CEO defends $18.5b Unocal bid

CEO defends $18.5b Unocal bid

Agence France-Presse, Beijing

The chairman of China National Offshore Oil Corporation (CNOOC) Fu Chengyu on Wednesday defended his company's US$18.5 billion bid for U.S. oil major Unocal amid growing concern over the deal's possible impact on U.S. energy security.

In a wide ranging opinion piece carried by the Asian Wall Street Journal, Fu characterized CNOOC as a savvy energy company seeking to operate on Western business principles where price is the basis of competition.

"I adhere to the belief that the highest price wins," Fu said.

"Given that our bid is about 11 percent -- or $2 billion higher than Chevron's stock-and-cash deal as of today, this competition also benefits Unocal's shareholders, in addition to our own.

"The bottom line is that our all-cash offer puts more dollars in the pockets of shareholders and is not subject to the daily fluctuations and uncertainty of the stock market."

Acknowledging U.S. security concerns over the deal, Fu pledged to sell all Unocal's U.S.-produced oil and gas in U.S. markets should his company win the bid.

"The most fundamental point of concern that we face is that American oil and gas should stay in America -- and I promise that we will continue Unocal's sales practice of selling all, or substantially all, U.S. oil and gas in U.S. markets," Fu said.

"The American public's anxiety -- that we plan to take fuel back to China -- is based on a misunderstanding," he added.

He said Unocal's oil production would be increased, particularly in the Gulf of Mexico, and that oil would be made available to the U.S. market.

CNOOC, China's third largest oil and gas producer, announced its bid on June 23 trumping Chevron. Unocal's board of directors have already voiced a preference for the Chevron bid but are expected to vote on deal late August.

CNOOC's offer, unlike Chevron's cash-and-stock bid, was not based on rationalization and cost cutting, Fu said. Instead, CNOOC was committed to retaining "substantially all" Unocal employees, especially in the United States.

"I know the debate about our offer will continue," Fu said. "I am conscious that in some ways CNOOC is helping show the American people the face not just of our business but of the changing nature of corporate China."

The bid has caused a storm of concern in the United States, with the U.S. House of Representatives last week voting 398-15 for a non-binding resolution calling on the Bush Administration to block the CNOOC bid.

A takeover by a Chinese state-run firm "would threaten to impair the national security of the United States," the resolution said.

"We cannot, in my opinion, afford to have a major U.S. energy supplier controlled by the communist Chinese," said Representative William Jefferson of Louisiana.

U.S. investment banks JP Morgan Securities and Goldman Sachs are advisors on the CNOOC bid and will provide $3.0 billion in funding. China's state-owned banks will also put up some $6.0 billion, reportedly at better than market rates.

On Tuesday the influential Washington Post in an editorial expressed support for the CNOOC bid but said the opposition among members of Congress was "understandable."

"However widespread and understandable, these concerns are mistaken. The reason is that China is an oil importer," it said.

"U.S. reliance on oil exporters with unsavory and potentially unstable governments is a genuine security problem," it said, citing Saudi Arabia for one.

"Oil importers such as China are different, however."