China tells Congress
to keep its nose out of
their business as oil war for Unocal heats up
June 21 I reported in this column that China was planning to make
a bid for California-based UNOCAL Within a week CNOOC (China
National Offshore Oil Company) made an unsolicited offer for UNOCAL,
besting Chevron's $16.1 billion offer by $2.4 billion.
July 7 after OPEC's July 6 announcement that it would be impossible
to meet the industrial nation's projected oil needs by 2020, oil spiked
at $61 per barrel, driving up the price at the pumps at least 10 cents
per gallon. As Americans grumbled over the extra dime per gallon they
were putting in their gas tanks on Thursday morning, Londoners were experiencing
their own version of September 11. A previously unknown Islamic cell group
in London strategically placed four explosive devises in the city's financial
district, killing at least 50 Londoners and wounding over 700.
When the news
of the catastrophe spread, oil prices spiked another 10 to 20 cents a
gallon at the pumps, with gasoline in California selling at $2.33 per
gallon and in rural West Virginia around $2.39 per gallon. To
sidestep new demands from UNOCAL that they sign an agreement guaranteeing
that most of Unocal's Asian oil is sold in America, CNOOC
is preparing to increase its own offer to $20.5 billion, counting on a
continued buoyant oil market to make their buyout of UNOCAL profitable.
"Our board." CNOOC board chairman Fu Chengyu said,
"has made a decision that we have to win this bid."
shocked the financial markets by bidding against Chevron for UNOCAL,
Congress stunned China by demanding that the White House review the Chinese
offer as a potential threat to the national security of the United States.
On Thursday, June 30 the House of Representatives adopted the resolution
398 to 15 noting that CNOOC was controlled by the Communist
regime even though Fu Chengyu, chairman of CNOOC has insisted
that he was "...not a government leader. Nobody tells me how to
run this company. We are in our own business. I have just one job, one
responsibility, which is to make sure that I can continue to grow this
company." The Committee on Foreign Investments
(a department of the US Treasury) demanded that before any deal is approved
China must agree to sell part of the company's Asian-generated oil to
the United States. It is also looking for national security assurances
from Chinathat China will never be able to satisfactorily provide.
Like most Chinese
communists in important positions, Fu is a party hack who heads
not only CNOOC but its state-owned parent company as well. The
People's Republic of China owns 70% of CNOOC's shares.
The shares are controlled by a government holding company for China's
State Council (the equivalent to, say, the Dept. of Commerce or
the Dept. of the Interior). Congress sent a very clear message to the
White House making it very clear to the Bush Administration that
allowing China to gain control of an American oil company was tantamount
to handing over to our most deadly enemy a slicealbeit a small oneof
the United States oil supply.
shareholdersdefinitely a minoritywant to make sure the CNOOC
deal is not rejected since it is $2 billion more than the Chevron
offer. They do not think CNOOC represents a threat to the United
States, nor do they believe that CNOOC would divert all of UNOCAL's
inventory to China. What's more, they don't care. They
are short term investors who are in it for the quick profit.
they insist the demands of the House of Representatives are simply pre-election
bluster to convince the voters they are trying to keep UNOCAL's
inventory of gasoline in the United States. And, they aren't the only
ones complaining about Congress. The Chinese government issued a strongly
worded rebuttal to the Bush Administration through the State Department
excoriating Congress for what they termed was "...injecting politics"
into what they insisted was nothing more than "...a standard business
demand that the US Congress correct its mistaken ways of politicizing
economic and trade issues," the diplomatic note said, "and
stop interfering in the normal commercial exchanges between enterprises
of two countries. CNOOC's bid to take over the US UNOCAL is a normal commercial
activity between enterprises and should not fall victim to political interference.
The development of economic and trade cooperation between China and the
United States conforms to the interests of both sides." Actually,
it does not. If CNOOC was a normal shareholder-owned corporation
in our understanding of the word, and the nation in which that company
was located was a historic ally of the United States, I could probably
agree with the Chinese assessment. As it is, while China is currently
America's largest trading partner it is an avowed enemy who has made it
clear to the world that it intends to destroy the United States whenever
it is capable of doing so. America needs to ban the sale of UNOCAL to
Chinaat any pricefor national security reasons if not for
economic ones. China needs the oil produced by UNOCAL It's a safe bet
that if China gains control of UNOCAL, all crude oil from Asian sources
will immediately be diverted to China regardless what promises were made
or agreements signed.
in an attempt to deal with what many UNOCAL officials believe are
onerous conditions imposed by the federal government to block the sale
because of the Bush Administration's close ties with Standard
Oil, UNOCAL's Board of Directors told CNOOC it would
consider withdrawing its support for the $16.5 billion Chevron
offer and would endorse the CNOOC offer to UNOCAL's stockholders
if China would guarantee that a large portion of UNOCAL's Asian oil reserves
would be sold in the United States. Shareholders close to the situation
have indicated that CNOOC would likely not comply with that portion
of UNOCAL's request. This will force CNOOC to do one of two things:
[a] withdraw its $18.5 billion offeror [b] increase it
to $20.5 billion
China is now
the world's second largest consumer of crude oil. By 2050 it will be the
world's largest oil consumer. Until the People's Republic of China
is able to adequately tap into its own oil reserves, it must rely on imports
(unlike the United States which has allowed environmentalists to shut
down 80% of its own oil exploration, drilling and transmission of known
reserves, forcing it to rely on Mideast oil), creating the projected shortfalls
that are responsible for the current spike in gasoline prices at the pump.
What the short
term UNOCAL shareholders like about the CNOOC deal is that it is
all cashnot yuansdollars. $18.5 billion dollars. The Chevron
offer is 75% stock, 25% cash. Media people close to Chevron noted that
the only people who want the CNOOC deal are short term UNOCAL investors.
The majority of the UNOCAL shareholders have said the stockholders will
likely take the Chevron deal if the company sweetens the pot a littlecoming
with $2 to $3 per share of the CNOOC offer due to the sensitivity surrounding
the Chinese offerand the length of time it will take to finalize
for the US Treasury said the CNOOC deal faces obstacles from Bush's
National Security Adviser, Steve Hadley. Because of questions raised
about national security, the Committee on Foreign Investment will not
begin its review of the CNOOC deal until UNOCALwhich still
favors Chevron at less moneyuntil UNOCAL finalizes
a deal with either Chevron or UNOCAL At that time, the committee
will meet and decide if the deal can be consummated. Heel dragging by
the Bush Administration is not making JPMorgan and Goldman
Sachsthe brokerage houses that structured the deal for CNOOChappy.
But the heel-dragging offers hope to the Attorney Generals of California,
Montana, New Mexico and Texas which have won environmental lawsuits against
UNOCAL totaling $771 million for toxic waste cleanup. In addition,
the States fear that if China gains control of UNOCAL, CNOOC
will not honor the healthcare and pension liabilities owed, which could
threaten the solvency of the treasuries of those States.
The only American
corporation (other than their investment brokers, JPMorgan and
Goldman Sachs) that seems eager for China's buyout of Unocal
is another member of the Seven SistersExxonMobil. On the
surface it appears strange that one of the Standard Oil kids would
turn on another member of the family, Chevron (formerly ChevronTexaco).
It becomes understandable when you realize that ExxonMobil has
entered a joint venture with one of their Saudi partners to expand a Chinese
refinery in Southern China. the expansion will make that refinery one
of the largest oil refineries in the world. The expansion will cost $3.5
billionabout a third of the current Chevron bid for Unocal.
The venture will be jointly owned with the Chinese National Offshore
Oil Company owning 50% of the refinery, and ExxonMobil and
the Saudi government each owning 25%. It appears to me that the Chinese
government is expanding their refinery capacity just in time to refine
all that Asian Unocal oil. If that's true, then it supports the
view that China plans to divert that oil supply away from the United States.
CNOOC deal may be good for short term investors trying to make
a quick buck, it's bad deal for America. Why is the Bush Administration
dragging its heels? The US Treasury needs to ban the sale of UNOCAL to
an enemy of this nation which has vowed to destroy the United States.
If China decides it does not want to sell its cheap trinkets to America,
I say good riddance. It's like getting two birds with one stone. Two good
deals for America...for the price of one. Of course then Walmart would
have to find another slave labor country to buy merchandise from. I wonder
if the gulags in Siberia are still churning out cheap parkas, longjohns
and ice skates?
again you have my two cents worth on this subject.