Buffett boosts oilfield optimism

·4 min read

May 26—People notice when Warren Buffett buys big into something and Texas energy spokesmen say Buffett's heavy investments in Occidental Petroleum bode well for the future of fossil fuels.

Buffett's company, Berkshire Hathaway, just bought $201 million in Oxy stock to raise its total investments to $12.7 billion and claim 24.4-percent ownership of the Houston-based company.

"We don't know where the price of oil will be, but we like Occidental's position in the Permian Basin," Buffett told Berkshire Hathaway shareholders May 6 in Omaha, Neb. "There is speculation about us buying control, we're not going to buy control.

"We wouldn't know what to do with it."

In 2019 Berkshire Hathaway helped fund Oxy's $55-billion purchase of Anadarko Petroleum with $10 billion in equity. Buffett's company is now Oxy's biggest shareholder.

"We will not be making any offer for control of Occidental, but we love the shares we have," Buffett said.

Odessa oilman Kirk Edwards, Permian Basin International Oil Show President Larry Richards and Waco economist Ray Perryman said Tuesday that the man known as "The Oracle of Omaha" had gotten their attention.

"Buffett got in very cheaply in OXY when they were in desperate need of money a few years ago from their Anadarko Petroleum purchase," Edwards said. "Not a lot of other folks were willing to help out.

"Since then, he has added to that position, but to me he is picking one company for his exposure to the energy sector and Oxy is certainly his pick. They have great management at Oxy, which helps.

"All these major funds across the world need to have energy exposure or they will miss out on that sector's rise. This looks to be the case with the marriage of Buffett and Oxy."

Richards said Buffett "has always invested in people and leadership, not just company fundamentals.

"A company has to have strong underlying fundamentals and results for his long-term investment approach, but I believe he was impressed with (Oxy President-CEO) Vicki Hollub's vision for the company and their deep bench of strong acreage assets and talented people," Richards said.

Noting Occidental's recent start of construction on what will be the world's biggest direct air capture plant 35 miles west of Odessa, he said the lead role Oxy has taken to address climate change must have factored in.

"Vicki Hollub was the first to embrace CO2 capture based on Oxy's skill set instead of just being politically correct," Richards said. "Oxy has been successfully capturing and compressing CO2 in their massive Permian CO2 enhanced recovery projects for years.

"They use the CO2 to push oil across a formation to producing wells from high-pressure injection wells: same concept as historical waterflood projects, just using CO2 vs. water to push oil across an underground permeable formation.

"Compressing CO2 has a learning curve as it gets very hot very quickly when you cross compression ratios, often containing contaminants and other gases."

Richards said Occidental gained expertise and credibility from years of perfecting its techniques through field experience.

"They have taken some major gambles in the past decade and they're extremely well positioned for the decades ahead," he said.

Perryman said he "would never try to get inside the mind of the Oracle of Omaha, but Warren Buffett is known for thinking of investing on a longer time horizon than many investors, making decisions based on his views of what will happen down the road.

"In this instance, investing in oil and gas is likely at least in part a signal that he thinks it will take longer to move away from fossil fuels than many seem to think," Perryman said.

"The idea that we'll need oil and gas for decades to come is supported by every forecast of the U.S. Energy Information Administration, among others, reinforcing the idea that even as we transition toward renewables, fossil fuels have a role to play.

"A major oil and gas play in the Permian Basin also offers Buffett a measure of diversification as higher oil and gas prices create adverse movements for railroads such as Burlington Northern and Santa Fe Railway and some of his other major holdings."

Perryman said Hollub's initiatives have been widely noted. "Instead of immediately increasing production when prices rose, she first paid down debt and took other actions to get the company's financial situation in order," he said.

"Oxy is a leader in carbon reduction initiatives, which is likely to be a value-creating strategy over time. It's a longer-term viewpoint, strengthening the company and positioning for sustainable growth rather than going for short-term profits, and that's a fit for Mr. Buffett's mindset in many ways."