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Ex-Exec: China to own U.S. energy co. in future

By GARY GENTILE
The Associated Press

LOS ANGELES , Oct. 13 -- Sooner or later a Chinese company will buy an American oil and gas company despite political objections in the United States, according to former Unocal Corp. chief executive Charles R. Williamson.

Charles R. Williamson, former CEO of oil and gas company Unocal Corp., addresses executives, business faculty, alumni and students at a breakfast forum hosted by the Dean of the University of Southern California Marshall School of Business, Oct. 12, in Los Angeles. Williamson spoke about high energy prices and about Unocal's sale to Chevron as well as the current state of the oil and gas industry at a forum sponsored by USC Marshall School of Business. (AP Photo/Ric Francis)

But several problems have to be solved, including the enforceability of contracts in China and concerns about the unfair advantage state-owned companies have when bidding against public companies, he said Wednesday.

Williamson said Unocal would have agreed to be acquired by Chinese oil and gas company CNOOC Ltd., despite fierce political opposition, if the company had raised its bid in August.

"Our board wouldn't have backed away," Williamson said at a meeting sponsored by the University of Southern California's Marshall School of Business.

In the end, CNOOC withdrew its $67 a share offer, and Unocal went ahead with an earlier stock and cash deal to be acquired by U.S.-based Chevron Corp. for the equivalent of $66 per share.

Ultimately, it was a combination of uncertainty created by congressional opposition to the deal combined with bruised egos on the part of CNOOC that led to the collapse of talks between the two companies, Williamson said.

Unocal agreed to be acquired by Chevron in April, after CNOOC failed to submit a formal bid. In June, when CNOOC finally made an all-cash offer that topped Chevron's bid, Unocal imposed a series of difficult conditions before agreeing to talk to CNOOC.

"We didn't want them to be able to breach the contract. It scared us," Williamson said.

Unocal insisted that CNOOC, which had few U.S.-based assets, place $2.5 billion in cash in an escrow account in a U.S. bank and agree to abide by Delaware law.

The trustworthiness of the Chinese legal system is a key factor to any future deals with companies based in China, he said.

"I wouldn't have risked arbitration in China because that was a black hole for us," Williamson said. "But that will change with time."

Unocal also insisted CNOOC agree to sell all its U.S. assets if needed for regulatory approvals.

Finally, Unocal made CNOOC agree to shoulder the $500 million breakup fee Unocal would have to pay Chevron if that merger agreement was broken.

"CNOOC was insulted by this, I'll be honest," Williamson said, speaking about all the conditions Unocal imposed.

"They were also worried about precedent for the next U.S.-China transaction," Williamson said.

The potential takeover of Unocal by CNOOC would have required approval by the Committee on Foreign Investments in the United States, a panel that reviews foreign investments in U.S. companies.

Williamson said he was "appalled" by some of the objections raised to the deal by politicians.

He said politicians said they were worried about the Chinese acquiring Unocal's "submarine detection technology" or its "deep drilling cavitation technology."

"I used to be the head of technology, and I never heard of this stuff," he said.

One of the biggest issues that has to be resolved for a Chinese takeover of a U.S. company is the unlevel playing field that occurs when a state-owned company has access to government funding and other resources not available to a privately owned firm.

"I think it's an issue not just for the Chinese, it's an issue that is going to face a lot of state-owned enterprises that want to invest here," he said.

Story Produced by: Gwen Heimburg

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