China's third largest oil and gas producer, China National Offshore Oil Corp Limited (CNOOC), yesterday dropped its US$18.5 billion all-cash offer to take over US oil and gas producer Unocal Corp, amid political opposition from Washington.

"CNOOC has given active consideration to further improving the terms of its offer and would have done so but for the political environment in the United States," the Hong Kong and New York-listed oil company said in a statement.

It called the US politically motivated opposition "regrettable and unjustified."

The company said the political environment created "a level of uncertainty that presents an unacceptable risk to our ability to secure this transaction."

The decision leaves Chevron Corp as the only bidder for Unocal.

The Chinese oil giant, which is 70 per cent controlled by its State-owned parent, made its bid on June 23, topping a cash-plus-stock offer from Chevron. But the deal was undermined by US political and security concerns from the very start.

To address rising security concerns in the United States, CNOOC President Fu Changyu reiterated his company would not take oil and gas assets away from the United States, and retain all of Unocal's US employees, in contrast to Chevron's plan to axe workers. Chevron, which previously proposed a US$16.4 billion cash-plus-stock bid to acquire Unocal, raised its bid to US$17.4 billion on July 20.

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