Cnooc, China's third-largest oil producer, offered to buy Unocal for $18.5 billion in cash yesterday, topping the $16.6 billion Chevron agreed to...

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CNOOC, China’s third-largest oil producer, offered to buy Unocal for $18.5 billion in cash yesterday, topping the $16.6 billion Chevron agreed to pay for the U.S. oil and gas company.

If successful, it would be the biggest-ever overseas acquisition for a Chinese company.

CNOOC Chairman Fu Chengyu wants Unocal, which has half of its oil and gas reserves in Asia, to secure energy for China as oil trades near $60 a barrel.

He needs to convince Unocal’s investors that the premium over Chevron’s agreed offer compensates for the risk that the U.S. government would block CNOOC’s bid.

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Unocal said yesterday it would evaluate CNOOC’s offer, adding that its board backs its previously agreed upon deal with Chevron.

Chevron, based in San Ramon, Calif., reaffirmed its bid yesterday, saying its offer “combines compelling value, regulatory certainty and accelerated timing, providing a superior transaction for Unocal stockholders.”

Chevron also noted that the merger agreement has been approved by the boards of both companies and has received regulatory approval.

Despite the bold move to challenge Chevron on its home turf, CNOOC stressed that its bid of $67 in cash for each Unocal share is friendly and that the company is seeking a consensual deal with Unocal.

The Chinese company — which analysts have warned could face political hurdles in buying a U.S. company — also promised the deal would not hurt the U.S. oil and gas market, because Unocal’s U.S. oil and gas output would continue to be sold here.

It also said it is willing to divest or look at other options for Unocal’s nonproduction assets in North America and would look to retain substantially all Unocal employees, including those in the United States.

China needs overseas oil and gas fields to meet a shortage of domestic output and help fuel its $1.65 trillion economy, the world’s fastest-growing major market.

“There aren’t that many reserves left to buy in the market, and I understand the company plans to buy all the assets and then slash the holdings by half by selling them to other buyers,” said Lui Yang, money manager at Atlantis Investment Management in Hong Kong, before the bid was announced. “The Asian assets are what the company is after.”

The combination is expected to more than double CNOOC’s oil and gas output and increase its reserves by nearly 80 percent to about four billion barrels of oil equivalent.

Beijing-based CNOOC said it will borrow $16 billion from its parent company and banks to finance the offer. It secured bridging loans totaling $3 billion from Goldman Sachs Group and JPMorgan Chase and $6 billion from Industrial and Commercial Bank of China. CNOOC would assume estimated net debt of $1.6 billion from Unocal, based on disclosures in Chevron’s offer. CNOOC would have to pay a $500 million breakup fee to Chevron, which made its cash and stock bid for Unocal on April 4.

Any takeover of Unocal by CNOOC would be ninefold bigger than the largest previous overseas acquisition by a China-based company, Lenovo Group’s $1.25 billion purchase of IBM’s PC unit, completed in May.

A successful CNOOC bid might run into complications in the U.S. Congress.

“There will be issues about foreign holdings of strategic assets,” said Sen. Jon Corzine, a New Jersey Democrat.

China, Asia’s second-biggest economy, has become the world’s second-largest user of oil, after the U.S. Prices have gained 55 percent in the past year, partly because of China’s soaring demand.

CNOOC’s Fu, who is also chief executive, rose to the top of the company in October 2003. He is also president of China National Offshore Oil, the parent.

“Fu is determined to go for the bid,” Atlantis Investment Management’s Liu Yang said.

China’s government is encouraging CNOOC, PetroChina and China Petroleum & Chemical, the nation’s three biggest oil companies, to find overseas assets and secure supplies. Oil import costs rose 86 percent to $4.66 billion in May. The nation’s economy has averaged more than 9 percent annual growth during the past two decades.

Bloomberg News reporters Jay Newton-Small and William McQuillen contributed to this report. Reaction from Unocal board and CNOOC’s offer to retain Unocal workers reported by Reuters. Chevron’s comments reported by The Associated Press.