CNOOC Requests U.S. Security Scrutiny

The chief executive of a Chinese oil company seeking to acquire Unocal Corp. sent a letter to members of Congress yesterday encouraging a U.S. national security review of the possible deal.

The letter from CNOOC Ltd. chairman and chief executive Fu Chengyu said "we had planned for and want to participate" in a U.S. government review "as soon as possible."

CNOOC made its request as oil prices closed for the first time above $60 a barrel. U.S. benchmark crude oil for August delivery rose 70 cents to $60.54 a barrel on the New York Mercantile Exchange.

The Chinese company's bid prompted more than 40 members of Congress last week to call for scrutiny of the offer on national security grounds in a letter to Treasury Secretary John W. Snow, the chairman of the Committee on Foreign Investment in the United States, an interagency review panel.

CNOOC Ltd., a subsidiary of China's third-largest oil company, last week offered to purchase El Segundo, Calif.-based Unocal for $18.5 billion in cash. Chevron Corp., based in San Ramon, Calif., previously had offered to buy Unocal for a lower amount, in a cash-and-stock deal.

The bid by CNOOC has sparked concern among some lawmakers and analysts about U.S. access to oil reserves at a time of increasing demand and tightening supplies. In their letter, lawmakers raised concern about whether the Chinese government, which controls CNOOC, could acquire sensitive technology.

The committee chaired by Snow is charged with determining whether evidence exists that an acquiring company could provide a national security threat.

The letter from Fu said that 70 percent of Unocal's oil and natural gas reserves are close to Asian markets and that Unocal "offers value to our shareholders."

Meetings are being held this week between CNOOC and Unocal in New York to discuss the offer, according to a source familiar with the proposed transaction who spoke on condition of anonymity. Unocal's board recommended the Chevron deal to its shareholders before CNOOC made its offer.

A Unocal spokesman, Barry Lane, declined to discuss the timing of meetings but said the Unocal board planned to review the CNOOC offer and determine whether to change its recommendation to shareholders. A shareholder vote has not yet been set.

Chevron has received some key regulatory approvals to move forward with the purchase. CNOOC would need to go through that approval process as well as the national security review.

The foreign investment committee generally would review a foreign company's offer to buy an American company only after the deal had been accepted by the American company, Treasury Department spokesman Tony Fratto said. Companies typically submit to such reviews voluntarily if there are national security questions raised, he said.

Todd M. Malan, executive director of the Organization for International Investment, a Washington association that represents U.S. subsidiaries of foreign companies, said the world is watching how the U.S. government handles the case.

"If our process is viewed as merely a proxy for Chevron's views or subject to political intervention, and not a true national security review, then we ought to be prepared for that to happen when a U.S. company wants to make an investment in China," Malan said.