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Chinese Oil Firm Bids for Unocal

The $18.5-billion offer, which tops Chevron's, raises concerns about the potential for foreign ownership of a U.S. energy company.

June 23, 2005|James F. Peltz, Elizabeth Douglass and Evelyn Iritani | Times Staff Writers

A major Chinese oil company made a landmark offer to buy California-based Unocal Corp. for $18.5 billion on Wednesday, topping a bid by rival U.S. oil giant Chevron Corp. and setting the stage for an intense political debate over the future of U.S. energy, security and trade policies.

The unsolicited offer by CNOOC Ltd., an arm of state-owned China National Offshore Oil Corp., was the most dramatic example yet of China's growing influence in global markets and would be China's largest foreign acquisition by far.

The proposed buyout could raise hackles in the United States, which is heavily dependent on foreign oil. China's fast-growing economy is consuming ever-larger amounts of crude, which is helping to drive the price to record heights on world markets, and CNOOC wants to add Unocal's assets to its energy reserves.

Fu Chengyu, CNOOC's chairman and chief executive, said his company's $67-a-share cash bid "is a good offer for Unocal" and "it is good for America."

In a telephone interview from Beijing, Fu noted that CNOOC's proposal to Unocal included several pledges to assuage U.S. concerns, such as keeping most of Unocal's 6,600 workers and selling its U.S.-produced oil and gas within the United States.

If people "have a better understanding" of CNOOC, "I think there will be less concern both politically and maybe economically," said Fu, who earned a master's degree in petroleum engineering from USC and once worked for Phillips Petroleum Co., now part of ConocoPhillips.

Still, CNOOC's proposal is likely to incite a "firestorm" in Congress, said Mikkal Herberg, director of the Asian Energy Security program at the National Bureau of Asian Research, a Seattle think tank.

Herberg predicted that the CNOOC bid would "feed the fear that the Chinese are coming, the Chinese are coming," and could further inflame tensions between the two countries over textile trade and currency issues.

One congressman, Rep. Richard W. Pombo (R-Tracy), said he didn't believe it was "in the best interest of the United States to have Unocal owned by the Chinese national government," adding that the deal could have "disastrous consequences for our economic and national security."

Pombo and Rep. Duncan Hunter (R-El Cajon) sent a letter to President Bush last week urging him to look closely at any Chinese bid to acquire U.S. energy assets. Such an attempt "raises many concerns about U.S. jobs, energy production and energy security," their letter said.

C. Richard D'Amato, chairman of the U.S.-China Economic and Security Review Commission, a congressional advisory panel that has been sharply critical of U.S. policy toward China, said his group would also ask President Bush to closely review the CNOOC offer.

"When we're so dependent on foreign suppliers, giving away American sources of petroleum and hydrocarbons doesn't make sense to me," said D'Amato, an attorney and former member of the Maryland state legislature.

White House spokesman Trent Duffy declined to comment Wednesday on CNOOC's offer.

Under U.S. law, the Committee on Foreign Investment in the United States -- an interagency committee headed by Treasury Secretary John W. Snow -- is responsible for reviewing any foreign purchases that could threaten U.S. security.

Herberg, of the National Bureau of Asian Research, said some specific security issues related to a CNOOC-Unocal deal could trigger U.S. concern. Unocal has some "very, very good deep-water exploration skills" developed in projects off Indonesia and Mexico that could have military applications, he said.

Critics are likely to "question letting that technology fall into the hands of the Chinese government," said Herberg, who recently testified on China's energy strategy before the Senate Foreign Relations Committee.

In a conference call with reporters, Fu said the transaction wouldn't have "any negative impact to the national security interests of the United States.... People need to understand this is a purely commercial transaction, driven by market forces and market considerations."

Chinese analysts and those connected with the government said that CNOOC's bid for El Segundo-based Unocal was an independent commercial decision made by the company, not a move directed by Beijing.

"Through an acquisition of another company, CNOOC wants to expand their business in Asia," said Han Wenke, vice director of the energy institute affiliated with the National Development and Reform Commission, a regulatory agency of the Chinese central government.

CNOOC's move also could create crosscurrents for the Bush administration and its commitment to increased trade, free commodities markets and U.S. investment in China.

Indeed, Fu said during the conference call that he believed the transaction would prevail "with the U.S. government being the champion of global free trade ... and also with so many American companies making investments and acquisitions in China."

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