CNOOC's announcement marks the conclusion to one of the most ambitious and contentious attempts by a Chinese company to takeover an American business. Many U.S. lawmakers had opposed the deal because the Chinese government controls CNOOC's parent company.
The news lowered Unocal shares, making the price of its stock roughly match Chevron's bid price of nearly $64 a share.
In a statement released by the company, CNOOC officials complained that an American political maelstrom prevented its all-cash bid from defeating Chevron's cash-and-stock offer.
"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 U.S.," the statement said.
Members of the U.S. Congress expressed concern over the potential deal from the beginning, warning the Bush administration that the CNOOC bid might jeopardize American jobs as well as energy security. Congress then added a provision to a massive new energy bill that would have significantly drawn out the acquisition process by postponing the required government review for several months.
For its part, Unocal had expressed its willingness to accept the CNOOC bid, which was $1.5 billion more than Chevron's April offer.
The acquisition would have more than doubled the oil and gas production of CNOOC -- China's third largest energy company -- and increased its reserves by nearly 80 percent. CNOOC especially coveted Unocal's Asian gas assets in Indonesia, Thailand and the Caspian Sea, which contain 70 percent of the American firm's proven oil and gas reserves.
Unocal shareholders will vote on the Chevron offer on Aug. 10.