A $18.5bn (£10.5bn) bid it received from the state-controlled China National Offshore Oil Corporation (Cnooc) has raised the alarm among US companies about what is next on China's shopping list. Meanwhile, politicians fret that the country's national security is being threatened.
Yesterday, after three weeks of intensive lobbying, Cnooc was waiting to find out whether its daring offer - the largest ever by a Chinese company for a foreign rival - had any realistic chance of success. Unocal's board was meeting in its home town of El Segundo to decide whether to withdraw its recommendation for a separate, lower, offer from Chevron, America's second-largest energy company.
On the eve of the meeting, Cnooc, which is based in Hong Kong and 70 per cent-owned by the authorities in Beijing, sweetened its offer by agreeing to put $2.5bn in an escrow account which Unocal could automatically empty if anything goes wrong with its bid. It has also undertaken to sell off any assets requested by regulators who review the bid for Unocal.
Cnooc might have to do more to win Unocal, which has more than half of its assets overseas, including in Asia and in pipelines running through Azerbaijan, Georgia and Turkey. Observers said it might have to increase its all-cash, $67-a-share offer by 3 per cent, or $2 a share, putting a price tag of $19bn on Unocal. Chevron tabled a mainly shares bid in March, valuing Unocal at $16.5bn.
But all of that may not be enough for Cnooc to trump the offer from Chevron, whose capitalist credentials date back to its days as part of the Rockefeller Standard Oil Trust, and whose bid for Unocal has caused few waves in the US.
Summing up some of the hysteria that Cnooc's offer has caused among some on Capitol Hill and New York's financial community, one television commentator yesterday said the bid was "blood money on the backs of students from Tiananmen Square".
Less inflammatory, though no less damning, was a declaration by James Woosley, a former CIA director, before the House of Representatives' Armed Services Committee that the Cnooc bid was a "national security issue". He added: "China is pursuing a national strategy of domination of the energy markets and strategic dominance of the Western Pacific."
If that were not worrying enough, it is painfully apparent in the US that not only is it running a $160bn trade deficit with China, but the country has an eye on many of its best-known brands.
The acquisition trail has already begun. Lenovo, a little-known Chinese computer company, suddenly became one of the largest players in the world after snapping up IBM's loss-making PC unit this year. Haier Group, China's largest appliance maker, is pursuing Maytag, the long-established Iowa company whose brands include Hoover.
While both bids attracted resistance in the US, there has been nothing like the fear and anger which has been the response to the idea of a Chinese bidder buying a US energy company.
The US is already jittery about the fact that it relies on imports for much of the oil it consumes. While Britain's BP was allowed to swallow up Amoco of the US in 1998, the US does not want to see any of its remaining energy assets fall into foreign hands, especially those of a country such as China whose global ambitions are so unknown.
In a further demonstration of the US fears about its "energy security", few foreigners will be in a strong position to buy Westinghouse, the politically-sensitive nuclear business based in Pittsburgh, which has been put up for sale by its owner, the UK Government.
Despite the fact that the UK was allowed to snap up the asset in 1999, the White House is unlikely to welcome its sale to bidders from outside the US.
In the case of Cnooc, even if it does gain ground by having the Chevron bid put on hold by Unocal's board, it is likely to face the hurdle of a full-scale inquiry into the national security aspects of its bid.
This would be done by the secretive Committee on Foreign Investment in the United States (Cifus). The argument of those who want Cifus to reject Cnooc is that even though Unocal contributes only 1 per cent of the US national oil and gas supply, handing the company over would in effect give it to the Chinese government.
Beijing is, according to US hawks, engaged in a strategic campaign to control oil assets across the world, which also links in to its military ambitions.
The situation is more difficult for the US financial community, many of whom have been courting Chinese officials because they want to get into its huge market. Disney, Starbucks and several banks are already on their way.
Yet others on Wall Street are outraged about what they consider to be a persistently skewed playing field. US companies wanting to get into China have been hampered by restrictions on how large their stakes in local companies can be. At the same time, Beijing-controlled banks have heavily subsidised offers coming the other way. While Chevron is financing its bid from its own funds, Cnooc is being loaned $7bn in low- or no-interest rate loans by China.
Cnooc has pulled out all the stops to convince politicians, as well as Unocal's board, that its offer is straightforwardly about the numbers, and has no hidden agenda. It has signed up the law firm Akin Gump Strauss Hauer & Feld to lobby for it. Some of the firm's partners are major fund-raisers for President George Bush. Mark McKinnon, the vice-chairman of Cnooc's heavyweight US public relations firm, Public Strategies, guided Mr Bush's media campaigns in the 2000 and 2004 elections.
Meanwhile Fu Chengyu, CNOOC's chairman and chief executive, who spent 13 years working in international oil companies, including several US ones, has repeatedly tried to cajole decision makers in the US into seeing the advantages to the US of his deal.
He recently wrote an article in The Wall Street Journal arguing that: "The American public's anxiety that we plan to take fuel back to China is based on a misunderstanding. It would not be economically rational. In fact we will increase production in the US, particularly from the Gulf of Mexico."
The hail of criticism and hours of management time devoted to the Unocal bid could turn out to be worth it for Mr Fu and his board, who apparently code-named the project Operation Treasure Ship.
Unlike major global oil companies such as BP, which has most of its assets outside the UK, Cnooc and most other Chinese energy companies operate almost exclusively within the country's bounds. They and the Chinese government know that must expand if the population's rapidly increasing demand for oil is to be satisfied.
In the case of Unocal, there are also lucrative wider opportunities in the region. And for those watching in the US, it is clear that if Cnooc prevails, other national oil companies in China are likely to be quick to follow with cross-border offers of their own.Reuse content