Executive puts his future on the line with Unocal bid

BEIJING -- The stakes are high for Fu Chengyu, the iconic chief executive of the China National Offshore Oil Corp., which just made an unsolicited $18.5 billion bid to buy Unocal Corp.

How things unfold will ''make me a hero or a martyr," Fu said recently.

If Fu's $18.5 billion offer for Unocal is successful, it will turn CNOOC into a $50 billion behemoth capable of taking on US energy majors in what is becoming an increasingly bitter wrangle between the United States and China, the world's largest energy consumers, for global energy resources.

But if US authorities don't clear the merger, Fu could face a torrent of ''I told you so" recriminations from rivals, which could short-circuit his extraordinary career and CNOOC's global ambitions, at least temporarily.

For now, investors seem to be betting on the former and shares in CNOOC Ltd., a CNOOC subsidiary listed on the Hong Kong and New York stock exchanges, have risen about 7 percent over the last week.

Much of that market optimism is rooted in Fu, who is reputed to have picked up an astute understanding of American culture and management practices when he was an engineering student at the University of Southern California and later as an executive with Phillips Petroleum, based in Bartlesville, Okla.

''He's a very confident guy," said Han Xiaoping, senior vice president of the Falcon Pioneer Technology Co. Ltd., an energy research firm in Beijing. ''He likes to wear American labels, and in a sense he's very, very Americanized."

Over the last year alone, Fu's deal-making skills have seen CNOOC scoop up much sought-after energy fields in Australia, Indonesia, and Alberta, Canada. The purchases have boosted its revenue by 30 percent, to $6.7 billion, and net profits have jumped 40 percent, to $1.95 billion.

The Unocal bid has Fu turning on a full-blown charm offensive in the United States.

Fu is aware of the implications of buying a US oil firm when oil prices are near $60 a barrel and Americans are worried about losing jobs to China, and he has promised to not divert any of the energy Unocal currently supplies the United States to China, and to retain all Unocal's US employees.

Fu also has offered to sell Unocal's security-related assets, such as its interests in the United States' only rare-earth mine, to US firms, mostly to placate Congress, which has voiced concern about handing China ownership of a strategic American firm.

There are, however, signs of rising Chinese impatience, Yesterday, the government delivered a sharp rebuke of what it called Congress's attempt to politicize ''economic and trade issues."

That Fu has an acute understanding of what it will take to succeed in the United States is also evident from the troops he's lined up in Washington. Goldman Sachs and J.P. Morgan were hired to structure the Unocal deal and CNOOC's public relations are being handled by Public Strategies, whose vice chairman, Mark McKinnon, managed President Bush's media campaign in the last election.

It's this potent combination of being street smart and thinking big that has allowed Fu to grow CNOOC into a world-class firm, Han said.

When CNOOC was first created by the Chinese government in the early 1980s to explore China's offshore energy reserves, its assets were worth about $800 million.

''Now they're worth about $23 billion," said Han.

Fu is personally credited with much of this success by industry analysts who say his professional and open management style is a departure from that of most Chinese public sector executives.

Fu and the members of the company's board ''are those exquisite bureaucrats who've had time in the field," said James Brock, a Beijing-based energy consultant. ''They're real professionals, but they're also committed to China's development."

When Fu, 54, became president of CNOOC five years ago after heading several of the firm's joint ventures with foreign corporations, he brought many of the best practices he learned along the way with him.

The company adopted a more Westernized work culture and began conducting its board meetings in English. Fu also brought four independent directors, including Evert Henkes, a former Shell executive, and Kenneth Courtis, vice chairman of Goldman Sachs Asia, onto CNOOC's board. Those changes have kept CNOOC free of the unaccountability and nepotism that plagues many Chinese state enterprises.

''Transparency makes shareholders love you," Fu has said in the past, and investors have responded by pricing CNOOC Ltd.'s shares at higher multiples than those of its weightier sisters, PetroChina and Sinopec.

But such adulation might be affecting Fu's decision making.

Michael Pettis, associate professor of finance at the Guanghua School of Management at Beijing University, said Fu is probably overpaying for Unocal, and that the purchase is partly driven by the same ''trophy instinct" that drove Japan's frenetic buying of US assets in the 1980s.

The reason Fu can afford to outbid Chevron Corp, which offered $16.6 billion for Unocal, is that he ''does not have to employ the same level of market discipline as Chevron [and] will be given access to cheap financing through China's state-owned banks," said William Overholt, director of the Center for Asia Pacific Policy at Rand Corp.

Indeed, the Chinese government will give CNOOC $7 billion in subsidized loans for the Unocal purchase, the company's chief financial officer Yang Hua has said.