Cnooc Ltd., China’s third-largest oil company and it’s major explorer of offshore oil and gas, yesterday made an unsolicited $18.5 billion cash bid for El Segundo, CA.-based Unocal Corp. The bid is attempting to scuttle the earlier $16.5 billion bid that San Ramone, CA.-based Chevron Corp. made for Unocal in April.
If successful, Cnooc’s bid would be the largest foreign acquisition ever attempted by a Chinese company and would be the first time that a Chinese and U.S. company have competed in a takeover battle. Cnooc had been considering making a bid for Unocal in April, but backed off at the last minute.
Inasmuch as a good case can be made that Chevron’s bid was over-priced, Cnooc’s offer for Unocal reflects that China’s government (about a 70% owner of Cnooc) will pay a high price to gain direct control over more energy assets to fuel its booming economy. Nearly half of Unocal’s reserves — the oil and natural gas equivalent of about 1.75 billion barrels — consists of natural gas in Asia. Cnooc is offering $67 a share for Unocal, and would have to pay Chevron a $500 million breakup fee and assume Unocal’s $1.6 billion in debt.
Although Cnooc’s bid will undoubtedly raise political concerns in Washington, prominent U.S. executives advised political interests to remain calm. The Wall Street Journal reported that Exxon Mobil Corp. Chief Executive Lee Raymond said it would be a “big mistake” for the U.S. government to block Cnnoc’s bid. “You have to have free trade. If you start to put inefficiencies in the system, all of us eventually pay for that.”