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Oil Search will raise about $US895 million ($A977.61 million) in a fully underwritten offering of 152 million shares to institutional investors at $5.90 each, 12.6 per cent below the current market price.
The funds are needed to help Oil Search pay its remaining equity funding requirement for its share of the Papua New Guinea Liquefied Natural Gas (PNG LNG) joint venture deal, Oil Search said in a statement.
Further funds will come from a share purchase plan of up to $15,000 per eligible shareholder.
Oil Search was forced to undertake the capital raising after a planned sale of a 3.5 per cent stake in the PNG LNG project to International Petroleum Investment Corporation (IPIC) fell through because of time considerations.
Joint venture partners in the deal have a target date of December 8 for making a final investment decision (FID) on the project.
And finalising the sale would have taken longer than anticipated because the Australian Securities Exchange (ASX) told the company it believed IPIC was a "related party" in the deal and as such the sale would require shareholder approval.
"To call an EGM (extraordinary general meeting) from here is around a four-and-a-half week exercise, which would put us in the last week of November," Oil Search managing director Peter Botten said.
"Going to the market is not my preference in any sense, especially at these sort of levels," Mr Botten said in a teleconference with journalists.
He said IPIC, an Abu Dhabi sovereign wealth fund, was seen as a related party because it issued bonds which raised money for the PNG government, which is also a key stakeholder in the PNG LNG project.
Oil Search also revealed the total cost of phase one of the PNG LNG project was now expected to cost $US15 billion, up from an expected $US12.5 billion.
PNG LNG's total cost is expected to be $US17 billion ($A18.57 billion) to $US17.5 billion ($A19.12 billion), Mr Botten said.
He said having taken "a difficult dose of medicine" in announcing the capital raising the company did not anticipate having to sell down any of its stake in the project going forward.
Oil Search is expected to have about a 30 per cent stake in the massive PNG LNG project subject to final equity negotiations.
It is a natural gas and LNG development operated by ExxonMobil in Papua New Guinea thought to contain about 9.3 trillion cubic feet of resources.
Hartleys analyst David Wall said it would have been best if the sale to IPIC had gone ahead, but the capital raising seemed reasonable deal for investors.
"I think the price is quite good," Mr Wall said.
Meanwhile, the company also unveiled its third quarter production results on Monday.
Oil Search said third quarter production had risen 10 per cent higher than in the second quarter, at 2.09 million barrels of oil equivalent (mmboe).
The company said 2009 production guidance remained at eight to 8.3 million barrels of oil equivalent.
Shares in Oil Search went into a pre-open trading halt on Monday, but last traded at $6.75.
(AAP) bl
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