CNOOC Chairman Says Oil Firm May Increase Its Offer

Fu Chengyu, chairman of CNOOC Ltd., is leading the Chinese energy company's drive to buy Unocal Corp.
Fu Chengyu, chairman of CNOOC Ltd., is leading the Chinese energy company's drive to buy Unocal Corp. (By Peter S. Goodman -- The Washington Post)
By Peter S. Goodman
Washington Post Foreign Service
Thursday, July 7, 2005

BEIJING, July 6 -- The chairman of CNOOC Ltd., the Chinese energy firm embroiled in a thorny campaign to purchase the U.S. oil company Unocal Corp., voiced dismay on Wednesday over what he called "overreaction" from Washington by those portraying the deal as a threat to fair trade and U.S. national security.

In an interview with The Washington Post at CNOOC's headquarters in Beijing, Chairman Fu Chengyu said critics of his company's bid for Unocal were guilty of viewing China through an outdated lens by failing to appreciate how economic reforms have forced Chinese companies to adopt market principles and focus on profitability.

"They don't understand what has happened in China in the last 20 years," said Fu, speaking fluent if halting English. "Most of the concerns are related to politics and not the commercial side. I didn't expect that so many people would be so sensitive to this. We are following a system that was set up by Western leading companies, especially the United States. We are walking along a path that they paved, so we thought, 'This is natural.' " But Fu expressed confidence that CNOOC would eventually convince critics that its acquisition poses no menace. He said his company might consider upping its $18.5 billion bid if needed.

"Our board has made the decision that we have to win this bid," he said.

As CNOOC continues its pursuit of Unocal, the conflict has become symbolic of the struggle by the United States to adjust to the implications of China's growing force in the global economy. Since CNOOC stunned markets last month with its unsolicited offer for Unocal, seeking to trump a lower bid from the U.S. oil giant Chevron Corp., a vocal segment of Congress has assailed the deal as a provocation in an already tense trade relationship between China and the United States.

Some have warned that the takeover would hand a slice of the U.S. oil supply -- albeit a tiny one -- to a company still owned by China's Communist Party-led government. Others have cast CNOOC's reach for Unocal as an example of how China's companies have an unfair advantage in their global quest for new markets, drawing on sweetheart credit from local banks and the bottomless largesse of the state.

Last week, the House of Representatives overwhelmingly approved a resolution urging the Bush administration to scrutinize the deal as a potential threat to U.S. national security.

Even within China, some analysts have said the deal is driven less by commercial interests and more by the government's desire to secure new stocks of energy in an era of ballooning consumption at home. In recent years, China's government has urged its companies to seek new sources of energy around the globe to limit the country's dependence on the volatile Middle East. It has often pursued deals in places barred to Western companies because of human rights concerns and diplomatic imperatives. In recent years, China has signed contracts to buy energy in Iran and Burma, countries that the Bush administration has attempted to isolate. China's largest energy company, China National Petroleum Corp., is the largest investor in a consortium running much of Sudan's oil industry, by far the largest source of funds for a government accused by the Bush administration of perpetrating genocide.

"Of course this deal is about China's energy security," said Shen Dingli, an international relations expert at Fudan University in Shanghai. "That's why the government created these companies: to go out and get oil for China."

Fu, 54, took pains to rebut such characterizations during the interview, pressing what has become CNOOC's mantra: His company's interest in Unocal is a commercial issue that has nothing to do with China's energy security and everything to do with boosting profits.

"I'm not a government leader," he said. "Nobody tells me how to run this company. We are in our own business. I just have one job, one responsibility, which is to make sure that I can continue to grow this company."

He called Unocal "a strategically perfect fit," noting that 70 percent of its energy reserves are in Asia, and many of them in Indonesia, where CNOOC is already the largest offshore oil producer. Unocal boasts substantial natural gas reserves, while CNOOC is focused on developing liquefied natural gas terminals that can serve industrial customers in booming coastal cities. Overall, capturing Unocal would double CNOOC's total energy reserves.

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