UPDATE 1-Australia's Arc in bid talks with AWE, shares surge

(Adds details, share reaction)

SYDNEY, April 14 (Reuters) - Oil and gas explorer Arc Energy Ltd ARQ.AX said on Monday it is in talks with Australian Worldwide Exploration Ltd (AWE) (AWE.AX) about a possible takeover bid by AWE, sending its shares up 16 percent.

Arc was responding to a newspaper report earlier that AWE was planning a takeover offer worth about A$500 million ($463 million).

"ARC has not been provided with an offer in a form capable of acceptance or suitable to be put to shareholders," the company said in a statement.

It said the potential deal was subject to a number of conditions, including agreement on price and completion of due diligence.

"Discussions between ARC and AWE are ongoing and until there is greater certainty surrounding the terms of any offer it would be inappropriate for ARC to comment further," ARC said.

Arc Energy shares were up 14.1 percent to A$1.42 in early trade after rising to as high as A$1.45, while AWE shares lost 2.78 percent to A$3.50. The broader market was down 2 percent.

Citing no sources, the Sydney Morning Herald newspaper said the two companies were discussing a friendly, cash and share bid at about A$1.58 a share, 27 percent above the A$1.24 close of Arc on Friday.

The deal would give AWE more exposure to two projects in western and southern Australia that they both have stakes in, it said.

AWE, which has a market value of about A$1.6 billion, has production assets in Australia and Argentina. It produced 4 million barrels of oil equivalent in 2007.

Arc Energy lost out in an attempt to buy Anzon Australia Ltd AZA.AX earlier this year. ($1=A$1.08) (Reporting by Victoria Thieberger; editing by Jonathan Standing)