A bird in the hand, or two in the bush. That's the choice facing Unocal, which agreed in April to be bought by Chevron for $16.6 billion but is now...

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WASHINGTON — A bird in the hand, or two in the bush. That’s the choice facing Unocal, which agreed in April to be bought by Chevron for $16.6 billion but is now considering a rival $18.5 billion bid from Chinese-controlled CNOOC.

The less lucrative Chevron offer cleared its final regulatory hurdle this week and Unocal shareholders are scheduled to vote on it next month. By comparison, the larger CNOOC proposal is not likely to receive such swift regulatory approval. It has already generated a minor political storm in Washington, where many in Congress have warned of a national-security threat in selling a U.S. oil company to a Chinese government-owned one.

Yesterday, CNOOC voluntarily filed a notice with a federal committee that reviews foreign investments, providing information about how its operations and acquisition of Unocal might affect U.S. national security.

If Unocal intends to pursue a deal with CNOOC, it will make a similar filing and the review process will begin. If Unocal does not file papers with the Committee on Foreign Investments in the United States (CFIUS), the secretive interagency group will assume CNOOC is attempting a hostile takeover.

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“This is going to be one of the more interesting deals to watch unfold,” said Matthew Simmons, a Houston-based investment banker well-known in the petroleum industry.

Unocal reiterated its support for the Chevron bid this week in a letter to shareholders, and a Unocal spokesman said yesterday there was no immediate plan for a CFIUS filing. But discussions between Unocal and CNOOC are ongoing in New York and analysts said it is tough to tell who will prevail. A bidding war is possible and a third suitor could even enter the competition.

If Unocal decides to pursue the CNOOC offer, however, Chevron has the right to bow out, pocket a $500 million breakup fee and look elsewhere for a strategic partnership.

“There are other assets for Chevron to buy,” said oil analyst Gene Gillespie at Howard, Weil, Labouisse in New Orleans. “Unocal isn’t so unique that it has infinite value.”

Unocal has 1.75 billion barrels of proven reserves of oil and natural gas — an amount that would boost Chevron’s reserve base by roughly 15 percent and CNOOC’s by about 80 percent.

Unocal’s daily output of 169,000 barrels of oil and 1.6 trillion cubic feet of natural gas amounts to less than 1 percent of U.S. consumption, though both suitors have expressed interest in its assets because of their location. The majority of Unocal’s activity is in Asia, particularly in Thailand and Indonesia, but also in the Caspian region.

Aside from the regulatory certainty surrounding Chevron’s offer for Unocal, analysts pointed out that the deal, which is a combination of stock and cash, gives shareholders in the merged company something the CNOOC bid does not: an opportunity to see their investment grow even further if Chevron’s stock price rises.

The all-cash CNOOC deal may look sweeter to Unocal shareholders on the surface but there is “the risk of getting nothing down the road” if regulators don’t approve the merger, Gillespie said.

For its part, CNOOC believes the appeal of its offer for Unocal, the ninth-largest oil and gas producer in the U.S., is quite simple: It exceeds Chevron’s bid by almost $2 billion. Also, Unocal workers might make out better under CNOOC, which has said it does not intend to slash jobs in El Segundo, Calif., where Unocal is based. Chevron, based in San Ramon, Calif., plans to shed workers to eliminate redundancies and meet cost-saving targets.

Since CNOOC raised the stakes, Chevron’s stock price has fallen and Unocal’s has risen. As a result, Chevron’s offer is now about $5 below Unocal’s stock price, while CNOOC’s offer remains about $2 above it.

“Investors vote their pocketbook,” said oil analyst Fadel Gheit at Oppenheimer in New York. “There is no way that Unocal shareholders are going to give their stock to Chevron for $60. But that is the value of the offer from Chevron as we speak.”

Yesterday, shares of Chevron closed at $56.84, while Unocal’s ended at $65.65.

Simmons cautioned that although the market is signaling that Unocal is worth more than Chevron’s initial offer, “Chevron has got to be very careful of not getting into a bidding war.”

CNOOC’s parent company, the Chinese National Offshore Oil Co., is predominantly owned by the Chinese government, giving it very deep pockets with which to make acquisitions.

Indeed, a considerable amount of the opposition to the deal comes from members of Congress who say CNOOC, as a government-backed company, is not on a level playing field with Chevron.

CNOOC Chairman Fu Chengyu denies that his company is acting on behalf of China’s government, which is in the midst of a multibillion-dollar campaign to secure foreign oil and gas supplies to help fuel its booming economy.

“This company is driven purely by economics,” Fu said.

One concern in Washington is that CNOOC’s bid for Unocal is part of a broader strategy by communist China to hoard energy supplies before they run out.

That is why the House registered its discomfort on Thursday with the prospect of a state-owned Chinese company taking over an U.S. oil firm, voting 398-15 to ask the president for an immediate and thorough review if Unocal accepts CNOOC’s offer.

However, even if Unocal’s leadership walks away from the proposed CNOOC deal, analysts said it’s possible Chevron will sweeten its offer.

“If Chevron doesn’t up the price,” Simmons said, “then Unocal directors are going to get sued for turning down a better offer.”