Unocal battle leaves bitter taste

Sept. 1, 2005
On August 10, more than 77 percent of Unocal Corp. shareholders approved an $18 billion takeover offer from Chevron Corp.

Don Stowers

On August 10, more than 77 percent of Unocal Corp. shareholders approved an $18 billion takeover offer from Chevron Corp. in one of the biggest acquisitions in the oil industry in recent years. The merger undoubtedly will boost the value of Chevron, which has seen production declines in recent years, by adding much-needed reserves and production.

By acquiring Unocal, Chevron reportedly will see a 15 percent increase in its proved reserves, to 13 billion boe. This will allow the company to expand oil and gas production significantly. Chevron is aware it is becoming increasingly difficult to replace reserves and maintain high levels of production, so company officials were willing to play hardball to get this deal to go through.

When CNOOC, the Chinese government-owned oil company, made a counter offer for Unocal, Chevron’s allies in Washington went into high gear. More than a few congressmen and senators played the “patriot card,” arguing that allowing a foreign government - particularly a communist one - to buy an American oil company would jeopardize our country’s security. Never mind that most of Unocal’s assets are in Southeast Asia, and this is what the Chinese company was seeking in the transaction.

After three or four weeks of heated rhetoric from Washington in which some lawmakers threatened to take away the right of Unocal’s shareholders to decide which company’s deal to accept, CNOOC withdrew its offer. The battle was over, but it left a lingering bad taste.

One industry analyst commented to me last week at EnerCom’s Oil & Gas Conference in Denver that it seems “a little hypocritical” that so many in Washington would adopt a protectionist stance while we are simultaneously seeking more access for US companies in places like Saudi Arabia and Mexico.

This did not seem to be a particularly partisan issue. US Rep. Richard Pombo (R-Calif.) argued against the Chinese bid, as did US Sen. Byron Dorgan (D-ND). In fairness to their position, they make a valid argument when they point out that the Chinese energy sector is not exactly a free market. However, I don’t think China is an example we want to follow as we urge other governments to open up their markets.

In the end, no government action was taken - only threatened. I’m sure the Bush administration breathed a collective sign of relief when the Chinese withdrew their offer and the White House did not have to get involved directly in the controversy.

Chevron, of course, is a fine company and will be a capable steward of Unocal’s assets. Both corporations are headquartered in California and their assets - employees included - appear to be largely complementary. This lack of redundancy is good news for most of Unocal’s 5,000 or so employees, who are not expected to get pink slips in their pay envelopes, although some will be asked to relocate.

The beefed-up Chevron is expected to produce 2.8 million boe per day, which in times of tight supply is good news for all of us. OGFJ