Lawmakers Seek to Stop CNOOC Bid

WASHINGTON — Congressional support for blocking a Chinese oil company’s bid to take over Unocal Corp. gathered steam Wednesday as the chairman of the House Armed Services Committee said he would try to stop it if Unocal’s shareholders or the Bush administration didn’t.

“I think it would be a mistake to let this deal go through,” Rep. Duncan Hunter (R-El Cajon) said after a hearing at which his committee’s Republicans and some of its Democrats -- and three of the four invited witnesses -- said Chinese ownership of El Segundo-based Unocal would compromise U.S. national security. Hunter raised the possibility that China could use its ownership of Unocal’s energy resources as a lever in the event of a showdown with the United States over a hypothetical effort to take over Taiwan.

Meanwhile CNOOC Ltd., a majority of whose stock is held by government-owned China National Offshore Oil Corp., was said to be considering ways to reassure Unocal that its bid would hold up under mounting political opposition. CNOOC offered last month to buy Unocal for $18.5 billion in cash, trumping a $16.9-billion bid by Chevron Corp., a much larger oil industry rival.

The CNOOC board, which met Wednesday, is expected to set aside more than $2 billion in a U.S. escrow account that would become Unocal property if the CNOOC bid fails, according to the Financial Times, which cited unnamed sources. The Chinese company also could raise its bid price, the newspaper said.

Unocal’s board meets today to discuss whether to continue recommending approval of the Chevron deal when its shareholders gather to vote on that proposal Aug. 10. Analysts say Chevron is banking on winning shareholder approval based on the fear that CNOOC’s offer, although worth more money, is too risky given the political heat.

If Unocal’s shareholders choose the CNOOC offer, a panel chaired by Treasury Secretary John W. Snow will have to decide whether to review the deal.

At the House Armed Services Committee’s hearing, C. Richard D’Amato, chairman of the U.S.-China Economic and Security Review Commission, said the foreign investment committee had a record of lax oversight of foreign purchases of U.S. assets.

Of the 1,530 transactions reviewed by the foreign investment committee since 1988, D’Amato said, only one was rejected. An unknown number were withdrawn when it appeared that the committee would block them, he said.

“A more aggressive oversight system surely will be needed if the Chinese accelerate their buying spree into the American economy,” D’Amato said. He said that even if the foreign investment committee approved the sale, Congress could act under its constitutional power to “regulate commerce with foreign nations.”

D’Amato and two other witnesses -- former CIA Director R. James Woolsey and Frank J. Gaffney Jr., president of the Center for Security Policy -- concentrated on two arguments to oppose the CNOOC purchase of Unocal: the strategic value of oil and the refusal of China to abide by international economic rules. CNOOC wasn’t invited to testify.

“I believe the object of China’s actions is inexorably to supplant the United States as the world’s premier economic power and, if necessary, to defeat us militarily,” said Gaffney, a Defense Department official in the Reagan administration.

Among the witnesses, only Jerry Taylor, director of natural resource studies at the Cato Institute, a libertarian think tank in Washington, found any virtue in the proposed CNOOC-Unocal deal. Unocal accounted for only 0.23% of the world’s oil production, he said -- “not exactly Saudi Arabia-size.”

“There is no reason to worry about the impact that a merger between CNOOC and Unocal might have on domestic energy prices or America’s access to oil,” he said. “Unocal would not provide China with an ‘oil weapon.’ ”

Mark Palmer, a public relations advisor to CNOOC, said Wednesday that the Chinese offer was far more generous to Unocal’s shareholders than Chevron’s and that U.S. security concerns would be respected. These are among several points that CNOOC will emphasize in a series of print advertisements, starting this week, in Washington publications.

Still, CNOOC faces a barrage of anti-Chinese sentiment in Congress.

The chairman and the ranking Democrat on the Senate Finance Committee wrote Wednesday to President Bush to express concern that the purchase would violate World Trade Organization rules against government subsidies in transactions involving international trade.

Citing the deal’s financing from CNOOC’s parent, Sens. Charles E. Grassley (R-Iowa) and Max Baucus (D-Mont.) asked “whether it is appropriate for state-owned enterprises to subsidize investment transactions to acquire scarce natural resources that are in high demand.”

Last month, the House of Representatives passed two measures aimed at blocking the proposed CNOOC purchase: a resolution raising national security issues and an appropriations amendment forbidding the Treasury Department from spending federal funds to approve such an acquisition by CNOOC.

Wall Street traders are signaling that they expect Chevron’s offer to be topped. On Wednesday, Unocal shares rose 84 cents to $66.75.

In April, Unocal agreed to be acquired by Chevron in a cash-and-stock deal with a value that fluctuates with the price of the San Ramon, Calif., oil company’s stock. Chevron shares fell 4 cents Wednesday to $57.47, making the bid worth about $60.65 a share. CNOOC is offering $67 a share.

If Unocal’s board chooses to endorse the CNOOC bid, the company would have to immediately pay Chevron $250 million, plus another $250 million if Unocal is purchased by CNOOC within a year.

“As it stands right now, I would probably not vote for the deal on Aug. 10,” said Jason Putman, managing director of Victory Capital Management, a big Unocal shareholder. “Chevron’s going to have to raise its bid.”

Chevron continued to stand pat on its bid and pushed ahead with plans to promote Unocal employees as part of preparing for the integration of the two oil companies.

The company selected candidates to fill 46 more management and supervisory posts at various levels of its exploration and production units, Chevron spokesman Don Campbell said. More than 20 others agreed this month to take jobs with the combined company.

The latest selections include positions “that enhance our ability to integrate Chevron and Unocal as swiftly and effectively as possible,” Chevron Chief Executive David O’Reilly said in an Wednesday e-mail to employees of both companies. He said the company hoped to complete the job-selection process by the end of September.