China National Offshore Oil and Gas Corp (CNOOC) is set to inject its struggling natural gas terminal and power unit into its flagship listed vehicle CNOOC Ltd, three senior sources with knowledge of the matter said.
The plan for the internal merger, first looked into a year ago by top management at China's third-biggest energy major, has been revived given sharp losses last year at the unit's gas trading division and a government-mandated industry reshuffle that will anyway absorb some of its terminal assets.
While the merger could help raise the proportion of cleaner-burning gas in CNOOC Ltd's output portfolio and improve its "green" profile, similar to global peers like Shell and Total, the deal is likely to struggle to attract investors given the steep losses at the gas and power unit.
"Shareholders may have welcomed it in 2017 or 2018 when China's gas demand soared and terminal business was robust," said an equity analyst with a western bank who tracks CNOOC Ltd.
"But the timing is wrong now because of the unit's big trading losses," the analyst added. CNOOC said it does not comment on market speculation, while a top executive at the gas and power unit declined to comment.
But, one source, who advises CNOOC on strategic matters, described the plan as "group level strategy", although all three sources said there was no specific timeline for the deal yet.
"Apart from internal synergy ... an extension into the mid-and-downstream gas business can be a trendy topic in the capital markets as investors increasingly favor a 'green' energy firm," a second senior source said.
All declined to be named given the sensitivity of the matter. The deal would require shareholder approval to go through. CNOOC Ltd is about 64% owned by parent CNOOC.
DEEP LOSSES
CNOOC started examining the feasibility of injecting the power and gas unit into CNOOC Ltd under previous Chairman Yang Hua, a veteran in offshore oil and gas exploration.
But the push only gathered steam after Wang Dongjin - former president of PetroChina, China's largest integrated oil and gas firm - took over as chairman in late 2019. Under Wang, the group's focus has moved to consolidation, away from an operating model of running distinct specialized listed units such as oilfield services and engineering.
The proposed internal merger, for instance, could help end the internal bickering over what price CNOOC Ltd should charge the gas and power unit for the offshore gas supplied, said the second senior person who was directly involved in the studies.
The power and gas unit, formally known as CNOOC Gas and Power Group Ltd, last year suffered its deepest loss in more than a decade in its international trade of liquefied natural gas (LNG), as growth in gas demand slowed at home and local prices dropped below CNOOC's long-term contract rates.
CNOOC Gas and Power is China's largest buyer of LNG. With stakes in seven gas-fuelled power plants along China's coast with total installed capacity of 8.7 gigawatts, the unit is also the country's No.5 gas-based generator, its website shows. It owns a stake in the Curtis coal-seam gas project in Queensland, Australia that CNOOC acquired in 2010.
The unit has 10 operating LNG terminals and three under construction. But seven of those, including two under construction, are expected to be absorbed late this year into PipeChina, a new state entity governing China's oil and gas infrastructure, a CNOOC official said.
(Reporting by Chen Aizhu; Editing by Himani Sarkar)
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