China oil outfit eyes $17bn Unocal bid
 

Shares in US energy producer Unocal had their biggest gain in almost six years after the Financial Times said China National Offshore Oil Corp (CNOOC), China's third-biggest oil company, could bid more than $US13 billion ($17 billion) for the oil and gas group.

Detailed talks were yet to be held, the UK newspaper reported on its website, citing unnamed people familiar with the matter. State-owned China National, which owns 71 per cent of Hong Kong-traded CNOOC, is also looking at other overseas purchases, according to the report.

CNOOC declined to comment.

"We've not received any information about the issue," said spokesman Liu Junshan.

Asian assets of Unocal, the worst-performing oil and gas company in the S&P 500 index last year, would be attractive to the Chinese and to international oil companies, so there could be a bidding war, said Jason Putman, an analyst at Victory Capital Management in Cleveland, which oversees about $US50 billion in investments.

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Advertisement"I think Unocal has a lot of potential buyers," said Mr Putman, whose firm owns 6.3 million Unocal shares. "That's one of the reasons we like Unocal."

Shares of California-based Unocal rose $US3.15, or 7.7 per cent, to $US44.34 in New York Stock Exchange composite trading on Thursday, the biggest gain since April 1999. The shares rose 17 per cent last year, about half the 33 per cent gain for the S&P 500 Oil and Gas Exploration and Production index.

Unocal spokesman Barry Lane declined to comment on the report.

Any deal for Unocal would dwarf previous purchases of US companies by Chinese bidders.

Unocal's most valuable assets were its reserves and the long-term gas projects it was developing, many of which were in Asia, Mr Putman said. Unocal's reserves were the equivalent of 1.175 billion barrels of oil at the end of 2003, about half of which were in Asia.

Thailand is Unocal's main gas-producing area outside the US. The company supplies natural gas to generate 30 per cent of Thailand's electricity.

Unocal, which has worked in Indonesia for 35 years, has invested about $US5 billion in projects there such as the West Seno oilfields, a deepwater project off the coast of East Kalimantan that started producing in August 2003.

"The Chinese have been aggressively pushing for reserves wherever in the world they can find them," said George Morgan, who manages the $US5 billion Templeton Growth Fund for Franklin Resources in Nassau, Bahamas. His fund includes shares of BP and Hong Kong-based Hutchison Whampoa.

Oil prices soared last year, touching an all-time high of $US55.67 a barrel in New York, as unexpectedly strong demand from China raised concern that almost all of the world's available oil production capacity was being tapped. Chinese demand jumped 15 per cent last year, according to a report last month from the International Energy Agency in Paris.

"Energy security is the theme of the new century," Mr Morgan said.

Potential buyers of Unocal might also include Royal Dutch/Shell, ChevronTexaco and ConocoPhillips, Mr Putman said.

"All of these majors have a lot of cash right now and don't have anywhere to put it."

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Promoter seeks dealers for Chinese-made autos
 

The man who brought Yugo and Subaru to the United States says he is ready to sell Chinese-made cars in 2007, and he is looking for Louisville dealerships to carry the brand.

"We're hoping to have dealers signed up within the next six months. I'm looking for 250 dealerships nationwide, so I'm talking to the best auto groups in the biggest cities," said Malcolm Bricklin, chief executive of Visionary Vehicles, the company that plans to begin importing cars from Chinese automaker Chery Automotive Co.

The biggest selling point of the vehicles will be price, said Bricklin, who has not actually approached any Louisville dealerships.

His goal is to undercut even South Korea's Kia and Hyundai by 30 percent, putting the price of an entry-level Chery at about $6,500. Like the South Korean brands, he plans to offer a 10-year/ 100,000-mile warranty.

In Louisville, several auto dealers said they might be interested in carrying Chery cars, if Bricklin can allay quality and supply concerns.

The Yugo offered extremely low prices, but quality was poor and the company eventually went out of business. That left many dealers covering warranty claims without reimbursement by the automaker.

"Quality is the price of entry in the market these days," said Dick Swope, president of the Sam Swope Auto Group. "The market's overcrowded, so if you don't have a quality product, you just can't compete."

Other questions include whether the company will have a replacement parts network and if it can hit the 250,000 sales target that Bricklin set for 2007. Last year, Chery sold 94,000 vehicles in China, but the company said it has the capacity to produce many more.

Randy Hutchings, general manager of the Bachman Auto Group, pointed out that Subaru, which has been in the United States since the 1960s, sold 187,492 units last year.

Jim Haynes, president of Bluegrass Automotive Inc., said public reaction is a major factor as well.

"No one's ever tried to import cars from a communist country with a bad human rights record. I don't know how people will react to that," Haynes said.

Another factor could be legal challenges.

General Motors sued Chery last month for allegedly copying its QQ model from GM's Spark, which is built by its South Korean Daewoo unit. Chery denies the claim.

Despite those potential problems, dealers said the ability to beat even the least expensive cars on the market by several thousand dollars is attractive.

"We all want to expand our share of the pie, and if a new brand helps you hit new sectors, that's awesome," Hutchings said.

Dealers said a car priced below a Hyundai could help them bring in more first-time buyers, and if those buyers have good experiences, they might return a few years later when they have more money to spend.

Quality is a major issue. Haynes said dealerships could hurt their reputations by carrying poor quality products.

"You don't want to associate your brand with a product that's going to tarnish your entire image," Haynes said.

But such risks can pay off, he added. Haynes said he had similar concerns when he began carrying Hyundai, a brand that had quality problems when introduced to the United States nearly a decade ago.

Since then, quality has improved dramatically, and Hyundai sales have improved.

"It could be my top-performing brand in a few years," Haynes said.

Bricklin said he is confident that Chery can build high-quality cars in high volumes.

"The designs are going to be beautiful," Bricklin said. "The interiors are going to be extremely luxurious."

Bricklin plans to import six models from Chery ranging from an entry-level compact sedan to a sport utility vehicle.


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