Hong Kong shares of China National Offshore Oil Corp Limited (SEHK: 0883; NYSE: CEO) yesterday rose as much as 5.5 percent to a record high on investor relief that the Chinese oil firm had scrapped its bid to buy the US oil and gas producer Unocal.

CNOOC shares yesterday surged as much as 30 HK cents (3.8 US cents) to HK$5.80 (74 US cents) at its peak. They closed at HK$5.55 (71 US cents), a gain of 5 HK cents (0.64 US cents), or 0.9 percent. Hong Kong's benchmark Hang Seng index fell 0.1 percent yesterday.

At yesterday's close, CNOOC stock had risen 32 percent since the start of the year, lagging behind a 77 percent gain in PetroChina, the country's biggest oil producer.

Industry analysts close to the CNOOC said the share rise was largely due to CNOOC's withdrawal from bidding rivalry with US oil producer Chevron for Unocal. The withdrawal has put an end to investor concerns that the Hong Kong-listed oil giant might overpay to outbid Chevron.

The country's third largest oil and gas producer, CNOOC Ltd dropped its US$18.5 billion all-cash bid for Unocal amid mounting political opposition from some US lawmakers on Tuesday. That left Chevron as the sole bidder for the ninth largest oil and gas producer in the United States.

"The investors are happy about CNOOC's decision, because they thought the all-cash offer might be too costly. Scrapping the bid will surely clear up the uncertainty in the Chinese oil company's finances and operations relating to the proposed acquisition," said Laurence Lau, a senior analyst with the Bank of China (BOC) Hong Kong Limited.

Lau said that in the long-term the CNOOC's decision to pull out of the race will mean the firm can focus more closely on its core business, and will boost investor confidence in the offshore oil producer.

Liu Gu, a senior energy analyst with Guotai Jun'an Securities (Hong Kong) Ltd, told China Daily that CNOOC's withdrawal will lead to rising shares in the short term, but in the long run, the decision also means a chance to expand the global business has been lost.

According to BOC's Lau, the Chinese oil company has actively sought possible acquisition opportunities across the globe. The failure to buy Unocal, whose Asian gas assets are very attractive to CNOOC, may push the oil giant towards other acquisition opportunities.

Lau said the Chinese oil company is gearing up to secure gas sources for its extensively-developing liquefied natural gas (LNG) projects across the country.

The central government has given CNOOC the go-ahead to build four LNG terminals along the country's eastern coastal areas, in Fujian, Guangdong, Zhejiang and Shanghai, according to Lau.

The decision to drop the all-cash bid for Unocal has also led to rating agencies revising CNOOC's rating levels.

They had previously considered downgrading the Chinese oil company amid concerns that the Unocal bid would increase its CNOOC's debt levels.

Fitch Ratings affirmed the Chinese oil producer's rating at "BBB+" with a positive outlook, the ratings company said in a statement yesterday.

Moody's confirmed its "A2" rating with a stable outlook for CNOOC and its State-owned parent company, which controls 70 percent of the Hong Kong-listed oil producer.

CNOOC was placed on Rating Negative Watch by Fitch on June 24 because the ratings company was concerned a bidding war with Chevron could occur, and CNOOC might take on more debt to finance the transaction.

The raised outlook was a result of "the strong fundamentals of Chinese energy demand and the acknowledgment that the company's credit metrics would be more consistent with an issuer in a higher rating category," the statement said.

(China Daily August 4, 2005)