China's CNOOC drops bid for Unocal

Prized asset
San Ramon-based Chevron initially agreed to buy Unocal in early April for $62 per share. Unocal — prized for its oil and natural gas supplies in Asia and the Gulf of Mexico — also had been negotiating with CNOOC and another unidentified bidder believed to be Italy-based Eni SpA.

After Chevron had already received all the required regulatory approvals to buy Unocal, CNOOC tried to break up the marriage six weeks ago with an all-cash offer of $67 per share.

CNOOC’s move triggered a political furor that reflected the United States’ concerns about the China’s increasing financial muscle and its bustling economy’s growing thirst for oil.

Many lawmakers also fretted Unocal’s oil drilling might have military applications that could some day be used against the United States.

Most industry experts doubted those concerns were well founded, but Morici thinks Congress raised legitimate issues. “I don’t know why we should give our oil technology or any other kind of technology to an authoritarian country like China,” he said.

Although he didn’t oppose CNOOC’s bid, Sen. Charles Schumer, D-New York, also criticized China’s treatment of workers and its resistance to foreign investment in its own country.

“The furor over China treating American companies and workers unfairly up and down the line is real,” Schumer said in a statement. “If China were open to American companies buying Chinese companies, I think CNOOC would have had a much easier time of it.”

Hoping to allay the fears about its bid, CNOOC had agreed to sell Unocal’s U.S. assets and promised to retain all of Unocal’s workers — something that Chevron is unlikely to do. Even as it dropped its bid, CNOOC reiterated Tuesday that its interest in Unocal was “purely commercial.”

CNOOC’s ownership structure also raised hackles in Congress. The company is part of the China National Offshore Oil Corp., which is 70 percent owned by China’s government — an arrangement that helped secure favorable financing terms unavailable to Chevron.

Raising concerns about the financing became a pivotal issue because it made it more difficult for CNOOC to raise its bid without fueling the perception that its offer was being bankrolled by a deep-pocketed government, Gheit said. “They didn’t want to put even more fuel on that fire, so it became a tremendously uphill battle for them.”

Despite the prickly politics, Unocal’s board appeared poised to accept CNOOC’s offer until Chevron agreed to sweeten its offer two weeks ago.

CNOOC’s board had authorized a bid increase to $69 per share, but the company’s chairman, Fu Chengyu, declined unless Unocal agreed to pay the $500 million fee that would have been owed to Chevron if its bid lost out. Unocal refused, and reaffirmed its commitment to Chevron.

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