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Foiled Bid Stirs Worry for U.S. Oil
By JAD MOUAWAD August 11, 2005
When Cnooc, the Chinese government-owned oil company, dropped its bid to buy Unocal this month, it said political opposition in Washington had scuttled the plan. The question oil companies now face is whether they might suffer similar political retribution in their own dealings with foreign governments.
The fate of Unocal was finally settled yesterday when a majority of the company's shareholders approved a takeover offer from Chevron worth about $18 billion. The battle has left a bitter taste among many in the oil and gas industry because of the hostility displayed by lawmakers and the consequences this might have for United States oil companies worldwide.
Unocal's vote ends months of uncertainty after Cnooc's takeover attempt ignited a lobbying and political battle in Washington led by Chevron's allies in Congress. The struggle surrounding the takeover highlights how the question of access to oil and gas reserves remains one of the most sensitive and pressing faced by the industry. Yesterday, crude oil prices touched a new high of $65 a barrel in New York. [Page C7.]
"It's a tremendous precedent-setter for a government to interfere and declare that national security is at stake," said Daniel Yergin, the president of Cambridge Energy Research Associates, an oil consultancy. "What is this going to mean for American oil companies from Algeria to Zanzibar?"
Governments from oil-producing countries like Russia and Venezuela try to put pressure on foreign corporations when oil prices are high. Other producers, like Mexico or Saudi Arabia, simply bar foreign companies from investing in their oil or gas sectors. In each case, the position of the United States government is fairly consistent: free markets are the best guarantee for the future availability of energy supplies.
But that position has been partly undermined by recent actions in Congress over Cnooc. Representative Richard Pombo, a Republican from California whose district includes Chevron's headquarters, argued that the Chinese bid posed a threat to national security and successfully steered an amendment into the energy bill specifically aimed at stalling the Cnooc bid for months.
Other legislators, like Byron L. Dorgan, a Democratic senator from North Dakota, said they opposed Cnooc because China's energy sector did not operate in a free market. That - and other measures considered by Congress - convinced Cnooc that it had no chance of successfully completing its takeover.
"What this misguided policy did was to say the United States will not advocate fair trade when it comes to American assets," said David L. Goldwyn, a former assistant secretary of energy during the Clinton administration and the co-editor of "Energy and Security: Toward a New Foreign Policy Strategy."
"That may push China into a more competitive stance rather than a more cooperative one," he said.
Mr. Goldwyn also said it might undermine the United States when it requested more access for foreign investors to the nationalized oil sector of Saudi Arabia. The behavior of the United States, he said, is "a little hypocritical."
But for David J. O'Reilly, the chief executive of Chevron, the fight over Unocal will not sour his company's relations with Cnooc, a partner in offshore drilling in China. For him, the problem with the Cnooc bid for Unocal was its reliance on Chinese government financing, not political interference in Washington.
.................................
As a sign of the uneasiness felt in corporate America, most business leaders in the United States have been unusually quiet about the conflict, treading a cautious line between not alienating lawmakers in Washington and not appearing critical of China's intents.
Still, one executive summed up how some in the oil industry felt about political involvement. Lee R. Raymond, the chief executive of Exxon Mobil, said early in the takeover battle that it would be a "big mistake" for Congress to interfere with the Cnooc bid because it might backfire on American companies seeking to do business abroad. "If you start to put inefficiencies in the system, then all of us pay for that," Mr. Raymond said.
Jerome A. Cohen, a law professor specializing in China at New York University, said that once Chevron played the political card in Washington, it was hard for it to rein in its supporters. "Chevron itself is conflicted," Mr. Cohen said. "They have allowed themselves to get too far into the anti-China crowd."
So far, there is little to suggest that American companies have suffered. For one, China, in the wake of the Cnooc defeat, has adopted a low-key tone. And developing countries usually need major oil companies to develop their resources because they can bring both technological expertise as well as financing capital.
Unocal will provide a major boost to Chevron as big oil companies find it increasingly difficult to replace both reserves and production. The merged company will increase its proven reserves by 15 percent, to 13 billion barrels of oil-equivalent, and expand oil and gas production to three million barrels a day.
While its oil output has declined each year since 2000, Chevron expects the merger to raise production 6 percent a year from 2005 to 2009. More than 77 percent of Unocal's shareholders backed Chevron's bid.
In Washington, the issue of overseeing foreign acquisitions more vigorously will resurface as a proposal by Senator Richard C. Shelby, Republican of Alabama, that would give Congress the power to block a foreign takeover of American assets. That amendment, tucked in the military appropriations bill, is expected to be examined in the fall.
Currently, only the president can block a takeover on national security grounds, something that has happened only once - in 1990, when the first Bush administration blocked the sale of a Seattle-based airplane parts maker, Mamco Manufacturing, to a military-related agency of the Chinese government.
"There are going to be many residual effects in Congress," said Nancy McLernon, the deputy director of the Organization for International Investment, a business association that represents American subsidiaries of foreign companies. It did not represent Cnooc.
"The Bush administration breathed a big sigh of relief when Cnooc withdrew its offer but there's more to come that could change the cross-border M.& A. environment," she said, referring to mergers and acquisitions. "That's something the whole world will be watching."
Foiled Bid Stirs Worry for U.S. Oil
By JAD MOUAWAD August 11, 2005
When Cnooc, the Chinese government-owned oil company, dropped its bid to buy Unocal this month, it said political opposition in Washington had scuttled the plan. The question oil companies now face is whether they might suffer similar political retribution in their own dealings with foreign governments.
The fate of Unocal was finally settled yesterday when a majority of the company's shareholders approved a takeover offer from Chevron worth about $18 billion. The battle has left a bitter taste among many in the oil and gas industry because of the hostility displayed by lawmakers and the consequences this might have for United States oil companies worldwide.
Unocal's vote ends months of uncertainty after Cnooc's takeover attempt ignited a lobbying and political battle in Washington led by Chevron's allies in Congress. The struggle surrounding the takeover highlights how the question of access to oil and gas reserves remains one of the most sensitive and pressing faced by the industry. Yesterday, crude oil prices touched a new high of $65 a barrel in New York. [Page C7.]
"It's a tremendous precedent-setter for a government to interfere and declare that national security is at stake," said Daniel Yergin, the president of Cambridge Energy Research Associates, an oil consultancy. "What is this going to mean for American oil companies from Algeria to Zanzibar?"
Governments from oil-producing countries like Russia and Venezuela try to put pressure on foreign corporations when oil prices are high. Other producers, like Mexico or Saudi Arabia, simply bar foreign companies from investing in their oil or gas sectors. In each case, the position of the United States government is fairly consistent: free markets are the best guarantee for the future availability of energy supplies.
But that position has been partly undermined by recent actions in Congress over Cnooc. Representative Richard Pombo, a Republican from California whose district includes Chevron's headquarters, argued that the Chinese bid posed a threat to national security and successfully steered an amendment into the energy bill specifically aimed at stalling the Cnooc bid for months.
Other legislators, like Byron L. Dorgan, a Democratic senator from North Dakota, said they opposed Cnooc because China's energy sector did not operate in a free market. That - and other measures considered by Congress - convinced Cnooc that it had no chance of successfully completing its takeover.
"What this misguided policy did was to say the United States will not advocate fair trade when it comes to American assets," said David L. Goldwyn, a former assistant secretary of energy during the Clinton administration and the co-editor of "Energy and Security: Toward a New Foreign Policy Strategy."
"That may push China into a more competitive stance rather than a more cooperative one," he said.
Mr. Goldwyn also said it might undermine the United States when it requested more access for foreign investors to the nationalized oil sector of Saudi Arabia. The behavior of the United States, he said, is "a little hypocritical."
But for David J. O'Reilly, the chief executive of Chevron, the fight over Unocal will not sour his company's relations with Cnooc, a partner in offshore drilling in China. For him, the problem with the Cnooc bid for Unocal was its reliance on Chinese government financing, not political interference in Washington.
.................................
As a sign of the uneasiness felt in corporate America, most business leaders in the United States have been unusually quiet about the conflict, treading a cautious line between not alienating lawmakers in Washington and not appearing critical of China's intents.
Still, one executive summed up how some in the oil industry felt about political involvement. Lee R. Raymond, the chief executive of Exxon Mobil, said early in the takeover battle that it would be a "big mistake" for Congress to interfere with the Cnooc bid because it might backfire on American companies seeking to do business abroad. "If you start to put inefficiencies in the system, then all of us pay for that," Mr. Raymond said.
Jerome A. Cohen, a law professor specializing in China at New York University, said that once Chevron played the political card in Washington, it was hard for it to rein in its supporters. "Chevron itself is conflicted," Mr. Cohen said. "They have allowed themselves to get too far into the anti-China crowd."
So far, there is little to suggest that American companies have suffered. For one, China, in the wake of the Cnooc defeat, has adopted a low-key tone. And developing countries usually need major oil companies to develop their resources because they can bring both technological expertise as well as financing capital.
Unocal will provide a major boost to Chevron as big oil companies find it increasingly difficult to replace both reserves and production. The merged company will increase its proven reserves by 15 percent, to 13 billion barrels of oil-equivalent, and expand oil and gas production to three million barrels a day.
While its oil output has declined each year since 2000, Chevron expects the merger to raise production 6 percent a year from 2005 to 2009. More than 77 percent of Unocal's shareholders backed Chevron's bid.
In Washington, the issue of overseeing foreign acquisitions more vigorously will resurface as a proposal by Senator Richard C. Shelby, Republican of Alabama, that would give Congress the power to block a foreign takeover of American assets. That amendment, tucked in the military appropriations bill, is expected to be examined in the fall.
Currently, only the president can block a takeover on national security grounds, something that has happened only once - in 1990, when the first Bush administration blocked the sale of a Seattle-based airplane parts maker, Mamco Manufacturing, to a military-related agency of the Chinese government.
"There are going to be many residual effects in Congress," said Nancy McLernon, the deputy director of the Organization for International Investment, a business association that represents American subsidiaries of foreign companies. It did not represent Cnooc.
"The Bush administration breathed a big sigh of relief when Cnooc withdrew its offer but there's more to come that could change the cross-border M.& A. environment," she said, referring to mergers and acquisitions. "That's something the whole world will be watching."
that energy costs are like any other cost in manufacturing and transporting product to market.....it has to be low to make the product cost effective so that it can be sold at an affordable price......anytime a cost gets outtahand, say like labor,energy...etc, that cost has to be dealt with or else the manufacturer goes out of business..:^....in this case with energy being the higher cost factor, a recession will happen because of the delay in reducing the cost of energy.....and the manufacturer may still go out of business if something isn't done about the higher energy cost right away......:shock:
