The continuing saga surrounding the bidding war for Australian Oil & Gas took a dramatic twist yesterday with Canadian outfit Parker Drilling making a surprise bid for the contract driller.

Parker Drilling's offer of $2.50 cash for each AOG share and $1.30 cash for each AOG option compares to Ensign's latest offer of $2.30 cash for each AOG share and $1.10 cash for each AOG option.

Ensign had also held out a sweetener for a quick shareholder acceptance by stating, if it got more than 50% of AOG on a fully diluted basis before next Thursday's closing date, it would lift its offer to $2.40 for the share and $1.20 for the options.

AOG managing director Ken Skirka said the Parker offer was attractive for shareholders, and most importantly falls within the valuation range of $2.40 - $2.65, estimated by an independent valuation commissioned by the company after receiving Ensign's original offer.

"The AOG Board will meet to discuss the recent offers made by Ensign and Parker, and last week's takeover offer by Precision Drilling," said Mr Skirka.

AOG told the Australian Stock Exchange that the directors will communicate the board's recommendation to shareholders once all three offers have been fully reviewed. However, in the interim, AOG directors recommended that shareholders sit tight and wait for the board's formal response.

Given that Parker's offer is 11% higher than Precision's, and well within the expert's range, it is highly likely it'll recommend acceptance, which in turn would trigger the payment of a break fee of $1 million that AOG negotiated with Precision.

Parker said in a letter to AOG directors that the combination of the companies would yield a larger and stronger competitor in the drilling business with 69 international land rigs and a total worldwide fleet of 107 rigs, giving it a commanding position in the Asia Pacific.