Acknowledging concerns about China’s global economic ambitions, the CEO of China National Offshore Oil Corp. (CNOOC) said the unsolicited $18.5 billion cash offer for Unocal Corp. is “friendly,” and said he hopes it will lead to a “consensual transaction.” Meanwhile, financial analysts appear to believe that Chevron Corp., which already has an offer on the table for Unocal, will prevail.

The $67/share bid by CNOOC late Wednesday had been expected, and it trumps the $16.5 billion cash-and-stock offer of Chevron, whose deal is pending with U.S. regulatory authorities. CNOOC also would have to pay a $500 million breakup fee to Chevron, and would assume $1.6 billion in Unocal debt.

The CNOOC transaction is considered the largest foreign acquisition attempted by a Chinese company, and it would be the first time that companies in China and the United States were engaged in a takeover battle. CNOOC is 70%-owned by the Chinese government.

CNOOC CEO Fu Chengyu said in a statement that the transaction makes sense for his shareholders because it would strengthen the company’s portfolio and be accretive to earnings. To ward off U.S. concerns, Fu said CNOOC would sell or market most or all of the oil and gas from Unocal’s U.S. properties in U.S. markets. CNOOC, unlike Chevron, also would retain “substantially all” of the El Segundo, CA-based company’s 6,500 employees.

“Our all-cash offer is clearly superior for Unocal shareholders,” Fu said in a conference call. “Second, it is good for America. We will protect Unocal’s U.S. jobs.” Fu downplayed the role of Chinese national interests in the takeover bid, and said the offer was made on the merit of commercial considerations. “This transaction is purely a commercial transaction. We are confident that the U.S. government will support this project.”

Fu, who earned a master’s degree in petroleum engineering from the University of Southern California, and who once worked for the Phillips Petroleum Co., said that if people “have a better understanding” of CNOOC, “I think there will be less concern both politically and maybe economically.”

In a statement late Wednesday, El Segundo, CA-based Unocal said it would evaluate the proposal because of its “fiduciary duties and its obligations under the Chevron agreement.” Unocal’s statement noted that the board’s recommendation that shareholders approve the acquisition by Chevron “remains in effect.”

Chevron, headquartered in San Ramon, CA, stated that its original agreement to buy Unocal “combines compelling value, regulatory certainty and accelerated timing, providing a superior transaction for Unocal stockholders.” It did not indicate whether it would increase its bid for Unocal, but already, Unocal’s share price has risen above Chevron’s original offer. At midmorning Thursday, Unocal’s stock was trading around $65.65/share.

A combined CNOOC and Unocal would have 85% of its reserves in Asia. Unocal has gas and oil fields in Thailand, Indonesia and Myanmar, which complements CNOOC’s offshore Chinese, Indonesian and Australian holdings. Unocal also owns a 10% stake in an Azerbaijan field and pipeline operated by BP plc, which will transport oil to the Mediterranean.

The suggested bid by CNOOC had already stirred the political pot in Washington, DC. On Wednesday, Energy Secretary Samuel Bodman said that a bid would be reviewed by the Committee for Foreign Investment in the United States, an interagency panel chaired by Treasury Secretary John Snow. The committee screens these types of transactions for national security concerns. And earlier this month, California Reps. Richard Pombo and Duncan Hunter asked the Bush administration to review and possibly block a CNOOC bid.

However, there are questions about free trade. ExxonMobil CEO Lee Raymond said earlier this week that an attempt to block CNOOC’s bid would be a “big mistake.” He told reporters at the Reuters Summit, “You have to have free trade. If you start to put inefficiencies in the system, all of us eventually pay for that.”

Financial analysts were unsure whether Unocal shareholders were actually getting a better offer from CNOOC.

Howard Weil Inc. analyst Gene Gillespie said in a note to clients, “I don’t think this is attractive to the Unocal shareholders,” because a portion of the Chevron acquisition would be tax-free to Unocal’s investors. Oppenheimer & Co.’s senior energy analyst Fadel Gheit also noted that Unocal shareholders might turn down the offer.

Referring to CNOOC, Gheit said, “They should at least have upped it to $72″ a share…This is a waste of everyone’s time.” However, he said he would not be surprised if Chevron increased its offer. “I think Chevron is committed and interested in Unocal, and it’s not going to let the deal collapse.”

Analyst Bernard J Picchi of Foresight Research Solutions LLC, wrote in a note that he doubted that “either CNOOC or Beijing is intimidated by the prospect of U.S. regulatory, Congressional, or White House scrutiny of its offer for Unocal. In fact, the Chinese probably welcome an intense U.S. government review of its Unocal bid as a kind of clarifying exercise that will set firm policy regarding Chinese direct investment in the U.S.”

Still, Picchi expects “Chevron will prevail, but…it will eventually sweeten its offer to match CNOOC’s $67/share cash bid. It is possible, of course, that Chevron’s share price could rise from $58 to $66, which would level the playing field between the two bids.”

On Thursday, Moody’s Investors Services placed the “A2” rating of CNOOC and the longterm rating of its subsidiaries on review for a possible downgrade. Moody’s actions “reflect the cash component of the transaction and the significant debt that will be raised to fund the acquisition.”

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