- The Washington Times - Thursday, June 30, 2005

BEIJING — The chairman of CNOOC Ltd. and the public face of its $18.5 billion bid for Unocal Corp. prides himself on his — and his company’s — Western ways.

Chief Executive Officer Fu Chengyu speaks fluent English, earned his master’s degree in Los Angeles and tells interviewers he has that most un-Chinese of traits — he drinks coffee, not tea.

Under Mr. Fu’s leadership, state-owned CNOOC has won a reputation as one of China’s best-run companies, with a Western-style focus on transparent finances on top of its two decades of experience dealing with foreign partners and global markets.

“CNOOC management generally gives an image of being more like a Western company, compared with other Chinese state companies,” said Gideon Lo, an industry analyst for DBS Vickers Securities in Hong Kong.

Overnight, the Unocal bid made Mr. Fu the most famous of a generation of Chinese managers who are trying to turn plodding, state-owned companies into nimble, profitable competitors. The biggest among them are pursuing a multibillion-dollar wave of foreign acquisitions, trying to seize a place as global competitors.

At 54, Mr. Fu brings an unusual mix of skills to his task — experience in the grimy work of oil drilling, plus an American education and exposure to the top ranks of the global oil industry.

Mr. Fu went to work for China National Offshore Oil Corp. when it was created in 1982 to make deals with foreign partners to drill for oil in China’s coastal waters. The company is the mainland parent of Hong Kong-based CNOOC Ltd., China’s third-largest oil company.

In the early 1980s, Mr. Fu joined the first wave of Chinese graduate students in the United States. He earned a master’s degree in petroleum engineering from the University of Southern California.

Back in China, Mr. Fu spent a decade overseeing ventures with BP Amoco, Texaco, Phillips Petroleum, Shell and Chevron, the Chinese firm’s current rival in the bidding for Unocal, the ninth-biggest U.S. oil firm.

“Those experiences made me understand more and more the international oil industry and the importance of international capital markets,” Mr. Fu told the Financial Times newspaper last week. “We are not really like other Chinese companies. Our systems, models and processes are more like our Western counterparts.”

Mr. Fu’s experience also taught him to speak the language of corporate America.

When CNOOC — pronounced “SEE-nook” — announced its Unocal bid, Mr. Fu got personally involved in wooing both shareholders and management, promising a better payoff than Chevron and almost no job losses.

He has stepped up his role over the past week as his company’s chief image-maker, giving interviews to the Western financial press and trying to ease U.S. worries about the potential security risks of letting a Chinese state firm take over a major American oil company.

Mr. Fu insists that despite CNOOC’s government ties, the latest offer is strictly commercial. A day after the bid was announced, he said the company was willing to discuss selling some Unocal assets and putting others under American management.

“We know this bid is historic for both companies and will be closely scrutinized by everyone involved,” Mr. Fu said Monday in a letter to the U.S. Congress, saying CNOOC was eager to submit to regulatory review. “I want you to know that we encourage that review and welcome the opportunity to participate.”

CNOOC Ltd. was created in 1999 as the Hong Kong arm of its Chinese parent. The parent bestowed on the new firm its plum asset — a monopoly on oil and gas drilling in China’s coastal waters, which makes it a sought-after partner for foreign oil companies.

Creating such a Hong Kong base is a popular first step for Chinese state firms that venture abroad. They can tap the territory’s financial markets and talent pool, and its respected Western-style legal system reassures foreign customers and partners.

CNOOC’s work force is tiny by the standards of China’s oil industry, with just 2,524 employees, compared with tens of thousands at the state firms that operate the country’s mainland oil fields.

Profits last year rose 40.3 percent to a record-high 16.2 billion yuan ($1.95 billion), the company reports.

It also says it is trying to grow beyond its early reliance on foreign contracts by developing its own independent projects. It has taken part in drilling work in Indonesia and Australia.

Mr. Fu was named head of CNOOC in 2002 and president of its Chinese parent early the next year. At CNOOC, he was paid 1,880,000 Hong Kong dollars ($240,000) last year — a huge sum for China, where urban incomes per person average just $1,000 a year, but still modest by Hong Kong’s loftier standards for corporate pay.

The Chinese parent owns 70 percent of CNOOC, but the Hong Kong firm has taken the unusual step for a state-controlled company of naming four independent directors, including Kenneth Courtis, vice chairman of Goldman Sachs Asia, and retired Shell executive Evert Henkes.

In an even rarer step for a Chinese boss, Mr. Fu reportedly deferred to the outside directors earlier this year and postponed a Unocal bid to let them scrutinize whether it would benefit CNOOC’s nongovernment shareholders.

Even though the all-cash bid went ahead, financial analysts question whether it makes economic sense and who is really paying for it.

About $7 billion of the purchase price would be lent by CNOOC’s mainland parent company. It isn’t clear whether the parent has that much cash, and analysts say much of it might have to come from the Communist government’s treasury.


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