Chinese Firm Weighs Bid for Unocal
A Chinese oil company said Tuesday that it might try to top Chevron Corp.’s $16-billion proposed acquisition of Unocal Corp., raising the possibility of a bidding war for the El Segundo-based oil company.
The disclosure by CNOOC Ltd., a division of state-owned China National Offshore Oil Corp., marked the first time that the Chinese entity had confirmed its interest in the exploration and production company.
CNOOC reportedly had been among the companies that had mulled over a bid for Unocal this spring, before Unocal and San Ramon, Calif.-based Chevron reached their deal April 4. Chevron agreed to pay $62 a share in cash and stock for Unocal.
In a filing with the Securities and Exchange Commission, CNOOC said it was “continuing to examine its options with respect to Unocal,” which might “include a possible offer.”
But CNOOC said no decision had been made. Such an offer would by far be the largest acquisition ever attempted by a Chinese company.
Chevron spokesman Don Campbell said “it’s inappropriate for us to comment on the possible actions of others.” But, he said, “we believe our offer, accepted by the Unocal board, is attractive and has a high degree of certainty as to completion.”
Asked whether Chevron would make a counter-bid to any CNOOC offer, he declined to comment. Unocal spokesman Barry Lane also had no comment.
Investors reacted cautiously to CNOOC’s statement. Unocal’s stock rose 61 cents, or 1.1%, to $58.10 a share, while Chevron slipped 7 cents to $54.78. CNOOC’s American depositary receipts, which are similar to shares of stock for U.S. trading, fell 31 cents to $55.46 apiece.
Several of Unocal’s major oil and natural gas projects are in the Asia Pacific region and the Gulf of Mexico, and about 66% of its sales come from foreign sites. Chevron also operates in those areas, and it bid for Unocal in part because it expects to save $325 million a year in operating efficiencies once the companies are joined.
But with China now the world’s fastest-growing major economy and its demand for oil second only to the United States, CNOOC and the rest of China’s oil industry are under pressure to find or acquire additional reserves.
Even so, some analysts said they doubted CNOOC would make an offer for Unocal because it faced several obstacles, including intense U.S. regulatory scrutiny and a likely bidding war with giant Chevron, which had sales of $155.3 billion in 2004. Acquiring Unocal would increase Chevron’s oil and natural gas reserves by about 15%, to the equivalent of 13 billion barrels of oil.
“While it’s possible, I don’t think it’s probable,” said Derek Butter, head of corporate analysis at the Edinburgh, Scotland, office of Wood Mackenzie, an investment firm that focuses on the energy sector.
He noted that the Unocal-Chevron deal included a major deterrent in the form of a “break-up fee,” in which any other acquirer of Unocal would have to pay $500 million to Chevron. And if CNOOC offered stock as part of its bid, Unocal’s investors might object to the offer because of political risks associated with China, he said.
“The Unocal shareholders are perfectly happy to hold Chevron paper [stock] and take some of it in cash,” Butter said. “But Unocal’s shareholders would be less inclined to hold CNOOC paper, so CNOOC would have to top Chevron with an all-cash bid.”
If CNOOC did that, “our main concern would be that [CNOOC] overpays” for Unocal to prevail over Chevron, Lorraine Tan, an equity analyst for Standard & Poor’s Corp., said in a note to clients.
There reportedly is division within CNOOC about Unocal. The Chinese company’s nonexecutive directors have delayed its senior managers’ efforts to launch a bid, with both sides hiring separate investment advisors to evaluate the proposal, the Financial Times has reported.
But the Chinese clearly have their eyes on overseas expansion.
In April, China National Offshore Oil bought a 17% stake in MEG Energy Corp. in Canada, and last month another state-owned oil firm, Sinopec, acquired a 40% interest in a $4.5-billion oil sands project in Alberta, Canada.
One of the biggest foreign acquisitions by a Chinese company was the $1.25-billion purchase of IBM Corp.’s personal computer business by Lenovo Group, China’s largest computer maker, which was completed in May.
Energy Secretary Samuel Bodman declined to say Tuesday whether the Bush administration would try to block a CNOOC takeover of Unocal.
“We were very pleased with the fact that Chevron stepped up and paid the price and was the winning bidder for Unocal,” he told Bloomberg News.
Unocal was founded 115 years ago as Union Oil Co. of California in Santa Paula in Ventura County. With Chevron, it became a major player in California’s energy markets during the 20th century and was known for its Union 76 brand of gasoline.
But Unocal shed its retail, marketing and refining operations in 1997 to focus on exploration and production. It now has development projects in Thailand, Indonesia, Bangladesh, Myanmar and the Caspian Sea region, along with the Gulf of Mexico.
Bolstered by high oil and gas prices, Unocal last year earned a company record $1.2 billion on sales of $8.2 billion.
