Warren Buffett Bets on Big Oil

Brian Hicks

Written By Brian Hicks

Posted November 18, 2013

Investors and analysts have been following billionaire investor Warren Buffett’s portfolio to trail his success.

Buffett knows this and has received special permission from the Securities and Exchange Commission to delay the disclosure of his investments to keep potential copycat investors in the dark.

warren buffett handBut we must remember that what works for Warren Buffett may not necessarily work for others. Most investors simply do not have the purchasing power and asset-backing to make such heavy plays. But investors still turn to his portfolio decisions for advice.

So when Buffett’s Berkshire Hathaway (NYSE: BRK-A) disclosed a $3.45 billion stake in Exxon Mobil (NYSE: XOM) in the third quarter, it was certainly enough to turn heads toward the Houston-based company.

Buffett’s company had purchased 40.1 million shares in the third quarter, comprising 0.9 percent of Exxon shares, Reuters reports.

From his point of view, the billionaire investor believes Exxon stock is not getting enough attention, and it is something work claiming a stake in.

But is Exxon a worthy buy on your part? Well, it depends on where you’re investing.

Exxon has a number of international projects that could yield substantial returns in the long-run, and its cash flow could amount to $16 billion for 2013.

But there have been slumps. Exxon’s refining department has been hurt from greater international refining capacity and lower demand for diesel and gasoline.

Exxon has also struggled to keep up with the domestic shale oil boom, along with other Big Oil companies like Chevron (NYSE: CVX) and Royal Dutch Shell (NYSE: RDS-A).

But this isn’t for lack of trying; Big Oil has been making large investments in shale oil with little pay-off.

Big Oil is still recuperating from profit losses when natural gas prices dipped below productive levels. While major companies were focused on natural gas, domestic companies swooped in and purchased the most valuable shale oil lands in parts of Texas and North Dakota.

But Exxon is still betting on natural gas through liquefied natural gas and a number of good prospects around the world.

Exxon Projects


Alaska is still a wild card in the energy industry. The state government is hoping to revive its once lucrative North Slope field, but it will be a long while before that happens.

But LNG is another commodity that could bring in some state revenue, and Big Oil is betting on this as well. Exxon Mobil, along with BP (NYSE: BP), ConocoPhillips (NYSE: COP), and TransCanada (NYSE: TRP), have selected a location in the town of Nikiski for a potential site in the export of LNG to Asia.

Exporting LNG has been a somewhat controversial issue here in the U.S., but the West Coast is proving to be a good strategic position to ship LNG to in-demand nations like South Korea and Japan. Oregon is also being looked upon as a solid export state.

Natural gas may be the less valuable commodity, but prices are beginning to inch up. It is a good move for Exxon, but we’ll have to see if the project will come to fruition.

Eastern Europe

Exxon is also invested in LNG through business relations with state-run Russian firm Rosneft OAO (MM: ROSN). There are plans to construct an export facility in East Russia to export LNG to Asia.

Exxon has also partnered with Rosneft for exploration in the Arctic, and Russian President Vladimir Putin has been hoping that Big Oil companies like Exxon will begin shale development in the Bazhenov shale of West Siberia.

Exxon is also heavily invested in coastal Ukraine and the Black Sea, pledging to spend $735 million for exploration rights. There are future plans to venture into Romania and Bulgaria.

While Exxon is hopeful of these prospects, the company has not had the best success in Poland and Lithuania.

Middle East

Exxon has had better success in the Middle East – attaining a landmark deal with the Turks and Kurds in Northern Iraq. Under the terms, Exxon will export oil and gas to Turkey – a nation that imports most of its energy sources.

Kurdistan has been making deals with large energy companies, which could amount to 2 million barrels per day and 10 billion cubic meters of natural gas to Turkey – all the while infuriating the Baghdad government, which fears these business ties could lead to Kurdish independence.

Under the Iraqi constitution, oil profits are to go to Baghdad, and the Kurdistan government is to receive a 17 percent share. But the Kurds have been rebelling against their southern neighbors. Exxon has faced repercussions from the Baghdad government for dealing with the Kurds, but the oil giant is in a good position nevertheless – catering to a country that relies heavily on energy imports while helping the Kurds attain some measure of economic autonomy.

Exxon Investment

Internationally, Exxon has the clout and assets to make groundbreaking deals abroad.

With conventional oil, Exxon is making solid ground. But if you’re betting big on U.S. tight oil, you may want to pass on Exxon.

Exxon opened today at $95.98, and the stock has gained 7.3 percent in 2013. In its third quarter, capital and expenditures increased to $10.5 billion, up 15 percent from the third quarter of 2012. Oil-based production increased by 1.5 percent compared to 2012 quarterly results.

Overall, Exxon is making progress and is steadily gaining on the market. But this progress hasn’t been enough, and its market performance reflects the lack of success in shale oil.

While Exxon has a better foothold in a number of projects that could take off in the future, the company is relatively ungrounded in the here and now. Shale is the hot commodity right now, and it may be too late for Exxon to catch up.

Currently, shale oil is your best bet, and smaller energy companies like EOG Resources (NYSE: EOG) and Continental Resources (NYSE: CLR) are some the heaviest players in shale oil drilling.

Exxon may have Warren Buffett’s full support, but we need to wait and see if the stock can blossom any further on the market.


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