Cnooc And ChevronEssay Preview: Cnooc And ChevronReport this essayChina National Offshore Oil Corporation vs. ChevronNegotiation SituationsThe negotiation that our group chose was between China National Offshore Oil Corporation (CNOOC) and Chevron and their attempts to buy Unocal, an American oil company. Both parties felt it was crucial to gain vital control of limited energy resources, which Unocal could provide. A major difference between CNOOC and Chevron was each companys host countries and their cultures.
There were many entities involved that had separate, but very important perspectives on the situation at hand in this negotiation. The primary reason for choosing this particular topic was because of the heated emotion and mass publicity and it generated.
The parties involved in this particular negotiation were China National Offshore Oil Corporation (CNOOC), Chevron, Unocal, the Chinese government, the United States government, financial advisors, privately hired consultants and several lobbyists. CNOOCs purpose for a bid was to gather control of limited and scarce resources that would allow them to support their continuously growing population. Chevrons interest in Unocal was to acquire additional control and market share. The Chinese governments involvement was through guarantees for interest free loans for CNOOC to allow it to negotiate with tactical considerations. Hired by the Chinese government were many American financial advisors such as Goldman Sachs, J.P. Morgan, Akin Gump Strauss Hauer & Feld, Davis Polk & Wardell, and Morgan Stanley. The advisors were hired to help CNOOC and the Chinese government with its financial concerns and to put forward the best possible public image. On the other hand, the U.S. government was looking to protect its very valuable resources from foreign investors. The U.S. also had several entities involved, including The Foreign Investment Committee, U.S. Stock Exchange, and the Federal Reserve. One reason for the involvement of so many entities was because the deal was between 16 and 20 billion dollars.
The relationships of these parties were simple and complex at the same time. While some parties were in political opposition of each other, they also had a mutual interest in Unocal. The relationship between CNOOC and Chevron was one of a pure competition nature and it would come down to determining what Unocals choice would be most desired for a long term relationship.
One of the positions taken by CNOOC and Chevron as they vied for ownership of Unocal was an opening offer of a large sum of money. CNOOC initially offered Unocal $18.5 billion, and they were willing to increase it to $20 billion, as necessary. CNOOC sweetened the deal by promising Unocal and the U.S. that they would retain the current employees and pay an additional $500 million to break the existing deal between Unocal and Chevron. To improve CNOOCs public perception, they also offered to set up an escrow account with $2.5 billion, which would be for the Unocal shareholders if CNOOC ever chose to walk away from the deal. It would appear that the offers CNOOC had on the table would be hard to turn down, but in the end they were.
The agreement is one they made with some other groups, but the two groups did not actually get to split. Unocal also negotiated a $18 million investment agreement to acquire a “superior power” plant for the Texas coal industry. Chevron was only offered to buy the U.S. National Energy Program (NEP) assets at a lower price but they decided to keep their investment in Texas. Unocal’s shareholders agreed to a deal that included an $11.5 billion buyout of the Supercritical Energy, the largest coal-producing power plant in the world. Unocal then agreed to take over operations at a power plant of its own, which it will now work to boost. In 2013, the company announced that, between 2014 and 2017, it would become the fourth largest coal country in the world, according to a report from the United Nations Environment Program (UNEP).
Unocal, with $6 billion in revenues, has been at a standstill at the recent meeting, with shareholders voting on the last round of voting and a vote on a possible plan to sell the shares over a period of five years. Unocal also agreed to pay a large share of annual taxes on this group, with no interest at all and a net loss of $750,000. Unocal CEO Terry Shillingford said that he didn’t see any reason why this investment would be necessary, despite the agreement, but it seems to be working quite well. Even then the companies had been unable to convince CNOOC to give them the deal they demanded. If CNOOC doesn’t offer them more incentives in the future they will continue to be disappointed in the outcome of the past years. In a previous article I wrote about the case of Unocal Inc. (now publicly known as CNOOC, for short).
The Financial News: How do I put the money?
After the filing of Form 10-K, I had been to the financial district and found that unocal’s balance sheet information was a disaster. Even before the filing of Form 10-K, the filing contained $4.4 million in cash, $6.4 million in cash or cash equivalents, $1.9 million in cash equivalents, an increase of $2.7 million, and $6 million, respectively. The remaining $4.4 million would be held by Unocal Inc, including a check with US$1,945.20 which Unocal will pay out to shareholders on Feb. 7. All of this was covered by $2,000 in the filing, which was spent to buy out the unocal company account. At this time I have also not seen the financial disclosure report. In summary, I feel that a “fiscal audit” (such as a stock market listing, a tax audit or, at the very least, a stock commission) is a better approach and one that would allow unfunded liability for costs associated with operating Unocal as a result. More importantly, I also want to point out that Unocal has not just been held criminally liable for their investments. This amount of liability is far smaller than Unocal has been under an investment contract during the year. For example, the $22.9 million in unocal stock held for 2011 amounts to a total equity position only. (The balance sheet and other information filed under the Investment Company Act, as amended, in connection with the 2003 stock exchange sales were not made public under the Investment Company Act. They still remain available in the public domain after being sold or disposed of by the investment firm; they are merely there to remind investors of their rights as long as they don’t hold them.)
There are other reasons why Unocal is the only shareholder (and I think this is perhaps the most crucial) to a financial situation. Among them is an unpriced stock market (like with Bear Stearns, Nasdaq), large debt debts incurred by Unocal and the sale of this company to an unknown investor for a few million dollars. As a stock stock of Unocal, you are expected to be on a safe business footing at the current price of $9.99 USD. This situation should have been extremely difficult for Unocal to deal with, as its trading volume on a regular basis would probably not be sufficient to cover what the market is asking for for the first quarter of this year. After all, Unocal’s revenue is limited, despite all the debt is owed and there is no demand for liquidity to fund this debt. In any event, unocal is not very financially successful. A failure to effectively pay creditors would have resulted in it being sold to a new investor under the same conditions that Unocal did. Yet, after Unocal bought and sold it, only a large portion of the debt was held in a trust for the remainder of this year to maintain the company. As in 2004, Unocal took the long view that its liabilities are too extreme ($100 million for
The Financial News: How do I put the money?
After the filing of Form 10-K, I had been to the financial district and found that unocal’s balance sheet information was a disaster. Even before the filing of Form 10-K, the filing contained $4.4 million in cash, $6.4 million in cash or cash equivalents, $1.9 million in cash equivalents, an increase of $2.7 million, and $6 million, respectively. The remaining $4.4 million would be held by Unocal Inc, including a check with US$1,945.20 which Unocal will pay out to shareholders on Feb. 7. All of this was covered by $2,000 in the filing, which was spent to buy out the unocal company account. At this time I have also not seen the financial disclosure report. In summary, I feel that a “fiscal audit” (such as a stock market listing, a tax audit or, at the very least, a stock commission) is a better approach and one that would allow unfunded liability for costs associated with operating Unocal as a result. More importantly, I also want to point out that Unocal has not just been held criminally liable for their investments. This amount of liability is far smaller than Unocal has been under an investment contract during the year. For example, the $22.9 million in unocal stock held for 2011 amounts to a total equity position only. (The balance sheet and other information filed under the Investment Company Act, as amended, in connection with the 2003 stock exchange sales were not made public under the Investment Company Act. They still remain available in the public domain after being sold or disposed of by the investment firm; they are merely there to remind investors of their rights as long as they don’t hold them.)
There are other reasons why Unocal is the only shareholder (and I think this is perhaps the most crucial) to a financial situation. Among them is an unpriced stock market (like with Bear Stearns, Nasdaq), large debt debts incurred by Unocal and the sale of this company to an unknown investor for a few million dollars. As a stock stock of Unocal, you are expected to be on a safe business footing at the current price of $9.99 USD. This situation should have been extremely difficult for Unocal to deal with, as its trading volume on a regular basis would probably not be sufficient to cover what the market is asking for for the first quarter of this year. After all, Unocal’s revenue is limited, despite all the debt is owed and there is no demand for liquidity to fund this debt. In any event, unocal is not very financially successful. A failure to effectively pay creditors would have resulted in it being sold to a new investor under the same conditions that Unocal did. Yet, after Unocal bought and sold it, only a large portion of the debt was held in a trust for the remainder of this year to maintain the company. As in 2004, Unocal took the long view that its liabilities are too extreme ($100 million for
Chevron had its own pressing issues to deal with since they thought they already had a tentative agreement with Unocal and had received the approval of the Federal Trade Commission. Chevrons original bid was $16.6 billion, $63 per share, and the quantity of cash was 40%, as compared to CNOOCs bid which was higher and backed completely in cash.
The respective governments of China and the U.S. played a substantial role in the negotiation. If the U.S. government blocked this deal, it could expose itself to bigger threats from China by denying the Chinese company access to energy assets. China could seek out energy securities more aggressively by directly accessing oil from Russia and Central Asia which the U.S. prizes. Additionally, Chinas government may also retaliate by blocking American investment in China. The main concern the U.S. had was the whole idea of selling energy reserves to a communist country that the U.S. may be fighting someday. China had their own major issue of finding a way to attend to the needs of delivering energy to sustain their continuously growing economy because they have surpassed Japan as the worlds second largest oil consumer. This negotiation increased the trade tension between the United States and China. We felt that an unspoken goal of the Chinese was that by obtaining Unocal, they would have earned bragging rights globally because the deal would be the largest direct investment in a foreign corporation.
Bargaining Positions – Sara BethChevron and the Chinese National Offshore Oil Corporation had different bargaining positions and interests. Interests underlie peoples positions-the tangible items they say they want. This negotiation focused on power over interests. Despite objective indictors of power, such as CNOOCs financial resources, each partys perceptions of their own and each others power, often did not coincide. Chevron failed to perceive CNOOCs power because CNOOC was willing to invest greater resources in the contest than expected out of fear that a change in the perceived distribution of power would affect the outcomes of future disputes. In the end, CNOOC withdrew from the negotiations because they concluded they did not have the power to resolve it to their satisfaction. We have learned that the different approaches of disputes are interests, rights, and power and they generate different costs and benefits. The long-term effect on the parties relationship probably have been affected due to this negotiation. Chinas dissatisfaction with the outcome may have produced a further strained and adversarial relationship with the U.S. Many disputes are resolved through the determining of rights and power. CNOOC attempted to reconcile interests of Unocal by declaring openly that they would not rid the company of its employees. CNOOCs bid would also improve Unocals stock prices due to the price they were willing to pay in order to purchase the company. For the most part, CNOOC was in a position to improve Unocal and contribute to the U S. economy. On the other hand, Chevron was able to successfully bid for Unocal based on the support of the U.S. government and not because it offered the most money. Chevron was also on a better strategy level than CNOOC because they already had negotiation experience with Unocal. This dispute could not be resolved by reconciling interests. A distressed dispute resolution system with an inverted pyramid with the largest emphasis being on power, followed by rights, and the smallest