- The Washington Times - Tuesday, August 2, 2005

China’s CNOOC Ltd. yesterday dropped its $18.5 billion bid for American energy company Unocal Corp., citing “unprecedented political opposition” in the United States.

“CNOOC has given active consideration to further improving the terms of its offer, and would have done so but for the political environment in the U.S.,” the company said.

The decision clears the way for Chevron Corp. to acquire Unocal for $17.7 billion in cash and stocks.

CNOOC had outbid the San Ramon, Calif., company for Unocal, a California company that produces less than 1 percent of U.S. petroleum, but quickly encountered intense opposition from U.S. lawmakers worried that a company controlled by China’s Communist Party might acquire American energy assets and technology.

Congress demanded rigorous scrutiny of the potential purchase, threatened to block it and wrote into law regulations that would at a minimum delay the transaction by months.

“The big idea was that Beijing could buy its way into the American oil business,” said Larry Neal, spokesman for the House Energy and Commerce Committee. But the offer was “not well-considered, and it collapsed largely because Americans still know the difference between cash and freedom.”

A handful of lawmakers did not oppose the acquisition of Unocal by a Chinese company in principle, but noted a general sense that China is not competing fairly in the global market.

“There was nothing wrong with CNOOC taking over Unocal and for that reason I didn’t oppose the merger. But the furor over China treating American companies and workers unfairly up and down the line is real,” said Sen. Charles E. Schumer, New York Democrat.

CNOOC, more than 70 percent owned by the government-controlled China National Offshore Oil Corp., said it had “purely commercial objectives” and called the political opposition “regrettable and unjustified.”

Unocal shares trading on the New York Stock Exchange climbed 16 cents, or 0.25 percent, to $64.53 yesterday; Chevron shares rose $1.13, or 1.93 percent, to $59.56; and CNOOC’s shares rose $4.15, or 6 percent, to $73.49.

CNOOC’s decision means Unocal, headquartered in El Segundo, likely will be acquired by Chevron, the No. 2 U.S. oil company. Unocal shareholders are scheduled to decide on Chevron’s bid Aug. 10.

Unocal’s board of directors last month recommended shareholders accept Chevron’s offer after it was raised by nearly $2 a share to $64, still less than the $67 offered by CNOOC.

Institutional Shareholder Services, an influential advisory firm, on Monday recommended shareholders vote to accept the Chevron proposal, saying the Chinese company’s bid “is not currently sufficient to compensate Unocal shareholders for the higher risk of the CNOOC transaction.”

Washington’s opinion, not just Wall Street’s, weighed heavily as the two bids proceeded against a backdrop of rising oil prices caused by increasing global energy consumption.

“The odds were not in CNOOC’s favor and it was time to back off,” said Jeb Armstrong, an oil analyst at Argus Research Corp.

But others said Congress’ interference hurt U.S.-China relations and shortchanged Unocal shareholders.

“Unocal shareholders ought to have the final say, not Congress. The immediate losers are Unocal shareholders,” said Jerry Taylor, director of natural resource studies at the Cato Institute, a Washington think tank.

Some analysts have speculated that the Chinese company may have set its sights on another U.S. energy company, but Congress is unlikely to ease the way forCNOOC to acquire a company that produces more oil than Unocal.

The company, China’s largest producer of offshore oil and natural gas, said: “We look forward to continuing our strategy and business plan and to growing our business for our shareholders.”

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