CNOOC Drops $18.5B Unocal Bid

NEW YORK – China's CNOOC Ltd. (CEO) on Tuesday abandoned its $18.5 billion all-cash offer to acquire U.S. oil and gas producer Unocal Corp. (UCL), clearing the way for Unocal to conclude an already agreed deal with U.S. oil major Chevron Corp. (CVX).

Unocal shares opened lower on the news, while Chevron shares were flat. The decline brought the price of Unocal's stock roughly in line with the Chevron bid of almost $64 a share, or about $17.3 billion.

CNOOC made its all-cash bid on June 22, topping the early-April cash-and-stock offer from Chevron, but it faced an uphill road in the United States from the start. CNOOC's parent company is controlled by the Chinese government.

CNOOC Chairman Fu Chengyu, the driving force behind the bid, in the end listened to his political advisers, who had warned of the high political hurdles the transaction faced.

"CNOOC has given active consideration to further improving the terms of its offer, and would have done so but for the political environment in the U.S.," the company said in a statement.

It called the political response to its offer "regrettable and unjustified."

Some members of Congress sought to block the deal almost from the start. Last week a congressional conference committee added a provision to a broad energy bill that would have delayed the necessary government review of CNOOC's offer by months.

In public filings related to the Chevron offer, Unocal made clear that it had been willing to accept the CNOOC bid under certain conditions -- conditions CNOOC ultimately chose not to meet.

CNOOC shares rose to a new record high in Hong Kong trading on Tuesday before the company made the expected decision to withdraw its bid, gaining 2.8 percent to HK$5.50.

"This is good for CNOOC. It clears away the uncertainty risks," said John Koh, fund manager at Daiwa Asset Management, which holds CNOOC shares.

Unocal shareholders are to vote on the Chevron offer on Aug. 10. If they approve the deal, it is expected to close as soon as that afternoon.