Despite increasing concerns about the wisdom of an acquisition it appears likely that CNOOC (ticker: CEO), a Chinese oil and gas company will attempt to acquire US oil and gas company Unocal (ticker: UCL). You may remember that Barron's considered the bid unlikely only last week. Here are the key issues driving the bid courtesy of The Wall Street Journal (subscription required):
Rationale for a bid
- CNOOC's CEO is driven by a need to
expand the company's energy reserves and secure Asian gas fields
that can feed the receiving terminals the company is building along
China's southern coast.
- CNOOC has been exploring fields off the
coast of China but hasn't made enough significant discoveries to become a major player in Asia.
- CEO Fu was
quoted last year saying:
"Our current reserve level is still too low to guarantee the
sustainable development of the company."
The Chinese government factor
- The Chinese government is a controlling shareholder of CNOOC.
- Due to government concerns about its ability
to fuel China's economic expansion it might have given CNOOC a mandate and financial support to
attempt an acquisition of Unocal.
- The government perceives ownership of oil and gas fields as a means to energy security.
- This despite admissions from industry experts that Chinese ownership of oil fields abroad won't
make much difference to China's energy security.
Criticisms of a bid
- Non-executive directors of CNOOC have forced postponement of a bid due to concerns.
- Numerous stock analysts have questioned the rationale
for a bid - some over concerns about the debt load post-acquisition.
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