WSJ on a CNOOC (CEO) bid for Unocal

Includes: CEO, PTR, SNP
by: Ezra Marbach

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.

CNOOC chart.


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