Chinese Firm Launches $18.5 Billion Bid for Unocal

This is from the Los Angeles Times:

A Chinese oil company today offered to buy California-based Unocal Corp. for $18.5 billion, topping a rival bid by Chevron Corp. and setting the stage for a political debate over the future of U.S. energy, security and trade policies.

The offer by CNOOC Ltd., an arm of State-owned China National Offshore Oil Corp., also represents China's largest potential overseas investment by far. But it's one the Chinese believe their fast-growing economy needs to help satisfy its surging demand for oil, refined products and natural gas.

CNOCC offered $67 cash for each share of El Segundo-based Unocal and stressed that its bid was "friendly" and that it hoped to reach a "consensual" deal.

Chevron, based in San Ramon, California, and the second-largest U.S. oil company behind Exxon Mobil Corp., is offering about $62 a share in cash and Chevron stock--or about $17 billion--under its agreement with Unocal, which already has received U.S. antitrust clearance from the Federal Trade Commission.

This is a huge story. You are talking about a large Chinese oil company wanting to buy an American oil company, at a time when oil supplies are tightening, prices are rising, and the two biggest nations that are seeking new oil supplies to satisfy their growing demand are China and the United States. According to the LA Times, Unocal focuses on exploration and production and has projects in the Asia-Pacific region which includes Thailand, Indonesia, Bangladesh and Myanmar. Both Chevron and CNOOC prize Unocal's oil and natural-gas projects in Asia and the Pacific region. Unocal also operates in the Gulf of Mexico and the Caspian Sea area. To put it simply, this is a competition between the United States and China for oil assets. It is a competition that is being carried out by two big oil firms of CNOOC and Chevron for Unocal's assets--oil. Whoever gets Unocal, gets the oil.

This is a political and public relations firebomb. Of course it raises serious concerns about a Chinese oil company buying an American oil company at a time when the Bush White House has been pushing an energy bill stressing more oil exploration and production. It is also a public relations nightmare. The Republicans will jump on the bandwagon, decrying that the Chinese government is taking control of the U.S. energy, economic, and security policy. Congressional leaders will want to re-examine trade policies between the U.S. and China, and how the Unocal deal will affect trade between both countries. And if the CNOOC-Unocal deal collapses, the Chinese government may complain the Bush White House may have exerted pressure to kill the deal and restrict the new Chinese oil companies from exploration and development outside of China.

I have no clue how this deal will turn out. But I am concerned that whatever the outcome of this deal, either China or the United States will point fingers at each other, decrying that each other's governments had exerted pressure to influence the deal towards their own satisfaction. And both governments will certainly be exerting such influence on this deal. The question is, what is going to happen next.