CNOOC seeks Unocal support, may raise bid to $19 billion

CNOOC seeks Unocal support, may raise bid to $19 billion

Bloomberg, Hong Kong

Cnooc Ltd., China's third-largest oil producer, may raise its
US$18.5 billion bid for Unocal Corp. by as much as 3 percent amid
increasing opposition from U.S. lawmakers, people familiar with
the plan said.

The Chinese state-controlled company may offer $19 billion in
cash, or $69 a share, to counter Chevron Corp.'s cash-and- stock
plan, said the people, who asked to not be identified. Chevron's
agreement is worth $16.5 billion or $60.65 a share.

Cnooc seeks the support of Unocal's board, which so far has
stuck with its April 4 Chevron agreement. Chevron has declined to
raise its offer in response to Cnooc's June 22 offer of $67 a
share. The bid is superior because it would close quickly, while
Cnooc faces a lengthy U.S. review, according to Chevron.

"The funds from Chevron are immediate, whereas from Cnooc it
could be a year," said Rodney Mitchell, who oversees $395 million
as president of the Mitchell Group, a Houston money manager.
Chevron may prefer to sit tight, counting on government
opposition to Cnooc, rather than "get into a bidding war with the
Chinese government," said Mitchell.

A Unocal board meeting today ended without any announcement
about Cnooc's offer. Unocal spokesman Barry Lane declined to give
details on the topics for discussion at the meeting.

Any agreement for Cnooc to acquire Unocal would be a "matter
of national security" worthy of a serious investigation, said
Senator Pete Domenici, a New Mexico Republican and chair of the
Senate Energy Committee. "Now what's more important, some
stockholders or national security?" Domenici said in an interview
today.

Along with a higher price, Cnooc may take other steps to woo
Unocal, according to the people familiar with the matter. The
board of Cnooc, which met in Beijing this week, discussed a plan
to pay as much as $2.5 billion into an escrow account to cover
Unocal against possible class-action suits and other liabilities
should Cnooc's bid fail, the people said.

Cnooc's director of investor relations, Xiao Zongwei, declined
to comment in a phone interview today.

A breakup fee that high would be "stunning," said David
Merjan, who helps manage $11 billion at William Blair & Co.,
including Cnooc shares. "As a Cnooc shareholder we think offering
such a breakup fee is unwise," Merjan said.

Still, Merjan said, "It shows their commitment to doing the
deal. They can say to Unocal's board: There's no risk to you at
all. If we back out you recognize a huge windfall."

Americans Object

The bid by Cnooc, which is 70 percent owned by state-run China
National Offshore Oil Corp., is opposed by 73 percent of
Americans, according to a poll published yesterday by the Wall
Street Journal and NBC News. Only 16 percent support the
acquisition and 11 percent weren't sure, the Journal said.

U.S. Representative Duncan Hunter, chairman of the House Armed
Services Committee, yesterday said he would consider legislation
to block any merger.

"I think it's a mistake for the United States to let this go
through from a security standpoint," Hunter, a Republican from
California, said after a hearing by his committee.

Frank Gaffney of the Center for Security Policy told the
committee that the Cnooc bid is an "ominous" move by a communist
government to dominate energy resources for the benefit of
China's economy and military.

Chevron, which would complete the combination with Unocal
immediately after getting shareholder approval, has been helped
by the opposition to Cnooc in Congress.

A possible Cnooc acquisition is less attractive because it
would face "a complex and uncertain government review process,"
Chevron Chief Executive David O'Reilly wrote this week in the
Wall Street Journal.