Santos Ltd has taken a large stake in New South Wales-based coal seam gas (CSG) explorer and producer Eastern Star Gas Ltd but has ruled out a takeover.

It has also acquired additional CSG acreage in the state under a separate deal.

Santos, Australia's third largest oil and gas producer, said in a statement on Thursday that the total value of the deals was $476 million, including $176 million for Hillgrove Resources Ltd's 19.9 per cent stake in Eastern Star.

Santos also acquired Gastar Exploration Ltd's 35 per cent interest in various Gunnedah Basin CSG exploration permits and production areas operated by Eastern Star for $300 million.

Santos said the deals would consolidate the leadership position of both Santos and Eastern Star among the 15 companies active in NSW's CSG sector.

Santos and Eastern Star's combination of operated CSG permits in the Gunnedah Basin in the state's north west will cover an area of about 63,000 square kilometres, containing potential resources of more than 50 trillion cubic feet (tcf), with Santos' ground accounting for about 40 tcf.

By comparison, Santos' CSG resource potential at Gladstone is about 20tcf.

"The transaction ... provides a basis for each party to work together to accelerate the development of the region and a range of commercialisation opportunities, including domestic gas supply, power generation and future LNG (liquefied natural gas) options," Santos said.

Santos chief executive David Knox said the companies would jointly advance the region's potential as Australia's next major CSG province.

Queensland's Gladstone area is the nation's top CSG hotspot, where Santos is also active.

Santos manager of corporate communications Matthew Doman told AAP that Santos did not plan to launch a takeover offer for Eastern Star.

Rather, the transaction "is about providing the basis for both companies to work together to accelerate development of Australia's next CSG province".

Eastern Star chief executive David Casey said in a statement that Santos' broad CSG experience and market presence was expected "to enhance opportunities for rapid project development".

"Santos' neighbouring Gunnedah Basin CSG tenements and downstream involvements, including LNG, provide multiple avenues for collaboration and joint development initiatives," Mr Casey said.

He said Eastern Star had substantial gas resources but did not have the same pathways as Santos to develop and market its gas.

"We expect that this transaction will play a key role in removing that constraint and unlocking value for both parties."

A main focus for Eastern Star is its Narrabri CSG project, where it is producing gas under a pilot program for Wilga Park power station.

Under the deal with Gastar, Santos will pay a further $20 million if Eastern Star meets certain CSG reserve targets by the end of calendar 2009.

Santos' payment for the stake in Eastern Star equates to $1 per share, compared to Eastern Star's closing share price on Thursday of 80.5 cents, down 1.5 cents, or 1.83 per cent.