CNOOC Ltd.'s offer late Wednesday to buy Unocal Corp. for $18.5 billion in cash puts pressure on Chevron Corp. to up its $16.6 billion stock-and-cash offer. It also sets up a potential showdown between U.S. politicians over whether Chinese-owned CNOOC ought to be able to purchase the El Segundo-based oil-and-gas production company.

A number of equity analysts believe that Chevron will make another bid, maybe as early as the beginning of next week. The market suggests the counteroffer could be up to around $70 per share, $3 above CNOOC's and nearly $8.75 above Chevron's original offer, which was worth $61.26 a share based on Wednesday's closing stock price.

On Thursday, Chevron said its April 4 pact to buy Unocal remains in effect, and Unocal said its board's recommendation in favor of the deal still stands. Chevron responded to the CNOOC bid with a statement that it is "substantially finished" with the regulatory approvals to acquire Unocal.

CNOOC's offer generated concerns in Washington about national security issues and will likely force the Bush administration to closely examine the deal for risks to the U.S, Bloomberg News reported. The Committee on Foreign Investment in the U.S., which reviews the risks that foreign acquisitions could pose to the nation, will review CNOOC's bid if Unocal accepts the offer. Under U.S. law, President Bush has the authority to stop the bid if the committee finds evidence that national security would be threatened. The process for making that determination would start once Unocal accepts CNOOC's bid, said Bloomberg.

On Monday, amid rumors of CNOOC's potential offer, two U.S. congressmen asked the Bush administration to review and potentially block any effort by CNOOC to acquire Unocal. Richard Pombo and Duncan Hunter, Republican congressmen from California, urged President Bush to exercise his authority under a 1988 federal law to begin a review by the committee.

China's state-run energy firm offered $67 a share, a 3.3 percent premium over Unocal's closing share price on Wednesday. The bid is below the $71.50 a share that had been rumored in news reports earlier in the week.

In a letter sent to the chairman of Unocal late Wednesday, CNOOC Chairman and Chief Executive Fu Chengyu stressed that the approach is friendly and the company is seeking a consensual transaction with Unocal, the company said in a statement published in Hong Kong newspapers.

CNOOC said it expects the combined company would have a leading position in the Asian energy market and an expanded role in the development of China's liquefied natural gas market. Adding Unocal would more than double CNOOC's oil and gas production and increase its reserves by nearly 80 percent, to nearly 4 billion barrels-of-oil equivalent.

Fu said he was "confident that the merger will increase shareholder value."

CNOOC also made a number of assurances to Unocal, including retaining nearly all Unocal employees, something the Beijing-based company said is in contrast to the existing Chevron proposal. Chevron has announced plans to extract hundreds of millions of dollars of cost savings from the merger annually, including from employee layoffs.

CNOOC said the transaction would be financed from cash resources of more than $3 billion, $6 billion in bridge loans provided by Industrial and Commercial Bank of China, a $4.5 billion long-term loan from its majority shareholder, China National Offshore Oil Corp., and a bridge loan of $2.5 billion, also from the majority shareholder. CNOOC said it already received commitment letters for the financing from Goldman Sachs, JPMorgan, ICBC and its majority shareholder.

CNOOC decided to move quickly on its bid for Unocal because the Securities and Exchange Commission is poised to approve the disclosure documents on Chevron's bid. The Federal Trade Commission approved Chevron's takeover plan on June 10.

If the deal goes through, it would be the biggest ever overseas acquisition by a Chinese firm. Both Chevron and CNOOC are interested in Unocal for its vast oil and gas assets in Asia.

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