CNOOC Asks U.S. Committee to Review Unocal Bid

NEW YORK – China's CNOOC Ltd. (CEO) Friday said it asked a top-level U.S. government panel to review its proposed merger with oil and gas producer Unocal Corp. (UCL) in an effort to advance its $18.5 billion all-cash bid.

The Chinese oil company's offer topped a $16 billion-plus cash and stock offer from San Ramon, California-based Chevron Corp. (CVX), which Unocal has accepted.

A spokesman for Unocal, which is headquartered in El Segundo, Calif., told Reuters the company was not involved in CNOOC's request for a review from the Committee on Foreign Investments in the United States. He added that the two sides do not have an agreement that would necessarily spur CNOOC to request a review.

CNOOC, whose largest shareholder is the Chinese government, has said from the outset of its offer that it wanted a review. The interagency committee, known as CFIUS (search), considers proposed acquisitions of U.S. corporations by foreigners where national security might be a concern.

CFIUS will not begin its work until it has received what it calls a complete notification. If the panel accepts the application for review, it has 30 days to decide whether to launch a full investigation.

"If one party, either side, thinks it's in the interest to either get over the CFIUS hurdle or, perhaps in some cases, fend off an unwelcome offer through raising the CFIUS hurdle, the law and regulations permit them to do that," said Cecil Hunt, a lawyer at Harris, Wiltshire & Grannis LLP in Washington who worked on CFIUS matters at the Commerce Department.

A person close to the deal with expertise on CFIUS said CNOOC's filing included significant information about Unocal, but that it was ultimately up to the committee to decide whether the notification was complete.

"I have every reason to believe they will follow their own regulations and turn around and send a letter to Unocal asking them for information," the person said.

CNOOC's bid for Unocal has become a complicating factor in the diplomatic jostling between China and the United States over currency and trade issues. It also comes at a sensitive time when oil is trading near record highs, and both countries are intent on securing energy resources.

The U.S. House of Representatives voted overwhelmingly Thursday to add an amendment to an appropriations bill that would bar the Treasury Department from spending any money to recommend approval of the CNOOC bid for Unocal. If signed into law, the measure would not take effect until Oct. 1.

The House also passed a nonbinding resolution calling on President Bush to request an immediate review of the deal. Rep. Joe Barton, the chairman of the House Energy and Commerce Committee and co-sponsor of the resolution, called for a hearing on the CNOOC bid.

Barton, a Texas Republican, called CNOOC "a front company for the Communist Chinese government."

CNOOC's request for the government review was made before the two House votes.

Unocal shareholders are set to vote Aug. 10 on the offer from Chevron. Until then, Chevron says, CNOOC and Unocal cannot sign a deal unless Chevron is paid a $500 million breakup fee.

As of Friday afternoon the Chevron offer valued Unocal at about $60 per share compared with a $67 offer from CNOOC. Unocal shares were up 26 cents at $65.31.

Given that the CNOOC offer is more attractive financially, many investors have said the only real hurdle is political opposition that could slow down the acquisition. Chevron's offer already has all the necessary regulatory approvals.

"If the shareholders vote to approve the Chevron deal, which we hope and think they won't, then there's nothing left for the committee to review," the person familiar with the deal said.