Directors of the Chinese firm Cnooc Ltd. on Wednesday discussed adding assurances to the company's unsolicited $18.5 billion bid for U.S. oil company Unocal Corp., sources said.
The sources, who spoke on the condition of anonymity because of the sensitive nature of the Unocal talks, said Cnooc directors discussed adding provisions to their offer to reassure Unocal directors that a deal with the Chinese company would be approved by the U.S. government and that Cnooc would not abandon an agreement under regulatory pressure. Unocal's directors have already approved an earlier $16.5 billion takeover bid from Chevron Corp.
Opposition to the Chinese firm's bid intensified in Washington as House members held a hearing and a senior Republican legislator questioned the involvement of a prominent U.S. law firm lobbying for Cnooc. The Chinese company would need approval from U.S. regulators to purchase Unocal, including the endorsement of a multi-agency panel that would decide whether the sale would pose a national security threat.
Unocal's board is expected to meet Thursday at company headquarters in El Segundo, Calif. Sources said it is unlikely that the board will decide at the meeting whether to change its recommendation that shareholders approve Chevron's bid. Instead, sources said Unocal management would brief directors on the status of talks with Cnooc.
A shareholder vote on Chevron's offer is scheduled for Aug. 10. Under terms of Chevron's agreement with Unocal, the vote will occur unless Chevron decides to cancel it. Also under terms of the agreement, if Unocal's board changes its recommendation, it must notify Chevron and give the company three days to respond.
People familiar with Wednesday's talks said Cnooc is considering putting $2 billion or more into a U.S. escrow account while the company's proposed purchase of Unocal is reviewed in Washington. That would provide Cnooc with assets in the United States that Unocal could claim if Cnooc were to walk away. But it would not address what would happen if Cnooc were to honor its contract and Washington were to reject the sale.
Chevron sees no reason to increase its bid, said spokesman Donald Campbell. "We stand behind the value proposition of the Chevron-Unocal merger agreement," he said. "Our transaction provides regulatory certainty, completion in less than a month and long-term investor value."
Anti-China sentiment in Congress has been building for several years, stemming from security concerns, complaints of currency manipulation and intellectual property theft, and other unfair trade practices. The hearing Wednesday by the House Armed Services Committee was dominated by witnesses who opposed Cnooc's bid to buy Unocal. Committee Chairman Duncan Hunter (R-Calif.), told reporters that Cnooc's proposal should be rejected on security grounds.
Most of Unocal's oil and natural gas reserves are overseas, which Hunter said is a problem for the United States because the company provides natural gas in Southeast Asia and is an investor in pipelines running through Azerbaijan, Georgia and Turkey, which he identified as "critical players and key U.S. allies in the global war on terrorism."
"China's purchase of Unocal would dramatically increase its leverage over these countries and therefore its leverage over U.S. interests in those regions," Hunter said.
Witnesses who testified at the hearing and raised security concerns included R. James Woolsey, former director of central intelligence; C. Richard D'Amato, Chairman of the U.S.-China Economic and Security Review Commission, a congressionally created group; and Frank J. Gaffney, Jr., head of the Center for Security Policy, which says it promotes international peace through American strength.
"We are on a collision course with Communist China," Gaffney said. "It certainly behooves us, I believe, as a nation, to preserve wherever possible for our own use domestic and offshore oil resources owned by American companies and others to which we have reliable access."
Another witness, Jerry Taylor, director of natural resource studies at the Washington-based Cato Institute, which advocates free markets, said the deal did not pose an energy security threat.
"Even if a Unocal-Cnooc transaction led to diversion of supply to China, it would have no net effect on the amount of oil available to buyers in the world market and thus zero impact on the price of crude oil in the United States or the availability of crude oil in the United States," Taylor said.
Also on Wednesday, Sen. Charles E. Grassley (R-Iowa), chairman of the Senate Finance Committee, and Sen. Max Baucus (D-Mont.), the committee's ranking Democrat, wrote to President Bush expressing concern about the deal.
And Rep. Frank R. Wolf (R-Va.), sent a letter Wednesday to Cnooc's Washington lobbyists, Akin Gump Strauss Hauer & Feld LLP, questioning "the appropriateness of an American firm advising and being on the payroll of the Chinese government." The law firm, in a letter to Wolf, said it is acting appropriately by representing a publicly traded company, not the Chinese government, and that it is working to explain the proposed deal to members of Congress and to assist with a U.S. review of a transaction.
Blum reported from Washington.