The House Armed Service Committee said Friday it will hold a hearing on Wednesday to decide whether a possible merger of Unocal Corp. with the China National Offshore Oil Corp. (CNOOC) raises national security concerns. And in a letter to Unocal last week, attorneys general from Texas, California, Montana and New Mexico said they are seeking assurances that the company will honor its environmental obligations if CNOOC’s $18.5 billion offer is successful.

In the House hearing scheduled on Wednesday, Richard D’Amato, chairman of the U.S.-China Economic and Security Review Commission and Frank Gaffney, president of the Center for Security Policy, are scheduled to testify, according to a statement from the committee. Additional witnesses may be added.

The House of Representatives has already issued a nonbinding resolution that expresses concerns regarding a “Chinese state-owned energy company exercising control of critical U.S. energy infrastructure and energy production capacity.” The House also has passed an amendment to an annual appropriations bill to block the Bush administration from using any funds to “recommend the approval” of CNOOC’s bid (see Daily GPI, July 5).

Meanwhile, the attorneys general are concerned that Unocal’s obligations to clean up facilities in their states may be more difficult to enforce if Unocal is acquired by CNOOC. They requested information on CNOOC’s business plans and assurances on Unocal’s liabilities by mid-July.

“Should CNOOC’s offer be accepted, we are deeply concerned that the funding for clean-up of the sites in our respective states may be jeopardized,” the letter said. Unocal estimates that its potential liabilities for environmental restoration and other costs are about $771 million, according to the letter. Unocal also could be potentially responsible for liabilities at 20 additional sites, it said.

The attorneys general also said they were “uneasy” about the possibility that a CNOOC acquisition could jeopardize the funding of pension and medical plans for former employees who live in their states.

Chevron Corp., which has offered Unocal $16.3 billion, already has received federal regulatory approvals, and Unocal plans a shareholder vote on the offer in early August. However, Unocal is said to still be considering the CNOOC offer.

Unocal said last week that it could withdraw its support of Chevron’s bid if CNOOC met several conditions, including requests for divestments and other demands from U.S. regulators, according to several reports. CNOOC also may be willing to raise its bid for the El Segundo, CA-based company if its $18.5 billion bid fails to win the support of Unocal’s board of directors, according to the Washington Post. CNOOC Chairman Fu Chengyu told the Post that CNOOC would do what it takes to win the deal.

Meanwhile, President Bush, speaking from the Group of Eight summit in Gleneagles, Scotland, said Thursday that an official U.S. review of the proposed CNOOC bid should be completed without his involvement.

“There is a process that our government uses to analyze such purchases,” Bush told reporters. “It’s best I allow this process to move forward without comment.”

Chevron has remained somewhat tight lipped about the overall negotiations. According to Chevron spokesman Don Campbell, “The terms of the Chevron-Unocal agreement clearly provide shareholders with superior value. Chevron’s agreement remains the only offer on the table.”

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