Chinese Oil Firm to Stick With Unocal Bid

LOS ANGELES – The Chinese oil and gas company seeking to buy Unocal Corp. said Wednesday it would stick by its current bid – even after Unocal’s board endorsed a sweetened offer from rival bidder Chevron Corp.

“We regret that they have not yet embraced our offer,” CNOOC Ltd. said in a prepared statement. “We will continue to monitor the situation actively.”

Chevron boosted its cash and stock offer by about $2.50 per share to $63 per share – or $17 billion overall – shortly before the Unocal board met Tuesday night.

CNOOC, an affiliate of China National Offshore Oil Corp., has an $18.5 billion offer on the table for the El Segundo-based company.

The deal has met stiff opposition in Congress because CNOOC is 70 percent owned by the Chinese government.

Analysts said CNOOC will likely have to increase its offer and add a substantial financial guarantee if it wants to persuade Unocal shareholders to reject the Chevron bid in a vote scheduled for Aug. 10.

“It is too late for them to pull out,” said Fadel Gheit, an analyst with Oppenheimer who covers Unocal.

“You are not dealing with a bunch of investors. You are dealing with the pride of the Chinese Communist Party,” he said.

Gheit believes CNOOC would have to raise its bid to around $70 a share and offer a guarantee to Unocal shareholders, who stand to take a hit if they reject the Chevron bid only to see the CNOOC bid scuttled by federal regulators.

The guarantee would have to be around $7 a share, or as much as $3 billion, Gheit said.

Other analysts said the Chevron bid is superior and should prevail despite its lower value because it carries fewer “closing risks” and is backed by the Unocal board.

“While it is difficult to determine CNOOC’s ultimate response, it appears clear the Unocal board favors Chevron over CNOOC and the narrowing of the two bids makes it more compelling for investors to approve the transaction Aug. 10,” analyst Bruce Lanni of A.G. Edwards wrote Wednesday in a note to clients.

Merrill Lynch analyst John P. Herrlin called the Chevron bid superior in part because its stock component is more tax efficient for Unocal shareholders.

U.S. Sen. Diane Feinstein said she supports the latest tentative deal between Unocal and Chevron, based in San Ramon.

“While this is a complicated business deal, I think the Unocal board made the right decision based on the times and the complications of the financing,” she said in a statement.

Consideration by federal regulators could take six months or more and is highly uncertain given the political opposition to the proposed deal. Chevron, by contrast, has already secured regulatory approvals and has said it could close the transaction within days of the Aug. 10 vote.

Some members of Congress insist the deal would hurt national security and result in vital energy resources being redirected to China. CNOOC has tried to defuse political opposition to its bid by asking the Committee on Foreign Investment in the United States to review its offer.

The group, led by Treasury Secretary John Snow, was created to monitor foreign investment activity in the United States with an eye on protecting national security.

Lawmakers also have complained that CNOOC’s bid for Unocal is part of a broader strategy by communist China to hoard energy supplies before they run out. Another concern is that the United States might unintentionally hand over technology or assets that have military value.

The House registered its discomfort last month by approving a resolution that asks the president for an immediate and thorough review if Unocal accepts CNOOC’s offer.

Nine senators sent a letter Tuesday to President Bush urging a full investigation into CNOOC’s proposed acquisition of Unocal.

Chevron Corp. explores for, refines and transports crude oil and gas. Unocal’s operations are in exploration and production of crude oil and natural gas, with no refineries or gasoline stations.

Together the two companies account for more than 11 percent of U.S. crude oil production.