News: OSH UPDATE 1-Australia's Oil Search shares slump after P'nyang talks failure

(Adds details on Papua LNG project, background)

Feb 3 (Reuters) - Shares in Australia's Oil Search (OSH) fell as much as 11.5% in early trade on Monday, marking their worst session in more than four years, following the collapse of talks on the key P'nyang gas project.

Papua New Guinea on Friday called off negotiations with Exxon Mobil XOM.N on the P'nyang field, which it operates with partners Oil Search and Santos (STO) , among others, calling the deal "out-of-the-money".

The P'nyang agreement was one of two agreements needed for Exxon and its partners to go ahead with their $13 billion plan to expand LNG exports from the Pacific nation. The other agreement, the Papua LNG pact, was sealed with Total in September.

The P'nyang project and Total's Papua LNG project were planned to feed three new processing units, called trains, at Exxon's PNG LNG plant, doubling Papua New Guinea's LNG exports.

Oil Search said on Monday said it would now focus its attention on the Papua LNG project, led by Total SA TOTF.PA , which will feed two new trains, adding 5.5 million tonnes a year to the plant's 8 mtpa capacity.

A new government in impoverished Papua New Guinea has been seeking to extract more benefits from the P'nyang project as part of a wider effort to reap more rewards from the country's mineral and petroleum resources.