A bird in the hand, or two in the bush. That's the choice facing Unocal Corp, which agreed in April to be bought by Chevron Corp for US$16.6 billion, but is now considering a rival US$18.5 billion bid from China National Offshore Oil Corp (CNOOC,
The less lucrative Chevron offer cleared its final regulatory hurdle this week and Unocal shareholders are scheduled to vote on it next month. By comparison, the larger CNOOC proposal is not likely to receive such swift regulatory approval. It has already generated a minor political storm in Washington, where many in Congress have warned of a national security threat in selling a US oil company to a Chinese government-owned one.
The scale of CNOOC's task was underlined late Thursday when the House of Representatives voted 398-15 for a non-binding resolution that calls for the US government to block the Unocal bid.
"If we allow this takeover, we're supplying China with the technological expertise it needs to become a major player in international energy," said Peter Morici, professor of business at the University of Maryland.
"Coupled with their military buildup and authoritarian systems, China becomes a threat. There's enough to block it on national security grounds," he said.
House of Representatives Democratic leader Nancy Pelosi also said that if the CNOOC bid succeeds, China would gain access to "cavitation" technology to dig far deeper underground than it can now.
"That same technology can be used by the Chinese to do nuclear tests underground and to mask them so we would not ever be able to detect them," she argued.
Battle has been joined in the US Treasury's Committee on Foreign Investments in the United States (CFIUS), as CNOOC on Friday voluntarily filed a notice with the committee, providing information about how its operations and acquisition of Unocal might affect US national security.
The committee has since 1988 only barred one transaction out of the 1,500-odd it has examined. That was a year after the 1989 Tiananmen Square massacre when a Chinese company was blocked from taking over a US firm.
If Unocal intends to pursue a deal with CNOOC, it will make a similar filing and the review process will begin. If Unocal does not file papers with the committee, the secretive inter-agency group will assume CNOOC is attempting a hostile takeover.
Should the committee decide to intervene, it would have 45 days to conduct its probe and submit a recommendation to the president, who would have 15 days to act.
An exquisite dilemma
That would pose an exquisite dilemma to Bush. Should he placate Congress and US industry by blocking CNOOC, in the process teaching Beijing a lesson that its currency policies and runaway export growth will no longer be tolerated?
Or should he stay on-side with one of the most important trading partners of the US, a country where cheap goods and Treasury bond purchases have kept inflation down and growth up?
CNOOC says that Unocal accounts for only one percent of US oil and gas production, that most of that production is in Asia, and that in any case it will continue to sell the oil in the US.
"Despite the heated rhetoric, we firmly believe that the CFIUS process will be fair, thorough and not influenced by either emotion or politics," it said Friday after submitting an explanation of its bid to the committee.
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