Aug. 2 (Bloomberg) -- Cnooc Ltd. abandoned its $18.5 billion bid for Unocal Corp., the largest overseas acquisition attempted by a Chinese company, because of opposition from U.S. lawmakers. The decision clears the way for Chevron Corp. to buy the oil and gas producer.

Efforts in Congress to delay or block any Chinese takeover were ``regrettable and unjustified,'' Cnooc said in a statement. Cnooc, which is 71 percent owned by its state-controlled parent, decided against making a higher offer because of the ``political environment,'' according to the statement.

``It's hard to imagine they did not anticipate the vehemence of the opposition in Congress,'' said David Merjan, fund manager at William Blair & Co. in Chicago, which was the largest non- government holder of Cnooc shares until selling the stake earlier this year. ``I am surprised they caved so easily to political pressure after months of preparing the bid.''

Cnooc Chairman Fu Chengyu sought Unocal to help satisfy surging energy needs in China, the fastest growing major economy in the world. U.S. politicians, citing record oil prices and the failure of global supply to keep pace with demand, said the bid for El Segundo, California-based Unocal was a grab for resources by the Chinese government and a threat to national security.

``What this fight was all about were larger concerns about Chinese economic and military growth,'' Jerry Taylor, director of natural resource studies at the Cato Institute in Washington. The Cnooc bid ``touched on a lot of raw nerves,'' he said.

Chevron Vote

The roadblocks thrown up by Congress made Cnooc's offer less attractive. Unocal's board approved a sweetened bid from Chevron, the second-biggest U.S. oil company, on July 19. Unocal said the higher price from Cnooc didn't offset the risk that the bid would be delayed or blocked.

Chevron said its plan was superior because all necessary U.S. approvals are in hand. The deal will close immediately should shareholders approve it in a vote set for Aug. 10, according to Chevron.

Unocal shares rose 16 cents to $64.53 today in New York Stock Exchange composite trading. Chevron shares rose $1.13, or 1.9 percent, to $59.56, so the value of the company's cash and stock offer is now just 12 cents below Unocal's share price.

Unocal would have doubled Cnooc's oil and gas output and raised its reserves 79 percent. Unocal has fields in Thailand, Indonesia, Myanmar and the Gulf of Mexico. About 62 percent of the reserves are natural gas, mostly in Asia.

Chinese oil demand more than doubled in the past 10 years as the economy surged, making the nation the world's second-largest oil user after the U.S. The government would like to shift more of energy use to natural gas from coal and oil.

U.S. Opposition

U.S. lawmakers, including U.S. Representative Richard Pombo, a Republican from the California district that includes San Ramon, where Chevron is located, backed a measure that would have delayed any Chinese acquisition of a U.S. oil company by at least 120 days. The measure was added to President George W. Bush's energy bill, which Congress approved last week.

``It is the outcome that I had hoped for,'' Pombo said in an interview. ``If we hadn't put the amendment in the energy bill, they might have succeeded.''

Pombo said the government should proceed with a study of China's energy policy, as called for in the energy bill, and develop domestic supplies more aggressively. He favors opening the Arctic National Wildlife Refuge in Alaska to oil drilling.

``This is a wakeup call for us,'' Pombo said. ``The more domestic resources that we develop, the less competition there's going to be on the international market.''

Cheated Shareholders

The Cato Institute's Taylor, who testified before Congress last month, took the opposite view. ``Unocal is a minor actor in world oil markets,'' Taylor said in an interview today. ``The acquisition was relatively unimportant economically.''

Crude oil rose 32 cents to $61.89 a barrel today, the highest closing price in 23 years of trading on the New York Mercantile Exchange.

The political opposition cheated Unocal shareholders out of higher price and failed to address any real national security or economic concerns, according to Taylor.

The Bush administration has avoided the complaints about the Cnooc bid aired by members of Congress. Treasury Secretary John Snow today declined to make any specific comment on the company's decision to drop its pursuit of Unocal.

``But let me say, America remains open for business,'' Snow told reporters in Rio de Janeiro. ``We have a deep commitment to open markets, to encouraging investment, welcoming investment.''

Chevron's Needs

Chevron last month increased the cash portion of its bid, effectively raising the per-share price by about $2.50 compared with the April 4 agreement it had with Unocal. The offer was worth $63.71 a share based on Chevron's share price yesterday.

By acquiring Unocal, Chevron will pass France's Total SA as the fourth largest publicly traded oil company. Total said today that it would pay C$1.35 billion ($1.11 billion) for Deer Creek Energy Ltd., a Calgary-based developer of an oil sands project.

Chevron needed to acquire another producer to halt a decline in reserves that threatened to slash future production, said Donald Coxe, who helps manage $21 billion at Chicago-based Harris Investment Bank.

Chevron's worldwide reserves fell 6 percent last year, the third-biggest drop among the world's 10 largest publicly traded oil companies. Only Royal Dutch Shell Plc and Repsol YPF SA had bigger declines.

``Chevron really needed to make an acquisition because this is a company whose reserve life has really been declining,'' Coxe said today in a phone interview. ``In order to still be a major global player, Chevron needs those Unocal assets. Chevron's been the weak sister among the majors.''

Merger Vote

The prospects that Cnooc could beat out Chevron took a blow yesterday when Institutional Shareholder Services, the biggest adviser to fund managers on merger votes, said it favored the U.S. buyer. Cnooc's offer wasn't enough to offset the risk that politicians could scuttle the deal, the group said.

``That recommendation is probably a pretty good sign of which way the vote will go,'' said Christopher Edmonds, managing director at Pritchard Capital Partners, a New Orleans-based investment banking firm that specializes in energy. ``For some people this involves more than just price.''

Dropping the bid removes concern among some Cnooc investors about the cost of bidding for Unocal, said Mona Chung, who helps manage $800 million including Chinese oil stocks at Daiwa Asset Management Ltd. in Hong Kong.

Cnooc Shares Rise

``Uncertainty over the Unocal bid has become an overhang weighing on Cnooc's share price performance,'' Chung said. ``It's not bad news for Cnooc to give up on Unocal. The $18.5 billion offer wasn't cheap.''

Cnooc's American depositary receipts, each worth 100 ordinary shares, surged $4.15, or 6 percent, to $73.49 in New York. Cnooc stock through yesterday had risen 32 percent since the beginning of the year, lagging behind a 77 percent gain for PetroChina Co., the country's biggest oil producer.

``This is really the best news,'' said Agnes Deng, who helps manage $1.2 billion of Asian stocks including Cnooc shares at Standard Life Investments in Hong Kong. ``It would be in no one's interest to continue in a bidding war.''

Fu told Unocal Chief Executive Charles Williamson on July 16 that he would only raise his $67-a-share offer by $2 to $69 a share, as authorized by his board, if he was released from an obligation to pay a $500 million breakup fee to rival bidder Chevron, Unocal said in a filing to the U.S. Securities and Exchange Commission on July 25.

Fu, and Cnooc's chief financial officer, Yang Hua, were not available for comment, according to a spokesman, Ray Bashford.

To contact the reporters responsible for this story: Loretta Ng in Hong Kong at lng13@bloomberg.net; Wing-Gar Cheng in Beijing at wgcheng@bloomberg.net.

Last Updated: August 2, 2005 16:18 EDT