World Oil Giants Fighting Here, Partnering There

By Justin Blum
Washington Post Staff Writer
Saturday, June 25, 2005

In one set of Chevron Corp. offices, executives are struggling to hold together a deal to buy Unocal Corp. and outmaneuver a competing offer from a Chinese-government-controlled oil company.

But in other offices, a different group of Chevron executives are on friendly terms with the Chinese company, CNOOC Ltd., negotiating a deal involving a natural gas project in Australia.

In today's oil world, dozens of state-owned and publicly traded companies may do battle in some places and work deals with one another thousands of miles away.

"That's the nature of the international oil business," said J. Robinson West, chairman and founder of PFC Energy, an industry consulting firm in Washington. "At the same time, they're partners and competitors."

CNOOC, a subsidiary of China's third-largest oil company, on Wednesday announced that it was offering $18.5 billion to buy El Segundo, Calif.-based Unocal, which produces oil and gas around the world, including from fields near China. The offer reflects China's growing thirst for oil and natural gas, the result of a booming economy. It also highlights the country's strategy of cutting deals around the world to secure access to supplies.

The bid by CNOOC, of which the Chinese government owns 70 percent, is higher than the offer by San Ramon, Calif.-based Chevron to acquire Unocal. Chevron has launched a public relations push to argue that its offer is stronger because it already has cleared regulatory hurdles while the CNOOC bid could face turbulence. CNOOC has responded by touting the merits of its offer and has tried to allay U.S. fears by saying most of the oil produced in the United States would be sold in the United States.

Unocal's board previously recommended shareholders accept the Chevron offer and said it plans to review the CNOOC proposal.

Unocal is one of the smaller U.S. oil companies. Its stock was worth $17.85 billion yesterday. Chevron's stock was valued at $118.95 billion.

The Chinese company's effort to acquire Unocal has touched off concern among lawmakers on Capitol Hill who are worried about the national security implications of such a deal. Some analysts also are raising concern about the implications of Chinese oil companies increasingly securing access to supplies around the world, saying that if there were a shortage, China could be at an advantage.

But as the debate plays out, Chinese oil companies have become increasingly intertwined with American companies overseas.

Chevron and CNOOC have joint oil operations in the South China Sea. The companies also work together in China's Gulf of Bohai.

Chevron and other partners also negotiated the sale of liquefied natural gas from a project in Australia to CNOOC, which also bought an interest in the field from which the gas originates. Now the companies, along with other partners, are trying to reach a similar deal over another gas field in Australia, Chevron officials said.

"We compete less than work together," said Fu Chengyu, the chairman and chief executive of CNOOC.

Peter J. Robertson, vice chairman of Chevron, said the two companies have maintained good relations and hope that the tone doesn't sour over the Unocal competition.

"We're in that position all the time," Robertson said. "We compete with Exxon around the world. Yet we're partners with them on many projects."

Big oil companies often form joint arrangements as a way to reduce the risk of developing a multibillion-dollar oil field, just as individuals diversify their holdings in stock.

The Australia gas deals provide another benefit: Chevron gets a needed market for its gas while CNOOC secures supplies for China.

Unocal has strategic appeal to CNOOC. It has reserves near China, including in Indonesia, Thailand and Myanmar. While Unocal also produces in the United States -- the company has operations in the Gulf of Mexico and Alaska, for example -- most of its production comes from other countries.

CNOOC said the deal would provide access to needed natural gas reserves and would benefit its shareholders. "We are driven by value," Fu said. "We are trying to create value for our shareholders."

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