The news that Cnooc has tossed in the towel on Unocal (WT/AP) reminded me of something an office admin in Singapore once told me while I was doing prep work with our company’s oil business development team about to fly to Hanoi in ’94 to ink an exploration deal. The office admin, a seasoned professional in her middle 50s of Chinese ancestry, was helping me with all manner of logistical details – visas, photos, preparing language for statements, options, position papers and making changes and copies all along. At one point, she grew impatient with my lack of patience for some of the ceremonial aspects of our visit, and my confidence that the deal was good as done. “You Americans,” she said. “You think of nothing but the business. Just the deal. Business first, relationship with people second. No. In Asia it is just the opposite. Relationship first. Trust first. After you have trust from the relationship, then comes business.” It was wise council, of course. I cooled my jets and let the lesson sink in as the rituals of relationship building developed. I thought of her recently and that her counsel could have been a big help to Cnooc and its largest shareholder, the government of China, as it went about the public rituals of competing to acquire the assets of one of California’s iconic companies – and doing it late, unasked, against a competitor also based in California and while the US and China are, shall we say, working out some issues: Taiwan, North Korea, arms build-ups. No matter what the details of the business deal, what was required for the Cnooc bid to succeed in the US was trust.
Credit Cnooc for finally reading the political landscape properly. They were out maneuvered by Chevron, which exploited the political environment -- its home field advantage -- skillfully and succeeded with a superior financial deal to boot. Give Cnooc’s American financial and political advisors high marks for telling Cnooc it was time to “fold ‘em.” For Cnooc to raise the bid much higher (to levels that would no doubt be more than the Unocal assets are worth), or get the higher pay grades from China’s government involved, would have played into Chevron’s hands. Such government muscle or spending overkill would prove Chevron had been competing with the Chinese government – and seriously eroded Cnooc’s efforts to demonstrate to others in the oil industry worldwide that Cnooc is a business first, that economic values matter to Cnooc executives and that geo-political issues, while they may be part of the mix, do not dominate a business deal. Building that sentiment into a reality will pay big dividends down the road. However, Cnooc’s sense of entitlement will need some work. Cnooc’s statement issued from Hong Kong Tuesday, missed the mark:
CNOOC has given active consideration to further improving the terms of its offer, and would have done so but for the political environment in the U.S. The unprecedented political opposition that followed the announcement of our proposed transaction, attempting to replace or amend the CFIUS process that has been successfully in operation for almost two decades, was regrettable and unjustified. This is especially the case in light of CNOOC's purely commercial objectives and the extensive commitments that CNOOC was prepared to make to address any legitimate concerns U.S. officials may have had regarding our acquisition. This political environment has made it very difficult for us to accurately assess our chance of success, creating a level of uncertainty that presents an unacceptable risk to our ability to secure this transaction.
Quillnews observation: Come on, guys. Stop whining. “Unprecedented political opposition… unjustified.” “purely commercial objectives…” Give me a break. Nothing in the oil industry is purely commercial; all investments are part of a bigger energy supply and market security puzzle. (Editor's aside: for background QN, WSJ, NYT, WS, MSNBC) And, as any one involved in the oil business can tell you, the US is one of the highest political risk environments for oil industry investments in the world! Grow up. Try getting permits to drill a well offshore California, or to build a new gasoline refinery. As they say in Queens: "Unjustified... Unjustified! I got your unjustified right here...!" Now you know what it fells like to want to drill in Alaskan wilderness and told no – the US government would prefer to rely on Saudi Arabia, home to jihad central! Like that office admin in Singapore said: “Relationship first. Trust first. After you have trust from the relationship, then comes business.”