Crisis on the China Rim: An Economic, Crude Oil, and Military Analysis

"There is a crisis rising on the China Rim, a crisis made of economic imbalances, energy insecurities, ancient hatreds, and unsettled scores. The catalyst for this crisis is success itself, the success of the People’s Republic of China in its de facto rejection of a failed experiment in communism and its rapid transformation into a thriving market economy. The inseparable companion of this success, though, is an insatiable hunger and thirst for precious resources... most important among these, crude oil."

2005.04.14 | 85 pages | download

In a Tuesday, 2005.06.07, statement to the Hong Kong Stock Exchange, China's state-owned CNOOC Ltd., the country's largest offshore oil producer, said that it is "continuing to examine its options with respect to Unocal.   These options include a possible offer by the company for Unocal, but no decision has been made in this respect."  The statement also said, "No assurances can be made that the company will ultimately make an offer for Unocal."

Several facts are key to a possible bidding war between San Ramon-based Chevron Corporation and Hong Kong-incorporated and Beijing-based CNOOC over El Segundo, California-based Unocal Corporation:

Chevron's 2005.04.04 bid of roughly US$16 billion for Unocal is comprised of 75.0% stock and 25.0% cash.  Chevron would also assume about $1.6 billion in Unocal debt.

The Chevron-Unocal deal has not yet closed.

The attraction of Unocal to CNOOC is Unocal's high concentration of crude oil and natural gas assets in Asia.

Chevron and Unocal have set a $500 million break-up fee related to their final merger discussions.

We regard a successful bid by CNOOC for Unocal as unlikely, but CNOOC's mere interest in such a deal - at this late stage of final merger negotiations between Chevron and Unocal - emphasizes the gathering intensity of the worldwide scramble for energy security, and the increased importance that China attaches to energy reserves that are "closer to home".

Posted by:
Kevin B. Skislock
Partner and CEO
Laguna Research Partners
[bio] [disclaimer]

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