Friday, June 24, 2005 Posted: 0117 GMT (0917 HKT)

 

NEW YORK (Reuters) -- CNOOC Ltd., China's largest offshore oil producer, has offered to buy Unocal Corp. for $18.5 billion, in a bid to trump Chevron Corp.'s $16.4 billion deal to acquire the smaller U.S. oil producer.

A person close to the process, speaking on condition of anonymity, told Reuters Thursday the preliminary decision was made after CNOOC's board of directors met for several hours in Beijing Wednesday night.

CNOOC said it offered to pay $67 in cash for each Unocal share, setting the stage for a potential bidding war with Chevron Corp.

The Financial Times reported on its Web site that the bid would be worth over $19 billion, or at least $65 per Unocal share, in addition to taking on $1.6 billion of debt.

Unocal said it would evaluate CNOOC's offer, but said its board continued to back its previously agreed deal with Chevron Corp.

Chevron said it stood behind its April agreement to buy Unocal Corp.

A Chevron spokesperson said its Unocal deal is "highly likely to close, while the CNOOC proposal must undergo an extensive regulatory process in the United States and elsewhere."

A top Chevron executive said the company could close the deal as soon as August.

"We're doing everything we can to move this quickly," George Kirkland, Chevron's global head of exploration and production, said at the Reuters Energy Summit in New York Wednesday. "I think we could be closed in the August timeframe."

Chevron in April beat out CNOOC and other potential suitors to win a tight race to ink a deal to buy Unocal, which has an attractive portfolio of assets in Asia, for about $16.4 billion. Chevron would also take on $1.6 billion in debt.

The Chevron deal carries a $500 million break-up fee, meaning any new suitor would have to pay Chevron $500 million.

Political hurdles If CNOOC was to acquire Unocal, it would be the biggest-ever overseas acquisition by a Chinese firm.

Most watchers have said a counter-bid would harm CNOOC due to high costs, and investors have already been penalizing CNOOC by dumping its shares.

It also faces political obstacles in the United States given that CNOOC Ltd. is largely controlled by the Chinese government.

Energy Secretary Sam Bodman refused to speculate Wednesday on how the Bush administration would react to a bid by CNOOC for Unocal, except to say it would trigger a "complex" government review.

CNOOC, with over $1.4 billion in overseas investment, aspires to become a major regional liquefied natural gas producer. It made a last-minute decision earlier this year not to bid for Unocal in the face of opposition from some independent board directors.

CNOOC's original planned bid was more attractive than Chevron's offer -- structured as 75 percent in Chevron stock and the rest in cash.

Despite Chevron's winning bid, CNOOC said as recently as this month it was still considering a counter-offer.

Industry sources say CNOOC's new management, led by chairman Fu Chengyu, is eager to make its mark and to boost the domestic ranking of CNOOC, now a distant number three after PetroChina and Sinopec.