- WSJ.com China's Offshore Oilman July 31, 2006 BOSS TALK DOW JONES REPRINTS This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit: www.djreprints.com. See a sample reprint in PDF format. Order a reprint of this article now. China's Offshore Oilman Cnooc Chairman Fu Chengyu Regrets Withdrawal of Bid For Unocal but Learned Lesson By SHAI OSTER July 31, 2006; Page B1 Last year, Cnooc Ltd. made headlines around the world by bidding $18.5 billion for California-based Unocal Corp. and then, after encountering a critical storm in the U.S. Congress, abruptly withdrawing the offer. A lower bid from Chevron Corp. won the auction. The Chinese company, which is the Hong Kong listed unit of state-owned China National Offshore Oil Corp, was stung. None felt the defeat more keenly than Chairman Fu Chengyu, who joined other company executives at retreats to figure out what went wrong and what to do next -- rare gatherings in China's business world but not that surprising for Cnooc, the nation's third-largest oil company in terms of output. Since it was founded in 1982 to lead the development of China's offshore oil and gas fields, Cnooc (pronounced SEA-nook) has forged links with foreign companies, including Chevron, that have helped it absorb a Western management style sharply different from China's other state-owned oil giants. Mr. Fu, who has been with the company since its founding, is largely credited with building its reputation as one of the most open and progressive companies in China. Chairman since 2003, he speaks accented but fluent English, which he picked up when studying at the University of Southern California in 1986. The 55-year-old executive played basketball in his undergraduate days. In one of his first interviews since the Unocal deal, Mr. Fu discussed the price of oil, acquisitions (Cnooc recently spent $2.7 billion for a stake in a Nigerian oil field) and the lessons imparted by the Unocal fiasco. Excerpts: WSJ: Some politicians and pundits in America charged that the Unocal bid was an effort by China's government to lock in more energy supplies at the expense of U.S. energy security and expressed worries that China is becoming a threat to America's prosperity. What would you tell them? Mr. Fu: When people talk about the China threat, they are actually looking at things from a different angle from us. To me, because I'm living in
China, I think this is a good opportunity for the world. If I'm outside of China, what I should look and think is "I cannot stop China's growth. I cannot stop the continuation of their economic growth. Like it or not, I cannot stop it. What I should do is try to get benefit from their growth." WSJ: Why do you think American politicians and the public were shocked by your bid for Unocal at the time? Mr. Fu: This word is right: shock. But not just because of the size of the deal. In the U.S. and in the world capital markets, that kind of money is a common thing, it's not a big surprise. But there was shock because such a volume came from a Chinese company. Nobody thought a Chinese company could do this at that time. WSJ: What lessons have you learned from your company's failed attempt? Mr Fu: We learned we need to be more prudent in terms of public relations and political lobbying when dealing with such a big deal. Now that we understand American politics better, if such thing were to happen again, perhaps the important part is not to go for the deal. Perhaps, the first things you need to go for are public relations and political lobbying. And then if those work out, you turn to talk about the deal. WSJ: What do you think went wrong with the bid? Mr. Fu: Before we made the deal, I thought it would be good for the U.S. There would be no laying off of employees, no reduction of oil supply to the market. And on the other hand, we were looking to hire more local employees and secure more jobs and spend more money in the local market for the exploration and production and try to invest more to increase the supply to the market. All that could have helped to lower the pump price. But this was not very well communicated. I think if in the future there's another opportunity, I may not pursue it until I'm confident that the American people and American politicians are happy about this. If they are not happy, I will not do anything there. This is very important, like it or not, but you have to make them feel confident. WSJ: Do you think oil prices too are high? Mr. Fu: From the supply-and-demand point of view, the price is a lot higher than it should be. However, this is because there are other factors. Geopolitical risks are causing most of those high oil prices, and hedge funds are trying to better use those opportunities. Those are major factors driving the price. WSJ: Do you think oil prices will fall soon? Mr. Fu: They will not crash in the short term. Geopolitical risks will continue. The Iraq issue, Iran, problems in the Middle East -- those will not go away in the short term. If there are any other incidents, prices could go even higher. WSJ: What steps are you taking to make sure that Americans are more comfortable with Cnooc in the future? Mr. Fu: Cnooc is a responsible corporate, global citizen. But not everyone outside China knows this. For example, in Indonesia when the tsunami occurred, our subunits there donated $120,000 -- the highest from the local companies. This is unique for a Chinese company. Hurricane Katrina happened just after our failure in the acquisition of Unocal. Within just one day, Saturday, three days after when we heard the announcement of hurricane, we called for donations. The company matched employee donations. In one day we collected $200,000. WSJ: Would you ever consider another bid for a U.S. company? Mr. Fu: I never exclude the U.S. market from our company. But as I mentioned, I will not do any deal, unless Americans think this is good for them. WSJ: What would you want to get across to the American audience? Mr Fu: Cnooc is a company with global responsibilities. In terms of
responsibilities and management system, it's not much different from any international oil company. WSJ: I have to challenge you on that. Your biggest stakeholder is the state. Mr. Fu: Whatever the percentage, they are all shareholders. As long as I can deliver good value to shareholders they are happy. WSJ: But the government is the largest shareholder. Mr. Fu: When I say the government is a shareholder, it's not just because they are largest, also because they are not interfering with our daily operations. They are not important in decision making on how we run this company. Our management is the same as any other company in the market. WSJ: So, who does make the final investment decisions at Cnooc? Mr. Fu: The final approval is by our board, not by the government. WSJ: How is Cnooc different from other major state-owned oil companies and enterprises? Mr. Fu: We get no financial support from the state. We, the company and the board, are responsible for all the decisions we took, for all the financial results or consequences -- not the government. WSJ: Did you get any cheap loans from the state or other funding? Mr. Fu: The government did not finance even ...