OREANDA-NEWS. September 12, 2014. China National Offshore Oil Corp. (CNOOC), the country’s main offshore energy explorer, has pulled out of a deal to take a stake in Shenzhen Nanshan Power.

Nanshan’s shares have been suspended from trading on the Shenzhen stock exchange since 9 January, after the company disclosed it was in negotiations to sell a stake to CNOOC subsidiary CNOOC Gas & Power through a private placement of shares. Nanshan resumed trading last Wednesday after receiving a notice from CNOOC Gas & Power to end any potential collaboration. “CNOOC believes the industry positioning and feasibility of this project are questionable and the problems can’t be solved in the short term, therefore the parent company demands CNOOC Gas & Power to stop investing the non-public stock issuance items regarding this project,” Nanshan Power said in a filing last week.

An investor relations representative declined to disclose more information about the deal to Interfax, stating only that Nanshan will focus on restructuring efforts and sustainable development to realise operational targets. The announcement by Nanshan that the acquisition had been abandoned came only a day after it said CNOOC Gas & Power had applied with its parent company to carry out the purchase. Nanshan made a loss of RMB 75.25 million (USD12.23 million) in H1 2014, which it blamed on lower electricity production, high fuel costs and smaller subsidies from the local government. The utility operates three gas-fired power stations in the cities of Shenzhen, Zhongshan and Dongguan that produced 903 GWh in the first half of this year, a decline of 9.3% year on year.

The company has an installed gas-fired power capacity of 1.6 GW, according to its website. Nanshan said in January it expected to receive RMB 295.5 million in subsidies from the government this year, a drop of more than 20% from RMB 375 million in 2013 (see Shenzhen’s Nanshan Power to get USD 49 million in subsidies, 20 January 2014). CNOOC Gas & Power is a wholly owned subsidiary of CNOOC, and is responsible for its parent company’s oil and gas sales, pipeline construction and operation, and power generation assets. It also operates CNOOC’s LNG receiving terminals.

Nanshan buys all its fuel from CNOOC Gas & Power, a source with the utility told Interfax. Under a long-term contract with the company, Nanshan paid RMB 1.95 billion, RMB 1.02 billion and RMB 710 million in 2011, 2012 and the first 10 months of 2013 respectively for LNG from CNOOC Gas & Power’s Guangdong terminal.