Joe McDonald: China Oil Company Offers $18.5B for Unocal

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From Ap, via The Cheboygan Tribune:

China’s third-largest oil producer made an unsolicited $18.5 billion bid Thursday for U.S. oil company Unocal Corp., marking the communist nation’s most ambitious attempt yet to acquire a Western company and setting the stage for a possible showdown with U.S. politicians concerned about potential national security issues.

The purchase by state-owned CNOOC Ltd., if completed, would be the biggest yet in a multibillion-dollar wave of foreign acquisitions by Chinese firms trying to secure a place in the top ranks of the corporate world.

It comes amid a flurry of Chinese government efforts to secure foreign energy supplies for the country’s booming economy.

See also in commentary: CNOOC bid highlights U.S.-China energy rivalry by Reuters

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Thanks to David Welker for the following information:

CNOOC is the legal term assigned to the state-owned China National Offshore Oil Corporation; CNOOC Ltd is the subsidiary of CNOOC and the co which is making a “friendly” takeover attempt of Unocal.

since CNOOC Ltd is a publicly listed company in HK and traded in the US markets, they must file an annual report with the US Securities and Exchange Commission. CNOOC Ltds most recent Annual Report (the 20-F) was filed on June 22, 2005.

I am including two selections from that legal document. The first addresses the bottom line in the governance of CNOOC Ltd. The text is the standard disclosure statement on the lack of true minority shareholders’ rights as this SOE (like all others) answers to its parents (CNOOC) and ultimate parent, the government of the People’s Republic of China.

The second section are the bios & compensation details provided of the directors (those charged with exercising the authority of shareholders over the management of the company) and the senior management.

— David

p 14 CNOOC indirectly owned 70.64% of our shares as of June 8, 2005. As a result, CNOOC is able to control the composition of our board of directors, determine the timing and amount of our dividend payments and otherwise control us. Although CNOOC is required to comply with provisions in the Hong Kong Stock Exchange listing rules relating to protection for minority shareholders, there can be no assurance that CNOOC will act in a manner that benefits all of our shareholders. If CNOOC takes actions that favor its interests over ours, our results of operations and financial position may be adversely affected. We regularly enter into transactions with CNOOC and its affiliates, including China Oilfield Services Limited and CNOOC Offshore Oil Engineering Company Limited.

For the year ended December 31, 2004, sales to CNOOC and its affiliates accounted for 25.3% of our total revenues. For further details, see “Item 7–Major Shareholders and Related Party Transactions.” Our transactions with CNOOC and its affiliates constitute connected transactions under the Hong Kong Stock Exchange listing rules. We must obtain the prior approval of the Hong Kong Stock Exchange to engage in some of these transactions and may also be required to obtain the prior approval of our independent directors and our independent shareholders. If we do not obtain these approvals, we may not be allowed to execute these transactions, and our business operations and financial condition could be adversely affected.

p 23 CNOOC indirectly owned or controlled an aggregate of approximately 70.64% of our shares as of June 8, 2005. There have been no changes to our corporate structure since such date. Accordingly, CNOOC continues to be able to exercise all the rights of a controlling shareholder, including electing our directors and voting to amend our articles of association. Although CNOOC has retained a controlling interest in us, the management of our business will be our directors’ responsibility.

p 97 Directors

Chengyu Fu received a B.S. degree in geology from the Northeast Petroleum Institute in China and a Master’s degree in petroleum engineering from the University of Southern California in the United States. He has over 30 years of experience in the oil industry in the PRC. He previously worked in China’s Daqing, Liaohe and Huabei oilfields. He joined CNOOC in 1982 and has since been appointed as the Chairman of the Management Committee formed through a joint venture between CNOOC, BP Amoco, Chevron, Texaco, Phillips Petroleum, Shell and Agip. From 1994 to 1995, Mr. Fu was the Deputy General Manager of China Offshore Oil Eastern South China Sea Corporation, a subsidiary of CNOOC. In December 1995, he was appointed Vice President of Phillips China Inc. and General Manager of the Xijiang Development Project. In 1999, Mr. Fu was the General Manager of China Offshore Oil Eastern South China Sea Corporation. In 2000, Mr. Fu was appointed as a Deputy General Manager of CNOOC. Subsequently, he was appointed as a Director, Executive Vice President, President and Chief Operating Officer of our company in 2001. In August 2002 he became the Chairman and Chief Executive Officer of our affiliate, China Oilfield Services Limited. In October 2003, Mr. Fu was appointed President of CNOOC. He was also appointed as the Chairman of the Board of Directors and Chief Executive Officer of our company, effective October 16, 2003. In November 2003, Mr. Fu resigned from his Chief Executive Officer position with China Oilfield Services Limited.

Han Luo received a doctorate degree from China Petroleum University. He has over 30 years’ experience in the oil industry in the PRC. He was appointed as our executive director in December 2000. From 1993 to 1999, Mr. Luo served as Vice President of China Offshore Oil Eastern South China Sea Corporation and concurrently as Chairman of the CACT (CNOOC-AGIP-ChevronTexaco) operating group, and executive Vice President of China Offshore Oil East China Sea Corporation, a subsidiary of CNOOC. In 1999, he was the general manager of CNOOC China, Shanghai Branch. Mr. Luo is a Vice President of CNOOC, a position he has held since 2000. He joined CNOOC in 1982.

Longsheng Jiang received a B.S. degree from the Beijing Petroleum Institute in China. He has over 35 years of experience in the oil industry in the PRC. He was appointed as a Director of our company in December 2000 and has been the Vice President of CNOOC since 1998. From 1994 to 1998, he was the General Manager of China Offshore Oil Southern Drilling Company. From 1991 to 1994, Mr. Jiang served as the Deputy Chief Drilling Engineer and was later appointed as the Chief Drilling Engineer of China Offshore Oil Western South China Sea Corporation. He joined CNOOC in 1982. Mr. Jiang resigned from our board of director on June 1, 2005.

Shouwei Zhou received a doctorate degree from the Southwest China Petroleum Institute and is a senior engineer. He was appointed as a Director and Executive Vice President of our company in September 1999 and is responsible for the management and operation of CNOOC China Limited. Mr. Zhou was appointed President of our company in August 2002. Mr. Zhou was the Deputy General Manager and later promoted to become General Manager of China Offshore Oil Bohai Corporation and China Offshore Oil Tianjin Corporation, both subsidiaries of CNOOC. He also became the Chairman of CNOOC Engineering Company Limited, a subsidiary of CNOOC, in December 2003. He joined CNOOC in 1982.

Guangqi Wu received a B.S. degree in marine geology from the Ocean University of China. He also holds a master’s degree in Economics and Management from the Central Communist Party School, the PRC and a master’s degree in Management from the China Petroleum University. Mr. Wu joined CNOOC in 1982 and worked as a geologist in CNOOC Bohai Corporation, a subsidiary of CNOOC, and well logging manager for a joint venture under CNOOC. He was then appointed as manager of CNOOC Bohai Drilling Company and became the Deputy General Manager of CNOOC Oil Technical Services Company in 1994. Mr. Wu was appointed as director of the Administration Department of CNOOC in 1995 and as director of CNOOC Research Center in 1999. In 2001, Mr. Wu became the director of the Ideology Affairs Department of CNOOC. Mr. Wu was appointed President and Chief of Discipline and Inspecting Group of CNOOC in 2003, and he has been Vice President of CNOOC since 2004. Mr. Wu became our director on June 1, 2005. He has also been an independent non-executive director of China Yangtze Power Limited, a company listed on the Shanghai Stock Exchange since May 2003. Mr. Wu was appointed as our director with effect from June 1, 2005.

Independent Non-executive Directors

Sung Hong Chiu received an LL.B. degree from the University of Sydney. He is admitted as a solicitor of the Supreme Court of New South Wales and the High Court of Australia. He has over 30 years’ experience in legal practice and is a director of a listed company in Australia. Mr. Chiu is the founding member of the Board of Trustees of Australian Nursing Home Foundation and served as the General Secretary of the Australian Chinese Community Association of New South Wales. Mr. Chiu was appointed as an independent non-executive director of CNOOC in September 1999.

Erwin Schurtenberger is a senior advisor to the China Training Center for Senior Personnel Management Officials. He received a Ph.D. Degree in Economics and was trained in political science and philosophy at the University of Paris. He was the Ambassador of Switzerland to the People’s Republic of China, the Democratic People’s public of Korea and the Republic of Mongolia from 1988 to 1995. He joined the Swiss Foreign Services in 1969. Over the years, he held various diplomatic positions in Bangkok, Hong Kong, Beijing and Tokyo. He also served as the Ambassador of Switzerland to Iraq. He has been an independent business advisor to various European multinationals, American groups and humanitarian aid organizations. He was the President of the Swiss-Asia Foundation. He serves on the boards of directors of ROBERT BOSCH RBint, BUHLER GROUP Switzerland, FIRMENICH-China, TAIKANG Life Insurance and WINTERTHUR Insurances (Asia). Dr. Schurtenberger resigned from our board of directors on April 1, 2005.

Kenneth S. Courtis is the Managing Director of Goldman Sachs and Vice Chairman of Goldman Sachs Asia. He specializes in economics and strategy throughout the Asia-Pacific region as well as in Europe and North America. After graduating with honors from Glendon College in Toronto, Mr. Courtis received an M.A. in international economics from Sussex University, England, an M.B.A. in finance and strategy from the European Institute of Business Administration and a Ph.D. from the Institute of Economic and Political Studies in Paris. Prior to joining Goldman Sachs, he served as Chief Asia Economist and Strategist for Deutsche Bank.

Evert Henkes served as the CEO of Shell global chemical business from 1998 to 2003. Since joining Shell in 1973, he held various executive positions worldwide, including Managing Director of Shell Chemicals UK Ltd., Managing Director of Shell UK, President of Billiton Metals, Shell’s Metals Coordinator, Shell’s Chemical Coordinator, and Director of Strategy & Business Services of Shell International Chemicals Ltd. He also served as directors in regional and global industrial bodies, including CEFIC and ICCA. He is also a director of Tate & Lyle Plc, BPB Plc, SembCorp Industries Ltd. and OutokumpuOy.

Aloysius Hau Yin Tse is a fellow of The Institute of Chartered Accountants in England and Wales, and the Hong Kong Institute of Certified Public Accountants, or HKICPA. Mr. Tse is a past president of the HKICPA. He joined KPMG in 1976 and became a partner in 1984 and retired in March 2003. Mr. Tse was a non-executive Chairman of KPMG’s operations in the PRC and a member of the KPMG China advisory board from 1997 to 2000. Mr. Tse is currently an independent non-executive director of Wing Hang Bank, Limited and Linmark Group Limited, companies listed on the Hong Kong Stock Exchange. Mr. Tse is a graduate of the University of Hong Kong. Mr. Tse was appointed as our independent non-executive director with effect from June 8, 2005.

Company Secretary

Yunshi Cao is our Company Secretary, General Counsel and a Senior Vice President. From 1992 to 1999, Mr. Cao was the Director of the Legal Department of CNOOC. He has been the General Counsel of CNOOC since 1999. Mr. Cao is a senior economist and licensed lawyer in the PRC. He has extensive experience in production sharing contracts. He received a B.S. degree from the Beijing Petroleum Institute and studied law at the Law School of Columbia University. He joined CNOOC in 1982.

Senior Management

Hua Yang is the Chief Financial Officer (since January 1, 2005) and Senior Vice President of our company and the President of CNOOC International Limited. He is a senior engineer. He received his B.S. degree from China Petroleum Institute. He also received a MBA degree from the Sloan School of Management at Massachusetts Institute of Technology as a Sloan Fellow. He has over 22 years of experience in petroleum exploration and production. Mr. Yang joined CNOOC in 1982 and was the Deputy Director and Acting Director of the Overseas Development Department of CNOOC.

Mark Qiu was the Chief Financial Officer and Senior Vice President of our company and resigned from these positions on January 1, 2005 and March 25, respectively. He previously held several management positions at Atlantic Richfield Corporation (“ARCO”) of United States. He was the Federal Government Relations Director of ARCO in Washington, D.C. Prior to that, he was a Vice President of ARCO China Ltd., ARCO’s subsidiary in China. He was a consultant with the leadership succession planning consulting firm of RHR International. Mr. Qiu received a MBA degree from the Sloan School of Management at Massachusetts Institute of Technology as a Sloan Fellow. He also has a Master degree and a Ph.D. degree in Decision Sciences from the University of Texas at Arlington.

Wei Chen is a Senior Vice President of our company and Director of the CNOOC (China) Limited Research Center. He is a senior engineer and is responsible for our administration, foreign affairs, human resources and material procurement. He received his B.S. degree from China Petroleum University and holds an MBA degree from Tsinghua University. He has over 22 years of experience in petroleum exploration and production. Mr. Chen joined CNOOC in 1984 and previously served as the Deputy Manager for the Exploration and Development Department of CNOOC Research Center, the Deputy Manager of the Overseas Research Department, the Manager of the Information Department, the Deputy Director of CNOOC Research Center and the General Manager of the Human Resources Department of CNOOC, and the Senior Vice President and General Manager of our Administration Department.

Guohua Zhang is a Senior Vice President of our company and General Manager of our Exploration Department. Mr. Zhang is responsible for our exploration activities offshore China as well as reserve management. Mr. Zhang is a geologist. He graduated from Qingdao Oceanographic Institute with a B.S. degree. He studied in the Business Institute of University of Alberta in Canada in 2001. He joined CNOOC in 1982 and served as General Manager of the Exploration Department of China Offshore Oil Western South China Sea Corporation, Chief Geologist of CNOOC Research Center and Assistant to General Manager of CNOOC China Limited.

Jian Liu is the Senior Vice President and General Manager of the Department of Development and Production at CNOOC. He graduated from Huazhong University of Science and Technology with a B.S. degree and received his MBA degree from Tianjin University in 2000. He is a senior engineer and is responsible for the development and production of oil and gas. Mr. Liu joined CNOOC in 1982. He served as the manager of CNOOC Bohai Corporation, the Vice President of the Tianjin Branch and the President of the Zhanjiang Branch.

Ning Li is the Senior Vice President and General Manager of the Engineering and Project Department of our company. He is a senior engineer, responsible for the project management for oil and gas development. He received his B.S. degree from Petroleum University of China in 1983 and MBA degree from Tianjin University in 2000. Mr. Li joined CNOOC Bohai Corporation in 1983 and is responsible for the design and engineering of oil and gas fields in Bohai Bay, East China Sea and South China Sea. He has been a Vice President of Design & Engineering Corporation of CNOOC since 1994 and was appointed as the Deputy Manager of the Engineering Department of CNOOC in 1998.

B. COMPENSATION OF DIRECTORS AND OFFICERS

Each of the directors entered into a service contract with us for an initial term of three years, subject to termination by either party by written notice given not less than three months prior to the expiration of the end of the initial term or any subsequent calendar month. Particulars of these contracts are in all material respects identical except as indicated below:

o the annual salaries for Mr. Chengyu Fu and Mr. Shouwei Zhou during the initial three years are HK$1,880,000 and HK$1,680,000, respectively, subject to an annual increase as determined by the board of directors not exceeding 15% of their respective salaries for the previous year;

o the chairman of our board of director and each other director (other than independent non-executive directors) shall be entitled to a maximum annual paid leave of 30 working days and 25 working days, respectively;

o each of the directors (other than independent non-executive directors) is entitled to the use of an apartment as his residence and the use of a car provided free of charge by us together with certain other benefits and reimbursements;

o the annual salary for each of the other directors (other than independent non-executive directors) during the initial three years is HK$388,000, subject to an annual increase as determined by the board of directors not exceeding 15% of his then current salary; and

o we may, at our sole discretion, pay an director (other than independent non-executive directors) a bonus in such amount as the board of directors may determine in respect of each completed financial year.

The salaries for Mr. Chengyu Fu and Mr. Shouwei Zhou were HK$2,976,000 and HK$2,256,00, respectively, for 2004. The salary for Mr. Chengyu Fu increased more than 15% from 2003 to 2004 as he took up the additional position as the chairman of our board of directors in October 2003. The aggregate amounts of salaries, housing allowances, other allowances and benefits in kind paid to our directors (other than independent non-executive directors) during the years ended December 31, 2002, 2003 and 2004 were approximately Rmb 9.5 million, Rmb 10.7 million and Rmb 7.8 million (US$0.9 million), respectively, while the amounts paid to our executive officers for the same periods were approximately Rmb 8.0 million, Rmb 11.0 million and Rmb 12.6 million (US$1.5 million), respectively. Under our pension plan for 2004, we set aside an aggregate amount of Rmb 74,300 (US$8,977) and Rmb 172,000 (US$20,782) for pension and similar benefits in kind for our directors (other than independent non-executive directors) and our executive officers respectively. Our directors (other than independent non-executive directors) and executive officers contributed an additional Rmb 59,700 (US$7,213) and Rmb 159,400 (US$19,259), respectively, to the pension plan for 2004. For further details regarding employee compensation, see “Item 4–Information on the Company–Business Overview–Employees and Employee Benefits.” For further details regarding share options granted to our directors, officers and employees, see “–Share Ownership” below.

June 23, 2005 7:28 AM
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