Blockage of Unocal sale urged

The chairman of the House Armed Services Committee said yesterday he is considering “all options,” including legislation, to block a Chinese company from buying Unocal, a California oil and natural gas concern.

“I think the transaction should not be allowed to go forward,” said Rep. Duncan Hunter, California Republican, the chairman, after a committee hearing on the China National Offshore Oil Corp.’s (CNOOC) proposed takeover of Unocal.

“We’re looking at all options to weigh into the transaction,” Mr. Hunter said.

CNOOC last month announced an $18.5 billion offer for Unocal, the ninth-largest U.S. oil and gas company. The company is willing to pay more than California-based Chevron Corp., which had been nearing a merger with its own $16.4 billion offer.

Unocal’s shareholders are scheduled to vote on the Chevron deal Aug. 10, and could still accept the American company’s offer.

But members of Congress are not waiting for investors to decide. Already concerned by rising competition from China, lawmakers have raised national security and economic objections to the proposed CNOOC acquisition.

Mr. Hunter yesterday called for an intense government review after his committee heard dire warnings about the implications of China’s bid.

“I believe [China’s] aim is inexorably to supplant the United States as the world’s premier economic power and, if necessary, to defeat us militarily,” said Frank Gaffney Jr., president of the Center for Security Policy.

“China’s strategic approach threatens the long-term viability of U.S. policy to rely on open markets, to promote energy security for everyone and to promote sharing arrangements in the event of supply disruptions,” said Richard D’Amato, chairman of the congressionally chartered U.S.-China Economic and Security Review Commission.

Mr. D’Amato noted that CNOOC is 70 percent owned by China’s Communist government and the Unocal purchase would be subsidized through government banks.

Others discount national security implications of the proposed purchase.

“I believe those fears are ill-founded and not worth much of our time,” Jerry Taylor, director of natural resource studies at the Cato Institute, a Washington think tank, told the committee.

Mr. Hunter did not elaborate on what Congress might do to block a CNOOC acquisition of Unocal, but any uncertainty plays into Chevron’s hand.

“There are questions about regulatory approval. That is what is going to weigh on the Unocal board, more than perhaps the national security issues,” Antoine Halff, director of global energy with the Eurasia Group, said from New York.

Lawmakers also are likely to pressure the White House to block a CNOOC deal — and Congress has given the president authority to do so.

The Committee on Foreign Investments in the United States (CFIUS), a Treasury Department-led panel, would likely review the CNOOC purchase if it were to proceed, and can recommend that the president stop the acquisition on national security grounds.

Only once has a CFIUS recommendation led to a presidential decree prohibiting the acquisition of an American enterprise. In 1990, the first President Bush forced a Chinese aerospace company owned by the government to divest from a Seattle-based fabricator of aircraft components.

The White House has said little on the potential deal.

“Well, look, the position is going to come out of that CFIUS process. But, obviously, when a foreign-government owned [company] acquires a U.S. company, it raises some questions,” Steve Hadley, the president’s national security adviser, said July 5. “So it’s obviously something we’re going to have to look at.”