China National Offshore Oil Corporation - History - Unocal Buyout Attempt

Unocal Buyout Attempt

In June 2005, one of listcos under the CNOOC Group, the NYSE and Hong Kong listing public company CNOOC limited, made an all-cash $18.5 billion offer to buy American oil company Unocal Corporation, topping an earlier bid by ChevronTexaco. Unocal's extensive oil interests in Central Asia were considered to be an excellent strategic fit for CNOOC Limited. On July 20, 2005, Unocal announced that it had accepted an increased buyout offer from ChevronTexaco for $17.1 billion. This decision was submitted to a vote by Unocal stockholders on August 10, 2005. On August 2, CNOOC Limited announced that it had withdrawn its bid, citing political tension inside the United States.

Despite a hands-off approach from the Bush Administration, a broad group of Democrats and Republicans in Congress organized opposition to the CNOOC Limited bid. They argued that with $13 billion of CNOOC Limited's bid for Unocal coming from the Chinese government, the offer did not represent a free market transaction and had questionable motives. Furthermore, a lack of reciprocity was pointed out as American corporations were prohibited from purchasing analogous assets in China. It was also argued that the foreign and particularly communist ownership of oil assets could represent a regional and economic security risk. Unocal also had sensitive deep-sea exploration and drilling technology with dual-use potential. The Economist and other sources attempted to debunk the security threat, while CNOOC was willing to submit to a US security review. Congressional delays and calls for extensive inquiry into the matter deterred the CNOOC Limited bid significantly.

CNOOC Limited was advised by Goldman Sachs in the set up by Western leading companies. CNOOC Limited at the time had a reputation for acting independently of government control, and in fact had not notified Chinese government officials prior to making the bid for UNOCAL. Ironically, the political backlash aroused in the United States caused the Chinese government to increase the oversight of the commercial activities of Chinese companies to avoid future risks to the Sino-American relationship.

CNOOC Limited also faces tough new challenges in the domestic market. Its rivals CNPC and Sinopec have recently been granted approval to conduct offshore explorations once monopolized by CNOOC Limited. Furthermore, in accordance with the commitment made by the Chinese government to join the World Trade Organization, the retail and wholesale market of oil will be further opened to non-Chinese companies by the end of 2006. Large foreign energy firms, such as Exxon Mobil and BP, will more easily make inroads. At the same time, CNOOC Limited's smaller domestic competitors have been attempting to end the current monopoly of the three major NOCs in the industry.