Chevron Bid to Buy Unocal Is Cleared by Regulators

Chevron Corp.’s $16.4-billion bid to buy Unocal Corp. cleared its last regulatory hurdle Wednesday, triggering a shareholder vote on the deal in early August and adding urgency to negotiations over a competing bid from China’s CNOOC Ltd.

El Segundo-based Unocal, which agreed in April to be acquired by Chevron, has scheduled a shareholder vote Aug. 10 in Los Angeles. The date was set after the Securities and Exchange Commission on Wednesday approved the Unocal-Chevron deal.

Completing the last regulatory review “demonstrates that our transaction can be brought to a quick and successful conclusion,� Chevron Chief Executive David J. O’Reilly said in a statement. He called the deal a “compelling, long-term investment opportunity� for Unocal shareholders.

For the moment, Unocal’s board agrees with that assessment and continues to recommend approval of the Chevron offer. But Unocal executives are in talks with CNOOC, an arm of government-controlled China National Offshore Oil Corp. of Beijing, and could change that opinion before the August meeting.

“Chevron is intent on successfully concluding this transaction, but they also understand that our stockholders will require additional information in order to adequately evaluate and compare the CNOOC proposal,� Unocal Chief Executive Charles Williamson said in a letter to employees Wednesday. “Our board will need to understand the risks and value associated with both proposals in order to decide whether to withdraw its current recommendation for the Chevron proposal.�

Williamson said the company would complete the CNOOC review “as expeditiously as possible.�

Chevron’s cash-and-stock offer, worth an estimated $62 a share when it was announced, has fluctuated in value along with changes in the oil company’s share price. On Wednesday, Chevron’s stock dipped 24 cents to $56.76, making the company’s Unocal bid worth $60.10 a share.

Unocal shares fell to $65.20, down 59 cents, while CNOOC’s U.S.-traded shares rose 25 cents to $59.25.

Last week, China’s third-largest oil producer launched an $18.5-billion bid for Unocal, an all-cash offer equal to $67 a share. If CNOOC were to supplant Chevron, it would also have to pay that company as much as $500 million in break-up fees.

“We remain confident in both the superiority of our offer and the chances of its success,� CNOOC spokesman Mark Palmer said.

The CNOOC deal’s value is well above the Chevron proposal, but its completion is considered less certain because the company’s ties to the Chinese government have sparked opposition from congressional leaders who worry that the oil deal could have national security ramifications.

Indeed, the CNOOC bid has stirred up a broad and vigorous debate over U.S.-China relations, touching on questions of trade policy, monetary valuations, national security, oil consumption and energy policy. Several members of Congress have urged that the deal be scrutinized by an obscure government entity known as the Committee on Foreign Investment in the United States.

Rep. Carolyn C. Kilpatrick (D-Mich.) on Wednesday offered an amendment to an appropriations bill prohibiting the Treasury Department from recommending that CNOOC be allowed to purchase Unocal, according to a statement from the congresswoman. Treasury Secretary John W. Snow heads the inter-agency foreign investment committee.

CNOOC has said it welcomes a review by the committee, and has tried to quell fears by pledging to sell Unocal’s U.S.-produced oil and natural gas within the country and to keep a substantial number of Unocal’s managers and employees. The Hong Kong-based company has hired lobbyists, public relations firms and lawyers to help smooth the way for its Unocal purchase.

All three companies, meanwhile, are plotting their next moves.

“If you’re Chevron, you just want to move this along as soon as possible,� said Jason Putman, an energy analyst at Victory Capital Management, a Cleveland firm that owns more than 7 million shares of Unocal. “If we have no clarity as to where CNOOC stands with regulators and if everything’s the same as it is today, it’s tough to turn down the Chevron offer.�

On the other hand, he said, Unocal’s “trying to get as much time as they can ... and CNOOC has hired a lot of good lobbyists and lawyers. In the next 30 days, a lot could happen.�

Gene Gillespie, an analyst at Howard Weil, thinks Chevron will have to be cautious.

“It’s not in Chevron’s best interest to get in a bidding war with the Chinese government,� said Gillespie, whose firm doesn’t hold Unocal or Chevron shares.