Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 7
If these general stock prices don’t recover soon, and if my math is right…I think we could buy both Occidental AND Chubb (all the shares we don’t already own/66% of OXY, 93.6% of Chubb) with takeover offers at healthy premiums for just over half or our cash…maybe $170-$180 billion?
Is our long awaited elephant moment here?
No. of Recommendations: 2
I would think with the selloff that the opportunity set has increased for companies that Buffett thinks are attractive.
No. of Recommendations: 10
If these general stock prices don’t recover soon, and if my math is right…I think we could buy both Occidental AND Chubb (all the shares we don’t already own/66% of OXY, 93.6% of Chubb) with takeover offers at healthy premiums for just over half or our cash…maybe $170-$180 billion?
Is our long awaited elephant moment here?
Hopefully not with OXY. I'm good with Chubb if Buffett/Ajit are.
An earlier poster asked why OXY was being hit harder than the major oil companies. My basic answer is I don't know. But my guesses are:
1. More exposed to oil prices than XOM, CVX, etc. While they have investments in mid-stream and chlorine based chemicals, they are much less diversified upstream/downstream than XOM,CVX. WTI prices have dropped below the $65/bbl estimated for the average Permian basin producer price needed to sustain drilling. And existing unconventional wells have higher decline rates than conventional oil fields. So a looming recession from the tariff wars further impacting hurts them more. OPEC+ ramping up oil production announcements in addition to recession fears adds uncertainty.
2. They have a lot more debt. When oil prices get hit by recessions, that hurts a lot more if you have debt and interest payments. I recall reading they were trying to sell some of their mid-stream assets to reduce debt. I don't know if that happened or not. Will Buffett choose to bail them out? Why? My only guess is they have a lot more room to improve from current prices if they can weather the storms.
3. M* reports that future Permian production may have higher natural gas/oil ratios. Since gas has lower prices to oil on an OED energy ratio, that also hurts.
I'm not saying tht OXY doesn't have profitable wells to drill even after current oil price drops. They do, especially after their recent acquisition. But producing the cream to meet debt payments at lower oil prices hurts the future. It's more a survival mode than a future opportunity mode.
And all the bit about CO2 recovery from air remains a goal/wish. They haven't yet got the first plant operating at 1/2 yr size of future plants. So no commercial economics have been demonstrated. And their own projections show CO2 from air from this plant around $400 a ton. While they project circa $100 a ton by plant "n", n isn't specified. So this is a goal/hope. It takes about 1/2 ton of CO2 to recover a barrel of oil by EOR. So their projections of 100 plants by 2035 and CO2 neutral oil from EOR at economic prices is totally unprovened at present. Will future customers pay any price for CO2 credits? Yet their CEO continues to talk about 100 such plants by 2035. I don't respect that.
I've studied the plant design. It's going to be hard to keep the different components working together on a continuous process under oil patch conditions. Any down time raises product costs and reduces returns on investment.
Nothing I haven't said before. Just updating for current economic conditions and outlooks.
I'm not an OXY fan. They're a large independent competing in a worldwide market with less capabilities than their competition. As Buffett said - they're a bet on oil prices. Maybe not a good bet now? Can they afford to ride thru a possible upcoming cycle?
No. of Recommendations: 3
Tex,
That was me asking about OXY. I’m not buying it, or thinking about it, I was just wondering why it was dropping so much more than the majors. Thanks for that detailed thought process.
Since Buffett is so heavily invested, don’t you think he would help restructure their debt if it came to that?
No. of Recommendations: 9
Since Buffett is so heavily invested, don’t you think he would help restructure their debt if it came to that?
Why? Do you think this would be in the best interest of BRK shareholders?
The OXY holdings in the Permian would have value in a bankruptcy. And BRK would be pretty well positioned to recover debt, at least in part. And they've received good interest payments for some time already with some principle.
Basically is OXY a good long term stock investment? Or could the significant losses be useful as a tax offset?
Frankly, I can't tell if Buffett is emotionally attached to OXY via his admiration for their CEO or not. I don't think he understands the O&G business in depth. He's basically said so. And he's reversed judgment decisions in the past - e.g. IBM.
I'll trust whatever judgment Buffett makes on this subject. It's pretty trivial to BRK in any case.
No. of Recommendations: 8
Always appreciate your analysis, Tex. You know a lot more about that sector than I do…I just figure if Buffett liked OXY enough to buy 34% of the company—he can probably take it private for quite a bit less per share than he paid for a minority interest. If it’s not smart I hope he doesn’t do it :)
More generally, Berkshire holders should hope for major dislocations in equity markets to continue for at least a while. The amount of cash Berkshire can deploy could literally set up our company for the next generation of growth. The cash both nominally and as a percent of market cap is a potential game changer.
More importantly, I hope you’re doing well. John…
No. of Recommendations: 0
I wonder if oxy’s fall is somehow related to people arbing the warrant events..
