.

Most analysts say Woodside would be required to lob a 25 to 30 per cent premium to get Oil Search to the negotiating table rather than the 14 per cent premium it initially offered.

Street Talk has speculated that Woodside Petroleum could raise $2 billion to $3 billion to fund a sweetened bid, adding a cash component to its all scrip offer, with straight bridge financing believed to be the preferred option.

A $3 billion cash sweetener would equate to an extra $1.97 per share, on top of the $7.65 a share scrip offer, taking the total bid to $9.62.

UBS analyst Nik Burns and his team said Woodside would likely favour increasing the bid via cash because the current offer has no chance of success, and using cash reduces earnings-per-share dilution.