House says No to China Oil Deal

[Moses]

House Says No to China Oil Deal

By Maura Reynolds, Times Staff Writer

WASHINGTON — Voicing concern about national security and the U.S. economy, the House of Representatives passed two measures Thursday aimed at blocking the proposed takeover of El Segundo-based Unocal Corp. by a Chinese oil company.

In a strong bipartisan vote of 333 to 92, the House approved an amendment to a Treasury Department spending bill forbidding the administration from using federal funds to approve the bid by CNOOC Ltd., an arm of government-owned China National Offshore Oil Corp., to buy Unocal for $18.5 billion.

The Treasury Department reviews proposals for significant foreign investment in U.S. companies to ensure that national security isn't damaged, a process that would involve use of federal funds. The review is conducted through the multi-agency Committee on Foreign Investment in the United States, which has seldom blocked foreign investments or mergers.

But more important than its specific terms, the amendment, sponsored by Rep. Carolyn C. Kilpatrick (D-Mich.), was a vehicle for expressing congressional displeasure at the proposal.

"Why do we want to sell our oil to a global economic competitor?" Kilpatrick said. "Americans deserve a thorough government evaluation of the implications of Unocal's takeover by one of our chief economic competitors."

Although the amendment was passed, it could be changed or removed when members of the House and the Senate meet to reconcile their versions of the legislation.

In a separate action, the House approved a resolution, in a late-night 398-15 vote, expressing the chamber's concern that the proposed buyout "could threaten to impair the national security of the United States" and asking the president to initiate a review if the companies proceed.

"I believe it is imperative that the United States protect its access to Unocal's energy resources in order to protect our economy and our national security," said Rep. Richard W. Pombo (R-Tracy), who sponsored the resolution.

Opponents of the resolution argued that permitting the Chinese to buy Unocal was only fair, considering that China is one of the largest holders of U.S. debt. They also noted that Unocal supplies only about 1% of the country's petroleum.

"This resolution basically missed the point," said Rep. Earl Blumenauer (D-Ore.). "The problem we have now is … we are as addicted to the Chinese loans, to their credit to us, as we are to Saudi oil."

Unocal's board is weighing competing offers from CNOOC and Chevron Corp. of San Ramon, Calif., which is in Pombo's congressional district. CNOOC's $18.5-billion, all-cash offer for Unocal is equal to $67 a share.

The value of Chevron's cash-and-stock offer changes daily with the price of Chevron's stock. Chevron's shares closed Thursday at $55.92, down 84 cents, making its Unocal bid worth about $59.45 a share, or $16.2 billion. Unocal shares closed at $65.05, down 15 cents, and CNOOC's U.S.-traded shares closed at $59.32, up 7 cents.

"Today's resolution calls for what CNOOC has been suggesting all along, namely, a thorough review of the transaction," said Mark Palmer, a U.S. representative for the Chinese company. "Despite the heated rhetoric, we firmly believe the [Treasury review] process will be fair, thorough and not influenced by either emotion or politics."

The Chinese company has pledged to sell Unocal's U.S.-produced oil and natural gas within the United States. Unocal owns substantial reserves in Asia, and the Chinese government is eager to find long-term sources of fuel for its growing economy.

Chevron spokesman Don Campbell said the company appreciated "the open and vigorous debate" in Congress, and he repeated the company's contention that the CNOOC offer was being unfairly subsidized through cheap financing from Chinese-government-related entities.

Also Thursday, Unocal said high energy prices boosted its second-quarter profit more than 20% above analyst expectations. Unocal said it would report after-tax second-quarter income, excluding some items, of $1.65 to $1.70 a share Aug. 1, exceeding the average estimate of $1.36 a share from analysts surveyed by Thomson First Call.
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Times staff writer Elizabeth Douglass contributed to this report.

[Moses]

www.latimes.com/business/la-fi-cnooc4jul04,1,1983340.story?coll=la-headlines-business

Chinese CEO Defends Oil Bid as U.S.-Style

Foes of CNOOC's offer for Unocal don't understand energy markets or China's economic reforms, Fu Chengyu says.
By Don Lee
Times Staff Writer

July 4, 2005
BEIJING — As Fu Chengyu sees it, the political maelstrom brewing in Washington over his Chinese oil company's bid to buy Unocal Corp. stems from a misunderstanding of global oil markets and the deep reforms that have taken place in China over the last two decades.

The chief executive of CNOOC Ltd. said those opposing the $18.5-billion offer because of national security concerns might simply be "scared and surprised" by China's rapid rise in the world.

"The Chinese people and government are learning from the U.S. We are adopting the free-trade system very quickly, even though it's not perfect," Fu said Friday in an interview, speaking in English. He cited his company as an example: "We are using U.S. bankers, advisors, exactly meeting the processes of U.S. market requirements" for mergers and acquisitions.

If CNOOC's bid for Unocal is thwarted by politicians, Fu says, it will send a powerful message to the Chinese and the rest of the world. "Suddenly, [it would be as if] we found out that our teachers [of free trade] said that what they told us was not workable."

He said China would not hoard Unocal's reserves of oil and natural gas because doing so would require shipping them long distances, at high cost, or breaking long-term contracts.

Fu's comments came shortly after the U.S. House of Representatives passed two measures late Thursday, Washington time, aimed at blocking CNOOC's proposed takeover of El Segundo-based Unocal. One was a resolution expressing concern that such an acquisition could harm U.S. national security. [So I guess they now understand Putin's actions? -- hypocrits!] The other, an amendment to an appropriations bill, seeks to prevent the Bush administration from using federal funds to approve the Chinese bid, which topped a $16.5-billion offer made by Chevron Corp. in April.

Other Chinese have raised the specter of a backlash if CNOOC's bid is derailed by politics. "The consequence will be all the other Chinese companies will despise the Western game rules," said Han Xiaoping, general manager of Falcon Power Ltd., a consulting firm in Beijing.

CNOOC said Friday that it had filed papers with the Committee on Foreign Investment in the United States, a multiagency group led by Treasury Secretary John W. Snow that examines proposed deals by foreign entities from a national security point of view. CNOOC is seeking an expeditious review. Unocal shareholders are set to vote Aug. 10 on Chevron's bid.

CNOOC's offer, unveiled two weeks ago, has engendered considerable opposition from those who say the oil company is simply an agent of the Chinese government. CNOOC's stock is listed in Hong Kong and New York, and 71% of its shares are owned by state-controlled China National Offshore Oil Corp.

During the interview on the 23rd floor of CNOOC's Beijing office tower, Fu wouldn't say precisely what role the Chinese government had in CNOOC's bid for Unocal. Most China analysts believe that at the very least, Beijing signed off on the decision. A state-owned bank has agreed to provide CNOOC with $6 billion in loans to finance the purchase.

"It's a political decision. Nobody in China can write a check" that big, said Oded Shenkar, a management professor at Ohio State University and author of "The Chinese Century."

For the Chinese, Shenkar said, this kind of aggressive bid "makes their hands stronger in negotiations" with the United States over trade. "This is another card, another joker that they pick up. It sends a signal that they mean business and are not going to be a passive player."

Fu stressed, however, that the government "cannot make business decisions on behalf of management, or replace our decision with theirs. Never."

"This is what has changed in China over the last 20 years," the 54-year-old Fu said. "Even though the government has ownership, operating the assets is purely the right of the business unit. It is similar to [any] public company," he added. "The ownership is shareholders. But who runs the assets? The management."

Fu, who earned a master's in petroleum engineering at USC, took issue with those contending that a Chinese company's takeover of Unocal would threaten America's security. Some have raised fears that China, which has been hunting for energy around the globe, is trying to hoard oil resources for itself.

Unocal, though, is a small player in oil; the company's assets are predominantly natural gas, mostly in Asia. Overall, Unocal's U.S. production accounts for less than 1% of total American consumption of oil and gas. At any rate, Fu reiterated a pledge to continue delivering Unocal oil to the U.S. and other countries that get it now. While it's true that China needs oil, Fu said, in today's world, where crude is traded freely, economics and local rules dictate where oil is shipped.

"The Unocal assets in the world cannot be delivered to China, because most will be supplied to the local market," said Fu. "You have to look at the economics…. Shipping oil from far distances will cost more than from short distances."

He added that most of Unocal's assets were natural gas properties, which are locked up in long-term contracts with countries such as Thailand and Bangladesh. Even if the countries where those assets are located would grant permission, analysts say it wouldn't be easy to build pipelines to reroute supplies to China.

Fu also dismissed concerns that the Chinese would use Unocal's deep-water drilling technology for military use, such as testing of nuclear weapons. U.S. experts have said such threats seem dubious.

Fu went further, calling them the "imaginations" of people unfamiliar with the industry. "Such technology has existed for many years," he said. "Have you heard any countries using this" for military purposes?

Fu said he stood ready to explain this and other issues to U.S. politicians directly. And he reiterated a commitment to address any conflicts that CNOOC's proposal might have with U.S. security requirements.

"We believe this is pure commercial," Fu said. "We are not only trying to deliver oil and gas to the U.S. market but trying to secure U.S. jobs. You know, free trade is the fundamental cornerstone of the U.S., and I believe they will understand this is purely business."