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Unocal Political Dynamics
This will be one of the most "telling" incidents in global economy that will reverberate through all China/US relations from this point forward. Sometimes when out political branch moves it lips...rhetoric is all that escapes
Date: 8/11/2005 7:57:37 AM ( 19 y ) ... viewed 1303 times Foiled Bid Stirs Worry for U.S. Oil
By JAD MOUAWAD
Published: 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.
Chris Pizzello/Reuters
Charles R. Williamson, chief executive of Unocal, in Los Angeles Wednesday. Congress opposed a bid by a Chinese company to buy Unocal.
Forum: Markets and Industries
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.
"It is not unusual for us to compete against some of our partners," Mr. O'Reilly said in a telephone interview. "But this is an issue that goes beyond China. It's about what the rules are and about leveling the playing field."
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."
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