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Chinese company withdraws Unocal bid, cites U.S. political climate

BEIJING—A leading Chinese oil producer on Tuesday abandoned its $18.5 billion bid to take over Unocal, saying a political backlash on Capitol Hill over China's growing appetite for oil dimmed the likelihood of concluding the deal.

The announcement by CNOOC Ltd., a Hong Kong subsidiary of the Chinese national oil company, paves the way for Chevron Corp., the No. 2 U.S. oil and gas concern, to proceed next week in its plan to take over California-based Unocal.

The scuttling of CNOOC's bid for Unocal marked a setback for China but is unlikely to halt attempts by cash-flush Chinese companies to bid on U.S. companies as a way to expand global operations. Nor is it likely to end the rivalry between China and the United States for energy as oil prices soar to record levels.

While Unocal's oil and gas holdings aren't considered of critical importance to U.S. energy needs, the Chinese company's June 23 buyout offer of Unocal triggered a political furor on Capitol Hill among legislators who deemed the takeover risky to national security.

In a strongly worded statement, CNOOC cited "the political environment in the U.S." for its decision to abandon the quest for Unocal, which has major reserves in Asia, particularly in Indonesia, Myanmar and Thailand.

"This political environment has made it very difficult for us to accurately assess our chance of success, creating a level of uncertainty that presents an unacceptable risk to our ability to secure this transaction," CNOOC said.

The company, which is 70 percent controlled by its state-owned parent and has access to low-interest government loans, offered Unocal shareholders a deal worth more than $1 billion over Chevron's offer. But it became clear that the buyout faced prolonged government review with no clear chances for success.

Unocal's shareholders are to meet Aug. 10 to approve the Chevron bid, a formality in its takeover quest.

Chevron, based in San Ramon, Calif., already has government approval for the merger in hand. The company on July 19 sweetened its bid for Unocal by roughly $1 billion to a $17.4 billion cash-and-stock offer.

Unocal's board of directors said afterward that it favored the Chevron offer over the higher bid by CNOOC.

Amid flat to falling crude production in China, the nation's three major state-owned oil companies are scouring the globe for oil and gas projects and companies to acquire, particularly in Asia, Canada and Africa.

Energy consumption is soaring in China, the world's fastest growing major economy. China now trails only the United States as a major global oil consumer.

Unocal's U.S. oil and gas operations—including Texas and Alaska wells, and costly deep-water projects in the Gulf of Mexico—account for less than 1 percent of total U.S. oil and gas consumption.

CNOOC pledged to continue to sell Unocal's U.S. production within the United States, but some U.S. legislators were uneasy about the Chinese government's control over the company.

In the past year, several U.S. companies have become targets of Chinese takeover bids. Last month, a Chinese white-goods manufacturer, Haier, withdrew an unsolicited bid for Maytag, a famous but troubled U.S. appliance brand, following a higher bid by rival appliance maker Whirlpool.

In a $1.8 billion deal that closed in May, Lenovo Group bought the loss-making personal computer business from IBM, acquiring global brand recognition and leapfrogging from the world's ninth largest PC maker to No. 3, behind Dell and Hewlett Packard.

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(c) 2005, Knight Ridder/Tribune Information Services.

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