China National Offshore Oil Company Ltd. (CNOOC) announced on Tuesday that it has withdrawn its acquisition offer for Unocal, putting an end to its 40-day merger bid for the American company which has triggered an unexpected political storm in the United States.

CNOOC said in an announcement that it has given active consideration to further improving the terms of its offer, and would have done so but for the political environment in the United States.

"The unprecedented political opposition that followed the announcement of our proposed transaction ... was regrettable and unjustified," said the company.

A CNOOC spokesman in Beijing told Xinhua on Tuesday night that "political pressure" was one of the major reasons for the company to withdraw the offer.

CNOOC Ltd., a subsidiary company of the state-owned China National Offshore Oil Corporation, announced on June 23 an all-cash bid for Unocal Oil Company at 67 US dollars per share, totaling 18.5 billion US dollars.

The bid, however, met unexpected political opposition from the US political circle, where certain people had viewed the proposed merger as a threat to American security.

When the CNOOC offer was just announced, some Chinese economists had expressed their worry that the deal might be blocked for political reasons.

"There are two factors affecting the results of negotiations," said Long Guoqiang, an expert with the Development and Research Centre of the State Council, China's cabinet.

"The first is the market, which is favourable for CNOOC because of the higher price it has offered. However, the other factor, or the policy factor, may become the biggest obstacle for the CNOOC bid," said Long.

In early July, the US House of Representatives voted 398-15 for a measure calling on President George W. Bush to review the CNOOC bid, citing security threats including the possible transfer of military technology to China.

The Board of Unocal announced in late July it had chosen to accept the sweetened bid of Chevron, a major rival of CNOOC in the bid competition, and would recommend the project at the special meeting of shareholders of Unocal scheduled for Aug. 10.

The sweetened Chevron bid, a mixture of cash and share, stands at a little over 17 billion US dollars and is still lower than the bid of CNOOC. According to Unocal, as any purchase by CNOOC would have to be examined by the Bush administration, a process that could have taken months, Unocal had insisted CNOOC raise its offer to compensate for the risk of delays in seeking regulatory approval. But CNOOC refused to put forward a new offer, saying that it won't do so unless Unocal agrees to pay the costs of ending the Chevron deal and lobby for the deal in the US Congress.

The improper timing of the bid also worsened the political environment for CNOOC in the United States, said Mei Xinyu, a researcher with the Chinese Ministry of Commerce.

"As a strategic energy resources, petroleum has seen its price rocketing in the international market since last summer. As a result, to take over a foreign oil company at such a time will not only increase the takeover cost, but also heighten the worries of the country where the objective company is located," Mei said.

"Anyway, it is still good experience for the Chinese companies, many of which are adopting a so-called 'going-out' strategy and seeking global expansion," Mei added.

Source: Xinhua