Posted on 07/06/2005 10:50:06 AM PDT by hedgetrimmer
WASHINGTON : US oil major Chevron ruled out splitting up Unocal if it wins a battle against a state-owned Chinese company for control of the California firm.
Chevron vice chairman Peter Robertson said the China National Offshore Oil Corporation (CNOOC) has no chance of winning Unocal's Asian assets in a carve-up.
"If the idea is that we take the US assets and somebody else takes Asia, that is not why we got into this game," he told The Financial Times.
Unocal's Asian operations, which comprise 70 percent of its total assets, are the key appeal for both Chevron and CNOOC as they struggle to win control of the midsized company.
CNOOC's 18.5-billion-dollar cash bid is worth at least two billion dollars more than Chevron's, which is a combination of cash and stock and was already approved by the Unocal board before the Chinese stepped in on June 23.
But CNOOC's offer has run into fierce political opposition from US lawmakers angry at the prospect of a US oil company falling into the hands of a Chinese communist-run entity.
Robertson reiterated Chevron complaints that about one-third of the financing for CNOOC's bid is coming from low-interest or zero-interest loans from Chinese state-controlled banks.
"I think it is unfair and I think the playing field is not level," he said.
Unocal shareholders will vote on August 10 on the rival bids.
Acknowledging US security concerns over the deal, CNOOC chief Fu Chengyu on Wednesday pledged to sell all of Unocal's US-produced oil and gas in US markets should his company win the takeover battle.
"The American public's anxiety -- that we plan to take fuel back to China -- is based on a misunderstanding," he said in an opinion piece carried by the Asian Wall Street Journal.
Fu characterized CNOOC as a savvy energy company seeking to operate on Western business principles.
"I adhere to the belief that the highest price wins," he said. "The bottom line is that our all-cash offer puts more dollars in the pockets of shareholders and is not subject to the daily fluctuations and uncertainty of the stock market."
CNOOC's offer, unlike Chevron's, is not based on rationalization and cost-cutting, Fu said. Instead, CNOOC is committed to retaining "substantially all" Unocal employees, especially in the United States.
Neither China nor CNOOC are in this acquisition game for Unocal just for capitalist sport. On behalf of the government of China, CNOOC is acquiring energy reserves.
Contrary to the expectations of many pundits and policymakers in the United States, China is not "going Japanese" and using its surplus dollars to buy up expensive artwork or signature properties like Rockefeller Center or Pebble Beach Golf Course. It was one thing when the Japanese bought the fancy golf course or the architecturally significant landmark office building in New York. Those assets are still here in the United States and, at the end of the day, are still available for U.S. citizens to use.
But in this Unocal case, Chinese interests are attempting to buy a U.S. industrial legacy with oil and minerals in the ground in North America and overseas. There is a qualitative difference here, with long-term implications for U.S. national strategic interests.
--Byron W. King
The fruits of "free trade".
Thanks for the ping.
Lets reduce concepts down to basic definitions..according to some conventional wisdom....
If I make money...its 'capitalism'...period.
Everybody STFU and dont ask no questions...
dont fergit the /s
Most of Unocal's energy reserves are located in Asia, so the notion that the company is somehow an "American" corporation is a little shaky to begin with. In addition, the Supreme Court's recent decision in the Kelo case renders any of their U.S. assets potentially worthless anyway -- since these assets could be taken from them in exchange for a "fair market value" that CNOOC has no control over.
In what country did Unocal incorporate? From which country does Unocal receive the tax benefits of incorporation?
Once again, we have a foreign government telling us what to do, demanding and berating the U.S. just like another country we're all too familiar with. Is this our new stance in the world: punching bag?
But that has nothing to do with where its assets are located. The U.S. government has no legitimate role in overseeing the ownership of a company's assets overseas.
The refinery is located in El Segundo, California, just south of LAX and adjacent to a USAF base.
Unocal long ago ditched its refineries, gas stations and even the "76" logo to other owners. Most of their management people are based out of Houston and their crude gathering activities are in Indonesia, Thailand, Burma, etc.
America supports Chevron, show your patriotism by supporting Chevron and resist the Communists from threatening our country.
1. Two perspectives here: It doesn't really matter who owns the crude. The crude still flows on to the world market. If China ships Unocal crude to China, it just means they buy less elsewhere. 70% of Unocal reserves are in Asia and never would have been sold in North America anyway. Also, its not like if we went to war with China that we wouldn't take the 30% of reserves that are in the US anyway. There are other US companies with operations offshore China, that oil is sold to China, not to North America.
2. It is true that it is the zero interest loans that are making the acquisition possible. What this means is that CNOC is not factoring in the true cost of capital into their analysis, and are therefore willing to overpay. There is nothing wrong with US companies selling assets to people who are overpaying for them. What it means is a net windfall for the US company at the expense of the Chinese government/ taxpayers.
One word: hegemon.
***
The only conclusions are that China doesn't really know what it's getting into, that it's getting bad advice from Goldman Sachs and the rest of its American advisors on the Unocal deal, or that there is something deeper involved in its quest for Unocal. In our opinion, the latter is the more likely case.
Here are three interesting facts put forth by the Journal:
"In the case of Thailand, all of Unocal's gas production is committed to a single Thai buyer. The gas is committed through long-term sales agreements that have expiration dates ranging from 2010 to 2029. Even if those contracts weren't in place, it would be difficult and costly for China to send the gas elsewhere because the pipelines or other infrastructure to do so don't exist. Building such infrastructure likely would require the consent of the Thai government, which relies on Unocal's gas to fuel its booming power sector."
"The idea that China might build a gas terminal to ship liquefied Thai gas to China ["is absolutely preposterous,"] says John Vautrain, a vice president and director in Singapore of Purvin & Gertz, a Houston oil and gas consultancy. ["The Thais wouldn't let you."]
"Unocal's Myanmar output also is sold to Thailand. Its Bangladesh gas generally is reserved for Bangladeshi consumption. The picture is somewhat different in Indonesia, where Unocal holds interests in a number of promising fields whose output probably would be earmarked by Cnooc for the China market, according to people familiar with the company's strategy."
In our opinion, the Journal, while clearly listing some interesting observations is missing an important point.
China's purchase of Unocal, even if it did not lead to the diversion of natural gas toward its own borders, would give it control of the energy supply used by Thailand, Myanmar, Bangladesh, and Indonesia. It would also put some pressure on Japan and South Korea.
In other words, in one fell swoop, China would become the energy czar for a significant portion of South East Asia, and would gain valuable leverage with which to further its other goals, the expansion of its influence, and the ability to project its power. A scenario in which China could use its leverage to gain concessions from the four countries mentioned, including the placement of military bases, fueling stations for submarines and merchant ships, and the placement of surveillance equipment and communication relay stations in all of those countries is an easy next step to visualize.
All the while, China could also make money by continuing to sell energy to those countries by honoring existing contracts, while negotiating more lucrative ones in the future.
Indeed, the Unocal purchase can easily be looked upon as a threat to national security, especially if you live in Thailand, Myanmar, Bangladesh, Indonesia, Japan, or anywhere else in Asia.
http://www.rigzone.com/news/article.asp?a_id=23528
It matters who owns the assets. See Posts #13 and #14.
Sorry. Posts #14 and #16.
I think they are over-reacting a little bit here. If an American company owned the oil, it would be sold to whoever paid the best price, which would be a function of the cost of getting it to market. If China made an uneconomic decision and brought the oil to China instead of selling it to where it made the most economic sense, China would bear much of the deadweight loss. The maximum loss to Thailand would be ~1.50/barrel which would be the price of shipping it from the middle east to thailand. ~1.5 per barrel is not enough to be a massive threat to thailand, especially when doing so would cost China money as well.
I predict Chevron will sweeten its offer for Unocal to equal CNOOC's offer abut a week before Unocal shareholders vote on the Chevron offer. This will not give CNOOC enough time to work through the 14 layers of communist bureaucracy to gain approval for a counter offer. Unocal shareholders will vote to accept the Chevron offer on 8/10/05 and the deal will be complete: game, set, and match to Chevron. Even if CNOOC does make a higher counter offer before 8/10, I think the majority of Unocal shareholders will vote to accept the Chevron offer because they don't want to wait for the long regulatory review process that would delay approval of the CNOOC offer (and patriotism will be a significant unspoken factor here). I'm holding my Chevron shares for expected gains in the second half of this year.
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