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Chinese Oil Company Bids for Unocal Corp.

SAN RAMON, Calif. -- China's third-largest oil producer made an unsolicited $18.5 billion bid Thursday for U.S. oil company Unocal Corp., marking the communist nation's most ambitious attempt yet to acquire a Western company and setting the stage for a possible showdown with U.S. politicians concerned about potential national security issues, CBS News Online reported.

The purchase by state-owned CNOOC Ltd., if completed, would be the biggest yet in a multibillion-dollar wave of foreign acquisitions by Chinese firms trying to secure a place in the top ranks of the corporate world.

It comes amid a flurry of Chinese government efforts to secure foreign energy supplies for the country's booming economy.

Unocal already had agreed to be acquired by Chevron for a lower price of $16.6 billion, but said it would evaluate the CNOOC offer. Unocal said its board's earlier recommendation to shareholders to accept the Chevron offer remained in place.

Chevron offered in April to acquire El Segundo, Calif.-based Unocal in a deal that would give Unocal shareholders a choice of $65 per share in cash or Chevron stock or a mix of stock and cash.

In a statement, Chevron Corp. said:

"Chevron stands behind its April 4, 2005, merger agreement with Unocal, which has been approved by the boards of both companies. The Chevron/Unocal agreement combines compelling value, regulatory certainty and accelerated timing, providing a superior transaction for Unocal stockholders. We note today that Unocal publicly affirmed that its board continues to recommend the Chevron transaction.

"Chevron's combination of cash and stock allows Unocal stockholders the opportunity to realize a premium on their investment in Unocal, while continuing their participation in the oil and gas sector through a leading global energy company. Unocal's assets are a superb fit with Chevron's operations and capabilities, creating long-term investment value for stockholders.

"A transaction with Chevron is highly likely to close, while the CNOOC proposal must undergo an extensive regulatory process in the United States and elsewhere.

"Chevron and Unocal are substantially finished with the regulatory process, having already received clearance to proceed from the Federal Trade Commission (FTC) and nearing completion of the process to enable a vote by Unocal stockholders expected in early August. To enable the vote to proceed, Unocal has set June 29, 2005, as its stockholder record date. Chevron is strongly committed to seeing its agreement through to the Unocal stockholder meeting and closing."

A CNOOC takeover of Unocal would require approval from a U.S. government panel that examines the national security implications of selling American companies to foreigners, according to U.S. Energy Secretary Samuel Bodman.

It could face opposition in Washington, where even before CNOOC made its bid, two members of Congress appealed to President Bush last week to review the deal for possible security threats, CBS News Online reported.

CNOOC Chairman and CEO Fu Chengyu insisted Thursday that national security wasn't an issue. "This transaction is purely a commercial transaction," he said in a conference call with reporters. "We are confident that the U.S. government will support this project."

Fu called the bid friendly and said it would be “superior” for Unocal shareholders.

CNOOC said its deal with Unocal would more than double its production and increase reserves by nearly 80 percent. The company also noted that both it and Unocal have a significant presence in Asia, according to the report, and estimated that 85 percent of the combined reserves of both companies are located in Asia and the Caspian Sea region.

The company argued that the combination would result in a more balanced portfolio between natural gas and oil reserves, resulting in protection from price volatility in both commodities.

CNOOC CFO Yang Hua told Dow Jones Newswires that his company is "prepared to closely cooperate ... to get U.S. approval for this deal."

CNOOC said it plans to retain "substantially all employees, including those in the U.S," noting that Chevron, in contrast, plans layoffs.

"We believe the offer will be very good for America as we are going to protect U.S. jobs while continuously marketing (Unocal's) products in the U.S.," Yang said.

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