The Federal Trade Commission (FTC) on Tuesday voted unanimously to give final approval to Chevron Corp’s. bid to acquire oil and natural gas producer Unocal Corp. for $17.5 billion. The agency’s action came hours after China’s CNOOC Ltd. withdrew its politically-charged $18.5 billion bid for Unocal, clearing the way for the company’s shareholders to accept Chevron’s lower bid of $17.5 billion.

Under a settlement with the FTC, which takes effect when the acquisition is completed, Chevron has agreed not to enforce certain patents of Unocal subsidiary Union Oil that potentially could have increased gasoline prices in California by more than $500 million a year. This was the “only potential competitive concern” with Chevron’s proposed acquisition of Unocal, the FTC noted.

The patents involved technology for producing certain low-emission gasoline mandated by the California Air Resources Board for sale and use in California for up to eight months of the year. While Unocal does not engage in refining or retailing itself, it claimed the right to collect patent royalties from companies that did so, including Chevron, according to the agency.

“If Chevron had unconditionally inherited these patents by acquisition, it would have been in a position to obtain sensitive information and to claim royalties from its own horizontal downstream competitors,” the FTC said.

“We have reason to believe that this scenario would likely have an adverse effect on competition and, in any event, would inevitably have required an extensive inquiry and possible litigation.”

The FTC approved the consent orders by a vote of 3 to 1, with Chairman Deborah Platt Majoras recusing herself.

Unocal’s stock rose slightly to $64.53 a share on the news of CNOOC’s decision to abandon its quest, while Chevron shares closed at around $59.56, up by $1.13/share. CNOOC’s stock shot up $4.15 to $73.49 a share on Tuesday.

In an amended offer, Chevron sweetened its bid for El Segundo, CA-based Unocal, the ninth largest oil and gas producer, to $17.5 billion in late July. Unocal’s board recommended at the time that the company’s shareholders vote in favor of adopting Chevron’s amended takeover bid, even though it was $1 billion below the CNOOC offer. The vote is scheduled for Aug. 10.

“CNOOC has given active consideration to further improving the terms of its offer, and would have done so but for the political climate in the U.S.” against its pursuit of Unocal, said CNOOC in a prepared statement.

“The unprecedented political opposition that followed the announcement of our proposed transaction…was regrettable and unjustified. …Accordingly we are reluctantly abandoning our higher offer to the clear disadvantage of Unocal shareholders and employees.”

The offer by CNOOC, China’s largest producer of offshore oil and gas, came under intense scrutiny in Washington, DC, with lawmakers clamoring for hearings into the transaction.

The sweeping energy bill that cleared Congress last week included a provision that would have held up the takeover. Specifically, it would delay the Committee on Foreign Investments in the United States, an interagency committee chaired by the Treasury secretary, from reviewing sensitive international energy mergers, such as the bid for Unocal by CNOOC, for 120 days to allow for a review by the Departments of Defense, Energy and Homeland Security. CNOOC is 70% owned by the communist Chinese government.

Rep. Richard Pombo (R-CA), chairman of the House Resources Committee, on Tuesday called CNOOC’s decision to bow out “good news for the free market, the American consumer and U.S. national security.”

However, he noted that the United States has something to learn from China’s pursuit of Unocal. “China is doing exactly what the United States should be doing to grow our economy. China has come to fully realize the inextricable link between abundant and affordable supplies of energy and economic strength,” he said.

“Their 10% economic growth is testament to this — they get it. Having just been through the energy conference process with the Senate, it is safe to say that many here in Congress do not.”

In fact, Pombo said that it was ironic that Congress expressed “near-unanimous concern” in protecting Unocal’s 1.7 billion barrel of worldwide oil resources from a takeover by CNOOC, yet many continue to oppose efforts to produce the Arctic National Wildlife Refuge’s 10.4 billion barrels — six times as much — right here at home.

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