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Last Updated: Tuesday, 21 June, 2005, 17:20 GMT 18:20 UK
China oil firm 'eyes Unocal bid'
Unocal truck at oil storage facility
Unocal has Asian assets that are appealing to CNOOC
Shares in US oil firm Unocal have risen on reports that China's biggest offshore oil and gas producer may be poised to begin a bidding war for it.

China National Offshore Oil Corporation (CNOOC) is deliberating whether to make a cash offer of $20bn (11bn) for Unocal, Bloomberg news agency reported.

A bid of this size would top the $18bn takeover price Unocal's board agreed with US giant ChevronTexaco in April.

Unocal's shares rose 3% in early trade in New York.

CNOOC was seeking approval for the offer from its eight-member board on Tuesday, Bloomberg reported, citing people familiar with the plan whom it did not name.

Too late?

Analysts say CNOOC would have to move swiftly.

The ChevronTexaco bid has already won the approval of the US Federal Trade Commission, the main anti-monopoly regulator, so there are few remaining obstacles to completion.

Rumours that CNOOC was eyeing up Unocal began circulating in late 2004. Analysts said Unocal's exposure to oil-thirsty Asian markets would make it a good fit.

CNOOC is the largest foreign offshore oil producer in Indonesia, for instance.

The widespread assumption was that CNOOC would keep hold of Unocal's Asian assets, and sell off the rest of the company.

To minimise the risk of a costly misadventure, it was expected to find a buyer for the parts of Unocal it did not want to keep and announce back-to-back deals.

Since then, oil prices have risen to nearly $60 a barrel, and the share prices of mid-range oil firms like Unocal have also gone up.

Current bid plans are thought to involve CNOOC using its own $3bn cash pile, and taking on big debts.

A CNOOC bid would have to get the approval of US regulators and could reportedly face opposition from US lawmakers on politically-delicate issues ranging from China's trade surplus to US oil security.

The firm's independent directors delayed a vote on a bid for Unocal in March, asking for more information, Bloomberg reported.

Slick operation

State-controlled CNOOC was one of four big oil groups that emerged after the 1999 restructuring of China's oil industry.

CNOOC was given offshore exploration and production assets, and had to work closely with foreign oil majors to improve its offshore technology.

Oil analysts say it has the Chinese oil sector's most professionalised management team, as a result.

Alongside Shell, it shares ownership of the $4.3bn Daiyu Bay petrochemical plant that is China's biggest joint-venture investment.

CNOOC's shares are traded in Hong Kong and New York as a well as having a domestic Shanghai listing.

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