Top-up signal

Philadelphia/Singapore, July 20 (Reuters): US oil producer Unocal Corp endorsed a sweetened $17 billion takeover offer from Chevron Corp, preferring it to a higher bid from China’s state-run CNOOC Ltd.

Chevron, the second-largest US oil company, raised its stock and cash bid to $63.01 per share from roughly $60, turning up the heat in an international battle for energy assets as strong demand and tight supply hold crude oil prices near record levels.

The improved offer for Unocal, which has assets stretching from Myanmar to the Gulf of Mexico, was forced on Chevron by an all-cash, $67-a-share bid from CNOOC worth $18.5 billion.

“Our increased offer has been driven by competitive circumstances,” said Chevron chairman and chief executive officer David ’Reilly.

Unocal’s board has favoured Chevron’s bid partly due to concern US regulators might reject the CNOOC deal based on national security grounds or the deal may be stuck in long review process. It recommended shareholders accept the sweetened offer at a meeting already scheduled for August 10.

A CNOOC spokesman said the company remained “comfortable” with its $18.5 billion bid and believed its offer had a “distinct advantage”. A person familiar with the matter said CNOOC had anticipated a higher Chevron bid and was reviewing options on how to react. The source declined to elaborate, but said CNOOC would strive to explain to Unocal shareholders this month that its deal would be approved by the US government.

“Price is one issue on shareholders’ minds. The other is to make people understand the ‘certainty issue’,” said the source, who spoke on condition of anonymity. “CNOOC is absolutely committed to the transaction and determined to win.”

CNOOC has made some concessions in an attempt to woo Unocal. It agreed to set aside $2.5 billion in a US escrow account that could be tapped by Unocal shareholders if CNOOC walked away from a deal. CNOOC also put $500 million in escrow to pay a break-up fee attached to the Chevron-Unocal deal.