Chevron’s bid thwarts CNOOC

The decision by Unocal’s board could end the takeover battle that has stirred significant debate in Washington about national security concerns and trade policies with China. Still, it is possible that CNOOC could return to the negotiating table with a higher bid.

For the past month, Chevron and CNOOC have been locked in a battle of nerves over who would end up controlling Unocal, a mid-sized independent oil company based in El Segundo, Calif. Both bidders are racing against an Aug. 10 deadline, when the shareholders of Unocal will get the opportunity to approve or reject the offer. The battle has turned into a source of tension between the United States and China, with some American lawmakers saying they would seek to pass legislation blocking the Chinese takeover.

Last Thursday, Unocal’s board, which met at the company’s headquarters, instructed its management to keep negotiating with CNOOC, which had put $18.5 bn on the table in cash. While still endorsing Chevron’s cash-and-stock proposal, the board of Unocal decided then that it would consider an offer from CNOOC if several conditions were met. They include financial guarantees if CNOOC walked away from a deal or if the offer was blocked.

Chevron is betting that the opposition to a takeover by a Chinese company will scare Unocal’s board away from the Chinese offer, while CNOOC is convinced that, ultimately, Unocal will consider the financial benefits of its bid.

At the heart of the battle lies Unocal’s oil and gas fields in Asia, mainly in Indonesia, Thailand, Myanmar and Bangladesh, as well as a scattering of assets in North America, which hold a total of 1.7 bn barrels of proven oil and gas reserves. Both companies see Unocal as an opportunity to raise their reserves and increase production at a time when access to oil and gas fields is getting increasingly difficult.

— NYT