The Chinese oil and gas company seeking to buy Unocal said yesterday it would stick by its current bid — even after Unocal's board...

Share story

LOS ANGELES — The Chinese oil and gas company seeking to buy Unocal said yesterday it would stick by its current bid — even after Unocal’s board endorsed a sweetened offer from rival bidder Chevron.

“We regret that they have not yet embraced our offer,” CNOOC said in a prepared statement. “We will continue to monitor the situation actively.”

Chevron boosted its cash-and-stock offer by about $2.50 per share to $63 per share — or $17 billion overall — shortly before the Unocal board met Tuesday night.

CNOOC, an affiliate of China National Offshore Oil Corp., has an $18.5 billion offer on the table for Unocal.

Most Read Stories

Unlimited Digital Access. $1 for 4 weeks

The deal has met stiff opposition in Congress because CNOOC is 70 percent owned by the Chinese government.

Analysts said CNOOC will likely have to increase its offer and add a financial guarantee if it wants to persuade Unocal shareholders to reject the Chevron bid in a vote scheduled for Aug. 10.

“It is too late for them to pull out,” said Fadel Gheit, an analyst with Oppenheimer who covers Unocal. “You are not dealing with a bunch of investors. You are dealing with the pride of the Chinese Communist Party,” he said.

Gheit believes CNOOC would have to raise its bid to around $70 a share and offer a guarantee to Unocal shareholders, who stand to take a hit if they reject the Chevron bid only to see the CNOOC bid scuttled by federal regulators.

The guarantee would have to be around $7 a share, Gheit said.

But some believe CNOOC may abandon its effort to acquire Unocal and instead seek other U.S. oil producers, investors said.

“Chevron has probably knocked CNOOC out of the water,” said Stephen Leeb, who manages $100 million, including Chevron shares, at Leeb Capital Management. CNOOC may decide “to bid for another U.S. oil company without the sort of competition they’re facing now.”

CNOOC might go after Marathon Oil, the fourth-largest U.S. oil producer, if it abandons or loses Unocal, which is the eighth-largest, Leeb said.

Other analysts said the Chevron bid is superior and should prevail despite its lower value because it carries fewer “closing risks” and is backed by the Unocal board.

“While it is difficult to determine CNOOC’s ultimate response, it appears clear the Unocal board favors Chevron over CNOOC and the narrowing of the two bids makes it more compelling for investors to approve the transaction Aug. 10,” analyst Bruce Lanni of A.G. Edwards wrote yesterday in a note to clients.

Merrill Lynch analyst John Herrlin called the Chevron bid superior in part because its stock component is more tax-efficient for Unocal shareholders.

Consideration by federal regulators could take more than six months and is highly uncertain given the political opposition to the proposed deal. Chevron, by contrast, has already secured regulatory approvals and has said it could close the transaction within days of the vote.

Some members of Congress insist the deal would hurt national security and result in vital energy resources being redirected to China. CNOOC has tried to defuse opposition to its bid by asking the U.S. Committee on Foreign Investment to review its offer.

The group, led by Treasury Secretary John Snow, was created to monitor foreign investment activity in the United States with an eye on protecting national security.

Information from Bloomberg News is included in this report.