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Chinese State Oil Company Offers $18.5 Billion for Unocal

China's third-largest state-run oil company has offered $18.5 billion to take over U.S. oil company Unocal. This would be the biggest overseas acquisition by a Chinese company.

China National Offshore Oil Corporation, known as CNOOC, says the acquisition of Unocal would double the company's oil and gas production and increase its reserves by almost 80 percent, to some four billion barrels of oil equivalent.

CNOOC chairman and chief executive officer Fu Chengyu told reporters the combined assets of the two companies would make it a major player in the Asian oil and gas industry.

"This merger would transform CNOOC's size, yield and geographical footprint," said Fu Chengyu. "We would have substantial oil and gas reserves in major fields in Indonesia, Thailand, Bangladesh and Azerbaijan. With Unocal's asset, our ability to take advantage of the rapidly expanding demand of the Asia market for natural gas is considerably enhanced."

More than half the merged company's reserves would be in oil and 47 percent would be in gas.

CNOOC's unsolicited offer for Unocal may change the fortunes of U.S. oil company Chevron, whose $16.5 billion offer for Unocal has already been accepted by Unocal's board and recommended to its shareholders.

Under that agreement, if Unocal backs out of the Chevron deal, the new bidder would have to pay Chevron a fee of $500 million.

It is not clear whether Chevron will make a counter offer.

But stock analysts say the $18.5 billion acquisition price would bury CNOOC in debt. The company plans to use $16 billion in loans on top of about $3 billion in cash to finance the takeover. Company officials say the deal would add to earnings within a year of completion.

As China's energy demands continue to grow, state-owned oil companies have been expanding reserves by entering into exploration and drilling projects overseas.

CNOOC's merger proposal is one of a series of high-profile bids for U.S. companies by Chinese firms. Earlier this week, Chinese appliance maker Haier offered $1.3 billion to buy Maytag, one of the United States' largest manufacturers of refrigerators, washing machines, and home appliances. And last year, computer company Lenovo bought IBM's personal computer business.

Industry analysts say the acquisition could face a review by U.S. lawmakers, who are worried about U.S. workers losing jobs and about increasing Chinese corporate control in strategic industries.

CNOOC said it would "substantially" keep all employees of Unocal, including those in the United States. It also assured the market that Unocal's U.S.-produced oil and gas would continue to be sold in the United States.