Santos Ltd has received a $1.1 billion binding offer from Papua New Guinea's state-owned Kumul Petroleum for a 5% stake in the PNG LNG project, the country's biggest resources project.

Australia's Santos became the largest shareholder in PNG LNG, considered one of the world's lowest cost LNG producers with its takeover of Oil Search last year and would remain the biggest stakeholder with 37.5% if the sale goes through.

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The deal would boost Kumul's stake in PNG LNG to 22.8%, which the company's managing director Wapu Sonk said would "bring huge economic and social benefits to the nation."

"This is a massive investment for us, costing approximately US$1.1 billion," Sonk said in a statement.

Kumul has not indicated how it would fund the acquisition.

"What isn't clear is how PNG Government-owned Kumul will pay for its stake, which may still present some risk to the deal," Credit Suisse analyst Saul Kavonic said in client note, adding that the government could seek funding from banks, governments or the LNG industry.

PNG has sought more control over its oil, gas and mineral resources since Prime Minister James Marape took power in 2019. He prevailed in a national election in August this year, vowing to "get more from our resources" without scaring away investors.

Kumul's offer is conditional on obtaining waivers of pre-emptive rights from the other partners in the project: Exxon Mobil Corp., the operator with a 33.2% stake, a unit of Japan's JX Holdings Inc. and PNG state-owned Mineral Resources Development Co.

Exxon declined to comment on what it called commercial matters, and JX Nippon Oil & Gas Exploration did not immediately respond to a request for comment.

Santos said it had agreed to deal exclusively with Kumul until Dec. 31 regarding the stake sale in PNG LNG.

Santos said in August it expected to reap proceeds from the sale of a 5% stake in PNG LNG "in line with market consensus valuation," which was around $1.5 billion.

The company had aimed to raise up to $3 billion from asset sales this year but failed to find a buyer for its stake in the Pikka oil project in Alaska and deferred selling a stake in the Dorado oil and gas project off western Australia while it revises development plans.