Santos is buying the additional 3.3 per cent stake in the Papua LNG project from French energy giant TotalEnergies for $262 million ($US189 million), taking its total interest to 21 per cent.
This will make it the second-biggest overseas partner in the project, behind ExxonMobil, which is assuming operatorship of the joint venture from TotalEnergies.
"Papua LNG is a world-class project and this is the right time to increase our position," Santos chief executive Kevin Gallagher said on Tuesday.
Papua LNG was strategically positioned to supply premium Asian markets and offered multiple value streams for Santos, Mr Gallagher said.
A final investment decision on whether to proceed with the project is likely to be made in the fourth quarter of this year.
Changes in the scope of the project had shaved $US4 billion ($5.6 billion) from its cost, TotalEnergies said, bringing it down to about $US14 billion ($19.5 billion) in capital expenditure.
Papua LNG would be the country's second operational LNG project.
It involves the development of two onshore gas fields 360km northwest of the capital, Port Moresby, containing estimated natural gas resources of more than one billion barrels of oil equivalent.
The gas would be transported via 320km of pipeline for liquefaction at Caution Bay, at a site adjacent to the existing PNG LNG facility.
ExxonMobil operates that facility and says it has contributed 4.5 billion PNG kina ($1.4 billion) in tax revenue to PNG's economy since becoming operational in 2014.
Papua LNG is designed to produce 5.6 million tonnes of LNG a year, about enough to load one LNG carrier every four to five days.
In late morning trade, Santos shares were changing hands at $8.39, up 0.5 per cent.
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