The second-largest US oil company has agreed to acquire the big independent oil and natural gas producer for US$17 billion in cash and stock.

CNOOC Thursday topped that with a US$67 a share cash offer for the California-based firm, most of whose assets are in Asia.

Unocal said it received a waiver from Chevron authorizing it to hold talks with CNOOC and its representatives. Those discussions could continue until August, when Unocal shareholders are set to vote on whether to approve the Chevron deal.

CNOOC chairman and chief executive Fu Chengyu said the company is ready to hold talks with Unocal and with the Committee on Foreign Investment in the United States, a federal panel that can block or modify the terms of acquisitions of US companies on national security grounds.

The more immediate question, however, is whether Chevron will sweeten its offer in order to cement its deal with Unocal, perhaps matching or even surpassing CNOOC's bid, which includes a relatively modest 9.4 percent premium to its rival's offer. So far, Chevron has been quiet on the subject, stressing instead that its offer has cleared most regulatory hurdles and is almost ready to be put to a shareholder vote.

The near certainty that a Chevron-Unocal deal could go through without facing legal challenge may be a key point in the California-based oil giant's case. It appears to be banking on the prospect that a takeover of a US oil firm by a state-controlled mainland outfit will raise political hackles in the United States at a time when China's rising trade surplus there has already fueled demands for retaliation.

Already, some lawmakers have raised objections to the proposed CNOOC deal, and USA Today newspaper reported that two former Central Intelligence Agency directors and the Joint Chiefs of Staff have criticized the offer on national security grounds.

Analysts have also raised financial doubts about the CNOOC proposal, with Merrill Lynch saying in a note to investors that the largely debt-financed deal could force the oil producer to reduce its dividends.

Meanwhile, credit rating agencies put CNOOC's debt rating on review for a possible downgrade citing the fresh debt it will take on if the deal is completed. karen.teo@singtaonewscorp.com