Santos took a beating on the Australian stock market, with its share price tumbling by almost 10 per cent in early trade.

Key points: Santos rejects a $14.4bn takeover offer from US-based Harbour Energy

Santos rejects a $14.4bn takeover offer from US-based Harbour Energy Santos board it can create better value than bid through cost cutting and higher oil prices

Santos board it can create better value than bid through cost cutting and higher oil prices Analysts surprised by rejection, saying a new hostile bid unlikly

In dollar terms, the company bled more than $1 billion in value.

This was the knee-jerk reaction of investors the morning after Santos rejected a takeover bid by Harbour Energy and "terminated all discussions" with the American company.

Its shares fell as low as $5.82 on Wednesday morning, their lowest value in more than six weeks.

In a statement released on Tuesday evening, Santos said its independent directors and chief executive had unanimously resolved to reject the $14.4 billion offer, which it said was "too low" and "high risk".

Harbour Energy has been trying to buy the Adelaide-based oil and gas producer since last August and in recent days upped its offer to about $7 per share.

"The final proposal was a highly leveraged private equity-backed structure that, prior to implementation, would have required Santos to provide significant support for Harbour's debt-raising and to hedge a significant proportion of oil-linked production," Santos said.

"In addition, the final proposal was stated to be subject to various conditions, including FIRB (Foreign Investment Review Board) approval."

Santos chairman Keith Spence said the company had "a well-developed strategy, strong leadership and management team and outstanding growth opportunities that the board believes will deliver superior value for its shareholders over time".

Three-quarters of Santos shareholders would have had to support the bid for it to be successful, including allied Chinese investors ENN and Hony Group, which own a combined 15 per cent.

Harbour's ambitions now dead

RBC analyst Ben Wilson said the onus is now firmly on the Santos board and executive to execute strategy, grow the company and hope that oil, gas and LNG prices do not fall substantially.

Mr Wilson said Habour's ambitions for Santos were now probably "dead".

"If Harbour does come back to the negotiating table with the Santos board it has a hide not made of leather but made of some sort of titanium/Kevlar weave," Mr Wilson wrote in a note to clients.

"Our outsider's view is that Harbour has gone to great lengths to furnish the Santos board with an attractive bid, having upped its bid up to six times with no credible interloper in sight, engaged its major 15 per cent shareholder ENN/Hony and put in place bid financing.

"Harbour management and advisers will be rightly asking themselves what more can they do."

Mr Wilson said the nature of the shareholder arrangement between ENN/Hony and Santos essentially precludes a hostile approach.

Macquarie's energy team also slashed its target price for Santos after removing a takeover premium from the equation.

Macquarie's Andrew Hodge said the Santos board has put out a clear challenge, "trust us, trust the strategy."

"But there is a world of difference between cutting costs to survive and sustaining them whilst growing," Mr Hodge said.

He said real challenge for the board is to show the bid price of $6.86 a share now is worth less than what the company could be in the future.

"Comments around potential earlier dividends help, but without a major public defence until now, Santos will need to convince investors to trust them, or that oil prices will keep rising."