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Investors Relieved After CNOOC Scraps Unocal Bid
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Hong Kong shares in China National Offshore Oil Corp Limited (CNOOC) yesterday rose as much as 5.5 percent reflecting investor relief that the Chinese oil firm had scrapped its bid to buy US oil and gas producer Unocal.

CNOOC shares yesterday surged by as much as 30 HK cents (3.8 US cents) to HK$5.80 (74 US cents) at its peak. They closed at HK$5.55 (71 US cents), a gain of 5 HK cents (0.64 US cents), or 0.9 percent.

At yesterday's close, CNOOC stock had risen 32 percent since the start of the year.

Industry analysts close to CNOOC said the share rise was largely due to its withdrawal from bidding rivalry with US oil producer Chevron for Unocal. The withdrawal has put an end to investor concerns that the Hong Kong-listed oil giant might overpay to outbid Chevron.

The country's third largest oil and gas producer, CNOOC dropped its US$18.5 billion all-cash bid for Unocal amid mounting political opposition from some US lawmakers on Tuesday. That left Chevron the sole bidder for the ninth largest oil and gas producer in the United States.

"The investors are happy about CNOOC's decision, because they thought the all-cash offer might be too costly. Scrapping the bid will surely clear up the uncertainty in the Chinese oil company's finances and operations relating to the proposed acquisition," said Laurence Lau, a senior analyst with the Bank of China (BOC) Hong Kong Limited.

Lau said that in the long-term, CNOOC's decision to pull out of the race will mean the firm can focus more on its core business, boosting investor confidence in the company.

Liu Gu, a senior energy analyst with Guotai Jun'an Securities (Hong Kong) Ltd, told China Daily that whilst CNOOC's withdrawal will lead to rising shares in the short term, in the long run, the decision means that the chance to expand its global business has been lost.

However, according to BOC's Lau, the Chinese oil company has actively sought possible acquisition opportunities across the globe. The failure to buy Unocal, whose Asian gas assets are very attractive to CNOOC, may push the oil giant towards other acquisition opportunities.

More Chinese enterprises have ventured out in search of overseas acquisitions in recent years.

Zhang Wenkui, deputy director of the Enterprises Economy Research Institute of the Development Research Center of the State Council, said CNOOC's bid for Unocal could provide valuable experience for other Chinese enterprises which also have overseas acquisition plans.

A more prudent attitude should be adopted by the Chinese enterprises when making bids for overseas energy enterprises, Zhang said.

In seeking international energy cooperation, China should use more market measures such as trade and futures. Acquisition of overseas enterprises is not the only or the best way, Zhang added.

According to analysts in China, CNOOC had suffered losses from its investment in the preparation phase and will suffer possible losses in profit sharing as a result of disclosing its development strategy during the bidding process.

However, a CNOOC insider said the company's withdrawal from the Unocal bid would not have much effect on its future development strategy.

(China Daily, Xinhua News Agency August 4, 2005)

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