MELBOURNE, Dec 2 (Reuters) - Shares in Santos Ltd went on a trading halt on Wednesday amid speculation its retail investors bought only about a third of the A$1.35 billion ($987 million) of shares offered by the oil and gas producer in a move to pay down debt.

The sale to retail investors was part of a A$2.5 billion entitlement offer announced in November after Santos snubbed a takeover offer and sold some assets to cut debt and prepare for a prolonged period of weak oil prices.

The offer was fully underwritten by Citi, Deutsche Bank and UBS, who will put the remaining shares up for auction on Thursday.

Santos declined to comment immediately on how big the shortfall was on the retail sale, which followed the offer of $1.17 billion of new stock to institutional investors, who took up about 86 percent of their entitlements.

The Australian Financial Review newspaper said there was talk that the underwriters were left holding between A$900 million and A$1 billion worth of shares.

Citi, Deutsche and UBS spokeswomen were not immediately available to comment.

The offer was priced at A$3.85 a share, which was a massive 35 percent discount to Santos' closing price before it was announced.

Santos shares last traded at A$4.06, down 43 percent this year and well below the A$6.88 a share offered by its jilted suitor Scepter, a fund backed by Brunei and United Arab Emirates royals.

($1 = 1.3678 Australian dollars) (Reporting by Sonali Paul; Editing by Stephen Coates)