China tries to ease US worries on Unocal

Trying to allay US national security worries about its bid for Unocal Corp, Chinese state-owned oil company CNOOC Ltd said Friday it was willing to discuss selling some Unocal assets and putting others under American management.

The announcement came after four members of Congress called on the US government on Thursday to review the security implications of allowing a Chinese state-controlled firm to take control of the ninth-largest American oil producer.

CNOOC's unsolicited $18.5 billion offer Thursday for Unocal was the most ambitious foreign acquisition attempt yet by a Chinese company.

It set up a possible takeover battle with rival bidder Chevron Corp amid efforts by Beijing to secure foreign energy supplies for its booming economy, the world's second-biggest oil consumer.

"We have proactively made assurances to Unocal to address concerns relating to energy security and ownership of Unocal assets located in the United States," CNOOC chairman and CEO Fu Chengyu said in a statement released in Beijing.

Fu said CNOOC was "fully prepared" to participate in a US government security review. He offered to discuss selling some Unocal pipeline and storage assets and putting assets that aren't involved in oil and gas exploration or production "under American management." He said Washington has approved similar arrangements in the past for foreign buyers of American companies.

US Treasury Secretary John Snow said Thursday he expects both parties to submit to a security review. Snow chairs a federal panel that considers the possible security risks of foreign firms buying or investing in US companies.

"It's not a business transaction at all," said C. Richard D'Amato, chairman of the US-China Economic and Security Review Commission, a congressional advisory panel. "This is not a free market deal. This is the Chinese government acquiring energy resources."

The Chinese government, which owns 70 percent of CNOOC, has made a multibillion-dollar string of deals with countries ranging from Sudan to Venezuela to secure foreign oil and gas supplies.

"Substantially all of the oil and gas produced by Unocal in the US will continue to be sold in the US," Fu's statement said. "The development of properties in the Gulf of Mexico will provide further supplies of oil and gas for American markets."

However, it noted that 70 percent of Unocal's oil and gas reserves are in Asia, and didn't say what would happen to those resources.

Many oil industry experts agreed that security fears were unwarranted and warned that such responses could make it harder for US oil giants to gain the international access they need to grow.

"This is not a company building military aircraft or missile technology. This is energy, at the end of the day," said Lawrence Goldstein, president of the nonprofit Petroleum Industry Research Foundation in New York.

El Segundo, Calif-based Unocal already had accepted an offer to be bought by Chevron for nearly $16.6 billion in cash and stock. Chevron said it will not sweeten its offer _ at least for now.

"We're satisfied with the bid we have on the table," Peter Robertson, Chevron vice chairman, said in an interview on CNBC. "We think it's still the best opportunity for the shareholders."

Unocal said its board would consider the hostile takeover bid. The company said late Thursday that Chevron had given it clearance to begin talks with CNOOC about a possible deal.

The offer is the biggest attempt yet in a string of acquisition bids by Chinese companies for American firms.

Appliance maker Haier Group and two US private equity firms offered $1.28 billion for Maytag after it agreed to be bought by another US firm. Maytag says it is considering the Haier consortium's offer.

Chinese computer maker Lenovo's $1.75 billion purchase of IBM's personal computer division was cleared by a US federal panel in March.

Robertson told CNBC that a Chevron deal would put more oil and gas into the commercial market.

"Americans are worried about the supply of oil and gas. There is an issue here of who can put more oil and gas into the market on a commercial basis. I think if the Chinese government buys this asset, you can be sure that much of these materials will go to China," Robertson said.

But industry analysts say the deal poses no genuine supply threat to the US market, which imports about 12 million barrels of oil per day, because Unocal's resource base in the United States is relatively small. It is Unocal's Asian assets that CNOOC is really interested in, they said.

CNOOC said the acquisition would more than double its production and estimated that 85 percent of the combined reserves of both companies are located in Asia and the Caspian Sea region.

Moreover, a deal between CNOOC and Unocal could benefit American companies, consumers and workers in the long run, analysts said.

Oil analyst Fadel Gheit at Oppenheimer & Co. in New York said it would be the "pinnacle of hypocrisy" for the United States to put roadblocks in CNOOC's way, considering that President George W. Bush and others in his administration have repeatedly scolded Russia for not opening its doors wide enough to US oil companies.

"American companies must expand globally, but if we cut off people from coming into our country other countries will just block our companies from doing the same," Gheit said.

Brad Foss in Washington and Gary Gentile in Los Angeles contributed to this report.