CNOOC bid for UNOCAL (2005)

12 May

Yi-Chong (2006) states how the 2005 CNOOC bid for the US Company Unocal raised fears in the international community especially with the US government.  Zhang (2012) also points out that although CNOOC had the highest bid this was not enough to win in a politically charged industry. And many feel that it represents China’s global push to secure energy resources The Chinese national oil company Cnooc – of which the Chinese government owns 70 percent – bid for Unocal (which has extensive oil  and gas reserves in the US and Asia) in 2005 was the “largest takeover attempt ever made in the United States by a Chinese company.” (NY times)

 

 

Politicians in Washington came out in strong opposition to Cnooc’s efforts to win Unocal, saying the state-owned oil company was acting as a proxy for the Chinese government and seeking to secure strategically valuable U.S. energy assets. “Although CNOOC insisted that it was run independently, they acknowledged that it had lined up loans from government-controlled entities at very favourable terms.” (LA times)

It’s also worth noting that Cnooc hired high-powered Washington lobbyists and had the backing of two of Wall Street’s most powerful investment banks, Goldman Sachs and J.P. Morgan, to help push its deal for Unocal. But Chevron had hired Morgan Stanley and Lehman Brothers to advise them in their bid.

It seems this political opposition made the unfavourable for Cnooc. Who said in a statement it, “creat[ed] a level of uncertainty that presents an unacceptable risk to our ability to secure this transaction.” (NY times)

 

 

Some members of Congress, however, raised the CNOOC’s bid as a security threat to the United States, although most experts said there was little evidence to support that claim. “The Chinese government and Cnooc officials insisted that the takeover bid was solely a commercial deal and had nothing to do with politics.” (NY times)

Seems to be the case that China energy deals are general not politically motivated because most of the oil generated in foreign countries is sold on the free market and not shipped back to China.  So it seems that the acquisition of Unocal would not affect US energy security. However in a world of uncertainty with a lack of trust between nations, the US still feels threatened.

 

 

The way the U.S. government has treated Cnooc and politicized the deal will largely frustrate Chinese companies and have political consequences.

“One official said Fu, the chairman, had long argued in company meetings that Cnooc ought to avoid countries in Africa and the Middle East because of the political risks associated with some countries there. They said Fu had pushed to make an acquisition in the United States because the political risk would be very small. This is a pretty rude awakening, one person involved in the Cnooc deal said. “The political risk turned out to be higher in America.” (NY times)

It could also increase China’s interest in making energy deals with nations that Washington considers dangerous rogue states, such as Iran and Sudan.

“It may be that the next time there is an opportunity for a joint venture in China, you will see U.S. investors shut out and the deal going to the French or to Royal Dutch/Shell instead of Exxon Mobil.” (Washington Post)

Others seem to feel the reaction may not come tomorrow but it occur in the energy sector or another area. Others feel the impact would be muted because China generally encourages investments by Western companies.

 

 

News articles

http://www.nytimes.com/2005/08/02/business/worldbusiness/02iht-unocal.html?_r=0

http://www.washingtonpost.com/wp-dyn/content/article/2005/08/02/AR2005080200404_2.html

http://articles.latimes.com/2005/aug/03/business/fi-chinaoil3

Journal Articles

Yi-chong (2006). China’s energy security. Australian journal of international affairs. 60 (2). 265-286

Zhang, Z. (2012). The overseas acquisitions and equity oil shares of Chinese national oil companies: A threat to the west but a boost to china’s energy security? Energy Policy 48 (1), 698-701

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