Cnooc And Chevron

China National Offshore Oil Corporation vs. Chevron

Negotiation Situations

The 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 company's 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. CNOOC's purpose for a bid was to gather control of limited and scarce resources that would allow them to support their continuously growing population. Chevron's interest in Unocal was to acquire additional control and market share. The Chinese government's 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 Unocal's 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 CNOOC's 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.

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. Chevron's original bid was $16.6 billion, $63 per share, and the quantity of cash was 40%, as compared to CNOOC's 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, China's 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 world's 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 Beth

Chevron and the Chinese National Offshore Oil Corporation had different bargaining positions and interests. Interests underlie people's positions-the tangible items they say they want. This negotiation focused on power over interests. Despite objective indictors of power, such as CNOOC's financial resources, each party's perceptions of their own and each other's power, often did not coincide. Chevron failed to perceive CNOOC's 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. China's 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. CNOOC's bid would also improve Unocal's 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