Chinese company still looking at making an offer for Unocal

CNOOC, the Chinese offshore oil company, is still pondering a competing bid for Unocal, CNOOC said in a statement to the Hong Kong Stock Exchange June 7. Unocal has agreed to be acquired by Chevron for about $16 billion in cash and stock.

CNOOC’s statement was in response to an article on the Bloomberg news wire June 6, saying it was not considering a Unocal offer.

“The company announces that it is continuing to examine its options with respect to Unocal,” the CNOOC statement said. “These options include a possible offer by the company for Unocal, but no decision has been made in this respect.”

CNOOC, which is controlled by the Chinese government, has hired the investment bank Rothschild to provide an independent assessment of the deal, according to S&P Equity Research.

Going after Chevron on its own U.S. turf would be a difficult battle for CNOOC, which had considered a bid earlier this year. But the firm held back as Unocal’s board accepted Chevron’s April offer, which includes a $500 million breakup fee to Chevron if anyone else buys Unocal.

When asked to comment on CNOOC’s statement, Chevron spokesman Don Campbell told the Los Angeles Times, “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.” Unocal had no comment.

Some analysts doubted if CNOOC would make an offer for Unocal.

“The Unocal shareholders are perfectly happy to hold Chevron paper (stock) and take some of it in cash. But Unocal’s shareholders would be less inclined to hold CNOOC paper, so CNOOC would have to top Chevron with an all-cash bid,” said Derek Butter, head of corporate analysis at the Edinburgh, Scotland, office of Wood Mackenzie.

To trump Chevron’s offer for Unocal, CNOOC would have to pay at least US$18 billion, which represents 80 percent of its market capital, said DBS Vickers June 9.

It went onto say, “In our view, the financial risks are very high for CNOOC to pay such a price for Unocal at cycle peak;” also, Unocal’s U.S. assets offer little synergy, presenting higher operating risk for CNOOC as it lacks experience in United States. “We expect that CNOOC is only interested in acquiring Unocal’s assets in Asia either from Unocal or Chevron.”

Meanwhile, Chevron and Unocal are moving forward on their merger. On June 8, the companies reached an agreement with Federal Trade Commission staff on a proposed settlement that would allow their merger to close.

But it remains to be seen whether FTC’s commissioners will approve the companies’ proposal, said Joe Simons, an attorney for Paul Weiss Rifkind Wharton & Garrison, and former director of the FTC’s Bureau of Competition. “I don’t know if the commission will approve it or not. They might send it back to adjudication. … The commissioners may ask for additional conditions that Unocal may or may not agree to.”

CNOOC now produces about 380,000 barrels of oil equivalent daily; Unocal about 430,000 BOE.

—Allen Baker and AP contributed to this Petroleum News report