As the global competition for oil reserves intensifies and pressure on Gulf Arab oil producers to open up their resources to international oil companies gains momentum, Chevron has succeeded in acquiring Unocal — apparently with political backing. The attractive bid by the CNOOC to take over Unocal has been thwarted — on reasons other than business. Indeed oil has never been a just pure commodity to be traded. Politics and all the curse associated with it gets itself involved with oil business, every where, one how or the other.
Chevron last week announced completing its merger with Unocal. The combined company will produce approximately 2.8 million barrels of oil-equivalent per day, including production from oil sands, production from under operating service agreements and the company’s share of production by equity affiliates.
Unocal may not have been very significant as far as its resource base within the United States was concerned. Yet it had some prized assets in its name - especially in Asia, which many US lawmakers could not overlook. With the acquisition of Unocal, after years of declining production from its own assets, Chevron would harvest Unocal’s strong and promising production assets in Thailand and Indonesia. Further west, there are two other Unocal gems that show great potential, Bangladesh and Azerbaijan.
Bangladesh has natural gas and Azerbaijan offers Chevron a route into the Caspian oil assets and one of the biggest pipeline projects in history.
Unocal entered Bangladesh market in 1974 with an offshore block under a production-sharing contract (PSC). However, due to the unprofitable domestic gas market it handed over its single 1977 gas discovery back to the government. But later in 1996, Unocal went back into Bangladesh, in 50-50 partnership with Occidental for three onshore blocks near the border with India. In 1999 it bought off all of Occidental’s shares and became 100 percent owner in all three blocks.
In recent years Unocal’s operation in Dhaka have been hampered by the fact that Bangladesh government does not seem inclined to issue the company license to export gas to neighboring India. “Unocal’s original plan in Bangladesh was mainly to sell gas to India, which made things politically challenging,” says Duane Grubert of Fulcrum Global partners.
On nationalistic grounds and because of not very cordial relations between Delhi and Dhaka, the Bangladeshi government is not ready to permit export of Bangladeshi gas to India - at least for now. It has become a major political issue within the Bangladesh domestic politics. However, as Unocal is sitting on a lot of known resources in Bangladesh and since the domestic oil and gas market in Bangladesh is expanding rapidly, Chevron could use the position to feed the domestic market for a long period of time, much like what Unocal does in Thailand.
Unocal entered the Azerbaijan market, after the country gained independence in 1991 in the aftermath of the disintegration of the old Soviet empire. It entered the important Azeri energy market via a production sharing contract (PSC) as a 10.28 percent stake holder in the Azerbaijan International Oil Company (AIOC). Chevron currently does not have a heavy presence here.
The reasons for the hue and cry against the CNOOC bid could be various. Unocal was strategic to the US because of its presence and Central Asia and the US does not want to miss any opportunity to increase its presence in that region. This becomes still more important in the wake of recent demands by regional states including the host to the US to leave the region.
On the other hand, the US public vow to help India meet its energy obligations, so as to refrain it from going ahead with the Iran-Pakistan gas pipeline, makes the Unocal Bangladesh assets all the more important and crucial strategically to the US Administration.
Hence the nationalistic vow, in the aftermath of the CNOOC bid for Unocal, has gone to favor not only another US oil giant - Chevron this time - but also meets some of its long term strategic objectives. Indeed it is not being said without reason that the oil fraternity rules the White House!
