US oil producer Unocal endorsed a sweetened $17 billion takeover offer from Chevron, preferring it over a higher bid from China's state-run CNOOC.
Chevron, the second-largest US oil company, raised its stock and cash bid to $63 per share from roughly $60 a share, turning up the heat in an international battle for producing assets as strong demand and tight supply hold crude oil prices near record levels.
The improved offer was forced on Chevron by an all-cash, $67-a-share bid from CNOOC worth $18.5 billion.
"Our increased offer has been driven by competitive circumstances," said Chevron chairman and chief executive officer David O'Reilly in a statement.
Unocal's board has favoured Chevron's proposal partly because of concern US regulators might reject the CNOOC transaction.
It recommended shareholders accept the sweetened offer at a shareholders' meeting already scheduled for August 10th.
A CNOOC spokesman said the company remained "comfortable" with its existing $18.5 billion bid and believed its offer had a "distinct advantage."
But a source familiar with the situation said CNOOC was "assessing the situation" at a Beijing meeting and "will review options" to react to the sweetened bid from Chevron.
Yang Liu, a fund manager at Atlantis Investment, which does not hold CNOOC shares, said CNOOC should not rush to increase its bid.
"CNOOC should cool down a bit. They should wait for Unocal shareholders to vote on the Chevron deal," Liu said.
Chevron, which has a stock market value of about $120 billion, upped the cash component of its offer to 40 per cent from 25, offering a total $7.5 billion in cash. It's also issuing 168 million shares - or about 7.5 percent of its enlarged share capital, according to Reuters data.
Unocal shareholders will get $27.60 in cash and 0.618 of a Chevron share for each Unocal share. Chevron said the higher offer remained accretive to earnings per share in 2006.