The Wolves teenager turned down a call-up for Northern Ireland's U21s last week having informed the Irish Football Association of his decision.
O'Neill was confident he could secure the services of the 19-year-old because of his relationship with Northern Ireland U21 coach Stephen Robinson.
"It was one which came as a little bit of a surprise to us," O'Neill said. "He has a good relationship with Stephen Robinson, our Under-21 coach.
"I met Liam personally on a couple of occasions and we met with him hoping that might persuade him to stay with Northern Ireland, but he has decided to stick by his decision.
"I think for family reasons he maybe felt a greater sway to play for the Republic of Ireland. He mentioned that when we did have a meeting with him.
"I believe he would certainly have a greater chance to play for us at senior level in the near future than he will do with the Republic of Ireland, but ultimately the decision lies with the player."